Exhibit 10.40
ASSUMPTION AND CLAIM RESOLUTION AGREEMENT
     THIS ASSUMPTION AND CLAIM RESOLUTION AGREEMENT (this “Agreement”) is made
as of this 20th day of December, 2006 by and between (i) Pinnacle Airlines,
Inc., a Georgia corporation (together with its successors and assigns,
“Pinnacle”) and Pinnacle Airlines Corp., a Delaware corporation (together with
its successors and assigns, “Pinnacle Corp.”), and (ii) Northwest Airlines,
Inc., a Minnesota corporation (together with its successors and assigns,
“Northwest”).
RECITALS
     WHEREAS, on September 14, 2005 (the “Petition Date”), Northwest and its
affiliated debtors (collectively, the “Debtors”) filed voluntary petitions for
relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy
Code”) in the United States Bankruptcy Court for the Southern District of New
York (the “Bankruptcy Court”), under the jointly administered case number
05-17930 (the “Bankruptcy Case”);
     WHEREAS, Northwest, Pinnacle and Pinnacle Corp. are parties to a
pre-petition executory Airline Services Agreement dated as of January 14, 2003
(the “Existing ASA”);
     WHEREAS, contemporaneously with the execution of this Agreement, the
parties will enter into an Amended and Restated Airline Services Agreement (as
amended, modified or altered from time to time, and including all supplements,
exhibits and attachments thereto, the “ASA”), a Share Purchase Agreement (the
“Share Purchase Agreement”), and amendments to Aircraft Sublease Agreements (the
“Sublease Amendments”) (this Agreement, together with the ASA, the Share
Purchase Agreement and the Sublease Amendments, are collectively hereinafter
referred to as the “Transaction Documents”);
     WHEREAS, on or before August 16, 2006, Pinnacle and Pinnacle Corp. filed
the proof(s) of claim listed on Annex A attached hereto in the amount(s)
specified in Annex A asserting claims under, in connection with, or related to,
without limitation, the ASA (collectively, the “Filed Claims”);
     WHEREAS, the Debtors dispute the Filed Claims and intend to file or have
filed an objection with respect thereto;
     WHEREAS, Northwest is authorized under the Order Pursuant To Sections 502,
363 and 105 of the Bankruptcy Code and Rules 3007, 9019 and 2002 of the
Bankruptcy Rules Establishing Procedures for (i) Omnibus Objections to Proofs of
Claim and (ii) Compromising Disputed Proofs of Claim (the “Claims Resolution
Order”), Docket No. 3546, to enter into agreements to resolve the Filed Claims
and any and all other claims (as defined in the Bankruptcy Code) that Pinnacle
and/or Pinnacle Corp. have or had against any Debtor including, but not limited
to, the Filed Claims (collectively, the “Claims”);

 

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     WHEREAS, on October 28, 2005, the Bankruptcy Court entered the Final Order
Pursuant to Sections 105, 362 and 541 of the Bankruptcy Code and Bankruptcy
Rule 3001 Establishing Notification and Hearing Procedures for Trading in Claims
and Equity Securities (the “Claims Trading Order”), Docket No. 836; and
     WHEREAS, Northwest and Pinnacle desire to enter into this Agreement to
provide for the assumption of the ASA in Northwest’s Bankruptcy Case and to
resolve all Claims held by Pinnacle against any of the Debtors on the terms and
conditions set forth herein.
     NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions contained herein and in connection with the execution
of the ASA, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
     1. Resolution of Claims. In accordance with the Claims Resolution Order,
the parties hereby agree as follows:
     (a) (i) Subject to Sections 1(a)(ii) and 1(a)(iii) hereof, upon the
“Effective Date” (as such term is defined in the ASA), and in full and final
satisfaction of any and all Claims (including without limitation any Claim
arising under the Tax Indemnity Agreement, but specifically excluding any Claim
that may arise under this Agreement or any other Transaction Document and any
claim for amounts payable by Northwest to Pinnacle pursuant to the Existing ASA
for products or services actually provided to Northwest after the Petition
Date), claim number 10898, which was filed by Pinnacle, shall be liquidated and
fixed in the amount of Three Hundred Seventy Seven Million Five Hundred Thousand
and 00/100 Dollars ($377,500,000) (the “Allowed Amount”) and shall be allowed
and treated as a general unsecured claim against the estate of Northwest (the
“Allowed Claim”), and any amount in excess of the Allowed Amount shall be
disallowed in its entirety. All Filed Claims other than the Allowed Claim are
deemed withdrawn (with prejudice), and shall be deemed disallowed and expunged
upon the Effective Date without the requirement for any further action by any
party.
     (ii) In the event Northwest designates pursuant to Section 3.02(a)(ii)(B)
of the ASA a three (3) or ten (10) year term for the aircraft placed with
Pinnacle pursuant to the first sentence of Section 3.02(a)(i) of the ASA, then
the Allowed Amount of the Allowed Claim shall be reduced by the following:
(A) if such term is ten (10) years, the Allowed Amount shall be reduced by the
product of $2.5 million multiplied by the number of such aircraft, and (B) if
such term is three (3) years, the Allowed Amount shall be reduced by the product
of $0.8 million multiplied by the number of such aircraft (any such reduction in
the Allowed Amount is hereinafter referred to as the “Reduction”); provided,
however, if the Allowed Claim, or any portion thereof, has been assigned,
transferred, or conveyed by Pinnacle prior to the occurrence of any Reduction
(the aggregate amount of the Allowed Claim, or portion thereof, so transferred,
the “Transferred Amount”) and the Reduction exceeds the Allowed Amount less the
Transferred Amount (the difference between the Allowed Amount and the
Transferred Amount, the “Retained Amount,” and the difference between the

 

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     Reduction and the Retained Amount, the “Excess Reduction”), then, (i) the
Retained Amount of the Allowed Claim shall be reduced to zero, and (ii) Pinnacle
shall pay to Northwest, at the time of the designation by Northwest referenced
in this paragraph, an amount equal to (x) the Excess Reduction multiplied by
(y) a fraction, the numerator of which is the total amount of proceeds or other
consideration received by Pinnacle in connection with such assignment, transfer
or conveyance of the Transferred Amount and the denominator of which is the
amount of the Transferred Amount.
     (iii) In the event Northwest exercises its right pursuant to Section
3.02(a)(ii)(E) of the ASA to remove aircraft from Pinnacle’s fleet, then the
Allowed Amount of the Allowed Claim shall be:

  (A)   increased by the amount of the operating profit that would have been
earned by Pinnacle under the ASA with respect to the operation of any removed
aircraft that constitute all or part of the Twenty-Four Aircraft (as defined in
the ASA) during the remaining term of the ASA if Northwest had not exercised
such right and, if Northwest has, as of such date, designated pursuant to
Section 3.01(a)(ii)(B) of the ASA a term for the Seventeen Aircraft (as defined
in the ASA) that has resulted in a reduction in the Allowed Amount of the
Allowed Claim pursuant to Section 1(a)(ii) hereof, then the Allowed Amount of
the Allowed Claim shall also be increased by the amount of the operating profit
that would have been earned by Pinnacle under the ASA with respect to the
operation of the removed Seventeen Aircraft during the remaining portion of the
designated term for such aircraft if Northwest had not exercised such right; and
    (B)   decreased by the amount of any reduction in the Purchase Price (as
defined in the Share Purchase Agreement) pursuant to Section 2.1 of the Share
Purchase agreement resulting from the exercise of such right by Northwest, but
in no event shall the amount of any decrease pursuant to this clause (B) exceed
the amount of any increase with respect to the Twenty-Four Aircraft pursuant to
clause (A) above, even if the reduction in the Purchase Price is greater than
the aggregate amount of operation profit referenced above.

     (iv) To the extent at any time the Allowed Amount of the Allowed Claim is
reduced pursuant to this Section 1(a), Pinnacle agrees to withdraw with
prejudice the portion of the Allowed Claim equal to such reduction and any such
portion of the Allowed Claim shall be deemed expunged without the requirement
for any further act by any party.
     (b) Pinnacle and Pinnacle Corp. each represents and warrants that (i) the
only Claims filed by it in the Bankruptcy Case are listed on Annex A attached
hereto, (ii) it is the owner of those Filed Claims filed by it, and (iii) it has
not transferred any Filed Claim or any other Claim.

 

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     (c) Pinnacle agrees it will not transfer any portion of the Allowed Claim
unless the transfer is expressly subject to this Agreement. Northwest and
Pinnacle agree that the Allowed Claim is a divisible claim which, subject
hereto, may be assigned in whole or in part or may have an interest granted
therein in whole or in part by Pinnacle. Pinnacle and any assignee or transferee
of the Allowed Claim, or portion thereof or interest therein (collectively,
“Holders”), each agree that by virtue of holding all or any portion of or
interest in the Allowed Claim, the Holder shall be subject to the provisions of
the Claims Trading Order and nothing herein will limit the Debtors’ right to
request authority to issue a “sell down order” under the Claims Trading Order.
     2. Agreement to Assume the ASA. Northwest hereby agrees that any plan of
reorganization it or any Debtor files or consents in writing to in the
Bankruptcy Case that contemplates that Northwest will remain in the passenger
air transportation business (the “Plan of Reorganization”), shall provide for
the assumption of the ASA pursuant to 11 U.S.C. § 365 and the provisions of this
Agreement. Each of Northwest (on behalf of itself and the other Debtors), and
Pinnacle and Pinnacle Corp. each agrees not to oppose or cause any opposition to
any such assumption. Pinnacle shall have the right to vote the Allowed Amount of
its Allowed Claim to the extent that Pinnacle has not transferred all or a
portion of the Allowed Claim in accordance with this Agreement in connection
with the Plan of Reorganization. In addition, Northwest shall not take any
action to reject the Existing ASA prior to the Effective Date or the ASA
thereafter unless and until (i) a filing by Northwest of a plan of
reorganization that contemplates that Northwest will not remain in the passenger
air transportation business or (ii) the conversion of the Bankruptcy Case to
Chapter 7 of the Bankruptcy Code. Notwithstanding the foregoing, (A) if
Northwest or any other Debtor files a plan of reorganization that contemplates
that Northwest will not remain in the passenger air transportation business or
the Bankruptcy Case is converted to Chapter 7 of the Bankruptcy Code, then
Pinnacle and/or Pinnacle Corp., as applicable, shall have the right to seek an
order from the Bankruptcy Court to compel Northwest or the Chapter 7 trustee, as
applicable, to assume or reject the ASA (if after the Effective Date or the
Existing ASA if before the Effective Date) on an expedited basis, and (B) if the
ASA is rejected, then Northwest (on behalf of itself and the other Debtors)
agrees that Pinnacle shall have the right to file a claim against Northwest for
rejection of the ASA in accordance with the requirements set forth in the Order
Pursuant to Sections 105 and 365(A) of the Bankruptcy Code Establishing
Procedures for the Rejection of Executory Contracts and Unexpired Leases with
the Exception of Agreements Relating to Aircraft and Aircraft Engines Governed
by Section 1110 of the Bankruptcy Code, Docket No. 1477, and the parties further
agree that neither the execution of this Agreement nor the execution of the ASA
shall alter the pre-petition nature of the ASA for the purposes of Northwest’s
Bankruptcy Case or the validity or priority of any claims of Pinnacle and/or
Pinnacle Corp., as applicable, against Northwest that may arise as a result of
any such rejection; provided, however, that the amount of any such rejection
damages claim shall be in respect of the ASA (and not the Existing ASA) and in
addition to the Allowed Claim (it being understood that the Allowed Claim is
intended to compensate Pinnacle and Pinnacle Corp. for, among other things, the
reduction in the operating profit that would have been earned by Pinnacle under
the ASA as compared to the operating profit that would have been earned by
Pinnacle under the Existing ASA during the remaining term thereof if this
Agreement and the ASA had not been entered into, and that the assumption or
rejection of the ASA shall not affect the agreement of the parties set forth in
Section 1(a) above regarding the Allowed Claim and the Allowed Amount).
Northwest agrees that its obligation to

 

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pay for goods and/or services actually provided to Northwest after the Petition
Date pursuant to the ASA will be entitled to treatment as administrative
priority expenses of Northwest’ bankruptcy estate pursuant to section 503 of the
Bankruptcy Code.
     3. Treatment of Cure Amount. In connection with any assumption of the ASA
in Northwest’s Bankruptcy Case, provided that Northwest is in compliance with
this Agreement and subject to the reservation of rights set forth in Section 2
hereof, Northwest’s monetary defaults relating to amounts due under the ASA for
the period preceding the Petition Date will be deemed “cured” by the allowance
of the Allowed Claim as an allowed general unsecured claim in Northwest’s
Bankruptcy Case as provided in Section 1 hereof and the treatment of the Allowed
Claim as provided in Section 2 hereof shall satisfy Northwest’s obligation to
cure any and all pre-petition defaults under the ASA. The performance by
Northwest of its obligations contained herein and the allowance of such general
unsecured claim in the Allowed Amount shall be in full and final satisfaction of
all amounts owed by Northwest for goods and/or services provided to Northwest
under the ASA prior to the Petition Date.
     4. Notices. All notices and other communications under this Agreement shall
be in writing and addressed to the parties at the following addresses and shall
be effective on the business day after receipt via overnight courier, hand
delivery or facsimile:

     
To Northwest:
  With a copy to:
 
   
Northwest Airlines, Inc.
  Northwest Airlines, Inc.
2700 Lone Oak Parkway (Dept. A6100)
  2700 Lone Oak Parkway (Dept. A1180)
Eagan, MN 55121-1534
  Eagan, MN 55121-1534
Fax No. (612) _______________
  Fax No. (612) 726-7123
Attention: Vice President — Network Planning
  Attention: General Counsel
 
   
 
  And to:
 
   
 
  Cadwalader, Wickersham & Taft LLP
 
  One World Financial Center
 
  New York, NY 10281
 
  Fax No.: (212) 504-6666
 
  Attention: Bruce Zirinsky, Esq.
 
   
To Pinnacle:
  With a copy to:
 
   
Pinnacle Airlines, Inc.
  Vinson & Elkins LLP
1689 Nonconnah Blvd., Suite 111
  3700 Trammell Crow Center
Memphis, TN 38132
  Dallas, Texas 75201
Fax: (901) 348-4103
  Fax: (214) 999-7905
Attention: Peter D. Hunt
  Attention: William Wallander, Esq. and
 
  Kevin Lewis, Esq.

 

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To Pinnacle Corp.:
  With a copy to:
 
   
Pinnacle Airlines Corp.
  Vinson & Elkins LLP
1689 Nonconnah Blvd., Suite 111
  3700 Trammell Crow Center
Memphis, TN 38132
  Dallas, Texas 75201
Fax: (901) 348-4103
  Fax: (214) 999-7905
Attention: Peter D. Hunt
  Attention: William Wallander, Esq. and
 
  Kevin Lewis, Esq.

     Either party may change the address at which notice is to be made by
providing notice of the change to the other party in the manner provided for in
this Section 4.
     5. Condition Precedent. A condition precedent to the obligations and rights
of Northwest, Pinnacle and Pinnacle Corp. under this Agreement is the entry of a
final and non-appealable order of the Bankruptcy Court approving the Transaction
Documents in form and substance reasonably satisfactory to Northwest, Pinnacle
and Pinnacle Corp. Promptly following the execution of this Agreement, Northwest
shall use its reasonable efforts to file with the Bankruptcy Court an
appropriate motion seeking approval of the Transaction Documents.
     6. Miscellaneous.
     (a) This Agreement contains the entire agreement by and between the parties
hereto with respect to the subject matter hereof, and all prior understandings
or agreements, if any, are merged into this Agreement.
     (b) This Agreement shall be binding upon (i) all successors and assigns of
each of the parties to the Agreement, (ii) any transferee of any Claim, and
(iii) any subsequently appointed Chapter 11 trustee or Chapter 7 trustee to the
extent one is appointed.
     (c) Neither this Agreement, nor the settlement provided for herein, nor any
statement made, action or position taken, or document prepared or executed in
connection with the negotiation, execution or implementation of this Agreement
and the settlement provided for herein shall be deemed to be, or construed as,
an admission by any party hereto of any liability, wrongdoing, act or matter or
that any claim or defense has or lacks merit.
     (d) Each of the parties hereto agrees that any dispute with respect to this
Agreement shall be resolved by the Bankruptcy Court or such other court as has
jurisdiction of Northwest’s Bankruptcy Case.
     (e) This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York, without regard to the choice of law
principles of the State of New York. For purposes of construing this Agreement,
none of the parties hereto shall be deemed to have been the drafter of the
Agreement.
     (f) Facsimile copies of signatures on this Agreement are acceptable, and a
facsimile copy of a signature on this Agreement is deemed an original.

 

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     (g) This Agreement may only be changed, modified or otherwise altered in a
writing executed by all the parties to this Agreement. Oral modifications are
not permitted.
     (h) This Agreement may be executed in counterparts, each of which is deemed
an original, but when taken together constitute one and the same document.
     (i) In the event of a conflict between this Agreement and any other
agreement between the parties hereto, the provisions of this Agreement shall
govern.
     (j) Each party represents, warrants and covenants to the other that: (i) it
is duly organized, validly existing and in good standing under the laws of its
state of incorporation; (ii) it has the requisite corporate power and authority
to enter into and perform this Agreement and any other agreements and
instruments executed and delivered in connection herewith, provided that, with
respect to Northwest, the foregoing is subject to any necessary approval by the
Bankruptcy Court or compliance with applicable Bankruptcy Court orders, and
(iii) this Agreement has been authorized by all necessary corporate action.
     IN WITNESS WHEREOF and in agreement herewith, the parties have executed and
delivered this Agreement as of the date first set forth above.

      NORTHWEST AIRLINES, INC   PINNACLE AIRLINES, INC. By: /s/
 
  By: /s/ Philip H. Trenary
 
Name: Officer
 
  Name: Philip H. Trenary
 
Title: Officer
 
  Title: President and Chief Executive Officer
 
      PINNACLE AIRLINES CORP     By: /s/ Philip H. Trenary
 
    Name: Philip H. Trenary
 
    Title: President and Chief Executive Officer
 
   

 

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Annex A
Proofs of Claim Filed by Pinnacle

              Claim             Number   Claimant   Debtor   Claim Amount
10898
  Pinnacle   Northwest Airlines, Inc.   none stated/unliquidated
10899
  Pinnacle   NWA Aircraft Finance, Inc.   none stated/unliquidated
10900
  Pinnacle   NW Red Baron   none stated/unliquidated
10901
  Pinnacle   NWA Fuel Services Corporation   none stated/unliquidated
10902
  Pinnacle   NWA WorldClub, Inc.   none stated/unliquidated
10903
  Pinnacle   Compass Airlines, Inc. f/k/a Northwest Airlines Cargo, Inc.   none
stated/unliquidated
10904
  Pinnacle   MLT Inc.   none stated/unliquidated
10905
  Pinnacle   Montana Enterprises, Inc.   none stated/unliquidated
10906
  Pinnacle   Northwest Aerospace Training Corp.   none stated/unliquidated
10907
  Pinnacle   Northwest Airlines Holdings Corporation   none stated/unliquidated
10908
  Pinnacle   Northwest Airlines Corporation   none stated/unliquidated
10909
  Pinnacle   NWA Inc.   none stated/unliquidated
10910
  Pinnacle   NWA Retail Sales Inc.   none stated/unliquidated
10911
  Pinnacle   Aircraft Foreign Sales, Inc.   none stated/unliquidated
10912
  Pinnacle Corp.   Northwest Airlines, Inc.   none stated/unliquidated
10913
  Pinnacle Corp.   NWA WorldClub, Inc.   none stated/unliquidated
10914
  Pinnacle Corp.   Compass Airlines, Inc. f/k/a Northwest Airlines Cargo, Inc.  
none stated/unliquidated
10915
  Pinnacle Corp.   Montana Enterprises, Inc.   none stated/unliquidated
10916
  Pinnacle Corp.   MLT Inc.   none stated/unliquidated
10917
  Pinnacle Corp.   Northwest Aerospace Training Corp.   none stated/unliquidated
10918
  Pinnacle Corp.   Northwest Airlines Holdings Corporation   none
stated/unliquidated
10919
  Pinnacle Corp.   Northwest Airlines Corporation   none stated/unliquidated
10920
  Pinnacle Corp.   NW Red Baron   none stated/unliquidated
10921
  Pinnacle Corp.   NWA Inc.   none stated/unliquidated
10922
  Pinnacle Corp.   NWA Aircraft Finance, Inc.   none stated/unliquidated
10923
  Pinnacle Corp.   Aircraft Foreign Sales, Inc.   none stated/unliquidated
10924
  Pinnacle Corp.   NWA Retail Sales Inc.   none stated/unliquidated
10925
  Pinnacle Corp.   NWA Fuel Services Corporation   none stated/unliquidated