-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fn9ucyvmh4YC19xxes4miHCmF9wNCXkUOnB3ITyUKL0CoJRFTsIYR7FhQUIAA39m nkirjDjoPtMu5bQpibWuHA== 0000950123-96-002849.txt : 19960605 0000950123-96-002849.hdr.sgml : 19960605 ACCESSION NUMBER: 0000950123-96-002849 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960604 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST AIRLINES CORP CENTRAL INDEX KEY: 0000917678 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 954205287 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02516 FILM NUMBER: 96576585 BUSINESS ADDRESS: STREET 1: 2700 LONE OAK PKWY CITY: EAGAN STATE: MN ZIP: 55121 BUSINESS PHONE: 6127262111 MAIL ADDRESS: STREET 1: 5101 NORTHWEST DR CITY: ST PAUL STATE: MN ZIP: 55111-3034 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST AIRLINES INC /MN CENTRAL INDEX KEY: 0000919897 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 410449230 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-02516-01 FILM NUMBER: 96576586 BUSINESS ADDRESS: STREET 1: 5101 NORTHWEST DR CITY: ST PAUL STATE: MN ZIP: 551113034 BUSINESS PHONE: 6127262111 MAIL ADDRESS: STREET 1: 5101 NORTHWEST DR CITY: ST PAUL STATE: MN ZIP: 55111-3034 424B2 1 NORTHWEST AIRLINES 1 Filed pursuant to Rule 424(b)(2) Registration Nos. 333-2516 and 33-74772 PROSPECTUS SUPPLEMENT (Subject to Completion, dated May 29, 1996) (To Prospectus Dated May 3, 1996) $521,979,627 [LOGO] Northwest Airlines 1996-1 Pass Through Trusts PASS THROUGH CERTIFICATES, SERIES 1996-1 ------------------------ Each Pass Through Certificate (collectively, the "Certificates") will represent a fractional undivided interest in one of the four Northwest Airlines 1996-1 Pass Through Trusts (the "Class A Trust", the "Class B Trust", the "Class C Trust" and the "Class D Trust" and, collectively, the "Trusts") to be formed pursuant to a pass through trust agreement (the "Basic Agreement") and four separate supplements thereto (each a "Trust Supplement" and, together with the Basic Agreement, collectively, the "Pass Through Trust Agreements") among Northwest Airlines, Inc. ("Northwest" or the "Company"), Northwest Airlines Corporation ("NWA Corp.") and State Street Bank and Trust Company (the "Trustee"), as trustee under each Trust. Northwest is an indirect wholly owned subsidiary of NWA Corp. Pursuant to the Intercreditor Agreement (as defined herein), (i) the Certificates of the Class B Trust will be subordinated in right of payment to the Certificates of the Class A Trust, (ii) the Certificates of the Class C Trust will be subordinated in right of payment to the Certificates of the Class B Trust and (iii) the Certificates of the Class D Trust will be subordinated in right of payment to the Certificates of the Class C Trust. Payments of interest on the Certificates to be issued by each Trust (other than the Class D Trust) will be supported by a separate liquidity facility for the benefit of the holders of such Certificates, each such facility to be provided by Westdeutsche Landesbank Girozentrale, acting through its New York branch, in an amount sufficient to pay interest thereon at the applicable interest rate for such Trust on three successive distribution dates. The property of the Trusts will include, among other things, equipment notes (the "Equipment Notes") to be issued on a nonrecourse basis by the trustees of separate owner trusts (each, an "Owner Trustee") in connection with 11 separate leveraged lease transactions to finance the purchase, or to refinance the current indebtedness of such Owner Trustees originally incurred to finance the purchase, of two Boeing 747 aircraft and nine Boeing 757 aircraft (collectively, the "Aircraft") which have been or will be leased to Northwest. The Equipment Notes in respect of each Aircraft will be issued in up to four series (the "Series A Equipment Notes", the "Series B Equipment Notes", the "Series C Equipment Notes" and the "Series D Equipment Notes"). Each Trust will purchase one series of Equipment Notes issued with respect to some or all of the Aircraft such that all of the Equipment Notes held in each Trust will have an interest rate corresponding to the interest rate applicable to the Certificates to be issued by such Trust. The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the final expected distribution date applicable to the Certificates issued by such Trust. The Equipment Notes issued with respect to each Aircraft will be secured by a security interest in such Aircraft and an (continued on the following page) ------------------------ SEE "RISK FACTORS" COMMENCING ON PAGE S-22 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
FINAL EXPECTED PASS THROUGH PRINCIPAL INTEREST DISTRIBUTION PRICE TO CERTIFICATES AMOUNT(1) RATE DATE(1) PUBLIC(2)(3) - ------------ ------------ -------- ----------------- --------------- 1996-1A $325,845,319 % January 2, 2015 100% 1996-1B 106,863,942 January 2, 2015 100 1996-1C 74,559,731 January 2, 2015 100 1996-1D 14,710,635 January 2, 2006 100
- ------------ (1) The principal amounts and the final expected distribution dates are indicative only and subject to change. (2) Plus accrued interest, if any, from June , 1996. (3) The underwriting commission varies by Trust and aggregates $ , which constitutes % of the principal amount of the Certificates offered hereby. The underwriting commission, and certain other expenses estimated at approximately $ , will be paid by the Owner Trustees, the Owner Participants or Northwest. All proceeds of the Certificates will be used by the Trusts to purchase the Equipment Notes from the Owner Trustees. ------------------------ The Certificates offered hereby are offered by the Underwriters, subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by Shearman & Sterling, counsel for the Underwriters. It is expected that delivery of the Certificates in book-entry form will be made on or about June , 1996 through the facilities of The Depository Trust Company, against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. Incorporated BT SECURITIES CORPORATION CITICORP SECURITIES, INC. CS FIRST BOSTON PAINEWEBBER INCORPORATED June , 1996 INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 2 (continued from cover page) assignment of certain rights under the lease relating thereto (each, a "Lease"), including the right to receive rentals payable with respect to such Aircraft by Northwest. Although neither the Certificates nor the Equipment Notes are obligations of, or guaranteed by, Northwest, the amounts unconditionally payable by Northwest for lease of the Aircraft will be sufficient to pay in full when due all amounts required to be paid on the Equipment Notes held in the Trusts. NWA Corp. will fully guarantee payment on the Leases. All of the Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for such Trust, payable on January 2 and July 2 of each year commencing January 2, 1997. Such interest will be passed through to Certificateholders (as defined herein) of such Trust on each such date, in each case subject to the Intercreditor Agreement. See "Description of the Certificates -- General" and "-- Payments and Distributions". Scheduled principal payments on the Equipment Notes held in each Trust will be passed through to the Certificateholders of each such Trust on January 2 or July 2 or both in certain years, commencing January 2, 1997, in the case of each Trust, in accordance with the principal repayment schedule set forth herein under "Description of the Certificates -- Pool Factors" and "Description of the Equipment Notes -- Principal and Interest Payments", in each case subject to the Intercreditor Agreement. Under each Pass Through Trust Agreement, an Event of Default will occur if the Trustee fails to pay within 10 business days of the due date thereof: (i) the outstanding Pool Balance (as defined herein) of the applicable Class of Certificates on the Final Legal Distribution Date (as defined herein) for such Class or (ii) interest due on such Certificates on any distribution date (unless, in the case of the Class A, Class B or Class C Certificates, the Subordination Agent (as defined herein) shall have made an Interest Drawing (as defined herein) in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). FOR FLORIDA RESIDENTS: The Company does not conduct business with the government of Cuba or any person or affiliate located in Cuba, except that Northwest aircraft conduct Cuban overflights for which Northwest makes monthly payments through a clearing house of Cubana de Aviacion pursuant to a specific license from the Office of Foreign Assets Control, United States Department of Treasury. The information set forth above is accurate as of the date hereof. Current information concerning the Company's business dealings with the government of Cuba or with any person or affiliate located in Cuba may be obtained from the Division of Securities and Investor Protection of the Florida Department of Banking and Finance, The Capital, Tallahassee, Florida 32399-0350, telephone number (904) 488-9805. S-2 3 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NWA CORP., NORTHWEST OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF NWA CORP. OR NORTHWEST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Prospectus Supplement Summary............................................................... S-4 Risk Factors................................................................................ S-22 The Company................................................................................. S-28 Use of Proceeds............................................................................. S-30 Description of the Certificates............................................................. S-30 Description of the Liquidity Facilities..................................................... S-41 Description of the Intercreditor Agreement.................................................. S-44 Description of the Aircraft and the Appraisals.............................................. S-48 Description of the Equipment Notes.......................................................... S-49 Certain U.S. Federal Income Tax Consequences................................................ S-66 Certain Massachusetts and Connecticut Taxes................................................. S-68 ERISA Considerations........................................................................ S-69 Underwriting................................................................................ S-71 Legal Matters............................................................................... S-72 Independent Auditors........................................................................ S-72 Experts..................................................................................... S-72 Index of Certain Defined Terms.........................................................Appendix I Summary of Aircraft Appraisals........................................................Appendix II Equipment Notes Principal Payment Schedule...........................................Appendix III PROSPECTUS Available Information....................................................................... 2 Incorporation of Certain Documents by Reference............................................. 2 The Company................................................................................. 3 General Outline of Trust Structure.......................................................... 3 Use of Proceeds............................................................................. 4 Ratio of Earnings to Fixed Charges.......................................................... 4 Description of the Certificates............................................................. 5 Description of the Equipment Notes.......................................................... 16 United States Federal Income Tax Consequences............................................... 20 ERISA Considerations........................................................................ 24 Plan of Distribution........................................................................ 24 Legal Opinions.............................................................................. 25 Experts..................................................................................... 25
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE CERTIFICATES PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). S-3 4 PROSPECTUS SUPPLEMENT SUMMARY The following summary does not purport to be complete and is qualified in its entirety by reference to the detailed information appearing elsewhere in this Prospectus Supplement and the Prospectus accompanying this Prospectus Supplement. Certain capitalized terms used herein are defined elsewhere in this Prospectus Supplement on the pages indicated in the "Index of Certain Defined Terms" appearing as Appendix I hereto, and all cross references herein refer to sections of this Prospectus Supplement. SUMMARY OF TERMS OF CERTIFICATES
CLASS A CLASS B CLASS C CLASS D CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES ------------------ ------------------ ------------------ ---------------- Aggregate Face Amount(1)......... $325,845,319 $106,863,942 $74,559,731 $14,710,635 Ratings: Moody's...................... A2 Baa1 Baa3 Ba1 Standard & Poor's............ AA A BBB- BB+ Fitch........................ AA- A- BBB- BB Initial Loan to Aircraft Value (cumulative)(2)................ 44.1% 58.6% 71.2% 81.5% Expected Principal Distribution Window (in years)(1)........... 0.6-18.6 0.6-18.6 0.6-18.6 0.6-9.6 Initial Average Life (in years)(1).................. 13.3 12.5 9.9 4.5 Regular Distribution Dates....... January 2 January 2 January 2 January 2 and July 2 and July 2 and July 2 and July 2 Final Expected Distribution Date........................... January 2, 2015 January 2, 2015 January 2, 2015 January 2, 2006 Final Legal Distribution Date.... July 2, 2016 July 2, 2016 July 2, 2016 January 2, 2006 sec. 1110 Protection(3).......... Yes Yes Yes Yes Liquidity Facility Coverage...... 3 successive 3 successive 3 successive None interest payments interest payments interest payments Initial Liquidity Facility Amount(4)...................... $ $ $ None
- --------------- (1) Information is indicative only and subject to change. (2) Assumes an aggregate appraised Aircraft Value of $738,563,333. The Initial Loan to Aircraft Value for the Class C Certificates is computed using only the nine Aircraft with Series C Equipment Notes and the Initial Loan to Aircraft Value for the Class D Certificates is computed using only the two Aircraft with Series D Equipment Notes. (3) The benefits of Section 1110 of the Bankruptcy Code are available to the Loan Trustees. (4) For each Class of Certificates (other than the Class D Certificates), the initial amount of the Liquidity Facility will cover the first three successive interest payments (without regard to any future payments of principal on such Certificates). EQUIPMENT NOTES AND THE AIRCRAFT Set forth below is certain information about the Equipment Notes held in the Trusts and the Aircraft securing such Equipment Notes:
AIRCRAFT EQUIPMENT NOTES - ------------------------------------------------------------- ------------------------------------------------ REGISTRATION DELIVERY APPRAISED PRINCIPAL MATURITY NUMBER TYPE DATE VALUE SERIES AMOUNT(1) DATE(1) - ------------ ---- ------------------ ------------ ---------- ------------ ---------------- N535US B757 November 14, 1995 $ 55,350,000 A, B $ 30,000,000 July 2, 2014 N536US B757 December 11, 1995 55,433,333 A, B 30,487,900 July 2, 2012 N537US B757 February 20, 1996 57,383,333 A, B, C 40,000,000 July 2, 2014 N538US B757 March 1, 1996 57,450,000 A, B, C 37,758,616 January 2, 2015 N539US B757 March 25, 1996 57,450,000 A, B, C 39,999,976 January 2, 2015 N540US B757 April 15, 1996 57,516,667 A, B, C 40,000,000 January 2, 2015 N541US B757 April 19, 1996 57,516,667 A, B, C 40,000,000 January 2, 2015 N542US B757 May 10, 1996 57,550,000 A, B, C 40,000,000 January 2, 2015 N543US B757 May 15, 1996 57,550,000 A, B, C 40,000,000 January 2, 2015 N662US B747 March 13, 1989 110,973,333 A, B, C, D 85,283,137 January 2, 2014 N669US B747 August 20, 1990 114,390,000 A, B, C, D 98,449,998 July 2, 2014 ------------ ------------ $738,563,333 $521,979,627 ============ ============
- --------------- (1) The information relating to principal amount and maturity date is indicative only and subject to change. S-4 5 The appraised value of each Aircraft set forth above is based upon the lesser of the average or median value of such Aircraft as appraised by the following three independent appraisal and consulting firms as of the dates indicated: Aircraft Information Services, Inc. ("AISI") as of May 22, 1996, BK Associates, Inc. ("BK") as of April 1, 1996 and Simat, Helliesen & Eichner, Inc. ("SH&E") as of April 1, 1996 (AISI, BK and SH&E are referred to herein, collectively, as the "Appraisers"). An appraisal is only an estimate of value and should not be relied upon as a measure of realizable value. The proceeds realized upon a sale of any Aircraft may be less than the appraised value thereof. In addition, 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, whether the Aircraft are sold separately or as a block and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise with respect to the Equipment Notes and the Aircraft pursuant to the applicable Indenture would be as appraised or sufficient to satisfy in full payments due on the Equipment Notes issued thereunder or the Certificates. For a discussion of the assumptions and methodologies used in preparing the appraisals, see "Risk Factors -- Risk Factors Relating to the Certificates and the Offering -- Appraisals and Realizable Value of Aircraft" and "Description of the Aircraft and the Appraisals". LOAN TO AIRCRAFT VALUE RATIOS The following table sets forth loan to Aircraft value ratios ("LTVs") for each Class of Certificates as of the date of the consummation of the offering of the Certificates and the Regular Distribution Dates specified therein. The LTVs for each Class of Certificates were obtained for each such Regular Distribution Date by dividing (i) the expected Pool Balance of such Class of Certificates together in each case with the expected Pool Balance of all other Classes of Certificates senior in right of payment to such Class of Certificates under the Intercreditor Agreement determined immediately after giving effect to the distributions expected to be made on such Regular Distribution Date, by (ii) the assumed value of all of the Aircraft (the "Assumed Aggregate Aircraft Value") on such Regular Distribution Date based on the assumptions set forth below. The table contains forward-looking information that is based on the assumption that the value of each Aircraft included in the Assumed Aggregate Aircraft Value opposite June , 1996 depreciates by 2% per year until the fifteenth year after the year of delivery of such Aircraft, by 4% per year thereafter until the twentieth year after the year of such delivery and by 6% per year thereafter. Other rates or methods of depreciation would result in materially different LTVs and no assurance can be given (i) that the depreciation rates and method assumed for the purpose of the table are the ones most likely to occur or (ii) as to the actual future value of any Aircraft. Many of the factors affecting the value of the Aircraft are discussed herein under "Risk Factors -- Risk Factors Relating to the Certificates and the Offering -- Appraisals and Realizable Value of Aircraft". Although the table is compiled on an aggregate basis, it should be noted that, because the Equipment Notes are not cross-collateralized with respect to the Aircraft, the excess proceeds realized from the disposition of any particular Aircraft would not be available to offset shortfalls on the Equipment Notes relating to any other Aircraft. Therefore, upon the occurrence of an Indenture Default, even if the Aircraft as a group could be sold for more than the total amounts payable in respect of all of the outstanding Equipment Notes, if certain Aircraft were sold for less than the total amount payable in respect of the related Equipment Notes, there would not be sufficient proceeds to pay all Classes of Certificates in full. See "Description of the Equipment Notes -- Security" for additional information regarding LTVs for the Equipment Notes issued in respect of each Aircraft which may be more relevant in a default situation than the aggregate values shown in S-5 6 the following table. Thus, the 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.
ASSUMED AGGREGATE CLASS A CLASS A CLASS B CLASS B CLASS C AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES DATE VALUE(1) POOL BALANCE(2) LTV(2) POOL BALANCE(2) LTV(2) POOL BALANCE(2) - ------------- ------------ --------------- ------------ --------------- ------------ --------------- June , 1996 $738,563,333 $ 325,845,319 44.1% $ 106,863,942 58.6% $74,559,731 July 2, 1997 723,792,067 322,834,283 44.6 106,015,702 59.3 73,280,262 July 2, 1998 709,020,800 317,314,701 44.8 104,441,541 59.5 72,437,762 July 2, 1999 694,249,533 311,664,681 44.9 102,558,202 59.7 71,489,974 July 2, 2000 679,478,267 305,017,612 44.9 100,674,863 59.7 69,176,078 July 2, 2001 664,707,000 298,370,543 44.9 99,124,444 59.8 65,291,543 July 2, 2002 649,935,733 291,723,473 44.9 97,186,105 59.8 60,491,443 July 2, 2003 635,164,467 285,076,403 44.9 95,025,465 59.8 54,759,335 July 2, 2004 620,393,200 278,429,333 44.9 92,809,776 59.8 48,002,486 July 2, 2005 603,402,467 270,783,503 44.9 89,619,516 59.7 39,624,057 CLASS C CLASS D CLASS D CERTIFICATES CERTIFICATES CERTIFICATES DATE LTV(2)(3) POOL BALANCE(2) LTV(2)(3) - ------------- ------------ --------------- ------------ June , 1996 71.2% $14,710,635 81.5% July 2, 1997 71.8 11,464,093 80.1 July 2, 1998 72.0 10,612,671 79.6 July 2, 1999 72.1 8,890,035 78.9 July 2, 2000 71.9 6,973,024 77.9 July 2, 2001 71.6 6,124,273 80.9 July 2, 2002 70.9 5,132,269 80.1 July 2, 2003 70.1 3,898,605 79.0 July 2, 2004 69.1 2,651,005 77.8 July 2, 2005 67.7 1,023,516 76.1
ASSUMED AGGREGATE CLASS A CLASS A CLASS B CLASS B CLASS C AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES DATE VALUE(1) POOL BALANCE(2) LTV(2) POOL BALANCE(2) LTV(2) POOL BALANCE(2) - ------------- ------------ --------------- ------------ --------------- ------------ --------------- July 2, 2006 584,123,933 262,213,381 44.9 83,116,049 59.1 33,690,864 July 2, 2007 564,845,400 253,786,266 44.9 74,822,591 58.2 25,585,902 July 2, 2008 545,566,867 242,300,097 44.4 64,769,593 56.3 16,352,380 July 2, 2009 526,288,333 227,607,226 43.2 48,403,381 54.0 10,996,456 July 2, 2010 504,790,333 198,141,197 39.3 34,892,249 47.9 9,412,780 July 2, 2011 470,740,533 147,830,672 31.4 24,332,168 39.8 9,412,780 July 2, 2012 401,213,400 69,486,006 17.3 24,332,168 24.9 9,412,780 July 2, 2013 369,380,933 19,635,143 5.3 24,332,168 14.6 9,412,780 July 2, 2014 193,218,667 526,019 1.6 3,564,385 2.1 9,406,614
CLASS C CLASS D CLASS D CERTIFICATES CERTIFICATES CERTIFICATES DATE LTV(2)(3) POOL BALANCE(2) LTV(2)(3) - ------------- ------------ --------------- ------------ July 2, 2006 69.2 0 NA July 2, 2007 67.2 0 NA July 2, 2008 64.6 0 NA July 2, 2009 59.4 0 NA July 2, 2010 52.9 0 NA July 2, 2011 47.8 0 NA July 2, 2012 29.4 0 NA July 2, 2013 19.1 0 NA July 2, 2014 6.2 0 NA
- --------------- (1) The Assumed Aggregate Aircraft Value set forth opposite June , 1996 (but not the Assumed Aggregate Aircraft Values for subsequent dates) was determined based upon the lesser of the average or median value of all Aircraft as appraised by the Appraisers as of the respective dates of their appraisals (see "Description of the Aircraft and the Appraisals"). No assurance can be given that such value represents the realizable value of any Aircraft. See "Risk Factors -- Risk Factors Relating to the Certificates and the Offering -- Appraisals and Realizable Value of Aircraft" and "Description of the Aircraft and the Appraisals". (2) The information relating to periodic Pool Balances and resulting LTVs is indicative only and subject to change. (3) The LTV for the Class C Certificates is computed using only the nine Aircraft with Series C Equipment Notes and the LTV for the Class D Certificates is computed using only the two Aircraft with Series D Equipment Notes. S-6 7 CASH FLOW STRUCTURE Set forth below is a diagram illustrating the structure for the offering of the Certificates and certain cash flows. [CASH FLOW STRUCTURAL DIAGRAM] - --------------- * Each Aircraft is subject to a separate Lease and the related Indenture. The Series C Equipment Notes will only be issued in respect of nine of the eleven Aircraft and the Series D Equipment Notes will only be issued in respect of two of the eleven Aircraft. ** Liquidity Facilities are available with respect to the Class A Certificates, the Class B Certificates and the Class C Certificates. S-7 8 THE OFFERING Trusts: Each of the Class A Trust, the Class B Trust, the Class C Trust and the Class D Trust is to be formed pursuant to one of the four separate Pass Through Trust Agreements to be entered into among the Company, NWA Corp. and State Street Bank and Trust Company, as trustee under each Trust. Each Trust will be a separate entity. Certificates Offered: The Certificates are pass through certificates to be issued by each Trust, representing fractional undivided interests in such Trust. The Certificates to be issued by the Class A Trust, the Class B Trust, the Class C Trust and the Class D Trust are referred to herein as "Class A Certificates", "Class B Certificates", "Class C Certificates" and "Class D Certificates", respectively. Subordination Agent: State Street Bank and Trust Company of Connecticut, National Association, as subordination agent under the Intercreditor Agreement (in such capacity, the "Subordination Agent"). Liquidity Provider: Westdeutsche Landesbank Girozentrale ("WestLB"), acting through its New York branch (the "Liquidity Provider"), will provide three separate liquidity facilities for the benefit of the holders of Class A Certificates, Class B Certificates and Class C Certificates, respectively. Trust Property: The property of the Trusts (the "Trust Property") will consist of (i) Equipment Notes issued on a nonrecourse basis by Owner Trustees in 11 separate leveraged lease transactions to finance the purchase, or to refinance the current indebtedness of the related Owner Trustee originally incurred to finance the purchase, of each of two Boeing 747 Aircraft and nine Boeing 757 Aircraft leased by the related Owner Trustee to Northwest, (ii) the rights of such Trust under the Intercreditor Agreement (including all monies receivable in respect of such rights), (iii) except for the Class D Trust, all monies receivable under the Liquidity Facility for such Trust and (iv) funds from time to time deposited with the Trustee in accounts relating to such Trust. The Equipment Notes with respect to each Aircraft will be issued in up to four series under an Indenture (each, an "Indenture") between the applicable Owner Trustee and the indenture trustee thereunder (the "Loan Trustee"). Each Trust will acquire, pursuant to certain Refunding Agreements (each, a "Refunding Agreement"), those Equipment Notes having an interest rate equal to the interest rate applicable to the Certificates to be issued by such Trust. The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the Final Expected Distribution Date applicable to the Certificates to be issued by such Trust. The aggregate original principal amount of the Equipment Notes to be held in each Trust will be the same as the aggregate original face amount of the Certificates to be issued by such Trust. Guaranty: The payments payable by Northwest under each Lease will be unconditionally guaranteed (the "Guaranty") by NWA Corp. Certificates; Denominations: The Certificates of each Trust will be issued in a minimum denomination of $1,000 and in integral multiples thereof. See "Description of the Certificates -- General". S-8 9 Regular Distribution Dates: January 2 and July 2, commencing January 2, 1997. Special Distribution Dates: Any business day on which a Special Payment is to be distributed. Record Dates: The fifteenth day preceding a Regular Distribution Date or a Special Distribution Date. Distributions: All payments of principal, Make-Whole Premium (if any) and interest received by the Trustee on the Equipment Notes held in each Trust will be distributed by the Trustee to the holders of the Certificates (the "Certificateholders") of such Trust on the Regular Distribution Dates referred to above, subject to the provisions of the Intercreditor Agreement. Assuming payments on the Equipment Notes are made when due, the final expected distribution date (the "Final Expected Distribution Date") for each Class of Certificates will be as set forth on the cover page of this Prospectus Supplement. Payments on the Equipment Notes held in each Trust are scheduled to be received in specified amounts by the Trustee of such Trust on January 2 and July 2 of each year, commencing January 2, 1997. Payments of principal, Make-Whole Premium (if any) and interest resulting from the early redemption or purchase (if any) of the Equipment Notes held in any Trust will be distributed on a Special Distribution Date after not less than 10 days' notice from the Trustee to the Certificateholders of such Trust, subject to the provisions of the Intercreditor Agreement. For a discussion of distributions upon an Indenture Default, see "Description of the Certificates -- Indenture Defaults and Certain Rights Upon an Indenture Default". Events of Default: Events of Default under each Pass Through Trust Agreement (each, a "PTC Event of Default") are the failure to pay within 10 business days of the due date thereof: (i) the outstanding Pool Balance of the applicable Class of Certificates on the Final Legal Distribution Date for such Class or (ii) interest due on such Certificates on any distribution date (unless, in the case of the Class A, B or C Certificates, the Subordination Agent shall have made an Interest Drawing with respect thereto in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). The "Final Legal Distribution Date" for each of the Class A, B, C and D Certificates is July 2, 2016, July 2, 2016, July 2, 2016 and January 2, 2006, respectively. Any failure to make expected principal distributions on any Class of Certificates on any Regular Distribution Date (other than the Final Legal Distribution Date) will not constitute a PTC Event of Default with respect to such Certificates. Purchase Rights of Certificateholders: Upon the occurrence and during the continuation of a Triggering Event (as defined below), (i) the Class B Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, (ii) the Class C Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates and the Class B Certificates and (iii) the Class D Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, the Class B Certificates and the Class C Certificates, in each case at a purchase price equal to the Pool Balance of the relevant Class or Classes of Certificates plus accrued and unpaid interest thereon to the S-9 10 date of purchase without Make-Whole Premium but including any other amounts due to the Certificateholders of such Class or Classes. "Triggering Event" means (x) the occurrence of an Indenture Default under all Indentures resulting in a PTC Event of Default with respect to the most senior Class of Certificates then outstanding, (y) the acceleration of all of the outstanding Equipment Notes or (z) certain bankruptcy or insolvency events involving Northwest. Equipment Notes (a) Interest: The Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for such Trust set forth on the cover page of this Prospectus Supplement, payable on January 2 and July 2 of each year, commencing January 2, 1997, and such interest payments will be passed through to Certificateholders of such Trust on each such date until the final distribution date for such Certificates, in each case subject to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. See "Description of the Certificates -- General" and "-- Payments and Distributions". (b) Principal: Scheduled principal payments on the Equipment Notes held in each Trust will be passed through to the Certificateholders of each such Trust on January 2 or July 2, or both, in certain years, commencing January 2, 1997, in accordance with the principal repayment schedule referred to herein under "Description of the Certificates -- Pool Factors" and "Description of the Equipment Notes -- Principal and Interest Payments", in each case subject to the Intercreditor Agreement. (c) Redemption and Purchase: (i) The Equipment Notes issued with respect to an Aircraft will be redeemed in whole upon the occurrence of an Event of Loss with respect to such Aircraft if such Aircraft is not replaced by Northwest under the related Lease, in each case at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the date of redemption, but without any Make-Whole Premium. (ii) All of the Equipment Notes issued with respect to any Aircraft may be redeemed prior to maturity at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the date of redemption, plus, if such redemption is made prior to the respective dates set forth below (each, a "Premium Termination Date"), a Make-Whole Premium.
SERIES DATE ------ ---------------- Series A January 2, 2015 Series B January 2, 2015 Series C January 2, 2015 Series D January 2, 2006
See "Description of the Equipment Notes -- Redemption" for a description of the manner of computing such Make-Whole Premium and the circumstances under which the Equipment Notes may be so redeemed. S-10 11 (iii) If, with respect to an Aircraft, (x) one or more Lease Events of Default shall have occurred and be continuing, (y) the Loan Trustee with respect to the related Equipment Notes shall take action or notify the applicable Owner Trustee that it intends to take action to foreclose the lien of the related Indenture or otherwise commence the exercise of any significant remedy under such Indenture or the related Lease or (z) the Equipment Notes with respect to such Aircraft shall have been accelerated, then in each case the Equipment Notes issued with respect to such Aircraft may be purchased by the related Owner Trustee or the beneficial owner of such Aircraft (the "Owner Participant"), at a price equal to the aggregate unpaid principal thereof, together with accrued interest thereon to, but not including, the purchase date, but without any Make-Whole Premium (provided that a Make-Whole Premium shall be payable if such Equipment Notes are to be purchased pursuant to clause (x) above when a Lease Event of Default shall have occurred and be continuing for less than 120 days). (d) Security: The Equipment Notes issued with respect to each Aircraft will be secured by a security interest in such Aircraft and an assignment to the related Loan Trustee of certain of the related Owner Trustee's rights under the Lease (and the related Guaranty) with respect to such Aircraft, including the right to receive payments of rent thereunder, with certain exceptions. The Equipment Notes are not cross-collateralized and, consequently, the Equipment Notes issued in respect of any one Aircraft are not secured by any of the other Aircraft or the Leases related thereto. There are no cross-default provisions in the Indentures or Leases. Consequently, events resulting in an Event of Default under any particular Indenture or Lease may or may not result in an Event of Default occurring under any other Indenture or Lease. If the Equipment Notes issued with respect to one or more Aircraft are in default and the Equipment Notes issued with respect to the remaining Aircraft are not in default, no remedies will be exercisable under the Indentures with respect to such remaining Aircraft. See "Description of the Equipment Notes -- Security" and "-- Indenture Defaults, Notice and Waiver". Although the Equipment Notes are not obligations of, or guaranteed by, Northwest, the amounts unconditionally payable by Northwest for lease of the Aircraft will be sufficient to pay in full when due all amounts required to be paid on the Equipment Notes. See "Description of the Equipment Notes -- General". Amounts payable by Northwest under each Lease will be unconditionally guaranteed by NWA Corp. (e) Section 1110 Protection: Cadwalader, Wickersham & Taft, special leveraged lease counsel to Northwest, has advised the Loan Trustees that the Owner Trustee, as lessor under the Lease relating to each Aircraft, and the related Loan Trustee, as assignee of such Owner Trustee's rights under such Lease pursuant to the related Indenture, are entitled to the benefits of 11 U.S.C. sec. 1110 with respect to the airframe and engines comprising the related Aircraft. See "Description of the Equipment Notes -- Remedies" for a description of that opinion and certain assumptions contained therein. S-11 12 (f) Ranking: Series B Equipment Notes issued in respect of any Aircraft will be subordinated in right of payment to Series A Equipment Notes issued in respect of such Aircraft; Series C Equipment Notes issued in respect of such Aircraft will be subordinated in right of payment to Series A and B Equipment Notes issued in respect of such Aircraft; and Series D Equipment Notes issued in respect of such Aircraft will be subordinated in right of payment to Series A, B and C Equipment Notes issued in respect of such Aircraft. On each Distribution Date, (i) payments of interest and principal due on Series A Equipment Notes issued in respect of any Aircraft will be made prior to payments of interest and principal due on Series B, C and D Equipment Notes issued in respect of such Aircraft, (ii) payments of interest and principal due on such Series B Equipment Notes will be made prior to payments of interest and principal due on Series C and D Equipment Notes issued in respect of such Aircraft and (iii) payments of interest and principal due on such Series C Equipment Notes will be made prior to payments of interest and principal due on Series D Equipment Notes issued in respect of such Aircraft. Delayed Purchase of Equipment Notes: Equipment Notes related to one 757 Aircraft may be purchased by the Trustee after the issuance of the Certificates. Any proceeds of the issuance of the Certificates not immediately used to purchase Equipment Notes will be held by the Trustee in escrow accounts and invested in specified investments at the direction and risk of, and for the account of, Northwest. Any such proceeds not used to purchase Equipment Notes on or prior to September 2, 1996 will be distributed, with interest (but without Make-Whole Premium), to the Certificateholders after at least 10 days' prior written notice. See "Description of the Certificates -- Delayed Purchase of Equipment Notes". Liquidity Facilities: The Subordination Agent and the Liquidity Provider will enter into a revolving credit agreement (each, a "Liquidity Facility") with respect to each Trust (other than the Class D Trust). Under each of the Liquidity Facilities, the Liquidity Provider will, if necessary, make advances ("Interest Drawings") in an aggregate amount (the "Required Amount") sufficient to pay interest on the Class A, B or C Certificates, as the case may be, on up to three successive Regular Distribution Dates (without regard to any future payments of principal on such Certificates) at the respective interest rates (without any penalty or default margin) on such Certificates (the "Stated Interest Rates"). The initial amount available under the Liquidity Facilities for the Class A Certificates, the Class B Certificates and the Class C Certificates will be $ , $ and $ , respectively. An Interest Drawing under the relevant Liquidity Facility will be made promptly after any Regular Distribution Date if, after giving effect to the subordination provisions of the Intercreditor Agreement, there are insufficient funds available to the Subordination Agent to pay interest on any Class A, B or C Certificates; provided, however, that on any date the maximum amount available under such Liquidity Facility to fund any shortfall in interest due on such Certificates will not exceed the Required Amount. The Liquidity Facility for any Class of Certificates does not provide for drawings thereunder to pay for principal of or Make-Whole Premium on the Certificates of such Class, any S-12 13 interest on the Certificates of such Class in excess of the Stated Interest Rates, or principal of or interest or Make-Whole Premium on the Certificates of any other Class. Upon each Interest Drawing under any Liquidity Facility, the Subordination Agent will be obligated to reimburse (to the extent that the Subordination Agent has available funds therefor) the Liquidity Provider for the amount of such drawing. Such reimbursement obligation and any other amounts owing to the Liquidity Provider under each Liquidity Facility or certain other agreements (the "Liquidity Obligations") will rank pari passu with the Liquidity Obligations relating to all other Liquidity Facilities and will rank senior to the Certificates in right of payment. Upon reimbursement in full of the Interest Drawings (but not other Drawings), together with any accrued interest thereon, under any Liquidity Facility, the amount available under such Liquidity Facility will be reinstated to the then Required Amount of such Liquidity Facility; provided that the amount will not be reinstated at any time after (i) the acceleration of all of the outstanding Equipment Notes or (ii) (A) a Triggering Event shall have occurred and (B) less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes. If at any time the short-term unsecured debt rating of the Liquidity Provider issued by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services ("Standard & Poor's") or Fitch Investors Service, L.P. ("Fitch" and, together with Moody's and Standard & Poor's, the "Rating Agencies") is lower than the Threshold Rating or, in the event the Liquidity Provider's short-term unsecured debt is not rated by Moody's or Standard & Poor's, the long-term unsecured debt rating of any Liquidity Provider issued by either Moody's or Standard & Poor's is lower than the Threshold Rating, then the Liquidity Provider for the related Class of Certificates or the Subordination Agent may arrange for another similar facility to be provided by a financial institution having unsecured short-term debt ratings or, in the event a selected financial institution's short-term unsecured debt is not rated by Moody's or Standard & Poor's, long-term unsecured debt ratings, issued by the applicable Rating Agencies which are equal to or higher than the Threshold Rating, provided that, if Fitch does not provide short-term unsecured debt ratings for such financial institution and Moody's and Standard & Poor's do provide such ratings, then such financial institution shall be required only to have short-term unsecured debt ratings equal to or higher than the Threshold Ratings provided by Moody's and Standard & Poor's. If such Liquidity Facility is not replaced within the period specified in the Intercreditor Agreement after notice of the downgrading, such Liquidity Facility will be drawn in full (the "Downgrade Drawing") and the proceeds will be deposited into the Cash Collateral Account (as defined in the Intercreditor Agreement) for the related Class of Certificates and used for the same purposes and under the same circumstances and subject to the same conditions as cash payments of Interest Drawings under such Liquidity Facility would be used. The Subordination Agent, in consultation with Northwest (whose recommendations the Subordination Agent will accept in the absence of a good faith reason not to), may, subject to certain limitations, arrange S-13 14 for a replacement facility at any time to replace the Liquidity Facility for any Trust. If such replacement facility is provided at any time after a Downgrade Drawing or Non-Extension Drawing for such Liquidity Facility, the funds on deposit in the Cash Collateral Account for such Trust will be returned to the Liquidity Provider being replaced. The initial Liquidity Facility for each Class of Certificates is scheduled to expire on the fifteenth day after the Final Legal Distribution Date for such Class of Certificates. A replacement facility may, however, be scheduled to expire on an earlier date. If a replacement facility for a Class of Certificates is scheduled to expire prior to the date that is fifteen days after the Final Legal Distribution Date for such Class, the Intercreditor Agreement will provide for the replacement or extension of such replacement facility to the date that is fifteen days after the Final Legal Distribution Date for such Class. If such replacement facility cannot be so replaced or extended by the date that is 25 days prior to the then scheduled expiration date of such replacement facility, such replacement facility will be drawn in full (the "Non- Extension Drawing") and the proceeds will be deposited in the Cash Collateral Account for the related Class of Certificates and used for the same purposes and under the same circumstances and subject to the same conditions as cash payments of Interest Drawings under such Liquidity Facility would be used. Notwithstanding the subordination provisions of the Intercreditor Agreement, the Liquidity Facility for any Class of Certificates does not provide for drawings thereunder to pay principal of or interest or Make-Whole Premium on the Certificates of any other Class. Therefore, only the holders of the Certificates to be issued by a particular Trust will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust. There is no Liquidity Facility for the Class D Trust. See "Description of the Liquidity Facilities". Intercreditor Agreement (a) Subordination: The Trusts, the Liquidity Provider and the Subordination Agent will enter into an agreement (the "Intercreditor Agreement") which will provide as follows: (i) All payments made in respect of the Equipment Notes and certain other payments will be made to the Subordination Agent which will distribute such payments in accordance with the provisions of paragraphs (ii) and (iii) below. (ii) On any Regular Distribution Date or Special Distribution Date (each, a "Distribution Date"), so long as no Triggering Event shall have occurred (whether or not continuing), all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed in the following order: (1) payment of the Liquidity Obligations; (2) payment of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustee. S-14 15 "Expected Distributions" means, with respect to the Certificates of any Trust on any Distribution Date (the "Current Distribution Date"), the sum of (x) accrued and unpaid interest on such Certificates and (y) the difference between (A) the Pool Balance of such Certificates as of the immediately preceding Distribution Date and (B) the Pool Balance of such Certificates as of the Current Distribution Date, calculated on the basis that the principal of the Equipment Notes held in such Trust has been paid when due (whether at stated maturity, upon redemption, prepayment or acceleration or otherwise) and such payments have been distributed to the holders of such Certificates. In certain circumstances, the Make-Whole Premium will be included as part of Expected Distributions. (iii) Upon the occurrence of a Triggering Event and at all times thereafter, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed in the following order: (1) to reimburse the Subordination Agent, each Trustee, the Liquidity Provider and any Certificateholder, as the case may be, for the payment of Administration Expenses (as defined herein); (2) to the Liquidity Provider in payment of Liquidity Expenses, Liquidity Obligations and, so long as no Performing Note Deficiency exists, to replenish Cash Collateral Accounts; (3) to reimburse the Subordination Agent, each Trustee and each Certificateholder, as the case may be, for the payment of Certain Taxes and Fees (as defined herein); (4) to pay Adjusted Expected Distributions to the holders of Class A Certificates; (5) to pay Adjusted Expected Distributions to the holders of Class B Certificates; (6) to pay Adjusted Expected Distributions to the holders of Class C Certificates; (7) to pay Adjusted Expected Distributions to the holders of Class D Certificates; (8) the balance shall be held in the Collection Account until the next Distribution Date or, if all Classes of Certificates have been paid in full, shall be distributed to the Owner Trustees to the extent that payments received from the Loan Trustees exceed the amounts described in clauses (1) through (7) above; and (9) the balance, if any, shall be distributed to the Certificateholders of the related Trust. "Adjusted Expected Distributions" means with respect to the Certificates of any Class on any Current Distribution Date the sum of (x) the amount of accrued and unpaid interest on such Certificates plus (y) the greater of: (A) the difference between (x) the Pool Balance of such Certificates as of the immediately preceding Distribution Date and (y) the Pool Balance of such Certificates as of the Current Distribution Date calculated on the basis that (i) the principal of the Non-Performing Equipment Notes held in such Trust has been paid in full and such payments have been distributed to the holders of such Certificates and (ii) the principal of the Performing Equipment Notes has been paid when due (but without giving effect to any acceleration of Performing Equipment Notes) and has been distributed to the holders of such Certificates; or (B) the amount, if any, by which (i) the Pool Balance of such Class of Certificates as of the immediately preceding Distribution Date exceeds (ii) the Aggregate LTV Collateral Amount for such Class of Certificates for the Current Distribution Date; S-15 16 provided that, until the date of the initial LTV Appraisals, clause (B) above shall not be applicable. "Aggregate LTV Collateral Amount" means for any Class of Certificates for any Distribution Date the sum of the applicable LTV Collateral Amounts for each Aircraft minus the Pool Balance for each Class of Certificates, if any, senior to such Class after giving effect to any distribution of principal on such Distribution Date on such senior Class or Classes. "Appraised Current Market Value" of any Aircraft means the lower of the average or the median of the most recent three LTV Appraisals (as defined herein) of such Aircraft. After a Triggering Event occurs and any Equipment Note becomes a Non-Performing Equipment Note, 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; provided that, if the Controlling Party reasonably objects to any LTV Appraisals, the Controlling Party shall have the right to obtain or cause to be obtained 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 Certificates for any Distribution Date means the lesser of (i) the LTV Ratio for such Class of Certificates multiplied by the Appraised Current Market Value of such Aircraft and (ii) the outstanding principal amount of the Equipment Notes secured by such Aircraft after giving effect to any principal payments of such Equipment Notes on or before such Distribution Date. "LTV Ratio" means for the Class A Certificates 44.9%, for the Class B Certificates 59.8%, for the Class C Certificates 72.1% and for the Class D Certificates 81.5%. "Non-Performing Equipment Notes" are Equipment Notes other than Performing Equipment Notes. "Performing Equipment Notes" are Equipment Notes with respect to which there is no payment default (without giving effect to any acceleration thereof); provided that in the event of a bankruptcy proceeding involving Northwest under Title 11 of the United States Code (the "Bankruptcy Code"), (i) any payment default existing during 60-day period under Section 1110(a)(1)(A) of the Bankruptcy Code (or such longer period as may apply under Section 1110(b) of the Bankruptcy Code) (the "Section 1110 Period") shall not be taken into consideration, unless during the Section 1110 Period the trustee in such proceeding or Northwest refuses to assume or agree to perform its obligations under the Lease related to such Equipment Notes and (ii) any payment default occurring after the date of the order of relief in such proceeding shall not be taken into S-16 17 consideration if such payment default is cured under Section 1110(a)(1)(B) of the Bankruptcy Code before the later of 30 days after the date of such default or the expiration of the Section 1110 Period. "Performing Note Deficiency" means any time that less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes. (b) Intercreditor Rights: Pursuant to the Intercreditor Agreement, the Trustee and the Liquidity Provider shall agree that, with respect to any Indenture at any given time, the Loan Trustee will be directed (a) in taking, or refraining from taking, any action thereunder, by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder (provided that, for so long as the Subordination Agent is the registered holder of the Equipment Notes, the Subordination Agent shall act with respect to this clause (a) in accordance with the directions of the Trustees representing holders of Certificates representing an undivided interest in such principal amount of Equipment Notes) so long as no Indenture Default shall have occurred and be continuing thereunder and (b) after the occurrence and during the continuance of an Indenture Default thereunder, subject to certain conditions, in exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes), by the Controlling Party. "Controlling Party" with respect to any Indenture means: (w) the Class A Trustee; (x) upon payment of Final Distributions to the holders of Class A Certificates, the Class B Trustee; (y) upon payment of Final Distributions to the holders of Class B Certificates, the Class C Trustee; and (z) upon payment of Final Distributions to the holders of Class C Certificates, the Class D Trustee. See "Description of the Certificates -- Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustee. Notwithstanding the foregoing, subject to certain limitations, the Liquidity Provider shall have the right to elect to become the Controlling Party at any time after 18 months from the acceleration of the Equipment Notes thereunder, if at the time of such election the Liquidity Obligations have not been paid in full; provided that if there is more than one Liquidity Provider, the Liquidity Provider with the greatest amount of unreimbursed Liquidity Obligations shall have such right. "Final Distributions" means, with respect to the Certificates of any Trust on any Distribution Date, the sum of (x) the aggregate amount of all accrued and unpaid interest on such Certificates and (y) the Pool Balance of such Certificates as of the immediately preceding Distribution Date. (i) Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person, subject to the provisions of paragraph (ii) below. The proceeds of such sale will be distributed pursuant to the provisions of the Intercreditor Agreement. S-17 18 (ii) So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Northwest, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the amount and payment dates of rentals payable by Northwest under the Lease for such Aircraft may not be adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Northwest under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes outstanding under such Indenture as the discount rate. "Minimum Sale Price" means, with respect to any Aircraft or the Equipment Notes issued in respect of such Aircraft, at any time, the lesser of (1) 75% of the Appraised Current Market Value of such Aircraft and (2) the aggregate outstanding principal amount of such Equipment Notes, plus accrued and unpaid interest thereon. Use of Proceeds: The proceeds from the sale of the Certificates offered hereby will be used to purchase the Equipment Notes issued by the related Owner Trustees in connection with the financing of the purchase of, or the refinancing of the indebtedness incurred by the Owner Trustees to finance the purchase of, each of the Aircraft. Such Equipment Notes will represent in the aggregate the entire debt portion of the leveraged lease transactions relating to all of the Aircraft. Neither Northwest nor NWA Corp. will receive any of the proceeds from the sale of the Certificates. See "Use of Proceeds". Trustee: State Street Bank and Trust Company will act as Trustee and as paying agent and registrar for the Certificates of each Trust. It will also act as Loan Trustee for each issue of Equipment Notes. State Street Bank and Trust Company of Connecticut, National Association, an affiliate of State Street Bank and Trust Company, will act as Subordination Agent under the Intercreditor Agreement. The obligations of State Street Bank and Trust Company of Connecticut, National Association, as Subordination Agent, will be guaranteed by State Street Bank and Trust Company. Federal Income Tax Consequences: Each Trust will be classified as a grantor trust for federal income tax purposes, and therefore each Certificate Owner will be treated as the owner of a pro rata undivided interest in each of the Equipment Notes and any other property held by such Trust. Each Certificate Owner should report on its federal income tax return its pro rata share of income from such Equipment Notes and other property held by such Trust in accordance with such Certificate Owner's method of accounting. The Equipment Notes will not be issued with original issue discount for U.S. federal income tax purposes. See "Certain U.S. Federal Income Tax Consequences". ERISA Considerations: In general, employee benefit plans subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the S-18 19 "Code"), or entities which may be deemed to hold the assets of any such plan (collectively, "Plans"), will be eligible to purchase the Class A Certificates. Plans will not be eligible to purchase the Class B, C or D Certificates, provided, however, that such Certificates may be acquired with the assets of an insurance company general account that may be deemed to constitute Plan assets if the conditions of Prohibited Transaction Class Exemption ("PTCE") 95-60, 60 Fed. Reg. 35,925, are satisfied. By the acceptance of a Class B, C or D Certificate, each Certificateholder will be deemed to have represented that either (i) no Plan assets have been used to purchase such Certificate or (ii) the purchase and holding of such Certificate is exempt from the prohibited transaction restrictions of ERISA and the Code pursuant to PTCE 95-60. Each Plan fiduciary (and each fiduciary for a governmental or church plan subject to rules similar to those imposed on Plans under ERISA) should consult with its legal advisor concerning an investment in any of the Certificates. See "ERISA Considerations". Rating of the Certificates: It is a condition to the issuance of the Certificates that the Certificates be rated by Moody's, Standard & Poor's and Fitch as set forth below.
STANDARD & CERTIFICATES MOODY'S POOR'S FITCH ------- ---------- ----- Class A A2 AA AA- Class B Baa1 A A- Class C Baa3 BBB- BBB- Class D Ba1 BB+ BB
A rating is not a recommendation to purchase, hold or sell Certificates, inasmuch as such rating does not address market price or suitability for a particular investor. There can be no assurance that such ratings will not be lowered or withdrawn by a Rating Agency if, in the opinion of such Rating Agency, circumstances (including the downgrading of Northwest or the Liquidity Provider) so warrant. See "Risk Factors -- Factors Relating to the Certificates and the Offering -- Ratings of the Certificates". Rating of the Liquidity Provider:
STANDARD & MOODY'S POOR'S FITCH ------- ---------- ----- Short-term...................... P-1 A-1+ F-1+ Long-term....................... Aa1 AA+
Threshold Rating:
STANDARD & MOODY'S POOR'S FITCH ------- ---------- ----- Short-term...................... P-1 A-1 F-1+
S-19 20 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The following table presents summary consolidated financial data and operating statistics of NWA Corp. The annual historical financial data were derived from NWA Corp. audited consolidated financial statements and the notes thereto incorporated by reference in the Prospectus accompanying this Prospectus Supplement and should be read in conjunction therewith. The consolidated financial data for the interim periods ended March 31, 1996 and 1995 were derived from unaudited consolidated financial statements of NWA Corp. and may not be indicative of results for the year as a whole. See "Incorporation of Certain Documents by Reference" in the Prospectus accompanying this Prospectus Supplement.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, -------------------------- ------------------------------------- 1996 1995 1995 1994 1993 --------- ------------ --------- --------- --------- STATEMENT OF OPERATIONS DATA (IN MILLIONS, EXCEPT PER SHARE DATA): Operating revenues Passenger.................................... $ 1,935.5 $ 1,687.8 $ 7,762.0 $ 7,010.1 $ 6,619.6 Cargo........................................ 170.3 179.1 751.2 755.8 734.8 Other........................................ 159.0 176.1 571.7 559.0 510.5 --------- ------------ --------- --------- --------- 2,264.8 2,043.0 9,084.9 8,324.9 7,864.9 Operating expenses(1)............................ 2,130.4 1,895.7 8,182.7 7,494.5 7,592.5 --------- ------------ --------- --------- --------- Operating income................................. 134.4 147.3 902.2 830.4 272.4 Amounts before 1995 extraordinary item(2)(3): Income (loss)................................ $ 53.4 $ 2.6 $ 342.1 $ 295.5 $ (115.3) ======== ============ ======== ======== ======== Earnings (loss) per common share: Primary.................................. $ 0.41 $ 0.52 $ 3.02(4) $ 2.92 $ (2.82) Fully diluted............................ 0.37 0.51 2.85(4) 2.87 (2.82) OTHER DATA: Fully distributed earnings (loss) per share(5)... $ 1.01 $ 0.78 $ 6.13 $ 2.80 $ (1.40) Ratio of earnings to fixed charges............... 1.67x 1.02x 1.91x 1.88x (6) OPERATING STATISTICS: Scheduled Service: Available seat miles (millions)(7)........... 22,185.7 20,459.7 87,472.0 85,015.6 87,212.5 Revenue passenger miles (millions)(8)........ 15,576.5 13,890.1 62,515.2 57,873.2 58,130.1 Passenger load factor(%)(9).................. 70.2 67.9 71.5 68.1 66.7 Revenue passengers (millions)................ 12.0 11.1 49.3 45.5 44.1 Revenue yield per passenger mile (cents)(10)................................ 12.43 12.15 12.42 12.11 11.39 Passenger revenue per scheduled ASM (cents).................................... 8.72 8.25 8.87 8.25 7.59 Operating revenue per total ASM (cents)(11)...... 9.44 9.04 9.58 8.93 8.23 Operating expense per total ASM (cents)(11)...... 8.91 8.42 8.66 8.08 8.00 Operating expense excluding stock-based compensation per total ASM (cents)(11)......... 8.36 8.11 8.11 7.95 7.89 Cargo ton miles (millions)(12)................... 487.2 523.5 2,246.3 2,322.3 2,188.0 Average fuel cost per gallon (cents)............. 61.86 55.07 55.66 56.23 62.09 Number of operating aircraft at end of period.... 386 366 380 361 358 Full-time equivalent employees at end of period......................................... 45,619 43,672 45,124 43,673 43,358
AT AT MARCH 31, DECEMBER 31, 1996 1995 --------- ------------ BALANCE SHEET DATA (IN MILLIONS): Total assets..................................... $ 8,605.4 $ 8,412.3 Long-term debt, including current portion........ 2,345.6 2,467.1 Mandatorily redeemable preferred security of subsidiary.................................. 588.5 618.4 Redeemable preferred stock....................... 1,006.9 945.5 Common stockholders' equity (deficit)............ (703.2) (818.8)
(footnotes on following page) S-20 21 (footnotes from previous page) - --------------- (1) Effective with the first quarter of 1996, NWA Corp. reports gains (losses) relating to the disposition of assets as operating expenses instead of in other income (expense) in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This change had no impact on net income, and gains (losses) on the disposition of assets are excluded from unit cost calculations. (2) The 1995 extraordinary item was $49.9 million ($0.53 per primary share and $0.49 per fully diluted share). (3) Includes nonrecurring special charges of $94.3 million for 1993. See Note A to NWA Corp.'s audited consolidated financial statements for the year ended December 31, 1995, incorporated by reference herein. (4) Excludes effect of the gain on exchange of preferred stock of $.62 per primary share and $.58 per fully diluted share. (5) The effect of the accounting for stock-based compensation on NWA Corp.'s operating results and earnings per share may make it difficult to compare its earnings with other companies. Accordingly, management believes the "fully distributed" earnings per share calculation, which excludes stock-based compensation and includes all the shares to be issued to its employees, provides an appropriate supplemental measurement of the Company's performance. (6) Excluding nonrecurring special charges of $94.3 million for the year ended December 31, 1993, earnings were inadequate to cover fixed charges by $27.2 million. (7) "Available seat miles" ("ASMs") represents the number of seats available for passengers multiplied by the number of scheduled miles the seats are flown. (8) "Revenue passenger miles" represents the number of miles flown by revenue passengers in scheduled service. (9) "Passenger load factor" is calculated by dividing revenue passenger miles by available seat miles, and represents the percentage of aircraft seating capacity utilized. (10) "Revenue yield per passenger mile" represents the average revenue received from each mile a passenger is flown in scheduled service. (11) Excludes the estimated revenues or expenses associated with the operation of Northwest's fleet of eight 747 freighter aircraft and MLT Inc. (12) "Cargo ton miles" represents the tonnage of freight and mail carried multiplied by the number of miles flown. S-21 22 RISK FACTORS PROSPECTIVE PURCHASERS OF THE CERTIFICATES SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING MATTERS: COMPANY RELATED RISKS INDEBTEDNESS As of December 31, 1995, NWA Corp. had long-term debt (49.0% of which bears interest at floating rates) and capital lease obligations of $2.9 billion (excluding current maturities of $392 million). Maturities of long-term debt as of December 31, 1995 were $330 million in 1996, $219 million in 1997, $397 million in 1998, $455 million in 1999 and $1.1 billion thereafter, exclusive of certain mandatory prepayments from excess cash flow. As of December 31, 1995, future minimum lease payments under capital leases and noncancellable operating leases with initial or remaining terms of more than one year were $591 million in 1996, $591 million in 1997, $538 million in 1998, $492 million in 1999 and $5.5 billion thereafter. These amounts do not include, as of December 31, 1995, (i) NWA Corp.'s mandatory redemption obligations in an aggregate amount equal to $945.5 million in respect of its preferred stock beginning in 2000 and (ii) the mandatorily redeemable preferred security of NWA Corp.'s subsidiary in an amount equal to $618.4 million. NEGATIVE NET WORTH NWA Corp. had a common stockholders' equity deficit as of December 31, 1995 of $818.8 million. There may be investors and lenders who have policies that limit or preclude their investment in or lending to companies with a common stockholders' equity deficit, and therefore NWA Corp.'s common stockholders' equity deficit may affect its ability to obtain additional financing in the future. POSSIBLE LIMITATION ON NOL CARRYFORWARDS NWA Corp. utilized net operating loss carryforwards ("NOLs") of $711.1 million and $394.4 million in 1995 and 1994, respectively, and alternative minimum tax net operating loss carryforwards ("AMTNOLs") of $105.1 million in 1995, $446.7 million in 1994 and $35.8 million in 1993. Sections 382 and 383 of the Code and the regulations thereunder impose limitations on the carryforward amounts of NOLS, AMTNOLs and credits that can be used to offset taxable income (or used as a credit) in any single tax year if the corporation experiences more than a 50% ownership change, as defined therein, over a three-year testing period ending on any testing date. In general, if such an "ownership change" occurs, Section 382 limits the amount of NOLs, AMTNOLs and credits which may be carried forward from preownership change years that can be used in any one post-change year to an amount equal to the product of the value of the corporation's stock for tax purposes immediately before the change multiplied by the "long-term tax-exempt rate" as determined by the Internal Revenue Service (the "IRS") for the month of the change. NWA Corp. believes that an offering of outstanding common stock by existing stockholders in November 1995 triggered an ownership change, but that no ownership change occurred prior to such offering. If such an ownership change in fact occurred as a result of the November 1995 offering, NWA Corp. believes that, even as limited by Sections 382 and 383 of the Code, the NOLs, AMTNOLs and credits would be used significantly earlier than their expiration, and the annual limitations would not have an adverse impact on NWA Corp. However, if the IRS were to successfully assert that an ownership change had occurred on any prior date, including August 1, 1993 (the date of NWA Corp.'s labor cost savings agreements), the impairment of NWA Corp.'s ability to use its NOLs, AMTNOLs and credit carryforwards would be significant because the value of NWA Corp.'s stock on certain prior testing dates (which adversely affects the annual limitation described above) was relatively low. S-22 23 OTHER TAX MATTERS In November 1995, the IRS issued proposed adjustments to the tax returns of NWA Corp. for the 1988 through 1991 tax years. Certain of these proposed adjustments result from a disagreement between NWA Corp. and the IRS as to the timing of the recognition of approximately $385 million of taxable income. The IRS also proposed that NWA Corp. recognize additional taxable income of approximately $375 million. NWA Corp. disagrees with the IRS' proposals. NWA Corp. intends to contest vigorously all of the proposed adjustments and believes its positions are correct. To the extent the IRS were to prevail on any of these issues, NWA Corp. would recognize taxable income and utilize net operating loss carryforwards sooner than otherwise scheduled. For financial reporting purposes, any adjustments to taxable income would largely be accounted for as temporary differences and would not result in a material change to NWA Corp.'s income tax expense. FOREIGN CURRENCY EXPOSURE A significant portion of NWA Corp.'s and its subsidiaries operations is conducted in foreign locations. Consequently, NWA Corp. has operating revenues and (to a lesser extent) operating expenses, as well as assets and liabilities, denominated in foreign currencies, particularly in Japanese yen. Its operating performance can therefore be significantly affected by fluctuations in those currencies. INDUSTRY RELATED RISKS INDUSTRY CONDITIONS AND COMPETITION The airline industry is highly competitive and susceptible to price discounting. Airline profit levels are highly sensitive to, and from 1990 to 1992 were severely impacted by, adverse changes in fuel costs, average yield (fare levels) and passenger demand. Passenger demand and yields were adversely affected during this period by, among other things, the general state of the economy, the Persian Gulf War and actions taken by carriers with respect to fares. As a result of this adverse operating environment, from 1990 to 1992 the domestic airlines industry, including NWA Corp., incurred unprecedented losses. The emergence in recent years of several new carriers, typically with low cost structures, has further increased the competitive pressures on the major U.S. airlines. In some cases, the new entrants have initiated or triggered price discounting. Aircraft, skilled labor and gates at most airports continue to be available to start-up carriers. The commencement of service by new carriers on Northwest's routes could negatively impact Northwest's operating results. In addition, certain existing U.S. domestic carriers compete primarily by offering low-cost air service on route networks that do not employ hub and spoke systems. These discount air carriers could affect the yields of major domestic carriers such as Northwest. Although the domestic airline industry has at present abandoned deeply discounted general pricing structures, and fare levels have continued to increase from 1992 levels, significant industry-wide discounts could be reimplemented at any time, and the introduction of broadly available, deeply discounted fares by a major U.S. airline would result in lower yields for the entire industry and could have a material adverse effect on NWA Corp.'s operating results. AIRCRAFT FUEL Because fuel costs are a significant portion of NWA Corp.'s operating costs (approximately 12.6% for 1995), significant changes in fuel costs would materially affect NWA Corp.'s operating results. Fuel prices continue to be susceptible to, among other factors, political events and NWA Corp. cannot control near or longer-term fuel prices. In the event of a fuel supply shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or curtailment of scheduled service could result. A one cent change in the cost per gallon of fuel (based on 1995 consumption) would impact operating expense by approximately $1.5 million per month. Changes in fuel prices may have a greater impact on Northwest than some of its competitors because of the composition of its fleet. S-23 24 In October 1995, the United States increased taxes on aircraft fuel by 4.3c per gallon. This new tax increased NWA Corp.'s operating expenses for the fourth quarter of 1995 by $12.1 million and, unless such tax is suspended or otherwise modified, will increase NWA Corp.'s annual operating expenses by approximately $48 million based on Northwest's anticipated fuel consumption. REGULATORY MATTERS In the last several years, the Federal Aviation Administration (the "FAA") has issued a number of maintenance directives and other regulations relating to, among other things, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements. NWA Corp. expects to continue to incur expenditures for the purpose of complying with the FAA's noise and aging aircraft regulations. Additional laws and regulations have been proposed from time to time which could significantly increase the cost of airline operations by, for instance, imposing additional requirements or restrictions on operations. Laws and regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the United States and foreign governments which are amended from time to time. NWA Corp. cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how they will affect Northwest. FACTORS RELATING TO THE CERTIFICATES AND THE OFFERING APPRAISALS AND REALIZABLE VALUE OF AIRCRAFT The appraised value of each Aircraft is based upon the lesser of the average or median value of such Aircraft as appraised by the Appraisers (the "Appraisals"). The Appraisals are based on various assumptions and methodologies, which vary among the Appraisals. For a discussion of the assumptions and methodologies used in preparing each of the Appraisals, reference is hereby made to the summaries of the Appraiser's reports with respect to the Appraisals, copies of which are included in Appendix II hereto. Appraisals that are prepared based on different assumptions or methodologies may result in valuations that are significantly different from those contained in the Appraisals. An appraisal is only an estimate of value and should not be relied upon as a measure of realizable value. The proceeds realized upon the sale of any Aircraft may be less than the appraised value thereof. In addition, the value of the Aircraft in the event of the exercise of remedies under the applicable Indenture will depend on market and economic conditions at the time, the availability of buyers, the condition of the Aircraft, whether the Aircraft are sold separately or as a block and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise with respect to the Equipment Notes and the Aircraft pursuant to the applicable Indenture would be as appraised or sufficient to satisfy in full payments due on the Equipment Notes issued thereunder or the Certificates. See "Description of the Aircraft and the Appraisals". The Equipment Notes are not cross-collateralized and, consequently, liquidation proceeds from the sale of an Aircraft in excess of the principal amount of the Equipment Notes related to such Aircraft will not be available to cover losses, if any, on any other Equipment Notes. MAINTENANCE Northwest is responsible for the maintenance, service, repair and overhaul of the Aircraft, but only to the extent described in the Leases. The failure of Northwest (or any Sublessee) to adequately maintain, service, repair or overhaul an Aircraft may adversely affect the value of such Aircraft and thus, upon a liquidation of the Aircraft, may affect the proceeds available to repay the holders of the Equipment Notes. Under the Leases, the applicable maintenance standards will vary depending upon the jurisdiction in which an Aircraft is registered and if an Aircraft is subleased. Notwithstanding compliance by Northwest (or any Sublessee) with its obligations under the Lease to adequately maintain, service, repair or overhaul the Aircraft, the value of the Aircraft may deteriorate. Such a deterioration in the value of the Aircraft would not, in and of itself, constitute S-24 25 a breach by Northwest of its obligations under the Leases. See "Description of the Equipment Notes -- The Leases". INSURANCE Northwest is responsible for the maintenance of public liability, property damage and all-risk aircraft hull insurance on the Aircraft to the extent described in the Leases. The failure of Northwest to adequately insure the Aircraft, or the retention of self-insurance amounts, will affect the proceeds which could be obtained upon an Event of Loss and, thus, may affect the proceeds available to repay the holders of the Equipment Notes. With respect to any insurance required, Northwest may maintain such deductibles or self-insurance amounts as Northwest customarily maintains with respect to other aircraft owned or leased, and operated, by Northwest, in each case similar to such Aircraft; provided, however, that, in the case of required all-risk aircraft hull insurance, such deductibles and self-insurance are subject to certain maximum amounts. See "Description of the Equipment Notes -- The Leases -- Insurance". REPOSSESSION The Leases do not contain any general geographic restriction on Northwest's (or any Sublessee's) ability to operate the Aircraft. Although Northwest has no current intention to do so, Northwest is also permitted, upon compliance with the Leases, to register the Aircraft in foreign jurisdictions and to sublease the Aircraft. While the Loan Trustees' rights and remedies in the event of a default under the Leases include the right to terminate the Leases and repossess the Aircraft, it may be difficult, expensive and time-consuming to obtain possession of the Aircraft, particularly when an Aircraft located outside the United States has been registered in a foreign jurisdiction or is subleased to a foreign operator. Any such exercise of the right to repossess the Aircraft may be subject to the limitations and requirements of applicable law, including the need to obtain consents or approvals for deregistration or reexport of the Aircraft, which may be subject to delays and to political risk. When a defaulting Sublessee or other permitted transferee is the subject of a bankruptcy, insolvency or similar event, such as protective administration, additional limitations may apply. Furthermore, certain jurisdictions may accord higher priority to certain other liens or other third-party rights over the Aircraft. These factors could limit the benefits of the security interest in the Aircraft. As permitted under the Leases, an Airframe subject to a Lease may not be equipped with Engines subject to the same Lease and Engines subject to a Lease may not be on an Airframe subject to that Lease. As a result, notwithstanding Northwest's agreement in the Leases to transfer title to engines not owned by the applicable Owner Trustee that are attached to repossessed Aircraft, at the time of obtaining repossession it could be difficult, expensive and time-consuming to assemble an Aircraft consisting of an Airframe and the Engines subject to the same Lease. PRIORITY OF DISTRIBUTIONS; SUBORDINATION Pursuant to the Intercreditor Agreement to which the Trusts, the Subordination Agent and the Liquidity Provider shall be parties, on each Distribution Date, so long as no Triggering Event shall have occurred, all payments received by the Subordination Agent will be distributed in the following order: (1) payment of the Liquidity Expenses and Liquidity Obligations to the Liquidity Provider; (2) payment of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustee. In addition, upon the occurrence of a Triggering Event and at all times thereafter, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed under the Intercreditor Agreement in the following order: (1) to reimburse the Subordination Agent, each Trustee, the Liquidity Provider and any Certificateholder, as the case may be, for the payment of Administration Expenses; (2) to the Liquidity Provider in payment of Liquidity Expenses, Liquidity S-25 26 Obligations and, so long as no Performing Note Deficiency Exists, to replenish Cash Collateral Accounts; (3) to reimburse the Subordination Agent, each Trustee and each Certificateholder, as the case may be, for the payment of Certain Taxes and Fees; (4) to pay Adjusted Expected Distributions to the holders of Class A Certificates; (5) to pay Adjusted Expected Distributions to the holders of Class B Certificates; (6) to pay Adjusted Expected Distributions to the holders of Class C Certificates; (7) to pay Adjusted Expected Distributions to the holders of Class D Certificates; (8) the balance shall be held in the Collection Account until the next Distribution Date or, if all Classes of Certificates have been paid in full, shall be distributed to the Owner Trustees to the extent that payments received from the Loan Trustees exceed the amounts described in clauses (1) through (7) above; and (9) the balance, if any, shall be distributed to the Certificateholders of the related Trust. The priority of distributions after a Triggering Event will have the effect in certain circumstances of distributing payments received in respect of one or more junior series of Equipment Notes to more senior Classes of Certificates. If this should occur, the interest accruing on the remaining Equipment Notes would be less than the interest accruing on the remaining Certificates because the Certificates would have a greater proportion of high interest rate junior classes. As a result of this possible interest shortfall, the holders of one or more junior Classes of Certificates may not receive the full amount due them after a Triggering Event even if all the Equipment Notes are eventually paid in full. CONTROL OVER COLLATERAL; SALE OF COLLATERAL Pursuant to the Intercreditor Agreement, the Trustee and the Liquidity Provider will agree that, with respect to any Indenture at any given time, the Loan Trustee will be directed (a) in taking, or refraining from taking, any action thereunder by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder as long as no Indenture Default has occurred and is continuing thereunder and (b) subject to certain conditions, in exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes) insofar as an Indenture Default has occurred and is continuing by the Controlling Party. See "Description of the Certificates -- Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustee. Notwithstanding the foregoing, subject to certain limitations, the Liquidity Provider shall have the right to direct such Loan Trustee at any time after 18 months from the acceleration of the Equipment Notes under such Indenture, if at the time of such election the Liquidity Obligations have not been paid in full. For purposes of giving effect to the foregoing, the Trustee (other than the Controlling Party) shall irrevocably agree (and the Certificateholders (other than the Certificateholders represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of Certificates) to exercise their voting rights as directed by the Controlling Party. Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and, subject to the provisions of the immediately following sentence, sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person. So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Northwest, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the amount and payment dates of rentals payable by Northwest under the Lease for such Aircraft may not be adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Northwest under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes outstanding under such Indenture as the discount rate. RATINGS OF THE CERTIFICATES It is a condition to the issuance of the Certificates that the Class A Certificates be rated "A2" by Moody's, "AA" by Standard & Poor's and "AA-" by Fitch, the Class B Certificates be rated "Baa1" by Moody's, "A" by Standard & Poor's and "A-" by Fitch, the Class C Certificates be rated "Baa3" by Moody's, S-26 27 "BBB-" by Standard & Poor's and "BBB-" by Fitch, and the Class D Certificates be rated "Ba1" by Moody's, "BB+" by Standard & Poor's and "BB" by Fitch. A rating is not a recommendation to purchase, hold or sell Certificates, inasmuch as such rating does not address market price or suitability for a particular investor. There is no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a Rating Agency if in its judgment circumstances in the future (including the downgrading of Northwest or the Liquidity Provider) so warrant. The rating of the Certificates is based primarily on the default risk of the Equipment Notes, the availability of the Liquidity Facility for the holders of the Certificates (other than the Class D Certificates), the collateral value provided by the Aircraft relating to the Equipment Notes and the subordination in right of payment under the Intercreditor Agreement of the Class B Certificates to the Class A Certificates, of the Class C Certificates to the Class B Certificates and of the Class D Certificates to the Class C Certificates. The foregoing ratings address the likelihood of timely payment of interest (at the non-default rate) when due on the Certificates and the ultimate payment of principal of the Certificates by the Final Legal Distribution Date. Such ratings do not address the possibility of an Event of Default or an Indenture Event of Default or other circumstances (such as an Event of Loss) which could result in the payment of the outstanding principal amount of the Certificates prior to the Final Expected Distribution Date. The reduction, suspension or withdrawal of the ratings of the Certificates will not, in and of itself, constitute an Event of Default. ABSENCE OF A PUBLIC MARKET FOR THE CERTIFICATES Prior to the offering of the Certificates, there has been no public market for the Certificates and neither Northwest nor any Trust intends to apply for listing of the Certificates on any securities exchange or for quotation of the Certificates on The Nasdaq Stock Market's National Market or otherwise. Northwest has been advised by the Underwriters that one or more of them presently intend to make a market in the Certificates, as permitted by applicable laws and regulations, after consummation of the offering contemplated hereby. None of the Underwriters is obligated, however, to make a market in the Certificates and any such market making activity may be discontinued at any time without notice at the sole discretion of each Underwriter. There can be no assurance as to the liquidity of the public market for the Certificates or that any active public market for the Certificates will develop. If an active public market does not develop, the market price and liquidity of the Certificates may be adversely affected. S-27 28 THE COMPANY NWA Corp. was incorporated in February 1989 under the laws of the State of Delaware. Northwest, the principal operating indirect subsidiary of NWA Corp., operates the world's fourth largest airline (as measured by 1994 revenue passenger miles ("RPMs")) and is engaged principally in commercial transportation of passengers and cargo. Northwest's business focuses on the development of a global airline network through the optimization of Northwest's strategic assets, which include domestic hubs at Detroit, Minneapolis/St. Paul and Memphis, an extensive Pacific route system with hubs at Tokyo and Osaka and a transatlantic alliance with KLM Royal Dutch Airlines ("KLM"), which operates through a hub in Amsterdam. Northwest operates substantial domestic and international route networks and as of December 31, 1995 directly serves more than 150 cities in 18 countries on the continents of North America, Asia and Europe. Northwest had more than 49 million enplanements and flew over 62 billion RPMs in 1995. DOMESTIC SYSTEM Operating revenues from Northwest's domestic operations were $5.64 billion in 1995, $5.23 billion in 1994 and $4.84 billion in 1993. Northwest's domestic route authority from the U.S. Department of Transportation (the "DOT") permits it to engage in the interstate and overseas transportation of passengers, freight and mail between all points in the U.S. and its territories and possessions. The domestic system serves 43 states, the District of Columbia, Mexico, Canada and the Caribbean. Northwest operates its domestic system based on the hub-and-spoke strategy. Northwest's hubs at Detroit, Minneapolis/St. Paul and Memphis provide point-to-point and connecting service and feed traffic into Northwest's gateway cities for international service. Northwest operates international flights from its Detroit and Minneapolis/St. Paul hubs as well as from Boston, Seattle, San Francisco, Los Angeles, Honolulu, Chicago, Washington D.C. and New York. Detroit. From Detroit, Northwest and its Northwest Airlink regional partners ("Northwest Airlink") together serve over 115 cities. In 1995, Northwest enplaned approximately 66% of originating jet passengers from this hub, while the next largest competitor enplaned approximately 8%. Detroit, which is the sixth largest origination/destination hub in the U.S., is Northwest's largest international gateway from the continental U.S., offering non-stop flights to 16 foreign cities, including 21 non-stop flights to Japan per week. Minneapolis/St. Paul. From Minneapolis/St. Paul, Northwest and Northwest Airlink together serve over 135 cities. In 1995, Northwest enplaned approximately 78% of originating jet passengers from this hub, while the next largest competitor enplaned approximately 5%. Minneapolis/St. Paul is the ninth largest origination/destination hub in the U.S. Memphis. From Memphis, Northwest and Northwest Airlink together serve over 90 cities. In 1995, Northwest enplaned approximately 58% of originating jet passengers from this hub, while the next largest competitor enplaned approximately 18%. Mexican/Caribbean/Canadian Routes. Northwest currently operates service to six cities in Mexico, ten cities in Canada and four cities in the Caribbean. INTERNATIONAL SYSTEM Operating revenues from foreign operations were approximately $3.17 billion in 1995, $2.83 billion in 1994 and $2.81 billion in 1993. Northwest operates its international routes pursuant to route certificates issued by the DOT. A substantial portion of Northwest's Pacific route certificates are permanent and do not require renewal by the DOT. Certain other international route certificates are temporary and subject to periodic renewal by the DOT. Northwest requests extensions of these certificates when and as appropriate. The DOT typically renews temporary authorities on routes where the authorized carrier is providing a reasonable level of service. Pacific. Northwest has served the Pacific market since 1947 and has one of the world's largest Pacific route networks, with over 450 weekly flights. Northwest's Pacific operations are concentrated at its Tokyo hub. S-28 29 Northwest provides passenger service between various points in the U.S. and Japan and operates flights between Japan and Korea, Taiwan, Hong Kong, the Philippines, Thailand, Singapore, China and Northern Mariana Islands. Northwest also operates flights from Detroit to Seoul, Korea and from Seattle to Hong Kong. Northwest's Japan presence results from the 1952 U.S.-Japan bilateral aviation agreement, which establishes route rights to carry traffic between Japan and as many as 16 U.S. gateway cities and extensive "fifth freedom" rights between Japan and other Asian destinations. Northwest has the largest slot portfolio of any non-Japanese airline at Tokyo's slot-constrained Narita International Airport, with 316 weekly takeoff and landing slots. Northwest currently uses its route certificate and slot portfolio to operate a network linking eight U.S. gateways and ten Asian and Micronesian destinations via Tokyo. Northwest and United Air Lines, Inc. ("United") are the only U.S. passenger carriers that have fifth freedom rights for Japan. Northwest also provides extensive service to Osaka and currently operates 35 weekly departures from Osaka. The DOT has awarded Northwest five additional weekly frequencies to China. In May 1996, Northwest began service to Beijing, China from Detroit three times weekly. Transatlantic. Northwest and KLM presently operate their transatlantic flights pursuant to a joint venture alliance. Through this alliance, Northwest has expanded its presence in the transatlantic market by operating joint service between 11 U.S. cities and Amsterdam, KLM's hub airport. In September 1992, the U.S. and The Netherlands entered into an "open-skies" bilateral aviation treaty which authorizes the airlines of each country to provide international air transportation between any U.S.-Netherlands city pair and to operate connecting service to destinations in other countries. Based primarily on the open-entry market created by this treaty and the limited competitive overlap between route systems, Northwest and KLM petitioned the DOT for joint immunity from the U.S. antitrust laws and were granted such immunity in January 1993. Code-sharing has been implemented on flights to 24 European, six Middle Eastern, three African and 127 U.S. cities, with more than 100 additional cities planned for future implementation. Northwest and KLM also coordinate pricing, scheduling, product development and marketing. OTHER OPERATIONS Cargo. Northwest is the world's tenth largest cargo air carrier (based on 1994 freight ton miles) and the only U.S. passenger airline to operate its own dedicated Boeing 747 all-cargo freighter fleet. Cargo accounts for over 8% of the Company's operating revenues, and the majority of its cargo revenues are of Asian origination or destination. Through its Tokyo cargo hub, Northwest serves most major air freight markets between the U.S. and the Pacific market. Airlink and Other Partnerships. Northwest has marketing agreements with three independent regional carriers: Mesaba Aviation, Inc., Express Airlines I, Inc. and Express Airlines II, Inc. Pursuant to these agreements, the regional carrier operates its flights under the Northwest "NW" code. The primary purpose of these marketing agreements is to provide increased feed traffic at Detroit, Minneapolis/St. Paul and Memphis. These services are marketed under the name Northwest Airlink. Northwest has additional marketing agreements with Horizon Air, Trans States Airlines, America West Airlines, Inc., Alaska Airlines and USAir, Inc. for code-sharing on some of these carriers' routes in the western U.S. The Company also has code-sharing agreements with Aloha Airlines, Hawaiian Airlines, Asiana Airlines, Pacific Island Airways and Air New Zealand. The primary purpose of the arrangements with these airlines (which operate their routes under their own names) is to feed Northwest's Pacific route network and maintain a presence in certain markets that Northwest does not directly serve. Northwest also has a marketing agreement with Business Express Airlines for code-sharing in the Boston area to feed its domestic and transatlantic route network and Eurowings, which further enhances Northwest's service to Europe. S-29 30 USE OF PROCEEDS The Certificates are being issued in connection with 11 separate leveraged lease transactions with respect to the refinancing of the current indebtedness of the Owner Trustees originally incurred to finance the purchase of the Aircraft. The approximately $521 million aggregate principal amount of indebtedness that will be outstanding with respect to the Aircraft consists of variable interest rate loan certificates (which bore interest at a weighted average rate per annum of approximately 6.99% as of May 21, 1996) maturing at various dates between June 2012 and June 2015. The proceeds from the sale of the Certificates are to be used by the Trustee on behalf of the Trusts to purchase $521,979,627 aggregate principal amount of Equipment Notes to be issued by the related Owner Trustees. When originally acquired, the Aircraft were delivered new to Northwest and were or will be sold to the related Owner Trustee and leased back. The Equipment Notes will be issued under the Indentures on a non-recourse basis by the Owner Trustees. Neither Northwest nor NWA Corp. will receive any of the proceeds from the sale of the Certificates. DESCRIPTION OF THE CERTIFICATES The Certificates offered hereby will be issued pursuant to four separate Trust Supplements to be entered into among Northwest, NWA Corp. and the Trustee pursuant to the terms of the Basic Agreement. The following summary of the particular terms of the Certificates offered hereby supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Certificates set forth in the accompanying Prospectus under the caption "Description of the Certificates". The statements under this caption are a summary and do not purport to be complete. The summary makes use of terms defined in and is qualified in its entirety by reference to all of the provisions of the Basic Agreement, a form of which has been filed as an exhibit to the Registration Statement of which the accompanying Prospectus is a part, and to all of the provisions of the Trust Supplements which, together with the forms of the related Refunding Agreements, Participation Agreements, Indentures, Leases, Trust Agreements, Liquidity Facilities and Intercreditor Agreement, will be filed by Northwest with the Commission as exhibits to a Current Report on Form 8-K. Except as otherwise indicated, the following summary relates to each of the Trusts and the Certificates issued by each Trust. The terms and conditions governing each of the Trusts will be substantially the same, except as described under "-- Subordination" below and except that the principal amount, the interest rate, scheduled repayments of principal and maturity date applicable to the Equipment Notes held by each Trust and the Final Expected Distribution Date applicable to each Trust will differ. Citations to the relevant sections of the Basic Agreement appear below in parentheses unless otherwise indicated. GENERAL The Certificates of each Trust will be issued in fully registered form only and will be subject to the provisions described below under "-- Book Entry; Delivery and Form." Each Certificate will represent a fractional undivided interest in the Trust created by the Pass Through Trust Agreement pursuant to which such Certificate is issued. The Trust Property will consist of (i) the Equipment Notes held in such Trust, all monies at any time paid thereon and all monies due and to become due thereunder, (ii) the rights of such Trust under the Intercreditor Agreement (including all monies receivable in respect of such rights), (iii) except for the Class D Trust, all monies receivable under the Liquidity Facility for such Trust and (iv) funds from time to time deposited with the Trustee in accounts relating to such Trust. Certificates will represent pro rata shares of the Equipment Notes and other property held in the related Trust and will be issued only in minimum denominations of $1,000 and integral multiples thereof. (Section 3.01) The Certificates represent interests in the respective Trusts and all payments and distributions thereon will be made only from the Trust Property. (Section 3.08) The Certificates do not represent an interest in or obligation of Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in their individual capacities, any Owner Participant or any affiliate of any thereof. S-30 31 SUBORDINATION Pursuant to the Intercreditor Agreement to which the Trusts, the Subordination Agent and the Liquidity Provider will be parties, on each Distribution Date, so long as no Triggering Event shall have occurred, all payments received by the Subordination Agent will be distributed in the following order: (1) payment of the Liquidity Obligations to the Liquidity Provider; (2) payment of Expected Distributions to the holders of Class A Certificates; (3) payment of Expected Distributions to the holders of Class B Certificates; (4) payment of Expected Distributions to the holders of Class C Certificates; (5) payment of Expected Distributions to the holders of Class D Certificates; and (6) payment of certain fees and expenses of the Subordination Agent and the Trustee. Upon the occurrence of a Triggering Event and at all times thereafter, all payments received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be distributed in the following order: (1) to reimburse the Subordination Agent, each Trustee and each Certificateholder, as the case may be, for the payment of Administration Expenses; (2) to the Liquidity Provider in payment of Liquidity Expenses, Liquidity Obligations and, so long as no Performing Note Deficiency Exists, to replenish Cash Collateral Accounts; (3) to reimburse the Subordination Agent, each Trustee and each Certificateholder, as the case may be, for the payment of Certain Taxes and Fees; (4) to pay Adjusted Expected Distributions to the holders of Class A Certificates; (5) to pay Adjusted Expected Distributions to the holders of Class B Certificates; (6) to pay Adjusted Expected Distributions to the holders of Class C Certificates; (7) to pay Adjusted Expected Distributions to the holders of Class D Certificates; (8) the balance shall be held in the Collection Account until the next Distribution Date or, if all Classes of Certificates have been paid in full, shall be distributed to the Owner Trustees to the extent that payments received from the Loan Trustees exceed the amounts described in clauses (1) through (7) above; and (9) the balance, if any, shall be distributed to the Certificateholders of the related Trust. The priority of distributions after a Triggering Event will have the effect in certain circumstances of distributing payments received in respect of one or more junior series of Equipment Notes to more senior Classes of Certificates. If this should occur, the interest accruing on the remaining Equipment Notes would be less than the interest accruing on the remaining Certificates because the Certificates would have a greater proportion of high interest rate junior classes. As a result of this possible interest shortfall, the holders of one or more junior Classes of Certificates may not receive the full amount due them after a Triggering Event even if all the Equipment Notes are eventually paid in full. PAYMENTS AND DISTRIBUTIONS Payments of principal, Make-Whole Premium (if any) and interest with respect to the Equipment Notes or other Trust Property held in each Trust will be distributed by the Trustee to Certificateholders of such Trust on the date receipt of such payment is confirmed, except in the case of certain types of Special Payments. The Equipment Notes held in each Trust will accrue interest at the applicable rate per annum for such Trust set forth on the cover page of this Prospectus Supplement, payable on January 2 and July 2 of each year commencing January 2, 1997, and such interest payments will be passed through to Certificateholders of such Trust on each such date until the final Distribution Date for such Trust, in each case, subject to the Intercreditor Agreement. Interest is calculated on the basis of a 360-day year consisting of twelve 30-day months. Payments of interest on the Certificates to be issued by each Trust (other than the Class D Trust) will be supported by a separate Liquidity Facility to be provided by the Liquidity Provider for the benefit of the holders of such Certificates in an amount sufficient to pay interest thereon at the Stated Interest Rate for such Trust on three successive Regular Distribution Dates. Notwithstanding the subordination provisions of the Intercreditor Agreement, the Liquidity Facility for any Class of Certificates does not provide for drawings thereunder to pay principal of or interest or Make-Whole Premium on the Certificates of any other Class. Therefore, only the holders of the Certificates to be issued by a particular Trust will be entitled to receive and retain the proceeds of drawings under the Liquidity Facility for such Trust. There is no Liquidity Facility for the Class D Trust. See "Description of the Liquidity Facilities". S-31 32 Payments of principal on the Equipment Notes held in each Trust are scheduled to be received by the Trustee on January 2 or July 2, or both, in certain years depending upon the terms of the Equipment Notes held in such Trust, commencing January 2, 1997, in each case subject to the Intercreditor Agreement. Scheduled payments of interest and principal on the Equipment Notes are herein referred to as "Scheduled Payments", and January 2 and July 2 of each year are herein referred to as "Regular Distribution Dates". See "Description of the Equipment Notes -- Principal and Interest Payments". The Final Expected Distribution Date for each Class of Certificates is set forth on the cover page of this Prospectus Supplement. The Trustee of each Trust will distribute, subject to the Intercreditor Agreement, on each Regular Distribution Date to the Certificateholders of such Trust all Scheduled Payments, the receipt of which is confirmed by the Trustee on such Regular Distribution Date. Each Certificateholder of each Trust will be entitled to receive a pro rata share of any distribution in respect of Scheduled Payments of principal and interest made on the Equipment Notes held in such Trust. Each such distribution of Scheduled Payments will be made by the Trustee of each Trust to the Certificateholders of record of such Trust on the Record Date applicable to such Scheduled Payment subject to certain exceptions. (Sections 4.01 and 4.02) If a Scheduled Payment is not received by the Trustee on a Regular Distribution Date but is received within five days thereafter, it will be distributed to such holders of record on the date received. If it is received after such five-day period, it will be treated as a Special Payment (as defined below) and distributed as described below. Any payment in respect of, or any proceeds of, any Equipment Note or the Trust Indenture Estate under (and as defined in) each Indenture (other than a Scheduled Payment) (each, a "Special Payment") will be distributed on, in the case of an early redemption or a purchase of the Equipment Notes relating to one or more Aircraft, the date of such early redemption or purchase (which shall be a business day), and otherwise on the business day specified for distribution of such Special Payment pursuant to a notice delivered by the Trustee as soon as practicable after the Trustee has received funds for such Special Payment, in each case subject to the Intercreditor Agreement. The Trustee will mail notice to the Certificateholders of the applicable Trust not less than ten days prior to the Special Distribution Date on which any Special Payment is scheduled to be distributed by the Trustee stating such anticipated Special Distribution Date. (Section 4.02(c)) Each distribution of a Special Payment, other than a final distribution, on a Special Distribution Date for any Trust will be made by the Trustee to the Certificateholders of record of such Trust on the Record Date applicable to such Special Payment. See "-- Indenture Defaults and Certain Rights Upon an Indenture Default" and "Description of the Equipment Notes -- Redemption". Each Pass Through Trust Agreement requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more accounts (the "Certificate Account") for the deposit of payments representing Scheduled Payments on the Equipment Notes held in such Trust. Each Pass Through Trust Agreement also requires that the Trustee establish and maintain, for the related Trust and for the benefit of the Certificateholders of such Trust, one or more accounts (the "Special Payments Account") for the deposit of payments representing Special Payments, which account shall be non-interest bearing except in certain circumstances where the Trustee may invest amounts in such account in certain permitted investments. Pursuant to the terms of each Pass Through Trust Agreement, the Trustee is required to deposit any Scheduled Payments relating to the applicable Trust received by it in the Certificate Account of such Trust and to deposit any Special Payments so received by it in the Special Payments Account of such Trust. (Section 4.01) All amounts so deposited will be distributed by the Trustee on a Regular Distribution Date or a Special Distribution Date, as appropriate. (Section 4.02) Distributions by the Trustee from the Certificate Account or the Special Payments Account of each Trust on a Regular Distribution Date or a Special Distribution Date in respect of Certificates issued by such Trust in definitive form will be made to each Certificateholder of record of such Certificates on the applicable Record Date. (Section 4.02) The final distribution for each Trust, however, will be made only upon presentation and surrender of the Certificates for such Trust at the office or agency of the Trustee specified in the notice given by the Trustee of such final distribution. The Trustee will mail such notice of the final distribution to the Certificateholders of such Trust, specifying the date set for such final distribution and the amount of such distribution. (Section 11.01) See "-- Termination of the Trusts". Distributions in respect of Certificates issued in global form will be made as described in "-- Book Entry; Delivery and Form" below. S-32 33 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 will be made on the next succeeding business day without additional interest. POOL FACTORS Unless there has been an early redemption, purchase, or a default in the payment of principal or interest, in respect of one or more issues of the Equipment Notes held in a Trust, as described in "-- Indenture Defaults and Certain Rights Upon an Indenture Default" and "Description of the Equipment Notes -- Redemption", the Pool Factor with respect to each Trust will decline in proportion to the scheduled repayments of principal on the Equipment Notes held in such Trust as described below in "Description of the Equipment Notes -- General." In the event of such redemption, purchase or default, the Pool Factor and the Pool Balance of each Trust so affected will be recomputed after giving effect thereto and notice thereof will be mailed to the Certificateholders of such Trust. Each Trust will have a separate Pool Factor. The "Pool Balance" for each Trust or for the Certificates issued by any Trust indicates, as of any date, the original aggregate face amount of the Certificates of such Trust less the aggregate amount of all payments made in respect of the Certificates of such Trust other than payments made in respect of interest or Make-Whole Premium thereon or reimbursement of any costs and expenses in connection therewith. The Pool Balance for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes or other Trust Property held in such Trust and the distribution thereof to be made on that date. The "Pool Factor" for each Trust as of any Regular Distribution Date or Special Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the original aggregate face amount of the Certificates of such Trust. The Pool Factor for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes or other Trust Property held in such Trust and the distribution thereof to be made on that date. Assuming that no early redemption or purchase, or default, in respect of any Equipment Notes shall have occurred, the Pool Factor for each Trust will be 1.0000000 on the date of issuance of the Certificates; thereafter, the Pool Factor for each Trust will decline as described herein to reflect reductions in the Pool Balance of such Trust. The amount of a Certificateholder's pro rata share of the Pool Balance of a Trust can be determined by multiplying the par value of the holder's Certificate of such Trust by the Pool Factor for such Trust as of the applicable Regular Distribution Date or Special Distribution Date. Notice of the Pool Factor and the Pool Balance for each Trust will be mailed to Certificateholders of such Trust on each Regular Distribution Date and Special Distribution Date. As of the date of sale by the Trustee of the Certificates and assuming that no early redemption or purchase, or default in the payment of principal, in respect of any Equipment Notes shall occur, the Scheduled Payments of principal on the Equipment Notes held in the Class A Trust, the Class B Trust, the Class C Trust and the Class D Trust, and the resulting Pool Factors for such Trusts after taking into account each Scheduled Payment, are set forth below:
CLASS A TRUST CLASS A CLASS B TRUST CLASS B CLASS C TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS DATES OF PRINCIPAL(1) POOL FACTOR(1) OF PRINCIPAL(1) POOL FACTOR(1) OF PRINCIPAL(1) - --------------- ------------------ -------------- ------------------ -------------- ------------------ June , 1996 $ 0 1.0000000 $ 0 1.0000000 $ 0 January 2, 1997 2,875,705 0.9911746 848,240 0.9920624 1,093,106 July 2, 1997 135,331 0.9907593 0 0.9920624 186,363 January 2, 1998 4,855,226 0.9758589 1,241,241 0.9804473 509,580 July 2, 1998 664,356 0.9738200 332,920 0.9773319 332,920 January 2, 1999 5,650,020 0.9564805 1,550,419 0.9628236 614,868 July 2, 1999 0 0.9564805 332,920 0.9597082 332,920 January 2, 2000 5,650,019 0.9391409 1,550,419 0.9451999 1,715,041 July 2, 2000 997,050 0.9360810 332,920 0.9420845 598,855 January 2, 2001 5,650,019 0.9187414 1,550,419 0.9275762 2,234,482 CLASS C CLASS D TRUST CLASS D TRUST EQUIPMENT NOTES TRUST EXPECTED SCHEDULED PAYMENTS EXPECTED DATES POOL FACTOR(1) OF PRINCIPAL(1) POOL FACTOR(1) - --------------- -------------- ------------------ -------------- June , 1996 1.0000000 $ 0 1.0000000 January 2, 1997 0.9853392 3,246,542 0.7793065 July 2, 1997 0.9828397 0 0.7793065 January 2, 1998 0.9760052 599,490 0.7385543 July 2, 1998 0.9715400 251,932 0.7214285 January 2, 1999 0.9632934 805,436 0.6666765 July 2, 1999 0.9588282 917,200 0.6043271 January 2, 2000 0.9358260 1,033,006 0.5341054 July 2, 2000 0.9277941 884,005 0.4740124 January 2, 2001 0.8978251 848,751 0.4163160
S-33 34
CLASS A TRUST CLASS A CLASS B TRUST CLASS B CLASS C TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS DATES OF PRINCIPAL(1) POOL FACTOR(1) OF PRINCIPAL(1) POOL FACTOR(1) OF PRINCIPAL(1) - --------------- ------------------ -------------- ------------------ -------------- ------------------ July 2, 2001 997,050 0.9156815 0 0.9275762 1,650,053 January 2, 2002 5,650,020 0.8983420 1,883,339 0.9099524 2,805,607 July 2, 2002 997,050 0.8952821 55,000 0.9094378 1,994,493 January 2, 2003 5,650,020 0.8779425 1,883,340 0.8918141 3,433,561 July 2, 2003 997,050 0.8748826 277,300 0.8892192 2,298,547 January 2, 2004 5,650,020 0.8575430 1,883,339 0.8715955 4,123,993 July 2, 2004 997,050 0.8544831 332,350 0.8684854 2,632,856 January 2, 2005 6,648,780 0.8340784 2,216,260 0.8477463 4,871,059 July 2, 2005 997,050 0.8310185 974,000 0.8386319 3,507,370 January 2, 2006 7,678,289 0.8074543 2,559,429 0.8146816 5,933,193 July 2, 2006 891,833 0.8047173 3,944,038 0.7777745 0 January 2, 2007 7,783,507 0.7808302 3,064,440 0.7490984 8,104,962 July 2, 2007 643,608 0.7788550 5,229,018 0.7001669 0 January 2, 2008 8,022,217 0.7542353 7,376,928 0.6311358 9,233,522 July 2, 2008 3,463,952 0.7436047 2,676,070 0.6060940 0 January 2, 2009 8,167,100 0.7185403 15,588,979 0.4602171 5,355,924 July 2, 2009 6,525,771 0.6985131 777,233 0.4529440 0 January 2, 2010 22,538,496 0.6293438 13,511,132 0.3265110 1,583,676 July 2, 2010 6,927,533 0.6080836 0 0.3265110 0 January 2, 2011 32,931,805 0.5070178 10,560,081 0.2276930 0 July 2, 2011 17,378,720 0.4536836 0 0.2276930 0 January 2, 2012 39,262,196 0.3331902 0 0.2276930 0 July 2, 2012 39,082,470 0.2132484 0 0.2276930 0 January 2, 2013 39,337,173 0.0925250 0 0.2276930 0 July 2, 2013 10,513,690 0.0602591 0 0.2276930 0 January 2, 2014 17,256,507 0.0072999 15,234,522 0.0851330 0 July 2, 2014 1,852,617 0.0016143 5,533,261 0.0333544 6,166 January 2, 2015 526,019 0.0000000 3,564,385 0.0000000 9,406,614 CLASS C CLASS D TRUST CLASS D TRUST EQUIPMENT NOTES TRUST EXPECTED SCHEDULED PAYMENTS EXPECTED DATES POOL FACTOR(1) OF PRINCIPAL(1) POOL FACTOR(1) - --------------- -------------- ------------------ -------------- July 2, 2001 0.8756945 0 0.4163160 January 2, 2002 0.8380655 992,004 0.3488815 July 2, 2002 0.8113152 0 0.3488815 January 2, 2003 0.7652641 1,233,664 0.2650195 July 2, 2003 0.7344358 0 0.2650195 January 2, 2004 0.6791245 1,247,600 0.1802101 July 2, 2004 0.6438125 0 0.1802101 January 2, 2005 0.5784815 1,627,489 0.0695766 July 2, 2005 0.5314405 0 0.0695766 January 2, 2006 0.4518641 1,023,516 0.0000000 July 2, 2006 0.4518641 0 0.0000000 January 2, 2007 0.3431598 0 0.0000000 July 2, 2007 0.3431598 0 0.0000000 January 2, 2008 0.2193192 0 0.0000000 July 2, 2008 0.2193192 0 0.0000000 January 2, 2009 0.1474852 0 0.0000000 July 2, 2009 0.1474852 0 0.0000000 January 2, 2010 0.1262448 0 0.0000000 July 2, 2010 0.1262448 0 0.0000000 January 2, 2011 0.1262448 0 0.0000000 July 2, 2011 0.1262448 0 0.0000000 January 2, 2012 0.1262448 0 0.0000000 July 2, 2012 0.1262448 0 0.0000000 January 2, 2013 0.1262448 0 0.0000000 July 2, 2013 0.1262448 0 0.0000000 January 2, 2014 0.1262448 0 0.0000000 July 2, 2014 0.1261621 0 0.0000000 January 2, 2015 0.0000000 0 0.0000000
- --------------- (1) The information relating to scheduled payments of principal and expected pool factors is indicative only and is subject to change. Any failure to make expected principal distributions on any Class of Certificates on any Regular Distribution Date (other than the Final Legal Distribution Date) will not constitute a PTC Event of Default with respect to such Certificates. REPORTS TO CERTIFICATEHOLDERS On each Regular Distribution Date and Special Distribution Date, the applicable Trustee will include with each distribution of a Scheduled Payment or Special Payment, respectively, to Certificateholders of the related Trust a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 aggregate principal amount of Certificate for such Trust, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to Make-Whole Premium (if any); (ii) the amount of such distribution allocable to interest; and (iii) the Pool Balance and the Pool Factor for such Trust. (Section 4.03) With respect to the Certificates registered in the name of Cede, as nominee for DTC, on the record date prior to each Distribution Date, the applicable Trustee will request from DTC a Securities Position Listing setting forth the names of all DTC Participants reflected on DTC's books as holding interests in the Certificates on such record date. On each Distribution Date, the applicable Trustee will mail to each such S-34 35 DTC Participant the statement described above and will make available additional copies as requested by such DTC Participant for forwarding to holders of Certificates. In addition, after the end of each calendar year, the applicable Trustee will prepare for each Certificateholder of each Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i) and (ii) above with respect to the Trust for such calendar year or, in the event such person was a Certificateholder during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to such Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder's preparation of its U.S. federal income tax returns. (Section 4.03) Such report and such other items shall be prepared on the basis of information supplied to the applicable Trustee by the DTC Participants and shall be delivered by such Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. See "-- Book-Entry; Delivery and Form". With respect to the Certificates issued in definitive form, the applicable Trustee will prepare and deliver the information described above to each Certificateholder of record of each Trust as the name of such Certificateholder appears on the records of the registrar of the Certificates. INDENTURE DEFAULTS AND CERTAIN RIGHTS UPON AN INDENTURE DEFAULT An event of default under an Indenture (an "Indenture Default") will include an event of default under the related Lease (a "Lease Event of Default"). Since the Equipment Notes issued under an Indenture will be held in more than one Trust, a continuing Indenture Default under such Indenture would affect the Equipment Notes held by each such Trust. There are no cross-default provisions in the Indentures or Leases. Consequently, events resulting in an Indenture Default under any particular Indenture may or may not result in an Indenture Default under any other Indenture. If an Indenture Default occurs in fewer than all of the Indentures, notwithstanding the treatment of Equipment Notes issued under any Indenture under which an Indenture Default has occurred, payments of principal and interest on the Equipment Notes issued pursuant to Indentures with respect to which an Indenture Default has not occurred will continue to be distributed to the holders of the Certificates as originally scheduled, subject to the Intercreditor Agreement. See "Description of the Intercreditor Agreement -- Priority of Distributions". With respect to each Aircraft, the applicable Owner Trustee and Owner Participant will, under the related Indenture, have the right under certain circumstances to cure Indenture Defaults that result from the occurrence of a Lease Event of Default under the related Lease. If the Owner Trustee or the Owner Participant exercises any such cure right, the Indenture Default will be deemed to have been cured. In the event that the same institution acts as Trustee of multiple Trusts, in the absence of instructions from the Certificateholders of any such Trust, such Trustee could be faced with a potential conflict of interest upon an Indenture Default. In such event, each Trustee has indicated that it would resign as Trustee of one or all such Trusts, and a successor trustee would be appointed in accordance with the terms of the applicable Pass Through Trust Agreement. State Street Bank and Trust Company will be the initial Trustee under each Trust. Upon the occurrence and continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person, subject to certain limitations. The proceeds of such sale will be distributed pursuant to the provisions of the Intercreditor Agreement. Any proceeds received by the applicable Trustee upon any such sale shall be deposited in the applicable Special Payments Account and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Sections 4.01 and 4.02) The market for Equipment Notes at the time of the existence of any Indenture Default may be very limited, and there can be no assurance as to the price at which they could be sold. If such Trustee sells any such Equipment Notes for less than their outstanding principal amount, certain Certificateholders will receive a smaller amount of principal distributions than anticipated and will not have any claim for the shortfall against Northwest, NWA Corp., any Owner Trustee, any Owner Participant or any Trustee. S-35 36 Any amount, other than Scheduled Payments received on a Regular Distribution Date, distributed to the Trustee of any Trust by the Subordination Agent on account of the Equipment Notes or other Trust Property held in such Trust following an Indenture Default under any Indenture shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Section 4.02) In addition, if, following an Indenture Default under any Indenture, the applicable Owner Participant or Owner Trustee exercises its option to redeem or purchase the outstanding Equipment Notes issued under such Indenture, the price paid by such Owner Trustee for the Equipment Notes issued under such Indenture and distributed to such Trust by the Subordination Agent shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. (Section 4.02) Any funds representing payments received with respect to any defaulted Equipment Notes held in a Trust, or the proceeds from the sale of any Equipment Notes, held by such Trustee in the Special Payments Account for such Trust shall, to the extent practicable, be invested and reinvested by such Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date. (Section 4.04) Permitted Investments are defined as obligations of the United States or agencies or instrumentalities thereof the payment of which is backed by the full faith and credit of the United States and which mature in not more than 60 days or such lesser time as is required for the distribution of any such funds on a Special Distribution Date. (Section 1.01) Each Pass Through Trust Agreement provides that the Trustee of the related Trust shall, within 90 days after the occurrence of any default, give to the Certificateholders of such Trust notice, transmitted by mail, of all uncured or unwaived defaults with respect to such Trust known to it, provided that, except in the case of default in the payment of principal, Make-Whole Premium, if any, or interest on any of the Equipment Notes or other Trust Property held in such Trust, the applicable Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of such Certificateholders. (Section 7.01) Each Pass Through Trust Agreement contains a provision entitling the Trustee of the related Trust, subject to the duty of such Trustee during a default to act with the required standard of care, to be offered reasonable security or indemnity by the holders of the Certificates of such Trust before proceeding to exercise any right or power under such Pass Through Agreement at the request of such Certificateholders. (Section 7.01(e)) In certain cases, the holders of the Certificates of a Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust may on behalf of the holders of all the Certificates of such Trust waive any past default under the related Pass Through Trust Agreement or, if the Trustee of such Trust is the Controlling Party, may direct the Trustee to instruct the applicable Loan Trustee to waive any past Indenture Default with respect to such Trust and thereby annul any direction given by all such holders to such Loan Trustee with respect thereto, except (i) a default in the deposit of any Scheduled Payment or Special Payment or in the distribution thereof, (ii) a default in payment of the principal, Make-Whole Premium, if any, or interest with respect to any of the Equipment Notes held in such Trust and (iii) a default in respect of any covenant or provision of the related Pass through Trust Agreement that cannot be modified or amended without the consent of each Certificateholder of such Trust affected thereby. (Section 6.05) Each Indenture will provide that, with certain exceptions, the holders of the majority in aggregate unpaid principal amount of the Equipment Notes issued thereunder may on behalf of all such holders waive any past default or Indenture Default thereunder. Notwithstanding the foregoing provisions of this paragraph, however, pursuant to the Intercreditor Agreement, only the Controlling Party will be entitled to waive any such past default or Indenture Default. PURCHASE RIGHTS OF CERTIFICATEHOLDERS Upon the occurrence and during the continuation of a Triggering Event, with ten days' written notice to the Trustee and each other Certificateholder of the same Class, (i) the Class B Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, (ii) the Class C Certificateholders S-36 37 shall have the right to purchase all, but not less than all, of the Class A Certificates and the Class B Certificates and (iii) the Class D Certificateholders shall have the right to purchase all, but not less than all, of the Class A Certificates, the Class B Certificates and the Class C Certificates, in each case at a purchase price equal to the Pool Balance of the relevant Class or Classes of Certificates plus accrued and unpaid interest thereon to the date of purchase without Make-Whole Premium but including any other amounts due to the Certificateholders of such Class or Classes. In each case, if prior to the end of the ten-day period, any other Certificateholder of the same Class notifies the purchasing Certificateholder that the other Certificateholder wants to participate in such purchase, then such other Certificateholder may join with the purchasing Certificateholder to purchase the Certificates pro rata based on the interest in the Trust held by each Certificateholder. PTC EVENT OF DEFAULT A PTC Event of Default is defined under each Pass Through Trust Agreement as the failure to pay within 10 business days of the due date thereof: (i) the outstanding Pool Balance of the applicable Class of Certificates on the Final Legal Distribution Date for such Class or (ii) interest due on such Certificates on any Distribution Date (unless the Subordination Agent shall have made an Interest Drawing with respect thereto in an amount sufficient to pay such interest and shall have distributed such amount to the Certificateholders entitled thereto). A PTC Event of Default with respect to the most senior Class of Certificates resulting from an Indenture Default under all Indentures will constitute a Triggering Event. MERGER, CONSOLIDATION AND TRANSFER OF ASSETS Northwest will be prohibited from consolidating with or merging into any other corporation or transferring substantially all of its assets as an entirety to any other corporation unless (i) the surviving successor or transferee corporation shall (a) be a "citizen of the United States" as defined in Section 40102(a)(15) of Title 49 of the United States Code, as amended, relating to aviation (the "Aviation Act"), (b) be a United States certificated air carrier and (c) expressly assume all of the obligations of Northwest contained in the Pass Through Trust Agreements, the Refunding Agreements, the Indentures, the Participation Agreements and the Leases, and any other operative documents; (ii) immediately after giving effect to such transaction, no Lease Event of Default shall have occurred and be continuing; and (iii) Northwest shall have delivered a certificate and an opinion or opinions of counsel indicating that such transaction complies with such conditions. (Section 5.02) The Pass Through Trust Agreements and the Indentures will not contain any covenants or provisions which may afford the applicable Trustee or Certificateholders protection in the event of a highly leveraged transaction, including transactions effected by management or affiliates, which may or may not result in a change in control of Northwest or NWA Corp. MODIFICATIONS OF THE PASS THROUGH TRUST AGREEMENTS AND CERTAIN OTHER AGREEMENTS Each Pass Through Trust Agreement contains provisions permitting the execution of supplemental trust agreements, without the consent of the holders of any of the Certificates of such Trust, (i) to evidence the succession of another corporation to Northwest and the assumption by such corporation of Northwest's obligations under such Pass Through Trust Agreement, (ii) to add to the covenants of Northwest for the benefit of holders of such Certificates or to surrender any right or power in such Pass Through Trust Agreement conferred upon Northwest, (iii) to correct or supplement any defective or inconsistent provision of such Pass Through Trust Agreement or to modify any other provisions with respect to matters or questions arising thereunder, provided such action shall not materially adversely affect the interests of the holders of such Certificates, or to cure any ambiguity or correct any mistake, (iv) to add to such Pass Through Trust Agreement such other provisions as may be expressly permitted by the Trust Indenture Act and (v) to provide for a successor Trustee or to add to or change any provision of such Pass Through Trust Agreement as shall be necessary to facilitate the administration of the Trust thereunder by more than one Trustee. In addition, each Pass Through Trust Agreement provides that the Trustee will be permitted to enter into any amendment or supplement to the Intercreditor Agreement or the Liquidity Facilities, without the consent of the holders of S-37 38 any Certificates, to cure any ambiguity or correct any mistake or to correct or supplement any defective or inconsistent provision thereof or to modify any other provision with respect to matters or questions arising thereunder; provided that such action shall not materially adversely affect the interests of the Certificateholders. (Section 9.01) Each Pass Through Trust Agreement also contains provisions permitting the execution, with the consent of the holders of the Certificates of the related Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust, and with the consent of the applicable Owner Trustee (such consent not to be unreasonably withheld), of supplemental trust agreements adding any provisions to or changing or eliminating any of the provisions of such Pass Through Trust Agreement or modifying the rights of the Certificateholders, except that no such supplemental trust agreement may, without the consent of the holder of each Certificate so affected thereby, (a) reduce in any manner the amount of, or delay the timing of, any receipt by the Trustee of payments on the Equipment Notes or other Trust Property held in such Trust or distributions in respect of any Certificate related to such Trust, or change the date or place of any payment in respect of any Certificate, or make distributions payable in coin or currency other than that provided for in such Certificates, or impair the right of any Certificateholder of such Trust to institute suit for the enforcement of any such payment when due, (b) permit the disposition of any Equipment Note held in such Trust, except as provided in such Pass Through Trust Agreement, or otherwise deprive any Certificateholder of the benefit of the ownership of the applicable Equipment Notes, (c) alter the priority of distributions specified in the Intercreditor Agreement, (d) reduce the percentage of the aggregate fractional undivided interests of the Trust provided for in such Pass Through Trust Agreement, the consent of the holders of which is required for any such supplemental trust agreement or for any waiver provided for in such Pass Through Trust Agreement or (e) modify any of the provisions relating to the rights of the Certificateholders in respect of the waiver of Events of Default or receipt of payment. (Section 9.02) TERMINATION OF THE TRUSTS The obligations of Northwest, if any, and the Trustee with respect to a Trust will terminate upon the distribution to Certificateholders of such Trust of all amounts required to be distributed to them pursuant to the applicable Pass Through Trust Agreement and the disposition of all property held in such Trust. The Trustee will send to each Certificateholder of record of such Trust notice of the termination of such Trust, the amount of the proposed final payment and the proposed date for the distribution of such final payment for such Trust. The final distribution to any Certificateholder of such Trust will be made only upon surrender of such Certificateholder's Certificates at the office or agency of the applicable Trustee specified in such notice of termination. (Section 11.01) DELAYED PURCHASE OF EQUIPMENT NOTES Equipment Notes related to one 757 Aircraft may be purchased by the Trustee after the issuance of the Certificates. Any proceeds of the issuance of the Certificates not immediately used to purchase Equipment Notes will be held by the Trustee in escrow accounts and invested in specified investments at the direction and risk of, and for the account of, Northwest. Earnings on such investments in the escrow account for each Trust will be paid to Northwest periodically, and Northwest will be responsible for any losses. To the extent that amounts equal to the full proceeds from the issuance of the Certificates are not used to purchase Equipment Notes on or prior to September 2, 1996, an amount equal to the unused proceeds will be distributed, with interest (but without Make-Whole Premium), to the Certificateholders of record of such Trust by the Trustee upon not less than 10 days' prior written notice. THE TRUSTEE The Trustee for each Trust will be State Street Bank and Trust Company. With certain exceptions, the Trustee makes no representations as to the validity or sufficiency of the Basic Agreement, the Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the Leases or other related documents. (Sections 7.03 and 7.14) The Trustee of any Trust shall not be liable, with respect to the Certificates of such Trust, for any action taken or omitted to be taken by it in good faith in accordance with the direction of the S-38 39 holders of a majority in principal amount of outstanding Certificates of such Trust. Subject to certain provisions, the Trustee shall be under no obligation to exercise any of its rights or powers under any Pass Through Trust Agreement at the request of any holders of Certificates issued thereunder unless there shall have been offered to the Trustee reasonable indemnity. (Section 7.02(e)) Each Pass Through Trust Agreement provides that the Trustee in their individual or any other capacity may acquire and hold Certificates issued thereunder and, subject to certain conditions, may otherwise deal with Northwest, NWA Corp. and with any Owner Trustee with the same rights they would have if they were not the Trustee. (Section 7.04) BOOK-ENTRY; DELIVERY AND FORM General Upon issuance, each Class of Certificates will be represented by one or more fully registered global certificates. Each global certificate will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co. ("Cede"), or its nominee. No person acquiring an interest in such Certificates ("Certificate Owner") will be entitled to receive a certificate representing such person's interest in such Certificates, except as set forth below under "-- Definitive Certificates." Unless and until Definitive Certificates are issued under the limited circumstances described herein, all references to actions by Certificateholders shall refer to actions taken by DTC upon instructions from DTC Participants (as defined below), and all references herein to distributions, notices, reports and statements to Certificateholders shall refer, as the case may be, to distributions, notices, reports and statements to DTC or Cede, as the registered holder of such Certificates, or to DTC Participants for distribution to Certificate Owners in accordance with DTC procedures. 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 "clearing agency" registered pursuant to section 17A of the Exchange Act. DTC was created to hold securities for its participants ("DTC Participants") and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic book-entries, thereby eliminating the need for physical transfer of certificates. DTC Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant either directly or indirectly ("Indirect Participants"). Certificate Owners that are not DTC Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, the Certificates may do so only through DTC Participants and Indirect Participants. In addition, Certificate Owners will receive all distributions of principal and interest from the Trustee through DTC Participants or Indirect Participants, as the case may be. Under a book-entry format, Certificate Owners may experience some delay in their receipt of payments, because such payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such payments in same-day funds to DTC Participants who are credited with ownership of the Certificates in amounts proportionate to the principal amount of each such DTC Participant's respective holdings of beneficial interests in the Certificates. DTC Participants will thereafter forward payments to Indirect Participants or Certificate Owners, as the case may be, in accordance with customary industry practices. The forwarding of such distributions to the Certificate Owners will be the responsibility of such DTC Participants. Unless and until the Definitive Certificates are issued under the limited circumstances described herein, the only "Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not be recognized by the Trustee as Certificateholders, as such term is used in the Basic Agreement, and Certificate Owners will be permitted to exercise the rights of Certificateholders only indirectly through DTC and DTC Participants. Under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers of the Certificates among DTC Participants on whose behalf it acts with respect to the Certificates and to receive and transmit distributions of principal, Make-Whole Premium, if any, and interest with respect to the Certificates. DTC Participants and Indirect Participants with S-39 40 which Certificate Owners have accounts with respect to the Certificates similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective customers. Accordingly, although Certificate Owners will not possess the Certificates, the Rules provide a mechanism by which Certificate Owners will receive payments and will be able to transfer their interests. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect Participants, the ability of a Certificate Owner to pledge the Certificates to persons or entities that do not participate in the DTC system, or to otherwise act with respect to such Certificates, may be limited due to the lack of a physical certificate for such Certificates. DTC will take any action permitted to be taken by a Certificateholder under the Basic Agreement only at the direction of one or more DTC Participants to whose accounts with DTC the Certificates are credited. Additionally, DTC has advised Northwest that in the event any action requires approval by Certificateholders of a certain percentage of beneficial interest in each Trust, DTC will take such action 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. None of Northwest, NWA Corp. or the Trustee will have any liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Certificates held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Northwest believes to be reliable, but Northwest takes no responsibility for the accuracy thereof. Definitive Certificates Certificates will be issued in certificated form ("Definitive Certificates") to Certificate Owners or their nominees, rather than to DTC or its nominee, only if (i) Northwest advises the Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to such Certificates and Northwest is unable to locate a qualified successor, (ii) Northwest, at its option, elects to terminate the book-entry system through DTC or (iii) after the occurrence of an Event of Default, Certificate Owners with fractional undivided interests aggregating not less than a majority in interest in such Trust advise the Trustee, Northwest and DTC through DTC Participants in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the Certificate Owners' best interest. (Section 3.09(d)) Upon the occurrence of any event described in the immediately preceding paragraph, the Trustee will be required to notify all Certificate Owners through DTC Participants of the availability of Definitive Certificates. Upon surrender by DTC of the certificates representing the Certificates and receipt of instructions for re-registration, the Trustee will reissue the Certificates as Definitive Certificates to Certificate Owners. Distributions of principal, Make-Whole Premium, if any, and interest with respect to Certificates will thereafter be made by the Trustee directly in accordance with the procedures set forth in the Basic Agreement and the applicable Trust Supplements, to holders in whose names the Definitive Certificates were registered at the close of business on the applicable record date. Such distributions will be made by check mailed to the address of such holder as it appears on the register maintained by the Trustee. The final payment on any Certificate, however, will be made only upon presentation and surrender of such Certificate at the office or agency specified in the notice of final distribution to Certificateholders. Definitive Certificates will be freely transferable and exchangeable at the office of the Trustee upon compliance with the requirements set forth in the Pass Through Trust Agreements. No service charge will be imposed for any registration of transfer or exchange, but payment of a sum sufficient to cover any tax or other governmental charge shall be required. S-40 41 DESCRIPTION OF THE LIQUIDITY FACILITIES The following summary describes certain terms of the Liquidity Facilities and certain provisions of the Intercreditor Agreement relating to the Liquidity Facilities. The summary does not purport to be complete and is qualified in its entirety by reference to the provisions of the Liquidity Facilities and such provisions of the Intercreditor Agreement. The provisions of the Liquidity Facilities are substantially identical except as otherwise indicated. GENERAL With respect to the Certificates of each Trust (other than the Class D 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 to pay interest on such Certificates subject to certain limitations. The Liquidity Facility for any Trust is intended to enhance the likelihood of timely receipt by the Certificateholders of such Trust of the interest payable on the Certificates of such Trust at the Stated Interest Rate therefor on three consecutive Regular Distribution Dates. If interest payment defaults occur which exceed the amount covered by or available under the Liquidity Facility for any Trust, the Certificateholders of such Trust will bear their allocable share of the deficiencies to the extent that there are no other sources of funds. Although WestLB, acting through its New York branch, is the Liquidity Provider for each Trust entitled to the benefits of a Liquidity Facility, it may be replaced by another entity with respect to one or more such Trusts under certain circumstances. Therefore, the liquidity provider for any such Trust may be different from the liquidity provider for any other Trust. DRAWINGS The initial stated amount available under the Liquidity Facilities for the Class A Trust, the Class B Trust and the Class C Trust will be $ , $ and $ , respectively. Except as otherwise provided below, the Liquidity Facility for each Trust will enable the Subordination Agent to make Interest Drawings thereunder promptly after any Regular Distribution Date to pay interest then due and payable on the Certificates of such Trust at the Stated Interest Rate for such Trust to the extent that the amount, if any, available to the Subordination Agent on such Regular Distribution Date is not sufficient to pay such interest; provided, however, that the maximum amount available to be drawn under such Liquidity Facility on any Regular Distribution Date to fund any shortfall of interest on such Certificates will not exceed the Required Amount for such Certificates. The Liquidity Facility for any Trust does not provide for drawings thereunder to pay for principal of or Make-Whole Premium on the Certificates of such Trust or any interest on the Certificates of such Trust in excess of the Stated Interest Rate or principal of or interest or Make-Whole Premium on the Certificates of any other Trust. (Liquidity Facilities, Section 2.2; Intercreditor Agreement, Section 3.6) Each payment by the Liquidity Provider under each Liquidity Facility reduces pro tanto the amount available to be drawn under such Liquidity Facility, subject to reinstatement as hereinafter described. With respect to any Interest Drawings under the Liquidity Facility for any Trusts, upon reimbursement of the Liquidity Provider in full for the amount of such Interest Drawings plus interest thereon, the amount available to be drawn under such Liquidity Facility in respect of interest on the Certificates of such Trust shall be reinstated to the Required Amount of such Liquidity Facility; provided, however, that such Liquidity Facility shall not be so reinstated at any time after (i) the acceleration of all of the outstanding Equipment Notes or (ii) (A) a Triggering Event shall have occurred and (B) less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes. With respect to any other drawings under such Liquidity Facility, amounts available to be drawn thereunder are not subject to reinstatement. The stated amount of the Liquidity Facility for any Trust will be automatically reduced from time to time to an amount equal to the next three successive interest payments due on the Certificates of such Trust (without regard to expected future payment of principal of such Certificates) at the Stated Interest Rate for such Trust. The Liquidity Provider will be paid a fee on the average amount available to be drawn under the initial Liquidity Facility until the earlier of the date when the commitment under the Liquidity Facility S-41 42 terminates and the date when a Downgrade Drawing, if any, is made, in an amount and on the dates specified in the Liquidity Facilities. (Liquidity Facilities, Section 2.4(a); Intercreditor Agreement, Section 3.6(j)) If at any time the short-term unsecured debt rating of the Liquidity Provider issued by any of the Rating Agencies is lower than the Threshold Rating or, in the event the Liquidity Provider's short-term unsecured debt is not rated by Moody's or Standard & Poor's, the long-term unsecured debt rating of any Liquidity Provider issued by either Moody's or Standard & Poor's is lower than the Threshold Rating, then the Liquidity Provider for such Trust or the Subordination Agent may arrange for a Replacement Facility (as defined below). In the event that such Liquidity Facility is not replaced with a Replacement Facility within the period specified in the Intercreditor Agreement after notice of the downgrading and as otherwise provided in the Intercreditor Agreement, the Subordination Agent shall request the Downgrade Drawing in an amount equal to all available and undrawn amounts thereunder and shall hold the proceeds thereof in the Cash Collateral Account for such Trust as cash collateral to be used for the same purposes and under the same circumstances as cash payments of Interest Drawings under such Liquidity Facility would be used. (Liquidity Facilities, Section 2.6(c); Intercreditor Agreement, Section 3.6(c)) A "Replacement Facility" for any Trust will mean an irrevocable liquidity facility in substantially the form of the initial Liquidity Facility for such Trust, including reinstatement provisions, or, subject to certain conditions, in such other form (which may include a letter of credit) as shall permit the Rating Agencies to confirm in writing their respective ratings then in effect for the Certificates (before downgrading of such ratings, if any, as a result of the downgrading of the Liquidity Provider), in a face amount equal to the amount of interest payable on the Certificates of such Trust (at the Stated Interest Rate for such Trust, and without regard to expected future principal payments) on the three Regular Distribution Dates following the date of replacement of such Liquidity Facility and issued by a person having short-term unsecured debt ratings issued by the applicable Rating Agencies or, in the event the selected person's short-term unsecured debt is not rated by Moody's or Standard & Poor's, long-term unsecured debt ratings issued by the applicable Rating Agencies which are equal to or higher than the Threshold Rating, provided that, if Fitch does not provide short-term unsecured debt ratings for such financial institution and Moody's and Standard & Poor's do provide such ratings, then such financial institution shall be required only to have short-term unsecured debt ratings equal to or higher than the Threshold Ratings provided by Moody's and Standard & Poor's. (Intercreditor Agreement, Section 1.1) "Threshold Rating" means the short-term unsecured debt rating of P-1 by Moody's, A-1 by Standard & Poor's and F-1+ by Fitch or, in the event a person's short-term unsecured debt is not rated by either Moody's or Standard & Poor's, the long-term unsecured debt rating by Moody's and Standard & Poor's at least equal to the initial rating by each of Moody's and Standard & Poor's on the Certificates issued by the Trust that is the beneficiary of such Liquidity Facility. (Intercreditor Agreement, Section 1.1) The Liquidity Facility for each Trust provides that the Liquidity Provider's obligations thereunder will expire on the earliest of (i) 15 days later than the Final Legal Distribution Date for the Certificates of such Trust; (ii) the date on which the Subordination Agent delivers a certificate certifying that all of the Certificates of such Trust have been paid in full; (iii) the date on which the Subordination Agent delivers a certificate certifying that a Replacement Facility has been substituted for such Liquidity Facility; (iv) the date on which the Liquidity Provider makes the Final Drawing; and (v) the date on which no amount is or may (by reason of reinstatement) become available for drawing under such Liquidity Facility. (Liquidity Facilities, Sections 1.1(a) and 2.4(b)) The Intercreditor Agreement will provide for the replacement of the Replacement Facility, if any, for any Trust (other than a Replacement Facility which expires no earlier than 15 days later than the Final Legal Distribution Date) in the event that such Replacement Facility is scheduled to expire (after giving effect to any extensions of the maturity thereof) prior to the date which is 15 days later than the Final Legal Distribution Date. In the event such Replacement Facility is not so replaced, the Subordination Agent shall, prior to the expiration of such facility, request the Non-Extension Drawing in an amount equal to all available and undrawn amounts thereunder and hold the proceeds thereof in the Cash Collateral Account for such Trust as cash collateral to be used for the same purposes and under the same circumstances, and subject to the same S-42 43 conditions, as cash payments of Interest Drawings under such Liquidity Facility would be used. (Intercreditor Agreement, Section 3.6(d)) The Subordination Agent, in consultation with Northwest (whose recommendations the Subordination Agent will accept in the absence of a good faith reason not to), may, subject to certain limitations, arrange for a replacement facility at any time to replace the Liquidity Facility for any Trust. If such replacement facility is provided at any time after the Downgrade Drawing or Non-Extension Drawing under such Liquidity Facility, all obligations owed to the Liquidity Provider being replaced shall be repaid. (Intercreditor Agreement, Section 3.6(e)) The Intercreditor Agreement provides that the Subordination Agent shall hold the proceeds of a Final Drawing made in accordance with the provisions set forth under "--Liquidity Events of Default" below in the Cash Collateral Account for the related Trust as cash collateral to be used for the same purposes and under the same circumstances, and subject to the same conditions, as cash payments of Interest Drawings under such Liquidity Facility would be used. The Intercreditor Agreement further provides that the Subordination Agent shall not fail to take any action which may be required to be taken by the Subordination Agent in order to make a Final Drawing under a Liquidity Facility. (Intercreditor Agreement, Section 3.6(i)) Drawings (other than a Final Drawing) under any Liquidity Facility will be made by delivery by the Subordination Agent of a certificate in the form required by such Liquidity Facility. Upon receipt of such a certificate, the Liquidity Provider is obligated to make payment of the drawing requested thereby in immediately available funds. Upon payment by the Liquidity Provider of the amount specified in any drawing under any Liquidity Facility, the Liquidity Provider will be fully discharged of its obligations under such Liquidity Facility with respect to such drawing and will not thereafter be obligated to make any further payments under such Liquidity Facility in respect of such drawing to the Subordination Agent or any other person or entity who makes a demand for payment in respect of interest on the related Certificates. REIMBURSEMENT OF DRAWINGS Amounts drawn under any Liquidity Facility by reason of an Interest Drawing or the Final Drawing will be immediately due and payable, together with interest on the amount of such drawing at a rate equal to the applicable LIBOR plus 2% per annum or the applicable base rate plus 1% per annum; provided that the Subordination Agent will be obligated to reimburse such amounts only to the extent that the Subordination Agent has available funds therefor. The amount drawn under the Liquidity Facility for any Trust by reason of the Downgrade Drawing (or Non-Extension Drawing in the case of a Replacement Facility) and deposited in the Cash Collateral Account will be treated as follows: (i) such amount will be released on any Regular Distribution Date to the Liquidity Provider to the extent that such amount exceeds the Required Amount for such Trust; (ii) any portion of such amount withdrawn from the Cash Collateral Account for such Certificates to pay interest on such Certificates will be treated in the same way as Interest Drawings; and (iii) the balance of such amount will be invested in Eligible Investments. The Downgrade Drawing (or Non-Extension Drawing in the case of a Replacement Facility) under any Liquidity Facility will bear interest equal to the earnings, if any, on funds on deposit in the Cash Collateral Account maintained by the Subordination Agent under the Intercreditor Agreement. In the event of a Downgrade Drawing (or Non-Extension Drawing in the case of a Replacement Facility) under the Liquidity Facility, the Liquidity Provider also will charge a fee. (Liquidity Facilities, Sections 2.3(b) and 2.6) LIQUIDITY EVENTS OF DEFAULT Events of Default under each Liquidity Facility (each, a "Liquidity Event of Default") will consist of: (i) the acceleration of all the Equipment Notes; and (ii) the failure to pay all of the Equipment Notes at maturity. (Liquidity Facilities, Section 1.1) If (i) a Liquidity Event of Default shall have occurred and be continuing or (ii) (A) a Triggering Event shall have occurred and (B) less than 65% of the then aggregate outstanding principal amount of all Equipment Notes are Performing Equipment Notes, the Liquidity Provider may, in its discretion, make a final S-43 44 drawing ("Final Drawing") of all available and undrawn amounts under the Liquidity Facilities whereupon (i) the Liquidity Provider shall have no further obligation to make Drawings under the Liquidity Facility, (ii) any Drawing remaining unreimbursed shall be automatically converted into a Final Drawing under such Liquidity Facility, and (iii) all amounts owing to the Liquidity Provider shall automatically become accelerated. Notwithstanding the foregoing, the Subordination Agent will be obligated to pay amounts owing to the Liquidity Provider only to the extent of funds available therefor after giving effect to the payments in accordance with the provisions set forth under "Description of the Intercreditor Agreement -- Priority of Distributions". (Liquidity Facilities, Section 6.1) Upon the circumstances described below under "Description of the Intercreditor Agreement -- Intercreditor Rights", the Liquidity Provider may become the Controlling Party with respect to the exercise of remedies under the Indentures. (Intercreditor Agreement, Section 2.6(c)) LIQUIDITY PROVIDER The Liquidity Provider will be WestLB, acting through its New York branch.WestLB, which traces its history to 1832, was created by the merger of two central banks, or Landesbanks (German State Banks), in the State of North Rhine-Westphalia, the Federal Republic of Germany ("Germany") on January 1, 1969. As a German universal bank, WestLB provides commercial and investment banking services regionally, nationally and internationally to public, corporate and bank customers. WestLB is the largest of the Landesbanks and, on the basis of total assets at December 31, 1995, was the third largest bank in Germany. At December 31, 1995, WestLB had total assets of approximately DM428.6 billion (approximately $299 billion). The New York branch of WestLB is licensed and subject to supervision and regulation by the Superintendent of Banks of the State of New York. The New York branch of WestLB is examined by the New York State Banking Department and is subject to banking laws and regulations applicable to a foreign bank that operates a New York branch. DESCRIPTION OF THE INTERCREDITOR AGREEMENT The following summary describes certain provisions of the Intercreditor Agreement. The summary does not purport to be complete and is qualified in its entirety by reference to the provisions of the Intercreditor Agreement. INTERCREDITOR RIGHTS Controlling Party Pursuant to the Intercreditor Agreement, each Trustee and the Liquidity Provider shall agree that, with respect to any Indenture at any given time, the Loan Trustee will be directed (a) in taking, or refraining from taking, any action thereunder by the holders of at least a majority of the outstanding principal amount of the Equipment Notes issued thereunder (provided that, for so long as the Subordination Agent is the registered holder of the Equipment Notes, the Subordination Agent shall act with respect to this clause (a) in accordance with the directions of the Trustees representing holders of Certificates representing an undivided interest in such principal amount of Equipment Notes), so long as no Indenture Default shall have occurred and be continuing thereunder and (b) after the occurrence and during the continuance of an Indenture Default thereunder, in taking, or refraining from taking, any action thereunder, including exercising remedies thereunder (including acceleration of such Equipment Notes or foreclosing the lien on the Aircraft securing such Equipment Notes), by the Controlling Party. See "Description of the Certificates -- Indenture Defaults and Certain Rights Upon an Indenture Default" for a description of the rights of the Certificateholders of each Trust to direct the respective Trustee. The Person who shall be the Controlling Party with respect to any Indenture shall be: (a) the Class A Trustee; (b) upon payment of Final Distributions to the holders of Class A Certificates, the Class B Trustee; (c) upon payment of Final Distributions to the holders of Class B Certificates, the Class C Trustee; and (d) upon payment of Final Distributions to the holders of Class C Certificates, the Class D Trustee (the S-44 45 "Controlling Party"). Notwithstanding the foregoing, the Liquidity Provider shall have the right to elect to become the Controlling Party at any time after 18 months from the acceleration of the Equipment Notes under such Indenture, if at the time of such election the Liquidity Obligations have not been paid in full; provided that if there is more than one Liquidity Provider, the Liquidity Provider with the greatest amount of unreimbursed Liquidity Obligations shall have such right. For purposes of giving effect to the foregoing, the Trustee (other than the Controlling Party) shall irrevocably agree (and the Certificateholders (other than the Certificateholders represented by the Controlling Party) shall be deemed to agree by virtue of their purchase of Certificates) to exercise their voting rights as directed by the Controlling Party. (Intercreditor Agreement, Section 2.6) Sale of Equipment Notes or Aircraft Upon the occurrence and during the continuation of any Indenture Default under any Indenture, the Controlling Party may accelerate and, subject to the provisions of the immediately following sentence, sell all (but not less than all) of the Equipment Notes issued under such Indenture to any person. So long as any Certificates are outstanding, during nine months after the earlier of (x) the acceleration of the Equipment Notes under any Indenture or (y) the bankruptcy or insolvency of Northwest, without the consent of each Trustee, (a) no Aircraft subject to the lien of such Indenture or such Equipment Notes may be sold, if the net proceeds from such sale would be less than the Minimum Sale Price for such Aircraft or such Equipment Notes, and (b) the amount and payment dates of rentals payable by Northwest under the Lease for such Aircraft may not be adjusted, if, as a result of such adjustment, the discounted present value of all such rentals would be less than 75% of the discounted present value of the rentals payable by Northwest under such Lease before giving effect to such adjustment, in each case, using the weighted average interest rate of the Equipment Notes outstanding under such Indenture as the discount rate. (Intercreditor Agreement, Section 4.1) After a Triggering Event occurs and any Equipment Note becomes a Non-Performing Equipment Note, the Subordination Agent will be required to obtain the 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; provided that, if the Controlling Party reasonably objects to any LTV Appraisals, the Controlling Party shall have the right to obtain or cause to be obtained substitute LTV Appraisals (including any LTV Appraisals based upon physical inspection of the Aircraft). PRIORITY OF DISTRIBUTIONS So long as no Triggering Event shall have occurred, the payments in respect of the Equipment Notes and certain other payments received on any Distribution Date will be promptly distributed by the Subordination Agent on such Distribution Date in the following order of priority: (i) to pay the Liquidity Obligations (other than any interest accrued thereon or the principal amount of any Drawing) (the "Liquidity Expenses") to the Liquidity Provider; (ii) to pay interest accrued on the Liquidity Obligations to the Liquidity Provider; (iii) to pay or reimburse the Liquidity Provider for the Liquidity Obligations and, if applicable, to replenish each Cash Collateral Account up to the amount of interest payable on the related Class of Certificates at the Stated Interest Rate therefor on three consecutive Regular Distribution Dates (the "Required Amount"); S-45 46 (iv) to pay Expected Distributions to the holders of Class A Certificates; (v) to pay Expected Distributions to the holders of Class B Certificates; (vi) to pay Expected Distributions to the holders of Class C Certificates; (vii) to pay Expected Distributions to the holders of Class D Certificates; and (viii) to pay certain fees and expenses of the Subordination Agent and the Trustee. Subject to the terms of the Intercreditor Agreement, upon the occurrence of a Triggering Event and at all times thereafter, all funds received by the Subordination Agent in respect of the Equipment Notes and certain other payments will be promptly distributed by the Subordination Agent in the following order of priority: (1) to reimburse (i) the Subordination Agent for any out-of-pocket costs and expenses actually incurred by it in the protection of, or the realization of value of, the Equipment Notes or any Trust Indenture Estate, (ii) each Trustee for any amounts of the nature described in clause (i) above, and (iii) the Liquidity Provider or any Certificateholder for payments, if any, made by it to the Subordination Agent or any Trustee in respect of clause (i) above (collectively, the "Administration Expenses"); (2) to the Liquidity Provider to pay all accrued and unpaid Liquidity Expenses (including fees payable in respect of any Downgrade Drawing); (3) to the Liquidity Provider to pay all accrued and unpaid interest on the Liquidity Obligations (other than interest in respect of any Downgrade Drawing) 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 Notes are Performing Equipment Notes, to replenish the Cash Collateral Accounts; (5) to reimburse or pay (i) the Subordination Agent for any tax (other than taxes imposed on compensation paid under the Intercreditor Agreement), expense, fee, charge or other loss incurred by or any other amount payable to the Subordination Agent in connection with the transactions contemplated hereby (to the extent not previously reimbursed), (ii) each Trustee for any tax (other than taxes imposed on compensation paid under the applicable Trust Agreement), expense, fee, charge, loss, or any other amount payable to such Trustee under the applicable Trust Agreements, and (iii) each Certificateholder for payments, if any, made by it in respect of amounts described in clause (i) above, distributed to the applicable Trustee for the account of such Certificateholder, in each such case pari passu on the basis of all amounts described in clauses (i) through (iii) above (collectively, "Certain Taxes and Fees"); (6) to pay Adjusted Expected Distributions to the holders of Class A Certificates; (7) to pay Adjusted Expected Distributions to the holders of Class B Certificates; (8) to pay Adjusted Expected Distributions to the holders of Class C Certificates; (9) to pay Adjusted Expected Distributions to the holders of Class D Certificates; (10) the balance shall be held in the Collection Account until the next Distribution Date or, if all Classes of Certificates have been paid in full, shall be distributed to the Owner Trustee to the extent that payments received from the Loan Trustees exceed the amounts described in clauses (1) through (9) above; and (11) the balance, if any, shall be distributed to the Certificateholders of the related Trust. Interest Drawings under the Liquidity Facility and withdrawals from the Cash Collateral Account, in each case in respect of interest on the Certificates of any Trust (other than the Class D Trust), will be distributed to the Trustee for such Trust, notwithstanding the priority of distributions set forth in the Intercreditor Agreement and otherwise described herein. All amounts on deposit in the Cash Collateral S-46 47 Account for any Trust which are in excess of the Required Amount for such Trust and all investment earnings on such amounts on deposit in the Cash Collateral Account will be paid to the Liquidity Provider. VOTING OF EQUIPMENT NOTES In the event that the Subordination Agent, as the registered holder of any Equipment Note, receives a request for its consent to any amendment, modification or waiver under such Equipment Note, the related Indenture, Lease, Participation Agreement (each, a "Participation Agreement") or other related document, if no Indenture Default with respect thereto shall have occurred and be continuing, the Subordination Agent shall request instructions for each Series of Equipment Notes from the Trustee of the Trust which holds such Series of Equipment Notes. The Trustee in turn will request directions from Certificateholders of such Trust provided that the Trustee is not required to request directions if such consent will not adversely affect the Certificateholders or an Event of Default shall have occurred and be continuing under the Pass Through Agreement of such Trust. If any Indenture Default shall have occurred and be continuing with respect to such Indenture, the Subordination Agent will exercise its voting rights as directed by the Controlling Party. (Intercreditor Agreement, Section 9.1(b)) THE SUBORDINATION AGENT State Street Bank and Trust Company of Connecticut, National Association will be the Subordination Agent under the Intercreditor Agreement. Northwest and its affiliates may from time to time enter into banking and trustee relationships with the Subordination Agent and its affiliates. The Subordination Agent's address is c/o State Street Bank and Trust Company, Two International Place, Boston, Massachusetts 02110, Attention: Corporate Trust Department. The Subordination Agent may resign at any time, in which event a successor Subordination Agent will be appointed as provided in the Intercreditor Agreement. Either the Controlling Party or the Liquidity Provider may remove the Subordination Agent for cause as provided in the Intercreditor Agreement. In such circumstances, a successor Subordination Agent will be appointed as provided in the Intercreditor Agreement. Any resignation or removal of the Subordination Agent and appointment of a successor Subordination Agent does not become effective until acceptance of the appointment by the successor Subordination Agent. S-47 48 DESCRIPTION OF THE AIRCRAFT AND THE APPRAISALS THE AIRCRAFT The Aircraft are comprised of two Boeing 747 aircraft and nine Boeing 757 aircraft. The Aircraft are designed to be in compliance with Stage III noise level standards, which constitute the most restrictive regulatory standards currently in effect in the United States for aircraft noise abatement. The table below sets forth certain additional information concerning the Aircraft.
APPRAISED VALUE REGISTRATION AIRCRAFT ENGINE DELIVERY ------------------------------- NUMBER TYPE TYPE DATE AISI BK SH&E - ------------ -------- ------- ----------------- ------- ------- ------- (DOLLARS IN MILLIONS) N535US B757 PW 2037 November 14, 1995 $ 57.65 $ 50.00 $ 58.40 N536US B757 PW 2037 December 11, 1995 57.90 50.00 58.40 N537US B757 PW 2037 February 20, 1996 58.65 50.00 63.50 N538US B757 PW 2037 March 1, 1996 58.85 50.00 63.50 N539US B757 PW 2037 March 25, 1996 58.85 50.00 63.50 N540US B757 PW 2037 April 15, 1996 59.05 50.00 63.50 N541US B757 PW 2037 April 19, 1996 59.05 50.00 63.50 N542US B757 PW 2037 May 10, 1996 59.15 50.00 63.50 N543US B757 PW 2037 May 15, 1996 59.15 50.00 63.50 N662US B747 PW 4056 March 13, 1989 113.12 111.10 108.70 N669US B747 PW 4056 August 20, 1990 116.87 116.50 109.80
APPRAISED VALUE The appraised values set forth in the foregoing chart were determined by AISI as of May 22, 1996, BK as of April 1, 1996 and SH&E as of April 1, 1996. As part of this process, all three Appraisers performed "desk-top" appraisals without any physical inspection of the Aircraft. The Appraisals are based on various assumptions and methodologies, which vary among the Appraisals. The Appraisers have delivered letters summarizing their respective Appraisals, copies of which are annexed to this Prospectus Supplement as Appendix II. For a discussion of the assumptions and methodologies used in preparing each of the Appraisals, reference is hereby made to such summaries. An appraisal is only an estimate of value and should not be relied upon as a measure of realizable value. The proceeds realized upon the sale of any Aircraft may be less than the appraised value thereof. In addition, the value of the Aircraft in the event of the exercise of remedies under the applicable Indenture will depend on market and economic conditions at the time, the availability of buyers, the condition of the Aircraft, whether the Aircraft are sold separately or as a block and other factors. Accordingly, there can be no assurance that the proceeds realized upon any such exercise with respect to the Equipment Notes and the Aircraft pursuant to the applicable Indenture would be as appraised or sufficient to satisfy in full payments due on the Equipment Notes issued thereunder or the Certificates. S-48 49 DESCRIPTION OF THE EQUIPMENT NOTES The statements under this caption are summaries and do not purport to be complete. The summaries make use of terms defined in and are qualified in their entirety by reference to all of the provisions of the Equipment Notes, the Indentures, the Leases, the Participation Agreements, the Trust Agreements and the Refunding Agreements. Except as otherwise indicated, the following summaries relate to the Equipment Notes, the Indenture, the Lease, the Participation Agreement, the Trust Agreement and the Refunding Agreement relating to each Aircraft. GENERAL The Equipment Notes will be issued in up to four series with respect to each Aircraft. The Equipment Notes with respect to each Aircraft will be issued under a separate Indenture between the applicable Owner Trustee, as trustee of a trust for the benefit of the Owner Participant who is the beneficial owner of such Aircraft, and the applicable Loan Trustee. In all cases, the Loan Trustee is State Street Bank and Trust Company. The Owner Trustee leases the related Aircraft to Northwest pursuant to a separate Lease between such Owner Trustee as lessor and Northwest as lessee with respect to such Aircraft. Under each Lease, Northwest is obligated to make or cause to be made rental and other payments to the related Loan Trustee on behalf of the related Owner Trustee, which rental and other payments will be at least sufficient to pay in full when due all payments required to be made on the Equipment Notes issued with respect to such Aircraft. The Equipment Notes are not, however, obligations of, or guaranteed by, Northwest. Northwest's rental obligations under each Lease are general obligations of Northwest. Amounts payable by Northwest under each Lease will be unconditionally guaranteed by NWA Corp. Each Owner Participant has the right to sell, assign or otherwise transfer its interests as Owner Participant in any of such leveraged leases, subject to the terms and conditions of the relevant Participation Agreement and related documents. SUBORDINATION Series B Equipment Notes issued in respect of any Aircraft will be subordinated in right of payment to Series A Equipment Notes issued in respect of such Aircraft; any Series C Equipment Notes issued in respect of such Aircraft will be subordinated in right of payment to such Series B Equipment Notes; and any Series D Equipment Notes issued in respect of such Aircraft will be subordinated in right of payment to such Series C Equipment Notes. On each Equipment Note payment date, (i) payments of interest and principal due on Series A Equipment Notes issued in respect of any Aircraft will be made prior to payments of interest and principal due on Series B Equipment Notes issued in respect of such Aircraft, (ii) payments of interest and principal due on such Series B Equipment Notes will be made prior to payments of interest and principal due on any Series C Equipment Notes issued in respect of such Aircraft and (iii) payments of interest and principal due on such Series C Equipment Notes will be made prior to payments of interest and principal due on any Series D Equipment Notes issued in respect of such Aircraft. PRINCIPAL AND INTEREST PAYMENTS Subject to the provisions of the Intercreditor Agreement, interest paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust on the dates and at the rate per annum set forth on the cover page of this Prospectus Supplement until the final expected Regular Distribution Date for such Trust. Subject to the provisions of the Intercreditor Agreement, principal paid on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust in scheduled amounts on the dates set forth herein until the final expected Regular Distribution Date for such Trust. S-49 50 The aggregate original principal amounts of the Equipment Notes issued with respect to each Aircraft, as such Equipment Notes will be held in each of the Trusts, are as follows:
REGISTRATION CLASS A TRUST CLASS B TRUST CLASS C TRUST CLASS D TRUST NUMBER EQUIPMENT NOTES EQUIPMENT NOTES EQUIPMENT NOTES EQUIPMENT NOTES TOTAL - ------------ --------------- --------------- --------------- --------------- ------------ N535US $ 22,914,900 $ 7,085,100 $ 0 $ 0 $ 30,000,000 N536US 23,198,850 7,289,050 0 0 30,487,900 N537US 25,822,500 8,607,500 5,570,000 0 40,000,000 N538US 25,801,765 8,445,150 3,511,701 0 37,758,616 N539US 25,292,824 8,272,791 6,434,361 0 39,999,976 N540US 25,320,940 8,282,400 6,396,660 0 40,000,000 N541US 25,320,940 8,282,400 6,396,660 0 40,000,000 N542US 25,379,550 8,357,917 6,262,533 0 40,000,000 N543US 25,379,550 8,437,134 6,183,316 0 40,000,000 N662US 49,938,000 16,646,000 16,646,000 2,053,137 85,283,137 N669US 51,475,500 17,158,500 17,158,500 12,657,498 98,449,998 --------------- --------------- --------------- --------------- ------------ Total $ 325,845,319 $ 106,863,942 $74,559,731 $14,710,635 $521,979,627 ============ ============ ============ ============ ===========
Interest will be payable on the unpaid principal amount of each Equipment Note at the rate applicable to such Equipment Note on January 2 and July 2 in each year, commencing January 2, 1997. Such interest will be computed on the basis of a 360-day year of twelve 30-day months. Overdue amounts of principal, Make-Whole Premium and interest on such Series of Equipment Note will bear interest at a rate equal to 2% per annum over the applicable rate on such Series of Equipment Note. The principal of the Equipment Notes purchased by each Trust will be payable on the dates and in the amounts set forth in Appendix III. The final payment made under each Equipment Note will be in an amount sufficient to discharge in full the unpaid principal amount, Make-Whole Premium, if any, and to the extent permitted by law, interest and any other amounts payable but unpaid. If any date scheduled for any payment of principal, Make-Whole Premium (if any) or interest with respect to the Equipment Notes is not a business day, such payment will be made on the next succeeding business day without any additional interest. All payments of principal amount, interest, Make-Whole Premium, if any, and other amounts to be made by the Owner Trustee will be payable only from the Trust Indenture Estate. In the case of each Equipment Note, each payment of principal amount, Make-Whole Premium, if any, and interest or other amounts due thereon will be applied in the following order: (i) to the payment of accrued interest on such Equipment Note (as well as any interest on any overdue principal amount, Make-Whole Premium, if any, and any interest) to the date of such payment; (ii) to the payment of the principal amount of such Equipment Note then due; (iii) to the payment of the Make-Whole Premium, if any, and any other amount due under the Indenture or such Equipment Note; and (iv) the balance, if any, to the payment of the principal amount of such Equipment Note remaining unpaid (applied to the installments of principal amount in the inverse order of their normal maturity). (Indentures, Section 2.05) REDEMPTION The Equipment Notes issued with respect to any Aircraft will be redeemed, in whole, at a price equal to the aggregate unpaid principal amount together with accrued interest to, but not including, the date of redemption, but without Make-Whole Premium, upon the occurrence of an Event of Loss to such Aircraft if such Aircraft is not replaced. (Indentures, Section 2.10(a)) The Equipment Notes relating to an Aircraft may be redeemed, in whole, on a Special Distribution Date, in connection with Northwest's exercise of its right to terminate the related Lease or to purchase the Aircraft subject to such Lease. In connection with any such termination or purchase, the amount to be paid by Northwest under such Lease will be at least equal to the aggregate unpaid principal amount of the related S-50 51 Equipment Notes, together with accrued interest thereon to, but not including, the date of redemption, plus the Make-Whole Premium thereon, provided that in lieu of redeeming the Equipment Notes in connection with any such purchase of an Aircraft, Northwest may elect to assume all of the obligations of the relevant Owner Trustee under the related Indenture pursuant to Section 2.13 of the Indenture and Section 8(x) of the relevant Participation Agreement. In connection with any such assumption of the Owner Trustee's obligations in respect of the Equipment Notes, Northwest shall enter into a supplemental indenture satisfactory to the relevant Loan Trustee which contains provisions regarding permitted liens, registration and maintenance, subleases, replacement of parts, alteration and modification to the Aircraft, events of loss and insurance which are substantially similar to the provisions contained in the related Lease. In addition, in connection with any such assumption, NWA Corp. shall deliver a guaranty of the Equipment Notes substantially in the form of the Guaranty and Northwest shall deliver an opinion of counsel that such assumption has been duly and validly effected. Upon the effectiveness of such assumption, the Owner Trustee and the Owner Participant will be released from further obligations under the related Indenture and the related Participation Agreement. (Indentures, Sections 2.10(b) and 2.13, Participation Agreements, Section 8(x), Leases, Sections 9 and 19(d)) See "-- The Leases -- Lease Termination" and "-- The Leases -- Renewal and Purchase Options". All of the Equipment Notes issued with respect to an Aircraft may be redeemed prior to maturity as part of a refunding or refinancing plan upon at least 30 days revocable prior written notice to the Loan Trustee and the holders of the Equipment Notes, at a price equal to the aggregate unpaid principal amount thereof, together with accrued interest to, but not including, the date of redemption, plus a Make-Whole Premium, if any. (Indentures, Section 2.11) If notice of such redemption is given in connection with a termination of the Lease, such notice is revocable and is deemed revoked in the event that the Lease does not in fact terminate on the specified termination date. If notice of such redemption is given in connection with a refinancing, it is revocable not later than three days prior to the redemption date. (Indentures, Section 2.12(b)) Either the Owner Trustee or the Owner Participant may purchase all of the outstanding Equipment Notes issued under the related Indentures for the aggregate unpaid principal amount, plus accrued and unpaid interest to the date of purchase. This option may be exercised upon (i) the declaration by the Loan Trustee that the Equipment Notes have become due and payable following an Indenture Default or notification by the Loan Trustee to the Owner Trustee that it intends to take actions to foreclose the lien or otherwise commence the exercise of any significant remedy under the Indenture or Lease (each, a "Loan Trustee Event"), or (ii) a continuing Lease Event of Default. If the option is exercised in connection with a Lease Event of Default continuing for less than 120 days, then the Make-Whole Premium will be added to the purchase price. In addition, the Equipment Notes issued under certain of the Indentures may be defeased by the deposit of United States government securities or cash in circumstances when the related Owner Trustee or Owner Participant would be entitled to purchase such Equipment Notes. (Indentures, Sections 2.14 and 2.16) "Make-Whole Premium" means, with respect to any Equipment Note, the amount (as determined by an independent investment banker selected by Northwest and reasonably acceptable to the Loan Trustee and related Owner Participant) by which (a) the present value of the remaining scheduled payments of principal and interest to maturity of such Equipment Note computed by discounting such payments on a semiannual basis on each Payment Date (assuming a 360-day year of twelve 30-day months) using a discount rate equal to the Treasury Yield (plus, in the case of the Series C and D Equipment Notes, 75 basis points) exceeds (b) the outstanding principal amount of such Equipment Note plus accrued interest. For purposes of determining the Make-Whole Premium, "Treasury Yield" means, at the time of determination with respect to any Equipment Note, the interest rate (expressed as a semi-annual equivalent and as a decimal and, in the case of United States Treasury bills, converted to a bond equivalent yield) determined to be the per annum rate equal to the semi-annual yield to maturity for United States Treasury securities maturing on the Average Life Date of such Equipment Note and trading in the public securities markets either as determined by interpolation between the most recent weekly average yield to maturity for two series of United States Treasury securities, trading in the public securities markets, (A) one maturing as close as possible to, but earlier than, the Average Life Date of such Equipment Note and (B) the other S-51 52 maturing as close as possible to, but later than, the Average Life Date of such Equipment Note, in each case as published in the most recent H.15 (519) or, if a weekly average yield to maturity for United States Treasury securities maturing on the Average Life Date of such Equipment Note is reported on the most recent H.15 (519), such weekly average yield to maturity as published in such H.15 (519). "H.15 (519)" means the weekly statistical release designated as such, or any successor publication, published by the Board of Governors of the Federal Reserve System. The date of determination of a Make-Whole Premium shall be the third Business Day prior to the applicable redemption date and the "most recent H.15 (519)" means the H.15 (519) published prior to the close of business on the third Business Day prior to the applicable redemption date. "Average Life Date" for any Equipment Note is the date which follows the redemption date by a period equal to the Remaining Weighted Average Life of such Equipment Note. "Remaining Weighted Average Life" on a given date with respect to any Equipment Note is the number of days equal to the quotient obtained by dividing (a) the sum of each of the products obtained by multiplying (i) the amount of each then remaining scheduled payment of principal of such Equipment Note by (ii) the number of days from and including such redemption date to but excluding the date on which payment of principal is scheduled to be made; by (b) the then outstanding principal amount of such Equipment Note. SECURITY The Equipment Notes issued with respect to each Aircraft are secured by a first priority security interest in the Aircraft, the related Lease and all rent thereunder, as well as the related Guaranty, agreement for the purchase of the Aircraft and the assignment of that agreement, all rents, profits and other income of such Aircraft, all insurance and similar proceeds with respect to such Aircraft, all rights of the related Owner Trustee to amounts paid or payable by Northwest under the related Participation Agreement, all monies and securities deposited with the related Loan Trustee, and all proceeds of the foregoing. Unless an Indenture Default with respect to an Aircraft has occurred and is continuing, the related Loan Trustee may not exercise the Owner Trustee's rights under the related Lease except such Owner Trustee's right to receive rent. The assignment by the Owner Trustee to the Loan Trustee of its rights under the related Lease excludes the rights of the Owner Trustee and the Owner Participant relating to the indemnification by Northwest for certain matters, insurance proceeds payable to the Owner Trustee in its individual capacity and to the Owner Participant under liability insurance maintained by Northwest under the Lease or by the Owner Trustee or such Owner Participant, insurance proceeds payable to the Owner Trustee in its individual capacity or to such Owner Participant under certain casualty insurance maintained by the Owner Trustee or the Owner Participant under the Lease and certain reimbursement payments made by Northwest to the Owner Trustee. (Indenture, Granting Clause) The Equipment Notes are not cross-collateralized, and consequently the Equipment Notes issued in respect of any one Aircraft are not secured by any of the other Aircraft or replacement aircraft (as described in "-- The Leases -- Events of Loss") or the Leases related thereto. Funds, if any, held from time to time by the Loan Trustee with respect to any Aircraft, including funds held as the result of an Event of Loss to such Aircraft or termination of the Lease, if any, relating thereto, will be invested and reinvested by such Loan Trustee, at the direction of Northwest in investments described in the related Lease. S-52 53 LOAN TO VALUE RATIOS OF EQUIPMENT NOTES The following table sets forth loan to Aircraft value ratios for the Equipment Notes issued in respect of each Aircraft as of the dates specified and was obtained by dividing (i) the outstanding balance (assuming no payment default) of such Equipment Notes determined immediately after giving effect to the payments scheduled to be made on each such date by (ii) the assumed value (the "Assumed Aircraft Value") of the Aircraft securing such Equipment Notes. The tables contain forward-looking information that is based on the assumption that the value of each Aircraft included in the Assumed Aircraft Value opposite June , 1996 depreciates by 2% per year until the fifteenth year after the year of delivery of such Aircraft, by 4% per year thereafter until the twentieth year after the year of such delivery and by 6% per year thereafter. Other rates or methods of depreciation would result in materially different loan-to-value ratios and no assurance can be given (i) that the depreciation rates and method assumed for the purposes of the table are the ones most likely to occur or (ii) as to the actual value of any Aircraft. Thus the table should not be considered a forecast or prediction of expected or likely loan to Aircraft value ratios but simply a mathematical calculation based on one set of assumptions.(1)
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION NUMBER NUMBER N535US NUMBER N536US N537US -------------------------------------- -------------------------------------- ----------- EQUIPMENT EQUIPMENT EQUIPMENT NOTE ASSUMED NOTE ASSUMED NOTE OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING BALANCE VALUE VALUE BALANCE VALUE VALUE BALANCE DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) - ------------------- ----------- ---------- ------- ----------- ---------- ------- ----------- June , 1996....... $ 30.00 $55.35 54.2% $ 30.49 $55.43 55.0% $ 40.00 July 2, 1997....... 30.00 54.24 55.3 30.49 54.32 56.1 38.89 July 2, 1998....... 30.00 53.14 56.5 30.49 53.22 57.3 38.19 July 2, 1999....... 30.00 52.03 57.7 30.49 52.11 58.5 37.42 July 2, 2000....... 29.50 50.92 57.9 29.99 51.00 58.8 36.59 July 2, 2001....... 29.00 49.82 58.2 29.49 49.89 59.1 35.70 July 2, 2002....... 28.51 48.71 58.5 28.94 48.78 59.3 34.73 July 2, 2003....... 27.90 47.60 58.6 28.27 47.67 59.3 33.67 July 2, 2004....... 27.23 46.49 58.6 27.61 46.56 59.3 32.53 July 2, 2005....... 26.57 45.39 58.5 26.30 45.46 57.9 31.30 July 2, 2006....... 24.44 44.28 55.2 23.59 44.35 53.2 29.94 July 2, 2007....... 21.39 43.17 49.5 20.66 43.24 47.8 27.60 July 2, 2008....... 18.08 42.07 43.0 17.49 42.13 41.5 25.04 July 2, 2009....... 14.51 40.96 35.4 14.05 41.02 34.2 22.14 July 2, 2010....... 10.65 39.85 26.7 10.33 39.91 25.9 19.00 July 2, 2011....... 8.91 37.64 23.7 6.33 37.69 16.8 15.62 July 2, 2012....... 4.61 35.42 13.0 0.00 0.00 NA 11.96 July 2, 2013....... 0.89 33.21 2.7 0.00 0.00 NA 8.02 July 2, 2014....... 0.00 0.00 NA 0.00 0.00 NA 0.00 ASSUMED AIRCRAFT LOAN TO VALUE VALUE DATE (MILLIONS) RATIO - ------------------- ---------- ------- June , 1996....... $57.38 69.7% July 2, 1997....... 56.24 69.2 July 2, 1998....... 55.09 69.3 July 2, 1999....... 53.94 69.4 July 2, 2000....... 52.79 69.3 July 2, 2001....... 51.65 69.1 July 2, 2002....... 50.50 68.8 July 2, 2003....... 49.35 68.2 July 2, 2004....... 48.20 67.5 July 2, 2005....... 47.05 66.5 July 2, 2006....... 45.91 65.2 July 2, 2007....... 44.76 61.7 July 2, 2008....... 43.61 57.4 July 2, 2009....... 42.46 52.1 July 2, 2010....... 41.32 46.0 July 2, 2011....... 39.02 40.0 July 2, 2012....... 36.73 32.6 July 2, 2013....... 34.43 23.3 July 2, 2014....... 0.00 NA
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION NUMBER NUMBER N538US NUMBER N539US N540US -------------------------------------- -------------------------------------- ----------- EQUIPMENT EQUIPMENT EQUIPMENT NOTE ASSUMED NOTE ASSUMED NOTE OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING BALANCE VALUE VALUE BALANCE VALUE VALUE BALANCE DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) - ------------------- ----------- ---------- ------- ----------- ---------- ------- ----------- June , 1996....... $ 37.76 $57.45 65.7% $ 40.00 $57.45 69.6% $ 40.00 July 2, 1997....... 37.29 56.30 66.2 40.00 56.30 71.0 40.00 July 2, 1998....... 36.60 55.15 66.4 39.53 55.15 71.7 39.53 July 2, 1999....... 35.72 54.00 66.1 38.84 54.00 71.9 38.84 July 2, 2000....... 34.76 52.85 65.8 37.96 52.85 71.8 37.96 July 2, 2001....... 33.72 51.71 65.2 37.00 51.71 71.6 37.00 July 2, 2002....... 32.59 50.56 64.5 35.97 50.56 71.1 35.97 July 2, 2003....... 31.36 49.41 63.5 34.85 49.41 70.5 34.85 July 2, 2004....... 30.02 48.26 62.2 33.63 48.26 69.7 33.63 July 2, 2005....... 28.57 47.11 60.6 32.30 47.11 68.6 32.30 July 2, 2006....... 27.58 45.96 60.0 31.29 45.96 68.1 31.28 July 2, 2007....... 26.38 44.81 58.9 29.85 44.81 66.6 29.85 July 2, 2008....... 24.62 43.66 56.4 27.71 43.66 63.5 27.71 July 2, 2009....... 23.08 42.51 54.3 24.95 42.51 58.7 24.94 July 2, 2010....... 21.47 41.36 51.9 21.96 41.36 53.1 21.95 July 2, 2011....... 15.35 39.07 39.3 18.73 39.07 48.0 18.73 July 2, 2012....... 11.71 36.77 31.8 10.89 36.77 29.6 10.89 July 2, 2013....... 7.77 34.47 22.5 6.65 34.47 19.3 6.64 July 2, 2014....... 3.51 32.17 10.9 2.06 32.17 6.4 2.06 ASSUMED AIRCRAFT LOAN TO VALUE VALUE DATE (MILLIONS) RATIO - ------------------- ---------- ------- June , 1996....... $57.52 69.5% July 2, 1997....... 56.37 71.0 July 2, 1998....... 55.22 71.6 July 2, 1999....... 54.07 71.8 July 2, 2000....... 52.92 71.7 July 2, 2001....... 51.77 71.5 July 2, 2002....... 50.61 71.1 July 2, 2003....... 49.46 70.4 July 2, 2004....... 48.31 69.6 July 2, 2005....... 47.16 68.5 July 2, 2006....... 46.01 68.0 July 2, 2007....... 44.86 66.5 July 2, 2008....... 43.71 63.4 July 2, 2009....... 42.56 58.6 July 2, 2010....... 41.41 53.0 July 2, 2011....... 39.11 47.9 July 2, 2012....... 36.81 29.6 July 2, 2013....... 34.51 19.3 July 2, 2014....... 32.21 6.4
S-53 54
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION NUMBER NUMBER N541US NUMBER N542US N543US -------------------------------------- -------------------------------------- ----------- EQUIPMENT EQUIPMENT EQUIPMENT NOTE ASSUMED NOTE ASSUMED NOTE OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING BALANCE VALUE VALUE BALANCE VALUE VALUE BALANCE DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO (MILLIONS) - ------------------- ----------- ---------- ------- ----------- ---------- ------- ----------- June , 1996....... $ 40.00 $57.52 69.5% $ 40.00 $57.55 69.5% $ 40.00 July 2, 1997....... 40.00 56.37 71.0 40.00 56.40 70.9 40.00 July 2, 1998....... 39.53 55.22 71.6 39.41 55.25 71.3 39.33 July 2, 1999....... 38.84 54.07 71.8 38.72 54.10 71.6 38.64 July 2, 2000....... 37.96 52.92 71.7 37.83 52.95 71.5 37.75 July 2, 2001....... 37.00 51.77 71.5 36.87 51.80 71.2 36.79 July 2, 2002....... 35.97 50.61 71.1 35.83 50.64 70.7 35.74 July 2, 2003....... 34.85 49.46 70.4 34.70 49.49 70.1 34.61 July 2, 2004....... 33.63 48.31 69.6 33.46 48.34 69.2 33.37 July 2, 2005....... 32.30 47.16 68.5 32.12 47.19 68.1 32.03 July 2, 2006....... 31.28 46.01 68.0 31.26 46.04 67.9 31.16 July 2, 2007....... 29.85 44.86 66.5 29.82 44.89 66.4 29.59 July 2, 2008....... 27.71 43.71 63.4 27.65 43.74 63.2 27.16 July 2, 2009....... 24.94 42.56 58.6 24.90 42.59 58.5 24.78 July 2, 2010....... 21.95 41.41 53.0 21.91 41.44 52.9 21.78 July 2, 2011....... 18.73 39.11 47.9 18.68 39.13 47.7 18.54 July 2, 2012....... 10.89 36.81 29.6 10.83 36.83 29.4 10.68 July 2, 2013....... 6.64 34.51 19.3 6.59 34.53 19.1 6.43 July 2, 2014....... 2.06 32.21 6.4 1.99 32.23 6.2 1.82 ASSUMED AIRCRAFT LOAN TO VALUE VALUE DATE (MILLIONS) RATIO - ------------------- ---------- ------- June , 1996....... $57.55 69.5% July 2, 1997....... 56.40 70.9 July 2, 1998....... 55.25 71.2 July 2, 1999....... 54.10 71.4 July 2, 2000....... 52.95 71.3 July 2, 2001....... 51.80 71.0 July 2, 2002....... 50.64 70.6 July 2, 2003....... 49.49 69.9 July 2, 2004....... 48.34 69.0 July 2, 2005....... 47.19 67.9 July 2, 2006....... 46.04 67.7 July 2, 2007....... 44.89 65.9 July 2, 2008....... 43.74 62.1 July 2, 2009....... 42.59 58.2 July 2, 2010....... 41.44 52.6 July 2, 2011....... 39.13 47.4 July 2, 2012....... 36.83 29.0 July 2, 2013....... 34.53 18.6 July 2, 2014....... 32.23 5.7
AIRCRAFT REGISTRATION AIRCRAFT REGISTRATION NUMBER N662US NUMBER N669US -------------------------------------- -------------------------------------- EQUIPMENT EQUIPMENT NOTE ASSUMED NOTE ASSUMED OUTSTANDING AIRCRAFT LOAN TO OUTSTANDING AIRCRAFT LOAN TO BALANCE VALUE VALUE BALANCE VALUE VALUE DATE (MILLIONS) (MILLIONS) RATIO (MILLIONS) (MILLIONS) RATIO - ------------------- ----------- ---------- ------- ----------- ---------- ------- June , 1996....... $ 85.28 $ 110.97 76.9% $ 98.45 $ 114.39 86.1% July 2, 1997....... 83.43 108.75 76.7 93.49 112.10 83.4 July 2, 1998....... 81.04 106.53 76.1 91.17 109.81 83.0 July 2, 1999....... 78.45 104.31 75.2 88.65 107.53 82.4 July 2, 2000....... 75.64 102.10 74.1 85.90 105.24 81.6 July 2, 2001....... 72.99 99.88 73.1 83.34 102.95 80.9 July 2, 2002....... 69.66 97.66 71.3 80.63 100.66 80.1 July 2, 2003....... 66.03 95.44 69.2 77.68 98.38 79.0 July 2, 2004....... 62.07 93.22 66.6 74.72 96.09 77.8 July 2, 2005....... 55.90 88.78 63.0 71.37 93.80 76.1 July 2, 2006....... 50.60 84.34 60.0 66.60 89.22 74.6 July 2, 2007....... 47.94 79.90 60.0 61.27 84.65 72.4 July 2, 2008....... 45.28 75.46 60.0 54.98 80.07 68.7 July 2, 2009....... 41.84 71.02 58.9 46.88 75.50 62.1 July 2, 2010....... 33.41 64.36 51.9 38.03 70.92 53.6 July 2, 2011....... 24.33 57.71 42.2 17.61 64.06 27.5 July 2, 2012....... 14.44 51.05 28.3 6.33 57.20 11.1 July 2, 2013....... 3.75 44.39 8.5 0.01 50.33 0.0 July 2, 2014....... 0.00 0.00 NA 0.00 0.00 NA
- --------------- (1) The information relating to Equipment Note Outstanding Balances for each Aircraft and resulting Loan to Value Ratios is indicative only and subject to change. LIMITATION OF LIABILITY The Equipment Notes will not be obligations of, or guaranteed by, Northwest, NWA Corp., the Owner Participants or the Owner Trustees in their individual capacity. None of the Owner Trustees, the Owner Participants or the Loan Trustees, or any affiliates thereof, will be personally liable to any holder of an Equipment Note or, in the case of the Owner Trustees and the Owner Participants, to the Loan Trustees for any amounts payable under the Equipment Notes or, except as provided in each Indenture, for any liability under such Indenture. All payments of principal of, Make-Whole Premium, if any, and interest on the Equipment Notes issued with respect to any Aircraft (other than payments made in connection with an optional redemption or purchases of Equipment Notes by the related Owner Trustee or the related Owner Participant) will be made only from the assets subject to the lien of the Indenture with respect to such Aircraft or the income and proceeds received by the related Loan Trustee therefrom (including rent payable by Northwest under the Lease with respect to such Aircraft or NWA Corp.'s Guaranty thereof). S-54 55 Except as otherwise provided in the Indentures, each Owner Trustee in its individual capacity is not answerable or accountable under the Indentures or under the Equipment Notes under any circumstances except for its own willful misconduct, gross negligence, negligence with respect to the distribution of funds, or the falsity of a representation or warranty when made. None of the Owner Participants has any duty or responsibility under any of the Indentures or the Equipment Notes to the Loan Trustees or to any holder of any Equipment Note. INDENTURE DEFAULTS, NOTICE AND WAIVER Although there are differences among the Indentures, Indenture Defaults under each Indenture generally include: (a) the occurrence of any Lease Event of Default under the related Lease (other than the failure to make certain indemnity payments and other payments to the related Owner Trustee or Owner Participant unless a notice is given by such Owner Trustee that such failure will constitute an Indenture Default), (b) the failure by the Owner Trustee (other than as a result of a Lease Default or Lease Event of Default) to pay any interest or principal or Make-Whole Premium, if any, when due, under such Indenture or under any Equipment Note issued thereunder continued for more than ten business days after notice, (c) the failure by the Owner Participant or the Owner Trustee to discharge certain liens, continued after notice and specified cure periods, (d) any representation or warranty made by the related Owner Trustee or Owner Participant in such Indenture, the related Participation Agreement, the related Refunding Agreement or certain related documents furnished to the Loan Trustee pursuant thereto being false or incorrect when made and continuing to be material and remaining unremedied after notice and specified cure periods, (e) failure by the related Owner Trustee or Owner Participant to perform or observe any covenant or obligation for the benefit of the Loan Trustee or holders of Equipment Notes under such Indenture or certain related documents, continued after notice and specified cure periods, (f) the registration of the related Aircraft ceasing to be effective as a result of the Owner Participant not being a citizen of the United States and such circumstances continue for 60 days, or (g) the occurrence of certain events of bankruptcy, reorganization or insolvency of the related Owner Trustee or Owner Participant. There are no cross-default provisions in the Indentures or the Leases. Consequently, events resulting in an Indenture Default under any particular Indenture may or may not result in an Indenture Default occurring under any other Indenture. (Indentures, Section 4.02) The Loan Trustee will give the holders of the Equipment Notes, the Owner Trustee and the Owner Participant prompt written notice of any Indenture Default of which the Loan Trustee has actual knowledge and, if the Indenture Default results from a Lease Event of Default, it will give the holders of the Equipment Notes, the Owner Trustee and the Owner Participant not less than ten business days prior written notice of the date on or after which the Loan Trustee may commence the exercise of any remedy described in "-- Remedies" below. If Northwest fails to make any semi-annual basic rental payment due under any Lease, within a specified period after notice from the Loan Trustee of such failure the applicable Owner Trustee or Owner Participant may furnish to the Loan Trustee the amount due on the Equipment Notes, together with any interest thereon on account of the delayed payment thereof, in which event the Loan Trustee and the holders of outstanding Equipment Notes issued under such Indenture may not exercise any remedies otherwise available under such Indenture or such Lease as the result of such failure to make such rental payment, unless the relevant Owner Trustee or Owner Participant has previously cured the preceding three consecutive payment defaults or six total payment defaults with respect to Interim Rent or Basic Rent. (Indentures, Section 4.03) The Owner Trustee and/or the Owner Participant also have certain rights, but not obligations, to cure Indenture Defaults not resulting from the nonpayment of Basic Rent. If an Owner Trustee or Owner Participant pays the amount due on the Equipment Notes to the Loan Trustee or cures the Indenture Default, the Owner Trustee or Owner Participant will be subrogated to the rights of the Loan Trustee and the holders of the Equipment Notes in respect of the Rent which was overdue at the time of such payment, as well as interest payable by Northwest on account of its being overdue, and thereafter the Owner Trustee or the Owner Participant, as the case may be, will be entitled to receive such overdue Rent and interest thereon upon receipt by the Loan Trustee; provided, however, that (i) if the S-55 56 principal amount and interest on the Equipment Notes is due and payable following an Indenture Default, such subrogation will, until the principal amount of, interest on, Make-Whole Premium, if any, and all other amounts due with respect to all Equipment Notes has been paid in full, be subordinate to the rights of the Loan Trustee and the holders of the Equipment Notes in respect of such payment of overdue Rent and interest and (ii) the Owner Trustee will not be entitled to recover any such payment except pursuant to the foregoing right of subrogation, by demand or suit for damages. The holders of a majority in principal amount of the outstanding Equipment Notes issued with respect to any Aircraft, by notice to the Loan Trustee, may on behalf of all the holders waive any existing default and its consequences under the Indenture with respect to such Aircraft, except a default in the payment of the principal of, interest on, or Make-Whole Premium, if any, on any such Equipment Notes or a default in respect of any covenant or provision of such Indenture that cannot be modified or amended without the consent of each holder of Equipment Notes affected thereby. (Indentures, Section 4.08) REMEDIES Each Indenture provides that if an Indenture Default occurs and is continuing, the related Loan Trustee may, and upon receipt of written demand from the holders of a majority in principal amount of the Equipment Notes outstanding under such Indenture shall, subject to the applicable Owner Participant's or Owner Trustee's right to cure, as discussed above, declare the principal of all such Equipment Notes issued thereunder immediately due and payable, together with all accrued but unpaid interest thereon (without the Make-Whole Premium). The holders of a majority in principal amount of Equipment Notes outstanding under such Indenture may rescind any such declaration at any time before the judgment or decree for the payment of the money so due shall be entered if (i) there has been paid to the related Loan Trustee an amount sufficient to pay all principal and interest on any such Equipment Notes, to the extent such amounts have become due otherwise than by such declaration of acceleration and (ii) all other Indenture Defaults and potential Indenture Defaults under such Indenture have been cured or waived. (Indentures, Section 4.04(b)) Each Indenture provides that if an Indenture Default under such Indenture has occurred and is continuing, the related Loan Trustee may exercise certain rights or remedies available to it under such Indenture or under applicable law, including (if the corresponding Lease has been declared in default) one or more of the remedies under such Indenture or such Lease with respect to the Aircraft subject to such Lease. If an Event of Default shall have occurred and be continuing under the corresponding Lease, the related Loan Trustee's right to exercise remedies under such Indenture is subject, with certain exceptions, to its having proceeded to exercise one or more of the remedies under the Lease to terminate the Lease or take possession of and/or sell the Aircraft; provided that the requirement to exercise such remedies under such Lease shall not apply in circumstances where such exercise has been involuntarily stayed or prohibited by applicable law or court order for a continuous period in excess of 60 days or such other period as may be specified in Section 1110(a)(1)(A) of the Bankruptcy Code (plus an additional period, if any, resulting from (i) Northwest or its trustee in such proceeding assuming, or agreeing to perform its obligations under, such Lease with the approval of the applicable court, (ii) such Loan Trustee's consent to an extension of such 60-day period or (iii) such Loan Trustee's failure to give any requisite notice). See "-- The Leases -- Lease Events of Default." Such remedies may be exercised by the related Loan Trustee to the exclusion of the related Owner Trustee, subject to certain conditions specified in such Indenture, and Northwest, subject to the terms of such Lease. Any Aircraft sold in the exercise of such remedies will be free and clear of any rights of those parties, including the rights of Northwest under the Lease with respect to such Aircraft. (Indentures, Section 4.04; Leases, Section 15) If the Equipment Notes issued in respect of one Aircraft are in default, the Equipment Notes issued in respect of the other Aircraft may not be in default, and, if not, no remedies will be exercisable under the applicable Indentures with respect to such other Aircraft. Section 1110 of the Bankruptcy Code provides that the right of lessors, conditional vendors and holders of security interests with respect to "equipment" (as defined in Section 1110 of the Bankruptcy Code) to take possession of such equipment in compliance with the provisions of a lease, conditional sale contract or security agreement, as the case may be, is not affected after 60 days after the filing of petition under Chapter 11 of the Bankruptcy Code by (a) the automatic stay provision of the Bankruptcy Code, which provision enjoins S-56 57 repossessions by creditors for the duration of the reorganization period, (b) the provision of the Bankruptcy Code allowing the trustee in reorganization to use property of the debtor during the reorganization period, (c) Section 1129 of the Bankruptcy Code (which governs the confirmation of plans of reorganization in Chapter 11 cases) and (d) any power of the bankruptcy court to enjoin a repossession. Section 1110 provides that the right to take possession of an aircraft may not be exercised for 60 days following the date of commencement of the reorganization proceedings and may not be exercised at all after such 60-day period (or such longer period consented to by the lessor, conditional vendor or holder of a security interest), if the trustee in reorganization agrees to perform the debtor's obligations that become due on or after such date and cures all existing defaults (other than defaults resulting solely from the financial condition, bankruptcy, insolvency or reorganization of the debtor). "Equipment" is defined in Section 1110 of the Bankruptcy Code, in part, as "an aircraft, aircraft engine, propeller, appliance, or spare part (as defined in section 40102 of title 49) that is subject to a security interest granted by, leased to, or conditionally sold to a debtor that is a citizen of the United States (as defined in section 40102 of title 49) holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of title 49 for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo". The Bankruptcy Reform Act amended Section 1110 by, among other things, providing that the lessor under a lease of aircraft first placed in service on or prior to the date of the enactment of that Act will be entitled to the benefits of Section 1110 if the lessor and the lessee have expressed in the applicable agreement or in a substantially contemporaneous writing that the applicable agreement is to be treated as a lease for Federal income tax purposes. Each of the Leases relating to the two Aircraft placed in service prior to the enactment of the Bankruptcy Reform Act contains such a written statement. Cadwalader, Wickersham & Taft, special leveraged lease counsel to Northwest, has advised the Loan Trustees that, if Northwest were to become a debtor under Chapter 11 of the Bankruptcy Code, the Owner Trustee, as lessor under each of the Leases, and the Loan Trustee, as assignee of such Owner Trustee's rights under each of the Leases pursuant to each of the related Indentures, would be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the airframe and engines comprising the related Aircraft, but may not be entitled to such benefits with respect to any replacement of an Aircraft after an Event of Loss in the future, the consummation of which is conditioned upon the contemporaneous delivery of an opinion of counsel to the effect that the related Loan Trustee's entitlement to Section 1110 benefits should not be diminished as a result of such replacement. This opinion is subject to certain qualifications and assumptions, including the assumptions that Northwest is and will continue to be a citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of title 49 of the U.S. Code for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo. See "-- The Leases -- Events of Loss". The opinion of Cadwalader, Wickersham & Taft does not address the availability of Section 1110 with respect to the bankruptcy proceedings of any possible sublessee of an Aircraft which may be subleased by Northwest. For a description of certain limitations on the Loan Trustee's exercise of rights contained in the Indenture, see "-- Indenture Defaults, Notice and Waiver". In the event of bankruptcy, insolvency, receivership or like proceedings involving an Owner Participant, it is possible that, notwithstanding that the applicable Aircraft is owned by the related Owner Trustee in trust, such Aircraft and the related Lease and Equipment Notes might become part of such proceeding. In such event, payments under such Lease or on such Equipment Notes may be interrupted and the ability of the related Loan Trustee to exercise its remedies under the related Indenture might be restricted, though such Loan Trustee would retain its status as a secured creditor in respect of the related Lease and the related Aircraft. MODIFICATION OF INDENTURES AND LEASES Without the consent of holders of a majority in principal amount of the Equipment Notes outstanding under any Indenture, the provisions of such Indenture and the Lease, the Participation Agreement and the Trust Agreement corresponding thereto may not be amended or modified, except to the extent indicated below. S-57 58 Certain provisions of any Indenture, and of the Lease, the Participation Agreement, and the Trust Agreement related thereto, may be amended or modified by the parties thereto without the consent of the relevant Loan Trustee or any holders of the Equipment Notes outstanding under such Indenture, subject to certain conditions. In the case of each Lease, such provisions include, among others, provisions relating to (i) the return to the related Owner Trustee of the related Aircraft at the end of the term of such Lease, (ii) the voluntary early termination of such Lease by Northwest, and (iii) the renewal of such Lease and the option of Northwest at the end of the term of such Lease to purchase the related Aircraft. (Indentures, Section 9.01) Without the consent of the holder of each Equipment Note outstanding under any Indenture affected thereby, no amendment of or supplement to such Indenture may among other things (a) reduce the principal amount of, or Make-Whole Premium, if any, or interest payable on, any Equipment Notes issued under such Indenture or change the date on which any principal or Make-Whole Premium, if any, or interest is due and payable, (b) create any security interest with respect to the property subject to the lien of such Indenture, except as provided in such Indenture, or deprive any holder of an Equipment Note issued under such Indenture of the benefit of the lien of such Indenture upon the property subject thereto or (c) reduce the percentage in principal amount of outstanding Equipment Notes issued under such Indenture necessary to modify or amend any provision of such Indenture or to waive compliance therewith. (Indentures, Section 9.01(b)) INDEMNIFICATION Northwest will be required to indemnify each Loan Trustee, each Owner Participant and each Owner Trustee for certain losses, claims and other matters. Northwest is required under certain circumstances to indemnify each Owner Participant against the loss of depreciation deductions and certain other benefits allowable for certain income tax purposes with respect to the related Aircraft. Each Owner Trustee indemnifies the Loan Trustee to the extent not reimbursed by Northwest. Prior to seeking indemnification from the Indenture Estate, the Loan Trustee will demand and take necessary action to pursue indemnification under the Participation Agreement. If necessary, the Loan Trustee is entitled to indemnification from the Indenture Estate for any liability, obligation, loss, damage, penalty, claim or action to the extent not reimbursed by Northwest. The Loan Trustee is not indemnified, however, for actions arising from its gross negligence, willful misconduct or, in the case of handling funds, negligence, or for the inaccuracy of any representation or warranty made in its individual capacity under the Indenture. Each Owner Participant is required to indemnify the related Loan Trustee and the holders of the Equipment Notes issued with respect to the Aircraft in which such Owner Participant has an interest for certain losses that may be suffered as a result of the failure of such Owner Participant to discharge certain liens or claims on or against the assets subject to the lien of the related Indenture. The Loan Trustee is not under any obligation to take any action, risk liability or expend its own funds under the Indenture if it has reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it. THE GUARANTY NWA Corp. irrevocably, fully and unconditionally guarantees the payment and performance of all obligations of Northwest as lessee under each Lease. If Northwest fails to make a payment or perform a nonfinancial obligation when due for any reason, including liquidation, bankruptcy or reorganization, NWA Corp. will make the payment and perform any nonfinancial obligations. The Guaranty is an absolute, present and continuing guaranty of performance and payment rather than collectibility, and it is not contingent upon any attempt to collect payment from or file suit against Northwest. S-58 59 THE LEASES Each Aircraft is leased by an Owner Trustee to Northwest under the relevant Lease. Terms and Rentals Each Aircraft is leased separately for a term commencing on the date of the delivery of such Aircraft to the relevant Owner Trustee and expiring not earlier than the latest maturity date of the Equipment Notes issued pursuant to the related Indenture. Basic Rent payments for each Aircraft are payable semiannually on each Lease Payment Date. Such payments, together with certain other payments that Northwest is obligated to make or cause to be made under the related Lease, have been assigned by the Owner Trustee under the related Indenture to provide the funds necessary to make payments of principal and interest due or expected to be due from the Owner Trustee on the Equipment Notes issued under such Indenture and Liquidity Obligations under the related Liquidity Facility. In certain cases, the Basic Rent payments under the Leases may be adjusted, but each Lease provides that under no circumstances will rent payments by Northwest be less than the scheduled payments on the related Equipment Notes. (Leases, Section 3) The balance of any such semiannual Basic Rent payment and such other payments, after payment of amounts due or expected to be due on the related Equipment Notes and certain other amounts, including certain amounts owing to the Liquidity Provider, will be paid over to the related Owner Participant. (Indentures, Section 3.01) Northwest's obligations to pay rent and to make, or cause to be made, other payments under each Lease are senior unsecured obligations of Northwest and will rank pari passu in right of payment with all other senior unsecured indebtedness of Northwest, but may not be senior in right of payment to any future subordinated indebtedness of Northwest. The rental obligations will also be effectively subordinated to any secured indebtedness of Northwest to the extent of the value of the assets securing such indebtedness and will be effectively subordinated to all obligations of Northwest's subsidiaries. Net Lease Northwest's obligations in respect of each of the Aircraft are those of a lessee under a "net lease." Accordingly, Northwest is obligated to cause the Aircraft under each Lease to be duly registered in the name of the Owner Trustee (or Northwest in connection with the re-registration of the Aircraft in certain jurisdictions), to pay all costs of operating the Aircraft and, at the expense of Northwest and to the extent set forth in such Lease, to maintain, service, repair and overhaul the Aircraft (or cause the Aircraft to be maintained, serviced, repaired and overhauled) so as to keep the Aircraft in as good operating condition as delivered to Northwest under the Lease, ordinary wear and tear excepted, and, in such condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times (a) under the Aviation Act except, subject to certain limitations under certain Leases, when all aircraft of the same model and type powered by engines of the same type and registered in the United States have been grounded by the FAA, or (b) subject to certain limitations under certain Leases, under the applicable laws of any other jurisdiction in which the Aircraft may be registered. Notwithstanding anything to the contrary set forth above (except with respect to certain Leases), Northwest is also required to cause the Aircraft then subject to such Leases to be maintained in accordance with maintenance standards approved by, or substantially equivalent to those required by, the FAA or the central civil aviation authority of Canada, France, Germany, Japan, the Netherlands or the United Kingdom. In all cases Northwest will utilize, except when a sublease is in effect, the same manner and (except with respect to one Lease) standards of maintenance, service, repair or overhaul used by Northwest with respect to similar aircraft operated by Northwest in similar circumstances and, during any period that a sublease is in effect, cause the Sublessee thereunder to agree to utilize the same manner and (except with respect to one Lease) standards of maintenance, service, repair or overhaul used by such Sublessee with respect to similar aircraft operated by such Sublessee in similar circumstances. (Leases, Section 7(a)) Northwest will not (and will not permit any Sublessee to) maintain, use, service, repair, overhaul or operate any Aircraft in violation of any law or any rule, regulation, order or certificate of any government having jurisdiction over such Aircraft, or in violation of any airworthiness certificate, license or registration S-59 60 relating to such Aircraft, except to the extent Northwest (or any Sublessee) is in good faith contesting the validity or application of any such requirements, in any reasonable manner which, among other things specified in each Lease, does not materially adversely affect the Owner Trustee or, with respect to certain Leases, the relevant Owner Participant or the relevant Loan Trustee. (Leases, Section 7(a)) Northwest must make (or cause to be made) all alterations, modifications and additions to each Airframe and Engine necessary to meet the applicable standards of the FAA or any other applicable governmental authority of another jurisdiction in which the Aircraft may be registered; provided, however, that Northwest (or any Sublessee) may in good faith contest the validity or application of any such standards in any reasonable manner which, among other things specified in each Lease, does not adversely affect the Owner Trustee or (with respect to certain Leases) the relevant Owner Participant or the relevant Loan Trustee. Northwest (or any Sublessee) may add further parts and make other alterations, modifications and additions to any Airframe or any Engine as Northwest (or any Sublessee) may deem desirable in the proper conduct of its business, including removal of parts determined by Northwest (or any Sublessee) in its reasonable judgment to be obsolete or no longer suitable or appropriate for use, so long as such alterations, modifications or additions, do not, among other things specified in each Lease, (x) diminish (or in the case of certain Leases, materially diminish) the value, utility or remaining useful life of such Airframe or Engine, below the value, utility or remaining useful life thereof immediately prior to such alteration, modification, addition or removal (assuming such Airframe or Engine was maintained in accordance with the Lease), except that the value (but not the utility or remaining useful life) of any Airframe or Engine may be reduced from time to time by the value of the obsolete parts which are removed so long as the aggregate original cost (or, as specified in certain Leases, aggregate current value) of such obsolete parts removed and not replaced shall not exceed $600,000 (or such lesser amount specified in certain Leases, but in no event less than $400,000). Title to parts incorporated or installed in or added to such Airframe or Engine as a result of such alterations, modifications or additions vest in the Owner Trustee subject to certain exceptions. In certain circumstances, Northwest (or any Sublessee) is permitted to remove parts which were added by Northwest (or any Sublessee) (without replacement) from an Airframe or Engine so long as certain conditions are met and any such removal does not, among other things specified in each Lease, diminish or impair (or in the case of certain Leases, materially diminish or impair) the value, utility, or remaining useful life which such Airframe or Engine would have had at such time had such addition, alteration or modification not occurred. (Leases, Section 8) Except as set forth above, Northwest is obligated to replace or cause to be replaced all parts (other than severable parts added at the option of Northwest or unsuitable parts that Northwest is permitted to remove to the extent described above) that are incorporated or installed in or attached to any Airframe or any Engine and become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use. Any such replacement parts become subject to the related Lease and the lien of the related Indenture in lieu of the part replaced. (Leases, Section 8(a)) Registration, Subleasing and Possession Although Northwest has no current intention to do so, Northwest may, under certain circumstances, register an Aircraft in certain jurisdictions outside the United States, subject to, among other conditions specified in each Lease, the lien of the related Indenture continuing as a first priority security interest in the related Aircraft and Lease. Northwest is also permitted, subject to certain limitations, to sublease any Aircraft to any United States certificated air carrier or to certain foreign entities so long as the term of any such sublease does not extend beyond the term of the Lease applicable to such Aircraft subject to certain exceptions. In addition, subject to certain limitations, Northwest is permitted to transfer possession of any Airframe or any Engine other than by sublease, including transfers of possession by Northwest or any Sublessee in connection with certain interchange and pooling arrangements, transfers to the United States government and any instrumentality or agency thereof, "wet leases" and transfers in connection with maintenance or modifications. There are no general geographical restrictions on Northwest's (or any Sublessee's) ability to operate the Aircraft. The extent to which the relevant Loan Trustee's lien would be recognized in an Aircraft if such Aircraft were located in certain countries is uncertain. See "Description of S-60 61 the Equipment Notes -- Remedies." In addition, any exercise of the right to repossess an Aircraft may be difficult, expensive and time-consuming, particularly when such Aircraft is located outside the United States and has been registered in a foreign jurisdiction or subleased to a foreign operator, and may be subject to the limitations and requirements of applicable law, including the need to obtain consents or approvals for deregistration or re-export of the Aircraft, which may be subject to delays and political risk. When a defaulting Sublessee or other permitted transferee is the subject of a bankruptcy, insolvency or similar event such as protective administration, additional limitations may apply. (Leases, Section 7(b)) In addition, at the time of obtaining repossession of the Aircraft under the related Lease or foreclosing on the lien on the Aircraft under the related Indenture, an Airframe subject to such Lease may not be equipped with Engines subject to the same Lease and, in such case, Northwest is required to deliver engines attached to such Airframe which have not less than equivalent value, utility and remaining useful life as the Engines subject to such Lease. Notwithstanding Northwest's agreement in each Lease, in the event Northwest fails to transfer title to engines not owned by the Owner Trustee that are attached on repossessed Aircraft, it could be difficult, expensive and time-consuming to assemble an Aircraft consisting of an Airframe and Engines subject to the Lease. See "Risk Factors -- Risk Factors Relating to the Certificates and the Offering -- Repossession." Liens Northwest is required to maintain each Aircraft free of any liens, other than the respective rights of the Owner Trustee as owner of the Aircraft, and Northwest as provided in the Lease, the lien of the Indenture, and any other rights existing pursuant to the Operative Documents related thereto, the rights of others in possession of the Aircraft in accordance with the terms of the Lease (including Sublessees), and other than certain other customary liens permitted under such documents, including liens for taxes of Northwest or any Sublessee either not yet due or being contested in good faith by appropriate proceedings so long as such proceedings do not, among other things as may be specified in each Lease, involve any material danger of the sale, forfeiture or loss of such Airframe or any Engine or any interest therein; materialmen's, mechanics' and other similar liens arising in the ordinary course of Northwest's (or any Sublessee's) business securing obligations that are not overdue for a period of more than 45 days with respect to certain Leases, or 60 days with respect to other Leases, or are being contested in good faith by appropriate proceedings not involving any material danger of the sale, forfeiture or loss of such Airframe or Engines or any interest therein; judgment liens discharged, vacated or reversed within a period of between 30 and 60 days as specified in, and subject to other limitations which may be contained in, each Lease, and any other lien with respect to which Northwest (or any Sublessee) has provided a bond or other security adequate in the reasonable opinion of the relevant Owner Trustee. (Leases, Section 6) Insurance Subject to certain exceptions, Northwest is obligated, at its or any Sublessee's expense, to maintain or cause to be maintained on each Aircraft, with insurers of recognized responsibility, public liability and property damage insurance (exclusive of manufacturer's product liability insurance) and all-risk aircraft hull insurance, in such amounts, covering such risks and in such form as Northwest customarily maintains with respect to other aircraft owned or operated by Northwest, in each case similar to such Aircraft; provided, however, that, except to the extent of any self-insurance, the all-risk hull insurance shall be at least in an amount equal to the Stipulated Loss Value (as defined in each Lease) of such Aircraft. (Leases, Sections 11(a) and 11(b)) Subject to certain exceptions, the policies covering loss of or damage to an Aircraft shall be made payable, up to the Stipulated Loss Value for such Aircraft, to the related Loan Trustee for any loss involving proceeds in excess of $5,000,000 (or such lower amount as may be specified under the relevant Lease) and the entire amount of any loss involving proceeds of $5,000,000 (or such lower amount as may be specified under the relevant Lease) or less shall be paid to Northwest so long as the related Owner Trustee or the related Loan Trustee has not notified the insurers that (i) a Lease Event of Default or (ii) under certain Leases, a Lease Payment Default under such Lease exists. (Leases, Section 11(b)) S-61 62 With respect to any insurance required, Northwest may self-insure by way of deductible, premium adjustment or otherwise under a program applicable to all aircraft in Northwest's fleet; provided, that, the aggregate amount of such self-insurance during any policy year shall not be in excess of the lower of (a) 50% of the largest replacement value of any single aircraft in Northwest's fleet or (b) 1 1/2% of the average aggregate insurable value of all aircraft on which Northwest carries insurance. In addition, Northwest (and any Sublessee) may self-insure to the extent of any applicable minimum amount of hull or liability insurance deductible imposed by the aircraft hull or liability insurers. (Leases, Section 11(d)) In respect of each Aircraft, Northwest is required to cause the relevant Owner Trustee and Loan Trustee and certain other persons to be included as additional insureds as their respective interests may appear under all insurance policies required by the terms of each Lease with respect to such Aircraft. (Leases, Sections 11(a) and 11(b)) Subject to certain customary exceptions, Northwest may not operate (or permit any Sublessee to operate) any Aircraft in any area that is excluded from coverage by any insurance policy in effect with respect to such Aircraft and required by the Lease. (Leases, Section 7(a)) Northwest's obligation to provide any insurance required by each Lease shall be satisfied if indemnification from, or insurance provided by, the United States government or one of certain other permitted foreign governments or any agency or instrumentality thereof, against the risks requiring such insurance under such Lease is at least equal, when added to the amount of insurance against such risks otherwise maintained by Northwest (or any Sublessee), to the amount of insurance against such risks otherwise required by such Lease. (Leases, Section 11(f)) Lease Termination Northwest may terminate (but under certain Leases, only so long as no Lease Event of Default has occurred and is continuing) any Lease on any Lease Payment Date occurring on or after (a) with respect to certain Leases, the fifth anniversary of the delivery date of the Aircraft subject to such Lease (which date in the case of the Leases relating to the Boeing 747 Aircraft has already occurred) or (b) with respect to other Leases, January 2, 2003, if (unless otherwise specified in such Lease) it determines that such Aircraft is obsolete or surplus to its needs and subject to certain other limitations specified in such Lease. Upon payment of termination value for such Aircraft which will be in an amount at least equal to the outstanding principal amount of the related Equipment Notes and an amount equal to the Make-Whole Premium, if any, payable on such date of payment, together with certain additional amounts and together with all accrued and unpaid interest thereon, the lien of the relevant Indenture shall be released, the relevant Lease shall terminate, and the obligation of Northwest thereafter to make scheduled rent payments under such Lease shall cease. (Leases, Section 9; Indentures, Sections 2.10(b), 2.12 and 2.13) Notwithstanding the foregoing, under certain Leases, Northwest may exercise its termination option by purchasing the related Aircraft for the amount described in the preceding sentence and, in the event Northwest elects to purchase such Aircraft, in lieu of paying the amount described in the preceding sentence, Northwest may elect to assume on a full recourse basis all of the related Owner Trustee's obligations in respect of the Equipment Notes subject to the satisfaction of certain conditions. (Leases, Section 9(b), Indentures, Sections 2.10(b) and 2.13, Participation Agreements, Section 8(x)) See "Description of the Equipment Notes -- Redemption". Renewal and Purchase Options At the end of the term of each Lease after final maturity of the related Equipment Notes and subject to certain conditions, Northwest will have certain options to renew such Lease for additional limited periods. In addition, Northwest will have the right at the end of the term of each Lease to purchase the Aircraft subject thereto for an amount to be calculated in accordance with the terms of such Lease. (Leases, Section 19) Northwest will also have the option to purchase (in addition to its purchase option in connection with termination under certain Leases as described in the preceding section) the Aircraft subject to each Lease on certain Lease Payment Dates occurring in or after the year 2011. In the event Northwest exercises a purchase option in respect of an Aircraft, the purchase price therefor shall be calculated in accordance with the S-62 63 provisions of the related Lease, but in any event shall be sufficient to pay all principal of, Make-Whole Premium, if any, on and interest on the related Equipment Notes in full and, upon payment thereof, Northwest shall acquire such Aircraft free of the lien of the related Indenture, unless upon satisfaction of certain conditions, Northwest chooses to assume on a full recourse basis all of such Owner Trustee's obligations in respect of the related Equipment Notes and acquires the Aircraft subject to the lien of the related Indenture. (Leases, Section 19; Indentures, Sections 2.10(b) and 2.13; Participation Agreements, Section 8(x)) See "-- Description of the Notes -- Redemption". Events of Loss If an Event of Loss occurs with respect to any Aircraft, Northwest is obligated either (i) to replace such Aircraft or (ii) to pay to the related Owner Trustee the applicable Stipulated Loss Value, together with certain additional amounts. If Northwest elects to replace such Aircraft, it must do so no later than the Business Day next succeeding the 120th day after the related Event of Loss, or (with respect to certain Leases), if later, the Lease Payment Date next succeeding the occurrence of such Event of Loss, with an airframe or airframe and engines of the same or improved make and model free and clear of all liens (other than certain permitted liens) and having a value, utility and remaining useful life at least equal to such Aircraft immediately prior to the Event of Loss, assuming maintenance thereof in accordance with the relevant Lease. If Northwest elects to pay the Stipulated Loss Value for such Aircraft or (except if otherwise provided in the relevant Lease) elects to replace such Aircraft but fails to do so within the time periods specified therefor, Northwest must make such payment not later than the Business Day next succeeding 120 days after the related Event of Loss. Upon making such payment, together with all other amounts then due under the related Lease with respect to such Aircraft, which in all circumstances will be at least sufficient to pay in full as of the date of payment the principal amount of the related Equipment Notes and all accrued and unpaid interest due thereon (but without any Make-Whole Premium), the Lease for such Aircraft shall terminate and the obligation of Northwest to make the scheduled Basic Rent payments with respect thereto shall cease. (Leases, Sections 3(d)(v) and 10(a); Indentures, Section 5.06) If an Event of Loss occurs with respect to an Engine alone, Northwest is required to replace such Engine within 60 days from the date of such Event of Loss with another engine, free and clear of all liens (other than certain permitted liens), of the same or improved make and model (subject to certain exceptions) and having a value, utility and remaining useful life at least equal to the Engine being replaced (assuming that such Engine had been maintained in accordance with the Lease). (Leases, Section 10(b); Indentures, Section 5.06) An "Event of Loss" with respect to an Aircraft, Airframe or any Engine means any of the following events with respect thereto: (i) loss of such property or its use due to destruction or damage rendering repair uneconomic or such property permanently unfit for normal use by Northwest; (ii) any damage to such property which results in an insurance settlement with respect to such property on the basis of a total loss or constructive or compromised total loss; (iii) the theft, disappearance, confiscation, condemnation or seizure of, or requisition of title to or use of, such property (other than a requisition for use by the United States government or certain other specified governments of registry of the Aircraft or any agency or instrumentality thereof), involving, in the case of any event referred to in this clause (iii), loss of possession of such property for a period of more than 180 consecutive days or, with respect to certain Leases, in the case of a requisition of title, such requisition has not been reversed within 90 days, or such shorter period up to 90 days as specified in such Leases; (iv) except as otherwise provided in each Lease, as a result of any law, rule, regulation, order or other action by the FAA, or any other governmental authority of the country of registry of such property, the use of such property in the normal course of business of air transportation shall have been prohibited for 180 consecutive days, unless Northwest, prior to the expiration of such 180-day period, has S-63 64 undertaken and is diligently carrying forward all steps necessary or desirable to permit normal use of such property, but in any event (except with respect to one Lease and subject to certain limitations) if such prohibition has continued for a period of up to three years as specified in each Lease; (v) the requisition for use by the United States government or certain other specified governments of registry of the Aircraft or any instrumentality or agency thereof that continues for 30 days beyond the term of the Lease for such Aircraft; (vi) with respect to any Engine, any divestiture of title to an Engine treated as an Event of Loss pursuant to the Lease; and (vii) if so specified in such Lease, the operation of or location of the Aircraft, while under requisition for use by any government, in an area excluded from coverage by any required insurance policy in effect with respect to the Aircraft (subject to certain exceptions). An Event of Loss with respect to an Aircraft is deemed to have occurred if an Event of Loss occurs with respect to the Airframe which is a part of such Aircraft. (Leases, Section 1) Lease Events of Default Although there are differences among the Leases, Lease Events of Default generally include: (i) with respect to certain Leases, failure by Northwest to pay any payment of Basic Rent under such Lease within 10 Business Days after the same shall have become due, or, with respect to certain other Leases, failure by Northwest to pay any payment of Basic Rent or Stipulated Loss Value under such Lease within 10 days after the same shall have become due; (ii) failure by Northwest to pay Supplemental Rent (other than Stipulated Loss Value in the event Stipulated Loss Value is included in clause (i) under certain Leases) within 10 Business Days after Northwest's receipt of written demand therefor; (iii) failure by Northwest to perform or observe any other covenant or agreement to be performed or observed by it under such Lease or related Participation Agreement, and such failure shall have continued unremedied for a period of 30 days after Northwest shall have received written notice of such failure from the Owner Trustee or the Loan Trustee; provided, however, that no such failure with respect to covenants in such Lease pertaining to maintenance, service repair, alteration, modification and replacement of parts shall constitute a Lease Event of Default so long as such failure is curable and Northwest is diligently proceeding to remedy such failure, and, if specified in such Lease, such failure is remedied within 180 days of receipt of such notice; (iv) any representation or warranty made by Northwest under such Lease, the related Participation Agreement or the related Refunding Agreement, or any other document or certificate furnished by Northwest in connection therewith, shall have proved to have been incorrect in any material respect when made and shall remain unremedied for a period of 30 days after notice to Northwest of such incorrectness by the Owner Trustee or the Loan Trustee; (v) the occurrence of certain events of bankruptcy, reorganization or insolvency of Northwest; and (vi) failure by Northwest to carry and maintain (or cause to be carried and maintained) insurance on or in respect of any Aircraft in accordance with the provisions of such Lease, subject to certain exceptions. No event will constitute a Lease Event of Default if such event is caused solely by reason of an event that constitutes an Event of Loss and Northwest is complying with the terms relating to an Event of Loss of the Aircraft set forth in such Lease. (Leases, Section 14) If a Lease Event of Default has occurred and is continuing and the Lease has been declared to be in default, the Owner Trustee may, subject to certain limitations relating to aircraft subject to the Civil Reserve Air Fleet Program, exercise one or more of the remedies provided in such Lease with respect to the related Aircraft. Such remedies include the right to repossess and use or operate such Aircraft, to sell or re-lease such Aircraft free and clear of Northwest's rights and retain the proceeds and to require Northwest to pay as liquidated damages any accrued and unpaid Basic Rent plus an amount equal to the excess of the Stipulated Loss Value of such Aircraft over either (i) the fair market sales value or fair market rental value of such Aircraft (as determined by independent appraisal) or (ii) if such Aircraft has been sold, the net sale proceeds thereof. (Leases, Section 15) S-64 65 Certain Defined Terms Under the Leases "Basic Rent" means, for any Aircraft, the scheduled rent payable semiannually for the term for such Aircraft pursuant to the related Lease. "Civil Reserve Air Fleet Program" means the Civil Reserve Air Fleet Program currently administered by the United States Air Force Air Mobility Command pursuant to Executive Order No. 11490, as amended, or any substantially similar program of the United States government. "Lease Payment Dates" means, with respect to each Lease, January 2 and July 2 of each year during the term of such Lease. "Lease Payment Default" means, a default under a Lease relating to either payments of rent or involuntary bankruptcy or similar events. "Sublessee" means any sublessee under a Lease from time to time. "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which are owed by Northwest under such Lease, the related Participation Agreement and the agreements related thereto. THE PARTICIPATION AGREEMENT Indemnification Subject to certain exceptions, Northwest has agreed to indemnify, among others, each Owner Participant, each Owner Trustee, each of the Trustees and each of the Loan Trustees, but not the holders of the Certificates, for certain liabilities, losses, fees and expenses and for certain other matters arising out of the transactions described herein or relating to the Aircraft. In addition, under certain circumstances Northwest is required to indemnify such persons, but not the holders of the Certificates, against certain taxes, levies, duties, withholdings and for certain other matters (but excluding, among other things, income and capital gains taxes) relating to such transactions or the Aircraft. Transfer of Owner Participant Interests Subject to certain restrictions, each Owner Participant may transfer its beneficial interest in the relevant Owner Trust. S-65 66 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES GENERAL The following summary describes the principal U.S. federal income tax consequences to Certificateholders of the purchase, ownership and disposition of the Certificates offered hereby. Except as otherwise specified, the summary is addressed to beneficial owners of Certificates ("U.S. Certificateholders") that are citizens or residents of the United States, corporations, partnerships or other entities created or organized in or under the laws of the United States or any State, or estates or trusts the income of which is subject to U.S. federal income taxation regardless of its source ("U.S. Persons") that will hold the Certificates as capital assets. This summary does not address the tax treatment of U.S. Certificateholders that may be subject to special tax rules, such as banks, insurance companies, dealers in securities or commodities, tax-exempt entities, holders that will hold Certificates as part of a straddle or holders that have a "functional currency" other than the U.S. Dollar, nor does it address the tax treatment of U.S. Certificateholders that do not acquire Certificates as part of the initial offering. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase Certificates. This summary does not describe any tax consequences arising under the laws of any State, locality or taxing jurisdiction other than the United States. The summary is based upon the tax laws and practice of the United States as in effect on the date of this Prospectus Supplement, as well as judicial and administrative interpretations thereof (in final or proposed form) available on or before such date. All of the foregoing are subject to change, which change could apply retroactively. Prospective investors should note that no rulings have been or will be sought from the Internal Revenue Service with respect to any of the U.S. federal income tax consequences discussed below and no assurance can be given that the Internal Revenue Service will not take contrary positions. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES. TAX STATUS OF THE TRUSTS In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to Northwest, each Trust will be classified as a grantor trust and not as an association taxable as a corporation for U.S. federal income tax purposes. Accordingly, each U.S. Certificateholder will be subject to federal income taxation as if it owned directly a pro rata undivided interest in each asset owned by the corresponding Trust and paid directly its share of fees and expenses paid by such Trust. TAXATION OF CERTIFICATEHOLDERS GENERALLY A U.S. Certificateholder will be treated as owning its pro rata undivided interest in each of the Equipment Notes and any other property held by the related Trust. Accordingly, each U.S. Certificateholder's share of interest paid on the Equipment Notes will be taxable as ordinary income, as it is paid or accrued, in accordance with such owner's method of accounting for U.S. federal income tax purposes and a U.S. Certificateholder's share of Make-Whole Premium, if any, paid on the Equipment Notes will be treated as capital gain. Any amounts received by a Trust from Interest Drawings under the relevant Liquidity Facility will be treated for U.S. federal income tax purposes as having the same characteristics as the payments they replace. Each U.S. Certificateholder will be entitled to deduct, consistent with its method of accounting, its pro rata share of fees and expenses paid or incurred by the corresponding Trust as provided in Section 162 or 212 of the Code. Certain fees and expenses, including fees paid to the Trustee and the Liquidity Provider, will be borne by parties other than the Certificateholders. It is possible that such fees and expenses will be treated as constructively received by the Trust, in which event a U.S. Certificateholder will be required to include in income and will be entitled to deduct its pro rata share of such fees and expenses. If a U.S. Certificateholder is an individual, estate or trust, the deduction for such holder's share of such fees or expenses will be allowed only to the extent that all of such holder's miscellaneous itemized deductions, including such holder's share of S-66 67 such fees and expenses, exceed 2% of such holder's adjusted gross income. In addition, in the case of U.S. Certificateholders who are individuals, certain otherwise allowable itemized deductions will be subject generally to additional limitations on itemized deductions under the applicable provisions of the Code. EFFECT OF SUBORDINATION OF CLASS B, CLASS C AND CLASS D CERTIFICATEHOLDERS If any of the Class B Trust, the Class C Trust or the Class D Trust (such Trusts being the "Subordinated Trusts" and the related Certificates being the "Subordinated Certificates") receives less than the full amount of the receipts of principal or interest paid with respect to the Equipment Notes held by it (any shortfall in such receipts being the "Shortfall Amounts") because of the subordination of the Equipment Notes held by such Trust under the Intercreditor Agreement, the corresponding owners of beneficial interests in the Subordinated Certificates (the "Subordinated Certificateholders") would probably be treated for federal income tax purposes as if they had (1) received as distributions their full share of such receipts, (2) paid over to the relevant senior class of Certificateholders an amount equal to their share of such Shortfall Amount, and (3) retained the right to reimbursement of such amounts to the extent of future amounts payable to such Subordinated Certificateholders with respect to such Shortfall Amount. Under this analysis, (1) Subordinated Certificateholders incurring a Shortfall Amount would be required to include as current income any interest or other income of the corresponding Subordinated Trust that was a component of the Shortfall Amount, even though such amount was in fact paid to the relevant senior class of Certificateholders, (2) a loss would only be allowed to such Subordinated Certificateholders when their right to receive reimbursement of such Shortfall Amount became worthless (i.e., when it becomes clear that funds will not be available from any source to reimburse such loss), and (3) reimbursement of such Shortfall Amount prior to such a claim of worthlessness would not be taxable income to Subordinated Certificateholders because such amount was previously included in income. These results should not significantly affect the inclusion of income for Subordinated Certificateholders on the accrual method of accounting, but could accelerate inclusion of income to Subordinated Certificateholders on the cash method of accounting by, in effect, placing them on the accrual method. SALE OR OTHER DISPOSITION OF THE CERTIFICATES Upon the sale, exchange or other disposition of a Certificate, a U.S. Certificateholder generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition (other than any amount attributable to accrued interest which will be taxable as ordinary income) and the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes and any other assets held by the corresponding Trust. A U.S. Certificateholder's adjusted tax basis will equal the holder's cost for its Certificate less any payments of principal received and any previously recognized losses. Any gain or loss will be capital gain or loss if the Certificate was held as a capital asset. FOREIGN CERTIFICATEHOLDERS Subject to the discussion of backup withholding below, payments of principal and interest on the Equipment Notes to, or on behalf of, any beneficial owner of a Certificate that is not a U.S. Person (a "Non-U.S. Certificateholder") will not be subject to U.S. federal withholding tax; provided, in the case of interest, that (i) such Non-U.S. Certificateholder does not actually or constructively own 10% or more of the total combined voting power of all classes of the stock of any Owner Participant or any transferee of such Owner Participant's interest in the relevent Owner Trust, (ii) such Non-U.S. Certificateholder is not a controlled foreign corporation for U.S. tax purposes that is related to an Owner Participant and (iii) either (A) the Non- U.S. Certificateholder certifies, under penalties of perjury, that it is not a U.S. Person and provides its name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the Certificate certifies, under penalties of perjury, that such statement has been received from the Non-U.S. Certificateholder by it or by another financial institution and furnishes the payor with a copy thereof. On April 15, 1996, the Internal Revenue Service issued proposed regulations which, if finalized in the form S-67 68 proposed, would modify the certification requirements described in clauses (iii)(A) and (B) above as they apply to certain payments after December 31, 1997. Any capital gain realized upon the sale, exchange, retirement or other disposition of a Certificate or upon receipt of Make-Whole Premium paid on an Equipment Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income or withholding taxes if (i) such gain is not effectively connected with a U.S. trade or business of the holder and (ii) in the case of an individual, such holder is not present in the United States for 183 days or more in the taxable year of the sale, exchange, retirement or other disposition or receipt. BACKUP WITHHOLDING Payments made on the Certificates and proceeds from the sale of Certificates will not be subject to a backup withholding tax of 31% unless, in general, the Certificateholder fails to comply with certain reporting procedures or otherwise fails to establish an exemption from such tax under applicable provisions of the Code. CERTAIN MASSACHUSETTS AND CONNECTICUT TAXES The Trustee is a Massachusetts trust company with its corporate trust office in Massachusetts. The Subordination Agent is a national banking association with its corporate trust office in Connecticut. In the opinion of Bingham, Dana & Gould LLP, counsel to the Trustee and the Subordination Agent, under currently applicable law, assuming that the Trusts will not be taxable as corporations, but, rather, will be classified as grantor trusts under subpart E, Part I of Subchapter J of the Code, (i) the 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), fee or other governmental charge under the laws of the Commonwealth of Massachusetts or the State of Connecticut or any political subdivision of either thereof and (ii) Certificateholders that are not residents of or otherwise subject to tax in Massachusetts or Connecticut will not be subject to any tax (including, without limitation, net or gross income, tangible or intangible property, net worth, capital, franchise or doing business tax), fee or other governmental charge under the laws of the Commonwealth of Massachusetts or the State of Connecticut or any political subdivision of either thereof as a result of purchasing, holding (including receiving payments with respect to) or selling a Certificate. S-68 69 ERISA CONSIDERATIONS IN GENERAL Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") imposes certain requirements on employee benefit plans subject to ERISA ("ERISA Plans"), and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan's investment be made in accordance with the documents governing the ERISA Plan. Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, "Plans")) and certain persons (referred to as "parties in interest" or "disqualified persons") having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. The Department of Labor has promulgated a regulation, 29 CFR Section 2510.3-101 (the "Plan Asset Regulation"), describing what constitutes the assets of a Plan with respect to the Plan's investment in an entity for purposes of ERISA and Section 4975 of the Code. Under the Plan Asset Regulation, if a Plan invests in a Certificate, the Plan's assets would include both the Certificate and an undivided interest in each of the underlying assets of the corresponding Trust, including the Equipment Notes held by such Trust, unless it is established that equity participation in the Trust by employee benefit plans (including Plans and entities whose underlying assets include plan assets by reason of an employee benefit plan's investment in the entity) is not "significant" within the meaning of the Plan Asset Regulation. In that regard, the extent to which there is equity participation in a particular Trust on the part of employee benefit plans will not be monitored. If the assets of a Trust were deemed to constitute the assets of a Plan, transactions involving the assets of such Trust could be subject to the prohibited transaction provisions of ERISA and Section 4975 of the Code unless a statutory or administrative exemption were applicable to the transaction. The fiduciary of a Plan that proposes to purchase and hold any Certificates should consider whether such purchase and holding may involve the indirect extension of credit to a party in interest or a disqualified person. In addition, whether or not the assets of a Trust are deemed to be Plan Assets under the Plan Asset Regulation, if Certificates are purchased by a Plan and Certificates of a subordinate Class are held by a party in interest or a disqualified person with respect to such Plan, the exercise by the holder of the subordinate Class of Certificates of its right to purchase the senior Classes of Certificates upon the occurrence and during the continuation of a Triggering Event could be considered to constitute a prohibited transaction unless a statutory or administrative exemption were applicable. Depending on the identity of the Plan fiduciary making the decision to acquire or hold Certificates on behalf of a Plan, Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a "qualified professional asset manager"), PTCE 95-60 (relating to investment by an insurance company general account) or PTCE 90-1 (relating to investments by insurance company pooled separate accounts) (collectively, the "Class Exemptions") could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. There can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Certificates. Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to state or other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before purchasing any Certificates. Any Plan fiduciary which proposes to cause a Plan to purchase any Certificates should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of S-69 70 ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase and holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA. CLASS A CERTIFICATES In addition to the Class Exemptions, an individual exemption may apply to the purchase, holding and secondary market sale of Class A Certificates by Plans, provided that certain specified conditions are met. In particular, the Department of Labor has issued individual administrative exemptions to certain of the Underwriters which are substantially the same as the administrative exemption issued to Morgan Stanley & Co. Incorporated, Prohibited Transaction Exemption 90-24 (55 Fed. Reg. 20,548 (1990) (the "Underwriter Exemption"), which generally exempts from the application of certain, but not all, of the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code certain transactions relating to the initial purchase, holding and subsequent secondary market sale of pass-through certificates which represent an interest in a trust, the assets of which include equipment notes secured by leases, provided that certain conditions set forth in the Underwriter Exemption are satisfied. The Underwriter Exemption sets forth a number of general and specific conditions which must be satisfied for a transaction involving the initial purchase, holding or secondary market sale of Class A Certificates to be eligible for exemptive relief thereunder. In particular, the acquisition of Class A Certificates by a Plan must be on terms that are at least as favorable to the Plan as they would be in an arm's length transaction with an unrelated party; the rights and interests evidenced by the Certificates must not be subordinated to the rights and interests evidenced by other Certificates of the same trust estate; the Certificates at the time of acquisition by the Plan must be rated in one of the three highest generic rating categories by Moody's, Standard & Poor's, Duff & Phelps Inc. or Fitch; and the investing Plan must be an accredited investor as defined in Rule 501(a)(1) of Regulation D of the Commission under the Securities Act. The Underwriter Exemption does not apply to the Class B Certificates, the Class C Certificates or the Class D Certificates. Even if all of the conditions of the Underwriter Exemption are satisfied with respect to the Class A Certificates, no assurance can be given that the Underwriter Exemption would apply with respect to all transactions involving the Class A Certificates or the assets of the Class A Trust. In particular, it appears that the Underwriter Exemption would not apply to the purchase by Class B Certificateholders, Class C Certificateholders or Class D Certificateholders of Class A Certificates in connection with the exercise of their rights upon the occurrence and during the continuance of a Triggering Event. Therefore, the fiduciary of a Plan considering the purchase of a Class A Certificate should consider the availability of the exemptive relief provided by the Underwriter Exemption, as well as the availability of any other exemptions with respect to transactions to which the Underwriter Exemption may not apply. CLASS B, CLASS C AND CLASS D CERTIFICATES The Class B Certificates, Class C Certificates and Class D Certificates may not be acquired with the assets of a Plan, provided, however, that such Certificates may be acquired with the assets of an insurance company general account that may be deemed to constitute Plan assets if the conditions of Prohibited Transaction Class Exemption 95-60 (60 Fed. Reg. 35,925) have been satisfied. By the acceptance of a Class B, C or D Certificate, each Certificateholder will be deemed to have represented that either (i) no Plan assets have been used to purchase such Certificate or (ii) the purchase and holding of such Certificate is exempt from the prohibited transaction restrictions of ERISA and the Code pursuant to PTCE 95-60. EACH PLAN FIDUCIARY (AND EACH FIDUCIARY FOR A GOVERNMENTAL OR CHURCH PLAN SUBJECT TO RULES SIMILAR TO THOSE IMPOSED ON PLANS UNDER ERISA) SHOULD CONSULT WITH ITS LEGAL ADVISOR CONCERNING AN INVESTMENT IN ANY OF THE CERTIFICATES. S-70 71 UNDERWRITING Subject to the terms and conditions set forth in the underwriting agreement with Northwest (the "Underwriting Agreement"), the underwriters named below (collectively, the "Underwriters") have severally agreed to purchase from the Trustee the percentage of Certificates of each Trust and the aggregate principal amount of Certificates of each Trust, in each case as set forth opposite its name below:
TOTAL AGGREGATE PERCENTAGE OF PRINCIPAL AMOUNT OF UNDERWRITER EACH CLASS CERTIFICATES ------------------------------------------------------- ------------- ------------------- Morgan Stanley & Co. Incorporated...................... % $ BT Securities Corporation.............................. Citicorp Securities, Inc............................... CS First Boston Corporation............................ PaineWebber Incorporated............................... ------ ------------------- Total........................................ 100% $ 521,979,627 ========== ==============
The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the Certificates are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the Certificates to be purchased by them if any are taken. The Underwriters initially propose to offer all or part of the Certificates directly to the public at the public offering price per Certificate designation set forth on the cover page of this Prospectus Supplement and may offer a portion of the Certificates to dealers at a price which represents a concession not in excess of the amounts set forth below for the respective designations of the Certificates. The Underwriters may allow, and such dealers may reallow, a concession not in excess of the amounts set forth below for the respective designations of the Certificates for certain dealers. After the initial public offering, the public offering prices and such concessions may from time to time be varied by the Underwriters.
PASS THROUGH CONCESSION REALLOWANCE CERTIFICATE DESIGNATION TO DEALERS CONCESSION --------------------------------------- ---------- ----------- 1996-1A % % 1996-1B % % 1996-1C % % 1996-1D % %
Northwest has agreed to indemnity the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. Northwest does not intend to apply for listing of the Certificates on a national securities exchange, but has been advised by the Underwriters that they presently intend to make a market in the Certificates, as permitted by applicable laws and regulations. No Underwriter is obligated, however, to make a market in the Certificates and any such market making may be discontinued at any time at the sole discretion of such Underwriter. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Certificates. BT Securities Corporation is an affiliate of Bankers Trust Company of New York ("BTNY") and Bankers Trust Company ("BTCo."). As of April 30, 1996, BTNY owned 2,636,019 shares of NWA Corp.'s outstanding common stock. BTCo. is the administrative agent and a lender under NWA Corp.'s principal credit agreement, for which it receives customary compensation. George J. Vojta, who is a director of NWA Corp., is vice chairman and a director of both BTNY and BTCo. Affiliates of CS First Boston Corporation also are lenders under such credit agreement. Less than 10% of the proceeds of the offering of the Certificates will be used to refinance indebtedness owed to affiliates of each of BT Securities Corporation and CS First Boston Corporation. See "Use of Proceeds". S-71 72 The Underwriters and certain of their respective affiliates perform investment banking, commercial banking and other financial services for Northwest, NWA Corp. and certain of their affiliates in the ordinary course of business. It is expected that delivery of the Certificates will be made against payment therefor on or about the date specified in the last paragraph of the cover page of this Prospectus Supplement, which will be the fifth business day following the date of pricing of the Certificates (such settlement cycle being herein referred to as "T+5"). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Certificates on the date of pricing or the next succeeding business day will be required, by virtue of the fact that the Certificates initially will settle in T+5, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of Certificates who wish to trade Certificates on the date of pricing or the next succeeding business day should consult their own advisor. LEGAL MATTERS The validity of the Certificates offered hereby will be passed upon for NWA Corp. and Northwest by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York, and for the Underwriters by Shearman & Sterling, New York, New York. Certain federal income tax matters with respect to the Trust and Certificateholders will be passed upon by Cadwalader, Wickersham & Taft, special tax counsel to Northwest. The respective counsel for Northwest and the Underwriters may rely upon Bingham, Dana & Gould LLP, Hartford, Connecticut, counsel to State Street Bank and Trust Company, as to certain matters relating to the authorization, execution and delivery of the Basic Agreement, each Trust Supplement and the issuance of the Certificates. INDEPENDENT AUDITORS The consolidated financial statements of NWA Corp. at December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, incorporated by reference in the Prospectus accompanying this Prospectus Supplement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon. EXPERTS The references to AISI, BK and SH&E, and to their respective appraisal reports, dated as of May 22, 1996 in the case of AISI, April 1, 1996 in the case of BK and April 1, 1996 in the case of SH&E, are included herein in reliance upon the authority of each such firm as an expert with respect to the matters contained in its appraisal report. S-72 73 APPENDIX I-INDEX OF CERTAIN DEFINED TERMS The following is an index showing the page in this Prospectus Supplement where certain defined terms appear.
DEFINED TERM PAGE - -------------------------------------------------------------------------------- ----------- Adjusted Expected Distributions................................................. S-15 Administration Expenses......................................................... S-46 Aggregate LTV Collateral Amount................................................. S-16 Aircraft........................................................................ S-1 AISI............................................................................ S-5 Appraised Current Market Value.................................................. S-16 Appraisals...................................................................... S-24 Appraisers...................................................................... S-5 Assumed Aggregate Aircraft Value................................................ S-5 Average Life Date............................................................... S-52 Aviation Act.................................................................... S-37 Bankruptcy Code................................................................. S-16 Basic Agreement................................................................. S-1 Basic Rent...................................................................... S-65 BK.............................................................................. S-5 Cede............................................................................ S-39 Certain Taxes and Fees.......................................................... S-46 Certificate Account............................................................. S-32 Certificate Owner............................................................... S-39 Certificateholders.............................................................. S-9 Civil Reserve Air Fleet Program................................................. S-65 Class A Certificates............................................................ S-8 Class A Trust................................................................... S-1 Class B Certificates............................................................ S-8 Class B Trust................................................................... S-1 Class C Certificates............................................................ S-8 Class C Trust................................................................... S-1 Class D Certificates............................................................ S-8 Class D Trust................................................................... S-1 Class Exemptions................................................................ S-69 Code............................................................................ S-19 Company......................................................................... S-1 Controlling Party............................................................... S-17 Current Distribution Date....................................................... S-15 Definitive Certificates......................................................... S-40 Distribution Date............................................................... S-14 Downgrade Drawing............................................................... S-13 DTC............................................................................. S-39 DTC Participants................................................................ S-39 Equipment Notes................................................................. S-1 ERISA........................................................................... S-18 ERISA Plans..................................................................... S-69 Event of Loss................................................................... S-63 Expected Distributions.......................................................... S-15 Final Distributions............................................................. S-17 Final Drawing................................................................... S-44 Final Expected Distribution Date................................................ S-9
I-1 74
DEFINED TERM PAGE - -------------------------------------------------------------------------------- ----------- Final Legal Distribution Date................................................... S-9 Financial institution........................................................... S-67 Fitch........................................................................... S-13 Germany......................................................................... S-44 Guaranty........................................................................ S-8 Indenture....................................................................... S-8 Indenture Default............................................................... S-35 Indirect Participants........................................................... S-39 Intercreditor Agreement......................................................... S-14 Interest Drawings............................................................... S-12 Lease........................................................................... S-2 Lease Event of Default.......................................................... S-35 Lease Payment Dates............................................................. S-65 Lease Payment Default........................................................... S-65 Liquidity Event of Default...................................................... S-43 Liquidity Expenses.............................................................. S-45 Liquidity Facility.............................................................. S-12 Liquidity Obligations........................................................... S-13 Liquidity Provider.............................................................. S-8 Loan Trustee.................................................................... S-8 LTV Appraisal................................................................... S-16 LTV Collateral Amount........................................................... S-16 LTV Ratio....................................................................... S-16 LTVs............................................................................ S-5 Make-Whole Premium.............................................................. S-51 Minimum Sale Price.............................................................. S-18 Moody's......................................................................... S-13 Non-Extension Drawing........................................................... S-14 Non-Performing Equipment Notes.................................................. S-16 Non-U.S. Certificateholder...................................................... S-67 Northwest....................................................................... S-1 NWA Corp........................................................................ S-1 Owner Participant............................................................... S-11 Owner Trustee................................................................... S-1 Participation Agreement......................................................... S-47 Pass Through Trust Agreements................................................... S-1 Performing Equipment Notes...................................................... S-16 Performing Note Deficiency...................................................... S-17 Plan Asset Regulation........................................................... S-69 Plans........................................................................... S-19 Pool Balance.................................................................... S-33 Pool Factor..................................................................... S-33 Premium Termination Date........................................................ S-10 PTC Event of Default............................................................ S-9 PTCE............................................................................ S-19 Rating Agencies................................................................. S-13 Refunding Agreement............................................................. S-8 Regular Distribution Dates...................................................... S-32 Remaining Weighted Average Life................................................. S-52 Replacement Facility............................................................ S-42 Required Amount................................................................. S-12
I-2 75
DEFINED TERM PAGE - -------------------------------------------------------------------------------- ----------- Rules........................................................................... S-39 Scheduled Payments.............................................................. S-32 Section 1110 Period............................................................. S-16 Series A Equipment Notes........................................................ S-1 Series B Equipment Notes........................................................ S-1 Series C Equipment Notes........................................................ S-1 Series D Equipment Notes........................................................ S-1 SH&E............................................................................ S-5 Shortfall Amounts............................................................... S-67 Special Payment................................................................. S-32 Special Payments Account........................................................ S-32 Standard & Poor's............................................................... S-13 Stated Interest Rates........................................................... S-12 Sublessee....................................................................... S-65 Subordinated Certificateholders................................................. S-67 Subordinated Certificates....................................................... S-67 Subordinated Trusts............................................................. S-67 Subordination Agent............................................................. S-8 Supplemental Rent............................................................... S-65 Threshold Rating................................................................ S-42 Treasury Yield.................................................................. S-51 Triggering Event................................................................ S-10 Trust Property.................................................................. S-8 Trust Supplement................................................................ S-1 Trustee......................................................................... S-1 Trusts.......................................................................... S-1 U.S. Certificateholders......................................................... S-66 U.S. Persons.................................................................... S-66 Underwriter Exemption........................................................... S-70 WestLB.......................................................................... S-8
I-3 76 APPENDIX II-SUMMARY OF AIRCRAFT APPRAISALS [AIRCRAFT INFORMATION SERVICES, INC. LOGO] 22 May 1996 Mr. Christopher J. Chaput Director NORTHWEST AIRLINES, INC. Corporate Finance 5101 Northwest Drive St. Paul, MN 55111-3034 Subject: AISI Report No. A6D026AVO (Revision A) AISI Adjusted Base Value Appraisal Letter Two B747-400 and Nine B757-200 Dear Mr. Chaput: In response to a request from Northwest Airlines, Inc., Aircraft Information Services, Inc. (AISI) has estimated the adjusted base value of eleven (11) Aircraft identified in the Valuation Section of this letter. Set forth below is a summary of the methodology, considerations and assumptions utilized in AISI's appraisal. The following summarizes the methodology, considerations and assumptions utilized in the original appraisal report, dated 12 March 1996, and revised on 22 May 1996, prepared by AISI. METHODOLOGY AND DEFINITIONS The method used by AISI in its valuation of the Aircraft was based both on a review of information and Aircraft specifications supplied by Northwest Airlines, Inc. and also on a review of present and past market conditions, various expert opinions (such as aircraft brokers and financiers) and information contained in AISI's databases that help determine aircraft availability and price data and thus arrive at the base half-life values and better than half-life values for like aircraft. No physical inspection of the Aircraft or their records was conducted by AISI. The historical standard term of reference for commercial aircraft value has been "half-life fair market value" of an "average" aircraft. However, "fair market value" could mean a fair value in the given market "or" a value in a hypothetical "fair" or balanced market, and the two definitions are not equivalent. Recently, the term "base value" has been created to describe the theoretical 77 [AISI LOGO] balanced market condition and to avoid the potentially misleading term "fair market value" which has now become synonymous with the term "current market value" or a "fair" value in the actual current market. AISI value definitions are consistent with those of the International Society of Transport Aircraft Trading (ISTAT) of 01 January 1994; AISI is a member of that organization and employs an ISTAT Certified Senior Aircraft Appraiser. AISI defines a "base value" as that of a transaction between equally willing and informed buyer and seller, neither under compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, and with supply and demand of the sale item roughly in balance. Base values are typically given for aircraft in "new" condition, "average half-life" condition, or in a specifically described condition unique to a single aircraft at a specific time. An "average" aircraft is an operable, airworthy aircraft, in average physical condition and with average accumulated flight hours and cycles, with clear title and standard unrestricted certificate of airworthiness, and registered in an authority which does not represent a penalty to aircraft value or liquidity, with no damage history and with inventory configuration and level of modification which is normal for its intended use and age. "Half-life" condition assumes that every component or maintenance service which has a prescribed interval that determines its service life, overhaul interval or interval between maintenance services, is at a condition which is one-half of the total interval. AISI determines an "adjusted market value" by determining the value of known deviations from half-life condition, which may be better or worse than half-life condition, and to account for better or worse than average physical condition, and the inclusion of additional equipment, or absence of standard equipment. 2 78 [AISI LOGO] VALUATION The adjusted base values are presented below subject to the assumptions, definitions and disclaimers herein.
ADJUSTED BASE BASE AIRCRAFT MFG. SERIAL VALUE 1/2-LIFE TYPE DATE NUMBER ENGINE MTOW NEW A/C VALUE ---- ---- ------ ------ ---- ------- ----- B747-451 Mar.'89 23720 PW4056 870,000 $113.120 B747-451 Aug.'90 24224 PW4056 870,000 $116.870 B757-251 Nov.'95 26482 PW2037 230,000 *$57.650 B757-251 Dec.'95 26483 PW2037 230,000 *$57.900 B757-251 Feb.'96 26484 PW2037 230,000 $58.650 B757-251 Mar.'96** 26485 PW2037 230,000 $58.850 B757-251 Mar.'96** 26486 PW2037 230,000 $58.850 B757-251 Apr.'96** 26487 PW2037 230,000 $59.050 B757-251 Apr.'96** 26488 PW2037 230,000 $59.050 B757-251 May.'96** 26489 PW2037 230,000 $59.150 B757-251 May.'96** 26490 PW2037 230,000 $59.150
* Values reflect better than half-life conditions. ** Delivery dates. 3 79 [AISI LOGO] This report is offered as a fair and unbiased sight unseen appraisal of adjusted base values. AISI has no past, present, or anticipated future interest in the Aircraft. The conclusions and opinions expressed in this report are based on published information, information provided by others, reasonable interpretations and calculations thereof and are given in good faith. Such conclusions and opinions are judgements that reflect conditions and values which are current at the time of this report. Conditions and values reported upon are subject to any subsequent change. This report has been released in electronic format, and may be subject to reproduction without the consent, knowledge or control of AISI. AISI retains a master copy of this report and AISI shall not be liable for any differences between any copy of this report and the AISI master copy, howsoever those differences may occur. Sincerely, AIRCRAFT INFORMATION SERVICES, INC, /s/ NANCY DILLIPLANE - ------------------------------- for Fred E. Bearden President FEB/ND/s1f 4 80 BK Associates, Inc. 1295 Northern Boulevard Manhasset, New York 11030 (516) 365-6272 - Fax (516) 365-6287 April 1, 1996 NORTHWEST AIRLINES, INC. 5101 Northwest Drive, Dept. A4010 St. Paul, MN 55111-3034 Gentlemen: In response to your request, BK Associates, Inc. is pleased to provide this opinion on the current base value on each of two Boeing 747-451 and nine Boeing 757-251 aircraft (Aircraft), currently or soon to be operated by Northwest Airlines. The B757 aircraft are each powered by two Pratt & Whitney PW2037 engines and the B747 aircraft are each powered by four Pratt & Whitney PW4056 engines. The Aircraft are further identified in the conclusion to this letter. Set forth below is a summary of the methodology, considerations and assumptions utilized in this appraisal. CURRENT FAIR MARKET VALUE According to the International Society of Transport Aircraft Trading's (ISTAT) definition of CFMV, to which BK Associates subscribes, the quoted CFMV 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 CFMV assumes that the aircraft is valued for its highest and best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers, which BK Associates considers to be 12 to 18 months. 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 81 BK Associates, Inc. NORTHWEST AIRLINES, INC. April 1, 1996 Page 2 aircraft's base value is founded in the historical trend of values and in the projection of value trends and presumes an arm's length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. VALUE METHODOLOGY The base value of an Aircraft is based on BK's familiarity with the aircraft type and its earnings potential in commercial service; knowledge of the aircraft's capabilities and the uses to which it will be put worldwide; knowledge of the marketing of used aircraft, and the factors affecting the market value of such aircraft; and analysis of historical trends in the asking, offered and transaction prices for similar competitive, and alternative equipment, as well as transactions and negotiations involving basically identical aircraft. These realizations, however, which reflect the market supply and demand at the time of sale, are subject to minor adjustments for other conditions existing at the time of the appraisal. In this respect, we consider the market for B757 and B747-451 aircraft to be in reasonable balance at this time, and thus, the CFMV is equal to the BV. In addition, values were adjusted for engine type, and when data are available, adjustments are made to the half-time values to account for the current maintenance status of the aircraft. LIMITING CONDITIONS AND ASSUMPTIONS BK has not inspected the Aircraft or their maintenance records but relied upon information supplied by you and from BK's own database. In determining the current fair market value of a used aircraft, the following assumptions apply to the base aircraft: 1. The aircraft has half-time remaining to its next major overhauls or scheduled shop visit on its airframe, engines, landing gear and auxiliary power unit. 2. The aircraft is in compliance under a Federal Aviation Administration approved airline maintenance program, with all airworthiness directives, mandatory modifications and applicable service bulletins currently up to industry standard. 3. The interior of the aircraft is in a standard configuration for its specific type, with the buyer furnished equipment and options of the types and models generally accepted and utilized in the industry. 82 BK Associates, Inc. NORTHWEST AIRLINES, INC. April 1, 1996 Page 3 4. The aircraft is in current flight operations. 5. The aircraft is sold for cash without seller financing. 6. The Aircraft is in average or better condition. 7. There is no accident damage. CONCLUSIONS Based on the above methodology, considerations and assumptions, considering that we have not inspected the Aircraft, and since most of them are new or nearly new, it is our opinion that the base value of each aircraft is as follows:
Registration Serial Delivery Base Model Number Number Date Value ----- ------ ------ ---- ----- B747-451 N662US 23720 03/13/89 $111,100,000 B747-451 N669US 24224 08/20/90 116,500,000 B757-251 N535US 26482 11/14/95 50,000,000 B757-251 N536US 26483 12/11/95 50,000,000 B757-251 N537US 26484 02/20/96 50,000,000 8757-251 N538US 26485 03/01/96 50,000,000 B757-251 N539US 26486 03/25/96 50,000,000 B757-251 N540US 26487 04/15/96 50,000,000 B757-251 N541US 26488 04/20/96 50,000,000 B757-251 N542US 26489 05/10/96 50,000,000 B757-251 N543US 26490 05/96 50,000,000
BK Associates, Inc. has no present or contemplated future interest in the Aircraft, nor any interest that would preclude our making a fair and unbiased estimate. This appraisal represents the opinion of BK Associates, Inc. and reflects our best judgment based on the information available to us at the time of preparation and the time and budget constraints imposed by the client. It is not given as a recommendation, or as an inducement, for any financial transaction and further, BK Associates, Inc. assumes no responsibility or legal liability for any action taken or not taken by the addressee, or any other party, with regard to the appraised equipment. By accepting this appraisal, the addressee agrees that BK Associates, Inc. shall 83 BK Associates, Inc. NORTHWEST AIRLINES, INC. April 1, 1996 Page 4 bear no such responsibility or legal liability. This appraisal is prepared for the use of the addressee and shall not be provided to other parties without the express consent of the addressee. Sincerely yours, BK ASSOCIATES, INC. /s/ JOHN F. KEITZ --------------------------------------- John F. Keitz Vice President ISTAT Certified Senior Appraiser JFK/kf 84 [SH&E LETTERHEAD] April 1, 1996 Northwest Airlines, Inc. Dover, DE 19901 Gentlemen: In response to a request from Northwest Airlines Inc., Simat, Helliesen & Eichner, Inc. ("SH&E") has estimated the Current Market Value ("CMV") of the eleven Aircraft identified in the conclusion to this letter. Set forth below is a summary of the methodology and assumptions utilized in SH&E's appraisal. (The appraisal was conducted in accordance with the principles of Appraisal Practice and Code of Ethics of the International Society of Transport Aircraft Trading.) The following summarizes the methodology and assumptions utilized in the appraisal report, dated March 14, 1996, that was prepared by SH&E. SH&E VALUATION METHODOLOGY SH&E has studied many aircraft transactions over the past 30 years. This list includes a wide variety of pure jet, fan-powered and turboprop powered two, three and four-engined transports. Models studied have covered many types, including: Boeing 707, 727, 737, 757, 767 and 747 aircraft; Douglas DC-8, DC-9, DC-10 and MD-11; Airbus A300, A310, A320, A330 and A340 models; Lockheed L-1011; BAC 1-11; and various turboprop models, including most major commuter aircraft. The SH&E valuation approach starts by determining a half-life value. The term "half-life" represents an 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 airframe's maintenance status relative to 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 mid-life (or benefitting from an above-average maintenance status if it is new or nearly new, as the case may be). SH&E half-life values are determined on a semi-annual basis by reviewing recent past sales, aircraft availability trends, technological aspects, environmental constraints and maintenance requirements. BASE VALUE (BV) The Base Value is the appraiser's opinion of the underlying economic value of an aircraft in an open, unrestricted and stable market environment with a reasonable balance of supply and demand, and also assumes full considerations of its "highest and best use". An aircraft's Base Value is 85 SH&E April 1, 1996 Page 2 founded in the historical trend of values and in the projection of value trends and presumes an arm's-length, cash transaction between willing, able and knowledgeable parties, acting prudently, with an absence of duress and with a reasonable period of time available for marketing. Since Base Value pertains to a somewhat idealized 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 Base Value definition is normally applied to analyses of historical values and projections of residual values. CURRENT MARKET VALUE (CMV) The Current Market Value (CMV) 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. CMV assumes that the aircraft is valued for its highest, best use, that the parties to the hypothetical sale transaction are willing, able, prudent and knowledgeable, and under no unusual pressure for a prompt sale, and that the transaction would be negotiated in an open and unrestricted market on an arm's-length basis, for cash or equivalent consideration, and given an adequate amount of time for effective exposure to prospective buyers. The CMV of a specific aircraft is derived from, and will tend to be somewhat consistent with, its Base Value in a stable market environment, but where a reasonable equilibrium between supply and demand does not exist, trading prices, and therefore CMV's, are likely to be at variance with the Base Value of that aircraft. Current Market Value may be based upon either the actual (or specified) physical condition and maintenance time status of the aircraft, or alternatively upon an assumed average physical condition and mid-life, mid-time maintenance time status, depending on the nature of the appraisal assignment. CURRENT AIRCRAFT MARKET It is generally accepted that, over the last few years, there was a down-turn in used aircraft values. This trend was caused, in part, by the world-wide losses in the industry in the period 1990 - 1994 and which resulted from a combination of depressed global economies, high fuel prices, the instability and war in the Middle East, the increasing availability of aircraft for sale or lease and the mandatory phase out of Stage II aircraft set forth in FAR Part 36 and ICAO Annex 16. The perceived downturn in values was exacerbated by the unrealistically high prices paid for aircraft in the period of 1987 to 1990. 86 SH&E April 1, 1996 Page 3 The cumulative effect of the above factors caused unprecedented losses in the international commercial aviation industry. Airline failures, consolidations and downsizing proliferated during the 1990 - 1992 period. The weakened industry's problems were compounded by the generally moribund international economy. Traffic growth was marginal in many markets and negative in a few. Even with the demise of so many carriers there remained a demonstrable over-capacity in some elements of the industry. Airlines deferred deliveries of new aircraft, canceled orders and options and prematurely retired many aircraft. Airlines, worldwide, enjoyed record levels of profitability in 1995 and it is expected that 1996 will prove to be even stronger. Passenger traffic is forecasted to grow by approximately 5% globally and cargo traffic growth is expected to exceed the passenger figures. SH&E studies have indicated that aircraft values rose well above their projected trend lines during the 1987 to 1990 period. A considerable element of the recent apparent downturn in used aircraft values is a correction to the long term value trend lines. The condition of the industry depressed some values below the long term trend line. It is SH&E's opinion that the values of certain aircraft types have fully recovered during the last six months and the availability of many Stage III jet aircraft, including the types such as the Subject Aircraft, and certain newer commuter and regional types has decreased to a point at which Current Market Values equal or sometimes exceed their respective Base Values. In SH&E's opinion, the deferrals and cancellations of new aircraft orders will eventually help strengthen many used aircraft values as airlines retain their equipment longer than planned. Additionally, the reductions in new aircraft production rates by the principal aircraft manufacturers are now gradually being reversed but still may create an aircraft shortage within the next few years. ASSUMPTIONS In calculating the CMV it was explicitly assumed that: 1. SH&E did not perform a physical inspection of the Subject Aircraft, and has assumed the Subject Aircraft to be in a condition similar to aircraft of comparable age and type. 2. SH&E did not verify the accuracy or completeness of the aircraft or engine records. Inaccurate, or incomplete, records may have a significant negative impact on the value of the respective aircraft. 11 87 SH&E April 1, 1996 Page 4 CONCLUSIONS SH&E determined, based on the above methodology and assumptions, that the Subject Aircraft have the following CMV's as of the time of its report: AIRCRAFT VALUES ($ MILLIONS) --------------------------- HALF-LIFE
SH&E DATE OF MANUFACTURE FIRST-HALF-1996 AIRCRAFT TYPE REGISTRATION SERIAL NUMBER ENGINE TYPE /FIRST DELIVERY CURRENT MARKET VALUE - ------------- ------------ ------------- ----------- --------------- -------------------- 747-451 N622US 23720 PW4056 13-Mar-89 108,700,000 747-451 N669US 24224 PW4056 20-Aug-90 109,800,000 757-251 N535US 26482 PW2037 14-Nov-95 58,400,000 757-251 N536US 26483 PW2037 11-Dec-95 58,400,000 757-251 N537US 26484 PW2037 20-Feb-96 63,500,000 757-251 N538US 26485 PW2037 01-Mar-96 63,500,000 757-251 N539US 26486 PW2037 25-Mar-96 63,500,000 757-251 N54OUS 26487 PW2037 15-Apr-96 63,500,000 757-251 N541US 26488 PW2037 20-Apr-96 63,500,000 757-251 N542US 26489 PW2037 10-May-96 63,500,000 757-251 N543US 26490 PW2037 May-96 63,500,000
Very truly yours, /s/ CLIVE G. MEDLAND ---------------------------- Clive G. Medland Vice President Certified Appraiser International Society of Transport Aircraft Trading 88 APPENDIX III-EQUIPMENT NOTES PRINCIPAL PAYMENT SCHEDULE SERIES A
REGULAR AIRCRAFT REGISTRATION NUMBER DISTRIBUTION --------------------------------------------------------------------------------- DATES N535US N536US N537US N538US N539US N540US --------------- ----------- ----------- ----------- ----------- ----------- ----------- January 2, 1997........................... $ 0 $ 0 $ 516,450 $ 330,985 $ 0 $ 0 July 2, 1997.............................. 0 0 0 135,331 0 0 January 2, 1998........................... 0 0 516,450 517,050 344,254 344,146 July 2, 1998.............................. 0 0 0 0 130,178 129,594 January 2, 1999........................... 0 0 516,450 517,050 517,050 517,650 July 2, 1999.............................. 0 0 0 0 0 0 January 2, 2000........................... 0 0 516,450 517,050 517,049 517,650 July 2, 2000.............................. 498,150 498,900 0 0 0 0 January 2, 2001........................... 0 0 516,450 517,050 517,049 517,650 July 2, 2001.............................. 498,150 498,900 0 0 0 0 January 2, 2002........................... 0 0 516,450 517,050 517,050 517,650 July 2, 2002.............................. 498,150 498,900 0 0 0 0 January 2, 2003........................... 0 0 516,450 517,050 517,050 517,650 July 2, 2003.............................. 498,150 498,900 0 0 0 0 January 2, 2004........................... 0 0 516,450 517,050 517,050 517,650 July 2, 2004.............................. 498,150 498,900 0 0 0 0 January 2, 2005........................... 0 0 516,450 517,050 517,050 517,650 July 2, 2005.............................. 498,150 498,900 0 0 0 0 January 2, 2006........................... 0 0 516,450 517,050 517,049 517,650 July 2, 2006.............................. 463,638 428,195 0 0 0 0 January 2, 2007........................... 34,512 70,705 516,450 517,050 517,050 517,650 July 2, 2007.............................. 337,082 306,526 0 0 0 0 January 2, 2008........................... 161,068 192,374 506,936 517,050 517,049 517,650 July 2, 2008.............................. 1,732,009 1,722,429 9,514 0 0 0 January 2, 2009........................... 293,871 319,825 391,564 517,050 517,050 517,650 July 2, 2009.............................. 3,281,967 3,118,918 124,886 0 0 0 January 2, 2010........................... 432,971 453,592 2,592,493 646,577 2,714,079 2,729,090 July 2, 2010.............................. 3,426,478 3,257,889 243,166 0 0 0 January 2, 2011........................... 583,103 597,969 3,015,453 6,113,987 3,223,707 3,223,616 July 2, 2011.............................. 1,156,342 3,407,882 369,926 0 0 0 January 2, 2012........................... 650,768 4,540,449 3,147,144 3,645,063 3,474,512 3,474,414 July 2, 2012.............................. 3,652,743 1,788,697 506,740 0 4,371,239 4,370,872 January 2, 2013........................... 818,175 0 3,289,281 3,940,127 4,041,515 4,041,197 July 2, 2013.............................. 2,901,273 0 654,405 0 200,611 200,782 January 2, 2014........................... 0 0 3,442,690 4,259,076 1,105,183 1,113,079 July 2, 2014.............................. 0 0 1,847,352 0 0 0 January 2, 2015........................... 0 0 0 526,019 0 0 REGULAR DISTRIBUTION DATES N541US N542US N543US N662US N669US --------------- ----------- ----------- ----------- ----------- ----------- January 2, 1997........................... $ 0 $ 0 $ 0 $ 998,760 $ 1,029,510 July 2, 1997.............................. 0 0 0 0 0 January 2, 1998........................... 344,146 381,571 379,339 998,760 1,029,510 July 2, 1998.............................. 129,594 136,379 138,611 0 0 January 2, 1999........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 1999.............................. 0 0 0 0 0 January 2, 2000........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 2000.............................. 0 0 0 0 0 January 2, 2001........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 2001.............................. 0 0 0 0 0 January 2, 2002........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 2002.............................. 0 0 0 0 0 January 2, 2003........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 2003.............................. 0 0 0 0 0 January 2, 2004........................... 517,650 517,950 517,950 998,760 1,029,510 July 2, 2004.............................. 0 0 0 0 0 January 2, 2005........................... 517,650 517,950 517,950 1,997,520 1,029,510 July 2, 2005.............................. 0 0 0 0 0 January 2, 2006........................... 517,650 517,950 517,950 1,997,520 2,059,020 July 2, 2006.............................. 0 0 0 0 0 January 2, 2007........................... 517,650 517,950 517,950 1,997,520 2,059,020 July 2, 2007.............................. 0 0 0 0 0 January 2, 2008........................... 517,650 517,950 517,950 1,997,520 2,059,020 July 2, 2008.............................. 0 0 0 0 0 January 2, 2009........................... 517,650 517,950 517,950 1,997,520 2,059,020 July 2, 2009.............................. 0 0 0 0 0 January 2, 2010........................... 2,729,090 2,599,494 2,585,810 2,996,280 2,059,020 July 2, 2010.............................. 0 0 0 0 0 January 2, 2011........................... 3,223,616 3,227,130 3,236,140 2,996,280 3,490,804 July 2, 2011.............................. 0 0 0 1,633,770 10,810,800 January 2, 2012........................... 3,474,414 3,478,200 3,487,912 9,889,320 0 July 2, 2012.............................. 4,370,872 4,370,240 4,372,073 0 11,278,994 January 2, 2013........................... 4,041,197 4,041,074 4,043,659 10,689,849 391,099 July 2, 2013.............................. 200,782 204,932 213,057 0 5,937,848 January 2, 2014........................... 1,113,079 1,243,080 1,225,499 3,754,821 0 July 2, 2014.............................. 0 0 0 0 5,265 January 2, 2015........................... 0 0 0 0 0
III-1 89 SERIES B
REGULAR AIRCRAFT REGISTRATION NUMBER DISTRIBUTION --------------------------------------------------------------------------------- DATES N535US N536US N537US N538US N539US N540US --------------- ----------- ----------- ----------- ----------- ----------- ----------- January 2, 1997........................... $ 0 $ 0 $ 172,150 $ 0 $ 0 $ 0 July 2, 1997.............................. 0 0 0 0 0 0 January 2, 1998........................... 0 0 172,150 172,350 0 0 July 2, 1998.............................. 0 0 0 0 0 0 January 2, 1999........................... 0 0 172,150 172,350 172,349 172,550 July 2, 1999.............................. 0 0 0 0 0 0 January 2, 2000........................... 0 0 172,150 172,350 172,349 172,550 July 2, 2000.............................. 0 0 0 0 0 0 January 2, 2001........................... 0 0 172,150 172,350 172,349 172,550 July 2, 2001.............................. 0 0 0 0 0 0 January 2, 2002........................... 0 0 172,150 172,350 172,349 172,550 July 2, 2002.............................. 0 55,000 0 0 0 0 January 2, 2003........................... 0 0 172,150 172,350 172,350 172,550 July 2, 2003.............................. 111,000 166,300 0 0 0 0 January 2, 2004........................... 0 0 172,150 172,350 172,349 172,550 July 2, 2004.............................. 166,050 166,300 0 0 0 0 January 2, 2005........................... 0 0 172,150 172,350 172,350 172,550 July 2, 2005.............................. 166,050 807,950 0 0 0 0 January 2, 2006........................... 0 0 172,150 172,350 172,349 172,550 July 2, 2006.............................. 1,668,200 2,275,838 0 0 0 0 January 2, 2007........................... 0 0 172,150 677,361 172,349 172,550 July 2, 2007.............................. 2,675,437 2,553,581 0 0 0 0 January 2, 2008........................... 0 0 1,303,363 1,240,600 725,578 741,385 July 2, 2008.............................. 1,411,989 1,264,081 0 0 0 0 January 2, 2009........................... 0 0 2,381,149 1,026,678 2,244,139 2,243,541 July 2, 2009.............................. 0 0 0 0 0 0 January 2, 2010........................... 0 0 300,079 967,231 275,394 260,382 July 2, 2010.............................. 0 0 0 0 0 0 January 2, 2011........................... 0 0 0 0 0 0 July 2, 2011.............................. 0 0 0 0 0 0 January 2, 2012........................... 0 0 0 0 0 0 July 2, 2012.............................. 0 0 0 0 0 0 January 2, 2013........................... 0 0 0 0 0 0 July 2, 2013.............................. 0 0 0 0 0 0 January 2, 2014........................... 0 0 0 0 3,101,350 3,093,131 July 2, 2014.............................. 886,374 0 2,729,259 0 375,187 381,494 January 2, 2015........................... 0 0 0 2,982,130 0 9,517 REGULAR DISTRIBUTION DATES N541US N542US N543US N662US N669US --------------- ----------- ----------- ----------- ----------- ----------- January 2, 1997........................... $ 0 $ 0 $ 0 $ 332,920 $ 343,170 July 2, 1997.............................. 0 0 0 0 0 January 2, 1998........................... 0 70,717 149,934 332,920 343,170 July 2, 1998.............................. 0 0 0 332,920 0 January 2, 1999........................... 172,550 172,650 172,650 0 343,170 July 2, 1999.............................. 0 0 0 332,920 0 January 2, 2000........................... 172,550 172,650 172,650 0 343,170 July 2, 2000.............................. 0 0 0 332,920 0 January 2, 2001........................... 172,550 172,650 172,650 0 343,170 July 2, 2001.............................. 0 0 0 0 0 January 2, 2002........................... 172,550 172,650 172,650 332,920 343,170 July 2, 2002.............................. 0 0 0 0 0 January 2, 2003........................... 172,550 172,650 172,650 332,920 343,170 July 2, 2003.............................. 0 0 0 0 0 January 2, 2004........................... 172,550 172,650 172,650 332,920 343,170 July 2, 2004.............................. 0 0 0 0 0 January 2, 2005........................... 172,550 172,650 172,650 665,840 343,170 July 2, 2005.............................. 0 0 0 0 0 January 2, 2006........................... 172,550 172,650 172,650 665,840 686,340 July 2, 2006.............................. 0 0 0 0 0 January 2, 2007........................... 172,550 172,650 172,650 665,840 686,340 July 2, 2007.............................. 0 0 0 0 0 January 2, 2008........................... 741,385 553,074 719,363 665,840 686,340 July 2, 2008.............................. 0 0 0 0 0 January 2, 2009........................... 2,243,541 2,235,936 1,861,815 665,840 686,340 July 2, 2009.............................. 0 0 0 777,233 0 January 2, 2010........................... 260,382 392,503 414,425 5,431,527 5,209,209 July 2, 2010.............................. 0 0 0 0 0 January 2, 2011........................... 0 0 0 4,444,680 6,115,401 July 2, 2011.............................. 0 0 0 0 0 January 2, 2012........................... 0 0 0 0 0 July 2, 2012.............................. 0 0 0 0 0 January 2, 2013........................... 0 0 0 0 0 July 2, 2013.............................. 0 0 0 0 0 January 2, 2014........................... 3,093,131 2,963,163 2,983,747 0 0 July 2, 2014.............................. 381,494 385,417 394,036 0 0 January 2, 2015........................... 9,517 203,257 359,964 0 0
III-2 90 SERIES C
REGULAR AIRCRAFT REGISTRATION NUMBER DISTRIBUTION --------------------------------------------------------------------------- DATES N537US N538US N539US N540US N541US --------------- ----------- ----------- ----------- ----------- ----------- January 2, 1997............................... $ 417,016 $ 0 $ 0 $ 0 $ 0 July 2, 1997.................................. 0 0 0 0 0 January 2, 1998............................... 19,853 0 0 0 0 July 2, 1998.................................. 0 0 0 0 0 January 2, 1999............................... 76,434 195,264 0 0 0 July 2, 1999.................................. 0 0 0 0 0 January 2, 2000............................... 138,645 269,362 189,911 189,368 189,368 July 2, 2000.................................. 0 0 0 0 0 January 2, 2001............................... 207,046 350,833 263,477 262,943 262,943 July 2, 2001.................................. 0 0 0 0 0 January 2, 2002............................... 282,253 440,411 344,362 343,839 343,839 July 2, 2002.................................. 0 0 0 0 0 January 2, 2003............................... 364,944 538,901 433,296 432,784 432,784 July 2, 2003.................................. 0 0 0 0 0 January 2, 2004............................... 455,861 647,191 531,078 530,579 530,579 July 2, 2004.................................. 0 0 0 0 0 January 2, 2005............................... 543,760 766,256 638,590 638,104 638,104 July 2, 2005.................................. 0 0 0 0 0 January 2, 2006............................... 664,536 303,483 323,485 322,857 322,857 July 2, 2006.................................. 0 0 0 0 0 January 2, 2007............................... 1,651,224 0 749,256 748,644 748,644 July 2, 2007.................................. 0 0 0 0 0 January 2, 2008............................... 748,428 0 896,759 880,806 880,806 July 2, 2008.................................. 0 0 0 0 0 January 2, 2009............................... 0 0 0 0 0 July 2, 2009.................................. 0 0 0 0 0 January 2, 2010............................... 0 0 0 0 0 July 2, 2010.................................. 0 0 0 0 0 January 2, 2011............................... 0 0 0 0 0 July 2, 2011.................................. 0 0 0 0 0 January 2, 2012............................... 0 0 0 0 0 July 2, 2012.................................. 0 0 0 0 0 January 2, 2013............................... 0 0 0 0 0 July 2, 2013.................................. 0 0 0 0 0 January 2, 2014............................... 0 0 0 0 0 July 2, 2014.................................. 0 0 6,166 0 0 January 2, 2015............................... 0 0 2,057,981 2,046,736 2,046,736 REGULAR DISTRIBUTION DATES N542US N543US N662US N669US --------------- ----------- ----------- ----------- ----------- January 2, 1997............................... $ 0 $ 0 $ 332,920 $ 343,170 July 2, 1997.................................. 0 0 186,363 0 January 2, 1998............................... 0 0 146,557 343,170 July 2, 1998.................................. 0 0 332,920 0 January 2, 1999............................... 0 0 0 343,170 July 2, 1999.................................. 0 0 332,920 0 January 2, 2000............................... 196,449 198,768 0 343,170 July 2, 2000.................................. 0 0 598,855 0 January 2, 2001............................... 270,760 273,310 0 343,170 July 2, 2001.................................. 0 0 1,650,053 0 January 2, 2002............................... 352,465 355,268 0 343,170 July 2, 2002.................................. 0 0 1,994,493 0 January 2, 2003............................... 442,300 445,382 0 343,170 July 2, 2003.................................. 0 0 2,298,547 0 January 2, 2004............................... 541,073 544,462 0 343,170 July 2, 2004.................................. 0 0 2,632,856 0 January 2, 2005............................... 649,674 653,401 0 343,170 July 2, 2005.................................. 0 0 3,507,370 0 January 2, 2006............................... 176,605 179,011 2,632,146 1,008,213 July 2, 2006.................................. 0 0 0 0 January 2, 2007............................... 746,216 879,185 0 2,581,793 July 2, 2007.................................. 0 0 0 0 January 2, 2008............................... 1,096,328 1,190,031 0 3,540,364 July 2, 2008.................................. 0 0 0 0 January 2, 2009............................... 0 0 0 5,355,924 July 2, 2009.................................. 0 0 0 0 January 2, 2010............................... 0 0 0 1,583,676 July 2, 2010.................................. 0 0 0 0 January 2, 2011............................... 0 0 0 0 July 2, 2011.................................. 0 0 0 0 January 2, 2012............................... 0 0 0 0 July 2, 2012.................................. 0 0 0 0 January 2, 2013............................... 0 0 0 0 July 2, 2013.................................. 0 0 0 0 January 2, 2014............................... 0 0 0 0 July 2, 2014.................................. 0 0 0 0 January 2, 2015............................... 1,790,663 1,464,498 0 0
III-3 91 SERIES D
REGULAR AIRCRAFT REGISTRATION NUMBER DISTRIBUTION ----------------------------- DATES N662US N669US --------------- ----------- ----------- January 2, 1997................ $ 0 $3,246,542 July 2, 1997................... 0 0 January 2, 1998................ 0 599,490 July 2, 1998................... 251,932 0 January 2, 1999................ 0 805,436 July 2, 1999................... 917,200 0 January 2, 2000................ 0 1,033,006 July 2, 2000................... 884,005 0 January 2, 2001................ 0 848,751 July 2, 2001................... 0 0 January 2, 2002................ 0 992,004 July 2, 2002................... 0 0 January 2, 2003................ 0 1,233,664 July 2, 2003................... 0 0 January 2, 2004................ 0 1,247,600 July 2, 2004................... 0 0 January 2, 2005................ 0 1,627,489 July 2, 2005................... 0 0 January 2, 2006................ 0 1,023,516 July 2, 2006................... 0 0
III-4 92 PROSPECTUS $750,000,000 NORTHWEST AIRLINES, INC. PASS THROUGH CERTIFICATES ------------------------ APPLICABLE UNDERLYING PAYMENTS FULLY AND UNCONDITIONALLY GUARANTEED BY NORTHWEST AIRLINES CORPORATION Up to $750,000,000 aggregate public offering price of Pass Through Certificates (the "Certificates") (or its equivalent (based on the applicable exchange rate at the time of sale) in one or more foreign currencies or currency units) may be offered for sale from time to time pursuant to this Prospectus and related Prospectus Supplements (as defined below). Certificates may be issued in one or more series in amounts, at prices and on terms to be determined at the time of the offering. In respect of each offering of Certificates, a separate Northwest Airlines Pass Through Trust for each series of Certificates being offered (each, a "Trust") will be formed pursuant to one or more Pass Through Trust Agreements (each, a "Basic Agreement") and one or more supplements thereto (each, a "Trust Supplement") relating to such Trust to be entered into among Northwest Airlines, Inc. ("Northwest"), Northwest Airlines Corporation ("NWA Corp." and, together with its subsidiaries, the "Company") and the trustee named therein (the "Trustee"), as trustee under each Trust. Each Certificate in a series will represent a fractional undivided interest in the related Trust and will have no rights, benefits or interests in respect of any other Trust. The property of the Trusts will consist of equipment notes issued (a) on a nonrecourse basis by one or more owner trustees pursuant to separate leveraged lease transactions (the "Leased Aircraft Notes") to finance or refinance a portion of the equipment cost of aircraft, including engines (each, a "Leased Aircraft" and, collectively, the "Leased Aircraft"), which have been or will be leased to Northwest pursuant to a separate lease agreement (each such lease agreement, a "Lease") for each Leased Aircraft, or (b) with recourse to Northwest (the "Owned Aircraft Notes" and, together with any Leased Aircraft Notes, the "Equipment Notes") to finance all or a portion of the equipment cost of, or to purchase all or a portion of the outstanding debt with respect to, aircraft, including engines (each, an "Owned Aircraft" and, collectively, the "Owned Aircraft"; together with Leased Aircraft, the "Aircraft"), which have been or will be purchased and owned by Northwest. NWA Corp. will fully and unconditionally guarantee (the "Parent Guaranty") to the holders from time to time of Certificates (i) with respect to related Owned Aircraft Notes, the full and prompt payment of principal, premium, if any, and interest thereon when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise and (ii) with respect to related Leased Aircraft Notes, the full and prompt payment of all amounts payable by Northwest under the related Lease when and as the same shall become due and payable. The specific terms of the particular Certificates in respect of which this Prospectus is being delivered will be set forth in a supplement to this Prospectus (the "Prospectus Supplement") which will be delivered together with this Prospectus, including, where applicable, the specific designation, form, aggregate principal amount, initial public offering price and distribution dates relating to such Certificates, the currency in which such Certificates will be payable, the Trust or Trusts relating to such Certificates, the Equipment Notes to be purchased by such Trust or Trusts, the Aircraft relating to such Equipment Notes, the leveraged lease transactions or financing arrangements, as the case may be, relating to such Equipment Notes and other special terms relating to such Certificates and the net proceeds from the offering of such Certificates. The Certificates shall be issued in registered form only and may, if so specified in the applicable Prospectus Supplement, be issued in accordance with a book-entry system. With respect to one or more Aircraft, Equipment Notes may be issued, each of which may have a different interest rate, final maturity date and ranking in respect of priority of payment. For each series of Certificates, the Trustee will purchase one or more Equipment Notes issued with respect to one or more Aircraft such that all of the Equipment Notes held in the related Trust will have identical ranking and identical interest rates (in each case equal to the rate applicable to the Certificates issued by such Trust), and such that the latest maturity date for such Equipment Notes will occur on or before the final distribution date for such Certificates. Interest paid on the Equipment Notes held in each Trust will be passed through to the holders of the Certificates relating to such Trust on the dates and at the rate per annum set forth in the Prospectus Supplement relating to such Certificates until the final distribution date for such Trust. Principal paid on the Equipment Notes held in each Trust will be passed through to the holders of the Certificates relating to such Trust in scheduled amounts on the dates set forth in the Prospectus Supplement relating to such Certificates until the final distribution date for such Trust. The Equipment Notes issued with respect to any Aircraft will be secured by a security interest in such Aircraft and, in the case of the Leased Aircraft, by a security interest in the Lease relating thereto, including the right to receive rentals payable in respect of such Leased Aircraft by Northwest. Although neither the Certificates nor the Leased Aircraft Notes will be direct obligations of, or guaranteed by, Northwest, the amounts unconditionally payable by Northwest for lease of Leased Aircraft will be sufficient to pay in full when due all payments required to be made on the corresponding Leased Aircraft Notes. The Certificates may be sold to or through underwriters, through dealers or agents or directly to purchasers. See "Plan of Distribution." The Prospectus Supplement will set forth the names of any underwriters, dealers or agents involved in the sale of the Certificates in respect of which this Prospectus is being delivered, the proposed amounts, if any, to be purchased by underwriters and the compensation, if any, of such underwriters or agents. See "Plan of Distribution" for information concerning secondary trading of the Certificates. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THE DATE OF THIS PROSPECTUS IS MAY 3, 1996. 93 AVAILABLE INFORMATION NWA Corp. and Northwest together have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Certificates offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. NWA Corp. is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files periodic reports and other information with the Commission. Such reports and other information, as well as the Registration Statement, including exhibits and schedules filed therewith, may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, and at the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Northwest is not required to file separate reports, proxy statements or other information with the Commission pursuant to the requirements of the Exchange Act. Instead, information with respect to Northwest is provided, to the extent required, in filings made by NWA Corp. Separate financial statements of Northwest are not being provided because all of the Certificates being issued by Northwest under this Prospectus will be supported by full and unconditional guarantees by NWA Corp. and, therefore, such financial statements are not deemed material. Unless otherwise stated herein, information contained herein concerning the aggregate number of shares and respective percentages of NWA Corp. stock held by investors is based on the following assumptions: (i) the issuance of all Class A Common Stock, par value $.01 per share, of NWA Corp. (the "Class A Common Stock"), and Class B Common Stock, par value $.01 per share, of NWA Corp. (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock") and Series C Preferred Stock to be issued to the Employee Trusts (as defined herein) pursuant to the Equity Letter Agreements (as defined herein) and the conversion of the Series C Preferred Stock into Common Stock and (ii) the exercise of all stock options held by executive officers that are exercisable within 60 days of March 31, 1996. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following document of NWA Corp., which has been filed with the Commission, is hereby incorporated by reference in this Prospectus: NWA Corp.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1995. All documents filed by NWA Corp. pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Certificates offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Exchange Act file number is 0-23642. NWA Corp. will provide without charge to any person to whom a copy of this Prospectus has been delivered, upon written or oral request, a copy of any or all of the foregoing documents incorporated herein by reference (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to the Secretary's Office, NWA Corp., 5101 Northwest Drive, Dept. A1180, St. Paul, Minnesota 55111-3034, telephone number (612) 726-2111. 2 94 THE COMPANY NWA Corp. was incorporated in February 1989 under the laws of the State of Delaware. Northwest, the principal wholly-owned indirect subsidiary of NWA Corp., operates the world's fourth largest airline (as measured by 1994 revenue passenger miles ("RPMs")) and is engaged principally in commercial transportation of passengers and cargo. Northwest's business focuses on the development of a global airline network through the optimization of Northwest's strategic assets, which include domestic hubs at Detroit and Minneapolis/St. Paul, an extensive Pacific route system with a hub at Tokyo, and a transatlantic alliance with KLM Royal Dutch Airlines ("KLM"). Northwest operates substantial domestic and international route networks and as of December 31, 1995 directly serves more than 150 cities in 18 countries on the continents of North America, Asia and Europe. Northwest had more than 49 million enplanements and flew over 62 billion RPMs in 1995. NWA Inc., the parent company of Northwest, was acquired in 1989 (the "Acquisition") by NWA Corp., a Delaware corporation formed by Alfred A. Checchi, Gary L. Wilson, Frederic V. Malek, Fosters Brewing Group Ltd. of Australia ("Fosters"), Bankers Trust New York Corporation, KLM and Richard C. Blum & Associates NWA Partners, L.P. ("Blum") (together (other than Fosters, which has sold its interest in NWA Corp. to KLM), the "Original Investors") for the purpose of the Acquisition. As of March 31, 1996, the Original Investors beneficially owned approximately 47.0% of the common equity representing approximately 46.3% of the voting equity of NWA Corp. In addition, pursuant to certain agreements (the "Equity Letter Agreements") entered into by the Company with several unions representing the Company's employees, NWA Corp. will have issued to trusts (the "Employee Trusts") for the benefit of Company employees shares of Series C Preferred Stock and Common Stock which represent approximately 24.1% of the voting equity of the Company as of March 31, 1996. The holders of Series C Preferred Stock have the right to elect three of the Company's 15 directors (the "Series C Directors"). The Original Investors are parties to an Investor Stockholders' Agreement (the "Stockholders' Agreement") which governs their votes for the election of 11 of the Company's directors. The Stockholders' Agreement expires in July 1999, subject to earlier termination in certain circumstances. ------------------------ NWA Corp. was originally formed under the name Wings Holdings Inc. The Company's principal executive offices are located at 2700 Lone Oak Parkway, Eagan, Minnesota 55121; its mailing address is 5101 Northwest Drive, St. Paul, Minnesota 55111-3034 and its telephone number is (612) 726-2111. GENERAL OUTLINE OF TRUST STRUCTURE In respect of each offering of Certificates, one or more Trusts will be formed, and the related Certificates issued, pursuant to separate Trust Supplements to be entered into among the Trustee, NWA Corp. and Northwest in accordance with the terms of the Basic Agreement. Concurrently with the execution and delivery of each Trust Supplement, the Trustee, on behalf of the Trust formed thereby, will enter into one or more purchase or refunding agreements (each such agreement being herein referred to as a "Note Purchase Agreement") pursuant to which it will purchase one or more Equipment Notes relating to one or more of the Aircraft described in the applicable Prospectus Supplement. Pursuant to the applicable Note Purchase Agreement or Note Purchase Agreements, the Trustee, on behalf of each Trust, will purchase one or more Equipment Notes such that the Equipment Notes that constitute the property of such Trust will have identical interest rates (in each case equal to the rate applicable to the Certificates issued by such Trust) and identical priority of payment relative to each of the other Equipment Notes issued under the Related Indentures (as defined below). The maturity dates of the Equipment Notes acquired by each Trust will occur on or before the final distribution date applicable to the Certificates that will be issued by such Trust. The Trustee will distribute the amount of payments of principal, premium, if any, and interest received by it as holder of the Equipment Notes to the Certificateholders of the Trust in which such Equipment Notes are held. See "Description of the Certificates" and "Description of the Equipment Notes." 3 95 USE OF PROCEEDS Except as set forth in a Prospectus Supplement for a specific offering of Certificates, the Certificates will be issued in order to facilitate (a) the financing or refinancing of the debt portion and, in certain cases, the refinancing of some of the equity portion of one or more separate leveraged lease transactions entered into by Northwest, as lessee, with respect to the Leased Aircraft as described in the applicable Prospectus Supplement, and (b) the financing or refinancing of the aggregate principal amount of debt to be issued, or the purchase of the aggregate principal amount of the debt previously issued, by Northwest in respect of the Owned Aircraft as described in the applicable Prospectus Supplement. The proceeds from the sale of Certificates in respect of such Owned or Leased Aircraft is not expected to exceed 80% of the appraised value of such Owned or Leased Aircraft at the time of financing or refinancing. Except as set forth in a Prospectus Supplement for a specific offering of Certificates, the proceeds from the sale of the Certificates will be used by the Trustee on behalf of the applicable Trust or Trusts to purchase either (a) Leased Aircraft Notes issued by the respective Owner Trustee or Owner Trustees to finance or refinance (as specified in the applicable Prospectus Supplement) the related Leased Aircraft, or (b) Owned Aircraft Notes issued by Northwest to finance or refinance (as specified in the applicable Prospectus Supplement) the related Owned Aircraft. Any portion of the proceeds from the sale of Certificates not used by the Trustee to purchase Equipment Notes on or prior to the date specified therefor in the applicable Prospectus Supplement will be distributed on a Special Distribution Date (as defined below) to the applicable Certificateholders, together with interest, but without premium. See "Description of Certificates -- Special Distribution Upon Unavailability of Aircraft." The Leased Aircraft Notes will be issued under separate trust indentures (the "Leased Aircraft Indentures") between a bank, trust company or other institution specified in the related Prospectus Supplement, as trustee thereunder (in such capacity, herein referred to as the "Loan Trustee"), and an institution specified in the related Prospectus Supplement acting, not in its individual capacity, but solely as owner trustee (an "Owner Trustee") of a separate trust for the benefit of one or more institutional investors (each, an "Owner Participant"). With respect to each Leased Aircraft, the related Owner Participant will have provided or will provide from sources other than the Leased Aircraft Notes a portion of the equipment cost of the related Leased Aircraft. No Owner Participant, however, will be personally liable for any amount payable under the related Leased Aircraft Indenture or the Leased Aircraft Notes issued thereunder. Simultaneously with the acquisition of each Leased Aircraft, the related Owner Trustee leased or will lease such Aircraft to Northwest pursuant to a separate Lease. The Owned Aircraft Notes will be issued under separate trust indentures (the "Owned Aircraft Indentures" and, together with any Leased Aircraft Indentures, the "Indentures") between the applicable Loan Trustee and Northwest. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges for NWA Corp. and its consolidated subsidiaries for the periods indicated. The ratio of earnings to fixed charges represents the number of times that fixed charges were covered by earnings. In computing the ratio, earnings represent consolidated earnings (loss) before income taxes, cumulative effect of accounting change and fixed charges (excluding capitalized interest). Fixed charges consist of interest expense (including capitalized interest), one-third of rental expense, which is considered representative of the interest factor, and amortization of debt discount and expense.
YEAR ENDED DECEMBER 31, - --------------------------------------------- 1995 1994 1993 1992 1991 - ----- ----- ----- ----- ----- 1.91 1.88 (a) (a) (a)
- --------------- (a) Earnings did not cover fixed charges by $121.5 million for the year ended December 31, 1993, $1,513.5 million for the year ended December 31, 1992 and $522.1 million for the year ended December 31, 1991. Excluding non-recurring special charges of $94.3 million for the year ended December 31, 1993, and $792.7 million for the year ended December 31, 1992, earnings did not cover fixed charges by $27.2 million and $720.8 million for the two periods, respectively. 4 96 DESCRIPTION OF THE CERTIFICATES In connection with each offering of Certificates, one or more separate Trusts will be formed and one or more series of Certificates will be issued pursuant to the Basic Agreement and one or more separate Trust Supplements to be entered into among Northwest, NWA Corp. and the Trustee. The statements made under this caption are summaries and reference is made to the detailed provisions of the Basic Agreement, the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The summaries relate to the Basic Agreement and each of the Trust Supplements, the Trusts to be formed thereby and the Certificates to be issued by each Trust except to the extent, if any, described in the applicable Prospectus Supplement. The Prospectus Supplement that accompanies this Prospectus contains a glossary of the material terms used with respect to the specific series of Certificates being offered thereby. The Trust Supplement relating to each series of Certificates and the forms of the related Note Purchase Agreement, Indenture, Lease, Trust Agreement, Participation Agreement, Refunding Agreement, Intercreditor Agreement and Revolving Credit Agreement, as applicable, will be filed as exhibits to a post-effective amendment to the Registration Statement of which this Prospectus is a part, a Current Report on Form 8-K, a Quarterly Report on Form 10-Q or an Annual Report on Form 10-K, as applicable, filed by NWA Corp. with the Commission. The Certificates offered pursuant to this Prospectus will be limited to $750,000,000 aggregate public offering price (or its equivalent (based on the applicable exchange rate at the time of sale) in one or more foreign currencies or currency units). Certain provisions of the description of the Certificates in this Prospectus do not necessarily apply to one Certificate of each Trust which may be issued in a denomination of less than $1,000. To the extent that any provision in any Prospectus Supplement is inconsistent with any provision in this summary, the provision of such Prospectus Supplement will control. GENERAL Each Certificate will represent a fractional undivided interest in the Trust created by the Trust Supplement pursuant to which such Certificate was issued and all payments and distributions shall be made only from the related Trust Property (as defined below). The property of each Trust (the "Trust Property") will include the Equipment Notes held in such Trust, all monies at any time paid thereon and all monies due and to become due thereunder and funds from time to time deposited with the Trustee in accounts relating to such Trust and, if so specified in the Prospectus Supplement related to a series of Certificates, rights under intercreditor agreements relating to cross-subordination arrangements and monies receivable under a liquidity facility. Each Certificate will represent a pro rata share of the outstanding principal amount of the Equipment Notes held in the related Trust and, unless otherwise specified in the applicable Prospectus Supplement, will be issued in minimum denominations of $1,000 or any integral multiple thereof. The Certificates do not represent an interest in or obligation of Northwest, NWA Corp., the Trustee, any of the Loan Trustees or Owner Trustees in their individual capacities, any Owner Participant, or any affiliate of any thereof. Each Certificateholder by its acceptance of a Certificate agrees to look solely to the income and proceeds from the Trust Property as provided in the Basic Agreement and the applicable Trust Supplement. The Equipment Notes issued under an Indenture may be held in more than one Trust and one Trust may hold Equipment Notes issued under more than one Indenture (each Indenture the Equipment Notes of which are held in a Trust, a "Related Indenture"). Unless otherwise provided in a Prospectus Supplement, only Equipment Notes having the same priority of payment (the Equipment Notes of any such priority, a "Class") may be held in the same Trust. Interest will be passed through to Certificateholders of each Trust at the rate per annum payable on the Equipment Notes held in such Trust, as set forth for such Trust on the cover page of the applicable Prospectus Supplement. Reference is made to the Prospectus Supplement that accompanies this Prospectus for a description of the specific series of Certificates being offered thereby, including: (1) the specific designation and title of such Certificates; (2) the Regular Distribution Dates (as defined below) and Special Distribution Dates (as defined below) applicable to such Certificates; (3) the currency or currencies (including currency units) in which such Certificates may be denominated; (4) the specific form of such Certificates, including whether or not such Certificates are to be issued in accordance with a book-entry system; (5) a description of the Equipment Notes to be purchased by such Trust, including (a) the period or periods within which, the price or prices at which, and the terms and conditions upon which such Equipment Notes may 5 97 or must be redeemed or defeased in whole or in part, by Northwest or, with respect to Leased Aircraft Notes, the Owner Trustee, (b) the payment priority of such Equipment Notes in relation to any other Equipment Notes issued with respect to the related Aircraft, (c) any additional security or liquidity enhancements therefor and (d) any intercreditor or other rights or limitations between or among the holders of Equipment Notes of different priorities issued by the same Owner Trustee; (6) a description of the related Aircraft, including whether such Aircraft is a Leased Aircraft or an Owned Aircraft; (7) a description of the related Note Purchase Agreement and Related 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 such remedies with respect to such Equipment Notes; (8) if such Certificates relate to Leased Aircraft, a description of the related Lease, Trust Agreement and Participation Agreement, including (a) the names of the related Owner Trustees, (b) a description of the events of default under the related Leases, the remedies exercisable upon the occurrence of such events of default and any limitations on the exercise of such remedies with respect to such Leased Aircraft Notes, and (c) the rights of the related Owner Trustee, if any, and/or Owner Participant, if any, to cure failures of Northwest to pay rent under the related Lease; (9) the extent, if any, to which the provisions of the operative documents applicable to such Equipment Notes may be amended by the parties thereto without the consent of the holders of, or only upon the consent of the holders of a specified percentage of aggregate principal amount of, such Equipment Notes; (10) cross-default or cross-collateralization provisions in the Related Indentures; (11) subordination provisions among the holders of Certificates, including any cross-subordination provisions among the holders of Certificates in separate Trusts; and (12) any other special terms pertaining to such Certificates. If any Certificates are denominated in one or more foreign currencies or currency units, the restrictions, certain United States federal income tax considerations, specific terms and other information with respect to such Certificates and such foreign currency or currency units will be set forth in the applicable Prospectus Supplement. BOOK-ENTRY REGISTRATION General If specified in the applicable Prospectus Supplement, the Certificates will be subject to the provisions described below and under the caption "-- Definitive Certificates." Upon issuance, each series of Certificates will be represented by one fully registered global certificate. Each global certificate will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co. ("Cede"), or its nominee. No person acquiring an interest in such Certificates ("Certificate Owner") will be entitled to receive a certificate representing such person's interest in such Certificates, except as set forth below under "-- Definitive Certificates." Unless and until Definitive Certificates are issued under the limited circumstances described herein, all references to actions by Certificateholders shall refer to actions taken by DTC upon instructions from DTC Participants (as defined below), and all references herein to distributions, notices, reports and statements to Certificateholders shall refer, as the case may be, to distributions, notices, reports and statements to DTC or Cede, as the registered holder of such Certificates, or to DTC Participants for distribution to Certificate Owners in accordance with DTC procedures. Northwest has been advised 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 "clearing agency" registered pursuant to section 17A of the Exchange Act. DTC was created to hold securities for its participants ("DTC Participants") and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic book-entries, thereby eliminating the need for physical transfer of certificates. DTC Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant either directly or indirectly ("Indirect Participants"). Certificate Owners that are not DTC Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, the Certificates may do so only through DTC Participants and Indirect Participants. In addition, Certificate Owners will receive all distributions of principal and interest from the Trustee through DTC Participants or Indirect Participants, as the case may be. Under a book-entry format, Certificate Owners may experience some delay in their receipt of payments, because such payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such payments in same-day funds to DTC Participants who are credited with 6 98 ownership of the Certificates in amounts proportionate to the principal amount of each such DTC Participant's respective holdings of beneficial interests in the Certificates. DTC Participants will thereafter forward payments to Indirect Participants or Certificate Owners, as the case may be, in accordance with customary industry practices. The forwarding of such distributions to the Certificate Owners will be the responsibility of such DTC Participants. Unless and until the Definitive Certificates are issued under the limited circumstances described herein, the only "Certificateholder" will be Cede, as nominee of DTC. Certificate Owners will not be recognized by the Trustee as Certificateholders, as such term is used in the Basic Agreement, and Certificate Owners will be permitted to exercise the rights of Certificateholders only indirectly through DTC and DTC Participants. Under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers of the Certificates among DTC Participants on whose behalf it acts with respect to the Certificates and to receive and transmit distributions of principal, premium, if any, and interest with respect to the Certificates. DTC Participants and Indirect Participants with which Certificate Owners have accounts with respect to the Certificates similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective customers. Accordingly, although Certificate Owners will not possess the Certificates, the Rules provide a mechanism by which Certificate Owners will receive payments and will be able to transfer their interests. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect Participants, the ability of a Certificate Owner to pledge the Certificates to persons or entities that do not participate in the DTC system, or to otherwise act with respect to such Certificates, may be limited due to the lack of a physical certificate for such Certificates. DTC has advised Northwest that it will take any action permitted to be taken by a Certificateholder under the Basic Agreement only at the direction of one or more DTC Participants to whose accounts with DTC the Certificates are credited. Additionally, DTC has advised Northwest that in the event any action requires approval by Certificateholders of a certain percentage of beneficial interest in each Trust, DTC will take such action 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. Neither Northwest, NWA Corp. nor the Trustee will have any liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Certificates held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The applicable Prospectus Supplement will specify any additional book-entry registration procedures applicable to Certificates denominated in a currency other than United States dollars. Same-Day Settlement and Payment So long as the Certificates are registered in the name of Cede, as nominee for DTC, all payments made by Northwest to the Loan Trustee under any Lease or any Owned Aircraft Indentures will be in immediately available funds. Such payments, including the final distribution of principal with respect to the Certificates of any Trust, will be passed through to DTC in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearinghouse or next-day funds. In contrast, secondary trading in pass through certificates is generally settled in immediately available or same-day funds. Any Certificates registered in the name of Cede, as nominee for DTC, will trade in DTC's Same-Day Funds Settlement System until maturity, and secondary market trading activity in the Certificates will therefore be required by DTC to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in same-day funds on trading activity in the Certificates. Definitive Certificates Certificates will be issued in certificated form ("Definitive Certificates") to Certificate Owners or their nominees, rather than to DTC or its nominee, only if (i) Northwest advises the Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to such Certificates and Northwest is unable to locate a qualified successor, (ii) Northwest, at its option, elects to terminate the book-entry system through DTC or 7 99 (iii) after the occurrence of certain events of default or other events specified in the related Prospectus Supplement. Certificate Owners with fractional undivided interests aggregating not less than a majority in interest in such Trust advise the Trustee, Northwest and DTC through DTC Participants in writing that the continuation of a book-entry system through DTC (or a successor thereto) is no longer in the Certificate Owners' best interest. Upon the occurrence of any event described in the immediately preceding paragraph, the Trustee will be required to notify all Certificate Owners through DTC Participants of the availability of Definitive Certificates. Upon surrender by DTC of the certificates representing the Certificates and receipt of instructions for re-registration, the Trustee will reissue the Certificates as Definitive Certificates to Certificate Owners. Distributions of principal, premium, if any, and interest with respect to Certificates will thereafter be made by the Trustee directly in accordance with the procedures set forth in the Basic Agreement and the applicable Trust Supplements, to holders in whose names the Definitive Certificates were registered at the close of business on the applicable record date. Such distributions will be made by check mailed to the address of such holder as it appears on the register maintained by the Trustee. The final payment on any Certificate, however, will be made only upon presentation and surrender of such Certificate at the office or agency specified in the notice of final distribution to Certificateholders. Definitive Certificates will be freely transferable and exchangeable at the office of the Trustee upon compliance with the requirements set forth in the Basic Agreement and the applicable Trust Supplements. No service charge will be imposed for any registration of transfer or exchange, but payment of a sum sufficient to cover any tax or other governmental charge shall be required. PAYMENTS AND DISTRIBUTIONS Subject to the effect of any cross-subordination provisions set forth in the Prospectus Supplement for a series of Certificates, payments of principal, premium, if any, and interest with respect to the Equipment Notes held in each Trust will be distributed by the Trustee, upon receipt, to Certificateholders of such Trust on the dates and in the currency specified in the applicable Prospectus Supplement, except in certain cases when some or all of such Equipment Notes are in default as described in the applicable Prospectus Supplement. Payments of principal of, and interest on, the unpaid principal amount of the Equipment Notes held in each Trust will be scheduled to be received by the Trustee on the dates specified in the applicable Prospectus Supplement (such scheduled payments of interest and principal on the Equipment Notes to the Trustee are herein referred to as "Scheduled Payments," and the dates specified in the applicable Prospectus Supplement for distribution of Scheduled Payments to the Trustee are herein referred to as "Regular Distribution Dates"). See "Description of the Equipment Notes -- General." Subject to the effect of any cross-subordination provisions set forth in the Prospectus Supplement for a series of Certificates, each Certificateholder of each Trust will be entitled to receive a pro rata share of any distribution in respect of Scheduled Payments of principal and interest made on the Equipment Notes held in the Trust. Payments of principal, premium, if any, and interest received by the Trustee on account of the early redemption, if any, of the Equipment Notes relating to one or more Aircraft held in a Trust, and payments, other than Scheduled Payments received on a Regular Distribution Date, received by the Trustee following default in respect of Equipment Notes held in a Trust relating to one or more Aircraft ("Special Payments") will be distributed on the date determined pursuant to the applicable Prospectus Supplement (a "Special Distribution Date") except that, unless otherwise specified in the applicable Prospectus Supplement, payments received by the Trustee following default in respect of the Equipment Notes on a Regular Distribution Date as a result of a drawing under any liquidity facility specified in the applicable Prospectus Supplement (each, a "Liquidity Facility"), provided for the benefit of the Certificateholders shall be distributed on such Regular Distribution Date. The Trustee will mail notice to the Certificateholders of record of the applicable Trust not less than 20 days prior to the Special Distribution Date on which any Special Payment is scheduled to be distributed by the Trustee stating such anticipated Special Distribution Date. POOL FACTORS Unless there has been an early redemption, a purchase of an issue of Equipment Notes by the related Owner Trustee after an Indenture Default (as defined below), a default in the payment of principal in respect of one or more issues of the Equipment Notes held in a Trust or certain actions have been taken following a default thereon, as described in the applicable Prospectus Supplement, the Pool Factor (as defined below) for the Trusts will decline in proportion to the 8 100 scheduled repayments of principal on the Equipment Notes held in such Trust as described in the applicable Prospectus Supplement. In the event of such redemption, purchase or default, the Pool Factor and the Pool Balance (as defined below) of each Trust so affected will be recomputed after giving effect thereto and notice thereof will be mailed to the Certificateholders of such Trust. Each Trust will have a separate Pool Factor. Unless otherwise described in the applicable Prospectus Supplement, the "Pool Balance" for each Trust or for the Certificates issued by any Trust indicates, as of any date, the original aggregate face amount of the Certificates of such Trust less the aggregate amount of all payments made in respect of the Certificates of such Trust other than payments made in respect of interest or premium thereon or reimbursement of any costs and expenses in connection therewith. The Pool Balance for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes or other Trust Property held in such Trust and the distribution thereof to be made on that date. Unless otherwise described in the applicable Prospectus Supplement, the "Pool Factor" for each Trust as of any Regular Distribution Date or Special Distribution Date is the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the aggregate original principal amount of the Equipment Notes held in such Trust. The Pool Factor for each Trust as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on the Equipment Notes held in such Trust and distribution thereof to be made on that date. The Pool Factor for each Trust will initially be 1.0000000; thereafter, the Pool Factor for each Trust will decline as described above to reflect reductions in the Pool Balance of such Trust. The amount of a Certificateholder's pro rata share of the Pool Balance of a Trust can be determined by multiplying the original denomination of the holder's Certificate of such Trust by the Pool Factor for such Trust as of the applicable Regular Distribution Date or Special Distribution Date. The Pool Factor and the Pool Balance for each Trust will be mailed to Certificateholders of such Trust on each Regular Distribution Date and Special Distribution Date. REPORTS TO CERTIFICATEHOLDERS On each Regular Distribution Date and Special Distribution Date, the Trustee will include with each distribution of a Scheduled Payment or Special Payment to Certificateholders of the related Trust a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 aggregate principal amount of Certificate for such Trust, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to premium, if any; (ii) the amount of such distribution allocable to interest; and (iii) the Pool Balance and the Pool Factor for such Trust. So long as the Certificates are registered in the name of Cede, as nominee for DTC, on the record date prior to each Regular Distribution Date and Special Distribution Date, the 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 Certificates on such record date. On each Regular Distribution Date and Special Distribution Date, the Trustee will mail to each such DTC Participant the statement described above and will make available additional copies as requested by such DTC Participant for forwarding to Certificate Owners. In addition, after the end of each calendar year, the Trustee will prepare for each Certificateholder of each Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i) and (ii) above with respect to the Trust for such calendar year or, in the event such person was a Certificateholder during only a portion of such calendar year, for the applicable portion of such calendar year, and such other items as are readily available to the Trustee and which a Certificateholder shall reasonably request as necessary for the purpose of such Certificateholder's preparation of its federal income tax returns. Such report and such other items shall be prepared on the basis of information supplied to the Trustee by the DTC Participants and shall be delivered by the Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. 9 101 At such time, if any, as the Certificates are issued in the form of Definitive Certificates, the Trustee will prepare and deliver the information described above to each Certificateholder of record of each Trust as the name and period of beneficial ownership of such Certificateholder appears on the records of the registrar of the Certificates. VOTING OF EQUIPMENT NOTES Subject to the effect of any cross-subordination provisions set forth in the related Prospectus Supplement, the Trustee, as holder of the Equipment Notes held in each Trust, has the right to vote and give consents and waivers with respect to such Equipment Notes under the Related Indentures. The Basic Agreement and related Trust Supplement set forth (i) the circumstances in which the Trustee may direct any action or cast any vote as the holder of the Equipment Notes held in the applicable Trust at its own discretion, (ii) the circumstances in which the Trustee shall seek instructions from the Certificateholders of such Trust and (iii) the percentage of Certificateholders required to direct the Trustee to take any such action. If specified in the related Prospectus Supplement, the right of a Trustee to vote and give consents and waivers with respect to the Equipment Notes held in the related Trust may, in the circumstances set forth in an intercreditor agreement to be executed by such Trustee, be exercisable by another person specified in such Prospectus Supplement. EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT The Prospectus Supplement will specify the events of default under the Basic Agreement (an "Event of Default") and the Related Indentures (an "Indenture Default"). The Indenture Defaults will include events of default under the related Leases (a "Lease Event of Default"). With respect to any Equipment Notes which are supported by a Liquidity Facility the Indenture Defaults or Events of Default may include events of default under such Liquidity Facility. Unless otherwise provided in a Prospectus Supplement, all of the Equipment Notes issued under the same Indenture will relate to a specific Aircraft and there will be no cross-collateralization or cross-default provisions in the Indentures, and events resulting in an Indenture Default under any particular Indenture will not necessarily result in an Indenture Default occurring under any other Indenture. If an Indenture Default occurs in fewer than all of the Indentures, notwithstanding the treatment of Equipment Notes issued under any Indenture under which an Indenture Default has occurred, payments of principal and interest on the Equipment Notes issued pursuant to Indentures with respect to which an Indenture Default has not occurred will continue to be made as originally scheduled. As described below under "-- Cross- Subordination Issues," a Prospectus Supplement may provide the terms of any cross-subordination provisions among Certificateholders of separate Trusts. If such provisions are so provided, payments made pursuant to a Related Indenture under which an Indenture Default has not occurred may be distributed first to the holders of the Certificates issued under the Trust which holds the most senior Equipment Notes issued under all Related Indentures. The ability of the applicable Owner Trustee or Owner Participant under the Related Indenture to cure Indenture Defaults, including Indenture Defaults that result from the occurrence of a Lease Event of Default under the related Lease will be described in the Prospectus Supplement. Unless otherwise provided in a Prospectus Supplement, with respect to any Certificates or Equipment Notes entitled to the benefits of a Liquidity Facility, a drawing under any such Liquidity Facility for the purpose of making a payment of interest as a result of the failure by Northwest to have made a corresponding payment will not cure an Indenture Default related to such failure by Northwest. The Prospectus Supplement related to a series of Certificates will describe the circumstances under which the Trustee of the related Trust may vote some or all of the Equipment Notes issued under the applicable Indenture or issued under any Related Indentures. Such Prospectus Supplement will also set forth (i) the percentage of Certificateholders of such Trust entitled to direct the Trustee to take any action with respect to such Equipment Notes and, if applicable, Equipment Notes issued under any other Related Indenture. If the Equipment Notes outstanding under an Indenture are held by more than one Trust, then the ability of the Certificateholders issued with respect to any one Trust to cause the Loan Trustee with respect to any Equipment Notes held in such Trust to accelerate the Equipment Notes under the Related Indenture or to direct the exercise of remedies by the Loan Trustee under the Related Indenture will depend, in part, upon the proportion between the aggregate principal amount of the Equipment Notes outstanding under such Indenture and held in such Trust and the aggregate principal amount of all Equipment Notes outstanding under such Indenture. In addition, if cross-subordination provisions are applicable to any series of Certificates, then the ability of the Certificateholders of any one Trust holding Equipment Notes issued under Related Indentures to cause the Loan Trustee with respect to any Equipment Notes held in such Trust to accelerate the Equipment Notes under the Related Indenture 10 102 or to direct the exercise of remedies by the Loan Trustee under the Related Indenture will depend, in part, upon the Class of Notes held in such Trust. If the Equipment Notes outstanding under an Indenture are held by more than one Trust, then each Trust will hold Equipment Notes with different terms from the Equipment Notes held in the other Trusts and therefore the Certificateholders of a Trust may have divergent or conflicting interests from those of the Certificateholders of the other Trusts holding Equipment Notes relating to the same Indenture. In addition, so long as the same institution acts as Trustee of each Trust, in the absence of instructions from the Certificateholders of any such Trust, the Trustee for such Trust could for the same reason be faced with a potential conflict of interest upon an Indenture Default. In such event, the Trustee has indicated that it would resign as Trustee of one or all such Trusts, and a successor trustee would be appointed in accordance with the terms of the Basic Agreement. The Prospectus Supplement for a series of Certificates will specify whether and under what circumstances the Trustee may or shall sell for cash to any person all or part of such Equipment Notes. Any proceeds received by the Trustee upon any such sale shall be deposited in an account established by the Trustee for the benefit of the Certificateholders of such Trust for the deposit of such Special Payments (the "Special Payments Account") and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. The market for Equipment Notes 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 acts as Trustee of multiple Trusts, it may be faced with a conflict in deciding from which Trust to sell Equipment Notes to available buyers. If the Trustee sells any such Equipment Notes with respect to which an Indenture Default exists for less than their outstanding principal amount, the Certificateholders of such Trust will receive a smaller amount of principal distributions than anticipated and will not have any claim for the shortfall against Northwest, any Owner Trustee, Owner Participant or the Trustee. Furthermore, neither the Trustee nor the Certificateholders of such Trust could take any action with respect to any remaining Equipment Notes held in such Trust so long as no Indenture Defaults exist with respect thereto. Any amount, other than Scheduled Payments received on a Regular Distribution Date, distributed to the Trustee of any Trust by the Loan Trustee under any Indenture on account of the Equipment Notes held in such Trust following an Indenture Default under such Indenture shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. In addition, if a Prospectus Supplement provides that the applicable Owner Trustee may, under circumstances specified therein, redeem or purchase the outstanding Equipment Notes issued under the Related Indenture, the price paid by such Owner Trustee to the Trustee of any Trust for the Equipment Notes issued under such Indenture and held in such Trust shall be deposited in the Special Payments Account for such Trust and shall be distributed to the Certificateholders of such Trust on a Special Distribution Date. Any funds representing payments received with respect to any Equipment Notes held in a Trust in default, or the proceeds from the sale by the Trustee of any such Equipment Notes, held by the Trustee in the Special Payments Account for such Trust shall, to the extent practicable, be invested and reinvested by the Trustee in Permitted Investments pending the distribution of such funds on a Special Distribution Date. "Permitted Investments" will be specified in the related Prospectus Supplement. The Basic Agreement provides that the Trustee of each Trust shall, within 90 days after the occurrence of a default in respect of such Trust, give to the Certificateholders of such Trust notice, transmitted by mail, of all uncured or unwaived defaults with respect to such Trust known to it, provided that, except in the case of default in the payment of principal, premium, if any, or interest on any of the Equipment Notes held in such Trust, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of such Certificateholders. The term "default" as used in this paragraph only means the occurrence of an Event of Default with respect to a Trust as described above, except that in determining whether any such Event of Default has occurred, any grace period or notice in connection therewith shall be disregarded. The Basic Agreement contains a provision entitling the Trustee of each Trust, subject to the duty of the Trustee during a default to act with the required standard of care, to be offered reasonable security or indemnity by the Certificateholders of such Trust before proceeding to exercise any right or power under the Basic Agreement at the request of such Certificateholders. The Prospectus Supplement for a series of Certificates will specify the percentage of Certificateholders entitled to waive, or to instruct the Trustee to waive, any past Event of Default with respect to such Trust and thereby annul any 11 103 direction given with respect thereto. The Prospectus Supplement for a series of Certificates will also specify the percentage of Certificateholders (and whether of such Trust or of any other Trust holding Equipment Notes issued under Related Indentures) entitled to waive, or to instruct the Trustee or the Loan Trustee to waive, any past Indenture Default with respect to the Equipment Notes held in such Trust and thereby annul any direction given with respect thereto. MERGER, CONSOLIDATION AND TRANSFER OF ASSETS Northwest will be prohibited from consolidating with or merging into any other corporation or transferring substantially all of its assets as an entirety to any other corporation unless (i) the surviving successor or transferee corporation shall (a) be a "citizen of the United States" (as defined in Section 40102(a)(15) of Title 49 of the United States Code) holding a carrier operating certificate issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49, United States Code, for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo and with respect to which there is in force an air carrier operating certificate issued pursuant to Part 121 of the regulations under the sections of Title 49, United States Code, relating to aviation and (b) expressly assume all of the obligations of Northwest contained in the Basic Agreement and any Trust Supplement, the Note Purchase Agreements and the Indentures and, with respect to the Leased Aircraft Notes, the Participation Agreements and the Leases, and any other operative documents; (ii) immediately after giving effect to such transaction, no Indenture Default (with respect to the Owned Aircraft Notes) or Lease Event of Default (with respect to the Leased Aircraft Notes) shall have occurred and be continuing; and (iii) Northwest shall have delivered a certificate and an opinion or opinions of counsel indicating that such transaction, in effect, complies with such conditions. MODIFICATIONS OF THE BASIC AGREEMENT The Basic Agreement contains provisions permitting Northwest, NWA Corp. and the Trustee of each Trust to enter into a supplemental trust agreement, without the consent of the holders of any of the Certificates of such Trust, (i) to provide for the formation of such Trust and the issuance of a series of Certificates, (ii) to evidence the succession of another corporation to Northwest or NWA Corp. and the assumption by such corporation of Northwest's or NWA Corp.'s obligations under the Basic Agreement and the applicable Trust Supplement, (iii) to add to the covenants of Northwest or NWA Corp. for the benefit of holders of such Certificates, or to surrender any right or power in the Basic Agreement conferred upon Northwest or NWA Corp., (iv) to cure any ambiguity or correct or supplement any defective or inconsistent provision of the Basic Agreement or the applicable Trust Supplement or to make any other provisions with respect to matters or questions arising thereunder, provided such action shall not adversely affect the interests of the holders of such Certificates, or to cure any ambiguity or correct any mistake, (v) to modify, eliminate or add to the provisions of the Basic Agreement to the extent as shall be necessary to continue the qualification of the Basic Agreement (including any supplemental agreement) under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and to add to the Basic Agreement such other provisions as may be expressly permitted by the Trust Indenture Act, (vi) to provide for a successor Trustee or to add to or change any provision of the Basic Agreement as shall be necessary to facilitate the administration of the Trusts thereunder by more than one Trustee, (vii) to add, eliminate or change any provisions under such Basic Agreement that will not adversely affect the Certificateholders in any material respect, provided that in each case, such modification does not cause the corresponding Trust to become taxable as an "association" within the meaning of Treasury Regulation Section 301.7701-2 or a "publicly traded partnership" within the meaning of Section 7704 of the Code taxable as a corporation and (viii) to make any other amendments or modifications to the Basic Agreement, provided such amendments or modifications shall only apply to Certificates issued thereafter. The Basic Agreement also contains provisions permitting Northwest, NWA Corp. and the Trustee of each Trust, with the consent of the Certificateholders of such Trust evidencing fractional undivided interests aggregating not less than a majority in interest of such Trust, and, with respect to any Leased Aircraft, with the consent of the applicable Owner Trustee (such consent not to be unreasonably withheld), to execute supplemental trust agreements adding any provisions to or changing or eliminating any of the provisions of the Basic Agreement, to the extent relating to such Trust, and the applicable Trust Supplement, or modifying the rights of the Certificateholders, except that no such supplemental trust agreement may, without the consent of each Certificateholder so affected thereby, (a) reduce in any manner the amount of, or delay the timing of, any receipt by the Trustee of payments on the Equipment Notes held in such Trust or distributions in respect of any Certificate related to such Trust, or change the date or place of any payment in respect of any Certificate, or make distributions payable in coin or currency other than that provided for in such Certificates, or 12 104 impair the right of any Certificateholder of such Trust to institute suit for the enforcement of any such payment when due, (b) permit the disposition of any Equipment Note held in such Trust, except as provided in the Basic Agreement or the applicable Trust Supplement, or otherwise deprive any Certificateholder of the benefit of the ownership of the applicable Equipment Notes, (c) reduce the percentage of the aggregate fractional undivided interests of the Trust provided for in the Basic Agreement or the applicable Trust Supplement, the consent of the holders of which is required for any such supplemental trust agreement or for any waiver provided for in the Basic Agreement or such Trust Supplement, (d) modify any of the provisions relating to the rights of the Certificateholders in respect of the waiver of events of default or receipt of payment or (e) cause the Trust to become taxable as an "association" within the meaning of Treasury Regulation Section 301.7701-2 or a "publicly traded partnership" within the meaning of Section 7704 of the Code taxable as a corporation. MODIFICATION OF INDENTURE AND RELATED AGREEMENTS The Prospectus Supplement will specify the Trustee's obligations in the event that the Trustee, as the holder of any Equipment Notes held in a Trust, receives a request for its consent to any amendment, modification or waiver under the Indenture or other documents relating to such Equipment Notes (including any Lease with respect to Leased Aircraft Notes or any Liquidity Facility). CROSS-SUBORDINATION ISSUES The Equipment Notes issued under an Indenture may be held in more than one Trust and one Trust may hold Equipment Notes issued under more than one Related Indenture. Unless otherwise provided in a Prospectus Supplement, only Equipment Notes of the same Class may be held in the same Trust. In such event, payments made on account of a subordinate Class of Equipment Notes issued under a Related Indenture may, under circumstances described in the related Prospectus Supplement, be subordinated to the prior payment of all amounts owing to Certificateholders of a Trust which holds senior Equipment Notes issued under all Related Indentures. The Prospectus Supplement related to an issuance of Certificates will describe any such "cross-subordination" provisions and any related terms, including the percentage of Certificateholders under any Trust which are permitted to (i) grant waivers of defaults under any Related Indenture, (ii) consent to the amendment or modification of any Related Indentures or (iii) direct the exercise of remedial actions under any Related Indentures. TERMINATION OF THE TRUSTS The obligations of Northwest, NWA Corp. and the Trustee with respect to a Trust will terminate upon the distribution to Certificateholders of such Trust of all amounts required to be distributed to them pursuant to the Basic Agreement and the applicable Trust Supplement and the disposition of all property held in such Trust. The Trustee will send to each Certificateholder of record of such Trust notice of the termination of such Trust, the amount of the proposed final payment and the proposed date for the distribution of such final payment for such Trust. The final distribution to any Certificateholder of such Trust will be made only upon surrender of such Certificateholder's Certificates at the office or agency of the Trustee specified in such notice of termination. DELAYED PURCHASE In the event that, on the delivery date of any Certificates, all of the proceeds from the sale of such Certificates are not used to purchase the Equipment Notes contemplated to be held in the related Trust, such Equipment Notes may be purchased by the Trustee at any time on or prior to the date specified in the applicable Prospectus Supplement. In such event, the Trustee will hold the proceeds from the sale of such Certificates not used to purchase Equipment Notes in an escrow account pending the purchase of the Equipment Notes not so purchased. Such proceeds will be invested at the direction and risk of, and for the account of, Northwest in certain specified investments, which may include: (i) obligations of, or guaranteed by, the United States Government or agencies thereof, (ii) open market commercial paper of any corporation incorporated under the laws of the United States of America or any State thereof rated at least P-2 or its equivalent by Moody's Investors Service, Inc. or at least A-2 or its equivalent by Standard & Poor's Corporation, (iii) certificates of deposit issued by commercial banks organized under the laws of the United States or of any political subdivision thereof having a combined capital and surplus in excess of $500,000,000 which banks or their holding companies have a rating of A or its equivalent by Moody's Investors Service, Inc. or Standard & Poor's Corporation, 13 105 provided, however, that the aggregate amount at any one time so invested in certificates of deposit issued by any one bank shall not exceed 5% of such bank's capital and surplus, (iv) U.S. dollar denominated offshore certificates of deposit issued by, or offshore time deposits with, any commercial bank described in clause (iii) above or any subsidiary thereof and (v) repurchase agreements with any financial institution having combined capital and surplus of at least $500,000,000 with any of the obligations described in (i) through (iv) as collateral; provided that if all of the above investments are unavailable, the entire amounts to be invested may be used to purchase federal funds from an entity described in clause (iii) above; and provided further that no investment shall be eligible as a "specified investment" unless the final maturity date or date of return of such investment is on or before (x) the scheduled date for the purchase of such Equipment Notes, or (y) if no date has been scheduled for the purchase of such Equipment Notes, the next Business Day, or (z) if Northwest has given notice that such Equipment Notes will not be purchased, the next applicable Special Distribution Date. Earnings on such investments in the escrow account for each Trust will be paid to Northwest periodically, and Northwest will be responsible for any losses. On the next Regular Distribution Date specified in the applicable Prospectus Supplement, Northwest will pay to the Trustee an amount equal to the interest that would have accrued on any Equipment Notes purchased after the date of the issuance of such Certificates from the date of the issuance of such Certificates to, but excluding, the date of the purchase of such Equipment Notes by the Trustee. SPECIAL DISTRIBUTION UPON UNAVAILABILITY OF AIRCRAFT To the extent that, due to a casualty to, or other event causing the unavailability of, one or more Aircraft, the full amount of the proceeds from the sale of any Certificates held in the escrow account referred to above is not used to purchase Equipment Notes on or prior to the date specified in the applicable Prospectus Supplement, an amount equal to the unused proceeds will be distributed by the Trustee to the holders of record of such Certificates on a pro rata basis upon not less than 20 days' prior notice to them on a Special Distribution Date, together with interest thereon at a rate equal to the rate applicable to such Certificates, but without premium, and Northwest will pay to the Trustee on such date an amount equal to such interest. THE PARENT GUARANTY NWA Corp. will unconditionally guarantee (i) with respect to related Owned Aircraft Notes, the full and prompt payment of principal, premium, if any, and interest thereon when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, and (ii) with respect to related Leased Aircraft Notes, the full and prompt payment of all amounts payable by Northwest under the related Lease when and as the same shall become due and payable. The Parent Guaranty will be enforceable without any need first to enforce any Owned Aircraft Note or Lease against Northwest. The Parent Guaranty will be an unsecured obligation of NWA Corp. LIQUIDITY FACILITY The related Prospectus Supplement may provide that one or more payments of interest on the Certificates of one or more series will be supported by a Liquidity Facility issued by an institution identified in the related Prospectus Supplement. The provider of such Liquidity Facility will have a claim senior to the Certificateholders' as specified in the related Prospectus Supplement. THE TRUSTEE The Trustee for each series of Certificates will be identified in the Prospectus Supplement. With certain exceptions, the Trustee makes no representations as to the validity or sufficiency of the Basic Agreement, the Trust Supplements, the Certificates, the Equipment Notes, the Indentures, the Leases or other related documents. The Trustee shall not be liable with respect to any series of Certificates, for any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of a majority in principal amount of outstanding Certificates of such series issued under the Basic Agreement. Subject to such provisions, such Trustee shall be under no obligation to exercise any of its rights or powers under the Basic Agreement at the request of any holders of Certificates issued thereunder unless they shall have offered to the Trustee indemnity satisfactory to it. The Basic Agreement provides that the Indenture Trustee in its individual or any other capacity may acquire and hold Certificates issued thereunder and, subject to certain conditions, 14 106 may otherwise deal with Northwest and, with respect to the Leased Aircraft, with any Owner Trustee with the same rights it would have if it were not the Trustee. The Trustee may resign with respect to any or all of the Trusts at any time, in which event Northwest will be obligated to appoint a successor trustee. If the Trustee ceases to be eligible to continue as Trustee with respect to a Trust or becomes incapable of acting as Trustee or becomes insolvent, Northwest may remove such Trustee, or any Certificateholder of such Trust for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor trustee. Any resignation or removal of the Trustee with respect to a Trust and appointment of a successor trustee for such Trust does not become effective until acceptance of the appointment by the successor trustee. Pursuant to such resignation and successor trustee provisions, it is possible that a different trustee could be appointed to act as the successor trustee with respect to each Trust. All references in this Prospectus to the Trustee should be read to take into account the possibility that the Trusts could have different successor trustees in the event of such a resignation or removal. The Basic Agreement provides that Northwest will pay the Trustee's fees and expenses and indemnify the Trustee against certain liabilities. 15 107 DESCRIPTION OF THE EQUIPMENT NOTES The statements made under this caption are summaries and reference is made to the entire Prospectus and detailed information appearing in the applicable Prospectus Supplement. Where no distinction is made between the Leased Aircraft Notes and the Owned Aircraft Notes or between their respective Indentures, such statements refer to any Equipment Notes and any Indenture. To the extent that any provision in any Prospectus Supplement is inconsistent with any provision in this summary, the provision of such Prospectus Supplement will control. GENERAL All Equipment Notes will be issued under a separate Indenture either (a) between the related Owner Trustee of a trust for the benefit of the Owner Participant who is the beneficial owner of the related Aircraft, and the related Loan Trustee, or (b) between Northwest and the related Loan Trustee. The Equipment Notes issued pursuant to clause (a) of the preceding sentence will be nonrecourse obligations of the applicable Owner Trust. Each Equipment Note will be authenticated under an Indenture by the Loan Trustee. All Equipment Notes issued under the same Indenture will relate to, and be secured by, one or more Aircraft identified and described in the related Prospectus Supplement and which, in the case of Equipment Notes issued as described in such clause (a), are leased to Northwest pursuant to a Lease between the Owner Trustee under the applicable Owner Trust and Northwest or, in the case of Equipment Notes issued as described in clause (b), owned by Northwest. With respect to each Leased Aircraft, the related Owner Trustee has acquired or will acquire such Aircraft from Northwest or the manufacturer of such Aircraft, as the case may be, has granted or will grant a security interest in such Aircraft to the related Loan Trustee as security for the payments of the related Leased Aircraft Notes, and has leased or will lease such Aircraft to Northwest pursuant to the related Lease which has been or will be assigned to the related Loan Trustee. Pursuant to each such Lease, Northwest will be obligated to make or cause to be made rental and other payments to the related Loan Trustee on behalf of the related Owner Trustee in amounts that will be sufficient to make payments of the principal, interest and premium, if any, required to be made in respect of such Leased Aircraft Notes when and as due and payable. The rental obligations of Northwest under each Lease and the obligations of Northwest under each Owned Aircraft Indenture and under the Owned Aircraft Notes will be general obligations of Northwest. Except in certain circumstances involving Northwest's purchase of a Leased Aircraft and the assumption of the Leased Aircraft Notes related thereto, the Leased Aircraft Notes are not obligations of, or guaranteed by, Northwest. PRINCIPAL AND INTEREST PAYMENTS Interest received by the Trustee on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust on the dates and at the rate per annum set forth in the applicable Prospectus Supplement until the final distribution for such Trust. Principal received by the Trustee on the Equipment Notes held in each Trust will be passed through to the Certificateholders of such Trust in scheduled amounts on the dates set forth in the applicable Prospectus Supplement until the final distribution date for such Trust. If any date scheduled for any payment of principal, premium, if any, or interest with respect to the Equipment Notes is not a Business Day, such payment will be made on the next succeeding Business Day without any additional interest. REDEMPTION The applicable Prospectus Supplement will describe the circumstances, whether voluntary or involuntary, under which the Equipment Notes may be redeemed or purchased prior to the stated maturity date thereof, in whole or in part, the premium, if any, applicable upon certain redemptions or purchases and other terms applying to the redemptions or purchases of such Equipment Notes. 16 108 SECURITY The Leased Aircraft Notes will be secured by (i) an assignment by the related Owner Trustee to the related Loan Trustee of such Owner Trustee's rights (except for certain rights, including those described below) under the Lease or Leases with respect to the related Aircraft, including the right to receive payments of rent thereunder, (ii) a mortgage granted to such Loan Trustee in such Aircraft, subject to the rights of Northwest under such Lease or Leases and (iii) an assignment to such Loan Trustee of certain of such Owner Trustee's rights with respect to such Aircraft under the purchase agreement between Northwest and the related manufacturer. Under the terms of each Lease, Northwest's obligations in respect of each Leased Aircraft will be those of a lessee under a "net lease." Accordingly, Northwest will be obligated, among other things and at its expense, to cause each Leased Aircraft to be duly registered, to pay all costs of operating such Aircraft and to maintain, service, repair and overhaul (or cause to be maintained, serviced, repaired and overhauled) such Aircraft. With respect to the Leased Aircraft, the assignment by the related Owner Trustee to the related Loan Trustee of its rights under the related Lease will exclude, among other things, rights of such Owner Trustee and the related Owner Participant relating to indemnification by Northwest for certain matters, insurance proceeds payable to such Owner Trustee in its individual capacity and to such Owner Participant under liability insurance maintained by Northwest pursuant to such Lease or by such Owner Trustee or such Owner Participant, insurance proceeds payable to such Owner Trustee in its individual capacity or to such Owner Participant under certain casualty insurance maintained by such Owner Trustee or such Owner Participant pursuant to such Lease and any rights of such Owner Participant or such Owner Trustee to enforce payment of the foregoing amounts and their respective rights to the proceeds of the foregoing. The Owned Aircraft Notes will be secured by (i) a mortgage granted to the related Loan Trustee of all of Northwest's right, title and interest in and to such Owned Aircraft and (ii) an assignment to such Loan Trustee of certain of Northwest's rights with respect to such Aircraft under the purchase agreement between Northwest and the related manufacturer. Under the terms of each Owned Aircraft Indenture, Northwest will be obligated, among other things and at its expense, to cause each Owned Aircraft to be duly registered, to pay all costs of operating such Aircraft and to maintain, service, repair and overhaul (or cause to be maintained, serviced, repaired and overhauled) such Aircraft. The Prospectus Supplement will specify the required insurance coverage with respect to the Aircraft. Northwest will be required, except under certain circumstances, to keep each Aircraft registered under the Federal Aviation Act of 1958 (the "Federal Aviation Act"), and to record the Indenture and the Lease, if applicable, among other documents, with respect to each Aircraft under the Federal Aviation Act. Such recordation of the Indenture, the Lease, if applicable, and other documents with respect to each Aircraft will give the related Loan Trustee a perfected security interest in the related Aircraft whenever it is located in the United States or any of its territories and possessions; the Convention on the International Recognition of Rights in Aircraft (the "Convention") provides that such security will also be recognized, with certain limited exceptions, in those jurisdictions that have ratified or adhere to the Convention. Although Northwest has no current intention to do so, Northwest will have the right, subject to certain conditions, at its own expense to register each Aircraft in countries other than the United States. Unless otherwise specified in the applicable Prospectus Supplement, prior to any such change in the jurisdiction of registry, the related Loan Trustee shall have received an opinion of Northwest's counsel that, among other things, confirms the perfected status of the lien of the Related Indenture and, in the case of Leased Aircraft, confirms the validity and enforceability of the related Lease in such jurisdiction, in each case subject, in certain cases, to certain filings, recordations or other actions. Each Aircraft may also be operated by Northwest or under lease, sublease or interchange arrangements in countries that are not parties to the Convention. The extent to which the related Loan Trustee's security interest would be recognized in an Aircraft located in a country that is not a party to the Convention, and the extent to which such security interest would be recognized in a jurisdiction adhering to the Convention if the Aircraft is registered in a jurisdiction not a party to the Convention, is uncertain. Moreover, in the case of an Indenture Default, the ability of the related Loan Trustee to realize upon its security interest in an Aircraft could be adversely affected as a legal or practical matter if such Aircraft were registered or located outside the United States. Unless otherwise specified in the applicable Prospectus Supplement, the Equipment Notes will not be cross-collateralized and consequently the Equipment Notes issued in respect of any one Aircraft will not be secured by any other Aircraft or, in the case of Leased Aircraft Notes, the Lease related thereto. Unless and until an Indenture Default with 17 109 respect to a Leased Aircraft has occurred and is continuing, the related Loan Trustee may exercise only limited rights of the related Owner Trustee under the related Lease. Funds, if any, held from time to time by the Loan Trustee with respect to any Aircraft, prior to the distribution thereof, will be invested and reinvested by such Loan Trustee. Such investment and reinvestment will be at the direction of Northwest (except, with respect to a Leased Aircraft, in the case of a Lease Event of Default under the applicable Lease or, with respect to an Owned Aircraft, in the case of an Indenture Default under the applicable Indenture), in certain investments described in the Related Indenture. The net amount of any loss resulting from any such investments will be paid by Northwest. Section 1110 of the Bankruptcy Code provides that, in reorganization cases under Chapter 11 of the Bankruptcy Code, the right of a lessor with respect to, and of the holder of a security interest in, aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo (subject to certain limitations in the case of any such aircraft first placed in service on or prior to October 22, 1994) leased to or subject to a security interest granted by a citizen of the United States (as defined in the Federal Aviation Act) holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to the Federal Aviation Act for such aircraft (a certificate which Northwest presently possesses) to take possession of such aircraft in compliance with the provisions of the lease or security agreement is not affected by (a) the automatic stay provision of the Bankruptcy Code, which provision generally enjoins the taking of any action against a debtor by a creditor, (b) the provision of the Bankruptcy Code allowing the trustee or debtor-in-possession to use, sell or lease property of the estate and (c) any power of the bankruptcy court to enjoin a repossession. Section 1110 provides, however, that the right of a lessor or secured party to take possession of an aircraft in compliance with the provisions of the lease or security agreement 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 or 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). Section 1110 does not prevent the trustee or debtor-in-possession from rejecting a lease (including any Lease) or demanding a renegotiation of such lease as a condition to not rejecting such lease. In addition, if more than one aircraft are leased pursuant to a master lease and accompanying lease supplement, the applicability of Section 1110 would be determined on an aircraft-by-aircraft basis. Assuming Section 1110 is applicable to all aircraft subject to a master lease, Section 1110 does not prevent the trustee or debtor-in-possession from complying with the provisions of Section 1110 with respect to some lease supplements, and thereby retaining possession of the related aircraft, and not complying with the provisions of Section 1110 with respect to other lease supplements, and thereby enabling a repossession of other aircraft. In connection with any issuance of Certificates under this Prospectus and the applicable Prospectus Supplement, Northwest shall have received an opinion from its counsel to the effect that (i) with respect to any Leased Aircraft, the related Owner Trustee, as lessor under the related Lease, and the related Loan Trustee, upon foreclosure of the Owner Trustee's interest in such Lease as assignee of such Owner Trustee's rights under such Lease pursuant to the Related Indenture, would be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft initially delivered under such Lease and subjected to the Related Indenture or (ii) with respect to any Owned Aircraft, the related Loan Trustee under the Related Indenture would be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft initially subjected to the Related Indenture. Such opinions will not address the possible replacement of an Aircraft after an Event of Loss (as defined in the Indenture) in the future. RANKING OF EQUIPMENT NOTES Some of the Equipment Notes related to one or more Aircraft, as described in the related Prospectus Supplement, may be subordinated and junior in right of payment to other Equipment Notes related to the same Aircraft. The terms of such subordination, if any, will be described in the related Prospectus Supplement. PAYMENTS AND LIMITATION OF LIABILITY Each Leased Aircraft will be leased by the related Owner Trustee to Northwest for a term commencing on the delivery date thereof to such Owner Trustee and expiring on a date not earlier than the latest maturity date of the related Leased Aircraft Notes, unless previously terminated as permitted by the terms of the related Lease. The basic rent and 18 110 other payments under each such Lease will be payable by Northwest in accordance with the terms specified in the applicable Prospectus Supplement, and will be assigned by the related Owner Trustee under the Related Indenture to the Loan Trustee to provide the funds necessary to pay principal of, premium, if any, and interest due from such Owner Trustee on the Leased Aircraft Notes issued under such Indenture. In certain cases, the basic rent payments under a Lease may be adjusted, but each Lease will provide that under no circumstances will rent payments by Northwest be less than the scheduled payments on the related Leased Aircraft Notes. The balance of any basic rent payment under each Lease, after payment of amounts due on the Leased Aircraft Notes issued under the Indenture corresponding to such Lease, will be paid over to the applicable Owner Participant. Northwest's obligation to pay rent and to cause other payments to be made under each Lease will be general obligations of Northwest. With respect to the Leased Aircraft Notes, except in certain circumstances involving Northwest's purchase of a Leased Aircraft and the assumption of the Leased Aircraft Notes related thereto, the Leased Aircraft Notes will not be obligations of, or guaranteed by, Northwest. With respect to the Leased Aircraft Notes, none of the Owner Trustees, the Owner Participants or the Loan Trustees shall be personally liable to any holder of such Leased Aircraft Notes for amounts payable under such Leased Aircraft Notes, or, except as provided in the Indentures relating thereto in the case of the Owner Trustees and the Loan Trustees, for any liability under such Indentures. Except in the circumstances referred to above, all amounts payable under any Leased Aircraft Notes (other than payments made in connection with an optional redemption or purchase by the related Owner Trustee or the related Owner Participant) will be made only from (i) the assets subject to the lien of the Related Indenture with respect to such Aircraft or the income and proceeds received by the related Loan Trustee therefrom (including rent payable by Northwest under the related Lease) or (ii) if so provided in the related Prospectus Supplement, the applicable Liquidity Facility. With respect to the Leased Aircraft Notes, except as otherwise provided in the Related Indentures, no Owner Trustee shall be personally liable for any amount payable or for any statements, representations, warranties, agreements or obligations under such Indentures or under such Leased Aircraft Notes except for its own willful misconduct or gross negligence. None of the Owner Participants shall have any duty or responsibility under the Leased Aircraft Indentures or under such Leased Aircraft Notes to the related Loan Trustee or to any holder of any such Leased Aircraft Note. Northwest's obligations under each Owned Aircraft Indenture and under the Owned Aircraft Notes will be general obligations of Northwest. DEFEASANCE OF THE INDENTURES AND THE EQUIPMENT NOTES IN CERTAIN CIRCUMSTANCES Unless otherwise specified in the applicable Prospectus Supplement, the applicable Indenture provides that the obligations of the related Loan Trustee and, with respect to any Leased Aircraft Notes, the related Owner Trustee or, with respect to any Owned Aircraft Notes, Northwest under the applicable Indenture shall be deemed to have been discharged and paid in full (except for certain obligations, including the obligations to register the transfer or exchange of Equipment Notes, to replace stolen, lost, destroyed or mutilated Equipment Notes and to maintain paying agencies and hold money for payment in trust) on the 91st day after the date of irrevocable deposit with the related Loan Trustee of money or certain obligations of the United States or any agency or instrumentality thereof the payment of which is backed by the full faith and credit of the United States which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an aggregate amount sufficient to pay when due (including as a consequence of redemption in respect of which notice is given on or prior to the date of such deposit) principal of, premium, if any, and interest on all Equipment Notes issued thereunder in accordance with the terms of such Indenture. Such discharge may occur only if, among other things, there has been published by the Internal Revenue Service a ruling to the effect that holders of such Equipment Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such deposit, defeasance and discharge had not occurred. Upon such defeasance, or upon payment in full of the principal of, premium, if any, and interest on all Equipment Notes issued under any Indenture on the maturity date therefor or deposit with the applicable Loan Trustee of money sufficient therefor no earlier than one year prior to the date of such maturity, the holders of such Equipment Notes will have no beneficial interest in or other rights with respect to the related Aircraft or other assets subject to the lien of such Indenture and such lien shall terminate. 19 111 ASSUMPTION OF OBLIGATIONS BY NORTHWEST Unless otherwise specified in the applicable Prospectus Supplement with respect to Leased Aircraft, upon the exercise by Northwest of any purchase options it may have under the related Lease prior to the end of the term of such Lease, Northwest may assume on a full recourse basis all of the obligations of the Owner Trustee (other than its obligations in its individual capacity) under the Indenture with respect to such Aircraft, including the obligations to make payments in respect of the related Leased Aircraft Notes. In such event, certain relevant provisions of the related Lease, including (among others) provisions relating to maintenance, possession and use of the related Aircraft, liens, insurance and events of default will be incorporated into such Indenture, and the Leased Aircraft Notes issued under such Indenture will not be redeemed and will continue to be secured by such Aircraft. It is a condition to such assumption that, if such Aircraft is registered under the laws of the United States, an opinion of counsel be delivered at the time of such assumption substantially to the effect that the related Loan Trustee under such Indenture should, immediately following such assumption, be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to such Aircraft (including the engines related thereto), but such opinion need not be delivered to the extent that the benefits of such Section 1110 are not available to the Loan Trustee with respect to such Aircraft or any engine related thereto immediately prior to such assumption. LIQUIDITY FACILITY The related Prospectus Supplement may provide that one or more payments of interest on the related Equipment Notes of one or more series or distributions made by the Trustee of the related Trust will be supported by a Liquidity Facility issued by an institution identified in the related Prospectus Supplement. Unless otherwise provided in the related Prospectus Supplement, the provider of the Liquidity Facility will have a senior claim upon the assets securing the Equipment Notes. INTERCREDITOR ISSUES Equipment Notes may be issued in different Classes, which means that the Equipment Notes may have different payment priorities even though they are issued by the same Owner Trustee and relate to the same Aircraft. In such event, the related Prospectus Supplement will describe the priority of distributions among such Equipment Notes (and any Liquidity Facilities therefor), the ability of any Class to exercise and/or enforce any or all remedies with respect to the related Aircraft (and, if the Equipment Notes are Leased Aircraft Notes, the Lease related thereto) and certain other intercreditor terms and provisions. UNITED STATES FEDERAL INCOME TAX CONSEQUENCES GENERAL The following discussion describes the principal U.S. federal income tax consequences to Certificateholders of the purchase, ownership and disposition of the Certificates and in the opinion of Cadwalader, Wickersham & Taft such discussion is accurate in all material respects of the matters discussed herein. Except as otherwise specified, the discussion is addressed to beneficial owners of Certificates ("U.S. Certificateholders") that are citizens or residents of the United States, corporations, partnerships or other entities created or organized in or under the laws of the United States or any State, or estates or trusts the income of which is subject to U.S. federal income taxation regardless of its source ("U.S. Persons") that will hold the Certificates as capital assets. This discussion does not address the tax treatment of U.S. Certificateholders that may be subject to special tax rules, such as banks, insurance companies, dealers in securities or commodities, tax-exempt entities, holders that will hold Certificates as part of a straddle or holders that have a "functional currency" other than the U.S. Dollar, nor does it address the tax treatment of U.S. Certificateholders that do not acquire Certificates as part of the initial offering. This discussion does not describe any tax consequences arising under the laws of any State, locality or taxing jurisdiction other than the United States. This discussion is based upon the tax laws of the United States as in effect on the date of this Prospectus, as well as judicial and administrative interpretations thereof (in final or proposed form) available on or before such date. All of the foregoing are subject to change or differing interpretations, which could apply retroactively. Prospective investors should note that no rulings have been or will be sought from the Internal Revenue Service (the "IRS") with respect to any of the 20 112 federal income tax consequences discussed below, and no assurance can be given the IRS will not take contrary positions. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES. TAX STATUS OF THE TRUSTS In the opinion of Cadwalader, Wickersham & Taft, special tax counsel to Northwest, in the case of each Series of Certificates, each Trust will be classified as a grantor trust under subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as amended (the "Code") and not as an association taxable as a corporation for U.S. federal income tax purposes. Accordingly, each U.S. Certificateholder will be subject to federal income taxation as if it owned directly a pro rata undivided interest in each asset owned by the corresponding Trust and paid directly its share of fees and expenses paid by such Trust. TAXATION OF CERTIFICATEHOLDERS GENERALLY A U.S. Certificateholder will be treated as owning its pro rata undivided interest in each of the Equipment Notes and any other property held by the related Trust. Accordingly, each U.S. Certificateholder's share of interest paid on the Equipment Notes will be taxable as ordinary income, as it is paid or accrued, in accordance with such owner's method of accounting for U.S. federal income tax purposes and a U.S. Certificateholder's share of premium, if any, paid on the Equipment Notes will be treated as capital gain. Any amounts received by a Trust from Interest Drawings under the relevant Liquidity Facility will be treated for U.S. federal income tax purposes as having the same characteristics as the payments they replace. Each U.S. Certificateholder will be entitled to deduct, consistent with its method of accounting, its pro rata share of fees and expenses paid or incurred by the corresponding Trust as provided in Section 162 or 212 of the Code. Certain fees and expenses, including fees paid to the Trustee and the Liquidity Provider, will be borne by parties other than the Certificateholders. It is possible that such fees and expenses will be treated as constructively received by the Trust, in which event a U.S. Certificateholder will be required to include in income and will be entitled to deduct its pro rata share of such fees and expenses. If a U.S. Certificateholder is an individual, estate or trust, the deduction for such holder's share of such fees or expenses will be allowed only to the extent that all of such holder's miscellaneous itemized deductions, including such holder's share of such fees and expenses, exceed 2% of such holder's adjusted gross income. In addition, in the case of U.S. Certificateholders who are individuals, certain otherwise allowable itemized deductions will be subject generally to additional limitations on itemized deductions under the applicable provisions of the Code. EFFECT OF SUBORDINATION OF SUBORDINATED CERTIFICATEHOLDERS If any Trust with respect to a Series are subordinated with respect to other Trusts of the same Series (such Trusts being the "Subordinated Trusts" and the related Certificates being the "Subordinated Certificates") receives less than the full amount of the receipts of principal or interest paid with respect to the Equipment Notes held by it (any shortfall in such receipts being the "Shortfall Amounts") because of the subordination of the Equipment Notes held by such Trust under the Intercreditor Agreement, the corresponding owners of beneficial interests in the Subordinated Certificates (the "Subordinated Certificateholders") would probably be treated for federal income tax purposes as if they had (1) received as distributions their full share of such receipts, (2) paid over to the relevant preferred class of Certificateholders an amount equal to their share of such Shortfall Amount, and (3) retained the right to reimbursement of such amounts to the extent of future amounts payable to such Subordinated Certificateholders with respect to such Shortfall Amount. Under this analysis, (1) Subordinated Certificateholders incurring a Shortfall Amount would be required to include as current income any interest or other income of the corresponding Subordinated Trust that was a component of the Shortfall Amount, even though such amount was in fact paid to the relevant preferred class of Certificateholders, (2) a loss would only be allowed to such Subordinated Certificateholders when their right to receive reimbursement of such Shortfall Amount became worthless (i.e., when it becomes clear that funds will not be available from any source to reimburse such loss), and (3) reimbursement of such Shortfall Amount prior to such a claim of worthlessness would not be taxable income to Subordinated Certificateholders because such amount was previously included in income. These results should not significantly affect the inclusion of income for Subordinated Certificateholders on the accrual method of 21 113 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. ORIGINAL ISSUE DISCOUNT The Equipment Notes may be issued with original issue discount ("OID"), which may require U.S. Certificateholders to include such OID in gross income in advance of the receipt or accrual of the stated interest on such Equipment Notes. The Prospectus Supplement will state whether any Equipment Notes to be held by the related Trust will be issued with OID. Generally, a holder of a debt instrument issued with original issue discount that is not de minimis must include such original issue discount in income for federal income tax purposes as it accrues, in advance of the receipt of the cash attributable to such income, under a method that takes into account the compounding of interest. MARKET DISCOUNT Generally, the term "market discount" means the excess of the remaining principal amount of a Certificate over the holder's tax basis in such Certificate immediately after its acquisition, subject to a de minimis exception. A holder who acquires a Certificate at a market discount will be required to treat any gain realized on the disposition of such Certificate, except in certain nonrecognition transactions, as ordinary income to the extent of the market discount that accrued during the period that such holder held such Certificate. Further, a disposition of a Certificate by gift (and in certain other circumstances) could result in the recognition of market discount income, computed as if such Certificate had been sold for its fair market value. In the case of a partial principal payment on indebtedness subject to the market discount rules, Section 1276 of the Code requires that such payment be included in gross income as ordinary income to the extent such payment does not exceed the market discount that has accrued during the period such indebtedness was held. The amount of any accrued market discount later required to be included in income upon a disposition, or subsequent partial principal payment, will be reduced by the amount of accrued market discount previously included in income. Until Treasury regulations are issued, the explanatory Conference Committee Report to the Tax Reform Act of 1986 (the "Conference Report") indicates that holders of installment obligations (such as the Equipment Notes) with market discount may elect to accrue market discount either (i) on the basis of a constant interest rate or (ii) in the ratio to the total amount of remaining market discount that the amount of stated interest paid in the accrual period bears to the total amount of stated interest remaining to be paid on the installment obligation as of the beginning of such period. Under Section 1277 of the Code, if in any taxable year interest paid or accrued on indebtedness incurred or continued to purchase or carry indebtedness subject to the market discount rules exceeds the interest currently includable in income with respect to such indebtedness, deduction of the excess interest must be deferred to the extent of the market discount allocable to the taxable year. The deferred portion of any interest expense will generally be deductible when such market discount is included in income upon the sale or other disposition (including repayment) of the indebtedness. A holder of a Certificate acquired at a market discount may elect under Section 1278 of the Code, in the manner provided by Revenue Procedure 92-67, 1992-34 I.R.B. 6, to include such discount in income as it accrues. The current inclusion election applies to all market discount obligations acquired on or after the first day to which the election applies, and may not be revoked without the consent of the IRS. If a holder of a Certificate elects to include market discount in income as it accrues, the foregoing rules of Section 1276 and 1277 of the Code with respect to the recognition of ordinary income on a sale or other disposition of such Certificate and the deferral of interest deductions on indebtedness related to such Certificate would not apply. The IRS is authorized to issue regulations to implement the market discount provisions of the Code. No such regulations have been issued or proposed. It is impossible to anticipate what effect, if any, such regulations could have on the Certificateholders. AMORTIZABLE BOND PREMIUM A U.S. Certificateholder should generally be considered to have acquired an interest in an Equipment Note at a premium to the extent the purchaser's tax basis allocable to such interest exceeds the remaining principal amount of the Equipment Note allocable to such interest. In that event, a U.S. Certificateholder who holds a Certificate as a capital 22 114 asset may elect to amortize that premium as an offset to interest income under Section 171 of the Code with corresponding reductions in the U.S. Certificateholder's tax basis in its Certificate. In the case of installment obligations (such as the Equipment Notes), the Conference Report indicates a Congressional intent that amortization will be in accordance with the same rules that will apply to the accrual of market discount on installment obligations (see discussion above). Under certain circumstances, amortizable bond premium may be determined by reference to any early call date. It is unclear how the amortizable bond premium rules apply where, as in the case with the Equipment Notes, the amount of redemption premium payable on an early call date is unknown. In addition, the treatment of any unamortized bond premium remaining at the time of an early call is unclear. The U.S. Certificateholders are urged to consult their own tax advisors as to the treatment of any amortizable bond premiums. SALE OR OTHER DISPOSITION OF THE CERTIFICATES Upon the sale, exchange or other disposition of a Certificate, a U.S. Certificateholder generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition (other than any amount attributable to accrued interest which will be taxable as ordinary income) and the U.S. Certificateholder's adjusted tax basis in the related Equipment Notes and any other assets held by the corresponding Trust. A U.S. Certificateholder's adjusted tax basis will equal the holder's cost for its Certificate, plus any accrued OID or market discount previously included in income or less any amortized bond premium or any previously recognized losses or prior principal payments. Any gain or loss generally will be capital gain or loss (other than accrued market discount not previously included in income) if the Certificate was held as a capital asset. FOREIGN CERTIFICATEHOLDERS Subject to the discussion of backup withholding below, payments of principal and interest on the Equipment Notes to, or on behalf of, any beneficial owner of a Certificate that is not a U.S. Person (a "Non-U.S. Certificateholder") will not be subject to U.S. federal withholding tax; provided, in the case of interest, that (i) such Non-U.S. Certificateholder does not actually or constructively own 10% or more of the total combined voting power of all classes of the stock of any Owner Participant or any transferee of such interest, (ii) such Non-U.S. Certificateholder is not a controlled foreign corporation for U.S. tax purposes that is related to an Owner Participant and (iii) either (A) the Non-U.S. Certificateholder certifies, under penalties of perjury, that it is not a U.S. Person and provides its name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the Certificate certifies, under penalties of perjury, that such statement has been received from the Non-U.S. Certificateholder by it or by another financial institution and furnishes the payor with a copy thereof. Any capital gain realized upon the sale, exchange, retirement or other disposition of a Certificate or upon receipt of premium paid on an Equipment Note by a Non-U.S. Certificateholder will not be subject to U.S. federal income or withholding taxes if (i) such gain is not effectively connected with a U.S. trade or business of the holder and (ii) in the case of an individual, such holder is not present in the United States for 183 days or more in the taxable year of the sale, exchange, retirement or other disposition or receipt. BACKUP WITHHOLDING Payments made on the Certificates and proceeds from the sale of Certificates will not be subject to a backup withholding tax of 31% unless, in general, the Certificateholder fails to comply with certain reporting procedures or otherwise fails to establish an exemption from such tax under applicable provisions of the Code. 23 115 ERISA CONSIDERATIONS Unless otherwise indicated in the applicable Prospectus Supplement, the Certificates may, subject to certain legal restrictions, be purchased and held by an employee benefit plan (a "Plan") subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or an individual retirement account or an employee benefit plan subject to section 4975 of the Code. A fiduciary of a Plan must determine that the purchase and holding of a Certificate is consistent with its fiduciary duties under ERISA and does not result in a non-exempt prohibited transaction as defined in section 406 of ERISA or section 4975 of the Code. Employee benefit plans which are governmental plans (as defined in section 3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA) are not subject to Title I of ERISA or section 4975 of the Code. The Certificates may, subject to certain legal restrictions, be purchased and held by such plans. PLAN OF DISTRIBUTION Certificates may be sold to one or more underwriters for public offering and sale by them or to investors or other persons directly or through one or more dealers or agents. Any such underwriter, dealer or agent involved in the offer and sale of the Certificates will be named in an applicable Prospectus Supplement. The Certificates may be sold at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Dealer trading may take place in certain of the Certificates, including Certificates not listed on any securities exchange. Northwest does not intend to apply for listing of the Certificates on a national securities exchange. Northwest also may, from time to time, authorize underwriters acting as Northwest's agents to offer and sell the Certificates upon the terms and conditions as shall be set forth in any Prospectus Supplement. In connection with the sale of Certificates, underwriters may be deemed to have received compensation from Northwest in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Certificates for whom they may act as agent. Underwriters may sell Certificates to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions (which may be changed from time to time) from the purchasers for whom they may act as agent. If a dealer is used directly by Northwest in the sale of Certificates in respect of which this Prospectus is delivered, such Certificates will be sold to the dealer, as principal. The dealer may then resell such Certificates to the public at varying prices to be determined by such dealer at the time of resale. Any such dealer and the terms of any such sale will be set forth in the Prospectus Supplement relating thereto. Certificates may be offered and sold through agents designated by Northwest from time to time. Any such agent involved in the offer or sale of the Certificates in respect of which this Prospectus is delivered will be named in, and any commissions payable by Northwest to such agent will be set forth in, the applicable Prospectus Supplement. Unless otherwise indicated in the applicable Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. Offers to purchase Certificates may be solicited directly by Northwest and sales thereof may be made by Northwest directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any resale thereof. The terms of any such sales will be described in the Prospectus Supplement relating thereto. Except as set forth in the applicable Prospectus Supplement, no director, officer or employee of Northwest or NWA Corp. will solicit or receive a commission in connection with direct sales by Northwest of the Certificates, although such persons may respond to inquiries by potential purchasers and perform ministerial and clerical work in connection with any such direct sales. Any underwriting compensation paid by Northwest to underwriters, dealers or agents in connection with the offering of Certificates, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in an applicable Prospectus Supplement. Underwriters, dealers and agents participating in the distribution of the Certificates may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Certificates may be deemed to be underwriting discounts and commissions under the Securities Act. Underwriters, dealers and agents may be entitled, under agreements with Northwest, to indemnification 24 116 against and contribution toward certain civil liabilities, including liabilities under the Securities Act, and to reimbursement by Northwest for certain expenses. Underwriters, dealers and agents may engage in transactions with, or perform services for, NWA Corp. and its subsidiaries in the ordinary course of business. If so indicated in an applicable Prospectus Supplement and subject to existing market conditions, Northwest will authorize dealers acting as Northwest's agents to solicit offers by certain institutions to purchase Certificates at the public offering price set forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and the aggregate principal amount of Certificates sold pursuant to Contracts shall not be less nor more than, the respective amounts stated in such Prospectus Supplement. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but will in all cases be subject to the approval of Northwest. Contracts will not be subject to any conditions except the purchase by an institution of the Certificates covered by its Contracts shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United States to which such institution is subject. A commission indicated in the applicable Prospectus Supplement will be granted to underwriters and agents soliciting purchases of Certificates pursuant to Contracts accepted by Northwest. Agents and underwriters will have no responsibility in respect of the delivery or performance of Contracts. If an underwriter or underwriters are utilized in the sale of any Certificates, the applicable Prospectus Supplement will contain a statement as to the intention, if any, of such underwriters at the date of such Prospectus Supplement to make a market in the Certificates. No assurances can be given that there will be a market for the Certificates. The place and time of delivery for the Certificates in respect of which this Prospectus is delivered will be set forth in the applicable Prospectus Supplement. LEGAL OPINIONS Unless otherwise indicated in the applicable Prospectus Supplement, the validity of the Certificates and the Parent Guaranty will be passed upon for Northwest by Simpson Thacher & Bartlett (a partnership which includes professional corporations), New York, New York. Unless otherwise indicated in the applicable Prospectus Supplement, Simpson Thacher & Bartlett will rely on the opinion of counsel for the Trustee as to certain matters relating to the authorization, execution and delivery of such Certificates by, and the valid and binding effect thereof on, such Trustee. Certain federal income tax matters will be passed upon by Cadwalader, Wickersham & Taft, New York, New York, special tax counsel to Northwest. EXPERTS The consolidated financial statements and schedule of Northwest Airlines Corporation, appearing or incorporated by reference in Northwest Airlines Corporation's Annual Report (Form 10-K) for the year ended December 31, 1995, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included or incorporated by reference therein and incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 25 -----END PRIVACY-ENHANCED MESSAGE-----