Document:

Exhibit 10.18

 

 

 

LETTER OF CREDIT REIMBURSEMENT AGREEMENT

 

 

Between

 

 

MAIR HOLDINGS, INC.,

 

 

a Minnesota corporation

 

 

And

 

 

FIRST INTERSTATE BANK,

a Montana banking corporation

 

 

 

 

Dated as of April 17, 2006

 

 

 

 

Relating to:

 

Kenton County Airport Special Facilities Revenue
Bonds, 1999 Series A

in Original Amount of $14,000,000.00

issued for the benefit of Mesaba Aviation, Inc.

 

 

 

 

TABLE OF
CONTENTS

(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

  

 

i

 

	
  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

  

 

ii

 

	
  EXHIBITS:

  
	
   

  
	
  A - Letter of
  Credit

  
	
   

  
	
  B – Assignment
  of Deposit Account

  
	
   

  
	
  C – Form of
  Opinion of Counsel

  

 

i

 

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

 

WITNESSETH: 

 

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

 

WHEREAS, Mesaba filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code on October 13, 2005, an
event of default under the ground lease associated with the issuance of the
Bonds; and

 

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

 

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

 

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

 

ARTICLE I

LETTER OF CREDIT FACILITY AND REIMBURSEMENT

 

1.01  Issuance of Letter of Credit. The
Bank agrees, on the terms and conditions hereinafter set forth, to issue the
Letter of Credit to the Trustee. The Letter of Credit shall expire by its terms
on April 17, 2006, but the term shall be automatically renewable for
additional 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 elected
not to renew the Letter of Credit. The date on which the Trustee has made the
final draw under the Letter of Credit (provided that such drawing is fully
honored up to the maximum amount available) is referred to as the “Termination
Date” of the Letter of Credit. The Corporation may make written request
that Bank not renew the Letter of Credit at least sixty (60) days prior to the
then current expiration date and Bank shall thereupon give notice of
non-renewal to the Trustee pursuant to this Article 1.01 and the Letter of
Credit.

 

1

 

1.02  Reimbursement. The
Corporation hereby agrees to pay to the Bank (a) on
demand, or in the absence of demand within one (1) business day (being any
day other than a Saturday, Sunday or public holiday or the equivalent under the
laws of the State of Montana) from the date of a draw under the Letter of
Credit, a sum equal to any amounts drawn under the Letter of Credit, together
with interest thereon from the date of a draw to the date of payment at a
variable 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 and
expenses that the Bank may pay or incur relative to the Letter of Credit
and any and all reasonable expenses incurred by the Bank in enforcing any
rights under this Agreement. “Prime Rate” shall mean at any time the annual
prime rate of interest as published in “Money Rates” of the Money and Investing
Section of The Wall Street Journal, Western Edition (which is the base
rate on corporate loans posted by at least 75% of the nation’s 30 largest
banks), adjusted as prime rate changes are announced, with the understanding
that the such Prime Rate is a base rate and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto, and as evidenced by the publication thereof in The Wall Street Journal
after its announcement in such internal publication or publications as said
largest banks may designate; provided, however, that Prime Rate shall mean
the equivalent or substitute Prime Rate published in The Wall Street Journal if
for any reason there is a change in the basis upon which the Prime Rate is
determined or if such Prime Rate is published in a different section of
such publication.

 

1.03  Letter of Credit Extension Fees. The
Corporation hereby agrees to pay to the Bank with respect to the Letter of
Credit, an annual extension fee computed at the rate of one percent (1.00%) of
the maximum Stated Amount (as automatically reduced from time to time pursuant
to 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). Said
extension fee shall be payable annually in advance. The initial annual
extension 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 and
outstanding, the annual extension fee shall be payable thereafter on each
annual anniversary of the Date of Issuance until the Termination Date.

 

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

 

(a) 
an Assignment of Deposit Account, in the form of Exhibit B
attached hereto (together with all substitutions, replacements, amendments and
modifications thereof, the “Pledge Agreement”), to be executed and delivered by
the Corporation for the benefit of the Bank on the Date of Issuance, covering
cash deposits maintained at Bank in an amount which at all times is at least
one hundred percent (100%) of the maximum amount available to be drawn under
the Letter of Credit (the “Deposits” or the “Collateral”).

 

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

 

2

 

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

 

The
Pledge Agreement and other documents executed by the Corporation or any other
party to secure or guarantee the Corporation’s obligations hereunder are
sometimes referred to herein as the “Security Documents.”

 

1.05  Changes in Law; Costs. If
any change in any law or regulation or in the interpretation thereof by any
court or administrative or governmental authority charged with the
administration thereof shall either (a) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against letters of credit issued by the Bank or (b) impose
on the Bank any other condition regarding this Agreement or the Letter of
Credit, and the result of any event referred to in clause (a) or (b) above
shall be to increase the cost to the Bank of issuing or maintaining the Letter
of Credit (which increase in cost shall be the result of the Bank’s reasonable
allocation of the aggregate of such cost increases resulting from such events),
then, (i) within thirty (30) days of the Bank’s obtaining knowledge of
such change in law, regulation or interpretation thereof, the Bank shall so
notify the Corporation and (ii) upon receipt of such notice from the Bank,
the Corporation shall immediately pay to the Bank all additional amounts that
are necessary to compensate the Bank for such increased cost incurred by the
Bank 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 (absent
manifest error) as to the amount thereof; provided, however, that nothing
herein shall preclude the Corporation from objecting to the amount of any such
increased cost by appropriate proceedings if the Corporation has first paid to
the Bank the full amount thereof as calculated and submitted by the Bank.

 

1.06  Expenses. The
Corporation hereby agrees to pay the Bank, on demand, any and all expenses,
including reasonable attorney’s fees and legal expenses, incurred or paid by
the Bank in connection with (a) the
preparation and negotiation of this Agreement and the instruments referred to
herein, (b) the closing of the
transactions contemplated hereby, (c) protecting
or collecting the Corporation indebtedness to the Bank under this Agreement, (d) foreclosing against or otherwise enforcing any
collateral security therefor, (e) protecting,
exercising or enforcing any or all of the Bank’s rights and remedies against
the Corporation, including (without limitation) all reasonable fees and
disbursements of counsel for the Bank in any reorganization, insolvency, or
similar bankruptcy proceeding affecting the Corporation.

 

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

 

ARTICLE II

CONDITIONS PRECEDENT TO ISSUANCE OF LETTER OF
CREDIT

 

As
conditions precedent to the issuance of the Letter of Credit:

 

3

 

2.01  Receipt of Documents. The
Bank shall have received, on or before the Date of Issuance, the following, in form and
substance satisfactory to the Bank:

 

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

 

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

 

(c)  an executed copy (or a
duplicate thereof) of the Articles of Incorporation and Bylaws of the
Corporation;

 

(d) 
an executed copy of the Resolutions of the Corporation authorizing the
transactions 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 reasonably
request.

 

ARTICLE III

NATURE OF CORPORATION’S OBLIGATIONS

 

3.01  Obligation Unconditional. The
obligations of the Corporation under this Agreement shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement (except as the Corporation’s obligations may be
modified by an action described in subparagraph (f) below), under all
circumstances whatsoever, including without limitation the following
circumstances:

 

(a) 
any lack of validity or enforceability of the Letter of Credit, or any other
agreement or instrument relating hereto or thereto (collectively the “Related
Documents”);

 

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

 

(c) 
the existence of any claim, set-off, defense or other rights which the
Corporation may have at any time against the Trustee or any beneficiary of
the Letter of Credit (or any persons or entities for whom any such beneficiary may be
acting), the Bank or any other person or entity, whether in connection with
this Agreement, the Related Documents or any unrelated transaction (but nothing
in this subsection (c) shall constitute a waiver by the Corporation
of any claim it may have against the Bank);

 

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

 

4

 

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

 

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

 

3.02  No Other Obligations for Bank. Except
as specifically set forth herein or in the Letter of Credit, the Bank shall not
be obligated to issue any further credits, to cure any defaults under the
Bonds, or otherwise or in any other manner to extend any other financial
accommodations to the Corporation.

 

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

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

The
Corporation represents and warrants as follows:

 

4.01  Organization. The
Corporation is duly organized as a corporation and is validly existing under
the laws of the State of Minnesota and is duly qualified to do business in and
is in good standing under the laws of Minnesota and any other jurisdiction in
which the conduct of its business or the ownership of its properties makes such
qualification necessary.

 

4.02  Authorization and No Conflict. The
execution, delivery and performance by the Corporation of this Agreement, and
the instruments and documents executed in connection therewith are within the
Corporation’s powers; have been duly authorized by all necessary action, do not
contravene (a) the organizational
documents of the Corporation or (b) any
law or contractual restriction binding on or affecting the Corporation; and
(except as provided in this Agreement) do not result in or require the creation
of any lien, security interest or other charge or encumbrance upon or with
respect to any of its properties.

 

4.03  Documents Binding. This
Agreement, the Pledge Agreement, the Bonds, the other Security Documents and
all other instruments and documents executed by the Corporation in connection
therewith 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

 

5

 

creditors’ rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).

 

4.04  Litigation. Except
as provided in this Section 4.04, there is no pending action or proceeding
before any court, governmental agency, or arbitrator against or directly
involving the Corporation and, to the best of the Corporation’s knowledge,
there is no threatened action or proceeding affecting the Corporation before
any court, governmental agency or arbitrator which, as the Corporation is
reasonably able to foresee, may materially and adversely affect the
financial condition or operations of the Corporation. As has previously been
disclosed to the Bank, on October 13, 2005, the Corporation’s subsidiary,
Mesaba Aviation, Inc. (“Mesaba”) filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code. The Corporation is not
currently a party to Mesaba’s bankruptcy proceedings, but it has received
notice from the Creditors’ Committee for Mesaba’s bankruptcy that the committee
will be conducting an examination of the Corporation under Section 2004 of
the United States Bankruptcy Code.

 

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

 

4.06  Accuracy and Completeness of Information.
All information, reports, and other papers and data with
respect to the Corporation furnished to the Bank were, at the time the same
were so furnished, complete and correct in all material respects. No fact is
known to the Corporation that materially and adversely affects, nor is any fact
known on the date hereof that may in the future materially and adversely
affect, the business, assets or liabilities, financial condition, results of
operations, or business prospects of the Corporation that has not been set
forth in such information, reports, papers and data or otherwise disclosed in
writing to the Bank. No document furnished or statement made to the Bank in
connection with the negotiation, preparation, or execution of this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not
misleading.

 

ARTICLE V

AFFIRMATIVE COVENANTS

 

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

 

6

 

5.01  Preservation of Existence. Maintain
its existence and remain qualified to do business in Minnesota and all other
jurisdictions where the nature of its business makes such qualification
necessary.

 

5.02  Compliance with Laws. Comply
in all material respects with all applicable laws, rules, regulations and
orders of any governmental authority, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property, except to the extent
compliance with any of the foregoing is then being contested as provided in Section 10.02
hereof.

 

5.03  Inspection Rights. At
any reasonable time, and from time to time and as may be reasonably
requested, permit the Bank or any agents or representatives thereof to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, the Corporation.

 

5.04  Keeping of Books. Keep
proper books of record and account, in which full and correct entries shall be
made of financial transactions and the assets and business of the Corporation
in accordance with generally accepted accounting principles.

 

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

 

5.06  Reporting Requirements. Furnish
to Bank:

 

(a)                                  Notice
of Litigation. Promptly after the commencement thereof, notice of all
actions, 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, or
operations of the Corporation.

 

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

 

5.07  Environment. Be and
remain in material compliance with the provisions of all federal, state and
local environmental, health, and safety laws, codes and ordinances, and all rules and
regulations issued thereunder.

 

5.08  Notice of Defaults. Promptly
after the Corporation becomes aware, give notice to the Bank of (a) any material adverse change in the financial
condition of the Corporation, (b) any
default under Article VI of this Agreement of which the Bank would not be
expected to have knowledge and which might require the giving of notice before
becoming an Event of Default, and (c) the
pendency or threat of any litigation or of any tax deficiency against the
Corporation, which,

 

7

 

if decided adversely to
the Corporation, could have a material adverse effect on its business, property
or financial condition.

 

5.09  Further Actions. From
time to time, record, register and file all such notices, statements and other
documents and take such other steps as may be necessary or advisable to
render fully valid and enforceable under all applicable laws the rights, liens
and priorities of the Bank with respect to all security from time to time
furnished under this Agreement or the Security Agreement, or intended to be so
furnished, in each case in such form and at such times as shall be
satisfactory to the Bank, and pay all fees and expenses (including attorney’s
fees) incident to compliance with this paragraph.

 

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

 

5.11  Indemnification. Indemnify
and 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 entity
whatsoever) by reason of or in connection with (a) any
breach by the Corporation of any representation, warranty or covenant contained
in this Agreement or any other instrument or document provided to the Bank in
connection herewith or (b) the
execution and delivery or transfer (to a successor trustee) of, or payment or
failure to pay under, the Letter of Credit; provided that the Corporation shall
not be required to indemnify the Bank for any claims, damages, losses,
liabilities, expenses to the extent, but only to the extent, caused by (i) the
gross negligence of the Bank or (ii) the Bank’s willful failure to pay
under the Letter of Credit after the presentation to it by The Trustee (or a
successor to whom the Letter of Credit has been transferred) of a sight draft
and certificate strictly complying with the terms and conditions of the Letter
of Credit. Nothing in this Section 5.11 is intended to limit the
Corporation’s reimbursement obligation contained in Section 1.02 hereof.

 

5.12  Performance by Corporation. Duly
and punctually perform all of its obligations under the Bonds and the
Pledge Agreement.

 

ARTICLE VI

NEGATIVE COVENANTS

 

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

 

8

 

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

 

6.02  Liabilities, Loans or Liens. Except
as allowed or permitted under the terms of the Pledge Agreement and except for
the Corporation’s existing commitment to provide debtor-in-possession financing
to Mesaba (as has been disclosed in the Corporation’s public filings with the
Securities and Exchange Commission), assume, guarantee, endorse or otherwise
become liable in an accommodation capacity in connection with the obligations
or stock of any person, firm or Corporation, or make any loans or extend credit
to any third party, or permit the Collateral to be subjected to any liens.

 

6.03  Assignment. Assign
or attempt to assign or delegate or attempt to delegate all or any portion of
its rights and obligations hereunder or under the Pledge Agreement.

 

ARTICLE VII

EVENTS OF DEFAULT

 

The
occurrence 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. The
Corporation fails to pay when due any amount specified in Section 1.02
hereof and such failure shall remain unremedied for ten (10) days after
written notice of such non-payment from the Bank to the Corporation; or

 

7.02  Other Non-Payments. The
Corporation fails to pay when due any amount specified in Sections 1.03 or
1.06  hereof, and such failure shall
remain unremedied for thirty (30) days after written notice of such non-payment
from the Bank to the Corporation; or

 

7.03  Misrepresentation. Any
representation or warranty made by the Corporation pursuant to Article IV
hereof shall prove to have been incorrect in any material respect when made; or

 

7.04  Breach of Covenants. The
Corporation shall fail to perform or observe any other term, covenant or
agreement contained herein, including failure to maintain the Deposits in the
amount required under Section 1.04(a) hereof, and any such failure
shall remain unremedied for thirty (30) days after written notice thereof shall
have been given to the Corporation by the Bank; provided, however, that if any
term, covenant or agreement is such that non-performance or non-observance
thereof cannot be corrected within such 30-day period, or if a force majeure
prevents correction within such period, the non-performance or non-observance
shall not constitute an Event of Default hereunder if corrective action is
instituted by Corporation within such period (or, in the event of a force
majeure, in whatever period corrective action is practicable) and diligently
pursued to correction; or

 

9

 

7.05  Defaults Under Other Documents. The
occurrence and continuance of any “Event of Default” as defined in the Pledge
Agreement; or

 

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

 

7.07  Bankruptcy or Insolvency. The
Corporation shall (a) apply
for or consent to the appointment of a receiver, trustee, liquidator or
custodian or the like of itself or of its property, (b) admit
in writing its inability to pay its debts generally as they become due, (c) make a general assignment for the benefit of
creditors, (d) be adjudicated a bankrupt
or insolvent, (e) commence a voluntary case
under the federal bankruptcy laws of the United State of America or file a
voluntary petition or answer seeking reorganization, an arrangement with
creditors or an order for relief or seeking to take advantage of any insolvency
laws or file an answer admitting the material allegations of a petition filed
against it in any bankruptcy, reorganization or insolvency proceeding; or if
such shall be instituted in any court of competent jurisdiction, under any law
relating to bankruptcy, insolvency, reorganization, or relief of debtors,
seeking in respect of the Corporation, an order for relief or an adjudication
in bankruptcy, reorganization, dissolution, winding up, liquidation, or
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or the like of the
Corporation or of all or any substantial part of its assets, or other like
relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding
is being contested in good faith, the same shall (i) result in the entry
of an order for relief or any such adjudication or appointment, or (ii) continue
undismissed, or pending and unstayed, for any period of sixty (60) consecutive
days.

 

ARTICLE VIII

RIGHT AND REMEDIES

 

8.01  Defaults Under this Agreement. Upon
the occurrence of an Event of Default hereunder, or at any time thereafter
while such default continues, the Bank, in its sole discretion, may do any
one or more of the following:

 

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

 

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

 

8.02  No Waiver. The Bank
shall not be deemed to have waived or released any of its rights or remedies (whether
specified in or arising under this Agreement or otherwise available to it by
law or agreement) unless it signs a written waiver or release. Delay or failure
to act on the

 

10

 

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

 

8.03  Right to Perform Corporation
Obligation. Whether or not an Event of Default shall have
occurred hereunder, if the Corporation shall fail to perform any of its
covenants or obligations hereunder or under the Pledge Agreement, the Bank may (but
shall not be obligated to) perform such covenants or obligations on behalf
of and at the expense of the Corporation. The Corporation shall reimburse the
Bank for the cost of such performance promptly on demand, and the cost thereof,
until reimbursed, shall constitute additional indebtedness secured by the
Security Documents.

 

ARTICLE IX

MISCELLANEOUS

 

9.01  Liability of the Bank. The
Corporation assumes all risks of the acts or omissions of the Trustee with
respect to its use of the Letter of Credit; provided, however, this assumption
with respect to the Bank is not intended to, and shall not, preclude the
Corporation’s pursuing such rights and remedies as it may have against the
Trustee at law or under any other agreement. Neither the Bank nor any of its
officers or directors shall be liable or responsible for: (a) the
uses that may be made of the Letter of Credit or for any acts or omissions
of the Trustee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment
by the Bank against presentation of documents that do not comply with the terms
of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or
failing to make payment under the Letter of Credit; provided, however, anything
in the preceding clauses (a), (b), (c) and (d) to the contrary
notwithstanding, the Corporation shall have a claim against the Bank, and the
Bank 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 by
the Corporation which the Corporation proves were caused by (i) the Bank’s
gross negligence or (ii) the Bank’s willful failure to pay under the
Letter of Credit after the presentation to it by the Trustee of a sight draft
complying with the terms and conditions of the Letter of Credit.

 

9.02  Permitted Contest. The
Corporation shall not be required under this Agreement to (a) pay
any 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 third
party, so long as the Corporation shall (i) contest, in good faith, the
existence, amount or validity thereof, the amount of damages caused thereby or
the extent of its liability therefor, by appropriate proceedings which shall
operate during the pendency thereof to prevent (A) the collection of, or
other realization upon, the tax, assessment, charge or lien, encumbrance,
indebtedness, or obligation so contested, or (B) the sale, forfeiture or
loss of any collateral therefor

 

11

 

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

 

9.03  Savings Clause; Severability of
Provisions; Governing Law. All warranties,
representations, and covenants set forth herein shall survive the termination
of this Agreement. If any portion of this Agreement shall be held to be void or
unenforceable, the balance thereof shall nonetheless be effective. This
Agreement and all exhibits and security documents referenced and provided for
herein shall be governed by and construed in accordance with the laws of the
State of Montana.

 

9.04  Headings. Section headings
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

 

9.05  Amendments and Waivers. No
amendment or waiver of any provision of this Agreement nor consent to any
departure therefrom shall in any event be effective unless the same shall be in
writing and signed by the Bank and the Corporation, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given.

 

9.06  Addresses for Notices. All
notices and other communications provided for hereunder shall be in writing and
if to the Corporation, mailed or hand-delivered to it, addressed to it at 150
South 5th Street, Suite 1360, Minneapolis, Minnesota 55402, or
if to the Bank, mailed or hand-delivered to it, addressed to it at P.O. Box
30918, Billings, Montana 59116-0918, Attention: 
Commercial Loan Department, or at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and other communications when mailed, shall be effective three (3) days
after the date of deposit in the mails, addressed as aforesaid and, when
hand-delivered, shall be effective at time of delivery.

 

9.07  Continuing Obligation. This
Agreement is a continuing obligation and shall (a) be
binding upon the Corporation, its successors and permitted assigns, and (b) inure to the benefit of and be enforceable by the
Bank and its successors, transferees and assigns. The Corporation may not
assign or delegate all or any part of its rights or obligations under this
Agreement without the prior written consent of the Bank.

 

9.08  Non-Waiver. No delay
of the Bank in exercising any of its rights hereunder shall constitute a waiver
of any such rights. The Bank will not be deemed to have waived any of its
rights hereunder, unless its authorized officers shall have signed such waiver
in writing. No such waiver, unless expressly stated herein, shall be effective
as to any transaction which occurs subsequent to the date of such waiver, nor
as to any continuance of a breach after such waiver. No such waiver shall
impair any of the rights of the Bank other than those rights expressly waived.

 

9.09  Counterparts. This
Agreement may be executed in any number of counterparts, each of which
when executed and delivered shall be an original, but all such counterparts
shall constitute one and the same instrument.

 

12

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement 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”

  
						

 

13Exhibit 10.19

 

IRREVOCABLE
STANDBY LETTER OF CREDIT

 

April 17, 2006

 

	
  Beneficiary:

  	
   

  	
  Letter of
  Credit No. 1109600324

  

UMB Bank, N.A., as Trustee

Corporate Trust Division

Attention:  Anthony Hawkins

2401 Grand Blvd., Suite 200

Kansas City, MO 64108

 

Applicant:

MAIR Holdings, Inc.

150 South 5th Street

Suite 1360

Minneapolis, MN 55402

 

Issuing Bank:

First Interstate Bank

Attention:  Steve Tostenrud

401 North 31st St.

P.O. Box 30918

Billings, MT 59116-0918

 

Ladies and Gentlemen:

 

First Interstate Bank (the “Issuing Bank”)
hereby issues this irrevocable standby letter of credit (the “Letter of Credit”)
for the benefit of the Beneficiary and available by your draft or drafts at
sight, subject to the requirements of this Letter of Credit, in an aggregate
amount not to exceed THIRTEEN MILLION ONE HUNDRED TEN THOUSAND AND 00/100 U.S.
DOLLARS (13,110,000.00) (the “Stated Amount”). This Letter of Credit expires at
4:00 o’clock p.m. (Mountain Time) on April 17, 2007 (the “Expiration
Time”). The Expiration Time shall be automatically extended without amendment
for one year periods from this or any future Expiration Time, unless sixty days
prior to any such Expiration Time the Issuing Bank notifies the Beneficiary at
the address listed above and the Additional Notice Parties (listed below), in
writing by registered mail or express courier, that the Issuing Bank elects not
to extend the Letter of Credit.

 

 

Nothwithstanding the above automatic
extension provision, it is a condition of this Letter of Credit that the Stated
Amount will automatically reduce without amendment on the dates and in the
amounts as listed on the attached Exhibit A, and made a part hereof. Such
reduction will take place on each corresponding date at 4:00 p.m. Mountain
Time.

 

Drawings are available against manually
signed draft(s) at sight by a duly authorized agent of Beneficiary stating this
Letter of Credit number presented to the Issuing Bank at its office stated
above, in a single mailing, by courier or personal delivery, and to the
attention of the Commercial Loan Department and accompanied by a signed
statement reading as follows:

 

“The undersigned, on behalf of the
Beneficiary, certifies that (1) the undersigned is duly authorized to
execute and deliver this draft, (2) the Draw Amount is due and owing to
the Beneficiary by reason of a default by Applicant under the Agreement dated
as of April 18, 2006, between Beneficiary and Applicant, and (3) Beneficiary
has complied with all notice and other requirements under said Agreement.”

 

All drafts drawn under and in compliance with
the terms of this Letter of Credit will be duly honored on receipt of the
specified documents by the Issuing Bank if actually received on a Business Day
and before the Expiration Time. Partial drawings are permitted provided the aggregate
of all draws does not exceed the Stated Amount. “Business Day” means any
calendar day, other than a Saturday, Sunday or legal holiday, and on which the
Issuing Bank is open for business at the office.

 

This Letter of Credit sets forth in full the
Issuing Bank’s undertakings and the undertaking shall not be in any way
modified, amended or limited by reference to any other document, instrument or
agreement, excepting only the sight drafts and required drawing statement and
drawing documents identified above.

 

This Letter of Credit is subject to the terms
and conditions of the “Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500”
or any subsequent revision thereof (the “Uniform Customs”).

 

Communications with respect to this Letter of
Credit shall be in writing and shall be addressed to the Issuing Bank at the
address set forth above. All communications must make reference to the Letter
of Credit number.

 

2

 

The Additional Notice Parties are:

 

	
  Mintz, Levin, Cohn, Ferris, Glovsky

  	
   

  	
  Oppenheimer Funds, Inc.

  
	
  and Popeo,
  P.C.

  	
   

  	
  350 Linden Oaks

  
	
  One Financial Center

  	
   

  	
  Rochester, NY 14625

  
	
  Boston, MA 02111

  	
   

  	
  Attention: Angela
  Uttaro

  
	
  Attention: Kevin
  J. Walsh

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Merrill Lynch Investment Managers

  	
   

  	
   

  
	
  800 Scudders Mill Road

  	
   

  	
   

  
	
  Section 1B

  	
   

  	
   

  
	
  Plainsboro, NJ 08536

  	
   

  	
   

  
	
  Attention:
  Christopher Fornal

  	
   

  	
   

  

 

This Letter of Credit is non-assignable and
non-transferable.

 

	
   

  	
  FIRST INTERSTATE BANK

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Susan Riplett

  	
   

  
	
   

  	
   

  
	
   

  	
  Its

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Steve Tostenrud

  	
   

  
	
   

  	
   

  
	
   

  	
  Its

  	
  Vice President

  	
   

  
							

 

3

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