<PAGE> 1
Filed pursuant to rule 424(b)(2)
Registration Nos. 333-2516 and 33-74772
PROSPECTUS SUPPLEMENT
(To Prospectus Dated May 3, 1996)
$524,502,000
[Northwest Airlines 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 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 are 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 assignment of certain rights under
(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.
------------------------
<TABLE>
<CAPTION>
PASS THROUGH PRINCIPAL INTEREST FINAL EXPECTED PRICE TO
CERTIFICATES AMOUNT RATE DISTRIBUTION DATE PUBLIC(1)(2)
- ------------ ------------ -------- ----------------- ---------------
<S> <C> <C> <C> <C>
1996-1A $325,018,000 7.67% January 2, 2015 100%
1996-1B 106,692,000 8.07 January 2, 2015 100
1996-1C 75,640,000 8.97 January 2, 2015 100
1996-1D 17,152,000 10.15 January 2, 2005 100
</TABLE>
- ------------
(1) Plus accrued interest, if any, from June 12, 1996.
(2) Total fees payable to the Underwriters vary by Trust and aggregate
$4,982,769, which constitutes 0.95% of the principal amount of the
Certificates offered hereby, including a structuring fee payable to
certain of the Underwriters. The total fees, and certain other expenses
estimated at approximately $8,733,200, 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 12, 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 3, 1996
<PAGE> 2
(continued from cover page)
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 and
unconditionally guarantee Northwest's payments under 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 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, B or 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 the 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
<PAGE> 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 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Aggregate Face Amount............ $325,018,000 $106,692,000 $75,640,000 $17,152,000
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)(1)................ 44.0% 58.5% 71.2% 82.6%
Expected Principal Distribution
Window (in years).............. 0.6-18.6 0.6-18.6 0.6-18.6 0.6-8.6
Initial Average Life
(in years)..................... 13.3 12.4 9.9 4.2
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, 2005
Final Legal Distribution Date.... July 2, 2016 July 2, 2016 July 2, 2016 January 2, 2005
Sec. 1110 Protection(2).......... Yes Yes Yes Yes
Liquidity Facility Coverage...... 3 successive 3 successive 3 successive None
interest payments interest payments interest payments
Initial Liquidity Facility
Amount(3)...................... $38,778,259 $13,393,403 $10,554,302 None
</TABLE>
- ---------------
(1) 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.
(2) The benefits of Section 1110 of the Bankruptcy Code are available to the
Loan Trustees.
(3) 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:
<TABLE>
<CAPTION>
AIRCRAFT EQUIPMENT NOTES
- ----------------------------------------------------------------------- ------------------------------------------------
REGISTRATION AIRCRAFT DELIVERY APPRAISED PRINCIPAL MATURITY
NUMBER TYPE DATE VALUE SERIES AMOUNT DATE
- ------------ -------------- ------------------ ------------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
N535US Boeing 757-251 November 14, 1995 $ 55,350,000 A, B $ 30,000,000 July 2, 2014
N536US Boeing 757-251 December 11, 1995 55,433,333 A, B 30,569,714 July 2, 2012
N537US Boeing 757-251 February 20, 1996 57,383,333 A, B, C 40,000,000 July 2, 2014
N538US Boeing 757-251 March 1, 1996 57,450,000 A, B, C 37,758,615 July 2, 2014
N539US Boeing 757-251 March 25, 1996 57,450,000 A, B, C 40,000,000 January 2, 2015
N540US Boeing 757-251 April 15, 1996 57,516,667 A, B, C 40,000,000 January 2, 2015
N541US Boeing 757-251 April 19, 1996 57,516,667 A, B, C 40,000,000 January 2, 2015
N542US Boeing 757-251 May 10, 1996 57,550,000 A, B, C 39,999,330 January 2, 2015
N543US Boeing 757-251 May 15, 1996 57,550,000 A, B, C 40,000,000 January 2, 2015
N662US Boeing 747-451 March 13, 1989 110,973,333 A, B, C, D 87,724,343 January 2, 2014
N669US Boeing 747-451 August 20, 1990 114,390,000 A, B, C, D 98,449,998 January 2, 2015
------------ ------------
$738,563,333 $524,502,000
=========== ===========
</TABLE>
S-4
<PAGE> 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 -- 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 12, 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 -- 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 -- Loan to Value Ratios of
Equipment Notes" for additional information regarding LTVs for the Equipment
Notes issued in respect of each Aircraft which may be more relevant in a default
situation
S-5
<PAGE> 6
than the aggregate values shown in 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.
<TABLE>
<CAPTION>
ASSUMED
AGGREGATE CLASS A CLASS A CLASS B CLASS B CLASS C
AIRCRAFT CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
DATE VALUE(1) POOL BALANCE LTV POOL BALANCE LTV POOL BALANCE
- -------------- ------------ --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
June 12, 1996 $738,563,333 $ 325,018,000 44.0% $ 106,692,000 58.5% $75,640,000
July 2, 1997 723,792,067 322,473,242 44.6 105,781,137 59.2 74,301,744
July 2, 1998 709,020,800 317,230,125 44.7 104,607,851 59.5 73,571,303
July 2, 1999 694,249,533 311,580,107 44.9 102,724,513 59.7 71,662,797
July 2, 2000 679,478,267 304,018,783 44.7 100,841,177 59.6 69,313,342
July 2, 2001 664,707,000 297,371,717 44.7 98,957,839 59.6 66,433,418
July 2, 2002 649,935,733 290,724,652 44.7 96,908,149 59.6 62,980,731
July 2, 2003 635,164,467 284,077,587 44.7 94,692,404 59.6 58,471,811
July 2, 2004 620,393,200 276,431,761 44.6 92,143,736 59.4 53,812,197
July 2, 2005 603,402,467 268,785,936 44.5 88,869,714 59.3 47,979,225
July 2, 2006 584,123,933 260,253,138 44.6 81,875,895 58.6 39,448,231
July 2, 2007 564,845,400 251,818,456 44.6 73,722,378 57.6 24,488,342
July 2, 2008 545,566,867 240,047,804 44.0 62,535,308 56.7 10,284,137
July 2, 2009 526,288,333 224,326,988 42.6 43,653,061 52.4 7,887,767
July 2, 2010 504,790,333 196,285,557 38.9 28,875,921 46.2 7,887,767
July 2, 2011 470,740,533 149,610,077 31.8 23,237,720 38.8 7,887,767
July 2, 2012 401,213,400 71,557,694 17.8 23,237,720 23.7 7,887,767
July 2, 2013 369,380,933 16,689,467 5.0 23,237,720 13.4 7,887,767
July 2, 2014 204,514,867 25,280 0.1 490,205 0.4 7,833,411
<CAPTION>
CLASS C CLASS D CLASS D
CERTIFICATES CERTIFICATES CERTIFICATES
DATE LTV(2) POOL BALANCE LTV(2)
- -------------- ------------ --------------- ------------
<S> <C> <C> <C>
June 12, 1996 71.2% $17,152,000 82.6%
July 2, 1997 71.8 13,943,285 81.1
July 2, 1998 72.2 12,587,569 80.5
July 2, 1999 72.1 10,542,271 79.7
July 2, 2000 71.8 9,017,361 78.5
July 2, 2001 71.5 6,453,145 77.4
July 2, 2002 71.2 4,144,032 79.1
July 2, 2003 70.6 2,909,985 78.0
July 2, 2004 69.7 1,392,404 76.4
July 2, 2005 68.8 0 NA
July 2, 2006 68.2 0 NA
July 2, 2007 65.0 0 NA
July 2, 2008 62.1 0 NA
July 2, 2009 57.4 0 NA
July 2, 2010 51.7 0 NA
July 2, 2011 46.6 0 NA
July 2, 2012 28.3 0 NA
July 2, 2013 18.0 0 NA
July 2, 2014 5.2 0 NA
</TABLE>
- ---------------
(1) The Assumed Aggregate Aircraft Value set forth opposite June 12, 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 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
<PAGE> 7
CASH FLOW STRUCTURE
Set forth below is a diagram illustrating the structure for the offering of
the Certificates and certain cash flows.
[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, B and C
Certificates.
S-7
<PAGE> 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").
Initial Liquidity Provider: Westdeutsche Landesbank Girozentrale ("WestLB"),
acting through its New York branch (the
"Liquidity Provider"), initially 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
refinance the current indebtedness of such Owner
Trustees originally incurred to finance the
purchase of each of two Boeing 747 Aircraft and
nine Boeing 757 Aircraft leased by such Owner
Trustees 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 (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
<PAGE> 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 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, 2005, 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 and B Certificates and (iii) the Class D
Certificateholders shall have the right to
purchase all, but not less than all, of the Class
A, B and 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
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<PAGE> 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 specified under
"Description of the Certificates -- Pool
Factors", 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 a
Make-Whole Premium. 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.
(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
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<PAGE> 11
of such Aircraft (the "Owner Participant"), at
a price equal to the aggregate unpaid principal
amount 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 and, 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.
(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
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<PAGE> 12
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: Any proceeds of the issuance of the Certificates
not immediately used to purchase Equipment Notes
because of an Event of Loss to an Aircraft or
another reason 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 $38,778,259,
$13,393,403 and $10,554,302, 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 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 ac-
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<PAGE> 13
crued 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.
"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 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.
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
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<PAGE> 14
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 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") on such scheduled expiration
date 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
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<PAGE> 15
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.
"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
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<PAGE> 16
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;
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
44.0%, for the Class B Certificates 58.5%, for
the Class C Certificates 71.2% and for the Class
D Certificates 82.6%.
(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
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<PAGE> 17
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, 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.
(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.
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<PAGE> 18
"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 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 "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".
S-18
<PAGE> 19
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.
<TABLE>
<CAPTION>
STANDARD &
CERTIFICATES MOODY'S POOR'S FITCH
------- ---------- -----
<S> <C> <C> <C>
Class A A2 AA AA-
Class B Baa1 A A-
Class C Baa3 BBB- BBB-
Class D Ba1 BB+ BB
</TABLE>
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 Initial
Liquidity Provider: WestLB is rated as set forth below.
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S FITCH
------- ---------- -----
<S> <C> <C> <C>
Short-term...................... P-1 A-1+ F-1+
Long-term....................... Aa1 AA+
</TABLE>
Threshold Rating:
<TABLE>
<CAPTION>
STANDARD &
MOODY'S POOR'S FITCH
------- ---------- -----
<S> <C> <C> <C>
Short-term...................... P-1 A-1 F-1+
</TABLE>
S-19
<PAGE> 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------------------
1996 1995 1995 1994 1993
--------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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 $ (0.13)(4) $ 3.02(4) $ 2.92 $ (2.82)
Fully diluted............................ 0.37 (0.10)(4) 2.85(4) 2.87 (2.82)
OTHER DATA:
Fully distributed earnings (loss) per share(5)... $ 1.01 $ 0.26 $ 5.18 $ 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
</TABLE>
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
(footnotes on following page)
S-20
<PAGE> 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 $49.9 million ($.53 per primary share and
$.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 $.65 per
primary share and $.61 per fully diluted share for the three months ended
March 31, 1995 and $.62 per primary share and $.58 per fully diluted share
for the year ended December 31, 1995.
(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. The fully distributed earnings per share amounts
exclude the effect of the 1995 extraordinary item and the gain on exchange
of preferred stock.
(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
<PAGE> 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.
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
S-22
<PAGE> 23
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.
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.
S-23
<PAGE> 24
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 a breach by Northwest of its obligations under the
Leases. See "Description of the Equipment Notes -- The Leases".
S-24
<PAGE> 25
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 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
S-25
<PAGE> 26
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,
"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.
S-26
<PAGE> 27
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 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 a PTC Event of Default or an
Indenture Default or other circumstances (such as an Event of Loss) which could
result in the payment of the outstanding principal amount of the Certificates
prior to the Final Expected Distribution Date.
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
<PAGE> 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
<PAGE> 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
<PAGE> 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 $524,500,000 aggregate principal amount of
indebtedness 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 $524,502,000
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
<PAGE> 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
<PAGE> 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.
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<PAGE> 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:
<TABLE>
<CAPTION>
CLASS A TRUST CLASS A CLASS B TRUST CLASS B CLASS C TRUST CLASS C
EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST
SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
- --------------- ------------------ ----------- ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
June 12, 1996 $ 0 1.0000000 $ 0 1.0000000 $ 0 1.0000000
January 2, 1997 2,544,758 0.9921704 848,239 0.9920496 1,005,336 0.9867089
July 2, 1997 0 0.9921704 62,624 0.9914627 332,920 0.9823076
January 2, 1998 5,242,932 0.9760392 840,366 0.9835861 397,521 0.9770521
July 2, 1998 185 0.9760386 332,920 0.9804657 332,920 0.9726508
January 2, 1999 5,649,916 0.9586552 1,550,418 0.9659340 1,575,586 0.9518207
July 2, 1999 102 0.9586549 332,920 0.9628136 332,920 0.9474193
January 2, 2000 5,649,964 0.9412714 1,550,416 0.9482819 2,016,535 0.9207597
July 2, 2000 1,911,360 0.9353906 332,920 0.9451616 332,920 0.9163583
January 2, 2001 4,651,258 0.9210798 1,550,418 0.9306298 2,547,004 0.8826856
<CAPTION>
CLASS D TRUST CLASS D
EQUIPMENT NOTES TRUST
SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR
- --------------- ------------------ -----------
<S> <C> <C>
June 12, 1996 $ 0 1.0000000
January 2, 1997 3,208,715 0.8129247
July 2, 1997 0 0.8129247
January 2, 1998 683,959 0.7730484
July 2, 1998 671,757 0.7338835
January 2, 1999 890,820 0.6819467
July 2, 1999 1,154,478 0.6146380
January 2, 2000 1,118,678 0.5494166
July 2, 2000 406,232 0.5257323
January 2, 2001 1,369,664 0.4458779
</TABLE>
S-33
<PAGE> 34
<TABLE>
<CAPTION>
CLASS A TRUST CLASS A CLASS B TRUST CLASS B CLASS C TRUST CLASS C
EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST EQUIPMENT NOTES TRUST
SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR OF PRINCIPAL POOL FACTOR
- --------------- ------------------ ----------- ------------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
July 2, 2001 1,995,808 0.9149392 332,920 0.9275095 332,920 0.8782842
January 2, 2002 4,651,257 0.9006285 1,550,471 0.9129772 3,119,767 0.8370393
July 2, 2002 1,995,808 0.8944878 499,219 0.9082982 332,920 0.8326379
January 2, 2003 4,651,257 0.8801771 1,550,476 0.8937659 3,744,508 0.7831336
July 2, 2003 1,995,808 0.8740365 665,269 0.8875305 764,412 0.7730276
January 2, 2004 4,651,257 0.8597257 1,550,480 0.8729982 4,425,266 0.7145233
July 2, 2004 2,994,569 0.8505122 998,188 0.8636424 234,348 0.7114251
January 2, 2005 4,651,257 0.8362014 1,550,485 0.8491101 5,167,132 0.6431130
July 2, 2005 2,994,568 0.8269878 1,723,537 0.8329557 665,840 0.6343102
January 2, 2006 5,680,766 0.8095095 2,379,833 0.8106501 5,271,502 0.5646182
July 2, 2006 2,852,032 0.8007345 4,613,986 0.7674043 3,259,492 0.5215261
January 2, 2007 5,823,305 0.7828177 2,242,372 0.7463870 10,564,749 0.3818546
July 2, 2007 2,611,377 0.7747831 5,911,145 0.6909832 4,395,140 0.3237486
January 2, 2008 6,024,401 0.7562475 8,121,359 0.6148635 9,207,877 0.2020157
July 2, 2008 5,746,251 0.7385677 3,065,711 0.5861293 4,996,328 0.1359616
January 2, 2009 6,201,564 0.7194870 17,883,487 0.4185114 2,396,370 0.1042804
July 2, 2009 9,519,252 0.6901987 998,760 0.4091503 0 0.1042804
January 2, 2010 21,124,158 0.6252049 9,702,459 0.3182113 0 0.1042804
July 2, 2010 6,917,273 0.6039221 5,074,681 0.2706475 0 0.1042804
January 2, 2011 34,116,641 0.4989536 4,579,999 0.2277202 0 0.1042804
July 2, 2011 12,558,839 0.4603132 1,058,202 0.2178019 0 0.1042804
January 2, 2012 39,820,016 0.3377969 0 0.2178019 0 0.1042804
July 2, 2012 38,232,367 0.2201653 0 0.2178019 0 0.1042804
January 2, 2013 39,000,048 0.1001718 0 0.2178019 0 0.1042804
July 2, 2013 15,868,179 0.0513494 0 0.2178019 0 0.1042804
January 2, 2014 14,717,992 0.0060657 17,727,320 0.0516477 0 0.1042804
July 2, 2014 1,946,195 0.0000778 5,020,195 0.0045946 54,356 0.1035618
January 2, 2015 25,280 0.0000000 490,205 0.0000000 7,833,411 0.0000000
<CAPTION>
CLASS D TRUST CLASS D
EQUIPMENT NOTES TRUST
SCHEDULED PAYMENTS EXPECTED
DATES OF PRINCIPAL POOL FACTOR
- --------------- ------------------ -----------
<S> <C> <C>
July 2, 2001 1,194,552 0.3762328
January 2, 2002 1,241,789 0.3038337
July 2, 2002 1,067,324 0.2416063
January 2, 2003 1,234,047 0.1696586
July 2, 2003 0 0.1696586
January 2, 2004 1,517,581 0.0811803
July 2, 2004 0 0.0811803
January 2, 2005 1,392,404 0.0000000
July 2, 2005 0 0.0000000
January 2, 2006 0 0.0000000
July 2, 2006 0 0.0000000
January 2, 2007 0 0.0000000
July 2, 2007 0 0.0000000
January 2, 2008 0 0.0000000
July 2, 2008 0 0.0000000
January 2, 2009 0 0.0000000
July 2, 2009 0 0.0000000
January 2, 2010 0 0.0000000
July 2, 2010 0 0.0000000
January 2, 2011 0 0.0000000
July 2, 2011 0 0.0000000
January 2, 2012 0 0.0000000
July 2, 2012 0 0.0000000
January 2, 2013 0 0.0000000
July 2, 2013 0 0.0000000
January 2, 2014 0 0.0000000
July 2, 2014 0 0.0000000
January 2, 2015 0 0.0000000
</TABLE>
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
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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.
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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
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<PAGE> 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
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<PAGE> 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
Any proceeds of the issuance of the Certificates not immediately used to
purchase Equipment Notes because of an Event of Loss to an Aircraft or another
reason 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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 $38,778,259,
$13,393,403 and $10,554,302, 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
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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
Class A Certificates. (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
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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
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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
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"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");
(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.
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<PAGE> 46
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 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
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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.
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<PAGE> 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.
<TABLE>
<CAPTION>
APPRAISED VALUE
REGISTRATION AIRCRAFT ENGINE DELIVERY -------------------------------
NUMBER TYPE TYPE DATE AISI BK SH&E
- ------------ -------------- ------- ----------------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
N535US Boeing 757-251 PW 2037 November 14, 1995 $ 57.65 $ 50.00 $ 58.40
N536US Boeing 757-251 PW 2037 December 11, 1995 57.90 50.00 58.40
N537US Boeing 757-251 PW 2037 February 20, 1996 58.65 50.00 63.50
N538US Boeing 757-251 PW 2037 March 1, 1996 58.85 50.00 63.50
N539US Boeing 757-251 PW 2037 March 25, 1996 58.85 50.00 63.50
N540US Boeing 757-251 PW 2037 April 15, 1996 59.05 50.00 63.50
N541US Boeing 757-251 PW 2037 April 19, 1996 59.05 50.00 63.50
N542US Boeing 757-251 PW 2037 May 10, 1996 59.15 50.00 63.50
N543US Boeing 757-251 PW 2037 May 15, 1996 59.15 50.00 63.50
N662US Boeing 747-451 PW 4056 March 13, 1989 113.12 111.10 108.70
N669US Boeing 747-451 PW 4056 August 20, 1990 116.87 116.50 109.80
</TABLE>
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.
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<PAGE> 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.
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<PAGE> 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:
<TABLE>
<CAPTION>
REGISTRATION CLASS A TRUST CLASS B TRUST CLASS C TRUST CLASS D TRUST
NUMBER EQUIPMENT NOTES EQUIPMENT NOTES EQUIPMENT NOTES EQUIPMENT NOTES TOTAL
- ------------ --------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
N535US $ 22,859,853 $ 7,140,147 $ 0 $ 0 $ 30,000,000
N536US 23,169,369 7,400,345 0 0 30,569,714
N537US 25,822,519 8,607,488 5,569,993 0 40,000,000
N538US 25,335,450 8,272,800 4,150,365 0 37,758,615
N539US 25,196,968 8,272,791 6,530,241 0 40,000,000
N540US 25,255,419 8,282,397 6,462,184 0 40,000,000
N541US 25,255,419 8,282,397 6,462,184 0 40,000,000
N542US 25,329,937 8,287,407 6,381,986 0 39,999,330
N543US 25,379,566 8,341,728 6,278,706 0 40,000,000
N662US 49,938,000 16,646,000 16,646,000 4,494,343 87,724,343
N669US 51,475,500 17,158,500 17,158,341 12,657,657 98,449,998
--------------- --------------- --------------- --------------- ------------
Total $ 325,018,000 $ 106,692,000 $75,640,000 $17,152,000 $524,502,000
============ ============ ============ ============ ===========
</TABLE>
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
<PAGE> 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
<PAGE> 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, the 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
<PAGE> 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 12, 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.
<TABLE>
<CAPTION>
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)
- ------------------- ----------- ---------- ------- ----------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
June 12, 1996...... $ 30.00 $55.35 54.2% $ 30.57 $55.43 55.1% $ 40.00
July 2, 1997....... 30.00 54.24 55.3 30.57 54.32 56.3 38.98
July 2, 1998....... 30.00 53.14 56.5 30.57 53.22 57.4 38.24
July 2, 1999....... 30.00 52.03 57.7 30.57 52.11 58.7 37.44
July 2, 2000....... 29.56 50.92 58.0 30.10 51.00 59.0 36.57
July 2, 2001....... 29.06 49.82 58.3 29.60 49.89 59.3 35.64
July 2, 2002....... 28.56 48.71 58.6 28.94 48.78 59.3 34.63
July 2, 2003....... 27.90 47.60 58.6 28.27 47.67 59.3 33.54
July 2, 2004....... 27.23 46.49 58.6 27.61 46.56 59.3 32.35
July 2, 2005....... 26.57 45.39 58.5 26.22 45.46 57.7 31.08
July 2, 2006....... 24.49 44.28 55.3 23.49 44.35 53.0 29.69
July 2, 2007....... 21.43 43.17 49.6 20.54 43.24 47.5 27.33
July 2, 2008....... 18.13 42.07 43.1 17.36 42.13 41.2 24.74
July 2, 2009....... 14.56 40.96 35.6 13.92 41.02 33.9 21.86
July 2, 2010....... 10.71 39.85 26.9 10.21 39.91 25.6 18.75
July 2, 2011....... 8.99 37.64 23.9 6.21 37.69 16.5 15.40
July 2, 2012....... 4.70 35.42 13.3 0.00 NA NA 11.78
July 2, 2013....... 1.06 33.21 3.2 0.00 NA NA 7.89
July 2, 2014....... 0.00 NA NA 0.00 NA NA 0.00
<CAPTION>
ASSUMED
AIRCRAFT LOAN TO
VALUE VALUE
DATE (MILLIONS) RATIO
- ------------------- ---------- -------
<S> <C> <C>
June 12, 1996...... $57.38 69.7%
July 2, 1997....... 56.24 69.3
July 2, 1998....... 55.09 69.4
July 2, 1999....... 53.94 69.4
July 2, 2000....... 52.79 69.3
July 2, 2001....... 51.65 69.0
July 2, 2002....... 50.50 68.6
July 2, 2003....... 49.35 68.0
July 2, 2004....... 48.20 67.1
July 2, 2005....... 47.05 66.0
July 2, 2006....... 45.91 64.7
July 2, 2007....... 44.76 61.1
July 2, 2008....... 43.61 56.7
July 2, 2009....... 42.46 51.5
July 2, 2010....... 41.32 45.4
July 2, 2011....... 39.02 39.5
July 2, 2012....... 36.73 32.1
July 2, 2013....... 34.43 22.9
July 2, 2014....... NA NA
</TABLE>
<TABLE>
<CAPTION>
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)
- ------------------- ----------- ---------- ------- ----------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
June 12, 1996...... $ 37.76 $57.45 65.7% $ 40.00 $57.45 69.6% $ 40.00
July 2, 1997....... 37.76 56.30 67.1 40.00 56.30 71.0 40.00
July 2, 1998....... 37.24 55.15 67.5 39.62 55.15 71.8 39.59
July 2, 1999....... 36.26 54.00 67.1 38.77 54.00 71.8 38.74
July 2, 2000....... 35.25 52.85 66.7 37.84 52.85 71.6 37.81
July 2, 2001....... 34.14 51.71 66.0 36.84 51.71 71.3 36.81
July 2, 2002....... 32.95 50.56 65.2 35.76 50.56 70.7 35.73
July 2, 2003....... 31.66 49.41 64.1 34.60 49.41 70.0 34.57
July 2, 2004....... 30.26 48.26 62.7 33.33 48.26 69.1 33.30
July 2, 2005....... 28.74 47.11 61.0 31.96 47.11 67.8 31.93
July 2, 2006....... 27.09 45.96 58.9 30.92 45.96 67.3 30.89
July 2, 2007....... 26.05 44.81 58.1 29.47 44.81 65.8 29.45
July 2, 2008....... 24.46 43.66 56.0 27.23 43.66 62.4 27.18
July 2, 2009....... 22.78 42.51 53.6 24.51 42.51 57.7 24.48
July 2, 2010....... 19.72 41.36 47.7 21.53 41.36 52.0 21.50
July 2, 2011....... 13.15 39.07 33.7 18.31 39.07 46.9 18.28
July 2, 2012....... 8.77 36.77 23.9 10.53 36.77 28.7 10.51
July 2, 2013....... 4.55 34.47 13.2 6.32 34.47 18.3 6.30
July 2, 2014....... 0.00 NA NA 1.78 32.17 5.5 1.75
<CAPTION>
ASSUMED
AIRCRAFT LOAN TO
VALUE VALUE
DATE (MILLIONS) RATIO
- ------------------- ---------- -------
<S> <C> <C>
June 12, 1996...... $57.52 69.5%
July 2, 1997....... 56.37 71.0
July 2, 1998....... 55.22 71.7
July 2, 1999....... 54.07 71.6
July 2, 2000....... 52.92 71.5
July 2, 2001....... 51.77 71.1
July 2, 2002....... 50.61 70.6
July 2, 2003....... 49.46 69.9
July 2, 2004....... 48.31 68.9
July 2, 2005....... 47.16 67.7
July 2, 2006....... 46.01 67.1
July 2, 2007....... 44.86 65.6
July 2, 2008....... 43.71 62.2
July 2, 2009....... 42.56 57.5
July 2, 2010....... 41.41 51.9
July 2, 2011....... 39.11 46.7
July 2, 2012....... 36.81 28.6
July 2, 2013....... 34.51 18.3
July 2, 2014....... 32.21 5.4
</TABLE>
S-53
<PAGE> 54
<TABLE>
<CAPTION>
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)
- ------------------- ----------- ---------- ------- ----------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
June 12, 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....... 39.59 55.22 71.7 39.53 55.25 71.6 39.43
July 2, 1999....... 38.74 54.07 71.6 38.67 54.10 71.5 38.57
July 2, 2000....... 37.81 52.92 71.5 37.75 52.95 71.3 37.64
July 2, 2001....... 36.81 51.77 71.1 36.75 51.80 70.9 36.64
July 2, 2002....... 35.73 50.61 70.6 35.67 50.64 70.4 35.56
July 2, 2003....... 34.57 49.46 69.9 34.50 49.49 69.7 34.39
July 2, 2004....... 33.30 48.31 68.9 33.23 48.34 68.7 33.12
July 2, 2005....... 31.93 47.16 67.7 31.86 47.19 67.5 31.75
July 2, 2006....... 30.89 46.01 67.1 30.82 46.04 66.9 30.67
July 2, 2007....... 29.45 44.86 65.6 29.30 44.89 65.3 28.56
July 2, 2008....... 27.18 43.71 62.2 26.81 43.74 61.3 26.72
July 2, 2009....... 24.48 42.56 57.5 24.39 42.59 57.3 24.21
July 2, 2010....... 21.50 41.41 51.9 21.40 41.44 51.6 21.21
July 2, 2011....... 18.28 39.11 46.7 18.18 39.13 46.5 17.99
July 2, 2012....... 10.51 36.81 28.6 10.40 36.83 28.2 10.20
July 2, 2013....... 6.30 34.51 18.3 6.18 34.53 17.9 5.97
July 2, 2014....... 1.75 32.21 5.4 1.63 32.23 5.1 1.41
<CAPTION>
ASSUMED
AIRCRAFT LOAN TO
VALUE VALUE
DATE (MILLIONS) RATIO
- ------------------- ---------- -------
<S> <C> <C>
June 12, 1996...... $57.55 69.5%
July 2, 1997....... 56.40 70.9
July 2, 1998....... 55.25 71.4
July 2, 1999....... 54.10 71.3
July 2, 2000....... 52.95 71.1
July 2, 2001....... 51.80 70.7
July 2, 2002....... 50.64 70.2
July 2, 2003....... 49.49 69.5
July 2, 2004....... 48.34 68.5
July 2, 2005....... 47.19 67.3
July 2, 2006....... 46.04 66.6
July 2, 2007....... 44.89 63.6
July 2, 2008....... 43.74 61.1
July 2, 2009....... 42.59 56.9
July 2, 2010....... 41.44 51.2
July 2, 2011....... 39.13 46.0
July 2, 2012....... 36.83 27.7
July 2, 2013....... 34.53 17.3
July 2, 2014....... 32.23 4.4
</TABLE>
<TABLE>
<CAPTION>
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
- ------------------- ----------- ---------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
June 12, 1996...... $ 87.72 $ 110.97 79.0% $ 98.45 $ 114.39 86.1%
July 2, 1997....... 85.66 108.75 78.8 93.53 112.10 83.4
July 2, 1998....... 83.06 106.53 78.0 91.13 109.81 83.0
July 2, 1999....... 80.24 104.31 76.9 88.52 107.53 82.3
July 2, 2000....... 77.17 102.10 75.6 85.68 105.24 81.4
July 2, 2001....... 74.31 99.88 74.4 82.60 102.95 80.2
July 2, 2002....... 71.58 97.66 73.3 79.64 100.66 79.1
July 2, 2003....... 69.48 95.44 72.8 76.69 98.38 78.0
July 2, 2004....... 66.58 93.22 71.4 73.46 96.09 76.4
July 2, 2005....... 63.25 88.78 71.3 70.35 93.80 75.0
July 2, 2006....... 57.33 84.34 68.0 65.29 89.22 73.2
July 2, 2007....... 50.27 79.90 62.9 58.17 84.65 68.7
July 2, 2008....... 42.61 75.46 56.5 50.44 80.07 63.0
July 2, 2009....... 38.62 71.02 54.4 42.05 75.50 55.7
July 2, 2010....... 33.54 64.36 52.1 32.97 70.92 46.5
July 2, 2011....... 23.21 57.71 40.2 22.73 64.06 35.5
July 2, 2012....... 13.37 51.05 26.2 11.91 57.20 20.8
July 2, 2013....... 2.77 44.39 6.2 0.48 50.33 0.9
July 2, 2014....... 0.00 NA NA 0.03 43.47 0.1
</TABLE>
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
<PAGE> 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
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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
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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.
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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.
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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 relating to such Aircraft, except to the extent Northwest (or any
Sublessee) is in good faith contesting the
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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 the
Equipment Notes -- Remedies". In addition, any exercise of the right to
repossess an Aircraft may be
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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 -- 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))
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
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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 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,
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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 Equipment
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 undertaken and is
diligently carrying forward all steps necessary or desirable to permit
normal use of such
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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)
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<PAGE> 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, so long as Equipment Notes are outstanding under the related
Indenture, commencing January 2, 1997.
"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 each Lease 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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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
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<PAGE> 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.
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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 aggregate principal amount of Certificates of each Trust, as set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A CLASS B CLASS C CLASS D
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- ---------------------------------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Morgan Stanley & Co. Incorporated............. $ 65,006,000 $ 21,340,000 $15,128,000 $ 3,432,000
BT Securities Corporation..................... 65,003,000 21,338,000 15,128,000 3,430,000
Citicorp Securities, Inc...................... 65,003,000 21,338,000 15,128,000 3,430,000
CS First Boston Corporation................... 65,003,000 21,338,000 15,128,000 3,430,000
PaineWebber Incorporated...................... 65,003,000 21,338,000 15,128,000 3,430,000
------------ ------------ ----------- -----------
Total................................ $325,018,000 $106,692,000 $75,640,000 $17,152,000
============= ============= ============ ============
</TABLE>
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.
<TABLE>
<CAPTION>
PASS THROUGH CONCESSION REALLOWANCE
CERTIFICATE DESIGNATION TO DEALERS CONCESSION
--------------------------------------- ---------- -----------
<S> <C> <C>
1996-1A 0.450% 0.250%
1996-1B 0.500 0.250
1996-1C 0.550 0.250
1996-1D 0.250 0.125
</TABLE>
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
<PAGE> 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 (the "Closing Date"), which will be the
seventh business day following the date of pricing of the Certificates (such
settlement cycle being herein referred to as "T+7"). 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 any day
prior to the third business day before the Closing Date will be required, by
virtue of the fact that the Certificates initially will settle in T+7, 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
any day prior to the third business day before the Closing Date 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
<PAGE> 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.
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
Adjusted Expected Distributions................................................. S-15
Administration Expenses......................................................... S-46
Aggregate LTV Collateral Amount................................................. S-16
Aircraft........................................................................ S-1
AISI............................................................................ S-5
Appraisals...................................................................... S-24
Appraised Current Market Value.................................................. S-16
Appraisers...................................................................... S-5
Assumed Aggregate Aircraft Value................................................ S-5
Average Life Date............................................................... S-52
Aviation Act.................................................................... S-37
Bankruptcy Code................................................................. S-13
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
Certificates.................................................................... S-1
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-18
Company......................................................................... S-1
Controlling Party............................................................... S-17
Current Distribution Date....................................................... S-15
Definitive Certificates......................................................... S-40
Distribution Date............................................................... S-14
Downgrade Drawing............................................................... S-14
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
</TABLE>
I-1
<PAGE> 74
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
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-12
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-13
Non-U.S. Certificateholder...................................................... S-67
Northwest....................................................................... S-1
NWA Corp........................................................................ S-1
Owner Participant............................................................... S-11
Owner Trustee................................................................... S-1
Participation Agreement......................................................... S-46
Pass Through Trust Agreements................................................... S-1
Performing Equipment Notes...................................................... S-13
Performing Note Deficiency...................................................... S-13
Plan Asset Regulation........................................................... S-69
Plans........................................................................... S-18
Pool Balance.................................................................... S-33
Pool Factor..................................................................... S-33
PTC Event of Default............................................................ S-9
PTCE............................................................................ S-18
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
</TABLE>
I-2
<PAGE> 75
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------- -----------
<S> <C>
Rules........................................................................... S-39
Scheduled Payments.............................................................. S-32
Section 1110 Period............................................................. S-13
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
</TABLE>
I-3
<PAGE> 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
<PAGE> 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
<PAGE> 78
[AISI LOGO]
VALUATION
The adjusted base values are presented below subject to the assumptions,
definitions and disclaimers herein.
<TABLE>
<CAPTION>
ADJUSTED
BASE BASE
AIRCRAFT MFG. SERIAL VALUE 1/2-LIFE
TYPE DATE NUMBER ENGINE MTOW NEW A/C VALUE
---- ---- ------ ------ ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* Values reflect better than half-life conditions.
** Delivery dates.
3
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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:
<TABLE>
<CAPTION>
Registration Serial Delivery Base
Model Number Number Date Value
----- ------ ------ ---- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
---------------
HALF-LIFE
<TABLE>
<CAPTION>
SH&E
DATE OF MANUFACTURE FIRST-HALF-1996
AIRCRAFT TYPE REGISTRATION SERIAL NUMBER ENGINE TYPE /FIRST DELIVERY CURRENT MARKET VALUE
- ------------- ------------ ------------- ----------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
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 N540US 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
</TABLE>
Very truly yours,
/s/ CLIVE G. MEDLAND
----------------------------
Clive G. Medland
Vice President
Certified Appraiser
International Society of
Transport Aircraft Trading
<PAGE> 88
APPENDIX III-EQUIPMENT NOTES PRINCIPAL PAYMENT SCHEDULE
SERIES A
<TABLE>
<CAPTION>
REGULAR AIRCRAFT REGISTRATION NUMBER
DISTRIBUTION ---------------------------------------------------------------------------------
DATES N535US N536US N537US N538US N539US N540US
--------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 2, 1997........................... $ 0 $ 0 $ 516,487 $ 0 $ 0 $ 0
July 2, 1997.............................. 0 0 0 0 0 0
January 2, 1998........................... 0 0 516,449 517,050 378,577 408,223
July 2, 1998.............................. 0 0 0 0 0 0
January 2, 1999........................... 0 0 516,449 517,050 517,050 517,650
July 2, 1999.............................. 0 0 0 0 0 0
January 2, 2000........................... 0 0 516,449 517,050 517,049 517,650
July 2, 2000.............................. 443,117 469,431 0 0 0 0
January 2, 2001........................... 0 0 516,449 517,050 517,049 517,650
July 2, 2001.............................. 498,149 498,899 0 0 0 0
January 2, 2002........................... 0 0 516,449 517,050 517,050 517,650
July 2, 2002.............................. 498,149 498,899 0 0 0 0
January 2, 2003........................... 0 0 516,449 517,050 517,050 517,650
July 2, 2003.............................. 498,149 498,899 0 0 0 0
January 2, 2004........................... 0 0 516,449 517,050 517,050 517,650
July 2, 2004.............................. 498,150 498,899 0 0 0 0
January 2, 2005........................... 0 0 516,449 517,050 517,050 517,650
July 2, 2005.............................. 498,149 498,899 0 0 0 0
January 2, 2006........................... 0 0 516,449 517,050 517,049 517,650
July 2, 2006.............................. 447,369 407,143 0 0 0 0
January 2, 2007........................... 50,780 91,756 516,449 517,050 517,050 517,650
July 2, 2007.............................. 324,846 289,011 0 0 0 0
January 2, 2008........................... 173,303 209,888 476,893 517,050 517,049 517,650
July 2, 2008.............................. 1,858,058 1,851,117 39,556 0 0 0
January 2, 2009........................... 302,592 334,376 366,034 517,050 551,294 517,650
July 2, 2009.............................. 3,265,820 3,106,737 150,415 0 0 0
January 2, 2010........................... 439,441 466,343 2,654,812 1,224,095 2,985,777 2,954,466
July 2, 2010.............................. 3,407,917 3,243,764 265,592 0 0 0
January 2, 2011........................... 586,987 608,626 2,962,672 6,572,022 3,214,786 3,214,353
July 2, 2011.............................. 1,142,262 3,391,503 389,395 0 0 0
January 2, 2012........................... 653,304 4,521,568 3,091,224 4,382,532 3,461,361 3,460,894
July 2, 2012.............................. 3,629,977 1,683,611 522,877 0 4,315,393 4,313,188
January 2, 2013........................... 817,568 0 3,229,824 4,223,515 3,990,494 3,988,596
July 2, 2013.............................. 2,825,766 0 666,793 0 220,378 221,532
January 2, 2014........................... 0 0 3,379,260 2,728,686 908,412 1,000,017
July 2, 2014.............................. 0 0 1,946,195 0 0 0
January 2, 2015........................... 0 0 0 0 0 0
<CAPTION>
REGULAR
DISTRIBUTION
DATES N541US N542US N543US N662US N669US
--------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
January 2, 1997........................... $ 0 $ 0 $ 0 $ 998,760 $ 1,029,511
July 2, 1997.............................. 0 0 0 0 0
January 2, 1998........................... 408,223 468,164 517,976 998,760 1,029,510
July 2, 1998.............................. 0 185 0 0 0
January 2, 1999........................... 517,650 517,847 517,950 998,760 1,029,510
July 2, 1999.............................. 0 102 0 0 0
January 2, 2000........................... 517,650 517,897 517,949 998,760 1,029,510
July 2, 2000.............................. 0 52 0 998,760 0
January 2, 2001........................... 517,650 517,950 517,950 0 1,029,510
July 2, 2001.............................. 0 0 0 998,760 0
January 2, 2002........................... 517,650 517,949 517,949 0 1,029,510
July 2, 2002.............................. 0 0 0 998,760 0
January 2, 2003........................... 517,650 517,949 517,949 0 1,029,510
July 2, 2003.............................. 0 0 0 998,760 0
January 2, 2004........................... 517,650 517,949 517,949 0 1,029,510
July 2, 2004.............................. 0 0 0 1,997,520 0
January 2, 2005........................... 517,650 517,949 517,949 0 1,029,510
July 2, 2005.............................. 0 0 0 1,997,520 0
January 2, 2006........................... 517,650 517,949 517,949 0 2,059,020
July 2, 2006.............................. 0 0 0 1,997,520 0
January 2, 2007........................... 517,650 517,950 517,950 0 2,059,020
July 2, 2007.............................. 0 0 0 1,997,520 0
January 2, 2008........................... 517,650 517,949 517,949 0 2,059,020
July 2, 2008.............................. 0 0 0 1,997,520 0
January 2, 2009........................... 517,650 517,949 517,949 0 2,059,020
July 2, 2009.............................. 0 0 0 2,996,280 0
January 2, 2010........................... 2,954,466 2,772,404 2,613,334 0 2,059,020
July 2, 2010.............................. 0 0 0 0 0
January 2, 2011........................... 3,214,353 3,220,204 3,228,055 5,750,318 1,544,265
July 2, 2011.............................. 0 0 0 0 7,635,679
January 2, 2012........................... 3,460,894 3,467,194 3,475,647 9,845,398 0
July 2, 2012.............................. 4,313,188 4,314,049 4,313,069 0 10,827,015
January 2, 2013........................... 3,988,596 3,989,996 3,990,085 10,600,540 180,834
July 2, 2013.............................. 221,532 227,036 235,976 0 11,249,266
January 2, 2014........................... 1,000,017 1,173,264 1,307,982 2,767,784 452,570
July 2, 2014.............................. 0 0 0 0 0
January 2, 2015........................... 0 0 0 0 25,280
</TABLE>
III-1
<PAGE> 89
SERIES B
<TABLE>
<CAPTION>
REGULAR AIRCRAFT REGISTRATION NUMBER
DISTRIBUTION ---------------------------------------------------------------------------------
DATES N535US N536US N537US N538US N539US N540US
--------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 2, 1997........................... $ 0 $ 0 $ 172,149 $ 0 $ 0 $ 0
July 2, 1997.............................. 0 0 0 0 0 0
January 2, 1998........................... 0 0 172,149 0 0 0
July 2, 1998.............................. 0 0 0 0 0 0
January 2, 1999........................... 0 0 172,149 172,350 172,349 172,550
July 2, 1999.............................. 0 0 0 0 0 0
January 2, 2000........................... 0 0 172,149 172,350 172,349 172,550
July 2, 2000.............................. 0 0 0 0 0 0
January 2, 2001........................... 0 0 172,149 172,350 172,349 172,550
July 2, 2001.............................. 0 0 0 0 0 0
January 2, 2002........................... 0 0 172,149 172,350 172,349 172,550
July 2, 2002.............................. 0 166,299 0 0 0 0
January 2, 2003........................... 0 0 172,149 172,350 172,350 172,550
July 2, 2003.............................. 166,050 166,299 0 0 0 0
January 2, 2004........................... 0 0 172,149 172,350 172,349 172,550
July 2, 2004.............................. 166,049 166,299 0 0 0 0
January 2, 2005........................... 0 0 172,149 172,350 172,350 172,550
July 2, 2005.............................. 166,050 891,647 0 0 0 0
January 2, 2006........................... 0 0 172,149 658,672 172,349 172,550
July 2, 2006.............................. 1,630,502 2,317,644 0 0 0 0
January 2, 2007........................... 0 0 172,149 521,303 172,349 172,550
July 2, 2007.............................. 2,679,505 2,565,800 0 0 0 0
January 2, 2008........................... 0 0 1,600,992 1,072,350 968,788 949,940
July 2, 2008.............................. 1,273,514 1,126,357 0 0 0 0
January 2, 2009........................... 0 0 2,361,933 1,163,966 2,169,103 2,180,899
July 2, 2009.............................. 0 0 0 0 0 0
January 2, 2010........................... 0 0 188,265 1,831,970 0 30,794
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........................... 957,290 0 0 1,403,762 3,243,568 3,150,037
July 2, 2014.............................. 101,187 0 2,562,659 414,327 340,189 395,483
January 2, 2015........................... 0 0 0 0 0 22,294
<CAPTION>
REGULAR
DISTRIBUTION
DATES N541US N542US N543US N662US N669US
--------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
January 2, 1997........................... $ 0 $ 0 $ 0 $ 332,920 $ 343,170
July 2, 1997.............................. 0 0 0 62,624 0
January 2, 1998........................... 0 214 54,537 270,296 343,170
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........................... 172,550 172,649 172,649 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 0 332,920 0
January 2, 2002........................... 172,550 172,704 172,649 0 343,170
July 2, 2002.............................. 0 0 0 332,920 0
January 2, 2003........................... 172,550 172,708 172,649 0 343,170
July 2, 2003.............................. 0 0 0 332,920 0
January 2, 2004........................... 172,550 172,712 172,650 0 343,170
July 2, 2004.............................. 0 0 0 665,840 0
January 2, 2005........................... 172,550 172,717 172,649 0 343,170
July 2, 2005.............................. 0 0 0 665,840 0
January 2, 2006........................... 172,550 172,574 172,649 0 686,340
July 2, 2006.............................. 0 0 0 665,840 0
January 2, 2007........................... 172,550 172,482 172,649 0 686,340
July 2, 2007.............................. 0 0 0 665,840 0
January 2, 2008........................... 949,940 1,078,628 814,381 0 686,340
July 2, 2008.............................. 0 0 0 665,840 0
January 2, 2009........................... 2,180,899 1,904,930 1,988,707 0 3,933,050
July 2, 2009.............................. 0 0 0 998,760 0
January 2, 2010........................... 30,794 217,596 383,342 0 7,019,698
July 2, 2010.............................. 0 0 0 5,074,681 0
January 2, 2011........................... 0 0 0 4,579,999 0
July 2, 2011.............................. 0 0 0 0 1,058,202
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........................... 3,150,037 2,978,454 2,844,172 0 0
July 2, 2014.............................. 395,483 400,918 409,949 0 0
January 2, 2015........................... 22,294 152,821 292,796 0 0
</TABLE>
III-2
<PAGE> 90
SERIES C
<TABLE>
<CAPTION>
REGULAR AIRCRAFT REGISTRATION NUMBER
DISTRIBUTION -------------------------------------------------------------------------------------------------
DATES N535US N536US N537US N538US N539US N540US N541US
- --------------------- ------ ------ ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
January 2, 1997...... $0 $0 $ 329,405 $ 0 $ 0 $ 0 $ 0
July 2, 1997......... 0 0 0 0 0 0 0
January 2, 1998...... 0 0 54,351 0 0 0 0
July 2, 1998......... 0 0 0 0 0 0 0
January 2, 1999...... 0 0 112,731 290,873 165,978 165,097 165,097
July 2, 1999......... 0 0 0 0 0 0 0
January 2, 2000...... 0 0 176,347 325,690 234,425 233,535 233,535
July 2, 2000......... 0 0 0 0 0 0 0
January 2, 2001...... 0 0 245,670 413,627 309,019 308,111 308,111
July 2, 2001......... 0 0 0 0 0 0 0
January 2, 2002...... 0 0 321,210 504,160 390,304 389,378 389,378
July 2, 2002......... 0 0 0 0 0 0 0
January 2, 2003...... 0 0 403,527 603,417 478,881 477,933 477,933
July 2, 2003......... 0 0 0 0 0 0 0
January 2, 2004...... 0 0 493,228 711,552 575,403 574,433 574,433
July 2, 2004......... 0 0 0 0 0 0 0
January 2, 2005...... 0 0 590,975 829,434 680,583 679,588 679,588
July 2, 2005......... 0 0 0 0 0 0 0
January 2, 2006...... 0 0 697,489 471,612 349,754 348,413 348,413
July 2, 2006......... 0 0 0 0 0 0 0
January 2, 2007...... 0 0 1,665,713 0 758,890 756,989 756,989
July 2, 2007......... 0 0 0 0 0 0 0
January 2, 2008...... 0 0 479,347 0 756,011 797,100 797,100
July 2, 2008......... 0 0 0 0 0 0 0
January 2, 2009...... 0 0 0 0 0 0 0
July 2, 2009......... 0 0 0 0 0 0 0
January 2, 2010...... 0 0 0 0 0 0 0
July 2, 2010......... 0 0 0 0 0 0 0
January 2, 2011...... 0 0 0 0 0 0 0
July 2, 2011......... 0 0 0 0 0 0 0
January 2, 2012...... 0 0 0 0 0 0 0
July 2, 2012......... 0 0 0 0 0 0 0
January 2, 2013...... 0 0 0 0 0 0 0
July 2, 2013......... 0 0 0 0 0 0 0
January 2, 2014...... 0 0 0 0 0 0 0
July 2, 2014......... 0 0 0 0 54,356 0 0
January 2, 2015...... 0 0 0 0 1,776,637 1,731,607 1,731,607
<CAPTION>
REGULAR
DISTRIBUTION
DATES N542US N543US N662US N669US
- --------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
January 2, 1997...... $ 0 $ 0 $ 332,920 $ 343,011
July 2, 1997......... 0 0 332,920 0
January 2, 1998...... 0 0 0 343,170
July 2, 1998......... 0 0 332,920 0
January 2, 1999...... 166,168 166,472 0 343,170
July 2, 1999......... 0 0 332,920 0
January 2, 2000...... 234,769 235,064 0 343,170
July 2, 2000......... 0 0 332,920 0
January 2, 2001...... 309,487 309,809 0 343,170
July 2, 2001......... 0 0 332,920 0
January 2, 2002...... 390,908 391,259 0 343,170
July 2, 2002......... 0 0 332,920 0
January 2, 2003...... 479,632 480,015 0 343,170
July 2, 2003......... 0 0 764,412 0
January 2, 2004...... 576,315 576,732 0 343,170
July 2, 2004......... 0 0 234,348 0
January 2, 2005...... 681,670 682,124 0 343,170
July 2, 2005......... 0 0 665,840 0
January 2, 2006...... 349,896 392,019 0 2,313,906
July 2, 2006......... 0 0 3,259,492 0
January 2, 2007...... 825,700 1,423,582 0 4,376,886
July 2, 2007......... 0 0 4,395,140 0
January 2, 2008...... 890,620 504,891 0 4,982,808
July 2, 2008......... 0 0 4,996,328 0
January 2, 2009...... 0 0 0 2,396,370
July 2, 2009......... 0 0 0 0
January 2, 2010...... 0 0 0 0
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...... 1,476,821 1,116,739 0 0
</TABLE>
III-3
<PAGE> 91
SERIES D
<TABLE>
<CAPTION>
REGULAR AIRCRAFT REGISTRATION NUMBER
DISTRIBUTION ----------------------------------------------------------------------------------------------------------
DATES N535US N536US N537US N538US N539US N540US N541US
- ---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
January 2, 1997....... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
July 2, 1997.......... 0 0 0 0 0 0 0
January 2, 1998....... 0 0 0 0 0 0 0
July 2, 1998.......... 0 0 0 0 0 0 0
January 2, 1999....... 0 0 0 0 0 0 0
July 2, 1999.......... 0 0 0 0 0 0 0
January 2, 2000....... 0 0 0 0 0 0 0
July 2, 2000.......... 0 0 0 0 0 0 0
January 2, 2001....... 0 0 0 0 0 0 0
July 2, 2001.......... 0 0 0 0 0 0 0
January 2, 2002....... 0 0 0 0 0 0 0
July 2, 2002.......... 0 0 0 0 0 0 0
January 2, 2003....... 0 0 0 0 0 0 0
July 2, 2003.......... 0 0 0 0 0 0 0
January 2, 2004....... 0 0 0 0 0 0 0
July 2, 2004.......... 0 0 0 0 0 0 0
January 2, 2005....... 0 0 0 0 0 0 0
July 2, 2005.......... 0 0 0 0 0 0 0
January 2, 2006....... 0 0 0 0 0 0 0
July 2, 2006.......... 0 0 0 0 0 0 0
January 2, 2007....... 0 0 0 0 0 0 0
July 2, 2007.......... 0 0 0 0 0 0 0
January 2, 2008....... 0 0 0 0 0 0 0
July 2, 2008.......... 0 0 0 0 0 0 0
January 2, 2009....... 0 0 0 0 0 0 0
July 2, 2009.......... 0 0 0 0 0 0 0
January 2, 2010....... 0 0 0 0 0 0 0
July 2, 2010.......... 0 0 0 0 0 0 0
January 2, 2011....... 0 0 0 0 0 0 0
July 2, 2011.......... 0 0 0 0 0 0 0
January 2, 2012....... 0 0 0 0 0 0 0
July 2, 2012.......... 0 0 0 0 0 0 0
January 2, 2013....... 0 0 0 0 0 0 0
July 2, 2013.......... 0 0 0 0 0 0 0
January 2, 2014....... 0 0 0 0 0 0 0
July 2, 2014.......... 0 0 0 0 0 0 0
January 2, 2015....... 0 0 0 0 0 0 0
<CAPTION>
REGULAR
DISTRIBUTION
DATES N542US N543US N662US N669US
- ---------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
January 2, 1997....... $ 0 $ 0 $ 0 $3,208,715
July 2, 1997.......... 0 0 0 0
January 2, 1998....... 0 0 0 683,959
July 2, 1998.......... 0 0 671,757 0
January 2, 1999....... 0 0 0 890,820
July 2, 1999.......... 0 0 1,154,478 0
January 2, 2000....... 0 0 0 1,118,678
July 2, 2000.......... 0 0 406,232 0
January 2, 2001....... 0 0 0 1,369,664
July 2, 2001.......... 0 0 1,194,552 0
January 2, 2002....... 0 0 0 1,241,789
July 2, 2002.......... 0 0 1,067,324 0
January 2, 2003....... 0 0 0 1,234,047
July 2, 2003.......... 0 0 0 0
January 2, 2004....... 0 0 0 1,517,581
July 2, 2004.......... 0 0 0 0
January 2, 2005....... 0 0 0 1,392,404
July 2, 2005.......... 0 0 0 0
January 2, 2006....... 0 0 0 0
July 2, 2006.......... 0 0 0 0
January 2, 2007....... 0 0 0 0
July 2, 2007.......... 0 0 0 0
January 2, 2008....... 0 0 0 0
July 2, 2008.......... 0 0 0 0
January 2, 2009....... 0 0 0 0
July 2, 2009.......... 0 0 0 0
January 2, 2010....... 0 0 0 0
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....... 0 0 0 0
</TABLE>
III-4
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------
1995 1994 1993 1992 1991
- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1.91 1.88 (a) (a) (a)
</TABLE>
- ---------------
(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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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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
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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
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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
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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,
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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,
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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.
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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.
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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
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with 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
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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.
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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
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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
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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
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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.
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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
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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.
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