FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-80001
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus supplement. +
+This prospectus supplement and the attached prospectus are part of a +
+registration statement that has been filed with the SEC and declared +
+"effective". This prospectus supplement and the attached prospectus are not +
+offers to sell these securities or a solicitation of your offer to buy these +
+securities in any jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, dated June 18, 1999)
(To prospectus dated June 10, 1999)
$230,939,674
[FEDERAL EXPRESS LOGO APPEARS HERE]
1999-1 Pass Through Trusts
PASS THROUGH CERTIFICATES, SERIES 1999-1
----------
Federal Express Corporation is issuing, through three separate pass through
trusts, the Class A, Class B and Class C Pass Through Certificates, Series
1999-1. The proceeds from the sale of the Pass Through Certificates will be
used to acquire equipment trust certificates issued to finance the acquisition
of four new Airbus A300 freighter aircraft scheduled for delivery between July
and October 1999.
Payments on the equipment trust certificates held in each pass through trust
will be passed through to the holders of Pass Through Certificates of that pass
through trust. The Pass Through Certificates represent interests in the assets
of the pass through trusts and do not represent interests in or obligations of
Federal Express or any of its affiliates.
The equipment trust certificates for each aircraft will be secured by a
security interest in the aircraft acquired with the proceeds of those equipment
trust certificates and by the lease of that aircraft to Federal Express.
Interest on the equipment trust certificates will be payable semiannually on
January 15 and July 15, beginning January 15, 2000. Principal payments on the
equipment trust certificates held for each class of Pass Through Certificates
are scheduled on January 15 and July 15 in the years specified in this
prospectus supplement, beginning on January 15, 2000.
The Class A Pass Through Certificates will rank senior in right to payment to
the Class B and Class C Pass Through Certificates. The Class B Pass Through
Certificates will rank junior in right to payment to the Class A Pass Through
Certificates and will rank senior in right to payment to the Class C Pass
Through Certificates.
Kreditanstalt fur Wiederaufbau will provide liquidity facilities for the Class
A and Class B Pass Through Certificates in an amount sufficient to make three
semiannual interest payments. The Class C Pass Through Certificates will not
have the benefit of a liquidity facility.
Investing in the Pass Through Certificates involves risks. See "Risk Factors"
beginning on page S-19 of this prospectus supplement and page 4 of the
accompanying prospectus.
----------
Principal Interest Final Expected Public Offering
Pass Through Certificates Amount* Rate Distribution Date* Price
- ------------------------- ------------ -------- ------------------ ---------------
1999-1-A $112,354,570 % January 15, 2023 100%
1999-1-B 58,050,304 January 15, 2020 100
1999-1-C 60,534,800 January 15, 2019 100
- ----------
* Indicative only and subject to change.
----------
The underwriters expect to deliver the Pass Through Certificates to purchasers
on July , 1999. Purchasers who purchase the Pass Through Certificates after
July , 1999 will also have to pay the accrued interest from July , 1999.
The Pass Through Certificates will not be listed on any national securities
exchange.
The underwriting commissions aggregate $ . The related owner participants
will pay their proportionate share of the underwriting commissions and other
specified expenses relating to the offering estimated at $ . All of the
proceeds from the sale of the Pass Through Certificates will be used to
purchase the equipment trust certificates.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
----------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
June , 1999
We have not authorized anyone to provide you with information concerning
this offering other than the information contained in this prospectus
supplement and the related prospectus. We are offering to sell Pass Through
Certificates and seeking offers to buy Pass Through Certificates only in
jurisdictions where offers and sales are permitted. The information contained
in this prospectus supplement and the related prospectus is accurate only as of
the date of this prospectus supplement, regardless of the time of delivery of
this prospectus supplement and the related prospectus or any sale of Pass
Through Certificates.
----------------
TABLE OF CONTENTS
Prospectus Supplement
Page
-------
Presentation of Information............................................. S-3
Prospectus Summary...................................................... S-4
Federal Express Corporation............................................. S-19
Risk Factors............................................................ S-19
Use of Proceeds......................................................... S-21
Description of the Pass Through Certificates............................ S-21
Description of the Liquidity Facilities................................. S-29
Description of the Intercreditor Agreement.............................. S-33
Description of the Aircraft and the Appraisals.......................... S-37
Description of the Equipment Trust Certificates......................... S-38
Federal Income Tax Consequences......................................... S-58
New York Taxes.......................................................... S-58
ERISA Considerations.................................................... S-59
Underwriting............................................................ S-61
Legal Matters........................................................... S-62
Experts................................................................. S-62
Appendix I--Glossary of Terms........................................... A-I-1
Appendix II--Aircraft Appraisals........................................ A-II-1
Appendix III--Equipment Trust Certificate Payments...................... A-III-1
Prospectus
About this Prospectus....................................................... 2
Where You Can Find More Information......................................... 2
Reports to Pass Through Certificateholders.................................. 3
Federal Express Corporation................................................. 3
Ratio of Earnings to Fixed Charges.......................................... 3
Risk Factors................................................................ 4
Outline of Pass Through Trust Structure..................................... 6
Use of Proceeds............................................................. 6
Diagram of Payments......................................................... 7
Description of the Pass Through Certificates................................ 9
Description of the Equipment Certificates................................... 23
Federal Income Tax Consequences............................................. 33
New York Taxes.............................................................. 35
ERISA Considerations........................................................ 35
Plan of Distribution........................................................ 36
Legal Matters............................................................... 36
Experts..................................................................... 37
Glossary of Terms........................................................... 38
S-2
PRESENTATION OF INFORMATION
These offering materials consist of two documents:
. this prospectus supplement, which describes the terms of the Pass
Through Certificates that we are currently offering, and
. the accompanying prospectus, which provides general information about
our pass through certificates, some of which may not apply to the Pass
Through Certificates that we are currently offering. The information in
this prospectus supplement replaces any inconsistent information
included in the accompanying prospectus.
We have given some capitalized terms specific meanings for purposes of this
prospectus supplement. The "Glossary of Terms" attached as Appendix I contains
definitions of these terms or refers to the section in which we define these
terms.
At varying places in this prospectus supplement and the prospectus, we refer
you to other sections of the prospectus supplement and the prospectus for
additional information by indicating the caption heading of those sections. The
page on which each principal caption included in this prospectus supplement and
the prospectus can be found is listed in the table of contents beginning on
page S-2 of this prospectus supplement. All cross references in this prospectus
supplement are to captions contained in this prospectus supplement and not in
the prospectus, unless otherwise stated.
S-3
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus supplement
and the accompanying prospectus and may not contain all of the information that
is important to you. For more complete information about the Pass Through
Certificates and Federal Express, you should read the entire prospectus
supplement and the accompanying prospectus, as well as the material filed with
the Securities and Exchange Commission that Federal Express has referred you to
in the accompanying prospectus. See the "Where You Can Find More Information"
section in the accompanying prospectus.
Summary of Terms of Pass Through Certificates*
Class A Class B Class C
Pass Through Pass Through Pass Through
Certificates Certificates Certificates
---------------------- ---------------------- ----------------------
Aggregate Face Amount... $112,354,570 $58,050,304 $60,534,800
Ratings:
Moody's............... Aa2 A1 Baa1
Standard & Poor's..... AAA AA- BBB+
Initial Loan to Aircraft
Value Ratio
(cumulative)(1)........ 32.8% 49.0% 66.5%
Expected Principal
Distribution Window (in
years)................. 1.5-23.5 0.5-20.5 0.5-19.5
Initial Average Life (in
years)................. 15.0 13.0 13.0
Regular Distribution
Dates.................. January 15 and July 15 January 15 and July 15 January 15 and July 15
Final Expected
Distribution Date...... January 15, 2023 January 15, 2020 January 15, 2019
Final Legal Distribution
Date................... July 15, 2024 July 15, 2021 January 15, 2019
Section 1110
Protection(2).......... Yes Yes Yes
Liquidity Facility
Coverage............... 3 semi-annual interest 3 semi-annual interest None
payments payments
Initial Liquidity
Facility Amount(3)..... $ $ None
- --------
* The aggregate face amount, the initial loan to aircraft value ratio, the
expected principal distribution window, the initial average life, the final
expected distribution date and the final legal distribution date for each
class of Pass Through Certificates are indicative only and subject to
change.
(1) Determined as of January 15, 2000, assuming that all Aircraft are delivered
prior to such date, that the maximum principal amount of Equipment Trust
Certificates is issued with respect to each Aircraft and that no portion of
the Series C Equipment Trust Certificates has been prepaid. The Mandatory
Economic Terms require that the initial loan to aircraft value ratio for
each Aircraft as of its delivery date be not in excess of 34.1% in the case
of the Series A Equipment Trust Certificates, 50.7% in the case of the
Series B Equipment Trust Certificates and 73.8% in the case of the Series C
Equipment Trust Certificates.
(2) Following delivery of the related Aircraft, the benefits of Section 1110 of
the Bankruptcy Code will be available to the related Indenture Trustee.
(3) For each of the Class A and the Class B Pass Through Certificates, the
initial amount of the Liquidity Facility will cover up to three semi-annual
interest payments without regard to any future payments of principal on
such Pass Through Certificates.
S-4
Equipment Trust Certificates and the Aircraft
Delivery Date
Aircraft or Expected Latest Equipment Principal Amount of
Tail Delivery Trust Certificates Equipment Trust Appraised
Number Aircraft Type Date(1) Maturity Date* Certificates(2)* Base Value
- -------- ------------------ -------------- ------------------ ------------------- -----------
N683FE Airbus A300F4-605R July 1999 January 15, 2021 $59,678,671 $85,486,667
N684FE Airbus A300F4-605R August 1999 January 15, 2023 55,536,029 85,626,667
N685FE Airbus A300F4-605R September 1999 July 15, 2021 56,654,216 85,763,333
N686FE Airbus A300F4-605R October 1999 January 15, 2020 59,070,758 86,126,667
- --------
* Indicative only and subject to change.
(1) Reflects the scheduled delivery date under Federal Express' purchase
agreement with the manufacturer. The actual delivery date for any Aircraft
may be subject to delay.
(2) The principal amount of the Series C Equipment Trust Certificates relating
to an Aircraft may be increased or decreased. The aggregate principal
amount of the Series C Equipment Trust Certificates relating to all
Aircraft, however, may not be increased, but may be decreased, in which
case a portion of the Series C Equipment Trust Certificates will be prepaid
on the Series C Prepayment Date and a Special Payment will be made on the
Pass Through Certificates.
The appraised base value of each Aircraft set forth above equals the lesser
of the average and the median base values of that Aircraft as appraised by
three independent appraisal and consulting firms projected as of the scheduled
delivery date of each Aircraft. Copies of the Appraisals are attached to this
prospectus supplement as Appendix II.
An appraisal is only an estimate of value and the actual proceeds received
by the Pass Through Trustee upon the sale of any Aircraft may be less than its
appraised base value as determined by the Appraisers. The Appraisals are based
on various assumptions and methodologies which vary among the Appraisals and
may not reflect current market conditions. Appraisals that are based on
different assumptions and methodologies may result in valuations that are
materially different from those contained in the Appraisals. For a discussion
of the assumptions and methodologies used in preparing the Appraisals, see
"Risk Factors" and "Description of the Aircraft and the Appraisals" and copies
of the Appraisals included in Appendix II.
S-5
Loan To Aircraft Value Ratios
The following table contains loan to aircraft value ratios (also referred to
as LTVs) for each class of Pass Through Certificates as of the January 15, 2000
Regular Distribution Date and each subsequent January 15 Regular Distribution
Date. The LTVs for each class of Pass Through Certificates were obtained for
each Regular Distribution Date by dividing:
. the expected Pool Balance of that class of Pass Through Certificates
together in each case with the expected Pool Balance of all other
classes of Pass Through Certificates senior in right of payment to that
class of Pass Through Certificates determined immediately after giving
effect to the distributions expected to be made on that Regular
Distribution Date, by
. the Assumed Aggregate Aircraft Value on that Regular Distribution Date
based on the assumptions described below.
We have prepared the table below based on the assumption (the "Depreciation
Assumption") that the value of each Aircraft included under Assumed Aggregate
Aircraft Value opposite the initial Regular Distribution Date depreciates by
approximately 3% of the initial appraised base value per year. Other rates or
methods of depreciation may result in materially different LTVs. We cannot
assure you that the depreciation rates and method assumed for the purpose of
the table are the ones most likely to occur or predict the actual future value
of any Aircraft. See "Risk Factors".
The Equipment Trust Certificates are not cross-collateralized. This means
that any excess proceeds realized from the disposition of any particular
Aircraft will not be available to offset shortfalls on the Equipment Trust
Certificates relating to any other Aircraft. If an Indenture Event of Default
occurs, even if the Aircraft as a group can be sold for more than the total
amounts payable in respect of all of the outstanding Equipment Trust
Certificates, if one or more of the Aircraft are sold for less than the total
amount payable in respect of the related Equipment Trust Certificates, there
will not be sufficient proceeds to pay all classes of Pass Through Certificates
in full.
Since an appraisal is only an estimate of value, the actual proceeds
received by the Pass Through Trustee upon the sale of any Aircraft may be less
than its appraised base value as determined by the Appraisers. The Appraisals
are based on various assumptions and methodologies which vary among the
Appraisals and may not reflect current market conditions. Appraisals that are
based on different assumptions and methodologies may result in valuations that
are materially different from those contained in the Appraisals. See "Risk
Factors" and "Description of the Aircraft and the Appraisals".
S-6
The following table should not be considered a forecast or prediction of
expected or likely LTVs but simply a mathematical calculation based on one set
of assumptions.
Pool Balances LTVs
----------------------------------------- --------------------------------------
Class A Pass Class B Pass Class C Pass Class A Pass Class B Pass Class C Pass
Assumed Through Through Through Through Through Through
Aggregate Certificates Certificates Certificates Certificates Certificates Certificates
Date Aircraft Value Pool Balance* Pool Balance* Pool Balance* LTV* LTV* LTV*
- ---- -------------- ------------- ------------- ------------- ------------ ------------ ------------
January 15, 2000 $343,003,333 $112,354,570 $55,858,238 $59,949,805 32.8% 49.0% 66.5%
January 15, 2001 332,713,233 111,424,977 53,596,777 59,133,601 33.5 49.6 67.4
January 15, 2002 322,423,133 108,123,768 52,338,121 59,133,601 33.5 49.8 68.1
January 15, 2003 312,133,033 104,617,278 50,823,574 58,771,958 33.5 49.8 68.6
January 15, 2004 301,842,933 101,110,788 49,189,032 58,101,652 33.5 49.8 69.0
January 15, 2005 291,552,833 97,604,298 47,055,870 55,515,887 33.5 49.6 68.7
January 15, 2006 281,262,733 94,097,808 45,350,010 53,794,007 33.5 49.6 68.7
January 15, 2007 270,972,633 90,591,318 43,644,150 52,515,271 33.4 49.5 68.9
January 15, 2008 260,682,533 86,206,485 41,901,745 50,680,917 33.1 49.1 68.6
January 15, 2009 250,392,433 82,699,995 40,193,560 49,140,229 33.0 49.1 68.7
January 15, 2010 240,102,333 79,193,505 38,526,570 47,211,644 33.0 49.0 68.7
January 15, 2011 229,812,233 75,687,015 36,820,710 43,190,546 32.9 49.0 67.8
January 15, 2012 219,522,133 72,180,525 35,114,850 37,440,386 32.9 48.9 65.9
January 15, 2013 209,232,033 68,674,035 33,408,990 29,668,041 32.8 48.8 63.0
January 15, 2014 198,941,933 65,167,545 31,703,130 20,926,337 32.8 48.7 59.2
January 15, 2015 188,651,833 61,661,055 29,134,006 11,304,965 32.7 48.1 54.1
January 15, 2016 178,361,733 58,162,116 21,834,691 5,226,811 32.6 44.9 47.8
January 15, 2017 168,071,633 54,783,654 12,050,367 2,307,966 32.6 39.8 41.1
January 15, 2018 157,781,533 49,019,839 4,634,057 725,348 31.1 34.0 34.5
January 15, 2019 147,491,433 36,988,600 1,047,445 0 25.1 25.8 NA
January 15, 2020 102,750,667 15,981,535 0 0 15.6 NA NA
January 15, 2021 63,414,300 2,081,231 0 0 3.3 NA NA
January 15, 2022 29,113,067 50,000 0 0 0.2 NA NA
January 15, 2023 0 0 0 0 NA NA NA
- --------
* The information relating to periodic Pool Balances and resulting LTVs for
each class of Pass Through Certificates is indicative only and subject to
change.
S-7
Diagram of Cash Flow
We illustrate in the diagram below some aspects of the payment flows under
the Pass Through Trust structure we are using in this offering of Pass Through
Certificates.
[Graphic - A diagram is included here which contains boxes representing the
parties and payment flows described above]
S-8
The Offering
The Offering........................ This offering of Pass Through
Certificates consists of :
. Class A Pass Through Certificates
issued by the Federal Express
Corporation 1999-1 Pass Through
Trust Class A
. Class B Pass Through Certificates
issued by the Federal Express
Corporation 1999-1 Pass Through
Trust Class B and
. Class C Pass Through Certificates
issued by the Federal Express
Corporation 1999-1 Pass Through
Trust C.
Each Pass Through Certificate will
represent a fractional undivided
interest in the related Pass Through
Trust.
Certificates Offered: The Pass Through Certificates of each
Denominations...................... Pass Through Trust will be issued in
minimum denominations of $1,000 and
integral multiples of $1,000.
Regular Distribution Dates.......... January 15 and July 15, commencing on
January 15, 2000.
Record Dates........................ The fifteenth day preceding the
applicable Distribution Date.
Distributions of Special Payments... For each Pass Through Trust, any
Special Payments will be distributed
on a Special Distribution Date,
subject to the Intercreditor
Agreement.
Property of Pass Through Trust...... In general, the property of each Pass
Through Trust will consist of:
. one of three separate series of
Equipment Trust Certificates
relating to each Aircraft
. all money due to the Pass Through
Trust under the Intercreditor
Agreement and any other rights of
the Pass Through Trust under that
agreement
. except for the Class C Trust, all
money due to the Pass Through
Trust under the Liquidity Facility
for that Pass Through Trust and
. any other funds deposited from
time to time with the Pass Through
Trustee in accounts relating to
that Pass Through Trust.
Equipment Trust Certificates:
General............................ Each Pass Through Trust will hold
Equipment Trust Certificates having
interest rates that are identical to
the
S-9
Stated Interest Rate applicable to
the Pass Through Certificates of that
Pass Through Trust, and having
maturity dates on or before the Final
Expected Distribution Date for those
Pass Through Certificates. For each
Pass Through Trust, the aggregate
original principal amount of the
Equipment Trust Certificates held in
that Pass Through Trust will equal
the aggregate original principal
amount of the related class of Pass
Through Certificates.
The Equipment Trust Certificates will
be issued to finance the acquisition
by the Owner Trustee of four separate
Owner Trusts of four new Airbus
A300F4-605R freighter aircraft
scheduled for delivery between July
and October 1999. For each Aircraft,
the related Owner Trustee will issue
three separate series of Equipment
Trust Certificates as nonrecourse
obligations to finance the debt
portion of the purchase price of the
Aircraft. Each Owner Trustee will
lease the related Aircraft to Federal
Express in a separate leveraged lease
transaction.
Obligation to Acquire Aircraft...... Unless the manufacturer fails to
deliver the Aircraft, Federal Express
must cause the proceeds from the sale
of the Equipment Trust Certificates
to be used to acquire the relevant
Aircraft. This means that if the
related Owner Participant does not
provide its portion of the purchase
price on the delivery date or if
Federal Express does not enter into
the related Lease on or prior to
January 15, 2000 for the Aircraft for
any reason other than the failure of
the manufacturer to deliver the
Aircraft, Federal Express will
purchase the Aircraft and assume, on
a fully recourse basis, all of the
obligations of the related Owner
Trustee under the related Equipment
Trust Certificates.
Scheduled Payments for Equipment
Trust Certificates................. Payments of interest on the Equipment
Trust Certificates are scheduled to
be received by the Pass Through
Trustee on each January 15 and July
15, commencing on January 15, 2000.
Interest on the Equipment Trust
Certificates will be calculated on
the basis of a 360-day year
consisting of twelve 30-day months.
Payments of principal of the
Equipment Trust Certificates are
scheduled to be received in specified
amounts on January 15 or July 15, or
both, of each year, commencing on
January 15, 2000.
S-10
Distributions of Scheduled Payments
for Equipment Trust Certificates... All Scheduled Payments on the
Equipment Trust Certificates received
by the Pass Through Trustee are to be
distributed to the applicable
Certificateholders on the
corresponding Regular Distribution
Dates, in each case subject to the
Intercreditor Agreement.
Equipment Trust Certificates:
Prepayment with Premium............ The Equipment Trust Certificates for
each Aircraft may be prepaid in
whole, but not in part, at any time
at a prepayment price equal to the
aggregate principal amount of those
Equipment Trust Certificates plus
accrued and unpaid interest and any
Make-Whole Premium.
See "Description of the Equipment
Trust Certificates--The Leases--
Purchase Options" for a discussion of
prepayments with a premium if Federal
Express elects to purchase the
Aircraft under some circumstances.
Equipment Trust Certificates:
Prepayment without Premium......... The Equipment Trust Certificates
relating to any Aircraft are required
to be prepaid in whole, but not in
part, at a price equal to the
aggregate principal amount of those
Equipment Trust Certificates, plus
accrued and unpaid interest, but
without any Make-Whole Premium:
. if that Aircraft suffers an Event
of Loss and Federal Express
chooses not to replace that
Aircraft
. at the direction of the related
Owner Participant, if a Lease
Event of Default under the related
Lease has occurred and has
continued for more than 180 days
. at the direction of the related
Owner Participant, if the
principal amount of the Equipment
Trust Certificates has become due
and payable as a result of
acceleration or
. if the manufacturer has not
delivered the Aircraft on or prior
to January 15, 2000.
The Series C Equipment Trust
Certificates may be prepaid in part
but without any Make-Whole Premium on
the Series C Prepayment Date if
Federal Express and the related Owner
Participant determine, subject to the
Mandatory Economic Terms, that not
all of the Series C Equipment Trust
Certificates are needed to finance
the purchase price of the Aircraft.
S-11
Equipment Trust Certificates:
Property of Owner Trust............ The Equipment Trust Certificates for
each Aircraft will be issued under
the related Indenture as nonrecourse
obligations of the related Owner
Trustee. Each Owner Trust will hold:
. the related Aircraft, or, during
any related Prefunding Period, the
amounts in the related Collateral
Account and the obligation of
Federal Express to pay any
shortfall in the Collateral
Account and
. the rights of the Owner Trustee
under the related Lease and other
documentation.
Equipment Trust Certificates:
Security after Aircraft Delivery... After the delivery of the related
Aircraft, the Equipment Trust
Certificates will be secured by:
. a first priority security interest
in the related Aircraft and
. an assignment to the Indenture
Trustee of some of the related
Owner Trustee's rights under the
related Lease, including the right
to receive rental payments,
subject to some exceptions,
payable by Federal Express in
respect of that Aircraft.
Equipment Trust Certificates:
Security before Aircraft
Delivery........................... Prior to delivery of the related
Aircraft, the Equipment Trust
Certificates will be secured by the
related Collateral Account, which
will be funded by the proceeds of
sale of the related Equipment Trust
Certificates.
Federal Express will pay to the
Subordination Agent any losses on the
Specified Investments and any
shortfall in amounts in the related
Collateral Account which are to be
used to make the payments described
in this prospectus supplement. Excess
earnings, if any, on the investments
in each Collateral Account will be
paid to Federal Express after all
distributions from the Collateral
Account to the related Indenture
Trustee required under the Operative
Agreements have been made.
Equipment Trust Certificates:
Section 1110 Protection............ Davis Polk & Wardwell, special
counsel to Federal Express, has
advised the Indenture Trustee that
the Owner Trustee, as lessor under
the related Lease, and the Indenture
Trustee, as assignee of that Owner
Trustee's rights under the related
Lease pursuant to the related
Indenture, are entitled to the
benefits of Section 1110 of
S-12
the Bankruptcy Code with respect to
the related Aircraft following
delivery of that Aircraft.
Equipment Trust Certificates:
Ranking............................ . Series B Equipment Trust
Certificates relating to an
Aircraft will be subordinated in
right of payment to Series A
Equipment Trust Certificates
relating to that Aircraft.
. Series C Equipment Trust
Certificates relating to an
Aircraft will be subordinated in
right of payment to Series A and B
Equipment Trust Certificates
relating to that Aircraft.
Prefunding Period................... The Equipment Trust Certificates will
be issued prior to the delivery of
the related Aircraft. Federal Express
is seeking commitments from
prospective Owner Participants to
purchase each Aircraft through a
related Owner Trustee. Federal
Express will hold the beneficial
interest as initial Owner Participant
under the Trust Agreement relating to
each Aircraft until the date upon
which an Owner Participant commits to
purchase or actually purchases an
Aircraft through the Owner Trustee.
Federal Express will then transfer
its beneficial interest under the
Trust Agreement to that Owner
Participant on that date. The
purchase date may be at any time up
to January 15, 2000.
No Cross-Collateralization; No
Cross-Default...................... There will be no cross-
collateralization provisions in any
of the four Indentures. This means
that the Equipment Trust Certificates
relating to any one Aircraft will be
secured only by that Aircraft and the
related Lease and will not be secured
by any other Aircraft or the Lease
related to any other Aircraft.
There will be no cross-default
provisions in the Indentures. This
means that events resulting in an
Indenture Event of Default under one
Indenture may not result in an
Indenture Event of Default under any
other Indenture.
Minimum Rent Payments............... Although the Equipment Trust
Certificates will not be obligations
of, or guaranteed by, Federal Express
(unless Federal Express is required
to purchase the related Aircraft as
described above), the amounts payable
by Federal Express for use of each
Aircraft or otherwise payable by
Federal Express and any amounts
payable by Federal Express while the
proceeds of the sale of the related
Equipment Trust Certificates are held
in the related Collateral Account
(together with the amounts in the
related Collateral Account) will be
sufficient to pay in full when due
all principal of and interest and any
premium on the related Equipment
Trust Certificates.
S-13
Liquidity Facilities................ The Subordination Agent and the
Liquidity Provider will enter into a
separate Liquidity Facility with
respect to the Class A and Class B
Pass Through Certificates. There will
not be a Liquidity Facility for the
Class C Pass Through Certificates.
Under each Liquidity Facility, the
Liquidity Provider will, if
necessary, make advances solely for
the payment of interest when due in
an aggregate amount sufficient to pay
interest on the Class A or B Pass
Through Certificates, as the case may
be, on three semi-annual Regular
Distribution Dates (without regard to
any future payments of principal on
such Pass Through Certificates) at
the applicable Stated Interest Rate.
The Subordination Agent is obligated
to reimburse (to the extent that the
Subordination Agent has available
funds) the Liquidity Provider for the
amount of any advance of interest.
The reimbursement obligation as well
as any other amounts owing to the
Liquidity Provider under each
Liquidity Facility will rank senior
to the Pass Through Certificates in
right of payment.
The Liquidity Provider.............. KfW initially will provide the
Liquidity Facilities.
Intercreditor Agreement:
Subordination...................... All payments on the Equipment Trust
Certificates and other specified
payments will be made to the
Subordination Agent which will
distribute the payments as follows:
. On any Regular Distribution Date
or Special Distribution Date, so
long as no Triggering Event has
occurred, all payments received by
the Subordination Agent on the
Equipment Trust Certificates and
other specified payments will be
distributed in the following
order:
(1) to pay specified amounts owed
to the Liquidity Provider and
replenishment of specified
accounts;
(2) to pay Expected Distributions
to the holders of Class A
Pass Through Certificates;
(3) to pay Expected Distributions
to the holders of Class B
Pass Through Certificates;
(4) to pay Expected Distributions
to the holders of Class C
Pass Through Certificates;
(5) to pay specified fees and
expenses of the Subordination
Agent and the Pass Through
Trustee; and
(6) any balance will be held in
the Collection Account for
later distribution.
S-14
. Upon the occurrence of a
Triggering Event and at all times
after the Triggering Event, all
payments received by the
Subordination Agent on the
Equipment Trust Certificates and
other specified payments will be
distributed in the following
order:
(1) to reimburse the
Subordination Agent, the Pass
Through Trustee, the
Liquidity Provider and any
Certificateholder, as the
case may be, for the payment
of specified expenses;
(2) to the Liquidity Provider in
payment of specified amounts
owed to the Liquidity
Provider and, in specified
circumstances, to replenish
specified accounts;
(3) to reimburse the
Subordination Agent, the Pass
Through Trustee and each
Certificateholder, as the
case may be, for the payment
of specified taxes and fees;
(4) to pay Adjusted Expected
Distributions to the holders
of Class A Pass Through
Certificates;
(5) to pay Adjusted Expected
Distributions to the holders
of Class B Pass Through
Certificates;
(6) to pay Adjusted Expected
Distributions to the holders
of Class C Pass Through
Certificates; and
(7) the balance will be held in
the Collection Account until
the next Distribution Date
or, if all classes of Pass
Through Certificates have
been paid in full, will be
distributed to the related
Owner Trustee.
"Triggering Event" means:
. the occurrence of an Indenture
Event of Default under all
Indentures resulting in a PTC
Event of Default with respect to
the most senior class of Pass
Through Certificates then
outstanding
. the acceleration of, or failure to
pay at final maturity, all of the
outstanding Equipment Trust
Certificates or
. specified bankruptcy or insolvency
events involving Federal Express.
Control of Remedies................. So long as no Indenture Event of
Default has occurred and is
continuing under an Indenture, the
Subordination Agent will provide
directions to the Indenture Trustee
S-15
in accordance with the directions of
the Pass Through Trustee delivered on
behalf of holders of Pass Through
Certificates representing a majority
interest in those Equipment Trust
Certificates.
During the continuance of an
Indenture Event of Default under an
Indenture, the Controlling Party will
generally have the power to direct
the Indenture Trustee in exercising
remedies under that Indenture. These
remedies may include acceleration of
the maturity of the related Equipment
Trust Certificates or foreclosure on
the lien on the Aircraft securing the
Equipment Trust Certificates.
"Controlling Party" means:
. the Class A Pass Through Trustee
and
. upon payment of Final
Distributions to the holders of
Class A Pass Through Certificates,
the Class B Pass Through Trustee
and
. upon payment of Final
Distributions to the holders of
Class B Pass Through Certificates,
the Class C Pass Through Trustee.
The Liquidity Provider will have the
right to elect to become the
Controlling Party in some
circumstances.
Purchase Rights of
Certificateholders................. Upon the occurrence and during the
continuation of a Triggering Event:
. the Class B Certificateholders
will have the right to purchase
all, but not less than all, of the
Class A Pass Through Certificates
and
. the Class C Certificateholders
will have the right to purchase
all, but not less than all, of the
Class A and B Pass Through
Certificates,
in each case at a purchase price
equal to the Pool Balance of the
relevant class or classes of Pass
Through Certificates, plus accrued
and unpaid interest to the date of
purchase, without premium, but
including any other amounts due to
the Certificateholders of that class
or classes.
The Pass Through Trustee; the
Indenture Trustee; the
Subordination Agent................ The Bank of New York will be the Pass
Through Trustee for each Pass Through
Trust and the Paying Agent,
Authenticating Agent and Registrar
for the Pass Through Certificates.
S-16
The Bank of New York will also be the
Indenture Trustee under each
Indenture and the Subordination Agent
under the Intercreditor Agreement.
Federal Income Tax Consequences..... The Pass Through Trusts will not
themselves be subject to federal
income tax. Accordingly, each
Certificateholder must report on its
federal income tax return its pro
rata share of the entire income from
each of the Equipment Trust
Certificates held in the related Pass
Through Trust, in accordance with
such Certificateholder's method of
accounting. See "Federal Income Tax
Consequences" in the accompanying
prospectus.
ERISA Considerations................ In general, employee benefit plans
subject to Title I of ERISA or
Section 4975 of the Code or entities
which may be deemed to hold the
assets of any of those plans will be
eligible to purchase the Pass Through
Certificates, subject to conditions
described under "ERISA
Considerations."
By its acceptance of a Pass Through
Certificate, each Certificateholder
will be deemed to have represented
and warranted that either:
. no ERISA Plan assets have been
used to purchase the Pass Through
Certificate or
. one or more prohibited transaction
statutory or administrative
exemptions applies so that the use
of ERISA Plan assets to purchase
and hold the Pass Through
Certificate will not constitute a
non-exempt prohibited transaction
under ERISA or Section 4975 of the
Code.
Each ERISA Plan fiduciary (and each
fiduciary for a governmental or
church plan subject to rules similar
to those imposed on ERISA Plans)
should consult with its legal advisor
concerning an investment in any of
the Pass Through Certificates.
Rating of the Pass Through
Certificates....................... It is a condition to the issuance of
the Pass Through Certificates that
the Pass Through Certificates be
rated by Moody's and Standard &
Poor's at least as follows:
Pass Through Standard &
Certificates Moody's Poor's
------------ ------- ----------
Class A Aa2 AAA
Class B A1 AA-
Class C Baa1 BBB+
A rating is not a recommendation to
purchase, hold or sell Pass Through
Certificates, since a rating does not
S-17
address market price or suitability
for a particular investor. The above
ratings may be lowered or withdrawn
at any time by a Rating Agency. See
"Risk Factors".
Threshold Rating of the Liquidity
Provider........................... The initial Liquidity Provider meets
the applicable Threshold Rating
requirement. Threshold Rating means
either a short-term unsecured debt
rating of "P-1" by Moody's and "A-1+"
by Standard & Poor's or a long-term
unsecured debt rating of "Aa3" by
Moody's and "AA-" by Standard &
Poor's.
Risk Factors........................ Investing in the Pass Through
Certificates involves risks. See
"Risk Factors" beginning on page S-19
of this prospectus supplement and
page 4 of the accompanying
prospectus.
S-18
FEDERAL EXPRESS CORPORATION
Federal Express is a wholly-owned subsidiary of FDX Corporation. Federal
Express offers a wide range of express services for the time-definite
transportation of documents, packages and freight throughout the world using an
extensive fleet of aircraft and vehicles and leading-edge information
technologies. Corporate headquarters of Federal Express are located at 2005
Corporate Avenue, Memphis, Tennessee 38132, telephone (901) 369-3600.
RISK FACTORS
You should consider carefully the factors described below before you invest.
You should read the information below together with the other information in
this prospectus supplement and the accompanying prospectus.
Proceeds from the sale of an Aircraft may be less than its appraised base value
This prospectus supplement contains the appraised base value of each
Aircraft. These base values are equal to the lesser of the average and the
median base values of the Aircraft as appraised by the Appraisers. None of the
Appraisers has conducted a physical examination of any of the Aircraft. We have
included the Appraisers' reports, including their assumptions and
methodologies, as Appendix II.
An appraisal is only an estimate of value and the actual proceeds received
by the Pass Through Trustee upon the sale of any Aircraft may be less than its
appraised base value. The Appraisals are based on various assumptions and
methodologies which vary among the Appraisals and may not reflect current
market conditions. Appraisals that are based on different assumptions and
methodologies may result in valuations that are materially different from those
contained in the Appraisals. The proceeds realized upon the sale of any
Aircraft may be less than the appraised value of that Aircraft for many
reasons, including:
. market and economic conditions at the time
. the availability of buyers
. the condition of the Aircraft and
. whether the Aircraft are sold separately or as a block.
Therefore, there is no assurance that the proceeds realized upon any sale of
an Aircraft will be as appraised or sufficient to satisfy in full payments due
on the related Equipment Trust Certificates or the Pass Through Certificates.
Some classes of Pass Through Certificates are subordinate to other classes of
Pass Through Certificates and may not be paid in full
As a result of the Intercreditor Agreement, the Class A Pass Through
Certificates are senior to the Class B Pass Through Certificates and both the
Class A Pass Through Certificates and the Class B Certificates are senior to
the Class C Pass Through Certificates. If a payment default occurs on any of
the Equipment Trust Certificates, payments received in respect of one or more
junior classes of Equipment Trust Certificates may be used to pay more senior
classes of Pass Through Certificates. If this occurs, the interest accruing on
the remaining Equipment Trust Certificates, which are more senior and therefore
carry a lower interest rate, would be less than the interest accruing on the
remaining Pass Through Certificates, which are junior and therefore carry a
higher interest rate. As a result of this interest shortfall, the holders of
one or more junior classes of Pass Through Certificates may not receive the
full amount due to them, even if all the Equipment Trust Certificates are
eventually paid in full.
S-19
Excess proceeds from the sale of one Aircraft will not be available to cover
losses on Equipment Trust Certificates relating to other Aircraft
The Equipment Trust Certificates are not cross-collateralized, which means
that liquidation proceeds from the sale of an Aircraft in excess of the
principal amount of the Equipment Trust Certificates related to that Aircraft
will not be available to cover any losses on any other Equipment Trust
Certificates.
Rating Agencies may change their rating on the Pass Through Certificates at any
time
The "Prospectus Summary" section of this prospectus supplement includes the
ratings assigned to the Pass Through Certificates by two Rating Agencies. A
rating is not a recommendation to purchase, hold or sell Pass Through
Certificates because a rating does not address market price or suitability for
a particular investor. There is no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its sole judgment circumstances in the future so
warrant, including the downgrading of Federal Express or the provider of a
Liquidity Facility. The ratings of the Pass Through Certificates are based
primarily on the default risk of the Equipment Trust Certificates, the
availability of the Liquidity Facility for the Class A and Class B
Certificateholders, the collateral value provided by the Aircraft and the
intercreditor and cross-subordination arrangements. The ratings address the
likelihood of timely payment of interest when due on the Pass Through
Certificates, at the non-default rate, and the ultimate payment of principal of
the Pass Through Certificates on the Final Legal Distribution Date. The ratings
do not address the possibility of an Event of Default or an Indenture Event of
Default or other circumstances, such as an Event of Loss, which may result in
the payment of the outstanding principal amount of the Pass Through
Certificates prior to the Final Legal Distribution Date.
The reduction, suspension or withdrawal of the ratings of the Pass Through
Certificates will not, in and of itself, constitute an Event of Default.
Owner Participants may request changes to the underlying operative agreements
Federal Express is still in the process of negotiating with potential Owner
Participants for commitments to purchase the Aircraft through owner trusts.
Federal Express will hold the beneficial interest as initial Owner Participant
under the Trust Agreement relating to each of the Aircraft until the date upon
which an Owner Participant commits to purchase or actually purchases an
Aircraft through the Owner Trustee. Federal Express will transfer to the Owner
Participant on that date its beneficial interest under the Trust Agreement. The
purchase date may be at any time up to January 15, 2000. The Owner Participants
may request revisions to the Participation Agreement, Lease, Trust Agreement
and Indenture, and there is no assurance that the terms of the agreements
applicable to those Aircraft will be the same as the description of the
agreements contained in this prospectus supplement.
However, the terms of those agreements will be required to contain the
Mandatory Document Terms and not vary the Mandatory Economic Terms. Also,
Federal Express will be obligated to certify to the Pass Through Trustee that
any modifications to these agreements will not materially and adversely affect
the Certificateholders and, if the documents are modified in any material
respect, to obtain written confirmation from each Rating Agency that the use of
modified versions of those agreements will not result in a withdrawal,
suspension or downgrading of the rating of any class of Pass Through
Certificates.
The Indentures do not protect against a highly leveraged transaction involving
Federal Express
The Equipment Trust Certificates in any Pass Through Trust, and therefore
the related Pass Through Certificates, will not have the benefit of any debt
covenants or provisions in the Indentures relating to those Equipment Trust
Certificates or Pass Through Certificates that would give the holders of
Equipment Trust Certificates and Pass Through Certificates any protection in
the event of a highly leveraged transaction involving Federal Express.
S-20
A public market for the Pass Through Certificates may not develop or continue
There was no public market for the Pass Through Certificates of any class
before their issuance and there is no assurance that one will develop or
continue. Federal Express does not intend to apply for the listing of any class
of Pass Through Certificates on a national securities exchange. If an active
public market does not develop or continue, the market price and liquidity of
the Pass Through Certificates may be adversely affected.
USE OF PROCEEDS
All of the proceeds from the sale of the Pass Through Certificates will be
used by the Pass Through Trustee to purchase at par all of the Equipment Trust
Certificates to be issued in respect of the four Aircraft.
The proceeds from the sale of the related Equipment Trust Certificates are
expected to be used to finance a portion of the purchase price to be paid by
the related Owner Trustee on behalf of the related Owner Trust (or, in some
circumstances, by Federal Express) for the related Aircraft.
The aggregate principal amount of the Equipment Trust Certificates related
to each Aircraft will not exceed 80% of the purchase price to be paid for such
Aircraft by the related Owner Trustee. The related Owner Participant will
provide, from sources other than Equipment Trust Certificates, at least 20% of
the purchase price to be paid by the Owner Trustee for such Aircraft. The
underwriting commissions and some other expenses relating to the offering of
the Pass Through Certificates will be paid ratably by the Owner Participants.
The Aircraft will not have been delivered on the date of issuance of the
related Equipment Trust Certificates. The Aircraft are expected to be delivered
between July and October 1999. Federal Express is obligated to cause the
proceeds of the Equipment Trust Certificates issued under the Indentures to be
used to acquire the Aircraft in all circumstances other than the failure of the
manufacturer to deliver the Aircraft. Accordingly, if an Owner Participant does
not make available its portion of the purchase price for the related Aircraft
on its delivery date or Federal Express does not enter into the related Lease
on or prior to the related Cut-off Date for any reason other than the failure
of the manufacturer to deliver the Aircraft, Federal Express will purchase the
Aircraft using those proceeds and its own funds and assume, on a fully recourse
basis, all of the obligations of the Owner Trustee under the related Equipment
Trust Certificates. Upon that assumption, the Equipment Trust Certificates will
be "Owned Aircraft Certificates" as described in the prospectus and the
provisions applying to "Owned Aircraft" as so described will be applicable to
that Aircraft.
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The description below is only a summary of the terms of the Pass Through
Certificates and therefore may not contain all the information that may be
important to you. The following description supplements, and to the extent
inconsistent replaces, the description of the general terms and provisions of
the Pass Through Certificates set forth in the prospectus. The following
description uses terms that have specific definitions in the Pass Through
Agreement and other related documents. You should refer to Appendix I for the
definitions of these terms as they appear in this prospectus supplement.
The Pass Through Agreement has been filed with the SEC as an exhibit to the
Registration Statement. The forms of each Series Supplement, the Intercreditor
Agreement, the Indentures and the Liquidity Facilities and other related
documents will be filed with the SEC as exhibits to one or more post-effective
amendments to the registration statement relating to this offering or to
Current Reports on Form 8-K.
The Pass Through Certificates will be issued by Federal Express Corporation
1999-1 Pass Through Trust Class A, Class B and Class C. The Pass Through Trusts
will be formed pursuant to the Pass Through Agreement and Series Supplement
1999-1-A, Series Supplement 1999-1-B or Series Supplement 1999-1-C, as
S-21
the case may be. Federal Express will enter into the Series Supplements with
the Pass Through Trustee on the date of issuance of the Pass Through
Certificates. Each Series Supplement will contain substantially the same terms
and conditions, except as described under "Subordination" below and except that
the interest rate, the scheduled repayments of principal, the maturity date
applicable to the Equipment Trust Certificates held in each Pass Through Trust,
the aggregate principal amount of those Equipment Trust Certificates and the
Final Expected Distribution Date applicable to each Pass Through Trust will
differ.
The Pass Through Agreement does not, and the Series Supplements, the
Indentures, the Liquidity Facilities and the Intercreditor Agreement will not,
include covenants that will afford Certificateholders protection in the event
of a highly leveraged transaction involving Federal Express.
Payments and Distributions
The Pass Through Certificates will be issued in fully registered form only.
Each Pass Through Certificate will represent a fractional undivided interest in
the Pass Through Trust pursuant to which such Pass Through Certificate is
issued. The property of each Pass Through Trust will include:
. the Equipment Trust Certificates held in the Pass Through Trust;
. the rights of the Pass Through Trust under the Intercreditor Agreement
(including all monies receivable in respect of those rights);
. except for the Class C Trust, all monies receivable under the Liquidity
Facility for the Pass Through Trust; and
. funds from time to time deposited with the related Pass Through Trustee
in accounts relating to the Pass Through Trust.
Each Pass Through Certificate will represent a pro rata share of the
Equipment Trust Certificates held in the related Pass Through Trust and will be
issued only in minimum denominations of $1,000 and integral multiples of
$1,000. (Pass Through Agreement, Article II; Series Supplements, Article II)
The Pass Through Certificates will be issued pursuant to a book-entry system
and will be registered in the name of Cede as the nominee of DTC. No owner of a
beneficial interest in the Pass Through Certificates will be entitled to
receive a certificate representing such person's interest, except as set forth
in the prospectus. Unless and until certificates are issued in certificated
form under the circumstances described in the prospectus, all references to
actions by Certificateholders refer to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
reports and statements to Certificateholders refer, as the case may be, to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Pass Through Certificates, or to DTC Participants for
distribution to owners of a beneficial interest in the Pass Through
Certificates in accordance with DTC procedures. (Pass Through Agreement,
Section 2.12) See "Description of the Pass Through Certificates--Book-Entry
Procedures" in the prospectus.
The Regular Distribution Dates for each Pass Through Trust are January 15
and July 15. Payments of interest on the Equipment Trust Certificates held in
each Pass Through Trust are scheduled to be received by the Pass Through
Trustee on each January 15 and July 15, commencing on January 15, 2000, and are
to be distributed to the related Certificateholders on the corresponding
Regular Distribution Dates, in each case subject to the Intercreditor
Agreement. The Equipment Trust Certificates held in each Pass Through Trust
will accrue interest on the unpaid principal amount thereof at the Stated
Interest Rate, which is calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Payments of interest on the Class A and Class B Pass Through Certificates
will be supported by separate Liquidity Facilities to be provided by the
Liquidity Provider for the benefit of the holders of those Pass Through
Certificates. Each Liquidity Facility will be in an amount sufficient to pay
interest on the applicable Pass Through Certificates at their Stated Interest
Rate on three Regular Distribution Dates. Notwithstanding the
S-22
subordination provisions of the Intercreditor Agreement, the Liquidity Facility
for any class of Pass Through Certificates will not provide for drawings to pay
principal of or interest or premium on the Pass Through Certificates of any
other class. Only the holders of the Pass Through Certificates to be issued by
a particular Pass Through Trust will be entitled to receive and retain the
proceeds of drawings under the Liquidity Facility for that Pass Through Trust.
See "Description of the Liquidity Facilities".
Payments of principal of the Equipment Trust Certificates held in each Pass
Through Trust are scheduled to be received in specified amounts on January 15
or July 15, or both, of each year, commencing on January 15, 2000, in the case
of each class of Pass Through Certificates, and are to be distributed to the
related Certificateholders on the corresponding Regular Distribution Dates, in
each case subject to the Intercreditor Agreement. The record dates for the
respective Regular Distribution Dates are December 31 and June 30. The
Equipment Trust Certificates that will be held in each Pass Through Trust and
the dates for, and the corresponding amounts of, the Scheduled Payments of
principal on those Equipment Trust Certificates are set forth under
"Description of the Equipment Trust Certificates--General".
Special Payments on any Equipment Trust Certificates received by a Pass
Through Trust will be distributed on the applicable Special Distribution Date.
For any Pass Through Trust, the Pass Through Trustee or its designee will
notify the Certificateholders of record of that Pass Through Trust of the
Special Payment and the anticipated Special Distribution Date in accordance
with the Pass Through Agreement. Subject to the effect of the cross-
subordination provisions described under "Description of the Pass Through
Certificates--Subordination", each Certificateholder will be entitled to
receive a pro rata share of any such distribution. (Pass Through Agreement,
Section 5.02)
Subject to the Intercreditor Agreement, the Pass Through Trustee will, to
the extent practicable, invest Special Payments that are not promptly
distributed by the Pass Through Trustee in Specified Investments (other than
those investments listed in clause (c) of the definition) pending the
distribution of such funds on a Special Distribution Date. See "Description of
the Pass Through Certificates--Payments and Distributions" in the prospectus.
For each Pass Through Trust, the applicable Special Distribution Date will
be any Business Day on which a Special Payment is to be distributed. The record
date for any Special Distribution Date will be the fifteenth day preceding the
Special Distribution Date.
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day without additional interest. (Pass Through Agreement, Section 13.15)
If the Pass Through Certificates are ever issued in certificated form, any
Scheduled Payment or Special Payment to be distributed by a Pass Through Trust
will be payable at the corporate trust office of the Pass Through Trustee in
New York, New York or at such other office or agency in the United States
maintained for the payment of the related Pass Through Certificates. All
amounts payable by the Paying Agent on behalf of the Pass Through Trustee may,
however, at the option of the Paying Agent or the Pass Through Trustee, be paid
by check mailed to the person entitled thereto at the address shown in the
Register for the applicable class of Pass Through Certificates. (Pass Through
Agreement, Section 5.02(d))
Subordination
All payments received by the Subordination Agent will be distributed in the
order described under the "Description of the Intercreditor Agreement--Priority
of Distributions" section below.
The Paying Agent, Authenticating Agent and Registrar
The Pass Through Trustee will be the Paying Agent, Authenticating Agent and
Registrar for each Pass Through Trust and the Indenture Trustee under the
Indentures.
S-23
Pool Balance
Unless there has been a prepayment, purchase or default in the payment of
principal and interest on one or more series of the Equipment Trust
Certificates held in a Pass Through Trust (and assuming there will be no change
in the payment terms of the Equipment Trust Certificates relating to any of the
Aircraft for which Federal Express is negotiating with prospective Owner
Participants), the Pool Balance with respect to each Pass Through Trust will
decline in proportion to the scheduled repayment of principal on the Equipment
Trust Certificates held in that Pass Through Trust as described below in
"Description of the Equipment Trust Certificates--General". Upon a prepayment
or default, the Pool Balance of each Pass Through Trust affected will be
recomputed after giving effect to the prepayment or default and notice will be
sent to the Certificateholders affected.
The "Pool Balance" for any Pass Through Trust or for the Pass Through
Certificates issued by any Pass Through Trust indicates, as of any date, the
original aggregate face amount of the Pass Through Certificates of that Pass
Through Trust less the aggregate amount of all payments on those Pass Through
Certificates other than payments made in respect of interest or premium or
reimbursement of any related costs and expenses. The Pool Balance for each Pass
Through Trust as of any Regular Distribution Date or Special Distribution Date
will be computed after giving effect to any payment of principal on the
Equipment Trust Certificates or other Trust Property held in that Pass Through
Trust and its distribution on that date.
S-24
As of the date of issuance of the Pass Through Certificates by the Pass
Through Trustee, and assuming that no prepayment or default in respect of the
payment of any Equipment Trust Certificates has occurred (and assuming
prospective Owner Participants will not request changes in the payment terms of
the Equipment Trust Certificates), the aggregate scheduled repayments of
principal of the Equipment Trust Certificates for each Pass Through Trust are
indicated below:
1999-1-A Trust 1999-1-B Trust 1999-1-C Trust
------------------- ------------------- -------------------
Scheduled Scheduled Scheduled
Principal Principal Principal
Payments on Payments on Payments on
Regular Distribution Equipment Equipment Equipment
Date Trust Certificates* Trust Certificates* Trust Certificates*
- -------------------- ------------------- ------------------- -------------------
January 15, 2000........ $ 0 $2,192,066 $ 584,995
July 15, 2000........... 0 0 816,204
January 15, 2001........ 929,593 2,261,461 0
July 15, 2001........... 878,343 427,302 0
January 15, 2002........ 2,422,866 831,354 0
July 15, 2002........... 878,343 427,302 0
January 15, 2003........ 2,628,147 1,087,245 361,643
July 15, 2003........... 878,343 427,302 0
January 15, 2004........ 2,628,147 1,207,240 670,306
July 15, 2004........... 878,343 427,302 0
January 15, 2005........ 2,628,147 1,705,860 2,585,766
July 15, 2005........... 878,343 0 0
January 15, 2006........ 2,628,147 1,705,860 1,721,879
July 15, 2006........... 878,343 0 0
January 15, 2007........ 2,628,147 1,705,860 1,278,736
July 15, 2007........... 878,343 0 0
January 15, 2008........ 3,506,490 1,742,405 1,834,354
July 15, 2008........... 0 0 0
January 15, 2009........ 3,506,490 1,708,185 1,540,688
July 15, 2009........... 0 0 0
January 15, 2010........ 3,506,490 1,666,990 1,928,585
July 15, 2010........... 0 0 0
January 15, 2011........ 3,506,490 1,705,860 4,021,098
July 15, 2011........... 0 0 0
January 15, 2012........ 3,506,490 1,705,860 5,750,160
July 15, 2012........... 0 0 0
January 15, 2013........ 3,506,490 1,705,860 7,772,345
July 15, 2013........... 0 0 0
January 15, 2014........ 3,506,490 1,705,860 8,741,703
July 15, 2014........... 0 0 0
January 15, 2015........ 3,506,490 2,569,124 9,621,373
July 15, 2015........... 0 0 0
January 15, 2016........ 3,498,939 7,299,315 6,078,154
July 15, 2016........... 7,551 0 0
January 15, 2017........ 3,370,911 9,784,324 2,918,845
July 15, 2017........... 135,579 0 0
January 15, 2018........ 5,628,236 7,416,310 1,582,619
July 15, 2018........... 167,367 0 0
January 15, 2019........ 11,863,872 3,586,612 725,348
July 15, 2019........... 199,728 0 0
January 15, 2020........ 20,807,337 1,047,445 0
July 15, 2020........... 409,185 0 0
January 15, 2021........ 13,491,119 0 0
July 15, 2021........... 312,219 0 0
January 15, 2022........ 1,719,011 0 0
July 15, 2022........... 0 0 0
January 15, 2023........ 50,000 0 0
- --------
*Indicative only and subject to change.
S-25
Purchase Rights of the Certificateholders
Upon the occurrence and during the continuation of a Triggering Event, with
ten days' written notice to the Pass Through Trustee and to each other
Certificateholder of the same class,
. any Class B Certificateholder will have the right to purchase all, but
not less than all, of the Class A Pass Through Certificates; and
. any Class C Certificateholder will have the right to purchase all, but
not less than all, of the Class A and B Pass Through Certificates,
in each case at a purchase price equal to the Pool Balance of the relevant
class or classes of Pass Through Certificates plus accrued and unpaid interest
to the date of purchase, without premium, but including any other amounts due
to the Certificateholders of such class or classes. In each case, if prior to
the end of the ten-day period, any other Certificateholder of the same class
notifies the purchasing Certificateholder that the other Certificateholder
wants to participate in the purchase, then the other Certificateholder may join
with the purchasing Certificateholder to purchase the Pass Through Certificates
pro rata based on the interest in the Pass Through Trust held by each
Certificateholder. (Pass Through Agreement, Section 7.01(b))
PTC Events of Default
A PTC Event of Default will occur if the Pass Through Trustee fails to pay
within ten business days of the applicable due date:
. the outstanding Pool Balance of the related class of Pass Through
Certificates on the Final Legal Distribution Date for that class or
. interest due on the related class of Pass Through Certificates on any
Distribution Date (unless, in the case of the Class A and Class B Pass
Through Certificates, the Subordination Agent has made an Interest
Drawing in an amount sufficient to pay such interest and has distributed
that amount to the Certificateholders entitled thereto).
Any failure to make expected principal distributions on any class of Pass
Through Certificates on any Regular Distribution Date (other than the Final
Legal Distribution Date) will not be a PTC Event of Default with respect to
such Pass Through Certificates. (Intercreditor Agreement, Article I)
New Owner Participants; Modification of Documents
Federal Express is negotiating with prospective Owner Participants for
commitments to purchase the Aircraft through the related Owner Trustees.
Federal Express will hold the beneficial interest as initial Owner Participant
under the Trust Agreement relating to each Aircraft until the date upon which a
prospective Owner Participant through the related Owner Trustee commits to
purchase or actually purchases an Aircraft. Federal Express will transfer to
the Owner Participant on that date Federal Express' beneficial interest under
the Trust Agreement. The purchase date may be at any time up to January 15,
2000. The prospective Owner Participants may request revisions to the related
Participation Agreement, Lease, Trust Agreement and Indenture so that the terms
of such agreements may differ from the description of such agreements contained
in this prospectus supplement. See "Risk Factors--Owner Participants may
request changes to the underlying operative agreements". However, the terms of
such agreements are required to contain the Mandatory Document Terms and not
vary the Mandatory Economic Terms. In addition, Federal Express is obligated:
. to certify to the Pass Through Trustee that any such modifications will
not materially and adversely affect the Certificateholders or any
Liquidity Provider and
. if the documents are modified in any material respect, to obtain written
confirmation from each Rating Agency that the use of modified versions
of such agreements will not result in a withdrawal, suspension or
downgrading of the rating of any class of Pass Through Certificates.
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(Participation Agreements, Sections 2.03 and 4.02(t))
The "Mandatory Economic Terms," defined in the Participation Agreement for
each Aircraft require, among other things, that:
. with respect to each series of Equipment Trust Certificates the schedule
of principal payments may be changed but:
- the final maturity may not be extended beyond January 15, 2023 for
the Series A Equipment Trust Certificates, January 15, 2020 for the
Series B Equipment Trust Certificates and January 15, 2019 for the
Series C Equipment Trust Certificates;
- the average life may not be more than 15.5 years in the case of the
Series A Equipment Trust Certificates, 13.5 years in the case of the
Series B Equipment Trust Certificates and 13.5 years in the case of
the Series C Equipment Trust Certificates (but in each case may be
decreased by any amount), in each case from the initial issuance of
the Pass Through Certificates (the "Issuance Date");
- as of the first Regular Distribution Date following the delivery of
the last Aircraft to be delivered, the average life may not be more
than 15.0 years in the case of the Class A Pass Through
Certificates, 13.0 years in the case of the Class B Pass Through
Certificates and 13.0 years in the case of the Class C Pass Through
Certificates, in each case from the Issuance Date;
- the interest rate and the January 15 and July 15 payment dates may
not be changed;
- the loan to aircraft value ratio at the time of issuance of the
Equipment Trust Certificates and on any Regular Distribution Date
after their issuance will not exceed 34.1% in the case of the Series
A Equipment Trust Certificates, 50.7% in the case of the Series B
Equipment Trust Certificates and 73.8% in the case of the Series C
Equipment Trust Certificates (in each case computed on the basis of
an assumed base value of an Aircraft no greater than the base value
for that Aircraft indicated under "Prospectus Summary--Equipment
Trust Certificates and the Aircraft" under the column "Appraised
Base Value" and the Depreciation Assumption defined under
"Prospectus Summary--Loan to Aircraft Value Ratios"); and
- there may not be any increase or decrease in the stated face amount
of the Series A Equipment Trust Certificate or Series B Equipment
Trust Certificate and the aggregate principal amount of all Series C
Equipment Trust Certificates may not exceed the aggregate principal
amount of the Pass Through Certificates issued by the corresponding
Pass Through Trust.
. basic rent, stipulated loss values and termination values under the
related Lease (and, in the case of any Lessor Paid Interim, any
obligation of Federal Express under the related Participation Agreement)
must be sufficient to pay amounts due with respect to the related
Equipment Trust Certificates which accrue following the Prefunding
Period;
. the amounts payable under the all-risk aircraft hull insurance
maintained for each Aircraft must be sufficient to pay the applicable
stipulated loss value, subject to rights of self-insurance; and
. the following terms must be as specified in the related Participation
Agreement, Lease and Indenture, as the case may be, as in effect on the
date of purchase of the related Equipment Trust Certificates:
- the past due rate in the related Indenture and the related Lease;
- the Make-Whole Premium payable under the related Indenture;
- the provisions in the related Indenture relating to the prepayment
and purchase of Equipment Trust Certificates;
- the minimum liability insurance amount on each Aircraft in the
related Lease;
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- the interest rate payable with respect to stipulated loss value in
the related Lease; and
- the indemnification of Indenture Trustee, Subordination Agent and
any Liquidity Provider with respect to specified taxes and expenses.
(Participation Agreements, Section 2.03 and Schedule VI)
The "Mandatory Document Terms" prohibit modifications to specified
provisions of the Operative Agreements. In the case of each Indenture,
modifications are prohibited to, among other things:
. the Granting Clause so as to deprive the holders of a first priority
security interest in the related Aircraft and the related Lease;
. specified provisions relating to the issuance, prepayment, purchase,
payments and ranking of the Equipment Trust Certificates (including the
obligation to pay Make-Whole Premium in specified circumstances);
. specified provisions regarding Indenture Events of Default, remedies
relating to those Indenture Events of Default and rights of the related
Owner Trustee and related Owner Participant in such circumstances;
. specified provisions relating to any replacement airframe or engines;
and
. the provision that New York law will govern the Indenture.
(Participation Agreements, Section 2.03 and Schedule V)
In the case of each Lease, modifications are prohibited to, among other
things, specified provisions regarding the obligation of Federal Express to:
. pay unconditionally basic rent, stipulated loss value and termination
value to the related Indenture Trustee and all costs and expenses in
connection with the related Aircraft and Engines and of specified
parties to the Operative Agreements;
. furnish specified opinions with respect to a replacement airframe; and
. consent to the assignment of the related Lease by the Owner Trustee as
collateral under the related Indenture, as well as modifications which
(1) will alter the provision that New York law will govern the Lease,
(2) will alter the provision that the transactions contemplated by the
Operative Agreements shall be entitled to the benefit of Section 1110 of
the Bankruptcy Code or (3) will deprive the Indenture Trustee of rights
expressly granted to it under the Lease.
(Participation Agreements, Section 2.03 and Schedule V)
In the case of each Participation Agreement, modifications are prohibited
to, among other things:
. specified conditions to the obligations of the related Indenture Trustee
to participate in the purchase price of the related Aircraft, involving
good title to the Aircraft, obtaining a certificate of airworthiness
with respect to the Aircraft, entitlement to the benefits of Section
1110 of the Bankruptcy Code with respect to the Aircraft and filings of
specified documents with the Federal Aviation Administration;
. specified provisions regarding the obligation of Federal Express to
record the related Indenture with the Federal Aviation Administration
and to maintain the Indenture as a first-priority perfected mortgage on
the related Aircraft;
. specified provisions regarding the obligation of Federal Express to pay
losses on the Specified Investments in the Collateral Account and other
provisions relating to the Collateral Account;
. specified provisions requiring the delivery of legal opinions; and
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. the provision that New York law will govern the Participation Agreement.
(Participation Agreements, Section 2.03 and Schedule V)
In the case of all of the related Operative Agreements, modifications are
prohibited in any material adverse respect as regards the interest of the
related holders of Equipment Trust Certificates, the Subordination Agent, the
Liquidity Provider, the Indenture Trustee or the Certificateholders or in the
definition of "Make-Whole Premium". Notwithstanding the foregoing, any such
Mandatory Document Term may be modified to correct or supplement any such
provision which may be defective or to cure any ambiguity or to correct any
mistake, unless such action will materially adversely affect the interests of
the related holders of Equipment Trust Certificates, the Subordination Agent,
the Liquidity Provider, the Indenture Trustee or the Certificateholders.
(Participation Agreements, Section 2.03 and Schedule V)
DESCRIPTION OF THE LIQUIDITY FACILITIES
The following description is only a summary of the provisions of the
Liquidity Facilities and therefore may not contain all the information that is
important to you. The description supplements, and to the extent inconsistent
with the prospectus replaces, the description of the general terms and
provisions of the Liquidity Facilities set forth in the prospectus. The
following description uses terms that have specific definitions in the
Liquidity Facilities and other related documents. You should refer to Appendix
I for the definitions of these terms as they appear in this prospectus
supplement. The provisions of the Liquidity Facilities which relate to the
Class A Pass Through Trust and the Class B Pass Through Trust and that are
summarized below are substantially the same, except where otherwise indicated.
The forms of the Liquidity Facilities will be filed with the SEC as exhibits to
a post-effective amendment to the registration statement relating to this
offering or a Current Report on Form 8-K.
General
With respect to the Pass Through Certificates of each of the Class A Trust
and the Class B Trust, the Subordination Agent will enter into a Liquidity
Facility with the Liquidity Provider pursuant to which the Liquidity Provider
will make one or more advances to the Subordination Agent which will be used
solely to pay interest on those Pass Through Certificates when due, subject to
specified limitations. The Liquidity Facility for any Pass Through Trust is
intended to enhance the likelihood of timely receipt by the Certificateholders
of that Pass Through Trust of the interest payable on the Pass Through
Certificates of such Pass Through Trust at their Stated Interest Rate on three
Regular Distribution Dates. If interest payment defaults occur which exceed the
amount available under the Liquidity Facility for any Pass Through Trust, the
Certificateholders of that Pass Through Trust will bear their allocable share
of the deficiencies to the extent that there are no other sources of funds.
Although Kreditanstalt fur Wiederaufbau is the initial Liquidity Provider for
each of the Class A Trust and the Class B Trust, it may be replaced by one or
more other entities under specified circumstances; therefore, the Liquidity
Provider for the Class A Trust and the Class B Trust may differ. There is no
Liquidity Facility for the Class C Trust.
Drawings
The initial amount available under the Liquidity Facilities for the Class A
Trust and the Class B Trust will be $ and $ , respectively. Except as
otherwise provided below, the Liquidity Facility for each Pass Through Trust
will enable the Subordination Agent to make Interest Drawings on any Regular
Distribution Date to pay interest then due and payable on the Pass Through
Certificates of that Pass Through Trust at their Stated Interest Rate to the
extent that amounts available to the Subordination Agent on the Regular
Distribution Date is not sufficient to pay that interest. The maximum amount
available to be drawn under a Liquidity Facility on any Regular Distribution
Date to fund any shortfall of interest on Pass Through
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Certificates of the applicable Pass Through Trust will not exceed the Required
Amount for the related Pass Through Certificates. The Liquidity Facility for
any Pass Through Trust does not provide for drawings to pay for principal of or
premium on the Pass Through Certificates of that Pass Through Trust or any
interest on the Pass Through Certificates of that Pass Through Trust in excess
of their Stated Interest Rate or more than three installments of interest and
does not provide for drawings to pay principal of or interest or premium on the
Pass Through Certificates of any other Pass Through Trust. (Liquidity
Facilities, Section 2.02; Intercreditor Agreement, Section 3.6(a))
Each payment by the Liquidity Provider under each Liquidity Facility
correspondingly reduces the amount available to be drawn under that Liquidity
Facility. Upon reimbursement of the relevant Liquidity Provider in full for the
amount of any Interest Drawing under a Liquidity Facility plus interest
thereon, the amount available to be drawn under that Liquidity Facility will be
reinstated to the Required Amount of that Liquidity Facility. The Liquidity
Facility will not, however, be so reinstated at any time if (i) both a
Triggering Event has occurred and is continuing and less than 65% of the then
aggregate outstanding principal amount of all Equipment Trust Certificates are
Performing Equipment Trust Certificates or (ii) all of the Equipment Trust
Certificates have been either declared to be immediately due and payable or
have not been paid at their final maturity. Amounts available for other
drawings under a Liquidity Facility are not subject to reinstatement.
(Liquidity Facilities, Section 2.02(a); Intercreditor Agreement, Section
3.6(g))
The Required Amount of the Liquidity Facility for the Class A Trust and the
Class B Trust will automatically reduce from time to time as a result of a
reduction in the Pool Balance of that Pass Through Trust to an amount equal to
the next three interest payments due on the Pass Through Certificates of that
Pass Through Trust (without regard to expected future payment of principal of
those Pass Through Certificates) at their Stated Interest Rate. The Liquidity
Provider will be paid a fee on the average amount available to be drawn under
the initial Liquidity Facility until the earlier of the date when the
commitment under the Liquidity Facility terminates and the date when any
Downgrade Drawing is made, in an amount and on the dates specified in the
Liquidity Facility. (Liquidity Facilities, Sections 2.03(b) and 2.04(a);
Intercreditor Agreement, Section 3.6(j))
Replacement of Liquidity Facilities
If at any time (i) the long-term unsecured debt rating of the initial
Liquidity Provider issued by either Moody's or Standard & Poor's is lower than
the Threshold Rating or (ii) the short-term unsecured debt rating of a
replacement Liquidity Provider issued by Moody's or Standard & Poor's is lower
than the Threshold Rating or, if the replacement Liquidity Provider's short-
term unsecured debt is not rated by Moody's or Standard & Poor's, the long-term
unsecured debt rating of the replacement Liquidity Provider issued by either
Moody's or Standard & Poor's is lower than the Threshold Rating, then the
Liquidity Provider for such Pass Through Trust may arrange or the Subordination
Agent (in consultation with Federal Express) may arrange for a Replacement
Facility. If the Liquidity Facility is not replaced within 30 days after notice
of the downgrading and as otherwise provided in the Intercreditor Agreement,
the Subordination Agent will request the Downgrade Drawing in an amount equal
to all available and undrawn amounts under the Liquidity Facility and will hold
the proceeds in the Cash Account for such Pass Through Trust as cash collateral
to be used for the same purposes and under the same circumstances as cash
payments of Interest Drawings under the Liquidity Facility. (Liquidity
Facilities, Section 2.02(b); Intercreditor Agreement, Section 3.6(c))
A "Replacement Facility" for any Pass Through Trust will be an irrevocable
revolving credit agreement substantially in the form of the initial Liquidity
Facility for such Pass Through Trust, including reinstatement provisions, or
subject to specified conditions, in such other form (which may include a letter
of credit) as will permit the Rating Agencies to confirm in writing their
respective ratings then in effect for the Class A Pass Through Certificates and
the Class B Pass Through Certificates (before any downgrading of those ratings,
as a result of the downgrading of the Liquidity Provider). In addition, the
Replacement Facility will be in a face amount equal to the Required Amount for
such Pass Through Trust and issued by a person having unsecured
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debt ratings issued by the applicable Rating Agencies which are equal to or
higher than the Threshold Rating. (Intercreditor Agreement, Section 1.01)
The Liquidity Facilities for the Class A Trust and the Class B Trust provide
that the Liquidity Provider's obligations will expire on the earliest of:
. 15 days later than the Final Legal Distribution Date for the Pass
Through Certificates of that Pass Through Trust;
. the date on which the Subordination Agent certifies to the Liquidity
Provider that all of the Pass Through Certificates of that Pass Through
Trust have been paid in full;
. the date on which the Subordination Agent certifies to the Liquidity
Provider that a Replacement Facility has been substituted for that
Liquidity Facility;
. the date on which the Liquidity Provider makes the Final Drawing; and
. the date on which no amount is or may (by reason of reinstatement)
become available for drawing under the Liquidity Facility.
(Liquidity Facilities, Sections 1.01(a) and 2.04(b))
Any Replacement Facility may itself be replaced (other than a Replacement
Facility which expires no earlier than 15 days later than the Final Legal
Distribution Date) if the Replacement Facility is scheduled to expire (after
giving effect to any extensions of the maturity thereof) prior to the date
which is 15 days later than the Final Legal Distribution Date. If the
Replacement Facility is not replaced, the Subordination Agent will, prior to
the expiration of the facility, request the Non-Extension Drawing in an amount
equal to all available and undrawn amounts under the facility and hold the
proceeds in the Cash Account for the related Pass Through Trust as cash
collateral to be used for the same purposes as cash payments of Interest
Drawings under that facility. (Intercreditor Agreement, Section 3.6(d))
The Subordination Agent, in consultation with Federal Express (whose
recommendations the Subordination Agent will accept in the absence of a good
faith reason not to), may, subject to specified limitations, arrange for a
Replacement Facility at any time to replace the Liquidity Facility for any Pass
Through Trust. If the Replacement Facility is provided at any time after the
Downgrade Drawing or Non-Extension Drawing under the Liquidity Facility, all
obligations owed to the Liquidity Provider being replaced must be repaid.
(Intercreditor Agreement, Section 3.6(e))
The Subordination Agent will hold the proceeds of a Final Drawing under a
Liquidity Facility made in accordance with the provisions described under
"Liquidity Events of Default" below in the Cash Account for the related Pass
Through Trust as cash collateral to be used for the same purposes as cash
payments of Interest Drawings under the Liquidity Facility. The Subordination
Agent will take any action required in order to make a Final Drawing under a
Liquidity Facility. (Intercreditor Agreement, Section 3.6(i))
The Subordination Agent will make a Drawing (other than a Final Drawing)
under any Liquidity Facility by delivering a certificate in the form required
by the Liquidity Facility. Upon receipt of the certificate, the Liquidity
Provider will make payment of the Drawing requested in immediately available
funds. Upon payment by any Liquidity Provider of the amount specified in any
drawing under any Liquidity Facility, the Liquidity Provider will be fully
discharged of its obligations under that Liquidity Facility with respect to
such drawing and following payment will not be obligated to make any further
payments under that Liquidity Facility in respect of such drawing to the
Subordination Agent or any other person or entity who makes a demand for
payment on the related Pass Through Certificates. (Liquidity Facilities,
Section 2.02(a) and (e))
Reimbursement of Drawings
Amounts drawn under any Liquidity Facility by reason of an Interest Drawing
or the Final Drawing will be immediately due and payable, together with
interest on the amount of the drawing at a rate equal to the
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applicable LIBOR rate plus 1.25% per annum or the applicable base rate plus
1.25% per annum. The Subordination Agent will be obligated to reimburse the
amounts only to the extent that the Subordination Agent has available funds
therefor.
The amount drawn under any Liquidity Facility by reason of a Downgrade
Drawing (or Non-Extension Drawing in the case of a Replacement Facility) and
deposited in the Cash Account will be treated as follows:
. the amount will be released on any Regular Distribution Date to the
Liquidity Provider to the extent that the amount exceeds the Required
Amount for such Pass Through Trust;
. any portion of the amount withdrawn from the Cash Account for such Pass
Through Certificates to pay interest on such Pass Through Certificates
will be treated in the same way as Interest Drawings; and
. the balance of the amount will be invested in Specified Investments.
The Downgrade Drawing under any Liquidity Facility will bear interest equal
to the sum of (i) investment earnings on amounts on deposit in the relevant
Cash Account plus (ii) 0.37% per annum on the amount of such Downgrade Drawing.
(Liquidity Facilities, Section 3.07(e))
Liquidity Events of Default
"Liquidity Events of Default" under each Liquidity Facility means: (i) the
acceleration of all the Equipment Trust Certificates; or (ii) the failure to
pay all of the Equipment Trust Certificates at maturity. A Liquidity Event of
Default does not occur upon an automatic acceleration of the Equipment Trust
Certificates as a result of specified bankruptcy or insolvency events involving
Federal Express. (Liquidity Facilities, Section 1.01)
If (i) a Liquidity Event of Default has occurred and is continuing or (ii) a
Triggering Event has occurred and less than 65% of the then aggregate
outstanding principal amount of all Equipment Trust Certificates are Performing
Equipment Trust Certificates, the Liquidity Provider may, in its discretion,
cause a Final Drawing to be made of all available and undrawn amounts under the
Liquidity Facilities. After a Final Drawing:
. the Liquidity Provider will have no further obligation to make Drawings
under the Liquidity Facility
. any Drawing remaining unreimbursed will be automatically converted into
a Final Drawing under that Liquidity Facility, and
. all amounts owing to the Liquidity Provider will automatically be
accelerated. However, the Subordination Agent will be obligated to pay
amounts owing to the Liquidity Provider only to the extent of funds
available for such payment after giving effect to the priority of
payment provisions described 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; Control of Remedies," the
Liquidity Provider may become the Controlling Party with respect to the
exercise of remedies under the Indentures. (Intercreditor Agreement, Section
2.6(c))
Initial Liquidity Provider
The initial Liquidity Provider will be Kreditanstalt fur Wiederaufbau, which
is a statutory body organized under the public law of the Federal Republic of
Germany. It currently has long-term unsecured debt ratings of "Aaa" from
Moody's and "AAA" from Standard & Poor's.
KfW also acts as liquidity provider in connection with other issuances of
pass through certificates by Federal Express. In addition, KfW has, and any
subsequent Liquidity Provider may have, commercial relationships with Federal
Express in the ordinary course of business and any Liquidity Provider and its
affiliates may hold Pass Through Certificates in their own name.
KfW has not been involved in the preparation of, and has not prepared, this
prospectus supplement and is not responsible for any of its contents.
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DESCRIPTION OF THE INTERCREDITOR AGREEMENT
The following description is only a summary of the provisions of the
Intercreditor Agreement and therefore may not contain all the information that
may be important to you. The following description supplements, and to the
extent inconsistent with the prospectus replaces, the description of the
general terms and provisions of the Intercreditor Agreement set forth in the
prospectus. The following description uses terms that have specific definitions
in the Intercreditor Agreement. You should refer to Appendix I for the
definitions of these terms as they appear in this prospectus supplement. The
form of Intercreditor Agreement will be filed with the SEC as an exhibit to a
post-effective amendment to the registration statement relating to this
offering or a Current Report on Form 8-K.
Intercreditor Rights; Control of Remedies
Controlling Party. Until an Indenture Event of Default has occurred and is
continuing under an Indenture, the holders of a majority of the outstanding
principal amount of the related Equipment Trust Certificates will have the
power to direct the Indenture Trustee in taking or not taking any action under
that Indenture. However, as long as the Subordination Agent is the registered
holder of the Equipment Trust Certificates, it will provide directions to the
Indenture Trustee in accordance with the directions of the Pass Through Trustee
delivered on behalf of holders of Pass Through Certificates representing an
interest in those Equipment Trust Certificates. During the continuance of an
Indenture Event of Default under an Indenture, the Controlling Party will
generally have the power to direct the Indenture Trustee in exercising remedies
under that Indenture. These remedies may include acceleration of the maturity
of the related Equipment Trust Certificates or foreclosure on the lien on the
Aircraft securing the Equipment Trust Certificates. (Intercreditor Agreement,
Section 2.6)
"Controlling Party" with respect to any Indenture means: (1) the Class A
Pass Through Trustee; (2) upon payment of Final Distributions to the holders of
Class A Pass Through Certificates, the Class B Pass Through Trustee; and (3)
upon payment of Final Distributions to the holders of Class B Pass Through
Certificates, the Class C Pass Through Trustee.
Notwithstanding the above paragraph, the Liquidity Provider will have the
right to elect to become the Controlling Party at any time after 18 months
after the earlier of:
. the acceleration of the related Equipment Trust Certificates and
. a Final Drawing under the Liquidity Facilities
if, in either case, at the time of election the Liquidity Obligations have not
been paid in full. If there is more than one Liquidity Provider, the Liquidity
Provider with the greatest amount of unreimbursed Liquidity Obligations will
have such right. To give effect to these provisions, the Pass Through Trustee
(other than the Controlling Party) has agreed (and the Certificateholders
(other than the Certificateholders represented by the Controlling Party) are
deemed to agree by virtue of their purchase of Pass Through Certificates) to
exercise its voting rights as directed by the Controlling Party. (Intercreditor
Agreement, Section 2.6)
Sale of Equipment Trust Certificates or Aircraft. Upon the occurrence and
during the continuation of any Indenture Event of Default, the Controlling
Party may accelerate and, subject to the provisions of the immediately
following paragraph, sell all (but not less than all) of the Equipment Trust
Certificates issued under such Indenture to any person.
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During the first nine months after the earlier of:
. the acceleration of the maturity of the Equipment Trust Certificates
issued under any Indenture and
. the bankruptcy or insolvency of Federal Express
the consent of each Pass Through Trustee will be necessary for:
. the sale of the related Aircraft or Equipment Trust Certificates if the
net proceeds from the sale will be less than the Minimum Sale Price for
that Aircraft or those Equipment Trust Certificates or
. the adjustment of the amount or payment dates of rentals under the
related Lease with Federal Express, if, as a result of the adjustment,
the discounted present value of all the rentals payable by Federal
Express under that Lease will be less than 75% of the discounted present
value of the rentals that would have been payable without the
adjustment. The discount rate in each case will be the weighted average
interest rate of the Equipment Trust Certificates outstanding under that
Indenture. (Intercreditor Agreement, Section 4.1)
After a Triggering Event occurs and any Equipment Trust Certificate becomes
a Non-Performing Equipment Trust Certificate, the Subordination Agent will be
required to obtain LTV Appraisals for the Aircraft as soon as practicable and
additional LTV Appraisals on or prior to each anniversary of the date of such
initial LTV Appraisals. If the Controlling Party reasonably objects to any LTV
Appraisals, the Controlling Party has the right to obtain substitute LTV
Appraisals (including any LTV Appraisals based upon physical inspection of the
Aircraft). (Intercreditor Agreement, Section 4.1)
"Triggering Event" means: (1) the occurrence of an Indenture Event of
Default under all Indentures resulting in a PTC Event of Default with respect
to the most senior class of Pass Through Certificates then outstanding; (2) the
acceleration of, or failure to pay at final maturity, all of the outstanding
Equipment Trust Certificates; or (3) specified bankruptcy or insolvency events
involving Federal Express.
Priority of Distributions
So long as no Triggering Event has occurred and subject to other terms of
the Intercreditor Agreement, payments on the Equipment Trust Certificates and
other specified payments received on any Distribution Date will be promptly
distributed by the Subordination Agent on such Distribution Date in the
following order of priority:
(1) to pay the Liquidity Expenses to the Liquidity Provider;
(2) to pay accrued and unpaid interest on the Liquidity Obligations to
the Liquidity Provider;
(3) to pay or reimburse the Liquidity Provider for the Liquidity
Obligations then due (other than the amounts specified in clauses
(1) and (2) above) and, if applicable, to replenish each Cash
Account up to the amount of interest payable on the related class
of Pass Through Certificates at their Stated Interest Rate on the
next three consecutive Regular Distribution Dates;
(4) to pay Expected Distributions to the holders of Class A Pass
Through Certificates;
(5) to pay Expected Distributions to the holders of Class B Pass
Through Certificates;
(6) to pay Expected Distributions to the holders of Class C Pass
Through Certificates;
(7) to pay specified fees and expenses of the Subordination Agent and
the Pass Through Trustee; and
(8) any balance will be held in the Collection Account for later
distribution, as provided in the Intercreditor Agreement.
(Intercreditor Agreement, Sections 2.4 and 3.2)
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Subject to the terms of the Intercreditor Agreement, upon the occurrence of
a Triggering Event and at all times after the Triggering Event, all funds
received by the Subordination Agent on the Equipment Trust Certificates and
other specified payments will be promptly distributed by the Subordination
Agent in the following order of priority:
(1) to reimburse (i) the Subordination Agent and each Pass Through
Trustee for any out-of-pocket costs and expenses actually incurred
by it in the protection of, or the realization of value of, the
Equipment Trust Certificates or any Trust Property and (ii) the
Liquidity Provider or any Certificateholder for any payments made
by it to the Subordination Agent or any Pass Through Trustee in
respect of amounts described in clause (i) above;
(2) to the Liquidity Provider to pay all accrued and unpaid Liquidity
Expenses;
(3) to the Liquidity Provider to pay all accrued and unpaid interest on
the Liquidity Obligations as provided in the Liquidity Facilities;
(4) to the Liquidity Provider (i) to pay in full all Liquidity
Obligations, whether or not then due (other than amounts payable
pursuant to clauses (2) and (3) above) and (ii) if applicable, so
long as not less than 65% of the then aggregate outstanding
principal amount of all Equipment Trust Certificates are Performing
Equipment Trust Certificates and no Liquidity Event of Default has
occurred and is continuing, to replenish the Cash Accounts;
(5) to reimburse or pay the Subordination Agent and Pass Through
Trustee for specified taxes, and to reimburse or pay each
Certificateholder for any payments made by it in respect of
specified costs and expenses of the Subordination Agent;
(6) to pay Adjusted Expected Distributions to the holders of Class A
Pass Through Certificates;
(7) to pay Adjusted Expected Distributions to the holders of Class B
Pass Through Certificates;
(8) to pay Adjusted Expected Distributions to the holders of Class C
Pass Through Certificates; and
(9) the balance will be held in the Collection Account until the next
Distribution Date or, if all classes of Pass Through Certificates
have been paid in full, will be distributed to the related Owner
Trustee.
(Intercreditor Agreement, Section 3.3)
"Adjusted Expected Distributions" means with respect to the Pass Through
Certificates of any class on any Current Distribution Date, the sum of (i) the
amount of accrued and unpaid interest on such Pass Through Certificates plus
(ii) the greater of:
(A) the difference between (x) the Pool Balance of such Pass Through
Certificates as of the immediately preceding Distribution Date and (y) the
Pool Balance of such Pass Through Certificates as of the Current
Distribution Date, calculated on the basis that (1) the principal of the
Non-Performing Equipment Trust Certificates held in such Pass Through Trust
has been paid in full and such payments have been distributed to the
holders of such Pass Through Certificates, (2) the principal of the
Performing Equipment Trust Certificates has been paid when due (but without
giving effect to any acceleration of Performing Equipment Trust
Certificates) and has been distributed to the holders of such Pass Through
Certificates and (3) the principal of any Equipment Trust Certificates
formerly held in such Pass Through Trust that have been sold pursuant to
the Intercreditor Agreement has been paid in full and such payments
distributed to the Certificateholders; and
(B) the amount, if any, by which (x) the Pool Balance of such class of
Pass Through Certificates as of the immediately preceding Distribution Date
exceeds (y) the Aggregate LTV Collateral Amount for such class of Pass
Through Certificates for the Current Distribution Date; provided that,
until the date of the initial LTV Appraisals, this clause (B) is not
applicable.
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"Aggregate LTV Collateral Amount" means, for any class of Pass Through
Certificates for any Distribution Date, the sum of the applicable LTV
Collateral Amounts for each Aircraft minus the Pool Balance for each class of
Pass Through Certificates, if any, senior to such Class after giving effect to
any distribution of principal on such Distribution Date on such senior class or
classes.
"Appraised Current Market Value" of any Aircraft means the lower of the
average and the median of the most recent three LTV Appraisals of such
Aircraft. After a Triggering Event has occurred and any Equipment Trust
Certificate becomes a Non-Performing Equipment Trust Certificate, the
Subordination Agent will be required to obtain LTV Appraisals to determine the
Appraised Current Market Value and additional LTV Appraisals on or prior to
each anniversary of the date of such initial LTV Appraisals. If the Controlling
Party reasonably objects to any LTV Appraisals, the Controlling Party has the
right to obtain substitute LTV Appraisals (including any LTV Appraisals based
upon physical inspection of the Aircraft).
"LTV Appraisal" means a current fair market value appraisal (which may be a
"desktop" appraisal) performed by an Appraiser or any other nationally
recognized appraiser on the basis of an arm's-length transaction between an
informed and willing purchaser under no compulsion to buy and an informed and
willing seller under no compulsion to sell, both parties having knowledge of
all relevant facts.
"LTV Collateral Amount" of any Aircraft for any class of Pass Through
Certificates for any Distribution Date means the lesser of (i) the LTV Ratio
for such class of Pass Through Certificates multiplied by the Appraised Current
Market Value of such Aircraft (or with respect to any such Aircraft which has
suffered an Event of Loss under the related Lease, the amount of the insurance
proceeds paid or payable to the Indenture Trustee in respect thereof) and (ii)
the outstanding principal amount of the Equipment Trust Certificates secured by
such Aircraft after giving effect to any principal payments of such Equipment
Trust Certificates on or before such Distribution Date.
"LTV Ratio" means for the Class A Pass Through Certificates 34.1%, for the
Class B Pass Through Certificates 50.7% and for the Class C Pass Through
Certificates 73.8%.
Interest Drawings under the related Liquidity Facility and withdrawals from
the Cash Account, in each case in respect of interest on the Pass Through
Certificates of the Class A Trust and the Class B Trust, will be distributed to
the Pass Through Trustee of the applicable Pass Through Trust, notwithstanding
the priority of distributions to the Pass Through Trustee for that Pass Through
Trust, or the priority of distributions set forth in the Intercreditor
Agreement and otherwise described herein. All amounts on deposit in the Cash
Account for any Pass Through Trust which are in excess of the Required Amount
for that Pass Through Trust and all investment earnings on those amounts on
deposit in the Cash Account will be paid to the Liquidity Provider.
(Intercreditor Agreement, Section 3.6)
Voting of Equipment Trust Certificates
If the Subordination Agent, as the registered holder of any Equipment Trust
Certificate, receives a request for its consent to any amendment, modification
or waiver under that Equipment Trust Certificate, the related Indenture, Lease,
Participation Agreement or other related document, and no Indenture Event of
Default under the related Indenture has occurred and is continuing, the
Subordination Agent will request instructions for each series of Equipment
Trust Certificates from the Pass Through Trustee of the Pass Through Trust
which holds that series of Equipment Trust Certificates and shall consent in
accordance with the instructions of the Pass Through Trustee. If any Indenture
Event of Default has occurred and is continuing under the related Indenture,
the Subordination Agent will, subject to specified limitations, exercise its
voting rights as directed by the Controlling Party. In no event, however, may
such amendment, modification or waiver reduce the amount of rent, supplemental
rent or stipulated loss value payable by Federal Express under any Lease
without each Liquidity Provider's consent. (Intercreditor Agreement, Section
9.1(b))
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The Subordination Agent
The Bank of New York will be the Subordination Agent under the
Intercreditor Agreement. Federal Express and its affiliates are not restricted
from entering into banking and trustee relationships with The Bank of New York
and its affiliates.
The Subordination Agent may resign at any time, in which event a successor
Subordination Agent will be appointed. The Liquidity Provider or the
Controlling Party may remove the Subordination Agent for cause as provided in
the Intercreditor Agreement. Any resignation or removal of the Subordination
Agent and appointment of a successor will not become effective until
acceptance of the appointment by the successor and the Rating Agencies shall
have delivered a Ratings Confirmation. (Intercreditor Agreement, Section 8.1)
DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS
The Aircraft
The Aircraft consist of four Airbus A300F4-605R freighter aircraft to be
leased by the related Owner Trustee to Federal Express pursuant to one of four
separate Leases or owned by Federal Express in the circumstances described
herein.
The Appraisals
The table below shows the appraised base values and certain additional
information regarding the Aircraft.
Expected Appraised Base Value
Aircraft Delivery -----------------------------------
Tail Number Aircraft Type(1) Date(2) AvSolutions MBA SH&E
----------- ------------------ -------------- ----------- ----------- -----------
N683FE Airbus A300F4-605R July 1999 $89,460,000 $78,500,000 $88,500,000
N684FE Airbus A300F4-605R August 1999 89,460,000 78,820,000 88,600,000
N685FE Airbus A300F4-605R September 1999 89,460,000 79,130,000 88,700,000
N686FE Airbus A300F4-605R October 1999 90,130,000 79,450,000 88,800,000
- --------
(1) Each Airbus A300F4-605R freighter Aircraft has two General Electric CF6-
80C2-A5F engines.
(2) Reflects the scheduled delivery months under Federal Express' purchase
agreement with the manufacturer. The actual delivery date for any Aircraft
may be subject to delay.
According to the International Society of Transport Aircraft Trading,
"appraised base value" is defined as each Appraiser's opinion of the
underlying economic value of an Aircraft in an open, unrestricted, stable
market environment with a reasonable balance of supply and demand, and assumes
full consideration of its "highest and best use". An Aircraft's appraised base
value is founded in the historical trend of values and in the projection of
value trends and presumes an arm's length, cash transaction between willing,
able and knowledgeable parties, acting prudently, with an absence of duress
and with a reasonable period of time available for marketing. The appraised
base values shown in the above table were determined by the following three
independent aircraft appraisal and consulting firms: AvSolutions, MBA and
SH&E. Each Appraiser was asked to provide its opinion as to the appraised base
value of each Aircraft projected as of the scheduled delivery date of each
such Aircraft. All three Appraisers performed "desk-top" appraisals without
any physical inspection of the Aircraft. The Appraisals are based on various
assumptions and methodologies which vary among the Appraisals and may not
reflect current market conditions. Appraisals that are based on different
assumptions and methodologies may result in valuations that are materially
different from those contained in the Appraisals. The Appraisers have
delivered letters setting forth their respective Appraisals, copies of which
are annexed to this prospectus supplement as Appendix II. For a discussion of
the assumptions and methodologies used in each of the Appraisals, you should
read such letters.
An appraisal is only an estimate of value, is not indicative of the price
at which an aircraft may be purchased from the manufacturer and should not be
relied upon as a measure of realizable value. The proceeds
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received 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, we cannot assure you that the proceeds received upon any
exercise of remedies pursuant to the related Indenture will be as appraised or
sufficient to satisfy in full payments due on the related Equipment Trust
Certificates or the Pass Through Certificates. See "Risk Factors".
DESCRIPTION OF THE EQUIPMENT TRUST CERTIFICATES
The following description is only a summary of the terms of the Equipment
Trust Certificates and therefore may not contain all the information that may
be important to you. The following description supplements, and to the extent
inconsistent with the prospectus replaces, the description of the general terms
and provisions of the Equipment Trust Certificates set forth in the prospectus.
The following description uses terms that have specific definitions in these
agreements. You should refer to Appendix I for the definitions of these terms
as they appear in this prospectus supplement. The forms of the Indentures,
Leases, Participation Agreements, Trust Agreements and other related documents
will be filed with the SEC as exhibits to one or more post-effective amendments
to the registration statement relating to this offering or to Current Reports
on Form 8-K.
The provisions of the Indentures, the Equipment Trust Certificates, the
Leases and the Participation Agreements which relate to each of the Aircraft
and that are summarized below are substantially the same, except where
otherwise indicated.
General
The Equipment Trust Certificates will be nonrecourse obligations of the
related Owner Trustee, in each case acting for the Owner Trust for the benefit
of the related Owner Participant (or recourse obligations of Federal Express,
in the case of Equipment Trust Certificates issued in respect of any Aircraft
which Federal Express is required to purchase as described below under
"Description of the Equipment Trust Certificates--Prefunding Periods"), and
will be authenticated under an Indenture by the related Indenture Trustee. Each
Owner Trust will hold the related Aircraft (or, during any related Prefunding
Period, amounts in the related Collateral Account and the obligation of Federal
Express to pay any shortfall in the Collateral Account), and the rights of such
Owner Trustee under the related documentation. Although the Equipment Trust
Certificates will not be obligations of, or guaranteed by, Federal Express,
except as described below under "Description of the Equipment Trust
Certificates--Prefunding Periods", the amounts payable by Federal Express under
the Lease and, in the case of any Lessor Paid Interim, the Participation
Agreement for each Aircraft and any amounts payable by Federal Express while
the proceeds of the sale of the related Equipment Trust Certificates are held
in the related Collateral Account (together with the amounts in the related
Collateral Account) will be sufficient to pay in full when due all principal of
and interest and any premium on the related Equipment Trust Certificates.
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For each of the Owner Trusts, three series of Equipment Trust Certificates,
each of which will have a different interest rate, maturity date and schedule
of principal payments, will be issued under the related Indenture. The
aggregate principal amounts of the Equipment Trust Certificates to be issued by
each Owner Trust, as those Equipment Trust Certificates will be held in each of
the Pass Through Trusts, are as follows:
Pass Through Trust Pass Through Trust Pass Through
Class A Class B Trust Class C
% Equipment % Equipment % Equipment Total Per
Trust Designation Trust Certificates* Trust Certificates* Trust Certificates (1)* Aircraft*
- ----------------- ------------------- ------------------- ----------------------- ------------
Federal Express
Corporation $ 27,356,991 $14,411,026 $17,910,654 $ 59,678,671
Trust No. N683FE
Federal Express
Corporation 28,288,498 15,062,502 12,185,029 55,536,029
Trust No. N684FE
Federal Express
Corporation 28,399,757 13,816,098 14,438,361 56,654,216
Trust No. N685FE
Federal Express
Corporation 28,309,324 14,760,678 16,000,757 59,070,758
Trust No. N686FE
------------ ----------- ----------- ------------
Total $112,354,570 $58,050,304 $60,534,800 $230,939,674
============ =========== =========== ============
- --------
* Indicative only and subject to change.
(1) The principal amount of the Series C Equipment Trust Certificates relating
to an Aircraft may be increased or decreased. The aggregate principal
amount of the Series C Equipment Trust Certificates relating to all
Aircraft, however, may not be increased, but may be decreased, in which
case a portion of the Series C Equipment Trust Certificates will be prepaid
on the Series C Prepayment Date and a Special Payment will be made on the
Pass Through Certificates.
The Equipment Trust Certificates held in a Pass Through Trust will accrue
interest on the unpaid principal amount thereof at the rate per annum indicated
on the cover of this prospectus supplement for the related Pass Through
Certificates. Interest will be payable to the Pass Through Trustee on each
January 15 and July 15, commencing on January 15, 2000, in each case subject to
the Intercreditor Agreement, and will be calculated on the basis of a 360-day
year consisting of twelve 30-day months. For any Equipment Trust Certificate,
any overdue payment of principal, interest or any other amount payable thereon
will accrue interest from the due date for that amount to the date that amount
is paid in full at a rate per annum equal to 2% plus the interest rate
otherwise applicable to that Equipment Trust Certificate. (Indentures, Section
2.04)
Each Pass Through Trust will hold Equipment Trust Certificates upon which
principal is payable through mandatory sinking fund redemptions on January 15
or July 15, or both, of each year, commencing on January 15, 2000 in the case
of each series of Equipment Trust Certificates, according to the schedule in
Appendix III and in each case subject to the Intercreditor Agreement. The
schedules in Appendix III for the Equipment Trust Certificates are subject to
adjustment in compliance with the Mandatory Economic Terms.
The mandatory sinking fund redemptions shown in Appendix III will retire the
full principal amount of the Equipment Trust Certificates issued under each
Indenture. (Indentures, Section 6.06)
If any amount payable under any Equipment Trust Certificate or the related
Indenture falls due on a day that is not a Business Day, then that amount will
be paid on the next succeeding Business Day without additional interest.
(Indentures, Section 3.01)
Subordination
Series B Equipment Trust Certificates issued in respect of any Aircraft will
be subordinated in right of payment to Series A Equipment Trust Certificates
issued in respect of that Aircraft. Series C Equipment Trust Certificates
issued in respect of any Aircraft will be subordinated in right of payment to
Series A and B Equipment Trust Certificates issued in respect of that Aircraft.
On each Distribution Date, payments of interest and principal due on Series A
Equipment Trust Certificates issued in respect of any Aircraft will be made
prior to payments of interest and principal due on Series B Equipment Trust
Certificates issued in respect of that
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Aircraft. Payments of interest and principal due on Series B Equipment Trust
Certificates will be made prior to payments of interest and principal due on
Series C Equipment Trust Certificates issued in respect of that Aircraft.
(Indentures, Section 2.17)
Prefunding Periods
For the Equipment Trust Certificates issued in respect of each of the
Aircraft, the related Prefunding Period will extend to the delivery date of
that Aircraft. During the applicable Prefunding Period, the related Equipment
Trust Certificates will not be secured by that Aircraft or the related Lease,
but will be secured by the related Collateral Account. Interest accrued on the
related Equipment Trust Certificates during the Prefunding Period but payable
on January 15, 2000 will also not be secured by that Aircraft or the related
Lease, but will be secured by the related Collateral Account. Pursuant to the
Indenture, the Owner Trustee for the benefit of the related Indenture Trustee
will deposit the proceeds of sale of the related Equipment Trust Certificates
into the related Collateral Account. Funds deposited in each Collateral Account
will be invested in Specified Investments. (Participation Agreements, Section
17.02; Indentures, Section 2.13)
Federal Express will pay to the Subordination Agent any losses on the
Specified Investments, and any excess earnings will be paid to Federal Express
after all distributions from the Collateral Account to the related Indenture
Trustee required under the Operative Agreements have been made. Federal Express
will pay:
. interest due on the related Equipment Trust Certificates on January 15,
2000 for the period from the date of issuance of the Equipment Trust
Certificates to the related delivery date and
. interest due on any Series C Equipment Trust Certificates which are
outstanding on January 15, 2000 but which are required to be prepaid on
the Series C Prepayment Date
in each case to the extent such interest due is in excess of any earnings on
investments in such Collateral Account for the period of accrual of such
interest. (Participation Agreements, Section 17.02)
On the delivery date of each related Aircraft, upon satisfaction or waiver
of the conditions to the Indenture Trustee's release of amounts in the related
Collateral Account, the Indenture Trustee will release the amount required to
pay the debt portion of the purchase price for each Aircraft on the delivery
date of that Aircraft. Federal Express will pay to the related Indenture
Trustee on such delivery date any excess of the debt portion of the purchase
price of any Aircraft payable by the Owner Trustee over the amount available in
the related Collateral Account. (Indentures, Sections 2.13 and 2.15;
Participation Agreements, Section 3.02)
If not all amounts in the related Collateral Account are required by the
related Indenture Trustee to pay the debt portion of the purchase price of the
applicable Aircraft, the initial Owner Participant may use a portion of the
amounts not so required to increase the amounts in the Collateral Accounts
related to one or more undelivered Aircraft. In that case, the outstanding
principal amount of the Series C Equipment Trust Certificates relating to those
undelivered Aircraft will be increased, and the outstanding principal amount of
the Series C Equipment Trust Certificates relating to the delivered Aircraft
correspondingly decreased.
Alternatively, the related Indenture Trustee may retain all or a portion of
amounts not required for purchase of the applicable Aircraft in the related
Collateral Account. A portion of any retained amounts will be used to prepay a
portion of the related Series C Equipment Trust Certificates on the Series C
Prepayment Date and a portion of those retained amounts will be applied towards
payment of principal and interest accrued on the related Equipment Trust
Certificates during the Prefunding Period and payable on the related Equipment
Trust Certificates on January 15, 2000. Any amounts retained in the Collateral
Account will be invested in Specified Investments.
Federal Express will be obligated to pay to the Subordination Agent on the
Series C Prepayment Date any previously unreimbursed losses on the investments
in the related Collateral Account together with such additional amounts as will
be required to pay the amount of interest accrued and unpaid on the Series C
Equipment Trust Certificates to be prepaid on the Series C Prepayment Date.
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In addition to the foregoing, the principal amount of Series C Equipment
Trust Certificates relating to an undelivered Aircraft may be decreased, and
the related Collateral Account correspondingly decreased, and the principal
amount of Series C Equipment Trust Certificates relating to one or more other
undelivered Aircraft increased, and the related Collateral Accounts
correspondingly increased.
Although the principal amount of the Series C Equipment Trust Certificates
relating to any Aircraft may be increased or decreased as described above, the
principal amount for any Aircraft may not exceed the amount specified in the
Mandatory Economic Terms and the aggregate principal amount of Series C
Equipment Trust Certificates relating to all Aircraft may not be increased.
If the related Owner Participant does not make available its portion of the
purchase price on the delivery date of an Aircraft or if Federal Express does
not enter into the related Lease on or prior to the related Cut-off Date for
any reason other than the failure of the manufacturer to deliver the Aircraft,
Federal Express will purchase the Aircraft and assume on a fully recourse basis
all of the obligations of the Owner Trustee under the related Equipment Trust
Certificates pursuant to an Indenture containing terms substantially identical
to those contained in the Leases and Indentures. In that case, the related
Indenture Trustee will release the amounts in the related Collateral Account to
Federal Express to pay the debt portion of the purchase price for the Aircraft.
(Participation Agreements, Sections 3.03 and 17.02)
If Equipment Trust Certificates are subject to prepayment as described above
or as a result of the manufacturer failing to deliver an Aircraft, Federal
Express will be obligated to pay to the Subordination Agent, together with any
losses on the investments in the related Collateral Account, on the applicable
prepayment date, such additional amounts as will be required to pay the amount
of interest accrued and unpaid on such Equipment Trust Certificates through the
date of prepayment. (Participation Agreements, Section 17.02)
Prepayment
Prepayment with Premium. For any Aircraft, the related Equipment Trust
Certificates may be prepaid in whole, but not in part, at any time and will be
prepaid (i) in connection with a refinancing of such Equipment Trust
Certificates at Federal Express' election, or (ii) on any scheduled rent
payment date under the related Lease on or after September 21, 2004 (the
earliest date under any Lease) in connection with a voluntary termination of
such Lease because such Aircraft has become obsolete or surplus to Federal
Express' needs. (Indentures, Article VI; Leases, Article 10; Participation
Agreements, Section 15.01) For a discussion of prepayments with a premium in
connection with Federal Express' exercise of options or elections relating to
the purchase of the Aircraft under some circumstances, see "The Leases--
Purchase Options" below. Such prepayment will be at a prepayment price for each
such Equipment Trust Certificate equal to the principal amount of such
Equipment Trust Certificate, together with accrued but unpaid interest to the
prepayment date, plus the Make-Whole Premium, if any. (Indentures, Section
6.02)
"Make-Whole Premium" means, with respect to any Equipment Trust Certificate,
the amount (as determined by an independent investment banker selected by
Federal Express and reasonably acceptable to the Indenture Trustee and related
Owner Participant) by which (i) the present value of the remaining scheduled
payments of principal and interest to maturity of that Equipment Trust
Certificate computed by discounting such payments on a semiannual basis on each
Regular Distribution Date (assuming a 360-day year of twelve 30-day months)
using a discount rate equal to the Treasury Yield exceeds (ii) the outstanding
principal amount of that Equipment Trust Certificate plus accrued interest.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means,
at the time of determination for any Equipment Trust Certificate, the interest
rate (expressed as a semi-annual equivalent and as a decimal and, in the case
of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semi-annual yield to maturity
for United States Treasury securities
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maturing on the Average Life Date of that Equipment Trust Certificate and
trading in the public securities markets either as determined by interpolation
between the most recent weekly average yield to maturity for two series of
United States Treasury securities, trading in the public securities markets,
(i) one maturing as close as possible to, but earlier than, the Average Life
Date of such Equipment Trust Certificate and (ii) the other maturing as close
as possible to, but later than, the Average Life Date of such Equipment Trust
Certificate, in each case as published in the most recent H.15 (519) or, if a
weekly average yield to maturity for United States Treasury securities maturing
on the Average Life Date of that Equipment Trust Certificate is reported in the
most recent H.15(519), that weekly average yield to maturity published in such
H.15(519). "H.15(519)" means that weekly statistical release designated as
such, or any successor publication, published by the Board of Governors of the
Federal Reserve System. The date of determination of a Make-Whole Premium will
be the third Business Day prior to the applicable prepayment date and the "most
recent H.15(519)" means the H.15(519) published prior to the close of business
on the third Business Day prior to the applicable prepayment date.
"Average Life Date" for any Equipment Trust Certificate is the date which
follows the prepayment date by a period equal to the Remaining Weighted Average
Life of that Equipment Trust Certificate. "Remaining Weighted Average Life"
means on a given date for any Equipment Trust Certificate the number of days
equal to the quotient obtained by dividing (i) the sum of each of the products
obtained by multiplying (a) the amount of each then remaining scheduled payment
of principal of that Equipment Trust Certificate by (b) the number of days from
and including the prepayment date to but excluding the dates on which each such
payment of principal is scheduled to be made; by (ii) the then outstanding
principal amount of that Equipment Trust Certificate.
If (i) a Lease Event of Default under the Lease relating to any Aircraft has
continued for not more than 180 days and (ii) the related Equipment Trust
Certificates have not become due and payable pursuant to the remedies
provisions of the related Indenture, then those Equipment Trust Certificates
will be subject to prepayment or purchase, in whole but not in part, at the
direction of the related Owner Participant upon not less than 15 days' notice
(the shortest notice period under any Indenture) of that prepayment or
purchase. The prepayment or purchase will be at a price equal to the aggregate
principal amount of those Equipment Trust Certificates, together with accrued
but unpaid interest to the date designated for prepayment or purchase, plus the
Make-Whole Premium, if any, calculated for each such Equipment Trust
Certificate as described above and all other amounts due the Indenture Trustee
under the related Indenture, Participation Agreement or Lease. (Indentures,
Article VI and Section 8.02)
Prepayment without Premium. For any Aircraft, the related Equipment Trust
Certificates will be subject to prepayment in whole, but not in part, if that
Aircraft suffers an Event of Loss unless Federal Express substitutes a
replacement aircraft for the Aircraft. See "The Leases--Events of Loss" below.
Such prepayment will be at a prepayment price equal to the aggregate principal
amount of those Equipment Trust Certificates together with accrued but unpaid
interest to the prepayment date and all other amounts due the Indenture Trustee
or any holder of such Equipment Trust Certificates under the related Indenture,
Participation Agreement or Lease, but without the Make-Whole Premium, if any.
(Indentures, Section 6.02)
If (i) a Lease Event of Default under the Lease relating to any Aircraft has
continued for more than 180 days or (ii) the related Equipment Trust
Certificates have become due and payable pursuant to the remedies provisions of
the related Indenture, then those Equipment Trust Certificates will be subject
to prepayment or purchase, in whole but not in part, at the direction of the
related Owner Participant upon not less than 15 days' irrevocable notice (the
shortest notice period under any Indenture) of prepayment or purchase. In that
case, the Owner Trustee must deposit with the Indenture Trustee on the date
designated for prepayment or purchase an amount equal to the aggregate
principal amount of those Equipment Trust Certificates, together with accrued
but unpaid interest to the date designated for prepayment or purchase and all
other amounts due the Indenture Trustee under the related Indenture,
Participation Agreement or Lease, but without the Make-Whole Premium, if any.
(Indentures, Article VI and Section 8.02)
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If any Aircraft has not been delivered by the manufacturer by the related
Cut-off Date, then the related Equipment Trust Certificates will be prepaid in
full on the fifteenth day after the related Cut-off Date. On such date, the
related Indenture Trustee will apply the amounts payable under the related
Collateral Account together with the amounts payable by Federal Express to pay
the aggregate principal amount of those Equipment Trust Certificates and
accrued and unpaid interest but without the Make-Whole Premium, if any.
(Indentures, Sections 2.16 and 6.02)
The Series C Equipment Trust Certificates may also be subject to prepayment
in part without the Make-Whole Premium on the Series C Prepayment Date in
connection with any reoptimization (subject to the Mandatory Economic Terms)
negotiated with the related prospective Owner Participants. (Participation
Agreement, Sections 2.03 and 3.02(a); Indenture, Sections 2.16 and 6.02(a))
Investment of Funds
The proceeds of sale of the Equipment Trust Certificates deposited in each
Collateral Account will be invested in Specified Investments. Federal Express
will pay to the Subordination Agent any losses on those Specified Investments.
Specified Investments must mature no later than the scheduled delivery date for
the related Aircraft. If Specified Investments are not available on any day on
which funds are to be invested, the Indenture Trustee may leave those funds in
the related Collateral Account uninvested until the earlier of (i) the date on
which any appropriate Specified Investments become available and (ii) the date
on which the Lien of the related Indenture on the Collateral Account and the
related Liquid Collateral is terminated. If that delivery date is postponed,
the proceeds of investments maturing prior to the postponed delivery date will
be invested in Specified Investments and any Specified Investments must mature
no later than 14 days after the rescheduled delivery date or, if no notice of
rescheduled delivery date has been given, no later than 14 days after the
related Cut-off Date.
Funds (other than funds in the related Collateral Account), if any, held
from time to time by the related Indenture Trustee with respect to any Aircraft
will be invested, except under certain circumstances, upon the written
instructions of Federal Express in direct obligations of, or obligations fully
guaranteed by, the United States of America; certificates of deposit, bankers'
acceptances, time deposits or deposit accounts with certain banks, trust
companies or national banking associations; or commercial paper rated A-1/P-1
by Standard & Poor's and Moody's, respectively, or, if such ratings are
unavailable, rated by any nationally recognized rating organization in the
United States equal to the highest rating assigned by such rating organization.
Federal Express will be responsible for any loss realized upon maturity, sale
or other disposition of any such investment. (Indentures, Section 5.08; Leases,
Section 23.01)
Indenture Events of Default, Notice and Waiver
Indenture Events of Default under each Indenture generally include:
. any Lease Event of Default under the Lease related to that Indenture
(other than a Lease Event of Default arising solely as a result of the
failure to make specified payments to the related Owner Participant or
the Owner Trustee which are excluded from the Lien of the related
Indenture, which will constitute an Indenture Event of Default under any
such Indenture upon notification by the related Owner Participant) (see
"The Leases--Lease Events of Default" below);
. any failure by the Owner Trustee other than by reason of a Lease Event
of Default or a default under the related Lease (i) to pay principal,
interest or any Make-Whole Premium on any related Equipment Trust
Certificates when due, continued for 10 Business Days or (ii) to pay any
other amounts when due under such Indenture or the related Equipment
Trust Certificates continued for 30 days after demand for payment is
given to the Owner Trustee and the Owner Participant by the Indenture
Trustee or by holders of not less than 25% in aggregate principal amount
of related outstanding Equipment Trust Certificates;
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. any representation or warranty made by State Street Bank and Trust
Company of Connecticut, National Association, the related Owner Trustee,
the related Owner Participant or any related Guarantor or Owner Trustee
guarantor, in the case of two Indentures, in specified articles of the
related Participation Agreement, Lease or Guaranty, if any, and in the
case of two other Indentures, in any Operative Agreement, or in any
certificate furnished by any of the foregoing (other than the Owner
Trustee guarantor) to the Indenture Trustee or any holder of the related
Equipment Trust Certificates, proves to have been incorrect when made
and was and remains in any respect material to the holders of the
related Equipment Trust Certificates and (in the case of two Indentures
if such misrepresentation can be subsequently corrected and such
correction is being sought diligently) such misrepresentation is not
corrected within 30 days after notice of such failure is given to the
parties designated to receive such notice in connection with the
applicable failure by the Indenture Trustee or by holders holding a
specified percentage of the aggregate principal amount of related
outstanding Equipment Trust Certificates;
. (i) any failure by the Owner Trustee to observe specified covenants in
that Indenture or the related Participation Agreement or (ii) any
failure by State Street Bank and Trust Company of Connecticut, National
Association, the related Owner Trustee or the related Owner Participant,
or any related Guarantor or Owner Trustee guarantor to observe any other
covenant made by such party, with respect to two Indentures, in such
Indenture, the related Participation Agreement, Trust Agreement, any
Guaranty and any Owner Trustee guaranty, as the case may be, or, with
respect to two other Indentures, in any Operative Agreement continued
for a period of 30 days after notice of such failure is given to the
parties designated to receive such notice in connection with the
applicable failure by the Indenture Trustee or by the holders of not
less than 25% in aggregate principal amount of related outstanding
Equipment Trust Certificates;
. the occurrence of specified events of bankruptcy, insolvency or
reorganization of the Owner Trustee or any Owner Trustee guarantor or
the related Owner Participant, Owner Trust or any Guarantor; or
. any Guaranty or Owner Trustee guaranty ceases to be a valid and
enforceable obligation of any Guarantor or Owner Trustee guarantor,
respectively, or to be in full force and effect. (Indentures, Section
7.01)
Each Indenture provides that, in the absence of an Indenture Event of
Default, the Indenture Trustee generally may not exercise any of the rights of
the Owner Trustee under the related Lease assigned to the Indenture Trustee
under such Indenture, except the right to receive rental payments due under
that Lease. Whether or not there is an Indenture Event of Default, the Owner
Trustee and the related Owner Participant may, subject to certain limitations,
exercise specified rights under that Lease, including the right to adjust
scheduled rental payments and the percentages relating to stipulated loss value
and termination value. (Indentures, Section 8.01) See "Description of the
Equipment Trust Certificates--Security" in the prospectus.
There are no cross-default provisions in the Indentures and any event
resulting in an Indenture Event of Default under one Indenture will not
necessarily result in an Indenture Event of Default under the other Indentures.
If a Lease Event of Default occurs under the related Lease as a result of
Federal Express' failure to make any scheduled rental payment under that Lease
relating to the basic lease term and the Owner Trustee pays all principal and
interest on the related Equipment Trust Certificates then due (as well as any
interest on overdue principal and interest, but not including any principal or
interest becoming due on account of the Lease Event of Default) within a
specified period then (i) the failure of Federal Express to make that payment
will not constitute an Indenture Event of Default under the Indenture and (ii)
any declaration based solely on that failure will be deemed automatically
rescinded. The related Owner Participant and the Owner Trustee, collectively,
may not cure more than three such consecutive Lease Events of Default or more
than six such Lease Events of Default in total. (Indentures, Section 8.03(a))
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If a Lease Event of Default under the related Lease occurs for any reason
other than Federal Express' failure to make any scheduled rental payment under
that Lease relating to the basic lease term, and the Owner Trustee cures that
Lease Event of Default prior to the date 15 Business Days after that Lease
Event of Default then:
. the failure of Federal Express to perform the relevant covenant,
condition or agreement which is cured by the Owner Trustee will not
constitute an Indenture Event of Default under the related Indenture and
. any declaration based solely on that Lease Event of Default will be
deemed automatically rescinded. (Indentures, Section 8.03(b))
Each Indenture provides that the Indenture Trustee must, within 90 days
after a default occurs under that Indenture which default is actually known to
a responsible officer of the Indenture Trustee, notify the holders of the
related Equipment Trust Certificates of the default. The Indenture Trustee
will, however, be protected in withholding that notice, other than in the case
of a default in the payment of the principal of or interest on or any other
amount on any related Equipment Trust Certificate, if it in good faith
determines that the withholding of notice is in the interests of the holders of
the related Equipment Trust Certificates.
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Trust Certificates issued under an Indenture to which an
Indenture Event of Default relates may on behalf of all holders of those
Equipment Trust Certificates waive any past Indenture Event of Default under
that Indenture and its consequences. However, consent from each holder of those
Equipment Trust Certificates and the Liquidity Provider is required to waive a
default in the payment of the principal of, any Make-Whole Premium, interest or
other amounts on any Equipment Trust Certificate or any covenant or provision
of that Indenture that, pursuant to the provisions of that Indenture, cannot be
modified or amended without the consent of each holder of those Equipment Trust
Certificates. (Indentures, Section 7.11)
Federal Express is required under each Participation Agreement to furnish to
the related Owner Participant, the Owner Trustee and the Indenture Trustee
promptly upon any responsible officer of Federal Express obtaining actual
knowledge of any Lease Event of Default (or obtaining actual knowledge of any
event which with the giving of notice, lapse of time, or both, would constitute
a Lease Event of Default), an officer's certificate specifying the nature and
period of existence of that Lease Event of Default and what action Federal
Express has taken or is taking or proposes to take with respect to that Event
of Default. (Participation Agreements, Section 6.03(i)(E))
Remedies
Each Indenture provides that, subject to the Owner Trustee's right to cure
specified defaults and to prepay or purchase the related Equipment Trust
Certificates, if an Indenture Event of Default continues unremedied under that
Indenture, the related Indenture Trustee may exercise specified rights and
remedies including, if a Lease Event of Default under the related Lease has
occurred, one or more of the remedies afforded to that Owner Trustee by that
Lease, and any other right or remedy available to such Indenture Trustee under
applicable law. (See "The Leases--Lease Events of Default" below.) The
Indenture Trustee may exercise remedies to the exclusion of the related Owner
Trustee and the related Owner Participant. Any Aircraft sold in the exercise of
those remedies will be free and clear of any rights of those parties (other
than, in some cases, rights of redemption provided by law), including, if
exercised in connection with a Lease Event of Default, the rights of Federal
Express under the applicable Lease. No exercise of any remedies by the related
Indenture Trustee, however, may affect the rights of Federal Express under the
related Lease, including Federal Express' right to quiet enjoyment of the
Aircraft, unless a Lease Event of Default under that Lease exists. The related
Indenture Trustee may not sell any part of the related trust estate under any
Indenture unless the related Equipment Trust Certificates have been
accelerated. The related Indenture Trustee must give the related Owner Trustee
notice of intent to foreclose the Lien of the related Indenture at the earlier
of the commencement of any
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such proceeding or 30 days prior to consummation of that foreclosure.
(Indentures, Article VII and Section 15.05)
Notwithstanding the rights and powers of the related Indenture Trustee
described above, if an Indenture Event of Default continues unremedied and the
Indenture Trustee proceeds to foreclose the Lien of that Indenture, the
Indenture Trustee must, concurrently with that foreclosure, to the extent the
Indenture Trustee is then entitled to do so under that Indenture and under the
related Lease and is not then stayed or otherwise prevented by law from doing
so, proceed (to the extent it has not already done so) to declare that Lease in
default and commence the exercise in good faith of one or more of the
significant remedies available under that Lease (as the Indenture Trustee
determines in its sole discretion). If the Indenture Trustee is unable to
exercise one or more of those remedies under that Lease because of any stay or
operation of law or otherwise, then the Indenture Trustee may not foreclose the
Lien of the related Indenture:
. if Federal Express has agreed to perform or assume that Lease and no
Lease Event of Default is continuing, other than specified events of
bankruptcy, reorganization or insolvency of Federal Express or similar
events or, in the case of two Indentures, any other Lease Event of
Default in respect of which the 30-day period referred to in clause
(a)(1)(B)(ii)(I) of Section 1110 of the Bankruptcy Code has not expired)
or
. until the earlier of actual repossession of the related Aircraft by the
Indenture Trustee and 60 days from the date of any stay or other
applicable order under Section 1110 of the Bankruptcy Code including any
extension of the period permitted under Section 1110 consented to by
that Indenture Trustee or the holders of the Equipment Trust
Certificates issued under that Indenture. (Indentures, Section 7.02(a))
If an Indenture Event of Default occurs under an Indenture as a result of
specified events of bankruptcy, insolvency or reorganization of the related
Owner Trustee, Owner Participant, Owner Trust or Guarantor or any Owner Trustee
guarantor, then the unpaid principal of the related Equipment Trust
Certificates, together with interest accrued but unpaid and all other amounts
due under the Equipment Trust Certificates and under that Indenture,
immediately and without further act, will become due and payable. If any other
Indenture Event of Default continues under an Indenture, the related Indenture
Trustee, acting on its own or at the direction of the holders of not less than
25% in aggregate principal amount of the outstanding Equipment Trust
Certificates issued under that Indenture, may declare the principal of all of
those Equipment Trust Certificates immediately due and payable, together with
all accrued but unpaid interest and all other amounts due under those Equipment
Trust Certificates and under that Indenture, by written notice to the related
Owner Trustee and Federal Express. No Make-Whole Premium is payable upon any
such acceleration. The holders of not less than 50% in aggregate principal
amount of the outstanding Equipment Trust Certificates issued under that
Indenture may rescind any declaration by the related Indenture Trustee at any
time prior to the sale or disposition of the property subject to the Lien of
the related Indenture if:
. there has been paid to or deposited with that Indenture Trustee an
amount sufficient to pay all overdue installments of interest on all of
those Equipment Trust Certificates (together, with interest on the
overdue installments of interest), the principal on any of those
Equipment Trust Certificates that has become due otherwise than by such
declaration of acceleration, all sums paid or advanced by the Indenture
Trustee under the related Indenture and other specified expenses or
. all Indenture Events of Default under that Indenture, other than the
non-payment of principal that has become due solely because of such
acceleration, have been cured or waived. (Indentures, Sections 7.02(b)
and (c))
In the event of the bankruptcy of the related Owner Participant, it is
possible that, notwithstanding the fact that the applicable Aircraft is owned
by the related Owner Trustee in trust, that Aircraft and the related Lease and
the related Equipment Trust Certificates might become part of the bankruptcy
proceeding. In case of a bankruptcy proceeding, payments under the related
Lease or Equipment Trust Certificates might be interrupted
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and the ability of the related Indenture Trustee to exercise its remedies under
the Indenture might be restricted, although the Indenture Trustee would retain
its status as a secured creditor in respect of that Lease and Aircraft.
At any time while any Equipment Trust Certificates have become due and
payable pursuant to the remedies provisions in the related Indenture, the Owner
Participant of the related Owner Trust may direct the Owner Trustee to pay to
the related Indenture Trustee for distribution to the holders of those
Equipment Trust Certificates an amount equal to the aggregate unpaid principal
amount of all of those Equipment Trust Certificates plus all accrued and unpaid
interest to the date of payment and all other amounts due to the Indenture
Trustee under the related Indenture, but without the Make-Whole Premium, if
any. If the Owner Trustee makes that payment to the Indenture Trustee, the
Equipment Trust Certificates will cease to accrue interest from and after the
date of payment. (Indentures, Sections 6.02 and 8.02) See "Prepayment--
Prepayment without Premium" above.
The right of any holder of an Equipment Trust Certificate to institute an
action for any remedy under the Indenture pursuant to which that Equipment
Trust Certificate was issued, including the right to enforce payment of the
principal of, any Make-Whole Premium and interest on those Equipment Trust
Certificates when due, is subject to certain conditions precedent, including a
written request to the related Indenture Trustee by the holders of not less
than 25% in aggregate principal amount of outstanding Equipment Trust
Certificates issued under that Indenture to take action, and an offer to that
Indenture Trustee of reasonable indemnification against costs, expenses and
liabilities incurred by it in doing so. (Indentures, Sections 7.08 and 7.09)
The holders of not less than a majority in aggregate principal amount of
outstanding Equipment Trust Certificates issued under any Indenture may direct
the time, method and place of conducting any proceeding for any remedy
available to the related Indenture Trustee or of exercising any trust or power
conferred on the Indenture Trustee. The Indenture Trustee is entitled to be
indemnified by the holders of the Equipment Trust Certificates issued under
that Indenture before proceeding so to act and the Indenture Trustee may not be
held liable for acting in good faith. (Indentures, Section 7.10 and Article XI)
If an Indenture Event of Default occurs and is continuing, any sums held or
received by the Indenture Trustee under the related Indenture may be applied to
reimburse that Indenture Trustee for any tax, expense, charge or other loss
incurred by it and to pay any other amounts due that Indenture Trustee prior to
any payments to holders of the Equipment Trust Certificates with respect to
which that Indenture Event of Default relates. (Indentures, Section 5.03)
Section 1110 of the Bankruptcy Code. Section 1110 of the Bankruptcy Code
provides that the right of lessors, conditional vendors and holders of security
interests with respect to aircraft capable of carrying 10 or more individuals
or 6,000 pounds or more of cargo used by air carriers operating under
certificates issued by the Secretary of Transportation under Chapter 447 of the
Transportation Code to take possession of that aircraft in compliance with
provisions of the lease, conditional sale contract or security agreement, as
the case may be, is not affected by:
. the automatic stay provision of the Bankruptcy Code, which provision
enjoins the taking of any action against a debtor by a creditor;
. the provision of the Bankruptcy Code allowing the trustee in
reorganization or the debtor-in-possession to use, sell or lease
property of the debtor;
. the confirmation of a plan by the bankruptcy court; and
. any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor, conditional
vendor or holder of a security interest to take possession of an aircraft in
the event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings, unless specifically permitted
by the bankruptcy court, and may not be exercised at all if, within such 60-day
period, the trustee in reorganization or the debtor-
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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. Federal Express has been advised by its special counsel that the
Owner Trustee, as lessor under the related Lease, and the Indenture Trustee, as
assignee of the Owner Trustee's rights under that Lease pursuant to the related
Indenture, are entitled to the benefits of Section 1110 of the Bankruptcy Code
with respect to the related Aircraft.
A decision by the United States District Court for the District of Colorado
in connection with the Western Pacific Airlines, Inc. bankruptcy suggests that
the protections of Section 1110 become unavailable to the lessor or security
interest holder once the bankruptcy trustee or debtor-in-possession makes the
agreement referred to above and cures outstanding defaults, with the result,
among others, that the ability of a lessor or security interest holder to
exercise remedies based on a subsequent default would be subject to the
automatic stay. Davis Polk & Wardwell, special counsel to Federal Express in
respect of this transaction, is of the opinion that the Western Pacific
Airlines holding is erroneous because it is inconsistent with the overriding
purpose of Section 1110 to protect lessors of, and creditors secured by,
qualifying aircraft against being stayed from exercising their rights while
defaults under their leases or financing agreements remain uncured. The above-
referenced decision in Western Pacific Airlines is currently under appeal.
Marketability of Aircraft. It is impossible to predict the resale value for
any Aircraft to be sold upon the exercise of the Indenture Trustee's remedies
under the related Indenture. The market for aircraft, whether new or used, is
and will be affected by many factors including, among other things, the supply
of similarly equipped aircraft of the same make and model, the demand for those
aircraft by air carriers and the cost and availability of financing to
potential purchasers of those aircraft. Each of these factors, in turn, will be
affected by various circumstances including, among other things, current and
anticipated demand for passenger and cargo air services, the relative capacity
of air carriers to provide those services, the current and projected
profitability of providing those services, the economic condition of the
domestic and international airline industries and global economic and financial
developments generally.
The marketability of a particular aircraft will also be affected by factors
such as:
. the reputation and actual performance record of the air carrier with
respect to maintenance
. the compliance of the aircraft with federal noise and other
environmental standards and
. the degree of technical and other support available from the
manufacturer of the aircraft.
Since the market for aircraft will fluctuate over time to reflect changes in
these and other circumstances, and because of the unique factors that would
affect market value in a forced disposition of an aircraft, there is no
assurance that the net proceeds realized from the sale or other disposition of
any Aircraft in the exercise of any remedies will be sufficient to satisfy in
full amounts due and payable on the related Equipment Trust Certificates.
Modification of Agreements
Without the consent of the holders of more than 50% in aggregate principal
amount of the outstanding Equipment Trust Certificates under an Indenture, the
provisions of that Indenture, the related Lease, Participation Agreement and
Trust Agreement may not be amended or modified, except to the extent indicated
below. (Indentures, Sections 8.01 and 13.01) See also "Description of the Pass
Through Certificates--New Owner Participants; Modification of Documents" for a
discussion of the changes that may be made to the documents relating to the
Aircraft.
Some provisions of the Indentures, the Leases (including provisions relating
to maintenance, operation, subleasing and possession of the Aircraft), the
Participation Agreements and the Trust Agreements may be amended or modified
without the consent of the holders of the related Equipment Trust Certificates.
Without
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the consent of each holder of an Equipment Trust Certificate affected by any
amendment or modification and the Liquidity Provider, no amendment or
modification of the Indenture pursuant to which that Equipment Trust
Certificate was issued or the related Lease or Participation Agreement may:
. reduce the principal amount of or any Make-Whole Premium or interest
payment payable on that Equipment Trust Certificate or change the date
on which any principal, any Make-Whole Premium or interest payment is
due and payable or otherwise affect the terms of payment of that
Equipment Trust Certificate;
. reduce the amount of any rental payment payable by Federal Express below
the amount required to pay all principal of, any premium and interest on
all of those Equipment Trust Certificates and amounts due to the
Liquidity Provider as and when due and payable other than with respect
to any Lessor Paid Interim. See "The Leases--Terms and Rentals" below;
. to the extent payable to that holder, extend the time of, or reduce the
aggregate amount of, or release Federal Express from its obligation to
pay, rent, stipulated loss value or any other amounts payable under, or
as provided in, that Lease upon the occurrence of an Event of Loss or
termination value and any other amounts payable under, or as provided
in, that Lease upon the termination of that Lease with respect to the
applicable Aircraft;
. create any security interest with respect to the property subject to the
Lien of such Indenture ranking prior to or on a parity with the security
interest created by that Indenture or deprive the holder of any of those
Equipment Trust Certificates of the Lien of that Indenture upon the
property subject to that Lien; or
. reduce the percentage of the aggregate principal amount of such
Equipment Trust Certificates necessary to modify or amend any provision
of that Indenture or to waive compliance with those provisions.
(Indentures, Section 8.01 and Article XIII)
The Indenture Trustee
Each Indenture provides that in the case of any Indenture Event of Default
under that Indenture, the related Indenture Trustee will exercise the rights
and powers vested in it by that Indenture, and use the same degree of care and
skill in its exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. Generally, the
Indenture Trustee will not be liable for any error of judgment made in good
faith, unless the Indenture Trustee is negligent in ascertaining the pertinent
facts, or for any action taken or omitted to be taken by it in good faith in
accordance with the direction of the holders of not less than a majority in
aggregate principal amount of the outstanding Equipment Trust Certificates
issued under that Indenture. Subject to those provisions, the Indenture Trustee
is under no obligation to exercise any of its rights or powers under that
Indenture at the request of any holder of Equipment Trust Certificates issued
under that Indenture unless such holder has offered to the Indenture Trustee
reasonable security or indemnity. Each Indenture provides that the related
Indenture Trustee may acquire and hold Equipment Trust Certificates issued
under that Indenture and the Indenture Trustee may otherwise deal with the
related Owner Trustee and Federal Express with the same rights it would have if
it were not the Indenture Trustee. (Indentures, Sections 9.02, 9.03, 9.05 and
15.12)
The Leases
The following description is only a summary of the provisions of the Lease
relating to each Aircraft. The prospective Owner Participants for the Aircraft
may request revisions to the related Leases so that their terms may differ from
this description.
General. The Aircraft are expected to be delivered by the manufacturer and
leased by Federal Express from the related Owner Trustee between July and
October 1999. As of June 15, 1999, Federal Express operated 32 Airbus A300F4-
605R freighter aircraft under lease.
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Terms and Rentals. The Aircraft are expected to be (unless Federal Express
is required to purchase any Aircraft as described in this prospectus
supplement), leased separately by the related Owner Trustee to Federal Express
for a term commencing on the date of the delivery of the related Aircraft to
that Owner Trustee and expiring on a date not earlier than the latest maturity
date of the related Equipment Trust Certificates, unless previously terminated
or extended, as permitted by the related Lease. The scheduled rental payments
by Federal Express under each Lease are payable on each January 15 and July 15.
Under the related Indenture, the related Owner Trustee will assign to the
related Indenture Trustee, the scheduled rental payments, together with other
specified payments that Federal Express is obligated to make or cause to be
made under the related Lease and, in the case of any Lessor Paid Interim, under
the related Participation Agreement to provide the funds necessary to make
payments of principal and interest due from that Owner Trustee on the Equipment
Trust Certificates issued under that Indenture and a proportionate part of the
Liquidity Obligations. (Leases, Article 3; Indentures, Granting Clause and
Section 3.01)
After the related Prefunding Period, under no circumstances other than with
respect to any Lessor Paid Interim as described below will the scheduled rental
payments that Federal Express is unconditionally obligated to make or cause to
be made under any Lease on the related payment dates be less than the aggregate
amount of principal and interest payable on those dates on the Equipment Trust
Certificates issued under the Indenture relating to that Lease. (Leases,
Section 3.05) Federal Express' obligations to make rental payments and to cause
other payments to be made under each Lease are general obligations of Federal
Express.
The related Lease for any Aircraft may provide for an interim period in
which Federal Express will have the use of the related Aircraft for a limited
period at the beginning of the lease term without the accrual of any rent. The
related Owner Participant will be obligated to pay to the Owner Trustee an
amount equal to any Lessor Paid Interim. To the extent that the respective
Owner Participant does not make the required payment, Federal Express will be
obligated under the related Participation Agreement to make a loan to the
related Owner Trustee. The proceeds of such loan will be paid to the Indenture
Trustee and will be sufficient to make the payments of principal and interest
accrued on the Equipment Trust Certificates.
Net Lease. Federal Express' obligations under each Lease are those of a
lessee under a "net lease." Accordingly, Federal Express is obligated to pay
all costs of operating the Aircraft and, at its expense, to maintain, inspect,
service, repair, test and overhaul the Aircraft so as to keep the Aircraft in
as good operating condition as when delivered, ordinary wear and tear excepted,
and to enable its airworthiness certification to be maintained in good standing
at all times under the Transportation Code or, under some circumstances, under
the applicable requirements of the aeronautics authority of another country of
registry of the Aircraft (permitted after December 31, 2006, the latest date
under any Lease). See "Description of the Equipment Trust Certificates--
Registration of the Aircraft" in the prospectus. (Leases, Section 20.01;
Participation Agreements, Section 6.03(b))
Except as discussed below, Federal Express must replace or cause to be
replaced any Aircraft parts that become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use. Any replacement part becomes subject to the related Lease and the Lien of
the related Indenture in lieu of the part replaced. (Leases, Section 8.01;
Indentures, Granting Clause) Federal Express must make all modifications and
additions to each Aircraft necessary to meet the applicable requirements of the
Aeronautics Authority or any other governmental authority with jurisdiction
over Federal Express' operations and aircraft. Federal Express may in good
faith contest the validity or application of any of those requirements in any
reasonable manner that does not involve any material risk of civil liabilities
(unless indemnified against by Federal Express), or any risk of criminal
penalties being imposed on or against the Indenture Trustee, the related Owner
Participant or the Owner Trustee or any material risk of loss, forfeiture or
sale of an Aircraft, and that does not adversely affect the Owner Trustee, its
title or interest in that Aircraft, the Lien of the related Indenture, or the
interests of the Indenture Trustee or the related Owner Participant in that
Aircraft or any related Operative Agreement. (Leases, Section 9.01)
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Federal Express may make other modifications and additions to any Aircraft
so long as those modifications or additions, individually or in the aggregate,
do not, among other things, diminish the value, remaining useful life or
utility of the Airframe, or the value and utility of any Engine, or impair the
condition or state of airworthiness below the value, remaining useful life (in
the case of Airframe only), utility, condition and airworthiness immediately
prior to that modification or addition assuming that such Aircraft was then in
the condition and state of airworthiness required by the related Lease.
Also, in some circumstances, Federal Express may remove parts without
replacement from an Aircraft (and therefore from the Lien of the applicable
Indenture) if Federal Express deems those parts to be obsolete or no longer
suitable or appropriate for use on the Aircraft so long as those removals do
not decrease the remaining useful life, utility, condition or airworthiness of
the Aircraft. With respect to three Leases, although the value of the Aircraft
may be reduced by a removal of parts, the aggregate value of all the parts
removed from the Aircraft and not replaced may not exceed $500,000. (Leases,
Section 9.02)
Subleasing and Possession. In some circumstances, Federal Express is
permitted to sublease any Aircraft or any Engine to:
. a United States air carrier
. an air carrier principally based in and domiciled in specified foreign
countries, or
. any other air carrier that is reasonably acceptable to the Owner Trustee
as evidenced by its prior written consent
provided that, at the time of any sublease to an air carrier other than a
United States air carrier, Federal Express satisfies various conditions and in
the case of a sublease to an air carrier principally based in and domiciled in
specified foreign countries, the United States maintains normal diplomatic
relations with the applicable country.
The term of any sublease must expire not later than the expiration of the
term of the related Lease, and a sublessee may not further transfer possession
of the Aircraft or Engine without the prior written consent of the Owner
Trustee except as provided in the Lease. Any sublease will be subject and
subordinate to the related Lease, Federal Express will remain primarily liable
for the performance of all the terms of the Lease to the same extent as if the
sublease had not occurred. Neither the Owner Trustee nor the Indenture Trustee
will have a security interest in the sublease. (Leases, Section 7.02;
Indentures, Granting Clause)
In addition, subject to specified limitations, Federal Express is permitted
to transfer possession of any Aircraft or Engine other than by lease, including
transfers of possession by Federal Express or any permitted sublessee in
connection with normal interchange or pooling arrangements with some vendors or
air carriers, transfers of possession in connection with maintenance or
modifications, and transfers of possession in connection with the CRAF Program.
Federal Express expects to enroll the Aircraft in one or more stages of the
CRAF Program. Federal Express may also enter into a "wet" lease under which it
has effective control of the Aircraft in the ordinary course of its business,
which will not be considered a transfer of possession under the related Lease.
Federal Express' obligations under the related Lease will continue in full
force and effect notwithstanding any wet lease. (Leases, Section 7.02)
Generally, Federal Express may install an Engine on another aircraft. That
Engine, however, will remain subject to the applicable Lease and to the Lien of
the related Indenture. (Leases, Section 7.02)
Liens. Federal Express must keep each Aircraft free of any Liens, other than
the respective rights of the related Owner Participant, Owner Trustee,
Indenture Trustee, the holders of the related Equipment Trust Certificates and
Federal Express arising under the related Indenture, Lease, Participation
Agreement and Trust Agreement, and other than some limited Liens permitted
under the related Lease including generally:
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. liens for taxes either not yet due or being contested in good faith by
appropriate proceedings, so long as those Liens or proceedings do not
involve any material danger of the sale, forfeiture or loss of the trust
estate of the Owner Trustee, the Aircraft or any interest therein or any
material risk of civil liabilities (unless Federal Express indemnifies
against those liabilities) or any risk of the assertion of criminal
charges against the related Owner Trustee, Owner Participant, Indenture
Trustee or the holder of any related Equipment Trust Certificate;
. materialmen's, mechanic's, workmen's, repairmen's, employees' or other
like Liens arising against Federal Express in the ordinary course of
business for amounts the payment of which is either not yet due or is
being contested in good faith by appropriate proceedings, so long as
those Liens or proceedings do not involve any material danger of the
sale, forfeiture or loss of the trust estate of the Owner Trustee, the
Aircraft or any interest in that trust estate or Aircraft; and
. liens arising from judgments or awards against Federal Express with
respect to which:
- at the time an appeal or proceeding for review is being prosecuted
in good faith and with respect to which there has been secured a
stay of execution pending that appeal or proceeding for review and
then only for the period of the stay and
- there is not, and those proceedings do not involve, any material
danger of the sale, forfeiture or loss of the trust estate of the
related Owner Trustee, the Aircraft or any interest in that trust
estate or Aircraft. (Leases, Section 6.01)
Insurance. For each Aircraft, Federal Express will generally be obligated to
carry comprehensive airline liability insurance, including passenger legal
liability insurance, property damage liability insurance and cargo legal
liability insurance, as described below. The insurance must be in the amounts,
against the risks and with the retentions that Federal Express customarily
maintains on similar aircraft and engines in Federal Express' fleet. The
insurance must also be with insurers of recognized responsibility and against
those other risks as is usually carried by similar corporations situated
similarly to Federal Express and engaged in the same or similar business to
Federal Express and owning or operating aircraft and engines similar to the
Aircraft and the engines.
Federal Express will also be obligated to carry, with insurers of recognized
responsibility, all-risk ground and flight aircraft hull insurance, which may
not be in an amount below the applicable stipulated loss value, which is an
amount at least sufficient to pay in full the amount of the related Equipment
Trust Certificates scheduled to be outstanding on the applicable date, covering
the related Aircraft and all-risk coverage with respect to the related engines
and parts while temporarily removed from the Aircraft and not replaced by
similar engines or parts, as described below. That insurance includes war-risk
and allied perils, hijacking and governmental confiscation and expropriation
insurance, except in the country of registry. That insurance must be in the
form and amounts, and with the retentions that Federal Express customarily
maintains with respect to other aircraft in Federal Express' fleet of the same
type and model and operating on the same routes as the related Aircraft.
Federal Express may self-insure against the risks required to be insured
against under the related lease in such reasonable amounts as are then
applicable to other aircraft or engines of Federal Express of value comparable
to the related Aircraft. Self-insurance for all aircraft in Federal Express'
fleet may not, however, in the aggregate exceed for any 12-month policy year an
amount equal to the lesser of 50% of the highest insured value of any single
aircraft in such fleet, or 1.5% of the average aggregate insured value from
time to time of Federal Express' entire aircraft fleet, provided that a
standard deductible per occurrence per aircraft no greater than the amount
customarily allowed as a deductible in the industry will be permitted in
addition to that self-insurance. (Leases, Article 13)
Operation. Federal Express may not operate or locate an Aircraft, or allow
that Aircraft to be operated or located in any area excluded from coverage by
any insurance policy required by the related Lease or in any war
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zone or, in Federal Express' reasonable judgment, area of recognized
hostilities unless Federal Express has obtained prior to the operation or
location of the Aircraft in that area, indemnification from the United States
government, or other insurance, against the risks and in the amounts required
by the related Lease covering that area or unless the Aircraft is only
temporarily located in that area as a result of an isolated occurrence
attributable to a hijacking, medical emergency, equipment malfunction, weather
conditions, navigational error or other similar unforeseen circumstances and
Federal Express is using good faith efforts to remove the Aircraft from that
area. If an Aircraft is requisitioned for use by the United States government,
the Aircraft may be flown or located in an area described in the preceding
sentence without indemnification or insurance in lieu of indemnification from
the United States government if Federal Express certifies that such insurance
is unobtainable after diligent effort or is obtainable only at unreasonably
high rates or on unduly burdensome terms and conditions. (Leases, Sections
7.01(f) and 13.01(a))
Termination. So long as no Lease Event of Default under the related Lease is
continuing, Federal Express may on any scheduled rent payment date under that
Lease on or after a date specified in the related Lease on specified notice
terminate that Lease if a designated officer of Federal Express certifies that
the related Aircraft has become obsolete or surplus to Federal Express'
operations. Federal Express, as non-exclusive agent for such Owner Trustee,
must then use reasonable efforts to obtain bids for the cash purchase of the
Aircraft on the proposed termination date. The related Owner Trustee may seek
bids but the related Owner Participant may not inspect any bids obtained by
Federal Express unless the Owner Participant has agreed that neither it nor any
of its affiliates nor any party acting for it or any of those affiliates will
submit a bid. Neither Federal Express nor any person, firm or corporation
affiliated with Federal Express (or with whom or which there is any arrangement
or understanding as to the subsequent use of the Aircraft by Federal Express or
any of its affiliates) or any agent or person acting on behalf of Federal
Express may submit a bid (Leases, Section 10.01)
On the termination date (or an earlier date of sale which may be consented
to in writing by the related Owner Trustee), the Owner Trustee must sell the
Aircraft to the party submitting the highest cash bid, subject, however, to
Federal Express' right to reject any bid that is less than the applicable
termination value (which is an amount at least sufficient to pay in full the
aggregate unpaid principal amount of the related Equipment Trust Certificates
plus accrued but unpaid interest) plus any Make-Whole Premium. The sales
proceeds will be paid to the related Indenture Trustee. If the sales proceeds
are less than the applicable termination value, Federal Express must pay the
Indenture Trustee an amount equal to that deficiency, together with other
specified amounts, which under any circumstance will be sufficient to satisfy
all amounts due to the holders of the related Equipment Trust Certificates
under the Lease, the related Indenture and Participation Agreement. Upon that
payment, the Equipment Trust Certificates will be prepaid in full. (Leases,
Section 10.01; Indentures, Section 6.02) See "Description of the Equipment
Trust Certificates--Prepayment".
The Lien of the related Indenture will terminate when the related Equipment
Trust Certificates and all other amounts secured by the Lien have been paid in
full and, if all amounts due to the related Owner Participant in respect of
that Aircraft have also been paid, the related Lease will terminate and Federal
Express' obligation to make rental payments will cease. If the Aircraft is not
sold on or before the proposed termination date, the related Lease, including
all of Federal Express' obligations under that Lease, will continue in full
force and effect and the related Equipment Trust Certificates will remain
outstanding. (Leases, Article 10; Indentures, Sections 6.02 and 14.01)
After receiving a termination notice from Federal Express, the related Owner
Trustee may elect to retain title to the Aircraft. It is an absolute condition
to the Owner Trustee's right to retain title that the holders of the related
Equipment Trust Certificates receive the aggregate principal amount of those
Equipment Trust Certificates together with accrued but unpaid interest, any
Make-Whole Premium and any other sums due and payable to the related Indenture
Trustee or those holders under the related Lease, Indenture or Participation
Agreement. Unless the related Owner Trustee elects to retain the Aircraft or a
cash bid is received that Federal Express may not reject in connection with the
sale, Federal Express may revoke its notice of termination with respect to that
Aircraft not less than 15 days in the case of two Leases and not less than 10
days in the case of two other Leases, prior to the proposed termination date.
(Leases, Article 10)
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Generally, Federal Express may, at any time upon 30 days' prior notice,
substitute for any Engine not then installed or held for use on the related
Aircraft another engine of the same make and model (or, under some
circumstances, engines of another manufacturer) and having a value and utility
at least equal to, and being in as good operating condition as, such Engine,
assuming that Engine was of the value, utility and remaining useful life, and
in the condition and repair required by the related Lease immediately prior to
that substitution. Following any replacement, all Engines on that Aircraft
must be of identical make and model and any replacement engine of a different
manufacturer than the original Engines on that Aircraft must then be commonly
used in the commercial aviation industry on Airbus A300-600 airframes.
(Leases, Article I, Sections 10.03 and 11.04)
Purchase Options. Federal Express may elect to purchase any Aircraft and
terminate the related Lease:
. on a scheduled rent payment date specified in the related Lease
. under some circumstances, on a scheduled rent payment date, if Federal
Express is required at any time on or after the fifth anniversary of the
delivery date of such Aircraft (the earliest date under any Lease) to
make non-severable improvements to such Aircraft in excess of a
designated amount, or
. under some circumstances, on a scheduled rent payment date, if Federal
Express would be required at any time on or after the fifth anniversary
of the delivery date of such Aircraft (the earliest date under any
Lease) to make specified indemnity payments in excess of a certain
designated amount, which indemnity payments could be avoided through a
purchase by Federal Express of such Aircraft.
In connection with any such purchase, Federal Express is required with
respect to the Equipment Trust Certificates relating to the Aircraft being
purchased either:
. to pay to the related Owner Trustee funds at least sufficient to pay any
principal of and interest and any Make-Whole Premium on those Equipment
Trust Certificates or
. to assume the obligations of the related Owner Trustee under those
Equipment Trust Certificates, the related Indenture and the related
Participation Agreement. (Indentures, Article I; Leases, Section 4.02)
If Federal Express elects to purchase the Aircraft and pay to the related
Owner Trustee an amount at least sufficient to pay any principal of, interest
and any Make-Whole Premium on the Equipment Trust Certificates, then upon
payment to the related Owner Trustee of the full purchase price for that
Aircraft determined in accordance with that Lease and all other amounts owing
to the parties to the related Participation Agreement, that Owner Trustee will
transfer all of its right, title and interest in and to that Aircraft to
Federal Express and the related Lease and the Lien of the related Indenture
will terminate. If Federal Express elects to purchase the Aircraft and assume
the obligations of that Owner Trustee under those Equipment Trust
Certificates, the related Indenture and Participation Agreement, then the
related Operative Agreements will be amended to provide for the assumption of
such obligations on a full recourse basis by Federal Express, maintaining for
the benefit of the holders of such Equipment Trust Certificates the security
interest in that Aircraft created by the related Indenture. Upon payment to
that Owner Trustee of the full purchase price for the Aircraft being purchased
determined in accordance with the related Lease and all other amounts owing to
the parties to the related Participation Agreement, that Owner Trustee will
transfer all of its right, title and interest in and to that Aircraft to
Federal Express and the related Lease will terminate. See "Federal Income Tax
Consequences--General" in the prospectus. (Leases, Section 4.02; Participation
Agreements, Section 7.11)
At the end of the term of each Lease, after the final maturity of the
related Equipment Trust Certificates, Federal Express has options to renew
that Lease or purchase the related Aircraft. (Leases, Article 4)
Events of Loss. If an Aircraft suffers an Event of Loss, Federal Express
must, within 60 days of the date of the Event of Loss, elect either:
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. to pay to the related Owner Trustee the applicable stipulated loss
value, which is an amount at least sufficient to pay in full the
aggregate unpaid principal amount of the related Equipment Trust
Certificates plus accrued but unpaid interest, together with other
specified amounts which under any circumstances will be sufficient to
satisfy all amounts due to the holders of such Equipment Trust
Certificates under the related Indenture and Participation Agreement or
. so long as no Lease Event of Default, payment default or bankruptcy
default under the related Lease is continuing, to replace the Aircraft.
Federal Express' failure to make the election within the 60-day period will
be deemed an election to pay the amounts described above. (Leases, Sections
11.01, 11.02 and 11.03)
If Federal Express elects not to replace the Aircraft, Federal Express must
pay the amounts described above on the earlier of:
. the 15th Business Day (the longest period under any Lease) following
receipt in full of insurance proceeds or requisition proceeds in
connection with such Event of Loss and
. the 120th day following the date of the Event of Loss.
If Federal Express elects to replace the Aircraft, it must do so within 120
days from the date of the Event of Loss with:
. an Airbus A300-600 airframe duly certified as an airworthy airframe by
the Aeronautics Authority and having a value, remaining useful life and
utility at least equal to, and being in as good operating condition as,
the Airframe suffering the Event of Loss, assuming that the Airframe was
in the condition and state of airworthiness required to be maintained by
the terms of the related Lease immediately prior to the Event of Loss
and
. a number of engines equal to the number of Engines suffering the Event
of Loss and meeting the requirements for replacement Engines described
below. (Leases, Sections 11.02 and 11.03)
If Federal Express elects to replace the Aircraft but fails to do so within
120 days from the date of Event of Loss, Federal Express must provide as
security to the related Indenture Trustee (as assignee of the related Owner
Trustee) funds in an amount equal to any deficiency between the stipulated loss
value applicable upon the Event of Loss and any amount held by such Indenture
Trustee with respect to the Event of Loss. If Federal Express fails to effect
the replacement within 180 days after the date of the Event of Loss, Federal
Express will be deemed to have elected not to replace the Aircraft and must
immediately pay the balance of the amount described in the first bullet point
of this subsection, including any other amounts owed by Federal Express to the
related Owner Trustee or the related Owner Participant under the related Lease
or Participation Agreement. Those payments will be applied, among other things,
to prepay the outstanding Equipment Trust Certificates under the related
Indenture, whereupon the Lien of that Indenture and the related Lease will
terminate, title to that Aircraft will be transferred to Federal Express and
Federal Express' obligation to make rental payments with respect to that
Aircraft will cease. (Leases, Article 11; Indentures, Sections 5.02 and 6.02)
If a single Engine suffers an Event of Loss, Federal Express must, as soon
as practicable but in any event within 60 days after the date of the Event of
Loss, replace the Engine with another engine of the same make and model (or,
under some circumstances, engines of another manufacturer), and having a value,
utility and remaining useful life, at least equal to, and being in as good
operating condition as, that Engine, assuming that Engine was of the value,
utility and remaining useful life and in the condition and repair required by
the related Lease immediately prior to that Event of Loss. Following any
replacement, all Engines on that Aircraft must be of identical make and model
and any replacement engine of a different manufacturer than the original
Engines must then be commonly used in the commercial aviation industry on A300-
600 airframes operated by Federal Express (and then only if other specified
tests are met). (Leases, Article I and Section 11.04)
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Although there are differences among the Leases, an Event of Loss with
respect to an Aircraft or Engine generally includes any of the following
events:
. loss of that property or its use:
- for a period in excess of 180 days (the longest period under any
Lease) due to theft or disappearance (provided that the specified
periods may be extended up to an additional 180 days (the longest
period under any Lease) if and so long as the location of that
property is known to Federal Express and Federal Express is
diligently pursuing recovery of such property) or
- for a period in excess of 60 days (the longest period under any
Lease) due to the destruction, damage beyond economic repair or
rendition of that property permanently unfit for normal use by
Federal Express for any reason whatsoever;
. any damage to that property which results in an insurance settlement
with respect to that property on the basis of a total loss, or
constructive or compromised total loss;
- condemnation, confiscation or seizure of, or requisition of title to
that property, by any governmental authority or purported
governmental authority, or
- requisition of use of that property by any foreign governmental
authority or purported governmental authority for a period in excess
of 180 days or by the United States or an agency or instrumentality
of the United States for a period extending beyond the term of the
related Lease, except in some limited cases;
. under some circumstances, as a result of any law, rule, regulation,
order or other action by the Aeronautics Authority or other governmental
body having jurisdiction, the use of the Aircraft or related airframe in
the normal course of air transportation of cargo:
- has been prohibited by virtue of a condition affecting all Airbus
A300-600 series aircraft equipped with engines of the same make and
model as the Engines, and the loss of use will continue for some
specified periods which could extend for up to 12 consecutive months
(the longest period under any Lease) or
- has been prohibited for any reason and that loss will continue for
specified periods not exceeding 24 consecutive months (the longest
period under any Lease) during which Federal Express will be
diligently carrying forward all steps necessary or desirable to
permit the normal use of that Aircraft by Federal Express;
. with respect to an Engine, if that Engine is subjected to an interchange
or pooling agreement that divests the Owner Trustee of title to that
Engine; and
. with respect to an Engine, if that Engine is installed on an airframe in
circumstances where that installation is deemed to be an Event of Loss
under the provisions of the applicable Lease. (Leases, Article I and
Section 7.02)
An Event of Loss with respect to an Aircraft is deemed to have occurred if
an Event of Loss occurs with respect to the Airframe of that Aircraft.
Lease Events of Default. Although there are differences among the Leases,
Lease Events of Default generally include the following events, in each case,
occurring after the related delivery date:
. failure by Federal Express to make any scheduled rental payment or any
payment of applicable stipulated loss value or termination value within
ten Business Days after the date when due, except that failure to make
specified payments to the related Owner Participant or Owner Trustee
which are excluded from the Lien of the related Indenture will
constitute a Lease Event of Default at the discretion of that Owner
Participant;
S-56
. failure by Federal Express to pay any other amount under the related
Lease or the related Participation Agreement or any other Operative
Agreement within 30 days after Federal Express has received written
demand for that payment from the person entitled to receive that
payment, except that failure to make specified payments to the related
Owner Participant or Owner Trustee which are excluded from the Lien of
the related Indenture will constitute a Lease Event of Default only at
the discretion of such Owner Participant;
. failure by Federal Express to provide insurance on the related Aircraft
as required under the related Lease at any time, or the lapse or
cancellation of such insurance continued for the earlier of 30 days (the
longest period under any Lease) (or with respect to war risk coverage,
seven days or such shorter time as may be standard in the industry)
after receipt by the related Owner Trustee and other parties designated
as additional insureds under the related Lease of notice of that lapse
or cancellation and the date that lapse or cancellation is effective as
to any additional insured, provided that the above lapse or cancellation
will not be a Lease Event of Default so long as the related Aircraft is
insured as required while on the ground and not operated;
. the related Aircraft is operated at any time when comprehensive airline
liability insurance required to be maintained by that Lease is not in
effect;
. failure by Federal Express to perform or observe any other covenant,
condition or agreement to be performed or observed by it under any
related Operative Agreement or in some agreements entered into in
connection with the transactions contemplated in the related Operative
Agreements, continued unremedied for a period of 30 days after the date
on which Federal Express has received written notice of that failure
from the related Owner Trustee or the related Owner Participant or
Federal Express has actual knowledge of that failure, provided that,
that failure will not constitute a Lease Event of Default so long as
that failure is curable and Federal Express is diligently proceeding to
remedy that failure, but in no event will that failure continue
unremedied for more than 180 days (the longest period under any Lease)
after that notice, and provided further that failure by Federal Express
to perform its covenant to maintain the registration of the related
Aircraft under the Transportation Code solely because the related Owner
Trustee or related Owner Participant has ceased to be a citizen of the
United States will not constitute a default or Lease Event of Default
under that Lease;
. the occurrence of specified events of bankruptcy, reorganization or
insolvency of Federal Express or similar events; or
. any representation or warranty made by Federal Express in the related
Lease or the related Participation Agreement or in specified agreements
made pursuant to the related Lease or the related Participation
Agreement proves at any time to have been incorrect when made in any
respect material to the transactions contemplated by the related Lease
and, if originally made by Federal Express in good faith, remains
material and unremedied for a period of 60 days (the longest period
under any Lease) after receipt by Federal Express of written notice of,
or in the case of three Leases, after Federal Express has actual
knowledge of, such misstatement. (Leases, Article 16; Section 13.01)
There are no cross-default provisions in the Leases and any event resulting
in a Lease Event of Default under any particular Lease will not necessarily
result in a Lease Event of Default under the other Leases.
Remedies. If a Lease Event of Default under a Lease is continuing, the
related Indenture Trustee, as assignee of the related Owner Trustee's rights
under the related Lease, may, subject to specified rights of that Owner Trustee
and the related Owner Participant under the related Indenture, exercise one or
more of the remedies provided in such Lease with respect to the Aircraft
subject to that Lease. Those remedies include the right to repossess the
Aircraft, to sell the Aircraft free and clear of Federal Express' rights, and
to require Federal Express to pay as liquidated damages any due but unpaid rent
plus an amount equal to the excess of the stipulated loss value for the
Aircraft specified in such Lease (which is an amount at least sufficient to pay
in full the aggregate unpaid principal amount of the outstanding related
Equipment Trust Certificates plus accrued
S-57
but unpaid interest thereon) over either the fair market value of the Aircraft
or if the Aircraft has been sold, the net sale proceeds. (Leases, Section
17.01; Indentures, Section 7.02)
The Participation Agreements
Under each Participation Agreement, Federal Express is required to indemnify
the related Indenture Trustee, the Subordination Agent, the related Owner
Participant and the related Owner Trustee, and the affiliates of each of those
parties (but not including the Pass Through Trustee, except as otherwise
provided in the Pass Through Agreement, or the Certificateholders), for
liabilities, losses, fees and expenses and for other matters arising out of the
transactions described in this prospectus supplement or relating to the
applicable Aircraft or the use of the Aircraft. In addition, under some
circumstances Federal Express is obligated to indemnify those persons against
specified taxes, levies, duties, withholdings and for other specified matters
relating to those transactions or the applicable Aircraft. (Participation
Agreements, Articles 8 and 9)
Each Owner Participant is obligated to reimburse Federal Express, the
related Indenture Trustee and the Pass Through Trustee for specified losses
that may be suffered as a result of the failure of that Owner Participant to
discharge specified liens or claims on or against the assets subject to the
Lien of the applicable Indenture. (Participation Agreements, Section 7.03(c)).
Registration of the Aircraft
The Aircraft will be registered under the Transportation Code in the name of
the related Owner Trustee. Each of the Owner Trustee, in its individual
capacity, and Federal Express has represented and warranted that it is a United
States citizen. For any Aircraft, the related Owner Trustee has agreed that if
it has actual knowledge that it has ceased to be a United States citizen at a
time when citizenship is necessary for the registration of that Aircraft in the
United States, or if lack of that knowledge would adversely affect Federal
Express or the related Owner Participant, it will immediately resign as Owner
Trustee and that Owner Participant then may appoint a successor Owner Trustee
that, among other things, is a United States citizen.
If an Owner Participant is not or ceases to be a United States citizen at a
time when that citizenship is necessary for registration of the related
Aircraft in the United States, it is obligated to take one of the following
actions:
. effect a voting trust or other similar arrangement,
. take any action as may be required to maintain the United States
registration of that Aircraft or
. transfer, in accordance with the related Operative Agreements, all of
its interest in that Aircraft to a United States citizen. (Participation
Agreements, Sections 6.01, 7.02 and 7.03; Trust Agreements, Sections
3.11 and 3.12)
Federal Express may, under some circumstances and subject to some
limitations, after December 31, 2006, the latest date under any Lease, register
any Aircraft in some jurisdictions outside of the United States. (Participation
Agreements, Section 6.03(b)) See "Description of the Equipment Trust
Certificates--Registration of the Aircraft" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
See discussion under "Federal Income Tax Consequences" in the accompanying
prospectus.
NEW YORK TAXES
See discussion under "New York Taxes" in the accompanying prospectus.
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ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to ERISA should consider
fiduciary standards under ERISA in the context of the particular circumstances
of that plan before authorizing an investment in the Pass Through Certificates.
That fiduciary should determine whether the investment satisfies ERISA's
diversification and prudence requirements and whether the investment is in
accordance with the documents and instruments governing the plan. In addition,
ERISA and the Code prohibit a wide range of transactions ("Prohibited
Transactions") involving ERISA Plans and persons who have certain specified
relationships to the ERISA Plan ("parties in interest," within the meaning of
ERISA and "disqualified persons," within the meaning of the Code). Those
transactions may require "correction" and may cause an ERISA Plan fiduciary to
incur certain liabilities and the parties in interest or disqualified persons
to be subject to excise taxes.
Each of the Owner Participants, the manufacturers of the Aircraft, the
holders of the Equipment Trust Certificates and Federal Express may be a party
in interest or a disqualified person with respect to an ERISA Plan purchasing
the Pass Through Certificates; therefore, the purchase by an ERISA Plan of the
Pass Through Certificates may give rise to a direct or indirect Prohibited
Transaction. Any person who is, or who in acquiring the Pass Through
Certificates is or may be using the assets of, an ERISA Plan may purchase the
Pass Through Certificates, if that person determines that a statutory or an
administrative exemption from the Prohibited Transaction rules discussed below
or otherwise available is applicable to that person's purchase and holding of
the Pass Through Certificates (or a participation interest therein).
Statutory or administrative exemptions from the Prohibited Transaction rules
under ERISA and the Code may be available to an ERISA Plan which is purchasing
the Pass Through Certificates. Included among these exemptions are: PTCE 90-1,
regarding investments by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by a qualified professional asset manager; PTCE
95-60, regarding investments by insurance company general accounts or PTCE 96-
23, regarding investments by an in-house professional asset manager. Some of
the exemptions, however, do not afford relief from the Prohibited Transaction
rules under Section 406(b) of ERISA and Section 4975(c)(1)(E)-(F) of the Code.
The DOL has issued individual administrative exemptions to some of the
Underwriters which are substantially the same as the administrative exemption
issued to Morgan Stanley & Co. Incorporated (Prohibited Transaction Exemption
90-24 et al., Exemption Application No. D-8019 et al., 55 Fed. Reg. 20,548
(1990) (the "Underwriter Exemption")) which generally exempts from certain of
the Prohibited Transaction rules the initial purchase, the holding and the
subsequent resale by an ERISA Plan of certificates in certain Pass Through
Trusts, the assets of which Pass Through Trust consist of secured credit
instruments that bear interest or are purchased at a discount in transactions
by or between business entities, including qualified Equipment Trust
Certificates secured by leases. The limited relief provided by the DOL in the
Underwriter Exemption is subject to several other conditions, including a
requirement that certificates acquired by an ERISA Plan under the Underwriter
Exemption have received a rating at the time of acquisition by the ERISA Plan
that is in one of the three highest rating categories from either Standard &
Poor's or Moody's. Under the Underwriter Exemption, an Equipment Trust
Certificate secured by a lease will be considered qualified only under certain
circumstances. The Underwriter Exemption also requires that the acquisition of
certificates by an ERISA Plan be on terms, including the price for the
certificate, that are at least as favorable to an ERISA Plan as they would be
in an arm's-length transaction with an unrelated party, and that the rights and
interests evidenced by the certificates must not be subordinated to the rights
and interests evidenced by other certificates of the same trust estate.
The DOL has issued an amendment to the Underwriter Exemption, 62 FR 39,021
(Jul. 21, 1997), which allows the assets of a Pass Through Trust to include a
prefunding account under some circumstances. The relief provided by this
amendment is subject to several conditions, including a requirement that the
prefunding period end no later than the earliest to occur of:
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. the date the amount on deposit in the prefunding account is less than
the minimum dollar amount specified in the pooling and servicing
agreement;
. the date on which an Event of Default occurs under the pooling and
servicing agreement; or
. the date which is the later of three months or 90 days after the closing
date.
Those restrictions on prefunding accounts may not be applicable in certain
circumstances where, although certain of the equipment securing Equipment Trust
Certificates held by the trust have not been delivered on the date of the
issuance of such Equipment Trust Certificates, such Equipment Trust
Certificates otherwise constitute, at the time an ERISA Plan acquires the Pass
Through Certificates, secured credit instruments that bear interest. However,
there can be no assurance that the DOL would agree that the prefunding
restrictions would not apply in such a case. Moreover, even if such
restrictions would not apply, no monitoring or other measures will be taken to
ensure that all of the conditions of the Underwriter Exemption, as amended,
will be satisfied.
It is clear that the Underwriter Exemption will not apply to subordinated
classes of certificates, such as the Class B Pass Through Certificates or the
Class C Pass Through Certificates. It also appears that the Underwriter
Exemption will not apply to the purchase by Class B Certificateholders or Class
C Certificateholders of Class A Pass Through Certificates in connection with
the exercise of their rights upon the occurrence and during the continuance of
a Triggering Event. In addition, for the reasons noted above, no assurance can
be given that the Underwriter Exemption will otherwise apply with respect to
any particular transaction involving the Class A Pass Through Certificates or
the assets of the Class A Trust.
If an ERISA Plan acquires a Pass Through Certificate, the ERISA Plan's
assets may include both the Pass Through Certificate acquired and an undivided
interest in the underlying assets of the Pass Through Trust, unless the actual
investment by "benefit plan investors" in the Pass Through Certificates is not
"significant" within the meaning of the DOL plan assets regulations.
Consequently, the Pass Through Trust assets could be deemed to be "plan assets"
of that ERISA Plan for purposes of the fiduciary responsibility provisions of
ERISA and the Prohibited Transaction rules. Any person who exercises any
authority or control with respect to the management or disposition of the
assets of an ERISA Plan is considered to be a fiduciary of that ERISA Plan. The
Pass Through Trustee could, therefore, become a fiduciary of ERISA Plans that
have invested in the Pass Through Certificates and be subject to general
fiduciary requirements of ERISA in exercising its authority with respect to the
management of the assets of the Pass Through Trust. If the Pass Through Trustee
becomes a fiduciary with respect to the ERISA Plans purchasing the Pass Through
Certificates, there may be an improper delegation by such ERISA Plans of the
responsibility to manage plan assets. In order to avoid those prohibited
transactions, each investing ERISA Plan, by purchasing the Pass Through
Certificates, will be deemed to have directed the Pass Through Trust to invest
in the assets held in that trust. Any ERISA Plan purchasing the Pass Through
Certificates must ensure that any statutory or administrative exemption from
the Prohibited Transaction rules on which that ERISA Plan relies with respect
to its purchase or holding of the Pass Through Certificates also applies to
that ERISA Plan's indirect holding of the assets of the Pass Through Trust.
Governmental plans and certain church plans, each as defined under ERISA,
are not subject to the Prohibited Transaction rules. Those plans may, however,
be subject to federal, state or local laws or regulations which may affect
their investment in the Pass Through Certificates. Any fiduciary of such a
governmental or church plan considering a purchase of the Pass Through
Certificates must determine the need for, and the availability, if necessary,
of any exemptive relief under any of those laws or regulations.
The above discussion is general in nature and is not intended to be all
inclusive. Any fiduciary of an ERISA Plan, governmental plan or church plan
considering the purchase and holding of the Pass Through Certificates should
consult with its legal advisors regarding the consequences of that purchase and
holding. By its purchase and acceptance of a Pass Through Certificate, each
Certificateholder will be deemed to have represented and warranted that either:
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. no ERISA Plan assets have been used to purchase that Pass Through
Certificate, or
. one or more prohibited transaction statutory or administrative
exemptions applies such that the use of that ERISA Plan's assets to
purchase and hold that Pass Through Certificate will not constitute a
non-exempt Prohibited Transaction.
Each ERISA Plan fiduciary (and each fiduciary for a governmental or church
plan subject to rules similar to those imposed on ERISA plans under ERISA)
should consult with its legal advisor concerning an investment in any of the
Pass Through Certificates.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
Federal Express and the Underwriters listed below relating to the Pass Through
Certificates, Federal Express has agreed to cause each Pass Through Trust to
sell to each of the Underwriters, and each of the Underwriters has severally
agreed to purchase the respective aggregate amounts of Pass Through
Certificates indicated beside their names below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to the specified
conditions precedent and that the Underwriters will be obligated to purchase
all of the Pass Through Certificates if any Pass Through Certificates are
purchased under the Underwriting Agreement.
Percentage Total Aggregate
of Aggregate Amount of Pass
Amount of Through
Underwriters Each Class Certificates
------------ ------------ ---------------
Morgan Stanley & Co. Incorporated........... % $
Credit Suisse First Boston Corporation......
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................
Salomon Smith Barney Inc....................
---- -----
100% $
==== =====
The Underwriters have advised Federal Express that the Underwriters propose
initially to offer the Pass Through Certificates of each class to the public at
the public offering price for that class set out on the cover page of this
prospectus supplement, and to various dealers at that price less a concession
not in excess of the amounts for the respective class set out below. The
Underwriters may allow, and those dealers may reallow, a concession to various
other dealers not in excess of the amounts for the respective class set out
below. After the initial public offering, the public offering prices and those
concessions may be changed.
Concession Reallowance
Pass Through Certificate Class to Dealers Concession
------------------------------ ---------- -----------
1999-1-A............................................ % %
1999-1-B............................................
1999-1-C............................................
Federal Express does not intend to apply for the listing of the Pass Through
Certificates on a national securities exchange, but has been advised by the
Underwriters that the Underwriters presently intend to make a market in the
Pass Through Certificates, as permitted by applicable laws and regulations. No
Underwriter is obligated, however, to make a market in the Pass Through
Certificates, and any such market-making may be discontinued at any time at the
sole discretion of that Underwriter. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the Pass Through Certificates.
The Underwriting Agreement provides that Federal Express will reimburse the
Underwriters for all expenses and indemnify the Underwriters against some
liabilities, including liabilities under the Securities Act.
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Some of the Underwriters and some of their affiliates have performed, and
may in the future perform, commercial banking and investment banking services
for Federal Express in the ordinary course of business.
In order to facilitate the offering of the Pass Through Certificates, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Pass Through Certificates. Specifically, the
Underwriters may overallot in connection with the offering, creating a short
position in the Pass Through Certificates for their own account. In addition,
to cover overallotments or to stabilize the price of the Pass Through
Certificates, the Underwriters may bid for, and purchase, Pass Through
Certificates in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an Underwriter or a dealer for
distributing Pass Through Certificates in the offering, if the syndicate
repurchases previously distributed Pass Through Certificates in transactions to
cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Pass
Through Certificates above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
The validity of the Pass Through Certificates offered hereby is being passed
upon for Federal Express by Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York 10017, special counsel for Federal Express, and for the
Underwriters by Shearman & Sterling, 599 Lexington Avenue, New York, New York
10022. Both Davis Polk & Wardwell and Shearman & Sterling may rely on the
opinion of Karen M. Clayborne, Senior Vice President and General Counsel of
Federal Express, as to Federal Express' authorization, execution and delivery
of the Pass Through Agreement and each Series Supplement, and on the opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel for The Bank of New York, as
Pass Through Trustee and in its individual capacity, as to the authorization,
execution and delivery of the Pass Through Agreement, each Series Supplement
and the Pass Through Certificates by The Bank of New York. At June 1, 1999, Ms.
Clayborne owned 11,000 shares of FDX Corporation's common stock and had been
granted options to purchase 66,800 shares of FDX Corporation's common stock. Of
the options granted, 3,750 were vested at such date.
EXPERTS
The consolidated financial statements and schedule of Federal Express
included or incorporated by reference in Federal Express' Annual Report on Form
10-K for the year ended May 31, 1998, and incorporated by reference in this
prospectus supplement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect to the
consolidated financial statements and schedule, and are incorporated by
reference in this prospectus supplement in reliance upon the authority of
Arthur Andersen LLP as experts in giving those reports.
With respect to the unaudited interim financial information for the quarters
ended August 31, 1998, November 30, 1998 and February 28, 1999, included in
Federal Express' Quarterly Reports on Form 10-Q for those periods, which are
incorporated by reference in the prospectus supplement, Arthur Andersen LLP has
applied limited procedures in accordance with professional standards for a
review of that information. However, their separate reports on the unaudited
interim financial information state that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on that information should be restricted in
light of the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the Registration
Statement, of which the prospectus supplement is a part, prepared or certified
by the accountants within the meaning of Sections 7 and 11 of the Securities
Act.
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The references to AvSolutions, MBA and SH&E, and to their respective
appraisal reports, dated June 2, 1999 in the case of AvSolutions, dated June 1,
1999 in the case of MBA and dated June 15, 1999 in the case of SH&E, are
included in this prospectus supplement in reliance upon the authority of each
such firm as an expert with respect to the matters contained in its appraisal
report.
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APPENDIX I
GLOSSARY OF TERMS
The following is a glossary of terms used in this prospectus supplement.
Some of the terms used in this glossary are also used in the Pass Through
Agreement, the Series Supplements, the Indentures, the Intercreditor Agreement,
the Liquidity Facilities or the Leases. We have not restated in their entirety
the definitions in these agreements. You should read the definitions of those
terms contained in these agreements for more detailed information. Unless the
context otherwise requires, references to agreements shall be deemed to mean
and include such agreements as amended and supplemented from time to time, and
references to parties to agreements shall be deemed to include the successors
and permitted assigns of such parties. Please note that the terms used in this
glossary may differ from those used in the related prospectus. When reading the
related prospectus, please refer to the glossary of terms contained in that
prospectus.
"Adjusted Expected Distributions" has the meaning set forth in "Description
of the Intercreditor Agreement--Priority of Distributions".
"Aeronautics Authority" means the Federal Aviation Administration and/or the
administrator thereof or any successor to the United States Civil Aeronautics
Board.
"Aggregate LTV Collateral Amount" has the meaning set forth in "Description
of the Intercreditor Agreement--Priority of Distributions".
"Aircraft" means each of four Airbus A300F4-605R freighter aircraft,
including the Engines relating thereto, expected to be leased by the related
Owner Trustee to Federal Express pursuant to one of four Leases, and,
collectively, means all of the foregoing.
"Airframe" means each of four Airbus A300F4-605R freighter Aircraft
(excluding the Engines or engines from time to time installed thereon) expected
to be leased by the related Owner Trustee to Federal Express pursuant to one of
four Leases, and, collectively, means all of the foregoing.
"Appraisals" means, with respect to each Aircraft, the appraisals related to
such Aircraft by each of the Appraisers.
"Appraised Current Market Value" has the meaning set forth in "Description
of the Intercreditor Agreement--Priority of Distributions".
"Appraisers" means, collectively, AvSolutions, MBA and SH&E.
"Assumed Aggregate Aircraft Value" means the Assumed Aircraft Value of all
of the Aircraft.
"Assumed Aircraft Value" means, with respect to each Aircraft and date, the
assumed value of such Aircraft on such date based on the assumptions set forth
under "Prospectus Summary--Loan to Aircraft Value Ratios".
"Authenticating Agent" means, for each Pass Through Trust, The Bank of New
York.
"Average Life Date" has the meaning set forth in "Description of the
Equipment Trust Certificates-- Prepayment".
"AvSolutions" means AvSolutions, Inc., one of the Appraisers.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor thereto.
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"Business Day" means any day other than a Saturday, a Sunday or other day on
which commercial banks in New York, New York, Memphis, Tennessee or the city in
which the office or agency in the United States is maintained by the Pass
Through Trustee for the payment of the Pass Through Certificates are authorized
or required by law to close, and after the lien of the Indenture is discharged,
Hartford, Connecticut.
"Cash Account" means, for each of the Class A and Class B Trust, an eligible
deposit account in the name of the Subordination Agent into which all amounts
drawn under the related Liquidity Facility will be deposited.
"Cede" means Cede & Co., as nominee for DTC.
"Certificateholder" means, for any Pass Through Trust, the registered holder
of any Pass Through Certificate issued by such Pass Through Trust and, with
respect to the discussion under "New York Taxes" and "Federal Income Tax
Consequences" in the prospectus, also means persons having a beneficial
interest in a Pass Through Certificate.
"Class A Certificateholders" means any holder of one or more Class A Pass
Through Certificates.
"Class A Pass Through Certificates" means Federal Express Corporation Pass
Through Certificates, 1999-1-A.
"Class A Trust" means Federal Express Corporation 1999-1 Pass Through Trust
Class A.
"Class B Certificateholders" means any holder of one or more Class B Pass
Through Certificates.
"Class B Pass Through Certificates" means Federal Express Corporation Pass
Through Certificates, 1999-1-B.
"Class B Trust" means Federal Express Corporation 1999-1 Pass Through Trust
Class B.
"Class C Certificateholders" means any holder of one or more Class C Pass
Through Certificates.
"Class C Pass Through Certificates" means Federal Express Corporation Pass
Through Certificates, 1999-1-C.
"Class C Trust" means Federal Express Corporation 1999-1 Pass Through Trust
Class C.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collateral Account" means the Collateral Account established pursuant to
the Indentures.
"Collection Account" means an eligible deposit account established by the
Subordination Agent which the Subordination Agent will make deposits in and
withdrawals from in accordance with the Intercreditor Agreement.
"Controlling Party" has the meaning set forth in "Description of the
Intercreditor Agreement--Intercreditor Rights; Control of Remedies".
"CRAF Program" means the Civil Reserve Air Fleet Program.
"Current Distribution Date" means a Distribution Date specified as a
reference date for calculating the Adjusted Expected Distributions or Expected
Distributions with respect to the Pass Through Certificates of any Pass Through
Trust as of such Distribution Date.
"Cut-off Date" means, with respect to any Aircraft, January 15, 2000.
A-I-2
"Distribution Date" means, with respect to any Aircraft, any Regular
Distribution Date or Special Distribution Date.
"DOL" means the United States Department of Labor.
"Downgrade Drawing" means, with respect to each Liquidity Facility, a
drawing in an amount equal to all available and undrawn amounts under such
Liquidity Facility in the event that the specified rating of the Liquidity
Provider is lower than the Threshold Rating and such Liquidity Facility is not
replaced within the period specified and as otherwise provided in the
Intercreditor Agreement.
"Drawing" means a Downgrade Drawing, Interest Drawing, Non-Extension Drawing
or Final Drawing, as the case may be.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participants of DTC.
"Engine" means, for each Airbus A300F4-605R freighter Aircraft, each of two
General Electric CF6-80C2-A5F engines, as specified in the related Lease and
any replacement engine therefor pursuant to such Lease.
"Equipment Trust Certificates" means the Equipment Trust Certificates issued
in three series (Series A Equipment Trust Certificates, Series B Equipment
Trust Certificates and Series C Equipment Trust Certificates) by the related
Owner Trustee pursuant to the related Indenture and any certificates issued in
exchange therefor or replacement thereof pursuant to the related Indenture.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means, collectively, a plan subject to ERISA, an individual
retirement account or plan subject to Section 4975 of the Code or an entity
which may be deemed to hold the assets of any such plan.
"Event of Default" means, for each Pass Through Trust, the occurrence and
continuance of an Indenture Event of Default under one or more of the
Indentures pursuant to which the Equipment Trust Certificates constituting
Trust Property of such Pass Through Trust are issued.
"Event of Loss" means, for any Aircraft, each of the events designated as
such in the related Lease. For a description of certain events constituting an
Event of Loss, see "Description of the Equipment Trust Certificates--The
Leases--Events of Loss".
"Expected Distributions" means, with respect to the Pass Through
Certificates of any Pass Through Trust on any Current Distribution Date, the
sum of (1) accrued and unpaid interest on such Pass Through Certificates and
(2) the difference between (x) the Pool Balance of such Pass Through
Certificates as of the immediately preceding Distribution Date and (y) the Pool
Balance of such Pass Through Certificates as of the Current Distribution Date,
calculated on the basis that (A) the principal of the Equipment Trust
Certificates held in such Pass Through Trust has been paid when due and such
payments have been distributed to the holders of such Pass Through Certificates
and (B) the principal of any Equipment Trust Certificates formerly held in such
Pass Through Trust that have been sold pursuant to the Intercreditor Agreement
has been paid in full and such payments distributed to the Certificateholders.
In certain circumstances, premium will be included as part of Expected
Distributions.
"Federal Aviation Administration" means The United States Federal Aviation
Administration and any successor agency or agencies thereto.
A-I-3
"Final Distributions" means, with respect to the Pass Through Certificates
of any Pass Through Trust on any Distribution Date, the sum of (x) the
aggregate amount of all accrued and unpaid interest on such Pass Through
Certificates and (y) the Pool Balance of such Pass Through Certificates as of
the immediately preceding Distribution Date.
"Final Drawing" means, with respect to each Liquidity Facility, a drawing in
an amount equal to all available and undrawn amounts under such Liquidity
Facility in the event that (1) a Liquidity Event of Default has occurred and is
continuing or (2)(A) a Triggering Event has occurred and (B) less than 65% of
the then aggregate outstanding principal amount of all Equipment Trust
Certificates are Performing Equipment Trust Certificates.
"Final Expected Distribution Date" means for the Class A Pass Through
Certificates, for the Class B Pass Through Certificates and for the Class C
Pass Through Certificates.
"Final Legal Distribution Date" means for the Class A Pass Through
Certificates, for the Class B Pass Through Certificates and for the Class C
Pass Through Certificates.
"Guarantor" and "Guaranty" means if the payment and performance obligations
of the Owner Participant relating to an Aircraft have been guaranteed by an
entity affiliated with such Owner Participant, respectively, the "guarantor"
issuing such "guaranty."
"Indenture" means each of the four trust indenture and security agreements
between the related Owner Trustee and the related Indenture Trustee, in each
case under which such Owner Trustee will issue Equipment Trust Certificates
relating to an Aircraft.
"Indenture Event of Default" means, for any Indenture, each of the events
designated as an Event of Default in such Indenture. For a description of
certain events constituting Indenture Events of Default, see "Description of
the Equipment Trust Certificates--Indenture Events of Default, Notice and
Waiver".
"Indenture Trustee" means The Bank of New York, or another bank or trust
company, in its capacity as indenture trustee under each Indenture and any
successor thereunder.
"Intercreditor Agreement" means the agreement among the Pass Through
Trustee, the Subordination Agent and the Liquidity Provider for the Class A
Pass Through Certificates and Class B Pass Through Certificates.
"Interest Drawing" means, with respect to each Liquidity Facility, advances
to be made by the Liquidity Provider thereunder to make interest payments on
the related Pass Through Certificates.
"Issuance Date" has the meaning set forth in "Description of the Pass
Through Certificates--New Owner Participants; Modification of Documents".
"KfW" means Kreditanstalt fur Wiederaufbau, a statutory body organized under
the public law of the Federal Republic of Germany.
"Lease" means each of the four lease agreements between the related Owner
Trustee and Federal Express, in each case under which such Owner Trustee is
expected to lease the related Aircraft to Federal Express.
"Lease Event of Default" means, for any Lease, each of the events designated
as an Event of Default in such Lease. For a description of certain events
generally constituting Lease Events of Default, see "Description of the
Equipment Trust Certificates--The Leases--Lease Events of Default".
A-I-4
"Lessor Paid Interim" means, with respect to each Aircraft, the excess, if
any, of principal and interest that accrues on the related Equipment Trust
Certificates prior to the first or second Regular Distribution Dates following
the delivery date of the related Aircraft over the amount of rent Federal
Express is obligated to pay on the first or second scheduled rental payment
dates under the related Lease.
"LIBOR" means the London Interbank Offered Rate.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest or other similar interest.
"Liquid Collateral" means all amounts and securities deposited from time to
time in the Collateral Account and all the products, investments, earnings and
proceeds of the foregoing, including, but not limited to, all proceeds of the
investment or conversion thereof, voluntary or involuntary, into cash,
Specified Investments or other property, all rights to payment of any and every
kind, and other forms of obligations, and instruments and other property which
at any time constitute all or part of, or are included in, the proceeds of any
of the foregoing.
"Liquidity Event of Default" means, for any Liquidity Facility, each of the
events designated as a Liquidity Event of Default under such Liquidity
Facility. For a description of the events constituting Liquidity Events of
Default, see "Description of the Liquidity Facilities--Liquidity Events of
Default".
"Liquidity Expenses" means all Liquidity Obligations other than (1) the
principal amount of any Drawings under the Liquidity Facilities and (2) any
interest accrued on any Liquidity Obligations.
"Liquidity Facility" means, for each of the Class A Trust and Class B Trust,
a separate irrevocable revolving credit agreement entered into by the
Subordination Agent and the Liquidity Provider.
"Liquidity Obligations" means, with respect to any Liquidity Facility, the
obligations of the Subordination Agent to reimburse the Liquidity Provider for
all amounts owing to the Liquidity Provider under such Liquidity Facility.
"Liquidity Provider" means KfW, and any successor or permitted replacement
thereof.
"LTV" means the applicable loan to aircraft value ratio, calculated as set
forth in "Prospectus Summary--Loan to Aircraft Value Ratios".
"LTV Appraisal" has the meaning set forth in "Description of the
Intercreditor Agreement--Priority of Distributions".
"LTV Collateral Amount" has the meaning set forth in "Description of the
Intercreditor Agreement--Priority of Distributions".
"LTV Ratio" has the meaning set forth in "Description of the Intercreditor
Agreement--Priority of Distributions".
"Make-Whole Premium" has the meaning set forth in "Description of the
Equipment Trust Certificates-- Prepayment".
"Mandatory Document Terms" means certain required specified terms in the
related Participation Agreement, Lease, Trust Agreement and Indenture to be
contained in such documents upon the transfer by Federal Express to such Owner
Participant of such beneficial interest. For a description of such terms, see
"Description of the Pass Through Certificates--New Owner Participants;
Modification of Documents".
A-I-5
"Mandatory Economic Terms" means certain required specified terms in the
related Participation Agreement, Lease, Trust Agreement and Indenture to be
contained in such documents upon the transfer by Federal Express to such Owner
Participant of such beneficial interest. For a description of such terms, see
"Description of the Pass Through Certificates--New Owner Participants;
Modification of Documents".
"MBA" means Morten Beyer and Agnew, Inc., one of the Appraisers.
"Minimum Sale Price" means, with respect to any Aircraft or the Equipment
Trust Certificates issued in respect of such Aircraft, at any time, the lesser
of (1) 75% of the Appraised Current Market Value of such Aircraft and (2) the
aggregate outstanding principal amount of such Equipment Trust Certificates,
plus accrued and unpaid interest thereon.
"Moody's" means Moody's Investors Service, Inc.
"Non-Extension Drawing" means, with respect to any Replacement Facility, a
drawing in an amount equal to all available and undrawn amounts under such
Replacement Facility in the event that such Replacement Facility is scheduled
to expire (after giving effect to any extensions of the maturity thereof) prior
to the date which is 15 days later than the Final Legal Distribution Date and
such Replacement Facility is not replaced.
"Non-Performing Equipment Trust Certificates" means Equipment Trust
Certificates other than Performing Equipment Trust Certificates.
"Operative Agreements" means, for any Aircraft, the related Indenture,
Equipment Trust Certificates, Participation Agreement, Lease, Trust Agreement,
Intercreditor Agreement, Liquidity Facilities and any other related documents
defined as such in such Participation Agreement, except that for purposes of
the default described in clause (d) of "Description of the Equipment Trust
Certificates--The Leases--Lease Events of Default", the separate tax indemnity
agreement between Federal Express and the related Owner Participant is not an
Operative Agreement.
"Owner Participant" means the owner participant named in the related Trust
Agreement.
"Owner Trust" means each of the four trusts created pursuant to each Trust
Agreement.
"Owner Trustee" means State Street Bank and Trust Company of Connecticut,
National Association, or successor bank or trust company, in its capacity as
owner trustee of the four Owner Trusts.
"Participation Agreement" means the agreement among Federal Express, the
related Indenture Trustee, the related Owner Trustee, the Pass Through Trustee
and the Subordination Agent, and that is defined as the "Participation
Agreement" in the related Indenture and pursuant to which the Pass Through
Trustee agrees to purchase from such Owner Trustee the Equipment Trust
Certificates issued under such Indenture.
"Pass Through Agreement" means the Pass Through Trust Agreement dated as of
June 1, 1999, between Federal Express and The Bank of New York, in accordance
with which the Pass Through Trusts will be formed pursuant to the Series
Supplements.
"Pass Through Certificates" means the Federal Express Corporation Pass
Through Certificates, 1999-1-A, Federal Express Corporation Pass Through
Certificates, 1999-1-B and Federal Express Corporation Pass Through
Certificates, 1999-1-C, to be issued by the related Pass Through Trustee
pursuant to the Pass Through Agreement and the related Series Supplements and
which represent the fractional undivided interests in the related Pass Through
Trusts.
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"Pass Through Trust" means Federal Express Corporation 1999-1 Pass Through
Trust Class A, Federal Express Corporation 1999-1 Pass Through Trust Class B
and Federal Express Corporation 1999-1 Pass Through Trust Class C, each to be
formed pursuant to the related Series Supplement in accordance with the Pass
Through Agreement.
"Pass Through Trustee" means The Bank of New York in its capacity as pass
through trustee under the Pass Through Agreement, as supplemented by each
Series Supplement, for each Pass Through Trust, and its successors and assigns
thereunder.
"Paying Agent" means, for each Pass Through Trust, The Bank of New York.
"Performing Certificate Deficiency" means any time that less than 65% of
the then aggregate outstanding principal amount of all Equipment Trust
Certificates are Performing Equipment Trust Certificates.
"Performing Equipment Trust Certificates" means Equipment Trust
Certificates with respect to which there is no payment default (without giving
effect to any acceleration thereof). In the event of a bankruptcy proceeding
involving Federal Express under Title 11 of the Bankruptcy Code, (1) any
payment default existing during the 60-day period under Section 1110(a)(1)(A)
of the Bankruptcy Code (or such longer period as may apply under Section
1110(b)) (the "Section 1110 Period") will not be taken into consideration,
unless during the Section 1110 period the trustee in such proceeding or
Federal Express refuses to assume or agree to perform its obligations under
the Lease related to such Equipment Trust Certificates, and (2) any payment
default occurring after the date of the order of relief in such proceeding
will not be taken into consideration if such payment default is cured under
Section 1110(a)(1)(B) before the later of 30 days after the date of such
default or the expiration of the Section 1110 period.
"Pool Balance" means, for any Pass Through Trust or for the Pass Through
Certificates issued by any Pass Through Trust, as of any date, the original
aggregate face amount of the Pass Through Certificates of such Pass Through
Trust less the aggregate amount of all payments on such Pass Through
Certificates other than payments made in respect of interest or premium or
reimbursement of any costs and expenses in connection therewith. See
"Description of the Pass Through Certificates--Pool Balance".
"Prefunding Period" means, for each Aircraft, the period, if any,
commencing on the date of the issuance of the Pass Through Certificates to but
not including the delivery date of such Aircraft or, if delivery of such
Aircraft does not occur, to but not including the date of prepayment of the
related Equipment Trust Certificates.
"Prohibited Transactions" has the meaning set forth in "ERISA
Considerations".
"Prospectus" means the prospectus relating to Pass Through Certificates
dated June 10, 1999.
"PTCE" means, in connection with ERISA considerations, the Prohibited
Transaction Class Exemption.
"PTC Event of Default" means, for any class of Pass Through Certificates,
failure of the Pass Through Trustee to pay within 10 business days of the due
date thereof (i) the outstanding Pool Balance of the class of Pass Through
Certificates on the Final Legal Distribution Date for the class or (ii)
interest due on the Pass Through Certificates on any Distribution Date (unless
in the case of the Class A Pass Through Certificates and Class B Pass Through
Certificates, the Subordination Agent has made an Interest Drawing in an
amount sufficient to pay such interest and has distributed such amount to the
Certificateholders entitled thereto).
"Rating Agencies" means, collectively, Moody's and Standard & Poor's.
"Ratings Confirmation" means, with respect to any action proposed to be
taken, a written confirmation from each of the Rating Agencies that such
action would not result in (1) a reduction of the rating for any class of Pass
Through Certificates below the then current rating for such class of Pass
Through Certificates or (2) a withdrawal or suspension of the rating of any
class of Pass Through Certificates.
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"Registrar" means, for each Pass Through Trust, The Bank of New York.
"Registration Statement" means Federal Express' Registration Statement No.
333-80001 on Form S-3.
"Regular Distribution Date" means, for each Pass Through Trust, January 15
and July 15 of each year, commencing January 15, 2000.
"Remaining Weighted Average Life" has the meaning set forth in "Description
of the Equipment Trust Certificates--Prepayment".
"Replacement Facility" means, for any Pass Through Trust, an irrevocable
revolving credit agreement in substantially the form of the initial Liquidity
Facility for such Pass Through Trust, including reinstatement provisions, or
subject to certain conditions, in such other form (which may include a letter
of credit) as will permit the Rating Agencies to confirm in writing their
respective ratings then in effect for the related Pass Through Certificates
(before downgrading of such ratings, if any, as a result of any downgrading of
the Liquidity Provider), and in a face amount equal to the Required Amount for
such Pass Through Trust and issued by a person having unsecured debt ratings
issued by the applicable Rating Agencies which are equal to or higher than the
Threshold Rating.
"Required Amount" means, with respect to the Liquidity Facility for any
applicable Pass Through Trust, an amount equal to the interest payable on the
related Pass Through Certificates on the next three consecutive Regular
Distribution Dates (without regard to expected future payments of principal on
such Pass Through Certificates) at the Stated Interest Rate for such Pass
Through Trust.
"Scheduled Payment" means any payment of interest on, or principal of and
interest on, any Equipment Trust Certificate that constitutes Trust Property
thereof, scheduled to be received by the related Pass Through Trustee on a
Regular Distribution Date.
"SEC" means The Securities and Exchange Commission of the United States and
any successor agencies or authorities.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Equipment Trust Certificates" means Equipment Trust Certificates
issued and designated as Series A under the related Indenture.
"Series B Equipment Trust Certificates" means Equipment Trust Certificates
issued and designated as Series B under the related Indenture.
"Series C Equipment Trust Certificate" means Equipment Trust Certificates
issued and designated as Series C under the related Indenture.
"Series C Prepayment Date" means January 15, 2000 or any date prior thereto
selected by Federal Express.
"Series Supplement" means each of Series Supplement 1999-1-A, Series
Supplement 1999-1-B and Series Supplement 1999-1-C between Federal Express and
the Pass Through Trustee, in each case pursuant to which the related Pass
Through Trust will be formed in accordance with the Pass Through Agreement and
the related class of Pass Through Certificates will be issued.
"SH&E" means Simat, Helliesen & Eichner, Inc., one of the Appraisers.
"Special Distribution Date" means any Business Day on which a Special
Payment is to be distributed.
A-I-8
"Special Payment" means, for any Pass Through Trust, any payments of
principal, Make-Whole Premium or interest, other than Scheduled Payments and
certain other payments as set forth in the Intercreditor Agreement, received by
the related Pass Through Trustee on any of the Equipment Trust Certificates
held in such Pass Through Trust and any proceeds from the sale of any such
Equipment Trust Certificates by such Pass Through Trustee.
"Specified Investments" means any of the following: (a) direct obligations
of the United States of America or obligations fully guaranteed as to timely
payment of principal and interest by the United States of America or any agency
or instrumentality thereof, provided that such obligations are backed by the
full faith and credit of the United States of America; (b) commercial paper
rated A-1/P-1 by Standard & Poor's and Moody's, respectively or, if such
ratings are unavailable, rated by any nationally recognized rating organization
in the United States equal to the highest rating assigned by such rating
organization; (c) investments in negotiable certificates of deposit, time
deposits, banker's acceptances, commercial paper or other direct obligations
of, or obligations guaranteed by, commercial banks organized under the laws of
the United States or of any political subdivision thereof (or any U.S. branch
of a foreign bank) with issuer ratings of at least B/C by Thomson Bankwatch,
having maturities no later than 90 days following the date of such investment;
(d) overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers; or (e) overnight repurchase
agreements with respect to the securities described in clause (a) above entered
into with an office of a bank or trust company which is located in the United
States of America or any bank or trust company which is organized under the
laws of the United States or any state thereof and in any case has capital,
surplus and undivided profits aggregating at least $500 million.
"Standard & Poor's" means, Standard & Poor's, a division of The McGraw-Hill
Company, Inc.
"Stated Interest Rates" means the interest rates applicable to the Pass
Through Certificates of each Pass Through Trust.
"Subordination Agent" means The Bank of New York.
"Threshold Rating" has the meaning set forth in "Prospectus Summary--
Threshold Rating of the Liquidity Provider".
"Transportation Code" means Title 49 of the United States Code, as amended.
"Treasury Yield" has the meaning set forth in "Description of the Equipment
Trust Certificates--Prepayment".
"Triggering Event" has the meaning set forth in "Description of the
Intercreditor Agreement--Intercreditor Rights; Control of Remedies".
"Trust Agreement" means each of four trust agreements between the related
Owner Trustee and the related Owner Participant.
"Trust Property" means, for each Pass Through Trust: (1) the Equipment Trust
Certificates held in such Pass Through Trust; (2) the rights of such Pass
Through Trust under the Intercreditor Agreement (including all monies
receivable in respect of such rights); (3) except for the Class C Trust, all
monies receivable under the Liquidity Facility for such Pass Through Trust; and
(4) funds from time to time deposited with the Pass Through Trustee in accounts
relating to such Pass Through Trust.
"Underwriter Exemption" has the meaning set forth in "ERISA Considerations".
"Underwriters" means Morgan Stanley & Co. Incorporated, Credit Suisse First
Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Smith Barney Inc.
"Underwriting Agreement" means the agreement among Federal Express and the
Underwriters relating to the purchase by the Underwriters of the related Pass
Through Certificates.
A-I-9
APPENDIX II
AvSOLUTIONS, INC.
-------------------
Aviation Solutions
June 2, 1999
Mr. Bob Henning
Vice President and Treasurer
Federal Express Corporation
2007 Corporate Avenue
Memphis, Tennessee 38132
Dear Mr. Henning:
AvSOLUTIONS is pleased to provide this opinion on the base value, as of
June 1999, of four Airbus Industrie A300F4-605R aircraft (the aircraft). The
A300F4-605R aircraft are powered by General Electric CF6-80C2A5F engines. The
four aircraft will be delivered new to Federal Express Corporation between the
third quarter of 1999 and the fourth quarter of 1999. A listing of the aircraft
is provided as attachment 1 of this document.
Set forth below is a summary of the methodology, considerations and
assumptions utilized in this appraisal.
BASE VALUE
Base value is the appraiser's opinion of the underlying economic value
of an aircraft in an open, unrestricted, stable market environment with a
reasonable balance of supply and demand, and assumes full consideration of its
"highest and best use". An aircraft's base value is founded in the historical
trend of values and in the projection of future value trends and presumes an
arm's length, cash transactions between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
CURRENT FAIR MARKET VALUE
According to the International Society of Transport Aircraft Trading's
(ISTAT) definition of Fair Market Value (FMV), to which AvSOLUTIONS subscribes,
the quoted FMV is the appraiser's opinion of the most likely trading price that
may be generated for an aircraft under the market circumstances that are
perceived to exist at the time in question. The fair market value assumes that
the aircraft is valued for its highest and best use, that the parties to the
hypothetical sales transaction are willing, able, prudent and knowledgeable, and
under no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
equivalent consideration, and given an adequate amount of time for effective
market exposure to perspective buyers, which AvSOLUTIONS considers to be ten to
twenty months.
10687 Gaskins Way, Suite 200, Manassas, Virginia 20109-2371, USA
Telephone: 703-330-0461 Fax: 703-330-0581
Email: avsol@avsolutions.com
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 2
Federal Express Corporation
APPRAISAL METHODOLOGY
The method employed by AvSOLUTIONS to appraise the current and future
values of aircraft and the associated equipment addresses the factors that
influence the market value of an aircraft, such as its age, condition,
configuration, the population of similar aircraft, similar aircraft on the
market, operating costs, cost to acquire a new aircraft, and the state of demand
for transportation services.
To achieve this objective, cross-sectional data concerning the values of
aircraft in each of several general categories is collected and analyzed.
Cross-sectional data is then postulated and compared with reported market values
at a specified point in time. Such data reflects the effect of deterioration in
aircraft performance due to usage and exposure to the elements, as well as the
effective of obsolescence due to the evolutionary development and implementation
of new designs and materials.
The product of the analysis identifies the relationship between the
value of each aircraft and its characteristics, such as age, model designation,
service configuration and engine type. Once the relationship is identified, one
can then postulate the effects of the difference between the economic
circumstances at the time when the cross-sectional data were collected and the
current situation. Therefore, if one can determine the current value of an
aircraft in one category, it is possible to estimate the current values of all
aircraft in that category.
The manufacturer and size of the aircraft usually determine the specific
category to which it is assigned. Segregating the world airplane fleet in this
manner accommodates the potential effects of difference size and different
design philosophies.
The variability of the data used by AvSOLUTIONS to determine the current
and future market values implies that the actual value realized will fall within
a range of value. Therefore, if a contemplated value falls within the specified
confidence range. AvSOLUTIONS cannot reject the hypothesis that it is a
reasonable representation of the current market situation.
LIMITING CONDITIONS AND ASSUMPTIONS
In order to conduct this valuation, AvSOLUTIONS is solely relying on
information as supplied by Federal Express Corporation or Morgan Stanley, and
from within AvSOLUTIONS' own database. In determining the base value of the
subject Airbus Industrie A300F4-605R aircraft, the following assumptions have
been researched and determined:
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 3
Federal Express Corporation
1. AvSOLUTIONS has not inspected these aircraft or their maintenance records;
accordingly, AvSOLUTIONS cannot attest to their specific location or
condition.
2. The aircraft will be delivered new to Federal Express Corporation between
the third quarter of 1999 and the fourth quarter of 1999.
3. The aircraft will be certified, maintained and operated under United
States Federal Aviation Regulation (FAR) PART 121.
4. All mandatory inspections and Airworthiness Directives have been complied
with.
5. The aircraft have no damage history.
6. The aircraft are in good condition.
7. AvSOLUTIONS considered the economic useful life of these aircraft to be at
least 37 years.
Based upon the above methodology, considerations and assumptions, it is
AvSOLUTIONS' opinion that the base values of each aircraft are as listed in
attachment 1.
AvSOLUTIONS
- --------------------------------------------------------------------------------
Page 4
Federal Express Corporation
STATEMENT OF INDEPENDENCE
This appraisal report represents the opinion of AvSOLUTIONS, and is
intended to be advisory in nature. Therefore, AvSOLUTIONS assumes no
responsibility or legal liability for actions taken or not taken by the Client
or any other party with regard to the subject aircraft. By accepting this
report, the Client agrees that AvSOLUTIONS shall bear no responsibility or
legal liability regarding this report. Further, this report is prepared for
the exclusive use of the Client and shall not be provided to other parties
without the Client's express consent.
AvSOLUTIONS hereby states that this valuation report has been
independently prepared and fairly represents the subject aircraft and
AvSOLUTIONS' opinion of their values. AvSOLUTIONS further states that it has
no present or contemplated future interest or association with the subject
aircraft.
Signed,
/s/ Bryant Lynch
Bryant Lynch
Manager, Commercial Appraisals
AvSOLUTIONS
- --------------------------------------------------------------------------------
FEDERAL EXPRESS CORPORATION
AIRBUS INDUSTRIE A300F4-605R AIRCRAFT BASE VALUES
As of June, 1999
Registration Number N683FE N684FE
Serial Number 801 802
Engine Type CF6-80C2A5F CF6-80C2A5F
Expected Delivery Date July 1999 August 1999
MTOGW (estimated) 375,900 lbs 375,900 lbs
BASE VALUE $89,460,000 $89,460,000
Registration Number N685FE N686FE
Serial Number 803 804
Engine Type CF6-80C2A5F CF6-80C2A5F
Expected Delivery Date September 1999 October 1999
MTOGW (estimated) 375,900 lbs 375,900 lbs
BASE VALUE $89,460,000 $90,130,000
Note: All Aircraft are Stage III noise-compliant
Attachment 1
MORTEN BEYER & AGNEW
- --------------------------------------------------------------------------------
AVIATION CONSULTING FIRM
Appraisal of Four
Airus A300F4-605R Aircraft
PREPARED FOR:
Federal Express Corporation
JUNE 1, 1999
Washington, D.C. London
8180 Greensboro Drive Lahinch 62, Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone +703 847 6598 Phone +44 1342 716248
Fax +703 847 1911 Fax +44 1342 718967
MBA
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORGEN BEYER & AGNEW (MBA) has been retained by Federal Express Corporation to
determine the Base Values of four Airbus A300F4-605R freighter aircraft. The
aircraft are further identified in Section II of this report.
Based on the information set forth in this report, it is our opinion that the
aggregate Base Value of the aircraft in this portfolio is $315,900,000 with
their respective individual values notes in Section II.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and
established a technical and ethical recognition as expert appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Market Value
(MV) assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sales transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) states that market circumstances are
assumed to be in a reasonable state of equilibrium. This, BV pertains to an
idealized aircraft and market combination and will not necessarily reflect the
actual Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
MBA
II. AIRCRAFT & BASE VALUES
A300F4-605R Freighter Aircraft
Serial Number Delivery Date Engine Type Base Values
----------------------------------------------------------------------
N683FE July 1999 CF6-80C2-A5F $78,500,000
N684FE August 1999 CF6-80C2-A5F $78,820,000
N685FE September 1999 CF6-80C2-A5F $79,130,000
N686FE October 1999 CF6-80C2-A5F $79,450,000
----------------------------------------------------------------------
TOTAL $315,900,000
----------------------------------------------------------------------
MBA 2
III. CURRENT MARKET CONDITIONS
Airbus Industrie
As recently as five years ago there were only eight Airbus cargo aircraft in the
world--now the total is 98. Three major events occurred during the mid nineties
which impelled this exponential growth after years of stagnation:
. Deliveries of the A300F-600R began to snowball, as FedEx and UPS
needed more widebody lift.
. Conversions of the A310F began, again with FedEx as the impetus, and
. Conversions of A300C4-200 began as well, almost simultaneously.
Airbus Cargo Fleet
Type In Operation On Order
----------------------------------------------------------------
A300B4-600F 1
A300C4-200/F4-200 28
A300C4-600/F4-600 30 38
A310-200C/-200F 39
-----------------------------------------------------------------
There are no publicly announced plans for cargo versions of the A330 and A340,
although Airbus is probably scrutinizing the relatively low orders of the
B747-400F, B767F, and MD-11F, the only western-built widebodies other than the
A300F-600R in production. There are too many low-cost older widebodies
available.
It is unlikely that any Airbus narrowbodies will ever be build as cargo
aircraft, and it will be many years before a significant number will be
converted. The aircraft are too new. It has only been a little over ten years
since the first A320s were delivered, and it would be difficult to compete with
the large number of older narrowbodies which are currently available at
attractive prices.
MBA 3
It is more likely that Airbus will seek additional customers for conversion of
A300B4s, A310-200s, and, when the time is opportune, the A310-300. However, a
day will come when almost all of the older widebodies, be they Airbus or Boeing,
Lockheed or McDonnell Douglas, will have been converted, just as most of the
remaining B707s and all the DC-8-60/-70s have already been converted, and the
demand for widebody lift will create a demand for new cargo widebodies.
A300F-600
The A300F-600 was developed to meet the specific requirements of FedEx, who,
with a fleet of 30 of these aircraft, plus 6 on order, remains the world's only
A300F-600 operator presently. UPS has 30 of these aircraft on order.
There are 194 passenger A300-600s and A300-600Rs in service, and only one more
of the latter on order, and in time some of these will probably be converted to
cargo aircraft. However, the fleet is too new to expect a significant number to
be converted for many years.
Currently, there are nine A300B4-200 freighter aircraft in the market for
sale/lease by Korean Airlines, C-S Aviation, and Bristol Associates and more
than half of them have been in the market for six or more months.
In the upcoming years, the large freighter market, served by aircraft with a
payload of 60 tonnes or greater, is expected to increase, especially in the Asia
Pacific region and North America.
A recent MBA study indicated that between January 1997 and January 1999, the
B727 and DC-8 freighters dominated the narrow body fleet and the B747 was the
leading wide body. The surprising factor was the trend. The narrowbody
freighter fleet increased by only 27 aircraft, or 3 percent, and the
widebodies by 110, or 30 percent, between 1997 and 1999.
The growth of air cargo, cheaper conversion costs, FAA's restrictions for
certain types of already converted narrowbodies, and noise restrictions were
some of the factors
MBA 4
responsible for this shift. However, while narrowbody freighters have reasonably
good costs per ATM (available tonne miles), and are comparable with the
widebodies, the narrowbody costs per cubic foot of capacity are far greater than
the A300s. At a cost of 41 cents per cubic foot mile (one cubic foot of capacity
carried one mile), a B727-200 costs 52 percent more than an A300 at 27 cents per
cubic foot mile. Therefore, A300 series freighters will hold on to their values
and be a good alternative to replace and augment the geriatric B707/B727/DC-8
freighters and meet the demand over the next decade.
Over the past year, MBA has noted that both Boeing and Airbus have been offering
heavy discounts, as much as 20 to 25 percent, to market their aircraft such as
the A300F-600. This factor is included in MBA's appraisal.
MBA 5
VI. COVENANTS
This report has been prepared for the exclusive use of Federal Express
Corporation and shall not be provided to other parties by MBA without the
express consent of Federal Express Corporation.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Base Value. MBA further
certifies that it does not have, and does not expect to have, any financial or
other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Base Value of the subject
aircraft and is intended to be advisory only, in nature. Therefore, MBA assumes
no responsibility or legal liability for any actions taken, or not taken, by
Federal Express Corporation or any other party with regard to the subject
aircraft. By accepting this report, all parties agree that MBA shall bear no
such responsibility or legal liability.
PREPARED BY:
/s/ Teo Ozdener
Teo Ozdener, M.Sc., P.Eng.
Vice President - Technical
REVIEWED BY:
/s/ Morten S. Beyer
Morten S. Beyer
Chairman & CEO
June 1, 1999 ISTAT Certified Senior Appraiser Fellow
MBA 6
Simat, Helliesen & Eichner, Inc. Tel: +1-212-682.8455
90 Park Avenue Fax: +1-212-986.1825
New York, New York 10016 Email: newyork@sh-e.com
United States of America
SH&E
June 15, 1999
Mr. Robert Henning
Vice President & Treasurer
Federal Express Corporation
2007 Corporate Avenue, 4th Floor
Memphis, TN 38132
Re: Value Opinion of Four A300F4-600R Aircraft
Dear Mr. Henning:
Simat, Helliesen & Eichner, Inc., ("SH&E") was retained by Federal Express
Corporation (the "Client") to determine the Base Value ("BV") for four Airbus
A300F4-600R aircraft (the "Subject Aircraft"). The Subject Aircraft
specifications can be found in Appendix 1.
SH&E has determined the following values for the Subject Aircraft:
Subject Aircraft Base Values ($Mil)
Aircraft Registration Expected Date of Base
Type/1/ Number Delivery to FedEx Value
- -------------------------------------------------------------------------
A300F4-605R N683FE July 1999 $88.5
A300F4-605R N684FE August 1999 $88.6
A300F4-605R N685FE September 1999 $88.7
A300F4-605R N686FE October 1999 $88.8
SH&E Valuation Methodology
Since SH&E was formed in 1963, the firm has appraised virtually every major
commercial jet and turboprop aircraft models and has also appraised many general
aviation and corporate aircraft models. SH&E's appraisals are performed
according to the International Society of Transport Aircraft Trading (ISTAT)
principles of appraisal practice and code of ethics. SH&E's staff includes two
appraisers certified by ISTAT.
The SH&E valuation approach starts by determining a half-life value. The term
"half-life" represents an aircraft whose major components (e.g. airframe,
engines, landing gear and APU) have used 50 percent of the time between
scheduled or expected overhauls. This initial appraisal can then be adjusted
(positive or negative) for each individual unit to reflect the aircraft's
- ----------------
1 The subject A300F4-600R aircraft were ordered by Federal Express as production
freighters and have not yet been delivered.
New York Boston Washington, D.C. London Amsterdam
SH&E
Mr. Robert Henning
June 15, 1999
Page 2
maintenance status relative to the next overhaul. In most cases, the Base Value
of an aircraft assumes its physical condition is average for an aircraft of its
type and age, and its maintenance time status is at half-life (or benefiting
from an above-average maintenance status if it is new or nearly new, as the case
may be). SH&E half-life values are determined on a semi-annual basis by
reviewing recent past sales, aircraft availability trends, technological
aspects, environmental constraints and maintenance requirements.
In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.
Base Value Definition
The Base Value (BV) is the appraiser's opinion of the price at which an aircraft
would change hands between a willing buyer and a willing seller, neither being
under compulsion to buy or sell, and both having knowledge of all relevant
facts. An aircraft's BV is founded in the historical trend of values and in the
projection of value trends, and presumes an arm's-length, cash transaction.
Since BV pertains to a somewhat idealized aircraft and market combination, it
may not necessarily reflect the actual value of the aircraft in question, but is
a nominal starting value to which adjustments may be applied to determine an
actual value.
The BV of each aircraft is derived from SH&E's aircraft valuation models. The
SH&E BV models provide trend lines derived from known transactions, econometric
factors affecting aircraft values and aircraft economic life estimates. Because
it is related to long-term market trends, the BV definition is normally applied
to analyses of historical values and projections of residual values.
Description of the Aircraft
Airbus A300
The Airbus Industrie A300 is a wide-body, twin-engined commercial jet aircraft
on which construction began in September 1969. The A300 series includes the
A300B1, A300B2-100/200, A300B4-100/200, A300-600 and A300-600R.
The A300-600 was first delivered in 1984 as an advanced version of the
A300B4-200. By moving the pressure bulkhead aft, Airbus was able to offer
seating for 266 passengers in a two-class configuration. The aircraft systems
were also modified to incorporate an Electronic Flight Instrumentation System
(EFIS), digital avionics, advanced braking control system, new Auxiliary Power
Unit and numerous aerodynamic improvements to reduce drag and enhance
SH&E
Mr. Robert Henning
June 15, 1999
Page 3
payload/range capabilities. The A300-600R is the extended range version of the
A300-600, mainly due to the addition of a fuel trim tank in the tail.
The A300F4-600R freighter aircraft was launched in July 1991 with an order for
25 by Federal Express. The A300F4-600R is based on the fuselage of the
A300-600R, with the addition of a large forward port-side cargo door,
strengthened cabin floor and main cabin smoke detection system. The usable
length of the upper cargo floor is 109 ft 9 in and the upper deck cargo door
measures 8 ft 5 in high and 11 ft 9 in wide.
As of April 1999, 32 A300C4-600/F4-600 aircraft were in operation and one is
available for sale/lease.
Assumptions
SH&E used information supplied by the Client together with in-house data
accumulated through other recent studies of aircraft transactions. Specific
assumptions included the following:
. The Subject Aircraft will be delivered new having been built as freighter
variants by the manufacturer, Airbus Industrie.
. SH&E assumed that the Subject Aircraft meet or will meet all of the
specifications and performance standards for typical aircraft.
. SH&E assumed that all normally required maintenance has been or will be
performed, including all Airworthiness Directives and Service Bulletins.
. SH&E assumed that the Subject Aircraft will remain in freighter configuration
and continue to be certified for operations under the U.S. Federal Aviation
Administration, a successor agency or a comparable authority.
Limitations
SH&E's opinions are based upon historical relationships and expectations that it
believes are reasonable. Some of the underlying assumptions, including those
described above are detailed explicitly or implicitly elsewhere in this
report, and may not materialize because of unanticipated events and
circumstances. SH&E's opinions could, and would, vary materially, should any of
the above assumptions prove to be inaccurate.
The opinions expressed herein are not given as an inducement or endorsement for
any financial transaction. They are prepared for the exclusive use of the
addressee and the addressee may not provide this report to other parties,
including third parties, without SH&E's written consent.
SH&E
Mr. Robert Henning
June 15, 1999
Page 4
SH&E accepts no responsibility for damages, if any, that may result from
decisions made or actions taken by third parties that may be based upon this
report.
This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.
Yours Sincerely,
/s/ Clive G. Medland
Clive G. Medland
Vice President
ISTAT Senior Appraiser
cc: Cecilia Park, Morgan Stanley
SH&E
Appendix 1
Subject Aircraft Specifications
Aircraft Type A300F4-600R
----------------------------------------------------------------------
Engine Types CF6-80C2A5
Maximum Takeoff Gross Weight (lbs) 375,900
Maximum Landing Weight (lbs) 308,650
Operating Empty Weight (lbs) 174,300
Maximum Zero Fuel Weight (lbs) 286,600
Fuel Capacity (lbs) 120,600
Gross Weight Limited Payload (lbs) 112,300
Upper Deck Cargo - 88 by 125 in. pallets 15
- 96 by 125 in. pallets 12
Lower Deck Cargo - 88 in. pallets + LD3s 4 + 10
- 96 in. pallets + LD3s 4 + 10
Range - Gross weight limited payload (nm) 2,650
Length Overall 177 ft 5 in
Wing Span 147 ft 11 in
APPENDIX III
EQUIPMENT TRUST CERTIFICATE PAYMENTS
Pass Through Trust, 1999-1-A
% Equipment Trust Certificates
Regular Distribution Date N683FE* N684FE* N685FE* N686FE*
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15-Jul-21......................
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15-Jul-22......................
- --------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-1
EQUIPMENT TRUST CERTIFICATE PAYMENTS
Pass Through Trust, 1999-1-B
% Equipment Trust Certificates
Regular Distribution Date N683FE* N684FE* N685FE* N686FE*
- ------------------------- ------ ------ ------ ------
15-Jan-00......................
15-Jul-00......................
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15-Jul-18......................
15-Jan-19......................
15-Jul-19......................
- --------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-2
EQUIPMENT TRUST CERTIFICATE PAYMENTS
Pass Through Trust, 1999-1-C
% Equipment Trust Certificates
Regular Distribution Date N683FE* N684FE* N685FE* N686FE*
- ------------------------- ------ ------ ------ ------
15-Jan-00......................
15-Jul-00......................
15-Jan-01......................
15-Jul-01......................
15-Jan-02......................
15-Jul-02......................
15-Jan-03......................
15-Jul-03......................
15-Jan-04......................
15-Jul-04......................
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15-Jul-16......................
15-Jan-17......................
15-Jul-17......................
15-Jan-18......................
15-Jul-18......................
15-Jan-19......................
15-Jul-19......................
- --------
* The schedules for the Equipment Trust Certificates of these Aircraft are
subject to adjustment in compliance with the Mandatory Economic Terms.
A-III-3
PROSPECTUS
[Federal Express]
PASS THROUGH TRUSTS
PASS THROUGH CERTIFICATES
This prospectus relates to the issuance of Pass Through Certificates by one
or more Pass Through Trusts.
The Pass Through Certificates:
. will have an aggregate public offering price of up to $300,000,000
. will be issued in one or more series
. will be payable at the times and in the amounts specified in a prospectus
supplement
. will represent interests in the relevant Pass Through Trust only, will be
paid only from the assets of that Pass Through Trust and will not
represent obligations of, or be guaranteed by, Federal Express, and
. may have one or more forms of credit or liquidity enhancement.
Each Pass Through Trust:
. will issue one or more series of Pass Through Certificates
. will use the proceeds of each series of Pass Through Certificates to
purchase Equipment Certificates of one or more series, and
. will pass through payments on the Equipment Certificates that it owns,
subject to any applicable subordination provisions.
The Equipment Certificates:
. will be issued in one or more series, and
. will be either:
- Owned Aircraft Certificates issued by Federal Express with recourse to
Federal Express either to finance or refinance all or a portion of the
cost of the Owned Aircraft, or
- Leased Aircraft Certificates issued on a non-recourse basis by owner
trustees pursuant to leveraged lease transactions to finance or
refinance a portion of the cost of the Leased Aircraft. The amounts due
from Federal Express under such leases will be sufficient to pay in
full when due all principal of and any premium and interest on the
related Equipment Certificates, subject to any limitations specified in
a prospectus supplement.
There was no public market for the Pass Through Certificates of any series
before their issuance and there is no assurance that one will develop or
continue. Federal Express does not intend to apply for the listing of any
series of the Pass Through Certificates on a national securities exchange,
unless otherwise indicated in a prospectus supplement.
This prospectus will be accompanied by a prospectus supplement which will
describe the specific terms of the particular series of Pass Through
Certificates being sold and the underlying Equipment Certificates. Sales of
any Pass Through Certificates may not be consummated without both this
prospectus and the prospectus supplement.
Investing in the Pass Through Certificates involves risks which are
described in the "Risk Factors" section beginning on page 4 of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is June 10, 1999.
ABOUT THIS PROSPECTUS
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the SEC utilizing a "shelf" registration process. Under this shelf
process, we may sell the Pass Through Certificates described in this prospectus
in one or more offerings. This prospectus provides you with a general
description of the Pass Through Certificates we may offer. Each time we sell
Pass Through Certificates, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read carefully both this prospectus and any prospectus
supplement, together with the additional information described below under
"Where You Can Find More Information."
This prospectus does not contain all the information provided in the
Registration Statement that we filed with the SEC. For further information
about Federal Express or the Pass Through Certificates, you should refer to
that Registration Statement. Statements contained in this prospectus or in any
prospectus supplement as to the contents of any contract or other document are
not necessarily complete, and you should review the full text of those
contracts and other documents.
The Registration Statement that we filed with the SEC relating to the Pass
Through Certificates can be obtained from the SEC as described below under
"Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports with the SEC. These SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any such document we file at the
SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549,
and in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms and copy
charges.
The SEC allows us to "incorporate by reference" the information we file with
it, which means:
. we can disclose important information to you by referring you to those
documents
. information incorporated by reference is considered to be part of this
prospectus, even though it is not repeated in this prospectus or in any
prospectus supplement, and
. information that we file with the SEC will automatically update and
supersede this prospectus and any prospectus supplement.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act after the date of the filing of this Registration Statement and
prior to its effectiveness, and until we complete our offering of Pass Through
Certificates:
. Annual Report on Form 10-K for the fiscal year ended May 31, 1998, filed
August 21, 1998
. Quarterly Reports on Form 10-Q for the fiscal quarters ended August 31,
1998, November 30, 1998 and February 28, 1999, filed October 13, 1998,
January 13, 1999 and April 13, 1999, respectively
. Current Reports on Form 8-K dated June 30, July 8, July 15, August 27,
September 21, September 22, October 22 and November 17, 1998,
respectively, filed July 15, July 14, August 5, September 10, October 5,
October 6, November 12 and December 1, 1998, respectively.
2
You may obtain a copy of these filings, other than their exhibits, unless
those exhibits are specifically incorporated by reference in the filings, at no
cost by writing or telephoning us at the following address:
Elizabeth R. Allen
Investor Relations
FDX Corporation
Box 727
Memphis, Tennessee 38194-1854
(901) 395-3478
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not
authorized anyone else to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to sell any Pass Through Certificates in any
jurisdiction where the offer or sale is not permitted. You should not assume
that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front page of those
documents. Also, you should not assume that there has been no change in the
affairs of Federal Express since the date of this prospectus or any prospectus
supplement.
REPORTS TO PASS THROUGH CERTIFICATEHOLDERS
The Pass Through Trustee under each Pass Through Trust will provide each
Certificateholder with periodic statements concerning the distributions made
from such Pass Through Trust. See "Description of the Pass Through
Certificates--Statements to Certificateholders."
FEDERAL EXPRESS CORPORATION
Federal Express is a wholly-owned subsidiary of FDX Corporation. Federal
Express offers a wide range of express services for the time-definite
transportation of documents, packages and freight throughout the world using an
extensive fleet of aircraft and vehicles and leading-edge information
technologies. Corporate headquarters of Federal Express are located at 2005
Corporate Avenue, Memphis, Tennessee 38132, telephone (901) 369-3600.
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Nine Months
Ended
Year Ended May 31, February 28,
------------------------ -------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ------ ------
Ratio of Earnings to Fixed Charges 1.7x 2.0x 1.9x 2.0x 2.1x 2.0x 1.9x
Earnings included in the calculation of the ratio of earnings to fixed
charges represent income before income taxes plus fixed charges, other than
capitalized interest. Fixed charges include interest expense, capitalized
interest, amortization of debt issuance costs and a portion of rent expense
representative of interest.
As a result of this offering of Pass Through Certificates, Federal Express
may be more highly leveraged than currently reflected in this table.
3
RISK FACTORS
You should consider carefully the risk factors described below before you
invest. You should read the information below together with the other
information in this prospectus and the accompanying prospectus supplement.
Federal Express' business is subject to risks and uncertainties
The operations and financial condition of Federal Express are subject to
risks and uncertainties, including:
. economic conditions in the markets in which Federal Express operates can
affect demand for Federal Express' services
. competition from other providers of express services with new or improved
services
. changes in customer demand patterns
. increases in aviation and motor fuel prices
. strikes, work stoppages and slowdowns by Federal Express' employees
. Federal Express' ability to match aircraft, vehicle and sort capacity
with customer volume levels
. Federal Express' ability to obtain aviation rights in important
international markets
. contributions to financial results from the sale of engine noise
reduction kits
. changes in government regulation, weather and technological changes, and
. availability of financing on terms acceptable to Federal Express.
Proceeds from the sale of an aircraft may be less than its appraised value
The prospectus supplement will contain the appraised value of each Aircraft
based upon the lesser of the average and the median value of the Aircraft as
appraised by several independent appraisers who will be named in the
prospectus supplement. The prospectus supplement may contain reports or
summaries of these appraisals. Such appraisals will be based on various
assumptions and methodologies, which may vary, resulting in different
appraisals.
An appraisal is only an estimate of value and you should not rely upon it
as a measure of realizable value. The proceeds realized upon the sale of any
Aircraft may be less than the appraised value of that Aircraft because of:
. market and economic conditions at the time
. the availability of buyers
. the condition of the Aircraft
. whether the Aircraft are sold separately or as a block, and
. other factors.
Therefore, there is no assurance that the proceeds realized upon any sale
of an Aircraft will be as appraised or sufficient to satisfy in full payments
due on the related Equipment Certificates or the Pass Through Certificates.
4
Some classes of Pass Through Certificates may be subordinate to other classes
of Pass Through Certificates
The Pass Through Trustee may enter into an intercreditor agreement which
will provide for the subordination of some classes of Pass Through Certificates
to other classes which may result in the subordinated classes receiving less
than the full amount due to them after a payment default on any Equipment
Certificates. The prospectus supplement will describe any such intercreditor
agreement and cross-subordination provisions and any related terms.
Excess proceeds from the sale of one Aircraft will not be available to cover
losses on other Equipment Certificates relating to other Aircraft
The Equipment Certificates are not cross-collateralized, which means that
liquidation proceeds from the sale of an Aircraft in excess of the principal
amount of the Equipment Certificates related to that Aircraft will not be
available to cover any losses on any other Equipment Certificates.
Rating Agencies may change their rating on the Pass Through Certificates at any
time
The Pass Through Certificates are expected to be assigned an "investment
grade" rating by one or more Rating Agencies. The prospectus supplement will
indicate the rating assigned to the Pass Through Certificates being sold. A
rating is not a recommendation to purchase, hold or sell Pass Through
Certificates because a rating does not address market price or suitability for
a particular investor. There is no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant,
including the downgrading of Federal Express or the provider of a Liquidity
Facility. The ratings of the Pass Through Certificates will be based primarily
on the default risk of the Equipment Certificates, the availability of the
Liquidity Facility for the Certificateholders, the collateral value provided by
the Aircraft and any intercreditor and cross-subordination arrangements. The
ratings are expected to address the likelihood of timely payment of interest
when due on the Pass Through Certificates, at the non-default rate, and the
ultimate payment of principal of the Pass Through Certificates on the final
expected distribution date. The ratings are not expected to address the
possibility of an Event of Default or an Indenture Event of Default or other
circumstances, such as an Event of Loss, which may result in the payment of the
outstanding principal amount of the Pass Through Certificates prior to the
final expected distribution date.
The reduction, suspension or withdrawal of the ratings of the Pass Through
Certificates will not, in and of itself, constitute an Event of Default, unless
the prospectus supplement specifies otherwise.
Owner Participants may request changes to the underlying agreements
A prospectus supplement may specify that at the time of issuance of Pass
Through Certificates, Federal Express may still be seeking or negotiating with
Owner Participants with respect to the trusts relating to some of the Aircraft.
Federal Express will hold the beneficial interest under the Trust Agreement
relating to each of those Aircraft until the date upon which an Owner
Participant commits to purchase or purchases an Aircraft. Federal Express will
transfer to the Owner Participant on that date its beneficial interest under
the Trust Agreement. The purchase date may be up to 90 days after the scheduled
delivery date of the Aircraft. Those Owner Participants may request revisions
to the Participation Agreement, Lease, Trust Agreement and Indenture, and there
is no assurance that the terms of the agreements applicable to those Aircraft
will be the same as the description of the agreements contained in the
prospectus supplement.
However, the terms of those agreements will be required to contain some
mandatory document terms and not vary some other mandatory economic terms.
Also, Federal Express will be obligated to certify to the Pass Through Trustee
that any modifications to these agreements will not materially and adversely
affect the Certificateholders and if the documents are modified in any material
respect, to obtain written confirmation
5
from each Rating Agency that the use of modified versions of those agreements
will not result in a withdrawal, suspension or downgrading of the rating of any
class of Pass Through Certificates.
The Indentures do not protect against a highly leveraged transaction involving
Federal Express
The Equipment Certificates in any Pass Through Trust, and therefore the
related Pass Through Certificates, will not have the benefit of any debt
covenants or provisions in the Indentures relating to those Equipment
Certificates or Pass Through Certificates that would give the holders of
Equipment Certificates and Pass Through Certificates any protection in the
event of a highly leveraged transaction involving Federal Express.
A public market for the Pass Through Certificates may not develop or continue
There was no public market for the Pass Through Certificates of any series
before their issuance and there is no assurance that one will develop or
continue. Federal Express does not intend to apply for the listing of any
series of Pass Through Certificates on a national securities exchange, unless
otherwise indicated in a prospectus supplement. If an active public market does
not develop or continue, the market price and liquidity of the Pass Through
Certificates may be adversely affected.
OUTLINE OF PASS THROUGH TRUST STRUCTURE
Federal Express will offer one or more series of Pass Through Certificates
pursuant to this prospectus and a related prospectus supplement. Each series of
Pass Through Certificates will be issued by a separate Pass Through Trust. Each
Pass Through Trust will be formed pursuant to a Series Supplement. The Pass
Through Certificates issued by a particular Pass Through Trust will represent
fractional undivided interests in such Pass Through Trust. Each Pass Through
Trust will own the Owned Aircraft Certificates or the Leased Aircraft
Certificates or both, as specified in the prospectus supplement.
Concurrently with the execution and delivery of each Series Supplement, the
Pass Through Trustee, on behalf of the Pass Through Trust formed by the Series
Supplement, will enter into one or more Participation Agreements to purchase
one or more Equipment Certificates. All of the Equipment Certificates that
constitute the property of a Pass Through Trust will have an identical priority
of payment relative to the other Equipment Certificates and an identical
interest rate, and this interest rate will be equal to the rate applicable to
the Pass Through Certificates issued by such Pass Through Trust. The maturity
date for the Equipment Certificates acquired by each Pass Through Trust will
occur on or before the final distribution date applicable to the Pass Through
Certificates issued by such Pass Through Trust.
For each Pass Through Trust, the aggregate amount of the related series of
Pass Through Certificates will equal the aggregate principal amount of the
Equipment Certificates constituting the Trust Property of such Pass Through
Trust. The Pass Through Trustee will distribute the amount of payments of
principal, any premium, and interest, received by it as holder of the Equipment
Certificates to the Certificateholders of the Pass Through Trust holding such
Equipment Certificates. See "Description of the Pass Through Certificates" and
"Description of the Equipment Certificates."
USE OF PROCEEDS
The Pass Through Trustee for each Pass Through Trust will use the proceeds
from the sale of the Pass Through Certificates to purchase Owned Aircraft
Certificates or Leased Aircraft Certificates. The prospectus supplement will
specify the particular use of proceeds for the related Equipment Certificates.
We will specify in each prospectus supplement the type and model of the
applicable Aircraft, the engines with which the Aircraft is equipped and
whether the aircraft is already in use in Federal Express' fleet, has been used
in another operator's fleet or will be delivered new by the manufacturer to
Federal Express or to the Owner Trustee, as the case may be.
6
If the Pass Through Trustee does not use all the proceeds from the sale of
the Pass Through Certificates by the date specified in the prospectus
supplement to purchase the Equipment Certificates, it will distribute the
unused portion of such proceeds to the Certificateholders.
For any Leased Aircraft, if the Owner Trustee does not apply the proceeds
from the sale of the related Leased Aircraft Certificates to the purchase price
for such Leased Aircraft on the date on which the applicable Pass Through Trust
purchases such Leased Aircraft Certificates, then the Owner Trustee will
deposit such proceeds less the expenses relating to the Pass Through
Certificate offering into a Collateral Account or a Deposit Account pursuant to
a Depositary Arrangement. The "Description of Equipment Certificates--Delayed
Lease Commencement" section below describes the circumstances under which the
proceeds may not be so applied. The prospectus supplement may specify other
action to be taken by the Owner Trustee for the unapplied proceeds. The
Collateral Account, together with any Additional Collateral (see "Description
of the Equipment Certificates--Security" below), or the Depositary Arrangement,
will secure such Leased Aircraft Certificates during the related Pre-Funding
Period and will be available to make scheduled payments of any principal and
interest accrued on such Leased Aircraft Certificates during the Pre-Funding
Period. If the Lease related to such Leased Aircraft does not commence by the
Cut-off Date specified in the prospectus supplement or the Leased Aircraft
suffers an Event of Loss during the Pre-Funding Period, funds in the Collateral
Account, together with Additional Collateral or amounts payable under a
Depositary Arrangement, will be available to prepay the Leased Aircraft
Certificates as described in the prospectus supplement. Alternatively, these
funds will be applied to finance the aggregate principal amount of the debt to
be issued by Federal Express in connection with the acquisition of such
Aircraft by Federal Express so that such Aircraft becomes an Owned Aircraft.
See "Description of the Equipment Certificates--Delayed Lease Commencement" and
"--Mandatory Prepayment During the Pre-Funding Period."
DIAGRAM OF PAYMENTS
We illustrate in the diagram below some aspects of the payment flows in the
Pass Through Trust structure for a possible Leased Aircraft transaction and a
possible Owned Aircraft transaction. This illustration is merely intended as an
example and you should refer to the prospectus supplement for the particular
features of the Pass Through Trust structure in which you are making an
investment.
Leased Aircraft Transaction
Federal Express:
. will lease each Leased Aircraft from the Owner Trustee under a separate
Lease
. will make scheduled rental payments for each Leased Aircraft under the
related Lease, and
. will make scheduled rental payments directly to the Indenture Trustee.
The Indenture Trustee:
. will, from the scheduled rental payments, pay principal and any interest
due from the Owner Trustee on the Leased Aircraft Certificates, to the
Pass Through Trustee, and
. will pay the remaining balance of scheduled rental payments to the Owner
Trustee for the benefit of the related Owner Participant.
The Pass Through Trustee for each Pass Through Trust will distribute to the
related Certificateholders payments received on the Leased Aircraft
Certificates held in that Pass Through Trust. See "Description of the Pass
Through Certificates--Payments and Distributions" and "Description of the
Equipment Certificates--Delayed Lease Commencement" for a discussion of
payments during any Pre-Funding Period.
7
Owned Aircraft Transaction
Federal Express will make scheduled payments on the Owned Aircraft
Certificates relating to each Owned Aircraft to the Indenture Trustee.
The Indenture Trustee will, from these payments, pay to the Pass Through
Trustee the principal and any interest due on the Owned Aircraft Certificates.
The Pass Through Trustee for each Pass Through Trust will distribute to the
related Certificateholders, payments received on the Owned Aircraft
Certificates held in that Pass Through Trust.
[Graphic - A diagram is included here which contains boxes representing the
parties and payment flows described above]
8
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The following is a summary description of the Pass Through Certificates
which we expect will be common to all series of Pass Through Certificates. The
prospectus supplement will describe the specific terms of any series of Pass
Through Certificates. Therefore, you should rely on the information in the
prospectus supplement, in particular if the information in the prospectus
supplement is different from the information provided below.
Because the following description is a summary, it does not describe every
aspect of the Pass Through Certificates, and it is qualified in its entirety by
reference to all the provisions of the Pass Through Agreement and the
applicable Series Supplements. Federal Express has filed the form of Pass
Through Agreement as an exhibit to the Registration Statement of which this
prospectus is a part. Federal Express will file with the SEC, the Series
Supplement relating to each series of Pass Through Certificates and the forms
of the related Indentures and any participation agreement, lease, intercreditor
agreement, liquidity facility, trust agreement, collateral agreement and
depositary arrangement relating to any offering of Pass Through Certificates as
exhibits to a post-effective amendment to the Registration Statement of which
this prospectus is a part or a Current Report on Form 8-K, a Quarterly Report
on Form 10-Q or an Annual Report on Form 10-K.
The Pass Through Certificates offered pursuant to this prospectus and one or
more prospectus supplements will have an aggregate public offering price of up
to $300,000,000. To the extent that any provision in any prospectus supplement
is inconsistent with any provision of this summary, the provision of the
prospectus supplement will control.
In the following description, we have included references to section numbers
of the Pass Through Agreement so that you can easily locate those provisions.
General
Form. The Pass Through Certificates will be issued in fully registered form
only. The Pass Through Certificates will be issued in book-entry form and
registered in the name of a nominee of the depositary, unless otherwise
specified in the prospectus supplement. See "--Book-Entry Procedures" below.
Trust Property. Each Pass Through Certificate will represent a fractional
undivided interest in the separate Pass Through Trust formed by the Pass
Through Agreement and the related Series Supplement pursuant to which such Pass
Through Certificate is issued, and all payments and distributions will be made
only from the property of the Pass Through Trust. The property of each Pass
Through Trust will include the Equipment Certificates held in such Pass Through
Trust, all monies at any time paid on the Equipment Certificates, all monies
due and to become due under the Equipment Certificates and funds from time to
time deposited with the Pass Through Trustee in accounts relating to such Pass
Through Trust, and, if specified in the prospectus supplement, rights under any
intercreditor agreement relating to cross-subordination arrangements and monies
receivable under any additional security or liquidity facility.
Denomination. Each Pass Through Certificate will represent a pro rata share
of the outstanding principal amount of the Equipment Certificates and other
property held in the related Pass Through Trust and will be issued, unless
otherwise specified in the prospectus supplement, in minimum denominations of
$1,000 or any integral multiple of $1,000. (Pass Through Agreement, Article II)
Terms. The prospectus supplement will describe the specific terms of each
series of Pass Through Certificates offered pursuant to the prospectus
supplement, including:
. the specific designation and title of the Pass Through Certificates
. the Pass Through Trustee for such series of Pass Through Certificates
. the Regular Distribution Dates and Special Distribution Dates applicable
to such Pass Through Certificates and any applicable Cut-off Date
9
. the specific form of the Pass Through Certificates
. a description of:
- the Equipment Certificates to be purchased by such Pass Through Trust,
including the period or periods within which, the price or prices at
which, and the terms and conditions upon which those Equipment
Certificates may or must be repaid in whole or in part, by Federal
Express or, with respect to Leased Aircraft Certificates, the related
Owner Trustee
- the payment priority of such Equipment Certificates in relation to any
other Equipment Certificates issued with respect to the related
Aircraft
- any additional security or liquidity enhancements for those Equipment
Certificates
- any intercreditor issues between or among the holders of Equipment
Certificates having different priorities issued by the same Owner
Trustee, and
- specific terms of the Equipment Certificates during any Pre-Funding
Period
. a description of the related Aircraft, including whether the Aircraft is
a Leased Aircraft or an Owned Aircraft
. a description of the related Participation Agreements and Indentures,
including a description of the events of default under the related
Indentures, the remedies exercisable upon the occurrence of such events
of default and any limitations on the exercise of remedies with respect
to the Equipment Certificates
. if such Pass Through Certificates relate to Leased Aircraft, a
description of the related Lease, Trust Agreement and Collateral
Agreement or Depositary Arrangement, including:
- the name of the related Owner Trustee
- a description of the events of default under the related Lease, the
remedies exercisable upon the occurrence of such events of default and
any limitations on the exercise of remedies with respect to those
Leased Aircraft Certificates, and
- any rights of the related Owner Trustee or Owner Participant to cure
failures of Federal Express to pay rent under the related Lease
. the extent to which the provisions of the operative documents applicable
to such Equipment Certificates may be amended by the parties to those
documents without the consent of the Holders, or upon the consent of the
Holders of a specified percentage of aggregate principal amount of such
Equipment Certificates
. a description of any cross-default or cross-collateralization provisions
in the related Indenture
. a description of any subordination provisions among Certificateholders,
including any cross-subordination provisions among the Certificateholders
in separate Pass Through Trusts
. any additional security or liquidity facilities for the Pass Through
Certificates, and
. any other special terms pertaining to such Pass Through Certificates.
(Pass Through Agreement, Article II)
Equipment Certificates. The Equipment Certificates issued under an Indenture
may be held in more than one Pass Through Trust and one Pass Through Trust may
hold Equipment Certificates issued under more than one Indenture. Unless
otherwise provided in the prospectus supplement, only Equipment Certificates
having the same class may be held in the same Pass Through Trust.
Interest. Interest will be passed through to Certificateholders of each Pass
Through Trust at the rate per annum payable on the Equipment Certificates held
in such Pass Through Trust, as specified for such Pass Through Trust on the
cover page of the prospectus supplement.
10
Payments. The Pass Through Certificates represent interests in the related
Pass Through Trust only and all payments and distributions shall be made only
from the Trust Property of such Pass Through Trust. The Pass Through
Certificates do not represent an interest in or obligation of Federal Express,
the Pass Through Trustee, any related Owner Participant, the Owner Trustee in
its individual capacity or any affiliate of any of the above. Each
Certificateholder by its acceptance of a Pass Through Certificate agrees to
look solely to the income and proceeds from the Trust Property of the related
Pass Through Trust as provided in the Pass Through Agreement and the Series
Supplement. (Pass Through Agreement, Section 3.06)
Highly Leveraged Transactions. The Pass Through Agreement does not, and the
Indentures will not, contain any debt covenants or provisions that would give
Certificateholders protection in the event of a highly leveraged transaction
involving Federal Express. However, the Certificateholders of each series will
have the benefit of a lien on the specific Aircraft securing the related
Equipment Certificates held in the related Pass Through Trust. See "Description
of the Equipment Certificates--Security" below for a discussion of security for
Leased Aircraft Certificates during any Pre-Funding Period.
Book-Entry Procedures
Unless Pass Through Certificates in fully registered certificated form are
issued as described below, each series of Pass Through Certificates will be
represented by one or more fully registered global certificates. Each global
certificate will be deposited with, or on behalf of, DTC, and registered in its
name or in the name of Cede, its nominee. A Certificateholder of a Pass Through
Certificate initially issued as a global certificate will not be entitled to
receive a certificated Pass Through Certificate, except as described below.
DTC has advised Federal Express that:
. DTC is:
- a limited purpose trust company organized under the laws of the State
of New York
- a member of the Federal Reserve System
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
. DTC was created to hold securities for DTC Participants and to facilitate
the clearance and settlement of securities transactions between DTC
Participants through electronic book-entries, thereby eliminating the
need for physical movement of certificates.
. DTC Participants include securities brokers and dealers, banks, trust
companies and clearing corporations.
. Access to DTC's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Certificateholders that are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of, or other interests, in Pass Through
Certificates may do so only through DTC Participants. In addition,
Certificateholders will receive all distributions of principal and interest
from the Pass Through Trustee through the DTC Participants. Under the rules,
regulations and procedures creating and affecting DTC and its operation, DTC is
required to make book-entry transfers of Pass Through Certificates among DTC
Participants on whose behalf it acts and to receive and transmit distributions
of principal of, and interest on, the Pass Through Certificates. Under the
book-entry system, Certificateholders may experience some delay in receipt of
payments, since such payments will be forwarded by the Pass Through Trustee to
Cede, as nominee for DTC, and DTC in turn will forward the payments to the
appropriate DTC Participants.
11
The DTC Participants will be responsible for distributions to
Certificateholders and such distributions will be made in accordance with
customary industry practices. Although Certificateholders will not have
possession of the Pass Through Certificates, the rules of DTC provide a
mechanism by which the Certificateholders will receive payments and will be
able to transfer their interests. Although the DTC Participants are expected to
convey the rights represented by their interests in any global security to the
related Certificateholders, because DTC can only act on behalf of DTC
Participants, the ability of Certificateholders to pledge Pass Through
Certificates to persons or entities that are not DTC Participants or to
otherwise act with respect to such Pass Through Certificates, may be limited
due to the lack of physical certificates for such Pass Through Certificates.
Federal Express, the Pass Through Trustee or any other agent of Federal
Express or the Pass Through Trustee will not be responsible or liable for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Pass Through Certificates or for supervising or
reviewing any records relating to such beneficial ownership interests. Since
the only "Certificateholder", for purposes of the Pass Through Agreement, will
be Cede, as nominee of DTC, Certificateholders will not be recognized by the
Pass Through Trustee as "Certificateholders", and Certificateholders will be
permitted to exercise the rights of "Certificateholders" only indirectly
through DTC and DTC Participants. DTC has advised Federal Express that it will
take any action permitted to be taken by a Certificateholder under the Pass
Through Agreement and any prospectus supplement only at the direction of one or
more DTC Participants to whose accounts with DTC the related Pass Through
Certificates are credited. Additionally, DTC has advised Federal Express that
it will take such actions with respect to any percentage of the beneficial
interest of Certificateholders held in each Pass Through Trust only at the
direction of and on behalf of DTC Participants whose holders include undivided
interests that satisfy any such percentage. DTC may take conflicting actions
with respect to other undivided interests to the extent that such actions are
taken on behalf of DTC Participants whose holders include such undivided
interests.
DTC has provided us with the following additional disclosure about its Year
2000 efforts:
. DTC management is aware that some Systems that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000,
may encounter "Year 2000 problems." DTC has informed its DTC Participants
and other members of the financial community that it has developed and is
implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments)
to securityholders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to
be completed within appropriate time frames.
. However, DTC's ability to perform properly its services is also dependent
upon other parties, including, but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software
and hardware, and third party vendors on whom DTC relies for information
or for the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed DTC
Participants and other members of the financial community that it is
contacting, and will continue to contact, third party vendors from whom
DTC acquires services, to impress upon them the importance of such
services being Year 2000 compliant, and determine the extent of their
efforts for Year 2000 remediation, and the appropriate testing, of their
services. In addition, DTC is in the process of developing such
contingency plans as it deems appropriate.
. According to DTC, the above information with respect to DTC has been
provided to the DTC Participants and other members of the financial
community for informational purposes only and is not intended to serve as
a representation, warranty or contract modification of any kind.
Same-Day Settlement and Payment. All payments made by Federal Express to the
Indenture Trustee under each Lease will be in immediately available funds and
will be passed through to DTC in immediately available funds.
12
The Pass Through Certificates will trade in DTC's Same-Day Funds Settlement
System until maturity, and DTC will require secondary market trading activity
in the Pass Through Certificates to settle in immediately available funds.
Certificated Form. The Owner Trustee will issue physical certificates to
holders of a global security or their nominees if:
. DTC advises the Pass Through Trustee in writing that it is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the Pass Through Certificates and Federal Express is
unable to locate a qualified successor, or
. if Federal Express, at its option, elects to terminate the book-entry
system through DTC.
In such event, the Pass Through Trustee will notify all Certificateholders
through DTC Participants of the availability of such certificated Pass Through
Certificates. Upon surrender by DTC of the definitive global certificate
representing the series of Pass Through Certificates and receipt of
instructions for reregistration, the Pass Through Trustee will reissue the Pass
Through Certificates in certificated form to Certificateholders or their
nominees.
Certificates in certificated form will be freely transferable and
exchangeable at the office of the Pass Through Trustee upon compliance with the
requirements set forth in the Pass Through Agreement and the applicable Series
Supplements. There will be no service charge imposed for any registration of
transfer or exchange, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
Payments and Distributions
Federal Express will make scheduled payments of principal of, and interest
on the unpaid amount of, the Owned Aircraft Certificates to the Indenture
Trustee under the related Owned Aircraft Indenture, and the Indenture Trustee
will distribute such principal and interest payments to the Pass Through
Trustee for each of the Pass Through Trusts that hold such Owned Aircraft
Certificates. Upon commencement of the Lease for any Leased Aircraft, Federal
Express will make scheduled rental payments for each Leased Aircraft under the
related Lease. These scheduled rental payments will be assigned under the
applicable Leased Aircraft Indenture by the related Owner Trustee to the
Indenture Trustee to provide the funds necessary to make the corresponding
payments of principal and interest due from the Owner Trustee on the Leased
Aircraft Certificates issued under such Leased Aircraft Indenture.
Pre-Funding Period. Until Federal Express has entered into a Lease in
connection with a Leased Aircraft, Federal Express will not be obligated to
make any scheduled rental payments and the related Leased Aircraft Certificates
will not be secured by such Leased Aircraft or the related Lease. In general,
during any Pre-Funding Period for such Leased Aircraft, the related Collateral
Account, any Additional Collateral or amounts payable under a Depositary
Arrangement, will be available to provide funds necessary to make the
corresponding scheduled payments of any principal and interest accrued on the
related Leased Aircraft Certificates during the Pre-Funding Period, and to pay
any portion of principal and interest due on the first payment date after the
Pre-Funding Period to the extent exceeding the amount of rent payable by
Federal Express on such payment date. See "Description of the Equipment
Certificates--Delayed Lease Commencement."
Following any Pre-Funding Period. Upon commencement of the Lease for any
Leased Aircraft, after the Indenture Trustee has made principal and interest
payments to the Pass Through Trustee for each of the Pass Through Trusts on the
Leased Aircraft Certificates held in such Pass Through Trust, the Indenture
Trustee will, except under certain circumstances, pay any remaining balance to
the Owner Trustee for the benefit of the related Owner Participant. The Pass
Through Trustee for each Pass Through Trust will distribute to the
Certificateholders of such Pass Through Trust payments received on the
Equipment Certificates held in such Pass Through Trust as described below.
During any Pre-Funding Period for a Leased Aircraft, the Indenture Trustee will
not make any payments to the Owner Trustee for the benefit of the related Owner
Participant.
13
Payments of principal of, and interest on the unpaid amount of, the
Equipment Certificates held in each Pass Through Trust will be scheduled to be
received by the Pass Through Trustee on the dates specified in the prospectus
supplement. Subject to the effect of any cross-subordination provisions set
forth in the prospectus supplement, for each Pass Through Trust, the Pass
Through Trustee will distribute on each Regular Distribution Date to the
related Certificateholders any Scheduled Payment received by the Pass Through
Trustee on such Regular Distribution Date. (Pass Through Agreement, Section
5.02)
If a Scheduled Payment is not received by the Pass Through Trustee on or
before a Regular Distribution Date but is received within seven Business Days
after the Regular Distribution Date, it will be distributed on the date
received to Certificateholders. Each distribution of a Scheduled Payment will
be made by the Pass Through Trustee to Certificateholders of record of such
Pass Through Trust on the fifteenth day prior to such Regular Distribution
Date, subject to some exceptions. Each Certificateholder will be entitled to
receive a pro rata share of any distribution, except as provided in any cross-
subordination provisions of the prospectus supplement. (Pass Through Agreement,
Section 5.01 and 5.02) If a Scheduled Payment is received more than seven
Business Days after the applicable Regular Distribution Date, it will be
treated as a Special Payment and will be distributed as described below.
Subject to the effect of any cross-subordination provisions set forth in the
prospectus supplement, after any prepayment of principal, any redemption or any
default in respect of some or all of the Equipment Certificates held in any
Pass Through Trust, any Certificateholder of such Pass Through Trust should
refer to the Pool Balance and the Pool Factor for such Pass Through Trust
reported periodically by the Pass Through Trustee, in order to calculate such
Certificateholder's pro rata share of such Pass Through Trust. See "Pool
Factors" and "Statements to Certificateholders" below.
For any Pass Through Trust, any payments of principal, any premium, or
interest, other than Scheduled Payments, received by the Pass Through Trustee
on any of the Equipment Certificates held in such Pass Through Trust, including
payments received:
. for the prepayment of such Equipment Certificates in connection with
events specified in the prospectus supplement (including payments upon
unavailability of Trust Property and prepayments during any Pre-Funding
Period)
. upon the prepayment by the related Owner Trustee of such Equipment
Certificates following a default in respect of such Equipment
Certificates, and
. on account of the sale of such Equipment Certificates by the Pass Through
Trustee
will be distributed on the dates indicated in the prospectus supplement except
that unless otherwise specified in the prospectus supplement, payments received
by the Pass Through Trustee following a default in respect of the Equipment
Certificates on a Regular Distribution Date as a result of a drawing under any
Liquidity Facility specified in the prospectus supplement, will be distributed
on such Regular Distribution Date. See "Description of the Equipment
Certificates--Mandatory Prepayment During the Pre-Funding Period" for a
discussion of the funding of prepayments during any Pre-Funding Period.
Prior to any Special Payment for any Pass Through Trust, the Pass Through
Trustee will notify the Certificateholders of record of such Pass Through Trust
of such Special Payment and the Special Distribution Date. Each distribution of
a Special Payment, other than the final distribution, for any Pass Through
Trust will be made by the Pass Through Trustee to the Certificateholders of
record of such Pass Through Trust on the fifteenth day prior to such Special
Distribution Date, unless another date is specified in the prospectus
supplement. Subject to the effect of any cross-subordination provisions set
forth in the prospectus supplement, each such Certificateholder will be
entitled to receive a pro rata share of any such distribution. (Pass Through
Agreement, Section 5.02) See "Description of the Equipment Certificates--
Prepayment" and "Description of the Pass Through Certificates--Events of
Default and Certain Rights Upon an Event of Default."
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The Pass Through Trustee is required to establish and maintain, for each
Pass Through Trust and for the benefit of the related Certificateholders, one
or more Certificate Accounts and one or more Special Payments Accounts. The
Pass Through Trustee is required to deposit any Scheduled Payments relating to
a Pass Through Trust received by it in the related Certificate Account and to
deposit any Special Payment received by it in the related Special Payments
Account pending distribution of such Special Payments. (Pass Through Agreement,
Section 5.01) A Special Payment that is not promptly distributed by the Pass
Through Trustee will, to the extent practicable, be invested by the Pass
Through Trustee in Permitted Investments pending the distribution of such funds
on a Special Distribution Date, and the income and earnings on investment will
be distributed with such Special Payment. (Pass Through Agreement, Section
5.04)
If at any time, the Pass Through Certificates of any Pass Through Trust are
issued in the form of certificated Pass Through Certificates and not to Cede,
as nominee for DTC, distributions by the Pass Through Trustee from a
Certificate Account or a Special Payments Account of any Pass Through Trust on
any Distribution Date will be paid to each Certificateholder of record of such
Pass Through Trust on the applicable record date at its address appearing on
the register maintained for such Pass Through Trust. (Pass Through Agreement,
Section 5.02) The final distribution for each Pass Through Trust, however, will
be made only upon presentation and surrender of the Pass Through Certificates
for such Pass Through Trust at the office or agency of the Pass Through Trustee
specified in the notice given by the Pass Through Trustee of such final
distribution. The Pass Through Trustee will mail such notice of the final
distribution to the Certificateholders of such Pass Through Trust, specifying
the date set for such final distribution and the amount of such distribution.
(Pass Through Agreement, Section 12.01) See "Termination of Pass Through
Trusts" below.
If any Distribution Date is not a Business Day, distributions scheduled to
be made on such Distribution Date may be made on the next succeeding Business
Day without additional interest. (Pass Through Agreement, Section 13.15)
Pool Factors
Except as provided below, the Pool Factor for any Pass Through Trust will
decline in proportion to the scheduled repayments of principal on the Equipment
Certificates held in such Pass Through Trust as described in the prospectus
supplement. Where any Equipment Certificates held in a Pass Through Trust have
been prepaid, a scheduled repayment of principal thereon has not been made or
certain actions have been taken following a default thereon, as discussed in
the prospectus supplement or below in "Events of Default and Certain Rights
Upon an Event of Default," the Pool Factor and the Pool Balance of such Pass
Through Trust will be recomputed after giving effect thereto and notice thereof
will be mailed to the Certificateholders of such Pass Through Trust. Each Pass
Through Trust will have a separate Pool Factor.
The Pool Balance for each Pass Through Trust as of any Distribution Date
will be computed after giving effect to any payment of principal on the
Equipment Certificates held in such Pass Through Trust and its distribution on
that date. (Pass Through Agreement, Article I)
The Pool Factor for each Pass Through Trust as of any Distribution Date
shall be computed after giving effect to the payment of any principal on the
Equipment Certificates held in such Pass Through Trust and its distribution on
that date. The Pool Factor for each Pass Through Trust will initially be
1.0000000; thereafter, the Pool Factor for each Pass Through Trust will decline
as described above to reflect reductions in the Pool Balance of such Pass
Through Trust. For any Pass Through Trust, the amount of any
Certificateholder's pro rata share of the Pool Balance of such Pass Through
Trust can be determined by multiplying the original denomination of such
Certificateholder's Pass Through Certificate by the Pool Factor for such Pass
Through Trust as of the applicable Distribution Date. (Pass Through Agreement,
Article I)
Statements to Certificateholders
On each Distribution Date, the Pass Through Trustee will include with each
distribution of a Scheduled Payment or Special Payment to Certificateholders of
record of the related Pass Through Trust a statement,
15
giving effect to that distribution being made on that Distribution Date,
setting forth the following information (per $1,000 in aggregate amount of Pass
Through Certificates for the related Pass Through Trust, as to the first and
second categories of information listed below):
. the amount of that distribution allocable to principal and allocable to
any premium for the related Equipment Certificates
. the amount of that distribution allocable to interest for the related
Equipment Certificates, and
. the Pool Balance and the Pool Factor for such Pass Through Trust (Pass
Through Agreement, Section 5.03)
So long as the Pass Through Certificates of any related Pass Through Trust
are registered in the name of Cede, as nominee for DTC, on the record date
prior to each Distribution Date, the Pass Through Trustee will request from DTC
a securities position listing setting forth the names of all DTC Participants
reflected on DTC's books as holding interests in the Pass Through Certificates
of such related Pass Through Trust on such record date. On each Distribution
Date, the Pass Through Trustee will mail to each such DTC Participant the
statement described above, and will make available additional copies as
requested by such DTC Participant, to be available for forwarding to
Certificateholders.
In addition, after the end of each calendar year, the Pass Through Trustee
will prepare and deliver to each Certificateholder of each Pass Through Trust
at any time during the preceding calendar year a report containing the sum of
the amounts determined pursuant to the first and second categories of
information listed above with respect to each such Pass Through Trust for such
calendar year or, in the event such person was a Certificateholder during a
portion of such calendar year, for the applicable portion of such calendar
year. Such report and such other items will be prepared on the basis of
information supplied to the Pass Through Trustee by the DTC Participants, and
shall be delivered by the Pass Through Trustee to such DTC Participants to be
available for forwarding by such DTC Participants to Certificateholders in the
manner described above. (Pass Through Agreement, Section 5.03)
At any time when the Pass Through Certificates of a related Pass Through
Trust are issued in certificated form, the related Pass Through Trustee will
prepare and deliver the information described above to each Certificateholder
of record of such Pass Through Trust as the name and period of record ownership
of such Certificateholder appears on the records on the registrar for such Pass
Through Trust.
Voting of Equipment Certificates
Subject to the effect of any cross-subordination provisions and any
intercreditor provisions described in the prospectus supplement, the Pass
Through Trustee, as holder of the Equipment Certificates held in each Pass
Through Trust, has the right to vote and give consents and waivers in respect
of such Equipment Certificates under the related Indentures. The Pass Through
Agreement describes the circumstances in which the Pass Through Trustee will
direct any action or cast any vote as the holder of the Equipment Certificates
held in the applicable Pass Through Trust at its own discretion and the
circumstances in which the Pass Through Trustee is required to obtain
instructions from the Certificateholders of such Pass Through Trust. Prior to
an Event of Default with respect to any Pass Through Trust, the principal
amount of the Equipment Certificates held in such Pass Through Trust directing
any action or being voted for or against any proposal will be in proportion to
the principal amount of Pass Through Certificates held by the
Certificateholders of such Pass Through Trust taking the corresponding
position. (Pass Through Agreement, Section 11.08) If specified in the
prospectus supplement, the right of the Pass Through Trustee to vote and give
consents and waivers with respect to the Equipment Certificates held in the
related Pass Through Trust may, in the circumstances described in an
intercreditor agreement to be executed by such Pass Through Trustee, be
exercisable by another person specified in such prospectus supplement.
16
Events of Default and Rights Upon an Event of Default
An Event of Default for any Pass Through Trust is the occurrence and
continuance of an Indenture Event of Default under one or more of the
Indentures. The Indenture Events of Default will be described in the prospectus
supplement and, for the Leased Aircraft, will include each Lease Event of
Default. For any Equipment Certificates which are supported by a Liquidity
Facility, the Events of Default or Indenture Events of Default may include
events of default under such Liquidity Facility.
No cross defaults. Since the Equipment Certificates outstanding under an
Indenture may be held in more than one Pass Through Trust, a continuing
Indenture Event of Default under the Indenture would result in an Event of
Default with respect to each such Pass Through Trust. All of the Equipment
Certificates issued under the same Indenture, however, will relate to a
specific Aircraft and there will be no cross-collateralization or cross-default
provisions in the Indentures, unless otherwise specified in the prospectus
supplement. Consequently, events resulting in an Indenture Event of Default
under any particular Indenture will not necessarily result in an Indenture
Event of Default under any other Indenture.
If an Indenture Event of Default occurs in fewer than all of the Indentures
related to a Pass Through Trust, the Equipment Certificates issued pursuant to
the Indentures with respect to which an Indenture Event of Default has not
occurred will continue to be held in such Pass Through Trust and payments of
principal of, any premium and interest on such Equipment Certificates will
continue to be distributed to the Certificateholders of such Pass Through Trust
as originally scheduled. If the prospectus supplement contains the terms of any
cross-subordination provisions among Certificateholders of separate Pass
Through Trusts, however, payments made pursuant to an Indenture under which no
Indenture Event of Default has occurred will be distributed first to holders of
Pass Through Certificates issued under the Pass Through Trust which holds the
most senior Equipment Certificates issued under all Indentures.
Cure rights. Under each Leased Aircraft Indenture, the related Owner Trustee
and the Owner Participant will have the right under some circumstances to cure
an Indenture Event of Default that results from the occurrence of a Lease Event
of Default under the related Lease. If the Owner Trustee or the Owner
Participant chooses to exercise its cure right, the Indenture Event of Default
and consequently the Event of Default under any Pass Through Trust holding the
related Leased Aircraft Certificates will be deemed to be cured. The prospectus
supplement will contain a more detailed discussion of the provisions described
in this paragraph.
Remedies. If an Indenture Event of Default under an Indenture relating to
Equipment Certificates held in a Pass Through Trust has occurred and is
continuing, the Pass Through Trustee may vote all of the Equipment Certificates
issued under such Indenture that are held in such Pass Through Trust, and upon
the direction of the Certificateholders evidencing fractional undivided
interests aggregating not less than a majority in interest of such Pass Through
Trust, will vote a corresponding majority of such Equipment Certificates, in
each case in favor of directing the Indenture Trustee to declare the unpaid
principal amount of all Equipment Certificates issued under such Indenture, any
accrued and unpaid interest, and all other amounts due under such Equipment
Certificates to be due and payable.
If an Indenture Event of Default has occurred and is continuing, the Pass
Through Trustee may, unless any intercreditor agreement provides otherwise, and
upon the direction of the Certificateholders evidencing fractional undivided
interests aggregating not less than a majority in interest of such Pass Through
Trust, will vote all of the Equipment Certificates issued under such Indenture
that are held in such Pass Through Trust in favor of directing the Indenture
Trustee as to the time, method and place of conducting any proceeding for any
remedy available to such Indenture Trustee or of exercising any trust or power
conferred on such Indenture Trustee under such Indenture. (Pass Through
Agreement, Sections 7.01 and 7.09)
Whether the Certificateholders of any one Pass Through Trust are able to
cause the Indenture Trustee for any Equipment Certificates held in such Pass
Through Trust to accelerate the payment on such Equipment Certificates under
the related Indenture or to direct the exercise of remedies by such Indenture
Trustee under
17
the related Indenture, will depend, in part, upon the proportion of the
aggregate principal amount of the Equipment Certificates outstanding under such
Indenture and held in such Pass Through Trust to the aggregate principal amount
of all Equipment Certificates outstanding under such Indenture. In addition, if
cross-subordination provisions are applicable to the Pass Through Certificates,
the ability of the Certificateholders of any one Pass Through Trust holding
Equipment Certificates issued under related Indentures to cause the Indenture
Trustee to accelerate such Equipment Certificates or to direct the exercise of
remedies by the Indenture Trustee under the related Indenture will depend, in
part, on the class of Equipment Certificates held in such Pass Through Trust.
Conflict of Interest. Each Pass Through Trust will hold Equipment
Certificates with different terms from those of the Equipment Certificates held
in any other Pass Through Trust and, therefore, the Certificateholders of a
Pass Through Trust may have divergent or conflicting interests from those of
the Certificateholders of the other Pass Through Trusts holding Equipment
Certificates relating to the same Indenture. In addition, so long as the same
institution or one of its affiliates acts as Pass Through Trustee of one or
more Pass Through Trusts holding Equipment Certificates issued under such
Indenture, in the absence of instructions from the Certificateholders of any
such Pass Through Trust, the Pass Through Trustee for that Pass Through Trust
could for the same reason be faced with a potential conflict of interest upon
an Indenture Event of Default. In that case, the initial Pass Through Trustee
has indicated that it would resign as Pass Through Trustee of one or all of
those Pass Through Trusts, and a successor pass through trustee would be
appointed in accordance with the terms of the Pass Through Agreement and the
applicable Series Supplement. See "The Pass Through Trustee; the Indenture
Trustee" below for a discussion of resignation procedures.
Sale. As an additional remedy, if an Indenture Event of Default under an
Indenture has occurred and is continuing, the Pass Through Trustee of a Pass
Through Trust holding Equipment Certificates issued under such Indenture may,
and upon the direction of the Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest of such
Pass Through Trust will, sell all or part of such Equipment Certificates for
cash to any person at a price or prices that it may reasonably deem advisable.
Any proceeds received by the Pass Through Trustee upon any such sale will be
deposited in the Special Payments Account for such Pass Through Trust and will
be distributed to the Certificateholders of such Pass Through Trust on a
Special Distribution Date. (Pass Through Agreement, Sections 7.01 and 7.02)
The market for Equipment Certificates in default may be very limited and
there can be no assurance that they could be sold for a reasonable price.
Furthermore, so long as the same institution or an affiliate of such
institution acts as Pass Through Trustee of one or more Pass Through Trusts
holding Equipment Certificates issued under such Indenture, it may be faced
with a conflict in deciding from which Pass Through Trust to sell Equipment
Certificates to available buyers.
If the Pass Through Trustee sells any such Equipment Certificates with
respect to which an Indenture Event of Default exists for less than the
outstanding principal amount of such Equipment Certificates, the
Certificateholders of such Pass Through Trust will receive a smaller amount of
principal distributions than anticipated and will not have any claim for the
shortfall against the Pass Through Trustee, or Federal Express or, in the case
of Leased Aircraft Certificates, the Owner Trustee or any related Owner
Participant, as the case may be. Furthermore, neither the Pass Through Trustee
nor the Certificateholders of such Pass Through Trust could take any action
with respect to any remaining Equipment Certificates held in such Pass Through
Trust so long as no Indenture Event of Default existed with respect to those
remaining Equipment Certificates.
Distribution. For any Pass Through Trust, any amount distributed to the Pass
Through Trustee by the Indenture Trustee under any Indenture on account of the
Equipment Certificates held in that Pass Through Trust following an Indenture
Event of Default under such Indenture will be deposited in the Special Payments
Account for that Pass Through Trust and will be distributed to the
Certificateholders of such Pass Through Trust on a Special Distribution Date.
In addition, if, following an Indenture Event of Default under any Leased
Aircraft Indenture, the related Owner Trustee or Owner Participant, as the case
may be, exercises any option it has to prepay or purchase the outstanding
Leased Aircraft Certificates issued under such Indenture as described
18
in the related prospectus supplement, the price paid by it to the Pass Through
Trustee for such Leased Aircraft Certificates held in such Pass Through Trust
will be deposited in the related Special Payments Account and will be
distributed to the Certificateholders of such Pass Through Trust on a Special
Distribution Date. (Pass Through Agreement, Sections 5.01 and 5.02)
Permitted investments. Any funds representing payments received with respect
to any Equipment Certificates held in a Pass Through Trust in default, or the
proceeds from the sale by the Pass Through Trustee of any such Equipment
Certificates, held by the Pass Through Trustee in the Special Payments Account
for such Pass Through Trust will, to the extent practicable, be invested by the
Pass Through Trustee in Permitted Investments pending the distribution of those
funds on a Special Distribution Date. (Pass Through Agreement, Article I and
Section 5.04)
Notice. The Pass Through Trustee will, within 90 days after the occurrence
of a default, as defined below, under any Pass Through Trust, notify the
Certificateholders of such Pass Through Trust by mail of all uncured or
unwaived defaults with respect to such Pass Through Trust known to a
responsible officer of it. Under no circumstances, however, may the Pass
Through Trustee give notice until the expiration of a period of 60 days from
the occurrence of such default. The Pass Through Trustee will be protected in
withholding notice if it in good faith determines that withholding notice is in
the interests of such Certificateholders, except in the case of default in the
payment of principal of or any premium, interest or other amount due on, any of
the Equipment Certificates held in such Pass Through Trust. The term "default"
means the occurrence of any Event of Default with respect to a Pass Through
Trust as described above, except that in determining whether any such Event of
Default has occurred any grace period or notice in connection therewith is
disregarded. (Pass Through Agreement, Section 7.11)
Indemnity. For each Pass Through Trust, the Pass Through Trustee is entitled
to be indemnified by the Certificateholders of that Pass Through Trust before
proceeding to exercise any right or power under that Pass Through Trust or any
intercreditor agreement at the request of those Certificateholders. The Pass
Through Trustee's entitlement to be indemnified by the Certificateholders is
subject to the duty of the Pass Through Trustee during a default to act with
the required standard of care. (Pass Through Agreement, Section 8.03)
Waivers. Subject to any intercreditor agreement, in some cases, the
Certificateholders of a Pass Through Trust evidencing fractional undivided
interests aggregating not less than a majority in interest of such Pass Through
Trust may on behalf of all the Certificateholders of such Pass Through Trust or
if the Pass Through Trustee is the controlling party under an intercreditor
agreement, may direct the Pass Through Trustee to instruct the applicable
Indenture Trustee to, waive any past default or Event of Default with respect
to such Pass Through Trust and in doing so annul any direction given by such
Certificateholders to the Pass Through Trustee or the Indenture Trustee with
respect to such default, except a default in payment of the principal of or any
premium, interest or other amount due on, any of the Equipment Certificates
held in that Pass Through Trust or a default in respect of any covenant or
provision of the Pass Through Agreement or the related Series Supplement that
cannot be modified or amended without the consent of each Certificateholder of
such Pass Through Trust affected by such default. Any waiver, however, will be
effective to waive any such past default or Event of Default if, but only if,
the correlative Indenture Event of Default has been waived under the related
Indenture by the requisite holders of the Equipment Certificates outstanding
under that Indenture. (Pass Through Agreement, Section 7.10)
Modifications of the Pass Through Agreement
Without the Consent of Certificateholders. Federal Express and the Pass
Through Trustee may enter into an agreement supplemental to any Pass Through
Trust, without the consent of the Certificateholders of such Pass Through
Trust, to:
. provide for the formation of any Pass Through Trust and the issuance of
the related Pass Through Certificates
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. evidence the succession of another corporation to Federal Express and the
assumption by that corporation of Federal Express' obligations under the
Pass Through Agreement and the applicable Series Supplement
. add to the covenants of Federal Express for the protection of the related
Certificateholders
. surrender any right or power conferred upon Federal Express in the Pass
Through Agreement or any Series Supplement
. cure any ambiguity or correct any mistake or supplement any defective or
inconsistent provision of such Pass Through Agreement or the applicable
Series Supplement, any intercreditor agreement or any Liquidity Facility
. modify any other provisions in regard to matters or questions arising
under the Pass Through Agreement or the applicable Series Supplement, any
intercreditor agreement or any Liquidity Facility that will not adversely
affect the interests of the related Certificateholders
. correct or amplify the description of property that constitutes Trust
Property or the conveyance of such property to the Pass Through Trustee
. evidence and provide for a successor Pass Through Trustee for some or all
of the Pass Through Trusts
. modify, eliminate or add to the provisions of the Pass Through Agreement
or any Series Supplement to the extent necessary to continue to qualify
the Pass Through Agreement or that Series Supplement under the Trust
Indenture Act of 1939, as amended, or any similar federal statute enacted
after the date of the Pass Through Agreement
. make any other amendments or modifications to the Pass Through Agreement
which shall only apply to one or more Series issued after the date of
such supplemental agreement, and
. add, eliminate or change any provision under the Pass Through Agreement
that will not adversely affect the interests of the Certificateholders.
However, in each of the above cases such supplemental agreement must not
cause the Pass Through Trust to become taxable as an association for federal
income tax purposes. (Pass Through Agreement, Section 11.01)
With the Consent of Certificateholders. Federal Express and the Pass Through
Trustee, with the consent of the Certificateholders evidencing fractional
undivided interests aggregating not less than a majority in interest of the
affected Pass Through Trust, may execute supplemental agreements adding any
provisions to or changing or eliminating any of the provisions of the Pass
Through Agreement, to the extent relating to such Pass Through Trust, and the
applicable Series Supplement, any intercreditor agreement or any Liquidity
Facility or modifying the rights of such Certificateholders. No such
supplemental agreement may, however, without the consent of each
Certificateholder so affected:
. reduce the amount of, or delay the timing of, any receipt by the Pass
Through Trustee of payments on the Equipment Certificates held in such
Pass Through Trust, or distributions in respect of any Pass Through
Certificate of such Pass Through Trust, or make distributions payable in
a currency other than that provided for in such Pass Through
Certificates, or impair the right of any such Certificateholder to
institute suit for the enforcement of any payment when due
. reduce, modify or amend any indemnities in favor of any Certificateholder
(unless consented to by each such holder adversely affected by such
reduction, modification or amendment)
. create or permit the creation of any lien on the Trust Property or
deprive any holder of any such Pass Through Certificate of the benefit of
the related Pass Through Trust with respect to the Trust Property whether
by disposition or otherwise, except as provided in the Pass Through
Agreement or the applicable Series Supplement
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. waive, amend or modify the priority of distributions of any intercreditor
agreement in a manner adverse to the Certificateholders
. reduce the percentage of the aggregate fractional undivided interests of
the Pass Through Trust that is required to approve any supplemental
agreement or any waiver provided for in the Pass Through Agreement or
such Series Supplement, or
. cause the Pass Through Trust to become taxable as an association for
federal income tax purposes. (Pass Through Agreement, Section 11.02)
Modification, Consents and Waivers under the Indenture and Related Agreements
If the Pass Through Trustee, as the holder of any Equipment Certificates
held in a Pass Through Trust, receives a request for its consent to any
amendment, modification or waiver under the Indenture, or other document
relating to such Equipment Certificates (including any Lease with respect to
Leased Aircraft Certificates), the Pass Through Trustee will mail a notice of
such proposed amendment, modification or waiver to each Certificateholder of
such Pass Through Trust as of the date of such notice. The Pass Through Trustee
will request instructions from such Certificateholders as to whether or not to
consent to such amendment, modification or waiver. The Pass Through Trustee
will vote or consent with respect to such Equipment Certificates in the same
proportion as the Pass Through Certificates of such Pass Through Trust are
actually voted by such Certificateholders by a specific date. If an Event of
Default relating to such Indenture has occurred and is continuing under such
Pass Through Trust, the Pass Through Trustee may, in the absence of
instructions from Certificateholders holding a majority in interest of such
Pass Through Trust and subject to any intercreditor agreement, in its own
discretion consent to such amendment, modification or waiver, and may so notify
the Indenture Trustee. (Pass Through Agreement, Section 11.08)
Cross-Subordination Issues
The Pass Through Trustee may enter into an intercreditor agreement which
provides that payments made to Certificateholders of a Pass Through Trust may
be subordinated to the prior payment of all amounts owing to Certificateholders
of another Pass Through Trust which holds senior Equipment Certificates issued
under all Indentures. The prospectus supplement will describe the circumstances
under which those payments may be subordinated. The prospectus supplement will
describe any such intercreditor agreement and the cross-subordination
provisions and any related terms, including who is permitted to grant waivers
of defaults under any related Indenture, consent to the amendment or
modification of any related Indentures or direct the exercise of remedial
actions under any related Indentures.
Termination of Pass Through Trusts
The obligations of Federal Express and the Pass Through Trustee with respect
to a Pass Through Trust will terminate upon the distribution to the
Certificateholders of the Pass Through Trust of all amounts required to be
distributed to them pursuant to the Pass Through Agreement and the applicable
Series Supplement and the disposition of all property held in the Pass Through
Trust. The Pass Through Trustee will notify each Certificateholder of record of
the Pass Through Trust by mail of, among other things, the termination of the
Pass Through Trust, the amount of the proposed final payment and the proposed
date for the distribution of such final payment for the Pass Through Trust. The
final distribution for each Certificateholder of the Pass Through Trust will be
made only upon surrender of the Certificateholder's Pass Through Certificates
at the office or agency of the Pass Through Trustee specified in the
termination notice. (Pass Through Agreement, Section 12.01)
Delayed Purchase
If, on the date of issuance of any Pass Through Certificates, all of the
proceeds of sale of Pass Through Certificates are not used to purchase the
Equipment Certificates contemplated to be held in the related Pass
21
Through Trust, those Equipment Certificates may be purchased by the Pass
Through Trustee at any time on or prior to the date specified in the prospectus
supplement. In that case, the Pass Through Trustee will transfer the proceeds
of sale on the date of issuance to Federal Express which will deposit such
amount into a deposit trust account pending the purchase of those Equipment
Certificates. Those proceeds will be invested until applied to such purchase.
(Pass Through Agreement, Article I and Section 2.02)
Subject to a Special Payment upon unavailability of the Trust Property as
described below, in return for its interest in the funds transferred to a
deposit trust account, if the Equipment Certificates that were not so purchased
become available for purchase on or prior to the date specified in the
prospectus supplement, Federal Express will cause an amount equal to the
purchase price of those Equipment Certificates to be transferred from the
deposit trust account to the Pass Through Trustee on the date for such delayed
purchase. On the initial Regular Distribution Date, Federal Express will pay to
the Pass Through Trustee an amount equal to the interest that would have
accrued on those Equipment Certificates from the date of the issuance of such
Pass Through Certificates to, but excluding, the date of the purchase of those
Equipment Certificates. (Pass Through Agreement, Section 2.02)
Special Payment Upon Unavailability of Trust Property
For any Pass Through Trust, to the extent that any of the proceeds from the
sale of the related Pass Through Certificates are not applied on or prior to
the date specified in the prospectus supplement to purchase the Equipment
Certificates that were contemplated to be held in such Pass Through Trust,
Federal Express will cause an amount equal to such unapplied proceeds to be
paid from the deposit trust account to the Pass Through Trustee. The Pass
Through Trustee will distribute such proceeds to the Certificateholders of such
Pass Through Trust on a pro rata basis upon not less than 20 days' prior notice
to them as a Special Payment on the date specified in the prospectus
supplement, together with interest thereon at a rate equal to the rate
applicable to such Pass Through Certificates, but without premium. Federal
Express will also pay to the Pass Through Trustee on such date an amount equal
to such interest. Federal Express will be responsible for any losses in the
deposit trust account. (Pass Through Agreement, Section 2.02)
Liquidity Facility
The prospectus supplement may provide that one or more payments of interest
on the Pass Through Certificates of one or more series will be supported by a
Liquidity Facility. The provider of such Liquidity Facility will have a claim
senior to the Certificateholders' as specified in the prospectus supplement.
The Pass Through Trustee; the Indenture Trustee
The Pass Through Trustee for each of the Pass Through Trusts will be The
Bank of New York, unless otherwise specified in the related prospectus
supplement. The Pass Through Trustee and any of its affiliates may hold Pass
Through Certificates in their own names. (Pass Through Agreement, Section 8.05)
The Bank of New York will be the Indenture Trustee under the Indentures
under which the Equipment Certificates have been or will be issued, unless
otherwise specified in the related prospectus supplement. The Bank of New York
acts as trustee under other indentures with respect to other indebtedness of
Federal Express, and Federal Express from time to time borrows from, and
maintains deposit accounts with, The Bank of New York and its affiliates.
The Pass Through Trustee may resign as trustee under any or all of the Pass
Through Trusts at any time. If the Pass Through Trustee ceases to be eligible
to continue as Pass Through Trustee with respect to a Pass Through Trust or
becomes incapable of acting as Pass Through Trustee or becomes insolvent,
Federal Express may remove the Pass Through Trustee, or any Certificateholder
of such Pass Through Trust holding Pass Through Certificates for at least six
months may, on behalf of such Certificateholder and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Pass Through Trustee and the
22
appointment of a successor trustee. In addition, the Certificateholders holding
more than 50% in aggregate amount of the related Pass Through Certificates may
remove the Pass Through Trustee of any Pass Through Trust without cause. (Pass
Through Agreement, Section 10.01)
In the case of the resignation or removal of the Pass Through Trustee,
Federal Express or the Certificateholders holding more than 50% in aggregate
amount of the related Pass Through Certificates may appoint a successor Pass
Through Trustee. The resignation or removal of the Pass Through Trustee for any
Pass Through Trust and the appointment of the successor trustee for such Pass
Through Trust does not become effective until acceptance of the appointment by
the successor trustee. (Pass Through Agreement, Article X) Pursuant to the
resignation and successor trustee provisions of the Pass Through Agreement, it
is possible that a different trustee could be appointed to act as the successor
trustee with respect to each Pass Through Trust. All references in this
prospectus to the Pass Through Trustee are to the trustee acting in such
capacity under each of the Pass Through Trusts and should be read to take into
account the possibility that each of the Pass Through Trusts could have a
different successor trustee in the event of a resignation or removal.
The Pass Through Agreement provides that Federal Express will pay the Pass
Through Trustee's fees and expenses and that the Pass Through Trustee will have
a priority claim on the related Trust Property to the extent such fees and
expenses are not paid. The Pass Through Agreement further provides that the
Pass Through Trustee in its individual capacity will be entitled to
indemnification by Federal Express for, and will be held harmless against, any
loss, liability or expenses (other than income or similar taxes) incurred by
the Pass Through Trustee in its individual capacity in connection with the
administration of any Pass Through Trust, except to the extent incurred through
its own willful misconduct, bad faith or negligence or by reason of a breach of
any of its representations or warranties made in the Pass Through Agreement,
the applicable Series Supplement or any related documents. In some
circumstances, the Pass Through Trustee is entitled to reimbursement from the
applicable Pass Through Trust for any tax (other than income or similar taxes)
incurred in its trust capacity in connection with the administration of that
Pass Through Trust. (Pass Through Agreement, Articles VIII and IX)
DESCRIPTION OF THE EQUIPMENT CERTIFICATES
The following is a summary description of the Equipment Certificates which
we expect will be common to all Equipment Certificates. Where no distinction is
made between the Leased Aircraft Certificates and the Owned Aircraft
Certificates or between their respective Indentures, such statements refer to
any Equipment Certificates and any Indenture. The prospectus supplement will
describe the specific terms of any series of Equipment Certificates. Therefore,
you should rely on the information in the prospectus supplement, in particular
if the information in the prospectus supplement is different from the
information provided below.
Because the following description is a summary, it does not describe every
aspect of the Equipment Certificates, and is qualified in its entirety by
reference to all the provisions of the applicable Equipment Certificates, the
Indentures, the Participation Agreements, any Leases, any Collateral Agreements
or Depositary Arrangement, and other agreements and arrangements relating to
any particular offering of Equipment Certificates.
To the extent that any provision in any prospectus supplement is
inconsistent with any provision of this summary, the provision of the
prospectus supplement will control.
General
Owned Aircraft. For each Owned Aircraft, the related Owned Aircraft
Certificates will be issued as direct obligations of Federal Express and will
be authenticated under an Owned Aircraft Indenture by the Indenture Trustee.
All of the Owned Aircraft Certificates issued under the same Owned Aircraft
Indenture will relate to a specific Owned Aircraft and will not be secured by
any other Aircraft. The prospectus supplement will specify the Owned Aircraft
relating to each Owned Aircraft Indenture and the related Owned Aircraft
Certificates.
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Federal Express will be directly obligated under each Owned Aircraft Indenture
to make payments of principal of, any premium and interest on the related Owned
Aircraft Certificates.
Leased Aircraft. For each Leased Aircraft, the related Leased Aircraft
Certificates will be issued as nonrecourse obligations by the Owner Trustee, in
each case acting for a separate Owner Trust for the benefit of an Owner
Participant, and will be authenticated under a Leased Aircraft Indenture by the
Indenture Trustee. All of the Leased Aircraft Certificates issued under the
same Leased Aircraft Indenture will relate to and, after any related Pre-
Funding Period, as discussed below under "Delayed Lease Commencement," will be
secured by a specific Leased Aircraft and will not be secured by any other
Aircraft. In each case, the Owner Trustee will lease the related Leased
Aircraft to Federal Express pursuant to a separate Lease between such Owner
Trustee and Federal Express. See "Delayed Lease Commencement" below for a
discussion of the circumstances under which the Lease for an Aircraft may
commence after the date of issuance of the related Leased Aircraft
Certificates.
Rental Payments. The prospectus supplement will specify the Leased Aircraft
subject to each Lease and the Leased Aircraft Certificates issued under the
related Leased Aircraft Indenture. Upon the commencement of the Lease for any
Leased Aircraft, Federal Express will be obligated to make rental payments
under such Lease that will be sufficient to pay the principal of and accrued
interest on the related Leased Aircraft Certificates when and as due and
payable except that, for a Delayed Lease Aircraft on the first scheduled
payment date after the related Pre-Funding Period, any difference between the
rental payment due on such date by Federal Express and the scheduled payment of
principal, if any, and interest then due on such Leased Aircraft Certificates
will be payable from the related Collateral Account and any Additional
Collateral or from amounts payable under a Depositary Arrangement. See "Delayed
Lease Commencement" below. The Leased Aircraft Certificates will not, however,
be obligations of, or guaranteed by, Federal Express. Federal Express'
obligations to pay rent and to cause other payments to be made under each Lease
will be general obligations of Federal Express.
In circumstances described in the prospectus supplement, Federal Express
will have the right to purchase an Owner Trustee's right, title and interest in
and to the related Aircraft and to assume the related Leased Aircraft
Certificates on a full recourse basis, which would reflect a financing
contemplated by an Owned Aircraft Indenture.
Sale and Leaseback. For any Owned Aircraft, if specified in the prospectus
supplement, Federal Express may arrange for an Owner Trustee, acting for an
Owner Trust for the benefit of an Owner Participant, to purchase that Owned
Aircraft from Federal Express and lease such Aircraft back to Federal Express
under a "net lease," subsequent to the sale of the related Owned Aircraft
Certificates to the Pass Through Trustee for each applicable Pass Through Trust
and the offering and sale of the related Pass Through Certificates pursuant to
that prospectus supplement. In that case, the Owner Trustee will assume, on a
nonrecourse basis, the obligations of Federal Express to make payments of
principal and interest on the related Equipment Certificates. However, the
related Equipment Certificates will no longer be direct obligations of, and
will not be guaranteed by, Federal Express, although Federal Express will be
obligated under the related Lease to make rental payments that will be
sufficient to pay the principal of and accrued interest on the related
Equipment Certificates when and as due and payable, and such Equipment
Certificates will continue to be secured by a security interest in the related
Aircraft, in addition to being secured by an assignment by the Owner Trustee to
the Indenture Trustee of the Owner Trustee's rights under such Lease and the
agreements relating to the purchase of such Aircraft. See "Security," "Payments
and Limitation of Liability" and "Federal Income Tax Consequences" below. The
prospectus supplement will specify the terms and conditions under which any
sale and leaseback transactions may be consummated.
Pre-Funding Period. Until Federal Express has entered into a Lease of a
Leased Aircraft, Federal Express will not be obligated to make any scheduled
rental payments and during any Pre-Funding Period for the Leased Aircraft the
related Leased Aircraft Certificates will not be secured by the Leased Aircraft
or the related Lease. During any Pre-Funding Period for such Leased Aircraft,
however, the related Collateral Account, together
24
with any Additional Collateral or amounts payable under a Depositary
Arrangement will be available to provide funds necessary to make the
corresponding scheduled payments of principal, if any, and interest accrued on
the related Leased Aircraft Certificates during the Pre-Funding Period,
including any portion of principal and interest due on the first payment date
after the Pre-Funding Period to the extent exceeding the amount of rent payable
by Federal Express pursuant to the related Lease. See "Delayed Lease
Commencement" below.
Principal and Interest Payments
Interest received by the Pass Through Trustee on the Equipment Certificates
constituting Trust Property of each Pass Through Trust will be passed through
to the Certificateholders of such Pass Through Trust on a pro rata basis on the
dates and at the rate per annum specified in the prospectus supplement.
Interest on the Equipment Certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
Each Pass Through Trust will hold Equipment Certificates on which principal
is payable in scheduled amounts and on specified dates as specified in the
prospectus supplement. Principal received by the Pass Through Trustee on the
Equipment Certificates will be passed through to the Certificateholders of such
Pass Through Trust as specified in the prospectus supplement.
If specified in the prospectus supplement, payments of interest and
principal due on senior Equipment Certificates issued in respect of an Aircraft
will be made prior to payments of interest and principal on Equipment
Certificates issued in respect of such Aircraft which are subordinated to such
senior Equipment Certificates.
Prepayment
The prospectus supplement will describe the circumstances, whether voluntary
or involuntary, under which the related Equipment Certificates may or must be
prepaid in whole or in part prior to their stated maturity date, any premium
applicable upon prepayment and other terms applying to the prepayment. See
"Mandatory Prepayment During the Pre-Funding Period" below for a discussion of
events which would require prepayment of Leased Aircraft Certificates during
any related Pre-Funding Period.
Security
Except during any related Pre-Funding Period, the Leased Aircraft
Certificates issued under each Leased Aircraft Indenture will be secured by:
. an assignment by the related Owner Trustee to the Indenture Trustee of
the Owner Trustee's rights (except for limited rights described below)
under the applicable Lease, including the right to receive rent and other
payments under the Lease
. a security interest granted to the Indenture Trustee in the related
Leased Aircraft, subject to the rights of Federal Express under the
applicable Lease, so that the Indenture Trustee will not have the right
to disturb Federal Express' quiet enjoyment of such Aircraft so long as
no Lease Event of Default has occurred and is continuing, and
. an assignment to the Indenture Trustee of the Owner Trustee's rights
relating to such Leased Aircraft and the related engines under the
agreements for the purchase of the Leased Aircraft and engines between
Federal Express and the respective manufacturers. See "Registration of
the Aircraft" below.
The assignment by the Owner Trustee to the Indenture Trustee of its rights
under the related Lease will exclude rights of the Owner Trustee and the
related Owner Participant relating to:
. indemnification by Federal Express for some matters
. proceeds of public liability insurance payable to the Owner Trustee in
its individual capacity and to the Owner Participant under insurance
maintained by Federal Express under such Lease, and
25
. proceeds of any insurance policies separately maintained by the Owner
Trustee in its individual capacity or by the Owner Participant.
The right of the Indenture Trustee, however, to exercise any of the rights
of the Owner Trustee under the related Lease, except the right to receive
payments of rent due thereunder, will be subject to the limitations described
in the prospectus supplement.
The Owned Aircraft Certificates issued under each Owned Aircraft Indenture
will be secured by a security interest granted to the Indenture Trustee in all
of Federal Express' right, title and interest in and to the related Owned
Aircraft and an assignment to the Indenture Trustee of some of Federal Express'
rights relating to such Owned Aircraft and the related engines under the
agreements for the purchase of such Owned Aircraft and engines between Federal
Express and the respective manufacturers. See "Registration of the Aircraft"
below.
Unless otherwise specified in the prospectus supplement, there will be no
cross-collateralization provisions in the Indentures and consequently, the
Equipment Certificates issued in respect of one of the Aircraft will be secured
only by that Aircraft and will not be secured by any other Aircraft or, in the
case of Leased Aircraft Certificates, the Leases related to such other
Aircraft. Unless otherwise specified in the prospectus supplement, there will
be no cross-default provisions in the Indentures and consequently, an Indenture
Event of Default under any particular Indenture may not result in an Indenture
Event of Default under any other Indenture. However, if an Indenture Event of
Default occurs in fewer than all of the Indentures related to a Pass Through
Trust, the Equipment Certificates issued pursuant to the Indentures with
respect to which an Indenture Event of Default has not occurred will continue
to be held in such Pass Through Trust and payments of principal of and any
premium and interest on such Equipment Certificates will continue to be
distributed to the Certificateholders of such Pass Through Trust as originally
scheduled, subject to any Intercreditor Agreement.
Section 1110 of the Bankruptcy Code provides that the right of lessors,
conditional vendors and holders of security interests with respect to aircraft
capable of carrying ten (10) or more individuals or 6,000 pounds or more of
cargo used by air carriers operating under certificates issued by the Secretary
of Transportation under Chapter 447 of the Transportation Code to take
possession of such aircraft in compliance with the provisions of the lease,
conditional sale contract or security agreement, as the case may be, is not
affected by:
. the automatic stay provision of the Bankruptcy Code, which provision
enjoins the taking of any action against a debtor by a creditor
. the provision of the Bankruptcy Code allowing the trustee in
reorganization or the debtor-in-possession to use, sell or lease property
of the debtor
. the confirmation of a plan by the bankruptcy court, and
. any power of the bankruptcy court to enjoin a repossession.
Section 1110 provides, however, that the right of a lessor, conditional
vendor or holder of a security interest to take possession of an aircraft in
the event of a default may not be exercised for 60 days following the date of
commencement of the reorganization proceedings, unless specifically permitted
by the bankruptcy court, and may not be exercised at all if, within such 60-day
period, the trustee in reorganization or the debtor-in-possession agrees to
perform the debtor's obligations that become due on or after such date and
cures all existing defaults, other than defaults resulting solely from the
financial condition, bankruptcy, insolvency or reorganization of the debtor.
The prospectus supplement for each offering will discuss the availability of
the benefits of Section 1110 of the Bankruptcy Code with respect to the related
Aircraft.
If the prospectus supplement provides that a Pre-Funding Period will apply
to a Leased Aircraft, then during such Pre-Funding Period the related Leased
Aircraft Certificates will not be secured by such Leased Aircraft or a related
Lease. During such Pre-Funding Period, however, such Leased Aircraft
Certificates will be secured by the related Collateral Account and, if the
prospectus supplement so provides, Additional Collateral or by a Depositary
Arrangement. See "Delayed Lease Commencement" below.
26
Registration of the Aircraft
Federal Express will be required, except under some circumstances, to
register and keep each Aircraft registered under Title 49 of the Transportation
Code, in the name of Federal Express, in the case of an Owned Aircraft, or in
the name of the Owner Trustee, in the case of a Leased Aircraft, and to record
and maintain the recordation of the Indenture and any Lease relating to each
Aircraft under the Transportation Code. The recordation of the Indenture and
any Lease relating to each Aircraft will give the Indenture Trustee a security
interest in each such Aircraft perfected under the Transportation Code, which
perfected security interest will, with limited exceptions, be recognized in
those jurisdictions that have ratified to the Convention.
Federal Express will be able, in some circumstances, to re-register any
Aircraft in specified countries other than the United States. Unless otherwise
specified in the prospectus supplement, prior to any change in the jurisdiction
of registry, the Indenture Trustee and, for Leased Aircraft, the related Owner
Participant must receive various assurances, including that such other country
would provide substantially equivalent protection for the rights of owner
participants, lessors and lenders in similar transactions as is provided under
United States law, except that, for the purpose of such determination, rights
and remedies similar to those available under Section 1110 of the Bankruptcy
Code will not be required in the absence of restrictions of rights and remedies
of lessors and secured parties that are similar to those imposed by Sections
362, 363 and 1129 of the Bankruptcy Code. While those assurances are intended
to provide that Federal Express' (in the case of an Owned Aircraft) or the
Owner Trustee's (in the case of a Leased Aircraft) title to the Aircraft and
the Indenture Trustee's lien thereon will be recognized in such jurisdiction
and that the Indenture Trustee may exercise the rights granted to it in the
Indentures, there is no guarantee that, even if that jurisdiction is a party to
the Convention, as a practical matter, the Indenture Trustee would be able to
realize upon its security interest in the case of an Indenture Event of
Default.
Also, each Aircraft may be operated by Federal Express or placed under
lease, sublease or interchange arrangements with carriers domiciled outside of
the United States. The ability of the Indenture Trustee in the case of an
Indenture Event of Default, to realize upon its security interest in the
Aircraft could be adversely affected as a legal or practical matter if the
Aircraft were located outside the United States.
Merger, Consolidation and Transfer of Assets
In the case of each Aircraft, Federal Express will be prohibited from
consolidating with or merging into any other corporation under circumstances in
which Federal Express is not the surviving corporation, or from transferring
all or substantially all of its assets as an entirety to any other corporation,
unless, among other things:
. the successor or transferee corporation is a U.S. Citizen, an "air
carrier" within the meaning of and operating under the Transportation
Code and a corporation organized and existing under the laws of the
United States or a political subdivision thereof, and such corporation
expressly assumes all the obligations of Federal Express contained in the
related Indenture, the Participation Agreement, the Lease, the Pass
Through Agreement, the Purchase Agreement and the related Purchase
Agreement Assignment
. immediately after giving effect to the consolidation, merger or transfer,
the successor or transferee is in compliance with all of the terms and
conditions of those documents, and
. the consolidation, merger or transfer does not (or would not, if prior to
commencement of the related Lease) give rise to a Lease Event of Default
under the related Lease or, in the case of an Owned Aircraft, an
Indenture Event of Default under the related Owned Aircraft Indenture.
Delayed Lease Commencement
If the prospectus supplement provides that a Pre-Funding Period will apply
to a Leased Aircraft, then until commencement of a Lease with respect to the
Leased Aircraft, the Leased Aircraft is referred to as a "Delayed
27
Lease Aircraft" and the period prior to commencement of such Lease is referred
to as the "Pre-Funding Period."
The proceeds from sale to the Pass Through Trusts of Leased Aircraft
Certificates relating to a Delayed Lease Aircraft, less expenses related to the
related Pass Through Certificate offering, will be deposited by the Owner
Trustee, on the date of the sale, in a Collateral Account established pursuant
to the Indenture or pursuant to a Collateral Agreement. The Collateral Account
will secure payment of the related Leased Aircraft Certificates pending
delivery of the related Aircraft. In addition, if the prospectus supplement so
provides, Federal Express will be required to provide to the Indenture Trustee
Additional Collateral, in addition to the Collateral Account, for those Leased
Aircraft Certificates during the related Pre-Funding Period. Alternatively,
Federal Express may establish a Depositary Arrangement pursuant to which the
proceeds from sale of such Leased Aircraft Certificates will be deposited in a
deposit account with a third party, who agrees to pay amounts corresponding to
amounts payable on the Leased Aircraft Certificates in respect of the related
Pre-Funding Period and the debt portion of the purchase price of the related
Aircraft upon delivery of the Aircraft. See "Security" above.
Funds in any Collateral Account will be invested pursuant to the related
Collateral Agreement or Indenture in U.S. government obligations or other
obligations described in the prospectus supplement. Earnings on investments
will be retained in the Collateral Account pending distribution as contemplated
below.
The Leased Aircraft Certificates relating to a Delayed Lease Aircraft will
be issued in an amount such that the net proceeds thereof, together with
expected earnings on the investments in any Collateral Account and any
Additional Collateral or together with a Depositary Arrangement, will be
sufficient:
. to make scheduled payments of principal, if any, and interest accrued on
the Leased Aircraft Certificates during the related Pre-Funding Period
specified in such prospectus supplement, and
. to finance the debt portion of the purchase price of such Delayed Lease
Aircraft, as specified in the prospectus supplement.
Subject to any mandatory prepayment contemplated below, on each date during
any scheduled Pre-Funding Period for the scheduled payments of principal, if
any, and interest on the related Leased Aircraft Certificates, the Indenture
Trustee will withdraw from the Collateral Account and apply any Additional
Collateral to make the scheduled payment then due or, in the case of a
Depositary Arrangement, will withdraw that amount from the Deposit Account.
Mandatory Prepayment During the Pre-Funding Period
If the Lease related to a Delayed Lease Aircraft has not commenced on or
prior to the Cut-off Date specified in the prospectus supplement as the last
date of the related permitted Pre-Funding Period either:
. the Collateral Account and, to the extent necessary, any Additional
Collateral will be drawn upon or, in the case of a Depositary
Arrangement, the Deposit Account will be drawn upon and the related
Leased Aircraft Certificates will be prepaid at a prepayment price equal
to the aggregate principal amount of such Leased Aircraft Certificates,
together with accrued but unpaid interest thereon to the date designated
for such prepayment specified in such prospectus supplement, or
. Federal Express will assume the Leased Aircraft Certificates on a full
recourse basis.
The prospectus supplement will also describe in relation to any Delayed
Lease Aircraft:
. any mandatory prepayment of the related Leased Aircraft Certificates, and
the prepayment price for such Leased Aircraft Certificates, upon any
Event of Loss with respect to the Delayed Lease Aircraft during the Pre-
Funding Period, and
. any option Federal Express may have to convert the leveraged lease
financing for a Delayed Lease Aircraft into the type of financing
available for Owned Aircraft.
28
Owned Aircraft Indenture Covenants
Maintenance. Federal Express will be obligated to pay all costs of operating
the Owned Aircraft and, at its expense, to maintain, inspect, service, repair
and overhaul the Owned Aircraft so as to keep the Owned Aircraft in good
condition, ordinary wear and tear excepted, and to enable the airworthiness
certification of such Owned Aircraft to be maintained in good standing at all
times under the Transportation Code or, in some circumstances, under the
applicable requirements of the aeronautical authority of another country of
registry. If, however, the Aircraft loses its airworthiness certification and
such loss is curable and Federal Express, using its reasonable best efforts,
undertakes such cure promptly, diligently and continuously, then Federal
Express will not be in default with respect to such obligation.
Generally, Federal Express will be obligated to replace or cause to be
replaced all Owned Aircraft parts that become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use. Federal Express will have the right to make other modifications
and additions to an Owned Aircraft so long as the modifications or additions do
not materially decrease the value or utility of such Owned Aircraft or impair
its condition or airworthiness below its value, utility, condition and
airworthiness immediately prior to the modification or addition, assuming that
such Owned Aircraft was then in the condition and airworthiness required by the
related Indenture. Also, in some circumstances, Federal Express will be
permitted to remove parts (without replacement) from an Owned Aircraft or any
engine (and therefore from the Lien of the applicable Indenture) if Federal
Express deems such parts to be obsolete or no longer suitable or appropriate
for use thereon so long as such removals do not decrease the utility, condition
or airworthiness of such Owned Aircraft or any such engine, although the value
of such Owned Aircraft or any such engine may be reduced by such removal. The
prospectus supplement will contain a description of any limitations applicable
to provisions described in this paragraph.
Insurance. The prospectus supplement will contain a description of the
insurance arrangements applicable to each Aircraft. In general, Federal Express
will be obligated to carry comprehensive aircraft liability insurance,
including property damage liability insurance and cargo legal liability
insurance as described below. The insurance must be in the amounts, against
such risks and with such retentions as Federal Express customarily maintains.
The insurance must also be with insurers of recognized responsibility and
against such other risks as is usually carried by similar corporations situated
similarly to Federal Express and engaged in the same or similar business to
Federal Express and owning or operating aircraft and engines similar to the
related Aircraft and related engines. Unless otherwise indicated in the
prospectus supplement, Federal Express will also be obligated to carry, with
insurers of recognized responsibility, all-risk ground and flight aircraft hull
insurance covering the related Aircraft and all-risk coverage with respect to
the related engines and parts while temporarily removed from such Aircraft and
not replaced by similar engines or parts, as described below. That insurance
includes war-risk and allied perils, hijacking and governmental confiscation
and expropriation insurance, except in the country of registry, and must be in
such form and amounts, and with such retentions as Federal Express customarily
maintains for other aircraft in Federal Express' fleet of the same type and
model and operating on the same routes as the related Aircraft. Federal Express
may self-insure against the risks required to be insured against under the
related Lease in such reasonable amounts as are then applicable to other
aircraft or engines of Federal Express of value comparable to the related
Aircraft. Self-insurance for all aircraft in Federal Express' fleet may not,
however, in the aggregate exceed an amount equal to the lesser of 50% of the
highest insured value of any single aircraft in such fleet, or 1.5% of the
average aggregate insured value from time to time of Federal Express' entire
aircraft fleet, although a standard deductible per occurrence per aircraft no
greater than the amount customarily allowed as a deductible in the industry
will be permitted in addition to such self-insurance.
Federal Express and any permitted lessee of an Owned Aircraft will be named
as insured parties under all insurance policies required by the related
Indenture. The Indenture Trustee will be named as an additional insured, which
will afford such Indenture Trustee the rights but not the obligations of an
additional insured. In general, liability insurance proceeds will be
distributed to the respective parties as their interests may appear and hull
insurance proceeds will be distributed to the Indenture Trustee if the amount
of such proceeds exceeds
29
specified amounts. The prospectus supplement will contain a description of any
limitations applicable to provisions described in this paragraph.
Ranking of Equipment Certificates
Some of the Equipment Certificates related to one or more Aircraft, as
described in the prospectus supplement, may be subordinated and junior in right
of payment to other Equipment Certificates related to the same Aircraft. The
prospectus supplement will specify the terms of any subordination.
Payments and Limitations of Liability
All payments of principal of, any premium and interest on any Leased
Aircraft Certificates will be made only from the assets subject to the Lien
described in the related Leased Aircraft Indenture or the income and proceeds
received by the Indenture Trustee from those assets or from other payments
received by the Indenture Trustee to be applied pursuant to the Leased Aircraft
Indenture. Those other payments include, during any Pre-Funding Period relating
to a Leased Aircraft, the Collateral Account and any Additional Collateral
provided in connection with such Pre-Funding Period or amounts payable under a
Depositary Arrangement and, on and after the commencement of the related Lease,
rent payable by Federal Express under the related Lease. Additionally, if the
prospectus supplement provides for a Liquidity Facility to support payments of
interest on one or more series of Leased Aircraft Certificates, interest
payments on the Leased Aircraft Certificates will be made under such Liquidity
Facility to the extent provided in the Liquidity Facility. The Leased Aircraft
Certificates will not be direct obligations of, or guaranteed by, Federal
Express. Federal Express' obligations to pay rent and to cause other payments
to be made under each Lease will be general obligations of Federal Express.
Neither the Owner Trustee nor the Indenture Trustee (in their individual
capacities) will be liable to any Certificateholder or, in the case of the
Owner Trustee, in its individual capacity, to Federal Express or the Indenture
Trustee for any amounts payable or for any liability under the Equipment
Certificates or the Indentures, except as provided in the Indentures and the
Participation Agreements and except for the gross negligence or willful
misconduct of the Owner Trustee.
Federal Express' obligations under each Owned Aircraft Indenture and under
the related Owned Aircraft Certificates will be general obligations of Federal
Express.
Indenture Events of Default and Remedies
For any Pass Through Trust, the prospectus supplement will describe the
Indenture Events of Default under the Indentures related to the Equipment
Certificates to be held by such Pass Through Trust, the remedies that the
Indenture Trustee may exercise with respect to the related Aircraft, either at
its own initiative or upon instruction from holders of the related Equipment
Certificates, and other provisions relating to the occurrence of an Indenture
Event of Default and the exercise of remedies. Unless otherwise specified in
the prospectus supplement, there will be no cross-default provisions in the
Indentures and, unless so specified, events resulting in an Indenture Event of
Default under any particular Indenture will not necessarily result in an
Indenture Event of Default under any other Indenture.
The Leases
Upon the commencement of any Lease, the following terms will be applicable:
Terms and Rentals. Each Leased Aircraft will be leased separately by the
related Owner Trustee to Federal Express for a term commencing on the date of
the delivery of the related Leased Aircraft to such Owner Trustee and expiring
on a date not earlier than the latest maturity date of the Leased Aircraft
Certificates issued with respect to such Leased Aircraft, unless previously
terminated or extended, as permitted by the related
30
Lease. Federal Express will make the scheduled rental payments under each Lease
on the dates specified in the prospectus supplement. The Owner Trustee will
assign to the Indenture Trustee the respective payments necessary to make
payments of principal and interest due from such Owner Trustee on the Leased
Aircraft Certificates issued under such Leased Aircraft Indenture. Although in
certain cases the scheduled rental payments under the Leases may be adjusted,
under no circumstances will such payments that Federal Express will be
unconditionally obligated to make or cause to be made under any Lease be less
than the scheduled payments of principal and interest on the Leased Aircraft
Certificates issued under the Leased Aircraft Indenture relating to such Lease.
See "Payments and Limitations of Liability" above.
For any Delayed Lease Aircraft, upon the commencement of the Lease for such
Aircraft, Federal Express will be obligated to make scheduled rental payments
under the related Lease that will be sufficient to pay in full when due all
principal of and interest on, to the extent accrued from and after the related
Pre-Funding Period, the related Leased Aircraft Certificates, except that on
the first scheduled payment date after the related Pre-Funding Period, the
difference between the rental payment due on such date by Federal Express and
the scheduled payment of principal, if any, and interest then due on such
Leased Aircraft Certificates will be payable from the related Collateral
Account and any related Additional Collateral or from amounts payable under a
Depositary Arrangement. See "Payments and Limitations of Liability" above.
Scheduled payments of principal and interest on the Leased Aircraft
Certificates will be made on the dates specified in the prospectus supplement.
Net Lease. Federal Express' obligations under each Lease in respect of the
related Leased Aircraft will be those of a lessee under a "net lease."
Accordingly, Federal Express will be obligated to pay all costs of operating
the Leased Aircraft and, at its expense, to maintain, service, repair and
overhaul the Leased Aircraft so as to keep the Leased Aircraft in good
condition, ordinary wear and tear excepted, and to enable the airworthiness
certification to be maintained in good standing at all times under the
Transportation Code or, in some circumstances, under the applicable
requirements of the aeronautical authority of another country of registry.
Generally, Federal Express will be obligated to replace or cause to be
replaced all Leased Aircraft parts that become worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use. Federal Express will have the right to make other modifications
and additions to a Leased Aircraft so long as the modifications or additions do
not materially decrease the value or utility of such Leased Aircraft or impair
its condition or airworthiness below its value, utility, condition and
airworthiness immediately prior to the modification or addition, assuming that
such Leased Aircraft was then in the condition and airworthiness required by
the related Lease. Also, in some circumstances, Federal Express will be
permitted to remove parts (without replacement) from a Leased Aircraft or any
engine (and therefore from the Lien of the applicable Indenture) if Federal
Express deems such parts to be obsolete or no longer suitable or appropriate
for use on such Leased Aircraft so long as such removals do not decrease the
utility, condition or airworthiness of such Leased Aircraft or any such engine,
although the value of such Leased Aircraft or any such engine may be reduced by
such removal. The prospectus supplement will contain a description of any
limitations applicable to provisions described above.
Insurance. The prospectus supplement will contain a description of the
insurance arrangements applicable to each Aircraft. In general, Federal Express
will be obligated to carry comprehensive aircraft liability insurance,
including property damage liability insurance and cargo legal liability
insurance as described below. The insurance must be in such amounts, against
such risks and with such retentions as Federal Express customarily maintains.
Such insurance must also be with insurers of recognized responsibility and
against such other risks as is usually carried by similar corporations situated
similarly to Federal Express and engaged in the same or similar business to
Federal Express and owning or operating aircraft and engines similar to the
related Aircraft and related engines. In general, Federal Express will also be
obligated to carry, with insurers of recognized responsibility, all-risk ground
and flight aircraft hull insurance covering the related Aircraft and all-risk
coverage with respect to the related engines and parts while temporarily
removed from such Aircraft and not replaced by similar engines or parts, as
described below. The insurance includes war-risk and allied perils,
31
hijacking and governmental confiscation and expropriation insurance, except in
the country of registry, must be in such form and amounts, and with such
retentions as Federal Express customarily maintains with respect to other
aircraft in Federal Express' fleet of the same type and model and operating on
the same routes as the related Aircraft, and may not be in an amount below
certain stipulated values. Federal Express may self-insure against the risks
required to be insured against under the related lease in such reasonable
amounts as are then applicable to other aircraft or engines of Federal Express
of value comparable to the related Aircraft. Self-insurance for all aircraft in
Federal Express' fleet may not, however, in the aggregate exceed an amount
equal to the lesser of 50% of the highest insured value of any single aircraft
in such fleet or 1.5% of the average aggregate insured value from time to time
of Federal Express' entire aircraft fleet, provided that a standard deductible
per occurrence per aircraft no greater than the amount customarily allowed as a
deductible in the industry will be permitted in addition to such self-
insurance.
Federal Express and any permitted sublessee of a Leased Aircraft will be
named as insured parties under all insurance policies required by the related
Lease. The Indenture Trustee, Owner Trustee and related Owner Participant will
be named additional insureds, which will afford each of them the rights but not
the obligations of an additional insured. In general, liability insurance
proceeds will be distributed to the respective parties as their interests may
appear and hull insurance proceeds will be distributed to the Indenture Trustee
if the amount of such proceeds exceeds specified amounts. The prospectus
supplement will contain a description of any limitations applicable to
provisions described in this paragraph.
Lease Events of Default; Remedies. The prospectus supplement will describe
the Lease Events of Default under the related Leases, the remedies that the
Owner Trustee may exercise with respect to the related Leased Aircraft, and
other provisions relating to the occurrence of a Lease Event of Default and the
exercise of remedies.
The Participation Agreements
Federal Express will be required to indemnify each Indenture Trustee and, in
the case of Leased Aircraft Certificates, each Owner Participant and each Owner
Trustee, and certain parties affiliated with the foregoing (but not including
Holders or the Certificateholders), for certain liabilities, losses, fees and
expenses and for certain other matters arising out of the transactions
described in this prospectus or relating to the applicable Aircraft or the use
of such Aircraft. In addition, under certain circumstances Federal Express will
be required to indemnify such persons against certain taxes, levies, duties,
withholdings and for certain other matters relating to such transactions or the
applicable Aircraft. Subject to some restrictions, each Owner Participant may
convey all of its right, title and interest relating to any Leased Aircraft.
Moreover, if so provided in the prospectus supplement, in certain limited
instances Federal Express may assume an Owner Trust's obligations under the
related Leased Aircraft Certificates on a full recourse basis.
Liquidity Facility
The prospectus supplement may provide that one or more payments of interest
on the related Equipment Certificates of one or more series or distributions
made by the Pass Through Trustee of the related Pass Through Trust will be
supported by a liquidity facility issued by an institution identified in the
prospectus supplement. Unless otherwise provided in the prospectus supplement,
the provider of the liquidity facility will have a senior claim upon the assets
securing the Equipment Certificates.
Intercreditor Issues
Equipment Certificates may be issued in different classes, which means that
the Equipment Certificates may have different payment priorities even though
issued by the same Owner Trustee and relate to the same Aircraft. In that case,
the prospectus supplement will describe the priority of distributions among the
Equipment Certificates (and any related liquidity facilities), the ability of
any class to exercise and enforce any or all remedies with respect to the
related Aircraft (and, if the Equipment Certificates are Leased Aircraft
Certificates, the related Leases) and other intercreditor terms and provisions.
32
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, tax counsel to Federal Express, the
following discussion accurately describes the principal United States federal
income tax consequences of ownership and disposition of the Pass Through
Certificates to the initial purchasers of the Pass Through Certificates at the
"issue price" who hold such Pass Through Certificates as a capital asset, and
should be read in conjunction with any additional discussion of federal income
tax consequences included in the prospectus supplement. This opinion is based
on laws, regulations, rulings and decisions in effect as of the date of this
prospectus. Changes to existing law, which could have retroactive effect, may
alter the consequences described below. This opinion does not address federal
income tax consequences applicable to particular categories of investors, some
of which (for example, insurance companies, financial institutions, dealers in
securities and foreign investors) may be subject to special rules. Persons
considering purchasing interests in Pass Through Certificates should consult
their own tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign
jurisdiction. The Pass Through Trusts are not indemnified for any federal
income taxes that may be imposed upon them, and the imposition of any such
taxes on a Pass Through Trust could result in a reduction in the amounts
available for distribution to the Certificateholders of such Pass Through
Trust.
General
The Pass Through Trusts will not themselves be subject to federal income
taxation. Each Certificateholder will be required to report on its federal
income tax return its pro rata share of the entire income from each of the
Equipment Certificates held in the related Pass Through Trust, in accordance
with such Certificateholder's method of accounting.
A purchaser of an interest in a Pass Through Certificate should be treated
as purchasing an interest in each Equipment Certificate held in the related
Pass Through Trust at a price determined by allocating the purchase price paid
for the Pass Through Certificate among such Equipment Certificates in
proportion to their fair market values at the time of purchase of the Pass
Through Certificate. Unless otherwise indicated in a prospectus supplement,
Federal Express anticipates that when all the Equipment Certificates have been
acquired by the related Pass Through Trust the purchase price paid for a Pass
Through Certificate of such Pass Through Trust by an original purchaser of such
Pass Through Certificate should be allocated among the Equipment Certificates
held in such Pass Through Trust in proportion to their respective principal
amounts.
If an Equipment Certificate held by a Pass Through Trust is prepaid for an
amount that differs from a Certificateholder's aggregate adjusted basis in the
Equipment Certificate, the Certificateholder will be considered to have sold
its pro rata share of that Equipment Certificate, and will recognize any gain
or loss equal to the difference between the Certificateholder's adjusted basis
and the amount realized from such prepayment (except to the extent attributable
to accrued interest, which would be taxable as interest income if not
previously included in income). Any such gain or loss will be long-term capital
gain or loss if the Equipment Certificate is considered to have been held for
more than one year. Net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. In the case
of Equipment Certificates, an Owner Participant's conveyance of its interest in
an Owner Trust will not constitute a taxable event to the holders of interests
in the related Equipment Certificates. However, if Federal Express were to
assume an Owner Trust's obligations under the related Equipment Certificates
upon a purchase of the related Aircraft by Federal Express, or an Owner Trust
assumes Federal Express' obligations under the Owned Aircraft Certificates,
such assumption would be treated for federal income tax purposes as a taxable
exchange of the respective Equipment Certificates resulting in the recognition
of taxable gain or loss under the rules discussed above. Immediately following
such taxable exchange of Equipment Certificates described in the previous
sentence, the Equipment Certificates owned by a Certificateholder will be
deemed to be newly issued Equipment Certificates (the "New Equipment
Certificates"). For this purpose the amount realized, as determined under
current Treasury regulations on original issue discount, will be equal to a
Certificateholder's pro rata share of the New Equipment Certificate's stated
principal amount or, in the event the New Equipment
33
Certificates do not bear "adequate stated interest" within the meaning of
Section 1274 of the Code, their "imputed principal amount," which is generally
the sum of the present values of all payments due under the New Equipment
Certificates, discounted from the date of payment to their issue date at the
appropriate "applicable federal rate." In addition, and unless de minimis rules
apply, if after such taxable event the respective Equipment Certificates do not
provide for "adequate stated interest" and the principal amount of the New
Equipment Certificates is more than the "imputed principal amount" then the New
Equipment Certificates would have "original issue discount" ("OID").
Certificateholders would be required to include the OID attributable to their
pro rata share of the New Equipment Certificates in income for federal tax
purposes as it accrues, in advance of receiving payment attributable to such
income, under a constant yield to maturity method.
Sales or Exchanges of Pass Through Certificates
A Certificateholder that sells or exchanges a Pass Through Certificate will
be considered to have sold its pro rata portion of the property held by the
Pass Through Trust, and will recognize gain or loss on the basis discussed in
the preceding paragraph.
Effect of Subordination of Subordinated Certificateholders
If any Pass Through Trust with respect to a series is subordinated with
respect to other Pass Through Trusts of a different series and receives less
than the full amount of the receipts of principal or interest paid with respect
to the Equipment Certificates held by it because of the subordination of the
Equipment Certificates held by such Pass Through Trust under the Intercreditor
Agreement, the corresponding owners of beneficial interests in the Subordinated
Certificates could be treated for federal income tax purposes as if they had:
. received as distributions their full share of such receipts
. paid over to the relevant preferred class of Certificateholders an amount
equal to their share of such Shortfall Amount, and
. retained the right to reimbursement of such amounts to the extent of
future amounts payable to the 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 Pass Through Trust which is subordinated to other Pass
Through Trusts that was a component of the Shortfall Amount, even though
such amount was in fact paid to the relevant preferred class of
Certificateholders
. a loss would only be allowed to such Subordinated Certificateholders when
their right to receive reimbursement of such Shortfall Amount became
worthless, that is, 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.
Backup Withholding
Payments made on the Pass Through Certificates, and proceeds from the sale
or exchange of the Pass Through Certificates to or through certain brokers, may
be subject to a "backup" withholding tax of 31% unless the Certificateholder
complies with certain reporting procedures or is an exempt recipient under the
34
Internal Revenue Code. Any such withheld amounts will be allowed as a credit
against the Certificateholder's federal income tax and may entitle such
Certificateholder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
NEW YORK TAXES
The summary set forth below is based upon applicable tax statutes,
regulations and rules promulgated thereunder, government agency rulings and
court decisions published to date, each of which is subject to change.
The Pass Through Trustee is a New York state banking corporation with its
principal corporate trust office in New York, New York. Powell, Goldstein,
Frazer & Murphy LLP, special state tax counsel to the Pass Through Trustee, has
advised Federal Express that, in its opinion, under currently applicable New
York laws and assuming the accuracy of the statements with respect to federal
income taxes in this prospectus, including the assumption that each Pass
Through Trust will not itself be subject to federal income taxation, assuming
that the Equipment Certificates will be treated as debt for federal income tax
purposes and assuming that the Pass Through Trustee will not hold legal or
equitable title to, or lease any real or tangible property located in New York
and will engage in only those activities contemplated in this prospectus, that
is, engaging in no activity other than holding the Equipment Certificates,
issuing the Pass Through Certificates, distributing the payments thereon and
performing other incidental activities:
. the Pass Through Trusts will not be subject to any tax, including,
without limitation, net or gross income, tangible or intangible property,
net worth, capital, franchise or doing business tax, governmental fee or
similar charge imposed by the state of New York or any political
subdivision of the state of New York as a result of the transactions
contemplated by the Pass Through Agreement and
. Certificateholders who are not residents of, or otherwise subject to tax
in or by, the state of New York will not be subject to any tax,
including, without limitation, net or gross income, tangible or
intangible property, net worth, capital, franchise or doing business tax,
governmental fee or similar charge imposed by the state of New York or
any political subdivision of the state of New York as a result of
purchasing, holding, including receiving payments with respect to, or
selling a Pass Through Certificate.
Neither the Pass Through Trusts nor the Certificateholders will be
indemnified for any state or local taxes imposed on them, and the imposition of
any such taxes on a Pass Through Trust could result in a reduction in the
amounts available for distribution to the Certificateholders of such Pass
Through Trust. In general, should a Certificateholder or any Pass Through Trust
be subject to any state or local tax which would not be imposed if such Pass
Through Trust were administered in a different jurisdiction in the United
States or if the Pass Through Trustee were located in a different jurisdiction
in the United States, the Pass Through Trustee will either relocate the
administration of such Pass Through Trust to such other jurisdiction or resign
and, in the event of the Pass Through Trustee's resignation, a new Pass Through
Trustee in such other jurisdiction will be appointed.
ERISA CONSIDERATIONS
Unless otherwise indicated in the prospectus supplement, Pass Through
Certificates may not be purchased by, or with the assets of, any employee
benefit plan subject to Title I of ERISA, or individual retirement account or
plan subject to Section 4975 of the Internal Revenue Code. Some governmental
plans and non-electing church plans, however, are not subject to Title I of
ERISA or Section 4975 of the Internal Revenue Code and, therefore, may purchase
the Pass Through Certificates.
35
PLAN OF DISTRIBUTION
The Pass Through Certificates may be sold to or through underwriters,
directly to other purchasers or through agents.
The distribution of the Pass Through Certificates may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Pass Through Certificates, underwriters or
agents may receive compensation from Federal Express or from purchasers of Pass
Through Certificates for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Pass Through Certificates to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of Pass Through Certificates may be
deemed to be underwriters, and any discounts or commissions received by them
from Federal Express and any profit on the resale of Pass Through Certificates
by them may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from Federal Express will be described, in the prospectus
supplement.
Offers to purchase Pass Through Certificates may be solicited directly and
the sale thereof may be made directly to institutional investors or others, who
may be deemed to be underwriters within the meaning of the Securities Act with
respect to any resale thereof. The terms of any such sales will be described in
the prospectus supplement relating to such sales.
Under agreements which may be entered into by Federal Express, underwriters
and agents who participate in the distribution of Pass Through Certificates may
be entitled to indemnification by Federal Express against certain liabilities,
including liabilities under the Securities Act.
Unless otherwise indicated in the prospectus supplement, Federal Express
does not intend to apply for the listing of any series of Pass Through
Certificates on a national securities exchange. If the Pass Through
Certificates of any series are sold to or through underwriters, the
underwriters may make a market in such Pass Through Certificates, as permitted
by applicable laws and regulations. No underwriter would be obligated, however,
to make a market in such Pass Through Certificates, and any such market-making
could be discontinued at any time at the sole discretion of the underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Pass Through Certificates of any series.
Some of the underwriters or agents and their associates may be customers of,
engage in transactions with, and perform services for, Federal Express in the
ordinary course of business.
LEGAL MATTERS
Unless otherwise indicated in the prospectus supplement, the legality of the
Pass Through Certificates offered hereby will be passed upon for Federal
Express by Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017, and by Underwriters' Counsel. Unless otherwise indicated in the
prospectus supplement, both Davis Polk & Wardwell and Underwriters' Counsel may
rely on the opinion of counsel for the Pass Through Trustee, as to matters
relating to the authorization, execution and delivery of the Pass Through
Agreement and of each series of Pass Through Certificates by the Pass Through
Trustee, and of Karen M. Clayborne, Senior Vice President and General Counsel
of Federal Express, as to Federal Express' authorization, execution and
delivery of the Pass Through Agreement. At June 1, 1999, Ms. Clayborne owned
11,000 shares of FDX Corporation's common stock and had been granted options to
purchase 66,800 shares of FDX Corporation's common stock. Of the options
granted, 3,750 were vested at such date.
36
EXPERTS
The consolidated financial statements and schedule of Federal Express
included or incorporated by reference in Federal Express' Annual Report on Form
10-K for the year ended May 31, 1998 and incorporated by reference in this
prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect to the consolidated
financial statements and schedule, and are incorporated by reference in this
prospectus in reliance upon the authority of Arthur Andersen LLP as experts in
giving those reports.
With respect to the unaudited interim financial information for the quarters
ended August 31, 1998, November 30, 1998 and February 28, 1999, included in
Federal Express' Quarterly Reports on Form 10-Q for such periods, which are
incorporated by reference in this prospectus, Arthur Andersen LLP has applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate reports on the unaudited interim
financial information state that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their reports on the unaudited interim financial information
because those reports are not "reports" or a "part" of the Registration
Statement, of which this prospectus is a part, prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act.
37
GLOSSARY OF TERMS
The following is a glossary of terms used in this prospectus. This glossary
may contain definitions which are different from definitions used in the
prospectus supplement. You should read the prospectus supplement in
conjunction with the glossary or other definition of terms contained in the
prospectus supplement.
"Aircraft" means, collectively, the Owned Aircraft and the Leased Aircraft.
"Additional Collateral" means certain additional security which may
include, unless otherwise specified in the prospectus supplement, payments to
be made by Federal Express or a letter of credit or other facility issued by a
bank (within the meaning of Section 3(a)(2) of the Securities Act) whose
obligations at the time of the relevant Pass Through Certificate offering
carry a credit rating at least as high as Federal Express'.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. et
seq.), as amended, or any successor thereto.
"Business Day" means any day other than a Saturday, a Sunday or other day
on which commercial banks in New York City, Memphis, Tennessee or the city in
which the office or agency in the United States is maintained by the Pass
Through Trustee for the payment of the Pass Through Certificates are
authorized or required by law to close.
"Cede" means Cede & Co., as nominee for DTC.
"Certificate Account" means a non-interest bearing account for the deposit
of Scheduled Payments on the Equipment Certificates held in the related Pass
Through Trust.
"Certificateholder" means, for any Pass Through Trust, the registered
holder of any Pass Through Certificate issued by such Pass Through Trust.
"Collateral Account" means an account into which proceeds from the sale of
the related Leased Aircraft Certificates will be deposited by the related
Owner Trustee for the benefit of the related Indenture Trustee as set forth in
this prospectus and the prospectus supplement.
"Collateral Agreement" means a collateral agreement between the Owner
Trustee and the Indenture Trustee with respect to the related Collateral
Account.
"Convention" means the Convention on the International Recognition of
Rights in Aircraft.
"Cut-off Date" means, if applicable to an Aircraft, the date 90 days after
the scheduled delivery date for such Aircraft.
"DTC" means The Depository Trust Company.
"DTC Participants" means the participants of DTC.
"Delayed Lease Aircraft" means a Leased Aircraft to which a Pre-Funding
Period applies, which term shall be applicable to such Leased Aircraft until
commencement of the related Lease.
"Deposit Account" means the deposit account established under a Depositary
Arrangement.
"Depositary Arrangement" means the agreement of a person to pay amounts
corresponding to amounts payable on the Leased Aircraft Certificates in
respect of any related Pre-Funding Period and the debt portion of the purchase
price of the related Aircraft upon delivery thereof.
"Distribution Date" means, collectively, the Regular Distribution Date and
the Special Distribution Date.
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"Equipment Certificates" means, collectively, the Owned Aircraft
Certificates and the Leased Aircraft Certificates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means each of the events designated as an event of
default under the Pass Through Agreement with respect to the related Pass
Through Trust.
"Event of Loss" means, for any Aircraft, each of the events designated as
such in the related Lease or the related Owned Aircraft Indenture, as the case
may be.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Federal Express" means Federal Express Corporation.
"Holders" means the registered holders of the related Equipment
Certificates.
"Indentures" means, collectively, the Owned Aircraft Indentures and the
Leased Aircraft Indentures.
"Indenture Event of Default" means, for any Indenture, each of the events
designated as an event of default in such Indenture.
"Indenture Trustee" means The Bank of New York, or another bank or trust
company, in its capacity as indenture trustee under the related Indenture and
any successor thereunder.
"Intercreditor Agreement" means the agreement among the Pass Through Trustee
of each Pass Through Trust, the subordination agent named therein and the
Liquidity Provider specified in the prospectus supplement.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended.
"Lease" means a lease agreement between the Owner Trustee, as lessor, and
Federal Express, as lessee, in each case under which the Owner Trustee leases,
or is expected to lease, the related Aircraft to Federal Express.
"Lease Event of Default" means, for any Lease, each of the events designated
as an event of default in such Lease.
"Leased Aircraft" means one or more aircraft specified in a prospectus
supplement which has been or will be leased to Federal Express.
"Leased Aircraft Certificates" means the equipment trust certificates issued
as nonrecourse obligations by the related Owner Trustee, each acting not in its
individual capacity but solely as the Owner Trustee of a separate Owner Trust
in connection with a separate leveraged lease transaction relating to an
Aircraft.
"Leased Aircraft Indenture" means a trust indenture and security agreement
between the Owner Trustee and the Indenture Trustee relating to a Leased
Aircraft.
"Lien" means any mortgage, pledge, lien, charge, encumbrance, lease or
security interest or other similar interest.
"Liquidity Facility" means a liquidity facility issued by the related
Liquidity Provider as provided in the prospectus supplement.
"Liquidity Provider" means an institution identified in the prospectus
supplement which will enter into a Liquidity Facility to support certain
payments of interest on the related Equipment Certificates of one or more
39
series or distributions made by the Pass Through Trustee of the related Pass
Through Trust as provided in such prospectus supplement.
"Owned Aircraft" means one or more aircraft specified in a prospectus
supplement that have been or will be purchased and owned by Federal Express.
"Owned Aircraft Certificates" means the equipment purchase certificates
relating to an Owned Aircraft issued as recourse obligations by Federal
Express.
"Owned Aircraft Indenture" means a trust indenture and security agreement
between Federal Express and the Indenture Trustee relating to an Owned
Aircraft.
"Owner Participant" means the owner participant named in the related Trust
Agreement.
"Owner Trust" means a trust created pursuant to a Trust Agreement.
"Owner Trustee" means State Street Bank and Trust Company of Connecticut,
National Association, or another bank or trust company, not in its individual
capacity but solely as owner trustee of an Owner Trust.
"Participation Agreement" means a participation agreement among the
Indenture Trustee, the Pass Through Trustee, Federal Express, any subordination
agent, in the case of a refinancing, each holder of a loan certificate issued
under the related Indenture as originally executed, and, in the case of a
Leased Aircraft, the related Owner Participant and the related Owner Trustee.
"Pass Through Agreement" means the Pass Through Trust Agreement dated as of
June 1, 1999, between Federal Express and The Bank of New York, in accordance
with which each of the Pass Through Trusts will be formed pursuant to the
related Series Supplement.
"Pass Through Certificates" means the pass through certificates to be issued
by the related Pass Through Trustee pursuant to the Pass Through Agreement and
the related Series Supplements and which represent the fractional undivided
interests in the related Pass Through Trusts.
"Pass Through Trust" means the pass through trust to be formed pursuant to
the related Series Supplement in accordance with the Pass Through Agreement.
"Pass Through Trustee" means The Bank of New York in its capacity as pass
through trustee under the Pass Through Agreement, as supplemented by the
related Series Supplement, for the related Pass Through Trust, and its
successors and assigns thereunder.
"Permitted Investments" means:
. direct obligations of the United States of America or obligations fully
guaranteed by the United States of America,
. commercial paper rated A-1/P-1 by Standard & Poor's, a Division of the
McGraw-Hill Company, Inc., and Moody's Investors Service, Inc.,
respectively or, if such ratings are unavailable, rated by any nationally
recognized rating organization in the United States equal to the highest
rating assigned by such rating organization,
. overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, and
. overnight repurchase agreements with respect to the securities described
in the first bullet point above entered into with an office of a bank or
trust company which is located in the United States of America of any
bank or trust company which is organized under the laws of the United
States or any state thereof and has capital, surplus and undivided
profits aggregating at least $500 million.
40
"Pool Balance" means, unless otherwise described in the prospectus
supplement, for each Pass Through Trust, as of any date, the aggregate unpaid
principal amount of the Equipment Certificates held in such Pass Through Trust
on such date plus any amounts in respect of principal on such Equipment
Certificates held by the Pass Through Trustee and not yet distributed plus any
amounts transferred to Federal Express and deposited in a deposit trust account
in connection with a delayed purchase of such Equipment Certificates.
"Pool Factors" means, unless otherwise described in the prospectus
supplement, for each Pass Through Trust, as of any Distribution Date, the
quotient (rounded to the seventh decimal place) computed by dividing the Pool
Balance, by the aggregate original principal amount of the Equipment
Certificates held in such Pass Through Trust.
"Pre-Funding Period" means, with respect to any Leased Aircraft, the period,
if any, commencing on the date of the issuance of the related Pass Through
Certificates to but not including the date on which the related Lease
commences.
"Purchase Agreement" means, for any Aircraft, the purchase agreement between
the manufacturer and Federal Express, including all exhibits, appendices and
letter agreements attached thereto as originally executed or as modified,
amended or supplemented in accordance with the terms thereof, but only to the
extent that the foregoing relates to such Aircraft and to the extent assigned
pursuant to the Purchase Agreement Assignment.
"Purchase Agreement Assignment" means, for any Aircraft, the purchase
agreement assignment between the related Owner Trustee and Federal Express.
"Rating Agency" means a "nationally recognized statistical rating
organization", as such term is defined in Rule 436(g)(2) under the Securities
Act.
"Registration Statement" means a registration statement on Form S-3
(together with all amendments and exhibits).
"Regular Distribution Date" means, for each Pass Through Trust, any date
specified in the prospectus supplement for distribution of a Scheduled Payment
to the related Pass Through Trustee.
"Scheduled Payment" means the payment of principal of, and interest on, the
Equipment Certificates scheduled to be received by the related Pass Through
Trustee on a Regular Distribution Date.
"SEC" means the Securities and Exchange Commission of the United States.
"Securities Act" means the Securities Act of 1933, as amended.
"Series Supplement" means each of the Series Supplements between Federal
Express and the Pass Through Trustee, in each case pursuant to which the
related Pass Through Trust will be formed in accordance with the Pass Through
Agreement and the related Pass Through Certificates will be issued.
"Shortfall Amount" means any amount less than the full amount of the
receipts of principal or interest paid with respect to the related Equipment
Certificates.
"Special Distribution Date" means any Business Day on which a Special
Payment is to be distributed.
"Special Payment" means, for any Pass Through Trust, any payment of
principal, any premium or interest, other than a Scheduled Payment, received by
the related Pass Through Trustee on any of the Equipment Certificates held in
such Pass Through Trust and any proceeds from the sale of any such Equipment
Certificates by such Pass Through Trustee.
"Special Payments Account" means a non-interest bearing account for the
deposit of Special Payments on the Equipment Certificates held in the related
Pass Through Trust.
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"Subordinated Certificateholder" means the corresponding owners of
beneficial interests in the Subordinated Certificates.
"Subordinated Certificates" means any Pass Through Certificate relating to a
Subordinated Trust.
"Subordinated Trust" means any Pass Through Trust with respect to a series
which is subordinated with respect to other Pass Through Trusts of the same
series.
"Systems" means computer applications, systems and the like for processing
data.
"Transportation Code" means Title 49 of the United States Code, as amended.
"Trust Agreement" means a trust agreement between the Owner Trustee and the
Owner Participant.
"Trust Property" means the property held in the related Pass Through Trust.
"U.S. Citizen" means a citizen of the United States as defined in Section
40102(a)(15) of the Transportation Code, or any analogous part of any successor
or substituted legislation or regulation at the time in effect.
"Underwriters' Counsel" means the counsel for any agents, dealers or
underwriters.
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