Document:

Exhibit 10.5

 

 

[CONFIDENTIAL TREATMENT REQUESTED.  CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION]

 

AIRLINE SERVICES AGREEMENT

 

by and between

 

MESABA AVIATION, INC.

 

and

 

NORTHWEST AIRLINES, INC.

 

Dated as of August 29, 2005

 

 

*** Denotes portions omitted pursuant to a request for confidentiality under Rule 24b-2 of the Securities Exchange Act of 1934. A copy of this agreement with the omitted information intact has been filed separately with the Securities and Exchange Commission

 

 

TABLE OF CONTENTS

 

	
  AIRLINE SERVICES AGREEMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 1.01

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  PROVISION OF REGIONAL AIRLINE SERVICES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 2.01

  	
  Operation of Scheduled Flights

  	
   

  
	
  Section 2.02

  	
  Use of Designator, NW Identification and
  Related Matters

  	
   

  
	
  Section 2.03

  	
  Use of Other Designators

  	
   

  
	
  Section 2.04

  	
  Personnel and Dispatch Control

  	
   

  
	
  Section 2.05

  	
  Inventory Management

  	
   

  
	
  Section 2.06

  	
  Passenger Fares

  	
   

  
	
  Section 2.07

  	
  DOT Certification

  	
   

  
	
  Section 2.08

  	
  Compliance with Governmental Regulations

  	
   

  
	
  Section 2.09

  	
  Quality of Service

  	
   

  
	
  Section 2.10

  	
  Service Standards

  	
   

  
	
  Section 2.11

  	
  Service Recovery

  	
   

  
	
  Section 2.12

  	
  Annual Operating Plan

  	
   

  
	
  Section 2.13

  	
  Inflight Food, Beverages and Supplies

  	
   

  
	
  Section 2.14

  	
  Exclusivity Arrangements

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  EQUIPMENT

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 3.01

  	
  Use of the Equipment

  	
   

  
	
  Section 3.02

  	
  Fleet Size and Related Matters

  	
   

  
	
  Section 3.03

  	
  Lease of the Equipment

  	
   

  
	
  Section 3.04

  	
  Terms of the CRJ Leases

  	
   

  
	
  Section 3.05

  	
  Manufacturer Benefits Agreement

  	
   

  
	
  Section 3.06

  	
  Equipment Maintenance, Servicing and
  Cleaning

  	
   

  
	
  Section 3.07

  	
  CRJ-200/440 Aircraft Maintenance Agreements

  	
   

  
	
  Section 3.08

  	
  CRJ-200/440 FAA Airworthiness Directives

  	
   

  
	
  Section 3.09

  	
  CRJ-200/440 Aircraft and Engine/APU
  Configuration

  	
   

  
	
  Section 3.10

  	
  Third Party Guarantees and Warranties

  	
   

  
	
  Section 3.11

  	
  Related Transfer Arrangements

  	
   

  
	
  Section 3.12

  	
  Equipment Financing Coordination

  	
   

  
	
  Section 3.13

  	
  Spare Parts Inventory; Application of
  Credits

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  ANCILLARY ARRANGEMENTS

  	
   

  

 

 

	
  Section 4.01

  	
  Coordination with Mesaba

  	
   

  
	
  Section 4.02

  	
  Ground Handling and Dangerous Goods
  Handling; Technological Improvements; Weather-event Recovery

  	
   

  
	
  Section 4.03

  	
  Facilities

  	
   

  
	
  Section 4.04

  	
  Data Communications

  	
   

  
	
  Section 4.05

  	
  Security

  	
   

  
	
  Section 4.06

  	
  Reservation Services

  	
   

  
	
  Section 4.07

  	
  Ticketing Services and Ticketing Procedures

  	
   

  
	
  Section 4.08

  	
  Baggage Handling Procedures

  	
   

  
	
  Section 4.09

  	
  Air Cargo Handling Services

  	
   

  
	
  Section 4.10

  	
  Use of COMAT

  	
   

  
	
  Section 4.11

  	
  Slots and Route Authorities

  	
   

  
	
  Section 4.12

  	
  Emergency Response and Family Assistance

  	
   

  
	
  Section 4.13

  	
  Technology Improvements

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  REVENUES, PAYMENTS AND SETOFF

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 5.01

  	
  Revenues

  	
   

  
	
  Section 5.02

  	
  Payments to Mesaba

  	
   

  
	
  Section 5.03

  	
  Billing

  	
   

  
	
  Section 5.04

  	
  Credit Card Chargebacks

  	
   

  
	
  Section 5.05

  	
  Returned Checks

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  REPORTING OBLIGATIONS, AUDITING,
  INSPECTIONS AND CONFIDENTIALITY/PUBLICITY

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 6.01

  	
  Reporting Obligations

  	
   

  
	
  Section 6.02

  	
  Audits

  	
   

  
	
  Section 6.03

  	
  Inspections

  	
   

  
	
  Section 6.04

  	
  Confidentiality/Publicity

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  NORTHWEST IDENTIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 7.01

  	
  Identification License

  	
   

  
	
  Section 7.02

  	
  Designator License

  	
   

  
	
  Section 7.03

  	
  New Identifications

  	
   

  
	
  Section 7.04

  	
  Use of Identification

  	
   

  
	
  Section 7.05

  	
  Quality Control

  	
   

  
	
  Section 7.06

  	
  Reservation of Rights

  	
   

  
	
  Section 7.07

  	
  Ownership

  	
   

  
	
  Section 7.08

  	
  Termination

  	
   

  
	
  Section 7.09

  	
  Bankruptcy

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  TAXES AND FEES

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 8.01

  	
  Taxes and Fees

  	
   

  
	
  Section 8.02

  	
  Ticket Taxes and Fees

  	
   

  
	
  Section 8.03

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

  	
   

  

 

 

	
  Section 8.04

  	
  Refunds of Tax.

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  LIABILITY, INDEMNIFICATION AND INSURANCE

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 9.01

  	
  Independent Contractor

  	
   

  
	
  Section 9.02

  	
  Indemnification

  	
   

  
	
  Section 9.03

  	
  Insurance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  TERM AND TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 10.01

  	
  Term

  	
   

  
	
  Section 10.02

  	
  Termination by Either Party

  	
   

  
	
  Section 10.03

  	
  Termination by Northwest

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  Section 11.01

  	
  Limitation on Performance

  	
   

  
	
  Section 11.02

  	
  Mutual Cooperation

  	
   

  
	
  Section 11.03

  	
  Representations and Warranties

  	
   

  
	
  Section 11.04

  	
  Assignment

  	
   

  
	
  Section 11.05

  	
  Governing Law

  	
   

  
	
  Section 11.06

  	
  Interline and Other Agreements

  	
   

  
	
  Section 11.07

  	
  Notices

  	
   

  
	
  Section 11.08

  	
  Parties

  	
   

  
	
  Section 11.09

  	
  Counterparts

  	
   

  
	
  Section 11.10

  	
  Severability

  	
   

  
	
  Section 11.11

  	
  Captions, Section Headings and Table
  of Contents

  	
   

  
	
  Section 11.12

  	
  Dispute Resolution; Availability of
  Equitable Remedies; Procedures

  	
   

  
	
  Section 11.13

  	
  Exhibits

  	
   

  
	
  Section 11.14

  	
  Integration and Entire Agreement

  	
   

  
	
  Section 11.15

  	
  Relationship of Parties

  	
   

  
	
  Section 11.16

  	
  Termination of Prior Agreements

  	
   

  

 

 

EXHIBITS

 

	
  Exhibit A-1

  	
  CRJ-200/440 Aircraft Lease Form

  	
   

  
	
  Exhibit A-2

  	
  CRJ Spare Engine Lease Form

  	
   

  
	
  Exhibit B

  	
  CRJ-200/440 Delivery Schedule

  	
   

  
	
  Exhibit C

  	
  ARJ Payment Terms

  	
   

  
	
  Exhibit D

  	
  Saab Payment Terms

  	
   

  
	
  Exhibit E

  	
  CRJ Payment Terms

  	
   

  
	
  Exhibit F

  	
  Pass Travel Privileges

  	
   

  
	
  Exhibit G

  	
  Northwest Service Cities

  	
   

  
	
  Exhibit H

  	
  Facilities Use Agreement

  	
   

  
	
  Exhibit I

  	
  Cancellation Codes

  	
   

  

 

 

AIRLINE SERVICES AGREEMENT

 

THIS
AIRLINE SERVICES AGREEMENT (the “Agreement”) is dated as
of the 29th day of August, 2005 by and between MESABA AVIATION, INC., a
Minnesota corporation (“Mesaba”), and NORTHWEST AIRLINES, INC., a Minnesota
corporation (“Northwest”).

 

WITNESSETH:

 

WHEREAS,
Mesaba and Northwest are parties to (i) a Regional Jet Services Agreement,
dated October 25, 1996, as amended (the “RJ Agreement”), and (ii) an
Airline Services Agreement, dated July 1, 1997, as amended (the “Saab
Agreement”), and Mesaba and Northwest desire to replace the RJ Agreement and
the Saab Agreement with this Agreement;

 

WHEREAS, Mesaba, Northwest and MAIR Holdings, Inc.
executed a Term Sheet Proposal for New Omnibus Airline Services Agreement dated
April 20, 2005 (the “Term Sheet Proposal”), pursuant to which, among other
things, Mesaba agreed to fly additional regional jet aircraft for Northwest;

 

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

 

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

 

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

 

ARTICLE I    

DEFINITIONS

 

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

 

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

 

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

 

 

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

 

(4)                                  Exhibits
C, D and E each include defined terms that have meanings assigned to them in
such Exhibits.

 

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

 

“Affiliate”
means, as applied to a Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, that Person.  For purposes of this definition “control”
(including, with correlative meanings, the terms “controlling”, “controlled by”
and “under common control with”), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise.

 

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

 

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

 

“Aircraft”
means, the Avro Regional Jet Aircraft, the CRJ-200/440 Aircraft and the Saab
340 Aircraft.

 

“Aircraft
Rental Expense” means the Basic Rent charged in
the Leases between Northwest and Mesaba with respect to the CRJ-200/440
Aircraft.

 

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

 

“Airport
Landing Fees” shall include all landing fees, airport user fees and assessments to the
extent such fees and assessments are attributable to or result from Regional
Airline Services.

 

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

 

“Avro
Regional Jet Aircraft” means the thirty-five (35)
Avro Regional Jet aircraft in Mesaba’s fleet as of the Effective Date.

 

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

 

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

 

2

 

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

 

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

 

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

 

“Charter
Flights”
means revenue passenger flights using the Aircraft (other than Scheduled
Flights).

 

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

 

“CRJ-200/440
Aircraft” means
(i) up to *** CRJ-200 or CRJ-440 Canadair Regional Jet aircraft when and
as such aircraft are added to Mesaba’s fleet pursuant to Section 3.02, and
(ii) up to *** additional CRJ-200 or CRJ-440 Canadair Regional Jet
aircraft when and if such aircraft are added to Mesaba’s fleet pursuant to Section 3.02.

 

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

 

“CRJ
Spare Engines” means the General Electric CF34-3B1
spare engines to be added to Mesaba’s fleet pursuant to Section 3.02, when
and as such spare engines are added to Mesaba’s fleet pursuant to Section 3.02.  Any CRJ Spare Engine removed from Mesaba’s
fleet ceases to be a “CRJ Spare Engine” hereunder upon the date of such
removal.

 

“Dangerous
Goods” shall
have the meaning ascribed to such term in Section 1.0 of the Dangerous
Goods Regulations of the International Air Transport Association (“IATA”), as
such term may be amended from time to time by IATA.

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

“Equipment”
means the Aircraft and the CRJ Spare Engines.

 

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

 

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

 

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

 

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

 

“Hub
Cities” means Memphis, Tennessee (“MEM”),
Minneapolis/St. Paul, Minnesota (“MSP”), Detroit, Michigan (“DTW”) and any
other city in the United States where Northwest, together with its subsidiaries
and Airlink Carriers operating under Northwest’s Designator, operate an average
of more than fifty (50) departures
per day during any Northwest Schedule Period.

 

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

 

“Lease”
means (i) the leases, subleases and/or sub-subleases entered into with
respect to the Avro Regional Jet Aircraft, (ii) the leases, subleases
and/or sub-subleases entered into or to be entered into pursuant to Section 3.03
in respect of the CRJ-200/440 Aircraft substantially in the form of Exhibit A-1,  (iii) the leases, subleases and/or
sub-subleases entered into or to be entered into pursuant to Section 3.03
in respect of CRJ Spare Engines substantially in the form of Exhibit A-2,
and (iv) the leases, subleases and/or sub-subleases with respect to the
Saab 340 Aircraft.

 

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

 

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

 

4

 

“MAIR
Holdings, Inc.” means Mesaba’s parent company
MAIR Holdings, Inc., a Minnesota corporation, and any successor.

 

“Margin
Payment” shall have the meaning ascribed to such
term in Attachment A of Exhibit E.

 

“Mesaba
Change of Control” means:

 

(a)                                  The
acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”) (a “Person”))
(other than Northwest) of Beneficial Ownership of 20% or more of either (i) the
then outstanding shares of Capital Stock of MAIR Holdings, Inc. (the “Outstanding
Holdings Capital Stock”) or (ii) the combined Voting Power of the then
outstanding voting securities of MAIR Holdings, Inc. entitled to vote
generally in the election of directors (the “Outstanding Holdings Voting
Securities”); provided, however, the term “Person” as used in this definition
shall not include Northwest, any Northwest assignee or transferee, or Carl R.
Pohlad and his family or any Affiliate of Carl R. Pohlad which beneficially
owns directly or indirectly shares of MAIR Holdings, Inc. common stock as
of the date hereof;

 

(b)                                 Approval
by the Board of Directors of Mesaba or MAIR Holdings, Inc. of a
reorganization, merger or consolidation (a “Business Combination”), in each
case, unless, following such Business Combination, all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Holdings Capital Stock and Outstanding Holdings Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 75% of, respectively, the then outstanding
shares of Capital Stock and the combined Voting Power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns MAIR Holdings, Inc. or Mesaba through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Holdings Capital
Stock and Outstanding Holdings Voting Securities, as the case may be; or

 

(c)                                  Approval
by the Board of Directors of Mesaba or MAIR Holdings, Inc. of (i) a
complete liquidation or dissolution, or (ii) the sale or other disposition
of all or substantially all of the assets of Mesaba or MAIR Holdings, Inc.,
other than to a corporation with respect to which following such sale or other
disposition, more than 75% of, respectively, the then outstanding shares of Capital
Stock of such corporation and the combined Voting Power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Holdings Capital Stock and
Outstanding Holdings Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership immediately
prior to such sale or other disposition of the Outstanding Holdings Capital
Stock and Outstanding Holdings Voting Securities, as the case may be.

 

5

 

“Mesaba
Identification” means any Identification selected
by Mesaba from time to time for use in connection with the business of Mesaba,
including without limitation “Mesaba,” “Mesaba Airlines,” “XJ” or any similar
name.

 

“Mesaba
Service Cities” means those Service Cities at
which Mesaba operates Saab 340 Aircraft and which are not Northwest Service
Cities or Hub Cities (as determined by Northwest and Mesaba from time to time).

 

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

 

“Northwest
Service Cities” means those Service Cities at
which Mesaba operates Regional Airline Services and Northwest’s employees or
contract agents perform the Ground Handling Functions and which are listed in Exhibit G
hereto (as amended by Northwest in its sole discretion from time to time).

 

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

 

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

 

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

 

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

 

“PPI”
means Producer Price Index for Commodities, Item Finished Goods – not
seasonally adjusted, published by the United States Department of Labor, Bureau
of Labor Statistics, and, if no longer published, any comparable successor
index agreed to by both Northwest and Mesaba.

 

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

 

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

 

“Saab
340 Aircraft” means the sixty-three (63) turboprop
aircraft leased by Mesaba as of the Effective Date (forty-nine (49) Saab 340B+
turboprop aircraft leased from Northwest, eleven (11) Saab 340B turboprop
aircraft leased from Pinnacle Airlines, Inc. and three (3) Saab 340A
turboprop aircraft leased by Mesaba directly from third parties).

 

“Scheduled
Flights” means
revenue passenger flights (other than Charter Flights) using the Aircraft
which, regardless of frequency, are held out to the public and

 

6

 

published in the customary and applicable schedule distribution
systems, such as the Official Airline Guide (“OAG”), or published by Northwest
in its own system timetables.  In
addition, Scheduled Flights shall include all regularly scheduled flights which
are not revenue passenger flights as determined by Northwest in its sole
discretion.

 

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

 

“Support
Agreements” shall have the meaning ascribed to
such term in Section 3.11.

 

“Term” means the term of this Agreement as
determined by the length of time between the Effective Date and Termination
Date as set forth in Article X herein (unless otherwise terminated earlier
pursuant to the terms of this Agreement).

 

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

 

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

 

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

 

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

 

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

 

“TSA”
means the
United States Transportation Security Administration or any successor governmental
organization.

 

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

 

7

 

ARTICLE II    

PROVISION OF REGIONAL AIRLINE SERVICES

 

Section 2.01     Operation
of Scheduled Flights.  Subject to the terms and conditions of this
Agreement, Mesaba shall use the Aircraft to operate Scheduled Flights and
Charter Flights as shall be designated by Northwest from time to time in
Northwest’s sole discretion, provided that (a) Northwest will not schedule the
CRJ-200/440 Aircraft operated by Mesaba pursuant to this Agreement to operate
Scheduled Flights to/from a Hub City other than Minneapolis/St. Paul, Minnesota
until after the date on which Mesaba is operating at least *** such Aircraft pursuant to this
Agreement, and (b) if Northwest schedules CRJ-200/440 Aircraft operated by
Mesaba pursuant to this Agreement to operate Scheduled Flights to/from a Hub
City other than Minneapolis/St. Paul, Minnesota pursuant to this Section 2.01(a),
Northwest will nonetheless continue to schedule at least *** such Aircraft to operate Scheduled
Flights to/from Minneapolis/St. Paul, Minnesota.  All schedules and aircraft routing for such
Scheduled Flights and all utilization of the Aircraft shall be determined by
Northwest from time to time, in its sole discretion, subject to the reasonable
operating constraints of Mesaba taking into consideration airport gate
constraints, Aircraft maintenance, crew training and Aircraft rotation
requirements.  Scheduled block times
shall be set in accordance with Northwest’s standards unless otherwise mutually
agreed by Northwest and Mesaba.  Minimum
turn times shall be mutually agreed to by Mesaba and Northwest and set in
conformity with standard industry practices and Aircraft type.

 

Section 2.02     Use
of Designator, NW Identification and Related Matters.  Subject to the applicable provisions of Article VII
below, Mesaba shall operate the Scheduled Flights and Charter Flights provided
under this Agreement using the Designator. 
The Scheduled Flights and Charter Flights shall be identified by Mesaba
solely with flight numbers assigned by Northwest.  Subject to the applicable provisions of Article VII
below, Mesaba shall use only the NW Identification for the Aircraft (except as
otherwise required by Governmental Regulations), and for all airport terminal
facilities (such as gates, passenger waiting areas and jetways), signage,
equipment, uniforms and advertising, promotional and business materials in any
form or media that are used in connection with the Regional Airline Services;
provided, however, all Mesaba uniforms shall be determined by Mesaba, provided
that such uniforms shall at all times be consistent with Mesaba’s existing
uniform standards and subject to the approval of Northwest (including approval
of any use of the NW Identification thereon) which shall not be unreasonably
withheld.  Mesaba shall not use the
Mesaba Identification for the Aircraft (except as required by Governmental
Regulation), airport terminal facilities (such as gates, passenger waiting
areas and jetways), signage or advertising, promotional or business materials
in any form or media that are used in connection with the Regional Airline
Services; provided, however, nothing in the foregoing prohibition shall
preclude Mesaba from using the Mesaba Identification for general corporate
purposes, investor relations, responding to customer inquiries, on crew wings
and employee service pins, and for purposes that are not covered by the
foregoing prohibition.

 

Section 2.03     Use
of Other Designators.  Mesaba shall not use on the Aircraft the
airline designator, Identification, or any other identifying feature of a
foreign or United States airline other than Northwest (except as otherwise
required by Governmental Regulations), without the express prior written
consent of Northwest, or unless Northwest directs Mesaba to

 

8

 

use such other designator, Identification, or identifying feature.  Notwithstanding the foregoing, Northwest
acknowledges the existence of the following current letter agreements between
Northwest and Mesaba:  Delta Letter
Number 1 side letter agreement dated June 19, 2003; Delta Letter Number 2
side letter agreement dated June 19, 2003; Continental Letter Number 1
side letter agreement dated January 4, 1999; and Continental Letter Number
2 side letter agreement dated January 4, 1999, all pursuant to which
Northwest has provided its written consent to Mesaba’s use of Delta’s and/or
Continental’s designator code on specified Mesaba flights pursuant to separate
Implementation Agreements between Mesaba and such airlines.

 

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

 

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

 

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

 

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

 

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

 

Section 2.09     Quality
of Service. 
Northwest policies, procedures, performance standards (including but not
limited to Northwest’s “Customers First” customer service plan) and means of
measurement thereof concerning the provision of air passenger and air cargo
services shall be applicable to all services provided by Mesaba under this
Agreement.  Mesaba shall

 

9

 

achieve at least the same quality of airline service provided by
Northwest, subject to limitations imposed by the type of Aircraft used by
Mesaba, its route network, the availability of equipment and facilities at the
Service Cities and the performance by Northwest of its obligations under this
Agreement.  Mesaba shall maintain
adequate staffing levels to ensure at least the same level of customer service
and operational efficiency that Northwest achieves; Mesaba shall cooperate with
Northwest in any way necessary or desirable to provide such comparable level of
customer service in connection with the operation of Regional Airline Services;
and Mesaba shall maintain new hire and recurrent training programs for all job
descriptions, and such programs shall be reasonably acceptable to Northwest.

 

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

 

(a)                                  For
Scheduled Flights operated with CRJ-200/440 Aircraft:

 

(i)                                     Minimum
Completion Factor.  Mesaba shall
achieve not less than *** points
less than the mutually agreed completion factor percentage goal for the current
calendar year for all Scheduled Flights which are scheduled to be operated by
Mesaba during each Performance Period. 
Scheduled Flights which are cancelled at Northwest’s request (as
determined by Northwest’s System Operations Control (“SOC”) operations
reporting group) and/or due to Northwest controllable events will not be
included in calculating Mesaba’s completion factor.  The excluded cancellation codes are listed in
Exhibit I.

 

(ii)                                  Minimum On-Time
Reliability.  Mesaba shall achieve
not less than *** points less
than the mutually agreed arrival within zero minutes factor goal for the
current calendar year and not less than ***
points less than the mutually agreed departure within zero minutes factor goal
for the current calendar year for all Scheduled Flights which are scheduled to
be operated and are actually completed by Mesaba during each Performance Period
(collectively, the “On-Time Reliability Factors”).  All Scheduled Flights actually completed will
be included in this calculation, except for those operated on days when
Northwest and Mesaba mutually agree that Mesaba’s on-time performance was
significantly degraded by Northwest’s implementation of its Irregular Operating
Procedures Program.  Upon mutual
agreement between Northwest’s Vice President of System Operations Control and
Mesaba, all Scheduled Flights operated on days with such extraordinary events
will be excluded from the calculation of Mesaba’s On-Time Reliability
Factors.  If Northwest and Mesaba are
unable to reach agreement on the exclusion of certain days, then all Scheduled
Flights completed on such days will be included in the calculation of Mesaba’s
On-Time Reliability Factors.

 

In conjunction with Mesaba’s arrival within zero minutes (“A0”)
performance, Mesaba’s block within zero minutes (“B0”) performance “cap” will
equal ***.  If Mesaba’s actual B0 exceeds
the cap, Mesaba’s actual A0 will be *** for every ***.  The cap and *** amount
will be predetermined in the fourth quarter of the prior year based on the most
recent five-year monthly regression (the “Regression”) for D0, B0 and A0 for
Avro Regional Jet Aircraft and CRJ-200/440 Aircraft.

 

10

 

Example:  If the agreed upon goals are as follows:  ***
and the agreed upon *** is ***  (based on regression analysis), then:

1.                                       DO
Penalty high point is *** (see Exhibit E,
section 1.08);

 

2.                                       B0
regression analysis to achieve ***
is ***; and

 

3.                                       If
B0 is greater than ***, then A0 ***
will be *** for each ***.

 

Subsequent to a Performance Period, Northwest and Mesaba agree to meet
and confer if passenger/luggage holding delays (LXS/LTS) materially differ from
historical norms.

 

(iii)                               Establishment of
Goals.  In the fourth quarter of the
each year, Northwest and Mesaba will mutually agree on the operating goals for
the upcoming year regarding completion factor, arrival within zero minutes and
departure within zero minutes.  Failure
to reach an agreement on the goals will result in the completion factor
percentage goal defaulting to Northwest’s North American completion factor
goal, and the on-time reliability goals defaulting to Northwest’s North
American arrival within zero minutes and departure within zero minutes goals,
as adjusted below.

 

Mesaba default on-time reliability goals (rounded to half-point): 

XJ D0 goal = ***

 

XJ A0 goal = Regression (assuming calculated
D0 and current year B0 goals).

 

Northwest and
Mesaba shall mutually agree on seasonalized goals for each Performance Period.

 

(b)                                 For
Scheduled Flights operated with Avro Regional Jet Aircraft:

 

(i)                                     Completion
Factor.  Mesaba shall achieve not
less than a *** percent (***%) completion factor for all
Scheduled Flights which are scheduled to be operated by Mesaba during each
Performance Period.  For purposes of this
Agreement, all cancellations due to airport closure and weather minima at the
Service Cities or the Hub Cities, or Northwest controllable events, will be
excluded from this calculation.

 

(ii)                                  Minimum On-Time
Reliability.  Mesaba shall achieve a *** percent (***%) on-time arrival factor (“On-Time Factor”) for all Scheduled
Flights actually completed by Mesaba during each Performance Period.  An arrival will be considered on-time if it
arrives not later than *** after
its published, scheduled arrival time. 
All Scheduled Flights that arrive *** later than their published, scheduled arrival time will not be
considered on-time, regardless of the reason for the delay.  All Scheduled Flights that are actually
completed by Mesaba will be included in this calculation, except for those
Scheduled Flights operated on days when Northwest and Mesaba mutually agree
that Mesaba’s on-time performance was significantly degraded by Northwest’s
implementation of an Irregular Operating Procedures Program.  Upon mutual agreement between Northwest’s
Vice President of System Operations Control and Mesaba, all Scheduled Flights
operated on days with such extraordinary events will be excluded from

 

11

 

the calculation of Mesaba’s On-Time Factor.  If Northwest and Mesaba are unable to reach
agreement on the exclusion of certain days, then all Scheduled Flights actually
completed by Mesaba on such days will be included in the calculation of Mesaba’s
On-Time Factor.

 

(c)                                  For
Scheduled Flights operated with Saab 340 Aircraft:

 

(i)                                     Completion
Factor.  Mesaba shall achieve not
less than a *** percent (***%) completion factor for all
Scheduled Flights which are scheduled to be operated by Mesaba during each
Performance Period.  ***   

 

(ii)                                  Minimum On-Time
Reliability.  Mesaba shall achieve a *** percent (***%) On-Time Factor for all Scheduled Flights actually completed
by Mesaba during each Performance Period. 
An arrival will be considered on-time if it arrives not later than *** after its published, scheduled
arrival time.  All Scheduled Flights that
arrive *** later than their
published, scheduled arrival time will not be considered on-time, regardless of
the reason for the delay.  ***

 

(iii)                               Mishandled Luggage
Factor.  The number of incidences of
mishandled luggage by Mesaba shall not exceed *** enplaned Revenue Passengers during any Performance
Period.  The number of incidences of
mishandled luggage shall be determined by Northwest by dividing (i) the
total number of Mesaba caused claims at Primary Service Cities, Complementary
Service Cities and the Hub Cities during the applicable Performance Period, by (ii) the
total number of enplaned Revenue Passengers during such Performance Period.

 

(iv)                              Customer Complaints
Factor.  The number of customer
complaints received by Northwest in respect of Regional Airline Services shall
not exceed *** enplaned Revenue
Passengers during any Performance Period.

 

Section 2.11     Service
Recovery.  Mesaba
shall provide service recovery for passengers affected by service disruptions
involving the Saab 340 Aircraft in accordance with Sections 1.01(c) and
1.01(d) of Exhibit D hereto and the terms of any separate ground
handling agreement(s) between the parties. 
With respect to all flights utilizing Avro Regional Jet Aircraft and CRJ-200/440
Aircraft and for which Mesaba provides ground handling services for passengers
affected by service disruptions, Mesaba shall provide service recovery in
accordance with Northwest’s standard policies and procedures, but Northwest
shall, pursuant to a separate agreement between the parties, reimburse Mesaba
for all Direct Costs incurred as a result of providing such service recovery,
provided that Mesaba provides Northwest with sufficient detail and supporting
documentation to allow Northwest to verify the invoiced amount.

 

Section 2.12     Annual
Operating Plan. 
At least 90 days prior to January 1 of each year during the term of
this Agreement, Mesaba and Northwest shall confer and prepare an operating plan
for the succeeding calendar year, which plan shall include (i) Northwest’s
forecast with respect to the schedule and routing for all Scheduled
Flights for such year, (ii) Northwest’s forecast of the Service Cities to
which Mesaba shall operate Regional Airline Services, (iii) Northwest’s
forecast of specific dates for the commencement of service to new Service
Cities, if

 

12

 

any, (iv) Northwest’s forecast of the number of Aircraft to be
added to or removed from Mesaba’s fleet (subject to Section 3.02), and (v) such
other matters as Northwest and Mesaba shall determine (as amended in accordance
with this Section 2.12, the “Annual Operating Plan”).  Northwest and Mesaba shall meet and confer on
a quarterly basis (or more frequently if requested by either Northwest or Mesaba)
to review the implementation of the Annual Operating Plan and to discuss any
changes to the Annual Operating Plan.  In
the event Northwest elects to alter the Annual Operating Plan during the course
of a year, Northwest shall use its reasonable best efforts to provide at least
sixty (60) days prior notice to Mesaba. 
Notwithstanding the foregoing provisions of Section 2.12, Northwest
shall promptly notify Mesaba of any determination by Northwest to increase or
decrease Mesaba’s fleet size, and, except as provided in Section 3.02 (a)(iii) below,
Northwest shall give Mesaba no less than ninety (90) days prior notice.  Northwest agrees that any substantial
increases in Mesaba’s fleet size pursuant to the preceding sentence are subject
to Mesaba’s reasonable operating constraints.

 

Section 2.13     Inflight Food, Beverages and Supplies.

 

(a)                                  CRJ
Aircraft.  For all Scheduled Flights
utilizing CRJ-200/440 Aircraft, Mesaba shall, at its sole cost, provide
catering services and beverages for passengers and crews, in accordance with
Northwest’s specifications and directions. 
To the extent food is provided by Northwest, it shall be at Northwest’s
sole cost, and any revenue associated with on-board sales of the food product
shall be handled pursuant to Section 5.01.  In the event Mesaba is responsible and incurs
expenses associated with the provision of food, the parties agree to revise the
rates in Exhibit E, Section 1.02, to account for the incremental food
cost incurred by Mesaba.  Mesaba shall be
solely responsible for maintaining all licenses necessary for the serving of
inflight food and beverages on Scheduled Flights.  Northwest shall furnish Mesaba, at Northwest’s
sole cost, adequate supplies of its customary inflight supplies including, but
not limited to, the Northwest inflight magazine, cups, napkins, pillows,
blankets, trash bags, sick sacks, lavatory supplies, creamers, swizzle sticks
and sugar in a form similar or identical to that used by Northwest.  Notwithstanding anything to the contrary in
this Agreement, Northwest may, at its option, require Mesaba upon ninety (90)
days prior written notice to utilize Northwest or a Northwest-designated
contract agent to provide catering services, food and beverages for passengers
and crews on Scheduled Flights utilizing CRJ-200/440 Aircraft, provided that (i) any
modifications to the provision of catering services, food and beverages that
result in the addition or removal of costs to Mesaba shall result in an
adjustment to the rates in Section 1.02 of Exhibit E, and (ii) the
service standards applicable to any such Northwest-designated contract agent
are either reasonably satisfactory to Mesaba or no less stringent than the
standards applicable to Northwest’s own operations.

 

(b)                                 Avro
Regional Jet Aircraft.  For all Scheduled
Flights utilizing Avro Regional Jet Aircraft, Northwest shall provide catering
services, food and beverages for passengers and crews, all at Northwest’s sole
cost.  Northwest shall furnish Mesaba, at
Northwest’s sole cost, adequate supplies of its customary inflight supplies
including, but not limited to, the Northwest inflight magazine, cups, napkins,
pillows, blankets, trash bags, sick sacks, lavatory supplies, creamers, swizzle
sticks and sugar in a form similar or identical to that used by Northwest.  Any modifications to the provision of
catering services, food and beverages that result in additional costs to Mesaba
shall be reimbursed by Northwest.

 

13

 

(c)                                  Saab
340 Aircraft.  For all Scheduled Flights
utilizing Saab 340 Aircraft, Mesaba shall, at its sole cost, provide beverages
for passengers and crews, in accordance with Northwest’s specifications and
directions.  Northwest shall furnish
Mesaba, at Northwest’s sole cost, adequate supplies of its customary inflight
supplies including, but not limited to, the Northwest inflight magazine, cups,
napkins, pillows, blankets, trash bags, sick sacks, lavatory supplies,
creamers, swizzle sticks and sugar in a form similar or identical to that used
by Northwest.  Notwithstanding anything
to the contrary in this Agreement, Northwest may, at its option, require Mesaba
upon ninety (90) days prior written notice to utilize Northwest or a
Northwest-designated contract agent to provide beverages for passengers and
crews on Scheduled Flights utilizing Saab 340 Aircraft, provided that (i) any
modifications to the provision of catering services, food and beverages that
result in additional costs to Mesaba shall be reimbursed by Northwest, and (ii) the
service standards applicable to any such Northwest-designated contract agent
are either reasonably satisfactory to Mesaba or no less stringent than the
standards applicable to Northwest’s own operations. 

 

Section 2.14     Exclusivity
Arrangements. 
During the term of this Agreement, Mesaba shall not operate any flights
to or from the Hub Cities using its own airline code or the airline code, logo,
or any other identifying feature of a foreign or United States airline (other
than Northwest) without the express prior written consent of Northwest.

 

Nothing in this Agreement shall preclude Northwest from (i) entering
into code share, alliance or other commercial cooperation arrangements with any
other airline, or (ii) subject to Northwest’s obligations pursuant to Section 3.02
below, entering into similar or other arrangements with other carriers for the
provisioning of regional airline services using Avro Regional Jet Aircraft, CRJ-200/440
Aircraft or any other aircraft to or from the Hub Cities, the same Service
Cities or elsewhere; subject to the following condition:  Mesaba shall have the exclusive right to operate
Scheduled Flights which (i) use the Identification and Designator, (ii) originate
or terminate at Minneapolis/St. Paul, Minnesota (“MSP”), Detroit, Michigan (“DTW”)
and Memphis, Tennessee (“MEM”) and (iii) use turboprop aircraft with fifty
(50) or fewer seats, provided that with respect to Scheduled Flights which (a) use
the Identification and Designator, (b) originate or terminate at MSP, DTW
or MEM and (c) use turboprop aircraft with nineteen (19) or fewer seats,
Northwest may solicit bids from other airlines for operation of such Scheduled
Flights and Northwest may enter into an agreement with another airline to
operate such Scheduled Flights unless, after notification by Northwest of the
terms of the bid Northwest intends to accept, Mesaba submits an economically
equivalent bid to operate such Scheduled Flights and is willing to enter into
an agreement with Northwest to operate such Scheduled Flights on such terms.  Northwest further acknowledges and agrees
that, with respect to Scheduled Flights operated with turboprop aircraft with
more than fifty (50) seats, Northwest will give Mesaba the right to submit a
bid for operation of such Scheduled Flights.

 

ARTICLE III    

EQUIPMENT

 

Section 3.01     Use
of the Equipment. 
Mesaba agrees (a) that the Equipment shall be used only to provide
and/or support the Regional Airline Services contemplated by this

 

14

 

Agreement, (b) that the Equipment shall not be used by Mesaba for
any other purpose without the prior written consent of Northwest, and (c) that
Mesaba shall not acquire, lease or operate any aircraft other than the Aircraft,
and with respect to the engines utilized by the CRJ-200/440 Aircraft, Mesaba
shall not acquire, lease or operate any spare engines other than the CRJ Spare
Engines.  Mesaba shall use its best
efforts to achieve Category II status for CRJ-200/440 Aircraft and Category
IIIa status for Avro Regional Jet Aircraft as soon as reasonably practicable.

 

Section 3.02     Fleet Size and Related Matters.

 

(a)                                  Determination
of Fleet Size.  As of the Effective
Date, Mesaba’s fleet consisted of thirty-five (35) Avro Regional Jet Aircraft and
sixty-three (63) Saab 340 Aircraft.

 

(i)                                     Additional
Aircraft

 

(aa)            CRJ Aircraft.

 

(1) Northwest and Mesaba agree that (A) subject
to Bombardier (x) continuing to provide or cause to be provided to Northwest
financing for the Equipment on a basis no less favorable to Northwest than the terms
of such financing in effect as of the Effective Date, and (y) delivering
Canadair Regional Jet Aircraft to Northwest as scheduled as of the Effective
Date, fifteen (15) CRJ-200/440 Aircraft shall be added to Mesaba’s fleet on or
before March 31, 2006 and in accordance with the delivery schedule set
forth in Exhibit B, one (1) CRJ Spare Engine shall be added to Mesaba’s
fleet on or before January 31, 2006, and if the parties mutually agree
that it is necessary, a second CRJ Spare Engine shall be added to Mesaba’s
fleet on a mutually agreed date, and Mesaba shall accept such CRJ-200/440
Aircraft and CRJ Spare Engines into its fleet, (B) after fifteen (15) CRJ-200/440
Aircraft and one (1) CRJ Spare Engine are added to Mesaba’s fleet pursuant
to Section 3.02(a)(i) (aa)(A), Mesaba shall have the exclusive right
to operate the next twenty (20) new or used CRJ-200/440 Aircraft operated for
the benefit of Northwest, and (C) Northwest shall have the right to cause
from time to time up to an additional ***
CRJ-200/440 Aircraft and *** CRJ
Spare Engines to be added to Mesaba’s fleet, or such number of CRJ Spare
Engines as are mutually determined by the parties pursuant to Section 3.02(a)(v).

 

(2)  Northwest and Mesaba agree that if Northwest becomes aware
that Bombardier will not meet the financing and aircraft delivery conditions
for any of the fifteen (15) CRJ-200/440 Aircraft (set forth in Section 3.02(a)(i)(aa)(1)(A) above),
(i) Northwest shall use commercially reasonable efforts to ***, and (y) if Mesaba is operating
such Aircraft pursuant to this Agreement when this Agreement terminates or
expires with respect to such Aircraft, ***
at the termination date or expiration date of the Agreement on the same terms
and conditions as apply to ***,
and Northwest shall *** provided
that in connection with any ***.

 

15

 

(3)  Northwest and Mesaba agree that if Northwest becomes aware
that Bombardier will not meet the financing and aircraft delivery conditions
for any of the fifteen (15) CRJ-200/440 Aircraft (set forth in Section 3.02(a)(i)(aa)(1)(A) above)
and *** pursuant to Section 3.02(a)(i)(aa)(2)(i) above,
then (i) Northwest will cooperate with Mesaba or MAIR Holdings, Inc. in
good faith with respect to Mesaba’s or MAIR Holdings, Inc.’s efforts to
obtain replacement CRJ-200/440 Aircraft from another source at the then
prevailing market terms and conditions, and (ii) the parties will
negotiate in good faith with respect to any modifications to this Agreement
that may be necessary as a result of Mesaba or MAIR Holdings, Inc. obtaining
replacement CRJ-200/440 Aircraft from a source other than Bombardier.  However, under no circumstances will
Northwest be obligated to accept economic terms deemed by Northwest to be materially
worse than those contemplated if Northwest had provided such CRJ-200/440
Aircraft to Mesaba pursuant to Section 3.02(a)(i)(aa)(1) above.  For the avoidance of doubt, nothing in this Section 3.02(a)(i)(aa)(3) shall
obligate Northwest to source such replacement CRJ-200/440 Aircraft or procure
the financing for such replacement CRJ-200/440 Aircraft for Mesaba.

 

(4)  Notwithstanding anything to the contrary in Sections
3.02(a)(i)(aa)(1) and (2) above, if Northwest determines in its sole
discretion that the terms and conditions on which Bombardier will provide
Northwest with financing for one or more of the fifteen (15) CRJ-200/440
Aircraft (as referenced in Section 3.02(a)(i)(aa)(1) above) are considered
above market and Northwest therefore does not take delivery of such Aircraft,
or if Bombardier *** (pursuant
to Section 3.02(a)(i)(aa)(2) above) and Northwest *** because such terms and conditions
are considered above market, then Northwest shall obtain replacement CRJ-200/440
Aircraft from another source at market rates and provide such Aircraft to
Mesaba.

 

(bb)          ARJ Aircraft.  If Northwest requires the removal of Avro
Regional Jet Aircraft from Mesaba’s fleet pursuant to Section 3.02(a)(ii)(bb)
below, Northwest and Mesaba agree that subject to (x) Northwest obtaining
financing for the Equipment on a commercially reasonable basis, and (y) Bombardier
delivering Canadair Regional Jet Aircraft to Northwest as ordered by Northwest
from time to time, after *** CRJ-200/440
Aircraft are added to Mesaba’s fleet pursuant to Section 3.02(a)(i)(aa)
above, the next ***  and up to *** ordered by and delivered to Northwest shall be added to Mesaba’s
fleet; provided, however, that if Northwest determines, in its sole discretion,
to utilize aircraft other than ***
to replace the Avro Regional Jet Aircraft, and if Mesaba is awarded the right
to operate such ***, Northwest’s
obligation to provide Mesaba with ***
pursuant to this Section 3.02(a)(i)(bb) shall be *** delivered to Mesaba. 
For the avoidance of doubt, if more than *** are added to Mesaba’s fleet pursuant to Section 3.02(a)(i)(aa)(B) above,
Northwest’s obligation to provide Mesaba with *** pursuant to this Section 3.02(a)(i)(bb) shall be reduced
by ***.

 

16

 

(cc)            Saab 340 Aircraft.  Northwest shall have the right to cause from
time to time additional Saab 340 Aircraft to be added to Mesaba’s fleet.

 

(ii)                                  Equipment Removal
Rights.

 

(aa)              CRJ Aircraft.  Northwest and Mesaba agree that from and
after that time when Mesaba has more than *** CRJ-200/440 Aircraft pursuant to Section 3.02(a)(i)(aa)
above, Northwest shall have the right upon at least ninety (90) days prior
written notice to require the removal of such CRJ-200/440 Aircraft and related
Spare Engines selected by Northwest from Mesaba’s fleet provided that at no
time shall the number of such Aircraft and Spare Engines removed pursuant to
this Section 3.02(a)(ii)(aa) cause the number of such Aircraft in Mesaba’s
fleet to be less than *** or
cause the number of Spare Engines in Mesaba’s fleet to be less than ***; and further provided that if Mesaba
has received CRJ-200/440 Aircraft and Spare Engines pursuant to Section 3.02(a)(i)(bb)
above, at no time shall the number of CRJ-200/440 Aircraft and Spare Engines
removed pursuant to this Section 3.02(a)(ii)(aa) cause the number of such
Aircraft in Mesaba’s fleet to be less than *** plus the number of CRJ-200/440 Aircraft added to Mesaba’s
fleet pursuant to Section 3.02(a)(i)(bb) or cause the number of Spare
Engines in Mesaba’s fleet to be less than *** plus the number of Spare Engines added to Mesaba’s fleet
pursuant to Section 3.02(a)(i)(bb).

 

(bb)            ARJ Aircraft.  Northwest and Mesaba agree that Northwest
shall have the right (i) upon at least ninety (90) days prior written notice
to require the removal of any one or more of the Avro Regional Jet Aircraft
from Mesaba’s fleet upon early termination of the applicable Lease between
Northwest and Mesaba or termination of the debt obligation related to Northwest’s
ownership of such Avro Regional Jet Aircraft, or (ii) to require the
removal of any one or more of the Avro Regional Jet Aircraft from Mesaba’s
fleet upon the final expiration date of the applicable Lease.  Northwest’s removal right in the previous
sentence shall apply up to and including removal of all thirty-five (35) Avro
Regional Jet Aircraft from Mesaba’s fleet. 
If Avro Regional Jet Aircraft are removed from Mesaba’s fleet pursuant
to this Section 3.02(a)(ii)(bb), (x) Northwest’s obligation to provide
Mesaba with replacement aircraft shall be governed by Section 3.02(a)(i)(bb)
above, and (y) Northwest may sell, lease or otherwise transfer the Avro
Regional Jet Aircraft which are removed from Mesaba’s fleet to any other entity
in Northwest’s sole discretion; provided, however, that Northwest shall not
sell, lease, or otherwise transfer such Avro Regional Jet Aircraft to any other
entity which will operate such Avro Regional Jet Aircraft for the benefit of
Northwest.

 

(cc)              Saab 340 Aircraft.  Northwest and Mesaba agree that Northwest
shall have the right (I) upon at least ninety (90) days prior written notice to
require the removal of any one or more of the Saab 340A Aircraft from Mesaba’s
fleet,

 

17

 

up to and including removal of ***
Saab 340A Aircraft from Mesaba’s fleet, provided that such Saab 340A Aircraft
shall not be removed from Mesaba’s fleet before January 1, 2006, (II) upon
expiration of the Lease or upon the occurrence of an early termination event as
set forth in the Lease with respect to ***
Saab 340B Aircraft in Mesaba’s fleet, to require the removal of such Saab 340B
Aircraft from Mesaba’s fleet, up to and including removal of *** Saab 340B Aircraft from Mesaba’s
fleet, provided that such Saab 340B Aircraft shall not be removed from Mesaba’s
fleet before November 15, 2006 except upon the occurrence of an early
termination event as set forth in the Lease, and (III) upon expiration of the
Lease or upon the occurrence of an early termination event as set forth in the
Lease with respect to *** Saab
340B+ Aircraft in Mesaba’s fleet, to require the removal of such Saab 340B+
Aircraft from Mesaba’s fleet, provided that such Saab 340B+ Aircraft shall not
be removed from Mesaba’s fleet before January 1, 2014, except upon the
occurrence of an early termination event as set forth in the Lease.

 

(dd)            For
the avoidance of doubt, during the Term of this Agreement, if any Aircraft are lost
from Mesaba’s fleet and are replaced with other aircraft, the replacement
aircraft will be flown by Mesaba as long as Mesaba operates the aircraft type.

 

(ee)              In
the event Mesaba ceases operating a specific Aircraft type during the Term of
this Agreement or will cease operating a specific Aircraft type upon the
Termination Date, the parties will cooperate in good faith to develop and
implement an orderly wind-down/termination plan including but not limited to
responsibility for wind-down costs (other than aircraft return costs which are governed
by this Agreement), and such plan will be implemented over a period not to
exceed nine (9) months.

 

(iii)                               Additional Equipment
Removal Rights.  Notwithstanding Section 3.02(a)(ii),
in the event of (aa) an event giving rise to Northwest’s right to terminate
this Agreement pursuant to Section 10.03(e) and (bb) Northwest has
not yet exercised its termination rights, (1) if the event is not resolved
within ***, Northwest shall have
the right to terminate Leases for, and take immediate possession of, up to *** CRJ-200/440 Aircraft and related CRJ
Spare Engines selected by Northwest, (2) if the event is not resolved within
***, Northwest shall have the
right to terminate Leases for, and take immediate possession of, up to an
additional *** CRJ-200/440
Aircraft and related CRJ Spare Engines selected by Northwest, and (3) if
the event is not resolved within ***,
Northwest shall have the right to terminate Leases for, and take immediate possession
of, up to an additional *** CRJ-200/440
Aircraft and related CRJ Spare Engines selected by Northwest, and (4) if
the event continues for a period in excess of ***, Northwest shall have the right to select and terminate Leases
for, and take immediate possession of, ***
CRJ-200/440 Aircraft and the related CRJ Spare Engines in Mesaba’s fleet.

 

18

 

(iv)                              Unscheduled Aircraft.  Northwest and Mesaba shall mutually determine
the appropriate level of unscheduled Aircraft to be included in Mesaba’s fleet
from time to time.

 

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

 

(vi)                              Other RJ Operations.  The parties agree that notwithstanding
anything to the contrary in this Agreement, Northwest has a one-time right to
enter an airline services agreement with an airline other than Mesaba or
Pinnacle Airlines, Inc. (“Pinnacle”) for such airline to finance and operate
between *** and *** CRJ-200/440 Aircraft as an Airlink
Carrier, provided that (aa) such CRJ-200/440 Aircraft shall not operate
regularly scheduled flights which originate or terminate at MSP, DTW or MEM,
and (bb) substantially all of such CRJ-200/440 Aircraft are placed in service
for the benefit of Northwest within a period of sixty (60) days of implementation
of the arrangement with such other airline.

 

(b)                                 Induction
Costs.  All one-time expenses which
are associated with inducting CRJ-200/440 Aircraft into Mesaba’s fleet shall be
paid one hundred percent (100%) by Mesaba; provided, however, that (i) if
Northwest removes the Avro Regional Jet Aircraft from Mesaba’s fleet pursuant
to Section 3.02(a)(ii)(bb)(i) above and replaces the Avro Regional
Jet Aircraft with new CRJ-200/440 Aircraft or new 70-seat aircraft, Northwest will
be responsible for all one-time expenses associated with inducting such CRJ-200/440
Aircraft or 70-seat aircraft up to an amount of $*** per replacement aircraft, and further provided that Northwest may
utilize manufacturer credits to pay such amounts per Aircraft as and to the
extent Northwest has available and Mesaba can utilize such manufacturer credits
to pay for such induction expenses, and (ii) if Northwest provides Mesaba with
used CRJ-200/440 Aircraft, Northwest will be responsible for the costs of
conforming such used aircraft to Northwest’s specifications used for the *** CRJ-200/440 Aircraft delivered to
Mesaba pursuant to Section 3.02(a)(i)(aa) above, including such items as
aircraft livery, interior modifications and maintenance induction.

 

(c)                                  Termination
Costs.  All return costs and expenses
associated with the return of Saab 340 Aircraft shall be paid ***; provided, however, that (i) to
the extent *** has previously
paid *** for part or all of such
return costs and expenses through ***,
*** rather than *** shall be responsible to pay such
portion of the return costs and expenses for such Saab 340 Aircraft, and (ii) return
costs and expenses with respect to the eleven Saab 340B turboprop aircraft in
Mesaba’s fleet shall be governed by the letter agreement dated March 25,
2003 among Northwest, Mesaba and Mesaba Holdings, Inc.  All return costs and expenses associated with
the return of CRJ-200/440 Aircraft shall be paid *** (and *** shall
have no obligation to reimburse ***
for such costs and expenses) and ***;
provided, however, in the event Northwest exercises its Equipment removal
rights pursuant to Section 3.02(a)(ii)(aa) above, *** share of return costs and expenses or meet the return
conditions in the Leases for the Aircraft and CRJ Spare Engines that are thus
removed from Mesaba’s fleet unless (i) Northwest intends to return such
Equipment to the lessor under the Leases and (ii) Mesaba has operated the
Equipment for more than ***
years.  If the Avro Regional Jet Aircraft
are returned to Northwest at the final expiration date of the applicable Lease,
all return costs and expenses associated with the return of the Avro

 

19

 

Regional Jet Aircraft shall be
paid ***; provided, however,
that with respect to such Avro Regional Jet Aircraft which are leased by
Northwest from third parties, ***
shall not be obligated to pay an amount for such return costs and expenses that
exceeds the amount *** for
return costs and expenses if ***
is then obligated to return such Aircraft to such ***.  If the Avro Regional
Jet Aircraft are returned to Northwest prior to the final expiration date of
the applicable Lease, all return costs and expenses associated with the return
of the Avro Regional Jet Aircraft shall be paid ***; provided, however, that (i)  *** shall not be obligated to pay an amount for such return costs
and expenses that exceeds the amount ***
may be obligated to pay (x) the holders of any debt financing or (y) in order
to exercise any rights it may have under any residual value or deficiency
agreement, in either case in connection with the return of such Avro Regional
Jet Aircraft, (ii) with respect to such Avro Regional Jet Aircraft which
are leased by Northwest from third parties, *** shall not be obligated to pay an amount for such return costs
and expenses that exceeds the amount ***
for return costs and expenses if ***
is then returning such Aircraft to such ***
(or such amount as *** is
otherwise then obligated to pay the ***),
(iii) the return costs and expenses associated with the Avro Regional Jet
Aircraft engine leases and simulator agreements shall be paid *** and ***, and (iv) ***
total payment obligation for return costs and expenses for such Avro Regional
Jet Aircraft engine leases and simulator agreements shall not exceed ***. 
In all cases of returned aircraft Mesaba shall use its reasonable
commercial efforts to minimize such return costs and expenses.

 

(d)                                 Aircraft
Re-certification.  Northwest may, at
its sole option, direct Mesaba to take such actions as are necessary to cause 44-seat
Aircraft to be re-certificated as 50-seat Aircraft or to take such actions as
are necessary to cause 50-seat Aircraft to be re-certificated as 44-seat
Aircraft and all Direct Costs which are associated with such Aircraft
re-certifications shall be paid ***.  Any such Aircraft re-certifications will be
accomplished within a mutually agreed time frame, but in any event within sixty
(60) days unless otherwise directed by Northwest.

 

Section 3.03     Lease
of the Equipment. 
As of the Effective Date, Mesaba and Northwest (and/or an Affiliate of
Northwest) have entered into Leases with respect to the thirty-five (35) Avro
Regional Jet Aircraft in Mesaba’s fleet and agree to enter into (or, as to
Northwest, Northwest agrees to cause such Affiliate as Northwest may designate
to enter into) a Lease with respect to each CRJ-200/440 Aircraft and each CRJ Spare
Engine added to Mesaba’s fleet when and as Northwest takes delivery of such
additional Equipment if Northwest has determined to use such Equipment for
Regional Airline Services pursuant to this Agreement.  As of the Effective Date, Mesaba and Northwest
(and/or an Affiliate of Northwest) have entered into Leases with respect to the
forty-nine (49) Saab 340B+ Aircraft in Mesaba’s fleet, Mesaba and Pinnacle have
entered into Leases with respect to the eleven (11) Saab 340B Aircraft in
Mesaba’s fleet, and Mesaba and third parties have entered into Leases with
respect to the three (3) Saab 340A Aircraft in Mesaba’s fleet.  Mesaba and Northwest hereby agree to amend
any of the Leases for the Saab 340B+ Aircraft and the Avro Regional Jet
Aircraft as may be necessary to take into account the terms and conditions of
this Agreement.

 

Section 3.04     Terms
of the CRJ Leases. 
Each Lease for the CRJ-200/440 Aircraft and the CRJ Spare Engines shall
be substantially in the forms of Exhibit A-1 and Exhibit A-2,
respectively, and shall include the following terms:

 

20

 

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

 

(b)                                 the
rent for CRJ-200/440 Aircraft shall equal the applicable CRJ 200/440 Aircraft Rental
Expense and shall be payable monthly in advance;

 

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

 

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

 

Section 3.05     Manufacturer
Benefits Agreement.  Pursuant to a letter dated June 27, 2005
(the “Letter Agreement”) from Northwest to Bombardier Aerospace (“Bombardier”),
and pursuant to a Manufacturer Benefits Agreement, dated as of the date hereof,
between Northwest and Mesaba, Northwest has made available to Mesaba certain
benefits under the Purchase Agreements between Northwest and Bombardier, which
benefits relate to, among other things, manufacturer credits, inventory service
representatives, field service representatives and technical manuals.

 

Section 3.06     Equipment
Maintenance, Servicing and Cleaning.  Mesaba shall be responsible for all aspects
of the maintenance in accordance with the Maintenance Program (including any
maintenance or modifications required by FAA airworthiness directives and all
routine and non-routine maintenance), servicing and cleaning (including
painting of aircraft exteriors and replacement of worn interior items) of the
Equipment (except for ground handling as specified in Section 4.02).  With respect to the CRJ-200/440 Aircraft and
CRJ Spare Engines, Mesaba’s responsibility with respect to the Maintenance Program
includes, but is not limited to, incorporating the latest revision of the
Original Equipment Manufacturer (OEM) Maintenance Program, collecting log page,
non-routine, equipment check findings and Service Difficulty Reports (SDR).

 

Any Maintenance Program changes
on the CRJ-200/440 Aircraft and CRJ Spare Engines that involve expenses
pursuant to Exhibit E, Section 1.03 Direct Expenses shall be reviewed
by Northwest prior to implementation and will include financial
justification/support provided by Mesaba consistent with internal Northwest
review requirements (e.g. net present value financial analysis).  Mesaba, however, may on its own authority and
cost (with no reimbursement from Northwest) make maintenance program changes on
the CRJ-200/440 Aircraft and CRJ Spare Engines.

 

On a quarterly basis during the
Term of this Agreement, Mesaba will provide to Northwest a list of Maintenance
Program changes on the CRJ-200/440 Aircraft and CRJ Spare Engines, including
required labor, estimated costs to implement, any expenses that are deemed Exhibit E,
Section 1.03 expenses and implementation status.  The list shall include:

 

21

 

(a)                                  Deletion
or escalation of a routine task (this does not include a complete “check” such
as “A” check),

 

(b)                                 Deletion
of steps to a routine task or procedure that may result in a change to the task
intent or task scope,

 

(c)                                  De-escalation
of a task,

 

(d)                                 Escalation
or de-escalation of a “check” such as an “A” check,

 

(e)                                  Addition
of a routine task (adding a function not currently being performed), and

 

(f)                                    Addition
of steps to a routine task or procedure that may result in change to the intent
or work scope (a change of access or area for inspection, and/or change of
method for inspection).

 

Section 3.07     CRJ-200/440 Aircraft Maintenance
Agreements.

 

(a)                                  Mesaba
shall utilize the Northwest selected vendor(s) for all major shop-level engine
maintenance and heavy airframe maintenance in accordance with terms and
conditions negotiated by Northwest after review and concurrence by Mesaba that
such agreements contain reasonably satisfactory arrangements in respect of
Mesaba’s operational requirements.

 

(b)                                 In
the event Northwest enters into agreements for auxiliary power unit (APU) and
associated component maintenance, avionics maintenance and/or landing gear
overhauls with respect to the Aircraft, Mesaba shall utilize the vendors in
such agreements for such services; provided, however, Mesaba’s utilization of such
vendors shall be subject to (i) termination of Mesaba’s existing vendor
contracts, if any, and Northwest’s payment of any early termination penalties
imposed pursuant to Mesaba’s contracts and (ii) reasonably satisfactory
arrangements in respect of Mesaba’s operational requirements.

 

(c)                                  In
the event spare engine and/or spare parts pooling agreements are established
for Airlink Carriers, Mesaba will participate in such agreements so long as
such agreements reasonably address Mesaba’s inventory needs, logistics
requirements and configuration concerns and are not contrary to any FAA
regulation.

 

(d)                                 In
the event Mesaba is or becomes a party to such agreements as outlined in this
Section, Mesaba shall not execute any amendment or side letter to any of those
agreements without Northwest’s prior written consent.

 

(e)                                  The
use of such vendors and related agreements by Mesaba as provided for in this Section 3.07,
shall be subject to Mesaba formally approving such vendors as part of its FAA
approved Maintenance Program, with such approvals not unreasonably withheld.  Pursuant to Mesaba’s FAA approved Maintenance
Program the use of such vendors and related agreements may be terminated by
Mesaba, with the consent of Northwest, with such consent not being unreasonably
withheld, as a remedy for quality control related issues associated with
non-compliance

 

22

 

with the Mesaba FAA approved
Maintenance Program or FAA regulatory requirements.

 

Section 3.08     CRJ-200/440
FAA Airworthiness Directives.  Pursuant to Section 3.06, Mesaba shall
be financially responsible for maintenance or modifications required by FAA
Airworthiness Directives (ADs) with respect to the CRJ-200/440 Aircraft and CRJ
Spare Engines.  Expenses associated with
such ADs are not Direct Expenses as defined per Exhibit E, Section 1.03
below.  However,  if during the course of a normally scheduled
maintenance visit or an accelerated heavy maintenance visit agreed to by
Northwest the maintenance work that is performed also accomplishes the
requirements of the AD, Northwest will pay for the AD costs as a Direct Expense
under Exhibit E, Section 1.03; provided, however, if the work/costs
incurred to accomplish the requirements of the AD are incremental to the other
required maintenance performed during the visit, then Mesaba will remain
financially responsible for the costs of compliance with the AD.

 

Section 3.09     CRJ-200/440
Aircraft and Engine/APU Configuration. Mesaba
shall be responsible for review, justification and implementation of OEM safety
and reliability service bulletins with respect to the CRJ-200/440 Aircraft, the
CRJ Spare Engines and the CRJ APUs.  In
order to maintain consistency in engine and APU configuration, Northwest will
work with the respective Airlink Carriers to create and maintain one Engine
Configuration Specification Manual (CSM) and one APU CSM.  Mesaba agrees to participate in the CSM
process, and Northwest shall obtain the concurrence of Mesaba prior to any
changes being made to the CSMs, including incorporation of any service
bulletins, and Mesaba shall not unreasonably withhold such concurrence.  If concurrence between the parties cannot be
achieved, then Mesaba may, on its own authority and cost (with no reimbursement
by Northwest) incorporate revisions to the CSM. 
Upon completion of this Agreement and if requested by Northwest, Mesaba
shall restore any engine or APU to CSM configuration at Mesaba’s sole cost.

 

Northwest shall have responsibility for
oversight of Aircraft modifications and/or projects for incorporation on the
Mesaba CRJ fleet subject to the following criteria:

 

(a)                                  All Aircraft
modifications/projects that involve expenses deemed Exhibit E, Section 1.03
Direct Expenses, shall, prior to implementation, be treated in a manner
consistent with internal Northwest standards and procedures for approval by
Northwest.  Mesaba shall request funding
for modifications/projects involving Exhibit E, Section 1.03 Direct
Expenses, through the Northwest required process, including use of Northwest
forms.  Should Northwest not approve such
modifications or projects, Mesaba may elect to perform such activity solely at its
expense and shall perform such actions in accordance with terms of its Aircraft
Lease,

 

(b)                                 All Engine/APU costs
involving work outside the scope of a third-party contract shall require
Northwest workscope approval prior to shop induction,

 

(c)                                  A listing of all
in-production and pending ADs, Notice of Proposed Rule Making (NPRM),
safety-related, reliability, operator-designed and Supplemental Type
Certificate (STC) Aircraft projects shall be provided to Northwest on a
quarterly basis.  The listing shall
include Aircraft/Engine/APU effectivity and implementation status.  Such

 

23

 

information
shall be treated as confidential in nature in accordance with Section 6.04
of this Agreement.

 

The CRJ-200/440Aircraft
shall be included in the Northwest Reliability Control Board (RCB) Fleet
Briefing twice per year.  The fleet
briefing content will be similar to Northwest operated aircraft.  Mesaba agrees to provide the following
information, at the minimum, subject to mutual agreement of the parties as to
specific details:

 

(i)                                     Fleet performance
(i.e. On-Time, On-Time within 30 minutes, Completion Factor and Operational
Difficult Index) vs. mutually agreed goals and vs. other CRJ-200/440 operators
as applicable,

 

(ii)                                  AD and safety-related
modifications/projects,

 

(iii)                               Top five (5) reliability
drivers with root cause and corrective action,

 

(iv)                              Engine performance (i.e.
removal rate, low-time engine removal rate), and

 

(v)                                 Routine and Periodic
Maintenance Intervals and Maintenance Program status with differences that exist
against mutually agreed comparative programs, and in comparison to other CRJ-200/440
operators as applicable.

 

Section 3.10     Third
Party Guarantees and Warranties.  Mesaba shall administer, track and pursue
warranty and guaranty claims under the purchase, support and service agreements
for the Equipment, so as to minimize operating costs for the Equipment.  Such efforts shall include establishment of
all systems and procedures necessary to track and submit warranty and guaranty
claims, including providing reports and information required to be provided
under the purchase, support or services agreement.  Mesaba shall not operate or maintain the
Equipment in a manner that could result in any warranty or guaranty being
terminated or voided, without the prior written consent of Northwest.

 

Section 3.11     Related
Transfer Arrangements.  All leases and subleases of simulators,
tooling and spare parts inventory agreements and vendor and/or maintenance
agreements with respect to the Equipment (collectively “Support Agreements”)
entered into by Mesaba after the Effective Date shall be assignable to
Northwest without the consent of the other party to such Support Agreement on
termination of this Agreement.  On
termination of this Agreement, Mesaba shall, at Northwest’s option, assign to
Northwest such Support Agreements as Northwest shall designate.  Mesaba shall use its best efforts to obtain
the consent of the other party to any such Support Agreements in effect as of
the Effective Date and, subject to obtaining such consents, if necessary,
shall, at Northwest’s option, assign such Support Agreements as Northwest shall
designate to Northwest on termination of this Agreement.  On termination of this Agreement, Northwest
shall have the option to purchase from Mesaba all simulators, tooling and spare
parts inventory then owned by Mesaba which are used with or related to the
Equipment for an amount equal to such assets’ then fair market value.  In the event Northwest invokes its Equipment
removal rights under Section 3.02 above, on the Equipment removal date and
for a period of thirty (30) days thereafter, Northwest shall have the option to
purchase from Mesaba all

 

24

 

simulators, tooling and spare parts inventory then owned by Mesaba
which are used with or related to the returning Equipment for an amount equal
to such assets’ then fair market value. 
Upon termination of this Agreement or upon removal of Equipment from
Mesaba’s fleet pursuant to Section 3.02 above, Mesaba shall make available
to Northwest at no cost all aircraft records required in order to operate and
maintain the Equipment.

 

Section 3.12     Equipment
Financing Coordination.  Mesaba shall coordinate and cooperate with
Northwest with respect to Equipment sale, purchase and lease transactions.  Such coordination and cooperation shall
include, but is not limited to, cooperating with Northwest in structuring the
closing of Equipment sale, purchase or lease transactions in a manner that will
minimize the imposition of any local, city, county, state, provincial, federal
or foreign taxes or other governmental transfer charges related to such
transactions, providing Northwest with financial information (audited and
unaudited) that Northwest may then provide to third parties, assisting Northwest
in raising capital through the sale of either debt and/or equity in connection
with the financing or leasing of the Equipment where and as requested by
Northwest (including but not limited to participating in meeting with the
manufacturer, potential investors and sources of financing or lease equity to
discuss Mesaba’s financial and operational performance and outlook), and full
cooperation in meeting appropriate return conditions of the Equipment upon
expiration of the Equipment’s Lease.

 

Section 3.13     Spare
Parts Inventory; Application of Credits.  If Mesaba acquires spare parts or inventory
from Bombardier, Mesaba shall purchase from Northwest manufacturer, supplier or
servicer credits obtained from third parties at the face value of the credits
in an amount equal to the amount to be purchased from Bombardier (but only to
the extent Bombardier will accept such credits).  In addition, Mesaba shall purchase from
Northwest credits in amount equal to any service provided by Bombardier where
credits are accepted by Bombardier, provided that if Mesaba receives credits
from Bombardier in connection with Mesaba’s purchase of CRJ-200/440 Aircraft
pursuant to Section 3.02(a)(i)(aa) above, Mesaba may utilize such credits
prior to purchasing credits from Northwest. 
Following notification by Mesaba to Northwest of Mesaba’s intent to
utilize credits, Northwest shall deduct the amount of such credits from the
next payment due to Mesaba hereunder, and on such date, Northwest shall deliver
to Mesaba a credit memorandum equal to the amount of such credits purchased by Mesaba.

 

ARTICLE IV    

ANCILLARY ARRANGEMENTS

 

Section 4.01     Coordination with Mesaba.

 

(a)                                  Schedules
and Timetables.  Northwest shall file
and maintain schedules with all applicable schedule distribution systems
for all Scheduled Flights, and such schedules shall be filed and maintained by
Northwest together with the schedules for its flights.  Northwest shall include and list all
Scheduled Flights providing Regional Airline Services in the schedule publication
program of Northwest.  Northwest shall
include Scheduled Flights operated by Mesaba in all appropriate flight
information systems on which Northwest flights are listed.

 

25

 

 

(b)                                 Travel
Privileges.  Northwest and Mesaba
shall each be entitled to make available for their respective employees and
members of their respective Boards of Directors, the travel privileges set
forth on Exhibit F attached hereto in accordance with the terms and
conditions set forth therein.

 

(c)                                  United
States Weather Bureau Information. 
Upon request of Mesaba or its flight crews, Northwest shall, pursuant to
a separate Agreement, dated December 18, 1997, by and between Northwest
and Mesaba, or any amendment thereto or successor agreement, furnish Mesaba
such weather information or data as may be produced by or available to
Northwest (subject to any restrictions imposed by third party data providers);
provided, however, that neither Northwest nor its employees will be responsible
or liable for the accuracy thereof.

 

Section 4.02     Ground Handling and Dangerous Goods
Handling; Technological Improvements; Weather-event Recovery 

 

(a)                                  Ground
Handling.  The ground handling
functions for Regional Airline Services operated pursuant to this Agreement
shall consist of the following functions: 
(i) all gate check-in activities, (ii) passenger
enplaning/deplaning activities, (iii) sky cap and wheelchair services, (iv) aircraft
loading/unloading services, included but not limited to airside busing, (v) passenger
ticketing, (vi) jetbridge maintenance, (vii) janitorial services, (viii) deicing
services, (ix) pushback, tow or taxi, (x) airstarts, and (xi) aircraft
cleaning, including but not limited to overnight cleaning, lavatory service and
water service (collectively, the “Ground Handling Functions”).

 

With respect to Scheduled
Flights or Charter Flights operated by Mesaba with Saab 340 Aircraft, (i) at
Mesaba Service Cities, Mesaba shall be responsible for performing all the
Ground Handling Functions, including but not limited to providing passengers
with the services specified in Exhibit D, Sections 1.01(c) and 1.01(d) hereto,
(ii) at Northwest Service Cities, Northwest shall be responsible for
performing all the Ground Handling Functions, including but not limited to
providing passengers with amenities, denied boarding compensation and
transportation to their destinations by other means in accordance with Northwest’s
policies and procedures; Northwest agrees to provide such Ground Handling
Functions to Mesaba at Northwest Service Cities at the rate of $*** per turn for aircraft with 20 to
39 passenger seats; such rates shall be adjusted each April 1 by
increasing such rates by the CPPI, but in no event shall an annual adjustment
result in an increase of more than ***
percent (***%); Mesaba shall at
its sole expense provide to Northwest any specialized equipment necessary to
handle the Saab 340 Aircraft at Northwest Service Cities; and (iii) at
DTW, MEM and MSP, Mesaba shall be responsible for performing the Ground
Handling Functions listed in sub-sections (i), (ii), (iv), (viii), (ix) and
(xi) of the definition of Ground Handling Functions, and Northwest shall be
responsible for performing all other Ground Handling Functions.

 

With respect to Scheduled
Flights or Charter Flights operated by Mesaba with Avro Regional Jet Aircraft
or CRJ-200/440 Aircraft, Northwest shall be responsible for performing all of the
Ground Handling Functions.

 

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

 

26

 

contract agent, or Mesaba’s own personnel and equipment to perform the
Ground Handling Functions at a Mesaba Service City, a Northwest Service City or
a Hub City.

 

(b)                                 Dangerous
Goods Handling.  At Mesaba Service
Cities and at Hub Cities where Mesaba is responsible for performing gate
check-in and aircraft loading/unloading services, Mesaba shall comply with
Northwest’s policies and procedures with respect to the handling of Dangerous
Goods; provided, however, that Northwest acknowledges that Mesaba has not in
the past, and will not in the future, carry Dangerous Goods on any flight
operated with Saab 340 Aircraft.

 

(c)                                  Weather-event
Recovery.  With respect to recovery
from weather events that disrupt the Regional Airline Services operated by
Mesaba, Mesaba’s System Operations Control shall coordinate with Northwest’s
System Operations Control for returning to normal operations.

 

Section 4.03     Facilities.

 

(a)                                  Hub
Cities and Northwest Service Cities. 
During the term hereof, Northwest will provide Mesaba, at no cost to
Mesaba, with access to a portion of the premises and facilities leased by
Northwest pursuant to Northwest’s lease with the applicable airport authority
at the Hub Cities and Northwest Service Cities on the terms and conditions set
forth in the form of Facilities Use Agreement attached hereto as Exhibit H
(the “Facilities Use Agreement”). 
Northwest, in its sole discretion, shall designate from time to time the
portion of such premises and facilities to be used by Mesaba solely for the
performance of Regional Airline Services hereunder.  In the event Northwest determines that Mesaba
requires additional facilities at any of the Hub Cities or Northwest Service
Cities for the performance of Regional Airline Services, Northwest shall use
its reasonable efforts to obtain such facilities and provide them to Mesaba at
no additional charge to Mesaba. 
Northwest and Mesaba agree that Northwest may relocate Mesaba to
comparable facilities at the Hub Cities and Northwest Service Cities, provided
that Northwest pays Mesaba’s reasonable relocation expenses in connection with
any such relocation.  Upon request by
Northwest, Mesaba agrees to use its best efforts to obtain signatory carrier
status at any Hub City or Northwest Service City and shall perform all conditions
required by the applicable airport authority to obtain such status, including
without limitation the posting of a bond or letter of credit to the airport
authority, provided that, if Mesaba becomes a signatory carrier at any Hub City
or Northwest Service City, Mesaba shall vote as directed by Northwest on any
matters submitted to the signatory carriers for a vote.  Northwest shall cooperate with Mesaba in
obtaining such signatory status at any such airport.

 

(b)                                 Mesaba
Service Cities.  During the term
hereof, at all Mesaba Service Cities and at any other location where Mesaba
handles flights operated by Mesaba hereunder or by Northwest pursuant to a
ground handling agreement, Mesaba shall be responsible for obtaining,
constructing and maintaining, at no cost to Northwest (other than amounts
payable by Northwest pursuant to the next sentence), adequate airport
facilities and equipment consistent with Northwest’s standards to provide such
ground handling services.  With respect
to (i) flights operated by Mesaba with Avro Regional Jet Aircraft or CRJ-200/440
Aircraft which are handled by Mesaba, or (ii) flights operated by
Northwest which are handled by Mesaba, Mesaba will allocate amounts payable or
assessed by the airport in connection with such flights for joint or

 

27

 

common use facilities and
Northwest will reimburse Mesaba for such expenses in accordance with Section 5.03
below (for Northwest-operated flights), in accordance with Section 1.09 of
Exhibit C (for flights operated by Mesaba with Avro Regional Jet Aircraft)
and pursuant to such separate ground handling agreement (for flights operated
by Mesaba with CRJ-200/440 Aircraft).

 

(c)                                  Maintenance
Facilities.  During the term hereof,
Mesaba shall be responsible for obtaining and maintaining adequate maintenance
facilities required for the maintenance of all Equipment operated or utilized
in connection with the performance of Regional Airlines Services hereunder (the
“Maintenance Facilities”).   In the event
Northwest elects to provide any Maintenance Facilities to Mesaba, such
facilities will be provided on the terms and conditions set forth in the Facilities
Use Agreement or such other mutually agreeable terms and conditions.

 

(d)                                 Airport
Landing Fees.

 

(i)                                     Mesaba shall be
responsible for all Airport Landing Fees (as defined in Article I of this
Agreement) with respect to flights operated with Saab 340 Aircraft at all
airports to which it provides Regional Airline Services pursuant to this
Agreement and at all airports to which a Saab 340 Aircraft Scheduled Flight,
Non-Scheduled Flight or Charter Flight is diverted.

 

(ii)                                  Subject to the
consent of the applicable airport authority and Northwest’s receipt of a copy
of any report submitted by Mesaba to any airport authority for purposes of
calculation of Airport Landing Fees (as defined in Exhibit C below), with
respect to flights operated hereunder with Avro Regional Jet Aircraft, (aa)
Northwest shall be invoiced for and shall pay all applicable Airport Landing Fees
at Hub Cities and Northwest Service Cities and at all airports to which a
Scheduled Flight, Non-Scheduled Flight or Charter Flight is diverted, or Mesaba
shall be invoiced for and shall pay all applicable Airport Landing Fees at Hub
Cities and Northwest Service Cities and at all airports to which a Scheduled
Flight, Non-Scheduled Flight or Charter Flight is diverted, and following
Northwest’s receipt of a report by Mesaba detailing payment of such Airport
Landing Fees, Northwest shall reimburse Mesaba for such amounts in accordance
with Section 1.09 of Exhibit C, (bb) Mesaba shall be invoiced for and
shall pay all applicable Airport Landing Fees at Mesaba Service Cities and at
all airports to which a Scheduled Flight, Non-Scheduled Flight or Charter
Flight is diverted, and following Northwest’s receipt of a report by Mesaba
detailing payment of such Airport Landing Fees, Northwest shall reimburse
Mesaba for such amounts in accordance with Section 1.09 of Exhibit C.

 

(iii)                               Subject to the consent
of the applicable airport authority and Northwest’s receipt of a copy of any
report submitted by Mesaba to any airport authority for purposes of calculation
of Airport Landing Fees (as defined in Article I of this Agreement), with
respect to flights operated hereunder with CRJ-200/440 Aircraft, Mesaba shall
be invoiced for and shall pay all applicable Airport Landing Fees at Hub
Cities, Northwest Service Cities, Mesaba Service Cities and at all airports to
which a Scheduled Flight, Non-Scheduled Flight or Charter Flight is diverted,
and following Northwest’s receipt of

 

28

 

a report by Mesaba detailing payment of such Airport Landing Fees,
Northwest shall reimburse Mesaba for such amounts in accordance with Section 1.03
of Exhibit E.

 

(e)                                  Passenger
Facility Charges.  Northwest shall be
responsible for the collection and remittance of all passenger facility
charges, if any, at all Service Cities and the Hub Cities.

 

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

 

(g)                                 Related
Transfer Arrangements.  All leases
and subleases of airport facilities used in connection with Regional Airline
Services (collectively, “Facilities Leases”) entered into by Mesaba after the
Effective Date shall be assignable to Northwest without the consent of the
other party to such Facility Lease upon termination of this Agreement, the
withdrawal of Scheduled Flights from such airport or upon written notice from
Northwest to Mesaba, provided that if the consent of the facility lessor is
required by contract or Governmental Regulations, Mesaba will use its best
efforts to obtain such consent at the time the Facility Lease is entered into
and to incorporate such consent in the terms of the Facility Lease.  Upon termination of this Agreement, the
withdrawal of Scheduled Flights from such airport or upon receipt of written
notice from Northwest, upon Northwest’s option, Mesaba shall assign all of its
right, title and interest in and to such Facilities Leases, together with all
improvements and fixtures located on such facilities as Northwest shall
designate and Mesaba shall use its best efforts to obtain the consent of the
other party to any such assignment.

 

(h)                                 Facilities
Lease Option.  Notwithstanding
anything to the contrary in this Agreement, Northwest may, at its option, elect
to hold the leasehold interest in any facilities to be used by Mesaba at any
new or existing Service City, and in the event Northwest exercises this option (i) Northwest
shall enter into a Facilities Lease with the lessor of such facilities, (ii) Mesaba
shall utilize such facilities pursuant to a Facilities Use Agreement with
Northwest, (iii) the rent/facilities charges payable by Mesaba in such
Facilities Use Agreement shall be the same as Northwest’s Direct Cost under the
Facilities Lease for the facilities used by Mesaba, (iv) the Facilities
Use Agreement shall terminate when Mesaba ceases to operate Regional Airline
Services at the airport, and (v) Northwest shall lease facilities which
are reasonably suitable for Mesaba’s operational needs and, with respect to new
Service Cities, Northwest shall complete the leasing arrangements in a manner
that will allow Mesaba adequate time to prepare to commence Regional Airline
Services at the Service City in accordance with the Annual Operating Plan or as
otherwise scheduled by Northwest.

 

Section 4.04     Data
Communications. Northwest shall provide to Mesaba
at all Service Cities and Hub Cities, ***
data circuit lines, any required data networking equipment, the use of computer
reservation terminals, printers and modems, including hardware, software

 

29

 

and maintenance support for such equipment (the “Data Communication
Equipment”).  Such Data Communication
Equipment shall be of the same type and quality as that used by Northwest in
its airline operations.  In connection
with the commencement of Regional Airline Services at a new Service City, Northwest
will provide Mesaba with Northwest’s standard Data Communications Equipment ***.

 

Section 4.05     Security.  Airport security and passenger screening is
conducted by the TSA as of the Effective Date. 
To the extent airlines have responsibility for airport security and/or
passenger screening (i) at all Northwest Service Cities and the Hub Cities,
Northwest is solely responsible for Mesaba’s allocated share of all maintenance
expenses associated with all security equipment and Mesaba’s allocated share of
all personnel expenses (including overtime) associated with the operation of
the equipment and all airport security-related functions, including, without
limitation, passenger screening and activities related to security directives
imposed by Governmental Regulations, and (ii) at Mesaba Service Cities,
Mesaba is solely responsible for all or its allocated share of all maintenance
expenses associated with all security equipment and all or its allocated share
of all personnel expenses (including overtime) associated with the operation of
the equipment and all airport security related functions, including, without
limitation, passenger screening and activities related to security directives
imposed by Governmental Regulations; provided that, Northwest shall, pursuant
to a separate agreement, reimburse Mesaba for all such expenses at Mesaba
Service Cities related to passengers and flights utilizing the CRJ 200/440
Aircraft and Avro Regional Jet Aircraft. 
Notwithstanding the foregoing, the parties acknowledge and agree that should
the U.S. government augment or change the directives, requirements, processes,
procedures or the activities related to passenger screening as may be imposed
by future Governmental Regulations, then the parties will negotiate in good
faith regarding any changes to this Agreement that may be necessary as a
result.

 

Section 4.06     Reservation
Services.  During
the term of this Agreement, Northwest shall handle, at its sole expense,
reservations for all passenger air transportation on Scheduled Flights operated
pursuant to this Agreement.  Reservations
shall be handled in the same manner and subject to the same standards utilized
by Northwest for its own reservations. 
All reservations shall be made in the name of Northwest unless otherwise
required by Governmental Regulations. 
Northwest shall be sole owner of any customer or passenger data relating
to the Scheduled Flights and related reservation services.  However, upon the reasonable request of
Mesaba, Northwest will share such customer or passenger data relating to the
Scheduled Flights and related reservation services when reasonably necessary to
resolve Customer/Passenger complaints or claims, or if Mesaba is required to
produce such customer or passenger data relating to the Scheduled Flights and
related reservation services in response to a valid subpoena, order of a court
or other governmental body of the United States or any political subdivision
thereof (provided, however, that Mesaba shall have given notice to Northwest and
shall allow Northwest to make a reasonable effort to obtain a protective order
requiring that such information so disclosed shall be used only for the
purposes for which the order was issued) or if otherwise required by law, or if
necessary to establish rights or enforce obligations under this Agreement.

 

30

 

Section 4.07     Ticketing Services and Ticketing
Procedures.

 

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

 

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

 

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

 

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

 

(e)                                  Ticketing
Costs.  All travel agency commissions
attributable to Scheduled Flights shall be ***. 
*** shall pay all computer reservation system fees attributable to
passengers on Scheduled Flights.  ***.

 

Section 4.08     Baggage
Handling Procedures.  For Regional Airline Services utilizing the
Saab 340 Aircraft, “Baggage Handling Procedures” shall consist of the
following:

 

31

 

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

 

(b)                                 Subject
to Section 4.02(c) above with respect to technological improvements,
the procedures utilized by Mesaba in performing such Baggage Handling Services
shall conform in all respects to Northwest’s own standards and procedures as
adapted to Mesaba’s Aircraft and operations.

 

(c)                                  With respect to
baggage claims, Mesaba shall be responsible for all baggage claim expenses at
Mesaba Service Cities, and Northwest shall be responsible for all baggage claim
expenses at Hub Cities and at Northwest Service Cities.  Mesaba will make available at the request of
any passenger excess valuation insurance, if any, offered by Northwest to the
extent such insurance covers Mesaba’s flights and Northwest’s flights.

 

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

 

(a)                                  At
each location at which Northwest operates Ticketing Services, Northwest shall ***
accept Air Cargo for shipment on flights to be operated by and over the routes
of Mesaba or Northwest. Northwest shall issue air waybills covering Air Cargo
and shall prepare a “Transfer Manifest” for each Mesaba flight on which there
shall be an Air Cargo shipment which transfer manifest shall set forth all Air
Cargo to be carried on the flight.

 

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

 

(c)                                  At
Mesaba’s ticketing locations, Mesaba shall provide Air Cargo handling services in
connection with the Regional Airline Services for and on behalf of Northwest
for Air Cargo carried solely on Mesaba or on both a Mesaba flight and a
Northwest flight.  Such handling services
shall be performed in accordance with Northwest’s procedures and standards as
provided to Mesaba in writing, including but not limited to (1) accepting
all Air Cargo in accordance with Northwest’s procedures with the following
exceptions (items that will not be accepted):

 

32

 

(i)                                     Restricted
Articles (dry ice will be accepted at a maximum of 5 pounds per container for
refrigeration only),

 

(ii)                                  Articles having a
declared value exceeding $***
USD or more,

 

(iii)                               Adult human remains
other than cremated,

 

(iv)                              Air Cargo shipments
having pieces weighing more than ***
pounds.  VIP express cargo having pieces
weighing more than *** pounds,

 

unless otherwise mutually
agreed, and (2) keeping facilities open at least *** hours before and ***
after each Scheduled Flight for customers to deliver and pick up Air Cargo.  Air Cargo will be accepted until *** prior to departure.

 

(d)                                 For
Air Cargo carried solely on Mesaba or on both a Mesaba flight and a Northwest
flight, Mesaba and Northwest shall charge rates in accordance with Northwest’s
applicable rates and tariffs; such revenues shall be allocated between the
parties in accordance with Section 5.01 below.

 

(e)                                  For
purposes of Air Cargo claims, Mesaba will be treated as if it were a party to
standard industry ticketing and baggage agreements with Northwest and other air
carriers, provided that all damage claims involving routing on both Northwest
and Mesaba will be determined and managed by Northwest’s cargo claims
department.  If Northwest determines
Mesaba is liable for the loss, the claim will be forwarded to Mesaba for review
and reimbursement to Northwest.

 

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

 

(g)                                 Mesaba
agrees that it shall provide necessary training to its employees to satisfy
Northwest’s requirements for training of employees with respect to Air Cargo;
provided that if Northwest makes any material changes in its training program
following the Effective Date, Northwest shall reimburse Mesaba for any
incremental costs Mesaba incurs as a result of its compliance with such changes
to the training program.

 

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

 

33

 

Section 4.11     Slots
and Route Authorities.  During the Term of this Agreement or upon the
expiration or termination of this Agreement, Northwest may, in its sole
discretion, require Mesaba to transfer to Northwest or its designee at no
charge any airport takeoff or landing slots, route authorities or other
regulatory authorities as Northwest shall designate which have been or are
being used for Regional Airlines Services under this Agreement, provided that
if Mesaba is operating Regional Airline Services at a Service City pursuant to
the DOT’s Essential Air Service (“EAS”) program on behalf of Northwest, upon
the expiration or termination of this Agreement, Northwest will obtain another
operator to provide air service to such city and the parties will cooperate in
good faith to transfer the EAS designation and air service responsibility to
the new operator.

 

Section 4.12     Emergency
Response and Family Assistance.  Northwest and Mesaba have entered into a Family
Assistance Services Agreement, dated March 1, 2005, and retroactively
effective as of April 1, 2004, with respect to emergency response and
family assistance services to be provided to Mesaba by Northwest in connection
with the Regional Airlines Services operated under this Agreement.

 

Section 4.13     Technology
Improvements. 
In the event Northwest begins utilizing new technology, tools, systems
or procedures for the provision of Regional Airline Services, Mesaba will also
utilize such new technology, tools, systems or procedures for performing Regional
Airline Services, provided that the net present value of any required capital
investment by Mesaba is zero or positive at Mesaba’s cost of capital.

 

ARTICLE V    REVENUES,
PAYMENTS AND SETOFF

 

Section 5.01     Revenues.  Mesaba acknowledges and agrees that
all revenues resulting from the sale and issuance of passenger tickets and
cargo air waybills associated with the operation of the Aircraft and all other
sources of revenue associated with the operation of the Aircraft are the sole
property of Northwest, including without limitation ticket change fees and
other fees or charges which are applicable pursuant to Northwest’s tariffs, fuel
surcharges, governmental subsidies, revenue guarantees, unaccompanied minor
fees, snack/beverage services, luggage fees, advertising revenue, excess
baggage fees and nonrevenue pass travel charges; provided, however, that
through June 30, 2007 (i) revenues from cargo air waybills associated
solely with the operation of the Saab 340 Aircraft are the sole property of
Mesaba, and (ii) revenues from cargo air waybills associated with cargo
carried on both a Mesaba-operated flight and a Northwest-operated flight will
be divided in accordance with the Bilateral Prorate Cargo Agreement, dated December 21,
1998, between Mesaba and Northwest, as amended from time to time.

 

In addition, Mesaba shall pay Northwest a
one-time payment of $*** on the date
this Agreement is executed as additional consideration for placing the CRJ-200/440
Aircraft at Mesaba.

 

Section 5.02     Payments
to Mesaba.  Northwest will pay Mesaba for the
Regional Airline Services in accordance with Exhibits C, D and E hereto.  The parties will negotiate in good faith with
respect to modifying Exhibits C and D to utilize the same payment methodology
as is used in Exhibit E.  The
parties intend to conclude these negotiations on or

 

34

 

before December 31,
2005.  In this regard, the parties agree
that (i) the transition of the Avro Regional Jet Aircraft and Saab 340
Aircraft payment methodologies to the same methodology as used in Exhibit E
will not change the financial outcome for either party with respect to the Avro
Regional Jet Aircraft and the Saab 340 Aircraft through March 31, 2007, (ii) Mesaba’s
operating expenses used to calculate the payment from Northwest for the Avro
Regional Jet Aircraft and the Saab 340 Aircraft shall be *** through March 31, 2007 at the
expenses incurred for the twelve-month period ending March 31, 2005
adjusted for average annual PPI percentage increases and adjusted for changes
in fleet size, (iii) from the Effective Date until March 31, 2007 the
margin with respect to the Avro Regional Jet Aircraft and the Saab 340 Aircraft
shall remain unchanged from the margin for such Aircraft for the twelve-month
period ending March 31, 2005, (iv) after March 31, 2007, the
Margin with respect to each Aircraft type shall be set at the Market Margin
Rate, as defined in Exhibit E, (v) after March 31, 2007,
Northwest and Mesaba will share any Margin exceeding *** above the base target Margin on a *** basis, Mesaba’s Margin will be *** Margin and such Margin sharing and *** will be calculated on Mesaba’s total
operating Margin, not per Aircraft type, (vi) in the event the Avro
Regional Jet Aircraft are removed from Mesaba’s fleet, the parties shall reset
the then applicable overhead reimbursement rate, and (vii) the parties
will negotiate in good faith regarding system-wide service standards for
completion factor and minimum on-time reliability to be effective after March 31,
2007 with respect to Regional Airline Services operated by Mesaba, provided
that after December 31, 2006 incentive/penalty payments will not exceed *** of Margin.

 

Section 5.03     Billing.  Northwest and Mesaba shall bill each other on
a monthly basis (or as otherwise agreed) in respect of amounts owed to each
other under this Agreement not contemplated under Exhibits C, D or E.  If such billed items are not paid by the
party within sixty (60) days of the statement date, the aggregate amount of
undisputed items may be offset against or included in the next scheduled wire
transfer pursuant to Exhibits C, D or E. 
Disputed amounts must be paid when the dispute is resolved, provided
that such amount may be set off against or included in the next scheduled wire
transfer pursuant to Exhibits C, D or E if the formerly disputed amount is not
paid within seven (7) days of resolution. 
Northwest may also offset against the next scheduled wire transfer
pursuant to Exhibits C, D or E the amount of any payment (including those under
any Lease) with respect to which Mesaba shall have defaulted and shall have
failed to cure before the expiration of any applicable grace period.

 

35

 

Section 5.04     Credit Card Chargebacks.

 

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

 

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

 

(c)           Upon receipt of a chargeback, Mesaba
shall have a reasonable period of time, but not to exceed 60 days, to review
the validity of the chargeback notice. 
If the chargeback is valid (within the scope of the circumstances for
the chargeback), Mesaba shall remit to Northwest a gross amount equal to such
credit card charge form.  If, in Mesaba’s
good faith opinion, the chargeback is not valid, Mesaba will so notify
Northwest and provide Northwest with a complete written explanation of the
transaction together with any necessary supporting documentation within the 60-day
period.

 

(d)           All revisions to Northwest’s credit
card acceptance procedures must be in writing and must be submitted to Mesaba
at least 30 days in advance of the effective date of such procedures or such
shorter notification period as Northwest may utilize in notifying its own
personnel.  All warning notices must be
current and stored in Northwest’s computerized reservation credit card check
system and accessible to Mesaba on the transaction date.

 

Section 5.05     Returned Checks.

 

(a)           Mesaba shall be billed pursuant to Section 5.04
above for all returned checks resulting from Mesaba’s non-compliance with
Northwest’s check acceptance procedures.

 

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

 

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

 

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

 

36

 

ARTICLE VI    

REPORTING OBLIGATIONS, AUDITING, INSPECTIONS AND CONFIDENTIALITY/PUBLICITY

 

Section 6.01     Reporting Obligations.

 

(a)                                  Certain
Notices to Northwest.  Mesaba shall
give prompt written notice to Northwest of (i) any litigation involving an
uninsured claim of more than $***
against Mesaba, (ii) any proceeding before any governmental agency which,
if adversely determined, would materially and adversely affect Mesaba’s
financial condition, affairs, operations or prospects, including but not
limited to any significant FAA enforcement or civil penalty action, and (iii) any
other matter which would materially and adversely affect the financial
condition, affairs, operations or prospects of Mesaba or its ability to perform
its obligations under this Agreement.

 

(b)                                 Financial
and Reporting Covenants.  Mesaba
shall provide to Northwest promptly following the filing or providing thereof
copies of all financial statements, reports, notices and proxy statements filed
with or provided to the Securities and Exchange Commission or the United States
Department of Transportation.  Mesaba
shall also promptly provide to Northwest notice of and adequate information
regarding any material weaknesses noted in any management letters received by Mesaba
or its Affiliates from its independent auditors and the company’s responses
thereto.  Mesaba shall also provide
Northwest with monthly financial statements, annual expense budgets and
periodic business plans and related projections.  Mesaba shall not be required to provide any
of the foregoing information to Northwest if such information is publicly
available and accessible by Northwest.

 

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

 

Section 6.02     Audits.

 

(a)                                  Compliance
Audits.  Upon the reasonable prior
written request by Northwest, Mesaba shall make available its books and records,
including but not limited to general ledger backup (monthly) for financial
statements and records for operations with respect to this Agreement.  Northwest shall also be entitled to make
copies and notes of such information as it deems necessary and to discuss such
records and the finances and accounts of Mesaba with the Chief Financial
Officer or other employee or agent of Mesaba knowledgeable about such
records.  Any audit completed in
compliance with this Section 6.02(a) shall be conducted as
follows:  (i) Northwest shall give
not less than thirty (30) days written notice to Mesaba of its intention to
audit Mesaba’s books and records, including a request list of the books and
records that are to be made available; (ii) Northwest shall have the right
to audit the first nine (9) months of Mesaba’s fiscal year at any time
after December 31; and (iii) Northwest shall have the right to audit
the last three (3) months of Mesaba’s fiscal year at any time, provided
that all issues

 

37

 

identified in the audit for a
fiscal year be finally completed by May 15 of the following fiscal
year.  If the audit has not been
completed within the time period described above, Northwest forever waives its
audit rights for the relevant fiscal year.   
Northwest and Mesaba agree that all payments or reimbursements from one
party to the other resulting from any audit conducted under this Agreement
shall relate only to services, goods or payments to be performed, provided, or
made during the period under audit.  For
the avoidance of doubt and notwithstanding the foregoing, nothing in this Section 6.02(a) shall
preclude Northwest from bringing a breach of contract claim against Mesaba with
respect to matters discovered in an audit or otherwise (even if such matter(s)
relates to a period previously audited or no longer subject to audit).

 

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

 

Section 6.03     Inspections.  Northwest shall be entitled to conduct
on-site observations of Mesaba’s in-flight service, flight, maintenance,
technical operations, gate-check in service, ground operations, Aircraft
cleaning and any and all other services and operations performed under this
Agreement to monitor Mesaba’s operations in the same manner as similar
functions are evaluated at Northwest. 
The purpose of such inspections shall be to determine Mesaba’s
compliance with applicable Governmental Regulations, state and local laws,
equipment manufacturer’s instructions and the standards established by this
Agreement.  Mesaba’s operation will be
evaluated according to the same standard as Northwest taking into account the
differences in size and operational capabilities between the two airlines.  Such inspections may be announced or unannounced,
but under no circumstances shall they interfere with the operation of Mesaba’s
business.  Northwest shall report the
findings of any such inspection to Mesaba in writing.  Mesaba shall provide a timely written
response detailing a plan of corrective action to remedy any deficiencies noted
in an inspection.  If any deficiency
comes to the attention of Mesaba through audits or any other means, Mesaba
shall take immediate corrective action.

 

Section 6.04     Confidentiality/Publicity.  Each of Northwest and Mesaba agrees that,
except as otherwise required by Governmental Regulations or any other
applicable law, it shall not disclose to others and shall keep confidential the
terms of this Agreement and any confidential, non-public information concerning
the other that it obtains as a result of or pursuant to this Agreement.  The Parties agree, however, that each Party
may share this Agreement, and the terms and details herein, with its respective
outside financial auditors or attorneys without the consent of the other Party,
and without breach or violation of this Section 6.04 or this
Agreement.  Mesaba shall not issue any
press release or public announcement relating to new Scheduled Flights, the
cessation of Scheduled Flights in any Service City, schedule changes,
customer initiatives, marketing programs or promotions, without Northwest’s
prior written approval of the press release or public announcement.  In any such press release or public
announcement, Mesaba shall identify itself as a Northwest Airlink carrier.

 

38

 

ARTICLE VII    

NORTHWEST IDENTIFICATION

 

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

 

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

 

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

 

Section 7.04     Use
of Identification. 
Northwest shall have exclusive control over the use and display of all
NW Identifications and Designators, and Mesaba shall comply with all policies
and guidelines of Northwest in this regard.  
Mesaba shall use the NW Identifications and Designators in good faith,
in a dignified manner and in compliance with good trademark practice.  Mesaba shall use the NW Identifications and
Designators exactly as prescribed by Northwest, and shall not use (i) any
stylization, abbreviation or variation thereof or (ii) the NW
Identifications and Designators in connection or combination with any other
Identification, in each case, without Northwest’s prior written consent, which
may be withheld in its sole discretion.

 

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

 

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

 

39

 

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

 

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

 

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

 

ARTICLE VIII    

TAXES AND FEES

 

Section 8.01     Taxes and Fees.

 

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

 

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

 

40

 

Section 8.02     Ticket Taxes and Fees.

 

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

 

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

 

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

 

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

 

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

 

41

 

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

 

Section 8.04     Refunds
of Tax.  To
the extent Northwest prepares and/or is responsible for pursuing any refunds or
refund claims related to Mesaba’s aviation fuel, excise, sales, use,
value-added or similar transactional taxes, Northwest shall be entitled to
retain *** of the amount of any
such refund, credit or other benefit.  To
the extent Mesaba prepares or is responsible for pursuing any such refunds or
refund claims, Mesaba shall retain ***
of the amount of any such refund, credit or other benefit (inclusive of
interest) it receives, and the remaining *** (inclusive of interest) shall be paid to Northwest within ten (10) days
of its receipt or recognition of benefit by Mesaba.  Any refunds, credits or other benefits
received related to Mesaba’s property taxes on Avro Regional Jet Aircraft and
aircraft parts will be remitted to Northwest within ten (10) days of its
receipt or recognition of benefit by Mesaba. 
All other refunds, credits or other benefits received related to Mesaba’s
property taxes will be retained by Mesaba.

 

ARTICLE IX    

LIABILITY, INDEMNIFICATION AND INSURANCE

 

Section 9.01     Independent
Contractor.

 

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

 

(b)                                 Northwest
shall act as an independent contractor. The employees, agents and/or
independent contractors of Northwest engaged in performing any of the services
Northwest is to perform pursuant to this Agreement shall be employees, agents
and independent

 

42

 

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

 

Section 9.02     Indemnification.

 

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

 

(b)                                 Each
party (“Party A”) agrees that it will not seek damages from the other party (“Party
B”) or make a claim against Party B if Party B causes damage to an aircraft
operated by Party A; provided, however, that if Northwest subcontracts its
responsibility to perform part or all of the Ground Handling Functions to a
third party vendor, Northwest shall indemnify Mesaba against any physical loss
of or damage to the Aircraft caused by the negligent act or omission of such
vendor in performing such ground handling functions, and further provided that
Northwest’s liability pursuant to this provision shall be limited to an amount
not exceeding the amount of the deductible with respect to such Aircraft under
Mesaba’s hull risk insurance policy, except that loss or damage in respect of
any incident below $*** shall
not be indemnified.  Neither party shall
be liable to the other for any consequential loss or damage arising from
physical loss of or damage to aircraft, and neither party shall make any claim
against the other regarding any liability in respect of any and all such
consequential loss or damage arising from physical loss of or damage to aircraft.

 

(c)                                  If
Mesaba joins a fuel consortium at a Service City at the request of Northwest, (i) Mesaba
shall indemnify Northwest against any liabilities, claims, demands, suits,
judgments, fines, penalties, damages and losses (including the costs, fees and
expenses in connection therewith and incident thereto) brought against
Northwest, its officers, employees or agents by or on behalf of any other
person, by reason of fuel spills, fuel leaks or other fuel-related

 

43

 

environmental damage, including but not limited to assessment, cleanup,
remediation and natural resource damages, caused by or arising out of any act
or omission by Mesaba occurring while this Agreement is in effect, and (ii) Northwest
shall indemnify Mesaba against any liabilities, claims, demands, suits,
judgments, fines, penalties, damages and losses (including the costs, fees and
expenses in connection therewith and incident thereto) brought against Mesaba,
its officers, employees or agents by or on behalf of any other person, by
reason of fuel spills, fuel leaks or other fuel-related environmental damage,
including but not limited to assessment, cleanup, remediation and natural
resource damages, caused by or arising out of any act or omission by Northwest
or by any other party to such fuel consortium occurring while this Agreement is
in effect.

 

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

 

Section 9.03     Insurance.

 

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

 

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

 

(2)                                  Comprehensive
aviation bodily injury and property damage liability insurance with limits of
not less than $*** (but limits
not greater than the amount of Northwest’s coverage) combined single limit per
occurrence (or such other minimum amount as may be reasonably requested by
Northwest from time to time and as Mesaba may obtain on a commercially
reasonable basis in the event Mesaba no longer obtains airline liability
insurance coverage as part of the Northwest’s aviation insurance placement),
including, but not limited to, aircraft liability, passenger legal liability,
premises and property damage liability, hangar keepers liability and baggage
and cargo liability.  Such insurance
shall include personal injury and contractual liability, and shall also include
war risk and allied perils, hijack and confiscation coverage with a limit of
not less than $*** (but limits
not greater than the amount of Northwest’s coverage) per incident (or such
other minimum amount as may be reasonably requested by Northwest from time to
time and as Mesaba may obtain on a commercially reasonable basis in the event
Mesaba no longer obtains airline liability insurance coverage as part of the
Northwest’s aviation insurance placement). 
In the event Northwest requires Mesaba to increase its insurance limits,
Northwest agrees that any incremental costs incurred by Mesaba as a result of
increasing such limits (other than incremental costs associated with Mesaba
unilaterally changing deductibles) will be reimbursed by Northwest.

 

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

 

44

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)                                  In
the event the United States government reimburses Mesaba or its Affiliates for
excess insurance costs incurred as a result of the September 11, 2001
terrorist attacks or other such occurrences, Mesaba will promptly remit to
Northwest any such reimbursement (including any applicable Margin Payment) that
is in excess of Mesaba’s actual additional insurance costs incurred as a result
of such event.  Northwest acknowledges
that Mesaba’s obligation to remit such reimbursement is not triggered until
Mesaba has achieved a cost-neutral position with respect to excess insurance
costs.

 

(d)                                 Northwest
acknowledges that, to the extent Northwest has the ability to do so, Northwest will
use commercially reasonable efforts to allow Mesaba to continue to participate
in Northwest’s insurance plan.

 

45

 

ARTICLE X    

TERM AND TERMINATION

 

Section 10.01     Term.  This Agreement shall commence on and shall be
effective as of August 29, 2005 (the “Effective Date”) and, unless earlier
terminated as provided herein, shall continue in effect until May 1, 2015.

 

Section 10.02     Termination by Either Party.

 

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

 

(b)                                 Except
as otherwise provided in Section 10.03, in the event of a breach of a
nonmonetary provision of this Agreement by either party remaining uncured for
more than thirty (30) days after the later of (i) receipt of written
notification of such Default by the nondefaulting party, or in the case of a
breach requiring more than thirty (30) days notice to cure, the defaulting
party does not begin and pursue with due diligence a method of cure within
thirty (30) days after receipt of written notification specifying in reasonable
detail the nature of such Default from the nondefaulting party, or (ii) if
there is a Dispute (as such term is defined in Section 11.12 below) as to
whether a breach has occurred, resolution (in accordance with Section 11.12
below) of such Dispute finding a breach to have occurred, then the nondefaulting
party may terminate this Agreement at its sole option.

 

(c)                                  In
the event of a breach of a monetary provision of this Agreement by either party
and such Default remaining uncured for more than seven (7) days after the
later of (i) receipt of written notification specifying in reasonable
detail the nature of such Default from the nondefaulting party, or (ii) if
there is a Dispute (as such term is defined in Section 11.12 below) as to
whether a breach has occurred, resolution (in accordance with Section 11.12
below) of such Dispute finding a breach to have occurred, then the
nondefaulting party may terminate this Agreement at its sole option.

 

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

 

46

 

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

 

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

 

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

 

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

 

(e)                                  More
than *** of the Aircraft do not
operate any Scheduled Flights for more than *** or *** of the
Aircraft do not operate any Scheduled Flights for more than ***, other than as a result of (1) an
FAA order which grounds all commercial flights of all air carriers or grounds a
specific Aircraft type of all air carriers, (2) a scheduling action by
Northwest, or (3) Northwest’s inability to perform its obligations under
this Agreement as a result of a strike by Northwest employees.

 

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

 

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

 

(h)                                 Mesaba
or its Affiliate shall commence operating an aircraft type which causes
Northwest to be in violation of its collective bargaining agreement with its
pilots.

 

(i)                                     The
person selected to replace John Spanjers as President of Mesaba and any
successor President of Mesaba, or the person selected to replace Paul Foley as President
and Chief Executive Officer of MAIR Holdings, Inc. and any successor Chief
Executive Officer and President of MAIR Holdings, Inc., shall not be
reasonably acceptable to Northwest.

 

(j)                                     With
respect to any Aircraft, such Aircraft shall have been removed from Mesaba’s
fleet pursuant to the terms of Section 3.02(a)(ii) or (iii) hereof.  In such case, this Agreement shall be
terminable by Northwest at its sole option only with respect to such Aircraft.

 

(k)                                  MAIR Holdings, Inc.
breaches the Agreement entered into by Northwest and MAIR Holdings, Inc.
as of August 29, 2005 as amended from time to time.

 

ARTICLE XI    

 

MISCELLANEOUS

 

Section 11.01     Limitation
on Performance. 
The obligation of either Northwest or Mesaba to perform under the terms
of this Agreement shall be limited or modified

 

47

 

by, and neither carrier shall be deemed to be in default hereunder as a
result of any of the following causes:

 

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

 

A labor strike
involving Northwest’s employees, or a cessation, slow-down or interruption of
work, or any other labor disturbance that materially impacts Mesaba’s ability
to operate Regional Airline Services.

 

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

 

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

 

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

 

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

 

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

 

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

 

	
  If to Northwest:

  	
   

  	
  Northwest Airlines, Inc.

  
	
   

  	
   

  	
  Department A6100

  
	
   

  	
   

  	
  2700 Lone Oak Parkway

  
	
   

  	
   

  	
  Eagan, Minnesota 55121

  
	
   

  	
   

  	
  Attn: Vice President – Market Planning

  
	
   

  	
   

  	
  Facsimile No: (612) 727-7113

  

 

48

 

	
  With copies to:

  	
   

  	
  Northwest Airlines, Inc.

  
	
   

  	
   

  	
  Department A1180

  
	
   

  	
   

  	
  2700 Lone Oak Parkway

  
	
   

  	
   

  	
  Eagan, Minnesota 55121

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
  Facsimile No: (612) 727-7123

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Northwest Airlines, Inc.

  
	
   

  	
   

  	
  Department A6030

  
	
   

  	
   

  	
  2700 Lone Oak Parkway

  
	
   

  	
   

  	
  Eagan, Minnesota 55121

  
	
   

  	
   

  	
  Attn: Managing Director of Airlink Planning

  
	
   

  	
   

  	
  Facsimile No: (612) 727-7110

  
	
   

  	
   

  	
   

  
	
  If to Mesaba :

  	
   

  	
  Mesaba Aviation, Inc.

  
	
   

  	
   

  	
  1000 Blue Gentian Road, Suite 200

  
	
   

  	
   

  	
  Eagan, Minnesota 55121

  
	
   

  	
   

  	
  Attn: President

  
	
   

  	
   

  	
  Facsimile No: (651) 367-5360

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  MAIR Holdings, Inc.

  
	
   

  	
   

  	
  150 South Fifth Street, Suite 1360

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
   

  	
  Attn: Chief Executive Officer

  
	
   

  	
   

  	
  Facsimile No. (612) 333-0590

  

 

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

 

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

 

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

 

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

 

49

 

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

 

Section 11.12     Dispute Resolution; Availability of
Equitable Remedies; Procedures.

 

(a)                                  Representatives.  Except as otherwise provided herein, if any
dispute arises under or relates to this Agreement (a “Dispute”), at the written
request of any party, each party will appoint a designated representative (the “Representative”)
to meet for the purpose of resolving the dispute.  The Representatives will meet at a mutually
agreeable place within ten (10) days after a party makes a written request
to the other for such a meeting.  The
Representatives will honor reasonable requests to exchange information related
to the Dispute and will make a good faith effort to negotiate a resolution to
the Dispute.  Negotiations shall continue
until the Dispute is resolved or until a party informs the others in writing
that negotiations will not result in a mutually acceptable resolution and an
arbitrator should be appointed.

 

(b)                                 Arbitration.  If the Dispute is not resolved pursuant to Section 11.12(a),
the Dispute (including any question arising as to whether or not any Dispute
falls within the terms of this Section 11.12 or the selection of
arbitrators) shall be settled by arbitration in Minneapolis, Minnesota in
accordance with the CPR Rules for Non-Administrative Arbitration of
Business Disputes by one arbitrator.  The
arbitrator shall be appointed by the parties as provided by CPR Rule 5,
Selection of Arbitrators.  The
arbitration procedure shall be governed by the United States Arbitration Act, 9
U.S.C. §§ 1-16, and the award rendered by the arbitrator shall be final
and binding on the parties and may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, no party shall be required to submit to
arbitration unless all parties necessary for complete relief have been joined
or consent to participate.

 

(c)                                  Discovery.  Each party shall have discovery rights as
provided by the Federal Rules of Civil Procedure; provided, however, that
all such discovery shall be commenced and concluded within ninety (90) days of
the initiation of arbitration.

 

(d)                                 Expeditious
Proceedings.  It is the intent of the
parties that any arbitration shall be concluded as quickly as reasonably
practicable.  Unless the parties
otherwise agree, once commenced, the hearing on the disputed matters shall be
held four (4) days a week until concluded, with each hearing date to begin
at 9:00 a.m. and to conclude at 5:00 p.m.  The arbitrator shall use all reasonable
efforts to issue the final award or awards within a period of fifteen (15)
business days after closure of the proceedings. 
Failure of the arbitrator to meet the time limits of this Section 11.12(d) shall
not be a basis for challenging the award.

 

(e)                                  Arbitration
Costs.  If the party asserting a
claim is awarded 50% or more of the claimed amount, then that party shall be
the prevailing party and shall be entitled to receive all of its reasonable
legal fees and costs associated with the dispute.  If the asserting party receives less than 50%
of the claimed amount, then the other party shall be the prevailing party and
shall be entitled to receive all of its reasonable legal fees and costs
associated with the Dispute.  In the
event the parties cross-claim against one another, the arbitrator shall
allocate

 

50

 

costs amongst the parties based
upon amounts paid pursuant to the final awards (i.e., those paying 30% of all
awards shall pay 30% of all costs).

 

(f)                                    Enforcement
of Awards.  Each party agrees that
any legal proceeding instituted to enforce an arbitration award hereunder will
be brought in a court of competent jurisdiction (either state or federal) in
the venue of the arbitration set forth in Section 11.12(b) and hereby
submits to personal jurisdiction therein and irrevocably waives any objection
as to venue therein, and further agrees not to plead or claim in any such court
that any such proceeding has been brought in an inconvenient forum.

 

(g)                                 Equitable
Relief.  Nothing herein shall be
construed to prevent any party from seeking and, assuming appropriate legal standards
are met, obtaining equitable relief in any court of competent jurisdiction to
restrain or prohibit any breach or threatened breach of any covenant of the
parties set forth in this Agreement or any document executed in connection
herewith, whether or not the parties have first sought to resolve the dispute
through negotiation, mediation or arbitration pursuant to this Section 11.12.

 

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

 

Section 11.14     Integration
and Entire Agreement.  This Agreement (including the Exhibits), the
Agreement entered into by Northwest and MAIR Holdings, Inc. as of August 29,
2005 and the ancillary documents entered into in connection therewith are
intended by the parties as a complete statement of the entire agreement and
understanding of the parties with respect to the subject matter hereof and all
matters between the parties related to the subject matter herein and therein
set forth.  This Agreement may only be
amended or modified by a written agreement between Mesaba, on the one hand, and
Northwest, on the other, which specifically references this Agreement and
expressly provides for such amendment.

 

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

 

51

 

Section 11.16     Termination
of Prior Agreements.  The parties agree that the RJ Agreement and
the Saab Agreement are terminated as of the Effective Date; provided, however,
the parties agree that their respective indemnification and payment obligations
arising under the RJ Agreement and the Saab Agreement with respect to services
performed prior to the Effective Date shall continue in effect in accordance
with the terms of such Agreements, and either party may exercise its rights
under the respective indemnification and payment provisions of the RJ Agreement
or the Saab Agreement, as the case may be, in order to cause the other party to
comply with the terms of such agreements.

 

IN WITNESS
WHEREOF, Northwest and Mesaba have executed this Agreement as of the date first
set forth above.

 

	
  MESABA AVIATION, INC.

  	
  NORTHWEST AIRLINES, INC.

  
	
   

  	
   

  
	
  /s/ John G. Spanjers

  	
   

  	
  /s/ J. Timothy Griffin

  	
   

  
	
   

  	
   

  
	
  By:

  	
  John G. Spanjers

  	
  By:

  	
  J. Timothy Griffin

  
	
   

  	
  President and Chief Operating Officer

  	
   

  	
  Executive Vice President,

  Marketing and Distribution

  
						

 

52

 

 

EXHIBIT A-1

 

AIRCRAFT LEASE FORM

 

SUBLEASE AGREEMENT

[NW 2005        ]

 

Dated as of

 

[        ],
2005

 

Between

 

NORTHWEST AIRLINES, INC.,
                     Sublessor

 

AND

 

MESABA AVIATION, INC.,
                      Sublessee

 

One Bombardier Inc. Canadair Regional Jet
Model CL-600-2B19 Aircraft

 

A1-1

 

TABLE OF CONTENTS TO SUBLEASE
AGREEMENT [NW 2005         ]

 

	
  SECTION 1.

  	
  Definitions.

  	
   

  
	
  SECTION 2.

  	
  Acceptance and Sublease.

  	
   

  
	
  SECTION 3.

  	
  Term and Rent.

  	
   

  
	
  SECTION 4.

  	
  Sublessor’s Representations and Warranties.

  	
   

  
	
  SECTION 5.

  	
  Return of the Aircraft.

  	
   

  
	
  SECTION 6.

  	
  Liens.

  	
   

  
	
  SECTION 7.

  	
  Registration, Maintenance and Operation;
  Possession; Insignia.

  	
   

  
	
  SECTION 8.

  	
  Replacement and Pooling of Parts;
  Alterations, Modifications and Additions.

  	
   

  
	
  SECTION 9.

  	
  Voluntary Termination.

  	
   

  
	
  SECTION 10.

  	
  Loss, Destruction, Requisition, etc.

  	
   

  
	
  SECTION 11.

  	
  Insurance.

  	
   

  
	
  SECTION 12.

  	
  Inspection.

  	
   

  
	
  SECTION 13.

  	
  Assignment.

  	
   

  
	
  SECTION 14.

  	
  Events of Default.

  	
   

  
	
  SECTION 15.

  	
  Remedies; Automatic Termination.

  	
   

  
	
  SECTION 16.

  	
  Sublessee’s Cooperation Concerning Certain
  Matters.

  	
   

  
	
  SECTION 17.

  	
  Notices.

  	
   

  
	
  SECTION 18.

  	
  No Set-Off, Counterclaim, etc.

  	
   

  
	
  SECTION 19.

  	
  No Renewal.

  	
   

  
	
  SECTION 20.

  	
  Maintenance Program.

  	
   

  
	
  SECTION 21.

  	
  Sublessor’s Right to Perform for Sublessee.

  	
   

  
	
  SECTION 22.

  	
  [Intentionally Omitted]

  	
   

  
	
  SECTION 23.

  	
  Service of Process.

  	
   

  
	
  SECTION 24.

  	
  Miscellaneous.

  	
   

  
	
  SECTION 25.

  	
  Subordination.

  	
   

  
	
  SECTION 26.

  	
  Covenant of Quiet Enjoyment.

  	
   

  
	
  SECTION 27.

  	
  Federal Bankruptcy Code.

  	
   

  
	
  SECTION 28.

  	
  Use of Funds.

  	
   

  
	
  SECTION 29.

  	
  Sublessee’s Representations, Warranties and
  Indemnities.

  	
   

  
	
  SECTION 30.

  	
  Certain Representations, Warranties and
  Covenants.

  	
   

  
	
  SECTION 31.

  	
  Covenants of Sublessee.

  	
   

  
	
  SECTION 32.

  	
  Consent to Jurisdiction.

  	
   

  
	
  SECTION 33.

  	
  Owner for Federal Tax Purposes.

  	
   

  

 

A1-2

 

EXHIBITS

 

	
  EXHIBIT A

  	
  -

  	
  Form of Sublease Supplement

  
	
  EXHIBIT B

  	
  -

  	
  Basic Rent

  
	
  EXHIBIT C

  	
  -

  	
  Stipulated Loss Value Schedule

  
	
  EXHIBIT D

  	
  -

  	
  Return Conditions

  
	
  EXHIBIT E

  	
  -

  	
  Minimum Liability Amount

  

 

A1-3

 

SUBLEASE AGREEMENT

[NW 2005       ]

 

This SUBLEASE AGREEMENT [NW 2005         ],
dated as of [        ], 2005, between
NORTHWEST AIRLINES, INC., a corporation organized and existing pursuant to the
laws of the State of Minnesota (“Sublessor”),
and MESABA AVIATION, INC., a corporation organized and existing pursuant to the
laws of the State of Minnesota (“Sublessee”);

 

W I T N E S
S E T H:

 

WHEREAS, Sublessor has agreed to sublease the Aircraft
to Sublessee, Sublessee has agreed to enter into this Sublease for use by
Sublessee in its operations in accordance with the Airline Services Agreement
and for no other purpose, and the parties hereto intend this Sublease to be an
operating lease; and

 

WHEREAS, Sublessor is providing a valuable financial
accommodation to Sublessee by making the Aircraft available to Sublessee
pursuant to this Sublease Agreement, and Sublessor is entering into this
Sublease solely to provide the Aircraft to Sublessee for use in its operations
in accordance with the Airline Services Agreement; and

 

NOW, THEREFORE, in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and legal sufficiency of which is hereby acknowledged, Sublessee and
Sublessor intending to be legally bound agree as follows:

 

SECTION 1.  Definitions. Unless the
context otherwise requires, the following terms shall have the following
meanings for all purposes of this Sublease Agreement [NW 2005         ]
and shall be equally applicable to both the singular and the plural forms of
the terms herein defined:

 

“Acceptance Certificate”
has the meaning specified in the Participation Agreement. “Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person.  For the purposes of this definition, “control”
(including “controlled by” and “under common control with”) shall mean the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such person whether through the ownership of voting
securities or by contract or otherwise. 
For the avoidance of doubt, Sublessor and its Affiliates are not
Affiliates of Sublessee.

 

“After-Tax Basis” means an
amount, which, after deduction of all Federal, state, local and foreign taxes
required to be paid by or on behalf of the recipient in respect of the receipt or
realization of such amount, is equal to the payment

 

A1-4

 

required under the
provisions of the Sublessee Documents that requires payments to be made on an
After-Tax Basis.

 

“Aircraft”
means the Airframe to be delivered and subleased hereunder together with the
two Engines initially subleased hereunder (or any engine substituted for any of
such Engines pursuant to the terms hereof), whether or not any of such initial
or substituted Engines may from time to time be installed on such Airframe or
may be installed on any other airframe or on any other aircraft, and when the
context permits the Aircraft Documentation.

 

“Aircraft Documentation” has the
meaning specified in Exhibit D hereto.

 

“Airframe”
means: (i) the Bombardier Inc. Canadair Regional Jet Model CL-600-2B19
aircraft (except Engines or engines from time to time installed thereon)
specified in the initial Sublease Supplement, which aircraft shall be subleased
by Sublessor to Sublessee hereunder and under such Sublease Supplement; and (ii) any
and all Parts (A) so long as the same shall be incorporated or installed
in or attached to such aircraft (except Engines or engines from time to time
installed thereon), or (B) so long as title thereto shall remain vested in
the Owner in accordance with the terms of Section 8 after removal from
such aircraft (except Engines or engines from time to time installed thereon).

 

“Airline Services Agreement”
means the Airline Services Agreement dated as of August 29, 2005 between
Sublessor and Sublessee, as modified, amended or supplemented from time to time
pursuant to the terms thereof.

 

“APU” has the
meaning specified in Exhibit D hereto.

 

“APU Manufacturer”
means Honeywell Corporation.

 

“Bankruptcy Code”
means the Bankruptcy Reform Act of 1978, as amended, or any subsequent
legislation that amends, supplements or supersedes such provisions.

 

“Base Rate”
means the rate of interest announced publicly by Citibank, N.A. in New York,
New York from time to time as its base rate.

 

“Basic Rent” means,
for the Term, the rent payable for the Aircraft pursuant to Section 3(b).

 

“Basic Shop Visit”
means, with respect to any Engine or the APU, any shop visit, as defined by the
Engine Manufacturer or the APU Manufacturer, as the case may be, that is based
on an approved program of condition monitoring and trend monitoring of
performance deterioration that results in an Engine or the APU, as the case may
be, being restored to full performance standard.

 

A1-5

 

“Business Day”
means any day other than a Saturday or Sunday or a day on which commercial
banks are required or authorized to close in the City of New York, New York;
Salt Lake City, Utah or Minneapolis, Minnesota.

 

“‘C’ Check” means a “C” Check, as
such term is defined in the Maintenance Program relating to the Aircraft that
meets the requirements of a “C” Check as defined in the Bombardier Inc.
Maintenance Requirement Manual.

 

“Certificate Holder” means
Certificate Holder as defined in the Trust Indenture.  “Certificated Air Carrier”
means a Citizen of the United States holding a carrier operating certificate
issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49,
United States Code, for aircraft capable of carrying ten or more individuals or
6,000 pounds or more of cargo or that otherwise is certified or registered to
the extent required to fall within the purview of 11 U.S.C. Section 1110
or any analogous successor provision of the Bankruptcy Code.

 

“Citizen of the United States”
has the meaning specified in Section 40102(a)(15) of Title 49 of the
United States Code or any similar legislation of the United States of America
enacted in substitution or replacement therefor.

 

“Code” means
the Internal Revenue Code of 1986, as amended.

 

“Commencement Date”
has the meaning specified in Sublease Supplement No. 1.

 

“Consent and Agreement”
has the meaning specified in the Head Lease.

 

“Default” means
any event which with the giving of notice or the lapse of time or both would
become an Event of Default.

 

“Delivery Date”
has the meaning specified in the Head Lease.

 

“Dollars” and “$” means the lawful currency of the United States of
America.

 

“Engine” means (i) each
of the two General Electric Model CF34-3B1 type engines listed by manufacturer’s
serial number in the initial Sublease Supplement, whether or not from time to
time thereafter installed on the Airframe or installed on any other airframe or
on any other aircraft; and (ii) any engine which may from time to time be
substituted, pursuant to the terms hereof, for any of such two engines,
together in each case with the applicable Aircraft Documentation and any and
all Parts normally incorporated or installed in or attached thereto including
any and all Parts removed therefrom so long as title thereto shall remain
vested in the Owner in accordance with the terms of Section 8 after
removal from such Engine; provided, however,
that at such time as an engine shall be deemed part of the property subleased
hereunder in substitution

 

A1-6

 

for an Engine pursuant to the applicable provisions
hereof, the replaced Engine shall cease to be an Engine hereunder.  The term “Engines”
means, as of any date of determination, all Engines then subleased hereunder.

 

“Engine Manufacturer” means
General Electric Aircraft Engines, a division of General Electric Corporation.

 

“Equity Tax Indemnitee” means any
Tax Indemnitee which is the Owner Participant, the Owner Trustee or the Trust
Estate, or a successor, assign or Affiliate thereof.

 

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.  Section references to ERISA are to
ERISA, as in effect at the date of the Participation Agreement and any
subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.

 

“Event of Default”
has the meaning specified in Section 14 hereof.

 

“Event of Loss”
with respect to the Aircraft, Airframe or any Engine means any of the following
events with respect to such property: (i) the loss of such property or of
the use thereof due to the destruction of or damage to such property which
renders repair uneconomic or which renders such property permanently unfit for
normal use by Sublessee for any reason whatsoever; (ii) any damage to such
property which results in an insurance settlement with respect to such property
on the basis of a total loss, or a constructive or compromised total loss; (iii) the
theft or disappearance of such property, or the confiscation, condemnation, or
seizure of, or requisition of title to, or use of, such property (other than a
requisition for use by the United States Government or any agency or
instrumentality of any thereof) which in the case of any event referred to in
this clause (iii) (other than a requisition of title) shall have resulted
in the loss of possession of such property by Sublessee for a period in excess
of 180 consecutive days or, in the case of a requisition of title, the
requisition of title shall not have been reversed within 90 days from the date
of such requisition of title; (iv) as a result of any law, rule,
regulation, order or other action by the Federal Aviation Administration, the
use of such property in the normal course of the business of air transportation
shall have been prohibited for a period of 180 consecutive days, unless
Sublessee, prior to the expiration of such 180 day period, shall have
undertaken and shall be diligently carrying forward all steps which are
necessary or desirable to permit the normal use of such property by Sublessee,
but in any event if such use shall have been prohibited for a period of two
consecutive years, provided that
no Event of Loss shall be deemed to have occurred if such prohibition has been
applicable to the entire U.S. registered fleet of Bombardier Inc. Canadair
Regional Jet Series [200][440] aircraft of Sublessee and Sublessee, prior
to the expiration of such two-year period, shall have conformed at least one
such aircraft in its fleet to the requirements of any such law, rule,
regulation, order or other action and commenced regular commercial use of the
same in such

 

A1-7

 

jurisdiction and shall be diligently carrying forward,
in a manner which does not discriminate against the Aircraft in so conforming
the Aircraft, all steps which are necessary or desirable to permit the normal
use of the Aircraft by Sublessee, provided, further, that, notwithstanding any of the foregoing, such
prohibition shall constitute an Event of Loss if such use shall have been
prohibited for a period of three consecutive years, if such use shall be
prohibited at the expiration of the Term; (v) any divestiture of title to
or interest in an Engine treated as an Event of Loss pursuant to Section 7(b) hereof.  An Event of Loss with respect to the Aircraft
shall be deemed to have occurred if an Event of Loss occurs with respect to the
Airframe.

 

“Expenses” has
the meaning specified in Section 29(c) hereof.

 

“Expiration Date”
means May 1, 2015, or such later date to which the effectiveness of the
Airline Services Agreement shall be extended in accordance with its terms, such
that this Sublease and the Airline Services Agreement shall be coterminous,
provided, however, that in no event shall the “Expiration Date” be a date later
than the date of expiration of the term of the Head Lease.

 

“FAR” means the regulations
promulgated under the Federal Aviation Act.

 

“Federal Aviation Act”
means that portion of the United States Code comprising those provisions
formerly referred to as the Federal Aviation Act of 1958, as amended, or any
subsequent legislation that amends, supplements or supersedes such provisions.

 

“Federal Aviation Administration”
and “FAA” mean the United States Federal
Aviation Administration and any agency or instrumentality of the United States
government succeeding to their functions.

 

“Flight Hour” means:  (i) with respect to the Airframe, each
hour or part thereof which elapses from the time the wheels of the Airframe
leave the ground on take-off and the time when the wheels of the Airframe touch
the ground on landing, and (ii) with respect to an Engine or other engine
or any Part, including the APU, each hour or part thereof which elapses from
the time the wheels of the airframe, whether or not the Airframe leased
hereunder, on which such Engine or other engine or Part is installed,
leave the ground on take-off and the time when the wheels of such airframe
touch the ground on landing.

 

“Guarantee” has
the meaning specified in the Head Lease.

 

“Guarantor” means Northwest
Airlines Corporation, a Delaware corporation.

 

“Head Lease”
means the Lease Agreement [NW 2005         ],
dated as of [        ] 2005, between
Head Lessor and Sublessor, as lessee thereunder, as the same may be modified,
amended or supplemented from time to time. 
The term

 

A1-8

 

“Head Lease” shall also include each Head Lease
Supplement entered into pursuant to the applicable terms of such Head Lease
Agreement.

 

“Head Lessor”
means the Owner Trustee designated in the Head Lease as the lessor thereunder.

 

“Head Lessor Liens”
means any Lien or disposition of title or interest arising as a result of (i) claims
against Head Lessor, Wells Fargo in its individual capacity, or the Owner
Participant not related to the transactions contemplated by the Operative
Documents, (ii) any act or omission of the Owner Participant, Head Lessor,
or Wells Fargo, in its individual capacity, which is not related to the
transactions contemplated by the Operative Documents or is in violation of any
of the terms of the Operative Documents, (iii) claims against the Owner
Participant, Head Lessor, or Wells Fargo, in its individual capacity, with
respect to Taxes or Expenses against which Sublessor is not required to
indemnify the Owner Participant, Head Lessor or Wells Fargo in its individual
capacity, pursuant to the Participation Agreement or the Tax Indemnity
Agreement or (iv) claims against Head Lessor or the Owner Participant
arising out of any transfer by Head Lessor or the Owner Participant of all or
any portion of the respective interests of Head Lessor or the Owner Participant
in the Aircraft, the Trust Estate or the Operative Documents other than the
transfer of possession of the Aircraft by Head Lessor pursuant to the Head
Lease, the transfer pursuant to the Trust Indenture or a transfer of the
Aircraft pursuant to Section 9, 10 or 19 of the Head Lease or pursuant to
the exercise of remedies set forth in Section 15 of the Head Lease; provided, however, that any Lien which is attributable
solely to Wells Fargo or the Owner Participant and would otherwise constitute a
Head Lessor Lien shall not constitute a Head Lessor Lien so long as (1) the
existence of such Lien poses no material risk of the sale, forfeiture or loss
of the Aircraft, (2) the existence of such Lien does not interfere in any
way with the use, possession or operation of the Aircraft by Sublessee, (3) Wells
Fargo or the Owner Participant, as appropriate, is diligently contesting such
Lien, and (4) the existence of such Lien does not pose a material threat
of interference with the payment of Rent in favor of Wells Fargo or the Owner
Participant, as appropriate).

 

“Indemnitee”
means (i) Sublessor, (ii) the Owner Trustee, in its individual
capacity and as trustee under the Trust Agreement, (iii) the Owner
Participant, (iv) the Trust Estate, (v) each Affiliate of the Persons
described in clauses (i) through (iv), inclusive, and (vi) the
respective directors, officers, employees, agents and servants, successors and
permitted assigns of each of the Persons described in clauses (i) through
(iv), inclusive.

 

“Landing Gear”
means the landing gear installed on the Airframe on the Delivery Date (or such
landing gear as may be substituted therefor after the Delivery Date in
accordance with this Lease.

 

“Landing Gear Overhaul”
means any full overhaul of any Landing Gear to full manufacturer specification
and operating condition.

 

A1-9

 

“Lien” means
any mortgage, pledge, lien, charge, claim, encumbrance, lease, sublease,
sub-sublease or security interest.

 

“Life Limited Parts” means those
parts which have a specific hour, cycle and/or calendar life limit as specified
by the Manufacturer.

 

“Loss Payment Date”
has the meaning specified in Section 10(a) hereof.

 

“Maintenance Program”
has the meaning specified in Exhibit D hereto.

 

“Major Modifications”
include, but shall not be limited to (i) changes that alter the
fundamental nature of the Aircraft as a passenger and cargo carrying aircraft,
or cabin modifications that materially change the interior layout of the
Aircraft, (ii) changes to the Aircraft structure or performance of the
Aircraft, (iii) changes that adversely affect interchangeability or
replaceability of Parts, (iv) substitution of different types of equipment
or accessories which are not equivalent in cost, value and/or operational
capability to the equipment or accessories being replaced, (v) changes
that invalidate or impair any warranty with respect to the Aircraft or any
Engine or Part, (vi) changes that adversely affect the eligibility of the
Aircraft to obtain an airworthiness certificate from the FAA or (vii) any
changes that result in a variation from the original type certificate for the
Aircraft, but shall exclude changes pursuant to airworthiness directives.

 

“Manufacturer”
means with respect to the Airframe, and where the context permits, the
Aircraft, Bombardier Inc., a Canadian Corporation, and its successors and
assigns and, with respect to the Engines, General Electric Company, a New York
corporation, and its successors and assigns.

 

“Minimum Liability Amount”
has the meaning specified in Exhibit E hereto.

 

“Operative Documents”
and “Operative Document” means each of the
Participation Agreement, the Tax Indemnity Agreement, the Trust Agreement, the
Head Lease, this Sublease, the Sublease Supplement covering the Aircraft, the
Acceptance Certificate, the Trust Supplement covering the Aircraft, the
Purchase Agreement (insofar as it relates to the Aircraft), the Residual
Agreement, the Guarantee, the Purchase Agreement Assignment, the Consent and
Agreement and the Letter Agreement dated as of [          ],
2005 between Sublessor and Owner Trustee delivered pursuant to Section 4(a)(v)(12)
of the Participation Agreement.

 

“Owner” means (i) Head
Lessor (or any permitted assignee or successor thereof) for so long as the Head
Lease remains in effect and title to the Aircraft remains vested in Head Lessor
pursuant to the terms thereof and (ii) Sublessor (or any permitted
assignee or successor thereof) for so long as this Sublease remains in effect
and title to the Aircraft remains vested in Sublessor pursuant to the terms
hereof.

 

A1-10

 

“Owner Participant”
means the entity executing the Participation Agreement as the Owner
Participant, and thereafter any Person to which such entity transfers all of
its right, title and interest in and to the Trust Agreement, the Trust Estate
and the Participation Agreement, to the extent permitted by Section 8.01
of the Trust Agreement and Section 8 of the Participation Agreement.

 

“Owner Trustee” means
Wells Fargo Bank Northwest, National Association, a national banking
association, and any entity appointed as successor Owner Trustee pursuant to Section 9.01
of the Trust Agreement, and references to a predecessor Owner Trustee in its
individual capacity by name in the Operative Documents shall include such
successor Owner Trustee in its individual capacity from and after such
succession.

 

“Participants”
means and includes the Owner Participant.

 

“Participation Agreement”
means that certain Participation Agreement [NW 2005         ],
dated as of [        ], 2005, among
Sublessor, the Guarantor, the Owner Participant and Owner Trustee, as such
Participation Agreement may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.

 

“Parts” means
all appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment of whatever nature (other than (a) complete Engines or
engines and (b) cargo containers) which may from time to time be
incorporated or installed in or attached to the Airframe or any Engine or so
long as title thereto shall remain vested in the Owner in accordance with Section 8
after removal therefrom.

 

“Past Due Rate”
means a rate per annum equal to the greater of (a) 5% over the Base Rate
and (b) 15%.

 

“PBH Agreement” means a maintenance agreement which (i) provides
shop repair/overhaul of Engines or Parts (including APU and Landing Gear) on a
continuous basis at an agreed upon Flight Hour or cycle based rate, (ii) provides
unrestricted assignment rights to Sublessor and Sublessor’s future operators of
the Aircraft, and (iii) has been approved in writing by Sublessor
(including but not limited to specific Sublessor approval of the maintenance
provider, rates, payment terms, scope, term, maintenance standard, assignment
rights and financial adjustments that are made when an Engine or Part exits
such program at termination or expiration of the PBH Agreement relative to such
Engine or Part).

 

“Permitted Lien”
means any Lien referred to in clauses (i) through (iii) of Section 6
hereof.

 

“Person” means
any individual, corporation, partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.

 

A1-11

 

“Purchase Agreement” means
that certain Purchase Agreement No. PA-0498, dated July 6, 2001,
between the Manufacturer and Sublessor relating to the purchase by Sublessor of
the Aircraft, as originally executed or as modified, amended or supplemented in
accordance with the terms thereof, but only insofar as the foregoing relates to
the Aircraft.

 

“Purchase Agreement Assignment”
means that certain Purchase Agreement Assignment [NW 2005         ],
dated as of [        ], 2005, between
Sublessor and Head Lessor, as the same may be amended, supplemented or modified
from time to time, with a form of Consent and Agreement to be executed by the
Manufacturer attached thereto.

 

“Rent” means
Basic Rent and Supplemental Rent, collectively.

 

“Stipulated Loss Value”
with respect to the Aircraft, as of any date through and including the
Expiration Date, means, the amount specified in Exhibit C hereto
opposite the Stipulated Loss Value Date with respect to which the amount is
determined.

 

“Stipulated Loss Value Date”
means the 1st calendar day of each calendar month during the Term.

 

“Structural Inspection”
means a Structural Inspection as such term is defined in the Maintenance
Program that meets the requirements of a Structural Inspection as defined in
the Bombardier Inc. Maintenance Requirement Manual.

 

“Sublease Agreement”, “this
Sublease Agreement”, “this Sublease”, “this Agreement”, “herein”, “hereof”, “hereunder”,
“hereby” or other like words mean this Sublease Agreement [NW
2005         ], as originally executed
or as modified, amended or supplemented pursuant to the applicable provisions
hereof, including, without limitation, supplementation hereof by one or more
Sublease Supplements entered into pursuant to the applicable provisions hereof.

 

“Sublease Period” means each of
the consecutive monthly periods throughout the Term beginning on a Sublease
Period Date, the first such period commencing on the first Sublease Period Date
after the Commencement Date.

 

“Sublease Period Date”
means the 1st calendar day of each month during the Term.

 

“Sublease Supplement”
means a Sublease Supplement, substantially in the form of Exhibit A
hereto, to be entered into between Sublessor and Sublessee on the Commencement
Date for the purpose of subleasing the Aircraft under and pursuant to the terms
of this Sublease Agreement, and any subsequent Sublease Supplement entered into
in accordance with the terms hereof.

 

“Sublessee”
means Mesaba Aviation, Inc. a Minnesota corporation, and its successors
and permitted assigns, as sublessee under the Sublease.

 

A1-12

 

“Sublessee Documents”
means the Sublease, the Sublease Supplement covering the Aircraft, the
acceptance certificate covering the Aircraft in the form agreed to by Sublessor
and Sublessee (herein called the “Sublease Acceptance
Certificate”) and the Airline Services Agreement.

 

“Sublessor Liens” means
any Lien affecting or disposition of title or interest affecting or in respect
of the Trust Estate, the Aircraft, the Airframe or any Engine arising as a
result of (i) claims against or affecting Sublessor not arising from the
transactions contemplated by the Participation Agreement, Head Lease and this
Sublease, (ii) any act or omission of Sublessor not related to the transactions
contemplated by the Participation Agreement, Head Lease and this Sublease, (iii) Taxes
imposed against Sublessor which Sublessee has not agreed to indemnify against
pursuant to this Sublease, (iv) Taxes imposed against Head Lessor or the
Owner Participant which Sublessor has not agreed to indemnify against pursuant
to the Participation Agreement or (v) claims against Sublessor arising out
of the voluntary transfer of all or any portion of Sublessor’s interest in the
Aircraft or in any of the Sublessee Documents other than a transfer pursuant to
Sections 5, 8, 10 or 15 hereof, provided, however,
that any Lien which is attributable solely to Sublessor and would otherwise
constitute a Sublessor Lien hereunder shall not constitute a Sublessor Lien
hereunder so long as (1) the existence of such Lien poses no material risk
of the sale, forfeiture or loss of the Aircraft, (2) the existence of such
Lien does not interfere in any way with the use, possession or operation of the
Aircraft by Sublessee, (3) the existence of such Lien does not affect the
priority of perfection of, or otherwise jeopardize, the Lien of the Trust
Indenture, and (4) Sublessor is diligently contesting such Lien.

 

“Supplemental Rent”
means, without duplication, all amounts, liabilities, indemnities and
obligations (other than Basic Rent) which Sublessee assumes or agrees to pay
under any Sublessee Document to or on behalf of Sublessor or any other Person
hereunder or under any other Sublessee Document.  The parties acknowledge that Supplemental
Rent is a general category and, accordingly, agree that any provision of any
Sublessee Document which calls for the payment of Supplemental Rent and also
calls for the payment of specific items which are includable in Supplemental
Rent is not to be interpreted as requiring any double payment.

 

“Tax Indemnitee”
means (i) Sublessor, the Owner Participant, the Owner Trustee, in its
individual capacity and as trustee under the Trust Agreement and the Trust
Estate, and (ii) the respective directors, officers, employees, agents and
servants of each Person described in clause (i), and (iii) the respective
Affiliates, successors and permitted assigns of each of the entities described
in the preceding clause (i).

 

“Tax Indemnity Agreement”
means that certain Tax Indemnity Agreement [NW 2005         ],
dated as of [        ], 2005, between
the Owner Participant and Sublessor, as originally executed or as modified,
amended or supplemented pursuant to the applicable provisions thereof.

 

A1-13

 

“Taxes” means
any and all fees (including, without limitation, license, recording,
documentation and registration fees), taxes (including, without limitation,
income, gross receipts, sales, rental, use, turnover, value added, property
(tangible and intangible), excise and stamp taxes), license, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon (each,
individually a “Tax”).

 

“Term” means
the term for which the Aircraft is subleased hereunder pursuant to Section 3(a) hereof
commencing on the Commencement Date and ending on the Expiration Date, or such
earlier date as this Sublease may be terminated in accordance with the
provisions hereof.

 

“Trust Agreement”
means that certain Trust Agreement [NW 2005         ],
dated as of [        ], 2005, between
the Owner Participant and Wells Fargo Bank Northwest, National Association, in
its individual capacity, as originally executed or as modified, amended or
supplemented pursuant to the applicable provisions thereof, including, without
limitation, supplementation thereof by one or more Trust Supplements entered
into pursuant to the applicable provisions thereof.

 

“Trust Estate”
means the Trust Estate as that term is defined in the Trust Agreement.

 

“Wells Fargo” means Wells Fargo
Bank Northwest, National Association, a national banking association.

 

SECTION 2.  Acceptance and Sublease.  (a) Generally.  Sublessor hereby agrees to sublease to
Sublessee hereunder, and Sublessee hereby agrees to sublease from Sublessor
hereunder, the Aircraft as evidenced by the execution by Sublessor and
Sublessee of a Sublease Supplement leasing the Aircraft hereunder.  Sublessee hereby agrees that such acceptance
of the Aircraft by Sublessor shall, without further act, irrevocably constitute
acceptance by Sublessee of such Aircraft for all purposes of this
Sublease.  As provided in Section 25
hereof, the rights of Sublessee hereunder are subject and subordinate to all
the terms of the Head Lease, including any amendments or restatements thereto
as may occur from time to time, and the parties intend this Sublease to
constitute a true lease.

 

(b) Airline Services Agreement. 
Sublessee acknowledges that Sublessor is providing a valuable financial
accommodation to Sublessee by entering into the Operative Documents to which it
is a party and this Sublease to allow Sublessee to obtain the use of the
Aircraft pursuant to the terms of this Sublease.  As a condition to their rights hereunder,
Sublessee and Sublessor hereby confirm and ratify the Airline Services
Agreement, which is incorporated herein by reference for all purposes, and
agree, as a material term of this Sublease and as a material inducement to
Sublessor to enter into this Sublease, to fully perform all of their respective
obligations under the Airline Services Agreement as a part of this Sublease
Agreement as though the same were set forth herein.

 

SECTION 3.  Term and Rent. (a) Term.  The Term shall commence on the Commencement
Date and end on the Expiration Date or such earlier date as this Sublease may
be terminated in accordance with the provisions hereof.

 

A1-14

 

(b) Basic Rent.  Sublessee shall pay Basic Rent with respect
to each Sublease Period during the Term on each Sublease
Period Date during the Term, in consecutive monthly installments in the amounts
as provided in the next sentence.  Each
such installment of Basic Rent shall be payable in advance,  shall be equal to the amount specified for
each Sublease Period Date specified in Exhibit B hereto, and shall
be allocated to the Sublease Period commencing on such Sublease Period
Date.  In addition, Sublessee shall pay
Basic Rent on the Commencement Date in the amount specified in Exhibit B
hereto, which shall be allocated to the period from the Commencement Date to
the day prior to the first Sublease Period Date.  If Sublessee shall for any reason whatsoever
fail to return the Aircraft on the Expiration Date in the condition specified
herein, or return of the Aircraft is not accepted by Sublessor because of
Sublessee’s failure to meet the requirements of this Sublease, the obligations
of Sublessee provided in this Sublease and in each other Operative Document to
which Sublessee is a party, including the obligation to pay Basic Rent, which,
after the Expiration Date, shall be on a per diem basis based on a pro rata
application of ***% of the Basic
Rent due during the last Sublease Period of the Term, shall continue in effect
with respect to the Aircraft, and the Term shall be deemed to be extended until
return of the Aircraft to Sublessor in accordance with the requirements of this
Sublease; provided that nothing in this Section shall
be construed as permitting or authorizing Sublessee to fail to meet, or
consenting to or waiving any failure by Sublessee to perform, Sublessee’s
obligation to return the Aircraft in accordance with the requirements of this
Sublease and Sublessor shall be entitled to all of the benefits of, and all of
its rights and remedies set forth in, Sections 14 and 15 hereof.

 

(c) [Intentionally
Omitted]

 

(d) Supplemental Rent.  Sublessee shall pay (or cause to be paid)
promptly to Sublessor, or to whomsoever shall be entitled thereto, any and all
Supplemental Rent constituting Stipulated Loss Value as the same shall become
due and owing and all other amounts of Supplemental Rent within five days after
demand or within such other relevant period as may be provided in any Sublessee
Document, and in the event of any failure on the part of Sublessee to pay any
Supplemental Rent when due, Sublessor shall have all rights, powers and
remedies provided for herein or in any other Sublessee Document or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Sublessee also
will pay to Sublessor, or to whomsoever shall be entitled thereto, on demand,
as Supplemental Rent, to the extent permitted by applicable law, interest at
the Past Due Rate on any part of any installment of Basic Rent not paid when
due for any period for which the same shall be overdue and on any payment of
Supplemental Rent not paid when due for the period until the same shall be
paid.

 

(e) Payments in General.  All payments of Rent shall be made
directly by Sublessee by wire transfer of immediately available funds prior to
10:30 A.M., New York time, on the date of payment, to Sublessor at its
account at USBank, Minneapolis, ABA No. 091000022, for the account of
Northwest Airlines, Inc., Account No. *** (or such other account of Sublessor in the continental United
States as Sublessor shall direct in a notice to Sublessee at least 10 Business
Days prior to the date such payment of Rent is due).  All payments of Supplemental Rent shall be
made in Dollars in immediately available funds prior to 10:30 A.M., New
York time, on the due date thereof at such office of such other financial
institution located

 

A1-15

 

in the continental United States as the party
entitled thereto may so direct at least ten (10) Business Days prior to
the due date thereof.

 

Notwithstanding anything to the contrary contained
herein, if any date on which a payment of Rent becomes due and payable is not a
Business Day, then such payment shall not be made on such scheduled date but
shall be made on the next succeeding Business Day with the same force and
effect as if made on such scheduled date and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.

 

SECTION 4.  Sublessor’s Representations and Warranties.  SUBLESSOR SUBLEASES AND SUBLESSEE TAKES THE
AIRCRAFT AND EACH PART THEREOF “AS-IS,” “WHERE-IS.”  NONE OF HEAD LESSOR, SUBLESSOR, NOR ANY PARTICIPANT
MAKES, HAS MADE OR SHALL BE DEEMED TO HAVE MADE, AND EACH HEREBY EXPRESSLY
DISCLAIMS AND WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OR A
PARTICULAR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF
ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR ANY PART THEREOF,
except that Sublessor (i) represents and warrants that on the Commencement
Date the Aircraft shall be free of Sublessor Liens (including for this purpose
Liens which would be Sublessor Liens but for the proviso in the definition of
Sublessor Liens) and (ii) agrees that it will not directly or indirectly
create, incur, assume or suffer to exist any Sublessor Lien attributable to it
on or with respect to the Airframe or any Engine, and it agrees that it will
promptly, at its own expense, take such action as may be necessary duly to
discharge such Sublessor Lien.  None of
the provisions of this Sublease shall be deemed to amend, modify or otherwise
affect the representations, warranties or other obligations (express or
implied) of the Manufacturer, any subcontractor or supplier of the Manufacturer
with respect to the Airframe, the Engines or any Parts, or to release the
Manufacturer, or any such subcontractor or supplier, from any such
representation, warranty or obligation, or to diminish any right that Sublessee
may have with respect to the Airframe, Engines or Parts against the
Manufacturer or any such subcontractor or supplier under the Purchase Agreement
or otherwise.

 

SECTION 5.  Return of the Aircraft.  (a)  Condition Upon Return. Upon
the termination of this Sublease at the end of the Term or pursuant to Section 15,
Sublessee, at its own expense, will return the Aircraft to or at the direction
of Sublessor at either Minneapolis/St. Paul International Airport, St. Paul,
Minnesota, or Wayne County Metropolitan Airport, Detroit, Michigan, as
designated by Sublessor or at such other location in the 48 contiguous states
of the United States as may be specified by Sublessor.  At the time of such return, the Aircraft will
be registered under the laws of the United States in the name of the Owner or
its designee; the Airframe will be fully equipped with the Engines (or other
General Electric Model CF34-3B1 type engines satisfactory to Sublessor) duly
installed thereon and properly functioning. 
Also, at the time of such return, such Airframe and Engines or engines (i) shall
be certified as an airworthy aircraft by the Federal Aviation Administration, (ii) shall
be free and clear of all Liens

 

A1-16

 

(other than Sublessor
Liens (including for this purpose Liens which would be Sublessor Liens but for
the proviso in the definition of Sublessor Liens), Head Lessor Liens (including
for this purpose Liens which would be Head Lessor Liens but for the proviso in
the definition of Head Lessor Liens) and rights of third parties under pooling,
interchange, overhaul, repair or other similar agreements or arrangements, (iii) shall
be in as good an operating condition as when delivered by the Manufacturer to
Sublessor, ordinary wear and tear excepted, or, in the case of any such engines
owned by Sublessee, shall have been approved for substitution by Sublessor, and
(iv) shall be in compliance with the return conditions set forth in Exhibit D.

 

During the last twelve (12) months of the Term, with
reasonable notice, Sublessee will cooperate in all reasonable respects with the
efforts of Sublessor or Head Lessor to sublease the Aircraft, including,
without limitation, permitting prospective sublessees to inspect fully the
Aircraft and the records relating thereto, provided, that
such cooperation shall not interfere with the operation or maintenance of the
Aircraft by Sublessee.  In addition,
Sublessee shall notify Sublessor in writing of its plans for meeting the return
conditions contained herein prior to commencing the C-Check immediately prior to
the C-Check required to be provided by Sublessee upon the return of the
Aircraft, and again approximately six months prior to the Expiration Date, and
Sublessee shall notify Sublessor in writing at any time within the last twelve
(12) months of the Term prior to initiating any significant maintenance or
repairs designed to cause the Aircraft to meet the return conditions contained
herein.  Sublessor shall have the right
to approve or reject Sublessee’s proposed plans for meeting the return
conditions contained herein, with such approval not to be unreasonably
withheld.

 

(b) Return of the
Engines.  In the event that
any engine not owned by Sublessor shall be delivered with the returned Airframe
as set forth in paragraph (a) of this Section 5, Sublessee, concurrently
with such delivery, will, at no cost to Sublessor or Head Lessor, furnish, or
cause to be furnished, to or at the direction of the Owner a full warranty (as
to title) bill of sale including as to the absence of Liens other than
Sublessor Liens (including for this purpose Liens which would be Sublessor
Liens but for the proviso in the definition of Sublessor Liens), and Head
Lessor Liens (including for this purpose Liens which would be Head Lessor Liens
but for the proviso in the definition of Head Lessor Liens) with respect to
each such engine, in form and substance satisfactory to the Owner (together
with an opinion of counsel to the effect that such full warranty bill of sale
has been duly authorized and delivered and is enforceable in accordance with
its terms and that such engines are free and clear of Liens other than
Sublessor Liens (including for this purpose Liens which would be Sublessor
Liens but for the proviso in the definition of Sublessor Liens), and Head
Lessor Liens (including for this purpose Liens which would be Head Lessor Liens
but for the proviso in the definition of Head Lessor Liens)), against receipt
from the Owner of a bill of sale or other instrument evidencing the transfer,
without recourse or warranty (except, if the Owner is Head Lessor, as to the
absence of Head Lessor Liens, including for this purpose Liens which would be
Head Lessor Liens but for the proviso in the definition of Head Lessor Liens,
and if the Owner is Sublessor, as to the absence of Sublessor Liens, including
for this purpose Liens which would be Sublessor Liens but for the proviso in
the definition of Sublessor Liens) by the Owner, to Sublessee or its designee
of all of the Owner’s right, title and interest in and to any Engine
constituting part of the Aircraft but not installed on the Airframe at the time
of the return of the Airframe.

 

A1-17

 

(c) Aircraft Documentation.  Upon
the return of the Airframe upon any termination of this Sublease in accordance
with paragraph (a) of this Section 5, Sublessee shall deliver or
cause to be delivered to Sublessor or its designee, in English, current and
complete Aircraft Documentation.

 

(d) Storage Upon Return.  If, at least ten (10) days
prior to termination of this Sublease at the end of the Term, Sublessee
receives from Sublessor a written request for storage of the Aircraft upon its
return hereunder, Sublessee will provide Sublessor, or cause Sublessor to be
provided, with free parking facilities for, and unrestricted access to, the
Aircraft (maintenance costs and other out-of-pocket costs other than parking
fees to be for the account of Sublessor) for a period not exceeding sixty (60)
days commencing on the date of such termination, at a location in the
continental United States selected by Sublessee used as a location for the
parking or storage of aircraft. 
Sublessee will maintain insurance for the Aircraft during such period
not exceeding sixty (60) days and be reimbursed by Sublessor or its designee
for the premiums thereon.

 

(e) PBH Agreements.
If at return of the Aircraft, an Engine or Part (including
Landing Gear and APU) is being maintained under a PBH Agreement, Sublessee
shall not be required to satisfy minimum maintenance time remaining
requirements specified in Exhibit D that are directly and fully covered by
such PBH Agreement.

 

SECTION 6.  Liens.  Sublessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with respect to the
Aircraft, title thereto or any interest therein or in this Sublease, except (i) the
respective rights of Sublessor and Sublessee as herein provided, the respective
rights of Sublessor and Head Lessor as provided in the Head Lease, the rights
of Head Lessor as owner of the Aircraft, the Lien of the Trust Indenture, and
any other rights existing pursuant to the Operative Documents, (ii) the
rights of others under agreements or arrangements to the extent permitted by
the terms of Sections 7(b) and 8(b) hereof, (iii) Head Lessor
Liens (including for this purpose Liens which would be Head Lessor Liens but
for the proviso in the definition of Head Lessor Liens) and Sublessor Liens
(including for this purpose Liens which would be Sublessor Liens but for the
proviso in the definition of Sublessor Liens) (iv) Liens for taxes of
Sublessee either not yet due or being contested in good faith by appropriate
proceedings so long as such proceedings do not involve any risk of the sale,
forfeiture or loss of the Airframe or any Engine or any interest therein or, so
long as any Secured Certificates shall be outstanding, adversely affect the
Lien of the Trust Indenture, (v) materialmen’s, mechanics’, workmen’s,
repairmen’s, employees’ or other like Liens arising in the ordinary course of
Sublessee’s business (including those arising under maintenance agreements
entered into in the ordinary course of business) securing obligations that are
not overdue for a period of more than thirty (30) days or are being contested
in good faith by appropriate proceedings so long as such proceedings do not
involve any risk of the sale, forfeiture or loss of the Airframe or any Engine
or any interest therein or, so long as any Secured Certificates shall be
outstanding, adversely affect the Lien of the Trust Indenture, (vi) Liens
arising out of any judgment or award against Sublessee, unless the judgment
secured shall not, within thirty (30) days after the entry thereof, have been
discharged, vacated, reversed or execution thereof stayed pending appeal or
shall not have been discharged, vacated or reversed within thirty (30) days
after the expiration of such stay, and (vii) any other Lien with respect
to which Sublessee shall have provided a bond, cash collateral or other
security adequate in the sole discretion of Sublessor.  Sublessee will promptly, at its own expense,
take (or cause to be taken)

 

A1-18

 

such actions as may be
necessary duly to discharge any such Lien not excepted above if the same shall
arise at any time.

 

SECTION 7.  Registration, Maintenance and Operation;
Possession; Insignia. 
(a)(I)  Registration and
Maintenance.  Sublessee, at
its own cost and expense, shall: (i) forthwith upon the delivery thereof
hereunder, cause the Aircraft to be duly registered in the name of the Owner
and to remain duly registered in the name of Owner under the Federal Aviation
Act, provided that Sublessor shall execute
and deliver all such documents as Sublessee may reasonably request for the
purpose of effecting and continuing such registration, and shall not register
the Aircraft or permit the Aircraft to be registered under any laws other than
the Federal Aviation Act at any time; (ii) continuously operate, maintain,
service, repair and overhaul (or cause to be maintained, serviced, repaired and
overhauled) the Aircraft (including, without limitation, the Airframe, Engines
and Parts) in compliance with the Maintenance Program and in compliance with
all FAA requirements for FAR Part 121 operation and the Manufacturers’
recommended maintenance program so as to keep the Aircraft in as good an
operating condition as when delivered by the Manufacturer to Sublessor,
ordinary wear and tear excepted, so as to maintain in effect all material
Manufacturers’ warranties and guaranties and as may be necessary to enable the
airworthiness certification for the Aircraft to be maintained in good standing
at all times under the Federal Aviation Act, except when all Bombardier Inc.
Canadair Regional Jet Model Series [200][440] aircraft powered by engines
of the same type as those with which the Airframe shall be equipped at the time
of such grounding and registered in the United States have been grounded by the
FAA, and utilizing the same manner and standard of maintenance, service, repair
and overhaul used by Sublessee with respect to similar aircraft operated by
Sublessee in similar circumstances and without in any case discriminating
against the Aircraft by reason of its leased status; provided,
however, that in all circumstances the Aircraft shall be maintained
by Sublessee in accordance with maintenance standards required by the FAA for
FAR Part 121 operation; (iii) maintain or cause to be maintained in
English all Aircraft Documentation and all other records, logs and other
materials maintained in respect of the Aircraft; and (iv) promptly furnish
or cause to be furnished to Sublessor, Head Lessor and the Owner Participant
such information as may be required to enable Sublessor, Head Lessor or the
Owner Participant to monitor the maintenance status and condition of the
Aircraft and to file any reports required to be filed by Sublessor, Head Lessor
or the Owner Participant with any governmental authority because of Sublessor’s
or the Owner Participant’s interest in or Head Lessor’s ownership of the
Aircraft. (II) Operation.  Sublessee will continuously operate the
Aircraft in accordance with its FAA approved flight manual which shall comply
with all Manufacturer recommendations and requirements for the Aircraft and
Engine type.  Sublessee will not
maintain, use, service, repair, overhaul or operate the Aircraft in violation
of any law or any rule, regulation, order or certificate of any government or
governmental authority (domestic or foreign) having jurisdiction, or in
violation of any airworthiness certificate, license or registration relating to
the Aircraft issued by any such authority, except to the extent Sublessee is
contesting in good faith the validity or application of any such law, rule,
regulation or order in any reasonable manner which does not adversely affect
Sublessor, Head Lessor or the Owner Participant or their respective right,
title or interest in the Aircraft and does not involve any risk of sale,
forfeiture or loss of the Aircraft or any risk of civil liability or criminal
liability being imposed on Sublessor, Head Lessor or the Owner
Participant.  Sublessee will not operate
the Aircraft (a) in any area excluded from coverage by any insurance
required by the terms of Section 11; provided, however,
that the failure of Sublessee to comply

 

A1-19

 

with the provisions of
this clause (a) shall not give rise to an Event of Default hereunder where
such failure is attributable to causes beyond the reasonable control of
Sublessee or to Sublessee’s response to extraordinary circumstances involving
an isolated occurrence or isolated series of incidents not in the ordinary
course of the regular operations of Sublessee and in each such case Sublessee
is taking all reasonable steps to remedy such failure as soon as is reasonably
practicable or (b) other than in operations in accordance with the Airline
Services Agreement.  Sublessee further
agrees not to operate the Aircraft or any Engine outside the United States in
any taxable year in a manner that would cause more than 20% of the Basic Rent
payable under the Sublease to be treated as derived from sources outside the
United States.

 

(b) Possession.  Sublessee
will not, without the prior written consent of Sublessor, in any manner
deliver, transfer or relinquish possession of the Airframe or any Engine or
install or permit any Engine to be installed on any airframe other than the
Airframe or enter into any wet lease; provided that,
so long as no Default or Event of Default shall have occurred and be continuing
at the time of such delivery, transfer or relinquishment of possession or
installation, and so long as Sublessee shall comply with the provisions of
Sections 7(a) and 11 hereof, Sublessee may, without the prior written
consent of Sublessor:

 

(i)                                     deliver possession
of the Airframe or any Engine to the manufacturer thereof (or for delivery
thereto) or to any FAA approved organization (or for delivery thereto) for
testing, service, repair, maintenance or overhaul work on the Airframe or
Engine or any part of any thereof or for alterations or modifications in or
additions to such Airframe or Engine to the extent required or permitted by the
terms of Section 8(c) hereof; or

 

(ii)                                  install an Engine on
an airframe leased to Sublessee by Sublessor or any of its Affiliates, provided that (x) such airframe is free and clear of all
Liens, except the rights of the parties to the lease covering such airframe, or
their assignees, and (y) such lease effectively provides that such Engine shall
not become subject to the lien of such lease notwithstanding the installation
thereof on such airframe; or

 

(ii)                                  to the extent
permitted by Section 8(b) hereof, subject any appliances, Parts or
other equipment owned by Sublessor and removed from the Airframe or any Engine
to any pooling arrangement referred to in Section 8(b) hereof.

 

The rights of any transferee who receives possession
by reason of a transfer permitted by this paragraph (b) shall be
effectively subject and subordinate to all the terms of this Sublease and the
Head Lease, including, without limitation, the covenants contained in Section 7(a) hereof
and Sublessor’s rights to repossession pursuant to Section 15 hereof, and
Sublessee shall remain primarily liable hereunder for the performance of all of
the terms of this Sublease to the same extent as if such transfer had not
occurred.  No pooling agreement or other
relinquishment of possession of the Airframe or any Engine shall in any way
discharge or diminish any of Sublessee’s obligations to Sublessor hereunder or
constitute a waiver of Sublessor’s rights or remedies hereunder.  Notwithstanding anything to the contrary
contained herein, Sublessee under any and all circumstances may not sublease or
sub-sublease, and is

 

A1-20

 

prohibited from entering
into any sublease or sub-sublease with respect to, the Aircraft, the Airframe
or any Engine.  Sublessor agrees, subject
to the rights of Head Lessor under the Head Lease, for the benefit of Sublessee
and for the benefit of any mortgagee or other holder of a security interest in
any engine (other than an Engine) owned by Sublessee, any lessor of any engine
(other than an Engine) leased to Sublessee and any conditional vendor of any
engine (other than an Engine) purchased by Sublessee subject to a conditional
sale agreement or any other security agreement, that no interest shall be
created hereunder in any engine so owned, leased or purchased and that none of
Sublessor, its successors or assigns will acquire or claim, as against
Sublessee or any such mortgagee, lessor or conditional vendor or other holder
of a security interest or any successor or assignee of any thereof, any right,
title or interest in such engine as the result of such engine being installed
on the Airframe; provided, however, that such
agreement of Sublessor shall not be for the benefit of any lessor or secured
party of any airframe (other than the Airframe) leased to Sublessee or
purchased by Sublessee subject to a conditional sale or other security
agreement or for the benefit of any mortgagee of or any other holder of a
security interest in an airframe owned by Sublessee, unless such lessor,
conditional vendor, other secured party or mortgagee has expressly agreed
(which agreement may be contained in such lease, conditional sale or other
security agreement or mortgage) that neither it nor its successors or assigns
will acquire, as against Sublessor, any right, title or interest in an Engine
as a result of such Engine being installed on such airframe.

 

(c) Insignia.  On or prior to the Commencement Date, or as
soon as practicable thereafter (but in no event later than ten (10) days
thereafter), Sublessee agrees to affix and maintain (or cause to be affixed and
maintained), at its expense, in the cockpit of the Airframe adjacent to the
airworthiness certificate therein and on each Engine a nameplate bearing the
inscription:

 

Leased from

Wells Fargo Bank Northwest, National Association, 

as Owner Trustee, 

Lessor

Subleased From

Northwest Airlines Inc.,

Sublessor

 

and, for so long as the Airframe and each Engine shall be subject to
the Lien of the Trust Indenture, bearing the following additional inscription:

 

(such nameplate to be replaced, if necessary, with a
nameplate reflecting the name of any Head Lessor or successor Sublessor, in
each case as permitted under the Operative Documents and this Sublease).  Except as above provided, Sublessee will not
allow the name of any Person to be placed on the Airframe or on any Engine as a
designation that might be interpreted as a claim of

 

A1-21

 

ownership; provided that
nothing contained in this paragraph shall prohibit Sublessee from placing its
customary colors and insignia on the Airframe or any Engine.

 

SECTION 8.  Replacement and Pooling of Parts;
Alterations, Modifications and Additions.   (a)  Replacement of Parts. 
Sublessee, at its own cost and expense, will promptly replace or cause
to be replaced all Parts which may from time to time become worn out, lost,
stolen, destroyed, seized, confiscated, damaged beyond repair or permanently
rendered unfit for use for any reason whatsoever, except as otherwise provided
in paragraph (c) of this Section 8 or if the Airframe or an Engine to
which a Part relates has suffered an Event of Loss.  In addition, Sublessee may, at its own cost
and expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing, any Parts, whether or not worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use, provided that Sublessee, except
as otherwise provided in paragraph (c) of this Section 8, will, at
its own cost and expense, promptly replace such Parts.  All replacement Parts shall be free and clear
of all Liens (except for Permitted Liens and pooling arrangements to the extent
permitted by paragraph (b) of this Section 8 and except in the case
of replacement property temporarily installed on an emergency basis) and shall
be serviceable in accordance with the Maintenance Program and FAA requirements
for FAR Part 121 operation and shall be in as good operating condition as,
and shall have a maintenance status, modification status, value and utility at
least equal to, the Parts replaced assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof.  Except as otherwise provided in paragraph (c) of
this Section 8, all Parts at any time removed from the Airframe or any
Engine shall remain the property of the Owner, no matter where located, until
such time as such Parts shall be replaced by Parts which have been incorporated
or installed in or attached to the Airframe or such Engine and which meet the
requirements for replacement Parts specified above.  Immediately upon any replacement part becoming
incorporated or installed in or attached to the Airframe or any Engine as above
provided, without further act (subject only to Permitted Liens and any pooling
arrangement to the extent permitted by paragraph (b) of this Section 8
and except in the case of replacement property temporarily installed on an
emergency basis), (i) title to such replacement Part shall thereupon
vest in the Owner, (ii) such replacement Part shall become subject to
the Head Lease and this Sublease and be deemed part of the Airframe or such
Engine for all purposes hereof to the same extent as the Parts originally
incorporated or installed in or attached to the Airframe or such Engine, and (iii) title
to the replaced Part shall thereupon vest in Sublessee free and clear of
all rights of the Owner and Sublessor, and shall no longer be deemed a Part hereunder.

 

(b) Pooling of Parts.  Only after receiving Sublessor’s written
consent thereto, which shall not be unreasonably withheld, any Part removed
from the Airframe or any Engine as provided in paragraph (a) of this Section 8
may be subjected by Sublessee to a normal pooling arrangement customary in the
airline industry of which Sublessee is a party entered into in the ordinary
course of Sublessee’s business; provided that
the Part replacing such removed Part shall be incorporated or
installed in or attached to such Airframe or Engine in accordance with such
paragraph (a) as promptly as practicable after the removal of such removed
Part.  In addition, only after receiving
Sublessor’s written consent thereto, which shall not be unreasonably withheld,
any replacement Part when incorporated or installed in or attached to the
Airframe or any Engine in accordance with such paragraph (a) may be owned
by any third party subject to such a normal pooling arrangement, provided that Sublessee, at its expense, as promptly

 

A1-22

 

thereafter as practicable, either (i) causes
title to such replacement Part to vest in the Owner in accordance with
such paragraph (a) by Sublessee acquiring title thereto for the benefit
of, and transferring such title to, the Owner free and clear of all Liens
except Permitted Liens (other than pooling arrangements), at which time such
temporary replacement part shall become a Part or (ii) replaces such
replacement Part by incorporating or installing in or attaching to the
Airframe or Engine a further replacement Part owned by Sublessee free and
clear of all Liens except Permitted Liens (other than permitted pooling
arrangements) and by causing title to such further replacement Part to
vest in the Owner in accordance with such paragraph (a).

 

(c) Alterations, Modifications
and Additions.  Sublessee, at
its own expense, will make (or cause to be made) such alterations and modifications
in and additions to the Airframe and Engines as may be required from time to
time to meet the applicable standards of the FAA or any other governmental
authority having jurisdiction regardless of upon whom nominally imposed; provided, however, that Sublessee may, in good faith,
contest the validity or application of any such law, rule, regulation or order
in any reasonable manner which does not adversely affect Head Lessor, the Owner
Participant, Sublessor, or their respective right, title and interest in the
Aircraft and does not involve any risk of sale, forfeiture or loss of the
Aircraft or any risk of civil liability or criminal liability being imposed on
the Owner Participant, Head Lessor, or Sublessor; provided,
further, that no appliance, part, instrument, appurtenance,
accessory, furnishing or other equipment of whatever nature relating to such
alteration, modification or addition may be leased from any Person other than
Sublessor.  In addition, Sublessee, at
its own expense, may from time to time add further parts or accessories and
make such alterations and modifications in and additions to the Airframe or any
Engine as Sublessee may deem desirable in the proper conduct of its business,
including, without limitation, removal of Parts which Sublessee has determined
in its reasonable judgment to be obsolete or no longer suitable or appropriate
for use on the Airframe or such Engine (such parts, “Obsolete
Parts”); provided that
no such alteration, modification or addition shall diminish the value, utility
or remaining useful life of the Airframe or such Engine below the value,
utility or remaining useful life thereof immediately prior to such alteration,
modification or addition, assuming the Airframe or such Engine was then in the
condition required to be maintained by the terms of this Sublease, except that
the value (but not the utility or remaining useful life) of the Airframe or any
Engine may be reduced by the value of Obsolete Parts which shall have been
removed so long as the aggregate original cost of all Obsolete Parts which
shall have been removed and not replaced pursuant to this Sublease or any other
lease between Sublessee and Sublessor (or any affiliate thereof) shall not
exceed $***.  Title to all Parts incorporated or installed
in or attached or added to the Airframe or an Engine as the result of such
alteration, modification or addition (the “Additional Parts”)
shall, without further act, vest in the Owner, and the Owner shall not be
required under any circumstances under this Sublease to pay directly for any
alteration, modification or addition. 
Notwithstanding the foregoing sentence, Sublessee may remove or suffer
to be removed any Additional Part, provided that
such Additional Part (i) is in addition to, and not in replacement of
or substitution for, any Part originally incorporated or installed in or
attached to the Airframe or any Engine at the time of delivery thereof
hereunder or any Part in replacement of, or substitution for, any such
Part, (ii) is not required to be incorporated or installed in or attached
or added to the Airframe or any Engine pursuant to the terms of Section 7
hereof or the first sentence of this paragraph (c) and (iii) can be
removed from the Airframe or such Engine without diminishing or impairing the value,
utility or remaining useful life of the Airframe or such Engine.  Upon the removal by Sublessee of any Part as
provided above, title

 

A1-23

 

thereto shall, without further act, vest in
Sublessee and such Part shall no longer be deemed part of the Airframe or
Engine from which it was removed.  Any Part not
removed by Sublessee as above provided prior to the return of the Airframe or
Engine to Sublessor hereunder shall remain the property of the Owner.

 

Sublessee shall not, without Sublessor’s prior written
consent, make any Major Modifications, including, without limitation,
modifications as to type or manufacture of the avionics, or cabin modifications
which change the interior layout, to the Aircraft.

 

SECTION 9.  Voluntary Termination.  (a)  Termination
by Sublessor.  In the event
the Head Lease is being terminated, Sublessor shall have the right to elect to
terminate this Sublease on any date upon at least two (2) days advance
written notice to Sublessee specifying the date on which Sublessor intends to
terminate this Sublease in accordance with this Section 9 (the “Voluntary Termination Date”).  On or before the Voluntary Termination Date,
Sublessee shall simultaneously pay or cause to be paid to or at the direction
of Sublessor in funds of the type specified in Section 3(e) hereof,
an amount equal to the sum of all unpaid Basic Rent with respect to the
Aircraft due prior to such Voluntary Termination Date, and all unpaid
Supplemental Rent due on or prior to the Voluntary Termination Date.

 

(b) [Intentionally
Omitted].

 

(c) [Intentionally
Omitted].

 

(d) Termination as to Engines.  So long as no Event of Default shall have
occurred and be continuing and with the prior written consent of Sublessor,
Sublessee shall have the right during the Term, on at least sixty (60) days
prior written notice, to terminate this Sublease with respect to any
Engine.  In such event, and prior to the
date of such termination, Sublessee shall replace such Engine hereunder by complying
with the terms of Section 10(b) to the same extent as if an Event of
Loss had occurred with respect to such Engine and shall indemnify Sublessor,
Head Lessor and the Owner Participant for any adverse tax consequences
resulting from such substitution, and Sublessor shall transfer, and shall
exercise any such rights as it may have to cause Head Lessor to transfer, such
right, title, and interest as Sublessor or Head Lessor, as the case may be, may
have to the replaced Engine as provided in Section 5(b).  No termination of this Sublease with respect
to any Engine as contemplated by this Section 9(d) shall result in
any reduction of Basic Rent.

 

SECTION 10.  Loss, Destruction, Requisition, etc.  (a) 
Event of Loss with Respect to the Aircraft.  Upon the occurrence of an Event of Loss with
respect to the Airframe or the Airframe and the Engines and/or engines then
installed thereon, Sublessee shall forthwith (and in any event, within five (5) days
after such occurrence) give Sublessor and Head Lessor written notice of such
Event of Loss.  Not later than the
earlier of (x) the Business Day next succeeding the 90th day following the
occurrence of such Event of Loss or (y) an earlier Business Day irrevocably
specified fifteen (15) days in advance by notice from Sublessee to Sublessor
(the “Loss Payment Date”), Sublessee shall
pay or cause to be paid to Sublessor (or its designee) in funds of the type
specified in Section 3(d) hereof, an amount equal to the Stipulated
Loss Value corresponding to the Stipulated Loss Value Date occurring on or
immediately following the Loss Payment Date; provided,
however, that if a Sublease Period Date shall occur on or prior to
the Loss Payment Date with respect to which Stipulated Loss Value is
determined, Sublessee shall pay on such Sublease Period Date an amount equal to
the Basic Rent

 

A1-24

 

that would have been due
on or prior to such Sublease Period Date if such Event of Loss had not
occurred.  At such time as Sublessor
shall have received the amounts specified in the preceding sentence, together
with all other amounts that then may be due hereunder (including, without
limitation, all Basic Rent due before the Stipulated Loss Value Date by
reference to which the Stipulated Loss Value is calculated for the Loss Payment
Date and all Supplemental Rent then due) (1) the obligation of Sublessee
to pay the installments of Basic Rent, Supplemental Rent, Stipulated Loss Value
or any other amount shall cease to accrue (but without affecting the provisions
of Section 29(b) or 29(c) hereof), (2) except for the
provisions of Sections 29(b) and 29(c) of this Sublease (which shall
survive), this Sublease shall terminate, (3) Sublessor will transfer, and
exercise such rights as it may have to cause Head Lessor to transfer, to or at
the direction of Sublessee, without recourse or warranty (except, with respect
to Head Lessor, as to the absence of Head Lessor Liens, including for this
purpose Liens which would be Head Lessor Liens but for the proviso in the
definition of Head Lessor Liens, and, with respect to Sublessor, as to the
absence of Sublessor Liens, including for this purpose Liens which would be
Sublessor Liens but for the proviso in the definition of Sublessor Liens), all
of Head Lessor’s and Sublessor’s, as the case may be, right, title and interest
in and to the Airframe and any Engines subject to such Event of Loss, as well
as any Engines not subject to such Event of Loss, and will exercise such rights
as it may have to cause the Owner to furnish to or at the direction of
Sublessee a bill of sale in form and substance reasonably satisfactory to
Sublessee, evidencing such transfer, and (4) Sublessee will be subrogated
to all claims of Sublessor and Head Lessor, if any, against third parties, for
damage to or loss of the Airframe and any Engines which were subject to such
Event of Loss to the extent of the then insured value of the Aircraft.

 

If at any time Sublessor shall be permitted to
substitute an airframe for the Airframe pursuant to Section 10 of the Head
Lease, Sublessor shall have the right, in its sole discretion, to substitute an
airframe for the Airframe under this Sublease.

 

(b) Event of Loss with Respect
to an Engine.  Upon the
occurrence of an Event of Loss with respect to an Engine under circumstances in
which there has not occurred an Event of Loss with respect to the Airframe,
Sublessee shall forthwith (and in any event, within five (5) days after
such occurrence) give Sublessor and Head Lessor written notice thereof and shall,
use its best efforts within forty-five (45) days (and in any event within sixty
(60) days) after the occurrence of such Event of Loss, convey or cause to be
conveyed to the Owner, as replacement for any Engine with respect to which such
Event of Loss occurred, title to another General Electric Model CF34-3B1 type
engine satisfactory to Sublessor, free and clear of all Liens (other than
Permitted Liens, which engine may upon its transfer to the Owner become subject
to any and all Permitted Liens) and having a value, utility and remaining
useful life (including taking into account its cycle and life-limited parts and
its maintenance condition and modification status) at least equal to the Engine
subject to such Event of Loss assuming no Event of Loss had occurred and that
such Engine had been maintained in accordance with this Sublease.

 

Prior to or at the time of any such conveyance,
Sublessee, at its own expense, will:

 

(1)                                  furnish
the Owner with a full warranty (as to title) bill of sale, in form and substance
reasonably satisfactory to the Owner, with respect to such replacement engine,

 

A1-25

 

(2)                                  cause
a Sublease Supplement to be duly executed by Sublessee and to be filed for
recording pursuant to the Federal Aviation Act,

 

(3)                                  furnish
Sublessor and Head Lessor with such evidence of compliance with the insurance
provisions of Section 11 hereof with respect to such replacement engine as
Sublessor may reasonably request,

 

(4)                                  furnish
Sublessor and Head Lessor with an opinion of qualified FAA counsel, as to the
due recordation of the Sublease Supplement and the Head Lease Supplement and
the Trust Supplement and all other documents or instruments the recordation of
which is necessary to perfect and protect the rights of Sublessor and Head
Lessor in the replacement engine,

 

(5)                                  furnish
Sublessor and Head Lessor with an opinion of counsel (which shall be chosen by
Sublessee and satisfactory to Sublessor and Head Lessor) reasonably
satisfactory to Sublessor, Head Lessor and the Owner Trustee to the effect that
(A) the certificates, opinions and other instruments and/or property which
have been or are therewith delivered to and deposited in connection with such
substitution conform to the requirements of the Head Lease and this Sublease, (B) the
replacement property covered by the Head Lease and this Sublease, the
instruments subjecting such replacement engine to the Head Lease and this
Sublease, as the case may be, have been duly filed for recordation pursuant to
the Federal Aviation Act, and no further action, filing or recording of any
document is necessary or advisable in order to establish and perfect the right,
title, estate and interest of the Owner to such replacement engine, and (C) the
full warranty bill of sale referred to in clause (1) constitutes an
effective instrument for the conveyance of title to the replacement engine,

 

(6)                                  cause
a financing statement or statements with respect to such substituted property
to be filed in such place or places as are deemed necessary or advisable by
Sublessor or Head Lessor, or their respective counsel, to perfect their
respective interests in the replacement engine,

 

(7)                                  furnish
Sublessor and Head Lessor with an opinion of counsel (which shall be counsel
chosen by Sublessee and acceptable to Sublessor and Head Lessor) reasonably
satisfactory to Sublessor, Head Lessor to the effect that Sublessor and Head
Lessor will be entitled to the benefits of Section 1110 of the U.S.
Bankruptcy Code with respect to the substitute engine, provided
that such opinion need not be delivered to the extent that immediately prior to
such substitution the benefits of Section 1110 of the U.S. Bankruptcy Code
were not, solely by reason of a change in law or governmental interpretation
thereof, available to Sublessor under the Head Lease with respect to the
Aircraft,

 

(8)                                  furnish
Sublessor, Head Lessor with an officer’s certificate duly executed by the
chairman, vice chairman, president, any execute vice president, any senior vice
president, or any vice president of Sublessee stating (A) that the
replacement engine has at least an equal maintenance status, modification
status,

 

A1-26

 

value, utility and
remaining useful life as the Engine it replaces assuming no Event of Loss had
occurred and such Engine had been maintained in the condition required
hereunder, (B) each of the conditions specified in this Section 10(b) with
respect to such replacement engine have been satisfied and that Sublessee will
not be in default, by the making and granting of the request for release and
the addition of the replacement engine, in the performance of any of the terms
and covenants of this Sublease, (C) a description of the Engine which
shall be identified by manufacturer’s serial number, (D) a description of
the replacement engine (including the manufacturer’s name and serial number) as
consideration for the Engine to be released, (E) that on the date of the
Sublease Supplement relating to the replacement engine the Owner will be the
legal owner of such replacement engine free and clear of all Liens except
Permitted Liens, that such replacement engine will on such date be in good
working order and condition and that such replacement engine is substantially
the same as or better than the Engine to be released, (F) the maintenance
status, modification status, value, utility and remaining useful life of the
replacement engine as of the date of such certificate (which shall not be less
than the maintenance status, modification status, value, utility and remaining
useful life of the Engine to be released (assuming no Event of Loss and that
such Engine was in the condition and repair required to be maintained
hereunder), (G) that, with respect to the replacement of an Engine pursuant
to Section 9(d) hereof, no Event of Default or no Default has
occurred which has not been remedied or waived, and (H) that the release
of the Engine to be released will not be in contravention of any of the
provisions hereof, and

 

(9)                                  assign
(or cause to be assigned) to the Owner the benefit of all manufacturer’s and
vendor’s warranties generally available with respect to the substituted
property in substantially the same manner and to substantially the same extent
as pursuant to the Purchase Agreement Assignment,

 

Sublessor and will transfer and exercise such rights
as it may have to cause the Owner to transfer, to or at the direction of
Sublessee without recourse or warranty (except, with respect to Head Lessor, as
to absence of Head Lessor Liens, including for this purpose Liens which would
be Head Lessor Liens but for the proviso in the definition of Head Lessor Liens
or, with respect to Sublessor, as to absence of Sublessor Liens, including for
this purpose Liens which would be Sublessor Liens but for the proviso in the
definition of Sublessor Liens) all of Sublessor’s and Head Lessor’s respective
right, title and interest, if any, in and to (I) the Engine with respect to
which such Event of Loss occurred and furnish or exercise such rights it may
have to cause the Owner to furnish to or at the direction of Sublessee a bill
of sale in form and substance reasonably satisfactory to Sublessee, evidencing
such transfer and (II) all claims, if any, against third parties, for damage to
or loss of the Engine subject to such Event of Loss, and such Engine shall
thereupon cease to be the Engine subleased hereunder.  For all purposes hereof, each such
replacement engine shall, after such conveyance, be deemed part of the property
subleased hereunder, and shall be deemed an “Engine”, as the case may be.  No Event of Loss with respect to an Engine
under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.

 

A1-27

 

(c) Application of Payments
from Governmental Authorities for Requisition of Title, etc.  Any payments (other than insurance
proceeds the application of which is provided for in Section 11) received
at any time by Sublessor or by Sublessee from any governmental authority or
other Person with respect to an Event of Loss will be applied as follows:

 

(1)                                  if
payments are received with respect to the Airframe (or the Airframe and any
Engine or engines then installed thereon), (A) unless the same are replaced
pursuant to the last paragraph of Section 10(a), after reimbursement of
Sublessor and Head Lessor for reasonable costs and expenses, so much of such
payments remaining as shall not exceed the Stipulated Loss Value required to be
paid by Sublessee pursuant to Section 10(a), shall be applied in reduction
of Sublessee’s obligation to pay Stipulated Loss Value, if not already paid by
Sublessee, or, if already paid by Sublessee, shall be applied to reimburse
Sublessee for its payment of Stipulated Loss Value, and following the foregoing
application, the balance, if any, of such payments will be paid over to, or
retained by Sublessee, provided that
Sublessor (or Head Lessor) shall be entitled to so much of the excess, if any,
of such payment over Stipulated Loss Value as is attributable to compensation
for loss of Sublessor’s (or Head Lessor’s) interest in the Aircraft as
distinguished from the loss of use of the Aircraft; or (B) if such
property is replaced pursuant to the last paragraph of Section 10(a), such
payments shall be paid over to, or retained by, Sublessee; provided
that Sublessee shall have fully performed or, concurrently therewith, will
fully perform the terms of the last paragraph of Section 10(a) with
respect to the Event of Loss for which such payments are made; and

 

(2)                                  if
such payments are received with respect to an Engine under circumstances
contemplated by Section 10(b) hereof, so much of such payments
remaining after reimbursement of Sublessor and Head Lessor for reasonable costs
and expenses shall be paid over to, or retained by, Sublessee, provided that Sublessee shall have fully performed, or
concurrently therewith will perform, the terms of Section 10(b) with
respect to the Event of Loss for which such payments are made.

 

(d) Requisition for Use of the
Aircraft by the United States Government.  In the event of the requisition for use of the
Airframe and the Engines or engines installed on the Airframe during the Term
by the United States Government or any instrumentality or agency thereof,
Sublessee shall promptly notify Sublessor and Head Lessor of such requisition,
and all of Sublessee’s obligations under this Sublease Agreement with respect
to the Aircraft shall continue to the same extent as if such requisition had
not occurred, provided that if such Airframe
and Engines or engines installed thereon are not returned by such government
(or instrumentality or agency) prior to the end of the Term, Sublessee shall be
obligated to return the Airframe and such Engines or engines to or at the direction
of Sublessor pursuant to, and in all other respects in compliance with the
provisions of, Section 5 promptly on the date of such return by such
government (or instrumentality or agency). 
All payments received by Sublessor, Head Lessor or Sublessee from such
government (or instrumentality or agency) for the use of such Airframe and
Engines or engines during the Term shall be paid over to, or retained by,
Sublessee; and all payments received by Sublessor, Head Lessor or Sublessee
from such 

 

A1-28

 

government (or instrumentality or agency) for
the use of such Airframe and Engines or engines after the end of the Term shall
be paid over to, or retained by, Sublessor or Head Lessor.

 

(e) Requisition for Use of an
Engine by the United States Government.  In the event of the requisition for use of an
Engine by the United States Government or any agency or instrumentality thereof
(other than in the circumstances contemplated by subsection (d)),
Sublessee shall replace such Engine hereunder by complying with the terms of Section 10(b) to
the same extent as if an Event of Loss had occurred with respect thereto, and,
upon compliance with Section 10(b) hereof, any payments received by
Sublessor or Sublessee from such government (or instrumentality or agency) with
respect to such requisition shall be paid over to, or retained by, Sublessee.

 

(f) Application of Payments
During Existence of Default.

 

(i)                                     Any amount
referred to in this Section 10 which is payable to or retainable by
Sublessee shall not be paid to or retained by Sublessee if at the time of such
payment or retention a Default or an Event of Default shall have occurred and
be continuing or if the Airline Services Agreement shall have been terminated
or canceled or shall have been terminated in accordance with its terms, but
shall be held by Sublessor and applied in accordance with Section 28
hereof.  At such time as there shall not
be continuing any such Default or Event of Default and the Airline Services Agreement
shall not have been terminated or canceled or shall not have terminated in
accordance with its terms, such amount shall be paid to Sublessee to the extent
not previously applied in accordance with the preceding sentence.

 

(ii)                                  Any amount referred
to in this Section 10 which is payable to or retainable by Sublessee shall
not be paid to or retained by Sublessee if at the time of such payment or
retention an Event of Default (as such term is defined in the Head Lease) shall
have occurred and be continuing, but shall be held by or paid over to or at the
direction of Head Lessor as security for the obligations of Sublessor under the
Head Lease and, if Head Lessor declares the Head Lease to be in default
pursuant to Section 15 of the Head Lease, applied against Sublessor’s
obligations thereunder as and when due. 
At such time as there shall not be continuing any such Event of Default
(as such term is defined in the Head Lease), such amount shall be paid to
Sublessee to the extent not previously applied in accordance with the preceding
sentence.

 

SECTION 11.  Insurance.  (a)  Public Liability and
Property Damage Insurance. 
Sublessee will carry at its expense (i) comprehensive airline third
party legal liability insurance or the equivalent (including, without
limitation, passenger legal liability) (and including aircraft war risk and
hijacking insurance, unless otherwise agreed by Sublessor) insurance and
property damage insurance (exclusive of manufacturer’s product liability
insurance) with respect to the Aircraft, in an amount, with respect to third
party legal liability insurance (including passenger legal liability) other
than aircraft war risk and hijacking insurance, not less than the greater of
(x) the amount of public liability and property damage insurance from time to
time applicable to aircraft owned or operated by Sublessee of the same type as
the Aircraft and (y) the Minimum Liability Amount, and with respect to aircraft
war risk and hijacking insurance, in an amount not

 

A1-29

 

less than $*** per occurrence and (ii) cargo
liability insurance, in the case of both clause (i) and clause (ii), (A) of
the type and covering the same risks as from time to time applicable to
aircraft operated by Sublessee of the same type as the Aircraft and (B) which
is maintained in effect with insurers of recognized responsibility reasonably
acceptable to Sublessor.  Any policies of
insurance carried in accordance with this paragraph (a) and any policies
taken out in substitution or replacement for any of such policies (A) shall
be amended to name Sublessor, Head Lessor in its individual capacity and as
owner trustee, and the Owner Participant (but without imposing on any such
parties liability to pay the premiums for such insurance) as additional
insureds as their respective interests may appear, (B) shall provide that
in respect of the respective interests of Sublessor, the Head Lessor and the
Owner Participant in such policies the insurance shall not be invalidated by any
action or inaction of Sublessee or any other Person and shall insure each of
Sublessor, Head Lessor and the Owner Participant regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by Sublessee, and (C) shall provide that if the insurers cancel such
insurance for any reason whatever or if any change is made in such insurance
which adversely affects the interest of Sublessor, Head Lessor or the Owner
Participant, or such insurance shall lapse for non-payment of premium, such
cancellation, lapse or change shall not be effective as to Sublessor, Head
Lessor or the Owner Participant for thirty (30) days (seven (7) days in
the case of war risk and allied perils coverage) after issuance to Sublessor,
Head Lessor or the Owner Participant, respectively, of written notice by such
insurers of such cancellation, lapse or change; provided,
however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable. 
Each liability policy (1) shall be primary without right of
contribution from any other insurance which is carried by Sublessor, Head
Lessor or the Owner Participant, (2) shall expressly provide that all of
the provisions thereof, except the limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured, and (3) shall
waive any right of the insurers to any set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
Sublessor, Head Lessor, in its individual capacity or as owner trustee or the
Owner Participant to the extent of any moneys due to Sublessor, Head Lessor or
the Owner Participant.

 

(b) Insurance Against Loss or
Damage to the Aircraft. 
Sublessee shall maintain in effect at its expense, with insurers of
recognized responsibility, all-risk ground and flight aircraft hull insurance
covering the Aircraft and all-risk ground and flight coverage of Engines and
Parts while temporarily removed from the Aircraft and not replaced by similar
components (including, without limitation, war risk and governmental
confiscation and expropriation (other than by the government of registry of the
Aircraft) and hijacking insurance, unless otherwise agreed by Sublessor); provided that such insurance shall at all times while the
Aircraft is subject to this Sublease be for an amount not less than the
Stipulated Loss Value for the Aircraft. 
Any policies carried in accordance with this paragraph (b) covering
the Aircraft and any policies taken out in substitution or replacement for any
such policies (i) shall name Sublessor, Head Lessor, in its individual
capacity and as owner trustee and the Owner Participant as additional insureds,
as their respective interests may appear (but without imposing on any such
party liability to pay premiums with respect to such insurance), (ii) shall
provide that (A) in the event of a loss involving proceeds in excess of $***, the proceeds in respect of such
loss up to an amount equal to the Stipulated Loss Value for the Aircraft shall
be payable to or at the direction of Sublessor (except in the case of a loss
with respect to an Engine installed on an airframe other than the Airframe, in which
case Sublessee shall arrange for any payment of insurance proceeds

 

A1-30

 

in respect of such loss to be held for the
account of Sublessor whether such payment is made to Sublessee or any third
party), it being understood and agreed that in the case of any payment to
Sublessor or its designee otherwise than in respect of an Event of Loss,
Sublessor shall, upon receipt of evidence satisfactory to it that the damage
giving rise to such payment shall have been repaired or that such payment shall
then be required to pay for repairs then being made, pay, or exercise such
rights as it may have to cause to be paid, the amount of such payment to
Sublessee or its order and (B) the entire amount of any loss involving
proceeds of $*** or less or the
amount of any proceeds of any loss in excess of the Stipulated Loss Value for
the Aircraft shall be paid to Sublessee or its order unless (x) a Default or an
Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Sublessor, Head Lessor or (y) an Event of Default (as
such term is defined in the Head Lease) shall have occurred and be continuing
and the insurers have been notified thereof by Sublessor, Head Lessor, (iii) shall
provide that if the insurers cancel such insurance for any reason whatever, or
such insurance lapses for non-payment of premium or if any change is made in
the insurance which adversely affects the interest of Sublessor, Head Lessor,
or the Owner Participant, such cancellation, lapse or change shall not be
effective as to Sublessor, Head Lessor, or the Owner Participant for thirty
(30) days (seven (7) days in the case of hull war risk and allied perils
coverage) after issuance to Sublessor, Head Lessor or the Owner Participant,
respectively, of written notice by such insurers of such cancellation, lapse or
change, provided, however, that if any notice
period specified above is not reasonably obtainable, such policies shall
provide for as long a period of prior notice as shall then be reasonably
obtainable, (iv) shall provide that in respect of the respective interests
of Sublessor, Head Lessor and the Owner Participant in such policies the
insurance shall not be invalidated by any action or inaction of Sublessee or
any other Person and shall insure the respective interests of Sublessor, Head
Lessor and the Owner Participant, as they appear, regardless of any breach or
violation of any warranty, declaration or condition contained in such policies
by Sublessee, (v) shall be primary without any right of contribution from
any other insurance which is carried by Sublessor, Head Lessor or the Owner
Participant, (vi) shall waive any right of subrogation of the insurers
against Sublessor, Head Lessor and the Owner Participant, and (vii) shall
waive any right of the insurers to set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
Sublessor, Head Lessor, the Owner Participant or Sublessee to the extent of any
moneys due to Sublessor or the Owner Participant.  In the case of a loss with respect to an
engine (other than an Engine) installed on the Airframe, Sublessor or its
designee shall hold any payment to it of any insurance proceeds in respect of
such loss for the account of Sublessee or any other third party that is
entitled to receive such proceeds.

 

As between Sublessor and Sublessee, it is agreed that
all insurance payments received as the result of the occurrence of an Event of
Loss will be applied as follows:

 

(x)                                   if such payments are
received with respect to the Airframe (or the Airframe and the Engines
installed thereon), so much of such payments remaining, after reimbursement of
Sublessor for reasonable costs and expenses, as shall not exceed the Stipulated
Loss Value required to be paid by Sublessee pursuant to Section 10(a) hereof
shall be applied in reduction of Sublessee’s obligation to pay such Stipulated
Loss Value, if not already paid by Sublessee, or, if already paid by Sublessee,
shall be applied to reimburse Sublessee for its payment of such Stipulated Loss
Value, and the balance, if any, of such payments

 

A1-31

 

remaining thereafter will be paid over to, or retained by, Sublessee;
and

 

(y)                                 if such payments are
received with respect to an Engine under the circumstances contemplated by Section 10(b) hereof,
so much of such payments remaining, after reimbursement of Sublessor and Head
Lessor for reasonable costs and expenses, shall be paid over to, or retained
by, Sublessee, provided that Sublessee shall
have fully performed, or concurrently therewith will fully perform, the terms
of Section 10(b) with respect to the Event of Loss for which such
payments are made.

 

As between Sublessor and Sublessee, the insurance
payments for any property damage loss to the Airframe or any Engine not
constituting an Event of Loss with respect thereto will be applied in payment
for repairs or for replacement property in accordance with the terms of
Sections 7 and 8, if not already paid for by Sublessee, and any
balance (or if already paid for by Sublessee, all such insurance proceeds)
remaining after compliance with such Sections with respect to such loss shall
be paid to Sublessee.

 

(c) Reports, etc.  Sublessee will furnish, or cause to be
furnished, to Sublessor, Head Lessor and the Owner Participant, on or before
the Commencement Date and on or before July 1 in each year thereafter
during the Term commencing July, 2006, a report, signed by Aon Risk Services, Inc.
or any other independent firm of insurance brokers reasonably acceptable to
Sublessor and Head Lessor (the “Insurance Brokers”),
describing in reasonable detail the insurance and reinsurance then carried and
maintained with respect to the Aircraft and stating the opinion of such firm
that the insurance then carried and maintained with respect to the Aircraft
complies with the terms hereof; provided, however,
that all information contained in the foregoing report shall not be made
available by Sublessor, Head Lessor or the Owner Participant to anyone except (A) to
prospective and permitted transferees of Sublessor’s, Head Lessor’s, or the
Owner Participant’s interest who agree to hold
such information confidential, (B) to Sublessor’s, Head Lessor’s, or the
Owner Participant’s counsel or independent certified public accountants or
independent insurance advisors who agree to hold such information confidential,
(C) as may be required by any statute, court or administrative order or
decree or governmental ruling or regulation or as may be requested by any
regulatory agency or body having authority or (D) as may be necessary for
purposes of protecting the interests of any such Person or for the enforcement
of this Sublease by Sublessor or the Head Lease by Head Lessor.  Sublessee will cause such Insurance Brokers
to agree to advise Sublessor, Head Lessor, and the Owner Participant in writing
of any default in the payment of any premium and of any other act or omission
on the part of Sublessee of which it has knowledge and which might invalidate
or render unenforceable, in whole or in part, any insurance on the
Aircraft.  To the extent such agreement
is reasonably obtainable, Sublessee will also cause such Insurance Brokers to
agree to advise Sublessor, the Head Lessor and the Owner Participant in writing
at least thirty (30) days (seven (7) days in the case of war risk and
allied perils coverage), prior to the expiration or termination date of any
insurance carried and maintained on the Aircraft pursuant to this Section 11.  In addition, Sublessee will also cause such
Insurance Brokers to deliver to Sublessor, Head Lessor and the Owner
Participant, on or prior to the date of expiration of any insurance policy
referenced in a previously delivered certificate of insurance, a new
certificate of insurance, substantially in the same form as delivered by
Sublessee to such parties on the Commencement Date.  In the event that Sublessee shall fail to
maintain or cause to be

 

A1-32

 

maintained insurance as herein provided,
Sublessor or its designee may at its sole option provide such insurance and, in
such event, Sublessee shall, upon demand, reimburse Sublessor, as Supplemental
Rent, for the cost thereof to Sublessor or such designee, as the case may be,
without waiver of any other rights Sublessor or such designee may have; provided, however, that no exercise by Sublessor or such
designee of said option shall affect the provisions of this Sublease, including
the provisions of Section 14(g) hereof.

 

(d) Self-Insurance.  Sublessee may not self-insure the risks
required to be insured against pursuant to this Section 11; provided, however, that
Sublessee may self-insure the risks required to be insured against pursuant to Section 11(a) and
(b) hereof solely to the extent of any applicable mandatory minimum per
aircraft (or, if applicable, per annum or other period) hull or liability
insurance deductible imposed by the aircraft hull or liability insurers.

 

(e) Additional Insurance by
Head Lessor and Sublessor. 
Sublessee may at its own expense carry insurance with respect to its
interest in the Aircraft in amounts in excess of that required to be maintained
by this Section 11; the Owner Participant (either directly or through Head
Lessor) or Sublessor may carry for its own account at its sole cost and expense
insurance with respect to its interest in the Aircraft, provided
that such insurance does not prevent Sublessee from carrying the insurance
required or permitted by this Section 11 or adversely affect such
insurance or the cost thereof.

 

(f) Indemnification by
Government in Lieu of Insurance.  With Sublessor’s written
consent which may be given or withheld in its sole discretion, notwithstanding
any provisions of this Section 11 requiring insurance, Sublessee may
provide, in lieu of insurance against any risk with respect to the Aircraft,
indemnification from, or insurance provided by, the United States Government or
any agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States against such risk in an amount
which, when added to the amount of insurance against such risk maintained by
Sublessee with respect to the Aircraft (including permitted self-insurance)
shall be at least equal to the amount of insurance against such risk otherwise
required by this Section 11.

 

(g) Application of Payments
During Existence of Default.

 

(i)                                     Any amount
referred to in paragraph (b) of this Section 11 which is payable to
or retainable by Sublessee shall not be paid to or retained by Sublessee if at
the time of such payment or retention a Default or an Event of Default shall
have occurred and be continuing or if the Airline Services Agreement shall have
been terminated or canceled  or shall
have terminated in accordance with its terms, but shall be held by Sublessor
and applied in accordance with Section 28 hereof.  At such time as there shall not be continuing
any such Default or Event of Default and the Airline Services Agreement shall
not have been terminated or canceled or shall not have terminated in accordance
with its terms, such amount shall be paid to Sublessee to the extent not
previously applied in accordance with the preceding sentence.

 

(ii)                                  Any amount referred
to in paragraph (b) of this Section 11 which is payable to or
retainable by Sublessee shall not be paid to or retained by Sublessee 

 

A1-33

 

if at the time of such payment or retention an Event of Default (as
such term is defined in the Head Lease) shall have occurred and be continuing,
but shall be held by or paid over to or at the direction of Head Lessor as
security for the obligations of Sublessor under the Head Lease and, if Head
Lessor declares the Head Lease to be in default pursuant to Section 15 of
the Head Lease, may be applied against Sublessor’s obligations thereunder as
and when due.  At such time as there
shall not be continuing any such Event of Default (as such term is defined in
the Head Lease), such amount shall be paid to Sublessee to the extent not
previously applied in accordance with the preceding sentence.

 

SECTION 12.  Inspection.  At all reasonable times and upon reasonable
notice to Sublessee, Head Lessor, the Owner Participant or their respective
authorized representatives may each inspect the Aircraft and inspect and make
copies (at Head Lessor’s or the Owner Participant’s expense, as the case may
be) of the Aircraft Documentation and other manuals, logs, books and records of
Sublessee relating to the maintenance of the Aircraft; any such inspection of
the Aircraft shall be limited to a visual, walk-around inspection and may
include opening any panels, bays or the like; provided
that no exercise of such inspection right shall unreasonably interfere with the
scheduled operation or maintenance of the Aircraft by, or the business of,
Sublessee unless deemed critical by Sublessor. 
At all times upon notice to Sublessee, Sublessor or its authorized
representative may inspect the Aircraft and inspect and make copies (at its expense)
of the Aircraft Documentation and other manuals, logs, books and records of
Sublessee relating to the maintenance of the Aircraft; any such inspection may,
at Sublessor’s election, include a visual, walk-around inspection, opening any
panels, bays or the like, Engine borescope inspections, Engine power assurance
runs, ground operation and function checks; provided that
no exercise of such inspection right shall unreasonably interfere with the
scheduled operation or maintenance of the Aircraft by, or the business of,
Sublessee unless deemed critical by Sublessor. 
In addition, upon receipt by Sublessee of a written request from the
Owner Participant or Sublessor specifying that the Owner Participant or
Sublessor desires to have an authorized representative observe the next
scheduled “C” Check or, if Sublessee is then maintaining the Aircraft under a
fully equalized maintenance program, the next scheduled maintenance visit under
such equalized maintenance program to be performed on the Aircraft (or substitute
equivalent successor type of maintenance work), Sublessee shall cooperate with
the Owner Participant or Sublessor, as the case may be, to enable the Owner
Participant’s or Sublessor’s authorized representative to each observe the next
scheduled maintenance visit to be performed on the Aircraft, including
reasonable advance notification to the Owner Participant, and Sublessor of the
time and place of such scheduled maintenance visit; provided
that the authorized representative of the Owner Participant shall merely
observe such scheduled maintenance visit, shall not interfere with or extend in
any manner the conduct or duration of the maintenance visit and shall not be
entitled to direct any of the work performed in connection with such visit.  None of Sublessor, Head Lessor or the Owner
Participant shall have any duty to make any such inspection nor shall any of
them incur any liability or obligation by reason of not making such inspection.

 

SECTION 13.  Assignment.  Sublessee will not, without the prior express
written consent of Sublessor, assign in whole or in part this Sublease or any
of its rights or obligations hereunder. 
Sublessor may assign in whole or in part, or convey all or any part of
its right, title and interest in and to, this Sublease after giving Sublessee
ten (10) days notice thereof. 
Subject

 

A1-34

 

to the foregoing, the
terms and provisions of this Sublease shall be binding upon and inure to the
benefit of Sublessor and Sublessee and their respective successors and
permitted assigns.

 

SECTION 14.  Events of Default.  Each of the following events shall constitute
an Event of Default (whether any such event shall be voluntary or involuntary
or come about or be effected by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) and each such Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:

 

(a)                                  Sublessee shall not
have made a payment of Basic Rent or Stipulated Loss Value when the same shall
have become due; or

 

(b)                                 Sublessee shall have
failed to make a payment of Supplemental Rent (other than Stipulated Loss
Value) after the same shall have become due and such failure shall continue for
five (5) days; or

 

(c)                                  Sublessee shall have
failed to perform or observe (or caused to be performed and observed) any
covenant or agreement to be performed or observed by it under any Sublessee Document
other than the Airline Services Agreement and such failure shall continue
unremedied for a period of twenty (20) days after the earlier of (x) receipt by
Sublessee of written notice thereof from Sublessor, or (y) insofar as the
failure to perform or observe (or caused to be performed and observed) any
covenant or agreement relates to any material covenant or agreement, an officer
of Sublessee, whose functions and duties would make him familiar with the terms
of this Sublease has knowledge; or

 

(d)                                 any representation or
warranty made by Sublessee herein or any document or certificate furnished by
Sublessee in connection herewith or therewith or pursuant hereto or thereto,
shall prove to have been incorrect in any material respect at the time made and
such incorrectness shall not have been cured (to the extent of the adverse
impact of such incorrectness on the interests of Sublessor) within ten (10) days
after the receipt by Sublessee of a written notice from Sublessor advising
Sublessee of the existence of such incorrectness; or

 

(e)                                  the commencement of
an involuntary case or other proceeding in respect of Sublessee in an
involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law in the United States or seeking the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Sublessee or for all or substantially all of its property, or
seeking the winding-up or liquidation of its affairs and the continuation of
any such case or other proceeding undismissed and unstayed for a period of
thirty (30) consecutive days or an order, judgment or decree shall be entered
in any proceeding by any court of competent jurisdiction appointing, without
the consent of Sublessee a receiver, trustee or liquidator of Sublessee or of
any substantial part of its property, or sequestering or attaching any
substantial part of the property of Sublessee and any such order, judgment or
decree or appointment or sequestration shall be final or

 

A1-35

 

shall remain in force undismissed, unstayed or unvacated for a period
of thirty (30) days after the date of entry thereof; or

 

(f)                                    the commencement by
Sublessee of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law in the United States, or the
consent by Sublessee to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Sublessee or for all or substantially all of its property, or the
making by Sublessee of any assignment for the benefit of creditors, or
Sublessee shall enter into any agreement, composition, extension or adjustment
with creditors or shall take any corporate action to authorize any of the
foregoing; or

 

(g)                                 Sublessee shall fail
to carry and maintain on or with respect to the Aircraft insurance required to
be maintained in accordance with the provisions of Section 11 hereof; or

 

(h)                                 Sublessee shall cease
to be a Certificated Air Carrier; or

 

(i)                                     the attachment or
taking possession by a creditor of a material part of, or the levy or
enforcement of a distress, execution, sequestration or other process upon any
assets, rights or revenues of Sublessee and such attachment or order is not
discharged within thirty (30) days; or

 

(j)                                     any event
described in Section 10.02 of the Airline Services Agreement giving
Sublessor the ability to terminate the Airline Services Agreement shall have
occurred; or

 

(k)                                  any event described
in Section 10.03 of the Airline Services Agreement shall have occurred; or

 

(l)                                     Sublessee shall
have materially breached or shall be in default under any material purchase
agreement, service agreement, maintenance agreement or other material agreement
with any vendor relating to the Airframe or Engines, including components.

 

SECTION 15.  Remedies; Automatic Termination.  (a) Remedies. Upon
the occurrence of any Event of Default and at any time thereafter so long as
the same shall be continuing, Sublessor may, at its option, declare by written
notice to Sublessee this Sublease Agreement to be in default (provided that this Sublease shall be deemed to be declared
in default without the necessity of such written declaration upon the
occurrence of any Event of Default described in Section 14(e) or Section 14(f));
and at any time thereafter, Sublessor may do one or more of the following with
respect to all or any part of the Airframe and any or all of the Engines as
Sublessor in its sole discretion shall elect, to the extent permitted by, and
subject to compliance with any mandatory requirements of, applicable law then
in effect:

 

(i)                                     upon the written
demand of Sublessor and at Sublessee’s expense, cause Sublessee to immediately
return the Airframe or any Engine as Sublessor

 

A1-36

 

may so demand to Sublessor or its order in the manner and condition
required by, and otherwise in accordance with all the provisions of, Section 5
as if such Aircraft, Airframe or Engine were being returned at the end of the
Term, or Sublessor, acting in its individual capacity or as attorney for
Sublessee, at its option, may enter upon the premises where all or any part of
the Aircraft, Airframe or any Engine or Part is located and take immediate
possession of and remove the same (together with any engine which is not an
Engine but which is installed on the Airframe, subject to all the rights of the
owner, lessor, lien holder or secured party of such engine, and such engine
shall be held for the account of any such owner, lessor, lien holder or secured
party or, if owned by Sublessee, may at the option of Sublessor, be exchanged
with Sublessee for an Engine in accordance with the provisions of Section 9(d)),
without the necessity of first instituting proceedings, or by summary
proceedings or otherwise, and Sublessee waives any right it may have under
applicable law to a hearing prior to repossession of the Aircraft, Airframe,
Engine or Part (and/or, at Sublessor’s option, store the same at Sublessee’s
premises until disposal thereof by Sublessor), all without liability accruing
to Sublessor for or by reason of such entry or taking of possession or removing
whether for the restoration of damage to property caused by such action or
otherwise.  Sublessee acknowledges and
agrees that its obligations to return the Aircraft in those instances is
incontrovertible without prejudice to its right to dispute any amounts,
damages, interests or other amounts claimed by Sublessor upon termination of
this Sublease and as such this Sublease will be incontrovertible written
evidence of such obligation of Sublessee to return the Aircraft which Sublessor
will be entitled to enforce via injunctive orders.  Without limiting any other provision of this
Sublease or of any other Operative Document, if an Event of Default has
occurred and is continuing, Sublessor shall have the right to withhold or
set-off against all amounts otherwise payable to Sublessee hereunder or under
the Airline Services Agreement or under any other aircraft, engine, spare parts
or facility lease or sublease between Sublessor or any Affiliate thereof and
Sublessee, all as security for Sublessee’s obligations and liabilities under
this Sublease and the other Operative Documents, and to use and apply in whole
or in part any or all of such amounts and set-offs to and against such
obligations and liabilities of Sublessee, and any such use, application or
setoff shall be absolute, final and irrevocable;

 

(ii)                                  sell the Aircraft,
Airframe and/or any Engine at public or private sale, as Sublessor may
determine, or otherwise dispose of, hold, use, operate, lease to others or keep
idle the Aircraft as Sublessor, in its sole discretion, may determine, all free
and clear of any rights of Sublessee and without any duty to account to
Sublessee with respect to such action or inaction or for any proceeds with
respect thereto, except as hereinafter set forth in this Section 15;

 

(iii)                               whether or not Sublessor
shall have exercised, or shall thereafter at any time exercise, any of its
rights under paragraph (a) or paragraph (b) above with respect to the
Airframe and/or any Engine, Sublessor, by written notice to Sublessee
specifying a payment date which shall be a Sublease Period Date not earlier
than ten (10) days from the date of such notice (such specified date, the

 

A1-37

 

“Termination Date”), may demand that
Sublessee pay to Sublessor, and Sublessee shall pay Sublessor, on the
Termination Date, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of the installments of Basic Rent for the Aircraft due for
Sublease Periods commencing on or after the Termination Date), any unpaid Basic
Rent due on or prior to the Termination Date plus
whichever of the following amounts Sublessor, in its sole discretion, shall
specify in such notice (together with interest, if any, on such amount at the
Past Due Rate from the Termination Date until the date of actual payment of
such amount): (A) an amount equal to the excess, if any, of (I) the
Stipulated Loss Value for the Aircraft, computed as of the Termination Date,
over (II) the aggregate fair market rental value (computed as hereafter in this
Section 15 provided) of such Aircraft for the remainder of the Term, after
discounting such aggregate fair market rental value to the present value
thereof as of the Termination Date at an annual rate equal to the Base Rate; or
(B) an amount equal to the excess, if any, of the Stipulated Loss Value
for such Aircraft, computed as of the Termination Date, over (II) the fair
market sales value of such Aircraft (computed as hereafter in Section 15
provided) as of the Termination Date;

 

(iv)                              in the event Sublessor,
pursuant to paragraph (b) above, shall have sold or caused a sale of the
Airframe and/or any Engine, Sublessor, in lieu of exercising its rights under
paragraph (c) above with respect to such Aircraft, may, if it shall so
elect, demand that Sublessee pay Sublessor, and Sublessee shall pay to
Sublessor, on the date of such sale, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the installments of Basic Rent for the
Aircraft due on or after such date), any unpaid Basic Rent with respect to the
Aircraft due on or prior to such date plus the amount
of any deficiency between (I) the net proceeds of such sale (after deduction of
all reasonable costs of sale) and (II) the Stipulated Loss Value of such
Aircraft, computed as of the Stipulated Loss Value Date on or immediately
preceding the date of such sale together with interest, if any, on the amount
of such deficiency, at the Past Due Rate, from the date of such sale to the
date of actual payment of such amount; and/or

 

(v)                                 Sublessor may rescind,
terminate or cancel this Sublease Agreement as to the Aircraft, and/or may
exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.

 

For the purposes of paragraph (iii) above, the “fair
market rental value” or the “fair market sales value” of the Aircraft shall be
the rental value or sales value, as the case may be, which would be obtained in
an arm’s-length transaction between an informed and willing Sublessee or
purchaser, as the case may be, under no compulsion to lease or purchase, as the
case may be, and an informed and willing Sublessor or seller in possession
under no compulsion to lease or sell, as the case may be, in each case based
upon the actual condition and location of the Aircraft, which value shall be
determined pursuant to an appraisal prepared and delivered by a nationally
recognized firm of independent aircraft appraisers chosen by Sublessor. The
cost of such appraisal or appointment shall be borne by Sublessee.

 

A1-38

 

In addition, Sublessee shall be liable, except as
otherwise provided above and without duplication of amounts payable hereunder,
for any and all unpaid Rent due hereunder before, after or during the exercise
of any of the foregoing remedies and for all reasonable legal fees and other
costs and expenses (including fees of the appraisers hereinabove referred to)
incurred by Sublessor, Head Lessor and the Owner Participant by reason of the
occurrence of any Event of Default or the exercise of Sublessor’s remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of the Airframe or any Engine in accordance with the terms of Section 5
or in placing such Airframe or Engine in the condition and airworthiness
required by such Section.

 

At any sale of the Aircraft or any part thereof
pursuant to this Section 15(a), Sublessor (or Head Lessor or the Owner
Participant) may bid for and purchase such property.  Sublessor agrees to give Sublessee at least
ten (10) days prior written notice of the date fixed for any public sale
of the Airframe or any Engine or of the date on or after which will occur the
execution of any contract providing for any private sale.  Except as otherwise expressly provided above,
no remedy referred to in this Section 15(a) is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Sublessor at law or in equity; and
the exercise or beginning of exercise by Sublessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Sublessor of
any or all of such other remedies.  No
waiver by Sublessor of any Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Event of Default.

 

(b)                                 Automatic
Termination.  If the Airline
Services Agreement shall be terminated or canceled or shall terminate in
accordance with its terms, except for the provisions of Sections 29(b) and
29(c) of this Sublease (which shall survive) this Sublease shall thereupon
terminate forthwith and without notice. 
Upon the termination of this Sublease as aforesaid and at any time
thereafter, Sublessor may, to the extent permitted by, and subject to compliance
with any mandatory requirements of, applicable law then in effect, and at
Sublessee’s expense, cause Sublessee to immediately return, and Sublessee shall
immediately return, the Aircraft, Airframe or any Engine as Sublessor may so
demand to Sublessor or its order in the manner and condition required by, and
otherwise in accordance with all the provisions of Section 5 as if such
Aircraft, Airframe or Engine were being returned at the end of the Term, or
Sublessor, at its option, may enter upon the premises where all or any part of
the Aircraft, Airframe or any Engine is located and take immediate possession
of and remove the same (together with any engine which is not an Engine but
which is installed on the Airframe, subject to all the rights of the owner,
lessor, lien holder or secured party of such engine, and such engine shall be
held for the account of any such owner, lessor, lien holder or secured party
or, if owned by Sublessee, may at the option of Sublessor, be exchanged with
Sublessee for an Engine in accordance with the provisions of Section 9(d)),
without the necessity of first instituting proceedings, or by summary
proceedings or otherwise, and Sublessee waives any right it may have under
applicable law to a hearing prior to repossession of the Aircraft, Airframe,
Engine or Part (and/or, at Sublessor’s option, store the same in
accordance with the provisions of Section 5(d)), all without liability
accruing to Sublessor for or by reason of such entry or taking of possession or
removing whether for the restoration of damage to property caused by such
action or otherwise.  Sublessee
acknowledges and agrees that its obligations to return the Aircraft in those
instances is incontrovertible without prejudice to its right to dispute any
amounts, damages, interests or other amounts claimed by Sublessor upon
termination of this Sublease and as such this Sublease will be incontrovertible

 

A1-39

 

written evidence of such obligation of
Sublessee to return the Aircraft which Sublessor will be entitled to enforce
via injunctive orders.

 

In addition, Sublessee shall be liable for any and all
unpaid Rent due hereunder before or during the occurrence of the events
referred to in the preceding paragraph, and all costs and expenses incurred in
connection with the return of the Airframe or any Engine in accordance with the
terms of Section 5 or in placing such Airframe or Engine in the condition
and airworthiness required by such Section.

 

SECTION 16.  Sublessee’s Cooperation Concerning Certain
Matters.  Forthwith
upon the execution and delivery of each Sublease Supplement from time to time
required by the terms hereof and upon the execution and delivery of any
amendment to this Sublease, Sublessee will cause such Sublease Supplement or
amendment to be duly filed and recorded, and maintained of record, in
accordance with the applicable laws of the government of registry of the
Aircraft.  In addition, Sublessee will
promptly and duly execute and deliver to Sublessor such further documents
(including the filing of Uniform Commercial Code continuation statements with
respect to previously filed financing statements) and assurances and take such
further action as may be identified in the annual opinion of counsel required
to be furnished pursuant to Section 30(c) and/or as Sublessor may
from time to time reasonably request in order more effectively to carry out the
intent and purpose of this Sublease and to establish and protect the rights and
remedies created or intended to be created in favor of Sublessor, hereunder or
in respect thereof, including, without limitation, if requested by Sublessor,
at the expense of Sublessee, the execution and delivery of supplements or
amendments hereto, each in recordable form, subjecting to this Sublease, any
airframe or engine substituted for the Airframe or any Engine pursuant to the
terms thereof and the recording or filing of counterparts thereof, in
accordance with the laws of such jurisdictions as Sublessor may from time to
time deem advisable.  Sublessee agrees to
furnish to Sublessor, promptly after execution and delivery of any supplement
and amendment hereto, an opinion of counsel reasonably satisfactory to
Sublessor as to the due recording or filing of such supplement or
amendment.  Commencing in 2006 on or
before April 30 of each year during the Term, Sublessee will deliver to
Sublessor a certificate of Sublessee, signed by the President, a Vice President
or the Chief Financial Officer of Sublessee to the effect that the signer is
familiar with or has reviewed the relevant terms of this Sublease and the
signer does not have actual knowledge of the existence, as of the date of such
certificate, of any condition or event which constitutes a Default or an Event
of Default.  Sublessee agrees that if an
officer of Sublessee has actual knowledge of the existence of a Default or an
Event of Default, then Sublessee shall promptly give to Sublessor notice
thereof and such other information relating thereto as Sublessor may reasonably
request.  Sublessee will deliver to
Sublessor (i) within forty-five (45) days after the end of the first three
quarterly periods of each fiscal year of Sublessee, a balance sheet of
Sublessee as of the close of such period, together with related statements of
financial performance and cash flows for such period and, upon filing with the
Securities and Exchange Commission (and in any event no later than sixty (60)
days after the end of the first three quarterly periods of each fiscal year of
MAIR Holdings, Inc.), the form 10-Q of MAIR Holdings, Inc. for such
period; (ii) within one hundred and twenty (120) days after the close of
such fiscal year, a balance sheet of Sublessee as of the close of such fiscal
year, together with the related statements of financial performance and cash
flows for such fiscal year and the form 10-K of MAIR Holdings, Inc. for
such period, prepared in the case of clause (i) and (ii) in
accordance with generally accepted accounting principles, consistently applied;
(iii) within thirty (30) days

 

A1-40

 

after the end of each
calendar quarter, if not previously provided to Sublessor, any Securities and
Exchange Commission filings of Sublessee and MAIR Holdings, Inc. during
the preceding calendar quarter; (iv) upon filing with the Securities and
Exchange Commission (and in any event no later than ninety (90) days after the
close of MAIR Holdings, Inc.’s fiscal year), the annual report of MAIR
Holdings, Inc. for such fiscal year; and (v) from time to time, such
financial statements and other information relating to Sublessee and MAIR
Holdings, Inc. as Sublessor may reasonably request.

 

SECTION 17.  Notices.  All notices required under the terms and
provisions hereof shall be by telecopy or other telecommunication means (with
such telecopy or other telecommunication means to be confirmed in writing), or
if such notice is impracticable, by registered, first-class airmail, with
postage prepaid, or by nationally recognized overnight courier service, or by
personal delivery of written notice and any such notice shall become effective
when received, addressed:

 

(i)                                     if to Sublessor,
at 2700 Lone Oak Parkway (A4010), Eagan, Minnesota 55121-1534, Attention:
Treasurer (Telecopy No. (612) 726-2221), or to such other address or
telecopy number as Sublessor shall from time to time designate in writing to
Sublessee,

 

(ii)                                  if to Sublessee, at
1000 Blue Gentian Road, Suite 200, Eagan, Minnesota  55121, Attention: President (Telecopy No. (651)
367-5360), or to such other address or telecopy number as Sublessee shall from
time to time designate in writing to Sublessor, and

 

(iii)                               if to Head Lessor or the
Owner Participant, addressed to Head Lessor or the Owner Participant at such
address or telecopy number as Head Lessor or the Owner Participant shall have
furnished by notice to Sublessor and to Sublessee, and, until an address is so
furnished, addressed to Head Lessor or the Owner Participant at its address or
telecopy number set forth in Schedule I to the Participation Agreement.

 

SECTION 18.  No Set-Off, Counterclaim, etc.  This Sublease is a net lease.  All Rent shall be paid by Sublessee to
Sublessor in funds of the type specified in Section 3(d).  Sublessee’s obligation to pay all Rent
payable hereunder shall be absolute and unconditional and shall not be affected
by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which Sublessee may have
against Sublessor, Head Lessor (in its individual capacity or as Owner Trustee
under the Trust Agreement), the Owner Participant, or anyone else for any
reason whatsoever (whether in connection with the transactions contemplated
hereby or any other transactions), including, without limitation, any breach by
Sublessor, Head Lessor, or the Owner Participant of their respective
warranties, agreements or covenants contained in any of the Operative Documents
or Sublessee Documents, each of which rights Sublessee expressly waives, (ii) any
defect in the title, registration, airworthiness, condition, design, operation,
or fitness for use of, or any damage to or loss or destruction of, the
Aircraft, or any interruption or cessation in or prohibition of the use or
possession thereof by Sublessee for any reason whatsoever, including, without
limitation, any such interruption, cessation or prohibition resulting from the
act of any government authority, (iii) any insolvency, bankruptcy,
reorganization or similar case or proceedings by or against Sublessee or any
other person, or (iv) any other circumstance, happening, or event
whatsoever,

 

A1-41

 

whether or not unforeseen
or similar to any of the foregoing.  If
for any reason whatsoever this Sublease shall be terminated in whole or in part
by operation of law or otherwise except as specifically provided herein,
Sublessee nonetheless agrees without limitation of the other rights or remedies
of Sublessor hereunder, to pay to Sublessor an amount equal to each Rent
payment at the time such payment would have become due and payable in accordance
with the terms hereof had this Sublease not been terminated in whole or in
part.  Sublessee hereby waives, to the
extent permitted by applicable law, any and all rights which it may now have or
which at any time hereafter may be conferred upon it, by statute or otherwise,
to terminate, cancel, quit or surrender this Sublease except in accordance with
the express terms hereof.

 

SECTION 19.  No Renewal.  Sublessee shall not have the right to renew
this Sublease.

 

SECTION 20.  Maintenance Program.  Sublessor shall have the right in its sole
discretion upon and after return of the Aircraft to utilize the Maintenance
Program at no cost to Sublessor and Sublessee hereby agrees that is shall
permit Sublessor to utilize the Maintenance Program upon and after return of
the Aircraft at no cost to Sublessor.

 

SECTION 21.  Sublessor’s Right to Perform for Sublessee.  If Sublessee fails to make any payment of
Rent required to be made by it hereunder or fails to perform or comply with any
of its agreements contained herein, then Sublessor or Head Lessor may itself
make such payment or perform or comply with such agreement but shall not be
obligated hereunder to do so, and the amount of such payment and the amount of
the reasonable expenses of Sublessor or Head Lessor, as the case may be,
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Past Due Rate, shall be deemed Supplemental Rent, payable by Sublessee upon
demand.

 

SECTION 22.  [Intentionally Omitted]

 

SECTION 23.  Service of Process.  Sublessor and Sublessee each hereby
irrevocably submits itself to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, New
York County, for the purposes of any suit, action or other proceeding arising
out of this Sublease, the subject matter hereof or any of the transactions
contemplated hereby brought by Sublessor, Head Lessor or the Owner Participant
or their successors or assigns.

 

SECTION 24.  Miscellaneous.  Subject to Section 15(b), any provision
of this Sublease which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.  No term or provision of
this Sublease may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by Sublessor and Sublessee.  Sublessor, however, shall have the right to
amend, supplement or otherwise modify the terms of this Sublease without the
consent of Sublessee in the event of any amendment, supplement or other
modification of the terms of the Head Lease. 
This Sublease shall constitute an agreement of sublease, and nothing contained
herein shall be construed as conveying to Sublessee any right, title or
interest in the Aircraft except as a sublessee only.  Neither Sublessee nor any Affiliate of
Sublessee will file any tax returns in a manner inconsistent with the foregoing
fact or with the Owner’s ownership of the Aircraft.  The section and paragraph headings in
this Sublease and the table of contents are for convenience of reference only
and shall not modify, define, expand or limit any of the terms or

 

A1-42

 

provisions hereof and all
references herein to numbered sections, unless otherwise indicated, are to
sections of this Sublease.  The Exhibits
attached hereto are intended to be an integral part of this Sublease and are
incorporated into this Sublease by reference for all purposes.  THIS SUBLEASE HAS BEEN
DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.  This Sublease may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.  This
Sublease, the Airline Services Agreement, and the Sublease Supplement contain
the complete and exclusive statement of the terms and conditions of the entire
Aircraft sublease agreement between Sublessor and Sublessee for the Term.  Nothing in this Sublease shall be interpreted
or construed as establishing between the parties a partnership, joint venture
or other similar arrangement.

 

SECTION 25.  Subordination.  Notwithstanding any other provision hereof,
this Sublease and Sublessee’s rights hereunder shall be subject and subordinate
to all the terms of the Head Lease, including, without limitation, the
covenants contained in Section 7(a) of the Head Lease and Head Lessor’s
rights to repossession of the Aircraft pursuant to Section 15 of the Head
Lease and to avoid this Sublease for any reason upon such repossession, and
Sublessee shall not be permitted to take any action hereunder not permitted to
be taken by Sublessor as “lessee” in the Head Lease.  Sublessee agrees to execute such further
documents confirming such subordination of this Sublease as may be reasonably
requested by Sublessor.  Sublessee
acknowledges receipt of an executed copy of each of the Head Lease, the
Participation Agreement, the Tax Indemnity Agreement and the Head Lease
Supplement.

 

SECTION 26.  Covenant of Quiet Enjoyment.  So long as (a) no Event of Default shall
have occurred and be continuing and (b) the Airline Services Agreement
shall not have been terminated or canceled or shall not have terminated in
accordance with its terms, Sublessor shall not interfere with Sublessee’s
continued use and operation of, and quiet enjoyment of, the Aircraft.

 

SECTION 27.  Federal Bankruptcy Code.  It is the intention of the parties that the
provisions of 11 U.S.C. Section 1110, or any analogous section of the
Federal bankruptcy laws, as amended from time to time, shall be applicable to
the interest of Sublessor in the Aircraft and to any right of Sublessor to take
possession of the Aircraft in compliance with the provisions of this Sublease,
as the same may be amended, modified or supplemented from time to time.

 

SECTION 28.  Use of Funds.  If a Default or an Event of Default shall
have occurred and is continuing, or if a default or an event of default under
any other aircraft, engine, spare parts or facility lease or sublease or any
other agreement, instrument or document between Sublessor or any Affiliate
thereof and Sublessee or any Affiliate thereof shall have occurred and is
continuing, Sublessor shall have the right in its sole discretion to apply any
funds of Sublessee that it holds including, without limitation, those which are
part of Basic Rent and those which are held pursuant to Sections 10(f)(i) and
11(g)(i) hereof, to cure any Default or Event of Default or any default or
event of default under any agreement, instrument or document between Sublessor
or any Affiliate thereof and Sublessee or any Affiliate thereof; provided, however, that
Sublessor shall have no obligation hereunder to apply any such funds. The
amount of any such funds so applied and the amount of the reasonable expenses
of Sublessor incurred in connection with such

 

A1-43

 

application, together
with interest thereon at the Past Due Rate shall be deemed Supplemental Rent,
payable by Sublessee upon demand.

 

SECTION 29.  Sublessee’s Representations, Warranties and
Indemnities.  (c) 
In General.  Sublessee represents, warrants and covenants
to Sublessor that as of the Commencement Date:

 

(i)                                     Sublessee is a
Certificated Air Carrier and corporation duly organized and validly existing
pursuant to the laws of the State of Minnesota; is duly qualified to do
business as a foreign corporation in each jurisdiction in which its operations
or the nature of its business requires, other than failures to qualify which
would not have a material adverse effect on the consolidated business, assets,
properties or condition (financial or otherwise) of Sublessee and its
subsidiaries taken as a whole or on the ability of Sublessee to perform its
obligations under the Sublessee Documents; has its jurisdiction of organization
(as such term is used in Article 9 of the Uniform Commercial Code) in
Minnesota; holds all licenses, certificates, permits and franchises from the
appropriate agencies of the United States and/or all other governmental
authorities having jurisdiction necessary to conduct its business as presently
conducted (other than those licenses, certificates, permits and franchises
which, if not obtained, would not have an adverse effect on the consolidated
business assets, properties or condition (financial or otherwise) of Sublessee
or on the ability of Sublessee to perform its obligations under the Sublessee
Documents); and has the corporate power and authority to own or hold under the
Sublease its properties wherever located or used and to enter into and perform
its obligations under the Sublessee Documents;

 

(ii)                                  the execution,
delivery and performance by Sublessee of the Sublessee Documents to which
Sublessee is a party will, on the Commencement Date, have been duly authorized
by all necessary corporate action on the part of Sublessee, do not require any
stockholder approval, or approval or consent of any trustee or holders of any
indebtedness or obligations of Sublessee except such as have been duly obtained
or by the Commencement Date will have been duly obtained, and neither the
execution or delivery thereof or the consummation by Sublessee of the
transactions contemplated thereby nor the compliance by Sublessee with any of the
terms and provisions of such agreements contravenes any law, judgment,
government rule, regulation or order binding on Sublessee or the certificate of
incorporation or by-laws of Sublessee or contravenes the provisions of, or
constitutes a default under, or results in the creation of any Lien (other than
Permitted Liens) upon the property of Sublessee under, any indenture, mortgage,
contract or other agreement to which Sublessee is a party or by which it or its
properties may be bound or affected;

 

(iii)                               neither the execution
and delivery by Sublessee of the Sublessee Documents to which Sublessee is a
party nor the performance by Sublessee of its obligations thereunder require
the consent or approval of, the giving of notice to, or the registration with,
or the taking of any other action in respect of, any Federal, state or foreign
government authority or agency, except for (A) the

 

A1-44

 

orders, permits, waivers, exemptions, authorizations and approvals of
the regulatory authorities having jurisdiction over the operation of the
Aircraft by Sublessee required to be obtained on or prior to the Commencement
Date, which orders, permits, waivers, exemptions, authorizations and approvals
have been duly obtained and are, or will on the Commencement Date be in full
force and effect, and (B) such consents, approvals, notices, registrations
and other actions required by the terms of the Sublessee Documents to the
extent required to be given or obtained only after the Commencement Date;

 

(iv)                              on the Commencement Date
the Sublessee Documents to which Sublessee is a party will each constitute
legal, valid and binding obligations of Sublessee enforceable against Sublessee
in accordance with the terms thereof (except as enforceability may be limited
by (A) general principles of equity, (B) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the rights of creditors generally, (C) applicable laws which may
affect the remedies provided therein; which laws, however, do not make the
remedies provided therein inadequate for the practical realization of the
benefits provided thereby, except that no representation or warranty is made as
to the amount of priority of any recovery under any particular circumstances,
and (D) in the case of indemnity provisions contained in such documents,
as limited by public policy considerations);

 

(v)                                 there are no pending
or, to the best of Sublessee’s knowledge, threatened actions, suits or proceedings
before any court, governmental body, arbitration board, tribunal or
administrative agency which might adversely affect the business, condition
(financial or otherwise), operations or properties of Sublessee or Sublessee’s
ability to perform its obligations under the Sublessee Documents to which
Sublessee is a party;

 

(vi)                              except for (A) the
filing for recording pursuant to the Federal Aviation Act of the Sublease with
the Sublease Supplement covering the Aircraft, and (B) the filing of
financing statements (and continuation statements at periodic intervals) with
respect to the security and other interests created by such documents under the
Uniform Commercial Code, no further action, including any filing or recording
of any document (including any financing statement in respect thereof under Article 9
of the Uniform Commercial Code of any applicable jurisdiction), is necessary in
order to establish and perfect Sublessor’s interest in the Aircraft as against
Sublessee in any applicable jurisdictions in the United States;

 

(vii)                           there has not occurred any
event which constitutes an Event of Default under the Sublease or a default or
an event of default under any other aircraft, engine, spare parts or facility
lease or sublease or any other agreement, instrument or document between
Sublessor or any of its Affiliates and Sublessee (or any event which with the
giving of notice or the passage of time or both would constitute an Event of
Default under the Sublease or an event of default under any

 

A1-45

 

other aircraft, engine, spare parts or facility lease or sublease
between Sublessor or any of its Affiliates and Sublessee) which is presently
continuing;

 

(viii)                        the Aircraft will be free and
clear of all Liens, except Permitted Liens (including, for this purpose, any
Lien which would be a Sublessor Lien or Head Lessor Lien but for the proviso to
either such definition);

 

(ix)                                the Aircraft will be
duly certified by the FAA as to type and airworthiness, will be insured by
Sublessee in accordance with the terms of this Sublease and will be in the
condition and state of repair required under the terms of this Sublease;

 

(x)                                   Sublessor, as
sublessor hereunder, will be entitled to the benefits of 11 U.S.C. Section 1110
(or any successor statute containing the material terms of 11 U.S.C. Section 1110)
in the event of any reorganization of Sublessee under such Section; and

 

(xi)                                there has not been any
material adverse change in the operations or financial condition of Sublessee
since March 31, 2005.

 

(b)                                 General Tax
Indemnity.

 

(i)                                     Indemnity.  Except as
provided in Section 29(b)(ii) hereof, Sublessee shall on an After-Tax
Basis pay, protect, save and on written demand shall indemnify and hold
harmless any Tax Indemnitee from and against any and all Taxes howsoever
imposed against any Tax Indemnitee, Sublessee, Sublessee Person or the
Aircraft, the Airframe, any Engine, or any Part thereof or interest
therein by any Federal, state or local government or other taxing authority in
the United States or by any foreign government or any political subdivision or
taxing authority thereof or by any territory or possession of the United States
or by any international authority (“Taxing Authority”)
upon or in connection with or relating to (A) the construction, financing,
refinancing, purchase, acquisition, acceptance, rejection, delivery,
nondelivery, transport, ownership, registration, re-registration, insuring,
assembly, possession, repossession, operation, location, use, control, condition,
maintenance, repair, sale, return, abandonment, installation, storage,
redelivery, replacement, leasing, subleasing, modification, rebuilding,
importation, exportation, transfer of title, transfer of registration, or other
application or disposition of the Aircraft, the Airframe, any Engine, or any Part thereof
or any interest in the foregoing, (B) the rentals, receipts or earnings
from the Aircraft, the Airframe, any Engine, any Part or any interest in
the foregoing, (C) any amount paid or payable pursuant to any Operative
Document or Sublessee Document or any document related to any Operative
Document or Sublessee Document, (D) the Aircraft, the Airframe, any
Engine, any Part or any interest in the foregoing, (E) any or all of
the Operative Documents or the Sublessee Documents or the execution, issuance,
delivery or registration of, or the performance under any of the Operative
Documents or Sublessee Documents and any other documents contemplated hereby or
thereby and amendments and

 

A1-46

 

supplements hereto and thereto or the execution, delivery or
performance of any thereof or the issuance, acquisition, modification, holding
or subsequent transfer thereof, or (F) the payment of principal of,
interest, Make-Whole Amount or other premium on, or (G) otherwise with
respect to or in connection with the transactions contemplated by the Operative
Documents or the Sublessee Documents.

 

(ii)                                  Exclusions from General Tax Indemnity.  The provisions of Section 29(b)(i) shall
not apply:

 

(1)                                  with respect to any
Equity Tax Indemnitee and Sublessor, to any Income Tax (as defined in Section 29(d) hereof)
imposed on such Tax Indemnitee by the United States Federal government, provided, however, that
notwithstanding the foregoing, Sublessee will indemnify and hold harmless each
Equity Tax Indemnitee and Sublessor for any withholding taxes imposed on or
with respect to the payment of principal, interest, Make-Whole Amount and the
Sublessor with respect to any withholding tax imposed on any rent payable by
Sublessor under the Head Lease, including interest and penalties thereon;

 

(2)                                  to any Tax to the
extent imposed as a result of a voluntary transfer or disposition by a Tax
Indemnitee including, without limitation, the revocation of the trust created
by the Trust Agreement or a transfer or disposition of all or any portion of
its respective equitable or legal ownership or leasehold interest in the
Aircraft, any Engine, any Part, the Trust Estate, or any Operative Document or
Sublessee Document or any interest in such Tax Indemnitee, unless such transfer
or disposition shall occur (A) during the continuance of a Default or
Event of Default under the Lease or this Sublease or upon the termination or
cancellation of the Airline Services Agreement, (B) in connection with the
termination of the Head Lease or Sublease, as the case may be, or the action or
direction of Sublessee pursuant to Sections 2, 5 ,6, 7, 8, 9, 10 or 19 of this
Sublease or of Sublessor pursuant to Sections 2, 5, 6, 7, 8, 9, 10 or 19 of the
Head Lease, as the case may be, or (C) in connection with the substitution
or replacement of the Aircraft, any Engine or Part pursuant to Section 10
of the Head Lease;

 

(3)                                  to Taxes to the
extent based on or measured by any fees received by the Owner Trustee in
connection with any transaction contemplated by the Operative Documents;

 

(4)                                  to Taxes to the
extent imposed with respect to events occurring or matters arising, after the
earlier of (x) the return of physical possession of the Aircraft to Sublessor
or its designee pursuant to the terms of this Sublease or (y) the commencement
of storage pursuant to Section 5(d) hereof; provided the
exclusion set forth in this subparagraph (4) shall not apply to Taxes to
the extent such Taxes relate to events,

 

A1-47

 

periods or matters occurring or arising prior to or simultaneously with
such time or arise as a result of amounts payable by Sublessee after such time,
or occur during the continuance of a Default or Event of Default under this
Sublease;

 

(5)                                  to any Tax to the
extent arising out of or caused by, or to the extent such Tax would not have
been incurred but for, (A) the willful misconduct of such Tax Indemnitee
or (B) the breach of any representation, covenant or agreement by such Tax
Indemnitee in any Operative Document;

 

(6)                                  with respect to any
Tax Indemnitee (other than Sublessor and its Affiliates, successors and assigns
and their respective directors, officers, employees, agents and servants) to
any Tax to the extent such Tax Indemnitee is not entitled to indemnification
pursuant to Section 7(b) of the Participation Agreement.

 

Nothing contained in Section 29(b)(ii) hereof
shall apply to any Tax in the nature of a sales, use, value added, goods and
services, transfer, recording, excise or registration Tax imposed on or with
respect to the Aircraft, any Engine or any Part or interest therein or
title thereto incurred prior to, or on the date of, the execution and delivery
of this Sublease.  For the avoidance of
doubt, and notwithstanding any provision herein to the contrary, Sublessee
agrees to indemnify Sublessor on an After-Tax Basis against, and agrees to hold
Sublessor harmless from, any and all payments, indemnities and gross-ups
required to be made by Sublessor pursuant to Section 7 of the
Participation Agreement.

 

(iii)                               Calculation of General Tax Indemnity Payments.  Notwithstanding any provision contained in Section 29(b)(ii) hereof,
any payment which Sublessee shall be required to make to, or for the account
of, any Tax Indemnitee, with respect to any Tax (or any payment made in
connection with the payment or contest of any Tax) which is subject to
indemnification under this Section 29(b) shall be paid on an
After-Tax Basis.  Any calculation of an
indemnity payment for an inclusion item, and of any gross-up of an indemnity or
reverse indemnity payment, will be on the basis of then-actual Federal, state,
and local tax rates applicable to such Tax Indemnitee, and based upon the assumption
that the Tax Indemnitee is fully taxable at such tax rates.

 

If a Tax Indemnitee
(other than Sublessor or any of its Affiliates) shall pay any amount to
Sublessor pursuant to Section 7(b)(iii) of the Participation
Agreement for which Sublessee has previously paid an indemnity under this Section 29,
Sublessor shall pay such amount to Sublessee within 15 Business Days after
Sublessor has received such amount, after deduction of Sublessor’s reasonable
costs and expenses (including any net tax cost) in connection therewith but not
in excess of Sublessee’s prior payments with respect to such indemnified Tax.

 

A1-48

 

Any Taxes that are
imposed on any Tax Indemnitee as a result of the disallowance or reduction of
any tax benefit (including foreign tax credits) referred to in this subsection as
to which Sublessor has made a payment to Sublessee required hereby (or as to
which such Sublessor would have made payment but for Section 29(b)(viii) or
which benefit was otherwise taken into account in computing Sublessee’s
indemnity obligation pursuant to this Section 29(b)) in a taxable year
subsequent to the utilization by the Tax Indemnitee, or any amount required to
be paid by Sublessor to a Tax Indemnitee pursuant to the penultimate paragraph
of Section 7(b)(iii) of the Participation Agreement, shall be treated
as a Tax for which Sublessee is obligated to indemnify the relevant Tax
Indemnitee or reimburse Sublessor pursuant to the provisions of this Section 29(b),
without regard to the exclusions set forth in Section 29(b)(ii) hereof.

 

(iv)                              General Tax Indemnity – Contests.  With respect to any Tax Indemnitee that is
Sublessor or any Affiliate thereof (a “Sublessor Tax Indemnitee”)
at Sublessee’s written request and with the written consent of Sublessor,
Sublessee shall be entitled to contest any claim with respect to any Tax
imposed on such Sublessor Tax Indemnitee other than an Income Tax either in
Sublessee’s name or in the name of such Sublessor Tax Indemnitee at Sublessee’s
sole cost and expense (a “Sublessee Controlled
Contest”) . If Sublessor receives a written claim from any Tax
Indemnitee or any Taxing Authority for any Tax for which Sublessee is obligated
pursuant to Section 29(b)(i), Sublessor shall notify Sublessee promptly of
such claim (it being understood and agreed that failure to provide such notice
shall not adversely affect or otherwise prejudice any Tax Indemnitee’s right to
an indemnity hereunder except to the extent such failure precludes any contest
of such claim).  If the Tax cannot be
contested in a Sublessee Controlled Contest for any reason (including, but not
limited to the refusal of the Sublessor or other Tax Indemnitee to consent
thereto), upon written request from Sublessee received by Sublessor within ten (10) Business
Days of such notice Sublessor shall exercise its rights, if any, under Section 7(b)(iv) of
the Participation Agreement in good faith (if the Tax Indemnitee is other than
a Sublessor Tax Indemnitee) or Sublessor shall contest such claim in good faith
(if the Tax Indemnitee is a Sublessor Tax Indemnitee) in each case at Sublessee’s
sole cost and expense.  Any such contest
shall be at such Tax Indemnitee’s or Sublessor’s control and direction.  In any such contest the Tax Indemnitee or
Sublessor, as the case may be, may in its sole discretion select the forum for
such contest and determine whether any such contest shall be by (A) resisting
payment of such Tax, (B) paying such Tax under protest or (C) paying
such Tax and seeking a refund or other repayment thereof.  In no event shall Sublessor be required to
contest, or to request a Tax Indemnitee to contest, or Sublessee be permitted
to contest, the imposition of any Tax for which Sublessee is obligated pursuant
to this Section 29(b) unless (W) no Default or Event of Default shall
have occurred and be continuing under the Sublease and no Event of Default (as
such term is defined in the Head Lease) shall have occurred and be continuing,
(X) Sublessee shall have agreed to pay to Sublessor and to the Tax Indemnitee
on demand on an After-Tax Basis all reasonable costs and expenses that
Sublessor

 

A1-49

 

and the Tax Indemnitee may incur in connection with contesting such
claim (including, without limitation, all reasonable legal and accounting fees
and disbursements), (Y) such action to be taken will not result in a risk of
sale, forfeiture or loss of, or the creation of any Lien on, the Aircraft, the
Engines or any Part, other than Permitted Liens or a material risk of loss of
the Lien of the Trust Indenture or a risk of imposition of criminal penalties,
and (Z) if such contest shall be conducted in a manner requiring the payment of
the claim, Sublessee shall have paid the amount required directly to the
appropriate authority or made an advance of the amount thereof to such Tax
Indemnitee on an interest-free basis and agreed to indemnify Sublessor and such
Tax Indemnitee on an after-tax basis for any cost or Taxes payable with respect
to such advance.  In addition, Sublessee
shall not have any right to request Sublessor or any other Tax Indemnitee to
contest a claim unless (x) the amount of indemnity payments that Sublessee
would be required to make if the contest were unsuccessful is at least $***, (y) prior to commencement of any
contest, Sublessee has delivered to Sublessor and, if requested by Sublessor,
the Tax Indemnitee a written acknowledgment of Sublessee’s obligation under
this Section 29(b) to indemnify such Sublessor and such Tax Indemnitee
with respect to the Tax at issue to the extent that the contest is
unsuccessful; and (z) Sublessor and the relevant Tax Indemnitee has received an
opinion of independent tax counsel selected by Sublessor that concludes that a
Reasonable Basis exists with respect to the tax position Sublessee has
asserted.  For the purposes of this Section 29(b),
the term “Reasonable Basis” shall have the meaning set forth for such term in
Formal Opinion 85-352 issued by the Standing Committee on Ethics and Professional
Responsibility of the American Bar Association. 
Sublessee shall have no right to pursue or appeal or cause any Tax
Indemnitee or Sublessor to pursue or appeal an adverse judicial decision
without the prior written consent of Sublessor and, if required by Sublessor,
the relevant Tax Indemnitee.

 

If Sublessor receives
from any Tax Indemnitee (other than from its Affiliate) a payment with respect
to a refund of all or any part of any Tax paid by Sublessee, Sublessor shall
pay Sublessee an amount equal to the amount of such payment less any cost
and/or expenses, including net tax cost, incurred in respect thereof.

 

Nothing contained in this
Section 29(b)(iv) shall require a Sublessor or a Tax Indemnitee to
contest, or permit Sublessee to contest, a claim which such Tax Indemnitee
would otherwise be required to contest, if such Tax Indemnitee shall waive
payment by Sublessor and Sublessee of any amount that might otherwise be
payable by Sublessee under this Section 29(b) or Sublessor under Section 7(b) of
the Tax Indemnity Agreement in respect of such claim and any other claim, the
contest of which would be precluded.  In
addition, for the avoidance of doubt, Sublessee shall have no right to contest
or require any other party to contest any Tax imposed on a Tax Indemnitee in a
manner or to the extent that is inconsistent with Sublessor’s rights under the
Participation Agreement.

 

A1-50

 

(v)                                 General Tax Indemnity – Reports.  If any report, return or statement is
required to be filed with respect to any Tax which is subject to
indemnification under this Section 29(b), Sublessee shall timely file the
same at its sole expense (except for any such report, return or statement which
a Tax Indemnitee has notified Sublessor or Sublessee that such Tax Indemnitee
intends to file or which such Tax Indemnitee is required by law to file in its
own name).  Sublessee shall either file
such report, return or statement so as to show the ownership of the Aircraft in
the Owner Trustee or the Owner Participant where appropriate and send a copy of
such report, return or statement to Sublessor, the Tax Indemnitee and Owner
Trustee or, where Sublessee is not so permitted to file such report, return or
statement, it shall notify the Tax Indemnitee and Sublessor of such requirement
and prepare and deliver such report, return or statement to the Tax Indemnitee
and Sublessor in a manner satisfactory to such Tax Indemnitee and Sublessor
within a reasonable time prior to the time such report, return or statement is
to be filed.  Sublessee shall hold
Sublessor and the Tax Indemnitee harmless on an After-Tax Basis from and
against any penalties, interest, fines or additions to Tax caused by the
inaccuracy of any report, return or statement prepared and filed by Sublessee
on behalf of Sublessor or any other Tax Indemnitee. Sublessee will provide at
Sublessee’s expense to Sublessor and the Tax Indemnitee such information
maintained in the regular course of Sublessee’s business as Sublessor or any
Tax Indemnitee may reasonably request in writing that is reasonably necessary
to enable Sublessor or such Tax Indemnitee to comply with their tax filings,
audit and litigation requirements.  If
Sublessee receives written notice from a Taxing Authority or a Tax Indemnitee
or otherwise of a Tax that is imposed upon a Tax Indemnitee but not indemnified
against by Sublessee hereunder, Sublessee will promptly forward a copy of such
notice to Sublessor and the Tax Indemnitee. 
Sublessee shall also provide or cause to be provided to Sublessor, upon
request and at Sublessee’s expense, all documents, records and other
information that Sublessor is required to provide any Tax Indemnitee under Section 7(b) of
the Participation Agreement.

 

(vi)                              Verification.  At
Sublessee’s written request after Sublessee receives computations showing the
amount of any indemnity payable by Sublessee pursuant to Section 29(b)(i),
Sublessor shall exercise its rights, if any, under Section 7(b)(vi) of
the Participation Agreement with respect to verification of such
computation.  If Sublessee pays such
indemnity in whole or in part before completion of the verification procedure,
appropriate adjustments will be made promptly after completion of the verification
procedure to take into account any redetermination of the indemnity by the
accounting firm.  Any fee and
disbursements of the accounting firm payable by Sublessor shall be paid by
Sublessee.  Sublessee will have no right
under this Section 29(b) to examine any tax return of any Tax Indemnitee
or Sublessor.  The sole responsibility of
such accounting firm shall be to verify the computations of the amount payable
hereunder and the interpretation of this Agreement or any other agreement shall
not be within the scope of such accounting firm’s responsibilities.

 

A1-51

 

(vii)                           General Tax Indemnity – Payment. 
Except as provided in Section 29(b)(iv) hereof,
Sublessee shall pay any Tax for which it is liable pursuant to Section 29(b)(i) directly
to the appropriate taxing authority if legally permissible or upon demand of a
Tax Indemnitee or Sublessor shall pay such Tax and any other amounts due
hereunder to such Tax Indemnitee or to Sublessor as indicated in such demand
within ten (10) Business Days of such demand.  Any such demand for payment from a Tax
Indemnitee or Sublessor shall specify in reasonable detail the payment and the
facts upon which the right to payment is based. 
Sublessor shall request that the Tax Indemnitee promptly forward to
Sublessee a copy of any notice, bill or advice received by it to the extent
concerning any Tax indemnified against hereunder, (provided
that the failure of the Sublessor to make such request or the failure of the
Tax Indemnitee to forward such notice, bill or advice shall not adversely
affect the Sublessor’s or Tax Indemnitee’s rights to indemnification
hereunder).  Within twenty (20) days
after the date of each payment by Sublessee of any Tax indemnified against
hereunder, Sublessee shall furnish the appropriate Tax Indemnitee (with a copy
to Sublessor) the original or a certified copy of a receipt for Sublessee’s
payment of such Tax or such other evidence of payment of such Tax as is
reasonably acceptable to such Tax Indemnitee.

 

(viii)                        Application of Payments During Existence of Default or Event of
Default.  Any amount payable
to Sublessee pursuant to the terms of this Section 29(b) shall not be
paid to or retained by Sublessee if at the time of such payment or retention a
Default or Event of Default shall have occurred and be continuing or if any
event described in Section 10.02 of the Airline Services Agreement giving
Sublessor the ability to terminate the Airline Services Agreement shall have
occurred, if any event described in Section 10.03 of the Airline Services
Agreement shall have occurred or if the Airline Services Agreement shall have
been terminated or cancelled or shall have been terminated in accordance with
its terms, but shall be held by Sublessor and applied pursuant to Section 28
hereof.

 

(ix)                                [Intentionally Omitted].

 

(x)                                   Inclusions.  If
Sublessor is required by any Taxing Authority to include in its income for
income tax purposes, or Sublessor receives an opinion from independent tax
counsel selected by Sublessor and reasonably acceptable to Sublessee, that
Sublessor does not have a Reasonable Basis to exclude from its income for
income tax purposes, any amount in respect of, or resulting from (i) any
modification, repair, improvement, addition, substitution or replacement of the
Aircraft, the Airframe or any Engine or any Part, (ii) any payment of
Basic Rent or Supplemental Rent under the Sublease by or on behalf of Sublessee
in an amount greater, or at a time earlier, than the amounts or times provided
in the Sublease, (iii) any warranty or indemnity payments or refunds
attributable to the Aircraft, the Airframe or any Engine received from the
manufacturer which was not remitted to, and retained by, Sublessor, (iv) the
theft, destruction or other loss of the Aircraft, Airframe or any Engine or any
Part; (v) any application of Section

 

A1-52

 

467(b)(2) to the Sublease; (vi)  any payment of indemnities
to a Tax Indemnitee or Indemnitee (other than Sublessor) or fees, expenses or
reimbursement to a trustee, agent or other Person pursuant to this Agreement;
or (vii) any act or payment by Sublessee not required under the terms of
the Sublessee Documents, (herein called a “Sublessor Inclusion”),
Sublessee shall pay to Sublessor an amount which, on an After-Tax Basis, shall
be equal to the amount of the additional taxes on or measured by gross or net
income (plus any and all fines, penalties, additions to tax and interest
calculated by reference thereto) payable by Sublessor as a result of such
Sublessor Inclusion.

 

(xi)                                Contests Etc.  The
provisions of Section 29(b)(iii) (relating to tax savings) and 29(b)(iv) (relating
to contests) of this Agreement shall apply, mutatis mutandis,
with respect to any Sublessor Inclusion.

 

(xii)                             Pass-through of Tax Indemnity Agreement Indemnities.  (1)  Indemnity.  If Sublessor is required to pay Head Lessor
or Owner Participant any amount (herein called a “TIA
Liability”) pursuant to the Tax Indemnity Agreement, Sublessee shall
pay to Sublessor an amount, which, on an After-Tax Basis, shall be equal to
such TIA Liability.  Such payment shall
be made at least five (5) Business Days prior to the date Sublessor must
pay Head Lessor under the Tax Indemnity Agreement.

 

(2)                                  Exceptions.
Sublessee shall not be required to indemnify Sublessor for any TIA Liability to
the extent that such TIA Liability would not have occurred but for any of the
following:

 

(y)                                 Sublessor
claiming deductions for depreciation of the Aircraft for federal income tax
purposes or claiming on any federal income tax return to be the owner of the
Aircraft for federal income tax purposes;

 

(z)                                   the
status of Sublessor as a “tax-exempt entity” within the meaning of Section 168(h) of
the Code but only if such status is not caused by a Sublessee Person.

 

(3)                                  Tax Saving.  If Head Lessor or the Owner Participant pays
an amount to Sublessor pursuant to Section 4(c) of the Tax Indemnity
Agreement, for which Sublessee has previously paid an indemnity to Sublessor
pursuant to paragraph (1) hereof, Sublessor shall pay such amount to
Sublessee within 5 Business Days after Sublessor receives such amount, but not
in excess of any payment previously made by Sublessee with respect to such TIA
Liability and net of any tax liability incurred by Sublessor with respect to
receipt and payment of such amount.

 

(4)                                  Contest.  If Sublessor receives a written claim for an
indemnity pursuant to the Tax Indemnity Agreement for which Sublessee would be
required to pay Sublessor an indemnity hereunder, Sublessor

 

A1-53

 

shall notify Sublessee thereof in writing (but it being understood and
agreed that failure of Sublessor to provide such notice to Sublessee shall not
adversely affect or otherwise prejudice any Sublessor’s right to an indemnity
hereunder).  If requested by Sublessee in
writing within ten (10) Business Days before the latest day on which
Sublessor may request a contest pursuant to Section 6 of the Tax Indemnity
Agreement, Sublessor shall exercise its rights, if any, under Section 6 of
the Tax Indemnity Agreement provided that
in no event shall Sublessor be required to initiate or continue (or be required
to request any other person to initiate or continue) a contest unless: (i) the
amount of the obligation on the part of Sublessee to indemnify Sublessor
pursuant to subsection (1) hereof shall be at least $***, (ii)  Sublessee agrees to
reimburse Sublessor on demand (and complies with such agreement) for all of the
Owner Participant’s and Sublessor’s reasonable costs and expenses (including,
without limitation, reasonable legal and accounting fees and disbursements)
which each may incur in contesting such disallowance, (iii) if Owner
Participant elects to contest the disallowance by paying the tax claimed
(including interest, penalties or additions to tax) and seeking a refund,
Sublessee shall advance to Sublessor on an interest free basis the aggregate
amount of taxes, interest, penalties and additions to the tax applicable to
such disallowance and agree to indemnify Sublessor and the Owner Participant
for any adverse tax consequences resulting from such advance, (iv) such
contest would not entail any risk of criminal penalties, (v) with respect
to such disallowance, Sublessee shall have furnished Sublessor at Sublessee’s
expense, with a written opinion of independent tax counsel selected by
Sublessor that a Reasonable Basis exists to contest such disallowance and prior
to filing any appeal an opinion that a successful outcome on appeal is more
likely than not and have posted a bond or other security for such appeal, (vi) no
Default or Event of Default, under any of the Operative Documents by Sublessor
or the Airline Services Agreement, has occurred and is continuing, and (vii) Sublessee
shall have delivered to Sublessor a written acknowledge of Sublessee’s
obligation to indemnify in full Sublessor pursuant to this Agreement to the
extent that the contest is not successful. Sublessor shall have no obligation
to cause Owner Participant and Owner Participant shall have no obligation to
appeal any adverse decision of an appellate court to the United States Supreme
Court.

 

(xiii)                          Minimum Indemnity. 
The amount of any indemnity payable by Sublessee to Sublessor pursuant
to this Section 29 shall in all events be an amount sufficient to restore
Sublessor to the position that Sublessor would be in if the Sublessor
Inclusion, TIA Liability or any indemnity otherwise payable pursuant to Section 7
of the Participation Agreement that gave rise to Sublessee’s obligation
hereunder had not occurred.

 

(c)                                  General Indemnity.  Sublessee hereby agrees to indemnify each
Indemnitee against, and agrees to protect, defend, save and keep harmless each
thereof from (whether or not the transactions contemplated herein or in any of
the other Sublessee Documents

 

A1-54

 

are consummated), any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, out-of-pocket
costs, expenses and disbursements (including reasonable legal fees and expenses
but excluding internal costs and expenses such as salaries and overhead), of
whatsoever kind and nature (collectively called “Expenses”)
imposed on, incurred by or asserted against any Indemnitee, in any way relating
to or arising out of (A) any of the Operative Documents or the Sublessee
Documents or any of the transactions contemplated thereby or the enforcement of
any of the terms thereof or any amendment, modification or waiver in respect
thereof, (B) the manufacture, purchase, acceptance or rejection of the
Aircraft, Airframe or any Engine or Part, (C) the Aircraft (or any portion
thereof or any Engine or engine affixed to the Airframe) whether or not arising
out of the finance, refinance, ownership, delivery, nondelivery, storage,
sublease, possession, use, non-use, operation, maintenance, registration,
reregistration, condition, modification, alteration, replacement, repair,
substitution, sale, return or other disposition of the Aircraft (or any portion
thereof or any Engine or engine or Part affixed to the Airframe)
including, without limitation, latent or other defects, whether or not
discoverable, strict tort liability, any damage to property or the environment,
death of or injury to any person and any claim for patent, trademark or
copyright infringement; provided that
the foregoing indemnity as to any Indemnitee shall not extend to any Expense to
the extent resulting from or arising out of or attributable to one or more of
the following: (A) any representation or warranty by such Indemnitee in
the Operative Documents being incorrect in any material respect, or (B) the
failure by such Indemnitee to perform or observe any agreement, covenant or
condition in any of the Operative Documents applicable to it including, without
limitation, with respect to the creation or existence of a Sublessor Lien
(including for this purpose Liens which would be Sublessor Liens but for the
proviso in the definition of Sublessor Liens) attributable to it (except to the
extent such failure was caused by the failure of Sublessee to perform any
obligation under a Sublessee Document), or (C) the willful misconduct of
such Indemnitee, or (D) with respect to any Indemnitee, a disposition by
such Indemnitee of all or any part of such Indemnitee’s interest in the
Airframe, any Engine or in the Operative Documents other than during the
continuance of a Default or an Event of Default under the Sublease, or (E) except
to the extent relating to the payment of any Expenses on an After-Tax Basis,
any Tax whether or not Sublessee is required to indemnify for such Tax pursuant
to Section 29(b) hereof, or (F) except to the extent fairly
attributable to acts, omissions or events occurring prior thereto, acts or
events which occur with respect to the Airframe or any Engine or Part after
the return of physical possession of the Airframe or such Engine or Part to
Sublessor pursuant to the terms of the Sublease.  Sublessee further agrees to indemnify
Sublessor against, and agrees to protect, defend, save and keep harmless
Sublessor from (whether or not the transactions contemplated herein or in any
of the other Sublessee Documents are consummated), any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, out-of-pocket
costs, expenses and disbursements of whatsoever kind and nature imposed on,
incurred by or asserted against Sublessor pursuant to Section 7(c) of
the Participation Agreement.

 

Sublessee further agrees that any payment or indemnity
pursuant to this Section 29(c) in respect of any Expenses or other
amounts payable by Sublessee pursuant to this Section 29(c) shall be
paid on an After-Tax Basis.

 

If, by reason of any Expense payment made to or for
the account of an Indemnitee by Sublessee pursuant to this Section 29(c),
such Indemnitee subsequently realizes a tax deduction or credit or any
reduction in Taxes not previously taken into account in computing

 

A1-55

 

such payment, such
Indemnitee shall promptly pay to Sublessee, but only if Sublessee shall have
made all payments then due and owing to such Indemnitee under the Sublessee
Documents, an amount equal to the sum of (I) the actual reduction in Taxes
realized by such Indemnitee which is attributable to such deduction or credit,
and (II) the actual reduction in Taxes realized by such Indemnitee as a result
of any payment made by such Indemnitee pursuant to this sentence; provided, however, that
no Indemnitee shall be obligated to make any payment pursuant to this sentence
to the extent that the amount of such payment would exceed (i) the
aggregate amount of all prior payments by Sublessee to such Indemnitee under
this Section 29(c) less (ii) the aggregate amount of all prior
payments with respect to such Tax by such Indemnitee to Sublessee pursuant to
this sentence, with any excess being carried forward to offset Sublessee’s
obligations, if any, to make subsequent payments to such Indemnitee under this Section 29(c).

 

Nothing in this Section 29(c) shall be
construed as a guaranty by Sublessee of the residual value of the Aircraft.

 

If a claim is made against an Indemnitee involving one
or more Expenses and such Indemnitee has notice thereof, such Indemnitee shall
promptly, upon receiving such notice, give notice of such claim to Sublessee
and Sublessor; provided that the failure to
provide such notice shall not release Sublessee from any of its obligations to
indemnify hereunder, and no payment by Sublessee to an Indemnitee pursuant to
this Section 29(c) shall be deemed to constitute a waiver or release
of any right or remedy which Sublessee may have against such Indemnitee for any
actual damages as a result of the failure by such Indemnitee to give Sublessee
such notice.  Sublessee shall be
entitled, at its sole cost and expense, acting through counsel acceptable to
the respective Indemnitee, (A) so long as Sublessee has agreed in a
writing acceptable to such Indemnitee that Sublessee is liable to such
Indemnitee for such Expense hereunder, in any judicial or administrative
proceeding that involves solely a claim for one or more Expenses, to assume
responsibility for and control thereof, (B) so long as Sublessee has
agreed in a writing acceptable to such Indemnitee that Sublessee is liable to
such Indemnitee for such Expense hereunder, in any judicial or administrative
proceeding involving a claim for one or more Expenses and other claims related
or unrelated to the transactions contemplated by the Operative Documents, to
assume responsibility for and control of such claim for Expenses to the extent
that the same may be and is severed from such other claims (and such Indemnitee
shall use its reasonable efforts to obtain such severance, provided
that Sublessee has requested such severance and agrees to pay the reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
counsel fees and disbursements) incurred by such Indemnitee, if any, in
connection with such severance), and (C) in any other case, to be
consulted by such Indemnitee with respect to judicial proceedings subject to
the control of such Indemnitee. 
Notwithstanding any of the foregoing to the contrary, Sublessee shall
not be entitled to assume responsibility for and control of any such judicial
or administrative proceedings (M) while a Default or an Event of Default or an
Event of Default (as such term is defined in the Head Lease) or a Default (as
such term is defined in the Head Lease) of the type referred to in Section 14(a),
14(b) or 14(e) of the Head Lease shall have occurred and be
continuing, (N) if such proceedings will involve a risk of the sale, forfeiture
or loss of, or the creation of any Lien (other than a Permitted Lien) on the
Aircraft, the Trust Indenture Estate or the Trust Estate or any part thereof,
or (O) if such proceeding could in the good faith opinion of such Indemnitee
entail any risk of civil liability or criminal liability or present a conflict
of interest making separate representation necessary.  The

 

A1-56

 

affected Indemnitee may
participate at its own expense and with its own counsel in any judicial
proceeding controlled by Sublessee pursuant to the preceding provisions.

 

The affected Indemnitee shall supply Sublessee with
such information reasonably requested by Sublessee as is necessary or advisable
for Sublessee to control or participate in any proceeding to the extent
permitted by this Section 29(c). 
Unless a Default or an Event of Default shall have occurred and be
continuing (in which case the consent of Sublessee shall not be required), such
Indemnitee shall not enter into a settlement or other compromise with respect
to any Expense without the prior written consent of Sublessee, which consent
shall not be unreasonably withheld or delayed, unless such Indemnitee waives
its right to be indemnified with respect to such Expense under this Section 29(c).

 

Sublessee shall supply the affected Indemnitee and
Sublessor with such information reasonably requested by such Indemnitee as is
necessary or advisable for such Indemnitee to control or participate in any
proceeding to the extent permitted by this Section 29(c).

 

Upon payment in full of any Expense or Tax pursuant to
this Section 29, Sublessee, or, if any Expense or Tax has been paid by
insurers, the insurers, without any further action, shall be subrogated to any
claims the affected Indemnitee may have relating thereto; provided
that Sublessee shall not be so subrogated so long as a Default or an Event of
Default has occurred and is continuing. 
Such Indemnitee agrees to give such further reasonable assurances or
agreements and to provide such reasonable cooperation to Sublessee or the
insurers to permit Sublessee or the insurers to pursue such claims, if any, to
the extent reasonably requested by Sublessee or the insurers.

 

In the event that Sublessee shall have paid an amount
to an Indemnitee pursuant to this Section 29(c), and such Indemnitee
subsequently shall be reimbursed in respect of such indemnified amount from any
other Person, such Indemnitee shall promptly pay to Sublessee an amount equal
to the amount of such reimbursement (but in no event more than such payment
from Sublessee) plus any net tax benefit (or minus any net tax detriment)
realized by such Indemnitee as a result of any reimbursement received and
payment made by such Indemnitee pursuant to this sentence; provided,
that Sublessor shall not be obligated to make any payment pursuant to this Section 29(c) to
the extent that the amount of such payment would exceed (i) the aggregate
amount of all prior payments by Sublessee to Sublessor under this Section 29(c) less
(ii) the aggregate amount of all prior payments by Sublessor to Sublessee
pursuant to this Section 29(c), with any excess being carried forward to
offset Sublessee’s obligations, if any, to make subsequent payments to
Sublessor under this Section 29(c); provided, further,
that such Indemnitee shall have no obligation to reimburse Sublessee if (i) a
Default or an Event of Default or an Event of Default (as such term is defined
in the Head Lease) has occurred and is continuing or if the Airline Services
Agreement shall have been terminated or canceled or shall have terminated in
accordance with its terms or (ii) Sublessee has not paid such Indemnitee
all amounts required pursuant to this Section 29(c) and any other
amounts then due to such Indemnitee from Sublessee under any of the Operative
Documents or Sublessee Documents.

 

Sublessee’s obligations under the indemnities provided
for in this Sublease shall be those of a primary obligor, whether or not the
Person indemnified shall also be indemnified

 

A1-57

 

with respect to the same
matter under the terms of any other document or instrument, and the Person
seeking indemnification from Sublessee pursuant to any provision of this
Sublease may proceed directly against Sublessee without first seeking to
enforce any other right of indemnification.

 

(d)                                 Income Tax.  For purposes of this Section 29, the
term “Income Tax” means any Tax based on or
measured by net income (other than sales, use, license, rental, ad valorem and
value added or property Taxes) (including, without limitation, capital gains
taxes, minimum taxes, income taxes collected by withholding and taxes on tax
preference items), and interest, additions to tax, penalties, or other charges
in respect thereof.

 

(e)                                  Survival.  Notwithstanding anything to the contrary
contained in this Sublease, the provisions of this Section 29 shall
survive any termination or expiration of this Sublease.

 

SECTION 30.  Certain Representations, Warranties and
Covenants.  (a)  Sublessor
represents and warrants to Sublessee as follows:

 

(i)                                     Sublessor is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of organization, and has the corporate power and authority
to carry on its business as now conducted, to own or hold under lease its
properties and to enter into and perform its obligations under, the Sublessee
Documents to which Sublessor is a party;

 

(ii)                                  the Sublessee
Documents to which Sublessor is a party have been duly authorized by all
necessary corporate action on the part of Sublessor, do not require any
approval not already obtained of stockholders of Sublessor or any approval or
consent not already obtained of any trustee or holders of any indebtedness or
obligations of Sublessor, and have been duly executed and delivered by
Sublessor, and neither the execution and delivery thereof, nor the consummation
of the transactions contemplated thereby, nor compliance by Sublessor with any
of the terms and provisions thereof, will contravene any United States Federal
or state law, judgment, governmental rule, regulation or order applicable to or
binding on Sublessor (it being understood that no representation or warranty is
made with respect to laws, rules or regulations relating to aviation or to
the nature of the equipment owned by Sublessor) or contravene or result in any
breach of or constitute any default under, or result in the creation of any
Lien (other than Liens provided for in the Operative Documents or the Sublessee
Documents) upon any property of Sublessor under, any indenture, mortgage,
chattel mortgage, deed of trust, conditional sales contract, bank loan or
credit agreement, corporate charter, by-law or other agreement or instrument to
which Sublessor is a party or by which it or its properties may be bound or
affected; and

 

(iii)                               each of Sublessee
Documents to which Sublessor is a party constitutes a legal, valid and binding
obligation of Sublessor enforceable against Sublessor in accordance with the
terms thereof (except as may be limited by (A) general principles of
equity, (B) applicable bankruptcy, insolvency, fraudulent

 

A1-58

 

conveyance, reorganization, moratorium or similar laws affecting the
rights of creditors generally, (C) applicable laws which may affect the
remedies provided therein, which laws, however, do not make the remedies
provided therein inadequate for the practical realization of the benefits
provided thereby, except that no representation or warranty is made as to the
amount of priority of any recovery under any particular circumstances, and (D) in
the case of indemnity provisions contained in such documents, as limited by
public policy considerations).

 

(b)                                 Sublessee
covenants and agrees that it shall at all times be a Certificated Air Carrier.

 

(c)                                  Sublessee,
at its expense, will take, or cause to be taken, such action with respect to
the recording, filing, re-recording and refiling of this Sublease, the Sublease
Supplement, and any financing statements or other instruments as are necessary
to maintain (or as are reasonably requested by Sublessor) the perfection of any
security interest that may be claimed to have been created by this Sublease or
will furnish to Sublessor timely notice of the necessity of such action,
together with such instruments, in execution form, and such other information
as may be required to enable Sublessor to take such action.  Sublessee shall furnish to Sublessor annually
after the execution hereof (but not later than March 15th of
each year, commencing with the year 2006) an opinion of Daugherty, Fowler,
Peregrin & Haught, a Professional Corporation and/or other counsel
reasonable satisfactory to Sublessor nationally recognized in FAA matters
covering such matters with respect to the interests of Sublessor in the
Aircraft and the perfection of security interests therein as Sublessor may
reasonably request.  Sublessee will
notify Sublessor of any change in the location of its chief executive office
(as such term is used in Article 9 of the Uniform Commercial Code) prior
to making such change.

 

SECTION 31.  Covenants of Sublessee.  Sublessee covenants and agrees with Sublessor
as follows:

 

Sublessee will, at its own cost and expense, cause to
be done, executed, acknowledged and delivered all and every such further acts,
conveyances and assurances as Sublessor shall reasonably require for
accomplishing the purposes of this Sublease and the other Sublessee Documents; provided that any instrument or other document so executed
by Sublessee will not expand any obligations or limit any rights of Sublessee
in respect of the transactions contemplated by any Sublessee Document.  Sublessee, upon delivery of the Aircraft
under this Sublease, shall at all times thereafter cause the same to remain
duly registered in the name of Sublessor, except as otherwise required or
permitted hereunder or under this Sublease, under the Federal Aviation Act, or
shall furnish to Sublessor such information as may be required to enable
Sublessor to make application for such registration, and shall promptly furnish
to Sublessor such information as may be required (or reasonably requested by
Sublessor) to enable Sublessor to timely file any reports required to be filed
by Sublessor, as the case may be, as a result of its interest in the Aircraft
with any governmental authority.

 

SECTION 32.  Consent to Jurisdiction.  Each of the parties hereto (A) hereby
irrevocably submits itself to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and to the
non-exclusive jurisdiction of the Supreme Court of the State of New York, New
York County, for the purposes of any suit, action or other proceeding arising
out of this Sublease or any other Operative Document or Sublessee

 

A1-59

 

Document, the subject
matter of any thereof or any of the transactions contemplated hereby or thereby
brought by any party or parties thereto, or their successors or assigns, and (B) hereby
waives, and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, to the extent permitted by applicable
law, that the suit, action or proceeding is brought in an inconvenient forum,
that the venue of the suit, action or proceeding is improper, or that this
Sublease or any other Operative Document or Sublessee Document or the subject
matter of any thereof or any of the transactions contemplated hereby or thereby
may not be enforced in or by such courts. 
Sublessee hereby generally consents to service of process at CT
Corporation System, 1633 Broadway, New York, New York 10019.

 

SECTION 33.  Owner for Federal Tax Purposes.  It is hereby agreed among Sublessor and
Sublessee that for Federal income tax purposes the Owner will be the owner of
the Aircraft and Sublessee will be the sublessee thereof, and each party hereto
agrees to characterize this Sublease as a lease for Federal income tax
purposes.

 

A1-60

 

IN WITNESS WHEREOF,
Sublessor and Sublessee have each caused this Sublease to be duly executed as
of the day and year first above written.

 

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  
	
   

  	
    Sublessor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  MESABA AVIATION, INC.,

  
	
   

  	
    Sublessee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A1-61

 

EXHIBIT A

to

Sublease Agreement

[NW 2005         ]

 

SUBLEASE SUPPLEMENT No.       

[NW 2005         ]

 

SUBLEASE SUPPLEMENT NO.     ,
dated                   ,
20      , between NORTHWEST AIRLINES, INC. (“Sublessor”), and MESABA AVIATION, INC. (“Sublessee”).

 

Sublessor and Sublessee have heretofore entered into
that certain Sublease Agreement [NW 2005         ],
dated as of                         ,
200  , relating to one Bombardier Inc. Canadair Regional Jet Model CL-600-2B19  aircraft (herein called the “Sublease,” and the defined terms therein being hereinafter
used with the same meanings).  The
Sublease provides for the execution and delivery from time to time of Sublease
Supplements for the purpose of subleasing the Airframe and Engines under the
Sublease as and when delivered by Sublessor to Sublessee in accordance with the
terms thereof.

 

(1) The Sublease relates to the Airframe and
Engines described below, and a counterpart of the Sublease is attached hereto,
and made a part hereof, and this Sublease Supplement, together with such
attachment, is being filed for recordation on the date hereof with the Federal
Aviation Administration as one document.

 

(2) The Sublease Agreement relates to the
Airframe and Engines described below, and a counterpart of the Sublease
Agreement, attached and made a part of Sublease Supplement No. 1 dated                               ,
20     to the Sublease Agreement, has been recorded by the
Federal Aviation Administration on                               ,
20    , as one document and assigned Conveyance No.     .

 

NOW, THEREFORE, in consideration of the premises and
other good and sufficient consideration, Sublessor and Sublessee hereby agree as
follows:

 

1.                                       Sublessor
hereby delivers and subleases to Sublessee under the Sublease and Sublessee
hereby accepts and subleases from Sublessor under the Sublease the following
described Bombardier Inc. Canadair Regional Jet Model CL-600-2B19 aircraft (the
“Aircraft”), which Aircraft as of the
date hereof consists of the following components:

 

Airframe: 
FAA Registration No.                   ;
manufacturer’s serial no.           ;
and

 

(1)                                  This
language for Sublease Supplement No. 1.

 

(2)                                  This
language for other Sublease Supplements.

 

A1-62

 

Engines: 
two (2) General Electric Model CF34-3B1 type engines bearing,
respectively, manufacturer’s serial nos.           
and             
(each of which engines has 750 or more rated takeoff horsepower or the
equivalent of such horsepower).

 

2.                                       The
Commencement Date of the Aircraft is the date of this Sublease Supplement set
forth in the opening paragraph hereof. 
Except as otherwise provided in the Sublease, the Term for the Aircraft
shall commence on the Commencement Date and end on the Expiration Date.

 

3.                                       Sublessee
hereby confirms its agreement to pay Sublessor Basic Rent for the Aircraft
throughout the Term therefor in accordance with Section 3 of the Sublease.

 

4.                                       Sublessee
hereby confirms to Sublessor that Sublessee has accepted the Aircraft for all
purposes hereof and of the Sublease as being airworthy, in good working order
and repair and without defect or inherent vice in title, condition, design,
operation or fitness for use.

 

5.                                       All
of the terms and provisions of the Sublease are hereby incorporated by
reference in this Sublease Supplement to the same extent as if fully set forth
herein.

 

6.                                       This
Sublease Supplement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

 

A1-63

 

IN WITNESS WHEREOF, Sublessor and Sublessee have
caused this Sublease Supplement to be duly executed on the day and year first
above written.

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  
	
   

  	
   

  	
  Sublessor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  MESABA AVIATION, INC.,

  
	
   

  	
   

  	
  Sublessee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A1-64

 

	
   

  	
  EXHIBIT B

  
	
   

  	
  to

  
	
   

  	
  Sublease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

BASIC RENT SCHEDULE

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

Basic Rent:

 

	
  Sublease
  Period Date

  	
   

  	
  Basic Rent

  	
   

  
	
  September 1, 2005

  	
   

  	
  $

  	
  [            ]

  	
   

  
	
  October 1, 2005

  	
   

  	
   

  	
   

  
	
  November 1, 2005

  	
   

  	
   

  	
   

  
	
  December 1, 2005

  	
   

  	
   

  	
   

  
	
  January 1, 2006

  	
   

  	
   

  	
   

  
	
  February 1, 2006

  	
   

  	
   

  	
   

  
	
  March 1, 2006

  	
   

  	
   

  	
   

  
	
  April 1, 2006

  	
   

  	
   

  	
   

  
	
  May 1, 2006

  	
   

  	
   

  	
   

  
	
  June 1, 2006

  	
   

  	
   

  	
   

  
	
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  November 1, 2007

  	
   

  	
   

  	
   

  
	
  December 1, 2007

  	
   

  	
   

  	
   

  
	
  January 1, 2008

  	
   

  	
   

  	
   

  
	
  February 1, 2008

  	
   

  	
   

  	
   

  
	
  March 1, 2008

  	
   

  	
   

  	
   

  
	
  April 1, 2008

  	
   

  	
   

  	
   

  
	
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  July 1, 2008

  	
   

  	
   

  	
   

  
					

 

A1-65

 

	
  August 1, 2008

  	
   

  	
   

  	
   

  
	
  September 1, 2008

  	
   

  	
   

  	
   

  
	
  October 1, 2008

  	
   

  	
   

  	
   

  
	
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  May 1, 2012

  	
   

  	
   

  	
   

  

 

A1-66

 

	
  June 1, 2012

  	
   

  	
   

  	
   

  
	
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A1-67

 

	
   

  	
  EXHIBIT C

  
	
   

  	
  to

  
	
   

  	
  Sublease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

STIPULATED LOSS VALUE

 

The Portion of this Exhibit appearing below this text is
intentionally deleted from the FAA filing counterpart as the parties hereto
deem it to contain confidential information.

 

 

	
  Date

  	
   

  	
  Percentage of

  Lessor’s Cost

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

A1-68

EXHIBIT D

to

Sublease Agreement

[NW 2005     ]

 

RETURN CONDITIONS

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

Unless the context shall otherwise require and except
as set forth herein, the capitalized terms used in this Exhibit shall have
the meanings given to such terms in the Sublease.

 

Definitions

 

Aircraft Documentation: means
records, manuals, logs and documents delivered with the Aircraft and those
developed and maintained with respect to the Aircraft during the Term,
including, without limitation, all of those required by the FAA to be
maintained for FAR Part 121 operation and the Aircraft Documentation
listed in Appendix I hereto.

 

Approved Air Authority:  means the Federal Aviation Administration.

 

APU:  means the Honeywell model 3800488-3 auxiliary
power unit originally installed on the Aircraft on the Delivery Date or any
auxiliary power unit of the same or another manufacturer and of a comparable or
improved model substituted for such originally installed auxiliary power unit.

 

Calendar controlled components or parts:  those components or parts which at specific
calendar-time intervals, in accordance with the Maintenance Program, are to be
discarded, overhauled, or recertified upon reaching such time limit.

 

Configuration Deviation List:  the list provided by the Aircraft
manufacturer specifying which parts of the Aircraft that can be removed without
affecting the continued service of the Aircraft as the same may be modified
from time to time pursuant to and in accordance with the approval of the
Governmental Authority.

 

Cycle-controlled components or parts:  those components or parts which at specific
flight-cycle intervals, in accordance with the Maintenance Program,  are to be discarded, overhauled, or
recertified upon reaching such interval.

 

Flight Hour:  shall mean each hour or part thereof,
measured to two decimal places, elapsing from the moment the wheels of the
Airframe leave the ground on take-off to the moment when the wheels of the
Airframe touch the ground on landing.

 

Governmental Authority:  shall mean (a) the FAA; (b) any
national government, or political subdivision thereof or local jurisdiction
therein; (c) any board, commission, department, division,

 

A1-69

 

organ, instrumentality,
court, or agency of any entity described in (b) above, however
constituted; and (d) any association, organization, or institution of
which any entity described in (b) or (c) above is a member or to
whose jurisdiction any such entity is subject or in whose activities any such
entity is a participant but only (except for purposes of defining Law below) to
the extent that any of the preceding have jurisdiction over the Aircraft or its
operations.

 

Hour-controlled components or parts:  those components or parts at specified
Flight-Hour intervals, in accordance with the Maintenance Program, are to be
discarded, overhauled, or recertified upon reaching such interval.

 

Law:  shall mean (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any
Governmental Authority; (b) any treaty, pact, compact or other agreement
to which any Governmental Authority is a signatory or party; (c) any
judicial or administrative interpretation or application of any Law described
in (a) or (b) above; and (d) any amendment or revision of any
Law described in (a), (b) or (c) above.

 

Maintenance Manual:  shall mean Sublessee’s FAA approved
maintenance manual for the Aircraft which incorporates the procedures, limits
and requirements of the Manufacturer’s maintenance manual and related
documents.

 

Maintenance Program:  shall mean Sublessee’s FAA approved
maintenance program which shall define all scheduled maintenance activities,
condition monitoring and on-condition programs for Airframe, Engines and Parts,
including but not limited to servicing, testing, preventative maintenance,
structural inspections, systems checks, overhauls, corrosion control
inspections and corrosion treatments, and compliance with approved
modifications, service bulletins, and Airworthiness Directives as the same may
be modified from time to time pursuant to and in accordance with the prior
written approval of the applicable Governmental Authority and which at all
times (a) complies in all material respects with all FAA requirements for
FAR Part 121 operation, the MRB Report and Bombardier Inc.’s Maintenance
Requirement Manual, including incorporation of Bombardier Inc.’s corrosion
prevention and control program for aircraft of the same type as the Aircraft
and (b) complies in all material respects with General Electric
Corporation’s Engine Management Program for the Engine type.  Substantive Changes to the Maintenance
Program shall be subject to Sublessor’s prior written approval, such approval
not to be unreasonably withheld.  “Substantive Changes” means (i) changes from block to
phase maintenance or vice versa, (ii) scheduled maintenance interval escalations
or (iii) any other changes which could be materially adverse to Sublessor
or to the condition of the Aircraft on return or which would impact the basis
on which the Maintenance Reserve have been calculated.

 

Maintenance Review Board Report (“MRB Report”):  the report published by the Maintenance
Review Board for the Bombardier CL-600-2B19 aircraft detailing the intervals
and description of the maintenance tasks and, where applicable, the life limits
required for continued airworthiness of the Aircraft.  Where the intervals specified in the MRB
Report differ from the limit specified by the component manufacturer, the MRB
Report shall take precedence.

 

Manufacturer:
shall mean, with respect to the Airframe, Bombardier Inc., and its successors
and assigns, with respect to the Engines, General Electric Aircraft Engines, a
division of General Electric Corporation and, with respect to the APU,
Honeywell Corporation.

 

A1-70

 

Terminating Action:  the alteration or modification of the
Aircraft, Airframe, Engine or Part in accordance with mandatory service
bulletins, orders, airworthiness directives, and instructions required to
eliminate repetitive inspections or maintenance action.

 

Time Between Overhauls (“TBO”):  the maximum elapse time allowed between
successive overhauls or its equivalent of a Part as specified by the
Maintenance Program.

 

ARTICLE 1 - CONDITION OF AIRCRAFT

 

1.0                                                                                 General
Conditions.

 

At the time of return, the Aircraft shall (i) have
been maintained in accordance with the Maintenance Program as approved and
authorized by the Governmental Authority, as if the Aircraft were to be kept in
further commercial passenger service by Sublessee, (ii) the Aircraft shall
not have been discriminated against whether by reason of its leased status or
otherwise in maintenance, use, operation or in any other manner whatsoever,
including, without limitation, as to the type of maintenance program applicable
to the Aircraft, including any Engine, or as to compliance with Airworthiness
Directives, and (iii) the Aircraft shall meet the following
requirements:

 

(i)                                     Operating
Condition - The Aircraft shall be in as good operating condition as on the
Delivery Date, reasonable wear and tear excepted, with all of the Aircraft
equipment, components, and systems fully operational and serviceable in
accordance with the Maintenance Manual and Sublessee’s FAA approved airplane
flight manual.

 

(ii)                                  Certification
- The Aircraft shall have, and be in compliance with, a current and valid
standard FAA Certificate of Airworthiness for FAR Part 121 operation.  If requested by Sublessor, Sublessee shall
provide a current and valid FAA Certificate of Airworthiness for Export to
Canada or other country specified by Sublessor.

 

(iii)                               General
Appearance - The Aircraft shall be clean, cosmetically acceptable, with all
components reasonably free of foreign objects, accumulated dirt, grime, grease
and liquids, and be prepared for immediate placement into commercial service.  Any deterioration of paint or other
protective coatings due to leakage, improper adhesion, impact damage or
presence of foreign materials or liquids shall be repaired and replaced per the
Maintenance Manual.

 

(iv)                              Interior
Cabin – All ceiling, sidewall, bulkhead, galley, lavatory, overhead bin and
closet panels and doors shall be free from significant or unserviceable
damage.  All seats

 

A1-71

 

shall be serviceable and
in good overall condition in accordance with major U.S. carrier standards.  The Aircraft shall be returned in Sublessor’s
standard seating configuration for CRJ-200 or CRJ-440 Aircraft, as directed by
Sublessor.  If such direction requires
conversion from a CRJ-200 to a CRJ-440 or vice versa, the reasonable costs directly
related to such conversion shall be borne by Sublessor.

 

(v)                                 Airworthiness
Directives – The Aircraft shall be in compliance with all FAA requirements for
FAR Part 121 operation including all FAA issued airworthiness directives (“Airworthiness Directives”) and Manufacturer alert service
bulletins that are issued prior to Sublease expiration and are applicable to
the Aircraft, without special deferment, exemption or alternate means of
compliance, with terminating action accomplished for all Airworthiness
Directives which require termination be accomplished prior to 180 days after
Sublease expiration.

 

(vi)                              Deferred
Maintenance – There shall be no open outstanding or deferred maintenance items
scheduled or unscheduled, routine or non-routine, against the Aircraft.  The Airframe, each Engine, the APU and the
landing gear shall be serviceable and free from defects and discrepancies that
are outside the serviceable limits of the Maintenance Manual.

 

(vii)                           Corrosion
– There shall be no evidence of untreated, improperly treated or noticeable
corrosion.  Sublessee shall provide
documentation evidencing full compliance with the Sublessee’s Maintenance
Program including Sublessee’s FAA approved corrosion prevention and control
program and with all applicable Manufacturer recommendations and requirements
for corrosion prevention and control.

 

(viii)                        Title -
The Aircraft shall be returned in compliance with the provisions of clause (ii) of
the third sentence of Section 5(a) of the Sublease.

 

(ix)                                Alterations,
Modifications and Additions

 

Replacement of Parts – Sublessee, at its own
cost and expense, shall have replaced all components or Parts which may have
from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for
any reason whatsoever.  All replacement
Parts (a) shall be free and

 

A1-72

 

clear of all Liens, except Permitted Liens, (b) shall
be in good condition and in as good operating condition as, and shall have  a value, utility, maintenance and
modification status at least equal to, the Parts replaced, assuming such
replaced parts were in the condition and repair required to be maintained by
the terms of the Sublease, and (c) shall have documentation certifying
compliance with all applicable Governmental Authority regulations, including,
without limitation, (1) serviceable tags indicating time since overhaul,
and overhaul or repair by a Governmental Authority certified repair station, (ii) overhaul
records, (iii) documentation of modification status and compliance with
applicable airworthiness directives, and (iv) any other appropriate
documentation required by the FAA for continued FAR Part 121 operation.

 

1.1                                                                                 Condition
of Airframe.

 

The Aircraft airframe at the time of its return to
Sublessor shall meet the requirements and shall have such hours and cycles
remaining under Maintenance Program as set forth below:

 

(i)                                     C
Check Inspection – Without regard to any payment made or to be made pursuant to
Section 1.8, the Airframe shall have completed, immediately after removal
from service and prior to return to Sublessor, the next sequential C check, or
the next set of phased C checks which make up the full compliment of a C check,
as applicable, and in each case shall include all lesser multiple C checks and
all phase checks. If Sublessee has elected to maintain the Aircraft in
accordance with an equalized maintenance check program, the Airframe shall have
completed immediately after removal from service and prior to return to
Sublessor the next six (6) equalized maintenance checks which shall
include all phase checks.  All defects
observed during such C check which exceed the Sublessee’s Maintenance Manual
allowable limits shall be rectified at Sublessee’s expense.

 

(ii)                                  Structural
Inspection Tasks - The airframe shall have remaining at least *** of the hours/cycles/calendar days
to the initial threshold or ***
of the hour/cycles/calendar days of the repeat inspection interval whichever is
applicable to all structural tasks; provided that,
without regard to any payment made or to be made pursuant to Section 1.8,
the airframe shall have a minimum remaining life of one

 

A1-73

 

C-Check interval before
any structural inspection task is due;

 

(iii)                               Landing
Gear Life - The main Landing Gear and the nose Landing Gear shall have at least
*** landings, hours or calendar
life remaining, whichever is the most limiting prior to removal for overhaul in
accordance with the  Maintenance Program;
provided that, without regard to any
payment made or to be made pursuant to Section 1.8, the main Landing Gear
and the nose Landing Gear shall each have a minimum remaining life of one C-Check
interval; and

 

(iv)                              Brakes
- Brakes shall have remaining on average *** or more of the full service life on all brakes; provided that, without regard to any payment made or to be
made pursuant to Section 1.8, the brakes shall have a minimum remaining
life of one C-Check interval.

 

1.2                                                                                 Condition
of Controlled Components.

 

Aircraft and Engine hour-controlled components or
parts, at time of return to Sublessor, shall have remaining, as a minimum, *** of the manufacturers approved hour
limit, before any scheduled removals for overhaul, test, disassembly or
replacement.  Aircraft and Engine life
cycle fatigue (“LCF”), controlled components or
parts, at time of return to Sublessor, shall have remaining, as a minimum, *** of the manufacturers approved
cycle limits, before any scheduled removals for overhaul, test, disassembly or
replacement; provided that, without regard to
any payment made or to be made pursuant to Section 1.8,  all components or parts controlled on a
calendar basis shall have at least one C check interval (or, if the service
interval is less that one C check, 100% of the service interval) remaining
before scheduled removal for testing, overhaul or replacement.

 

1.3                                                                                 Condition
of Installed Engines.

 

At time of return, each Engine will have at least *** of hours or cycles remaining,
whichever is most limiting, before the next scheduled Engine removal for
inspection, test or disassembly for replacement of Life Limited Parts.  Cycle limits are as specified in the Power
Plant Limitations section of the Canadair MRB Report.  Additionally, the Engines shall satisfy the
following conditions:

 

(i)                                     Power
Assurance Runs – Without regard to any payment made or to be made pursuant to Section 1.8,
each Engine shall pass power assurance performance tests without

 

A1-74

 

operational limitations
in accordance with the Manufacturer’s maintenance manual.  The Aircraft and Engines shall be capable of
certificated full rated performance without limitation throughout the entire
operating envelopes as defined by the Sublessee’s FAA approved airplane flight
manual.

 

(ii)                                  Borescope
Inspection - Without regard to any payment made or to be made pursuant to Section 1.8,
each Engine shall pass a complete video-taped borescope inspection of all
accessible Engine sections performed in accordance with the Manufacturer’s
maintenance manual by Sublessor or Sublessor’s designated representative after
the Power Assurance Runs during the ground inspection per Article 3.1
herein.  Any discrepancies found during
such inspection which exceed the Manufacturer’s maintenance manual allowable
limits for unrestricted continued service (without reduced interval
inspections), shall be corrected prior to Return by Sublessee at Sublessee’s
sole expense.

 

(iii)                               Adverse
Performance Data – No Engine shall be on engineering watch or on a reduced
interval inspection of any nature that could lead to premature removal of the
Engine.  If the Engine historical and
maintenance records, power assurance runs and/or trend monitoring data indicate
a level of performance deterioration or an abnormal rate of acceleration in
performance deterioration or oil consumption which based on manufacturer
specifications and/or experience indicate the Engine would require maintenance
prior to *** engine flying hours
after return, Sublessee shall correct or cause to be corrected, such condition
as necessary to rectify all deficient Engine parameters in accordance with
Manufacturer specifications.

 

(iv)                              APU
Life -The installed APU shall have remaining at least *** of the MRB HSI or the Sublessee’s demonstrated on-wing mean
time between failure (MTBF)  for APU
hours and/or cycles, whichever is applicable, before scheduled removal for
overhaul, heavy maintenance, or replacement of hour limited or Life Limited Parts
at the time of return.

 

1.4                                                                                 Intentionally
left blank.

 

1.5                                                                                 Service
Bulletin Kits.

 

At or upon this return of the Aircraft, Sublessee
shall deliver to Sublessor, at no cost to Sublessor, all Service Bulletin Kits
furnished without charge

 

A1-75

 

by a manufacturer for installation on the Aircraft
which have not been so installed. 
Sublessee shall load such kits on board the Aircraft as cargo prior to
the Aircraft departure unless restricted by large size or hazardous material
regulations.  In the event such Service
Bulletin Kits were purchased or manufactured by Sublessee, Sublessor shall have
the exclusive right to purchase such kits at Sublessee’s actual cost for a
period of 30 days after such return and the non-exclusive right so to purchase
such kits thereafter.

 

1.6                                                                                 Unique
Markings.

 

At time of return to Sublessor of the Aircraft,
Sublessee shall, at its cost remove from the exterior and interior of the
Aircraft Sublessee’s operator specific exterior logos and insignias and
interior markings where applicable.  The
area where such markings were removed or painted over shall blend in with the
surrounding surface in a cosmetically acceptable manner.  In the event that, notwithstanding Sublessee’s
obligation to do so, Sublessee does not remove such markings, Sublessor shall
have no obligation to remove such markings prior to the sale, lease, or other
disposition of the Aircraft by Sublessor after its return.

 

1.7                                                                                 Repairs
and Repair Inspections.

 

The Aircraft shall conform to its Type Certificate
Data Sheet.  All major repairs (as
defined for FAR Part 121 operations by the FAA) and Major Modifications
shall have been performed in accordance with FAA approved data that is returned
with the Aircraft.

 

All repairs performed by Sublessee or its designee
since the Aircraft delivery to Sublessee, and which exist on  the Aircraft, shall be in accordance with the
manufacturer’s approved repair schemes and/or structural repair manual and/or
the recommendations of Advisory Circulars AC25.529-1 or equivalent, and AC
25.571-1A or equivalent, and/or Sublessee’s approved Maintenance Manual. The
Sublessee shall maintain a damage and repair history log which shall contain
all major repair approval documentation including, but not limited to, repair
schemes and structural repair manual references and damage tolerance analysis
performed if applicable.  The Aircraft
shall be returned with all temporary repairs replaced by permanent repairs per
the Manufacturer’s repair manual.  The
Aircraft, including the fuselage, wings, flight control surfaces and empenage,
shall be free of significant dents, abrasions and loose or pulled rivets.

 

1.8                                                                                 Equivalency
Charge.

 

If the Sublessee does not meet any of the remaining
life conditions set forth in Section 1.1 and 1.2, unless otherwise
specified therein, in place of

 

A1-76

 

correcting the specified hour, cycle or calendar life
deficiency, Sublessee may elect to pay to Sublessor an Equivalency Charge (for
deficient condition) calculated in accordance with the following formula (if
the formula results in a positive amount): 

 

Pmt = [A (b-c)]/d

 

Where:

 

“Pmt”                is the Equivalency
Charge payment

 

“A”                          is, in
respect of Engines, APU, Landing Gear or Airframe checks specified in Articles
1.1, 1.2 and 1.3, the average of Sublessee’s demonstrated cost for overhauls,
bench checks or inspections (whichever is applicable to the section) at the
time of return, or, in respect of the Landing Gear and Engine LCF components,
the manufacturer’s list price for replacement parts at the time of return.  When demonstrated average costs for overhauls
or maintenance checks are not available from Sublessee, the average of three
quotes from three mutually acceptable repair stations shall be used as the cost
basis for the Equivalency Charge calculation;

 

“b”                             is *** (or, if specified, the number
specified) of the total operating hours/cycles/time (whichever is applicable
and most limiting) allowable between such overhaul, inspection, bench check or
removals;

 

“c”                              is
the actual number of operating hours/cycles/time (whichever is applicable and
most limiting) remaining to the next overhaul, inspection, bench check or
removals; and

 

“d”                             is
the total operating hours/cycles/time (whichever is applicable and most
limiting) allowable between such overhaul, inspection, bench check or removals.

 

Calculation of the
Equivalency Charge shall be based on each item identified in the requirements
of Articles 1.1, 1.2 and 1.3 in aggregate. 
For example, each LCF part shall be assessed on its status as far as
accumulated cycles are concerned and the adjustment amount for each is
established.  All other parts subject to
this Equivalency Charge shall be similarly assessed and the individual charges
are to be added together.  For example,
under this plan, a positive charge on an Engine could offset a negative charge
on the Landing Gear.  If the total net
result is positive (indicating Sublessee returned the Aircraft in a state that,
in aggregate, has less than the 50% limit remaining), the net Equivalency
Charge shall be paid by Sublessee to Sublessor. 
In the event such a total is negative, no payment shall be made to
Sublessee from Sublessor.

 

A1-77

 

ARTICLE 2 - AIRCRAFT DOCUMENTATION AND SAFETY
DEVICES

 

2.1                                                                                 Aircraft
Documentation.  Concurrently with return
of the Aircraft to Sublessor, Sublessee shall deliver to Sublessor one (1) copy,
in English, of the Aircraft Documentation (including current revisions thereto).
It is recognized that the Aircraft Documentation may be titled or described
differently than set forth in Appendix I due to Sublessee’s method of
maintaining the Aircraft Documentation. 
Accordingly, the information described in the Aircraft Documentation
shall be provided to Sublessor in the form and manner under which Sublessee
maintains such information, and shall include data pertinent to the
Aircraft.  All Aircraft Documentation
provided to Sublessor at time of the Aircraft return shall be listed and
described by Sublessee’s title or description with cross-reference to the
titles or descriptions provided in Appendix I, and included as an attachment to
the Aircraft Documentation.  All Aircraft
Documentation provided to Sublessor shall be in good condition, readable and
capable of being reproduced using standard reproduction processes, complete, up
to date and accurate as to content.  Any
Aircraft Documentation, to the extent required by the Governmental Authorities,
not returned in its “original” form shall be stamped “Certified True Copy” and
both signed and dated by the Sublessee’s authorized personnel at the time of
its creation. Sublessee shall provide to Sublessor, upon reasonable request,
advance copies of any of the Aircraft Documentation as Sublessor may desire or
require in order to plan or accomplish recertification, modification, sale,
lease or other disposition or utilization of the Aircraft upon receipt of such
Aircraft by Sublessor.

 

Sublessor shall provide, as part of the Aircraft
Documentation, the original certification tags and release notes for all life
limited and rotable Parts installed after delivery. The certification tags and
release notes shall provide traceability of the last overhaul and/or repair
shop visit to the approved repair facility that conducted the overhaul and/or
repair.

 

Sublessee shall, for the period that the Aircraft was
operated by it:

 

i.                                          certify,
in writing as identified in Appendix I, that the Aircraft has not been involved
in any incidents or accidents.  If the
Aircraft has been in involved in any incidents or accidents the Sublessee shall
certify in a letter, full disclosure of all such events involving the Aircraft
detailing all relevant details, including but not limited to, any subsequent
repairs; and

 

ii.                                       certify,
in writing, that there are no leased or rented parts installed on the Aircraft;
and

 

iii.                                    certify,
in writing, that Sublessee has no knowledge of parts installed on the Aircraft
that have been manufactured without

 

A1-78

 

appropriate Governmental Authority approval and /or that do not conform
to an internationally recognized airworthiness standard and are approved for
installation in the Aircraft.

 

2.2                                                                                 Remedy
for Non-Compliance. Sublessee shall take action to ensure that the Sublessor
and the Governmental Authority are provided with, but not limited to, all
requested guarantees of methods of compliance, component overhaul and records
management, quality control, part number and serial number verification.  If any such records or other data are
missing, incomplete or otherwise not in accordance with the Governmental
Authority standards, Sublessee shall re-accomplish the maintenance tasks
necessary to produce such records in accordance with the Maintenance Program
prior to return of the Aircraft or otherwise perform all necessary acts to
obtain such records in a manner satisfactory to the Governmental Authority.

 

2.3                                                                                 Flyaway
Kit.  Concurrently with return of the
Aircraft, Sublessee shall deliver to Sublessor on board the Aircraft one (1) aircraft
ship set of Aircraft safety devices for the Landing Gear down-locks, engine
plugs or the equivalent.  Loose equipment
would remain installed on the Aircraft as if Sublessee were to continue
operating the same in continued regular passenger service, each such item
functioning in accordance with its intended use.

 

ARTICLE 3 - INSPECTION AND FLIGHTS

 

3.0                                                                                 Tests
Flight.  Upon return of the Aircraft, at
Sublessor’s request Sublessee shall conduct, at Sublessee’s expense and risk of
loss or damage, a test flight of the Aircraft to and from Memphis, Tennessee,
Detroit, Michigan or Minneapolis, Minnesota or such other location as mutually
agreed lasting at least one hour and 30 minutes, during which Sublessee shall
conduct demonstration, performance, avionics, systems and flight
characteristics testing requested by Sublessor to confirm that the Aircraft has
been maintained, and is being returned, in accordance with the terms of the
Sublease.  At its sole cost and expense,
Sublessee shall provide the pilot and the first officer for the test
flight.  Sublessor may have up to three
additional technical representatives on board the Aircraft during the test
flight.

 

3.1                                                                                 Ground
Inspection. The Aircraft including the Aircraft Documentation and Vendor
Documentation shall be made available to Sublessor for ground inspection by
Sublessor or its designee at Sublessee’s facilities.  Such inspection shall commence twenty (20)
working days (in the case of the Aircraft documentation and Vendor
Documentation) and fifteen (15) working days (in the case of the Aircraft)
prior to the date of return of the Aircraft to Sublessor.  At Sublessor’s request, Sublessee shall
remove the Aircraft from scheduled service and open the areas of the Aircraft
as

 

A1-79

 

required to perform the necessary checks as specified
in Article 1.2 and 1.3.  In
addition, Sublessee shall allow Sublessor to accomplish its inspection to
determine that the Aircraft, including the Aircraft Documentation and Vendor
Documentation are in the condition set forth in Article 2.  During such checks, Sublessor’s personnel
shall have the right to reasonably request (and such request shall not be
unreasonably denied by Sublessee) that adjacent additional panels or areas be
opened in order to allow Sublessor’s personnel to confirm the Aircraft is in
the condition set forth in Articles 1.1, 1.2 and 1.3.

 

Sublessee shall promptly correct any discrepancies
from the requirements set out in Articles 1 or 2 which are observed during such
inspection and are communicated in writing by Sublessor to Sublessee.

 

3.2                                                                                 Operational
Ground Check.  Promptly after completion
of any corrections required under Article 3.1, Sublessee shall conduct an
operations ground check on the Aircraft in accordance with the manufacturer’s
maintenance manual criteria for the purpose of demonstrating to Sublessor
the  operation of the systems comply with
allowable maintenance manual limitations, including a full fuel tank leak check,
pilot and static systems check and hydraulic system internal leak check.
Sublessee shall promptly correct those discrepancies that exceed maintenance
manual allowable limits.

 

3.3                                                                                 Operational
Test Flight.  Promptly after completion
of any corrections required under Articles 3.1 and 3.2, the Aircraft shall be
test flown by Sublessee, using qualified flight test personnel, for the amount
of time necessary to satisfactorily demonstrate the airworthiness of the
Aircraft and the proper functioning of all systems and components. Such Flight
Test profile will consist of the items specified in Appendix II hereto.  During such test flight command, care,
custody and control of the Aircraft shall remain at all times with Sublessee.  Two (2) of Sublessor’s designated
representatives (or more if mutually agreed and permitted by the FAA) may
participate in such flight as observers. 
Upon completion of such operational flight testing, the representatives
of Sublessee and Sublessor participating in such testing shall agree in writing
upon any discrepancies required to be corrected by Sublessee in order to comply
with Articles 1 and 2.  If any of the
discrepancies referred to in Articles 3.1, 3.2 and 3.3 continue to persist,
Sublessor may, at its option, agree to provisionally technically accept the
Aircraft.  As used herein, “discrepancy(ies)”
means (a) for items addressed in the Manufacturer’s maintenance manual, a
detected condition that exceeds Manufacturer’s maintenance manual allowable
limits, (b) for items not addressed in the Manufacturer’s maintenance
manual, a detected condition that exceeds 
allowable limits under Sublessee’s FAA approved airplane flight manual
and (c) for items not addressed in the Manufacturer’s maintenance manual
or Sublessee’s FAA approved airplane flight manual, a detected condition

 

A1-80

 

that renders the Aircraft not airworthy.  Upon completion of the operational test
flight and after Sublessee has corrected any discrepancies in the condition of
the Aircraft as required under this Exhibit D and that exceed
allowable limits, the Aircraft shall be technically accepted by Sublessor’s
representatives as evidenced by the signed acceptance certificate.

 

3.4                                                                                 Ferry
Flight to Place of Redelivery.  Upon receipt
of the acceptance certificate from Sublessor, the Sublessee shall ferry the
Aircraft, at its sole cost and expense, to the re-delivery location. All risk
of loss or damage to the Aircraft shall remain Sublessee’s responsibility until
the Aircraft is delivered to Sublessor at the re-delivery location.  Up to two (2) of Sublessor’s designated
representatives (or more if mutually agreed and permitted by the FAA),
participating in the inspection or operational test flight relating to the
technical acceptance, may participate in such ferry flight as observers.

 

3.5                                                                                 Flight
Cost.  All flights pursuant to Articles
3.3. and 3.4 shall be made at Sublessee’s expense. Sublessee shall reimburse
Sublessor for any costs incurred by Sublessor associated with such flights,
including but not limited to costs for fuel, oil, airport fees, insurance,
takeoff/landing fees, customs duties, ground handling charges and airways
communication charges.

 

A1-81

 

APPENDIX I TO EXHIBIT D

 

AIRCRAFT DOCUMENTATION

 

The term Aircraft
Documentation shall be provided in English and shall include the following:

 

1.                                       All
historical records for Aircraft including Airframes and Engines, including
original Airworthiness Certificate from country of Manufacturer and Sublessee’s
Airworthiness Certificate as issued by the Governmental Authority. Sublessee
shall supply all original (i.e. not copies) certification tags and release
notes from manufacturers or repair agencies for Parts installed by Sublessee.

 

2.                                       APU
historical records and schedule of overhaul.

 

3.                                       Copy
of the Maintenance Program including a task list indicating when items thereon
were last performed, and copies of job cards for all maintenance checks.

 

4.                                       Airframe
and Engines current inspection and maintenance status and operating times
including structural sampling inspection records of inspections performed on
other of Sublessee’s aircraft where credit for such inspections were applied
against the Aircraft.

 

5.                                       List
and status of time, cycle and calendar controlled components and parts -
Aircraft and Engines.

 

6.                                       List
and status of Life Limited Parts - Aircraft, Engines and APU.

 

7.                                       Summary
and control status of Airworthiness Directives - Aircraft including Airframe,
Engines, auxiliary power unit and Parts and the method of incorporation
(i.e.:  repetitive inspections, interim
fix or terminating action).

 

8.                                       List
of manufacturer’s service bulletins incorporated and method of incorporation
for Airframe, Engines and equipment. 
Where only a portion of a service bulletin is accomplished Sublessee
shall identify which portion was accomplished.

 

9.                                       List
of major modifications and/or alterations accomplished on the Aircraft,
Engines, and equipment together with all supporting documents required by the
FAA including one copy of each modification, alteration, engineering order and
associated drawings.

 

10.                                 List
of major repairs performed on Aircraft. 
A copy of all supporting documents required by the FAA including all
Engineering, Maintenance, Quality Control and regulatory documentation
associated with the major repairs shall be provided.

 

11.                                 List
of Supplemental Type Certificates (STC’s) incorporated together with a copy of
each certificate and associated data.

 

12.                                 Approved
Airplane Flight Manual (AFM).

 

13.                                 Flight
(operations) manual currently used by present operator.  (FCOM)

 

A1-82

 

14.                                 Weight
and balance documents, including last weighing report.

 

15.                                 Sublessee’s
then-current weight and balance supplement - equipment list.

 

16.                                 Cross
reference parts catalogue (listing of Aircraft manufacturer’s part numbers
corresponding to parts manufacturer’s and current operator’s part numbers for
the same parts) if applicable.

 

17.                                 Flight
test reports - last flight accomplished prior to return.

 

18.                                 Last
accomplished flight recorder calibration (if the Aircraft is to be delivered
before any calibration is required to be accomplished, the Sublessee is to
provide the record of the initial or last certification of the flight
recorder).

 

19.                                 Inventory
list of Aircraft loose equipment.

 

20.                                 Letter
detailing any major incident and/or accidents involving the Aircraft (if none,
the letter should so state), certified by Sublessee’s chief inspector or
corporate officer responsible for aircraft maintenance.

 

21.                                 All
records required to comply with FAA requirements for FAR Part 121
operation and/or initiated by Sublessee for Sublessee’s own benefit.

 

22.                                 List
of current equipment in passenger and flight crew compartments and/or current
interior arrangement diagram.

 

23.                                 Cross
reference list for Service Bulletins and other manufacturer published
instructions to Sublessee’s engineering orders.

 

Aircraft Documentation Supplement

 

24.                                 Certificates:

1.                           Certificate
of Airworthiness

2.                           Noise
Certificate

3.                           Radio
License Certificate

4.                           Original
Export Certificate of Airworthiness delivered in connection with original
delivery of Aircraft from Bombardier

5.                           Certificate
of Sanitary Construction of Galleys

 

25.                                 Aircraft
Status Records:

1.                           Technical
Log Books

2.                           Airframe
Maintenance Status Report

3.                           Service
Bulletin Status Report

4.                           Airworthiness
Directive Compliance Report (terminated and repetitive)

5.                           Local
Modification Status Report List

6.                           Last
Weighing Report

7.                           Last
Compass Swing

 

A1-83

 

26.                                 Aircraft
Maintenance Records:

1.                           Test
Flight Reports

2.                           All “C”
Checks and last lower level maintenance check

3.                           Work
Cards for each C-Check multiple (or segment)

4.                           Modification
records including accomplishing documents

5.                           CPCP
compliance report

6.                           Aging
Aircraft compliance report

 

27.                                 Aircraft
History Records:

1.                           Aircraft
Structural Repair History

2.                           Service
Difficulty Report

3.                           Accident
or Incident Report

4.                           Damage
Chart

 

28.                                 Engine
Records:

1.                           Log Books

2.                           Last
overhaul and repair documents for each module

3.                           Airworthiness
Directive Compliance Report (terminated and repetitive)

4.                           Manufacturer’s
Service Bulletin Status Report

5.                           Engine
Disk Sheet

6.                           Engine
Data Submittal Sheet

7.                           Condition
Monitoring Status Report including trend monitoring data for the immediately
preceding 90 days of operation

8.                           Back-to-birth
traceability for all life limited parts

9.                           Last
test cell run performance report

 

30.                                 APU
Records:

1.                           Log
Book

2.                           Last
overhaul and repair documents

3.                           Manufacturer’s
Service Bulletin Status Report

 

31.                                 Component
Records (including components installed on Engines and APU):

1.                           Time
Monitored Component Status Report with installed part numbers, serial numbers,
remaining hours and cycles (if applicable)

2.                           Serviceability
tags and other appropriate back-up documentation (including 8130’s) for
currently installed components replaced since delivery from the Manufacturer

3.                           Serialized
latest shop records, including all serviceable tags, release to service, and
repair orders detailing maintenance checks, inspections, tests, repairs,
replacements, restorations, overhauls, modifications and refurbishments

4.                           Back-to-birth
traceability for all life limited parts

 

32.                                 Manuals:

1.                           Airplane
Flight Manual

2.                           Quick
Reference Handbook

3.                           Aircraft
Operating Manual

4.                           Weight
and Balance Manual Supplement

5.                           Wiring
Diagram Manual

 

A1-84

 

6.                           Sublessee
Illustrated Parts Catalog

7.                           Bombardier
Illustrated Parts Catalog (if different from item 6)

8.                           Sublessee’s
FAA approved Maintenance Manual

9.                           Bombardier
maintenance manual (if different from item 8)

10.                     GE Engine
Illustrated Parts Catalog

11.                     GE Engine
Shop Manual

12.                     Systems
Schematic Manual

13.                     Sublessee’s
Minimum Equipment List

14.                     Master
Minimum Equipment List

15.                     Configuration
Deviation List

16.                     Dispatch
Deviation Guide

 

33.                                 Miscellaneous
Technical Documents:

1.                           Maintenance
Program Specifications/Requirements Schedule

2.                           Interior
Configuration Drawings

3.                           Loose
Equipment Inventory List

 

A1-85

 

APPENDIX II TO EXHIBIT D

 

FLIGHT TEST PROFILE

 

A1-86

 

EXHIBIT E

to

Sublease Agreement

[NW 2005       ]

 

MINIMUM LIABILITY AMOUNT

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

The Minimum Liability Amount shall be $*** per occurrence (or such other
minimum amount as may be reasonably requested by Sublessor from time to time in
the event Sublessee no longer obtains airline liability insurance coverage as
part of the Sublessor’s airline aviation liability insurance placement).

 

A1-87

 

EXHIBIT A-2

 

ENGINE LEASE FORM

 

 

ENGINE LEASE AGREEMENT

[NW 2005     ]

 

Dated as of

 

[            ],
2005

 

Between

 

NORTHWEST AIRLINES, INC.,

                      Lessor

 

AND

 

MESABA AVIATION, INC.,

                      Lessee

 

One General Electric Model CF34-3B1 Engine

 

A2-1

 

TABLE OF CONTENTS

TO

ENGINE LEASE AGREEMENT [NW 2005     ]

 

	
  SECTION 1.

  	
  Definitions

  	
   

  
	
  SECTION 2.

  	
  Acceptance and Lease

  	
   

  
	
  SECTION 3.

  	
  Term and Rent

  	
   

  
	
  SECTION 4.

  	
  Lessor’s Representations and Warranties

  	
   

  
	
  SECTION 5.

  	
  Return of the Engine

  	
   

  
	
  SECTION 6.

  	
  Liens

  	
   

  
	
  SECTION 7.

  	
  Maintenance and Operation; Possession;
  Insignia.

  	
   

  
	
  SECTION 8.

  	
  Replacement and Pooling of Parts;
  Alterations, Modifications and Additions

  	
   

  
	
  SECTION 9.

  	
  Voluntary Termination

  	
   

  
	
  SECTION 10.

  	
  Loss, Destruction, Requisition, etc. of
  Engine

  	
   

  
	
  SECTION 11.

  	
  Insurance

  	
   

  
	
  SECTION 12.

  	
  Inspection

  	
   

  
	
  SECTION 13.

  	
  Assignment

  	
   

  
	
  SECTION 14.

  	
  Events of Default

  	
   

  
	
  SECTION 15.

  	
  Remedies; Automatic Termination

  	
   

  
	
  SECTION 16.

  	
  Lessee’s Cooperation Concerning Certain
  Matters

  	
   

  
	
  SECTION 17.

  	
  Notices

  	
   

  
	
  SECTION 18.

  	
  No Set-Off, Counterclaim, etc

  	
   

  
	
  SECTION 19.

  	
  No Renewal

  	
   

  
	
  SECTION 20.

  	
  Maintenance Program

  	
   

  
	
  SECTION 21.

  	
  Lessor’s Right to Perform for Lessee

  	
   

  
	
  SECTION 22.

  	
  [Intentionally Omitted].

  	
   

  
	
  SECTION 23.

  	
  Service of Process

  	
   

  
	
  SECTION 24.

  	
  Miscellaneous

  	
   

  
	
  SECTION 25.

  	
  [Intentionally Omitted.]

  	
   

  
	
  SECTION 26.

  	
  Covenant of Quiet Enjoyment

  	
   

  
	
  SECTION 27.

  	
  Federal Bankruptcy Code

  	
   

  
	
  SECTION 28.

  	
  Use of Funds

  	
   

  
	
  SECTION 29.

  	
  Lessee’s Representations, Warranties and Indemnities

  	
   

  
	
  SECTION 30.

  	
  Certain Representations, Warranties and
  Covenants

  	
   

  
	
  SECTION 31.

  	
  Covenants of Lessee

  	
   

  
	
  SECTION 32.

  	
  Consent to Jurisdiction

  	
   

  
	
  SECTION 33.

  	
  Owner for Federal Tax Purposes

  	
   

  

 

A2-2

 

EXHIBITS

 

	
  EXHIBIT A

  	
   

  	
  -

  	
   

  	
  Form of
  Lease Supplement

  
	
  EXHIBIT B

  	
   

  	
  -

  	
   

  	
  Basic Rent

  
	
  EXHIBIT C

  	
   

  	
  -

  	
   

  	
  Stipulated
  Loss Value Schedule

  
	
  EXHIBIT D

  	
   

  	
  -

  	
   

  	
  Return Conditions

  
	
  EXHIBIT E

  	
   

  	
  -

  	
   

  	
  Minimum
  Liability Amount

  
	
  EXHIBIT F

  	
   

  	
  -

  	
   

  	
  Headlease
  Variations

  
	
  EXHIBIT G

  	
   

  	
  -

  	
   

  	
  Quick
  Engine Change Kit Specifications

  

 

A2-3

 

ENGINE LEASE AGREEMENT

[NW 2005     ]

 

This ENGINE LEASE AGREEMENT [NW 2005     ],
dated as of [      ], 2005, between NORTHWEST
AIRLINES, INC., a corporation organized and existing pursuant to the laws of
the State of Minnesota (“Lessor”), and
MESABA AVIATION, INC., a corporation organized and existing pursuant to the
laws of the State of Minnesota (“Lessee”);

 

W I T N E S S E T H:

 

WHEREAS, Lessor has agreed to lease the Engine to
Lessee, Lessee has agreed to enter into this Lease for use of the Engine by
Lessee in its operations in accordance with the Airline Services Agreement and
for no other purpose, and the parties hereto intend this Lease to be an
operating lease; and

 

WHEREAS, Lessor is providing a valuable financial
accommodation to Lessee by making the Engine available to Lessee pursuant to
this Lease, and Lessor is entering into this Lease solely to provide the Engine
to Lessee for use in its operations in accordance with the Airline Services
Agreement; and

 

NOW, THEREFORE, in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and legal sufficiency of which is hereby acknowledged, Lessee and
Lessor intending to be legally bound agree as follows:

 

SECTION 1.  Definitions. 
Unless the context otherwise requires, the following terms shall have
the following meanings for all purposes of this Lease and shall be equally
applicable to both the singular and the plural forms of the terms herein
defined:

 

“Additional Insured”
means Lessor or such other Person as Lessor may designate.

 

“Affiliate”
means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by or under common control with such Person.  For the purposes of this definition, “control”
(including “controlled by” and “under common control with”) shall mean the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such person whether through the ownership of voting
securities or by contract or otherwise. 
For the avoidance of doubt, Lessor and its Affiliates are not Affiliates
of Lessee.

 

“After-Tax Basis” means an
amount, which, after deduction of all Federal, state, local and foreign taxes
required to be paid by or on behalf of the recipient in

 

A2-4

 

respect of the receipt or
realization of such amount, is equal to the payment required under the
provisions of the Lessee Documents that requires payments to be made on an
After-Tax Basis.

 

“Aircraft”
means any Airframe leased or subleased to Lessee or an Affiliate of Lessee by
Lessor or an Affiliate of Lessor suitable for Lessee’s installation, use and
operation of the Engine.

 

“Aircraft Documentation” has the
meaning specified in Exhibit D hereto.

 

“Airframe”
means: any Bombardier Inc. Canadair Regional Jet Model CL-600-2B19 aircraft
(except engines from time to time installed thereon) specified in the lease or
sublease of such aircraft between Lessor or an Affiliate of Lessor and Lessee
or an Affiliate of Lessee; and (ii) any and all parts associated therewith
(except engines from time to time installed thereon) and covered by such
sublease.

 

“Airline Services Agreement”
means the Airline Services Agreement dated as of August 29, 2005 between
Lessor and Lessee, as modified, amended or supplemented from time to time
pursuant to the terms thereof.

 

“Bankruptcy Code”
means the Bankruptcy Reform Act of 1978, as amended, or any subsequent
legislation that amends, supplements or supersedes such provisions.

 

“Base Rate”
means the rate of interest announced publicly by Citibank, N.A. in New York,
New York from time to time as its base rate.

 

“Basic Rent” means,
for the Term, the rent payable for the Engine pursuant to Section 3(b).

 

“Basic Shop Visit”
means any shop visit, as defined by the Engine Manufacturer that is based on an
approved program of condition monitoring and trend monitoring of performance
deterioration that results in an Engine being restored to full performance
standard.

 

“Business Day”
means any day other than a Saturday or Sunday or a day on which commercial
banks are required or authorized to close in the City of New York, New York; or
Minneapolis, Minnesota.

 

“‘C’ Check” means a “C” Check, as
such term is defined in the Maintenance Program relating the Aircraft that
meets the requirements of a “C” Check as defined in the Bombardier Inc.
Maintenance Requirement Manual.

 

“Certificated Air Carrier”
means a Citizen of the United States holding a carrier operating certificate
issued by the Secretary of Transportation pursuant to Chapter 447 of Title 49,
United States Code, for aircraft capable of carrying ten or more individuals or
6,000 pounds or more of cargo or that otherwise is certified or

 

A2-5

 

registered to the extent required to fall within the
purview of 11 U.S.C. Section 1110 or any analogous successor provision of
the Bankruptcy Code.

 

“Citizen of the United States”
has the meaning specified in Section 40102(a)(15) of Title 49 of the
United States Code or any similar legislation of the United States of America
enacted in substitution or replacement therefor.

 

“Code” means
the Internal Revenue Code of 1986, as amended.

 

“Commencement Date”
means the date specified as the Commencement Date in the Lease Supplement
delivered on the Delivery Date.

 

“Default” means
any event which with the giving of notice or the lapse of time or both would
become an Event of Default.

 

“Delivery Date”
of the Engine means the date the Lease Supplement subjecting the Engine to the
Lease is executed and delivered by the Lessor and the Lessee.

 

“Dollars” and “$” means the lawful currency of the United States of
America.

 

“Engine” means
the General Electric Model CF34-3B1 type engine identified by manufacturer’s
serial number in the initial Lease Supplement, whether or not from time to time
thereafter installed on an Airframe or airframe or on any other aircraft; and (ii) any
engine which may from time to time be substituted, pursuant to the terms
hereof, for such engine, together in each case with Shipping Stand, any QEC,
the applicable Aircraft Documentation and any and all Parts normally
incorporated or installed in or attached thereto including any and all Parts
removed therefrom so long as title thereto shall remain vested in the Lessor in
accordance with the terms of Section 8 after removal from such Engine; provided, however, that at such time as an engine shall be
deemed part of the property leased hereunder in substitution for the Engine
pursuant to the applicable provisions hereof, the replaced Engine shall cease
to be the Engine hereunder.  The term “Engines” means, as of any date of determination, all
engines then leased by Lessor or any Affiliate of Lessor to Lessee or any
Affiliate of Lessee, whether under this Lease or under any other engine lease,
other than the engines initially leased as part of an Aircraft by Lessor to Lessee
unless the context requires.

 

“Engine Manufacturer” means
General Electric Aircraft Engines, a division of General Electric Corporation.

 

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.  Section references to ERISA are to
ERISA, as in effect at the date of the Participation Agreement and any
subsequent provisions of ERISA, amendatory thereof, supplemental thereto or
substituted therefor.

 

A2-6

 

“Event of Default”
has the meaning specified in Section 14 hereof.

 

“Event of Loss”
with respect to the Engine means any of the following events with respect to
such property: (i) the loss of such property or of the use thereof due to
the destruction of or damage to such property which renders repair uneconomic
or which renders such property permanently unfit for normal use by Lessee for
any reason whatsoever; (ii) any damage to such property which results in
an insurance settlement with respect to such property on the basis of a total
loss, or a constructive or compromised total loss; (iii) the theft or
disappearance of such property, or the confiscation, condemnation, or seizure
of, or requisition of title to, or use of, such property (other than a
requisition for use by the United States Government or any agency or
instrumentality of any thereof) which in the case of any event referred to in
this clause (iii) (other than a requisition of title) shall have resulted
in the loss of possession of such property by Lessee for a period in excess of
90 consecutive days or, in the case of a requisition of title, the requisition
of title shall not have been reversed within 60 days from the date of such
requisition of title; (iv) as a result of any law, rule, regulation, order
or other action by the Federal Aviation Administration, the use of the Engine
(or any Aircraft on which the Engine is in use) in the normal course of the
business of air transportation shall have been prohibited for a period of 90
consecutive days, unless Lessee, prior to the expiration of such 90 day period,
shall have undertaken and shall be diligently carrying forward all steps which
are necessary or desirable to permit the normal use of the Engine by Lessee,
but in any event if such use shall have been prohibited for a period of two
consecutive years, provided that
no Event of Loss shall be deemed to have occurred if such prohibition has been
applicable to the entire U.S. registered fleet of Bombardier Inc. Canadair
Regional Jet Series [200][440] aircraft of Lessee and Lessee, prior to the
expiration of such two-year period, shall have conformed at least one such
aircraft in its fleet to the requirements of any such law, rule, regulation,
order or other action and commenced regular commercial use of the same in such
jurisdiction and shall be diligently carrying forward all steps which are
necessary or desirable to permit the normal use of such aircraft by Lessee, provided, further, that,
notwithstanding any of the foregoing, such prohibition shall constitute an
Event of Loss if such use shall have been prohibited for a period of three
consecutive years, or if such use shall be prohibited at the expiration of the
Term; or (v) any divestiture of title to or interest in an Engine treated
as an Event of Loss pursuant to Section 7(b) hereof.  An Event of Loss with respect to the Engine
shall be deemed to have occurred if an Event of Loss (as defined in the related
Aircraft Lease) occurs with respect to an Aircraft on which the Engine is then
installed unless no damage occurs to the Engine and the Engine is recovered by
Lessee, as established to Lessor’s satisfaction within the time period
hereunder for performance of Lessee’s obligations in respect of an Event of
Loss.

 

“Expenses” has
the meaning specified in Section 29(c) hereof.

 

“Expiration
Date” means May 1, 2015, or such later date to which the
effectiveness of the Airline Services Agreement shall be extended in accordance

 

A2-7

 

with its terms, such that this Lease and the Airline
Services Agreement shall be coterminous.

 

“FAR” means the regulations
promulgated under the Federal Aviation Act.

 

“Federal Aviation Act”
means that portion of the United States Code comprising those provisions
formerly referred to as the Federal Aviation Act of 1958, as amended, or any
subsequent legislation that amends, supplements or supersedes such provisions.

 

“Federal Aviation Administration”
and “FAA” mean the United States Federal
Aviation Administration and any agency or instrumentality of the United States
government succeeding to their functions.

 

“Flight Hour” means: with respect
to the Engine or any Part, each hour or part thereof, measured to two decimal
places, which elapses from the time the wheels of the airframe, whether or not
an Airframe leased by Lessor to Lessee, on which such Engine or Part is
installed, leave the ground on take-off and the time when the wheels of such
airframe touch the ground on landing.

 

“Headlease” means a lease or
other agreement or instrument (other than a bill of sale or other such
instrument by which Lessor obtained legal title to the Engine) between Lessor
and a third-party owner of the Engine, pursuant to which Lessor obtains rights
in and to the Engine leased to Lessee hereunder.

 

“Headlease Documents” means the
agreements, instruments and other documents identified pursuant to Exhibit F
hereto in the event that the Engine is subject to a Headlease during the Term.

 

“Headlease Interest” means any of
Headlessor (in its capacity as such), any entity serving as Headlessor in its
individual capacity, and,  but only if a
party to any Headlease Document, any owner participant in or comparable
beneficial owner of Headlessor.

 

“Headlessor” means the Person
designated in the Headlease as the lessor of the Engine.  Except as Lessor and Headlessor may otherwise
agree, the Headlessor shall be the Owner of the Engine.

 

“Indemnitee”
means (i) Lessor, (ii) each Affiliate of Lessor, (iii) if and so
long as the Engine is subject to a Headlease during the Term, such Persons as
are identified pursuant to Exhibit F hereto and (iv) the respective
directors, officers, employees, agents and servants, successors and permitted
assigns of each of the Persons described in clauses (i), (ii) and (iii),
inclusive.

 

“Lease Agreement”, “this Lease
Agreement”, “this Lease”, “this Agreement”, “herein”, “hereof”, “hereunder”, “hereby”
or other like words mean this Engine Lease Agreement [NW 2005
    ], as originally executed or as

 

A2-8

 

modified, amended or supplemented pursuant to the
applicable provisions hereof, including, without limitation, supplementation
hereof by one or more Lease Supplements entered into pursuant to the applicable
provisions hereof.

 

“Lease Period”
means each of the monthly periods throughout the Term ending on a Lease Period
Date.

 

“Lease Period Date”
means the 1st calendar day of each month during the Term.

 

“Lease Supplement”
means a Lease Supplement, substantially in the form of Exhibit A
hereto, to be entered into between Lessor and Lessee on the Commencement Date
for the purpose of leasing the Engine under and pursuant to the terms of this
Lease Agreement, and any subsequent Lease Supplement entered into in accordance
with the terms hereof.

 

“Lessee” means
Mesaba Aviation, Inc. a Minnesota corporation, and its successors and
permitted assigns, as lessee under the Lease.

 

“Lessee Documents”
means the Lease, the Lease Supplement covering the Engine, the acceptance
certificate covering the Engine in the form agreed to by Lessor and Lessee
(herein called the “Lease Acceptance
Certificate”) and the Airline Services Agreement.

 

“Lessor Liens” means
any Lien affecting or disposition of title or interest affecting or in respect
of the Engine arising as a result of (i) claims against or affecting
Lessor not arising from the transactions contemplated by this Lease, (ii) any
act or omission of Lessor not related to the transactions contemplated by this
Lease, (iii) Taxes imposed against Lessor which Lessee has not agreed to
indemnify against pursuant to this Lease, (iv) [Intentionally Omitted] or (v) claims
against Lessor arising out of the voluntary transfer of all or any portion of
Lessor’s interest in any Aircraft on which the Engine is then installed,
or  in any of the Lessee Documents other
than a transfer pursuant to Sections 5, 8, 10 or 15 hereof, provided, however, that any Lien which is attributable
solely to Lessor and would otherwise constitute a Lessor Lien hereunder shall
not constitute a Lessor Lien hereunder so long as (1) the existence of
such Lien poses no material risk of the sale, forfeiture or loss of the Engine,
(2) the existence of such Lien does not interfere in any way with Lessee’s
use, possession or operation of Engine or of the Aircraft on which it is then
installed and (3) Lessor is diligently contesting such Lien.

 

“Lien” means
any mortgage, pledge, lien, charge, claim, encumbrance, lease, sublease,
sub-sublease or security interest.

 

“Life Limited Parts” means those
parts which have a specific hour, cycle and/or calendar life limit as specified
by the Manufacturer.

 

“Loss Payment Date”
has the meaning specified in Section 10(a) hereof.

 

A2-9

 

“Maintenance Program”
has the meaning specified in Exhibit D hereto.

 

“Major Modifications”
include, but shall not be limited to (i) changes that alter the
fundamental nature of an Aircraft as a passenger and cargo carrying aircraft, (ii) changes
to the Engine or an engine that affects the performance of an Aircraft or the
Engine, (iii) changes that adversely affect interchangeability or
replaceability of Parts, (iv) substitution of different types of equipment
or accessories which are not equivalent in cost, value and/or operational
capability to the equipment or accessories being replaced, (v) changes
that invalidate or impair any warranty with respect to the Engine or any Part, (vi) changes
that adversely affect the eligibility of an Aircraft or Engine to obtain an
airworthiness certificate from the FAA or (vii) any changes that result in
a variation from the original type certificate for an Aircraft (other than
changes between 44 seat and 50 seat configurations of an Aircraft as permitted
by the Airline Services Agreement), but shall exclude changes pursuant to
airworthiness directives.

 

“Manufacturer”
means with respect to any Airframe, and where the context permits, any
Aircraft, Bombardier Inc., a Canadian Corporation, and its successors and assigns
and, with respect to the Engine, General Electric Company, a New York
corporation, and its successors and assigns.

 

“Minimum Liability Amount”
has the meaning specified in Exhibit E hereto.

 

“Operative Documents”
and “Operative Document” means this Lease,
the Lease Supplement covering the Engine, the Acceptance Certificate, any
Headlease, any Headlease Documents and the Purchase Agreement.

 

“Owner” means (i) if
the Engine is not subject to a Headlease, Lessor (or any permitted assignee or
successor thereof) for so long as this Lease remains in effect and title to the
Engine remains vested in Lessor pursuant to the terms hereof or (ii) if
and so long as the Engine is subject to a Headlease during .the Term, the
lessor of the Engine to Lessor pursuant to such Headlease, unless such lessor
and Lessor otherwise agree.

 

“Parts” means
all appliances, parts, instruments, appurtenances, accessories, furnishings and
other equipment of whatever nature (including QEC parts) (other than the
complete Engine or a complete other engine) which may from time to time be
incorporated or installed in or attached to the Engine or so long as title
thereto shall remain vested in the Owner in accordance with Section 8
after removal therefrom.

 

“Past Due Rate”
means a rate per annum equal to the greater of (a) 5% over the Base Rate
and (b) 15%.

 

“PBH Agreement” means a maintenance agreement which (i) provides
shop repair/overhaul of Engines or Parts on a continuous basis at an agreed
upon Flight Hour or cycle based rate, (ii) provides unrestricted
assignment rights to

 

A2-10

 

Lessor
and Lessor’s future operators of any Aircraft on which the Engine is installed,
and (iii) has been approved in writing by Lessor (including but not limited
to specific Lessor approval of the maintenance provider, rates, payment terms,
scope, term, maintenance standard, assignment rights and financial adjustments
that are made when an Engine or Part exits such program at termination or
expiration of the PBH Agreement relative to such Engine or Part).

 

“Permitted Lien”
means any Lien referred to in clauses (i) through (iii) of Section 6
hereof.

 

“Person” means
any individual, corporation, partnership, limited liability company, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.

 

“Purchase Agreement” means
that certain General Terms Agreement No. CF34-0798-057-A dated July 6,
2001, between the Manufacturer and Lessor or Headlessor, as the case may be,
relating to the purchase of the Engine, as originally executed or as modified,
amended or supplemented in accordance with the terms thereof, but only insofar
as the foregoing relates to the Engine.

 

“QEC” mean the quick engine
change parts and components, if any, installed on the Engine as identified in Exhibit G.

 

“Rent” means
Basic Rent and Supplemental Rent, collectively.

 

“Shipping Stand” means an engine
shipping stand, designed and manufactured in accordance with Manufacturer
recommendations and requirements, for long distance ground and air
transportation of CF34-3B1 engines.

 

“Stipulated Loss Value”
with respect to the Engine, as of any date through and including the Expiration
Date, means, the amount specified in Exhibit C hereto opposite the
Stipulated Loss Value Date with respect to which the amount is determined.

 

“Stipulated Loss Value Date”
means the [    ] calendar day of each calendar month during
the Term.

 

“Supplemental Rent”
means, without duplication, all amounts, liabilities, indemnities and
obligations (other than Basic Rent) which Lessee assumes or agrees to pay under
any Lessee Document to or on behalf of Lessor or any other Person hereunder or
under any other Lessee Document.  The
parties acknowledge that Supplemental Rent is a general category and,
accordingly, agree that any provision of any Lessee Document which calls for
the payment of Supplemental Rent and also calls for the payment of specific
items which are includable in Supplemental Rent is not to be interpreted as
requiring any double payment.

 

A2-11

 

“Tax Indemnitee”
means (i) Lessor, (ii) the respective directors, officers, employees,
agents and servants of Lessor, (iii) if and so long as the Engine is
subject to a Headlease during the Term, the other parties identified in Exhibit F
as indemnitees of Lessor under such Headlease and (iv) the respective
Affiliates, successors and permitted assigns of each of the entities described
in the preceding clauses (i), (ii) and (iii) inclusive.

 

“Taxes” means
any and all fees (including, without limitation, license, recording,
documentation and registration fees), taxes (including, without limitation,
income, gross receipts, sales, rental, use, turnover, value added, property
(tangible and intangible), excise and stamp taxes), license, levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any and all penalties, fines, additions to tax and interest thereon (each,
individually a “Tax”).

 

“Term” means
the term for which the Engine is leased hereunder pursuant to Section 3(a) hereof
commencing on the Commencement Date and ending on the Expiration Date, or such
earlier date as this Lease may be terminated in accordance with the provisions
hereof.

 

SECTION 2.
 Acceptance and Lease.
(a) Generally.  Lessor hereby agrees to lease to Lessee
hereunder, and Lessee hereby agrees to lease from Lessor hereunder, the Engine
as evidenced by the execution by Lessor and Lessee of a Lease Supplement
leasing the Engine hereunder.  Lessee
hereby agrees that such acceptance of the Engine by Lessor shall, without
further act, irrevocably constitute acceptance by Lessee of such Engine for all
purposes of this Lease.  As provided in Section 25
hereof, the rights of Lessee hereunder are subject and subordinate to all the
terms of the Head Lease, including any amendments or restatements thereto as
may occur from time to time, and the parties intend this Lease to constitute a
true lease.

 

(b)           Airline Services Agreement. 
Lessee acknowledges that Lessor is providing a valuable financial
accommodation to Lessee by entering into the Operative Documents to which it is
a party and this Lease to allow Lessee to obtain the use of the Engine pursuant
to the terms of the Airline Services Agreement. 
As a condition to their rights hereunder, Lessee and Lessor hereby
confirm and ratify the Airline Services Agreement, which is incorporated herein
by reference for all purposes, and agree, as a material term of this Lease and
as a material inducement to Lessor to enter into this Lease, to fully perform
all of their respective obligations under the Airline Services Agreement as a
part of this Lease Agreement as though the same were set forth herein.

 

(c)           Engine Headlease.  Notwithstanding
any provision of this Lease to the contrary, in the event that the Engine is at
any time subject to a Headlease, the terms and conditions set forth on Exhibit F
hereto shall be applicable to the Engine and this Lease during such portion of
the Term as such Headlease is in effect, and all terms and provisions set forth
in this Lease shall be construed in a manner consistent therewith.

 

A2-12

 

SECTION 3.  Term and
Rent.  (a) Term. 
The Term shall commence on the Commencement Date and end on the
Expiration Date or such earlier date as this Lease may be terminated in
accordance with the provisions hereof.

 

(b)           Basic Rent.  Lessee
shall pay Basic Rent with respect to each Lease Period during the Term on each Lease Period Date during the Term, in consecutive monthly
installments in the amounts as provided in the next sentence.  Each such installment of Basic Rent shall be
payable in advance with respect to the month commencing on such Lease Period
Date and shall be equal to the amount specified for each Lease Period Date
specified in Exhibit B hereto. 
In addition, Lessee shall pay Basic Rent on the Commencement Date in the
amount specified in Exhibit B hereto, allocable to the period
commencing on the Commencement Date and ending on such date or on (but
excluding) the immediately succeeding Lease Period Date (if other than the
Commencement Date).  If Lessee shall for
any reason whatsoever fail to return the Engine on the Expiration Date in the
condition specified herein, or return of the Engine is not accepted by Lessor
because of Lessee’s failure to meet the requirements of this Lease, the
obligations of Lessee provided in this Lease and in each other Operative
Document to which Lessee is a party, including the obligation to pay Basic
Rent, which, after the Expiration Date, shall be on a per diem basis based on a
pro rata application of *** of
the Basic Rent due during the last Lease Period of the Term, shall continue in
effect with respect to the Engine, and the Term shall be deemed to be extended
until return of the Engine to Lessor in accordance with the requirements of
this Lease; provided that nothing in this Section shall
be construed as permitting or authorizing Lessee to fail to meet, or consenting
to or waiving any failure by Lessee to perform, Lessee’s obligation to return
the Engine in accordance with the requirements of this Lease and Lessor shall
be entitled to all of the benefits of, and all of its rights and remedies set
forth in, Sections 14 and 15 hereof.

 

(c)           [Intentionally Omitted]

 

(d)           Supplemental Rent. 
Lessee shall pay (or cause to be paid) promptly to Lessor, or to
whomsoever shall be entitled thereto, any and all Supplemental Rent
constituting Stipulated Loss Value as the same shall become due and owing and
all other amounts of Supplemental Rent within five days after demand or within
such other relevant period as may be provided in any Lessee Document, and in
the event of any failure on the part of Lessee to pay any Supplemental Rent
when due, Lessor shall have all rights, powers and remedies provided for herein
or in any other Lessee Document or by law or equity or otherwise in the case of
nonpayment of Basic Rent. Lessee also will pay to Lessor, or to whomsoever
shall be entitled thereto, on demand, as Supplemental Rent, to the extent
permitted by applicable law, interest at the Past Due Rate on any part of any
installment of Basic Rent not paid when due for any period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due for
the period until the same shall be paid.

 

(e)           Payments in General.  All
payments of Rent shall be made directly by Lessee by wire transfer of
immediately available funds prior to 10:30 A.M., New York time, on the
date of payment, to Lessor at its account at USBank, Minneapolis, ABA No. 091000022,
for the account of Northwest Airlines, Inc., Account No. *** (or such other account of Lessor
in the continental United States as Lessor shall direct in a notice to Lessee
at least 10 Business Days prior to the date such payment of Rent is due).  All payments of Supplemental Rent shall be

 

A2-13

 

made in Dollars in immediately available funds prior to 10:30 A.M.,
New York time, on the due date thereof at such office of such other financial
institution located in the continental United States as the party entitled
thereto may so direct at least ten (10) Business Days prior to the due
date thereof.

 

Notwithstanding anything to the contrary contained
herein, if any date on which a payment of Rent becomes due and payable is not a
Business Day, then such payment shall not be made on such scheduled date but
shall be made on the next succeeding Business Day with the same force and
effect as if made on such scheduled date and (provided
such payment is made on such next succeeding Business Day) no interest shall
accrue on the amount of such payment from and after such scheduled date.

 

SECTION 4.  Lessor’s
Representations and Warranties. 
LESSOR LEASES AND LESSEE TAKES THE ENGINE AND EACH PART THEREOF
“AS-IS,” “WHERE-IS.”  LESSOR HAS NOT
MADE, NOR SHALL LESSOR BE DEEMED TO HAVE MADE, AND LESSOR HEREBY EXPRESSLY
DISCLAIMS AND WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, WORKMANSHIP,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OR A
PARTICULAR PURPOSE OF THE ENGINE OR ANY PART THEREOF, AS TO THE ABSENCE OF
LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF
OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE ENGINE OR ANY PART THEREOF,
except that Lessor (i) represents and warrants that on the Commencement Date
the Engine shall be free of Lessor Liens (including for this purpose Liens
which would be Lessor Liens but for the proviso in the definition of Lessor
Liens) and (ii) agrees that it will not directly or indirectly create,
incur, assume or suffer to exist any Lessor Lien attributable to it on or with
respect to any Engine, or with respect to any Airframe while the Engine is
installed thereon not otherwise permitted under the Aircraft Lease relating to
such Airframe, and it agrees that it will promptly, at its own expense, take
such action as may be necessary duly to discharge such Lessor Lien.  None of the provisions of this Lease shall be
deemed to amend, modify or otherwise affect the representations, warranties or
other obligations (express or implied) of the Manufacturer, any subcontractor
or supplier of the Manufacturer with respect to the Engine or any Parts, or to
release the Manufacturer, or any such subcontractor or supplier, from any such
representation, warranty or obligation, or to diminish any right that Lessee
may have with respect to the Engine or any Parts against the Manufacturer or
any such subcontractor or supplier under the Purchase Agreement or otherwise.

 

SECTION 5.  Return of
the Engine.  (a)  Upon the termination of this Lease
at the end of the Term or pursuant to Section 15, Lessee, at its own
expense, will return the Engine to or at the direction of Lessor at either
Minneapolis/St. Paul International Airport, St. Paul, Minnesota, or Wayne
County Metropolitan Airport, Detroit, Michigan, as designated by Lessor or at
such other location in the 48 contiguous states of the United States as may be
specified by Lessor.  At the time of such
return, the Engine will be fully serviceable and functioning properly in
accordance with Manufacturer’s specifications. 
Also, at the time of such return, 
the Engine

 

A2-14

 

(i) shall have a current and valid FAA serviceable tag, issued by
an FAA Part 145 repair station, (ii) shall be free and clear of all
Liens (other than Lessor Liens (including for this purpose Liens which would be
Lessor Liens but for the proviso in the definition of Lessor Liens) and rights
of third parties under pooling, interchange, overhaul, repair or other similar
agreements or arrangements (all of which shall be certified to Lessor by Lessee
in a certificate delivered concurrently with such return in form and substance
satisfactory to Lessor), (iii) shall be in as good an operating condition
as when delivered by the Manufacturer to Lessor, ordinary wear and tear
excepted and (iv) shall be in compliance with the return conditions set
forth in Exhibit D.

 

During the last twelve (12) months of the Term, with
reasonable notice, Lessee will cooperate in all reasonable respects with the efforts
of Lessor to sell or lease the Engine, including, without limitation,
permitting prospective purchasers and lessees to inspect fully the Engine and
the records relating thereto, provided, that
such cooperation shall not interfere with the operation or maintenance of the
Engine by Lessee.  In addition, Lessee
shall notify Lessor in writing of its plans for meeting the return conditions
contained herein at least six months prior to the Expiration Date, and Lessee
shall notify Lessor in writing at any time within the last twelve (12) months
of the Term prior to initiating any significant shop maintenance or repairs to
the Engine.  Lessor shall have the right
to approve or reject Lessee’s proposed plans for meeting the return conditions
contained herein, with such approval not to be unreasonably withheld.

 

(b)           Aircraft Documentation.  Upon
the return of the Engine upon any termination of this Lease in accordance with
paragraph (a) of this Section 5, Lessee shall deliver or cause to be
delivered to Lessor or its designee, in English, current and complete Aircraft
Documentation relating to the Engine, together with a complete list, by
manufacturer’s serial number and registration number, of each Airframe or
airframe on which the Engine has been installed during the Term, including the
dates installed and removed, and the Flight Hours and cycles accumulated on
each.

 

(c)           Storage Upon Return.  If,
at least ten (10) days prior to termination of this Lease at the end of
the Term, Lessee receives from Lessor a written request for storage of the
Engine upon its return hereunder, Lessee will provide Lessor, or cause Lessor
to be provided, with free sheltered storage facilities for, and unrestricted
access to, the Engine (maintenance costs and other out-of-pocket costs other
than packing, storage and security fees to be for the account of Lessor) for a
period not exceeding sixty (60) days commencing on the date of such
termination, at a location in the continental United States selected by Lessee
used as a location and suitable for the storage of commercial jet engines and
readily accessible to Lessor.  Lessee
will maintain insurance for the Engine during such period not exceeding sixty
(60) days and be reimbursed by Lessor or its designee for the premiums thereon.

 

(d)           PBH Agreements.  If at
return of the Engine, the Engine or any Part is being maintained under a
PBH Agreement, Lessee shall not be required to satisfy minimum maintenance time
remaining requirements specified in Exhibit D that are directly and fully
covered by such PBH Agreement.

 

SECTION 6.  Liens.  Lessee will not directly or
indirectly create, incur, assume or suffer to exist any Lien on or with respect
to the Engine, title thereto or any interest therein or in this Lease, except (i) the
respective rights of Lessor and Lessee as herein provided, the rights

 

A2-15

 

of the Owner of the Engine, rights existing under and pursuant to any
PBH Agreement and any other rights existing pursuant to the Operative Documents,
(ii) the rights of others under agreements or arrangements to the extent
permitted by the terms of Sections 7(b) and 8(b) hereof, (iii) Lessor
Liens (including for this purpose Liens which would be Lessor Liens but for the
proviso in the definition of Lessor Liens), (iv) Liens for taxes of Lessee
either not yet due or being contested in good faith by appropriate proceedings
so long as such proceedings do not involve any risk of the sale, forfeiture or
loss of the Engine or any interest therein, (v) materialmen’s, mechanics’,
workmen’s, repairmen’s, employees’ or other like Liens arising in the ordinary
course of Lessee’s business (including those arising under maintenance
agreements entered into in the ordinary course of business) securing
obligations that are not overdue for a period of more than thirty (30) days or
are being contested in good faith by appropriate proceedings so long as such
proceedings do not involve any risk of the sale, forfeiture or loss of the
Engine or any interest therein, (vi) Liens arising out of any judgment or
award against Sublessee, unless the judgment secured shall not, within thirty
(30) days after the entry thereof, have been discharged, vacated, reversed or
execution thereof stayed pending appeal or shall not have been discharged,
vacated or reversed within thirty (30) days after the expiration of such stay,
and (vii) any other Lien with respect to which Lessee shall have provided
a bond, cash collateral or other security adequate in the sole discretion of
Lessor.  Lessee will promptly, at its own
expense, take (or cause to be taken) such actions as may be necessary duly to
discharge any such Lien not excepted above if the same shall arise at any time.

 

SECTION 7.  Maintenance
and Operation; Possession; Insignia.   (a)(I)   Maintenance.  Lessee, at its own cost and expense, shall: (i) continuously
operate, maintain, service, repair and overhaul (or cause to be maintained,
serviced, repaired and overhauled) the Engine (including, without limitation,
all Parts thereof, including the QEC) in compliance with the Maintenance
Program and in compliance with all FAA requirements for FAR Part 121
operation and the Manufacturers’ recommended maintenance program so as to keep
the Engine in as good an operating condition as when delivered by the
Manufacturer to Lessor, ordinary wear and tear excepted, so as to maintain in
effect all material Manufacturers’ warranties and guaranties and as may be
necessary to enable the airworthiness and serviceability certification for the
Engine and airworthiness certification for any Airframe or airframe on which
the Engine may be installed from time to time to be maintained in good standing
at all times under the Federal Aviation Act, except when all Bombardier Inc.
Canadair Regional Jet Model Series [200][440] aircraft powered by engines
of the same type as the Engine and registered in the United States have been
grounded by the FAA, and utilizing the same manner and standard of maintenance,
service, repair and overhaul used by Lessee with respect to similar engines
used by Lessee in similar circumstances and without in any case discriminating
against the Engine by reason of its leased status; provided, however, that in
all circumstances the Engine shall be maintained by Lessee in accordance with
maintenance standards required by the FAA for FAR Part 121 operation; (ii) maintain
or cause to be maintained in English all Aircraft Documentation relating to the
Engine and all other records, logs and other materials maintained in respect of
the Engine; and (iii) promptly furnish or cause to be furnished to Lessor
such information as may be required to enable Lessor to monitor the maintenance
status and condition of the Engine and to file any reports required to be filed
by Lessor with any governmental authority because of Lessor’s ownership of the
Engine or any Aircraft on which the Engine is installed.

 

(II)
Operation.  While installed on an
Airframe or airframe and while being operated in

 

A2-16

 

any static testing configuration not on an Airframe or airframe, Lessee
will continuously operate the Engine in accordance with its FAA approved flight
manual (which shall comply with all Manufacturer recommendations and
requirements for the Engine type) and the Manufacturer’s maintenance
manual.  Lessee will not maintain, use,
service, repair, overhaul or operate the Engine in violation of any law or any
rule, regulation, order or certificate of any government or governmental
authority (domestic or foreign) having jurisdiction, or in violation of any
airworthiness certificate, license or registration relating to the Airframe or
airframe on which the Engine is installed issued by any such authority, except
to the extent Lessee is contesting in good faith the validity or application of
any such law, rule, regulation or order in any reasonable manner which does not
adversely affect Lessor or Lessor’s right, title or interest in the Engine and
does not involve any risk of sale, forfeiture or loss of the Engine or the
Airframe or airframe on which the Engine is installed or any risk of civil
liability or criminal liability being imposed on Lessor.  Lessee will not store or operate the Engine
or any Airframe or airframe on which the Engine is installed (a) in any
area excluded from coverage by any insurance required by the terms of Section 11;
provided, however, that the failure of Lessee to comply with the provisions of
this clause (a) shall not give rise to an Event of Default hereunder where
such failure is attributable to causes beyond the reasonable control of Lessee
or to Lessee’s response to extraordinary circumstances involving an isolated
occurrence or isolated series of incidents not in the ordinary course of the
regular operations of Lessee and in each such case Lessee is taking all
reasonable steps to remedy such failure as soon as is reasonably practicable or
(b) other than in operations in accordance with the Airline Services
Agreement.  Lessee further agrees not to
store or operate the Engine, or any Airframe or airframe on which the Engine is
installed, outside the United States in any taxable year in a manner that would
cause more than 20% of the Basic Rent payable under the Lease to be treated as
derived from sources outside the United States.

 

(b)          Possession.  Lessee
will not, without the prior written consent of Lessor, in any manner deliver,
transfer or relinquish possession of the Engine or any Airframe or airframe on
which the Engine is installed, or install or permit any Engine to be installed
on any airframe other than an Airframe; provided that,
so long as no Default or Event of Default shall have occurred and be continuing
at the time of such delivery, transfer or relinquishment of possession or
installation and so long as Lessee shall comply with the provisions of Sections
7(a) and 11 hereof, Lessee may, without the prior written consent of
Lessor:

 

(i)            deliver
possession of the Engine, or an Airframe on which it is then installed, to the
manufacturer of either thereof (or for delivery thereto) or to any FAA approved
organization (or for delivery thereto) for testing, service, repair,
maintenance or overhaul work on the Engine or any part of any thereof or such
Airframe or for alterations or modifications in or additions to the Engine or
such Airframe to the extent required or permitted by the terms of Section 8(c) hereof;
or

 

(ii)           to
the extent permitted by Section 8(b) hereof, subject any appliances,
Parts or other equipment owned by Lessor and removed from the Engine to any
pooling arrangement referred to in Section 8(b) hereof.

 

The rights of any transferee who receives possession
by reason of a transfer permitted by this paragraph (b) shall be
effectively subject and subordinate to all the terms of this

 

A2-17

 

Lease, including, without limitation, the covenants contained in Section 7(a) hereof
and Lessor’s rights to repossession pursuant to Section 15 hereof, and
Lessee shall remain primarily liable hereunder for the performance of all of
the terms of this Lease to the same extent as if such transfer had not
occurred.  No pooling agreement or other
relinquishment of possession of the Engine or any Airframe or airframe on which
it is installed shall in any way discharge or diminish any of Lessee’s
obligations to Lessor hereunder or constitute a waiver of Lessor’s rights or
remedies hereunder.  Notwithstanding
anything to the contrary contained herein, Lessee under any and all
circumstances may not sublease or sub-sublease, and is prohibited from entering
into any sublease or sub-sublease with respect to, the Engine (whether by
itself or installed on an Airframe or airframe).

 

(c)           Insignia.  On or prior
to the Commencement Date, or as soon as practicable thereafter (but in no event
later than ten (10) days thereafter), Lessee agrees to affix and maintain
(or cause to be affixed and maintained), at its expense, on the Engine a
nameplate bearing the inscription:

 

Leased from

 

 

Northwest Airlines Inc.,

 

Lessor

 

 

(such nameplate to be replaced, if necessary, with a
nameplate reflecting the name of any successor Lessor).  Except as above provided, Lessee will not
allow the name of any Person to be placed on the Engine, or on any Airframe or
airframe on which the Engine is installed, as a designation that might be
interpreted as a claim of ownership; provided that
nothing contained in this paragraph shall prohibit Lessee from placing its
customary colors and insignia on the Engine or such Airframe or airframe.

 

(d)           Engine Records.  No
later than the 10th day of each calendar month during the Term,
Lessee shall deliver to Lessor a written report setting forth the following
information for the previous calendar month:

 

(i)  the manufacturer’s serial number and the
registration number of each Airframe or airframe on which the Engine was
installed or, if not installed on an Airframe or airframe during any portion of
such reporting period, the location of the Engine and a description of steps
taken for its preservation and storage;

 

(ii)  the Flight Hours and cycles performed by
the Aircraft on which the Engine was then installed;

 

(iii)  the maintenance inspections and repairs
performed on the Engine in accordance with the Maintenance Program;

 

(iv)  any airworthiness directives accomplished
on the Engine; and

 

A2-18

 

(v)  any Engine malfunctions or performance
discrepancies requiring shop-level repair or special- or reduced-interval
inspections, including the flight log or technical log entries against the
Engine relating thereto together with full details of the corrective
maintenance and repair actions taken.

 

The form of such report shall be acceptable to Lessor,
and Lessor and Lessee shall promptly develop the form thereof following
execution and delivery of this Lease.

 

SECTION 8.
 Replacement
and Pooling of Parts; Alterations, Modifications and Additions.   (a)  Replacement of Parts.  Lessee,
at its own cost and expense, will promptly replace or cause to be replaced all
Parts which may from time to time become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use for any reason whatsoever, except as otherwise provided in paragraph (c) of
this Section 8 or if the Engine has suffered an Event of Loss.  In addition, Lessee may, at its own cost and
expense, remove in the ordinary course of maintenance, service, repair,
overhaul or testing, any Parts, whether or not worn out, lost, stolen,
destroyed, seized, confiscated, damaged beyond repair or permanently rendered
unfit for use, provided that Lessee, except as otherwise provided in paragraph (c) of
this Section 8, will, at its own cost and expense, promptly replace such
Parts.  All replacement Parts shall be
free and clear of all Liens (except for Permitted Liens and pooling arrangements
to the extent permitted by paragraph (b) of this Section 8 and except
in the case of replacement property temporarily installed on an emergency
basis) and shall be serviceable in accordance with the Maintenance Program and
FAA requirements for FAR Part 121 operation and shall be in as good
operating condition as, and shall have a maintenance status, modification
status, value and utility at least equal to, the Parts replaced assuming such
replaced Parts were in the condition and repair required to be maintained by
the terms hereof.  Except as otherwise
provided in paragraph (c) of this Section 8, all Parts at any time
removed from the Engine shall remain the property of the Owner, no matter where
located, until such time as such Parts shall be replaced by Parts which have
been incorporated or installed in or attached to the Engine and which meet the
requirements for replacement Parts specified above.  Immediately upon any replacement part
becoming incorporated or installed in or attached to the Engine as above
provided, without further act (subject only to Permitted Liens and any pooling
arrangement to the extent permitted by paragraph (b) of this Section 8
and except in the case of replacement property temporarily installed on an
emergency basis), (i) title to such replacement Part shall thereupon
vest in the Owner, (ii) such replacement Part shall become subject to
the Headlease (if any) and this Lease and be deemed part of the Engine for all
purposes hereof to the same extent as the Parts originally incorporated or
installed in or attached to the Engine, and (iii) title to the replaced Part shall
thereupon vest in Lessee free and clear of all rights of the Owner, and shall
no longer be deemed a Part hereunder.

 

(b)           Pooling of Parts. 
Only after receiving Lessor’s written consent thereto, which shall not
be unreasonably withheld, any Part removed from the Engine as provided in
paragraph (a) of this Section 8 may be subjected by Lessee to a
normal pooling arrangement customary in the airline industry of which Lessee is
a party entered into in the ordinary course of Lessee’s business; provided that the Part replacing such removed Part shall
be incorporated or installed in or attached to the Engine in accordance with
such paragraph (a) as promptly as practicable after the removal of such
removed Part.  In addition, only after
receiving Lessor’s written consent thereto, which shall not be unreasonably
withheld, any replacement Part when incorporated or

 

A2-19

 

installed in or attached to the Engine in accordance with such
paragraph (a) may be owned by any third party subject to such a normal
pooling arrangement, provided that
Lessee, at its expense, as promptly thereafter as practicable, either (i) causes
title to such replacement Part to vest in the Owner in accordance with
such paragraph (a) by Lessee acquiring title thereto for the benefit of,
and transferring such title to, the Owner free and clear of all Liens except
Permitted Liens (other than pooling arrangements), at which time such temporary
replacement part shall become a Part or (ii) replaces such
replacement Part by incorporating or installing in or attaching to the
Engine a further replacement Part owned by Lessee free and clear of all
Liens except Permitted Liens (other than permitted pooling arrangements) and by
causing title to such further replacement Part to vest in the Owner in
accordance with such paragraph (a).

 

(c)           Alterations, Modifications and Additions.  Lessee, at its own expense, will make (or
cause to be made) such alterations and modifications in and additions to the
Engine as may be required from time to time to meet the applicable standards of
the FAA or any other governmental authority having jurisdiction regardless of
upon whom nominally imposed; provided, however,
that Lessee may, in good faith, contest the validity or application of any such
law, rule, regulation or order in any reasonable manner which does not
adversely affect Lessor or its right, title and interest in the Engine or any
Airframe and does not involve any risk of sale, forfeiture or loss of the
Engine or any Airframe (or airframe on which it is installed) or any risk of
civil liability or criminal liability being imposed on Lessor; provided, further, that no appliance, part, instrument,
appurtenance, accessory, furnishing or other equipment of whatever nature
relating to such alteration, modification or addition may be leased from any
Person other than Lessor.  In addition,
Lessee, at its own expense, may from time to time add further parts or
accessories and make such alterations and modifications in and additions to the
Engine as Lessee may deem desirable in the proper conduct of its business; provided that no such alteration, modification or addition
shall diminish the value, utility or remaining useful life of the Engine below
the value, utility or remaining useful life thereof immediately prior to such
alteration, modification or addition, assuming the Engine was then in the
condition required to be maintained by the terms of this Lease.  Title to all Parts incorporated or installed
in or attached or added to the Engine as the result of such alteration,
modification or addition (the “Additional Parts”)
shall, without further act, vest in the Owner, and the Owner shall not be
required under any circumstances under this Lease to pay directly for any
alteration, modification or addition. 
Any Part installed by Lessee as above provided prior to the return
of the Engine to Lessor hereunder shall remain the property of the Owner.

 

Lessee shall not, without Lessor’s prior written
consent, make any Major Modifications to the Engine if such Major Modifications
to such Airframe or airframe would affect the value, utility or remaining
useful life of the Engine.

 

SECTION 9.  Voluntary
Termination.   (a)  Termination by Lessor. 
In the event the Engine is installed on an Airframe and the lease of
such Aircraft is being terminated, Lessor shall have the right to elect to
terminate this Lease concurrently with such Aircraft lease termination on at
least two (2) days advance written notice to Lessee (the “Voluntary
Termination Date”).  On or before the
Voluntary Termination Date, Lessee shall simultaneously pay or cause to be paid
to or at the direction of Lessor in funds of the type specified in Section 3(e) hereof,
an amount equal to the sum of all unpaid Basic Rent with respect to the Engine
due

 

A2-20

 

prior to such Voluntary Termination Date, and all unpaid Supplemental
Rent due on or prior to the Voluntary Termination Date.

 

(b)           [Intentionally Omitted].

 

(c)           [Intentionally Omitted].

 

(d)           Termination by Lessee. 
So long as no Event of Default shall have occurred and be continuing and
with the prior written consent of Lessor, Lessee shall have the right at its
option at any time during the Term, on at least sixty (60) days prior written
notice, to terminate this Lease as to the Engine concurrently with replacement
of such Engine as provided in this Section 9(d).  In such event, and prior to the date of such
termination, Lessee shall replace the Engine hereunder by complying with the
terms of Section 10(a) to the same extent as if an Event of Loss had
occurred with respect to the Engine and shall indemnify the Owner for any
adverse tax consequences resulting from such substitution, and the Owner shall
transfer such right, title, and interest as the Owner may have to the replaced
Engine as provided in Section 5(b). 
No termination of this Lease with respect to the replaced Engine as
contemplated by this Section 9(d) shall result in any reduction of
Basic Rent.

 

SECTION 10.  Loss,
Destruction, Requisition, etc. of Engine.  (a) 
Event of Loss.  Upon the occurrence of an
Event of Loss with respect to the Engine, whether or not installed on an Airframe
or an airframe at the time of such Event of Loss, Lessee shall forthwith (and
in any event, within five (5) days after such occurrence) give Lessor and
any Headlessor written notice thereof and shall use its best efforts within
forty-five (45) days (and in any event within sixty (60) days) after the
occurrence of such Event of Loss, to convey to the Owner, as replacement for
the Engine, title to another General Electric Model CF34-3B1 type engine
satisfactory to Lessor, free and clear of all Liens (other than Permitted
Liens, which engine may upon its transfer to the Owner become subject to any
and all Permitted Liens) and having a value, utility and remaining useful life
(including taking into account its cycle and life-limited parts and its maintenance
condition and modification status) at least equal to the Engine subject to such
Event of Loss assuming no Event of Loss had occurred and that such Engine had
been maintained in accordance with this Lease. 
Under no circumstances shall the occurrence of an Event of Loss with
respect to an Engine while installed on an Airframe or an airframe diminish any
obligations of Lessee pursuant to the related Aircraft Lease in respect of the
circumstances giving rise to such Event of Loss or in respect of any Event of
Loss (as defined in such Aircraft Lease) relating to such Aircraft, nor shall
Lessee be entitled to any setoff or discharge of any of its obligations under
this Lease or under the Aircraft Lease by virtue of performance of its
obligations under the other such agreement.

 

Prior to or at the time of any such conveyance,
Lessee, at its own expense, will:

 

(1)           furnish the Owner with a full
warranty (as to title) bill of sale, in form and substance reasonably
satisfactory to the Owner, with respect to such replacement engine,

 

(2)           cause a Lease Supplement to be duly
executed by Lessee and to be filed for recording pursuant to the Federal
Aviation Act,

 

A2-21

 

(3)           furnish Lessor with such evidence of
compliance with the insurance provisions of Section 11 hereof with respect
to such replacement engine as Lessor may reasonably request,

 

(4)           furnish Lessor with an opinion of
qualified FAA counsel, as to the due recordation of the Lease Supplement and
all other documents or instruments the recordation of which is necessary to
perfect and protect the rights of Lessor in the replacement engine,

 

(5)           furnish Lessor with an opinion of
counsel (which shall be chosen by Lessee) reasonably satisfactory to Lessor to
the effect that (A) the certificates, opinions and other instruments
and/or property which have been or are therewith delivered to Lessor in
connection with such substitution conform to the requirements of this Lease, (B) the
replacement property has been validly covered by this Lease, the instruments
subjecting such replacement engine to this Lease have been duly filed for
recordation pursuant to the Federal Aviation Act, and no further action, filing
or recording of any document is necessary or advisable in order to establish
and perfect the right, title, estate and interest of the Owner to such
replacement engine, and (C) the full warranty bill of sale referred to in
clause (1) constitutes an effective instrument for the conveyance of title
to the replacement engine,

 

(6)           cause a financing statement or
statements with respect to such substituted property to be filed in such place
or places as are deemed necessary or advisable by Lessor or its counsel to
perfect its interest in the replacement engine,

 

(7)           furnish Lessor with an opinion of
counsel (which shall be counsel chosen by Lessee and acceptable to Lessor,
reasonably satisfactory to Lessor, to the effect that Lessor will be entitled
to the benefits of Section 1110 of the U.S. Bankruptcy Code with respect
to the substitute engine, provided that
such opinion need not be delivered to the extent that immediately prior to such
substitution the benefits of Section 1110 of the U.S. Bankruptcy Code were
not, solely by reason of a change in law or governmental interpretation
thereof, available to Lessor,

 

(8)           furnish Lessor with an officer’s
certificate duly executed by the chairman, vice chairman, president, any
execute vice president, any senior vice president, or any vice president of
Lessee stating (A) that the replacement engine has at least an equal
maintenance status, modification status, value, utility and remaining useful
life as the Engine it replaces assuming no Event of Loss had occurred and such
Engine had been maintained in the condition required hereunder, (B) each
of the conditions specified in this Section 10(b) with respect to
such replacement engine have been satisfied and that Lessee will not be in
default, by the making and granting of the request for release and the addition
of the replacement engine, in the performance of any of the terms and covenants
of this Lease, (C) a description of the Engine which shall be identified
by manufacturer’s serial number, (D) a description of the replacement
engine (including the manufacturer’s name and serial number) as consideration
for the

 

A2-22

 

Engine to be released, (E) that
on the date of the Lease Supplement relating to the replacement engine the
Owner will be the legal owner of such replacement engine free and clear of all
Liens except Permitted Liens, that such replacement engine will on such date be
in good working order and condition and that such replacement engine is
substantially the same as or better than the Engine to be released, (F) the
maintenance status, modification status, value, utility and remaining useful
life of the replacement engine as of the date of such certificate (which shall
not be less than the maintenance status, modification status, value, utility
and remaining useful life of the Engine to be released (assuming no Event of
Loss and that such Engine was in the condition and repair required to be
maintained hereunder), (G) that, with respect to the replacement of an
Engine pursuant to Section 9(d) hereof, no Event of Default or no
Default has occurred which has not been remedied or waived, and (H) that
the release of the Engine to be released will not be in contravention of any of
the provisions hereof, and

 

(9)           assign (or cause to be assigned) to
the Owner the benefit of all manufacturer’s and vendor’s warranties generally
available with respect to the substituted property in substantially the same
manner and to substantially the same extent as pursuant to the Purchase
Agreement Assignment,

 

Lessor will transfer, to or at the direction of Lessee
without recourse or warranty (except, with respect to Lessor, as to absence of
Lessor Liens, including for this purpose Liens which would be Lessor Liens but
for the proviso in the definition of Lessor Liens) all of Lessor’s right, title
and interest, if any, in and to (I) the Engine with respect to which such Event
of Loss occurred and furnish to or at the direction of Lessee a bill of sale in
form and substance reasonably satisfactory to Lessee, evidencing such transfer
and (II) all claims, if any, against third parties, for damage to or loss of
the Engine, and such Engine shall thereupon cease to be the Engine leased
hereunder.  For all purposes hereof, each
such replacement engine shall, after such conveyance, be deemed part of the
property leased hereunder, and shall be deemed an “Engine”, as the case may
be.  No Event of Loss with respect to an
Engine under the circumstances contemplated by the terms of this paragraph (b) shall
result in any reduction in Basic Rent.

 

(b)           Application of Payments from Governmental Authorities for Requisition
of Title, etc.  Whether or not
the Engine was then installed on an Airframe or an airframe, so much of any
payments (other than insurance proceeds the application of which is provided
for in Section 11) received at any time by Lessor or by Lessee from any
governmental authority or other Person with respect to an Event of Loss and
that are remaining after reimbursement of Lessor for reasonable costs and
expenses, shall be paid over to, or retained by, Lessee, provided
that Lessee shall have fully performed, or concurrently therewith will perform,
the terms of Section 10(b) with respect to the Event of Loss for
which such payments are made.

 

(c)           Requisition for Use of an Aircraft by the United States Government.  In the event of the requisition for use by the
United States Government or any instrumentality or agency thereof, during the
Term, of an Airframe or an airframe on which, in either case, the Engine is
installed, and the Engine is included within such requisition for use, Lessee
shall promptly notify Lessor of such requisition, and all of Lessee’s
obligations under this Lease Agreement with respect to the Engine shall
continue to the same extent as if such requisition had

 

A2-23

 

not occurred, provided that
if the Engine (with or without such Airframe or airframe) is not returned by
such government (or instrumentality or agency) prior to the end of the Term,
Lessee shall be obligated to return the Engine to or at the direction of Lessor
pursuant to, and in all other respects in compliance with the provisions of, Section 5
promptly on the date of such return by such government (or instrumentality or
agency).  All payments received by Lessor
or Lessee from such government (or instrumentality or agency) for, or allocable
to, the use of the Engine during the Term shall be paid over to, or retained
by, Lessee; and all payments received by Lessor or Lessee from such government
(or instrumentality or agency) for the use of, or allocable to, the Engine
after the end of the Term shall be paid over to, or retained by, Lessor.

 

(d)           Requisition for Use of the Engine by the United States Government.  In the event of the requisition for use of
the Engine by the United States Government or any agency or instrumentality
thereof (other than in the circumstances contemplated by subsection (c)),
Lessee shall replace the Engine hereunder by complying with the terms of Section 10(a) to
the same extent as if an Event of Loss had occurred with respect thereto, and,
upon compliance with Section 10(a), any payments received by Lessor or
Lessee from such government (or instrumentality or agency) with respect to such
requisition shall be paid over to, or retained by, Lessee.

 

(e)           Application of Payments During Existence of Default.  Any amount referred to in this Section 10
which is payable to or retainable by Lessee shall not be paid to or retained by
Lessee if at the time of such payment or retention a Default or an Event of
Default shall have occurred and be continuing or if the Airline Services
Agreement shall have been terminated or canceled or shall have been terminated
in accordance with its terms, but shall be held by Lessor and applied in
accordance with Section 28 hereof. 
At such time as there shall not be continuing any such Default or Event
of Default and the Airline Services Agreement shall not have been terminated or
canceled or shall not have terminated in accordance with its terms, such amount
shall be paid to Lessee to the extent not previously applied in accordance with
the preceding sentence.

 

SECTION 11.  Insurance  (a)  Public Liability
and Property Damage Insurance.  Lessee
will carry at its expense (i) comprehensive airline third party legal
liability insurance or the equivalent (including, without limitation, passenger
legal liability) (and including aircraft war risk and hijacking insurance,
unless otherwise agreed by Lessor) insurance and property damage insurance
(exclusive of manufacturer’s product liability insurance) with respect to the
Engine, in an amount, with respect to third party legal liability insurance
(including passenger legal liability) other than aircraft war risk and
hijacking insurance, not less than the greater of (x) the amount of public
liability and property damage insurance from time to time applicable to engines
owned or operated by Lessee of the same type as the Engine and (y) the Minimum
Liability Amount, and with respect to aircraft war risk and hijacking
insurance, in an amount not less than $***
per occurrence and (ii) cargo liability insurance, in the case of both
clause (i) and clause (ii), (A) of the type and covering the same
risks as from time to time applicable to aircraft operated by Lessee of the
same type as the Engine and (B) which is maintained in effect with
insurers of recognized responsibility reasonably acceptable to Lessor.  Any policies of insurance carried in
accordance with this paragraph (a) and any policies taken out in
substitution or replacement for any of such policies (A) shall be amended
to name Lessor (but without imposing on Lessor liability to pay the premiums
for such insurance) as an additional insured as its interest

 

A2-24

 

may appear, (B) shall provide that in respect of the interest of
Lessor in such policies the insurance shall not be invalidated by any action or
inaction of Lessee or any other Person and shall insure Lessor regardless of
any breach or violation of any warranty, declaration or condition contained in
such policies by Lessee, and (C) shall provide that if the insurers cancel
such insurance for any reason whatever or if any change is made in such
insurance which adversely affects the interest of Lessor, or such insurance
shall lapse for non-payment of premium, such cancellation, lapse or change
shall not be effective as to Lessor for thirty (30) days (seven (7) days
in the case of war risk and allied perils coverage) after issuance to Lessor of
written notice by such insurers of such cancellation, lapse or change;
provided, however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable. 
Each liability policy (1) shall be primary without right of
contribution from any other insurance which is carried by Lessor, (2) shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured, and (3) shall waive any right of the insurers to
any set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of Lessor or any other Additional
Insured to the extent of any moneys due to Lessor or such Additional Insured.

 

(b)           Insurance Against Loss or Damage to the Engine.  Lessee shall maintain in effect at its
expense, with insurers of recognized responsibility, all-risk ground and flight
coverage of the Engine and Parts while installed on any Aircraft and while not
so installed (whether such removal is temporary or of indefinite duration) and
not replaced by similar components (including, without limitation, war risk and
governmental confiscation and expropriation (other than by the government of
registry of the Aircraft) and hijacking insurance, unless otherwise agreed by
Lessor); provided that such insurance shall at
all times while the Engine is subject to this Lease be for an amount not less
than the Stipulated Loss Value for the Engine. 
Any policies carried in accordance with this paragraph (b) covering
the Engine  and any policies taken out in
substitution or replacement for any such policies (i) shall name Lessor as
additional insured, as its interest may appear (but without imposing on such
party liability to pay premiums with respect to such insurance), (ii) shall
provide that (A) in the event of a loss involving proceeds in excess of $***, the proceeds in respect of such
loss up to an amount equal to the Stipulated Loss Value for the Engine shall be
payable to or at the direction of Lessor (except in the case of a loss with
respect to the Engine while installed on an airframe other than the Airframe,
in which case Lessee shall arrange for any payment of insurance proceeds in
respect of such loss to be held for the account of Lessor whether such payment
is made to Lessee or any third party), it being understood and agreed that in
the case of any payment to Lessor or its designee otherwise than in respect of
an Event of Loss, Lessor shall, upon receipt of evidence satisfactory to it
that the damage giving rise to such payment shall have been repaired or that
such payment shall then be required to pay for repairs then being made, pay, or
exercise such rights as it may have to cause to be paid, the amount of such
payment to Lessee or its order and (B) the entire amount of any loss
involving proceeds of $*** or
less or the amount of any proceeds of any loss in excess of the Stipulated Loss
Value for the Engine shall be paid to Lessee or its order unless a Default or
an Event of Default shall have occurred and be continuing and the insurers have
been notified thereof by Lessor, (iii) shall provide that if the insurers
cancel such insurance for any reason whatever, or such insurance lapses for non-payment
of premium or if any change is made in the insurance which adversely affects
the interest of Lessor, such cancellation, lapse or change shall not be
effective as to Lessor for thirty (30) days (seven (7)

 

A2-25

 

days in the case of hull war risk and allied perils coverage) after
issuance to Lessor of written notice by such insurers of such cancellation,
lapse or change, provided, however, that if any
notice period specified above is not reasonably obtainable, such policies shall
provide for as long a period of prior notice as shall then be reasonably
obtainable, (iv) shall provide that in respect of the interest of Lessor
in such policies the insurance shall not be invalidated by any action or
inaction of Lessee or any other Person and shall insure the interest of Lessor
as they appear, regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by Lessee, (v) shall
be primary without any right of contribution from any other insurance which is
carried by Lessor, and (vii) shall waive any right of the insurers to
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of Lessor or Lessee to the extent of any
moneys due to Lessor.

 

As between Lessor and Lessee, it is agreed that all
insurance payments received as the result of the occurrence of an Event of Loss
will be applied as follows:

 

(x)            if
such payments are received with respect to the Engine while not installed on an
Airframe, so much of such payments remaining, after reimbursement of Lessor for
reasonable costs and expenses, as shall not exceed the Stipulated Loss Value of
the Engine determined as of the date of such Event of Loss shall be applied by
Lessee to its obligations under Section 10(a) hereof, or, if such
obligations have already been performed by Lessee, shall be applied to
reimburse Lessee in respect of such obligations, and the balance, if any, of
such payments remaining thereafter will be paid over to, or retained by,
Lessee, provided that if an Event of Default has occurred and is continuing,
such balance, if any, shall be paid over to or retained by Lessor as additional
collateral for Lessee’s obligations hereunder until such time as such Event of
Default is no longer continuing or this Lease has been terminated (and such
amounts applied by Lessor); and

 

(y)           if
such payments are received with respect to an Engine while installed on an
Airframe, so much of such payments remaining, after payment by Lessee of any
Stipulated Loss Value (as defined in the related Aircraft Lease) payable under
the Aircraft Lease relating to such Airframe after reimbursement of Lessor for
reasonable costs and expenses, shall be paid over to, or retained by, Lessee, provided that Lessee shall have fully performed, or
concurrently therewith will fully perform, the terms of Section 10(a) with
respect to the Event of Loss for which such payments are made.

 

As between Lessor and Lessee, the insurance payments
for any property damage loss to the Engine not constituting an Event of Loss
with respect thereto will be applied in payment for repairs or for replacement
property in accordance with the terms of Sections 7 and 8, if not
already paid for by Lessee, and any balance (or if already paid for by Lessee,
all such insurance proceeds) remaining after compliance with such Sections with
respect to such loss shall be paid to Lessee.

 

(c)           Reports, etc.  Lessee
will furnish, or cause to be furnished, to Lessor, on or before the
Commencement Date and on or before July 1 in each year thereafter during
the Term

 

A2-26

 

commencing July, 2006, a report, signed by Aon Risk Services, Inc.
or any other independent firm of insurance brokers reasonably acceptable to
Lessor (the “Insurance Brokers”), describing in
reasonable detail the insurance and reinsurance then carried and maintained
with respect to the Engine and stating the opinion of such firm that the
insurance then carried and maintained with respect to the Engine complies with
the terms hereof; provided, however, that all
information contained in the foregoing report shall not be made available by
Lessor to anyone except (A) to prospective and permitted transferees of
Lessor’s interest who agree to hold
such information confidential, (B) to Lessor’s counsel or independent
certified public accountants or independent insurance advisors who agree to
hold such information confidential, (C) as may be required by any statute,
court or administrative order or decree or governmental ruling or regulation or
as may be requested by any regulatory agency or body having authority or (D) as
may be necessary for purposes of protecting the interests of any such Person or
for the enforcement of this Lease by Lessor. 
Lessee will cause such Insurance Brokers to agree to advise Lessor in
writing of any default in the payment of any premium and of any other act or
omission on the part of Lessee of which it has knowledge and which might
invalidate or render unenforceable, in whole or in part, any insurance on the
Engine.  To the extent such agreement is
reasonably obtainable, Lessee will also cause such Insurance Brokers to agree
to advise Lessor in writing at least thirty (30) days (seven (7) days in
the case of war risk and allied perils coverage), prior to the expiration or
termination date of any insurance carried and maintained on the Engine pursuant
to this Section 11.  In addition,
Lessee will also cause such Insurance Brokers to deliver to Lessor, on or prior
to the date of expiration of any insurance policy referenced in a previously
delivered certificate of insurance, a new certificate of insurance,
substantially in the same form as delivered by Lessee to such parties on the
Commencement Date.  In the event that
Lessee shall fail to maintain or cause to be maintained insurance as herein
provided, Lessor or its designee may at its sole option provide such insurance
and, in such event, Lessee shall, upon demand, reimburse Lessor, as
Supplemental Rent, for the cost thereof to Lessor or such designee, as the case
may be, without waiver of any other rights Lessor or such designee may have; provided, however, that no exercise by Lessor or such
designee of said option shall affect the provisions of this Lease, including
the provisions of Section 14(g) hereof.

 

(d)           Self-Insurance. 
Lessee may not self-insure the risks required to be insured against
pursuant to this Section 11; provided, however, that while the Engine is installed on an Airframe
Lessee may self-insure the risks required to be insured against pursuant to Section 11(a) and
(b) hereof solely to the extent of any applicable mandatory minimum (or,
if applicable, per annum or other period) hull or liability insurance
deductible imposed by the hull or liability insurers.

 

(e)           Additional Insurance by Lessor.  Lessee may at its own expense carry insurance
with respect to its interest in the Engine in amounts in excess of that
required to be maintained by this Section 11; Lessor may carry for its own
account at its sole cost and expense insurance with respect to its interest in
the Engine, provided that such insurance does not
prevent Lessee from carrying the insurance required or permitted by this Section 11
or adversely affect such insurance or the cost thereof.

 

(f)            Indemnification by Government in Lieu of Insurance.  With
Lessor’s written consent which may be given or withheld in its sole discretion,
notwithstanding any provisions of this Section 11 requiring insurance,
Lessee may provide, in lieu of insurance against any risk

 

A2-27

 

with respect to the Engine, indemnification from, or insurance provided
by, the United States Government or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the United
States against such risk in an amount which, when added to the amount of
insurance against such risk maintained by Lessee with respect to the Engine
(including permitted self-insurance) shall be at least equal to the amount of
insurance against such risk otherwise required by this Section 11.

 

(g)           Application of Payments During Existence of Default.  Any amount referred to in paragraph (b) of
this Section 11 which is payable to or retainable by Lessee shall not be
paid to or retained by Lessee if at the time of such payment or retention a
Default or an Event of Default shall have occurred and be continuing or if the
Airline Services Agreement shall have been terminated or canceled or shall have
terminated in accordance with its terms, but shall be held by Lessor and
applied in accordance with Section 28 hereof.  At such time as there shall not be continuing
any such Default or Event of Default and the Airline Services Agreement shall
not have been terminated or canceled or shall not have terminated in accordance
with its terms, such amount shall be paid to Lessee to the extent not
previously applied in accordance with the preceding sentence.

 

SECTION 12.  Inspection.  At all times upon notice to
Lessee, Lessor or its authorized representative may inspect the Engine, whether
or not installed on an Airframe or airframe and inspect and make copies (at its
expense) of the Aircraft Documentation and other manuals, logs, books and
records of Lessee relating to the maintenance of the Engine, any such
inspection may, at Lessor’s election, include a visual, walk-around inspection,
opening any panels, cowls or the like, Engine borescope inspections, Engine
power assurance runs, ground operation and function checks; provided that no
exercise of such inspection right shall unreasonably interfere with the
scheduled operation or maintenance of the Engine or any Airframe on which it is
then installed by, or the business of, Lessee unless deemed critical by Lessor.  In addition, upon receipt by Lessee of a
written request from Lessor specifying that Lessor desires to have an
authorized representative observe the next shop visit of the Engine (whether or
not installed on any Airframe or airframe), under any maintenance program or regimen
then maintained by Lessee, Lessee shall cooperate with Lessor to enable Lessor’s
authorized representative to each observe such next shop visit, including
reasonable advance notification to Lessor of the time and place of such shop
visit.  Lessor shall have no duty to make
any such inspection nor shall it incur any liability or obligation by reason of
not making such inspection.

 

SECTION 13.  Assignment.  Lessee will not, without
the prior express written consent of Lessor, assign in whole or in part this
Lease or any of its rights or obligations hereunder.  Lessor may assign in whole or in part, or
convey all or any part of its right, title and interest in and to, this Lease
after giving Lessee ten (10) days notice thereof.  Subject to the foregoing, the terms and
provisions of this Lease shall be binding upon and inure to the benefit of
Lessor and Lessee and their respective successors and permitted assigns.

 

SECTION 14.  Events of
Default.  Each
of the following events shall constitute an Event of Default (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative
or governmental body)

 

A2-28

 

and each such Event of Default shall continue so long as, but only as
long as, it shall not have been remedied:

 

(a)           Lessee
shall not have made a payment of Basic Rent or Stipulated Loss Value when the
same shall have become due; or

 

(b)           Lessee
shall have failed to make a payment of Supplemental Rent (other than Stipulated
Loss Value) after the same shall have become due and such failure shall
continue for five (5) days; or

 

(c)           Lessee
shall have failed to perform or observe (or caused to be performed and observed) any covenant or agreement to be performed or
observed by it under any Lessee Document other than the Airline Services
Agreement and such failure shall continue unremedied for a period of twenty
(20) days after the            earlier of
(x) receipt by Lessee of written notice thereof from Lessor, or (y) insofar as
the failure to perform or observe (or caused to be performed and observed) any
covenant or agreement relates to any material covenant or agreement, an officer
of Lessee as the case may be, whose functions and duties would make him
familiar with the terms of this Lease has knowledge; or

 

(d)           any
representation or warranty made by Lessee herein or any document or certificate
furnished by Lessee in connection herewith or therewith or pursuant hereto or
thereto, shall prove to have been incorrect in any material respect at the time
made and such incorrectness shall not have been cured (to the extent of the
adverse impact of such incorrectness on the interests of Lessor) within ten (10) days
after the receipt by Lessee of a written notice from Lessor advising Lessee of
the existence of such incorrectness; or

 

(e)           the
commencement of an involuntary case or other proceeding in respect of Lessee in
an involuntary case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law in the United States or seeking the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Lessee or for all or substantially all of its property, or seeking
the winding-up or liquidation of its affairs and the continuation of any such
case or other proceeding undismissed and unstayed for a period of thirty (30)
consecutive days or an order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of Lessee, a receiver, trustee or liquidator of Lessee, or of any
substantial part of its property, or sequestering or attaching any substantial
part of the property of Lessee and any such order, judgment or decree or
appointment or sequestration shall be final or shall remain in force
undismissed, unstayed or unvacated for a period of thirty (30) days after the
date of entry thereof; or

 

(f)            the
commencement by Lessee of a voluntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or any other applicable

 

A2-29

 

federal or state bankruptcy, insolvency or other similar law in the
United States, or the consent by Lessee to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of Lessee or for all or substantially
all of its property, or the making by Lessee of any assignment for the benefit
of creditors, or Lessee shall enter into any agreement, composition, extension
or adjustment with creditors or shall take any corporate action to authorize
any of the foregoing; or

 

(g)           Lessee
shall fail to carry and maintain on or with respect to the Engine (whether or not installed on an
Airframe) insurance required to be maintained in accordance with the provisions
of Section 11 hereof; or

 

(h)           Lessee
shall cease to be a Certificated Air Carrier; or

 

(i)            the
attachment or taking possession by a creditor of a material part of, or the
levy or enforcement of a distress, execution, sequestration or other process
upon any assets, rights or revenues of Lessee and such attachment or order is
not discharged within thirty (30) days; or

 

(j)            any
event described in Section 10.02 of the Airline Services Agreement giving
Lessor the ability to terminate the Airline Services Agreement shall have
occurred; or

 

(k)           any
event described in Section 10.03 of the Airline Services Agreement shall
have occurred; or

 

(l)            Lessee
shall have materially breached or shall be in default under any material
purchase agreement, service agreement, maintenance agreement or other material
agreement with any vendor relating to the Engine, including components; or any
Airframe on which the Engine is then installed.

 

SECTION 15.  Remedies;
Automatic Termination.  (a) Remedies.
Upon the occurrence of any Event of Default and at any time thereafter so long
as the same shall be continuing, Lessor may, at its option, declare by written
notice to Lessee this Lease Agreement to be in default (provided that this
Lease shall be deemed to be declared in default without the necessity of such
written declaration upon the occurrence of any Event of Default described in Section 14(e) or
Section 14(f)); and at any time thereafter, Lessor may do one or more of
the following with respect to all or any part of the Engine as Lessor in its
sole discretion shall elect, to the extent permitted by, and subject to
compliance with any mandatory requirements of, applicable law then in effect:

 

(i)            upon
the written demand of Lessor and at Lessee’s expense, cause Lessee to
immediately return the Engine to Lessor or its order in the manner and
condition required by, and otherwise in accordance with all the provisions of, Section 5
as if the Engine were being returned at the end of the Term, or Lessor, acting
in its individual capacity or as attorney for Lessee, at its option, may enter
upon the premises where all or any part of the Engine or any Part is
located and

 

A2-30

 

take immediate possession of and remove the same, without the necessity
of first instituting proceedings, or by summary proceedings or otherwise, and
Lessee waives any right it may have under applicable law to a hearing prior to
repossession of the Engine or Part (and/or, at Lessor’s option, store the
same at Lessee’s premises until disposal thereof by Lessor), all without
liability accruing to Lessor for or by reason of such entry or taking of
possession or removing whether for the restoration of damage to property caused
by such action or otherwise.  Lessee
acknowledges and agrees that its obligations to return the Engine in those
instances is incontrovertible without prejudice to its right to dispute any
amounts, damages, interests or other amounts claimed by Lessor upon termination
of this Lease and as such this Lease will be incontrovertible written evidence
of such obligation of Lessee to return the Engine which Lessor will be entitled
to enforce via injunctive orders. 
Without limiting any other provision of this Lease or of any other
Operative Document, if an Event of Default has occurred and is continuing,
Lessor shall have the right to withhold or set-off against all amounts
otherwise payable to Lessee hereunder or under the Airline Services Agreement
or under any other aircraft, engine, spare parts or facility lease or sublease between
Lessor or any Affiliate thereof and Lessee, all as security for Lessee’s
obligations and liabilities under this Lease and the other Operative Documents,
and to use and apply in whole or in part any or all of such amounts and
set-offs to and against such obligations and liabilities of Lessee, and any
such use, application or setoff shall be absolute, final and irrevocable;

 

(ii)           sell
the Engine at public or private sale, as Lessor may determine, or otherwise
dispose of, hold, use, operate, lease to others or keep idle the Engine as
Lessor, in its sole discretion, may determine, all free and clear of any rights
of Lessee and without any duty to account to Lessee with respect to such action
or inaction or for any proceeds with respect thereto, except as hereinafter set
forth in this Section 15;

 

(iii)          whether
or not Lessor shall have exercised, or shall thereafter at any time exercise,
any of its rights under paragraph (a) or paragraph (b) above with
respect to the Engine, Lessor, by written notice to Lessee specifying a payment
date which shall be a Lease Period Date not earlier than ten (10) days
from the date of such notice (such specified date, the “Termination
Date”), may demand that Lessee pay to Lessor, and Lessee shall pay
Lessor, on the Termination Date, as liquidated damages for loss of a bargain
and not as a penalty (in lieu of the installments of Basic Rent for the Engine
due for Lease Periods commencing on or after the Termination Date), any unpaid
Basic Rent due on or prior to the Termination Date plus
whichever of the following amounts Lessor, in its sole discretion, shall
specify in such notice (together with interest, if any, on such amount at the
Past Due Rate from the Termination Date until the date of actual payment of
such amount): (A) an amount equal to the excess, if any, of (I) the
Stipulated Loss Value for the Engine, computed as of the Termination Date, over
(II) the aggregate fair market rental value (computed as hereafter in this Section 15
provided) of the Engine for the remainder of the Term, after discounting such
aggregate fair market rental value to the present value thereof as

 

A2-31

 

of the Termination Date at an annual rate equal to the Base Rate; or (B) an
amount equal to the excess, if any, of the Stipulated Loss Value for such
Aircraft, computed as of the Termination Date, over (II) the fair market sales
value of the Engine (computed as hereafter in Section 15 provided) as of
the Termination Date;

 

(iv)          in
the event Lessor, pursuant to paragraph (b) above, shall have sold or
caused a sale of the Engine, Lessor, in lieu of exercising its rights under
paragraph (c) above with respect to the Engine, may, if it shall so elect,
demand that Lessee pay Lessor, and Lessee shall pay to Lessor, on the date of
such sale, as liquidated damages for loss of a bargain and not as a penalty (in
lieu of the installments of Basic Rent for the Engine due on or after such
date), any unpaid Basic Rent with respect to the Engine due on or prior to such
date plus the amount of any deficiency
between (I) the net proceeds of such sale (after deduction of all reasonable
costs of sale) and (II) the Stipulated Loss Value of the Engine, computed as of
the Stipulated Loss Value Date on or immediately preceding the date of such
sale together with interest, if any, on the amount of such deficiency, at the
Past Due Rate, from the date of such sale to the date of actual payment of such
amount; and/or

 

(v)           Lessor
may rescind, terminate or cancel this Lease Agreement as to the Engine, and/or
may exercise any other right or remedy which may be available to it under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for breach hereof.

 

For the purposes of paragraph (iii) above, the “fair
market rental value” or the “fair market sales value” of the Engine shall be
the rental value or sales value, as the case may be, which would be obtained in
an arm’s-length transaction between an informed and willing Lessee or purchaser,
as the case may be, under no compulsion to lease or purchase, as the case may
be, and an informed and willing Lessor or seller in possession under no
compulsion to lease or sell, as the case may be, in each case based upon the
actual condition and location of the Engine, which value shall be determined
pursuant to an appraisal prepared and delivered by a nationally recognized firm
of independent aircraft appraisers chosen by Lessor. The cost of such appraisal
or appointment shall be borne by Lessee.

 

In addition, Lessee shall be liable, except as
otherwise provided above and without duplication of amounts payable hereunder,
for any and all unpaid Rent due hereunder before, after or during the exercise
of any of the foregoing remedies and for all reasonable legal fees and other
costs and expenses (including fees of the appraisers hereinabove referred to)
incurred by Lessor by reason of the occurrence of any Event of Default or the
exercise of Lessor’s remedies with respect thereto, including all costs and
expenses incurred in connection with the return of the Engine in accordance
with the terms of Section 5 or in placing the Engine in the condition and
airworthiness required by such Section.

 

At any sale of the Engine or any part thereof pursuant
to this Section 15(a), Lessor  may
bid for and purchase such property. 
Lessor agrees to give Lessee at least ten (10) days prior written
notice of the date fixed for any public sale of the Engine or of the date on or
after which

 

A2-32

 

will occur the execution of any contract providing for any private
sale.  Except as otherwise expressly
provided above, no remedy referred to in this Section 15(a) is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise by
Lessor of any or all of such other remedies. 
No waiver by Lessor of any Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Event of Default.

 

(b)           Automatic Termination. 
If the Airline Services Agreement shall be terminated or canceled or
shall terminate in accordance with its terms, except for the provisions of
Sections 29(b) and 29(c) of this Lease (which shall survive) this
Lease shall thereupon terminate forthwith and without notice.  Upon the termination of this Lease as
aforesaid and at any time thereafter, Lessor may, to the extent permitted by,
and subject to compliance with any mandatory requirements of, applicable law
then in effect, and at Lessee’s expense, cause Lessee to immediately return,
and Lessee shall immediately return, the Engine to Lessor or its order in the
manner and condition required by, and otherwise in accordance with all the
provisions of Section 5 as if the Engine were being returned at the end of
the Term, or Lessor, at its option, may enter upon the premises where all or
any part of the Engine is located and take immediate possession of and remove
the same, without the necessity of first instituting proceedings, or by summary
proceedings or otherwise, and Lessee waives any right it may have under applicable
law to a hearing prior to repossession of the Engine or Part (and/or, at
Lessor’s option, store the same in accordance with the provisions of Section 5(d)),
all without liability accruing to Lessor for or by reason of such entry or
taking of possession or removing whether for the restoration of damage to
property caused by such action or otherwise. 
Lessee acknowledges and agrees that its obligations to return the Engine
in those instances is incontrovertible without prejudice to its right to dispute
any amounts, damages, interests or other amounts claimed by Lessor upon
termination of this Lease and as such this Lease will be incontrovertible
written evidence of such obligation of Lessee to return the Engine which Lessor
will be entitled to enforce via injunctive orders.

 

In addition, Lessee shall be liable for any and all
unpaid Rent due hereunder before or during the occurrence of the events
referred to in the preceding paragraph, and all costs and expenses incurred in
connection with the return of the Engine in accordance with the terms of Section 5
or in placing the Engine in the condition and airworthiness required by such
Section.

 

SECTION 16.  Lessee’s Cooperation
Concerning Certain Matters.  Forthwith upon the execution and
delivery of each Lease Supplement from time to time required by the terms
hereof and upon the execution and delivery of any amendment to this Lease,
Lessee will cause such Lease Supplement or amendment to be duly filed and
recorded, and maintained of record, in accordance with the applicable laws of
the registry of any aircraft on which the Engine may be installed.  In addition, Lessee will promptly and duly
execute and deliver to Lessor such further documents (including the filing of
Uniform Commercial Code financing statements and continuation statements with
respect to previously filed financing statements) and assurances and take such
further action as identified in the annual opinion of counsel required to be
furnished pursuant to Section 30(c), and/or as Lessor may, in connection
with the delivery of the Engine hereunder and from time to time thereafter,
reasonably request, in order more effectively to carry out the intent and
purpose of this Lease and to establish and protect the rights and remedies

 

A2-33

 

created or intended to be created in favor of Lessor, hereunder or in
respect thereof, including, without limitation, if requested by Lessor, at the
expense of Lessee, the execution and delivery of supplements or amendments
hereto, each in recordable form, subjecting to the Engine pursuant to the terms
thereof and the recording or filing of counterparts thereof, in accordance with
the laws of such jurisdictions as Lessor may from time to time deem advisable.  Lessee agrees to furnish to Lessor, promptly
after execution and delivery of any supplement and amendment hereto, an opinion
of counsel reasonably satisfactory to Lessor as to the due recording or filing
of such supplement or amendment. 
Commencing in 2006 on or before April 30 of each year during the
Term, Lessee will deliver to Lessor a certificate of Lessee, signed by the
President, a Vice President or the Chief Financial Officer of Lessee to the
effect that the signer is familiar with or has reviewed the relevant terms of
this Lease and the signer does not have actual knowledge of the existence, as
of the date of such certificate, of any condition or event which constitutes a
Default or an Event of Default.  Lessee
agrees that if an officer of Lessee has actual knowledge of the existence of a
Default or an Event of Default, then Lessee shall promptly give to Lessor
notice thereof and such other information relating thereto as Lessor may
reasonably request.  Lessee will deliver
to Lessor (i) within forty-five (45) days after the end of the first three
quarterly periods of each fiscal year of Lessee, a balance sheet of Lessee as
of the close of such period, together with related statements of financial
performance and cash flows for such period and, upon filing with the Securities
and Exchange Commission (and in any event no later than sixty (60) days after
the end of the first three quarterly periods of each fiscal year of MAIR
Holdings, Inc.), the form 10-Q of MAIR Holdings, Inc. for such
period; (ii) within one hundred and twenty (120) days after the close of
such fiscal year, a balance sheet of Lessee as of the close of such fiscal
year, together with the related statements of financial performance and cash
flows for such fiscal year and the form 10-K of MAIR Holdings, Inc. for
such period, prepared in the case of clause (i) and (ii) in
accordance with generally accepted accounting principles, consistently applied;
(iii) within thirty (30) days after the end of each calendar quarter, if
not previously provided to Lessor, any Securities and Exchange Commission
filings of Lessee and MAIR Holdings, Inc. during the preceding calendar
quarter; (iv) upon filing with the Securities and Exchange Commission (and
in any event no later than ninety (90) days after the close of MAIR Holdings, Inc.’s
fiscal year), the annual report of MAIR Holdings, Inc. for such fiscal
year; and (v) from time to time, such financial statements and other
information relating to Lessee and MAIR Holdings, Inc. as Lessor may
reasonably request.

 

SECTION 17.  Notices.  All notices required under the terms and
provisions hereof shall be by telecopy or other telecommunication means (with
such telecopy or other telecommunication means to be confirmed in writing), or
if such notice is impracticable, by registered, first-class airmail, with
postage prepaid, or by nationally recognized overnight courier service, or by
personal delivery of written notice and any such notice shall become effective
when received, addressed:

 

(i)            if
to Lessor, at 2700 Lone Oak Parkway (A4010), Eagan, Minnesota 55121-1534,
Attention: Treasurer (Telecopy No. (612) 726-2221), or to such other
address or telecopy number as Lessor shall from time to time designate in
writing to Lessee, and

 

(ii)           if
to Lessee, at 1000 Blue
Gentian Road, Suite 200, Eagan, Minnesota 
55121, Attention: President (Telecopy No. (651) 367-5360),
or to

 

A2-34

 

such other address or telecopy number as Lessee shall from time to time
designate in writing to Lessor.

 

SECTION 18.  No
Set-Off, Counterclaim, etc.  This
Lease is a net lease.  All Rent shall be
paid by Lessee to Lessor in funds of the type specified in Section 3(d).  Lessee’s obligation to pay all Rent payable
hereunder shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor or anyone else for any reason whatsoever (whether in connection with the
transactions contemplated hereby or any other transactions), including, without
limitation, any breach by Lessor of its warranties, agreements or covenants
contained in any of the Operative Documents or Lessee Documents, each of which
rights Lessee expressly waives, (ii) any defect in the title,
registration, airworthiness, condition, design, operation, or fitness for use
of, or any damage to or loss or destruction of, the Engine, or any interruption
or cessation in or prohibition of the use or possession thereof by Lessee for
any reason whatsoever, including, without limitation, any such interruption,
cessation or prohibition resulting from the act of any government authority, (iii) any
insolvency, bankruptcy, reorganization or similar case or proceedings by or against
Lessee or any other person, or (iv) any other circumstance, happening, or
event whatsoever, whether or not unforeseen or similar to any of the
foregoing.  If for any reason whatsoever
this Lease shall be terminated in whole or in part by operation of law or
otherwise except as specifically provided herein, Lessee nonetheless agrees
without limitation of the other rights or remedies of Lessor hereunder, to pay
to Lessor an amount equal to each Rent payment at the time such payment would
have become due and payable in accordance with the terms hereof had this Lease
not been terminated in whole or in part. 
Lessee hereby waives, to the extent permitted by applicable law, any and
all rights which it may now have or which at any time hereafter may be conferred
upon it, by statute or otherwise, to terminate, cancel, quit or surrender this
Lease except in accordance with the express terms hereof.

 

SECTION 19.  No Renewal.  Lessee shall not have the
right to renew this Lease.

 

SECTION 20.  Maintenance
Program.  Lessor
shall have the right in its sole discretion upon and after return of the Engine
to utilize the Maintenance Program at no cost to Lessor and Lessee hereby
agrees that is shall permit Lessor to utilize the Maintenance Program upon and
after return of the Engine at no cost to Lessor.

 

SECTION 21.  Lessor’s
Right to Perform for Lessee.  If
Lessee fails to make any payment of Rent required to be made by it hereunder or
fails to perform or comply with any of its agreements contained herein, then
Lessor may itself make such payment or perform or comply with such agreement
but shall not be obligated hereunder to do so, and the amount of such payment
and the amount of the reasonable expenses of Lessor incurred in connection with
such payment or the performance of or compliance with such agreement, as the
case may be, together with interest thereon at the Past Due Rate, shall be
deemed Supplemental Rent, payable by Lessee upon demand.

 

SECTION 22.  [Intentionally
Omitted].

 

A2-35

 

SECTION 23.  Service of
Process.  Lessor
and Lessee each hereby irrevocably submits itself to the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York and to the non-exclusive jurisdiction of the Supreme Court of the
State of New York, New York County, for the purposes of any suit, action or
other proceeding arising out of this Lease, the subject matter hereof or any of
the transactions contemplated hereby brought by Lessor (or, if and so long as
the Engine is subject to a Headlease, by any other party to the Headlease
Documents) or their respective successors or assigns.

 

SECTION 24.  Miscellaneous.
Subject to Section 15(b), any provision of this Lease
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.  No term or provision of this Lease may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by Lessor and Lessee. 
This Lease shall constitute an agreement of lease, and nothing contained
herein shall be construed as conveying to Lessee any right, title or interest
in the Engine except as a lessee only. 
Neither Lessee nor any Affiliate of Lessee will file any tax returns in
a manner inconsistent with the foregoing fact or with the Owner’s ownership of
the Engine.  The section and
paragraph headings in this Lease and the table of contents are for convenience
of reference only and shall not modify, define, expand or limit any of the
terms or provisions hereof and all references herein to numbered sections,
unless otherwise indicated, are to sections of this Lease.  The Exhibits attached hereto are intended to
be an integral part of this Lease and are incorporated into this Lease by
reference for all purposes.  THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE.  This Lease
may be executed by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.  This Lease, the Airline Services Agreement,
and the Lease Supplement contain the complete and exclusive statement of the
terms and conditions of the entire Engine lease agreement between Lessor and
Lessee for the Term.  Nothing in this
Lease shall be interpreted or construed as establishing between the parties a
partnership, joint venture or other similar arrangement.

 

SECTION 25.  [Intentionally
Omitted.]

 

SECTION 26.  Covenant
of Quiet Enjoyment.  So long as (a) no Event of Default shall
have occurred and be continuing and (b) the Airline Services Agreement
shall not have been terminated or canceled or shall not have terminated in
accordance with its terms, Lessor shall not interfere with Lessee’s continued
use and operation of, and quiet enjoyment of, the Engine.

 

SECTION 27.  Federal
Bankruptcy Code.  It
is the intention of the parties that the provisions of 11 U.S.C. Section 1110,
or any analogous section of the Federal bankruptcy laws, as amended from
time to time, shall be applicable to the interest of Lessor in the Engine and
to any right of Lessor to take possession of the Engine in compliance with the
provisions of this Lease, as the same may be amended, modified or supplemented
from time to time.

 

A2-36

 

SECTION 28.  Use of
Funds.  If a
Default or an Event of Default shall have occurred and is continuing, or if a
default or an event of default under any other aircraft, engine, spare parts or
facility lease or sublease or any other agreement, instrument or document
between Lessor or any Affiliate thereof and Lessee or any Affiliate thereof
shall have occurred and is continuing, Lessor shall have the right in its sole
discretion to apply any funds of Lessee that it holds including, without
limitation, those which are part of Basic Rent and those which are held
pursuant to Sections 10(f)(i) and 11(g)(i) hereof, to cure any
Default or Event of Default or any default or event of default under any
agreement, instrument or document between Lessor or any Affiliate thereof and
Lessee or any Affiliate thereof; provided, however, that Lessor shall have no
obligation hereunder to apply any such funds. The amount of any such funds so
applied and the amount of the reasonable expenses of Lessor incurred in
connection with such application, together with interest thereon at the Past
Due Rate shall be deemed Supplemental Rent, payable by Lessee upon demand.

 

SECTION 29.  Lessee’s
Representations, Warranties and Indemnities. (a) 
In General.  Lessee represents, warrants
and covenants to Lessor that as of the Commencement Date:

 

(i)            Lessee
is a Certificated Air Carrier and corporation duly organized and validly
existing pursuant to the laws of the State of Minnesota; is duly qualified to
do business as a foreign corporation in each jurisdiction in which its operations
or the nature of its business requires, other than failures to qualify which
would not have a material adverse effect on the consolidated business, assets,
properties or condition (financial or otherwise) of Lessee and its subsidiaries
taken as a whole or on the ability of Lessee to perform its obligations under
the Lessee Documents; has its jurisdiction of organization (as such term is
used in Article 9 of the Uniform Commercial Code) in Minnesota; holds all
licenses, certificates, permits and franchises from the appropriate agencies of
the United States and/or all other governmental authorities having jurisdiction
necessary to conduct its business as presently conducted (other than those
licenses, certificates, permits and franchises which, if not obtained, would
not have an adverse effect on the consolidated business assets, properties or
condition (financial or otherwise) of Lessee or on the ability of Lessee to
perform its obligations under the Lessee Documents); and has the corporate
power and authority to own or hold under the Lease its properties wherever
located or used and to enter into and perform its obligations under the Lessee
Documents;

 

(ii)           the
execution, delivery and performance by Lessee of the Lessee Documents to which
Lessee is a party will, on the Commencement Date, have been duly authorized by
all necessary corporate action on the part of Lessee, do not require any
stockholder approval, or approval or consent of any trustee or holders of any
indebtedness or obligations of Lessee except such as have been duly obtained or
by the Commencement Date will have been duly obtained, and neither the
execution or delivery thereof or the consummation by Lessee of the transactions
contemplated thereby nor the compliance by Lessee with any of the terms and
provisions of such agreements contravenes any law, judgment, government rule,
regulation or order binding on Lessee or the certificate of

 

A2-37

 

incorporation or by-laws of Lessee or contravenes the provisions of, or
constitutes a default under, or results in the creation of any Lien (other than
Permitted Liens) upon the property of Lessee under, any indenture, mortgage,
contract or other agreement to which Lessee is a party or by which it or its properties
may be bound or affected;

 

(iii)          neither
the execution and delivery by Lessee of the Lessee Documents to which Lessee is
a party nor the performance by Lessee of its obligations thereunder require the
consent or approval of, the giving of notice to, or the registration with, or
the taking of any other action in respect of, any Federal, state or foreign
government authority or agency, except for (A) the orders, permits,
waivers, exemptions, authorizations and approvals of the regulatory authorities
having jurisdiction over the operation of the Aircraft by Lessee required to be
obtained on or prior to the Commencement Date, which orders, permits, waivers,
exemptions, authorizations and approvals have been duly obtained and are, or
will on the Commencement Date be in full force and effect, and (B) such
consents, approvals, notices, registrations and other actions required by the
terms of the Lessee Documents to the extent required to be given or obtained
only after the Commencement Date;

 

(iv)          on
the Commencement Date the Lessee Documents to which Lessee is a party will each
constitute legal, valid and binding obligations of Lessee enforceable against
Lessee in accordance with the terms thereof (except as enforceability may be
limited by (A) general principles of equity, (B) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the rights of creditors generally, (C) applicable
laws which may affect the remedies provided therein; which laws, however, do
not make the remedies provided therein inadequate for the practical realization
of the benefits provided thereby, except that no representation or warranty is
made as to the amount of priority of any recovery under any particular
circumstances, and (D) in the case of indemnity provisions contained in
such documents, as limited by public policy considerations);

 

(v)           there
are no pending or, to the best of Lessee’s knowledge, threatened actions, suits
or proceedings before any court, governmental body, arbitration board, tribunal
or administrative agency which might adversely affect the business, condition
(financial or otherwise), operations or properties of Lessee or Lessee’s
ability to perform its obligations under the Lessee Documents to which Lessee
is a party;

 

(vi)          except
for (A) the filing for recording pursuant to the Federal Aviation Act of
the Lease with the Lease Supplement covering the Engine and (B) the filing
of financing statements (and continuation statements at periodic intervals)
with respect to the security and other interests created by such documents
under the Uniform Commercial Code, no further action, including any filing or
recording of any document (including any financing statement in respect thereof
under Article 9 of the Uniform Commercial Code of any applicable

 

A2-38

 

jurisdiction), is necessary in order to establish and perfect Lessor’s
interest in the Engine as against Lessee in any applicable jurisdictions in the
United States;

 

(vii)         there
has not occurred any event which constitutes an Event of Default under the
Lease or a default or an event of default under any other aircraft, engine,
spare parts or facility lease or sublease or any other agreement, instrument or
document between Lessor or any of its Affiliates and Lessee (or any event which
with the giving of notice or the passage of time or both would constitute an
Event of Default under the Lease or an event of default under any other
aircraft, engine, spare parts or facility lease or sublease between Lessor or
any of its Affiliates and Lessee) which is presently continuing;

 

(viii)        the
Engine will be free and clear of all Liens, except Permitted Liens (including,
for this purpose, any Lien which would be a Lessor Lien but for the proviso to
either such definition);

 

(ix)           the
Engine will be duly certified by the FAA as to type, serviceability and
airworthiness, will be insured by Lessee in accordance with the terms of this
Lease and will be in the condition and state of repair required under the terms
of this Lease;

 

(x)            Lessor,
as lessor hereunder, will be entitled to the benefits of 11 U.S.C. Section 1110
(or any successor statute containing the material terms of 11 U.S.C Section 1110)
in the event of any reorganization of Lessee under such Section; and

 

(xi)           there
has not been any material adverse change in the operations or financial
condition of Lessee since March 31, 2005.

 

(b)           General Tax Indemnity.

 

(i)            Indemnity.  Except as provided in Section 29(b)(ii) hereof,
Lessee shall on an After-Tax Basis pay, protect, save and on written demand
shall indemnify and hold harmless any Tax Indemnitee from and against any and
all Taxes howsoever imposed against any Tax Indemnitee, Lessee, Lessee Person
or any Aircraft, Airframe or airframe on which the Engine is installed from
time to time, the Engine, or any Part thereof or interest therein by any
Federal, state or local government or other taxing authority in the United
States or by any foreign government or any political subdivision or taxing
authority thereof or by any territory or possession of the United States or by
any international authority (“Taxing Authority”)
upon or in connection with or relating to (A) the construction, financing,
refinancing, purchase, acquisition, acceptance, rejection, delivery,
nondelivery, transport, ownership, registration, re-registration, insuring,
assembly, possession, repossession, operation, location, use, control,
condition, maintenance, repair, sale, return, abandonment, installation,
storage, redelivery, replacement, leasing, subleasing, modification,
rebuilding, importation, exportation, transfer of title, transfer of
registration, or other application or

 

A2-39

 

disposition of the Engine or any Part thereof or any interest in
the foregoing, (B) the rentals, receipts or earnings from the Engine or
any Part thereof or any interest in the foregoing, (C) any amount
paid or payable pursuant to any Operative Document or Lessee Document or any
document related to any Operative Document or Lessee Document, (D) any
Aircraft, Airframe or airframe on which the Engine is installed from time to
time, the Engine or any Part thereof or any interest in the foregoing, (E) any
or all of the Operative Documents or the Lessee Documents or the execution,
issuance, delivery or registration of, or the performance under, or otherwise
with respect to any of the Operative Documents or Lessee Documents and any
other documents contemplated hereby or thereby and amendments and supplements
hereto and thereto or the execution, delivery or performance of any thereof or
the issuance, acquisition, modification, holding or subsequent transfer
thereof, or (F) otherwise with respect to or in connection with the
transactions contemplated by the Operative Documents or the Lessee Documents.

 

(ii)           Exclusions from General
Tax Indemnity.  The provisions
of Section 29(b)(i) shall not apply:

 

(1)           to
any Income Tax (as defined in Section 29(d) hereof) imposed on Lessor
by the United States Federal government;

 

(2)           to
any Tax to the extent imposed as a result of a voluntary transfer or
disposition by a Tax Indemnitee including, without limitation, a transfer or
disposition of all or any portion of its equitable or legal ownership or
leasehold interest in the Engine, any Part or any Operative Document or
Lessee Document, or any interest in such Tax Indemnitee, unless such transfer
or disposition shall occur (A) during the continuance of a Default or
Event of Default under this Lease or the Aircraft Lease with respect to any
Aircraft or Airframe on which the Engine is then installed, or upon the
termination or cancellation of the Airline Services Agreement or (B) in
connection with the termination of the Lease or the action or direction of
Lessee pursuant to Sections 2, 5 ,6, 7, 8, 9 or 10 of this Lease;

 

(3)           [Intentionally
Omitted];

 

(4)           to
Taxes to the extent imposed with respect to events occurring or matters
arising, after the earlier of (x) the return of physical possession of the
Engine to Lessor or its designee pursuant to the terms of this Lease or (y) the
commencement of storage pursuant to Section 5(c) hereof; provided the exclusion set forth in this subparagraph (4) shall
not apply to Taxes to the extent such Taxes relate to events, periods or
matters occurring or arising prior to or simultaneously with such time or arise
as a result of amounts payable by Lessee after such time or occur during the
continuance of a Default or Event of Default under this Lease;

 

A2-40

 

(5)                                  to any Tax to the
extent arising out of or caused by, or to the extent such Tax would not have
been incurred but for, (A) the willful misconduct of such Tax Indemnitee
or (B) the breach of any representation, covenant or agreement by such Tax
Indemnitee in any Operative Document; or

 

(6)                                  [Intentionally
Omitted].

 

Nothing contained in Section 29(b)(ii) hereof
shall apply to any Tax in the nature of a sales, use, value added, goods and
services, transfer, recording, excise or registration Tax imposed on or with
respect to the Engine or any Part or interest therein or title thereto,
incurred prior to, or on the date of, the execution and delivery of this Lease.

 

For the avoidance of
doubt, and notwithstanding any provision herein to the contrary, Lessee agrees
to indemnify Lessor on an After-Tax Basis against, and agrees to hold Lessor
harmless from, any and all payments, indemnities and gross-ups required to be
made by Lessor to or for the benefit of any other Person pursuant to any
agreement between Lessor and such other Person relating to the Engine or any Part thereof.

 

(iii)                               Calculation of General Tax Indemnity Payments.  Notwithstanding any provision contained in Section 29(b)(ii) hereof,
any payment which Lessee shall be required to make to, or for the account of,
any Tax Indemnitee, with respect to any Tax (or any payment made in connection
with the payment or contest of any Tax) which is subject to indemnification
under this Section 29(b) shall be paid on an After-Tax Basis.  Any calculation of an indemnity payment for
an inclusion item, and of any gross-up of an indemnity or reverse indemnity
payment, will be on the basis of then-actual Federal, state, and local tax
rates applicable to such Tax Indemnitee, and based upon the assumption that the
Tax Indemnitee is fully taxable at such tax rates.

 

Any Taxes that are
imposed on any Tax Indemnitee as a result of the disallowance or reduction of
any tax benefit (including foreign tax credits) referred to in this subsection as
to which Lessor has made a payment to Lessee required hereby (or as to which
such Lessor would have made payment but for Section 29(b)(viii) or
which benefit was otherwise taken into account in computing Lessee’s indemnity
obligation pursuant to this Section 29(b)) in a taxable year subsequent to
the utilization by the Tax Indemnitee, or any amount required to be paid by
Lessor to a Tax Indemnitee pursuant to any other agreement with such Tax
Indemnitee relating to the Engine shall be treated as a Tax for which Lessee is
obligated to indemnify the relevant Tax Indemnitee or reimburse Lessor pursuant
to the provisions of this Section 29(b), without regard to the exclusions
set forth in Section 29(b)(ii) hereof.

 

(iv)                              General Tax Indemnity – Contests.  With respect to any Tax Indemnitee that is
Lessor or any Affiliate thereof (a “Lessor Tax Indemnitee”)
at

 

A2-41

 

Lessee’s written request and with the written consent of Lessor, Lessee
shall be entitled to contest any claim with respect to any Tax imposed on such
Lessor Tax Indemnitee other than an Income Tax either in Lessee’s name or in
the name of such Lessor Tax Indemnitee at Lessee’s sole cost and expense (a “Lessee Controlled Contest”) . If Lessor receives a written
claim from any Tax Indemnitee or any Taxing Authority for any Tax for which
Lessee is obligated pursuant to Section 29(b)(i), Lessor shall notify
Lessee promptly of such claim (it being understood and agreed that failure to
provide such notice shall not adversely affect or otherwise prejudice any Tax
Indemnitee’s right to an indemnity hereunder except to the extent such failure
precludes any contest of such claim).  If
the Tax cannot be contested in a Lessee Controlled Contest for any reason
(including, but not limited to the refusal of the Lessor or other Tax
Indemnitee to consent thereto), upon written request from Lessee received by
Lessor within ten (10) Business Days of such notice Lessor or such Tax
Indemnitee shall contest such claim in good faith at Lessee’s sole cost and
expense.  Any such contest shall be at
Lessor’s or such Tax Indemnitee’s, as the case may be, control and
direction.  In any such contest the Tax
Indemnitee or Lessor, as the case may be, may in its sole discretion select the
forum for such contest and determine whether any such contest shall be by (A) resisting
payment of such Tax, (B) paying such Tax under protest or (C) paying
such Tax and seeking a refund or other repayment thereof.  In no event shall Lessor be required to
contest, or to request a Tax Indemnitee to contest, or Lessee be permitted to
contest, the imposition of any Tax for which Lessee is obligated pursuant to
this Section 29(b) unless (W) no Default or Event of Default shall
have occurred and be continuing, (X) Lessee shall have agreed to pay to Lessor
and to the Tax Indemnitee on demand on an After-Tax Basis all reasonable costs
and expenses that Lessor and the Tax Indemnitee may incur in connection with
contesting such claim (including, without limitation, all reasonable legal and accounting
fees and disbursements), (Y) such action to be taken will not result in a risk
of sale, forfeiture or loss of, or the creation of any Lien on, the Engine or
any Part, or any Aircraft, Airframe or airframe on which the Engine is
installed, other than Permitted Liens or a risk of imposition of criminal
penalties, and (Z) if such contest shall be conducted in a manner requiring the
payment of the claim, Lessee shall have paid the amount required directly to
the appropriate authority or made an advance of the amount thereof to such Tax
Indemnitee on an interest-free basis and agreed to indemnify Lessor and such
Tax Indemnitee on an after-tax basis for any cost or Taxes payable with respect
to such advance.  In addition, Lessee
shall not have any right to request Lessor or any other Tax Indemnitee to
contest a claim unless (x) the amount of indemnity payments that Lessee would
be required to make if the contest were unsuccessful is at least $***, (y) prior to commencement of any
contest, Lessee has delivered to Lessor and, if requested by Lessor, the Tax
Indemnitee a written acknowledgment of Lessee’s obligation under this Section 29(b) to
indemnify such Lessor and such Tax Indemnitee with respect to the Tax at issue
to the extent that the contest is unsuccessful; and (z) Lessor and the relevant
Tax Indemnitee has received an opinion of independent tax counsel selected by
Lessor that concludes that a Reasonable Basis exists with respect to 

 

A2-42

 

the tax position Lessee has asserted. 
For the purposes of this Section 29(b), the term “Reasonable Basis”
shall have the meaning set forth for such term in Formal Opinion 85-352 issued
by the Standing Committee on Ethics and Professional Responsibility of the
American Bar Association.  Lessee shall
have no right to pursue or appeal or cause any Tax Indemnitee or Lessor to
pursue or appeal an adverse judicial decision without the prior written consent
of Lessor and, if required by Lessor, the relevant Tax Indemnitee.

 

Nothing contained in this
Section 29(b)(iv) shall require a Lessor or a Tax Indemnitee to
contest, or permit Lessee to contest, a claim which such Tax Indemnitee would
otherwise be required to contest, if such Tax Indemnitee shall waive payment by
Lessor and Lessee of any amount that might otherwise be payable by Lessee under
this Section 29(b) in respect of such claim and any other claim, the
contest of which would be precluded.  In
addition, for the avoidance of doubt, Lessee shall have no right to contest or
require any other party to contest any Tax imposed on a Tax Indemnitee in a
manner or to the extent that is inconsistent with Lessor’s rights under any
Operative Document or Lessee Document.

 

(v)                                 General Tax Indemnity – Reports.  If any report, return or statement is
required to be filed with respect to any Tax which is subject to
indemnification under this Section 29(b), Lessee shall timely file the
same at its sole expense (except for any such report, return or statement which
a Tax Indemnitee has notified Lessor or Lessee that such Tax Indemnitee intends
to file or which such Tax Indemnitee is required by law to file in its own
name).  Lessee shall either file such
report, return or statement so as to show the ownership of the Engine in the
Owner and send a copy of such report, return or statement to Lessor, the Tax
Indemnitee and the Owner or, where Lessee is not so permitted to file such
report, return or statement, it shall notify the Tax Indemnitee and Lessor of
such requirement and prepare and deliver such report, return or statement to
the Tax Indemnitee and Lessor in a manner satisfactory to such Tax Indemnitee
and Lessor within a reasonable time prior to the time such report, return or
statement is to be filed.  Lessee shall
hold Lessor and the Tax Indemnitee harmless on an After-Tax Basis from and
against any penalties, interest, fines or additions to Tax caused by the
inaccuracy of any report, return or statement prepared and filed by Lessee on
behalf of Lessor or any other Tax Indemnitee. Lessee will provide at Lessee’s
expense to Lessor and the Tax Indemnitee such information as Lessor or any Tax
Indemnitee may reasonably request in writing that is reasonably necessary to
enable Lessor or such Tax Indemnitee to comply with their tax filings, audit
and litigation requirements.  If Lessee
receives written notice from a Taxing Authority or a Tax Indemnitee or
otherwise of a Tax that is imposed upon a Tax Indemnitee but not indemnified
against by Lessee hereunder, Lessee will promptly forward a copy of such notice
to Lessor and the Tax Indemnitee.  Lessee
shall also provide or cause to be provided to Lessor, upon request and at
Lessee’s expense, all documents, records and other information that Lessor is
required to provide any Tax Indemnitee under any applicable agreements between
Lessor and such Tax Indemnitee.

 

A2-43

 

(vi)                              Verification.  At
Lessee’s written request after Lessee receives computations showing the amount
of any indemnity payable by Lessee pursuant to Section 29(b)(i), Lessor
shall exercise its rights, if any, under applicable agreements with the
claimant Tax Indemnitee with respect to verification of such computation.  If Lessee pays such indemnity in whole or in
part before completion of the verification procedure, appropriate adjustments
will be made promptly after completion of the verification procedure to take
into account any redetermination of the indemnity by the accounting firm.  Any fee and disbursements of the accounting
firm payable by Lessor shall be paid by Lessee. 
Lessee will have no right under this Section 29(b) to examine
any tax return of any Tax Indemnitee or Lessor. 
The sole responsibility of such accounting firm shall be to verify the
computations of the amount payable hereunder and the interpretation of this
Agreement or any other agreement shall not be within the scope of such
accounting firm’s responsibilities.

 

(vii)                           General Tax Indemnity – Payment. 
Except as provided in Section 29(b)(iv) hereof,
Lessee shall pay any Tax for which it is liable pursuant to Section 29(b)(i) directly
to the appropriate taxing authority if legally permissible or upon demand of a
Tax Indemnitee or Lessor shall pay such Tax and any other amounts due hereunder
to such Tax Indemnitee or to Lessor as indicated in such demand within ten (10) Business
Days of such demand.  Any such demand for
payment from a Tax Indemnitee or Lessor shall specify in reasonable detail the
payment and the facts upon which the right to payment is based.  Lessor shall request that the Tax Indemnitee
promptly forward to Lessee a copy of any notice, bill or advice received by it
to the extent concerning any Tax indemnified against hereunder (provided that the failure of the Lessor to make such request
or the failure of the Tax Indemnitee to forward such notice, bill or advice
shall not adversely affect the Lessor’s or Tax Indemnitee’s rights to
indemnification hereunder).  Within
twenty (20) days after the date of each payment by Lessee of any Tax
indemnified against hereunder, Lessee shall furnish the appropriate Tax
Indemnitee (with a copy to Lessor) the original or a certified copy of a
receipt for Lessee’s payment of such Tax or such other evidence of payment of
such Tax as is reasonably acceptable to such Tax Indemnitee.

 

(viii)                        Application of Payments During Existence of Default or Event of
Default.  Any amount payable
to Lessee pursuant to the terms of this Section 29(b) shall not be
paid to or retained by Lessee if at the time of such payment or retention a Default
or Event of Default shall have occurred and be continuing or if the Airline
Services Agreement shall have been terminated or cancelled or shall have been
terminated in accordance with its terms, but shall be held by Lessor and
applied pursuant to Section 28 hereof..

 

(ix)                                [Intentionally Omitted].

 

(x)                                   Inclusions.  If Lessor
is required by any Taxing Authority to include in its income for income tax
purposes, or Lessor receives an opinion from

 

A2-44

 

independent tax counsel selected by Lessor and reasonably acceptable to
Lessee, that Lessor does not have a Reasonable Basis to exclude from its income
for income tax purposes, any amount in respect of, or resulting from (i) any
modification, repair, improvement, addition, substitution or replacement of the
Engine or any Part, or of any Aircraft, Airframe or airframe on which the
Engine is installed from time to time, (ii) any payment of Basic Rent or
Supplemental Rent under the Lease by or on behalf of Lessee in an amount
greater, or at a time earlier, than the amounts or times provided in the Lease,
(iii) any warranty or indemnity payments or refunds attributable to the
Engine received from the Manufacturer which was not remitted to, and retained
by, Lessor, (iv) the theft, destruction or other loss of the Engine or any
Part; (v) any application of Section 467(b)(2) to the Lease; (vi) 
 any payment of indemnities to a Tax Indemnitee or Indemnitee (other than
Lessor) or fees, expenses or reimbursement to a trustee, agent or other Person
pursuant to this Agreement, or (vii) any act or payment by Lessee not
required under the terms of the Lessee Documents (herein called a “Lessor Inclusion”), Lessee shall pay to Lessor an amount
which, on an After-Tax Basis, shall be equal to the amount of the additional
taxes on or measured by gross or net income (plus any and all fines, penalties,
additions to tax and interest calculated by reference thereto) payable by
Lessor as a result of such Lessor Inclusion.

 

(xi)                                Contests Etc.  The
provisions of Section 29(b)(iii) and 29(b)(iv) of this Agreement
shall apply, mutatis mutandis, with respect to
any Lessor Inclusion.

 

(xii)                             Minimum Indemnity. 
The amount of any indemnity payable by Lessee to Lessor pursuant to this
Section 29 shall in all events be an amount sufficient to restore Lessor
to the position that Lessor would be in if the Lessor Inclusion or any
indemnity otherwise payable by Lessor pursuant to any agreement with a Tax
Indemnitee that gave rise to Lessee’s obligation hereunder had not occurred.

 

(c)                                  General
Indemnity.  Lessee hereby agrees to
indemnify each Indemnitee against, and agrees to protect, defend, save and keep
harmless each thereof from (whether or not the transactions contemplated herein
or in any of the other Lessee Documents are consummated), any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
out-of-pocket costs, expenses and disbursements (including reasonable legal
fees and expenses but excluding internal costs and expenses such as salaries
and overhead), of whatsoever kind and nature (collectively called “Expenses”) imposed on, incurred by or asserted against any
Indemnitee, in any way relating to or arising out of (A) any of the
Operative Documents or the Lessee Documents or any of the transactions
contemplated thereby or the enforcement of any of the terms thereof or any
amendment, modification or waiver in respect thereof, (B) the manufacture,
purchase, acceptance or rejection of any Aircraft, Airframe, airframe, the
Engine or any Part, (C) any Aircraft, Airframe or airframe (or any portion
of any thereof) or the Engine or any Part whether or not arising out of
the finance, refinance, ownership, delivery, nondelivery, storage, sublease,
possession, use, non-use, operation, maintenance, registration, reregistration,
condition, modification, alteration, replacement, repair, substitution, sale,
return or other disposition of any

 

A2-45

 

Aircraft, Airframe, airframe (or any portion
of any thereof) or the Engine or any Part) including, without limitation,
latent or other defects, whether or not discoverable, strict tort liability,
any damage to property or the environment, death of or injury to any person and
any claim for patent, trademark or copyright infringement; provided
that the foregoing indemnity as to any Indemnitee shall not extend to any
Expense to the extent resulting from or arising out of or attributable to one
or more of the following: (A) any representation or warranty by such
Indemnitee in the Operative Documents being incorrect in any material respect,
or (B) the failure by such Indemnitee to perform or observe any agreement,
covenant or condition in any of the Operative Documents applicable to it
including, without limitation, with respect to the creation or existence of a
Lessor Lien (including for this purpose Liens which would be Lessor Liens but
for the proviso in the definition of Lessor Liens) attributable to it (except
to the extent such failure was caused by the failure of Lessee to perform any
obligation under a Lessee Document), or (C) the willful misconduct of such
Indemnitee, or (D) with respect to any Indemnitee, a disposition by such
Indemnitee of all or any part of such Indemnitee’s interest in the Engine or in
the Operative Documents other than during the continuance of a Default or an
Event of Default under the Lease, or (E) except to the extent relating to
the payment of any Expenses on an After-Tax Basis, any Tax whether or not
Lessee is required to indemnify for such Tax pursuant to Section 29(b) hereof,
or (F) except to the extent fairly attributable to acts, omissions or
events occurring prior thereto, acts or events which occur with respect to the
Engine or any Part after the return of physical possession of the Engine
or such Part to Lessor pursuant to the terms of the Lease.  Lessee further agrees to indemnify Lessor
against, and agrees to protect, defend, save and keep harmless Lessor from
(whether or not the transactions contemplated herein or in any of the other
Lessee Documents are consummated), any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, out-of-pocket costs,
expenses and disbursements of whatsoever kind and nature imposed on, incurred by
or asserted against Lessor pursuant to any indemnification obligations of
Lessor under any agreement with any other person relating to the Engine or any
Aircraft or Airframe on which it is installed.

 

Lessee further agrees that any payment or indemnity
pursuant to this Section 29(c) in respect of any Expenses or other
amounts payable by Lessee pursuant to this Section 29(c) shall be
paid on an After-Tax Basis.

 

If, by reason of any Expense payment made to or for
the account of an Indemnitee by Lessee pursuant to this Section 29(c),
such Indemnitee subsequently realizes a tax deduction or credit or any
reduction in Taxes not previously taken into account in computing such payment,
such Indemnitee shall promptly pay to Lessee, but only if Lessee shall have made
all payments then due and owing to such Indemnitee under the Lessee Documents,
an amount equal to the sum of (I) the actual reduction in Taxes realized by
such Indemnitee which is attributable to such deduction or credit, and (II) the
actual reduction in Taxes realized by such Indemnitee as a result of any
payment made by such Indemnitee pursuant to this sentence; provided, however, that no Indemnitee shall be obligated to make any
payment pursuant to this sentence to the extent that the amount of such payment
would exceed (i) the aggregate amount of all prior payments by Lessee to
such Indemnitee under this Section 29(c) less (ii) the aggregate
amount of all prior payments with respect to such Tax by such Indemnitee to
Lessee pursuant to this sentence, with any excess being carried forward to
offset Lessee’s obligations, if any, to make subsequent payments to such
Indemnitee under this Section 29(c).

 

A2-46

 

Nothing in this Section 29(c) shall be
construed as a guaranty by Lessee of the residual value of the Engine.

 

If a claim is made against an Indemnitee involving one
or more Expenses and such Indemnitee has notice thereof, such Indemnitee shall
promptly, upon receiving such notice, give notice of such claim to Lessee and
Lessor; provided that the failure to provide
such notice shall not release Lessee from any of its obligations to indemnify
hereunder, and no payment by Lessee to an Indemnitee pursuant to this Section 29(c) shall
be deemed to constitute a waiver or release of any right or remedy which Lessee
may have against such Indemnitee for any actual damages as a result of the
failure by such Indemnitee to give Lessee such notice.  Lessee shall be entitled, at its sole cost
and expense, acting through counsel acceptable to the respective Indemnitee, (A) so
long as Lessee has agreed in a writing acceptable to such Indemnitee that
Lessee is liable to such Indemnitee for such Expense hereunder, in any judicial
or administrative proceeding that involves solely a claim for one or more
Expenses, to assume responsibility for and control thereof, (B) so long as
Lessee has agreed in a writing acceptable to such Indemnitee that Lessee is
liable to such Indemnitee for such Expense hereunder, in any judicial or administrative
proceeding involving a claim for one or more Expenses and other claims related
or unrelated to the transactions contemplated by the Operative Documents, to
assume responsibility for and control of such claim for Expenses to the extent
that the same may be and is severed from such other claims (and such Indemnitee
shall use its reasonable efforts to obtain such severance, provided
that Lessee has requested such severance and agrees to pay the reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
counsel fees and disbursements) incurred by such Indemnitee, if any, in
connection with such severance), and (C) in any other case, to be
consulted by such Indemnitee with respect to judicial proceedings subject to
the control of such Indemnitee. 
Notwithstanding any of the foregoing to the contrary, Lessee shall not
be entitled to assume responsibility for and control of any such judicial or
administrative proceedings (M) while a Default or an Event of Default shall
have occurred and be continuing, (N) if such proceedings will involve a risk of
the sale, forfeiture or loss of, or the creation of any Lien (other than a
Permitted Lien) on the Engine or on any Aircraft, Airframe or airframe on which
the Engine is installed, or (O) if such proceeding could in the good faith
opinion of such Indemnitee entail any risk of civil liability or criminal
liability or present a conflict of interest making separate representation
necessary.  The affected Indemnitee may
participate at its own expense and with its own counsel in any judicial
proceeding controlled by Lessee pursuant to the preceding provisions.

 

The affected Indemnitee shall supply Lessee with such
information reasonably requested by Lessee as is necessary or advisable for
Lessee to control or participate in any proceeding to the extent permitted by
this Section 29(c).  Unless a
Default or an Event of Default shall have occurred and be continuing (in which
case the consent of Lessee shall not be required), such Indemnitee shall not
enter into a settlement or other compromise with respect to any Expense without
the prior written consent of Lessee, which consent shall not be unreasonably
withheld or delayed, unless such Indemnitee waives its right to be indemnified
with respect to such Expense under this Section 29(c).

 

Lessee shall supply the affected Indemnitee and Lessor
with such information reasonably requested by such Indemnitee as is necessary
or advisable for such Indemnitee to control or participate in any proceeding to
the extent permitted by this Section 29(c).

 

A2-47

 

Upon payment in full of any Expense or Tax pursuant to
this Section 29, Lessee, or, if any Expense or Tax has been paid by
insurers, the insurers, without any further action, shall be subrogated to any
claims the affected Indemnitee may have relating thereto; provided
that Lessee shall not be so subrogated so long as a Default or an Event of
Default has occurred and is continuing. 
Such Indemnitee agrees to give such further reasonable assurances or
agreements and to provide such reasonable cooperation to Lessee or the insurers
to permit Lessee or the insurers to pursue such claims, if any, to the extent
reasonably requested by Lessee or the insurers.

 

In the event that Lessee shall have paid an amount to
an Indemnitee pursuant to this Section 29(c), and such Indemnitee
subsequently shall be reimbursed in respect of such indemnified amount from any
other Person, such Indemnitee shall promptly pay to Lessee an amount equal to
the amount of such reimbursement (but in no event more than such payment from
Lessee) plus any net tax benefit (or minus any net tax detriment) realized by
such Indemnitee as a result of any reimbursement received and payment made by
such Indemnitee pursuant to this sentence; provided, that
Lessor shall not be obligated to make any payment pursuant to this Section 29(c) to
the extent that the amount of such payment would exceed (i) the aggregate
amount of all prior payments by Lessee to Lessor under this Section 29(c) less
(ii) the aggregate amount of all prior payments by Lessor to Lessee
pursuant to this Section 29(c), with any excess being carried forward to
offset Lessee’s obligations, if any, to make subsequent payments to Lessor
under this Section 29(c); provided, further,
that such Indemnitee shall have no obligation to reimburse Lessee if (i) a
Default or an Event of Default has occurred and is continuing or if the Airline
Services Agreement shall have been terminated or canceled or shall have
terminated in accordance with its terms or (ii) Lessee has not paid such
Indemnitee all amounts required pursuant to this Section 29(c) and
any other amounts then due to such Indemnitee from Lessee under any of the
Operative Documents or Lessee Documents.

 

Lessee’s obligations under the indemnities provided
for in this Lease shall be those of a primary obligor, whether or not the
Person indemnified shall also be indemnified with respect to the same matter
under the terms of any other document or instrument, and the Person seeking
indemnification from Lessee pursuant to any provision of this Lease may proceed
directly against Lessee without first seeking to enforce any other right of
indemnification.

 

(d)                                 Income Tax.  For purposes of this Section 29, the term
“Income Tax” means any Tax based on or
measured by net income (other than sales, use, license, rental, ad valorem and
value added or property Taxes) (including, without limitation, capital gains
taxes, minimum taxes, income taxes collected by withholding and taxes on tax
preference items), and interest, additions to tax, penalties, or other charges
in respect thereof.

 

(e)                                  Survival.  Notwithstanding anything to the contrary
contained in this Lease, the provisions of this Section 29 shall survive
any termination or expiration of this Lease.

 

SECTION 30.  Certain
Representations, Warranties and Covenants. 
(a)  Lessor represents and
warrants to Lessee as follows:

 

(i)                                     Lessor is a
corporation duly organized and validly existing in good standing under the laws
of its jurisdiction of organization, and has the corporate

 

A2-48

 

power and authority to carry on its business as now conducted, to own
or hold under lease its properties and to enter into and perform its
obligations under, the Lessee Documents to which Lessor is a party;

 

(ii)                                  the Lessee Documents
to which Lessor is a party have been duly authorized by all necessary corporate
action on the part of Lessor, do not require any approval not already obtained of
stockholders of Lessor or any approval or consent not already obtained of any
trustee or holders of any indebtedness or obligations of Lessor, and have been
duly executed and delivered by Lessor, and neither the execution and delivery
thereof, nor the consummation of the transactions contemplated thereby, nor
compliance by Lessor with any of the terms and provisions thereof, will
contravene any United States Federal or state law, judgment, governmental rule,
regulation or order applicable to or binding on Lessor (it being understood
that no representation or warranty is made with respect to laws, rules or
regulations relating to aviation or to the nature of the equipment owned by
Lessor) or contravene or result in any breach of or constitute any default under,
or result in the creation of any Lien (other than Liens provided for in the
Operative Documents or the Lessee Documents) upon any property of Lessor under,
any indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement, corporate charter, by-law or other
agreement or instrument to which Lessor is a party or by which it or its
properties may be bound or affected; and

 

(iii)                               each of Lessee Documents
to which Lessor is a party constitutes a legal, valid and binding obligation of
Lessor enforceable against Lessor in accordance with the terms thereof (except
as may be limited by (A) general principles of equity, (B) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar
laws affecting the rights of creditors generally, (C) applicable laws
which may affect the remedies provided therein, which laws, however, do not
make the remedies provided therein inadequate for the practical realization of
the benefits provided thereby, except that no representation or warranty is
made as to the amount of priority of any recovery under any particular
circumstances, and (D) in the case of indemnity provisions contained in
such documents, as limited by public policy considerations).

 

(b)                                 Lessee
covenants and agrees that it shall at all times be a Certificated Air Carrier.

 

(c)                                  Lessee,
at its expense, will take, or cause to be taken, such action with respect to
the recording, filing, re-recording and refiling of this Lease, the Lease Supplement,
and any financing statements or other instruments as are necessary to maintain
(or as are reasonably requested by Lessor) the perfection of any security
interest that may be claimed to have been created by this Lease or will furnish
to Lessor timely notice of the necessity of such action, together with such
instruments, in execution form, and such other information as may be required
to enable Lessor to take such action. 
Lessee shall furnish to Lessor annually after the execution hereof (but
not later than March 15th of each year, commencing with the
year 2006) an

 

A2-49

 

opinion of Daugherty, Fowler, Peregrin &
Haught, a Professional Corporation and/or other counsel reasonable satisfactory
to Lessor nationally recognized in FAA matters covering such matters with
respect to the interests of Lessor in the Engine and the perfection of security
interests therein as Lessor may reasonably request.  Lessee will notify Lessor of any change in
the location of its chief executive office (as such term is used in Article 9
of the Uniform Commercial Code) prior to making such change.

 

SECTION 31.  Covenants
of Lessee.  Lessee
covenants and agrees with Lessor as follows:

 

Lessee will, at its own cost and expense, cause to be
done, executed, acknowledged and delivered all and every such further acts,
conveyances and assurances as Lessor shall reasonably require for accomplishing
the purposes of this Lease and the other Lessee Documents; provided
that any instrument or other document so executed by Lessee will not expand any
obligations or limit any rights of Lessee in respect of the transactions
contemplated by any Lessee Document. 
Lessee, upon delivery of the Engine under this Lease, shall at all times
thereafter cause the same to remain duly registered in the name of Lessor,
except as otherwise required or permitted hereunder or under this Lease, under
the Federal Aviation Act, or shall furnish to Lessor such information as may be
required to enable Lessor to make application for such registration, and shall
promptly furnish to Lessor such information as may be required (or reasonably
requested by Lessor) to enable Lessor to timely file any reports required to be
filed by Lessor, as the case may be, as a result of its interest in the Engine
with any governmental authority.

 

SECTION 32.  Consent to
Jurisdiction.  Each
of the parties hereto (A) hereby irrevocably submits itself to the
non-exclusive jurisdiction of the United States District Court for the Southern
District of New York and to the non-exclusive jurisdiction of the Supreme Court
of the State of New York, New York County, for the purposes of any suit, action
or other proceeding arising out of this Lease or any other Operative Document
or Lessee Document, the subject matter of any thereof or any of the
transactions contemplated hereby or thereby brought by any party or parties
thereto, or their successors or assigns, and (B) hereby waives, and agrees
not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, to the extent permitted by applicable law, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper, or that this Lease or any other Operative
Document or Lessee Document or the subject matter of any thereof or any of the
transactions contemplated hereby or thereby may not be enforced in or by such
courts.  Lessee hereby generally consents
to service of process at CT Corporation System, 1633 Broadway, New York, New
York 10019.

 

SECTION 33.  Owner for
Federal Tax Purposes.  It
is hereby agreed among Lessor and Lessee that for Federal income tax purposes
the Owner will be the owner of the Engine and Lessee will be the lessee
thereof, and each party hereto agrees to characterize this Lease as a lease for
Federal income tax purposes.

 

A2-50

 

IN WITNESS WHEREOF, Lessor and Lessee have each caused
this Lease to be duly executed as of the day and year first above written.

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  
	
   

  	
  Lessor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MESABA AVIATION, INC.,

  
	
   

  	
  Lessee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A2-51

 

	
   

  	
  EXHIBIT A

  
	
   

  	
  to

  
	
   

  	
  Lease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

LEASE SUPPLEMENT No.       

[NW 2005    ]

 

LEASE SUPPLEMENT NO.     , dated                   ,
20      , between NORTHWEST AIRLINES, INC. (“Lessor”), and MESABA AVIATION, INC. (“Lessee”).

 

Lessor and Lessee have entered into that
certain Engine Lease Agreement [NW 2005   ], dated as of [                ],
2005, relating to one General Electric Model CF34-3B1 Engine (herein called the
“Lease,” and the defined terms therein
being hereinafter used with the same meanings). 
The Lease provides for the execution and delivery of a Lease Supplement
for the purpose of leasing the Engine under the Lease as and when delivered by
Lessor to Lessee in accordance with the terms thereof.

 

(3) The Lease relates to the Engine described
below, and a counterpart of the Lease is attached hereto, and made a part
hereof, and this Lease Supplement, together with such attachment, is being
filed for recordation on the date hereof with the Federal Aviation
Administration as one document.

 

(4) The Lease Agreement relates to the Engine
described below, and a counterpart of the Lease Agreement, attached and made a
part of Lease Supplement No. 1 dated                               ,
20     to the Lease Agreement, has been recorded by the
Federal Aviation Administration on                               ,
20    , as one document and assigned Conveyance No.     .

 

NOW, THEREFORE, in consideration of the premises and
other good and sufficient consideration, Lessor and Lessee hereby agree as
follows:

 

1.                                       Lessor
hereby delivers and subleases to Lessee under the Lease and Lessee hereby
accepts and subleases from Lessor under the Lease the following described
Engine (the “Engine”):

 

(3)                                  This
language for Lease Supplement No. 1.

 

(4)                                  This
language for other Lease Supplements.

 

A2-52

 

General Electric Model
CF34-3B1 type engine bearing manufacturer’s serial no.       
(which engine has 750 or more rated takeoff horsepower or the equivalent of
such horsepower)

 

[together with the QEC](5).

 

2.                                       The
Commencement Date of the lease of the Engine is the date of this Lease
Supplement set forth in the opening paragraph hereof.  Except as otherwise provided in the Lease,
the Term for the Engine shall commence on the Commencement Date and end on the
Expiration Date.

 

3.                                       Lessee
hereby confirms its agreement to pay Lessor Basic Rent for the Engine
throughout the Term therefor in accordance with Section 3 of the Lease.

 

4.                                       Lessee
hereby confirms to Lessor that Lessee has accepted the Engine for all purposes
hereof and of the Lease as being airworthy, serviceable, in good working order
and repair and without defect or inherent vice in title, condition, design,
operation or fitness for use.

 

5.                                       All
of the terms and provisions of the Lease are hereby incorporated by reference
in this Lease Supplement to the same extent as if fully set forth herein.

 

6.                                       This
Lease Supplement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.

 

(5)                                  For
inclusion only if the Engine has QEC.

 

A2-53

 

IN WITNESS WHEREOF, Lessor and Lessee have caused this
Lease Supplement to be duly executed on the day and year first above written.

 

 

	
   

  	
  NORTHWEST AIRLINES, INC.,

  
	
   

  	
  Lessor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MESABA AVIATION, INC.,

  
	
   

  	
  Lessee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A2-54

 

	
   

  	
  EXHIBIT B

  
	
   

  	
  to

  
	
   

  	
  Lease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

 

BASIC RENT SCHEDULE

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

Basic Rent:

 

	
  Lease
  Period Date

  	
   

  	
  Basic Rent

  	
   

  
	
  September 1, 2005

  	
   

  	
  $

  	
  [                        ]

  	
   

  
	
  October 1, 2005

  	
   

  	
   

  	
   

  
	
  November 1, 2005

  	
   

  	
   

  	
   

  
	
  December 1, 2005

  	
   

  	
   

  	
   

  
	
  January 1, 2006

  	
   

  	
   

  	
   

  
	
  February 1, 2006

  	
   

  	
   

  	
   

  
	
  March 1, 2006

  	
   

  	
   

  	
   

  
	
  April 1, 2006

  	
   

  	
   

  	
   

  
	
  May 1, 2006

  	
   

  	
   

  	
   

  
	
  June 1, 2006

  	
   

  	
   

  	
   

  
	
  July 1, 2006

  	
   

  	
   

  	
   

  
	
  August 1, 2006

  	
   

  	
   

  	
   

  
	
  September 1, 2006

  	
   

  	
   

  	
   

  
	
  October 1, 2006

  	
   

  	
   

  	
   

  
	
  November 1, 2006

  	
   

  	
   

  	
   

  
	
  December 1, 2006

  	
   

  	
   

  	
   

  
	
  January 1, 2007

  	
   

  	
   

  	
   

  
	
  February 1, 2007

  	
   

  	
   

  	
   

  
	
  March 1, 2007

  	
   

  	
   

  	
   

  
	
  April 1, 2007

  	
   

  	
   

  	
   

  
	
  May 1, 2007

  	
   

  	
   

  	
   

  
	
  June 1, 2007

  	
   

  	
   

  	
   

  
	
  July 1, 2007

  	
   

  	
   

  	
   

  
	
  August 1, 2007

  	
   

  	
   

  	
   

  
	
  September 1, 2007

  	
   

  	
   

  	
   

  
	
  October 1, 2007

  	
   

  	
   

  	
   

  
	
  November 1, 2007

  	
   

  	
   

  	
   

  
	
  December 1, 2007

  	
   

  	
   

  	
   

  
	
  January 1, 2008

  	
   

  	
   

  	
   

  
	
  February 1, 2008

  	
   

  	
   

  	
   

  
	
  March 1, 2008

  	
   

  	
   

  	
   

  
	
  April 1, 2008

  	
   

  	
   

  	
   

  
	
  May 1, 2008

  	
   

  	
   

  	
   

  
	
  June 1, 2008

  	
   

  	
   

  	
   

  
	
  July 1, 2008

  	
   

  	
   

  	
   

  
					

 

A2-55

 

	
  August 1, 2008

  	
   

  	
   

  	
   

  
	
  September 1, 2008

  	
   

  	
   

  	
   

  
	
  October 1, 2008

  	
   

  	
   

  	
   

  
	
  November 1, 2008

  	
   

  	
   

  	
   

  
	
  December 1, 2008

  	
   

  	
   

  	
   

  
	
  January 1, 2009

  	
   

  	
   

  	
   

  
	
  February 1, 2009

  	
   

  	
   

  	
   

  
	
  March 1, 2009

  	
   

  	
   

  	
   

  
	
  April 1, 2009

  	
   

  	
   

  	
   

  
	
  May 1, 2009

  	
   

  	
   

  	
   

  
	
  June 1, 2009

  	
   

  	
   

  	
   

  
	
  July 1, 2009

  	
   

  	
   

  	
   

  
	
  August 1, 2009

  	
   

  	
   

  	
   

  
	
  September 1, 2009

  	
   

  	
   

  	
   

  
	
  October 1, 2009

  	
   

  	
   

  	
   

  
	
  November 1, 2009

  	
   

  	
   

  	
   

  
	
  December 1, 2009

  	
   

  	
   

  	
   

  
	
  January 1, 2010

  	
   

  	
   

  	
   

  
	
  February 1, 2010

  	
   

  	
   

  	
   

  
	
  March 1, 2010

  	
   

  	
   

  	
   

  
	
  April 1, 2010

  	
   

  	
   

  	
   

  
	
  May 1, 2010

  	
   

  	
   

  	
   

  
	
  June 1, 2010

  	
   

  	
   

  	
   

  
	
  July 1, 2010

  	
   

  	
   

  	
   

  
	
  August 1, 2010

  	
   

  	
   

  	
   

  
	
  September 1, 2010

  	
   

  	
   

  	
   

  
	
  October 1, 2010

  	
   

  	
   

  	
   

  
	
  November 1, 2010

  	
   

  	
   

  	
   

  
	
  December 1, 2010

  	
   

  	
   

  	
   

  
	
  January 1, 2011

  	
   

  	
   

  	
   

  
	
  February 1, 2011

  	
   

  	
   

  	
   

  
	
  March 1, 2011

  	
   

  	
   

  	
   

  
	
  April 1, 2011

  	
   

  	
   

  	
   

  
	
  May 1, 2011

  	
   

  	
   

  	
   

  
	
  June 1, 2011

  	
   

  	
   

  	
   

  
	
  July 1, 2011

  	
   

  	
   

  	
   

  
	
  August 1, 2011

  	
   

  	
   

  	
   

  
	
  September 1, 2011

  	
   

  	
   

  	
   

  
	
  October 1, 2011

  	
   

  	
   

  	
   

  
	
  November 1, 2011

  	
   

  	
   

  	
   

  
	
  December 1, 2011

  	
   

  	
   

  	
   

  
	
  January 1, 2012

  	
   

  	
   

  	
   

  
	
  February 1, 2012

  	
   

  	
   

  	
   

  
	
  March 1, 2012

  	
   

  	
   

  	
   

  
	
  April 1, 2012

  	
   

  	
   

  	
   

  
	
  May 1, 2012

  	
   

  	
   

  	
   

  

 

A2-56

 

	
  June 1, 2012

  	
   

  	
   

  	
   

  
	
  July 1, 2012

  	
   

  	
   

  	
   

  
	
  August 1, 2012

  	
   

  	
   

  	
   

  
	
  September 1, 2012

  	
   

  	
   

  	
   

  
	
  October 1, 2012

  	
   

  	
   

  	
   

  
	
  November 1, 2012

  	
   

  	
   

  	
   

  
	
  December 1, 2012

  	
   

  	
   

  	
   

  
	
  January 1, 2013

  	
   

  	
   

  	
   

  
	
  February 1, 2013

  	
   

  	
   

  	
   

  
	
  March 1, 2013

  	
   

  	
   

  	
   

  
	
  April 1, 2013

  	
   

  	
   

  	
   

  
	
  May 1, 2013

  	
   

  	
   

  	
   

  
	
  June 1, 2013

  	
   

  	
   

  	
   

  
	
  July 1, 2013

  	
   

  	
   

  	
   

  
	
  August 1, 2013

  	
   

  	
   

  	
   

  
	
  September 1, 2013

  	
   

  	
   

  	
   

  
	
  October 1, 2013

  	
   

  	
   

  	
   

  
	
  November 1, 2013

  	
   

  	
   

  	
   

  
	
  December 1, 2013

  	
   

  	
   

  	
   

  
	
  January 1, 2014

  	
   

  	
   

  	
   

  
	
  February 1, 2014

  	
   

  	
   

  	
   

  
	
  March 1, 2014

  	
   

  	
   

  	
   

  
	
  April 1, 2014

  	
   

  	
   

  	
   

  
	
  May 1, 2014

  	
   

  	
   

  	
   

  
	
  June 1, 2014

  	
   

  	
   

  	
   

  
	
  July 1, 2014

  	
   

  	
   

  	
   

  
	
  August 1, 2014

  	
   

  	
   

  	
   

  
	
  September 1, 2014

  	
   

  	
   

  	
   

  
	
  October 1, 2014

  	
   

  	
   

  	
   

  
	
  November 1, 2014

  	
   

  	
   

  	
   

  
	
  December 1, 2014

  	
   

  	
   

  	
   

  
	
  January 1, 2015

  	
   

  	
   

  	
   

  
	
  February 1, 2015

  	
   

  	
   

  	
   

  
	
  March 1, 2015

  	
   

  	
   

  	
   

  
	
  April 1, 2015

  	
   

  	
   

  	
   

  
	
  May 1, 2015

  	
   

  	
   

  	
   

  

 

A2-57

 

	
   

  	
  EXHIBIT C

  
	
   

  	
  to

  
	
   

  	
  Lease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

 

STIPULATED LOSS VALUE SCHEDULE

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated Loss

  Value (In Dollars)

  	
   

  
	
  September 1, 2005

  	
   

  	
  ***

  	
   

  
	
  October 1, 2005

  	
   

  	
  ***

  	
   

  
	
  November 1, 2005

  	
   

  	
  ***

  	
   

  
	
  December 1, 2005

  	
   

  	
  ***

  	
   

  
	
  January 1, 2006

  	
   

  	
  ***

  	
   

  
	
  February 1, 2006

  	
   

  	
  ***

  	
   

  
	
  March 1, 2006

  	
   

  	
  ***

  	
   

  
	
  April 1, 2006

  	
   

  	
  ***

  	
   

  
	
  May 1, 2006

  	
   

  	
  ***

  	
   

  
	
  June 1, 2006

  	
   

  	
  ***

  	
   

  
	
  July 1, 2006

  	
   

  	
  ***

  	
   

  
	
  August 1, 2006

  	
   

  	
  ***

  	
   

  
	
  September 1, 2006

  	
   

  	
  ***

  	
   

  
	
  October 1, 2006

  	
   

  	
  ***

  	
   

  
	
  November 1, 2006

  	
   

  	
  ***

  	
   

  
	
  December 1, 2006

  	
   

  	
  ***

  	
   

  
	
  January 1, 2007

  	
   

  	
  ***

  	
   

  
	
  February 1, 2007

  	
   

  	
  ***

  	
   

  
	
  March 1, 2007

  	
   

  	
  ***

  	
   

  
	
  April 1, 2007

  	
   

  	
  ***

  	
   

  
	
  May 1, 2007

  	
   

  	
  ***

  	
   

  
	
  June 1, 2007

  	
   

  	
  ***

  	
   

  
	
  July 1, 2007

  	
   

  	
  ***

  	
   

  
	
  August 1, 2007

  	
   

  	
  ***

  	
   

  
	
  September 1, 2007

  	
   

  	
  ***

  	
   

  
	
  October 1, 2007

  	
   

  	
  ***

  	
   

  
	
  November 1, 2007

  	
   

  	
  ***

  	
   

  
	
  December 1, 2007

  	
   

  	
  ***

  	
   

  
	
  January 1, 2008

  	
   

  	
  ***

  	
   

  
	
  February 1, 2008

  	
   

  	
  ***

  	
   

  
	
  March 1, 2008

  	
   

  	
  ***

  	
   

  
	
  April 1, 2008

  	
   

  	
  ***

  	
   

  
	
  May 1, 2008

  	
   

  	
  ***

  	
   

  
	
  June 1, 2008

  	
   

  	
  ***

  	
   

  

 

A2-58

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated Loss

  Value (In Dollars)

  	
   

  
	
  July 1, 2008

  	
   

  	
  ***

  	
   

  
	
  August 1, 2008

  	
   

  	
  ***

  	
   

  
	
  September 1, 2008

  	
   

  	
  ***

  	
   

  
	
  October 1, 2008

  	
   

  	
  ***

  	
   

  
	
  November 1, 2008

  	
   

  	
  ***

  	
   

  
	
  December 1, 2008

  	
   

  	
  ***

  	
   

  
	
  January 1, 2009

  	
   

  	
  ***

  	
   

  
	
  February 1, 2009

  	
   

  	
  ***

  	
   

  
	
  March 1, 2009

  	
   

  	
  ***

  	
   

  
	
  April 1, 2009

  	
   

  	
  ***

  	
   

  
	
  May 1, 2009

  	
   

  	
  ***

  	
   

  
	
  June 1, 2009

  	
   

  	
  ***

  	
   

  
	
  July 1, 2009

  	
   

  	
  ***

  	
   

  
	
  August 1, 2009

  	
   

  	
  ***

  	
   

  
	
  September 1, 2009

  	
   

  	
  ***

  	
   

  
	
  October 1, 2009

  	
   

  	
  ***

  	
   

  
	
  November 1, 2009

  	
   

  	
  ***

  	
   

  
	
  December 1, 2009

  	
   

  	
  ***

  	
   

  
	
  January 1, 2010

  	
   

  	
  ***

  	
   

  
	
  February 1, 2010

  	
   

  	
  ***

  	
   

  
	
  March 1, 2010

  	
   

  	
  ***

  	
   

  
	
  April 1, 2010

  	
   

  	
  ***

  	
   

  
	
  May 1, 2010

  	
   

  	
  ***

  	
   

  
	
  June 1, 2010

  	
   

  	
  ***

  	
   

  
	
  July 1, 2010

  	
   

  	
  ***

  	
   

  
	
  August 1, 2010

  	
   

  	
  ***

  	
   

  
	
  September 1, 2010

  	
   

  	
  ***

  	
   

  
	
  October 1, 2010

  	
   

  	
  ***

  	
   

  
	
  November 1, 2010

  	
   

  	
  ***

  	
   

  
	
  December 1, 2010

  	
   

  	
  ***

  	
   

  
	
  January 1, 2011

  	
   

  	
  ***

  	
   

  
	
  February 1, 2011

  	
   

  	
  ***

  	
   

  
	
  March 1, 2011

  	
   

  	
  ***

  	
   

  
	
  April 1, 2011

  	
   

  	
  ***

  	
   

  
	
  May 1, 2011

  	
   

  	
  ***

  	
   

  
	
  June 1, 2011

  	
   

  	
  ***

  	
   

  
	
  July 1, 2011

  	
   

  	
  ***

  	
   

  
	
  August 1, 2011

  	
   

  	
  ***

  	
   

  
	
  September 1, 2011

  	
   

  	
  ***

  	
   

  
	
  October 1, 2011

  	
   

  	
  ***

  	
   

  
	
  November 1, 2011

  	
   

  	
  ***

  	
   

  
	
  December 1, 2011

  	
   

  	
  ***

  	
   

  
	
  January 1, 2012

  	
   

  	
  ***

  	
   

  

 

A2-59

 

	
  Stipulated

  Loss Value Date

  	
   

  	
  Stipulated Loss

  Value (In Dollars)

  	
   

  
	
  February 1, 2012

  	
   

  	
  ***

  	
   

  
	
  March 1, 2012

  	
   

  	
  ***

  	
   

  
	
  April 1, 2012

  	
   

  	
  ***

  	
   

  
	
  May 1, 2012

  	
   

  	
  ***

  	
   

  
	
  June 1, 2012

  	
   

  	
  ***

  	
   

  
	
  July 1, 2012

  	
   

  	
  ***

  	
   

  
	
  August 1, 2012

  	
   

  	
  ***

  	
   

  
	
  September 1, 2012

  	
   

  	
  ***

  	
   

  
	
  October 1, 2012

  	
   

  	
  ***

  	
   

  
	
  November 1, 2012

  	
   

  	
  ***

  	
   

  
	
  December 1, 2012

  	
   

  	
  ***

  	
   

  
	
  January 1, 2013

  	
   

  	
  ***

  	
   

  
	
  February 1, 2013

  	
   

  	
  ***

  	
   

  
	
  March 1, 2013

  	
   

  	
  ***

  	
   

  
	
  April 1, 2013

  	
   

  	
  ***

  	
   

  
	
  May 1, 2013

  	
   

  	
  ***

  	
   

  
	
  June 1, 2013

  	
   

  	
  ***

  	
   

  
	
  July 1, 2013

  	
   

  	
  ***

  	
   

  
	
  August 1, 2013

  	
   

  	
  ***

  	
   

  
	
  September 1, 2013

  	
   

  	
  ***

  	
   

  
	
  October 1, 2013

  	
   

  	
  ***

  	
   

  
	
  November 1, 2013

  	
   

  	
  ***

  	
   

  
	
  December 1, 2013

  	
   

  	
  ***

  	
   

  
	
  January 1, 2014

  	
   

  	
  ***

  	
   

  
	
  February 1, 2014

  	
   

  	
  ***

  	
   

  
	
  March 1, 2014

  	
   

  	
  ***

  	
   

  
	
  April 1, 2014

  	
   

  	
  ***

  	
   

  
	
  May 1, 2014

  	
   

  	
  ***

  	
   

  
	
  June 1, 2014

  	
   

  	
  ***

  	
   

  
	
  July 1, 2014

  	
   

  	
  ***

  	
   

  
	
  August 1, 2014

  	
   

  	
  ***

  	
   

  
	
  September 1, 2014

  	
   

  	
  ***

  	
   

  
	
  October 1, 2014

  	
   

  	
  ***

  	
   

  
	
  November 1, 2014

  	
   

  	
  ***

  	
   

  
	
  December 1, 2014

  	
   

  	
  ***

  	
   

  
	
  January 1, 2015

  	
   

  	
  ***

  	
   

  
	
  February 1, 2015

  	
   

  	
  ***

  	
   

  
	
  March 1, 2015

  	
   

  	
  ***

  	
   

  
	
  April 1, 2015

  	
   

  	
  ***

  	
   

  
	
  May 1, 2015

  	
   

  	
  ***

  	
   

  

 

A2-60

 

	
   

  	
  EXHIBIT D

  
	
   

  	
  to

  
	
   

  	
  Lease
  Agreement

  
	
   

  	
  [NW 2005
  ]

  

 

RETURN CONDITIONS

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

Unless the context shall otherwise require and except
as set forth herein, the capitalized terms used in this Exhibit shall have
the meanings given to such terms in the Lease.

 

Definitions

 

Aircraft Documentation: means
records, manuals, logs and documents delivered with the Engine and those
developed and maintained with respect to the Engine during the Term, including,
without limitation, all of those required by the FAA to be maintained for FAR Part 121
operation and the Aircraft Documentation listed in Appendix I hereto, and true
and correct excerpts of such records, manuals, logs and documents maintained
with respect to any Airframe or airframe on which the Engine is installed
during the Term as relate to the Engine and are not duplicative of information
contained in the other Aircraft Documentation.

 

Approved Air Authority:  means the Federal Aviation Administration.

 

Calendar controlled components or parts:  those components or parts which at specific
calendar-time intervals, in accordance with the Maintenance Program, are to be
discarded, overhauled, or recertified upon reaching such time limit.

 

Configuration Deviation List:  the list provided by the Aircraft
manufacturer specifying which parts of the Aircraft that can be removed without
affecting the continued service of the Aircraft as the same may be modified
from time to time pursuant to and in accordance with the approval of the
Governmental Authority.

 

Governmental Authority:  shall mean (a) the FAA; (b) any
national government, or political subdivision thereof or local jurisdiction
therein; (c) any board, commission, department, division, organ,
instrumentality, court, or agency of any entity described in (b) above,
however constituted; and (d) any association, organization, or institution
of which any entity described in (b) or (c) above is a member or to
whose jurisdiction any such entity is subject or in whose activities any such
entity is a participant but only (except for purposes of defining Law below) to
the extent that any of the preceding have jurisdiction over the Aircraft or its
operations.

 

Law:  shall mean (a) any statute, decree,
constitution, regulation, order, judgment or other directive of any
Governmental Authority; (b) any treaty, pact, compact or other agreement
to which any Governmental Authority is a signatory or party; (c) any
judicial or administrative interpretation or application of any Law described
in (a) or (b) above; and (d) any amendment or revision of any
Law described in (a), (b) or (c) above.

 

A2-61

 

Life
Limited Parts means those parts which have a specific hour,
cycle and/or calendar life limit as specified by the Manufacturer.

 

Maintenance Manual:  shall mean Lessee’s FAA approved maintenance
manual for the Aircraft and the Engine which incorporates the procedures,
limits and requirements of the Manufacturer’s maintenance manual, Manufacturer’s
shop manual and other related Manufacturer’s documents.

 

Maintenance Program:  shall mean Lessee’s FAA approved maintenance
program which shall define all scheduled maintenance activities, condition
monitoring and on-condition programs for the Engine and any Parts, and for any
Airframe or airframe on which the Engine may be installed (whether or not the
Engine is then installed thereon), including but not limited to servicing,
testing, preventative maintenance, structural inspections, shop visits, systems
checks, overhauls, corrosion control inspections and corrosion treatments, and
compliance with approved modifications, service bulletins, and Airworthiness
Directives as the same may be modified from time to time pursuant to and in
accordance with the prior written approval of the applicable Governmental
Authority and which at all times (a) complies in all material respects
with all FAA requirements for FAR Part 121 operation, the MRB Report and
Bombardier Inc.’s Maintenance Requirement Manual, and (b) complies in all
material respects with General Electric Corporation’s Engine Management Program
for the Engine type.  Substantive Changes
to the Maintenance Program shall be subject to Lessor’s prior written approval,
such approval not to be unreasonably withheld. 
“Substantive Changes” means (i) changes
from block to phase maintenance or vice versa, (ii) scheduled maintenance
interval escalations or (iii) any other changes which could be materially
adverse to Lessor or to the condition of the Engine on return.

 

Maintenance Review Board Report (“MRB Report”):  the report published by the Maintenance
Review Board for the Bombardier CL-600-2B19 aircraft detailing the intervals
and description of the maintenance tasks and, where applicable, the life limits
required for continued airworthiness of the Aircraft.  Where the intervals specified in the MRB
Report differ from the limit specified by the component manufacturer, the MRB
Report shall take precedence.

 

Manufacturer:
shall mean, with respect to any Airframe, Bombardier Inc., and its successors
and assigns and with respect to the Engine, General Electric Aircraft Engines,
a division of General Electric Corporation.

 

Terminating Action:  the alteration or modification of the
Aircraft, Airframe, Engine or Part in accordance with mandatory service
bulletins, orders, airworthiness directives, and instructions required to
eliminate repetitive inspections or maintenance action.

 

ARTICLE 1 - CONDITION OF ENGINE

 

1.0                                                                                 General
Conditions.

 

At the time of return, the Engine shall (i) have
been maintained in accordance with the Maintenance Program as approved and
authorized by the Governmental Authority, as if the Engine were to be kept in
further commercial passenger service by Lessee, (ii) the Engine shall not
have been discriminated against whether by reason of its leased status or

 

A2-62

 

otherwise in maintenance, use, operation or in any
other manner whatsoever, including, without limitation, as to the type of
maintenance program applicable to the Engine, or as to compliance with
Airworthiness Directives, and (iii) the Engine shall meet the
following requirements:

 

(v)           Operating
Condition - The Engine shall be in as good operating condition as on the
Delivery Date, reasonable wear and tear excepted, with all of the equipment,
components, and systems fully operational and serviceable in accordance with
the Maintenance Manual and Lessee’s FAA approved airplane flight manual.

 

(vi)          Certification
- The Engine shall have, and be in compliance with, a current and valid
serviceable tag, issued by an FAA Part 145 Repair Agency for FAR Part 121
operation, it being understood that such serviceable tag is to evidence the
Engine passing the test cell performance run required in Section 1.3(i),
and, if applicable, evidence satisfactory completion of repairs required in
order to satisfy any other conditions required in this Exhibit D.

 

(vii)         General
Appearance - The Engine shall be clean, cosmetically acceptable, with all
components reasonably free of foreign objects, accumulated dirt, grime, grease
and liquids, and be prepared for immediate placement into commercial
service.  Any deterioration of paint or
other protective coatings due to leakage, improper adhesion, impact damage or
presence of foreign materials or liquids shall be repaired and replaced per the
Maintenance Manual.

 

(viii)        Airworthiness
Directives – The Engine shall be in compliance with all FAA requirements for
FAR Part 121 operation including all FAA issued airworthiness directives (“Airworthiness Directives”) and Manufacturer alert service
bulletins that are issued prior to Lease expiration and are applicable to the
Engine, without special deferment, exemption or alternate means of compliance,
with terminating action accomplished for all Airworthiness Directives which
require termination be accomplished prior to 180 days after Lease expiration.

 

(ix)           Deferred
Maintenance – There shall be no open outstanding or deferred maintenance items
(including special- or reduced-interval inspections) scheduled or unscheduled,
routine or non-routine, against the Engine. 
The Engine shall be serviceable and free from defects and discrepancies

 

A2-63

 

that are outside the
serviceable limits of the Maintenance Manual.

 

(x)            Title
- The Engine shall be returned in compliance with the provisions of clause (ii) of
the third sentence of Section 5(a) of the Lease.

 

(xi)           Alterations,
Modifications and Additions

 

Replacement of Parts – Lessee, at its own
cost and expense, shall have replaced all components or Parts which may have
from time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair or permanently rendered unfit for use for
any reason whatsoever.  All replacement
Parts (a) shall be free and clear of all Liens, except Permitted Liens, (b) shall
be in good condition and in as good operating condition as, and shall have  a value, utility, maintenance and modification
status at least equal to, the Parts replaced, assuming such replaced parts were
in the condition and repair required to be maintained by the terms of the
Lease, and (c) shall have documentation certifying compliance with all
applicable Governmental Authority regulations, including, without limitation, (1) serviceable
tags indicating time since overhaul, and overhaul or repair by a Governmental
Authority certified repair station, (ii) overhaul records, (iii) documentation
of modification status and compliance with applicable airworthiness directives,
and (iv) any other appropriate documentation required by the FAA for
continued FAR Part 121 operation.

 

1.1                                                                                 Intentionally
left blank.

 

1.2                                                                                 Condition
of Controlled Components.

 

Engine hour, cycle or calendar-controlled components
or parts, at time of return to Lessor, shall have remaining, as a minimum, *** of the manufacturers approved
hour, cycle or calendar limit (whichever is applicable and most limiting),
before any scheduled removals for overhaul, test, disassembly or replacement;
provided that, without regard to any payment made or to be made pursuant to Section 1.8,
all components or parts controlled on an hour, cycle or calendar basis shall
have at least one C check interval (assuming annual utilization of ***) (or, if the service interval is
less than one C check, *** of
the service interval) remaining before scheduled removal for testing, overhaul
or replacement.

 

A2-64

 

1.3.                                                                              Condition
of Engine.

 

At time of return, the Engine will have at least *** of hours or cycles remaining,
whichever is greater, before the next scheduled Engine removal for inspection,
test or disassembly for replacement of Life Limited Parts.  Cycle limits are as specified in the Power
Plant Limitations section of the Canadair MRB Report.  Additionally, the Engine shall satisfy the
following conditions:

 

(xii)          Test
Cell Performance – Without regard to any payment made or to be made pursuant to
Section 1.8, the Engine shall pass a full test cell performance run
without operational limitations in accordance with the Manufacturer’s shop
manual.  The Engine shall be capable of
certificated full rated performance without limitation throughout the entire
operating envelopes as defined by the Manufacturer’s shop manual.

 

(xiii)         Borescope
Inspection – Without regard to any payment made or to be made pursuant to Section 1.8,
the Engine shall pass a complete video-taped borescope inspection of all
accessible Engine sections performed in accordance with the Manufacturer’s
maintenance manual by Lessor or Lessor’s designated representative after the
test cell performance run per Article 3.2 herein.  Any discrepancies found during such
inspection which exceed the Manufacturer’s maintenance manual allowable limits
for unrestricted continued service (without special- or reduced-interval
inspections), shall be corrected prior to Return by Lessee at Lessee’s sole
expense.

 

(xiv)        Adverse
Performance Data – No Engine shall be on engineering watch or on a special- or
reduced-interval inspection of any nature that could lead to premature removal
of the Engine.  If the Engine historical
and maintenance records, test cell performance runs, power assurance runs
and/or trend monitoring data indicate a level of performance deterioration or
an abnormal rate of acceleration in performance deterioration or oil
consumption which based on manufacturer specifications and/or experience
indicate the Engine would require maintenance prior to *** engine flying hours
after return, Lessee shall correct or cause to be corrected, such condition as
necessary to rectify all deficient Engine parameters in accordance with
Manufacturer specifications.

 

A2-65

 

1.4                                                                                 Intentionally
left blank.

 

1.5                                                                                 Service
Bulletin Kits.

 

At or upon this return of the Aircraft, Lessee shall
deliver to Lessor, at no cost to Lessor, all Service Bulletin Kits furnished
without charge by a manufacturer for installation on the Engine which have not
been so installed.  In the event such
Service Bulletin Kits were purchased or manufactured by Lessee, Lessor shall
have the exclusive right to purchase such kits at Lessee’s actual cost for a
period of 30 days after such return and the non-exclusive right so to purchase
such kits thereafter.

 

1.6                                                                                 Intentionally
left blank.

 

1.7                                                                                 Repairs
and Repair Inspections.

 

All major repairs (as defined for FAR Part 121
operations by the FAA) and Major Modifications shall have been performed in
accordance with FAA approved data that is returned with the Engine.

 

All repairs performed by Lessee or its designee since
the Engine delivery to Lessee, and which exist on  the Engine, shall be in accordance with the
Manufacturer’s maintenance manual.

 

1.8                                                                                 Equivalency
Charge.

 

If the Lessee does not meet any of the remaining life
conditions set forth in Section 1.1 and 1.2, unless otherwise specified
therein, in place of correcting the specified hour, cycle or calendar life
deficiency, Lessee may elect to pay to Lessor an Equivalency Charge (for
deficient condition) calculated in accordance with the following formula (if
the formula results in a positive amount):

 

Pmt = [A(b-c)] / d

 

Where:

 

“Pmt”                is the Equivalency
Charge payment

 

“A”         is,
in respect of the Engine the average of Lessee’s demonstrated cost for Engine
Basic Shop Visits at the time of return, or, in respect of Engine Life Limited
Parts, the manufacturer’s list price for replacement parts at the time of
return.  When demonstrated average costs
for Engine Basic Shop Visits are not available from Lessee, the average of
three quotes from three mutually acceptable FAA approved repair shops shall be
used as the cost basis for the Equivalency Charge calculation;

 

A2-66

 

“b”          is
*** (or, if specified, the
number specified) of the total operating hours/cycles/time (whichever is
applicable and most limiting) allowable between, in the case of Life Limited
Parts, such component overhaul, component inspection, component bench check or
component replacement and, in the case of the Engine, such Engine Basic Shop
Visits;

 

“c”          is
the actual number of operating hours/cycles/time (whichever is applicable and
most limiting) remaining to, in the case of Life Limited Parts, the next
overhaul, inspection, bench check or replacement and, in the case of the
Engine, the next Engine Basic Shop Visit; and

 

“d”          is
the total operating hours/cycles/time (whichever is applicable and most
limiting) allowable between such overhaul, inspection, bench check, replacement
or Engine Basic Shop Visits.

 

Calculation of the
Equivalency Charge shall be based on each item identified in the requirements
of Articles 1.2 and 1.3 in aggregate. 
For example, each Life Limited Part shall be assessed on its status
as far as accumulated cycles are concerned and the adjustment amount for each
is established.  All other parts subject
to this Equivalency Charge shall be similarly assessed and the individual
charges are to be added together.  For
example, under this plan, a positive charge on particular Life Limited Parts or
the Engine could offset a negative charge on other Life Limited Parts.  If the total net result is positive
(indicating Lessee returned the Engine in a state that, in aggregate, has less than
the 50% limit remaining), the net Equivalency Charge shall be paid by Lessee to
Lessor.  In the event such a total is
negative, no payment shall be made to Lessee from Lessor.

 

ARTICLE 2 - AIRCRAFT DOCUMENTATION AND SAFETY
DEVICES

 

2.1                                                                                 Aircraft
Documentation.  Concurrently with return
of the Engine to Lessor, Lessee shall deliver to Lessor one (1) copy, in
English, of the Aircraft Documentation (including current revisions thereto).
It is recognized that the Aircraft Documentation may be titled or described
differently than set forth in Appendix I due to Lessee’s method of maintaining
the Aircraft Documentation.  Accordingly,
the information described in the Aircraft Documentation shall be provided to
Lessor in the form and manner under which Lessee maintains such information,
and shall include data pertinent to the Engine, provided that such form and
manner is approved by Lessor, such approval not to be unreasonably
withheld.  All Aircraft Documentation
provided to Lessor at time of the Engine return shall be listed and described
by Lessee’s title or description with cross-reference to the titles or descriptions
provided in Appendix I,

 

A2-67

 

and included as an attachment to the Aircraft
Documentation.  All Aircraft
Documentation provided to Lessor shall be in good condition, readable and
capable of being reproduced using standard reproduction processes, complete, up
to date and accurate as to content.  Any
Aircraft Documentation, to the extent required by the Governmental Authorities,
not returned in its “original” form shall be stamped “Certified True Copy” and
both signed and dated by the Lessee’s authorized personnel at the time of its
creation. Lessee shall provide to Lessor, upon reasonable request, advance
copies of any of the Aircraft Documentation as Lessor may desire or require in
order to plan or accomplish recertification, modification, sale, lease or other
disposition or utilization of the Engine upon receipt of such Engine by Lessor.

 

Lessor shall provide, as part of the Aircraft Documentation,
the original certification tags and release notes for all life limited and
rotable Parts installed after delivery. The certification tags and release
notes shall provide traceability of the last overhaul and/or repair shop visit
to the approved repair facility that conducted the overhaul and/or repair.

 

Lessee shall, for the period that the Engine was
operated by it:

 

i.              certify,
in writing as identified in Appendix I, that the Engine has not been involved
in any incidents or accidents.  If the Engine
has been in involved in any incidents or accidents the Lessee shall certify in
a letter, full disclosure of all such events involving the Engine detailing all
relevant details, including but not limited to, any subsequent repairs; and

 

ii.             certify,
in writing, that there are no leased or rented parts installed on the Engine;
and

 

iii.            certify,
in writing, that Lessee has no knowledge of parts installed on the Engine that
have been manufactured without appropriate Governmental Authority approval and
/or that do not conform to an internationally recognized airworthiness standard
and are approved for installation in the Engine.

 

2.2                                                                                 Remedy
for Non-Compliance. Lessee shall take action to ensure that the Lessor and the
Governmental Authority are provided with, but not limited to, all requested
guarantees of methods of compliance, component overhaul and records management,
quality control, part number and serial number verification.  If any such records or other data are
missing, incomplete or otherwise not in accordance with the Governmental
Authority standards, Lessee shall re-accomplish the maintenance tasks necessary
to produce such records in accordance with the Maintenance Program prior to
return of the Engine or otherwise perform all necessary

 

A2-68

 

acts to obtain such records in a manner satisfactory
to the Governmental Authority.

 

2.3                                                                                 Shipping
Stand.  Lessee shall deliver the Engine
to Lessor properly installed in its Shipping Stand.

 

ARTICLE 3 - INSPECTION AND FLIGHTS

 

3.0                                                                                 Intentionally
left blank.

 

3.1                                                                                 Ground
Inspection. The Engine including the Aircraft Documentation and Vendor
Documentation shall be made available to Lessor for ground inspection by Lessor
or its designee at Lessee’s facilities. 
Such inspection shall commence twenty (20) working days (in the case of
the Aircraft Documentation and Vendor Documentation) and fifteen (15) working
days (in the case of the Engine) prior to the date of return of the Engine to
Lessor.  At Lessor’s request, Lessee
shall remove the Engine from scheduled service and open the areas of the Engine
as required to perform the necessary checks as specified in Article 1.2
and 1.3.  In addition, Lessee shall allow
Lessor to accomplish its inspection to determine that the Engine, including the
Aircraft Documentation and Vendor Documentation are in the condition set forth
in Article 2.

 

Lessee shall promptly correct any discrepancies from
the requirements set out in Articles 1 or 2 which are observed during such
inspection and are communicated in writing by Lessor to Lessee.

 

3.2                                                                                 Test
Cell Run.  Promptly after completion of
any corrections required under Article 3.1, Lessee shall conduct a
complete test cell performance run of the Engine in accordance with the
Manufacturer’s shop manual for the purpose of demonstrating to Lessor that
the  operation and performance of the
Engine and its systems comply with all performance requirements for the Engine
throughout its certified operating envelope, without limitation or special exception
in accordance with the Manufacturer’s shop manual.  Lessee shall promptly correct those
discrepancies that exceed Manufacturer’s shop manual allowable limits.

 

3.3                                                                                 Intentionally
left blank.

 

3.4                                                                                 Intentionally
left blank.

 

3.5                                                                                 Intentionally
left blank.

 

A2-69

 

APPENDIX I TO EXHIBIT D

 

AIRCRAFT DOCUMENTATION

 

The Aircraft
Documentation shall be provided in English and shall include the following:

 

1.                                       All
historical records for the Engine including original serviceability
documentation and a current, valid unrestricted serviceable tag, and FAA Form 337
(or its equivalent), both issued by an FAA Part 145 repair station that is
certified by the FAA and the Manufacturer for the performance of Engine Basic
Shop Visits on CF34-3B1 engines. Lessee shall supply all original (i.e. not
copies) certification tags and release notes from manufacturers or repair
agencies for Parts installed by Lessee.

 

2.                                       Intentionally
left blank.

 

3.                                       Copy
of the Maintenance Program including a task list indicating when items thereon
were last performed.

 

4.                                       Current
inspection and maintenance status and operating times.

 

5.                                       List
and status of time, cycle and calendar controlled components and parts.

 

6.                                       List
and status of Life Limited Parts.

 

7.                                       Summary
and control status of Airworthiness Directives, the method of compliance and
incorporation (i.e.: repetitive inspections, interim fix or terminating
action), and accomplishing documents.

 

8.                                       List
of manufacturer’s service bulletins incorporated and method of
incorporation.  Where only a portion of a
service bulletin is accomplished Lessee shall identify which portion was
accomplished.

 

9.                                       List
of Major Modifications and/or alterations accomplished on the Engine together
with all supporting documents required by the FAA including one copy of each
modification, alteration, engineering order and associated drawings.

 

10.                                 List
of major repairs performed on the Engine. 
A copy of all supporting documents required by the FAA including all
Engineering, Maintenance, Quality Control and regulatory documentation
associated with the major repairs shall be provided.

 

11.                                 List
of Supplemental Type Certificates (STC’s) incorporated together with a copy of
each certificate and associated data.

 

12.                                 Intentionally
left blank..

 

13.                                 Intentionally
left blank.

 

14.                                 Intentionally
left blank.

 

A2-70

 

15.                                 Intentionally
left blank.

 

16.                                 Cross
reference parts catalogue (listing of Manufacturer’s part numbers corresponding
to parts manufacturer’s and current operator’s part numbers for the same parts)
if applicable.

 

17.                                 Intentionally
left blank.

 

18.                                 Intentionally
left blank.

 

19.                                 Intentionally
left blank.

 

20.                                 Letter
detailing any major incident and/or accidents involving the Engine (if none,
the letter should so state), certified by Lessee’s chief inspector or corporate
officer responsible for aircraft maintenance.

 

21.                                 All
records required to comply with FAA requirements for FAR Part 121
operation and/or initiated by Lessee for Lessee’s own benefit.

 

22.                                 Intentionally
left blank.

 

23.                                 Cross
reference list for Service Bulletins and other manufacturer published
instructions to Lessee’s engineering orders.

 

Aircraft Documentation Supplement

 

24.                                 Intentionally
left blank.

 

25.                                 Intentionally
left blank.

 

26.                                 Intentionally
left blank.

 

27.                                 Intentionally
left blank.

 

28.                                 Engine
Records:

1.                           Log
Books

2.                           Last
overhaul and repair documents for each module

3.                           Airworthiness
Directive Compliance Report (terminated and repetitive)

4.                           Manufacturer’s
Service Bulletin Status Report

5.                           Engine
Disk Sheet

6.                           Engine
Data Submittal Sheet

7.                           Condition
Monitoring Status Report

8.                           Back-to-birth
traceability for all life limited parts

9.                           Last
test cell run performance report

10.                     FAA Form 337s
for the last Engine Basic Shop Visit and each subsequent shop visit

 

30.                                 Intentionally
left blank.

 

31.                                 Component
Records (components installed in or on the Engine):

1.         Time
Monitored Component Status Report with installed part numbers, serial numbers,
remaining hours and cycles (if applicable)

2.         Serviceability
tags and other appropriate back-up documentation (including 8130s) for
currently installed components replaced since delivery from the Manufacturer

 

A2-71

 

3.         Serialized
latest shop records, including all serviceable tags, release to service, and
repair orders detailing maintenance checks, inspections, tests, repairs,
replacements, restorations, overhauls, modifications and refurbishments

4.         Back-to-birth
traceability for all life limited parts

 

32.                                 Manuals:

1.                           Lessee
Illustrated Parts Catalog (if different from item 2)

2.                           Bombardier
Illustrated Parts Catalog

3.                           Lessee’s
FAA approved Maintenance Manual (if different from item 4)

4.                           Bombardier
maintenance manual

5.                           GE
Engine Illustrated Parts Catalog

6.                           GE
Engine Shop Manual

7.                           Lessee’s
Minimum Equipment List

8.                           Master
Minimum Equipment List

9.                           Configuration
Deviation List

10.                     Dispatch
Deviation Guide

 

33.                                 Miscellaneous
Technical Documents:

1.                           Maintenance
Program Specifications/Requirements Schedule

 

A2-72

 

	
   

  	
  EXHIBIT E

  
	
   

  	
  to

  
	
   

  	
  Lease Agreement

  
	
   

  	
  [NW 2005 ]

  

 

MINIMUM LIABILITY AMOUNT

 

The portion of this Exhibit appearing below this
text is intentionally deleted from the FAA filing counterpart as the parties
hereto deem it to contain confidential information.

 

The Minimum Liability Amount shall be $*** per occurrence (or such other
minimum amount as may be reasonably requested by Lessor from time to time in
the event Lessee no longer obtains airline liability insurance coverage as part
of the Lessor’s airline aviation liability insurance placement).

 

A2-73

 

	
   

  	
  EXHIBIT F

  
	
   

  	
  to

  
	
   

  	
  Lease Agreement

  
	
   

  	
  [NW 2005 ]

  

 

HEADLEASE VARIATIONS

 

The portion of this Exhibit appearing
below this text is intentionally deleted 
from the FAA filing counterpart as the parties hereto deem it to contain
confidential information.

 

If and so long as the Engine is subject to a
Headlease at any time during the Term, Lessor shall so notify Lessee in writing
and, pursuant to Section 2(c) of the Lease, the terms and conditions
set forth in this Exhibit F shall apply to this Lease from and after the
date specified in such notice until the earlier to occur of the expiration or
termination of such Headlease or of the Term:

 

1.                                       Amended,
Modified, Supplemented or Supplemental Definitions.

 

“Event of Loss” means
an Event of Loss as defined in Section 1 of the Lease and any other event
or circumstance constituting and “Event of Loss” as defined in the Headlease.

 

“Headlease Documents”
means the agreements and instruments, identified in the Headlease Notice, among
Lessor and one or more other Persons relating to the ownership of, and Lessor’s
rights in and to, the Engine.

 

“Headlease Notice”
means any written notice provided by Lessee to Lessor from time to time
pursuant to Section 2 of this Exhibit F.

 

A2-74

 

“Headlease Parties”
means those parties identified in the Headlease Notice that as the parties to
the respective Headlease Documents.

 

“Headlease Tax Indemnity
Agreement” means a tax indemnity agreement entered into between
Lessor, as headlessee and any Headlease Interest.

 

“Headlessor Liens”
means any Lien or disposition of title or interest arising as a result of (i) claims
against and Headlease Interest not related to the transactions contemplated by
the Headlease Documents or the Operative Documents, (ii) any act or
omission of the any of the Head Lease Interests which is not related to the
transactions contemplated by the Headlease Documents or the Operative Documents
or is in violation of any of the terms of the Headlease Documents or the
Operative Documents, (iii) claims against any of the Headlease Interests
with respect to Taxes or Expenses against which Lessor is not required to
indemnify the Headlease Interests pursuant to the Headlease Documents or (iv) any
claim against any of the Headlease Interests arising out of any transfer by any
thereof of all or any portion of their respective interests in any Aircraft,
the Engine, the Trust Estate, the Headlease Documents or the Operative
Documents other than the transfer of possession of the Engine pursuant to the
Headlease or of any Aircraft; provided, however, that any Lien which is
attributable solely to any Headlease Interest (other than the Owner) and would
otherwise constitute a Headlessor Lien shall not constitute a Headlessor Lien
so long as (1) the existence of such Lien poses no material risk of the
sale, forfeiture or loss of the Engine or any Aircraft on which the Engine is
or may be installed, (2) the existence of such Lien does not interfere in
any way with the use, possession or operation of the Engine by Lessee, (3) such
Headlease Interest is diligently contesting such Lien,

 

A2-75

 

and (4) the existence of such Lien does not pose a material threat
of interference with the payment of rent under the Headlease Documents in favor
of such Headlease Interest.

 

“Indemnitee” means
an Indemnitee as defined in Section 1 of the Lease and shall include, for
purposes of subclause (iii) of such definition, the Headlease Interests,
any Lenders, any Indenture Trustee and all other Persons entitled to general
indemnification by Lessor pursuant to the Headlease Documents.

 

“Indenture Trustee” means
any indenture trustee or other Person engaged in a similar capacity on behalf
of the Lenders under the Headlease Documents.

 

“Indenture Trustee’s Liens” any
Lien which arises as a result of (A) claims against the Indenture Trustee
not related to its interest in the Engine or the administration of the Trust
Indenture Estate pursuant to the Headlease Documents, (B) acts of the
Indenture Trustee not permitted by, or failure of the Indenture Trustee to take
any action required by, the Headlease Documents or the Operative Documents to
the extent such acts arise or such failure arises from or constitutes gross
negligence or willful misconduct, (C) claims against the Indenture Trustee
relating to Taxes or Expenses which are excluded from the indemnification
provided by Lessor pursuant to the Headlease Documents, or (D) claims
against the Indenture Trustee arising out of the transfer by the Indenture
Trustee of all or any portion of its interest in the Engine, any Aircraft, the
Trust Estate, the Trust Indenture Estate, the Headlease Documents or the
Operative Documents other than a transfer of the Engine pursuant to the express
requirements of the Headlease Documents or a transfer of the Engine pursuant to
the Headlease Documents while an

 

A2-76

 

Event of
Default (as defined in the Headlease) is continuing and prior to the time that
the Indenture Trustee has received all amounts due pursuant to the Trust
Indenture.

 

“Lender” means each
Person holding a Loan Certificate issued pursuant to the Headlease Documents.

 

“Lender Interests”
means collectively each Lender and the Indenture Trustee.

 

“Lender Liens” means
any Lien which arises from acts or claims against any Lender not related to the
transactions contemplated by the Headlease Documents or the Operative
Documents.

 

“Loan Certificate”
means any instrument, however styled, issued pursuant to the Headlease
Documents to a Lender evidencing a right to payment or repayment of money.

 

“Loan Documents”
means any instrument (including any Loan Certificate) or agreement evidencing
or relating to any loan or other debt financing with respect to the Engine by
Lessor or any Headlessor, which are disclosed and identified by Lessor to
Lessee.

 

“Tax Indemnitee”
means a Tax Indemnitee as defined in Section 1 of the Lease and shall
include, for purposes of subclause (iii) of such definition, the Headlease
Interests, any Lenders, any Indenture Trustee and all other Persons entitled to
tax indemnification by Lessor pursuant to the Headlease Documents.

 

A2-77

 

“Trust Estate” means
all right, title and interest of the Owner in and to the Engine and all other
property (including but not limited to its rights under the Headlease) at any
time in existence pursuant to the Headlease Documents.

 

“Trust Indenture Estate” means the interest (including but not limited to security
interest and Lien) of the Indenture Trustee in and to such portion of the Trust
Estate and such other property as has been pledged, assigned and transferred to
the Indenture Trustee to secure the obligations of the Owner to the Lenders
pursuant to the Headlease Documents.

 

2.                                       Contents
of Written Notice to Lessee Concerning Headlease.

 

Lessee shall deliver to Lessor, promptly
following the execution and delivery of Headlease Documents during the Term, a
written statement setting forth the following information together with such
other information as Lessor may determine necessary or appropriate in the
administration of the Headlease Documents and this Lease:

 

(a)          The parties to the
Headlease Documents.

 

(b)                                 The address, telephone
number and facsimile number of each Headlease Interest and of the Indenture
Trustee for purposes of such notices as Lessee may be required to provide to
such Persons.

 

(c)                                  The
name and date of each of the Headlease Documents and a statement of the parties
thereto.

 

(d)                                 The
term of the Headlease, excluding any renewals or extensions.

 

A2-78

 

(e)                                  The
bank account or bank accounts to which Lessee is to make payment of any portion
of the Rent due hereunder that may be payable to Persons other than Lessor,
whether by virtue of assignment, designation as an express beneficiary or
otherwise.

 

Any Headlease Notice shall include a true copy
of the Headlease and such other Headlease Documents as Lessor determines
necessary or appropriate for the proper administration of the Headlease and
this Lease.

 

3.                                       Agreements
Regarding Headlease Documents.

 

Lessee hereby acknowledges and agrees that the
Headlease Documents permit Lessor  to
make the Engine available to Lessee pursuant to this Lease, thus providing a
valuable financial accommodation to Lessee, and accordingly Lessee agrees that
whether or not the following terms and conditions shall be set forth in a
separate amendment to, or restatement or replacement of, this Lease, Lessee
shall, at its sole expense:

 

(a)                                  comply with the terms
and conditions of the Headlease Documents that set forth actions to be
performed, obligations to be fulfilled and limitations to be observed by the
sublessee of the Engine from Lessor;

 

(b)                                 maintain
insurance on the Engine in compliance with the requirements of the Headlease in
addition to the requirements of the Lease, including but not limited to the
identity of named assureds and loss payees, inclusion of coverages and clauses
and provision of periodic reports;

 

(c)                                  cooperate
with the exercise of the inspection rights set forth in the Headlease
Documents;

 

(d)                                 comply
during the Headlease term with any more comprehensive operating, maintenance
and return conditions set forth in the Headlease Documents;

 

(e)                                  extend
the coverage and benefit of the indemnities (including all procedures relating
thereto) set forth in Sections 9(d), 29(b) and 29(c) to the parties
to the Headlease Documents who are Indemnitees and Tax Indemnitees (which
Persons shall be third party beneficiaries of

 

A2-79

 

such Sections), modified to include any more comprehensive
indemnification provisions undertaken by Lessor as set forth in the Headlease
Documents but otherwise on the same terms and conditions as applicable to
Lessor;

 

(f)                                    comply
with the requirements of the Headlease for maintaining insignia on the Engine
disclosing the interests of the Headlease Parties as set forth therein and
recordations of the Headlease Documents, and comply with the requirements of
any Loan Documents for maintaining any Liens granted thereunder relating to the
Engine;

 

(g)                                 promptly
furnish or cause to be furnished to any Headlease Interest such information as
may be required to enable such Persons to monitor the maintenance status and
condition of the Engine and to file any reports required to be filed by such
Headlease Interest with any governmental authority because of such Person’s
ownership or beneficial ownership of the Engine;

 

(h)                                 furnish
Headlessor and any Indenture Trustee with original counterparts (or certified
copies if only one original counterpart is available) of the information and
documentation required to be provided to Lessor in connection with an Event of
Loss as specified in Sections 10(a)(3), (4) and (5), (7) and (8) and
file such additional financing statements with respect to a substituted Engine
as are deemed necessary or advisable by Headlessor or any Indenture Trustee or
its respective counsel;

 

(i)                                     provide
the same notices to the Headlease Interests and any Lender Interests with
respect to an Event of Loss or requisition for use of the Engine as it is
required to provide to Lessor under the Lease, at such address or telecopy
number as the Headlease Interests or Lender Interests shall have furnished to
Lessor, which Lessor shall furnish to Lessee in the Headlease Notice, or such
other address or telecopy number for any such Person as such Person or Lessor
shall provide thereafter to Lessee; and

 

(j)                                     at
Lessee’s request, enter into a written amendment to, or restatement or
replacement of, the Lease to set forth more comprehensively the integration of
the Headlease Documents with the undertakings of Lessor and Lessee in the
Lease.  Whether or not such written
amendment, restatement or replacement is executed and delivered, Lessor shall
have the right to amend, supplement or otherwise modify the terms of the Lease
without the consent of Lessee in the event of any amendment, supplement or
other modification of the terms of the Headlease.

 

Lessee agrees that the representations and warranties of Lessee set
forth in the Lease shall be deemed for the benefit of, and relied upon by, the
Headlease Parties.

 

Lessor and Lessee agree that Lessee shall have no obligation with
respect to Headlessor Liens, Indenture Trustee Liens or Lender Liens at any
time during the Term.  In addition, the
following rights and interests shall also be excluded from the obligations of
Lessee under Section 6: the respective rights of Lessor and Headlessor as
provided in the Headlease, the rights of Headlessor as owner of the Engine, the
Lien of any Trust Indenture and any other rights existing pursuant to the
Headlease Documents.

 

A2-80

 

Whenever the Lease permits actions to be taken or omitted by Lessee on
the condition that no civil liability, criminal liability, loss in whole or in
part of interest of any nature, or other adverse consequence be incurred by
Lessor as a result thereof, such condition shall be deemed to include and
extend to any such liability or loss of, or consequence to,  or effect on, the Headlease Interests or any
Lender Interests.

 

Headlessor shall be entitled, to the same extent as Lessor (a) to
place additional insurance on the Engine pursuant to Section 11(e) of
the Lease and (b) to perform for Lessee to the same extent, under the same
conditions and with the same right to receive Supplemental Rent in respect thereof,
as Lessor pursuant to Section 21 of the Lease, without in either case
limiting the rights of Lessor under the Lease.

 

Without limiting the effect of Section 18 of the Lease in respect
of any circumstance relating to Lessor, Lessee’s obligations to pay Rent under
the Lease shall not be affected by any circumstance relating to any Headlease
Interest or any Lender Interest, including but not limited to any circumstance
relating to any such Person of a type described in respect of Lessor in
subclauses (i) through (iv) of the first sentence thereof.

 

Lessor’s and Lessee’s submissions to jurisdiction and agreements
regarding service of process under Sections 23 and 32 of the Lease shall also
be applicable to any suit, action or other proceeding arising out of the Lease,
the subject matter of the Lease or any of the transactions contemplated by the
Lease, brought by any Headlease Interest or any Lender Interest.

 

Notwithstanding any other provision of the Lease or this Exhibit F,
the Lease is and Lessee’s rights hereunder shall be subject and subordinate to
all the terms of the Headlease and the Lien of any Indenture, including,
without limitation, Headlessor’s (and any Indenture Trustee’s) rights to
repossession of the Engine and to avoid the Lease for any reason upon such
repossession, and Lessee shall not be permitted to take any action hereunder
not permitted to be taken by Lessor as “lessee” in the Head Lease.  Lessee agrees to execute such further
documents confirming such subordination of the Lease as may be reasonably
requested by Lessor.  Lessee will
acknowledge receipt of an executed copy of each of the Headlease Documents
delivered to it by Lessor.

 

Lessee shall be responsible at its expense for effecting and
maintaining the status of any registration, recordation or other filing
(including the amendment of any existing registration, recordation or other
filing) with respect to the Engine to properly reflect the Headlease Interests
and any Lender Interests, at the Lessor’s request.  Lessor shall provide Lessee with such
information as Lessee may reasonably request to enable it to effect and
maintain such registration, recordation or other filing.

 

A2-81

 

4.                                       Certain
Tax Provisions

 

Headlease Tax Indemnity Provisions

 

Indemnity. 
If Lessor is required to pay any Headlease Interest any amount (herein
called a “HTIA Liability”) pursuant to any
Headlease Tax Indemnity Agreement, Lessee shall pay to Lessor an amount, which,
on an After-Tax Basis, shall be equal to such HTIA Liability.  Such payment shall be made at least five (5) Business
Days prior to the date Lessor must pay the claimant Headlease Interest under
the Headlease Tax Indemnity Agreement.

 

In addition, Lessee shall indemnify any Tax Indemnitee (as defined in
the Lease, without giving effect to this Exhibit F, for purposes of this
paragraph) under Section 29(b)(i) of the Lease with respect to Taxes
howsoever imposed against such Tax Indemnitee, the Engine, or otherwise, on the
property or the income or other proceeds with respect to any of the property
held by any of the Headlease Interests or the Lender Interests, or on the
payment of principal of, interest or premium on, or other amounts payable on or
with respect to, any Loan Certificates or under any Loan Documents, and whether
imposed by withholding tax or otherwise.

 

Exceptions. Lessee shall not be
required to indemnify Lessor for any HTIA Liability to the extent that such
HTIA Liability would not have occurred but for any of the following:

 

(a)                                  Lessor
claiming deductions for depreciation of the Engine for federal income tax
purposes or claiming on any federal income tax return to be the owner of the
Engine for federal income tax purposes (for the avoidance of doubt, the
foregoing shall not limit any such claim by Lessor under the Head Lease Tax
Indemnity Agreement with respect to any period of time during which no
Headlease is or was in effect); or

 

(b)                                 the
status of Lessor as a “tax-exempt entity” within the meaning of Section 168(h) of
the Code but only if such status is not caused by a Lessee Person.

 

Tax Savings.  If a Headlease Interest pays an amount to
Lessor pursuant to the Headlease Tax Indemnity Agreement, for which Lessee has
previously paid an indemnity to Lessor pursuant to paragraph (1) hereof,
Lessor shall pay such amount to Lessee within 5 Business Days after Lessor
receives such amount, but not in excess of any payment previously made by
Lessee with respect to such HTIA Liability and net of any tax liability
incurred by Lessor with respect to receipt and payment of such amount.

 

Contest.  If Lessor receives a written claim for an
indemnity pursuant to the Head Lease Tax Indemnity Agreement for which Lessee
would be required to pay Lessor an indemnity hereunder, Lessor shall notify
Lessee thereof in writing (but it being understood and agreed that failure of
Lessor to provide such notice to Lessee shall not adversely affect or otherwise
prejudice any Lessor’s right to an indemnity hereunder).  If requested by Lessee in writing within ten (10) Business
Days before the latest day on which Lessor may request a contest pursuant to
the Head Lease Tax Indemnity Agreement, Lessor shall exercise its rights, if
any, under the Head

 

A2-82

 

Lease Tax Indemnity
Agreement provided that in no event shall Lessor
be required to initiate or continue (or be required to request any other person
to initiate or continue) a contest unless: (i) the amount of the
obligation on the part of Lessee to indemnify Lessor in respect of the HTIA
Liability shall be at least $50,000, (ii)  Lessee agrees to reimburse
Lessor on demand (and complies with such agreement) for all of the Headlease
Interests’ and Lessor’s reasonable costs and expenses (including, without
limitation, reasonable legal and accounting fees and disbursements) which each
may incur in contesting such disallowance, (iii) if the claimant Headlease
Interest elects to contest the disallowance by paying the tax claimed
(including interest, penalties or additions to tax) and seeking a refund,
Lessee shall advance to Lessor on an interest free basis the aggregate amount
of taxes, interest, penalties and additions to the tax applicable to such
disallowance and agree to indemnify Lessor and such Headlease Interest for any
adverse tax consequences resulting from such advance, (iv) such contest
would not entail any risk of criminal penalties, (v) with respect to such
disallowance, Lessee shall have furnished Lessor at Lessee’s expense, with a
written opinion of independent tax counsel selected by Lessor that a Reasonable
Basis exists to contest such disallowance and prior to filing any appeal an
opinion that a successful outcome on appeal is more likely than not and have
posted a bond or other security for such appeal, (vi) no Default or Event
of Default, under any of the Operative Documents by Lessor or the Airline
Services Agreement, has occurred and is continuing, and (vii) Lessee shall
have delivered to Lessor a written acknowledge of Lessee’s obligation to
indemnify in full Lessor pursuant to this Agreement to the extent that the
contest is not successful. Lessor shall have no obligation to cause any
Headlease Interest and no Headlease Interest shall have any obligation to
appeal any adverse decision of an appellate court to the United States Supreme
Court.

 

Minimum Indemnity.  The amount of any indemnity payable by Lessee
to Lessor pursuant to, or in connection with, any HTIA Liability shall in all
events be an amount sufficient to restore Lessor to the position that Lessor
would be in if the HTIA Liability or any indemnity otherwise payable to any
Headlease Interest by Lessor that gave rise to Lessee’s obligation hereunder
had not occurred.

 

5.                                       Certain
Provisions Relating to the General Indemnity.

 

Anything to the contrary
in Section 29(c) notwithstanding, Lessee shall not be entitled to
assume responsibility for and control any judicial or administrative
proceedings relating to a claim made against an Indemnitee, nor shall Lessee be
entitled to receive any reimbursement payments that may be received by an
Indemnitee in respect of an indemnity payment theretofore made by Lessee to
such Indemnitee, in either case while an event constituting an event of default
or an incipient event of default under the Headlease Documents shall have
occurred and be continuing.

 

A2-83

 

	
   

  	
  EXHIBIT G

  
	
   

  	
  to

  
	
   

  	
  Lease Agreement

  
	
   

  	
  [NW 2005 ]

  

 

QUICK ENGINE CHANGE KIT
SPECIFICATIONS

 

[The Engine does not have
QEC installed on the Delivery Date. ]

 

[The Engine has QEC
installed and covered under the Lease on the Delivery Date.  The QEC includes the following components and
parts delivered with the Engine on the Delivery Date to the Lessee:

 

1.  Neutral Engine QEC Kit (Optimum)

 

2.  [Right][Left] Hand Engine QEC Kit (Optimum)

 

3.  Consumables

 

and the specific items
included in each of the preceding categories is as identified in the Canadair
Regional Jet CF34-3A1/3B1 Quick Engine Kit Listing Document (issue date:
25/03/01).]

 

A2-84

 

EXHIBIT B

CRJ-200/440 Delivery Schedule

 

	
  Aircraft

  	
   

  	
  Delivery Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  September 2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  September 2005

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  ***

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  ***

  	
   

  

 

B-1

 

EXHIBIT C

 

ARJ PAYMENT TERMS

 

Defined terms in this Exhibit C shall have the meanings assigned
to such terms in Attachment B.

 

Section 1.01                                Block Hour Payment
to Mesaba

 

(a)                                  Block
Hours Reports.  Mesaba shall provide
to Northwest periodic reports with respect to the number of block hours of Jet
Services flown by Mesaba in accordance with the following schedule in each
calendar month during the term of this Agreement:

 

	
  Day
  of the Month

  Report Due

  	
   

  	
  Period Covered by Report

  	
   

  
	
  22

  	
   

  	
  1st-15th of Month

  	
   

  
	
  4th Business Day

  	
   

  	
  Complete Previous Month

  	
   

  

 

(b)                                 Payment
Schedule.  Northwest shall remit to
Mesaba by wire transfer of immediately available funds by the close of business
on the 26th day of each calendar month (or the next banking day if the 26th
is a bank holiday), as a provisional payment, Mesaba’s Block Hour Payment for
Jet Services for the period covered by the Block Hours Report furnished by
Mesaba on the 22nd day of the month. 
Northwest shall remit to Mesaba by wire transfer of immediately
available funds by the close of business on the 11th day of each month (or the
next banking day if the 11th is a bank holiday), as a final payment, Mesaba’s
Block Hour Payment for the preceding month, less the amount of the provisional
payment made on the 26th day of the preceding month.  For purposes of this Section 1.01,
Mesaba’s Block Hour Payment for any period will be computed by multiplying the
then applicable rate set forth in Attachment A attached hereto by the number of
block hours reported in Mesaba’s Block Hours Report for such period for Jet
Services.  Adjustments arising from
Northwest’s audit of the Block Hours Report may be made within forty-five (45)
days following the end of each month.

 

Section 1.02                                Ownership Cost
Reimbursement for Spare and Maintenance Aircraft.  Northwest shall pay to Mesaba in respect of
each month an amount determined in accordance with the following formula:

 

***

 

The payment due to Mesaba pursuant to this Section 1.02 shall be
paid to Mesaba pursuant to Section 1.01(b) on the twenty-sixth (26th)
day of the month immediately following the month with respect to which such
payment is made.

 

Section 1.03                                IOP Program Incident
Adjustment.  If during any month
commencing on or after October 1, 1999 during the term of this Agreement,
Mesaba cancels one or more flights in connection with one or more IOP Program
Incidents, Northwest shall pay to Mesaba an amount determined in accordance
with the following formula:

 

C-1

 

***

 

Any payment due to Mesaba as a result of this Section 1.03 shall
be paid to Mesaba pursuant to Section 1.01(b) on the twenty-sixth (26th)
day of the month immediately following the month in which such IOP Program
Incident(s) occurred.

 

Section 1.04                                Incentives and
Penalties.  Mesaba shall be subject
to certain performance incentives and penalties described in Sections 1.04(a),
1.04(b) and 1.04(e) below (“Performance Criteria”) which shall be
added to or deducted from the Block Hour Payment.  If Mesaba exceeds any operational criterion
an incentive payment shall be made by Northwest.  If Mesaba does not achieve the performance
criterion, then a penalty shall be charged against amounts owing to
Mesaba.  Any incentive payment or penalty
charge incurred by meeting or failing to meet Performance Criteria shall be
made in the wire transfer due on the 26th day of the month following
the end of the Performance Period in question pursuant to Section 1.01(b) above.

 

(a)                                  Completion
Factor.  If Mesaba’s completion
factor (calculated in accordance with Section 2.10(b)(i) of the
Agreement) is less than ***% for
a Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period. 
If Mesaba’s completion factor is greater than ***% for a Performance Period, Northwest shall pay to Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period.

 

(b)                                 Minimum
On-Time Reliability.  If Mesaba’s
On-Time Factor (calculated in accordance with Section 2.10(b)(ii) of
the Agreement) is less than ***%
for a Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period. 
If Mesaba’s On-Time Factor is equal to or greater than ***% for a Performance Period,
Northwest shall pay to Mesaba $***
per enplaned Revenue Passenger during the applicable Performance Period.  The parties acknowledge and agree that the
foregoing performance levels are based on Northwest’s internal on-time goal of ***%. 
In the event Northwest’s on-time goal changes from ***%, the on-time performance levels
that determine minimum reliability (in Section 2.10(b)(ii)), and penalty
and bonus levels (in Section 1.04 of this Exhibit C) will be modified
to correspond to the change made by Northwest. 
Northwest and Mesaba will meet and confer on all components of on-time
metrics on an as-needed basis.

 

(c)                                  Reconciliation
of Performance Standards.  For each
Performance Period, Mesaba shall prepare a reconciliation of its actual
performance to the targeted performance. 
This reconciliation will be completed and delivered to Northwest on the
22nd day of the month after the end of each Performance Period.  Northwest will remit or setoff any incentive
or penalty payment in the next wire transfer due to Mesaba.  Northwest will have the right to audit the
reconciliation and shall report any discrepancies to Mesaba.  Any discrepancy not reported to Mesaba in
writing within sixty (60) days of the end of any Performance Period shall be
deemed waived.  The payment of any
discrepancy from Mesaba shall be handled as a disputed amount in accordance
with Section 5.03 of the Agreement.

 

C-2

 

(d)                                 Limitations
on Incentives and Penalties.  In no
event shall the “net aggregate incentives” paid to Mesaba by Northwest or “net
aggregate penalties” paid to Northwest by Mesaba during any calendar year pursuant
to this Exhibit C exceed $***.  For the purposes of this Section 1.04(d),
the difference between the sum of all incentive payments made by Northwest
during any calendar year to Mesaba pursuant to this Section 1.04 less the
aggregate of all payments due to Northwest during the same calendar year by
Mesaba with Northwest for its failure to achieve the Performance Criteria shall
be the “net aggregate incentives” if the difference is a positive number and
shall be “net aggregate penalties” if the difference is a negative number.

 

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

 

Section 1.05                                Annual Payment with
Respect to the Margin.

 

(a)                                  Calculation
of the Margin.  Not later than ninety
(90) days following the end of each fiscal year of Mesaba ending during the
term of this Agreement, Mesaba shall calculate and deliver to Northwest its *** for Jet Services provided under
this Agreement for the fiscal year then ended (the “Margin”) by dividing (x) *** by (y) ***.  The result shall be
expressed as a decimal rounded to the fourth place (e.g., .111171 shall be
expressed as .1112).  The calculation
shall be derived from Mesaba’s audited financial statements for such fiscal
year, shall be determined in accordance with GAAP, and shall take into account ***; provided, however, in no event
shall the amount of *** used to
calculate *** exceed $*** in the first such fiscal year or
such amount adjusted for any increase in the PPI occurring during any
subsequent fiscal year.

 

(b)                                 Margin
Payment.  If the Margin is greater
than *** but is less than or
equal to ***, Northwest shall
receive from Mesaba an amount determined as follows:

 

***

 

If the Margin is greater than ***,
Northwest shall receive from Mesaba an amount determined as follows:

 

***

 

The amount payable by Mesaba pursuant to this Section 1.05(b) is
the “Margin Payment.”  Northwest shall
setoff any Margin Payment in the next wire transfer due to Mesaba.

 

(c)                                  Audit
of the Margin.  Northwest will have
the right to audit the calculation of the Margin and the Margin Payment, and
shall report any disputes to Mesaba.  Any
dispute not

 

C-3

 

reported to Mesaba in writing within sixty (60) days of the receipt of
the Margin calculation by Northwest shall be deemed waived.  The payment in respect of any dispute shall
be handled as a disputed amount in accordance with Section 5.03 of the
Agreement.

 

Section 1.06                                Fuel.  With respect to the Jet Services operated by
Mesaba pursuant to this Agreement, Northwest shall provide or cause to be
provided, at Northwest’s sole expense, fuel for the Aircraft and into plane
fueling services.  Mesaba shall operate
the Avro Regional Jet Aircraft in accordance with all manufacturer and vendor
standards and requirements for optimal fuel burn performance and shall promptly
remedy any operating factors that cause or contribute to fuel burn in excess of
such optimal burn performance.  Mesaba
shall provide to Northwest such fuel burn information as is necessary or
desirable to allow Northwest to monitor compliance with any manufacturer or
vendor agreement.

 

Section 1.07                                Property Taxes.  Northwest will reimburse Mesaba for property
taxes paid by Mesaba on the Aircraft in an amount not to exceed USD$*** per Aircraft per month.

 

Section 1.08                                Weight and Balance
Payment.  Northwest will pay Mesaba
USD$*** per month for weight and
balance services performed by Mesaba with respect to the Aircraft, and such
payment shall annually be adjusted for CPPI.

 

Section 1.09                                Airport Fees.  Mesaba shall pay all Airport Landing Fees
associated with Scheduled Flights using the Aircraft, and Northwest shall
reimburse Mesaba for such fees in a timely manner.

 

C-4

 

Attachment A

 

Block Hours Payment Rate and Adjustments

 

A.                                   The Block Hours
Payment Rate

 

***

 

The Block Hours Payment Rate shall be interpolated based on the
foregoing schedule when scheduled ***
is between two ***.

 

B.                                     Adjustments for ***

 

The calculation of the Block Hour Payment Rate is based upon an ***. 
The Block Hour Payment Rate shall be adjusted to reflect *** in accordance with the following
formula:

 

***

 

C.                                     Adjustments based
on the Producer Price Index:

 

On January 1 of each year during the term of this Agreement
beginning on January 1, 2006, the portion of the Block Hours Payment Rate *** will be adjusted for the following
twelve (12) months by increasing the then current portion of the Block Hour
Payment Rate *** by CPPI.  The portion of the Block Hours Payment Rate *** shall be determined as follows:

 

***

 

C-5

 

Attachment B

 

Definitions

 

For purposes of this Exhibit C, the following terms are defined as
set forth below.

 

“Aircraft” shall mean up to thirty-six (36) Avro Regional Jet
aircraft which are operated by Mesaba pursuant to this Agreement.

 

“Airport Landing Fees” shall mean all landing fees, custom fees,
airport user fees and assessments and amounts payable or assessed for joint or
common use facilities to the extent such fees and assessments are attributable
to or result from Jet Services.

 

“Block Hour Payment” shall mean the payment to be made pursuant
to Section 1.01, the amount of which is determined in accordance with
Attachment A attached hereto.

 

“Block Hours Report” shall mean the reports to be prepared by
Mesaba pursuant to Section 1.01(a).

 

“CPPI” means the percent increase, if any, in the PPI, which
increase occurred during the immediately preceding calendar year, defined as
(the simple average of the monthly PPI figures from the prior calendar year/the
simple average of the monthly PPI figures from two years prior)-1, but in no
event in excess of *** and in no
event less than ***.

 

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

 

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

 

“Jet Services” shall mean the provisioning by Mesaba to
Northwest of Scheduled Flights using the Aircraft in accordance with this
Agreement.

 

“Maintenance Aircraft” shall mean one Aircraft, unless both
Mesaba and Northwest agree that it shall mean *** Aircraft.

 

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

 

“PPI” means Producer Price Index for Commodities, Item Finished Goods
- not seasonably adjusted, published by the United States Department of Labor,
Bureau of Labor Statistics, and, if no longer published, any comparable
successor index selected by Northwest.

 

C-6

 

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

 

“Scheduled Aircraft” shall mean with respect to any month the
total number of Aircraft which are scheduled to operate Scheduled Flights
pursuant to this Agreement during such month; without limiting the foregoing, (i) Spare
Aircraft and Maintenance Aircraft during the time period an Aircraft has such
status shall not be counted as a Scheduled Aircraft and (ii) if during a
portion of a month an Aircraft is a Maintenance Aircraft or Spare Aircraft,
such Aircraft shall be counted as a Scheduled Aircraft as a fraction, the
numerator of which shall be the number of days during such month such Aircraft
is scheduled to operate Scheduled Flights and the denominator of which shall be
the number of days in the applicable month, expressed as decimal rounded to the
second place (e.g., 8/30 shall be expressed as 0.27).

 

“Scheduled Flights” shall mean (i) revenue passenger
flights operated using the Aircraft which, regardless of frequency, are held
out to the public and published in the customary and applicable schedule distribution
systems, such as the OAG, or published by Northwest in its own system time
tables or (ii) any Northwest scheduled charter flight operated using the
Aircraft.

 

“Spare Aircraft” shall mean one Spare Aircraft, unless both
Mesaba and Northwest shall agree that it means *** Spare Aircraft.

 

C-7

 

EXHIBIT D

 

SAAB PAYMENT TERMS

 

Defined terms in this Exhibit D shall have the meanings assigned
to such terms in Attachment C.

 

Section 1.01                                ASM/Passenger
Payment to Mesaba.

 

(a)                                  ASM/Passenger
Reports.  Mesaba shall provide to
Northwest periodic reports with respect to the number of actual completed ASMs
and enplaned Revenue Passengers (each in respect of Regional Airline Services)
in accordance with the following schedule in each calendar month during
the term of this Agreement:

 

	
  Day
  of the Month

  Report Due

  	
   

  	
  Period Covered by Report

  	
   

  
	
  22

  	
   

  	
  1st-15th of Month

  	
   

  
	
  4th Business Day

  	
   

  	
  Complete Previous Month

  	
   

  

 

(b)                                 Payment
Schedule.  Northwest shall remit to
Mesaba by wire transfer of immediately available funds by the close of business
on the 26th day of each calendar month (or the next banking day if the 26th
is a bank holiday), as a provisional payment, Mesaba’s ASM/Passenger Payment
for the period covered by the ASM/Passenger Report furnished by Mesaba on the
22nd day of the month.  Northwest shall
remit to Mesaba by wire transfer of immediately available funds by the close of
business on the 11th day of each month (or the next banking day if
the 11th is a bank holiday), as a final payment, Mesaba’s
ASM/Passenger Payment for the preceding month, less the amount of the
provisional payment made on the 26th day of the preceding month,
less the Offset Amount.  For purposes of
this Section 1.01, Mesaba’s ASM/Passenger Payment for any period will be
equal to (i) the then applicable Fleet Adjusted ASM Rate multiplied by the
number of actual, completed ASMs reported in Mesaba’s ASM/Passenger Report for
such period for Regional Airline Services plus (ii) the then applicable
Passenger Stipend Rate multiplied by the number of enplaned Revenue Passengers
reported in Mesaba’s ASM/Passenger Report for such period for Regional Airline
Services.  Adjustments arising from
Northwest’s audit of the ASM/Passenger Report may be made within forty-five
(45) days following the end of each month.

 

(c)                                  Passenger
Amenities.  With respect to Scheduled
Flights, Mesaba agrees to provide passenger amenities, including, without
limitation, denied boarding compensation, which Northwest provides under Rule 245
of the Domestic General Rules No. 1 issued by Airline Tariff
Publishing Co. and ATA Resolution No. 120.20 or pursuant to any similar
contractual arrangement now existing or hereafter in effect or applicable to
Northwest.  In any Mesaba Service City or
Hub City, Mesaba agrees (i) to handle oversold Scheduled Flights and the
payment of denied boarding compensation in accordance with Northwest’s standard
policies and procedures, (ii) to pay the full cost of providing passenger
amenities (either directly to the affected passengers or to Northwest as
reimbursement for the amounts paid by Northwest to such passengers, provided
that Northwest provides Mesaba with sufficient detail and supporting
documentation to allow Mesaba to verify the invoiced amount) with the exception
of denied

 

D-1

 

boarding compensation resulting
from inventory oversales or other actions of Northwest, and (iii) to
report all denied boarding data to Northwest via both the standard Northwest
Ticket Agent Report (“TAR”) and the standard Northwest Yield Management Flight
Close-Out Denied Boarding Mask (“MASK”). 
In any Mesaba Service City or Hub City, for denied boarding compensation
resulting from inventory oversales or the actions of Northwest, Mesaba will pay
the appropriate amount of denied boarding compensation to the affected
passengers and will invoice Northwest for such amount pursuant to Section 5.03
of the Agreement.  Any such invoice will
include sufficient detail and supporting documentation to allow Northwest to
verify the invoiced amount. 
Notwithstanding the foregoing, Mesaba shall be responsible for any
discrepancy between the TAR and the MASK, and Northwest will invoice Mesaba for
any amounts due based on reconciliation of those two reports; provided that
Northwest shall invoice Mesaba at the current applicable breakage percentages
used by Northwest in its accounting for denied boarding compensation.  In Northwest Service Cities, Northwest will
provide all passenger amenities, including but not limited to baggage delivery,
at its sole cost.

 

(d)                                 Destination
By Other Means.  With respect to the
Regional Airline Services, if Mesaba transports a Revenue Passenger to his or
her destination by another means (bus, train, taxi, etc.) due to a flight
cancellation, Northwest shall reimburse Mesaba for ***.  Mesaba shall include
such reimbursement request in its ASM/Passenger Report pursuant to Section 1.01(a) and
payment of the reimbursement amount shall be included with the next wire
transfer in accordance with Section 1.01(b).  Mesaba shall use its best efforts to minimize
the transportation of passengers by other means and the costs associated
therewith.

 

Section 1.02                                ASM and ***.

 

(a)                                  ***.  The ***
shall be determined in accordance with the following formula:

 

***

 

(b)                                 ***.  The ***
shall be determined on a monthly basis in accordance with the following
formula:

 

***

 

Attachment B sets forth an example of the calculation of the ***.

 

(c)                                 ***.  For any quarter during the term of this
Agreement, where Mesaba’s ***,
the *** for such *** shall be determined in accordance
with the following formula:

 

***

 

For the purposes of this Section 1.02(c), the following
definitions shall also apply:

 

***

 

Attachment B sets forth an example of the calculation of the ***. 
Any adjustment to the payment due to Mesaba as a result of the
difference between the *** and
the applicable *** shall

 

D-2

 

be ***.  The percentage factors by which *** and *** are multiplied may be amended from time to time upon the
agreement of Northwest and Mesaba.

 

(d)                                ***.  The ***
shall be $*** for the twelve
month period ending March 31, 2006, and thereafter the *** shall increase $*** for each subsequent twelve (12)
month period.  ***  As of the Effective
Date, the *** includes $*** as compensation for ***, and $*** as compensation for ***.

 

Section 1.03                                Weather Related
Adjustment.  If during the first
quarter of any calendar year ***
due to weather cancellations, ***:

 

***

 

Mesaba shall report the number of *** during the first quarter on or before the fifteenth (15th)
day of May.  Any *** as a result of this Section 1.03 shall be ***.

 

Section 1.04                                IOP Program Incident
Adjustment.  If during any quarter
commencing on or after October 1, 1999 during the term of this Agreement,
Mesaba cancels one or more flights in connection with one or more IOP Program
Incidents, ***:

 

***

 

Any *** as a result of
this Section 1.04 shall be ***.

 

Section 1.05                                Incentives and
Penalties.  Mesaba shall be subject
to certain performance incentives and penalties described in Sections 1.05(a),
1.05(b), 1.05(c), 1.05(d), 1.05(e) and 1.05(f) (“Performance Criteria”)
which shall be added to or deducted from the ASM/Passenger Payment.  If Mesaba exceeds any operational criterion
an incentive payment shall be made by Northwest.  If Mesaba does not achieve the performance
criterion, then a penalty shall be charged against amounts owing to
Mesaba.  Any incentive payment or penalty
charge incurred by meeting or failing to meet Performance Criteria shall be
made in the wire transfer due on the 26th day of the month following
the end of the Performance Period in question pursuant to Section 1.01(b),
except that any amount due with respect to the Performance Criteria for
customer complaints shall be made in the wire transfer on the 26th
day of the second month following the end of the Performance Period in question
pursuant to Section 1.01(b).

 

(a)                                  Completion
Factor.  If Mesaba’s completion
factor (calculated in accordance with the Section 2.10(c)(i) of the
Agreement) is less than ***% for
a Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period. 
If Mesaba’s completion factor is greater than ***% for a Performance Period, Northwest shall pay to Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period, and if Mesaba’s completion factor is
greater than ***% for such
Performance Period, Northwest shall also pay to Mesaba an additional $*** per enplaned Revenue Passenger
during such Performance Period.

 

D-3

 

(b)                                 Minimum
On-Time Reliability.  If Mesaba’s
On-Time Factor (calculated in accordance with the Section 2.10(c)(ii) of
the Agreement) is less than ***%
for a Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue Passenger
during the applicable Performance Period. 
If Mesaba’s On-Time Factor is equal to or greater than ***% for a
Performance Period, Northwest shall pay to Mesaba $*** per enplaned Revenue
Passenger during the applicable Performance Period, and if Mesaba’s On-Time
Factor is greater than ***% for such Performance Period, Northwest shall also
pay to Mesaba an additional $*** per enplaned Revenue Passenger during such
Performance Period.  The parties
acknowledge and agree that the foregoing performance levels are based on
Northwest’s internal on-time goal of ***%. 
In the event Northwest’s on-time goal changes from ***%, the on-time
performance levels that determine minimum reliability (in Section 2.10(c)(ii) of
the Agreement), and penalty and bonus levels (in Section 1.05(b) of
this Exhibit D) will be modified to correspond to the change made by
Northwest.  Northwest and Mesaba will
meet and confer on all components of on-time metrics on an as-needed basis.

 

(c)                                  Mishandled
Luggage Factor.  If Mesaba’s
incidences of mishandled luggage (calculated in accordance with Section 2.10(c)(iii) of
the Agreement) is greater than *** per *** enplaned Revenue Passengers for a
Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue
Passenger during the applicable Performance Period.  If Mesaba’s incidences of mishandled luggage
is less than *** per *** enplaned Revenue Passengers for a Performance Period,
Northwest shall pay to Mesaba $*** per enplaned Revenue Passenger during the
applicable Performance Period, and if Mesaba’s incidences of mishandled luggage
is less than *** per *** passengers for such Performance Period, Northwest
shall also pay to Mesaba additional $*** per enplaned Revenue Passenger during
such Performance Period.

 

(d)                                 Customer
Complaints Factor.  If Mesaba’s
number of customer complaints (calculated in accordance with the Section 2.10(c)(iv) of
the Agreement) is greater than *** per *** enplaned Revenue Passengers for a
Performance Period, Northwest shall receive from Mesaba $*** per enplaned Revenue
Passenger during the applicable Performance Period.  If Mesaba’s number of customer complaints is
less than *** per *** enplaned Revenue Passengers, Northwest shall pay to
Mesaba $*** per enplaned Revenue Passenger, and if Mesaba’s number of customer
complaints is less than *** per *** enplaned Revenue Passengers for such
Performance Period, Northwest shall also pay to Mesaba an additional $*** per
enplaned Revenue Passenger during such Performance Period.

 

(e)                                 Reconciliation of
Performance Standards.  For each
Performance Period, (i) Mesaba shall prepare a reconciliation of its
actual performance to the targeted performance with respect to its completion
factor and its on-time factor and (ii) Northwest shall prepare a
reconciliation of Mesaba’s actual performance to targeted performance with
respect to Mesaba’s incidences of mishandled luggage and its number of customer
complaints.  Such reconciliations will be
completed and delivered to the other within thirty (30) days after the end of
each Performance Period.  Northwest and
Mesaba will have the right to audit the reconciliation prepared by the other
and shall report any discrepancies to the other.  Any discrepancy not reported in writing within
sixty (60) days of the end of any Performance Period shall be deemed
waived.  The payment of any discrepancy
from Mesaba shall be handled as a disputed amount in accordance with Section 5.03
of the Agreement.

 

D-4

 

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

 

Section 1.06                                Annual Payments with
Respect to the ***.

 

(a)                                  Calculation
of the ***.  Not later than ninety
(90) days following the end of each fiscal year of Mesaba ending during the
term of this Agreement, Mesaba shall calculate and deliver to Northwest its ***
for Regional Airline Services provided under this Agreement for the fiscal year
then ended *** and its *** for Regional Airline Services provided under this
Agreement for the fiscal year then ended *** by dividing (x) *** by (y) ***.  The *** and the *** shall be expressed as a
decimal rounded to the fourth place.  The
calculation of the *** and the *** shall be derived from Mesaba’s audited
financial statements for such fiscal year and shall be determined in accordance
with GAAP.  Attachment B sets forth an
example of the calculation of the ***.

 

(b)                                 ***.  If the *** for such fiscal year is less than
the applicable *** determined as follows:

 

***

 

(c)                                  ***.  If the *** is greater than *** determined as
follows:

 

***

 

(d)                                 Audit
of the ***.  Northwest shall have the
right to audit the calculation of the ***, and shall report any disputes to
Mesaba.  Any dispute not reported to
Mesaba in writing within thirty (30) days of the receipt of the Margin
calculation by Northwest shall be deemed waived.  The payment in respect of any dispute shall
be handled as a disputed amount in accordance with Section 5.03 of the
Agreement.

 

D-5

 

Section 1.07                                Fuel.  Northwest shall provide to Mesaba the
following administrative services:  (i) Northwest’s
negotiation of fuel supply, fuel storage and into-plane service contracts for the
Aircraft, (ii) payment of all into-plane and fuel invoices in respect of
the Aircraft, (iii) monthly reconciliations with respect to fuel usage,
inventory and purchases, and (iv) monthly reports with respect to fuel
usage by station, Aircraft type and Aircraft. 
Mesaba shall pay to Northwest each month during the term of this
Agreement $*** plus an amount equal to $*** multiplied by the number of gallons
of aircraft fuel used by Mesaba during such month.  Northwest shall bill Mesaba on a monthly
basis and payment shall be made in accordance with Section 5.03 of the
Agreement.  Mesaba shall have the right
to audit on a semi-annual basis the determination of the number of gallons of
aircraft fuel used and shall report any disputes to Northwest.  Any dispute not reported to Northwest in
writing within ninety (90) days of the conclusion of such audit shall be deemed
waived.

 

Section 1.08                                Deicing and Glycol.  Mesaba shall provide, ***, all deicing
services for its Aircraft at the Hub Cities and the Primary Service Cities and
Northwest shall provide, ***, all deicing services at Complementary Service
Cities.  Northwest and Mesaba shall
negotiate a separate agreement whereby *** will provide glycol and back-up
deicing services at the Hub Cities to *** and *** on a monthly basis in
accordance with Section 5.03 of the Agreement for the *** of glycol used
and deicing services provided.  If the
amount of glycol used cannot be calculated, then such invoices shall reflect
estimates based on average glycol use by Aircraft type and number of
applications.

 

D-6

 

Attachment
A

 

***

 

D-7

 

Attachment B

 

Sample Calculations

 

***

 

D-8

 

Attachment C

 

Definitions

 

For purposes of this Exhibit D, the following terms are defined as
set forth below.

 

“Aircraft” shall mean up to sixty-three Saab 340 turboprop
aircraft which are operated by Mesaba pursuant to this Agreement.

 

“ASM” means an available seat mile, i.e. one aircraft seat
scheduled to be flown one statute mile on a Scheduled Flight.

 

“ASM/Passenger Payment” means the payment to be made pursuant to
Section 1.01(b) of this Exhibit D.

 

“ASM/Passenger Report” means the reports to be prepared by
Mesaba pursuant to Section 1.01(a) of this Exhibit D.

 

“***” means the amount determined in accordance with Section 1.02(a) of
this Exhibit D.

 

“***” shall mean the *** set forth on Attachment A.

 

“CPPI” means the percent increase, if any, in the PPI, which
increase occurred during the immediately preceding Fiscal Year, defined as (the
simple average of the monthly PPI figures from the prior Fiscal Year/the simple
average of the monthly PPI figures from two Fiscal Years prior)-1, but in no
event in excess of *** and in no event less than ***.

 

“Fiscal Year” means the twelve-month period beginning April 1st
of each year and ending March 31st of the following year.

 

“***” means the amount determined in accordance with Section 1.02(b) of
this Exhibit D.

 

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

 

“Hub Cities” means Minneapolis/St. Paul, Minnesota (“MSP”);
Detroit, Michigan (DTW); and Memphis, Tennessee (MEM).

 

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

 

D-9

 

“Offset Amount” means (i) for purposes of determining the
final payment in respect of each month in 1999, $***, and (ii) for
purposes of determining the final payment in respect of each month in a year
after 1999, an amount equal to the prior year’s Offset Amount multiplied by the
sum of one plus the percent increase, if any but not decrease, in the average
annual PPI for the previous year, which increase occurred from January 1
of the prior year to January 1 of the applicable year.

 

“***” means the amount determined in accordance with Section 1.02(d) of
this Exhibit D.

 

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

 

“PPI” means Producer Price Index for Commodities, Item Finished Goods
– not seasonally adjusted, published by the United States Department of Labor,
Bureau of Labor Statistics, and, if no longer published, any comparable
successor index selected by Northwest.

 

“***” means the amount determined in accordance with Section 1.02(c) of
this Exhibit D.

 

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

 

“Scheduled Flights” means revenue passenger flights (other than
charters) operated using the Aircraft which, regardless of frequency, are held
out to the public and published in the customary and applicable schedule distribution
systems, such as the OAG, or published by Northwest in its own system
timetables.

 

D-10

 

EXHIBIT E

 

CRJ PAYMENT TERMS

 

Unless otherwise indicated, all section references in this Exhibit E
refer to the corresponding section of this Exhibit E.

 

Section 1.01.

 

(d)                                 Reports.  Mesaba shall provide to Northwest periodic
reports with respect to estimated and actual: Direct Expenses, Aircraft Days,
Block Hours, and Cycles of Regional Airline Service and Non-Scheduled Flights flown
by Mesaba with CRJ-200/440 Aircraft (each in respect of Scheduled Flights,
Charter Flights and Non-Scheduled Flights) in accordance with the following schedule in
each calendar month during the term of this Agreement:

 

	
  Day
  of Month Report Due

  	
   

  	
  Information Included in Report

  
	
   

  	
   

  	
   

  
	
  25

  	
   

  	
  Estimated
  Block Hours and Cycles for 1st – 15th of the following
  month and estimated Direct Expenses and Aircraft Days for the entire
  following month

  
	
   

  	
   

  	
   

  
	
  4th Business Day

  	
   

  	
  Estimated
  Block Hours and Cycles for the 16th to the end of the current
  month and actual Aircraft Days, Block Hours and Cycles for the entire
  preceding month

  
	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  Actual
  Direct Expenses for the entire preceding month

  

 

(b)                                 Payment
Schedule.  Northwest shall remit to
Mesaba by wire transfer of immediately available funds by the close of business
on the 1st day of each calendar month (or the next banking day if the 1st is a
bank holiday), as a pre-payment, Mesaba’s estimated Block Hour Payment, Cycle
Payment, Aircraft Days Payment, Monthly Payment,  Direct Expense Payment, associated Margin
Payment and any payments due pursuant to Section 1.04 below for the period
covered by the report furnished by Mesaba on the 25th day of the preceding
month.

 

Northwest
shall remit to Mesaba by wire transfer of immediately available funds by the
close of business on the 16th day of each month (or the next banking day if the
16th is a bank holiday), as a pre-payment Mesaba’s estimated Block Hour
Payment, Cycle Payment, any payments due pursuant to Section 1.04, and
associated Margin Payment for the period covered by the report furnished by
Mesaba on the 4th business day of the month.  In addition, the payment due on the 16th
of the month shall include an adjustment to true-up the Block Hour Payment,
Cycle Payment, Aircraft Day Payment, Direct Expense Payment and Margin Payment made
in the preceding month to reflect actual information for the entire month with
respect to Block Hours, Cycles, Aircraft Days, Direct Expenses and Margin
Payment.  Any underpayment or

 

E-1

 

overpayment
for the prior month will be treated as an increase or decrease to the payment
on the 16th of the current month.

 

Northwest
shall review the estimates of Block Hours, Cycles, Direct Expenses and Aircraft
Days for reasonableness.  To the extent
estimates are deemed unreasonable, Mesaba, upon request from Northwest, shall
provide supporting documentation for the estimates.

 

For purposes
of this Section 1.01, the above-referenced payments to Mesaba shall be
calculated as follows for any applicable period:

 

the Block Hour Payment, which will be equal to the then applicable
Block Hour Rate multiplied by Block Hours provided pursuant to Section 1.01
(a) for such period for Scheduled Flights, Non-Scheduled Flights and
Charter Flights, plus

 

the Cycle Payment, which will be equal to the then applicable Cycle
Rate multiplied by Cycles provided pursuant to Section 1.01(a) for
such period for Scheduled Flights, Non-Scheduled Flights and Charter Flights,
plus

 

the Aircraft
Days Payment, which will be equal to the then applicable Aircraft Days Rate
multiplied by Aircraft Days provided pursuant to Section 1.01 (a) for
such period for Scheduled Flights, Non-Scheduled Flights and Charter Flights,
plus

 

the Monthly
Payment, which will be equal to the then applicable Monthly Rate, plus

 

the Direct Expense Payment, which will be determined in accordance with
Section 1.03 below, plus

 

the IOP Payment, if any, which will be determined in accordance with Section 1.05
below, plus

 

the Monthly Margin Payment, which will be determined in accordance with
Section 1.06.

 

Adjustments
arising from Northwest’s audit of Block Hours, Cycles, Direct Expenses or
Aircraft Days may be made within forty-five (45) days following the end of the fiscal
year.  Any reference to the 30th
day of a month in this Section 1.01 will be deemed to mean the last day of
February with respect to that month.

 

Notwithstanding
the foregoing, the only payment to Mesaba associated with operations in August 2005
and September 2005 will be the Direct Expense payment for Equipment Rental
Expense pursuant to Section 1.03(a) of this Exhibit E and the associated
Margin Payment pursuant to Section 1.06 of this Exhibit E.

 

Section 1.02                                Payment Rates

 

(a)                                  Block
Hour Rate.  The Block Hour Rate for
the time period through March 31, 2006 shall be $***. For each 12-month
period beginning with April 1, 2006, the Block Hour

 

E-2

 

Rate shall be equal to the
Block Hour Rate for the immediately preceding 12-month period multiplied by ***. 

 

(b)                                 Cycle
Rate.  The Cycle Rate for the time
period through March 31, 2006 shall be $***.  For each 12-month period beginning with April 1,
2006, the Cycle Rate shall be equal to the Cycle Rate for the immediately
preceding 12-month period multiplied by ***.

 

(c)                                  Aircraft
Day Rate.  The Aircraft Days Rate for
as delivered CRJ-200/440 Aircraft *** through ***, and CRJ-200/440 Aircraft ***
up to *** shall be $***.  The Aircraft
Days Rate for as delivered CRJ-200/440 Aircraft *** through *** shall be $***.  These rates are applicable for the time
period through March 31, 2006.  For
each 12-month period beginning with April 1, 2006, the Aircraft Days Rate
shall be equal to the Aircraft Days Rate for the immediately preceding 12-month
period multiplied by ***.

 

(d)                                 Monthly
Rate.  The Monthly Rate for the time
period through March 31, 2006 shall be $***.  For each 12-month period beginning with April 1,
2006, the Monthly Rate shall be equal to the Monthly Rate for the immediately
preceding 12-month period multiplied by ***.

 

Section 1.03                                Direct Expenses.  Northwest will reimburse Mesaba for the
following accrued or paid expenses (“Direct Expenses”) at the Direct Cost to
Mesaba.  Accruals shall be made in
accordance with GAAP.  At the request of
Northwest, Mesaba will be responsible for providing Northwest with a copy of
all third party invoices and evidence of payment needed to determine the
expense amount and the timeliness of payment.

 

(a)                                  Equipment
Rental Expense.  Equipment Rental
Expense will be reimbursed less any performance guarantee payments or credits
that Mesaba receives from the manufacturers.

 

(b)                                 Engine
maintenance.  The CRJ 200/440 Aircraft
engine maintenance performed pursuant to Section 3.07 of the Agreement less
any warranty payments or credits that Mesaba receives, including but not
limited to those from Northwest-selected vendors.  In addition, the cost of materials and
components used in connection with unscheduled off-wing maintenance performed
by Mesaba (not including maintenance or replacement of line replaceable units
or QEC items) will be reimbursed to Mesaba as a Direct Expense.  Mesaba shall provide to Northwest, upon
reasonable request, documentation detailing the unscheduled event and cost of
each of the components.  If Northwest and
Mesaba agree at any time to have such engine work performed by a vendor other
than General Electric, the reimbursement amount will be adjusted to take into
account the new arrangement. 
Notwithstanding the foregoing, Northwest will not reimburse Mesaba for
engine maintenance performed pursuant to Section 3.07 of the Agreement
which is accomplished unreasonably in advance of the time such maintenance is
required in accordance with the Maintenance Program or which is accomplished
for the sole purpose of satisfying return conditions under the Lease, which
will be split 50/50 pursuant to Section 3.02(c) of the Agreement.

 

(c)                                  Airframe
maintenance.  The CRJ 200/440
airframe maintenance performed pursuant to Section 3.07 of the Agreement less
any warranty payments or credits that Mesaba receives, including but not
limited to those from Northwest-selected vendors.  If Northwest and Mesaba agree at any time to
have the maintenance work performed by a vendor other than

 

E-3

 

Bombardier, the reimbursement
amount will be adjusted to take into account the new arrangement.  Notwithstanding the foregoing, Northwest will
not reimburse Mesaba for airframe maintenance performed pursuant to Section 3.07
of the Agreement which is accomplished unreasonably in advance of the time such
maintenance is required in accordance with the Maintenance Program or which is
accomplished for the sole purpose of satisfying return conditions under the
Lease, *** pursuant to Section 3.02(c) of the Agreement.

 

(d)                                 CRJ-200/440
Aircraft auxiliary power unit (APU) maintenance expense less any warranty
payments or credits that Mesaba receives with respect to any of the foregoing
expenses.

 

(e)                                  CRJ-200/440
Aircraft avionics maintenance expense less any warranty payments or credits
that Mesaba receives with respect to any of the foregoing expenses.

 

(f)                                    CRJ-200/440
Aircraft landing gear overhaul expense less any warranty payments or credits
that Mesaba receives with respect to any of the foregoing expenses.

 

(g)                                 Airport
Landing Fees.  For the avoidance of
doubt, Airport Landing Fees do not include airport joint or common use fees for
Regional Airline Services operated by Mesaba with CRJ-200/440 Aircraft.

 

(h)                                 Fuel
expense determined in accordance with Section 1.04 below.

 

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

 

Section 1.04                                Fuel

 

(a)                                  Fuel
Administration.  Mesaba will join the
fuel consortium at a Service City upon Northwest’s request.  Northwest will provide to Mesaba the
following fuel-related administrative services: 
(i) negotiation of fuel supply, fuel storage and into-plane service
contracts for the CRJ-200/440 Aircraft, (ii) payment of all into-plane and
fuel invoices in respect of the CRJ-200/440Aircraft, (iii) monthly
reconciliations (by the 15th of the following month) with respect to fuel
boarded, inventory and purchases, and (iv) monthly reports with respect to
fuel boarded by station, flight and CRJ-200/440 Aircraft.

 

(b)                                 Fuel
Payment.  Mesaba will pre-pay for
fuel for the 1st-15th of the month through a set-off of
the amount due from the Section 1.01(b) wire transfer on the 1st of
the month for which the prepay is occurring. 
Northwest will reimburse Mesaba for this pre-pay amount through the Section 1.01(b) wire
transfer on the 1st of the month. 
Likewise, Mesaba will pre-pay for fuel for the 16th-end of
the month through a set-off of the Section 1.01(b) wire transfer on
the 16th of the month for which the prepay is occurring.  Northwest will reimburse Mesaba for this
pre-pay amount through the Section 1.01(b) wire transfer on the 16th
of the month.  By the 16th of the
following month, Northwest will reconcile the pre-paid fuel expense for the
preceding month with the actual expense (at a price, including into-plane fees
and taxes, of $***/gallon, the “Fuel Price”), and charge or credit Mesaba with
the difference.  This month end
adjustment for

 

E-4

 

the preceding month will be handled
via the Section 1.01(b) wire transfer occurring the 16th day of the
following month through additional payment or set-off.

 

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

 

Mesaba shall
have the right to audit on a semi-annual basis the determination of the number
of gallons of aircraft fuel boarded and payment of all into-plane and fuel
invoices in respect of the CRJ-200/440 Aircraft and shall report any disputes
to Northwest.  Any dispute not reported
to Northwest within thirty (30) days of the conclusion of such audit shall be
deemed waived.

 

(c)                                  Mesaba’s
Reporting Procedures.  Mesaba will
provide to Northwest the following fuel administrative service assistance where
Mesaba is responsible for ground handling the CRJ-220/440 Aircraft:  (i) timely Fuel Management System (“FMS”)
data entry at Service Cities, including month-end reconciling to the fixed base
operator (“FBO”) by the end of the second business day, (ii) FMS coverage
when regular FMS person is on vacation, leave, etc., (iii) training new
Mesaba employees on FMS due to turnover, vacation, etc., (iv) addressing
problems at FBO regarding supply of fuel slips and bill of lading receipts
before involving the Northwest Fuel Department. 
Northwest’s Fuel Department shall have the right to audit on a monthly
basis the determination of the number of gallons of aircraft fuel boarded and
fuel price paid and shall report any disputes to Mesaba.  Any dispute not reported to Mesaba within
thirty (30) days of the conclusion of such audit shall be deemed waived.

 

(d)                                 Fuel
Burn Review Procedures.  Northwest
and Mesaba agree to review the fuel burn performance (defined as gallons per
block hour) of the CRJ-200/440 Aircraft for compliance with annual performance
measures including, but not limited to:

 

(i)                                     Planned
Fuel On Arrival (FOA)

 

(ii)                                  Auxiliary
Power Unit (APU) Usage

 

Mesaba will be
responsible for the development and setting of the annual performance measure
targets for the CRJ-200/440 Aircraft, each as defined in Attachment B, and an
annual budgeted fuel burn rate expressed in gallons per block hour (“All-in
Rate”), in a timeframe consistent with the development of the annual operating
expense budget of each party.  The All-in
Rate shall encompass all scheduled and non-scheduled burned gallons and include
the measures defined in (d)(i-ii) above and those measures the parties may
agree to subsequently add.  The annual
targets for the performance measures and All-in Rate will be subject to
Northwest’s review.  The parties agree to
work in good faith to resolve any differences that may exist with respect to
setting annual targets.  In the event
agreement can not be reached on an FOA target, the target will be based on the
then-applicable Northwest Domestic FOA target. 
Additional performance measures may be identified and added at a future
date by mutual agreement of the parties for purposes of reviewing the Aircraft’s
annual fuel burn.  In the event data is
not yet available for a given measure, no annual target will be set.  The parties agree to use reasonable best
efforts in researching and collecting data for purposes of adding performance
measures and cooperation may not be unreasonably withheld by either party.

 

E-5

 

Not later than
sixty (60) days following the end of the year for which the targets applied,
Mesaba shall (i) deliver to Northwest the analysis and conclusion of
Mesaba’s performance for the year then ended with respect to each of the performance
measures and the All-in Rate, and (ii) provide Northwest with the data
used by Mesaba to determine variances to each of the performance measure
targets and the All-in Rate in a format specified by Northwest.  The analysis shall include, but not be limited
to, adjustment for changes in the operating schedule from the Annual
Operating Plan.  For example, adjusting
planned taxi time or average length of flight to actual experience for the year
completed.  Northwest shall have thirty
(30) days from the receipt of Mesaba’s analysis to complete its review.  If it is determined that Mesaba exceeded one
or more of the targets for the annual performance measures, and the cause of
exceeding the targets was within the control of Mesaba, a fuel penalty shall be
assessed per the formulas set forth in Attachment B (a “Fuel Burn Penalty
Payment”).  If it is mutually determined
by Mesaba and Northwest that Mesaba exceeded the budget for the All-in Rate,
after adjusting for variances to target for the performance measures, and the
cause of exceeding the budget was within the control of Mesaba, a fuel penalty
shall be assessed per the formula set forth in Attachment B (a “Fuel Burn
Penalty Payment”).  Such Fuel Burn Penalty
Payment(s) shall be made in accordance with Section 5.03 of the Agreement.

 

Mesaba and Northwest agree to negotiate in good faith to set a goal for
Planned FOA and APU usage by January 2006, and performance measurement and
compliance with such goal (including any penalties associated therewith) shall
begin as of January 1, 2006.  Mesaba
and Northwest shall, immediately following the Effective Date, begin collecting
necessary data to establish a goal for the All-in Rate, and such goal shall be
set by January 1, 2007, at which time performance measurement and
compliance with such goal (including any penalties associated therewith) shall
begin.

 

Section 1.05                                IOP Program Incident
Adjustment.  If during any month
during the term of this Agreement Mesaba cancels one or more Scheduled Flights
in connection with one or more IOP Program Incidents, *** an amount determined
in accordance with the following formula:

 

***

 

Section 1.06                                Monthly
Margin Calculation and Payment.

 

The monthly
Margin Payment for the time period through March 31, 2007 shall be
calculated as follows:

 

***

 

Effective
April 1, 2007, the monthly Margin Payment shall be calculated as follows:

 

***

 

E-6

 

Section 1.07                                Non-Scheduled
Flight Refund.

 

With respect
to each calendar year during the term of this Agreement, Northwest shall within
ninety (90) days from the receipt of the final Block Hour Report and Cycle
Report received pursuant to Section 1.01 of this Exhibit E for the
immediately preceding year, calculate and notify Mesaba of the ratio of actual
Block Hours for Non-Scheduled Flights to actual Block Hours for Scheduled
Flights and the ratio of actual Cycles for Non-Scheduled Flights to actual
Cycles for Scheduled Flights.  In the
event that either ratio exceeds ***, Mesaba shall remit to Northwest (through a
set-off of the next wire transfer of amounts due pursuant to this Exhibit E)
an amount equal to the following:

 

E-7

 

Refund
Calculation:

 

***

 

Section 1.08                                Performance
Levels and Incentives/Penalties.

 

(a)                                  With
respect to Scheduled Flights operated with CRJ-200/440 Aircraft, Mesaba shall
be subject to certain performance levels and incentives/penalties as described
in this Section 1.08(a) (“Performance Criteria”).  If Mesaba does/does not achieve the
performance criterion, then an incentive/penalty shall be applied to amounts
owing to Mesaba, provided that the amount of the incentive/penalty for each of
the Performance Criterion shall not exceed one (1) percentage point of the
sum of the Block Hour Payment, Cycle Payment, Aircraft Days Payment, Monthly
Payment, Direct Expense Payment and IOP Payment, if any. Any incentive/penalty
incurred shall be paid or deducted in the wire transfer due on the 16th day of
the month following the end of the Performance Period in question pursuant to Section 1.01(b) of
this Exhibit E.  The applicable
performance levels and incentives/penalties are as follows:

 

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

 

	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Current

  Calendar

  Year Goal

  Percentage

  	
   

  	
  Incentives

  	
   

  	
  Additional

  Incentives

  	
   

  
	
  Performance Level

  	
   

  	
  Less than goal less ***

  	
   

  	
  Less than goal less ***

  	
   

  	
  TBD

  	
   

  	
  Greater than or equal to goal but less than
  *** above goal

  	
   

  	
  Greater than or equal to goal plus ***

  	
   

  
	
  Penalty per enplaned Revenue Passenger

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  0

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  

 

(ii)                                  On-Time
Reliability Factors (calculated in accordance with Section 2.10(a)(ii) of
the Agreement):

 

Departure [(within zero minutes)]

 

	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Current

  Calendar

  Year Goal

  Percentage

  	
   

  	
  Incentives

  	
   

  	
  Additional

  Incentives

  	
   

  
	
  Performance Level

  	
   

  	
  Less goal less ***

  	
   

  	
  Less than goal less ***

  	
   

  	
  TBD

  	
   

  	
  Greater than or equal to goal but less than
  goal plus ***

  	
   

  	
  Greater than or equal to goal plus ***

  	
   

  
	
  Penalty per enplaned Revenue Passenger

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  0

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  

 

E-8

 

Arrival [(within zero Minutes)]

 

	
   

  	
   

  	
  Additional

  Penalty

  	
   

  	
  Penalty

  	
   

  	
  Current

  Calendar

  Year Goal

  Percentage

  	
   

  	
  Incentives

  	
   

  	
  Additional

  Incentives

  	
   

  
	
  Performance Level

  	
   

  	
  Less than goal less ***

  	
   

  	
  Less than goal less ***

  	
   

  	
  TBD

  	
   

  	
  Greater than or equal to goal but less than
  goal plus ***

  	
   

  	
  Greater than or equal to goal plus ***

  	
   

  
	
  Penalty per enplaned Revenue Passenger

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  0

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  

 

(b)                                 Reconciliation
of Performance Standards.  For each
Performance Period, (i) Northwest shall determine the total number of
enplaned Revenue Passengers on Scheduled Flights operated by Mesaba and (ii) Mesaba
shall prepare a reconciliation of its actual performance to the targeted
performance with respect to its completion factor and its on-time factor. Such
reconciliations will be completed and delivered to the other within thirty (30)
days after the end of each Performance Period. 
Northwest and Mesaba will have the right to audit the reconciliation
prepared by the other and shall report any discrepancies to the other.  Any discrepancy not reported in writing
within sixty (60) days of the end of any Performance Period shall be deemed
waived.  The payment of in respect of any
discrepancy shall be handled as a disputed amount in accordance with Section 5.03
of the Agreement.

 

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

 

Section 1.09                                Aviation
Insurance.  In the event Mesaba
obtains aviation insurance coverage as part of Northwest’s aviation insurance
placement, the rates used to determine aircraft hull insurance and aviation
liability insurance, including war risk liability and hull war risk insurance,
shall be adjusted in a manner consistent with the rate changes experienced by
Northwest, when and if the rates are revised, whether it be calendar year or
otherwise.

 

E-9

 

Attachment
A

 

Definitions

 

For purposes of this Exhibit E, the following terms are defined as
set forth below.  (Other defined terms
are set forth in Article I of the Agreement).

 

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

 

“Aircraft Days Payment” means the payment for Aircraft Days to
be made pursuant to Section 1.01 (b) of Exhibit E.

 

“Aircraft Days Rate” shall have the meaning ascribed to such
term in Section 1.02 of this Exhibit E.

 

“Block Hour Payment” means the payment for Block Hours to be
made pursuant to Section 1.01(b) of this Exhibit E.

 

“Block Hour Rate” shall have the meaning ascribed to such term
in Section 1.02 of this Exhibit E.

 

“Block Hour Report” means the report to be prepared by Mesaba
pursuant to Section 1.01(a) of this Exhibit E.

 

“Charter Flights” means revenue passenger flights using the CRJ-200/440
Aircraft (other than Scheduled Flights); provided, however, that the
operational arrangements and the compensation to be received by Mesaba in
respect of such Charter Flights are subject to the same procedures and
remuneration as a Scheduled Flight hereunder, unless otherwise mutually agreed
by Northwest and Mesaba.  To the extent
that inflight catering (food and beverage) exceeds that normally provided for
on a Scheduled Flight, the incremental cost and coordination of the catering
will be the sole responsibility of Northwest.

 

“CPPI” means the percent increase, if any, in the PPI, which
increase occurred during the immediately preceding Fiscal Year, defined as (the
simple average of the monthly PPI figures from the prior Fiscal Year/the simple
average of the monthly PPI figures from two Fiscal Years prior)-1, but in no
event in excess of ***
and in no event less than ***.

 

“Cycle” means an actual takeoff at an origin city and landing at
a destination city of a CRJ-200/440 Aircraft in connection with a Scheduled
Flight, a Non-Scheduled Flight or a Charter Flight.

 

“Cycle Payment” means the payment for Cycles to be made pursuant
to Section 1.01(b) of this Exhibit E.

 

E-10

 

“Cycle Rate” shall have the meaning ascribed to such term in Section 1.02
of this Exhibit E.

 

“Cycle Report” means the report to be prepared by Mesaba
pursuant to Section 1.01(a) of this Exhibit E.

 

“Direct Expenses” shall have the meaning ascribed to such term in
Section 1.03 of this Exhibit E.

 

“Direct Expense Payment” means the payment for Direct Expenses
to be made pursuant to Section 1.01(b) of this Exhibit E.

 

“Equipment Rental Expense” means the Aircraft Rental Expense for
the CRJ-200/440 Aircraft and the CRJ Spare Engine Rental Expense.

 

“Fiscal Year” means the twelve-month period beginning April 1st
of each year and ending March 31st of the following year.

 

“Fuel Burn Penalty Payment” shall have the meaning ascribed to
such term in Section 1.04(d) of this Exhibit E.

 

“Fuel Price” shall have the meaning ascribed to such term in Section 1.04(b) of
this Exhibit E.

 

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

 

“IOP Payment” means the payment for IOP Program Incidents to be
made pursuant to Section 1.05 of Exhibit E.

 

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

 

“Margin” means the operating margin determined in accordance
with Section 1.06 of Exhibit E.

 

“Margin Payment” means the payment to be made pursuant to
Sections 1.01(b) of Exhibit E.

 

“Market Margin Rate” or “MMR” means the weighted (by revenue)
average full year operating margin for the twelve-month period ended March 31,
2007 of the publicly traded U.S. domestic regional airlines operating primarily
regional jet aircraft, excluding Pinnacle and any regional carrier under
bankruptcy protection; provided, however, that if the result of this
calculation is greater than ***, the MMR shall be ***, and
if the result is less than ***,
the MMR shall be ***.  The MMR shall be calculated with respect to
the twelve (12) month period ending March 31, 2007.

 

E-11

 

“Monthly Payment” means the payment to be made pursuant to Section 1.01(b) of
Exhibit E.

 

“Monthly Rate” shall have the meaning ascribed to such term in Section 1.02
of this Exhibit E.

 

“Non-Scheduled Flights” means all flights using the CRJ-200/440 Aircraft
which are not Scheduled Flights or Charter Flights.

 

“Performance Criteria” shall have the meaning ascribed to such term
in Section 1.08(a) of Exhibit E.

 

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

 

“PPI” means Producer Price Index for Commodities, Item Finished Goods
– not seasonally adjusted, published by the United States Department of Labor,
Bureau of Labor Statistics, and, if no longer published, any comparable
successor index selected by Northwest.

 

“QECs” means quick engine change kits.

 

“Scheduled Flights” means revenue passenger flights (other than
Charter Flights) using the CRJ-200/440 Aircraft which, regardless of frequency,
are held out to the public and published in the customary and applicable schedule distribution
systems, such as the Official Airline Guide, or published by Northwest in its
own system timetables.  In addition,
Scheduled Flights shall include all regularly scheduled flights which are not
revenue passenger flights as determined by Northwest in its sole discretion.

 

E-12

 

Attachment B

 

CRJ Fuel Burn (Penalty)
Formulas

 

Note: The formulas below are
to be used for the calculation of Fuel Burn Penalty Payments as they pertain to
each performance measure and the All-in Rate in Section 1.04 of Exhibit E.  The Penalty, while settled on an annual
basis, is based on a monthly calculation. 
The result of the calculation for each performance measure shall be
netted together to produce a net Penalty, if one should exist.  To the extent that formulas do not yet exist
(i.e. Cruise Speed and Altitude), the parties mutually agree to document those
formulas when those performance measures are implemented.  Per Section 1.04, the All-in Rate is
first adjusted for the variances that exist with respect to each performance
measure, and then to the extent an unfavorable variance to budget exists, the
penalty formula below for the All-in Rate is applied. A Penalty is assessed if
the cause of variance is deemed within the control of Mesaba.  An example for a month is illustrated below
in Attachment C hereto.

 

1.              Excess Planned Fuel on Arrival (PFOA)

 

Monthly Penalty:

 

***

 

Definition:

 

Planned Fuel On Arrival (PFOA)
is comprised of:

 

1)              Domestic Reserve Fuel. This is a fixed
amount of fuel required by FAR to be carried on all operations.

2)              Alternate Fuel.  This is the fuel required to fly from the
intended destination to an alternate destination. This fuel is required on some
but not all flights according to FAR and Mesaba’s policies related to
destination weather.

3)              Holding fuel (Contingency). This fuel is
required, by FAR and Mesaba’s policies, for expected holding, potential delays
and deviations.

 

E-13

 

2.              Excess Auxiliary Power Unit (APU) Burn

 

Monthly Penalty:

 

***

 

3.                                      All-in Rate (to be applied after adjusting for known
variances to performance measures above as shown in the sample calculation set forth
in Attachment B hereto)

 

Monthly Penalty:

 

***

 

E-14

 

Attachment
C

Example of
One Month Penalty Calculation

 

***

 

E-15

 

EXHIBIT F

 

Pass Travel Privileges

 

I.                                         Overview

 

It is understood and agreed that Northwest has purchased and therefore
controls all seat inventory on Northwest coded flights operated by Mesaba
subject to the Airline Services Agreement (the “Agreement”) entered into by
Northwest and Mesaba.  Northwest, in its
sole discretion, shall set all prices and control all seat inventory on Mesaba
flights operated under the Northwest code.

 

Seats on Northwest coded flights operated by Mesaba have an intrinsic
value to Northwest and by definition persons occupying perishable seats, either
on a positive space or space available basis, have revenue opportunity costs
(displacement, dilution, etc.) to Northwest. 
Northwest will therefore establish the policies for utilizing its
valuable and perishable product inventory. 
Northwest shall have the right, in its sole discretion, to establish
pass travel policies for all persons on all Northwest Flights, including those
operated by Mesaba.

 

Travel privileges of employees, officers and directors of Mesaba and
Mesaba’s parent company, MAIR Holdings, Inc. (“MAIR”), shall be governed
by this Exhibit F.

 

Definitions

 

“Northwest Flights” shall mean all flights operated by Northwest,
Mesaba (regional jets and turboprops) and Pinnacle Airlines, Inc. (“Pinnacle”)
under the Northwest designator code.  If
and to the extent Northwest enters into an agreement with any regional carrier
other than Mesaba that provides for pass travel on the terms set forth herein,
the term “Northwest Flights” shall include the flights operated by such carrier
under the Northwest designator code.

 

“Mesaba/MAIR Business Travel” shall mean employee travel that is
required to run Mesaba’s or MAIR’s operations, perform employee job functions,
meet with vendors, attend company/industry meetings/training, or conduct
company business.

 

By definition, Mesaba/MAIR
Business Travel to conduct company business would require a meeting with
another person (internal or external) and the vast majority of the trip’s
duration should be related to the business objective.  If a pleasure trip is taken in conjunction
with a business trip, the pleasure portion must be flown space available.  Examples:

 

1.                                       Extend
business trip for personal reasons before/after.

Example: Business trip from city A to city B. 
After meeting is complete, employee extends trip by 2 days in city B for
personal reasons.  Return flight from
city B is leisure space available at the employee’s normal boarding priority.

 

F-1

 

2.                                       Round
Robin.  Business trip from city A to
B.  After business is complete, employee
travels from city B to city C for personal reasons, then returns to city A.

 

•                                          Flights
from B to C and C to A are leisure space available.

 

Things that would not qualify as “Business” would be

 

•                                          Emergency
travel, funeral travel, etc.

•                                          Familiarization
trips to visit cities where no business is conducted

•                                          Employee
recognition/rewards

•                                          Any
travel related to personal reasons

•                                          Any
travel by any person who is not an employee, such as a spouse or family member

 

In enforcing Northwest’s business travel policies, Mesaba must exercise
good faith in determining what is valid company business and in doing so must
comply with Northwest’s business travel definition and policies, as such
definitions and policies may be changed from time to time by Northwest in its
sole discretion.

 

“Leisure Travel” shall mean any travel that does not qualify as Mesaba/MAIR
Business Travel.

 

Travel Privileges of Mesaba/MAIR Employees on
Northwest Flights

 

1.               Travel Authority Privileges (Cards).

 

Northwest
shall have the sole authority to issue travel authority privileges for travel
on Northwest Flights (which by definition includes Northwest coded flights
operated by Mesaba and Pinnacle).  Mesaba
and MAIR will not be entitled to issue travel authority privileges on Northwest
Flights; however, Mesaba or MAIR may submit a request for travel on Northwest
to the Northwest Pass Bureau and Northwest, in its sole discretion, shall
determine whether or not to grant any such request.

 

2.               Requests for Business and Leisure
Travel Passes on Behalf of Any Person Other Than employees/retirees/family
members of employees of Mesaba/MAIR.

 

Any request
for pass travel (positive and space available) on Northwest Flights for any
person other than employees, retirees or family members of employees of Mesaba
or MAIR (for example, employees of airlines other than Mesaba, or travel
agents) may be submitted to the Northwest Pass Bureau for approval and
Northwest, in its sole discretion, shall determine whether or not to grant any
such request.  In this regard, on or
before September 15, 2005 Mesaba will terminate any pass travel program it
may have for travel agents.  Any pass
travel arrangements that Mesaba may have with other airlines are subject to
approval by Northwest, and Mesaba shall promptly terminate any such
arrangements which are in effect as of the date of this Agreement and which are
not approved by Northwest.

 

F-2

 

3.               Ticket Donations.

 

Northwest agrees to provide Mesaba/MAIR with *** tickets per year for
charitable donations to be made at Mesaba’s discretion.

 

4.               Collateral (i.e., free tickets,
upgrades, Worldclub passes, elite memberships, etc.).

 

Northwest agrees to provide Mesaba/MAIR with $*** per year of
collateral to be used for Mesaba’s business purposes (i.e., for sales,
marketing, service recovery, etc.). 
Northwest shall determine from time to time the types of collateral to
be made available to Mesaba and the unit cost for each type of collateral
product.  The list of collateral products
and the unit costs thereof as of the date hereof are set forth on Attachment A
attached hereto.  Ordering will be
handled via Northwest’s GMS process.

 

Other Management (exempt) Employees of
Mesaba/MAIR.

 

1)              Mesaba/MAIR may designate up to ***
management (exempt) employees who will be eligible for *** Business Travel on
Northwest Flights.  Mesaba shall submit
the list of such employees to Northwest annually and Northwest may, in its sole
discretion, approve or disapprove any employee whose name appears on such list
for such travel privileges.

2)              All other management (exempt) employees
of Mesaba/MAIR who are not entitled to the travel privileges described in Section 5(1) above
may travel on Northwest Flights with boarding priority ***, and, to the extent
Mesaba/MAIR desire that any such employee travel on a Northwest Flight for
Mesaba/MAIR business purposes with higher priority, Mesaba may submit its
request for positive space travel to the Northwest Pass Bureau for
approval.  Northwest, in its sole
discretion, shall determine whether or not to grant any such request.

 

Non-Management (Non-Exempt) and Contract
Employees of Mesaba

 

Non-management (non-exempt) and contract employees of Mesaba/MAIR must
request approval from the Northwest Pass Bureau for any positive space travel
on Northwest Flights for Mesaba/MAIR business purposes.  Northwest, in its sole discretion, shall
determine whether or not to grant any such request.  Any such approved travel for Mesaba/MAIR
business purposes by such employees shall be on a positive space basis.

 

Mesaba Operational Travel Requirements.

 

Deadhead travel and travel for pilot or
flight attendant FAA-mandated training.  Mesaba may book travel on Northwest Flights
with boarding priority of *** for pilot and flight attendant deadhead and
FAA-mandated travel.  The purpose of such
travel must be supported by crew scheduling, crew bid reports, training
schedules or other records of Mesaba’s operations.  Such records must be maintained for not less
than one (1) year and made available for audit by Northwest upon request.

 

F-3

 

Any deadhead booking must contain the
following restriction:  “No origin/dest
or date changes allowed, per Revenue Management.”  Any booking without the above stated
restriction will be subject to a $*** fee.

Any *** booking must be pre-approved by Northwest.  Any *** booking made without Northwest’s
pre-approval will be subject to a $*** one-way fee.

*** exceptions should be requested from
Northwest Day-of-Departure (DoD) desk.

 

Upon no circumstance may positive space bookings be used to transport
Mesaba flight crews to or from their home (i.e., commuting or “Call in Honest”)
or for other non-operational purposes.

 

Aircraft on Ground (AOG).

 

In the event Mesaba’s operations require the transportation of Mesaba’s
mechanics or other required personnel due to AOG, Mesaba shall request approval
from the Northwest DoD desk for such travel at boarding priority ***, or if
necessary, ***.  Northwest, in its sole
discretion, shall determine whether or not to grant any such request.

 

Travel by
Interview Candidates, Consultants or Vendors of Mesaba/MAIR.

 

Mesaba and
MAIR will be entitled to purchase positive space travel on Northwest Flights
for consultants, vendors and interview candidates of Mesaba or MAIR to attend
meetings at Mesaba or MAIR locations for Mesaba/MAIR business purposes only on
the terms and conditions set forth in the Northwest Pricing Bulletin BN139,
attached hereto as Attachment 1. 
This Pricing Bulletin is subject to change by Northwest on an annual
basis.  In addition, Mesaba or MAIR may
utilize space available travel for interview candidates, consultants or vendors
paying a service fee equal to parents (see service fee chart under leisure
travel) with a boarding priority of ***. 
For boarding purposes, the date of travel will be used for the seniority
date.

 

Leisure Travel
by Employees of Mesaba and Employees of MAIR.

 

It is
understood that Northwest maintains complete control over the grant of all
travel privileges on all Northwest Flights, including non-revenue space
available boarding priority.  Northwest
shall be entitled to all fees and charges collected for pass travel and
Mesaba/MAIR shall not under any circumstances impose any fees, charges or
surcharges on any pass travel on Northwest Flights operated by Mesaba other
than those set forth herein or specifically authorized by Northwest.  Mesaba shall be responsible for the payment
to Northwest of pass travel fees and charges and the annual pass travel
registration fees relating to travel by employees of Mesaba and MAIR or their
family members, registered domestic partners or companions, and all amounts
collected by Mesaba from its employees and MAIR employees shall be collected on
behalf of Northwest and payable to Northwest on a monthly basis as provided in Section III.11.

 

F-4

 

Leisure Travel
by Mesaba and MAIR Employees on Northwest Flights Operated by Mesaba:

 

Mesaba shall
administer pass travel policies on Northwest Flights operated by Mesaba and
Pinnacle in a manner that is wholly consistent with Northwest’s policies as
they currently exist and may in the future be changed by Northwest in its sole
discretion and shall communicate clearly such policies to the Mesaba and MAIR
employees.  Mesaba shall be responsible
for enforcing such pass policies with respect to travel by Mesaba and MAIR
employees on Northwest Flights and shall notify Northwest in the event of any
violations.

 

Mesaba agrees
to conform its existing pass travel policies and programs to those of Northwest
as soon as reasonably practicable after the date of the Agreement.  Such conforming changes include but are not
limited to the following:

 

1) The space
available boarding priority for Mesaba and MAIR employees on Northwest Flights
will be as follows:  

 

	
  Mesaba

  	
   

  	
  Flights Operated By

  	
   

  
	
  Employee
  Category

  	
   

  	
  Northwest

  	
   

  	
  Mesaba

  	
   

  	
  Pinnacle

  	
   

  
	
  Active management (exempt)

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  
	
  Active
  non-management (non-exempt) and contract

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  
	
  Retired management

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  Retired non-management (non-exempt) and
  contract

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  
	
  Parents

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  	
  ***

  Seniority date

  	
   

  

 

Mesaba shall under no circumstances grant
travel privileges on any Northwest Flights at a boarding priority that deviates
from that stated above.

 

A retired employee is an employee who retired
from Mesaba while in an active employee status or retired from Mesaba while in
an inactive status (i.e. layoff status) and met the definition of early/normal
or disability retirement when last on active payroll.

 

Early
retirement – employee must attain age 55 (pilots age 50) and have ten or more
years of vesting service.

 

F-5

 

Normal retirement
– employee must attain age 65 (pilots age 60) and have at least five years of
vesting service.

Disability
retirement – employee – management/non-management-must be a participant in the
plan and have ten or more years of vesting service and be approved by Mesaba
for service and be approved by Mesaba for disability retirement.

 

Service Fees for travel by active and retired employees and parents of
active employees.  Northwest’s current
pass travel policies provide for the following fees for pass travel by active
and retired employees and parents of active employees:

 

Active
management (exempt): No service charge. 
International taxes apply.

Active
non-management (non-exempt) and contract employees shall be subject to the
following fees:  (see below)

Retirement
management (exempt):  No service charge
for the employee, spouse or domestic partner. 
International taxes apply. 
Service fees for eligible dependents are subject to the same service
fees as non-management with less than five years of service as noted below.

Retirement
non-management (non-exempt) and contract employees and eligible family members
shall be subject to the same service fees as non-management with less than five
years of service as noted below.

 

 

	
   

  	
   

  	
  Services Fees

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Domestic

  	
   

  	
  International

  	
   

  	
  International

  	
   

  
	
   

  	
   

  	
  Coach*

  	
   

  	
  First*

  	
   

  	
  Coach

  	
   

  	
  First

  	
   

  	
  Taxes

  	
   

  
	
  Employee less than 5 years service

  	
   

  	
  $***

  OW

  	
   

  	
  $ ***

  OW

  	
   

  	
  See Attachment 2

  	
   

  	
  See Attachment 2

  	
   

  	
  As applicable

  	
   

  
	
  Employee > 5 years service

  	
   

  	
  ***

  	
   

  	
  $***

  	
   

  	
  ***

  	
   

  	
  See Attachment 2

  	
   

  	
  As applicable

  	
   

  
	
  Parent

  	
   

  	
  $***

  	
   

  	
  $***

  	
   

  	
  See Attachment 2

  	
   

  	
  See Attachment 2

  	
   

  	
  As applicable

  	
   

  

 

*Fares above are base fare only and do not
include applicable travel taxes.  Travel
taxes are subject to change by the U.S. Government or applicable country.

 

All pass
travel fees and charges shall be subject to change at Northwest’s discretion,
provided that fees and charges applicable to employees of Mesaba and MAIR shall
be no higher than those applicable to comparable employees of Northwest, and no
fees for Northwest employees will be higher than those for Mesaba and MAIR
employees.

Pass travel
fees shall apply to all Northwest Flights (including Mesaba and MAIR employees
flying on Northwest Flights operated by Mesaba – including regional jets and
turboprops).

Parents are eligible
for travel only for active employees. 
Upon retirement, parents of the employee are no longer eligible for
travel.

 

F-6

 

Annual
registration fee applies for all Mesaba and MAIR employees, including officers,
using Leisure Travel privileges.  In
addition, the annual registration fee applies to registered travel companions.

 

3)
Companion/Buddy Travel Program.

 

Mesaba must
terminate its existing companion/buddy pass travel program as of October 1,
2005.

 

Mesaba must
terminate all pass travel by any persons who are not employees of Mesaba/MAIR
or family members of Mesaba/MAIR employees (including without limitation
employees of airlines other than Mesaba or Northwest) on Northwest Flights
operated by Mesaba unless such travel is specifically permitted hereunder or an
authorized officer of Northwest approves such pass travel in writing.  Northwest shall provide Mesaba with a list of
officers of Northwest who are authorized to approve pass travel not provided
for herein.

 

Mesaba will be entitled to establish a new
companion/buddy program for Mesaba and MAIR employees for travel on Northwest
Flights as follows:

 

Each employee
of Mesaba and MAIR will receive *** one-way trips each calendar year on all
Northwest Flights.

The companion
of the Mesaba and MAIR employee must travel with the employee.

Registered
Travel Companions:  Registered travel
companions of Mesaba and MAIR employees will be entitled to pass privileges on
Northwest flights in accordance with Northwest’s registered travel companion
program.  The registered travel companion
of the Mesaba/MAIR employee may travel unaccompanied at a boarding priority of ***
on Northwest Flights.

Fees:  The fees payable by Mesaba and MAIR employees
for companion/buddy travel on Northwest Flights shall be consistent with the
fees payable by Northwest employees for companion travel on Northwest Flights
operated by Northwest, Mesaba and Pinnacle.

Boarding
priority:

 

	
   

  	
   

  	
  Flights Operated By

  	
   

  
	
   

  	
   

  	
  Northwest

  	
   

  	
  Mesaba

  	
   

  	
  Pinnacle

  	
   

  
	
  Boarding Priority

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  	
  ***

  	
   

  

 

Registered Domestic Partners. 
Registered domestic partners of Mesaba and MAIR employees will be
entitled to pass privileges on Northwest Flights in accordance with Northwest’s
registered domestic partner program, provided that registered domestic partners
of Mesaba’s flight attendants will be eligible for pass privileges in
accordance with the terms of the applicable collective bargaining agreement,
and Mesaba will use its

 

F-7

 

good faith
efforts to conform such provision of the collective bargaining agreement to
Northwest’s registered domestic partner program.

 

Mesaba/MAIR employees are eligible for the “Fly Confirmed with Perks”
program and the “Fly Confirmed for Less” program under the same terms and
conditions as Northwest employees.

 

Booking/Ticketing:

 

Mesaba agrees to maintain a link between its
employee database system and that of Northwest to facilitate the automated
booking of travel by Mesaba and MAIR employees.

 

With the automated linking of Mesaba’s and
MAIR’s employee database systems, Mesaba and MAIR employees will be permitted
to book positive space and space available travel in accordance with the
provisions hereof using Northwest automated system (IVR) and via Northwest
Reservations, as needed.

 

All travel must be by electronic
tickets.  The use of paper tickets, trip
passes, Mesaba ticket stock, or other such documents for travel on Northwest
Flights operated by Mesaba shall be strictly prohibited unless arranged by the
Northwest pass bureau.

 

Payment of
Fees

 

Northwest shall invoice Mesaba on a monthly
basis for all travel pass fees, registration fees and charges applicable to
travel by employees of Mesaba and MAIR, family members, companions and
registered domestic partners of such employees. 
Travel by Mesaba vendors, interview candidates, etc. hereunder on any
Northwest Flight will be paid at the time of ticketing and billed to a
corporate credit card.  Mesaba shall pay
to Northwest all invoiced amounts within 30 days after the date of the invoice.
Mesaba may elect not to collect from its own employees and MAIR’s employees the
pass travel fees and charges applicable to travel on Northwest Flights so long
as Mesaba pays such fees and charges to Northwest on behalf of Mesaba’s/MAIR’s
employees pursuant to the foregoing.  Any
amounts collected by Mesaba for pass travel on Northwest Flights operated by
Mesaba shall be collected on behalf of and for the benefit of Northwest and
remitted to Northwest on a monthly basis within thirty (30) business days after
the end of each month.  Mesaba shall have
no right or interest in and to such amounts.

 

Revocation/Termination/Modification/Amendment
of Pass Privileges.

 

All pass travel benefits described herein are
deemed to be privileges and are subject to revocation by Northwest in the event
of a failure to comply with the provisions hereof and the terms and conditions
of Northwest’s pass travel policies, as the same may be changed from time to
time by Northwest in its sole discretion. 
Notwithstanding the foregoing, Northwest agrees that any changes in
Northwest’s pass travel policies during the term of the Airline Services
Agreement between Northwest and Mesaba shall not (i) reduce the relative
boarding priority to which Mesaba/MAIR employees are entitled to travel on
Northwest

 

F-8

 

Flights pursuant to Sections 9 hereof, or (ii) increase
the fees and charges payable by Mesaba/MAIR employees for pass travel benefits
on Northwest Flights above those amounts payable by comparable employees of
Northwest for the same benefits.

 

Audit

 

Northwest shall be entitled to audit all
records of Mesaba to verify compliance with the provisions hereof.

 

Travel Privileges of Persons Other than Mesaba
Employees on Northwest Flights

 

Northwest shall have the right, in is sole discretion, to establish
pass travel policies for all persons on all Northwest Flights, including those
operated by Mesaba.  Mesaba shall
administer travel and accommodate passengers on Northwest Flights operated by
Mesaba consistent with all such policies established by Northwest.

 

It is
understood and agreed that leisure travel benefits for Northwest employees will
include boarding priority equal to Mesaba employees on Northwest Flights
operated by Mesaba, based on seniority. 
Northwest employees traveling with companions/buddies will board with
priority ***.  Northwest’s employee
travel fee structure will apply to all leisure travel by Northwest employees on
Northwest Flights operated by Mesaba and Mesaba shall under no circumstances
charge any additional fees, surcharges or other amounts to Northwest or
Northwest employees traveling on Northwest Flights operated by Mesaba.

 

V.                                     Travel
Privileges of Officers and Board of Directors of Mesaba/MAIR

 

Northwest
agrees to issue to the President and CEO of MAIR an *** travel card that is
valid for travel on Northwest Flights by such officer and his or her spouse and
eligible dependent children so long as he or she is employed by MAIR.  This card will be valid for Business Travel
or Leisure Travel.

 

Mr. Paul
Foley, the current President and CEO of MAIR, shall, after his retirement, have
the same retirement pass privileges as are granted to Northwest officers as of
the Effective Date of the Agreement.

 

Northwest
agrees to issue to Carl Pohlad, Chairman of the Board of MAIR, an *** travel
card that is valid for travel on Northwest Flights by Mr. Pohlad and his
spouse and

 

F-9

 

eligible
dependent children for so long as he is Chairman of the Board of MAIR.  This card will be valid for Business Travel
or Leisure Travel.

 

Northwest
agrees to issue to John Spanjers, President and Chief Operating Officer of
Mesaba, an *** travel card that is valid for travel on Northwest Flights by Mr. Spanjers
and his spouse and eligible dependent children so long as he is employed by
Mesaba.  This card will be valid for
Business Travel or Leisure Travel.

 

Northwest will
issue to other officers of Mesaba and MAIR travel privileges (up to a maximum
of *** or a maximum of *** trip events per year) on Northwest Flights
consistent with the travel privileges to which managing directors of Northwest
are entitled from time to time. 
Currently such privileges are as follows:

 

	
  Business
  Travel:

  	
   

  	
  *** travel
  card.

  
	
   

  	
   

  	
   

  
	
  Leisure
  Travel:

  	
   

  	
  *** trip
  events per year plus unlimited *** space available travel as provided to
  Northwest management employees.

  

 

Members of the
Board of Directors of Mesaba/MAIR who are not employees will be entitled to
receive a *** travel card that is valid for travel by such Board member and his
or her spouse and eligible dependent children on Northwest Flights operated by
Northwest, Mesaba and Pinnacle.  The card
will be valid for Mesaba/MAIR Business Travel and for Leisure Travel consistent
with the travel privileges to which managing directors of Northwest are
entitled from time to time.  The card
will not be valid for business travel on behalf of any person, company or
entity other than Mesaba or MAIR.

 

VI.                                 Travel
Privileges of MLT Employees; Vacation Package Discount for Mesaba/MAIR
Employees

 

As long as MLT
is a wholly owned subsidiary of Northwest, MLT’s employees and eligible family
members will have the following travel privileges for travel on Northwest
Flights including those operated by Mesaba:

 

Employees traveling on company business are entitled to *** travel ***.

Employees and eligible family members are eligible for leisure travel
on Northwest Flights operated by Mesaba and travel at priority *** or ***
(parents without employees) and Northwest’s fee structure will apply.

Companions and registered travel companions are eligible for leisure
travel at priority *** and Northwest’s fee structure will apply.

 

MLT will
extend to Mesaba and MAIR employees the same discount program provided to
Northwest employees for vacation packages booked with MLT.

 

F-10

 

Attachment A

 

Collateral Product/Unit Prices

 

***

 

F-11

 

Attachment 1

 

Pricing Bulleting BN 139

 

BN139, REVISION 1 / XJ VENDOR
FARES

 

***

 

F-12

 

Attachment 2

 

International Service Fees

 

***

 

F-13

 

EXHIBIT G

 

NORTHWEST SERVICE CITIES

 

	
  ABE

  	
  ALLENTOWN/BETHLEHAM/EASTON, PENNSYLVANIA, USA

  	
  PA

  
	
  ABQ

  	
  ALBUQUERQUE-INTERNATIONAL, NEW
  MEXICO, USA

  	
  NM

  
	
  ALB

  	
  ALBANY INTERNATIONAL AIRPORT, NEW YORK, USA

  	
  NY

  
	
  ANC

  	
  ANCHORAGE-INTERNATIONAL, ALASKA, USA

  	
  AK

  
	
  ASE

  	
  ASPEN, COLORADO, USA

  	
  CO

  
	
  ATL

  	
  ATLANTA-HARTSFIELD INTERNATIONAL, GEORGIA, USA

  	
  GA

  
	
  AUS

  	
  AUSTIN-ROBERT MUELLER FIELD, TEXAS, USA

  	
  TX

  
	
  AZO

  	
  KALAMAZOO/BATTLE CREEK-INTL, MICHIGAN, USA

  	
  MI

  
	
  BDL

  	
  HARTFORD/SPRNGFIELD-BRADLEY INTL, CONNECTICUT, 

  	
  CT

  
	
  BHM

  	
  BIRMINGHAM, ALABAMA, USA

  	
  AL

  
	
  BIL

  	
  BILLINGS-LOGAN INTERNATIONAL, MONTANA, USA

  	
  MT

  
	
  BIS

  	
  BISMARCK/MANDAN, NORTH DAKOTA, USA

  	
  ND

  
	
  BNA

  	
  NASHVILLE, TENNESSEE, USA

  	
  TN

  
	
  BOI

  	
  BOISE-GOWEN FIELD, IDAHO, USA

  	
  ID

  
	
  BOS

  	
  BOSTON-LOGAN INTERNATIONAL, MASSACHUSETTS, USA

  	
  MA

  
	
  BTR

  	
  BATON ROUGE, LOUISIANA, USA

  	
  LA

  
	
  BUF

  	
  BUFFALO NIAGARA INTERNATIONAL, NEW YORK, USA

  	
  NY

  
	
  BWI

  	
  BALTIMORE/WASHINGTON-INTERNATIONAL, MARYLAND, USA

  	
  MD

  
	
  BZN

  	
  BOZEMAN, MONTANA, USA

  	
  MT

  
	
  CID

  	
  CEDAR RAPIDS/IOWA CITY, IOWA, USA

  	
  IA

  
	
  CLE

  	
  CLEVELAND-HOPKINS INTERNATIONAL, OHIO, USA

  	
  OH

  
	
  CLT

  	
  CHARLOTTE, NORTH CAROLINA, USA

  	
  NC

  
	
  CMH

  	
  COLUMBUS-INTERNATIONAL, OHIO, USA

  	
  OH

  
	
  COS

  	
  COLORADO SPRINGS, COLORADO, USA

  	
  CO

  
	
  CVG

  	
  CINCINNATI-CINCINNATI & N KENTUCKY INTL, OHIO, USA

  	
  OH

  
	
  DAY

  	
  DAYTON-INTERNATIONAL, OHIO, USA

  	
  OH

  
	
  DCA

  	
  WASHINGTON-NATIONAL, DISTRICT OF COLUMBIA, USA

  	
  DC

  
	
  DEN

  	
  DENVER-INTERNATIONAL, COLORADO, USA

  	
  CO

  
	
  DFW

  	
  DALLAS/FORT WORTH-INTERNATIONAL, TEXAS, USA

  	
  TX

  
	
  DLH

  	
  DULUTH/SUPERIOR-INTERNATIONAL, MINNESOTA, USA

  	
  MN

  
	
  DSM

  	
  DES MOINES-ARPT, IOWA, USA

  	
  IA

  
	
  DTW

  	
  DETROIT-WAYNE COUNTY INTERNATIONAL, MICHIGAN, USA

  	
  MI

  
	
  EGE

  	
  VAIL-EAGLE COUNTY, COLORADO, USA

  	
  CO

  
	
  EWR

  	
  NEWARK LIBERTY INTERNATIONAL, NEW JERSEY, USA

  	
  NJ

  
	
  FAI

  	
  FAIRBANKS-INTERNATIONAL, ALASKA, USA

  	
  AK

  
	
  FAR

  	
  FARGO, NORTH DAKOTA, USA

  	
  ND

  
	
  FCA

  	
  KALISPELL/GLACIER PARK-INTERNATIONAL, MONTANA, USA

  	
  MT

  
	
  FLL

  	
  FORT LAUDERDALE-INTERNATIONAL,
  FLORIDA, USA

  	
  FL

  
	
  FNT

  	
  FLINT, MICHIGAN, USA

  	
  MI

  
	
  FSD

  	
  SIOUX FALLS, SOUTH DAKOTA, USA

  	
  SD

  

 

G-1

 

	
  FWA

  	
  FORT WAYNE, INDIANA, USA

  	
  IN

  
	
  GEG

  	
  SPOKANE-INTERNATIONAL, WASHINGTON, USA

  	
  WA

  
	
  GFK

  	
  GRAND FORKS-INTERNATIONAL, NORTH DAKOTA, USA

  	
  ND

  
	
  GPT

  	
  GULFPORT/BILOXI, MISSISSIPPI, USA

  	
  MS

  
	
  GRB

  	
  GREEN BAY/CLINTONVILLE, WISCONSIN, USA

  	
  WI

  
	
  GRR

  	
  GRAND RAPIDS-GERALD R FORD INTL, MICHIGAN, USA

  	
  MI

  
	
  GSO

  	
  GREENSBORO/HIGH POINT-INT’L, NORTH CAROLINA, USA

  	
  NC

  
	
  GSP

  	
  GREENVILLE/SPARTANBURG, SOUTH CAROLINA, USA

  	
  SC

  
	
  GTF

  	
  GREAT FALLS-INTERNATIONAL, MONTANA, USA

  	
  MT

  
	
  HDN

  	
  STEAMBOAT SPRINGS/HAYDEN/CRAIG, COLORADO, USA

  	
  CO

  
	
  HNL

  	
  HONOLULU-INTERNATIONAL, HAWAII, USA

  	
  HI

  
	
  HPN

  	
  NEW YORK-WESTCHESTER COUNTY, NEW YORK, USA

  	
  NY

  
	
  IAD

  	
  WASHINGTON-DULLES INT’L, DISTRICT OF COLUMBIA, USA

  	
  DC

  
	
  IAH

  	
  HOUSTON-INTERCONTINENTAL, TEXAS, USA

  	
  TX

  
	
  ICT

  	
  WICHITA, KANSAS, USA

  	
  KS

  
	
  IND

  	
  INDIANAPOLIS-INTERNATIONAL, INDIANA, USA

  	
  IN

  
	
  JAC

  	
  JACKSON HOLE, WYOMING, USA

  	
  WY

  
	
  JAN

  	
  JACKSON-INTERNATIONAL, MISSISSIPPI, USA

  	
  MS

  
	
  JAX

  	
  JACKSONVILLE-INTERNATIONAL, FLORIDA, USA

  	
  FL

  
	
  JFK

  	
  NEW YORK-JOHN F. KENNEDY INTL, NEW YORK, USA

  	
  NY

  
	
  KOA

  	
  KONA/KAILUA, HAWAII, HAWAII, USA

  	
  HI

  
	
  LAN

  	
  LANSING, MICHIGAN, USA

  	
  MI

  
	
  LAS

  	
  LAS VEGAS-MCCARRAN
  INTERNATIONAL, NEVADA, USA

  	
  NV

  
	
  LAX

  	
  LOS ANGELES INTERNATIONAL,
  CALIFORNIA, USA

  	
  CA

  
	
  LGA

  	
  NEW YORK-LA GUARDIA, NEW YORK, USA

  	
  NY

  
	
  LIT

  	
  LITTLE ROCK, ARKANSAS, USA

  	
  AR

  
	
  LSE

  	
  LA CROSSE, WISCONSIN, USA

  	
  WI

  
	
  MBS

  	
  SAGINAW/BAY CITY/MIDLAND, MICHIGAN, USA

  	
  MI

  
	
  MCI

  	
  KANSAS CITY-INTERNATIONAL, MISSOURI, USA

  	
  MO

  
	
  MCO

  	
  ORLANDO-INTERNATIONAL, FLORIDA, USA

  	
  FL

  
	
  MDT

  	
  HARRISBURG-INTERNATIONAL, PENNSYLVANIA, USA

  	
  PA

  
	
  MDW

  	
  CHICAGO-MIDWAY INTERNATIONAL, ILLINOIS, USA

  	
  IL

  
	
  MEM

  	
  MEMPHIS-INTERNATIONAL, TENNESSEE, USA

  	
  TN

  
	
  MEX

  	
  MEXICO CITY, MEXICO

  	
   

  
	
  MHT

  	
  MANCHESTER/CONCORD, NEW HAMPSHIRE, USA

  	
  NH

  
	
  MIA

  	
  MIAMI-INTERNATIONAL, FLORIDA, USA

  	
  FL

  
	
  MKE

  	
  MILWAUKEE-GENERAL MITCHELL INT’L, WISCONSIN, USA

  	
  WI

  
	
  MOT

  	
  MINOT-INTERNATIONAL, NORTH DAKOTA, USA

  	
  ND

  
	
  MSN

  	
  MADISON, WISCONSIN-DANE COUNTY REGIONAL, USA

  	
  WI

  
	
  MSO

  	
  MISSOULA-JOHNSON/BELL FIELD, MONTANA, USA

  	
  MT

  
	
  MSP

  	
  MINNEAPOLIS/ST. PAUL-INTERNATIONAL, MINNESOTA, USA

  	
  MN

  
	
  MSY

  	
  NEW ORLEANS LOUIS ARMSTRONG INTL, LOUISIANA, USA

  	
  LA

  
	
  MYR

  	
  MYRTLE BEACH-MYRTLE BEACH AFB, SOUTH CAROLINA, 

  	
  SC

  
	
  OGG

  	
  MAUI, HAWAII, USA

  	
  HI

  
	
  OKC

  	
  OKLAHOMA CITY, OKLAHOMA, USA

  	
  OK

  
	
  OMA

  	
  OMAHA, NEBRASKA, USA

  	
  NE

  

 

G-2

 

	
  ONT

  	
  ONTARIO-INTERNATIONAL, CALIFORNIA, USA

  	
  CA

  
	
  ORD

  	
  CHICAGO-O’HARE INTERNATIONAL, ILLINOIS, USA

  	
  IL

  
	
  ORF

  	
  NORFOLK/VIRGINA BEACH-INTERNATIONAL, VIRGINIA, USA

  	
  VA

  
	
  PBI

  	
  WEST PALM BEACH-INTERNATIONAL, FLORIDA, USA

  	
  FL

  
	
  PDX

  	
  PORTLAND-INTERNATIONAL, OREGON, USA

  	
  OR

  
	
  PHL

  	
  PHILADELPHIA-INTERNATIONAL, PENNSYLVANIA, USA

  	
  PA

  
	
  PHX

  	
  PHOENIX-SKY HARBOR INTERNATIONAL, ARIZONA, USA

  	
  AZ

  
	
  PIT

  	
  PITTSBURGH, PENNSYLVANIA, USA

  	
  PA

  
	
  PSP

  	
  PALM SPRINGS-MUNICIPAL, CALIFORNIA, USA

  	
  CA

  
	
  PVD

  	
  PROVIDENCE, RHODE ISLAND, USA

  	
  RI

  
	
  PWM

  	
  PORTLAND-INTERNATIONAL, MAINE, USA

  	
  ME

  
	
  RAP

  	
  RAPID CITY, SOUTH DAKOTA, USA

  	
  SD

  
	
  RDU

  	
  RALEIGH/DURHAM-INTERNATIONAL, NORTH CAROLINA, USA

  	
  NC

  
	
  RIC

  	
  RICHMOND-INTERNATIONAL, VIRGINIA, USA

  	
  VA

  
	
  RNO

  	
  RENO/TAHOE-INTERNATIONAL,
  NEVADA, USA

  	
  NV

  
	
  ROC

  	
  ROCHESTER, NEW YORK, USA

  	
  NY

  
	
  RST

  	
  ROCHESTER, MINNESOTA, USA

  	
  MN

  
	
  RSW

  	
  FORT MYERS INTERNATIONAL,
  FLORIDA, USA

  	
  FL

  
	
  SAN

  	
  SAN DIEGO-LINDBERGH FIELD, CALIFORNIA, USA

  	
  CA

  
	
  SAT

  	
  SAN ANTONIO-INTERNATIONAL, TEXAS, USA

  	
  TX

  
	
  SBN

  	
  SOUTH BEND REGIONAL, INDIANA, USA

  	
  IN

  
	
  SDF

  	
  LOUISVILLE INTERNATIONAL AIRPORT, KENTUCKY, USA

  	
  KY

  
	
  SEA

  	
  SEATTLE-SEATTLE TACOMA INTL, WASHINGTON, USA

  	
  WA

  
	
  SFO

  	
  SAN FRANCISCO-INTERNATIONAL, CALIFORNIA, USA

  	
  CA

  
	
  SJC

  	
  SAN JOSE, CALIFORNIA, USA

  	
  CA

  
	
  SJU

  	
  SAN JUAN-INTERNATIONAL, PUERTO RICO

  	
   

  
	
  SLC

  	
  SALT LAKE CITY-INTERNATIONAL, UTAH, USA

  	
  UT

  
	
  SMF

  	
  SACRAMENTO, CALIFORNIA, USA

  	
  CA

  
	
  SNA

  	
  SANTA ANA JOHN WAYNE AIRPORT, CALIFORNIA, USA

  	
  CA

  
	
  SRQ

  	
  SARASOTA/BRADENTON, FLORIDA, USA

  	
  FL

  
	
  STL

  	
  ST. LOUIS-LAMBERT INTERNATIONAL,
  MISSOURI, USA

  	
  MO

  
	
  SUX

  	
  SIOUX CITY, IOWA, USA

  	
  IA

  
	
  SYR

  	
  SYRACUSE-INTERNATIONAL, NEW YORK, USA

  	
  NY

  
	
  TPA

  	
  TAMPA-INTERNATIONAL, FLORIDA, USA

  	
  FL

  
	
  TUS

  	
  TUCSON-INTERNATIONAL, ARIZONA, USA

  	
  AZ

  
	
  TVC

  	
  TRAVERSE CITY, MICHIGAN, USA

  	
  MI

  
	
  TYS

  	
  KNOXVILLE, TENNESSEE, USA

  	
  TN

  
	
  VPS

  	
  VALPARAISO/FORT WALTON BEACH, FLORIDA, USA

  	
  FL

  
	
  YEG

  	
  EDMONTON-INTERNATIONAL, ALBERTA, CANADA

  	
  AB

  
	
  YQR

  	
  REGINA, SASKATCHEWAN, CANADA

  	
  SK

  
	
  YUL

  	
  MONTREAL-DORVAL INTERNATIONAL,
  QUEBEC, CANADA

  	
  PQ

  
	
  YVR

  	
  VANCOUVER-INTERNATIONAL, BRITISH COLUMBIA, CANADA

  	
  BC

  
	
  YWG

  	
  WINNIPEG INT., MANITOBA, CANADA

  	
  MB

  
	
  YXE

  	
  SASKATOON, SASKATCHEWAN, CANADA

  	
  SK

  
	
  YYC

  	
  CALGARY-INTERNATIONAL, ALBERTA, CANADA

  	
  AB

  
	
  YYZ

  	
  TORONTO-PEARSON INTERNATIONAL, ONTARIO, CANADA

  	
  ON

  

 

G-3

 

EXHIBIT H

 

FACILITIES USE AGREEMENT

 

This FACILITIES USE AGREEMENT (the “Agreement”) is made and
entered into as of this      day of August, 2005 (the “Effective
Date”) by and between Northwest Airlines, Inc., a Minnesota
corporation (“Northwest”) and Mesaba Aviation, Inc. d/b/a “Mesaba
Airlines”, a Minnesota corporation (“Mesaba”).

 

WITNESSETH:

 

WHEREAS, Northwest and Mesaba entered into an Airline Services
Agreement dated as of                             ,          ,
(as amended, modified or supplemented from time to time, the “Airline
Services Agreement”); and

 

WHEREAS, pursuant to Section 4.03 of the Airline Services
Agreement, Northwest agreed to grant Mesaba the right to use certain premises
and facilities leased by Northwest at the                               
Airport (the “Airport”) pursuant to that certain                                                   
Agreement dated as of                     ,
           by and between the
                                                  
(the “Lessor”) and Northwest (as may be amended, modified and
supplemented from time to time, the “Northwest Lease”) on the terms and
conditions set forth herein.

 

NOW, THEREFORE,
Northwest and Mesaba, each in consideration of the agreements of the other and
intending to be legally bound, agree as follows:

 

Section 1.  Use of
Premises.  During the term of this
Agreement, Northwest hereby agrees to provide Mesaba and its officers,
employees, representatives, contractors and agents, on and subject to the
terms, conditions and covenants hereinafter set forth, with access to certain
of the Premises leased by Northwest pursuant to the Northwest Lease.  Northwest, in its sole discretion, shall
designate from time to time the portion of such premises and facilities to be
used by Mesaba hereunder (said premises and facilities so designated by
Northwest, and together with all improvements and fixtures located thereon, are
hereinafter referred to as the “Premises”).  Mesaba’s use of the Premises shall be on a
non-exclusive, non-preferential, shared-use basis, said use to be coordinated
with Northwest’s Manager at the Airport. 
Nothing in this Agreement shall be deemed to confer upon Mesaba any
interest in the Premises, right to possess or control the use of the Premises,
or any other rights with respect to the Premises other than those expressly
provided herein.  NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, USE OF THE PREMISES IS PROVIDED ON
AN “AS IS, WHERE IS” BASIS AND WITH ALL DEFICIENCIES AND FAULTS BOTH KNOWN AND
UNKNOWN.  MESABA ACKNOWLEDGES THAT IT HAS
MADE A THOROUGH INSPECTION OF THE PREMISES AND ACCEPTS THE USE OF SUCH PREMISES
“AS IS, WHERE IS” AND THAT, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN,
NORTHWEST MAKES NO REPRESENTATIONS OR WARRANTIES, AND MESABA EXPRESSLY WAIVES
ALL WARRANTIES, EXPRESSED OR IMPLIED, RELATING TO THE SUITABILITY, FITNESS FOR
USE

 

H-1

 

OR FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY, DESIGN OR CONDITION OF
THE PREMISES.

 

Section 2.  Incorporation
of the Northwest Lease.  Mesaba
expressly acknowledges and agrees that this Agreement is subject to and
conditioned upon all of the terms, covenants and conditions of the Northwest
Lease, which terms, covenants and conditions, except as modified or deleted
herein, are expressly incorporated into this Agreement by reference as if set
forth in full herein to the extent the same apply to the Premises.  Upon request from Mesaba, Northwest shall
provide Mesaba with a full and complete copy of the Northwest Lease.  Mesaba agrees to assume, faithfully perform,
carry out and be bound by all of the terms, covenants and conditions of the
Northwest Lease with respect to its use of the Premises at the time and in the
manner provided therein as if Mesaba was expressly named as the Lessee under
the Northwest Lease.  Unless otherwise
provided herein, all references to the “Lessor” in the Northwest Lease shall be
deemed to include both the Lessor and Northwest, and Northwest shall have
against Mesaba all rights and remedies conferred upon the Lessor therein, provided,
however, that Mesaba agrees to look solely to the Lessor for performance of
the Lessor’s obligations under the Northwest Lease. Northwest shall not be
liable to Mesaba for the failure of the Lessor to perform its obligations under
the Northwest Lease, provided that within a reasonable period of time after
receipt of notice from Mesaba that Lessor has failed to so perform, Northwest
shall use its reasonable efforts to cause the Lessor to perform such
obligations to the extent that the failure of Lessor to do so could adversely
affect Mesaba’s use of the Premises. 
Mesaba agrees that it will not do or fail to do anything with respect to
the Premises which would cause a default to occur under the terms of the
Northwest Lease.  If approval of this
Agreement by the Lessor is required pursuant to the provisions of the Northwest
Lease, this Agreement is conditioned upon receipt of such approval. In the
event the Lessor does not approve this Agreement, this Agreement shall be
canceled immediately and all rights and obligations of the parties hereunder
shall terminate immediately.

 

Section 3.  Term.  This Agreement commences on the Effective
Date and shall continue in effect until the earlier of the expiration or
termination of the Northwest Lease or the expiration or termination of the
Airline Services Agreement, subject to earlier termination upon the occurrence
of any of the following:  (i) if the
Northwest Lease expires or is terminated for any reason whatsoever, in which
event this Agreement shall terminate immediately upon the expiration or
termination of the Northwest Lease; (ii) if Northwest terminates this
Agreement pursuant to Section 12 hereof; (iii) if the Airline
Services Agreement is terminated for any reason; (iv) in the event Mesaba
no longer operates flights pursuant to the Airline Services Agreement to or
from the Airport; or (v) upon mutual agreement of the parties hereto.

 

Section 4.  Use Fees.
During the term of this Agreement, Mesaba shall pay to Northwest for use of the
Premises the amounts set forth in Exhibit A attached hereto and
incorporated herein by reference (the “Fee”).  Fees or rents shall be paid by Mesaba within
thirty (30) days following the date of Northwest’s invoice to Mesaba, at
Northwest’s address as herein set forth.  
The Fee for any fractional month following the commencement or preceding
the end of this Agreement shall be prorated by days.  If any payment due hereunder is not received
by Northwest on or before the date on which said payment is due, Mesaba agrees
to pay interest on any overdue amounts at the rate of one and one-half percent
(11⁄2%) per month, but not to exceed

 

H-2

 

the maximum interest rate legally permissible in the State of
Minnesota, in addition to the amounts due.

 

Section 5.  Taxes, Fees
and Other Charges; Liens.  Except as
otherwise provided in the Airline Services Agreement, Mesaba shall be
responsible for the payment of all taxes (other than taxes based on or measured
by Northwest’s net income), fees and other charges, including without
limitation port or percentage fees assessed against this Agreement, which are
imposed by the Airport or any governmental authority against the Lessor,
Northwest or Mesaba with respect to this Agreement or Mesaba’s use of the
Premises or on any tangible personal property owned by Mesaba, plus all
interest and penalties attributable to such taxes, fees or other charges.
Mesaba’s obligations in this Section 5 pertain to all taxes (other than
taxes based on or measured by Northwest’s net income), fees and other charges
incurred or arising during the term of this Agreement, and shall not include or
obligate Mesaba to pay or indemnify Northwest for an any Pre-Existing Tax
Liabilities (as hereinafter defined). 
The term “Pre-Existing Tax Liabilities” shall mean any taxes, fees and
other charges incurred by or related to the Premises or Northwest’s use or
possession thereof prior to the Effective Date of this Agreement.  In the event that Mesaba enters this
Agreement in the middle of any annual taxation period, the tax liabilities will
be prorated accordingly between Northwest and Mesaba.  At all times during the term of this
Agreement, Mesaba shall keep the Premises free and clear of all liens, levies
and encumbrances arising from or related to any act or omission of Mesaba or
any party acting by or through Mesaba. 
Mesaba will provide to Northwest copies of all reports provided to the
Airport with respect to all fees and charges, including without limitation,
landing fees, payable with respect to flights operated at the Airport.

 

Section 6.  Use of
Premises; Compliance with Laws and Regulations.  Mesaba shall use the Premises solely for its
Northwest Airlink operations in accordance with the Airline Services Agreement
and for no other purpose without Northwest’s prior written consent. The
Premises may not be sublet, subdivided or used to provide services to other air
transportation companies whether or not such companies are affiliates of Mesaba
unless approved in advance by Northwest. Mesaba shall conduct its operations on
the Premises in a reasonable manner and shall not commit or suffer to be
committed any nuisance or act or thing which may disturb the quiet enjoyment of
Northwest or any other tenant at the Airport. 
Mesaba acknowledges that Northwest reserves the right to establish from
time to time reasonable rules, regulations and procedures for the use of the
Premises and Mesaba agrees to and shall cause its employees, agents and all
persons using the Premises under it to comply with all such rules, regulations
and procedures. At all times during the term of this Agreement, Mesaba’s
operations and activities on the Premises shall be in strict compliance with
all laws, rules and regulations of any federal, state, county, city or
other governmental authority having jurisdiction over the operation of the
Airport.  Mesaba shall pay when due all
costs, fines, fees and assessments that may be levied against it with respect
to its operations and activities on the Premises during the Term of this
Agreement.

 

Section 7.  Improvements.  Mesaba shall not erect any structures, make
any improvements to or do any other construction work on the Premises or alter,
modify, make additions or improvements to or install any fixtures in any
building or structure now existing on the Premises at any time during the term
hereof, without the prior written consent of both

 

H-3

 

Northwest and the Lessor.  The
costs of any such construction, improvements, alterations, additions or
modifications shall be borne solely by Mesaba. 
In the event any construction, improvement, alteration, modification or
addition is made without such approvals, Northwest may require Mesaba to remove
the same and restore the Premises to their condition prior to such
construction, improvement, alteration, modification or addition, and if Mesaba
fails to do the same, Northwest may effect the removal and restoration and
Mesaba shall pay the cost thereof to Northwest plus an administrative charge of
fifteen percent (15%) of such costs. 
Mesaba shall not remove any improvements made or fixtures installed on
the Premises during the term of this Agreement (unless Northwest requires their
removal pursuant to this Section 7). 
At the expiration or earlier termination of this Agreement, title to
such improvements and fixtures shall automatically vest in Northwest.

 

Section 8.  Maintenance
and Repair. Mesaba shall promptly repair any and all damage to the Premises
caused by its employees, agents, guests and invitees, or resulting from Mesaba’s
use of the Premises and shall provide, at its sole expense, janitorial and
trash removal services necessary to maintain a sanitary condition and neat
appearance within the Premises. In the event Mesaba fails to perform such
obligations and such failure continues for at least ten (10) days
following Mesaba’s receipt of written notice of such failure from Northwest,
Northwest may elect, but shall have no obligation, to perform any work on the
Premises that may be necessary by reason of Mesaba’s failure to perform and in
such event Mesaba shall pay to Northwest immediately upon demand therefor the
full cost associated with such work plus an administrative fee of fifteen
percent (15%).  Nothing herein shall
imply any duty upon the part of Northwest to do any such work and performance
thereof by Northwest shall not constitute a waiver of Mesaba’s default in
failing to perform the same.  Northwest
shall not be liable for inconvenience, annoyance, disturbance, loss of business
or other damage to Mesaba as a result of any interference with Mesaba’s use of
the Premises by Northwest.

 

Section 9.  Security
Procedures.  Mesaba agrees to fully
implement all procedures and comply with all regulations of the Airport’s
security program.  Mesaba will instruct
its employees and any other representatives of Mesaba including those under contract,
as to the security procedures to be followed and responsibilities required to
be performed by Mesaba with respect to its use of the Premises.  Northwest may, from time to time, evaluate
Mesaba’s compliance with the Airport’s security program.  In the event Mesaba shall fail to implement,
perform or observe any of the security procedures on its part to be performed,
observed and kept with respect to the Premises, Northwest shall have the right
to immediately take any corrective measures deemed necessary by Northwest,
including but not limited to termination of this Agreement in accordance with Section 12
hereof.  Mesaba shall indemnify and hold
harmless Northwest, its directors, officers, agents and employees, from and
against any and all costs, claims, judgments and expenses (including attorneys’
fees) incurred by Northwest due to any investigation commenced, or penalties or
fines imposed, by the Federal Aviation Administration, Transportation Security
Administration, the Airport or any other governmental agency having
jurisdiction with respect to the Airport’s security program arising out of or
in connection with Mesaba’s use of the Premises.

 

H-4

 

Section 10.  Limitation
of Liability and Indemnity.  Notwithstanding
any provision of the Northwest Lease to the contrary, Northwest shall not be
liable to Mesaba, or any of Mesaba’s agents, employees, servants or invitees,
and Mesaba agrees to release, indemnify, hold harmless and defend Northwest,
the Lessor, and their respective officers, directors, employees, agents,
successors and assigns, from and against any and all suits, claims, actions,
damages, liabilities and expenses (including, without limitation, attorneys’
fees, costs and related expenses) for bodily or personal injury or death to any
persons and for any loss of, damage to, or destruction of any property,
including loss of use, incidental and consequential damage thereof, arising out
of or in any manner connected with the breach, violation, performance or
nonperformance of any provision of this Agreement or of the Northwest Lease or
the use of the Premises by Mesaba or any of Mesaba’s agents, representatives,
employees, contractors or invitees, whether or not occurring or arising out of
the negligence, whether sole, joint, concurrent, comparative, active, passive,
imputed or any other type, of Northwest, the Lessor or their respective
officers, directors, employees or agents; however, the foregoing
indemnification shall not apply to any claim or liability resulting from the
gross negligence or willful misconduct of Northwest, its officers, directors,
employees or agents.  Mesaba’s
aforementioned indemnification obligations to Northwest shall not include or
obligate Mesaba to indemnify Northwest for any Pre-Existing Liabilities (as
hereinafter defined) or Post-Termination Liabilities (as hereinafter
defined).  The term “Pre-Existing
Liabilities” shall mean any suits, claims, actions and liabilities (including
without limitation any attorneys’ fees, costs and related expenses incurred in
connection therewith) related to the condition or design and any defect of the
Premises or Northwest’s use or possession thereof prior to the Effective
Date.  The term “Post-Termination
Liabilities” shall mean any suits, claims, actions and liabilities (including
without limitation any attorneys’ fees, costs and related expenses incurred in
connection therewith) related to the condition or design and any defect of the
Premises or Northwest’s or any other party’s use or possession thereof after
Termination, unless such “Post-Termination Liabilities” are found to have been
caused by Mesaba, or unless Mesaba assigns this Agreement pursuant to Section 17(c) below.

 

Section 11.  Insurance.

 

(a)                                  Sublessee shall at
all times during the term of this Agreement maintain in full force and effect
the following insurance coverages:

 

(i)                                     Workers’
compensation and occupational disease coverage in the form of and in the
minimum amounts required by the laws of the states in which Sublessee operates.  Such coverage shall include employer’s
liability coverage with limits of not less than $*** per incident.

 

(ii)                                  Commercial general
liability coverage with limits no less than $*** combined single limit per
occurrence.  Such coverage shall include
endorsements for personal injury and contractual liability.

 

(iii)                               Comprehensive aviation
bodily injury and property damage liability coverage with limits of not less
than $*** combined single limit per occurrence, including but not limited to
aircraft liability, passenger legal liability, premises and property damage
liability, hangar keepers liability and baggage and

 

H-5

 

cargo liability.  Such coverage
shall include personal injury and contractual liability, and shall also include
war risk and allied perils, hijack and confiscation coverage with a limit of
not less than $*** per incident.

 

(b)                                 Commercial general
liability and comprehensive airline liability insurance coverages shall provide
coverage for events which occur during the policy period, are continuing in
nature and not on a claims made basis, and shall include endorsements that:

 

(i)                                     Underwriters
acknowledge that the indemnification and hold harmless provisions of this
Agreement are insured under Sublessee’s blanket contractual liability coverage;

 

(ii)                                  Northwest and the
Lessor are named as additional insureds on such insurance to the extent of the
contractual liability assumed by Sublessee hereunder;

 

(iii)                               Said insurance is
primary with respect to the matters within such coverage, irrespective of any
insurance carried by Northwest;

 

(iv)                              Provide that, as respects
the interests of Northwest and the Lessor, this insurance shall not be
invalidated by any breach of warranty by Sublessee;

 

(v)                                 Provide a severability
of interests/cross liability endorsement; and

 

(vi)                              Provide that the insurer
shall waive its subrogation rights against Northwest and the Lessor.

 

(c)                                  Prior to the
commencement of this Agreement, Mesaba shall cause to be delivered to Northwest
certificates of insurance evidencing compliance with the provisions of this Section 11.  All of the insurance coverages referenced in
this Section 11 shall be written through a company or companies
satisfactory to Northwest, and the certificates of insurance shall
unconditionally obligate the insurer to notify Northwest in writing at least
thirty (30) days in advance of the effective date of any material change in or
cancellation of such insurance.

 

Section 12.  Default and
Remedies.  Northwest may terminate
this Agreement or pursue any other remedy provided to the Lessor under the
Northwest Lease if Mesaba fails to cure any default of this Agreement within
ten (10) days following receipt of written notice of default from
Northwest, or under any circumstances in which the Northwest Lease permits the
Lessor to pursue any such remedies. 
Termination of this Agreement by Northwest pursuant to this Section 12
shall not be construed as a waiver by Northwest of any other rights or remedies
it may have at law or in equity. 
Notwithstanding any other provision of this Agreement, in addition to
the remedies provided herein and in the Northwest Lease, Northwest shall have
all other rights and remedies available at law or in equity.

 

H-6

 

Section 13.  Environmental
Matters.

 

(a)  Covenants.  Mesaba hereby acknowledges and agrees that:

 

(i) Mesaba shall comply with all
applicable Environmental Laws, properly handle, label and dispose of all
Hazardous Substances utilized by or generated from operations on the Premises,
and shall ensure that all persons utilized by Mesaba in its operations on the
Premises have been fully and properly trained in the handling of Hazardous
Substances.

 

(ii)  Mesaba shall be responsible for
obtaining all permits and authorizations required for its operations on the
Premises.

 

(iii)  Northwest shall be permitted
access to the Premises at all times to inspect Mesaba’s operations
thereon.  Northwest may perform an
environmental audit of the Premises at any time during the term hereof and
Mesaba agrees to implement any changes to its operations or practices and
procedures requested by Northwest following such audit.

 

(iv)  Mesaba shall provide Northwest
with copies of any notice, correspondence or other communication to or from any
governmental entity or agency thereof that relates in any way with the
condition of the Premises.

 

(b)  Indemnity. 
Mesaba shall be responsible for and shall indemnify, defend and hold
Northwest harmless from and against all Losses associated with (i) any
Release from, in, on or to the Premises of a Hazardous Substance during the
Term of this Agreement (or any holdover by Mesaba after expiration of the
term), (ii) any violation of any Environmental Law in connection with the use
of the Premises during the term of this Agreement (or any holdover by Mesaba
after the expiration of the term), or (iii) any investigation of Mesaba
ordered by a governmental entity with appropriate jurisdiction over the
Premises.  The indemnity obligations of
this Section 13 shall survive the expiration or termination of this
Agreement.

 

(c)  Definitions. 
For purposes of this Agreement, the following terms shall have the
meanings noted:

 

(i)  “Environmental Law” shall mean all
applicable federal, state and local laws, rules, code, regulations, ordinances
and orders with respect to environmental protection or worker health and
safety, including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the Superfund Amendments
and Reauthorization Act of 1986, as amended; the Hazardous Materials
Transportation Act, as amended; the Resources Conservation and Recovery Act, as
amended; the Toxic Substance Control Act of 1976, as amended; the Federal Clean
Air Act, as amended; the Federal Water Pollution Control Act, as amended; the
National Environmental Policy Act, as amended; any so-called “Superfund” or “Superlien”
law; the Occupational Safety and Health Act, as amended; all regulations
promulgated by the United States Environmental Protection Agency; all
regulations

 

H-7

 

promulgated by the Occupational Safety and Health Administration; and
all rules adopted pursuant thereto.

 

(ii)  “Hazardous Substance” shall mean
all substances defined or listed as “hazardous substances,” “toxic substances,”
“hazardous waste,” “toxic pollutants” in, or otherwise regulated under, any
Environmental Law, including without limitation petroleum products and wastes
and asbestos-containing materials.

 

(iii)  “Release” shall mean any actual
or threatened escape, seepage, leakage, spillage, discharge, emission, pumping,
emptying or release.

 

Section 14.  Notices.
All notices and other communications under this Agreement shall be effective
two (2) business days after deposit with the United States Postal Service,
first class, postage prepaid, or one (1) business day after delivery via
overnight courier, or when hand delivered or transmitted by facsimile, and
shall be in writing and addressed to the parties at the following addresses:

 

	
  To Northwest:

  	
   

  	
  Northwest Airlines, Inc.

  
	
   

  	
   

  	
  2700 Lone Oak Parkway (Dept. A1135)

  
	
   

  	
   

  	
  Eagan, MN 55121-1534

  
	
   

  	
   

  	
  Fax No. (612) 727-6041

  
	
   

  	
   

  	
  Attention: Managing Director - Facilities & Airport Affairs

  
	
   

  	
   

  	
   

  
	
  To Mesaba:

  	
   

  	
  Mesaba Aviation, Inc.

  
	
   

  	
   

  	
  1000 Blue Gentian Road, Suite 200

  
	
   

  	
   

  	
  Eagan,

  
	
   

  	
   

  	
  Fax No. 651-367-5360

  
	
   

  	
   

  	
  Attention: President and Chief Operating Officer

  
	
   

  	
   

  	
  With copy to: Vice President of Financer

  

 

Either party may change the address at which notice is to be made by
providing notice of the change to the other party, in writing, in the manner
provided for in this Section 14.

 

Section 15.  Force
Majeure.  Neither party shall be
liable for any failure to perform its obligations under this Agreement, except
for Mesaba’s payment obligations set forth herein, if such failure is due to
causes beyond its control and not the result of its fault or neglect, including
without limitation, acts of God, war, the public enemy, epidemics, quarantine
restrictions, fire, fog, flood or other abnormally severe weather condition,
epidemics, riots or civil commotion, strikes, lockouts or labor disputes,
actions of governments or agencies thereof.

 

Section 16.  Nondiscrimination.  Mesaba agrees that it shall not discriminate
against any worker, employee or applicant or any member of the public because
of race, color, creed, religion, national origin, ancestry, age or sex.  Mesaba agrees to undertake an affirmative
action program as required by 14 CFR Part 152, Subpart E, to ensure that
no persons shall on the grounds of race, color, creed, national origin or sex
be excluded from participating in any employment activities covered in 14 CFR Part 152,
Subpart E.

 

H-8

 

Section 17.  Miscellaneous.

 

(a)                                  Litigation
Expenses.  In the event of any legal
action between Northwest and Mesaba to enforce any of the provisions and/or
rights hereunder, the unsuccessful party in such action agrees to pay to the
other party all reasonable costs and expenses incurred by the successful party
in connection therewith, including, without limitation, court costs and
reasonable attorneys’ fees.

 

(b)                                 Integration;
Amendment and Modification.  This
Agreement embodies the entire agreement between the parties hereto relative to
the subject matter hereof and shall not be modified, changed or altered in any
respect except in writing.

 

(c)                                  Assignment.  Mesaba shall not assign its rights or
obligations pursuant to this Agreement or permit any third party to use any
portion of the Premises without the prior written consent of Northwest and the
Lessor (if required under the Northwest Lease). 
In the event Northwest consents to any such assignment, Mesaba shall be
fully responsible to Northwest and the Lessor for and shall indemnify and hold
Northwest and the Lessor harmless with respect to compliance by the assignee
with all of the provisions of this Agreement and the Northwest Lease, except
and unless Mesaba’s assignment is to Northwest, or to another direct Northwest
or Northwest Airlink affiliate.

 

(d)                                 Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota.

 

(e)                                  Successors and
Assigns.  The covenants, agreements
and obligations herein contained shall extend to, bind and inure to the benefit
not only of the parties hereto but their successors and permitted assigns.

 

(f)                                    Survival.  The obligations of Mesaba contained in
Sections 5, 7, 9, 10, 11, 14 and 17 hereof shall remain in effect and survive
the expiration or termination of this Agreement.

 

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

 

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

 

H-9

 

IN WITNESS WHEREOF, Northwest and Mesaba have
executed this Agreement as of the day and year first above written.

 

 

	
  NORTHWEST AIRLINES, INC.

  	
  MESABA AVIATION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  (Signature)

  	
   

  	
   

  	
  (Signature)

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  
									

 

H-10

 

ACKNOWLEDGMENT AND CONSENT

 

                                                               ,
which is the Lessor under the Northwest Lease, hereby acknowledges receipt of
an executed copy of the foregoing Facilities Use Agreement and consents to the
terms thereof.

 

	
   

  	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
							

 

H-11

 

Attachment A

Use Fees

 

H-12

 

EXHIBIT
I

 

CANCELLATION CODES

 

XNO –
Northwest Requested Cancellation

 

XPO –
Passenger Overfly

 

XSO – Airlink
Special Cancel

 

XOZ –
Overflight

 

XNS –
Northwest Caused Cancellation

 

XDS* –
Aircraft Damage Station

 

XQS* –
Equipment Station

 

XVS* – Serving
Station

 

XXS* –
Regional Jet / Saab Substitution

 

XSZ – Schedule Cancellation
/ Change (approved by Northwest)

 

*only at
Northwest Service Cities

 

 

I-1Exhibit 10.6

 

[CONFIDENTIAL TREATMENT REQUESTED. 
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN
SEPARATELY FILED WITH THE COMMISSION]

 

AGREEMENT

 

THIS AGREEMENT is entered into as of August 29,
2005, between MAIR Holdings, Inc., a Minnesota corporation (“MAIR”), and
Northwest Airlines, Inc., a Minnesota corporation (“Northwest”).

 

WHEREAS, contemporaneous with the execution of
this Agreement, Mesaba Aviation, Inc., a wholly-owned subsidiary of MAIR (“Mesaba”),
and Northwest have entered into an Airline Services Agreement (the “ASA”)
pursuant to which Mesaba has agreed to provide certain regional airline
services to Northwest; and

 

WHEREAS, Northwest is the beneficial owner of
warrants (the “Original Warrants”) to purchase an aggregate of 4,151,922 shares
of common stock, par value $0.01 per share, of MAIR (the “Common Stock”); and

 

WHEREAS, as partial inducement for Northwest
to enter into the ASA, MAIR has agreed to (i) issue to Northwest an amended and
restated warrant (the “New Warrant”) that amends the terms of the Original
Warrants by reducing the number of shares of Common Stock issuable to Northwest
upon exercise of the New Warrant, adjusts the exercise price of such New
Warrant, modifies the vesting schedule and extends the term of the Original
Warrants; (ii) provide an initial capital contribution to Mesaba Aviation,
Inc.; (iii) grant certain rights to Northwest concerning MAIR’s Board of
Directors and management; and (iv) certain other related matters, all on the
terms and subject to the conditions set forth herein; and

 

WHEREAS, in return for MAIR’s obligations
hereunder, Northwest has agreed to grant certain pass privileges to MAIR’s
employees in accordance with Exhibit F to the ASA, and to affirmatively
acknowledge MAIR’s right to undertake certain airline business opportunities
with certain of MAIR’s subsidiaries; and

 

WHEREAS, the execution and delivery of this
Agreement is a condition to MAIR and Northwest entering into the ASA.

 

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

 

1.             Term of Agreement.  The rights and obligations created pursuant
to this Agreement shall become effective as of the Effective Date of the ASA
(as such date is defined in the ASA) and shall terminate upon termination of
the ASA.

 

2.             Delivery of New Warrant.  Contemporaneous with the execution of the ASA
and this Agreement, MAIR shall execute and deliver to Northwest the New Warrant
in the form attached hereto as Exhibit A.

 

 

3.             Capital Contribution.  Within three (3) business days following the
execution of the ASA and this Agreement, MAIR shall make a one-time cash
contribution to Mesaba in the amount of $*** less the amount of Mesaba’s lowest
cash balance during the thirty (30) days immediately prior to the date of this
Agreement.  MAIR agrees that, from the
date of execution of this Agreement through March 31, 2006, Mesaba will not declare
any dividends or other distributions to MAIR, and Mesaba will not make any
loans to MAIR or to any of Mesaba’s Affiliates (as defined in the ASA).  With respect to the time period after March
31, 2006, so long as the ASA remains in effect, Mesaba shall only declare
dividends to MAIR or make loans to MAIR or to any of Mesaba’s Affiliates in an
amount which does not exceed Mesaba’s Excess Cash (as defined herein) at the
time of the declaration of the dividend or the making of the loan.  Excess Cash means, as of a specified date,
the amount of cash greater than the amount of Mesaba’s *** for the three (3)
months prior to such date.  For example,
if Mesaba’s *** for the first calendar quarter of 2006 is $***, and if Mesaba’s
cash balance is $*** on April 30, 2006, Mesaba may declare a dividend to MAIR
on April 30, 2006 of up to $***, and if Mesaba’s cash balance on April 30, 2006
is $***, Mesaba may not declare a dividend to MAIR on April 30, 2006.

 

4.             Board Representation.  MAIR acknowledges that, so long as the ASA remains
effective, Northwest shall be allowed to nominate and recommend for election by
the shareholders of MAIR a sufficient number of nominees so that if such
nominees were elected, there would be three (3) directors designated by
Northwest then serving on the Board of Directors of MAIR (the “Nominees”), and
MAIR further agrees that any vacancy created by the death, resignation or
removal of a Nominee shall be filled by a person nominated by Northwest;
provided that, in exercising its rights pursuant to this Section 4, Northwest
agrees that (i) at least one of the Nominees shall be deemed independent
pursuant to then applicable rules and regulations of the Securities and
Exchange Commission and Nasdaq listing standards (the “Independence
Requirements”); (ii) each of such Nominees shall be approved by the Nominating
Committee of MAIR’s Board of Directors, which approval shall be limited to
determining whether at least one such nominee satisfies the Independence
Requirements.  For the avoidance of
doubt, Northwest acknowledges that MAIR shall not be obligated to, as a result
of the failure of at least one of the Nominees to be deemed independent,
increase the number of directors on its Board of Directors or replace any
existing non-independent director with an independent director to ensure MAIR’s
ongoing compliance with the Independence Requirements.

 

5.             
Pass Privileges.  Northwest agrees that all MAIR employees
shall be eligible to participate in Northwest’s pass program, as outlined in
Exhibit F to the ASA.

 

6.             Big Sky Turboprop Rights.  Northwest acknowledges and agrees that Mesaba’s
rights set forth in Section 2.14 of the ASA with respect to operation of
Scheduled Flights utilizing turboprop aircraft with nineteen (19) or fewer
seats may be exercised by MAIR’S subsidiary, Big Sky Transportation Co. (“Big
Sky”), subject to Big Sky’s satisfactory completion of a Northwest operational
quality and safety audit and submission of an economically equivalent bid to
operate such Scheduled Flights.

 

2

 

7.             Other Operations.  Northwest acknowledges that MAIR or one of
its subsidiaries (other than Mesaba) may operate flights to or from the Hub
Cities (as defined in the ASA) using its own airline code or the airline code, logo
or other identifying feature of a foreign or United States airlines other than
Northwest, provided that (i) with respect to any such flight the Hub City is a
spoke from a city that is not a Hub City and is not part of a hub operation
established by such foreign or United States airline at a Hub City and (ii) in
doing so, MAIR or its subsidiary does not cause Northwest to violate its pilot
scope clause.

 

8.             Audit Rights.  MAIR acknowledges that Section 6.02 of the
ASA grants Northwest the right to audit the books and records of Mesaba.  MAIR further acknowledges that, to the extent
MAIR allocates holding company expenses to its subsidiaries, including Mesaba,
or the amount of any payments made by Northwest to Mesaba pursuant to the ASA
reflect any costs or expenses incurred by MAIR, MAIR will allow Northwest to
audit such expenses and the allocation thereof. 
Any such audit of MAIR shall be subject to the same terms and time
limits as are set forth in the ASA.

 

9.             Miscellaneous.

 

(a)           Waivers. Amendments and Approvals.  Any term or provision of this Agreement
requiring performance by or binding upon the parties hereto may be amended, and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only by a
writing signed by the parties hereto. The waiver by a party of any breach
hereof or default in the performance hereof shall not be deemed to constitute a
waiver of any other default or succeeding breach or default.

 

(b)           Written Changes, Waivers, Etc. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but only by a statement in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

 

(c)           Notices.  All notices, consents or other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given and received when delivered personally,
delivery charges prepaid, or three business days after being sent by registered
or certified mail (return receipt requested), postage prepaid, or one business
day after being sent by a nationally recognized express courier service,
postage or delivery charges prepaid, to the parties at their respective
addresses stated below.  Notices may also
be given by facsimile and will be deemed to have been duly given and received
on the date transmitted if confirmed answerback is received at the end of the
transmission.  All such notices, consents
or other communications shall be delivered as follows:

 

3

 

	
  if to
  Northwest:

  	
   

  	
  Northwest
  Airlines, Inc.

  
	
   

  	
   

  	
  2700 Lone
  Oak Parkway

  
	
   

  	
   

  	
  Dept. A6110

  
	
   

  	
   

  	
  Eagan, MN
  55121

  
	
   

  	
   

  	
  Attention:
  Vice President Network Planning

  
	
   

  	
   

  	
  Fax No.:
  (612) 726-7994

  
	
   

  	
   

  	
   

  
	
  with a copy
  to:

  	
   

  	
  Northwest
  Airlines, Inc.

  
	
   

  	
   

  	
  2700 Lone
  Oak Parkway

  
	
   

  	
   

  	
  Dept. A1180

  
	
   

  	
   

  	
  Eagan, MN
  55121

  
	
   

  	
   

  	
  Attention:
  General Counsel

  
	
   

  	
   

  	
  Fax No.:
  (612) 726-7123

  
	
   

  	
   

  	
   

  
	
  if to MAIR:

  	
   

  	
  MAIR Holdings, Inc.

  
	
   

  	
   

  	
  150 South 5th Street, Suite 1360

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
   

  	
  Attention:  Chief Executive
  Officer

  
	
   

  	
   

  	
  Fax No.: (612) 333-0590

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  MAIR Holdings, Inc.

  
	
   

  	
   

  	
  150 South 5th Street, Suite 1360

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
  Fax No.: (612) 333-0590

  

 

Either party
may change its address for such communications by giving notice thereof to the
other party in conformity with this section.

 

(d)           Entire Agreement. This Agreement,
the ASA and the respective exhibits and attachments hereto and thereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto.

 

(e)           Severability. Should any one or
more of the provisions of this Agreement, the ASA or of any agreement entered
into pursuant to this Agreement or the ASA be determined to be illegal or
unenforceable, all other provisions of this Agreement, the ASA and of each
other agreement entered into pursuant to this Agreement or the ASA, shall be
given effect separately from the provision or provisions determined to be
illegal or unenforceable and shall not be affected thereby. The parties further
agree to replace such void or unenforceable provision of this Agreement or the
ASA (as

 

4

 

applicable) with a valid and enforceable provision which will achieve,
to the extent possible, the economic, business and other purposes of the void
or unenforceable provision.

 

(f)            Successors and Assigns. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon and be enforceable by the respective heirs, successors and assigns of the
parties hereto; provided, however, that such assignee or transferee agrees in
writing to be bound by all of the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

 

(g)           Governing Law. This Agreement
shall be governed by and construed under the laws of the State of Minnesota,
without regard to its conflicts of laws provisions.

 

(h)           Counterparts. This Agreement may
be executed concurrently in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

 

(i)            Captions.  Captions set forth herein are
for ease of reference only and shall not affect the meaning of the relevant
provisions.

 

 

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

 

 

	
  NORTHWEST
  AIRLINES, INC.

  	
  MAIR
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ J.
  Timothy Griffin

  	
   

  	
  By:

  	
  /s/ Paul F.
  Foley

  	
   

  
	
   

  	
  J. Timothy Griffin

  	
   

  	
  Paul F. Foley

  
	
   

  	
  Executive Vice President

  	
   

  	
  President and Chief

  
	
   

  	
  Marketing and Distribution

  	
   

  	
  Executive Officer

  
						

 

5

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