**Exhibit 10.18**

 

 

 

**LETTER OF CREDIT REIMBURSEMENT AGREEMENT**

 

 

**Between**

 

 

**MAIR HOLDINGS, INC.**,

 

 

**a Minnesota corporation**

 

 

**And**

 

 

**FIRST INTERSTATE BANK,**

**a Montana banking corporation**

 

 

 

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**Dated as of April 17, 2006**

 

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**Relating to:**

 

**Kenton County Airport Special Facilities RevenueBonds, 1999 Series A**

**in Original Amount of $14,000,000.00**

**issued for the benefit of Mesaba Aviation, Inc.**

 

 

 

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**TABLE OFCONTENTS**

**(Not a part of this Reimbursement Agreement)**

 
| ** **                                                              | ** ** | **Page** |
|-------------------------------------------------------------------------|------------|----------|
|                                                                    |       |     |
| RECITALS                                                                |       | 1        |
|                                                                    |       |     |
| ARTICLE I  - LETTER OF CREDIT FACILITY AND REIMBURSEMENT           |       | 1        |
| 1.01 Issuance of Letter of Credit                                       |       | 1        |
| 1.02 Reimbursement                                                      |       | 2        |
| 1.03 Letter of Credit Commitment  Fees                                  |       | 2        |
| 1.04 Security Agreement and Other  Security Documents                   |       | 2        |
| 1.05 Changes in Law; Costs                                              |       | 3        |
| 1.06 Expenses                                                           |       | 3        |
| 1.07 Place and Manner of Payment                                        |       | 3        |
|                                                                    |       |     |
| ARTICLE II  - CONDITIONS PRECEDENT TO ISSUANCE OF LETTER OF CREDIT |       | 3        |
| 2.01 Receipt of Documents                                               |       | 4        |
|                                                                    |       |     |
| ARTICLE III  - NATURE OF COMPANY’S OBLIGATIONS                |       | 4        |
| 3.01 Obligation Unconditional                                           |       | 4        |
| 3.02 No Other Obligations for Bank                                      |       | 5        |
| 3.03 Laws Governing Letter of  Credit                                   |       | 5        |
|                                                                    |       |     |
| ARTICLE IV  - REPRESENTATIONS AND WARRANTIES                       |       | 5        |
| 4.01 Organization                                                       |       | 5        |
| 4.02 Authorization and No Conflict                                      |       | 5        |
| 4.03 Documents Binding                                                  |       | 5        |
| 4.04 Litigation                                                         |       | 6        |
| 4.05 Financial Statements                                               |       | 6        |
| 4.06 Accuracy and Completeness of  Information                          |       | 6        |
|                                                                    |       |     |
| ARTICLE V  - AFFIRMATIVE COVENANTS                                 |       | 6        |
| 5.01 Preservation of Existence                                          |       | 7        |
| 5.02 Compliance with Laws                                               |       | 7        |
| 5.03 Inspection Rights                                                  |       | 7        |
| 5.04 Keeping of Books                                                   |       | 7        |
| 5.05 Maintenance of Properties                                          |       | 7        |
| 5.06 Reporting Requirements                                             |       | 7        |
| 5.07 Environment                                                        |       | 7        |
| 5.08 Notice of Defaults                                                 |       | 7        |
| 5.09 Further Actions                                                    |       | 8        |
| 5.10 Payment of Indebtedness                                            |       | 8        |
| 5.11 Indemnification                                                    |       | 8        |
| 5.12 Performance by Company                                             |       | 8        |

 

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| ARTICLE VI  - NEGATIVE COVENANTS                           |   | 8      |
|-----------------------------------------------------------------|--------|--------|
| 6.01 Sale or Disposition of Assets                              |   | 9      |
| 6.02 Liabilities, Loans or Liens                                |   | 9      |
| 6.03 Assignment                                                 |   | 9      |
|                                                            |   |   |
| ARTICLE VII  - EVENTS OF DEFAULT                           |   | 9      |
| 7.01 Failure to Reimburse                                       |   | 9      |
| 7.02 Other Non-Payments                                         |   | 9      |
| 7.03 Misrepresentation                                          |   | 9      |
| 7.04 Breach of Covenants                                        |   | 9      |
| 7.05 Defaults Under Other Documents                             |   | 10     |
| 7.06 Agreement Invalid                                          |   | 10     |
| 7.07 Bankruptcy or Insolvency                                   |   | 10     |
|                                                            |   |   |
| ARTICLE VIII  - RIGHTS AND REMEDIES                        |   | 10     |
| 8.01 Defaults Under this Agreement                              |   | 10     |
| 8.02 No Waiver                                                  |   | 10     |
| 8.03 Right to Perform Company  Obligation                  |   | 11     |
|                                                            |   |   |
| ARTICLE IX  - MISCELLANEOUS                                |   | 11     |
| 9.01 Liability of the Bank                                      |   | 11     |
| 9.02 Permitted Contest                                          |   | 11     |
| 9.03 Savings Clause; Severability  of Provisions; Governing Law |   | 12     |
| 9.04 Headings                                                   |   | 12     |
| 9.05 Amendments and Waivers                                     |   | 13     |
| 9.06 Addresses for Notices                                      |   | 12     |
| 9.07 Continuing Obligation                                      |   | 12     |
| 9.08 Non-Waiver                                                 |   | 12     |
| 9.09 Counterparts                                               |   | 12     |
|                                                            |   |   |
| SIGNATURES                                                      |   | 13     |

 

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| EXHIBITS:                                 |
|-------------------------------------------|
|                                      |
| A - Letter of  Credit                     |
|                                      |
| B – Assignment  of Deposit Account   |
|                                      |
| C – Form of  Opinion of Counsel |

 

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**THISLETTER OF CREDIT REIMBURSEMENT AGREEMENT**, dated as of April 17,2006, is by and between **MAIR HOLDINGS, INC.**,a Minnesota corporation (the “Corporation”), and **FIRSTINTERSTATE BANK**, a Montana banking corporation (the “Bank”).

 

**WITNESSETH:**

 

**WHEREAS**,pursuant to a Guaranty Agreement dated July 1, 1999, the Corporationguaranteed the obligations of its subsidiary, Mesaba Aviation, Inc. (“Mesaba”),with respect to those certain Kenton County Airport Special Facilities RevenueBonds, 1999 Series A, in the original amount of $14,000,000 (the “Bonds”);and

 

**WHEREAS,**Mesaba filed for bankruptcy protection underChapter 11 of the United States Bankruptcy Code on October 13, 2005, anevent of default under the ground lease associated with the issuance of theBonds; and

 

**WHEREAS,**the Trustee for the bondholders,UMB Bank, N.A. (the “Trustee”), declared all sums due under the Bondsimmediately due and payable, but agreed to forbear acceleration and payment onthe Bonds on the condition that the Corporation deliver a letter of credit forthe benefit of the Trustee; and

 

**WHEREAS,**to enhance the security for the payment obligations evidenced by the Bonds, theCorporation has requested that the Bank issue an irrevocable letter of creditin the form of **Exhibit A**hereto (together with all replacements thereof and substitutions therefor, the “Letterof Credit”), for the account of the Corporation in favor of the Trustee, in theamount of $13,110,000.00 (the “Letter of Credit Commitment”);

 

**NOW,THEREFORE,** in consideration of the above and in order toinduce the Bank to issue the Letter of Credit, the Corporation and the Bankhereby agree as follows:

 

**ARTICLE I**

**LETTER OF CREDIT FACILITY AND REIMBURSEMENT**

 

**1.01  Issuance of Letter of Credit.**TheBank agrees, on the terms and conditions hereinafter set forth, to issue theLetter of Credit to the Trustee. The Letter of Credit shall expire by its termson April 17, 2006, but the term shall be automatically renewable foradditional one year periods unless the Bank notifies the Trustee at least sixty(60) days prior to the then current expiration date that the Bank has electednot to renew the Letter of Credit. The date on which the Trustee has made thefinal draw under the Letter of Credit (provided that such drawing is fullyhonored up to the maximum amount available) is referred to as the “TerminationDate” of the Letter of Credit. The Corporation may make written requestthat Bank not renew the Letter of Credit at least sixty (60) days prior to thethen current expiration date and Bank shall thereupon give notice ofnon-renewal to the Trustee pursuant to this Article 1.01 and the Letter ofCredit.

 

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**1.02  Reimbursement.**TheCorporation hereby agrees to pay to the Bank **(a) **ondemand, or in the absence of demand within one (1) business day (being anyday other than a Saturday, Sunday or public holiday or the equivalent under thelaws of the State of Montana) from the date of a draw under the Letter ofCredit, a sum equal to any amounts drawn under the Letter of Credit, togetherwith interest thereon from the date of a draw to the date of payment at avariable per annum interest rate (computed on the basis of a year of 365 days)equal to the Prime Rate (defined below) PLUS one percent (1%) per annum; and **(b) **on demand, any and all reasonable charges andexpenses that the Bank may pay or incur relative to the Letter of Creditand any and all reasonable expenses incurred by the Bank in enforcing anyrights under this Agreement. “Prime Rate” shall mean at any time the annualprime rate of interest as published in “Money Rates” of the Money and InvestingSection of The Wall Street Journal, Western Edition (which is the baserate on corporate loans posted by at least 75% of the nation’s 30 largestbanks), adjusted as prime rate changes are announced, with the understandingthat the such Prime Rate is a base rate and serves as the basis upon whicheffective rates of interest are calculated for those loans making referencethereto, and as evidenced by the publication thereof in The Wall Street Journalafter its announcement in such internal publication or publications as saidlargest banks may designate; provided, however, that Prime Rate shall meanthe equivalent or substitute Prime Rate published in The Wall Street Journal iffor any reason there is a change in the basis upon which the Prime Rate isdetermined or if such Prime Rate is published in a different section ofsuch publication.

 

**1.03  Letter of Credit Extension Fees.**TheCorporation hereby agrees to pay to the Bank with respect to the Letter ofCredit, an annual extension fee computed at the rate of one percent (1.00%) ofthe maximum Stated Amount (as automatically reduced from time to time pursuantto Exhibit A to the Letter of Credit) at the time such fee is calculated,which shall be on each Reduction Date (as set forth in said Exhibit A). Saidextension fee shall be payable annually in advance. The initial annualextension fee shall be payable on the date of issuance of the Letter of Credit(“Date of Issuance”), and so long as the Letter of Credit remains issued andoutstanding, the annual extension fee shall be payable thereafter on eachannual anniversary of the Date of Issuance until the Termination Date.

 

**1.04  Security Agreement and Other SecurityDocuments.**The obligations of the Corporation under thisAgreement, including without limitation the Corporation’s obligation to makepayments of principal, interest, letter of credit commitment fees and other costsand expenses under this Article I, are to be secured by, among otherthings, the following, all in form and substance satisfactory to the Bank:

 

**(a) **an Assignment of Deposit Account, in the form of Exhibit Battached hereto (together with all substitutions, replacements, amendments andmodifications thereof, the “Pledge Agreement”), to be executed and delivered bythe Corporation for the benefit of the Bank on the Date of Issuance, coveringcash deposits maintained at Bank in an amount which at all times is at leastone hundred percent (100%) of the maximum amount available to be drawn underthe Letter of Credit (the “Deposits” or the “Collateral”).

 

**(b) **any and all other documents, security agreements, financing statements or otherinstruments which the Bank may determine, in its reasonable discretion,are necessary to secure or

 

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preserve its lien orsecurity interest in the Collateral, or any other real or personal propertyhereafter pledged as collateral for the Corporation’s obligations hereunder.

 

ThePledge Agreement and other documents executed by the Corporation or any otherparty to secure or guarantee the Corporation’s obligations hereunder aresometimes referred to herein as the “Security Documents.”

 

**1.05  Changes in Law; Costs.**Ifany change in any law or regulation or in the interpretation thereof by anycourt or administrative or governmental authority charged with theadministration thereof shall either **(a) **impose,modify or deem applicable any reserve, special deposit or similar requirementagainst letters of credit issued by the Bank or **(b) **imposeon the Bank any other condition regarding this Agreement or the Letter ofCredit, and the result of any event referred to in clause (a) or (b) aboveshall be to increase the cost to the Bank of issuing or maintaining the Letterof Credit (which increase in cost shall be the result of the Bank’s reasonableallocation of the aggregate of such cost increases resulting from such events),then, (i) within thirty (30) days of the Bank’s obtaining knowledge ofsuch change in law, regulation or interpretation thereof, the Bank shall sonotify the Corporation and (ii) upon receipt of such notice from the Bank,the Corporation shall immediately pay to the Bank all additional amounts thatare necessary to compensate the Bank for such increased cost incurred by theBank as a result of any event mentioned in clause (a) or (b) above,and such amount submitted by the Bank to the Corporation shall be conclusive (absentmanifest error) as to the amount thereof; provided, however, that nothingherein shall preclude the Corporation from objecting to the amount of any suchincreased cost by appropriate proceedings if the Corporation has first paid tothe Bank the full amount thereof as calculated and submitted by the Bank.

 

**1.06  Expenses.**TheCorporation hereby agrees to pay the Bank, on demand, any and all expenses,including reasonable attorney’s fees and legal expenses, incurred or paid bythe Bank in connection with **(a) **thepreparation and negotiation of this Agreement and the instruments referred toherein, **(b) **the closing of thetransactions contemplated hereby, **(c) **protectingor collecting the Corporation indebtedness to the Bank under this Agreement, **(d) **foreclosing against or otherwise enforcing anycollateral security therefor, **(e) **protecting,exercising or enforcing any or all of the Bank’s rights and remedies againstthe Corporation, including (without limitation) all reasonable fees anddisbursements of counsel for the Bank in any reorganization, insolvency, orsimilar bankruptcy proceeding affecting the Corporation.

 

**1.07  Place and Manner of Payment.**Allpayments to the Bank by the Corporation hereunder shall be made in lawfulcurrency of the United States and in immediately available funds to the accountof the Bank at P.O. Box 30918, Billings, Montana 59116-0918,Attention:  Commercial Loan Department.

 

**ARTICLE II**

**CONDITIONS PRECEDENT TO ISSUANCE OF LETTER OFCREDIT**

 

Asconditions precedent to the issuance of the Letter of Credit:

 

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**2.01  Receipt of Documents.**TheBank shall have received, on or before the Date of Issuance, the following, in form andsubstance satisfactory to the Bank:

 

**(a) **a favorable opinion of counsel to the Corporation, in substantially the form of**Exhibit C** hereto, and as tosuch other matters as the Bank may reasonably request;

 

**(b) **the executed Pledge Agreement along with appropriate, executed financingstatements, assignments, and other documents required thereunder;

 

**(c) ** an executed copy (or aduplicate thereof) of the Articles of Incorporation and Bylaws of theCorporation;

 

**(d) **an executed copy of the Resolutions of the Corporation authorizing thetransactions contemplated under and this Agreement; and

 

**(e) **such other documents, instruments, approvals (and, if requested by the Bank,certified duplicates of executed copies thereof) and opinions as the Bank may reasonablyrequest.

 

**ARTICLE III**

**NATURE OF CORPORATION’S OBLIGATIONS**

 

**3.01  Obligation Unconditional.**Theobligations of the Corporation under this Agreement shall be absolute,unconditional and irrevocable, and shall be performed strictly in accordancewith the terms of this Agreement (except as the Corporation’s obligations may bemodified by an action described in subparagraph (f) below), under allcircumstances whatsoever, including without limitation the followingcircumstances:

 

**(a) **any lack of validity or enforceability of the Letter of Credit, or any otheragreement or instrument relating hereto or thereto (collectively the “RelatedDocuments”);

 

**(b) **any amendment or waiver of, or any consent to departure from, the terms of allor any of the Related Documents;

 

**(c) **the existence of any claim, set-off, defense or other rights which theCorporation may have at any time against the Trustee or any beneficiary ofthe Letter of Credit (or any persons or entities for whom any such beneficiary may beacting), the Bank or any other person or entity, whether in connection withthis Agreement, the Related Documents or any unrelated transaction (but nothingin this subsection (c) shall constitute a waiver by the Corporationof any claim it may have against the Bank);

 

**(d) **any statement or any other document presented under the Letter of Creditproving to be forged, fraudulent, invalid, or insufficient in any respectwhatsoever (unless acceptance of or reliance upon any such statement ordocument shall constitute gross negligence by the Bank);

 

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**(e) **payment by the Bank under the Letter of Credit against presentation of a sightdraft or certificate that does not comply with the terms of the Letter ofCredit, provided that such payment shall not have constituted gross negligenceof the Bank; or

 

**(f) **any delay, extension of time, renewal, compromise or other indulgence ormodification granted or agreed to by the Bank, with or without notice orapproval by the Corporation, in respect of this Agreement.

 

**3.02  No Other Obligations for Bank.**Exceptas specifically set forth herein or in the Letter of Credit, the Bank shall notbe obligated to issue any further credits, to cure any defaults under theBonds, or otherwise or in any other manner to extend any other financialaccommodations to the Corporation.

 

**3.03  Laws Governing Letter of Credit.**TheLetter of Credit shall be governed by the Uniform Customs and Practice forDocumentary Credits (1993 Revision), International Chamber of CommercePublication No. 500 or any subsequent revision thereof (the “Uniform Customs”),and as to matters not covered by the Uniform Customs shall be subject toand governed by the laws of the State of Montana.

 

**ARTICLE IV**

**REPRESENTATIONS AND WARRANTIES**

 

TheCorporation represents and warrants as follows:

 

**4.01  Organization.**TheCorporation is duly organized as a corporation and is validly existing underthe laws of the State of Minnesota and is duly qualified to do business in andis in good standing under the laws of Minnesota and any other jurisdiction inwhich the conduct of its business or the ownership of its properties makes suchqualification necessary.

 

**4.02  Authorization and No Conflict.**Theexecution, delivery and performance by the Corporation of this Agreement, andthe instruments and documents executed in connection therewith are within theCorporation’s powers; have been duly authorized by all necessary action, do notcontravene **(a) **the organizationaldocuments of the Corporation or **(b) **anylaw or contractual restriction binding on or affecting the Corporation; and(except as provided in this Agreement) do not result in or require the creationof any lien, security interest or other charge or encumbrance upon or withrespect to any of its properties.

 

**4.03  Documents Binding.**ThisAgreement, the Pledge Agreement, the Bonds, the other Security Documents andall other instruments and documents executed by the Corporation in connectiontherewith are the legal, valid and binding obligations of the Corporation,enforceable against the Corporation in accordance with their respective terms,except as such enforceability may be limited by bankruptcy, insolvency,reorganization, moratorium or similar laws affecting

 

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creditors’ rightsgenerally and by general principles of equity (regardless of whether suchenforceability is considered in a proceeding in equity or at law).

 

**4.04  Litigation.**Exceptas provided in this Section 4.04, there is no pending action or proceedingbefore any court, governmental agency, or arbitrator against or directlyinvolving the Corporation and, to the best of the Corporation’s knowledge,there is no threatened action or proceeding affecting the Corporation beforeany court, governmental agency or arbitrator which, as the Corporation isreasonably able to foresee, may materially and adversely affect thefinancial condition or operations of the Corporation. As has previously beendisclosed to the Bank, on October 13, 2005, the Corporation’s subsidiary,Mesaba Aviation, Inc. (“Mesaba”) filed for bankruptcy protection underChapter 11 of the United States Bankruptcy Code. The Corporation is notcurrently a party to Mesaba’s bankruptcy proceedings, but it has receivednotice from the Creditors’ Committee for Mesaba’s bankruptcy that the committeewill be conducting an examination of the Corporation under Section 2004 ofthe United States Bankruptcy Code.

 

**4.05  Financial Statements.**Theaudited consolidated financial statements of the Corporation as of December 31,2005, which are publicly available in the Corporation’s Quarterly Report on Form 10-Qfiled with the Securities and Exchange Commission on February 9, 2006,have been prepared in conformity with generally-accepted accounting principlesapplied on a basis consistent with that of the preceding fiscal year (withexceptions duly noted there), and accurately present the financial condition ofthe Corporation, its subsidiaries, and affiliates as of such date and theresults of their operations for the period then ended, and since such datethere has been no material adverse change in their financial condition oroperations.

 

**4.06  Accuracy and Completeness of Information.**All information, reports, and other papers and data withrespect to the Corporation furnished to the Bank were, at the time the samewere so furnished, complete and correct in all material respects. No fact isknown to the Corporation that materially and adversely affects, nor is any factknown on the date hereof that may in the future materially and adverselyaffect, the business, assets or liabilities, financial condition, results ofoperations, or business prospects of the Corporation that has not been setforth in such information, reports, papers and data or otherwise disclosed inwriting to the Bank. No document furnished or statement made to the Bank inconnection with the negotiation, preparation, or execution of this Agreementcontains any untrue statement of a material fact or omits to state a materialfact necessary in order to make the statements contained therein notmisleading.

 

**ARTICLE V**

**AFFIRMATIVE COVENANTS**

 

Aslong as the Termination Date has not occurred and as long thereafter as anyamount is due and owing to the Bank hereunder, the Corporation will, unless theBank shall otherwise consent in writing:

 

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**5.01  Preservation of Existence.**Maintainits existence and remain qualified to do business in Minnesota and all otherjurisdictions where the nature of its business makes such qualificationnecessary.

 

**5.02  Compliance with Laws.**Complyin all material respects with all applicable laws, rules, regulations andorders of any governmental authority, such compliance to include, withoutlimitation, paying before the same become delinquent all taxes, assessments andgovernmental charges imposed upon it or upon its property, except to the extentcompliance with any of the foregoing is then being contested as provided in Section 10.02hereof.

 

**5.03  Inspection Rights.**Atany reasonable time, and from time to time and as may be reasonablyrequested, permit the Bank or any agents or representatives thereof to examineand make copies of and abstracts from the records and books of account of, andvisit the properties of, the Corporation.

 

**5.04  Keeping of Books.**Keepproper books of record and account, in which full and correct entries shall bemade of financial transactions and the assets and business of the Corporationin accordance with generally accepted accounting principles.

 

**5.05  Maintenance of Properties.**Maintainand preserve all of its properties that are material to the conduct of itsbusiness in good working order and condition, ordinary wear and tear excepted.

 

**5.06  Reporting Requirements.**Furnishto Bank:

 

(a)                                  Noticeof Litigation. Promptly after the commencement thereof, notice of allactions, suits, and proceedings before any court or governmental department,commission, board, bureau, agency, or instrumentality, domestic or foreign,affecting the Corporation which, if determined adversely to the Corporation,could have a material adverse effect on the financial condition, properties, oroperations of the Corporation.

 

(b)                                 GeneralInformation. Such other information respecting the condition or operations,financial or otherwise, of the Corporation as the Bank may from time totime reasonably request.

 

**5.07  Environment.**Be andremain in material compliance with the provisions of all federal, state andlocal environmental, health, and safety laws, codes and ordinances, and all rules andregulations issued thereunder.

 

**5.08  Notice of Defaults.**Promptlyafter the Corporation becomes aware, give notice to the Bank of **(a) **any material adverse change in the financialcondition of the Corporation, **(b) **anydefault under Article VI of this Agreement of which the Bank would not beexpected to have knowledge and which might require the giving of notice beforebecoming an Event of Default, and **(c) **thependency or threat of any litigation or of any tax deficiency against theCorporation, which,

 

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if decided adversely tothe Corporation, could have a material adverse effect on its business, propertyor financial condition.

 

**5.09  Further Actions.**Fromtime to time, record, register and file all such notices, statements and otherdocuments and take such other steps as may be necessary or advisable torender fully valid and enforceable under all applicable laws the rights, liensand priorities of the Bank with respect to all security from time to timefurnished under this Agreement or the Security Agreement, or intended to be sofurnished, in each case in such form and at such times as shall besatisfactory to the Bank, and pay all fees and expenses (including attorney’sfees) incident to compliance with this paragraph.

 

**5.10  Payment of Indebtedness.**Subjectto the provisions of Section 10.02 below, duly and punctually pay or causeto be paid all principal and interest on each such indebtedness (includinglease obligations) of the Corporation to third parties; comply with and perform allconditions, terms and obligations of the notes evidencing such indebtedness andthe security agreements, deeds of trust and mortgages securing it; promptly inform theBank of any default or anticipated default under any such note, securityagreement, deed of trust or mortgage; and forward to the Bank a copy of anynotice of default or notice of an event that might result in default under anysuch note, security agreement, deed of trust or mortgage.

 

**5.11  Indemnification.**Indemnifyand hold harmless the Bank from and against any and all claims, damages,losses, liabilities, costs or expenses whatsoever that the Bank may incur(or which may be claimed against the Bank by any person or entitywhatsoever) by reason of or in connection with **(a) **anybreach by the Corporation of any representation, warranty or covenant containedin this Agreement or any other instrument or document provided to the Bank inconnection herewith or **(b) **theexecution and delivery or transfer (to a successor trustee) of, or payment orfailure to pay under, the Letter of Credit; provided that the Corporation shallnot be required to indemnify the Bank for any claims, damages, losses,liabilities, expenses to the extent, but only to the extent, caused by (i) thegross negligence of the Bank or (ii) the Bank’s willful failure to payunder the Letter of Credit after the presentation to it by The Trustee (or asuccessor to whom the Letter of Credit has been transferred) of a sight draftand certificate strictly complying with the terms and conditions of the Letterof Credit. Nothing in this Section 5.11 is intended to limit theCorporation’s reimbursement obligation contained in Section 1.02 hereof.

 

**5.12  Performance by Corporation.**Dulyand punctually perform all of its obligations under the Bonds and thePledge Agreement.

 

**ARTICLE VI**

**NEGATIVE COVENANTS**

 

Solong as the Termination Date has not occurred or any amount is due and owing tothe Bank hereunder, unless the Bank shall otherwise consent in writing, theCorporation agrees not to:

 

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**6.01  Sale or Disposition of Assets.**Sell,lease, transfer, or otherwise dispose of all or substantially all of itsassets, except that the Corporation may utilize its cash and investments(excluding any cash encumbered under the Pledge Agreement) to engage inbusiness opportunities.

 

**6.02  Liabilities, Loans or Liens.**Exceptas allowed or permitted under the terms of the Pledge Agreement and except forthe Corporation’s existing commitment to provide debtor-in-possession financingto Mesaba (as has been disclosed in the Corporation’s public filings with theSecurities and Exchange Commission), assume, guarantee, endorse or otherwisebecome liable in an accommodation capacity in connection with the obligationsor stock of any person, firm or Corporation, or make any loans or extend creditto any third party, or permit the Collateral to be subjected to any liens.

 

**6.03  Assignment.**Assignor attempt to assign or delegate or attempt to delegate all or any portion ofits rights and obligations hereunder or under the Pledge Agreement.

 

**ARTICLE VII**

**EVENTS OF DEFAULT**

 

Theoccurrence of any of the following events shall be an “Event of Default”hereunder unless waived by the Bank pursuant to Section 10.05 hereof:

 

**7.01  Failure to Reimburse.**TheCorporation fails to pay when due any amount specified in Section 1.02hereof and such failure shall remain unremedied for ten (10) days afterwritten notice of such non-payment from the Bank to the Corporation; or

 

**7.02  Other Non-Payments.**TheCorporation fails to pay when due any amount specified in Sections 1.03 or1.06  hereof, and such failure shallremain unremedied for thirty (30) days after written notice of such non-paymentfrom the Bank to the Corporation; or

 

**7.03  Misrepresentation.**Anyrepresentation or warranty made by the Corporation pursuant to Article IVhereof shall prove to have been incorrect in any material respect when made; or

 

**7.04  Breach of Covenants.**TheCorporation shall fail to perform or observe any other term, covenant oragreement contained herein, including failure to maintain the Deposits in theamount required under Section 1.04(a) hereof, and any such failureshall remain unremedied for thirty (30) days after written notice thereof shallhave been given to the Corporation by the Bank; provided, however, that if anyterm, covenant or agreement is such that non-performance or non-observancethereof cannot be corrected within such 30-day period, or if a force majeureprevents correction within such period, the non-performance or non-observanceshall not constitute an Event of Default hereunder if corrective action isinstituted by Corporation within such period (or, in the event of a forcemajeure, in whatever period corrective action is practicable) and diligentlypursued to correction; or

 

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**7.05  Defaults Under Other Documents.**Theoccurrence and continuance of any “Event of Default” as defined in the PledgeAgreement; or

 

**7.06  Agreement Invalid.**Anymaterial provision of this Agreement shall at any time for any reason cease tobe valid and binding on the Corporation, or shall be declared to be null andvoid, or the validity or enforceability thereof shall be contested by theCorporation or any governmental agency or authority, or the Corporation shalldeny that it has any or further liability or obligation under this Agreement;or

 

**7.07  Bankruptcy or Insolvency.**TheCorporation shall **(a) **applyfor or consent to the appointment of a receiver, trustee, liquidator orcustodian or the like of itself or of its property, **(b) **admitin writing its inability to pay its debts generally as they become due, **(c) **make a general assignment for the benefit ofcreditors, **(d) **be adjudicated a bankruptor insolvent, **(e) **commence a voluntary caseunder the federal bankruptcy laws of the United State of America or file avoluntary petition or answer seeking reorganization, an arrangement withcreditors or an order for relief or seeking to take advantage of any insolvencylaws or file an answer admitting the material allegations of a petition filedagainst it in any bankruptcy, reorganization or insolvency proceeding; or ifsuch shall be instituted in any court of competent jurisdiction, under any lawrelating to bankruptcy, insolvency, reorganization, or relief of debtors,seeking in respect of the Corporation, an order for relief or an adjudicationin bankruptcy, reorganization, dissolution, winding up, liquidation, orcomposition or arrangement with creditors, a readjustment of debts, theappointment of a trustee, receiver, liquidator or custodian or the like of theCorporation or of all or any substantial part of its assets, or other likerelief in respect thereof under any bankruptcy or insolvency law, and, if such proceedingis being contested in good faith, the same shall (i) result in the entryof an order for relief or any such adjudication or appointment, or (ii) continueundismissed, or pending and unstayed, for any period of sixty (60) consecutivedays.

 

**ARTICLE VIII**

**RIGHT AND REMEDIES**

 

**8.01  Defaults Under this Agreement.**Uponthe occurrence of an Event of Default hereunder, or at any time thereafterwhile such default continues, the Bank, in its sole discretion, may do anyone or more of the following:

 

**(a) **if a draw under the Letter of Credit has occurred, declare all amounts dueunder this Agreement to be immediately due and payable, without presentment,demand, protest or further notice of any kind, all of which are herebyexpressly waived by the Corporation; or

 

**(b) **exercise any rights and remedies available to it by law or under any otheragreement, including without limitation the Pledge Agreement.

 

**8.02  No Waiver.**The Bankshall not be deemed to have waived or released any of its rights or remedies (whetherspecified in or arising under this Agreement or otherwise available to it bylaw or agreement) unless it signs a written waiver or release. Delay or failureto act on the

 

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Bank’s part shallnot constitute a waiver of or otherwise preclude enforcement of any of itsrights and remedies. All of the Bank’s rights and remedies shall be cumulativeand may be exercised singularly or concurrently. The Bank need not resortto any particular right or remedy before exercising or enforcing any other, andthe Bank’s resort to any right or remedy shall not preclude the exercise orenforcement of each other right and remedy.

 

**8.03  Right to Perform CorporationObligation.**Whether or not an Event of Default shall haveoccurred hereunder, if the Corporation shall fail to perform any of itscovenants or obligations hereunder or under the Pledge Agreement, the Bank may (butshall not be obligated to) perform such covenants or obligations on behalfof and at the expense of the Corporation. The Corporation shall reimburse theBank for the cost of such performance promptly on demand, and the cost thereof,until reimbursed, shall constitute additional indebtedness secured by theSecurity Documents.

 

**ARTICLE IX**

**MISCELLANEOUS**

 

**9.01  Liability of the Bank.**TheCorporation assumes all risks of the acts or omissions of the Trustee withrespect to its use of the Letter of Credit; provided, however, this assumptionwith respect to the Bank is not intended to, and shall not, preclude theCorporation’s pursuing such rights and remedies as it may have against theTrustee at law or under any other agreement. Neither the Bank nor any of itsofficers or directors shall be liable or responsible for: **(a) **theuses that may be made of the Letter of Credit or for any acts or omissionsof the Trustee in connection therewith; **(b) **thevalidity, sufficiency or genuineness of documents, or of any endorsementsthereon, even if such documents should in fact prove to be in any or allrespects invalid, insufficient, fraudulent or forged; **(c) **paymentby the Bank against presentation of documents that do not comply with the termsof the Letter of Credit, including failure of any documents to bear anyreference or adequate reference to the Letter of Credit; or **(d) **any other circumstances whatsoever in making orfailing to make payment under the Letter of Credit; provided, however, anythingin the preceding clauses (a), (b), (c) and (d) to the contrarynotwithstanding, the Corporation shall have a claim against the Bank, and theBank shall be liable to the Corporation, to the extent, but only to the extent,of any direct, as opposed to consequential or incidental, damages suffered bythe Corporation which the Corporation proves were caused by (i) the Bank’sgross negligence or (ii) the Bank’s willful failure to pay under theLetter of Credit after the presentation to it by the Trustee of a sight draftcomplying with the terms and conditions of the Letter of Credit.

 

**9.02  Permitted Contest.**TheCorporation shall not be required under this Agreement to **(a) **payany tax, assessment or other charge or comply with any statute, law, rule,regulation or ordinance referred to in Section 5.02 hereof, or **(b) **make any payment of any indebtedness to any thirdparty, so long as the Corporation shall (i) contest, in good faith, theexistence, amount or validity thereof, the amount of damages caused thereby orthe extent of its liability therefor, by appropriate proceedings which shalloperate during the pendency thereof to prevent (A) the collection of, orother realization upon, the tax, assessment, charge or lien, encumbrance,indebtedness, or obligation so contested, or (B) the sale, forfeiture orloss of any collateral therefor

 

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or any property of theCorporation or any part thereof, and (ii) give such security to theBank as may be reasonably demanded by the Bank to ensure compliance withthe foregoing provisions of this Section 10.02. The Corporation shall giveprompt written notice to the Bank of the commencement of any contest referredto in this Section 10.02.

 

**9.03  Savings Clause; Severability ofProvisions; Governing Law.**All warranties,representations, and covenants set forth herein shall survive the terminationof this Agreement. If any portion of this Agreement shall be held to be void orunenforceable, the balance thereof shall nonetheless be effective. ThisAgreement and all exhibits and security documents referenced and provided forherein shall be governed by and construed in accordance with the laws of theState of Montana.

 

**9.04  Headings.**Section headingsin this Agreement are included herein for convenience of reference only andshall not constitute a part of this Agreement for any other purpose.

 

**9.05  Amendments and Waivers.**Noamendment or waiver of any provision of this Agreement nor consent to anydeparture therefrom shall in any event be effective unless the same shall be inwriting and signed by the Bank and the Corporation, and then such waiver or consentshall be effective only in the specific instance and for the specific purposefor which it was given.

 

**9.06  Addresses for Notices.**Allnotices and other communications provided for hereunder shall be in writing andif to the Corporation, mailed or hand-delivered to it, addressed to it at 150South 5th Street, Suite 1360, Minneapolis, Minnesota 55402, orif to the Bank, mailed or hand-delivered to it, addressed to it at P.O. Box30918, Billings, Montana 59116-0918, Attention: Commercial Loan Department, or at such other address as shall bedesignated by such party in a written notice to the other party. All suchnotices and other communications when mailed, shall be effective three (3) daysafter the date of deposit in the mails, addressed as aforesaid and, whenhand-delivered, shall be effective at time of delivery.

 

**9.07  Continuing Obligation.**ThisAgreement is a continuing obligation and shall **(a) **bebinding upon the Corporation, its successors and permitted assigns, and **(b) **inure to the benefit of and be enforceable by theBank and its successors, transferees and assigns. The Corporation may notassign or delegate all or any part of its rights or obligations under thisAgreement without the prior written consent of the Bank.

 

**9.08  Non-Waiver.**No delayof the Bank in exercising any of its rights hereunder shall constitute a waiverof any such rights. The Bank will not be deemed to have waived any of itsrights hereunder, unless its authorized officers shall have signed such waiverin writing. No such waiver, unless expressly stated herein, shall be effectiveas to any transaction which occurs subsequent to the date of such waiver, noras to any continuance of a breach after such waiver. No such waiver shallimpair any of the rights of the Bank other than those rights expressly waived.

 

**9.09  Counterparts.**ThisAgreement may be executed in any number of counterparts, each of whichwhen executed and delivered shall be an original, but all such counterpartsshall constitute one and the same instrument.

 

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**INWITNESS WHEREOF**, the parties hereto have caused thisAgreement to be duly executed and delivered as of the date first above written.

 
|   | MAIR HOLDINGS, INC. |
|--------|--------------------------|
|   |                     |
|   | By                       | /s/ Robert E.  Weil |   |
|   |                     |
|   | Title                    | Chief Financial  Officer |   |
|   |                     |
|   |                     | “Corporation” |
|   |                     |
|   | FIRST INTERSTATE  BANK   |
|   |                     |
|   | By                       | /s/ Steve  Tostenrud |   |
|   |                     |
|   | Title                    | Vice President |   |
|   |                     |
|   |                     | “Bank” |
|        |                          |  |  |  |  |

 

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