EXHIBIT 10.21


 


CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN
OMITTED AND FILED

SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE SYMBOL

“[***]” HAS BEEN INSERTED IN PLACE OF THE PORTIONS SO OMITTED.


 


 


AIRLINE SERVICES AGREEMENT


 


 


by and between


 


 


PINNACLE AIRLINES, INC.


 


 


and


 


 


NORTHWEST AIRLINES, INC.


 


 


Dated as of March 1, 2002


 

















 


TABLE OF CONTENTS


 


	
  ARTICLE I    DEFINITIONS

  
	
   

  	
   

  
	
   

  	
  Section 1.01
     Definitions

  
	
   

  	
   

  
	
  ARTICLE II    PROVISION OF
  REGIONAL AIRLINE SERVICES

  
	
   

  	
   

  
	
   

  	
  Section 2.01
     Operation of Scheduled Flights

  
	
   

  	
  Section 2.02
     Use of Designator, NW Identification and Related Matters

  
	
   

  	
  Section 2.03
     Use of Other Designators

  
	
   

  	
  Section 2.04
     Personnel and Dispatch Control

  
	
   

  	
  Section 2.05
     Inventory Management

  
	
   

  	
  Section 2.06
     Passenger Fares

  
	
   

  	
  Section 2.07
     DOT Certification

  
	
   

  	
  Section 2.08
     Compliance With Governmental Regulations

  
	
   

  	
  Section 2.09
     Quality of Service

  
	
   

  	
  Section 2.10
     Service Standards

  
	
   

  	
  Section 2.11
     Service Recovery

  
	
   

  	
  Section 2.12
     Annual Operating Plan

  
	
   

  	
  Section 2.13
     Inflight Food, Beverages and Supplies

  
	
   

  	
  Section 2.14
     Exclusivity Arrangements

  
	
   

  	
   

  
	
  ARTICLE III
     EQUIPMENT

  
	
   

  	
   

  
	
   

  	
  Section 3.01
     Use of the Equipment

  
	
   

  	
  Section 3.02
     Fleet Size and Related Matters

  
	
   

  	
  Section 3.03
     Lease of the Equipment

  
	
   

  	
  Section 3.04
     Terms of the Leases

  
	
   

  	
  Section 3.05
     Manufacturer Benefits Agreement

  
	
   

  	
  Section 3.06
     Equipment Maintenance, Servicing and Cleaning

  
	
   

  	
  Section 3.07
     Third Party Guarantees and Warranties

  
	
   

  	
  Section 3.08
     Related Transfer Arrangements

  
	
   

  	
  Section 3.09
     Equipment Financing Coordination

  
	
   

  	
  Section 3.10
     Spare Parts Inventory; Application of Credits

  
	
   

  	
   

  
	
   

  	
  ARTICLE IV    ANCILLARY
  ARRANGEMENTS

  
	
   

  	
   

  
	
   

  	
  Section 4.01
     Coordination with Pinnacle

  
	
   

  	
  Section 4.02
     Ground Handling

  
	
   

  	
  Section 4.03
     Facilities

  
	
   

  	
  Section 4.04
     Data Communications

  
	
   

  	
  Section 4.05
     Security

  
	
   

  	
  Section 4.06
     Reservation Services

  



 


i

















 


	
   

  	
  Section 4.07
     Ticketing Services and Ticketing Procedures

  
	
   

  	
  Section 4.08
     Baggage Handling Services

  
	
   

  	
  Section 4.09
     Air Cargo Handling Services

  
	
   

  	
  Section 4.10
     Use of COMAT

  
	
   

  	
  Section 4.11
     Slots and Route Authorities

  
	
   

  	
  Section 4.12
     Emergency Response and Family Assistance

  
	
   

  	
   

  
	
  ARTICLE V    REVENUES,
  PAYMENTS AND SETOFF

  
	
   

  
	
   

  	
  Section 5.01
     Revenues

  
	
   

  	
  Section 5.02
     Payments to Pinnacle

  
	
   

  	
  Section 5.03
     Initial Block Hour and Cycle Rates; IOP Program Adjustment

  
	
   

  	
  Section 5.04
     Fixed Costs

  
	
   

  	
  Section 5.05
     Fuel

  
	
   

  	
  Section 5.06
     Direct Expenses

  
	
   

  	
  Section 5.07
     Billing

  
	
   

  	
  Section 5.08
     Monthly Margin Calculation and Payment

  
	
   

  	
  Section 5.09
     Annual Margin Adjustment Payment

  
	
   

  	
  Section 5.10
     Rate Adjustments

  
	
   

  	
  Section 5.11
     Revised Monthly Margin Calculation and Payment

  
	
   

  	
  Section 5.12
     Revised Annual Margin Adjustment Payment

  
	
   

  	
  Section 5.13
     Non-Scheduled Flight Refund

  
	
   

  	
  Section 5.14
     Incentives and Penalties

  
	
   

  	
  Section 5.15
     Pinnacle Change of Control

  
	
   

  	
  Section 5.16
     Credit Card Chargebacks

  
	
   

  	
  Section 5.17
     Returned Checks

  
	
   

  	
  Section 5.18
     Most Favored Nations

  
	
   

  	
   

  
	
  ARTICLE VI    REPORTING
  OBLIGATIONS, AUDITING, INSPECTIONS AND CONFIDENTIALITY/PUBLICITY

  
	
   

  	
   

  
	
   

  	
  Section 6.01
     Reporting Obligations

  
	
   

  	
  Section 6.02
     Audits

  
	
   

  	
  Section 6.03
     Inspections

  
	
   

  	
  Section 6.04
     Confidentiality/Publicity

  
	
   

  	
   

  
	
  ARTICLE VII
     NORTHWEST IDENTIFICATION

  
	
   

  	
   

  
	
   

  	
  Section 7.01
     Identification License

  
	
   

  	
  Section 7.02
     Designator License

  
	
   

  	
  Section 7.03
     New Identifications

  
	
   

  	
  Section 7.04
     Use of Identification

  
	
   

  	
  Section 7.05
     Quality Control

  
	
   

  	
  Section 7.06
     Reservation of Rights

  
	
   

  	
  Section 7.07
     Ownership

  
	
   

  	
  Section 7.08
     Termination

  
	
   

  	
  Section 7.09
     Bankruptcy

  



 


ii

















 


	
  ARTICLE VIII
     TAXES AND FEES

  
	
   

  	
   

  
	
   

  	
  Section 8.01
     Taxes and Fees

  
	
   

  	
  Section 8.02
     Ticket Taxes and Fees

  
	
   

  	
  Section 8.03
     Property Tax, Fuel Tax, and Sales and Use Tax Compliance

  
	
   

  	
  Section 8.04
     Refunds of Tax

  
	
   

  	
   

  
	
  ARTICLE IX    LIABILITY,
  INDEMNIFICATION AND INSURANCE

  
	
   

  	
   

  
	
   

  	
  Section 9.01
     Independent Contractor

  
	
   

  	
  Section 9.02
     Indemnification

  
	
   

  	
  Section 9.03
     Insurance

  
	
   

  	
   

  
	
  ARTICLE X    TERM AND
  TERMINATION

  
	
   

  	
   

  
	
   

  	
  Section 10.01    Term

  
	
   

  	
  Section 10.02    Termination by Either Party

  
	
   

  	
  Section 10.03    Termination by Northwest

  
	
   

  	
   

  
	
  ARTICLE XI    MISCELLANEOUS

  
	
   

  	
   

  
	
   

  	
  Section 11.01    Limitation on Performance

  
	
   

  	
  Section 11.02    Mutual Cooperation

  
	
   

  	
  Section 11.03    Representations and Warranties

  
	
   

  	
  Section 11.04    Assignment

  
	
   

  	
  Section 11.05    Governing Law

  
	
   

  	
  Section 11.06    Interline and Other Agreements

  
	
   

  	
  Section 11.07    Notices

  
	
   

  	
  Section 11.08    Parties

  
	
   

  	
  Section 11.09    Counterparts

  
	
   

  	
  Section 11.10    Severability

  
	
   

  	
  Section 11.11    Captions, Section Headings and
  Table of Contents

  
	
   

  	
  Section 11.12    Availability of Equitable Remedies;
  Procedures

  
	
   

  	
  Section 11.13    Exhibits

  
	
   

  	
  Section 11.14    Integration and Entire Agreement

  
	
   

  	
  Section 11.15    Relationship of Parties

  



 


iii

















 


EXHIBITS


 


	
  Exhibit A

  	
   

  	
  Hub City Facility Charges

  
	
  Exhibit B

  	
   

  	
  Predicted Employee Bonuses and Incentives

  
	
  Exhibit C

  	
   

  	
  Parity Pay Agreement

  



 


i

















 


AIRLINE SERVICES AGREEMENT


 


THIS AIRLINE SERVICES
AGREEMENT (the “Agreement”) is dated as of  the 1st day of March, 2002 by and between
PINNACLE AIRLINES, INC., a Georgia corporation (“Pinnacle”), and NORTHWEST
AIRLINES, INC., a Minnesota corporation (“Northwest”).


 


WITNESSETH:


 


WHEREAS,
Pinnacle and Northwest desire to make certain arrangements between them which
will enable Pinnacle to provide Northwest with commercial regional jet and
turboprop air transportation services;


 


WHEREAS,
Pinnacle and Northwest are each willing to perform in the manner and upon the
conditions and terms hereinafter set forth;


 


NOW, THEREFORE,
in consideration of the premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Northwest and
Pinnacle do hereby agree as follows:


 


ARTICLE I





DEFINITIONS


 


Section 1.01     Definitions.  For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:


 


(1)                                  the
terms as defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;


 


(2)                                  all
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with generally accepted accounting principles; and


 


(3)                                  the
words “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular Article, or other
subdivision.


 


“ACARS”
means the Aircraft Communications Addressing and Reporting System which
provides communications between the Aircraft and Pinnacle with respect to
operational matters.


 


“Affiliate”
means, as applied to a Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person.  For purposes of this definition “control”
(including, with correlative meanings, the terms “controlling”, “controlled by”
and “under common control with”), as applied to any Person, means the
possession, directly


 


1

















 


or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities, by contract or otherwise.


 


“Air Cargo”
means air freight, United States mail and small package services appropriate
for the Aircraft.


 


“Air Cargo
Handling Services” means the Air Cargo handling
services to be performed pursuant to Section 4.09.


 


“Aircraft”
means (i) the twenty (20) Saab 340 turboprop aircraft in Pinnacle’s 4fleet as
of the Effective Date, (ii) the thirty-four (34) CRJ-200/440 Canadair Regional
Jet aircraft in Pinnacle’s fleet as of the Effective Date, (iii) the  sixty-one (61) additional CRJ-200 or CRJ-440
Canadair Regional Jet aircraft when and as such aircraft are added to
Pinnacle’s fleet pursuant to Section 3.02; and (iv) up to two
hundred  and nine (209) additional
CRJ-200/440 Canadair Regional Jet aircraft when, as and if such aircraft are
added to Pinnacle’s fleet pursuant to Section 3.02.  Any Aircraft removed from Pinnacle’s fleet
cease to be “Aircraft” hereunder upon the date of such removal.


 


“Aircraft Rental
Expense” means the Basic Rent charged in the
Leases between Northwest and Pinnacle which shall be [***] per Aircraft per
month for the CRJ-200/440 Canadair Regional Jet Aircraft and the Basic Rent
paid by Pinnacle pursuant to the Leases between Pinnacle and third parties with
respect to the Saab 340 turboprop aircraft operated by Pinnacle.


 


“Airlink Carrier”
means an airline operating regional jet and/or turboprop air transportation
services as a Northwest Airlink carrier pursuant to an airline services
agreement between such airline and Northwest.


 


“Airline Assets”
means those assets used, as of the date of determination, in the relevant
Person’s operation as an air carrier.


 


“Annual Operating
Plan” shall have the meaning ascribed to such term
in Section 2.12.


 


“Available  CRJ Day” or “ ACD”
means  a CRJ-200 or CRJ-440 Aircraft
each day after such Aircraft has been placed in service by Pinnacle and remains
in service for Northwest (including non-scheduled Aircraft).  A CRJ aircraft placed in service by Pinnacle
on January 1st would have 31 Available CRJ Days in January.


 


“Available CRJ
Days Report” means the report of Available CRJ Days
to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Available Saab
Day” or “ASD” means a Saab Aircraft each day after
such Aircraft has been placed in service by Pinnacle and remains in service for
Northwest (including non-scheduled Aircraft). 
A Saab aircraft placed in service by Pinnacle on January 1st
would have 31 Available Saab Days in January.


 


2

















 


“Available Saab
Days Report” means the report of Available Saab
Days to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Baggage Handling
Services” means the baggage handling services to
be performed pursuant to Section 4.08.


 


“Base Block Hour
Rate” shall have the meaning ascribed to such term
in Section 5.03.


 


“Base Cycle Rate”
shall have the meaning ascribed to such term in Section 5.03.


 


“Basic Rent”
shall have the meaning ascribed to such term in the Leases.


 


“Beneficial
Ownership” has the meaning given such term as
defined as of the date hereof in Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as amended.


 


“Block Hour”
means the period of time (in minutes) beginning when an Aircraft first moves
from the ramp blocks in connection with a Scheduled Flight, a Non-Scheduled
Flight or a Charter Flight and ending when the Aircraft next comes to a stop at
the ramp at any station or other point of termination as recorded by ACARS or
another mutually agreed system, divided by sixty (60).


 


“Block Hour
Payment” means the payment for Block Hours to be
made pursuant to Section 5.02(b).


 


“Block Hour Rate”
shall have the meaning ascribed to such term in Section 5.03.


 


“Block Hour Report”
means the report to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Bombardier
Agreement” means the Aircraft Heavy Maintenance
Service Agreement between Bombardier Services Corporation and Northwest
Airlines, Inc., dated February 1, 2002, as amended or extended by
Northwest; provided, however, any material expansion of the scope of services
to be performed under the Bombardier Agreement shall be subject to the
reasonable approval of Pinnacle.


 


“Capital Stock”
of any Person means any and all shares, interests, rights to purchase, options,
warrants, participation or other equivalents of or interests in (however
designated) the equity of such Person, including any preferred stock.


 


“Charter Flights”
means revenue passenger flights using the Aircraft (other than Scheduled
Flights); provided, however, that the operational arrangements and the
compensation to be received by Pinnacle in respect of such Charter Flights are
subject to the mutual agreement of Pinnacle and Northwest from time to time.


 


“COMAT”
means company material, including but not limited to priority aircraft
maintenance parts.


 


3

















 


“Contracted Service
Cities” means those Service Cities at which
Pinnacle  contracts with a third party
for performance of substantially all Ground Handling Functions and for required
facilities, excluding Hub Cities.


 


 “CPPI” means the percent increase,
if any, in the PPI for finished goods published by the United States Department
of Labor, Bureau of Labor Statistics, which increase occurred during the
immediately preceding calendar year, defined as (PPI at end of prior calendar
year/PPI at end of two years prior)-1, but in no event in excess of five
percent (5%) and in no event less than zero.


 


“CPPIB”
means the percent increase, if any, in the PPI for finished goods published by
the United States Department of Labor, Bureau of Labor Statistics, defined as
(PPI at end of prior calendar year/PPI at end of 2001)-1, but in no event will
the compound annual growth rate be in excess of five percent (5%) or less than
zero.


 


“CRJ Deliveries
Report” means the report of deliveries of CRJ
Aircraft to Pinnacle to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Cycle”
means an actual takeoff at an origin city and landing at a destination city of
an Aircraft in connection with a Scheduled Flight, a Non-Scheduled Flight or a
Charter Flight.


 


“Cycle Payment”
means the payment for Cycles to be made pursuant to Section 5.02(b).


 


“Cycle Rate”
shall have the meaning ascribed to such term in Section 5.03.


 


“Cycle Report”
means the report to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Data
Communication Equipment” shall have the meaning
ascribed to such term in Section 4.04.


 


“Default”
means the occurrence of an event set forth in Section 10.02 or Section 10.03,
and the expiration of any cure period provided therein without cure or other
remedial action having occurred, permitting termination of this Agreement.


 


“Designator”
means “NW” or such other designator code selected by Northwest from time to
time in its sole discretion to identify Northwest’s own flights.


 


“Direct Costs”
means Northwest’s or Pinnacle’s, as applicable, actual cost for goods and
services without any surcharge for administrative or general overhead expenses.


 


“DOT”
means the United States Department of Transportation or any successor to its
functions with respect to the regulation of air transportation.


 


“DOT Certification”
means any and all certifications and approvals by the DOT, the FAA and other
regulatory agencies required for Pinnacle to operate the Aircraft and to
perform pursuant to the terms of this Agreement and all Governmental
Regulations.


 


4

















 


“Effective Date”
means the date specified in Section 10.01 of this Agreement.


 


“Equipment” means
the Aircraft and Spare Engines.


 


“Equipment Rental
Expense” means the Aircraft Rental Expense and the
Spare Engine Rental Expense.


 


“FAA”
means the Federal Aviation Administration or any successor organization.


 


“Facility Leases”
shall have the meaning ascribed to such term in Section 4.03(g).


 


“Fixed Cost
Payment” means the payment for fixed costs to be
made pursuant to Section 5.02(b).


 


“Fleet Value” means
the total value of the Aircraft in Pinnacle’s fleet used in calculating the
premium for Pinnacle’s hull insurance (including war risk).


 


“Fuel Burn Penalty
Payment” shall have the meaning ascribed to such
term in Section 5.05(e).


 


“Fuel Price”
shall have the meaning ascribed to such term in Section 5.05(b).


 


“GAAP”
means generally accepted accounting practice and principles at the time
prevailing in the United States for companies engaged in businesses similar to
that of Pinnacle, consistently applied.


 


“GE Agreements”
means the Engine Service Agreement between Northwest Airlines, Inc. and GE
Engine Services, Inc., dated July 17, 2001, as amended or extended by
Northwest, and the General Terms Agreement between General Electric Company and
Northwest Airlines, Inc. for CF34-3B1 Turbofan Engines and Support, dated
July 11, 2001, as amended or extended by Northwest; provided, however, any
material expansion of the scope of services to be performed under the GE Agreements
shall be subject to the reasonable approval of Pinnacle.


 


“Governmental
Regulations” means the rules and regulations
prescribed by an airport authority at a Service City or by any local, state or
federal unit of government having authority and jurisdiction to regulate the
business and affairs of an air carrier having DOT Certification, including
without limitation, the DOT and the FAA.


 


“Ground Handling
Functions” shall have the meaning ascribed to such
term in Section 4.02.


 


“Holding Company”
means, as applied to a Person, any other Person of whom such person is,
directly or indirectly, a Subsidiary.


 


“Hub Cities”
means Memphis, Tennessee (“MEM”), Minneapolis/St. Paul, Minnesota (“MSP”),
Detroit, Michigan (“DTW”) and any other city in the United States where


 


5

















 


Northwest, together with its
subsidiaries and Airlink Carriers operating under Northwest’s Designator,
operate an average of more than fifty (50) departures per day during any
Northwest Schedule Period.


 


“Identification”
means a trade name, trademark, service mark, graphic, logo, distinctive color
scheme or other trade dress, domain name and/or other identification or
indication of source or origin.


 


“IOP Payment”
means the payment for IOP Program Incidents to be made pursuant to
Section 5.02(b).


 


“IOP Program
Incident” shall mean Northwest’s request that
Pinnacle cancel one or more Scheduled Flights as a result of Northwest’s
initiation of its Irregular Operating Procedures Program.


 


“Lease”
means (i) the leases, subleases and/or sub-subleases entered into or to be
entered into pursuant to Section 3.03 in respect of the CRJ-200/440
Aircraft, (ii) the leases, subleases and/or sub-subleases entered into or to be
entered into pursuant to Section 3.03 in respect of Spare Engines,
and (iii) the leases between Pinnacle and third parties with respect to the
Saab 340 turboprop aircraft operated by Pinnacle.


 


“Maintenance
Facilities” shall have the meaning ascribed to
such term in Section 4.03(c).


 


“Maintenance
Program” shall have the meaning ascribed to such
term in the Leases.


 


“Major Carrier”
means an air carrier (other than Pinnacle and its successors and any Subsidiary
thereof or Northwest Airlines, Inc. and its successors and any Subsidiary
thereof), the annual passenger revenues of which (including its Subsidiaries’
predecessor entities) for the most recently completed fiscal year for which
audited financial statements are available are in excess of the Revenue
Threshold as of the date of determination (or the U.S. dollar equivalent
thereof).


 


“Margin”
means the operating margin determined in accordance with Sections  5.09 and 5.12.


 


“Margin Adjustment
Payment” means the payment to be made pursuant to
Sections 5.09 and 5.12.


 


“Margin Payment”
means the payment to be made pursuant to Sections 5.08  and 5.11.


 


“Market Margin
Rate” or “MMR” means the weighted (by revenue)
average full year operating margin of the five largest (by revenue) publicly
traded U.S. domestic regional airlines operating primarily regional jet
aircraft; provided, however, that if the result of this calculation is greater
than 14 percent, the MMR shall be 14 percent, and if the result is less than 10
percent, the MMR shall be 10 percent. 
The MMR shall be initially calculated with respect to


 


6

















 


calendar year 2008 and it shall
be re-calculated with respect to each fifth year thereafter so long as this
Agreement remains in effect.


 


“Mesaba”
means Mesaba Aviation, Inc., a Minnesota corporation, and/or Mesaba Holdings,
Inc., a Minnesota corporation, and their respective successors and/or assigns.


 


“Non-Scheduled
Flights” means all flights using the Aircraft
which are not Scheduled Flights or Charter Flights.


 


“Northwest
Schedule Period” means the planned duration
of various time periods for which Northwest’s flight schedule is for sale
in computer reservation systems.


 


“Northwest Service
Cities” means those Service Cities at which
Northwest employees perform substantially all Ground Handling Functions and
Northwest provides required facilities.


 


“Northwest Tickets”
shall have the meaning ascribed to such term in Section 4.07(a).


 


“NW Identification”
means any Identification specifically selected by Northwest from time to time
in its sole discretion for use by Pinnacle in connection with the Regional
Airline Services (including without limitation “Northwest Airlink” or any
similar name).


 


“Option Term”
means (i) a period of six (6) months following the date of termination if this
Agreement is terminated by Northwest pursuant to Section 10.02 or Section 10.03;
or (ii) a period of thirty (30) days following the date of termination if this
Agreement is terminated by Northwest pursuant to Section 10.01.


 


“Performance
Criteria” shall have the meaning ascribed to such
term in Section 5.14(a).


 


“Performance
Period” means each six (6) month period ending on
a June 30 or December 31 occurring during the term of this Agreement.


 


“Person”
means an individual, partnership, corporation, business trust, joint stock
company, limited liability company, unincorporated association, joint venture
or other entity of whatever nature.


 


“Pinnacle Affected
Company” means (a) Pinnacle and its successor, (b)
any Holding Company of Pinnacle, or (c) any Subsidiary of Pinnacle or its
successor or of any Holding Company of Pinnacle, that in each such case owns,
directly or indirectly, all or substantially all of the Airline Assets of
Pinnacle or its successor, such Holding Companies of Pinnacle and such
Subsidiaries, taken as a whole.


 


“Pinnacle Change
of Control” means:


 


(i)                                     the acquisition by
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) of


 


7

















 


Beneficial Ownership of 20% or more of the Capital Stock or Voting
Power of a Pinnacle Affected Company; or


 


(ii)                                  the direct or
indirect acquisition by a Major Carrier, any of its Affiliates or any
combination thereof of Beneficial Ownership of 10% or more of the Capital Stock
or Voting Power of a Pinnacle Affected Company.


 


“Pinnacle
Identification” means any Identification selected
by Pinnacle from time to time for use in connection with the business of
Pinnacle.


 


“Pinnacle Service
Cities” means those Service Cities at which
Pinnacle employees perform substantially all Ground Handling Functions and
Pinnacle provides required facilities.


 


“PPI”
means Producer Price Index for finished goods published by the United States
Department of Labor, Bureau of Labor Statistics, and, if no longer published,
any comparable successor index selected by Northwest.


 


“QECs”
mean quick engine change kits.


 


“Regional Airline
Services” means the provisioning by Pinnacle to
Northwest of Scheduled Flights and Charter Flights using the Aircraft in
accordance with this Agreement.


 


“Renewal Term”
shall have the meaning ascribed to such term in Section 10.01.


 


“Revenue Passenger”
means a revenue passenger flown on a Scheduled Flight or a Charter Flight.


 


“Revenue Threshold”
means five hundred million dollars ($500,000,000), as such amount may be
increased based on the amount by which, for any date of determination, the most
recently published Consumer Price Index for all-urban consumers published by
the Department of Labor (the “CPI”) has increased to such date above the CPI
for calendar year 2001.  For purposes
hereof, the CPI for calendar year 2001 is the monthly average of the CPI for
the 12 months ending on December 31, 2001.


 


“Saab Lease”
means the leases and/or subleases entered into in respect of the twenty-four
(24) Saab 340 turboprop aircraft in Pinnacle’s fleet as of the Effective Date.


 


“Scheduled Flights”
means revenue passenger flights (other than Charter Flights) using the Aircraft
which, regardless of frequency, are held out to the public and published in the
customary and applicable schedule distribution systems, such as the
Official Airline Guide, or published by Northwest in its own system
timetables.  In addition, Scheduled
Flights shall include all regularly scheduled flights which are not revenue
passenger flights as determined by Northwest in its sole discretion.


 


“Section 5.05
Report” means the report of Section 5.05
expenses to be prepared by Pinnacle pursuant to Section 5.02(a).


 


8

















 


“Section 5.06
Report” means the report of Section 5.06
expenses to be prepared by Pinnacle pursuant to Section 5.02(a).


 


“Service Cities”
means those cities identified from time to time by Northwest to which Pinnacle
shall provide Regional Airline Services.


 


“Spare Engine
Rental Expense” means the Basic Rent charged in
the Leases between Northwest and Pinnacle for the Spare Engines.


 


“Spare Engines”
means (i) the three (3) General Electric CF34-3B1 spare engines (including QECs
where applicable in accordance with the respective Spare Engine Lease) in
Pinnacle’s fleet as of the Effective Date, (ii) the three (3) additional
CF34-3B1 spare engines (including QECs where applicable in accordance with the
respective Spare Engine Lease) when and as such spare engines are added to
Pinnacle’s fleet pursuant to Section 3.02; and (iii) additional
CF34-3B1 spare engines (including QECs where applicable in accordance with the
respective Spare Engine Lease) when, as and if such spare engines are added to
Pinnacle’s fleet pursuant to Section 3.02.  Any Spare Engine removed from Pinnacle’s
fleet ceases to be a “Spare Engine” hereunder upon the date of such removal.


 


“Subsidiary”
of any Person means any corporation, association, partnership, joint venture,
limited liability company or other business entity of which more than 40% of
the total Voting Power thereof or the Capital Stock thereof is at the time
Beneficially Owned or controlled, directly or indirectly by (1) such Person,
(2) such Person and one or more Subsidiaries of such Person, or (3) one or more
Subsidiaries of such Person.


 


“Support
Agreements” shall have the meaning ascribed to
such term in Section 3.08.


 


“Termination Date”
means the date on which this Agreement terminates pursuant to Article X.


 


“Ticket Taxes and
Fees” means any taxes pursuant to Sections 4261 or
4271 of the U.S. Internal Revenue Code of 1986, as amended or succeeded, on any
amounts paid by customers for transportation of persons or packages by air, and
any passenger facility charges, airport improvement fees, security fees or
charges, stamp taxes, excise taxes, value-added taxes (in the nature of a sales
or use tax), gross receipts taxes (in the nature of a sales or use tax), U.S.
APHIS user fees, U.S. Customs user fees, U.S. Immigration user fees, and any
other taxes and/or user fees imposed by any domestic or foreign governmental
entity, airport or taxing authority on a per-passenger basis on any amounts
paid by customers for transportation of persons or packages by air.


 


“Ticketing
Services” means the ticketing services to be
performed pursuant to Section 4.07.


 


“Total Operating
Cost” means all expenses directly associated with
the provision of Regional Airline Services under this Agreement, including but
not limited to those generally recognized as overhead, determined in accordance
with GAAP.  For the avoidance of


 


9

















 


doubt, Total Operating Cost
does not include net interest expense and those items that are classified as
extraordinary on the audited financial statements.


 


“Total Operating
Income” means Total Operating Revenue minus Total
Operating Cost.


 


“Total Operating
Revenue” means the amounts Pinnacle receives from
Northwest pursuant to Section 5.02 or Section 5.14
(including penalties accounted for as a reduction to revenue) of this
Agreement, plus any revenues Pinnacle receives as a result of performing ground
handling services for Mesaba or other airlines (as and if approved by
Northwest), plus any payments Pinnacle receives from a governmental entity
intended to reimburse Pinnacle for lost revenue, an inability to cover incurred
operating expenses, or as a reimbursement or offset to incurred expenses.


 


“Traffic Referral”
shall have the meaning ascribed to such term in Section 4.07(e).


 


“Traffic Manifest”
shall have the meaning ascribed to such term in Section 4.09(a).


 


“Voting Power”
means, as of the date of determination, the voting power in the general
election of directors, managers or trustees, as applicable.


 


ARTICLE II


 


PROVISION OF
REGIONAL AIRLINE SERVICES


 


Section 2.01     Operation
of Scheduled Flights. 
Subject to the terms and conditions of this Agreement, Pinnacle shall
use the Aircraft to operate Scheduled Flights and Charter Flights as shall be
designated by Northwest from time to time in Northwest’s sole discretion.  All schedules and aircraft routing for such
Scheduled Flights and all utilization of the Aircraft shall be determined by
Northwest from time to time, in its sole discretion, subject to the reasonable
operating constraints of Pinnacle taking into consideration reasonable
maintenance, crew training and Aircraft rotation requirements.  Scheduled block times shall be set in
accordance with Northwest’s standards unless otherwise mutually agreed by
Northwest and Pinnacle.  Minimum turn
times shall be mutually agreed to by Pinnacle and Northwest and set in
conformity with standard industry practices and Aircraft type.


 


Section 2.02     Use
of Designator, NW Identification and Related Matters.  Subject to the applicable provisions of
Article VII below, Pinnacle shall operate the Scheduled Flights and
Charter Flights provided under this Agreement using the Designator.  The Scheduled Flights and Charter Flights
shall be identified by Pinnacle solely with flight numbers assigned by
Northwest.  Subject to the applicable
provisions of Article VII below, Pinnacle shall use only the NW
Identification for the Aircraft (except as otherwise required by Governmental
Regulations), and for all facilities (including Maintenance Facilities),
signage, equipment, uniforms and advertising, promotional and business
materials in any form or media that are used in connection


 


10

















 


with the Regional Airline
Services; provided, however, all Pinnacle uniforms (including the use of the NW
Identification thereon) shall be determined by Northwest, provided that such
uniforms shall at all times be consistent with Northwest’s existing uniform
standards.  Pinnacle shall not use the Pinnacle
Identification for the Aircraft (except as required by Governmental
Regulation), facilities (including Maintenance Facilities), signage, equipment,
uniforms or advertising, promotional or business materials in any form or media
that are used in connection with the Regional Airline Services; provided,
however, nothing in the foregoing prohibition shall preclude Pinnacle from
using the Pinnacle Identification for general corporate purposes, investor
relations, on crew wings and employee service pins, and for purposes that are
not covered by the foregoing prohibition and do not involve interaction with
customers or passengers.


 


Section 2.03     Use
of Other Designators. 
Pinnacle shall not use on the Aircraft the airline designator,
Identification, or any other identifying feature of a foreign or United States
airline other than Northwest, without the express prior written consent of
Northwest, or unless Northwest directs Pinnacle to use such other designator,
Identification, or identifying feature.


 


Section 2.04     Personnel
and Dispatch Control. 
Pinnacle shall be responsible for providing all crews (flight and cabin)
to operate the Scheduled Flights and any Charter Flights and for all aspects
(personnel and other) of dispatch control, including but not limited to load
control.


 


Section 2.05     Inventory
Management.  Northwest
shall have  complete control over all
inventory management functions for all Scheduled Flights and Charter Flights
operated pursuant to this Agreement, including, without limitation, overbooking
levels, discount seat levels, and allocation of seats among the various fare
buckets.   In performing Pinnacle’s
inventory management, Northwest shall conform in all material respects to its
own procedures and standards, taking into account the type of Aircraft operated
by Pinnacle.


 


Section 2.06     Passenger
Fares.  Northwest shall
be the sole authority for filing tariffs for Scheduled Flights operated
pursuant to this Agreement, and Northwest shall establish all passenger fares
for Scheduled Flights and Charter Flights operated pursuant to this
Agreement.  All charges for filing of
fares or tariffs for Scheduled Flights operated pursuant to this Agreement
shall be paid by Northwest.


 


Section 2.07     DOT
Certification.  Pinnacle
has and shall maintain DOT Certification and all other permits, licenses,
certificates and insurance required by governmental authorities and
Article IX hereof to enable Pinnacle to perform the services required by
this Agreement.


 


Section 2.08     Compliance
With Governmental Regulations. 
All flight operations, dispatch operations and flights and all other
operations undertaken by Pinnacle pursuant to this Agreement shall be conducted
and operated by Pinnacle in strict compliance with all Governmental Regulations,
including, without limitation, those relating to airport security, the use and
transportation of hazardous materials, flight crew and mechanic qualifications
and licensing requirements, crew training and hours.  All Equipment shall be operated and maintained by Pinnacle in
strict compliance with all Governmental Regulations, Pinnacle’s own operations
manuals and maintenance manuals and procedures, and all applicable


 


11

















 


equipment manufacturer’s
instructions.  At all times, Pinnacle
shall operate with the highest standards of care.


 


Section 2.09     Quality
of Service.  Northwest
policies, procedures, performance standards (including but not limited to
Northwest’s “Customers First” customer service plan) and means of measurement
thereof concerning the provision of air passenger and air cargo services shall
be applicable to all services provided by Pinnacle under this Agreement.  Pinnacle shall achieve at least the same
quality of airline service provided by Northwest, subject to limitations
imposed by the type of Aircraft used by Pinnacle, its route network, the
availability of equipment and facilities at the Service Cities and the
performance by Northwest of its obligations under this Agreement.  Pinnacle shall maintain adequate staffing
levels to ensure at least the same level of customer service and operational
efficiency that Northwest achieves; Pinnacle shall cooperate with Northwest in
any way necessary or desirable to provide such comparable level of customer
service in connection with the operation of Regional Airline Services; and
Pinnacle shall maintain new hire and recurrent training programs for all job
descriptions which are reasonably acceptable to Northwest.


 


Section 2.10     Service
Standards.  Without
limiting Section 2.09, Pinnacle shall achieve the following
specific performance standards.


 


(a)                                  Minimum
Completion Factor.  Pinnacle shall
achieve not less than a [***] completion factor for all Scheduled Flights which
are scheduled to be operated by Pinnacle during each Performance Period.  Scheduled Flights which are cancelled at
Northwest’s request will not be included in calculating Pinnacle’s completion
factor, and station overflys due to no passenger load will not be considered a
cancellation.


 


(b)                                 Minimum
On-Time Reliability.  Pinnacle shall
achieve a [***] on-time arrival [***] factor and a [***] on-time departure
[***] factor for all Scheduled Flights which are scheduled to be operated by
Pinnacle during each Performance Period. 
Scheduled Flights which are delayed at Northwest’s request will not be
included in calculating Pinnacle’s on-time arrival and on-time departure
factors.


 


(c)                                  Mishandled
Luggage Factor.  The number of
incidents of mishandled luggage by Pinnacle shall not exceed [***] enplaned
revenue passengers during any Performance Period.  The number of incidences of mishandled luggage shall be
determined by Northwest by dividing (i) the total number of
Pinnacle-caused claims at Pinnacle Service Cities, Northwest Service Cities,
Contracted Service Cities and the Hub Cities during the applicable Performance
Period, by (ii) the total number of enplaned revenue passengers during
such Performance Period as reported by Northwest.  Notwithstanding the foregoing, the parties agree that incidents
of mishandled luggage where (i) DTW is the responsible station, and (ii) such
incidents are not due to Pinnacle’s actions, will not be included in the
mishandled luggage factor unless and until Pinnacle performs luggage handling
for its Scheduled Flights at DTW.  In
the event incidents of mishandled luggage at DTW are excluded from the
mishandled luggage factor pursuant to the preceding sentence, the number of
enplaned revenue passengers at DTW during the corresponding time period will
also be excluded from the mishandled luggage factor, and no penalties or
incentives will be applicable as to such passengers.  The parties further agree that mishandled luggage at MSP will not
be included in the mishandled luggage factor in the event


 


12

















 


Mesaba fails to perform luggage
handling in accordance with Pinnacle’s requirements and Northwest is unable to
make sufficient space available at MSP to allow Pinnacle to perform luggage
handling for its Scheduled Flights or make other mutually satisfactory luggage
handling arrangements.  In the event
incidents of mishandled luggage at MSP are excluded from the mishandled luggage
factor pursuant to the preceding sentence, the number of enplaned revenue
passengers at MSP during the corresponding time period will also be excluded
from the mishandled luggage factor, and no penalties or incentives will be
applicable as to such passengers.


 


(d)                                 Customer
Complaints Factor.  The number of
customer complaints received by Northwest in respect of Regional Airline
Services shall not exceed [***] enplaned revenue passengers during any
Performance Period.  The number of
customer complaints shall be determined by Northwest by dividing (i) the total
number of Pinnacle -caused complaints during the applicable Performance Period,
by (ii) the total number of enplaned revenue passengers during such
Performance Period as reported by Northwest.


 


Section 2.11     Service Recovery


 


(a)                                  Passenger
Amenities.  Pinnacle agrees to
provide passenger amenities, including, without limitation, denied boarding
compensation, which Northwest provides under Rule 245 of the Domestic General
Rules No. 1 issued by Airline Tariff Publishing Co. and ATA Resolution No.
120.20 or pursuant to any similar contractual arrangement now existing or
hereafter in effect or applicable to Northwest.  In any Pinnacle Service City, Contracted Service City or Hub
City, Pinnacle agrees (i) to handle oversold Scheduled Flights and the payment
of denied boarding compensation in accordance with Northwest’s standard
policies and procedures, (ii) to pay the full cost of providing passenger
amenities with the exception of denied boarding compensation resulting from
inventory oversales or other actions of Northwest, and (iii) to report all denied
boarding data to Northwest via both the standard Northwest Ticket Agent Report
(“TAR”) and the standard Northwest Yield Management Flight Close-Out Denied
Boarding Mask (“MASK”).  In any Pinnacle
Service City, Contracted Service City or Hub City, for denied boarding
compensation resulting from inventory oversales or the actions of Northwest,
Pinnacle will pay the appropriate amount of denied boarding compensation to the
affected passengers and will invoice Northwest for such amount pursuant to Section 5.07
below.  Any such invoice will include
sufficient detail and supporting documentation to allow Northwest to verify the
invoiced amount.  Notwithstanding the
foregoing, Pinnacle shall be responsible for any discrepancy between the TAR
and the MASK, and Northwest will invoice Pinnacle for any amounts due based on
reconciliation of those two reports.  In
Northwest Service Cities, Northwest will provide all passenger amenities,
including but not limited to baggage delivery, at its sole cost.


 


(b)                                 Destination
by other Means.  If Pinnacle
transports a revenue passenger to his or her destination by another means (bus,
train, taxi, etc.) due to a flight cancellation, Northwest shall reimburse
Pinnacle for the actual transportation costs incurred to transport the
passenger by such other means; provided, however, that if the flight
cancellation is necessitated by acts of Pinnacle (e.g., crew curfews,
maintenance-related delays, etc.), Pinnacle will pay the costs incurred to
transport the passenger by such other means. 
Pinnacle shall use its best efforts to minimize the transportation of
passengers by other means and the costs associated therewith.


 


13

















 


Section 2.12     Annual
Operating Plan.  At least
90 days prior to January 1 of each year during the term of this Agreement,
Pinnacle and Northwest shall confer and prepare an operating plan for the
succeeding calendar year, which plan shall include (i) Northwest’s forecast
with respect to the schedule and routing for all Scheduled Flights for
such year, (ii) Northwest’s forecast of the Service Cities to which Pinnacle
shall operate Regional Airline Services, (iii) Northwest’s forecast of specific
dates for the commencement of service to new Service Cities, if any, (iv) Northwest’s
forecast of the number of Aircraft to be added to or removed from Pinnacle’s
fleet (subject to Section 3.02), and (v) such other matters as
Northwest and Pinnacle shall determine (as amended in accordance with this Section 2.12,
the “Annual Operating Plan”).  Northwest
and Pinnacle shall meet and confer on a quarterly basis (or more frequently if
requested by either Northwest or Pinnacle) to review the implementation of the
Annual Operating Plan and to discuss any changes to the Annual Operating
Plan.  In the event Northwest elects to
alter the Annual Operating Plan during the course of a year, Northwest shall
use its reasonable best efforts to provide at least sixty (60) days prior
notice to Pinnacle.  Notwithstanding the
foregoing provisions of Section 2.12, Northwest shall promptly
notify Pinnacle of any determination by Northwest to increase or decrease
Pinnacle’s fleet size, and, except as provided in Section 3.02(a)(ii)
and Section 3.02 (a)(iii) below, Northwest shall give Pinnacle no
less than ninety (90) days prior notice. 
Northwest agrees that any substantial increases in Pinnacle’s fleet size
pursuant to the preceding sentence are subject to Pinnacle’s reasonable
operating constraints.


 


Section 2.13     Inflight
Food, Beverages and Supplies. 
Unless otherwise mutually agreed, Pinnacle will provide Aircraft
catering services, food and beverages for passengers and crews on Scheduled
Flights in accordance with Northwest’s specifications and directions and at
Pinnacle’s sole cost.  Pinnacle shall be
solely responsible for maintaining all licenses necessary for the serving of
inflight food and beverages on Scheduled Flights.  Northwest shall furnish Pinnacle, at Northwest’s sole cost,
adequate supplies of its customary inflight supplies including, but not limited
to, the Northwest inflight magazine, cups, napkins, pillows, blankets, trash
bags, sick sacks, lavatory supplies, creamers, swizzle sticks and sugar in a
form similar or identical to that used by Northwest.  Notwithstanding anything to the contrary in this Agreement,
Northwest may, at its option, require Pinnacle upon ninety (90) days prior
written notice to utilize Northwest or a Northwest-designated contract agent to
provide catering services, food and beverages for passengers and crews on
Scheduled Flights, provided that (i) the Block Hour Rates set forth in Section 5.03
below are adjusted as necessary to eliminate the costs of catering services,
food and beverages that were included in establishing the Block Hour Rates, and
the Direct Costs to Pinnacle of the new arrangement will be reimbursed pursuant
to Section 5.06 below, and (ii) the service standards applicable to any
such Northwest-designated contract agent are either reasonably satisfactory to
Pinnacle or no less stringent than the standards applicable to Northwest’s own
operations.


 


Section 2.14     Exclusivity
Arrangements.  During the
term of this Agreement, neither Pinnacle nor any Affiliate of Pinnacle shall
operate any flights to or from the Hub Cities using its own airline code or the
airline code, logo, or any other identifying feature of a foreign or United
States airline (other than Northwest) without the express prior written consent
of Northwest.  Nothing in this Agreement
shall preclude Northwest from (i) entering into code share, alliance or other
commercial cooperation arrangements with any other airline, or (ii) entering
into similar or other arrangements with other carriers for the provisioning of
regional


 


14

















 


airline services using Canadair
Regional Jets, turboprop aircraft or any other aircraft to or from the Hub
Cities, the same Service Cities or elsewhere.


 


ARTICLE III




EQUIPMENT


 


Section 3.01     Use
of the Equipment. 
Pinnacle agrees (a) that the Equipment shall be used only to provide
and/or support the Regional Airline Services contemplated by this Agreement,
(b) that the Equipment shall not be used by Pinnacle for any other purpose
without the prior written consent of Northwest, and (c) that Pinnacle shall not
acquire, lease or operate any aircraft or spare engines other than the Aircraft
and Spare Engines.


 


Section 3.02
    Fleet Size and Related
Matters.


 


(a)                                  Determination
of Fleet Size.  As of the Effective
Date, Pinnacle’s fleet consisted of twenty (20) Saab 340 turboprop aircraft,
thirty-four (34) CRJ-200/440 Canadair Regional Jet aircraft and three (3) Spare
Engines.


 


(i)                                     Equipment
Additions.  Northwest and Pinnacle
agree that subject to Bombardier continuing to provide Northwest with financing
for the Equipment and delivering Canadair Regional Jet Aircraft to Northwest as
scheduled as of the Effective Date, (A) an additional sixty-one (61)
CRJ-200/440 Canadair Regional Jet Aircraft shall be added to Pinnacle’s fleet
on or before December 31, 2004, (B) five (5) Spare Engines shall be added
to Pinnacle’s fleet on or before December 31, 2004 (C) Northwest shall
have the right to cause from time to time up to an additional two hundred  nine ( 209) CRJ-200/440 Canadair Regional
Jet Aircraft to be added to Pinnacle’s fleet, and (E) Northwest shall have the
right to cause from time to time up to an additional  twenty-six (26) Spare Engines to be added to Pinnacle’s fleet.


 


(ii)                                  Equipment Removal
Rights.  Northwest and Pinnacle
agree that (A) Northwest shall have the right from time to time to cause
Pinnacle to assign the Saab Leases to Northwest (or its designee) or to
sublease to Northwest (or its designee) any or all of the Saab 340 Aircraft;
and (B) from and after that time when Pinnacle has more than  ninety-five (95) CRJ-200/440 Aircraft,
Northwest shall have the right upon at least ninety (90) days prior written
notice to require the removal of CRJ-200/440 Aircraft and related Spare Engines
selected by Northwest from Pinnacle’s fleet provided that at no time shall the
number of such Aircraft and Spare Engines removed pursuant to this Section 3.02(a)(ii)(B)
cause the number of Aircraft in Pinnacle’s fleet to be less than ninety-five
(95) or cause the number of Spare Engines in Pinnacle’s fleet to be less
than  eight (8).


 


(iii)                               Additional Equipment
Removal Rights.  Notwithstanding Section 3.02(a)(ii)(B),
in the event of (A) a labor action or other event giving rise to Northwest’s
right to terminate this Agreement pursuant to Section 10.03(e) and
(B) Northwest has not yet exercised its termination rights, (1) Northwest shall
have the right to terminate Leases


 


15

















 


for, and take immediate possession of, up to forty-five (45) CRJ
200/440 Aircraft and related Spare Engines selected by Northwest, and (2) if
the labor action or other event continues beyond 45 days Northwest shall have
the right to select and terminate Leases for, and take immediate possession of,
up to that number of CRJ 200/440 Aircraft in excess of fifty (50) and the
related Spare Engines.


 


(iv)                              Fleet Continuation
Option.  In the event Northwest
terminates this Agreement on February 29, 2012 pursuant to Section 10.01
below, Pinnacle shall have the option to retain ninety-five (95) Aircraft and
eight (8) Spare Engines in its fleet until February 28, 2017; provided,
however, that in order to exercise this option Pinnacle must provide Northwest
written notice on or before February 28, 2011 of its intent to exercise
the option, and further provided that if the number of Aircraft and Spare
Engines in Pinnacle’s fleet as of February 29, 2012 is less than
ninety-five (95) Aircraft and eight (8) Spare Engines, this option shall only
be applicable as to the number of Aircraft and Spare Engines in Pinnacle’s fleet
as of February 29, 2012.  In the
event Pinnacle exercises this option, (A) Northwest and Pinnacle shall enter
into new Leases for the retained Aircraft, 
provided that Northwest may require Pinnacle to establish maintenance
reserves in accordance with the terms set forth in the form of Lease attached
and that the Aircraft Rental Expense for each such Aircraft shall be the
greater of fair market rental or [***] per Aircraft per month, (B) Northwest
and Pinnacle shall enter into new Leases for the retained Spare Engines,
provided that Northwest may require Pinnacle to establish maintenance reserves
in accordance with the terms set forth in the form of Lease attached and the
Spare Engine Rental Expense for each such Spare Engine shall be the greater of
the fair market rental or the then-existing Spare Engine Rental Expense for
such Spare Engine, and (C) the retained Aircraft shall be re-painted as soon as
possible after the Termination Date at Pinnacle’s sole expense to remove all NW
Identification from the Aircraft, including but not limited to re-painting the
red tails of the Aircraft.


 


(v)                                 Unscheduled
Aircraft.  Subject to Pinnacle’s
approval, which shall not be unreasonably withheld, Northwest shall determine
the appropriate level of unscheduled Aircraft to be included in Pinnacle’s
fleet from time to time.


 


(vi)                              Spare Engine
Requirements.  Subject to
Section 3.02(a)(i) above, Northwest and Pinnacle shall mutually determine
the appropriate quantity of Spare Engines to be included in Pinnacle’s fleet
from time to time.


 


(b)                                 Induction
and Termination Costs.  All one-time
expenses which are associated with inducting Equipment shall be paid one
hundred percent (100%) by Pinnacle.  All
return costs and expenses associated with the return of Equipment shall be paid
one hundred percent (100%) by Pinnacle without reimbursement by Northwest;
provided, however, in the event Northwest exercises its Equipment removal
rights pursuant to Section 3.02(a)(ii)(B) above, Pinnacle shall not
be required to meet the return conditions in the Leases for the Aircraft and
Spare Engines that are thus removed from Pinnacle’s fleet unless Northwest
intends to return such Equipment to the lessor under the Leases.


 


(c)                                  Aircraft
Re-certification.  Northwest may, at
its sole option, direct Pinnacle to take such actions as are necessary to cause
44-seat Aircraft to be re-certificated as


 


16

















 


50-seat Aircraft or to take such actions as
are necessary to cause 50-seat Aircraft to be re-certificated as 44-seat
Aircraft and all Direct Costs which are associated with such Aircraft
re-certifications shall be paid one hundred percent (100%) by Northwest.  Any such Aircraft re-certifications will be
accomplished within a mutually agreed time frame, but in any event within sixty
(60) days unless otherwise directed by Northwest.


 


Section 3.03     Lease
of the Equipment.  As of
the Effective Date, Pinnacle and Northwest (and/or an Affiliate of Northwest)
have entered into Leases with respect to the thirty-four (34) CRJ-200/440
Aircraft and three (3) Spare Engines in Pinnacle’s fleet and agree to enter
into (or, as to Northwest, Northwest agrees to cause such affiliate as
Northwest may designate to enter into) a Lease with respect to each additional
CRJ-200/440 Aircraft and each additional Spare Engine added to Pinnacle’s fleet
when and as Northwest takes delivery of such additional Equipment if Northwest
has determined to use such Equipment for Regional Airline Services pursuant to
this Agreement.


 


Section 3.04     Terms
of the Leases.  Each
Lease for the CRJ-200/440 Aircraft and the Spare Engines shall be on a mutually
agreed upon form, and, subject to Section 3.02 (a)(iv) above, shall
include the following terms:


 


(a)                                  the
term of each Lease shall be for a period ending on the Termination Date;
provided, however, no Lease shall be for a term longer than the term of the
related head lease, if any;


 


(b)                                 the
rent for Aircraft shall equal the Aircraft Rental Expense and shall be payable
monthly in advance;


 


(c)                                  the
rent for Spare Engines shall equal the Spare Engine Rental Expense and shall be
payable monthly in advance; and


 


(d)                                 the
Leases shall include such terms as are necessary to conform provisions of the
Leases to the head lease and to any ancillary documents actually entered into
by Northwest or its affiliate in connection with such Equipment (to the extent
Northwest requests conformation).


 


Section 3.05     Manufacturer
Benefits Agreement. 
Northwest and Pinnacle have concurrently entered into a Manufacturer
Benefits Agreement.


 


Section 3.06     Equipment
Maintenance, Servicing and Cleaning.  Pinnacle shall be responsible for all aspects of the maintenance
in accordance with the Maintenance Program (including any maintenance or
modifications required by FAA airworthiness directives and all routine and
non-routine maintenance), servicing and cleaning of the Equipment (except for
ground handling as specified in Section 4.02); provided, however,
that with respect to the Canadair Regional Jet Aircraft and Spare Engines, Pinnacle
shall utilize General Electric for all major shop-level engine maintenance and
shall utilize Bombardier for heavy airframe maintenance in accordance with the
GE Agreements and the Bombardier Agreement. 
In the event Pinnacle is or becomes a party to such Agreements, Pinnacle
shall not execute any amendment or side letter to any of those Agreements
without Northwest’s prior written consent.


 


17

















 


In the event spare engine
and/or spare parts pooling agreements are established for Airlink Carriers,
Pinnacle will participate in such agreements so long as such agreements
reasonably address Pinnacle’s inventory needs, logistics requirements and
configuration concerns.  In the event
Northwest enters into agreements for auxiliary power unit (APU) maintenance,
avionics maintenance and/or landing gear overhauls with respect to the
Aircraft, Pinnacle shall utilize the vendors in such agreements for such
services; provided, however, Pinnacle’s utilization of such vendors shall be
subject to (i) termination of Pinnacle’s existing vendor contracts, if any, and
Northwest’s payment of any early termination penalties imposed pursuant to
Pinnacle’s contracts and (ii) reasonably satisfactory arrangements in respect
of Pinnacle’s operational requirements.


 


Section 3.07     Third
Party Guarantees and Warranties.  Pinnacle shall administer, track and pursue warranty and guaranty
claims under the purchase, support and service agreements for the Equipment, so
as to minimize operating costs for the Equipment.  Such efforts shall include establishment of all systems and
procedures necessary to track and submit warranty and guaranty claims,
including providing reports and information required to be provided under the
purchase, support or services agreement. 
Pinnacle shall not operate or maintain the Equipment in a manner that
could result in any warranty or guaranty being terminated or voided, without
the prior written consent of Northwest.


 


Section 3.08     Related
Transfer Arrangements.


 


(a)  All leases and subleases of ground support
equipment, tooling and spare parts inventory agreements and vendor and/or
maintenance agreements with respect to the Equipment (collectively “Support
Agreements”) entered into by Pinnacle after the Effective Date shall be
assignable to Northwest without the consent of the other party to such Support
Agreement on termination of this Agreement. 
Pinnacle shall, at Northwest’s option, assign such Support Agreements as
Northwest shall designate to Northwest on termination of this Agreement.  Pinnacle shall use its best efforts to
obtain the consent of the other party to any such Support Agreements in effect
as of the Effective Date and, subject to obtaining such consents, if necessary,
shall, at Northwest’s option, assign such Support Agreements as Northwest shall
designate to Northwest on termination of this Agreement.  On termination of this Agreement and during
the Option Term, Northwest shall have the option to purchase from Pinnacle all
ground support equipment, tooling and spare parts inventory then owned by
Pinnacle which are used with or related to the Equipment for an amount equal to
such assets’ then fair market value or depreciated book value, whichever is
less.  In the event Northwest invokes
its Equipment removal rights hereunder, on the Equipment removal date and for a
period of thirty (30) days thereafter, Northwest shall have the option to
purchase from Pinnacle all ground support equipment, tooling and spare parts
inventory then owned by Pinnacle which are used with or related to the
returning Equipment for an amount equal to such assets’ then fair market value
or depreciated book value, whichever is less.


 


(b)                                 Support
Agreement Continuation Option. 
Notwithstanding Section 3.08(a) above, in the event Pinnacle
exercises its fleet continuation option in Section 3.02(a)(iv) above,
Pinnacle may continue in effect the Support Agreements reasonably required to
support the retained Aircraft and Spare Engines until the earlier of the
expiration date for the Support Agreement and February 28, 2017.  In such circumstances, (i) Pinnacle shall,
at Northwest’s option, assign such retained Support Agreements as Northwest
shall designate to Northwest on


 


18

















 


February 28, 2017, and
(ii) on February 28, 2017 and for a period of thirty (30) days thereafter,
Northwest shall have the option to purchase from Pinnacle all ground support
equipment, tooling and spare parts inventory then owned by Pinnacle which are
used with or related to the Aircraft and/or Spare Engines for an amount equal
to such assets’ then fair market value or depreciated book value, whichever is
less.


 


Section 3.09     Equipment
Financing Coordination.


 


Pinnacle shall
coordinate and cooperate with Northwest with respect to Equipment sale,
purchase and lease transactions.  Such
coordination and cooperation shall include, but is not limited to, cooperating
with Northwest in structuring the closing of Equipment sale, purchase or lease
transactions in a manner that will minimize the imposition of any local, city,
county, state, provincial, federal or foreign taxes or other governmental
transfer charges related to such transactions, providing Northwest with
financial information (audited and unaudited) that Northwest may then provide
to third parties, assisting in raising capital through the sale of either debt
and/or equity in connection with the financing or leasing of the Equipment
where and as requested by Northwest (including but not limited to participating
in meeting with the manufacturer, potential investors and sources of financing
or lease equity to discuss Pinnacle’s financial and operational performance and
outlook), and full cooperation in meeting appropriate return conditions of the
Equipment upon expiration of the Equipment’s Lease.


 


Section 3.10     Spare
Parts Inventory; Application of Credits.  Northwest may, at its option, purchase spare
parts inventory items designated by Northwest from Bombardier or other third
parties and either sell such parts to Pinnacle at Northwest’s Direct Cost or
lease such parts to Pinnacle.  Terms of
the spare parts lease agreement, including but not limited to, administration
of inventory, scope of inventory purchase and lease conditions, will be
mutually agreed.  Northwest may, at its
option, require Pinnacle to purchase spare parts or inventory from Bombardier
or other designated third parties.  In
addition, Northwest may, at its option, require Pinnacle to purchase from
Northwest, manufacturer, supplier or servicer credits obtained from third
parties at the face value of the credits. 
However, in no event shall Pinnacle be required to purchase credits from
Northwest that Pinnacle cannot utilize within 180 days of the date of purchase
from Northwest.


 


ARTICLE IV


 


ANCILLARY
ARRANGEMENTS


 


Section 4.01     Coordination
with Pinnacle.


 


(a)                                  Schedules
and Timetables.  Northwest shall
file and maintain schedules with all applicable schedule distribution
systems for all Scheduled Flights, and such schedules shall be filed and
maintained by Northwest together with the schedules for its flights.  Northwest shall include and list all
Scheduled Flights providing Regional Airline Services in the
schedule publication program of Northwest.  Northwest shall, at its expense and sole discretion, furnish to
Pinnacle an adequate supply of current printed Northwest timetables and
contracts of carriage consistent with Governmental Regulations and Northwest’s
timetable publication program.


 


19

















 


Northwest shall include
Scheduled Flights operated by Pinnacle in all appropriate flight information
systems on which Northwest flights are listed.


 


(b)                                 Travel
Privileges.  Northwest and Pinnacle
shall mutually agree upon the travel privileges which each shall make available
to the employees and directors of the other.


 


(c)                                  United
States Weather Bureau Information. 
Upon request of Pinnacle or its flight crews, Northwest shall at its
sole cost furnish Pinnacle such United States Weather Bureau information or
data as may be available to Northwest pursuant to a separate written agreement;
provided, however, that neither Northwest nor its employees will be responsible
or liable for the accuracy thereof.  So
long as Northwest shall maintain its communications link with the National
Weather Service, Northwest shall provide the necessary communications to permit
Pinnacle to continue providing weather data to the National Weather
Service.  Northwest shall provide any
available National Weather Service data through computer link-up to Pinnacle.


 


(d)                                 Information
Systems.  Northwest and Pinnacle
have concurrently entered into a separate written agreement with respect to the
information systems support Northwest will provide to Pinnacle.


 


Section 4.02    Ground Handling


 


Passenger and
Ramp Handling. 
At  Northwest Service Cities,
Northwest shall  provide the following
functions: (a) all gate check-in activities, (b) all passenger
enplaning/deplaning services, including but not limited to sky cap and wheel
chair services, (c) aircraft loading/unloading services, including but not
limited to airside busing, (d) passenger ticketing, (e) aircraft
cleaning, including but not limited to overnight cleaning, (f) jetbridge
maintenance, (g) janitorial services, and (h) deicing services
(collectively, the “Ground Handling Functions”) at the rate of [***] per turn
(cycle).  At Pinnacle Service Cities,
Pinnacle shall provide the Ground Handling Functions.  At a Contracted Service City, Pinnacle shall provide the Ground
Handling Functions utilizing a contract agent. 
At DTW, MSP and any other Hub City, excluding MEM, Pinnacle shall use
its own personnel and equipment or a contract agent to perform the Ground
Handling Functions, except for (i) passenger ticketing, (ii) airside
busing, sky cap and wheel chair services, (iii) jetbridge maintenance
(iv) janitorial services, and (v) DTW deicing services, all of which
services Northwest shall provide [***]. 
In the event Pinnacle utilizes a contract agent to perform substantially
all of the Ground Handling Functions at DTW which Pinnacle is responsible to
perform pursuant to the preceding sentence, the rate for such contracted
services shall not exceed [***] per turn (cycle), excluding commissary
charges.  Any charge for such services
in excess of [***] per turn shall [***] Northwest.  In the event Pinnacle utilizes a contract agent to perform
substantially all of the Ground Handling Functions at MSP, the rate for such
contracted services shall not exceed [***] per turn (cycle), including commissary
charges.  Any charge for such services
in excess of [***] per turn shall [***] Northwest.  At MEM, Pinnacle shall use its own personnel and equipment or a
contract agent to perform the Ground Handling Functions, except for
(i) passenger ticketing, and (ii) airside busing, sky cap and wheel
chair services, all of which services Northwest shall provide [***].


 


Notwithstanding
anything to the contrary in this Agreement, Northwest may, at its option,
require Pinnacle upon ninety (90) days prior written notice to utilize
Northwest, a


 


20

















 


Northwest-designated contract agent, or
Pinnacle’s own personnel and equipment to perform the Ground Handling Functions
at any or all of the Hub Cities, Contracted Service Cities and Pinnacle Service
Cities, provided that (i) in the event Northwest enters a ground handling
agreement with a contracted agent in a Contracted Service City, Northwest shall
charge Pinnacle [***] per turn (cycle) (ii) the city classification pursuant to
Section 5.03(b) will be revised to the extent necessary, and (iii) the
service standards applicable to any Northwest-designated contract agent will be
either reasonably satisfactory to Pinnacle or no less stringent than the
standards applicable to Northwest’s own operations.  Furthermore, in the event a city is converted from a Contracted
Service City to a Pinnacle Service City, the Northwest passenger ticket counter
(passenger ticketing function pursuant to Section 4.02 (d)) at such
Service City may only be staffed by one company designated by Northwest.


 


Section 4.03     Facilities.


 


(a)                                  Hub
Cities.  Pinnacle will sublease from
Northwest airport facilities at the Hub Cities as set forth in mutually
agreeable sublease agreements.  The
applicable Hub City facility charges are set forth in Exhibit A.  In the event Pinnacle requires additional
facilities at any of the Hub Cities caused by the expansion of Regional Airline
Services, Northwest shall use its reasonable efforts to obtain such facilities
and provide them to Pinnacle at no additional charge to Pinnacle.  Northwest and Pinnacle agree that Northwest
may relocate Pinnacle to comparable facilities at the Hub Cities, provided that
Northwest pays Pinnacle’s reasonable relocation expenses.


 


(b)                                 Service
Cities.  At Northwest Service
Cities, Northwest shall provide Pinnacle with the Ground Handling Functions
pursuant to Section 4.02 hereof utilizing Northwest’s owned and/or
leased premises and equipment (including jetbridges) located thereon.  Northwest shall cooperate with Pinnacle’s
efforts to become a signatory carrier at such airports; provided, however, that
if Pinnacle becomes a signatory carrier at any such airport Pinnacle shall vote
as directed by Northwest on any matters submitted to the signatory carriers for
a vote.  At Pinnacle Service Cities,
Pinnacle shall be solely responsible for all of its facilities and equipment
requirements, excluding jetbridges, which shall be the responsibility of
Northwest; provided, however, if Northwest owns and/or leases facilities at a
Pinnacle Service City and elects to provide Ground Handling Functions to
Pinnacle pursuant to Section 4.02, Northwest shall provide such services
utilizing Northwest’s owned and/or leased premises and equipment (including jetbridges)
located thereon. At a Contracted Service City, Pinnacle shall be solely
responsible for all of its facilities and equipment requirements, excluding
jetbridges, which shall be the responsibility of Northwest.  In the event Northwest exercises its right, pursuant
to Section 4.02, to have a Northwest-designated contract agent perform the
Ground Handling Functions in a Contracted Service City, Northwest shall be
solely responsible for all facilities and equipment requirements. Northwest
will determine in its sole discretion whether a jetbridge will be used at all
Service Cities.


 


(c)                                  Maintenance
Facilities.  Except as provided in
Section 3.06, maintenance facilities used to perform maintenance on the
Equipment (“Maintenance Facilities”) pursuant to lease or ownership
arrangements entered into after the Effective Date, shall be at such locations
and pursuant to terms mutually agreeable to both parties.  In the event Northwest provides the
Maintenance Facility to Pinnacle, it will do so according to the terms of a
mutually agreeable


 


21

















 


lease or sublease.  Northwest shall reimburse Pinnacle on a
monthly basis in accordance with Sections 5.06 and 5.07 for such
Maintenance Facilities expenses incurred by Pinnacle.  The cost to Pinnacle for Maintenance Facilities leased or owned
by Pinnacle as of the Effective Date or thereafter, will be reimbursed in
accordance with Sections 5.06 and 5.07.


 


(d)                                 Landing
Fees.  Pinnacle shall be responsible
for landing fees at all airports to which it provides Regional Airline Services
pursuant to this Agreement and at all airports to which a Scheduled Flight,
Non-Scheduled Flight or Charter Flight is diverted.


 


(e)                                  Signage.  Subject to Governmental Regulations,
Pinnacle shall display at all ticketing and check-in locations such signage or
other forms of advertisement to identify and promote Northwest’s service as
Northwest may specify and as approved by the relevant airport authority.  All signage utilizing the NW Identification
shall be provided by Northwest at its sole cost, shall be the property of
Northwest and shall be subject to the applicable provisions of Article VII
below.  Pinnacle shall not use the
Pinnacle Identification on any signage or other forms of advertisement used to identify
or promote the Regional Airlines Services (except as otherwise required by
Governmental Regulations).


 


(f)                                    Related
Transfer Arrangements.  All leases
and subleases of facilities used in connection with Regional Airline Services,
including Maintenance Facilities for the Equipment (collectively, “Facilities
Leases”) entered into by Pinnacle after the Effective Date shall be assignable
to Northwest without the consent of the other party to such Facility Lease on
termination of this Agreement or the withdrawal of Scheduled Flights from such
airport, provided that if the consent of the facility lessor is required by
contract or Governmental Regulations, Pinnacle will use its best efforts to
obtain such consent at the time the Facility Lease is entered into and to
incorporate such consent in the terms of the Facility Lease.  Pinnacle shall, at Northwest’s option,
assign such Facilities Leases as Northwest shall designate to Northwest on
termination of this Agreement or the withdrawal of Scheduled Flights from such
airport. Pinnacle shall use its best efforts to obtain the consent of the other
party to such Facilities Leases in effect as of the Effective Date and, subject
to obtaining such consents, if necessary, shall, at Northwest’s option, assign
such Facilities Leases as Northwest shall designate to Northwest on termination
of this Agreement or the withdrawal of Scheduled Flights from such
airport.  On termination of this
Agreement and during the Option Term, Northwest shall have the option to
purchase from Pinnacle all facilities used in connection with Regional Airline
Services, including Maintenance Facilities for the Equipment, then owned by
Pinnacle for an amount equal to such assets’ then fair market value or
depreciated book value, whichever is less. 
On the withdrawal of Scheduled Flights from an airport and for a period
of thirty (30) days thereafter, Northwest shall have the option to purchase
from Pinnacle all facilities used in connection with Regional Airline Services
at such airport, including Maintenance Facilities for the Equipment, then owned
by Pinnacle for an amount equal to such assets’ then fair market value or
depreciated book value, whichever is less.


 


(g)                                 Maintenance
Facilities Continuation Option. 
Notwithstanding Section 4.03(f) above, in the event Pinnacle
exercises its fleet continuation option in Section 3.02(a)(iv) above,
Pinnacle may continue in effect all leases and subleases of Maintenance
Facilities reasonably required to support the retained Aircraft and Spare
Engines until the earlier of the expiration date for such agreement and
February 28, 2017.  In such
circumstances, (i) Pinnacle


 


22

















 


shall, at Northwest’s option,
assign such retained leases and subleases of Maintenance Facilities as
Northwest shall designate to Northwest on February 28, 2017, and (ii) on
February 28, 2017 and for a period of thirty (30) days thereafter,
Northwest shall have the option to purchase from Pinnacle all Maintenance
Facilities for the retained Aircraft and Spare Engines then owned by Pinnacle
for an amount equal to such assets’ then fair market value or depreciated book
value, whichever is less.


 


Section 4.04     Data
Communications. 
Northwest shall provide to Pinnacle at all Service Cities and Hub Cities
[***]  data circuit lines, any required
data networking equipment, the use of computer reservation terminals, printers
and modems, including hardware, software and maintenance support for such
equipment (the “Data Communication Equipment”).  Such Data Communication Equipment shall be of the same type and
quality as that used by Northwest in its airline operations.  In connection with the commencement of
Regional Airline Services at a new Service City, Northwest will provide
Pinnacle with Northwest’s standard Data Communications Equipment at Northwest’s
[***].  Northwest and Pinnacle shall
enter into a separate written agreement with respect to the information
technology services to be provided by Northwest to Pinnacle in connection with
the Regional Airline Services operated under this Agreement.


 


Section 4.05     Security.  Northwest will provide for Pinnacle’s use
the security equipment in place, as of the Effective Date, at all Service Cites
and the Hub Cities.  Northwest agrees to
provide, at Northwest’s sole expense, for Pinnacle’s use at all new Pinnacle
Service Cities and Contracted Service Cities the same type of security
equipment.  Any additional security
equipment required due to future Governmental Regulations shall be provided by
Pinnacle at its sole expense at Pinnacle Service Cities and Contracted Service
Cities, and shall be provided by Northwest at its sole expense at Hub Cities
and Northwest  Service Cities.  At all Northwest Service Cities and the Hub
Cities, Northwest is solely responsible for Pinnacle’s allocated share of all
maintenance expenses associated with all security equipment and Pinnacle’s
allocated share of all personnel expenses (including overtime) associated with
the operation of the equipment and all airport security-related functions,
including, without limitation, passenger screening and activities related to
security directives imposed by Governmental Regulations.  At Pinnacle Service Cities and Contracted
Service Cities, Pinnacle is solely responsible for all or its allocated share
of all maintenance expenses associated with all security equipment and all or
its allocated share of all personnel expenses (including overtime) associated
with the operation of the equipment and all airport security related functions,
including, without limitation, passenger screening and activities related to
security directives imposed by Governmental Regulations.  Notwithstanding the foregoing, the parties
acknowledge and agree that as of the Effective Date the U.S. government is in the
process of taking over airport security, and the parties will negotiate in good
faith regarding any changes to this Agreement that may be necessary as a
result.


 


Section 4.06     Reservation
Services.  During the
term of this Agreement, Northwest shall handle, at its sole expense,
reservations for all passenger air transportation on Scheduled Flights operated
pursuant to this Agreement. 
Reservations shall be handled in the same manner and subject to the same
standards utilized by Northwest for its own reservations.  All reservations shall be made in the name
of Northwest unless otherwise required by


 


23

















 


Governmental Regulations.  Northwest shall be sole owner of any
customer or passenger data relating to the Scheduled Flights and related
reservation services.


 


Section 4.07     Ticketing
Services and Ticketing Procedures.


 


(a)                                  Ticketing
Services.  At all of its ticketing
locations, Northwest shall, at its sole expense, sell, issue and exchange
tickets for passenger air transportation on all Scheduled Flights to be
operated pursuant to this Agreement utilizing Northwest ticket stock and all
related accounting forms printed with the Northwest logo, name and format
(“Northwest Tickets”).  Northwest hereby
appoints Pinnacle as its agent, and Pinnacle hereby agrees to act as
Northwest’s agent, at all Pinnacle ticketing locations in connection with the
sale and issuance of all passenger tickets by Pinnacle and with the same duties
owed to Northwest in that capacity as is customary in the industry between
airlines.  At all of its ticketing
locations, Pinnacle shall sell, issue and exchange Northwest Tickets for
passenger air transportation on all Scheduled Flights to be operated pursuant
to this Agreement and to be provided by and over the routes of Northwest
(collectively, “Ticketing Services”). 
Nothing in this Section 4.07(a) shall be deemed to alter or
conflict with the provisions of Section 9.01 hereof.  Air carriers and other agencies other than
Northwest may also issue tickets for travel to be performed by Pinnacle.


 


(b)                                 Booking
and Ticketing Procedures.  The
procedures followed and standards applied by Pinnacle in booking flights and
performing the Ticketing Services shall conform in all material respects to Northwest’s
own tariffs, procedures and standards applicable to the booking of Northwest
flights and the issuance of Northwest Tickets and to the collection and
remittance of the proceeds of such sales. 
Pinnacle employees booking flights and performing Ticketing Services
shall adhere to Northwest’s procedures and standards as shall be provided to
Pinnacle in writing.  In accordance with
Section 8.02 below, Pinnacle shall be responsible for collecting
and shall pay to Northwest any Ticket Taxes and Fees required to be collected
under applicable law on Tickets sold by Pinnacle utilizing Northwest ticket
stock.


 


(c)                                  Frequent
Flyer Program.  Pinnacle agrees to
accept Northwest frequent flyer tickets and to provide transportation services
pursuant to such tickets at no charge to Northwest.  All travel under the frequent flyer program solely on Pinnacle
shall entitle a passenger to such credit as shall be equivalent to the credit
offered on Northwest for comparable mileage segments.  Northwest will provide such credit to members of its frequent
flyer program who travel on Pinnacle at no charge to Pinnacle.


 


(d)                                 Supplies.  Northwest shall, at its sole expense,
provide an adequate supply of ticket office forms and specialized supplies
(such as baggage tags, but excluding normal office supplies such as paper,
stationery, envelopes, memo pads and the like) bearing the NW Identification
for use by Pinnacle subject to the applicable provisions of Article VII
below.


 


(e)                                  Ticketing
Costs.  All travel agency
commissions attributable to Scheduled Flights shall be Northwest’s
expense.  Northwest shall pay all
computer reservation system fees attributable to passengers on Scheduled
Flights.  In the event Governmental
Regulations preclude the payment of these fees by Northwest and Pinnacle then
pays them, Northwest shall immediately begin paying Pinnacle a “Traffic
Referral” commission on a semi-monthly basis in an amount equal to such fees
formerly paid by Northwest for Pinnacle. 
Such commission shall


 


24

















 


be retroactive to the date on which such fees
were no longer lawfully paid by Northwest and shall be included in the
semi-monthly payments to be made by Northwest pursuant to Section 5.02.


 


Section 4.08     Baggage
Handling Services. 
“Baggage Handling Services” shall consist of the following:


 


(a)                                  At
all Northwest Service Cities and Hub Cities, Pinnacle and Northwest shall
exchange and transfer baggage in accordance with procedures to be mutually
agreed upon and generally utilized by the parties.


 


(b)                                 The
procedures utilized in performing such Baggage Handling Services shall conform
in all respects to Northwest’s own standards and procedures as adapted to
Pinnacle’s Aircraft and operations.


 


(c)                                  For
purposes of baggage claims, Pinnacle will be treated as if it were a party to
standard industry ticketing and baggage agreements with Northwest and other air
carriers.  Pinnacle will make available
at the request of any passenger excess valuation insurance, if any, offered by
Northwest to the extent such insurance covers Pinnacle’s flights and
Northwest’s flights.


 


Section 4.09     Air
Cargo Handling Services. 
“Air Cargo Handling Services” shall consist of the following:


 


(a)                                  At
each location at which Northwest operates Ticketing Services, Northwest shall
at no charge to Pinnacle accept Air Cargo for shipment on flights to be
operated by and over the routes of Pinnacle or Northwest. Northwest shall issue
air waybills covering Air Cargo and shall prepare a “Transfer Manifest” for
each Pinnacle flight on which there shall be an Air Cargo shipment which
transfer manifest shall set forth all Air Cargo to be carried on the flight.


 


(b)                                 Northwest
hereby appoints Pinnacle as its agent, and Pinnacle hereby agrees to act as
Northwest’s agent, at all Pinnacle ticketing locations in connection with the
sale and issuance of all air waybills by Pinnacle and with the same duties owed
to Northwest in that capacity as is customary in the industry between
airlines.  Pinnacle agrees to observe
all Northwest procedures and standards applicable to the issuance of air
waybills and to the collection and remittance of the proceeds of such
sales.  Pinnacle employees performing
such duties shall adhere to Northwest’s procedures and standards as shall be
provided to Pinnacle in writing.  In
accordance with Section 8.02 below, Pinnacle shall be responsible
for collecting and shall pay to Northwest any Ticket Taxes and Fees required to
be collected under applicable law on air waybills sold by Pinnacle utilizing
Northwest air waybills.  Nothing in this
Section 4.09(b) shall be deemed to alter or conflict with the
provisions of Section 9.01 hereof. 
Air carriers other than Northwest may also issue air waybills for cargo
transportation to be performed by Pinnacle.


 


(c)                                  Pinnacle
shall provide Air Cargo handling services at Pinnacle’s ticketing locations for
and on behalf of Northwest for Air Cargo carried solely on Pinnacle or on both
an Pinnacle flight and a Northwest flight. 
Such handling services shall be performed in accordance with Northwest’s
procedures and standards as provided to Pinnacle in writing, including but not


 


25

















 


limited to (1) accepting all Air Cargo that
Northwest accepts, such as pets/AVI (other live animals), human remains,
Priority Service (SPC) freight and perishables, unless otherwise mutually
agreed, and (2) keeping facilities open at least one and one-half (1.5) hours
before and one (1) hour after each Scheduled Flight for customers to deliver
and pick up Air Cargo.


 


(d)                                 For
Air Cargo carried solely on Pinnacle or on both an Pinnacle flight and a
Northwest flight, Pinnacle and Northwest shall charge rates in accordance with
Northwest’s applicable rates and tariffs; such revenues shall be paid 100% to
and retained by Northwest.


 


(e)                                  For
purposes of Air Cargo claims, Pinnacle will be treated as if it were a party to
standard industry ticketing and baggage agreements with Northwest and other air
carriers.


 


(f)                                    Northwest
shall, at its sole expense, supply Pinnacle with all necessary Air Cargo forms
and supplies in an agreed upon form with the NW Identification, subject to the
applicable provisions of Article VII below.  Northwest and Pinnacle shall utilize such forms and supplies when
accepting Air Cargo for transport on Pinnacle’s flights.


 


Section 4.10     Use
of COMAT.  Northwest and
Pinnacle shall each provide to the other, at no cost to the other and on a
non-discriminatory basis, access to its respective COMAT system for the
movement and acquisition of priority aircraft maintenance parts and other
company material.  Northwest’s failure
to deliver timely a maintenance component via COMAT, whether timely or at all,
shall not cause an affected Scheduled Flight to be excluded in calculating
Pinnacle’s on-time performance and completion factors.  All access shall be consistent with
Northwest’s and Pinnacle’s respective published COMAT procedures and policies,
as amended from time to time.  Northwest
shall provide to Pinnacle at no cost and on a non-discriminatory basis, access
to Northwest’s VIP express cargo service to the extent necessary for Aircraft
out of service recovery.


 


Section 4.11     Slots
and Route Authorities. 
During the term of this Agreement (including any Renewal Terms) or upon
the expiration or termination of this Agreement, Northwest may, in its sole
discretion, require Pinnacle to transfer to Northwest or its designee at no
charge any airport takeoff or landing slots, route authorities or other
regulatory authorities as Northwest shall designate which have been or are
being used for Regional Airlines Services under this Agreement.


 


Section 4.12     Emergency
Response and Family Assistance. 
Northwest and Pinnacle shall enter into a separate written agreement
with respect to emergency response and family assistance services to be
provided to Pinnacle by Northwest at no charge in connection with the Regional
Airlines Services operated under this Agreement.


 


26

















 


ARTICLE V


 


REVENUES, PAYMENTS
AND SETOFF


 


Section 5.01     Revenues.  Pinnacle acknowledges and agrees that all
revenues resulting from the sale and issuance of passenger tickets and cargo
air waybills associated with the operation of the Aircraft and all other
sources of revenue associated with the operation of the Aircraft are the sole
property of Northwest, including without limitation ticket change fees and
other fees or charges which are applicable pursuant to Northwest’s tariffs,
unaccompanied minor fees, beverage services, excess baggage fees and nonrevenue
pass travel charges.


 


Section 5.02     Payments
to Pinnacle .


 


(a)                                  Reports.  Pinnacle shall provide to Northwest periodic
reports with respect to the number of actual, completed Block Hours and Cycles
of regional jet and turboprop service flown by Pinnacle (each in respect of
Scheduled Flights, Charter Flights and Non-Scheduled Flights) in accordance
with the following schedule in each calendar month during the term of this
Agreement:


 


	
  Day of
  Month Report Due

  	
   

  	
  Period
  Covered by Report

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  22

  	
   

  	
  1st
  – 15th of Month

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  Complete
  Previous Month

  	
   

  



 


Pinnacle shall also provide
Northwest periodic reports with respect to its Available CRJ Days, Available
Saab Days, CRJ deliveries, and its expenses with respect to Section 5.05
and Section 5.06 in accordance with the following schedule in each
calendar month during the term of this Agreement:


 


	
  Day of
  Month Report Due

  	
   

  	
  Period
  Covered by Report

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7

  	
   

  	
  Complete
  Previous Month

  	
   

  



 


(b)                                 Payment
Schedule.  Northwest shall remit to
Pinnacle by wire transfer of immediately available funds by the close of
business on the 30th day of each calendar month (or the next banking day if the
30th is a bank holiday), as a provisional payment, Pinnacle’s Block Hour
Payment, Cycle Payment, IOP Payment and any payments due pursuant to Section 5.05
below for the period covered by the Block Hour Report and Cycle Report
furnished by Pinnacle on the 22nd day of the month.


 


Northwest shall remit to
Pinnacle by wire transfer of immediately available funds by the close of
business on the 15th day of each month (or the next banking day if the 15th is
a bank holiday), as a final payment, Pinnacle’s Block Hour  Payment, Cycle Payment, IOP Payment, Fixed
Cost Payment, Monthly Margin Payment, any payments due pursuant to Section 5.05
or Section 5.06 below for the preceding month and any payments due
with respect to Charter Flights, less the amount of the provisional payment
made on the 30th day of the preceding month.


 


27

















 


For purposes of this Section 5.02,
the above-referenced payments to Pinnacle shall be calculated as follows for
any applicable period:


 


(i)                                     the Block Hour
Payment will be equal to the then applicable Block Hour Rate multiplied by the
number of actual, completed Block Hours reported in Pinnacle’s Block Hour
Report for such period for Scheduled Flights and Non-Scheduled Flights, plus


 


(ii)                                  the Cycle Payment
will be equal to the then applicable Cycle Rate multiplied by the number of
actual, completed Cycles reported in Pinnacle’s Cycle Report for such period
for Scheduled Flights and Non-Scheduled Flights, plus


 


(iii)                               the IOP Payment, if any,
will be determined in accordance with Section 5.03(c) below, plus


 


(iv)                              any payments due pursuant
to Section 5.05 below, plus


 


(v)                                 with respect to the
payment to be made on the 15th day of each month, Pinnacle’s Fixed Cost Payment
determined in accordance with Section 5.04 below and any payments
due pursuant to Section 5.06 below, plus


 


(vi)                              with respect to the
payment to be made on the 15th day of each month, the Monthly Margin Payment
determined in accordance with Section 5.08 or Section 5.11
below, as applicable, plus


 


(vii)                           with respect to the payment
to be made on the 15th day of each month, any payment due with respect
to Charter Flights.


 


Adjustments arising from
Northwest’s audit of the Block Hour Report, Cycle Report, Available CRJ Days
Report, Available Saab Days Report, CRJ Deliveries Report, Section 5.05
Report, or Section 5.06 Report may be made within ninety (90) days
following the end of each month.  Any
reference to the 30th day of a month in this Section 5 will be
deemed to mean the last day of February with respect to that month.


 


Section 5.03     Block Hour and Cycle
Rates; IOP Program Adjustment


 


(a)                                  Block
Hour Rate.  The Block Hour Rate for
the time period through December 31, 2005 shall be calculated by
multiplying the Base Block Hour Rate as follows for the applicable period by (1
+ CPPIB):


 




	
  Period

  	
   

  	
  Base Block
  Hour

  Rate

  CRJ-200/440

  	
   

  	
  Base Block
  Hour

  Rate

  Saab 340

  	
   

  
	
  Effective Date - 03/31/02

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  04/01/02 - 12/31/02

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  01/01/03 - 12/31/03

  	
   

  	
  [***]

  	
   

  	
   

  	
   

  
	
  01/01/04 - 12/31/04

  	
   

  	
  [***]

  	
   

  	
   

  	
   

  
	
  01/01/05 - 12/31/05

  	
   

  	
  [***]

  	
   

  	
   

  	
   

  






 


28

















 


(b)                                 Cycle
Rate.  For each year in the Annual
Operating Plan prepared in accordance with Section 2.12, the departures
for the year will be categorized into the six categories set forth in the table
below.  The Cycle Rate for the
CRJ200/440 Aircraft for the time period through December 31, 2005 shall be
calculated by multiplying the Base Cycle Rates as set forth below by (1+CPPIB),
and then calculating the weighted average of the resulting rates for the
applicable period:


 


Base Cycle Rates — CRJ 200/400


 


	
   

  	
   

  	
  Effective

  Date –

  03/31/02

  	
   

  	
  04/01/02-

  12/31/02

  	
   

  	
  01/01/03-

  12/31/03

  	
   

  	
  01/01/04-

  12/31/04

  	
   

  	
  01/01/05-

  12/31/05

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DTW

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  MSP

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  MEM

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  NW Cities

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  CS Cities

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  PS Cities

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


NW Cities
means Northwest Service Cities.


 


CS Cities
means Contracted Service Cities


 


PS Cities
means Pinnacle Service Cities


 


Example:  If Pinnacle’s 2003 Annual Operating Plan
includes 40,000 annual departures in DTW, 35,000 annual departures in MSP,
25,000 annual departures in MEM, 50,000 annual departures in NW Cities, 30,000
annual departures in CS Cities and 20,000 annual departures in PS Cities, and
if the PPI for December 2002 is 141.5 and the PPI for December 2001
is 137.4 (CPPIB= (141.5/137.4) – 1 = 3.0%), the Cycle Rate for 2003 shall be
calculated as follows:


 


Cycle Rate =

{1.03*[([***]*40,000)+([***]*35,000)+([***]*25,000)+([***]*50,000)+([***]*30,000)+([***]*20,000)]
}/ 100,000 = [***]


 


The Cycle Rate
for the Saab 340 Aircraft for the time period through December 31, 2002
shall be the applicable Cycle Rate from the table below.


 


29

















 


	
  Period

  	
   

  	
  Cycle

  Rate

  Saab 340

  	
   

  
	
  Effective Date - 3/31/02

  	
   

  	
  [***]

  	
   

  
	
  04/01/02 - 12/31/02

  	
   

  	
  [***]

  	
   

  



 


(c)                                  IOP
Program Incident Adjustment.  If
during any month during the term of this Agreement Pinnacle cancels one or more
Scheduled Flights in connection with one or more IOP Program Incidents,
Northwest shall pay to Pinnacle an amount determined in accordance with the
following formula:


 


P=((IBH)*(BHR)*(
[***])) + ((ICYC)*(CYCR)*( [***]))


 


where,


 


P is the IOP
Payment to be made to Pinnacle,


 


IBH is the
number of scheduled Block Hours cancelled in connection with the IOP Program
Incident(s), calculated by the following formula:


 


IBH=Pinnacle
scheduled Block Hours cancelled * (((% points of Pinnacle’s Scheduled Flights
in Hub cancelled)-(% points of Northwest scheduled flights in Hub
cancelled))/(% points of Pinnacle’s Scheduled Flights in Hub cancelled)),


 


BHR is the
then applicable Block Hour Rate in which such IOP Program Incident(s) occurred,


 


ICYC is the
number of scheduled Cycles cancelled in connection with the IOP Program
Incident(s), calculated by the following formula:


 


ICYC=Pinnacle’s
scheduled Cycles cancelled * (((% points of Pinnacle’s Scheduled Flights in Hub
cancelled)-(% points of Northwest scheduled flights in Hub cancelled))/(%
points of Pinnacle’s Scheduled Flights in Hub cancelled))), and


 


CYCR is the
then applicable Cycle Rate in which such IOP Program Incident(s) occurred.


 


Section 5.04     Fixed
Costs.  Pinnacle’s Fixed
Cost Payment arising from operation of the Aircraft shall be calculated on a
monthly basis as follows:


 


Fixed Cost
Payment =  [***]


 


where,


 


[***]


 


[***]


 


[***]


 


[***]


 


 


30

















 


[***]


 


[***]


 


[***]


 


Section 5.05     Fuel.


 


(a)                                  Fuel
Administration.  As soon as
practicable, Northwest will provide to Pinnacle the following fuel-related
administrative services:  (i)
negotiation of fuel supply, fuel storage and into-plane service contracts for
the Aircraft, (ii) payment of all into-plane and fuel invoices in respect of
the Aircraft, (iii) monthly reconciliations (by the 15th of the following
month) with respect to fuel boarded, inventory and purchases, and (iv) monthly
reports with respect to fuel boarded by station, flight and Aircraft.


 


(b)                                 In
the event Northwest is unable to execute the administrative functions as
outlined in Section 5.05  (a)  (ii) and (iii),
above, and until such time that it can, the following procedures will apply:


 


(i)                                     Current reporting
mechanisms in place as of the Effective Date of this Agreement will continue
with Pinnacle reporting to Northwest by the 15th day of the following month,
the actual gallons boarded and the fuel price paid (including into-plane fees
and taxes).


 


(ii)                                  Current payment
mechanisms in place as of the Effective Date of this Agreement will continue
with the exception that the applicable monthly Margin Payment (per Section 5.08
or Section 5.11) will only be paid on the actual fuel boarded multiplied
by the lesser of the actual fuel price, including into-plane fees and taxes,
and $.78/gallon (the “Fuel Price”).  In
addition, no adjustment will be made to bring Pinnacle’s fuel expense up to
$.78/gallon.  The reimbursement will be
through the Section 5.02 wire transfer occurring on the 15th day of
the following month.


 


(c)                                  Fuel
Payment.  On and after the date on
which Northwest executes the administrative functions outlined in
Section 5.05(a) (ii) and (iii) above, Northwest will charge Pinnacle on a
pre-pay basis the last week of each month for fuel to be boarded for the 1st
-15th of the succeeding month.  Pinnacle
will pay for that fuel through a set-off of the amount due from the Section 5.02
wire transfer on the 15th of the month for which the prepay is occurring.  Northwest will reimburse Pinnacle for this
pre-pay amount through the Section 5.02 wire transfer on the 30th
of the month.  Likewise, Northwest will
charge Pinnacle on a pre-pay basis the second week of the month for fuel to be
boarded for the 16th-end of month. 
Pinnacle will pay for that fuel through a set-off of the Section 5.02
wire transfer on the 30th of the month for which the prepay is occurring.  By the 15th of the following month,
Northwest will reconcile the pre-paid fuel expense for the preceding month with
the actual expense (at a price not to exceed the Fuel Price), and charge or
credit Pinnacle with the difference, including reimbursement for the second
half pre-pay.  This reimbursement and
month end adjustment for the preceding month will be handled via the Section 5.02
wire transfer occurring the 15th day of the following month through additional
payment or set-off.


 


31

















 


The pre-pay
will be based on using half of Pinnacle’s prior month actual boarded volume at
the Fuel Price.


 


Pinnacle shall
have the right to audit on a semi-annual basis the determination of the number
of gallons of aircraft fuel boarded and shall report any disputes to
Northwest.  Any dispute not reported to
Northwest within thirty (30) days of the conclusion of such audit shall be
deemed waived.


 


Northwest’s
fuel department shall have the right to audit on a monthly basis the
determination of the number of gallons of aircraft fuel boarded and fuel price
paid and shall report any disputes to Pinnacle.  Any dispute not reported to Pinnacle within thirty (30) days of
the conclusion of such audit shall be deemed waived.


 


(d)                                 Pinnacle
Reporting Procedures.  Pinnacle will
provide to Northwest the following fuel administrative service assistance:  (i) timely Fuel Management System (“FMS”)
data entry by Pinnacle at Pinnacle Service Cities including month-end
reconciling to the fixed base operator (“FBO”) by the end of the second
business day, (ii) FMS coverage by Pinnacle when regular FMS person is on
vacation, leave, etc., (iii) Pinnacle will train new Pinnacle employees on
FMS due to turnover, vacation, etc., (iv) problems at FBO regarding supply
of fuel slips and bill of lading receipts will be addressed by Pinnacle
personnel first before involving the Northwest Fuel Department.


 


(e)                                  Fuel
Burn Review Procedures - CRJ. 
Northwest and Pinnacle agree to review the fuel burn performance of the
CRJ Aircraft for compliance with the performance measure (burn rate ceiling)
set below.  Either party may initiate
the audit of the actual fuel burn against the set measure.  The performance measure includes both
scheduled and non-scheduled fuel usage/expense.  The ceiling is the Northwest budgeted scheduled fuel burn per scheduled
Block Hour [***] for non-scheduled usage. 
For example, the 2002 performance measure (ceiling) is equal to the
Northwest scheduled fuel burn rate of [***] gallons per scheduled Block Hour
[***], which sets the ceiling at [***].


 


In the event
that the CRJ Aircraft’s actual fuel burn for the period of review is above the
ceiling the parties will work together in good faith to explain the variance
relative to the ceiling and to resolve the cause of the variance.  If it is determined that actual fuel burn
was above the ceiling for reasons within the control of Pinnacle, Pinnacle will
pay a Fuel Burn Penalty Payment to Northwest and such payment shall be made in
accordance with Section 5.07. 
The Fuel Burn Penalty Payment shall be calculated as follows:


 


Fuel Burn
Penalty Payment = [(total fuel expense/actual fuel price) / scheduled Block
Hours - performance ceiling] * completed scheduled Block Hours * actual fuel
price (not to exceed $.78 per gallon) + Margin applicable to the fuel expense
reimbursement pursuant to Section 5.08 or 5.11.


 


Section 5.06     Direct
Expenses.  Northwest will
reimburse Pinnacle for the following expenses at the Direct Cost to
Pinnacle.  Reimbursement for these
expenses paid or accrued by Pinnacle in the prior month will be included in the
wire transfer to Pinnacle on the 15th of each month pursuant to Section 5.02(b)
above.  Pinnacle will be responsible for
providing


 


32

















 


Northwest with a copy of all
third party invoices and evidence of payment needed to determine the expense
amount and the timeliness of payment.


 


(a)                                  Equipment
Rental Expense – less any performance guarantee payments or credits that
Pinnacle receives from the manufacturers.


 


(b)                                 Aviation
Insurance - Aircraft hull insurance and aviation liability insurance, including
war risk liability and hull war risk insurance, subject to the following:


 


Pinnacle’s
aviation liability insurance (including war risk liability) expense shall be
the lesser of the expense based on the actual rates or [***] per Pinnacle
Revenue Passenger.  Pinnacle’s hull
insurance (including hull war risk insurance) expense shall be the lesser of
the expense based on the actual rates or [***] per dollar ($) of Pinnacle Fleet
Value.  The margin payment pursuant to
Section 5.08 or 5.11 shall be based on the forgoing amounts.  If Pinnacle’s actual aviation insurance
expense exceeds the amounts above, the incremental insurance expense above the
forgoing limits will be reimbursed by Northwest.  In the event that Pinnacle obtains aviation insurance coverage as
part of Northwest’s aviation insurance placement, the rates used to determine
Pinnacle’s share of the aviation insurance expenses shall be the same as the
rates used to determine Northwest’s expense for such insurance.


 


(c)                                  Engine
maintenance – The CRJ 200/440 engine maintenance performed pursuant to the GE
Agreements less any warranty payments or credits that Pinnacle receives,
including but not limited to those from GE, plus the cost of materials and
components used in connection with unscheduled off-wing maintenance performed
by Pinnacle (not including maintenance or replacement of line replaceable units
or QEC items).  Pinnacle shall provide
to Northwest, upon reasonable request, documentation detailing the unscheduled
event and cost of each of the components. 
If Northwest and Pinnacle agree at any time to have such engine work
performed elsewhere, the reimbursement amount will be adjusted to take into
account the new arrangement. 
Notwithstanding the foregoing, Northwest will not reimburse Pinnacle for
engine maintenance performed pursuant to the GE Agreements which is
accomplished unreasonably in advance of the time such maintenance is required
in accordance with the Maintenance Program or which is accomplished for the
sole purpose of satisfying return conditions under the Lease.


 


(d)                                 Airframe
maintenance – The CRJ 200/440 airframe maintenance performed pursuant to
Bombardier Agreement less any warranty payments or credits that Pinnacle
receives, including but not limited to those from Bombardier.  If Northwest and Pinnacle agree at any time
to have the maintenance work performed elsewhere, the reimbursement amount will
be adjusted to take into account the new arrangement.  Notwithstanding the foregoing, Northwest will not reimburse
Pinnacle for airframe maintenance performed pursuant to the Bombardier
Agreement which is accomplished unreasonably in advance of the time such
maintenance is required in accordance with the Maintenance Program or which is
accomplished for the sole purpose of satisfying return conditions under the
Lease.


 


(e)                                  Deicing
services and glycol - subject to the provisions of Section 4.02 and
reimbursed accordingly:


 


33

















 


(i)                                     Deicing services
and glycol at Pinnacle Service Cities, Contracted Service Cities and Hub Cities
where a contracted agent is performing the service.


 


(ii)                                  Glycol at Pinnacle
Service Cities, Contracted Service Cities and Hub Cities where Pinnacle
performs the deicing function.


 


(f)                                    Maintenance
Facilities, subject to the provisions of Section 4.03 (c).


 


(g)                                 CRJ
200/440 auxiliary power unit (APU) maintenance expense, CRJ 200/440 avionics
maintenance expense and CRJ 200/440 landing gear overhaul expense less any
warranty payments or credits that Pinnacle receives with respect to any of the
foregoing expenses.


 


(h)                                 Hub
City facility charges pursuant to Exhibit A.


 


(i)                                     Airport
security-related equipment maintenance expenses and personnel expenses incurred
by Pinnacle pursuant to Section 4.05 less any government
reimbursement for such expenses.


 


(j)                                     Landing
fees incurred for Pinnacle operations in DTW.


 


(k)                                  Ground handling
charges at Northwest Service Cities pursuant to Section 4.02


 


(l)                                     Property taxes,
subject to the provisions of Section 8.03 less the amounts of any refunds,
subject to the provisions of Section 8.04.


 


Notwithstanding
the foregoing, Northwest will not reimburse Pinnacle for any late payment
charges, penalties and/or fees which Pinnacle incurs in connection with payment
of the expenses listed above.


 


Section 5.07     Billing.  Northwest and Pinnacle shall bill each other
on a monthly basis in respect of amounts owed to each other under this
Agreement not contemplated under Section 5.02.  If such billed items are not paid by the
party within sixty (60) days of the statement date, the aggregate amount of
undisputed items may be offset against or included in the next scheduled wire
transfer pursuant to Section 5.02(b).  Disputed amounts must be paid when the dispute is resolved,
provided that such amount may be set off against or included in the next
scheduled wire transfer pursuant to Section 5.02(b) if the formerly
disputed amount is not paid within seven (7) days of resolution.  Northwest may also offset against the next
scheduled wire transfer pursuant to Section 5.02(b) the amount of
any payment (including those under any Lease) with respect to which Pinnacle
shall have defaulted and shall have failed to cure before the expiration of any
applicable grace period.


 


Section 5.08     Monthly
Margin Calculation and Payment. 
The monthly Margin Payment for the time period through December 31,
2007 shall be calculated as follows:


 


Monthly Margin
Payment = (payments due to Pinnacle pursuant to Sections 5.03, 5.04,
5.05 and  5.06) * .14 / .86


 


34

















 


Section 5.09     Annual
Margin Adjustment Payment. 
For the time period through December 31, 2007, the parties will
calculate Pinnacle’s Margin in accordance with Section 5.09(a) and,
if required pursuant to Section 5.09(b) below, one party will make
a Margin Adjustment Payment to the other party.


 


(a)                                  Calculation
of the Total Operating Cost and the Margin.  Not later than ninety (90) days following the end of 2002, 2003,
2004, 2005, 2006 and 2007, Pinnacle shall deliver to Northwest its audited
financial statements including the calculation of its operating margin for
Regional Airline Services provided under this Agreement for the prior year (the
“Margin”) by dividing (x) Pinnacle’s Total Operating Income for Regional
Airline Services for such year by (y) Pinnacle’s Total Operating Revenue for
Regional Airline Services for such year, subject to the following:


 


In calculating
the Margin, the amount of any incentives or penalties (accounted for as a
reduction to revenue) pursuant to Section 5.05,  Section 
5.13 and/or Section 5.14 below and any Saab rental revenue will
not be included in Pinnacle’s Total Operating Revenue, and the following
expenses will not be included in Pinnacle’s Total Operating Cost:


 


(1)                                  Increment above
predicted employee bonuses and incentives as set forth in Exhibit B
hereto.  Predicted bonus and incentive
levels are the amounts used in calculating the Block Hour, Cycle and Fixed Cost
Rates for 2002, 2003, 2004, 2005, 2006 and 2007, respectively.


 


(2)                                  Increment
above market pay rates for Pinnacle’s employees per the Parity Pay Agreement in
Exhibit C.


 


(3)                                  The amount of any
penalties pursuant to Section  5.14 (if not accounted for as a
reduction to revenue).


 


(4)                                  The
amount of any depreciation expense associated with capital expenditures in
excess of $250,000 which are designated by Northwest as Section 5.09(a)(4)
items because Northwest has determined that such capital expenditures are not
necessary after taking into consideration the Annual Operating Plan and
Pinnacle’s obligations under this Agreement, within seventy-five (75) days
after receiving written notice from Pinnacle of such capital expenditure
pursuant to Section 6.01(a)(iv) below.


 


(5)                                  The
amount of any Fuel Burn Penalty Payment pursuant to Section 5.05(d) (if
not accounted for as a reduction to revenue).


 


(6)                                  The amount of any
asset write-downs (excluding normal depreciation) or extraordinary charges as
defined by GAAP.


 


(7)                                  Rental
expense associated with the Saab 340 fleet not flown by Pinnacle.


 


(8)                                  The amount of any
fines or penalties paid by Pinnacle to any governmental entity.


 


35

















 


(9)                                  The
CRJ 200/440 Aircraft and Spare Engine return costs including termination costs
incurred by Pinnacle pursuant to Section 3.02(b) above.


 


(10)                            The
amount of any late payment charges, penalties and/or fees incurred by Pinnacle.


 


(11)                            The
amount of any payment from Pinnacle to Northwest pursuant to Section 5.13
(if not accounted for as a reduction to revenue).


 


The Margin
shall be expressed as a decimal rounded to the fourth place.  The calculation of the Margin shall be
derived from Pinnacle’s reported financial statements for such year and shall
be determined in accordance with GAAP.


 


(b)                                 Annual
Margin Adjustment Payment.  With
respect to each calendar year through and including 2007 (with the exception of
2002 for which the applicable period is March 1, 2002 through
December 31, 2002), the Margin will be subject to the floors and ceilings
in the following table:


 




	
  Period:

  	
   

  	
  Effective
  Date – 2005

  	
   

  	
  2006 &
  2007

  	
   

  
	
  Ceiling:

  	
   

  	
  15

  	
  %

  	
  16

  	
  %

  
	
  Floor:

  	
   

  	
  13

  	
  %

  	
  12

  	
  %

  






 


With respect to each calendar
year through and including 2007 (with the exception of 2002 for which the
applicable period is March, 1 2002 through December 31, 2002) if the
Margin is less than the applicable Floor, Pinnacle shall receive from Northwest
an amount determined as follows:


 


Ppin = [Total
Operating Cost/(1 - Floor)] – Rev


 


where


 


Ppin is the amount payable to Pinnacle,

Rev is Total Operating Revenue for Regional Airline Services for the applicable
calendar year excluding the items listed in Section 5.09 (a),


 


Floor is the applicable floor from the above table, and


 


Total Operating Cost excludes Items 1-11 in Section 5.09(a)
above.


 


With respect to each calendar
year through and including 2007 (with the exception of 2002 for which the
applicable period is March, 1 2002 through December 31, 2002) if the
Margin is greater than the applicable Ceiling, Northwest shall receive from
Pinnacle an amount determined as follows:


 


36

















 


Pnw = Rev -
[Total Operating Cost/(1 - Ceiling)]


 


where,


 


Pnw is the amount payable to Northwest,

Rev is Total Operating Revenue for Regional Airline Services for the applicable
calendar year excluding the items listed in Section 5.09 (a),


 


Ceiling is the applicable ceiling from the above table, and


 


Total Operating Cost excludes items 1-11 in Section 5.09(a)
above.


 


An amount payable pursuant to
this Section 5.09 (b) is a “Margin Adjustment Payment.”  Northwest shall add in or setoff, as appropriate,
any Margin Adjustment Payment in the next wire transfer due to Pinnacle.


 


(c)                                  Audit
of Total Operating Cost and the Margin. 
Northwest shall have the right to audit the calculation of the Total
Operating Cost, the Margin and the Margin Adjustment Payment, and shall report
any disputes to Pinnacle.  Any dispute
not reported to Pinnacle in writing within ninety (90) days of the receipt of
the audited financial statements and Margin calculation by Northwest shall be
deemed waived.  The payment in respect
of any dispute shall be handled as a disputed amount in accordance with Section 5.07.


 


Section 5.10     Rate
Adjustments.  For the
calendar year 2006, the Block Hour, Cycle, and Fixed Cost Rates will be
adjusted as described below.


 


(a)                                  One
Time Adjustment Factor.  Effective
for the twelve-month period beginning on January 1, 2006 (i) the Block
Hour Rate used for the 2005 calendar year will be multiplied by a One Time
Adjustment Factor (OTAF) and multiplied by (1 + CPPI), and (ii) the Cycle Rate
shall be calculated by multiplying the Base Cycle Rates for 2005 by (1 +
CPPIB)* (OTAF), and then calculating the weighted average of the resulting
rates.  These adjusted rates will be
used for the twelve-month period beginning January 1, 2006.  The OTAF will be calculated as follows:


 


1)                                                                                      Determine
Pinnacle’s actual operating expenses for the twelve-month period ending
December 31, 2005, excluding [***]


 


2)                                                                                      Determine
the actual payment made to Pinnacle for the twelve month period ending
December 31, 2005, excluding [***]


 


3)                                                                                      Divide
the result of step (1) by the result of step (2).


 


(b)                                 Inflation
Adjustment.  Effective for 2007, (i)
the Block Hour Rate used for 2006 will be multiplied by (1+CPPI), and (ii) the
Cycle Rate shall be calculated by multiplying the Base Cycle Rates for 2005 by
(1 + CPPIB)* (OTAF), and then calculating the weighted average of the resulting
rates, to establish the 2007 rates.


 


37

















 


(c)                                  Fixed
Cost Payment Adjustment.  Effective
for 2006 and 2007, the Fixed Cost Payment formula will be multiplied by the
OTAF.


 


(d)                                 Effective
for 2008 the payment rates and mechanisms set forth in Sections 5.02
through 5.06 will be re-set through good faith negotiations utilizing a
payment methodology consistent with the methodology utilized through 2007;
provided, however, that any increment above market pay rates for Pinnacle’s
employees, per the Parity Pay Agreement in Exhibit C, will not be considered in
re-setting such rates.  The rates for
2009, 2010, 2011 and 2012 will be determined by multiplying the prior year’s
rates by (1+CPPI).


 


(e)                                  So
long as this Agreement remains in effect, the payment rates and mechanisms set
forth in Sections 5.02 through 5.06 will be re-set every fifth
year through good faith negotiations, commencing with the rates effective for
2013, utilizing a payment methodology consistent with the methodology utilized
during the prior five (5) year period; provided, however, that any increment
above market pay rates for Pinnacle’s employees, per the Parity Pay Agreement
in Exhibit C, will not be considered in re-setting such rates.  The rates for the years between each
adjustment year will be determined by multiplying the prior year’s rates by (1
+ CPPI).


 


(f)                                    In
the event the parties are unable to reach agreement on new payment rates and
mechanisms through good faith negotiations, the rates will be set utilizing the
following procedure:  (i) the parties
shall attempt to agree upon an impartial industry expert to act as sole
arbitrator, provided that if the parties are unable to agree upon an expert to
so act, each party shall appoint an expert, and the two experts so appointed
shall appoint a third expert; (ii) each party shall submit a set of proposed
rates to the arbitrator(s); and (iii) the arbitrator(s) shall choose a set of
rates from those submitted without modifying either.


 


Section 5.11     Revised
Monthly Margin Calculation and Payment.  Effective January 1, 2008, the monthly
Margin Payment shall be calculated as follows:


 


Monthly Margin
Payment = (payments due to Pinnacle pursuant to Sections 5.03, 5.04,
5.05 and 5.06 (all adjusted pursuant to Section 5.10))
* MMR / (1-MMR)


 


Where, MMR is the Market Margin Rate.


 


Section 5.12     Revised
Annual Margin Adjustment Payment.  Effective for 2008 and each calendar year thereafter, the parties
will calculate Pinnacle’s Margin in accordance with Section 5.12(a)
and, if required pursuant to Section 5.12(b) below, one party will
make a Margin Adjustment Payment to the other party.


 


(a)                                  Calculation
of the Total Operating Cost and the Margin.  Not later than ninety (90) days following the end of 2008 and
each subsequent calendar year during the term of this Agreement, Pinnacle shall
deliver to Northwest its audited financial statements including the calculation
of its operating margin for Regional Airline Services provided under this
Agreement for the prior year (the “Margin”) by dividing (x) Pinnacle’s Total
Operating Income for Regional Airline Services for such year by (y) Pinnacle’s
Total Operating Revenue for Regional Airline Services for such year, subject to
the following:


 


38

















 


In calculating
the Margin, the amount of any incentives or penalties (accounted for as a
reduction to revenue) pursuant to Section 5.05, Section 5.13
and/or Section 5.14 below and any Saab rental revenue will not be
included in Pinnacle’s Total Operating Revenue, and the following expenses will
not be included in Pinnacle’s Total Operating Cost:


 


(1)                                  Increment
above predicted employee bonuses and incentives as set forth in Exhibit B
hereto.  Predicted bonus and incentive
levels are the amounts used in calculating the Block Hour, Cycle and Fixed cost
rates for 2007, grown each year by multiplying by (1 + CPPI).


 


(2)                                  The amount of any
penalties pursuant to Section 5.14 (if not accounted for as a
reduction to revenue).


 


(3)                                  The
amount of any depreciation expense associated with capital expenditures in
excess of $250,000 which are designated by Northwest as Section 5.13(a)(3)
items because Northwest has determined that such capital expenditures are not
necessary after taking into consideration the Annual Operating Plan and
Pinnacle’s obligations under this Agreement, within seventy-five (75) days
after receiving written notice from Pinnacle of such capital expenditure
pursuant to Section 6.01(a)(iv) below.


 


(4)                                  The
amount of any Fuel Burn Penalty Payment pursuant to Section 5.05(d) (if
not accounted for as a reduction to revenue).


 


(5)                                  The
amount of any asset write-downs (excluding normal depreciation) or
extraordinary charges as defined by GAAP.


 


(6)                                  Rental
expense associated with the Saab 340 fleet not flown by Pinnacle.


 


(7)                                  The
amount of any fines or penalties paid by Pinnacle to any governmental entity.


 


(8)                                  The
CRJ 200/440 Aircraft and Spare Engine return costs including termination costs
incurred by Pinnacle pursuant to Section 3.02 (b) above.


 


(9)                                  The amount of any
late payment charges, penalties and/or fees incurred by Pinnacle.


 


(10)                            The
amount of any payment from Pinnacle to Northwest pursuant to Section 5.13
(if not accounted for as a reduction to revenue).


 


The Margin shall be expressed as a decimal rounded to the fourth
place.  The calculation of the Margin
shall be derived from Pinnacle’s reported financial statements for such year
and shall be determined in accordance with GAAP.


 


(b)                                 Annual
Adjustment to Margin Payment


 


39

















 


With respect
to each calendar year effective 2008, if the Margin is greater than MMR but
less than or equal to (MMR + 0.05), Northwest shall receive from Pinnacle an
amount determined as follows:


 


Pnw = (Rev -
[Total Operating Cost/(1 - MMR)]) / 2


 


where,


 


Pnw is the
amount payable to Northwest,


 


Rev is Total
Operating Revenue for Regional Airline Services for the applicable calendar
year excluding the items listed in Section 5.12 (a), and


 


Total
Operating Cost excludes items 1-10 in Section 5.12(a) above.


 


With respect
to each calendar year effective 2008, if the Margin is greater than (MMR
+ 0.05), Northwest shall receive from Pinnacle an amount determined as follows:


 


Pnw = (Rev - [Total
Operating Cost/(0.975 - MMR)])


 


where,


 


Pnw is the amount
payable to Northwest,


 


Rev is Total Operating Revenue for
Regional Airline Services for the applicable calendar year excluding the items
listed in Section 5.12 (a), and


 


Total
Operating Cost excludes items 1-10 in Section 5.12(a) above.


 


An amount
payable pursuant to this Section 5.12(b) is a “Margin Adjustment
Payment.”  Northwest shall add in or
setoff, as appropriate, any Margin Adjustment Payment in the next wire transfer
due to Pinnacle.


 


(b)         Audit of Total
Operating Cost and the Margin. 
Northwest shall have the right to audit the calculation of the Total
Operating Cost, the Margin and the Margin Adjustment Payment, and shall report
any disputes to Pinnacle.  Any dispute
not reported to Pinnacle in writing within ninety (90) days of the receipt of
the audited financial statements and Margin calculation by Northwest shall be
deemed waived.  The payment in respect
of any dispute shall be handled as a disputed amount in accordance with Section 5.07.


 


Section 5.13     Non-Scheduled
Flight Refund.


 


With respect
to each calendar year during the term of this Agreement, Northwest shall
within thirty (30) days from the receipt of the final Block Hour and Cycle
Report received pursuant to Section 5.02 for the immediately preceding
year, calculate and notify Pinnacle of the ratio of actual Block Hours for
Non-Scheduled Flights to actual Block Hours for Scheduled


 


40

















 


Flights and the ratio of actual
Cycles for Non-Scheduled Flights to actual Cycles for Scheduled Flights.  In the event that either ratio exceeds
[***], Pinnacle shall remit to Northwest (through a set-off of the next amount
due from the Section 5.02 wire transfer) an amount equal to the
following:


 


Refund Calculation:


 


Actual Block
Hours and/or Cycles for Non-Scheduled Flights in excess of [***] of the actual
Block Hours and Cycles for Scheduled Flights, respectively, multiplied by the
Block Hour Rate and Cycle Rate, respectively, in effect for the immediately
preceding year pursuant to Section 5.03 and as adjusted pursuant to
Section 5.10, plus the amount of any Margin Payments previously paid by
Northwest to Pinnacle in connection with such excess Block Hours and/or Cycles;
provided, however, that no refund will be paid to Northwest with respect to
Non-Scheduled Flights which are Aircraft delivery flights.


 


Section 5.14     Incentives
and Penalties.


 


(a)          Pinnacle shall be
subject to certain performance incentives and penalties as described in this Section 5.14(a)
(“Performance Criteria”) which shall be added to or deducted from the Block
Hour Payment.  If Pinnacle exceeds any
operational criterion an incentive payment shall be made by Northwest.  If Pinnacle does not achieve the performance
criterion, then a penalty shall be charged against amounts owing to Pinnacle.
Any incentive payment or penalty charge incurred by meeting or failing to meet
Performance Criteria shall be made in the wire transfer due on the 30th day of
the second month following the end of the Performance Period in question
pursuant to Section 5.02(b). 
The applicable performance incentives and penalties are as follows:


 


(i)                                     Completion Factor
(calculated in accordance with Section 2.10 (a)):


 


	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Neutral

  	
   

  	
  Incentive

  	
   

  	
  Additional

  Incentive

  	
   

  
	
  Performance Level

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  
	
  Penalty/Incentive per enplaned revenue
  passenger

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


(ii)                                  On-Time Factors
(calculated in accordance with Section 2.10(b)):


 


Departure
[***]


 


	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Neutral

  	
   

  	
  Incentive

  	
   

  	
  Additional

  Incentive

  	
   

  
	
  Performance Level

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  
	
  Penalty/Incentive per enplaned revenue
  passenger

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


41

















 


Arrival [***]


 


	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Neutral

  	
   

  	
  Incentive

  	
   

  	
  Additional

  Incentive

  	
   

  
	
  Performance Level

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  [***]

  	
   

  	
  [***]

  	
   

  
	
  Penalty/Incentive per  enplaned revenue

  passenger

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


(iii)                               Luggage Mishandled
(calculated in accordance with Section 2.10 (c)):


 


	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Neutral

  	
   

  	
  Incentive

  	
   

  	
  Additional

  Incentive

  	
   

  
	
  Performance Level (incidents per [***]

  enplaned revenues passengers)

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  Penalty/Incentive per enplaned revenue
  passenger

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


(iv)                              Customer complaints
(calculated in accordance with Section 2.10 (d)):


 


	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Neutral

  	
   

  	
  Incentive

  	
   

  	
  Additional

  Incentive

  	
   

  
	
  Performance Level (incidents per [***]

  enplaned revenue passengers)

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  
	
  Penalty/Incentive per enplaned revenue

  passenger

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


The parties will review the
penalty and incentive levels for customer complaints after the first year this
Agreement is in effect and make such adjustments as are mutually agreed.


 


(b)                                 Reconciliation
of Performance Standards.  For each
Performance Period, (i) Northwest shall determine the total number of enplaned
revenue passengers on Scheduled Flights operated by Pinnacle, (ii) Pinnacle
shall prepare a reconciliation of its actual performance to the targeted
performance with respect to its completion factor and its on-time factor and
(iii)


 


42

















 


Northwest shall prepare a
reconciliation of Pinnacle’s actual performance to targeted performance with
respect to Pinnacle’s incidences of mishandled luggage and its number of
customer complaints. Such reconciliations will be completed and delivered to
the other within thirty (30) days after the end of each Performance
Period.  Northwest and Pinnacle will
have the right to audit the reconciliation prepared by the other and shall
report any discrepancies to the other. 
Any discrepancy not reported in writing within sixty (60) days of the
end of any Performance Period shall be deemed waived.  The payment of in respect of any discrepancy shall be handled as
a disputed amount in accordance with Section 5.07.


 


(c)                                  Additional
Performance Criteria.  During the
term of this Agreement, Northwest may propose other performance criteria for
Pinnacle’s operations pursuant to this Agreement.  The parties agree that they will meet upon the introduction of
additional performance goals for Northwest’s operations, to develop similar
performance targets for Pinnacle, taking into account the differences in
operations between the two companies, and shall use their best commercially
reasonable efforts to develop a system of incentives and penalties for
Pinnacle’s performance with respect thereto in a manner consistent with the
performance standards agreed to herein.


 


Section 5.15     Pinnacle
Change of Control.  In
the event a Pinnacle Change of Control shall have occurred, Sections
5.08, 5.09, 5.11 and 5.12 shall be terminated
effective immediately.


 


Section 5.16     Credit
Card Chargebacks.


 


(a)                                  Pinnacle
shall be billed for credit card chargebacks resulting from Pinnacle’s
noncompliance with Northwest’s credit card acceptance procedures.  Northwest shall apply the same card
acceptance procedures and standards to Pinnacle as applied to Northwest by Northwest’s
credit card contractors.  Northwest will
inform Pinnacle in writing regarding any material changes in Northwest’s
agreements with its credit card contractors to the extent such changes will
impact the procedures and standards to be applied by Pinnacle.


 


(b)                                 With
respect to all credit card charge forms returned to Pinnacle by Northwest,
Northwest will furnish Pinnacle with a complete written explanation of the
reason therefore accompanied by relevant documentation received from the credit
card issuer or credit card holder.


 


(c)                                  Upon
receipt of a chargeback, Pinnacle shall have a reasonable period of time, but
not to exceed 30 days, to review the validity of the chargeback notice.  If the chargeback is valid (within the scope
of the circumstances for the chargeback), Pinnacle shall remit to Northwest
within 30 days a gross amount equal to such credit card charge form.  If, in Pinnacle’s good faith opinion, the
chargeback is not valid, Pinnacle will so notify Northwest and provide
Northwest with a complete written explanation of the transaction together with
any necessary supporting documentation within the 30-day period.


 


(d)                                 All
revisions to Northwest’s credit card acceptance procedures must be in writing
and must be submitted to Pinnacle at least 30 days in advance of the effective
date of


 


43

















 


such procedures or such shorter
notification period as Northwest may utilize in notifying its own personnel.


 


Section 5.17     Returned
Checks.


 


(a)                                  Pinnacle
shall be billed pursuant to Section 5.07 above for all returned
checks resulting from Pinnacle’s non-compliance with Northwest’s check
acceptance procedures.


 


(b)                                 Northwest
will furnish Pinnacle with a complete written explanation of the reason
therefore, accompanied with the relevant documentation.


 


(c)                                  Pinnacle
shall refund Northwest the full amount of the dishonored check within 30
days.  If, in Pinnacle’s reasonable
opinion, the charge is not valid, Pinnacle will so notify Northwest and provide
Northwest with a complete written explanation of the transaction together with
any necessary supporting documentation within the 30-day period.


 


(d)                                 All
revisions to Northwest’s check acceptance procedures will be in writing and
will be submitted to Pinnacle at least 30 days in advance of the effective date
of such procedures or such shorter notification period as Northwest may utilize
in notifying its own personnel.


 


Section 5.18     Most
Favored Nations.  If a
Pinnacle Affected Company enters into an agreement with a Major Carrier to
provide regional airline services on terms and conditions that are in the
aggregate less favorable to the Pinnacle Affected Company than the terms and
conditions of this Agreement are to Pinnacle, Northwest and Pinnacle will amend
this Agreement (effective as of the date of the agreement with the Major
Carrier) to conform the terms and conditions of this Agreement to the terms and
conditions of the agreement with the Major Carrier.


 


ARTICLE VI


 


REPORTING
OBLIGATIONS,

AUDITING, INSPECTIONS AND CONFIDENTIALITY/PUBLICITY


 


Section 6.01     Reporting
Obligations.


 


(a)                                  Certain
Notices to Northwest.  Pinnacle shall
give prompt written notice to Northwest of (i) any litigation involving an
uninsured claim of more than $1,000,000 against Pinnacle, (ii) any proceeding
before any governmental agency which, if adversely determined, would materially
and adversely affect Pinnacle’s financial condition, affairs, operations or
prospects, (iii) any other matter which would materially and adversely affect
the financial condition, affairs, operations or prospects of Pinnacle or its
ability to perform its obligations under this Agreement, and (iv) any proposed
extraordinary capital expenditures and all capital expenditures in excess of
$250,000.  Pinnacle shall also provide
Northwest the reports specified


 


44

















 


in Section 2.11(a)
above and shall report to Northwest not later than the last day of each month
its completion factor and on-time factor for the prior month.


 


(b)                                 Financial
and Reporting Covenants.  Pinnacle and
all Affiliates of Pinnacle shall provide to Northwest promptly following the
filing or providing thereof copies of all financial statements, reports,
notices and proxy statements filed with or provided to the Securities and
Exchange Commission or the United States Department of Transportation.  Pinnacle shall also promptly provide to
Northwest notice of and adequate information regarding any material weaknesses
or reportable conditions noted in any management letters received by the
Company from its independent auditors and the company’s responses thereto.  Pinnacle and all Affiliates of Pinnacle
shall also provide Northwest with monthly financial statements, annual expense
budgets and periodic business plans and related projections.


 


(c)                                  Certain
Notices to Pinnacle.  Northwest shall
report to Pinnacle not later than the last day of each month the number of
incidences of mishandled luggage and the number of customer complaints for the
previous month related to the Regional Airline Services provided
hereunder.  Upon the reasonable prior
written request by Pinnacle, Northwest shall make available its books and
records related to incidences of mishandled luggage and customer complaints in
connection with the Regional Airline Services provided hereunder.


 


Section 6.02     Audits.


 


(a)                                  Compliance
Audits.  Upon the reasonable prior
written request by Northwest, Pinnacle shall make available its books and the
books of all of its Subsidiaries and Affiliates, including but not limited to
general ledger backup (monthly) for financial statements and records for
operations with respect to this Agreement for inspection by Northwest.
Northwest shall also be entitled to make copies and notes of such information
as it deems necessary and to discuss such records and the finances and accounts
of  Pinnacle and its Subsidiaries and
Affiliates with each Company’s Chief Financial Officer or other employee or
agent of Pinnacle knowledgeable about such records.


 


(b)                                 Inventory
Audits.  At Northwest’s request, during
the term of this Agreement Pinnacle and Northwest shall conduct an annual
inventory audit of all spare parts, tooling and ground support equipment owned
by Northwest and leased to Pinnacle or owned by Northwest and supplied to
Pinnacle.  Such audit shall not be requested
more than one time per calendar year. 
In conducting such audit, the parties shall tabulate the quantity and
type of all spare parts and ground support equipment including recognition of
spare parts and ground support equipment which were scrapped in the preceding
year(s). Such audit, when completed and agreed to by both parties, shall be
final.


 


Section 6.03     Inspections.  Northwest shall be entitled to conduct
on-site observations of Pinnacle’s in-flight service, flight, maintenance,
technical operations, gate-check in service, ground operations, Aircraft
cleaning and any and all other services and operations performed under this
Agreement to monitor Pinnacle’s operations in the same manner as similar
functions are evaluated at Northwest. 
The purpose of such inspections shall be to determine


 


45

















 


Pinnacle’s
compliance with applicable Governmental Regulations, state and local laws,
equipment manufacturer’s instructions and the standards established by this
Agreement.  Pinnacle’s operation will be
evaluated according to the same standard as Northwest taking into account the
differences in size and operational capabilities between the two airlines.  Such inspections may be announced or
unannounced, but under no circumstances shall they interfere with the operation
of Pinnacle’s business.  Northwest shall
report the findings of any such inspection to Pinnacle in writing.  Pinnacle shall provide a timely written
response detailing a plan of corrective action to remedy any deficiencies noted
in an inspection.  If any deficiency
comes to the attention of Pinnacle through audits or any other means, Pinnacle
shall take immediate corrective action.


 


Section 6.04     Confidentiality/Publicity.  Each of Northwest and Pinnacle agrees that,
except as otherwise required by Governmental Regulations or any other
applicable law, it shall not disclose to others and shall keep confidential the
terms of this Agreement and any confidential, non-public information concerning
the other that it obtains as a result of or pursuant to this Agreement.  Pinnacle shall not issue any press release
or public announcement relating to  new
Scheduled Flights, the cessation of Scheduled Flights in any Service City,
schedule changes, customer initiatives, marketing programs or promotions,
without Northwest’s prior written approval of the press release or public
announcement.  In any such press release
or public announcement, Pinnacle shall identify itself as a Northwest Airlink
carrier.


 


ARTICLE VII


 


NORTHWEST
IDENTIFICATION


 


Section 7.01     Identification
License.  Northwest
hereby grants to Pinnacle a non-exclusive, non-transferable, non-sublicensable
license to use the NW Identification in connection with its operation of the
Regional Airline Services as authorized hereunder.


 


Section 7.02     Designator
License.  Northwest
hereby grants to Pinnacle a non-exclusive, non-transferable, non-sublicensable
license to use the Designator in connection with its operation of the Scheduled
Flights as authorized hereunder.


 


Section 7.03     New
Identifications.  From
time to time in its sole discretion, Northwest may change any NW
Identifications and/or Designators upon notice to Pinnacle.  After receipt of such notice, Pinnacle shall,
as soon as practicable, but no later than thirty (30) days thereafter, commence
use solely of the new NW Identifications and/or Designators and cease all use
of any superseded ones.  Northwest shall
reimburse Pinnacle for the reasonable out-of-pocket expenses incurred by
Pinnacle in making such changes.


 


Section 7.04     Use
of Identification. 
Northwest shall have exclusive control over the use and display of all
NW Identifications and Designators, and Pinnacle shall comply with all policies
and guidelines of Northwest in this regard.  
Pinnacle shall use the NW Identifications and Designators in good faith,
in a dignified manner and in compliance with good trademark practice.  Pinnacle shall use the NW Identifications
and Designators exactly as prescribed by Northwest, and shall not use (i) any
stylization, abbreviation or variation thereof or


 


46

















 


(ii) the NW
Identifications and Designators in connection or combination with any other
Identification, in each case, without Northwest’s prior written consent, which
may be withheld in its sole discretion.


 


Section 7.05     Quality
Control.  Pinnacle shall
use the NW Identifications and Designators only in connection with products and
services that comply with the high standards of quality associated with
Northwest. At Northwest’s request, Pinnacle shall submit representative samples
to Northwest of all uses by Pinnacle of the NW Identifications and Designators
pursuant to this Agreement, including Sections 2.02, 4.03(f), 4.07(d)
and 4.09(e).  Pinnacle shall
receive the prior written approval of Northwest for any new uses of the NW
Identifications and Designators, including on any advertising and promotional
materials.  Once such approval is
received, Pinnacle need not resubmit such materials for approval unless they
contain non-trivial modifications.


 


Section 7.06     Reservation
of Rights.  All rights
not expressly granted to Pinnacle hereunder are expressly reserved by
Northwest, including without limitation the right to use or license others to
use any NW Identifications or Designators. 
Pinnacle shall not use the NW Identification or Designator except as
expressly authorized herein, and has no right to use any other Identification
of Northwest other than the specific NW Identification in the exact form
prescribed by Northwest from time to time.


 


Section 7.07     Ownership.  Pinnacle hereby acknowledges that, as
between the parties, Northwest is the sole owner of the names “Northwest” and
“Northwest Airlink,” the initials “NW,” and any Designators or NW
Identifications related thereto or otherwise licensed to Pinnacle
hereunder.  Pinnacle agrees not to
directly or indirectly question attack, contest or impugn the validity and/or
Northwest’s rights in the Designators and NW Identifications, including without
limitation by attempting to register title to or any intellectual property
rights in same or by participating in any action or proceeding adverse to
Northwest in this regard.  Pinnacle agrees
to cooperate fully with Northwest in all actions to enforce, police and defend
Northwest’s rights in the Designators and NW Identifications, subject to
reimbursement for its out-of-pocket expenses.


 


Section 7.08     Termination.  Should this Agreement expire or terminate
for any reason, the licenses in Sections 7.01 and 7.02 shall
immediately terminate (although Sections 7.07 and 7.08 shall
survive), and Pinnacle shall promptly, but in any event within ninety (90) days
(one hundred twenty (120) days with respect to any distinctive color scheme),
take all such actions as may be necessary to change its facilities, equipment,
uniforms, supplies and other materials to cease all use of any Designators and
NW Identifications and to avoid any customer confusion or the suggestion or
appearance that Pinnacle continues to have an operating relationship with
Northwest.


 


Section 7.09     Bankruptcy.  The parties intend that the identity of
Pinnacle as the licensee hereunder is a material condition to Northwest’s
granting of the licenses in 7.01 and 7.02, and that this Agreement should be
construed overall as a contract for the personal services of Pinnacle.  Therefore, in the event Pinnacle becomes
subject to a bankruptcy proceeding, the parties intend that this Agreement
shall not be assumed and/or assigned by Pinnacle or its representative without
Northwest’s consent.


 


47

















 


ARTICLE VIII


 


TAXES AND FEES


 


Section 8.01     Taxes
and Fees.


 


(a)                                  Pinnacle
shall be liable for and pay the amount of any taxes (other than Ticket Taxes
and Fees which are addressed separately in Section 8.02 below), duties,
license fees, assessments, and other charges, together with any interest and
penalties thereon, levied, assessed, or imposed by any federal, foreign, state
or local taxing or airport authority related or attributable to (i) the
property owned or used by Pinnacle, and (ii) the performance of Regional
Airline Services pursuant to this Agreement.


 


(b)                                 Excluded
from the coverage of Section 8.01(a) are any taxes based on the net
income of Northwest.


 


Section 8.02     Ticket
Taxes and Fees.


 


(a)                                  For
all sales by Pinnacle using Northwest ticket stock or air waybills, Pinnacle
shall be responsible for (1) collecting all Ticket Taxes and Fees, and (2)
remitting such Ticket Taxes and Fees to Northwest at the same time as the
revenues to which the Ticket Taxes and Fees relate are received by
Northwest.  Northwest then shall be
responsible for remitting to the appropriate governmental entities and taxing
authorities Ticket Taxes and Fees remitted by Pinnacle to Northwest.


 


(b)                                 Pinnacle
shall indemnify, defend, and hold harmless Northwest and its current or former
officers, directors, employees, agents, and its affiliates (the “NW
Indemnitees”) from and against all assessments or payments for Ticket Taxes and
Fees related to all sales by Pinnacle using Northwest ticket stock or air
waybills, and any interest and/or penalties related thereto.  This indemnification specifically includes,
but is not limited to, assessments or payments under Sections 4261, 4263, 4271,
4291, 6662, 6672, 6861 or 7275 of the Internal Revenue Code of 1986, as
amended, and any successor provisions. 
Pinnacle further agrees as part of this indemnification to reimburse the
NW Indemnitees for any reasonable out-of-pocket expenses, including attorneys’
fees and expenses, the NW Indemnitees have incurred in connection with any such
assessment or payment.  The obligations
of Pinnacle under this Section 8.02(b) shall remain in effect and
shall survive without limitation the termination of this Agreement.


 


Section 8.03    Property Tax, Fuel Tax, and Sales and Use Tax Compliance.


 


(a)                                  On
the date thirty (30) days after Northwest hires an appropriate individual to
prepare Pinnacle property tax returns (the “Commencement Date”) Northwest shall
become responsible for administering Pinnacle’s property taxes, both real
property and personal property. 
Northwest shall be responsible for notifying Pinnacle in writing of the
Commencement Date.  As of the
Commencement Date, Northwest shall prepare all property tax returns once the
appropriate information is gathered by Pinnacle and Northwest.  Northwest shall prepare the


 


48

















 


property tax returns with the
same care, diligence, and expertise used in filing the property tax returns of
Northwest.  As of the Commencement Date,
Northwest also shall be responsible for (1) the review of Pinnacle’s property
tax assessment notices and accompanying workpapers, and the resolution of any
disputes regarding such notices; (2) the review of Pinnacle’s property tax
bills; (3) the preparation and filing of any property tax refund claims; and
(4) the management of any audits of Pinnacle’s property taxes.  Northwest and Pinnacle shall cooperate to
ensure that Pinnacle’s property tax returns, refund claims, and property tax
bills are reviewed and signed by the properly authorized individual(s).  Depending on who signs the property tax
returns or refund claims, Northwest and Pinnacle shall cooperate to ensure the
timely filing of such property tax returns and refund claims.


 


(b)                                 With
respect to fuel taxes, Northwest and Pinnacle shall cooperate to ensure that
Pinnacle is filing appropriate fuel tax returns and refund claims to minimize
Pinnacle’s taxes.  Northwest shall
determine which entity, Northwest or Pinnacle, shall be responsible for
preparing and filing appropriate fuel tax returns and refund claims.  Unless Northwest determines otherwise and
notifies Pinnacle in writing, Pinnacle shall be responsible for all Pinnacle
fuel tax filings and payments. Upon the request of Northwest, Northwest shall
be entitled to review any actual or proposed Pinnacle fuel tax filings.  Pinnacle shall notify Northwest of the
commencement of any fuel tax audit. Prior to resolving any fuel tax audit,
Pinnacle shall receive approval from Northwest to resolve any such audit.


 


(c)                                  With
respect to sales and use taxes, Northwest and Pinnacle shall cooperate to
ensure that Pinnacle is filing appropriate sales and use tax returns and refund
claims to minimize Pinnacle’s taxes. 
Northwest shall determine which entity, Northwest or Pinnacle, shall be
responsible for preparing and filing appropriate sales and use tax returns and
refund claims.  Unless Northwest
determines otherwise and notifies Pinnacle in writing, Pinnacle shall be
responsible for all Pinnacle sales and use tax filings and payments.  Upon the request of Northwest, Northwest
shall be entitled to review any actual or proposed Pinnacle sales and use tax
filings. Pinnacle shall notify Northwest of the commencement of any sales or
use tax audit. Prior to resolving any sales or use tax audit, Pinnacle shall
receive approval from Northwest to resolve any such audit.


 


(d)                                 To
the extent requested by Northwest, Pinnacle shall cooperate with Northwest to
minimize Pinnacle’s property, fuel, excise, sales, use, value-added, or similar
transactional taxes.  Pinnacle shall in
good faith and using reasonable best efforts supply Northwest with such information
and documents reasonably requested by Northwest to minimize Pinnacle’s
property, fuel, excise, sales, use, value-added, or similar transactional
taxes.  Unless Northwest determines
otherwise, Pinnacle shall use its reasonable best efforts to seek any and all
applicable refunds or credits of excise, sales, use, value-added, or similar
transactional taxes paid by Pinnacle.


 


Section 8.04     Refunds
of Tax.  To the extent
Northwest prepares and/or is responsible for pursuing any refunds or refund
claims related to Pinnacle’s fuel, excise, sales, use, value-added or similar
transactional taxes, Northwest shall be entitled to retain one hundred percent
(100%) of the amount of any such refund, credit or other benefit.  To the extent Pinnacle prepares or is
responsible for pursuing any such refunds or refund claims, Pinnacle shall
retain thirty percent (30%) of the amount of any such refund, credit or other
benefit (inclusive of interest) it receives,


 


49

















 


and the remaining seventy
percent  (70%) (inclusive of interest)
shall be paid to Northwest within ten (10) days of its receipt or recognition
of benefit by Pinnacle.  Any refunds,
credits or other benefits received related to Pinnacle’s property taxes will be
retained by Pinnacle and will act to reduce Pinnacle’s direct expenses pursuant
to Section 5.06(1).


 


ARTICLE IX


 


LIABILITY,
INDEMNIFICATION AND INSURANCE


 


Section 9.01     Independent
Contractor.


 


(a)                                  Except for the
limited purpose described in Section 5.01 hereof, Pinnacle shall
act as an independent contractor.  The
employees, agents and/or independent contractors of Pinnacle engaged in
performing any of the services Pinnacle is obligated to perform pursuant to
this Agreement shall be employees, agents and independent contractors of
Pinnacle for all purposes and under no circumstances shall employees, agents or
independent contractors of Pinnacle be deemed to be employees, agents or
independent contractors of Northwest. 
Except for the limited purpose described in Section 5.01
hereof, in its performance of obligations under this Agreement, Pinnacle shall
act, for all purposes, as an independent contractor and not as an agent for
Northwest.  Northwest shall have no
supervisory power or control over any employees, agents or independent contractors
engaged by Pinnacle in connection with Pinnacle’s performance of its
obligations hereunder, and all complaints or requested changes in procedure
shall, in all events, be transmitted by Northwest to a designated
representative of Pinnacle.  Nothing
contained in this Agreement is intended to limit or condition Pinnacle’s
control over its operation or the conduct of its business as an air carrier,
and Pinnacle assumes all risks of financial losses which may result from the
operation of the air services to be provided by Pinnacle hereunder.


 


(b)                                 Northwest shall act as
an independent contractor. The employees, agents and/or independent contractors
of Northwest engaged in performing any of the services Northwest is to perform
pursuant to this Agreement shall be employees, agents and independent
contractors of Northwest for all purposes and under no circumstances shall
employees, agents and independent contractors of Northwest be deemed to be
employees, agents or independent contractors of Pinnacle.  In performing its obligations under this
Agreement, Northwest shall act, for all purposes, as an independent contractor
and not as an agent for Pinnacle. 
Pinnacle shall have no supervisory power or control over any employees,
agents or independent contractors engaged by Northwest in connection with the
performance of its obligations hereunder, and all complaints or requested
changes in procedure shall, in all events, be transmitted by Pinnacle to a
designated representative of Northwest. 
Nothing contained in this Agreement is intended to limit or condition
Northwest’s control over its operation or the conduct of its business as an air
carrier.


 


Section 9.02     Indemnification.


 


(a)                                  Each party assumes
full responsibility for any and all liability to its own officers, employees or
agents on account of injury or death resulting from or sustained in the
performance of their respective services under this Agreement.  Each party shall indemnify, defend, protect,
save and hold harmless the other party, its officers, employees, and agents
from


 


50

















 


and against any and all liabilities, claims,
demands, suits, judgments, damages and losses (including the costs, fees and
expenses in connection therewith and incident thereto) brought against the
other party, its officers, employees or agents by or on behalf of any other
person, by reason of damage to or destruction of property of any such person,
or injury to or death of such person, caused by or arising out of any act or
omission by the indemnifying party occurring while this Agreement is in
effect.  Notwithstanding the foregoing,
neither party shall be liable for indemnifying the other for claims of third
parties if caused by the gross negligence or willful misconduct of the other.  Each party shall give the other party prompt
and timely notice if it has actual knowledge of any claim made or suit
instituted against the other party which in any way results in indemnification
hereunder, and the other party shall have the right to compromise or
participate in the defense of such claim or suit to the extent of its own
interest.


 


(b)                                 Northwest
shall indemnify Pinnacle against any physical loss of or damage to the Aircraft
caused by Northwest’s negligent operation of ground support equipment or other
acts or omissions of Northwest in performing Ground Handling Functions pursuant
to Section 4.02 above; provided, however, that Northwest’s
liability shall be limited to any such loss or damage to the Aircraft not
exceeding the amount of the deductible with respect to such Aircraft under
Pinnacle’s hull risk insurance policy, except that loss or damage in respect of
any incident below $3,000 shall not be indemnified.  For the avoidance of doubt, Northwest shall not be liable to
Pinnacle for any consequential loss or damage arising from physical loss of or
damage to the Aircraft, and Pinnacle shall not make any claim against Northwest
and shall indemnify it against any liability in respect of any and all such
consequential loss or damage howsoever arising.


 


(c)                                  The
obligations of Pinnacle and Northwest under the indemnity and insurance
provisions contained herein shall remain in effect and shall survive without
limitation the termination of this Agreement with respect to any occurrence or
claims arising during the term of or in connection with this Agreement.


 


Section 9.03     Insurance.


 


(a)                                  Pinnacle
agrees, at its sole expense, to maintain in full force and effect the following
insurance coverage with respect to Regional Airline Services:


 


(1)                                  Workers’ compensation
and occupational disease insurance, subject to the laws of the states wherein
this Agreement is being performed.  Such
coverage shall include employers liability insurance with a minimum limit of
$1,000,000 per incident.


 


(2)                                  Comprehensive
aviation bodily injury and property damage liability insurance with limits of
not less than $1 billion combined single limit per occurrence (or such other
minimum amount as may be reasonably requested by Northwest from time to time in
the event Pinnacle no longer obtains airline liability insurance coverage as
part of the Northwest’s aviation insurance placement), including, but not
limited to, aircraft liability, passenger legal liability, premises and
property damage liability, hangar keepers liability and baggage and cargo
liability.  Such insurance shall include
personal injury and contractual liability, and shall also include war risk and
allied perils, hijack and confiscation coverage with a limit of not less than
$1 billion per incident.


 


51

















 


(3)                                  All risk hull
insurance on the Aircraft, including hull war risk coverage as required by
Northwest.


 


(b)                                 Prior
to the commencement of Regional Airline Services under this Agreement and at
least annually thereafter, certificates of insurance in a form satisfactory to
Northwest shall be delivered to Northwest evidencing compliance with the
insurance terms of this Agreement.  All
of the above policies shall have deductible amounts as established by
Northwest, and, in any event, all of the above insurance shall be written
through an insurance company or companies reasonably satisfactory to Northwest,
and the certificates of insurance shall be of a type that unconditionally
obligates the insurer to notify Northwest in writing at least thirty (30) days
(or such lesser period as may be available for war peril coverage) in advance
of the effective date in the event of any material change in or cancellation of
such insurance.  The policies of
insurance required by paragraphs (2) and (3) of Section 9.03(a)
shall provide coverage for events which occur during the policy period, are
continuing in nature and not on a claims made basis, and shall include
endorsements that provide:


 


(1)                                  That
the Underwriters acknowledge that the indemnification and hold harmless
provisions of this Agreement are insured under Pinnacle’s blanket contractual
liability coverage.


 


(2)                                  That
Northwest, its officers, agents and employees are named as additional insureds
thereunder.


 


(3)                                  That
the insurance is primary with respect to the matters within such coverage,
irrespective of any insurance carried by Northwest.


 


(4)                                  That
with respect to the interest of Northwest, the insurance shall not be
invalidated by any breach of warranty by Pinnacle.


 


(5)                                  That
provide a severability of interest/cross liability endorsement.


 


(6)                                  That
the insurer shall waive its subrogation rights against Northwest, its officers,
agents and employees.


 


(7)                                  That
any waiver of rights of subrogation against other parties by Pinnacle will not
affect the coverage provided with respect to Northwest.


 


The parties
acknowledge and agree that endorsements (2) through (7) above are only
applicable in the event Pinnacle obtains liability insurance coverage that is
not part of Northwest’s aviation insurance placement.


 


(c)                                  In
the event the U.S. Government reimburses Pinnacle or its Affiliates for excess
insurance costs incurred as a result of the September 11, 2001 terrorist
attacks or other such occurrences, Pinnacle will promptly remit such
reimbursement, including the applicable Margin Payment, if any, to Northwest in
immediately available funds.


 


52

















 


ARTICLE X


 


TERM AND
TERMINATION


 


Section 10.01
    Term. 
This Agreement shall commence on and shall be effective as of
March 1, 2002 (the “Effective Date”) and, unless earlier terminated as
provided herein, shall continue in effect until February 29, 2012 and
shall thereafter automatically be extended for successive five (5) year renewal
periods (each a “Renewal Term”) unless 
Northwest gives not less than two years’ advance notice of non-renewal
prior to February 29, 2012 or the commencement of any Renewal Term, in
which case the Agreement will terminate on February 29, 2012 or the last
day of the then applicable Renewal Term, as the case may be.


 


Section 10.02     Termination
by Either Party.


 


(a)                                  In
the event that Pinnacle or Northwest (i) makes a general assignment for the
benefit of creditors or becomes insolvent, (ii) files a voluntary petition in
bankruptcy, (iii) petitions for or acquiesces in the appointment of any
receiver, trustee or similar officer to liquidate or conserve its business or
any substantial part of its assets, (iv) commences under the laws of any
competent jurisdiction any proceeding involving its insolvency, bankruptcy,
reorganization, readjustment of debt, dissolution, liquidation or any other
similar proceeding for the relief of financially distressed debtors, (v)
becomes the object of any proceeding or action of the type described in (iii)
or (iv) above and such proceeding or action remains undismissed or unstayed for
a period of at least thirty (30) days, or (vi) is divested of a substantial
part of its assets for a period of at least thirty (30) days, then any of the other
parties may by written notice terminate this Agreement immediately.


 


(b)                                 Except
as otherwise provided in Section 10.03, in the event of a breach of
a nonmonetary provision of this Agreement by either party remaining uncured for
more than thirty (30) days after receipt of written notification of such
default by the nondefaulting party, or in the case of a breach requiring more
than thirty (30) days notice to cure, the defaulting party does not begin and
pursue with due diligence a method of cure within thirty (30) days after
receipt of written notification specifying in reasonable detail the nature of
such default from the nondefaulting party, then the nondefaulting party may
terminate this Agreement at its sole option.


 


(c)                                  In
the event of a breach of a monetary provision of this Agreement by either party
and such default remaining uncured for more than thirty (30) days after receipt
of written notification specifying in reasonable detail the nature of such
default from the nondefaulting party, then the nondefaulting party may
terminate this Agreement at its sole option.


 


Section 10.03     Termination
by Northwest. 
Notwithstanding the provisions of Section 10.02(b),
Northwest shall have the right to terminate this Agreement immediately and at
its sole option if:


 


53

















 


(a)                                  Pinnacle
shall default in the payment of any amount due under any Lease and such default
shall continue for more than the period of grace, if any, specified therein and
shall not have been waived.


 


(b)                                 Pinnacle
shall default with respect to any other terms of any Lease, such default shall
continue for more than the period of grace, if any, specified therein and shall
not have been waived.


 


(c)                                  Pinnacle
shall fail to comply with the provisions of Section 9.03 and, as a
result thereof, the insurance required thereunder is not in effect.


 


(d)                                 Pinnacle shall fail to
comply with the provisions of Section 6.03.


 


(e)                                  More
than fifty percent (50%) of the Aircraft do not operate any Scheduled Flights
for more than seven (7) consecutive days or twenty-five percent (25%) of the
Aircraft do not operate any Scheduled Flights for more than twenty-one (21)
consecutive days, other than as a result of (1) an FAA order which grounds all
commercial flights of all air carriers or grounds a specific Aircraft type of
all air carriers, (2) a scheduling action by Northwest, or (3) Northwest’s
inability to perform its obligations under this Agreement as a result of a
strike by Northwest employees.


 


(f)                                    Pinnacle’s
FAA or DOT Certification is for any reason suspended or revoked or otherwise
not in full force and effect so as to permit Pinnacle to perform the Regional
Airline Services required under this Agreement.


 


(g)                                 A
Pinnacle Change of Control shall have occurred.


 


(h)                                 Pinnacle
or a Pinnacle Affected Company shall commence operating an aircraft type which
causes Northwest to be in violation of its collective bargaining agreement with
its pilots or a Pinnacle Affected Company operates an aircraft with more seats
than the greater of (i) forty-four (44) seats, and (ii) the highest number of
seats that a jet aircraft may have and still have one fewer seat than an
aircraft defined as a “regional jet” under Northwest’s collective bargaining
agreement with its pilots.


 


(i)                                     The
person elected to replace Philip H. Trenary as Chief Executive Officer of
Pinnacle and any successor Chief Executive Officer of Pinnacle shall not be
reasonably acceptable to Northwest.


 


(j)                                     Pinnacle
shall default with respect to the material terms of any other agreement between
Pinnacle and Northwest, and such default shall continue for more than the
period of grace, if any, specified therein and shall not have been waived.


 


54

















 


ARTICLE XI


 


MISCELLANEOUS


 


Section 11.01     Limitation
on Performance.  The
obligation of either Northwest or Pinnacle to perform under the terms of this
Agreement shall be limited or modified by, and neither carrier shall be deemed
to be in default hereunder as a result of any of the following causes:


 


(a)                                  Acts
of God or the public enemy, civil war, insurrections or riots; fires, floods,
explosions, embargoes, earthquakes or serious accidents, epidemics, or
quarantine restrictions; any act of government, governmental priorities, allocations,
orders or Governmental Regulations affecting materials or facilities, inability
after due and timely diligence to procure materials, accessories, equipment or
parts; or due to any other cause to the extent it is beyond that carrier’s
practical control or not occasioned by that carrier’s fault or negligence.


 


(b)                                 Cessation,
slow-down or interruption of work, or any other labor disturbance involving
Northwest.


 


Section 11.02     Mutual
Cooperation.  Northwest
and Pinnacle shall use their reasonable best efforts to cooperate with each
other in performing their respective obligations under this Agreement.


 


Section 11.03     Representations
and Warranties.  Except
as expressly set forth herein, neither Northwest nor Pinnacle shall make any
representations or warranties, expressed or implied, under or in connection
with this Agreement.


 


Section 11.04     Assignment.  This Agreement may not be assigned by any
party without the prior written consent of the other parties.


 


Section 11.05     Governing
Law.  This Agreement
shall be governed in accordance with the laws of the State of Minnesota,
notwithstanding the choice of law provisions thereof.


 


Section 11.06     Interline
and Other Agreements. 
Northwest agrees, to the extent it has the right to do so, to permit
Pinnacle to avail itself of all its rights, privileges and amenities pursuant
to its interline agreements and all industry trade or other agreements between
Northwest and any other air carriers. Northwest shall take all action and
execute such documents as may be necessary to enable Pinnacle to avail itself
of the maximum benefits afforded by such agreements.  Subject to Northwest’s prior written approval, Pinnacle may enter
interline agreements with air carriers other than those air carriers covered by
the two preceding sentences.


 


Section 11.07     Notices.  All notices given hereunder shall be given
in writing and shall be delivered in person or deposited in the United States
mail, certified or registered mail, return receipt requested, with adequate
postage prepaid, or given by Pinnacle courier, telex, facsimile, or other
expedient written means, addressed as follows:


 


55

















 


	
  If to Northwest:

  	
   

  	
  Northwest
  Airlines, Inc.

  Department A6100

  2700 Lone Oak Parkway

  Eagan, Minnesota 55121

  Attn: Vice President – Market Planning

  Facsimile No: (612) 727-7113

  
	
   

  	
   

  	
   

  
	
  With copies to:

  	
   

  	
  Northwest
  Airlines, Inc.

  Department A1180

  2700 Lone Oak Parkway

  Eagan, Minnesota 55121

  Attn: General Counsel

  Facsimile No: (612)726-7123

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Northwest
  Airlines, Inc.

  Department A6030

  2700 Lone Oak Parkway

  Eagan, Minnesota 55121

  Attn: Director of Airlink Planning

  Facsimile No: (612) 727-7110

  
	
   

  	
   

  	
   

  
	
  If to Pinnacle :

  	
   

  	
  Pinnacle
  Airlines, Inc.

  1689 Nonconnah Parkway

  Suit 111

  Memphis, Tennessee  38132

  Attn: President

  Facsimile No: 901-348-4103

  



 


or to such other address as the
respective parties hereto shall designate by notice in writing to the other
party.  Notices shall be deemed received
and given on the date of delivery or the date of refusal of delivery as shown
by the return receipt.


 


Section 11.08     Parties.  Except as provided to the contrary herein,
this Agreement, and the rights and obligations created hereunder, shall be
binding upon and inure to the benefit of the respective parties hereto and
their respective successors and permitted assigns.


 


Section 11.09     Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one agreement.


 


Section 11.10     Severability.  If any term of this Agreement shall be
judicially determined to be illegal, invalid or unenforceable at law or in
equity, it shall be deemed to be void and of no force and effect to the extent
necessary to bring such term within the provisions of any such applicable law
or laws, and such terms as so modified and the balance of the terms of this
Agreement shall remain enforceable.


 


56

















 


Section 11.11     Captions,
Section Headings and Table of Contents.  Captions, section headings and the
Table of Contents used herein are for convenience only and are not a part of
this Agreement and shall not be used in construing it.


 


Section 11.12     Availability
of Equitable Remedies; Procedures.


 


(a)                                  In
the event of a breach by either party of any provision of this Agreement, the
nonbreaching party may give notice thereof to the breaching party, which notice
shall specify in reasonable detail the nature of the breach and shall demand
that the breaching party either cure the breach or refrain from conduct
constituting the breach (herein the “conduct”), as may be applicable.  If (i) the breaching party has not cured the
breach or refrained from the conduct, as may be applicable, within ten (10)
days following receipt of the notice from the nonbreaching party, or (ii) the
breaching party does not begin within ten (10) days following receipt of the
notice to pursue with reasonable diligence a method of cure or begin to take
steps toward ceasing the conduct where the breach or conduct is such that it
requires more than ten (10) days to cure or to cease, as may be applicable,
then the nonbreaching party may seek to compel performance by the breaching
party in accordance with the provisions of paragraph (b) below.  If, upon receiving a notice contemplated by
this paragraph (a), a breaching party believes that a breach has not occurred
or that the conduct specified in the notice does not constitute a breach of the
provisions of this Agreement, but the breaching party nonetheless cures the
alleged breach or refrains from the conduct within ten (10) days following
receipt of such notice, such party may thereafter proceed in accordance with
the provisions of paragraph (b) below to seek a determination of whether a breach
occurred or whether the specified conduct constituted a breach of the
provisions of this Agreement.


 


(b)                                 Because
a breach of the provisions of this Agreement could not adequately be
compensated by money damages, any party shall be entitled, following notification
in accordance with the provisions of paragraph (a) above, to an injunction
restraining such breach or threatened breach and to specific performance of any
provision of this Agreement and, in either case, no bond or other security
shall be required in connection therewith, and the parties hereby consent to
the issuance of such injunction and to the ordering of specific
performance.  Further, in the event any
party refrains from the conduct of any activity alleged in a notice received
pursuant to paragraph (a) above to constitute a breach of the provisions of
this Agreement, such party may thereafter proceed promptly to bring an action
in the District Court, County of Hennepin, State of Minnesota, for an expedited
judicial determination as to whether the conduct specified constitutes a breach
of the provisions of this Agreement and, upon a determination that the conduct
does not constitute a breach, such party may promptly thereafter recommence
such conduct.


 


Section 11.13     Exhibits.  The Exhibits attached hereto are intended to
be an integral part of this Agreement and are incorporated into the Agreement
by reference for all purposes.


 


Section 11.14     Integration
and Entire Agreement. 
This Agreement (including the Exhibits) and the ancillary documents
entered into in connection therewith are intended by the parties as a complete
statement of the entire agreement and understanding of the parties with respect
to the subject matter hereof and all matters between the parties related to the


 


57

















 


subject matter herein and
therein set forth.  This Agreement may
only be amended or modified by a written agreement between Pinnacle, on the one
hand, and Northwest, on the other, which specifically references this Agreement
and expressly provides for such amendment.


 


Section 11.15     Relationship
of Parties.  Nothing in
this Agreement shall be interpreted or construed as establishing between the
parties a partnership, joint venture or other similar arrangement.


 


IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the date and
year first above written.  


 


	
  PINNACLE
  AIRLINES, INC.

  	
  NORTHWEST
  AIRLINES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Curtis
  E. Sawyer

  	
   

  	
  By: 

  	
  /s/ James J.
  Cron

  	
   

  
	
  Vice President and CFO

  	
  Vice President, Market

  Planning and Airlink

  
						



 


58

















 


EXHIBIT
A


 


HUB
CITY FACILITY CHARGES


 


Rental rates chargeable to
Pinnacle for the sub-leased space at the Hub Cities shall be as follows:


 


MSP — [***]
per month


 


DTW — [***]
per month


 


MEM — [***]
per month


 


1

















 


EXHIBIT B


PREDICTED EMPLOYEE
BONUSES AND INCENTIVES


 


 


	
   

  	
   

  	
  2002 –

  Mar-Dec

  	
   

  	
  2003

  	
   

  	
  2004

  	
   

  	
  2005

  	
   

  	
  Subsequent

  Years

  	
   

  
	
  Employee
  Bonuses & Incentives

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  



 


1

















 


EXHIBIT
C


 


PARITY
PAY AGREEMENT


 


Parity
Pay Agreement


 


The parties agree that labor
costs resulting from pay rates in excess of Parity Pay Rates for the pilot,
flight attendant, customer service/reservations agent, ramp service, and
mechanic workgroups will be excluded from Total Operating Cost when calculating
the Margin pursuant to Section 5.10(a) and 5.13(a).


 


The parties agree that labor
costs resulting from any significant work rule and/or Premium changes, in lieu
of above Parity Pay Rates will be excluded from Total Operating Cost when
calculating the Margin pursuant to Section 5.10(a) and 5.13(a).


 


The parties agree that labor
costs resulting from benefits which are in excess of industry parity for the
pilot, flight attendant, customer service/reservations agent, ramp service, and
mechanic workgroups will be excluded from Total Operating Cost when calculating
the Margin pursuant to Section 5.10(a) and 5.13(a).


 


The following definitions are
used throughout this parity pay agreement:


 


“Comparison
Airlines” shall have the meaning throughout
Exhibit C as the five largest (by revenue) publicly traded U.S. domestic
regional airlines operating primarily regional jet aircraft.


 


“Premiums”
shall mean separate line, longevity, shift, license, skill or other premiums.


 


“RAA”
shall mean the Regional Airline Association,
Washington, D.C.


 


Definitions provided in the
sections below are applicable only to the section in which such terms appear.


 


Pilot and Flight Attendant Employees


 


A. 
Procedures


 


Pinnacle’s Pay Rates for the
pilot and flight attendant workgroups plus hourly impact of any Bonus Rate are
compared to Parity Pay Rates.


 


If Pay Rates exceed Parity Pay
Rates in any classification, the labor cost for that classification will be
multiplied by the overage percentage and such product will be deducted from
Total Operating Cost for purposes of calculating the Margin.


 


Significant work rule and
Premiums changes are evaluated on a case by case basis.


 


B. 
Definitions


 


“Pay Rates”
shall be the top of scale hourly rates of pay excluding Premiums.


 


1

















 


“Bonus Rate”
shall be the average bonus payment divided by the timeframe covered (based on 2,080
hours per year).


 


“Parity Pay Rates”
shall be the simple average of the Pay Rates at the Comparison Airlines within
a classification.  In the event that a
comparison airline reduces or eliminates its Premiums and simultaneously
increases its basic hourly rates, the portion of the basic hourly rate equal to
the Premiums shall be excluded in determining Parity Pay Rates.


 


Customer Service/Reservations Agent, Ramp
Service and Mechanic Employees


 


A. 
Procedures


 


Pinnacle’s actual Pay for
customer service/reservations agent, ramp service, and mechanic workgroups is
compared to projected Parity Pay.


 


If Pay exceeds Parity Pay in
any classification, the difference will be deducted from Total Operating Cost
for purposes of calculating the Margin.


 


Significant work rule and
Premiums changes are evaluated on a case-by-case basis.


 


B. 
Definitions


 


“Pay”
is the sum of all customer service/reservation, agent, ramp service and
mechanic employees pay, including any bonus payments, within a classification
(i.e. customer service agents) and shall exclude Premiums and any overtime
premium.


 


“Parity Pay”
shall be the sum of all customer service/reservation, agent, ramp service and
mechanic employees Pay re-calculated using the Parity Pay Scale in place of
actual Pay rates.


 


“Parity Pay Scale”
shall be constructed by taking the average pay rates for Pay steps for all
levels new hire to year 10 (top step) of the Comparison Airlines as reported by
the RAA.


 


Benefits - All Employees


 


A. 
Procedures


 


Pinnacle’s actual Benefits for
all above employee groups are compared to the average Benefits of the same or
similar classifications of the Comparison Airlines as reported by the RAA.


 


B. 
Definitions


 


“Benefits”
include but are not limited to pension, 401(k), health and dental insurance,
life and disability insurance, and other post retirement benefits.  Benefits are evaluated on an individual
basis (i.e. Pinnacle’s pilot pension is compared to the average pilot pension
at the Comparison Airlines as reported by the RAA).


 


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Data Requirements


 


In order to assess compliance
with the Parity Pay Agreement, Pinnacle agrees to provide Northwest with data
including but not limited to the following:


 


•                  Total labor
costs by workgroup or classification (e.g. pilot)


 


•                  Pay scales to
the extent they exist for all Pinnacle’s workgroups.


 


•                  Pay scales for
the Comparison Airlines as reported by the RAA for requested workgroups.


 


•                  Individual
employees’ information including workgroup, longevity or hire date, bonus
payments received, hourly rate(s) of pay, hours paid at hourly rate(s) of pay,
projected hours paid at each pay step (1 – 10) if not currently paid based on a
defined pay scale, for requested workgroups.


 


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