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/s/ JONATHAN G. ORNSTEIN

Jonathan G. Ornstein

Chairman of the Board, Chief Executive Officer and Director

December 20, 2002

/s/ JAMES E. SWIGARD

James E. Swigart

December 20, 2002

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of December 6, 2002: Common Stock, no par value: $154.2 million.

On December 6, 2002, the Registrant had outstanding 31,645,837 shares of Common Stock.

Portions of the registrant’s proxy statement for the 2003 annual meeting of stockholders

This Form 10-K Report contains certain statements including, but not limited to, information regarding the replacement, deployment, and acquisition of certain numbers and types of aircraft, and projected expenses associated therewith; costs of compliance with Federal Aviation Administration regulations and other rules and acts of Congress; the passing of taxes, fuel costs, inflation, and various expenses to the consumer; the relocation of certain operations of Mesa; the resolution of litigation in a favorable manner and certain projected financial obligations. These statements, in addition to statements made in conjunction with the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions, are forward-looking statements within the meaning of the Safe Harbor provision of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These statements relate to future events or the future financial performance of Mesa and only reflect management’s expectations and estimates. The following is a list of factors, among others, that could cause actual results to differ materially from the forward-looking statements: changing business conditions in certain market segments and industries; changes in Mesa’s code-sharing relationships; the inability of either America West or US Airways to pay its obligations under the code-share agreements; the inability of US Airways to successfully restructure and emerge from bankruptcy; an increase in competition along the routes Mesa operates or plans to operate; material delays in completion by the manufacturer of the ordered and yet-to-be delivered aircraft; availability and cost of funds for financing new aircraft; changes in general economic conditions; changes in fuel price; changes in regional economic conditions; Mesa’s relationship with employees and the terms of future collective bargaining agreements; satisfactory resolution of union contract negotiations with the Company’s pilots; the impact of current and future laws, additional terrorist attacks; Congressional investigations, and governmental regulations affecting the airline industry and Mesa’s operations; bureaucratic delays; amendments to existing legislation; consumers unwilling to incur greater costs for flights; unfavorable resolution of negotiations with municipalities for the leasing of facilities; and risks associated with litigation outcomes. One or more of these or other factors may cause Mesa’s actual results to differ materially from any forward-looking statement. Mesa is not undertaking any obligation to update any forward-looking statements contained in this Form 10-K.

All references to “we,” “our,” “us,” or “Mesa” refer to Mesa Air Group, Inc., and its predecessors, direct and indirect subsidiaries, and affiliates.

Mesa Air Group, Inc. (“we,” “us,” “Mesa” or the “Company”) is a holding company whose principle subsidiaries operate as regional air carriers providing scheduled passenger and airfreight service, as well as subsidiaries primarily in support of its operating airlines. The Company serves 147 cities in 37 states, the District of Columbia, Canada, and Mexico. At September 30, 2002, the Company operated a fleet of 124 aircraft and had approximately 889 daily departures.

Approximately 98% of our consolidated passenger revenues for the fiscal year ended September 30, 2002 were derived from operations associated with code-share agreements. Our subsidiaries have code-share agreements with America West Airlines, Inc. (“America West”), Frontier Airlines, Inc. (“Frontier”), Midwest Express Airlines, Inc. (“Midwest Express”), and US Airways, Inc. (“US Airways”). These code-share agreements allow use of the code-share partner’s reservation system and flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partners and provide coordinated schedules and joint advertising.

In addition to carrying passengers, we carry freight and express packages on our passenger flights and have interline small cargo freight agreements with many other carriers. We also have contracts with the


	•	Mesa Airlines, Inc. (“MAI”), a Nevada corporation, operates regional jet and turboprop aircraft as America West Express under a code-share agreement with America West, primarily at America West’s operations hub located in Phoenix; as US Airways Express under a code-share agreement with US Airways, primarily at US Airways’ hubs on the East Coast, including operations in Florida: and as Frontier JetExpress under a code-share agreement with Frontier Airlines in Denver.

	•	Air Midwest, Inc. (“Air Midwest”), a Kansas corporation, operates Beechcraft 1900D 19-seat turboprop aircraft as US Airways Express under separate code-share agreements with US Airways at US Airways’ hub operations in Pittsburgh, Philadelphia, Kansas City and Tampa. In February 2001, the Company entered into an agreement wherein Air Midwest’s flights in Kansas City code-share with both Midwest Express and US Airways. Air Midwest also operates as Mesa Airlines in Albuquerque, New Mexico and in select Essential Air Service (“EAS”) markets. The Albuquerque hub operation and select EAS markets are “Independent Operations” and are not subject to a code sharing agreement with a major carrier.

	•	Freedom Airlines, Inc. (“Freedom”), a Nevada corporation, operates CRJ-700 aircraft and plans to operate CRJ-900 aircraft as America West Express under a code-share agreement at America West’s operations hub in Phoenix. Freedom Airlines began revenue flight operations on October 19, 2002.

	•	CCAir, Inc. (“CCAir”), a Delaware corporation, ceased operations on November 3, 2002. During fiscal year 2002, CCAir operated turboprop aircraft as US Airways Express under a code-share agreement with US Airways at US Airways’ operations hub in Charlotte.

Unless the context indicates otherwise, the terms “Mesa,” “the Company,” “we,” “us,” or “our,” refer to Mesa Air Group, Inc. and its subsidiaries.

Mesa is a Nevada corporation that was originally formed in New Mexico, with its principal executive office in Phoenix, Arizona.

In addition to operating the airline subsidiaries listed above, we also have the following other subsidiaries:


	•	MPD, Inc., a Nevada corporation, doing business as Mesa Pilot Development and MPD — ASU, operates our training program for new pilots in conjunction with San Juan College in Farmington, New Mexico and Arizona State University in Tempe, Arizona.

	•	Regional Aircraft Services, Inc., a Pennsylvania corporation is a subsidiary of WestAir Holdings, Inc. and performs aircraft component repair and overhaul services.

	•	Mesa Leasing, Inc., a Nevada corporation, was established to assist in the acquisition and leasing of aircraft.

	•	MAGI Insurance, Ltd., a Barbados, West Indies based captive insurance company, was established for the purpose of obtaining more favorable aircraft liability insurance rates.

	•	Ritz Hotel Management Corp., a Nevada Corporation, was established to facilitate the Company’s acquisition and management of a Phoenix area hotel property used for crew accommodations in training.

	•	WestAir Holding, Inc., a California corporation, was the owner of WestAir Commuter Airlines, Inc. a California corporation (“WestAir”). WestAir ceased operations in 1998.

The following table sets forth our aircraft fleet (owned and leased) in operation by aircraft type as of September 30, 2002.

The following table sets forth our aircraft fleet (owned and leased) in operation by aircraft type as of December 6, 2002.


(1)	The Company returned two CRJ-200 aircraft on short-term leases in December 2002. In addition, the Company has three spare CRJ-200s that it anticipates flying for US Airways in the second quarter of fiscal year 2003.

Our airline subsidiaries have agreements with America West, US Airways, Frontier, and Midwest Express to use those carriers’ designation codes (commonly referred to as a “code-share”). These code-share agreements allow use of the code-share partner’s reservation system and flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partners and provide coordinated schedules and joint advertising. The Company’s passengers traveling on flights operated pursuant to code-share agreements receive mileage credits in the respective frequent flyer programs of the Company’s code-share partners, and credits in those programs can be used on flights operated by the Company.

The financial arrangement between us and our code-share partners involve either a revenue-guarantee or pro-rate arrangement. Both the America West code-share agreement and the US Airways regional jet code-share agreement are revenue-guarantee flying agreements. Under the terms of these flying agreements, the major carrier controls marketing, scheduling, ticketing, pricing and seat inventories. The Company receives a guaranteed payment based upon a fixed minimum monthly amount plus amounts related to departures and block hours flown plus direct reimbursement for expenses such as fuel, landing fees and insurance. Among other advantages, revenue-guarantee arrangements reduce the Company’s exposure to fluctuations in passenger traffic and fare levels, as well as fuel prices. The US Airways turboprop and the Frontier JetExpress code-share agreements are pro-rate agreements, for which the Company receives an allocated portion of the passengers’ fare and pays all of the costs of transporting the passenger.

The following table summarizes our available seat miles (“ASMs”) flown and revenue recognized under our code-share agreements for the year ended September 30, 2002:

We currently operate five CRJ-700s, 25 CRJ-200s, ten Dash-8s and three B1900D aircraft for America West under a code-sharing agreement. The code-share agreement provides for the Company to increase its fleet up to 25 CRJ-900s, 15 CRJ-700s, 25 CRJ-200s, 12 Dash-8s and five B1900Ds. The first CRJ-700 was placed into service in October 2002. In exchange for providing flights and all other obligations under the agreement, we receive a fixed monthly minimum amount plus certain additional amounts based upon the number of flights flown and block hours performed during the month. America West also reimburses us for certain costs on an actual basis, including fuel costs, aircraft ownership and financing costs, landing fees, passenger liability and hull insurance, and aircraft property taxes. We also receive a monthly payment from America West based on a percentage of revenue from flights that we operate under the code-share agreement. Under the code-share agreement, America West has the right to reduce the Dash-8, B1900, and combined CRJ fleets utilized under the code-share agreement by one aircraft in any six-month period; provided, however, America West must wait one year following the last scheduled delivery date of such aircraft to remove any CRJ-700 or CRJ-900 aircraft. In addition, America West may not reduce the Dash-8 aircraft to below a total of six. To date, America West has notified the Company of its intent to reduce the number of aircraft operated under the code-share agreement by (i) three CRJ-200s, (ii) two additional Dash-8 aircraft and (iii) three additional B1900D aircraft. The Company anticipates operating the removed aircraft under code-share agreements with the Company’s other partners. The code-share agreement terminates on the eighth anniversary of the date the last aircraft is added to the fleet under the agreement, which is currently anticipated to be 2012. The Company is currently in negotiations with America West on overall fleet composition.

We currently operate 32 Embraer regional jets for US Airways under a code-sharing agreement. The code-sharing agreement, as amended, provides that we will operate 52 regional jets as US Airways Express. The jet code-share agreement provides that we will provide US Airways Express service between US Airways hubs and cities designated by US Airways. In exchange for performing the flight services under the agreement, we receive from US Airways a fixed monthly minimum amount, plus certain additional amounts based upon the number of flights flown and block hours performed during the month. Additionally, certain costs incurred by Mesa in performing the flight services are “pass-through” costs, whereby US Airways agrees to reimburse us for the actual amounts incurred for these items: insurance, property tax per aircraft, fuel cost, oil cost, catering cost, and landing fees. We also receive a fixed profit margin based upon total costs under the agreement. On August 11, 2002, US Airways filed for Chapter 11 bankruptcy protection. On November 18, 2002, the U.S. Bankruptcy Court for the Eastern District of Virginia approved a motion filed by US Airways to continue the existing regional (i) jet code-share agreement and (ii) all amendments thereto, including the provisions for an additional 20 jets. The additional 20 jets must be in compliance with the ‘jets-for-jobs’ provisions in the US Airways pilot contract and requires the approval of the Company’s pilots. Additionally, on November 22, 2002, the Company signed a non-binding letter of intent with US Airways to provide an

additional 50 regional jets. In connection with this letter of intent, the Company agreed to issue 3,000,000 warrants to US Airways. The additional aircraft, which will also be subject to ‘jets-for-jobs,’ would be delivered beginning in mid- to late-2003. The jet code-share agreement for (i) the initial 32 ERJ-145s terminates on December 31, 2008, unless US Airways elects to exercise its option to extend the term for three years upon twelve months’ notice; and (ii) the additional 20 jets terminates on the tenth anniversary of the date the first additional jet is added, which is currently anticipated to be January 2003, unless US Airways elects to exercise its option to extend the term for two years upon 12 months notice.

Notwithstanding the foregoing, US Airways may terminate the code-share agreement at any time for cause upon 90 days notice and subject to our right to cure under any of the following conditions:


	•	If we fail to retain or utilize the aircraft in the manner required under the jet code-share agreement.

	•	If we admit liability or are found liable for serious safety infractions by the Federal Aviation Administration (“FAA”), a finding which leads to the suspension or revocation of Mesa’s operating certificate.

Pursuant to three separate turboprop code-sharing agreements with US Airways, we currently operate 30 B1900D turboprop aircraft under a pro-rate revenue-sharing arrangement. We control scheduling, inventory and pricing subject to US Airways’ concurrence that such service does not adversely affect its other operations in the region. We are allocated a portion of each passenger’s fare based on a standard industry formula and are required to pay all the costs of transporting the passenger.

US Airways may terminate the turboprop agreements at any time for cause upon not less than five days notice under any of the following conditions:


	•	If we fail to utilize the aircraft as specified in the agreements.

	•	If we fail to achieve specified levels of operating performance in completion factors and on-time arrival performance.

	•	If we fail to comply with the trademark license provisions of the agreement.

	•	If we fail to perform the material terms, covenants or conditions of the code-sharing agreement.

	•	Upon a change in our ownership or control without the written approval of US Airways.

The turboprop code-share agreements terminate in 2005 provided, however, most of the turboprop flying arrangements can be terminated by US Airways for any reason upon one hundred eighty (180) days prior advance written notice. Renewal of one code-share agreement with US Airways does not guarantee the renewal of the other code-share agreements with US Airways.

In September 2001, we entered into a five-year pro-rate revenue-sharing code-share agreement with Frontier Airlines, Inc. Under the terms of the agreement, we will market and sell flights operated by Mesa as Frontier JetExpress. This code-share began February 17, 2002 with service between Denver and selected cities. We currently operate four 50-seat CRJ-200 regional jet aircraft between Denver and the following cities: San Jose, San Diego, Ontario, Oakland and Wichita.

In June 1999, we entered into an agreement with Empresa Brasiliera de Aeronautica SA (“Embraer”) to acquire 36 Embraer ERJ-145 50-passenger regional jets. Mesa introduced the ERJ-145 aircraft into revenue service in the third quarter of fiscal 2000 as US Airways Express. As of September 30, 2002, we have taken delivery of 32 ERJ-145’s, which have been financed as operating leases. We have the right to cancel the

delivery of the four remaining firm aircraft. In conjunction with this purchase agreement, Mesa has $4.2 million remaining on deposit with Embraer, which is included with lease and equipment deposits at September 30, 2002. The remaining deposit will be returned to us either upon the delivery of the last four aircraft or upon notification by us of our intention to cancel the orders for the last four aircraft.

In August 1996, we entered into an agreement (the “1996 BRAD Agreement”) with Bombardier Regional Aircraft Division (“BRAD”) to acquire 16 CRJ-200 50-passenger regional jet aircraft. The 1996 BRAD Agreement also granted the Company an option to acquire an additional 16 regional jet aircraft. In fiscal 1997, we exercised our option to purchase the additional 16 CRJ aircraft reserved under the option provisions of the 1996 BRAD Agreement. The Company has received all 32 CRJ-200 aircraft under the 1996 BRAD Agreement. The aircraft are currently under permanent financing as operating leases with initial terms of 16.5 to 18.5 years.

In May 2001, the Company entered into a second agreement with BRAD to acquire 20 50-seat CRJ-200s, 20 64-seat CRJ-700s and 20 80-seat CRJ-900s (the “2001 BRAD Agreement”). Under the 2001 BRAD Agreement, we have the right to convert up to five CRJ-700 aircraft to CRJ-900 aircraft and to cancel our CRJ-200 order. We have notified BRAD of our intention to convert to CRJ-900s. The total number of firm aircraft currently on order is 15 CRJ-700s and 25 CRJ-900s. The transaction includes standard product support provisions, including training support, preferred pricing on initial inventory provisioning, maintenance support and technical publication support. Deliveries of the CRJ-700 commenced in July 2002, with revenue service commencing in October. We are the launch customer of the CRJ-900 and expect to take delivery of the first aircraft in the first calendar quarter of 2003. In addition to the firm orders, Mesa has an option to acquire an additional 80 CRJ-700 or CRJ-900 regional jets. In conjunction with the 2001 BRAD Agreement, Mesa has $8.8 million on deposit with BRAD, which is included with lease and equipment deposits at September 30, 2002.

The following table summarizes our jet fleet status and current fleet expansion plans currently under contract for the periods indicated:


*	Includes two CRJ-200s we were flying under short-term operating leases. The aircraft were returned to the lessor in the first quarter of fiscal 2003.

As of September 30, 2002, we owned 39 and leased seven Beechcraft 1900D aircraft. In fiscal year 2002, we returned 12 Beechcraft 1900D aircraft. We are currently in the process of returning excess aircraft to the manufacturer and anticipate operating 43 aircraft during fiscal 2003. We anticipate returning the remaining three aircraft in the second quarter of fiscal 2003.

Our flight schedules are structured to facilitate the connection of our passengers with the flights of our code-share partners at their hub airports and to maximize local and connecting service to other carriers.

Under our US Airways Express turboprop and Frontier JetExpress operations, the Company’s market selection process follows an in-depth analysis on a route-by-route basis and is followed by a review and approval process in a joint effort with US Airways or Frontier regarding the level of service and fares. We believe that this selection process enhances the likelihood of profitability in a given market.

Under the America West code-share agreement and the US Airways regional jet agreement, market selection, pricing and yield management functions are performed by America West and US Airways, respectively. Our role is simply to operate our fleet in the safest and most reliable manner in exchange for fees paid under a generally fixed payment schedule. We intend to expand our operations performed pursuant to these revenue-guarantee agreements.

Under our code-share agreements, the code-share partner coordinates advertising and public relations within their respective regions. In addition, our traffic is impacted by the major airline partners’ advertising programs in regions outside those served by us, with the major partners’ customers becoming our customers as a result of through fares. Under pro-rate code-share arrangements, our passengers also benefit from through fare ticketing with the major airline partners and greater accessibility to our flights on computer reservation systems and in the Official Airline Guide.

Our pro-rate agreements and Independent Operation flights are promoted through, and our revenues are generally believed to benefit from, listings in computer reservation systems, the Official Airline Guide and through direct contact with travel agencies and corporate travel departments. We participate in shared advertising with resort and rental property operators and ski areas in leisure markets in which we operate. Our independent and Frontier JetExpress operations utilize SABRE, a computerized reservation system widely used by travel agents, corporate travel offices and other airlines. The reservation systems of our code-share partners are also utilized in each of our other operations through their respective code-share agreements. We also pay booking fees to owners of other computerized reservation systems based on the number of independent and prorate passengers booked by travel agents using such systems. We believe that we have good relationships with the travel agents serving our passengers.

The airline industry is highly competitive and volatile. Airlines compete in the areas of pricing, scheduling (frequency and timing of flights), on-time performance, type of equipment, cabin configuration, amenities provided to passengers, frequent flyer plans, travel agent commissions and the automation of travel agent reservation systems. Further, because of the Airline Deregulation Act, airlines are currently free to set prices and establish new routes without the necessity of seeking governmental approval. At the same time, deregulation has allowed airlines to abandon unprofitable routes where the affected communities will not be left without air service.

We believe that the Airline Deregulation Act facilitated our entry into scheduled air service markets and allows us to compete on the basis of service and fares, thus causing major carriers to seek out further contractual agreements with carriers like us as a way of expanding their respective networks. However, the Airline Deregulation Act makes the entry of other competitors possible, some of which may have substantial financial resources and experience, creating the potential for intense competition among regional air carriers in our markets.

We believe our code-share agreements provide a significant competitive advantage in hub airports where our major partner has a predominant share of the market. The ability to control connecting passenger traffic by offering superior service creates difficulty for other regional airlines wishing to compete at such hubs. In addition to enhanced competitiveness offered by the code-share agreements, we compete with other airlines by offering frequent flights, flexible schedules and numerous fare levels.

Historically, we have not experienced problems with the availability of fuel, and believe that we will be able to obtain fuel in quantities sufficient to meet our existing and anticipated future requirements at competitive prices. Standard industry contracts generally do not provide protection against fuel price increases, nor do they ensure availability of supply. However, the Company’s code-share agreement with America West and the regional jet service agreement with US Airways allow fuel used in the performance of the agreements to be billed to the code-share partner, thereby reducing the Company’s exposure to fuel price fluctuations. In fiscal 2002, approximately 76% of the Company’s fuel was associated with the Company’s America West code-share and US Airways regional jet service agreements. A substantial increase in the price of jet fuel, to the extent our fuel costs are not reimbursed, or the lack of adequate fuel supplies in the future may have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

All mechanics and avionics specialists employed by us have the appropriate training and experience and hold the required licenses issued by the FAA. Using a combination of FAA-certified maintenance vendors and our own personnel and facilities, the Company maintains its aircraft on a scheduled and “as-needed” basis. We emphasize preventive maintenance and inspect our aircraft engines and airframes as required. We also maintain an inventory of spare parts specific to the aircraft types we fly. We provide periodic in-house and outside training for our maintenance and flight personnel and also takes advantage of factory training programs that are offered when acquiring new aircraft.

We carry types and amounts of insurance customary in the airline industry, including coverage for public liability, passenger liability, property damage, product liability, aircraft loss or damage, baggage and cargo liability and workers’ compensation.

As a result of the terrorist attacks on September 11, 2001, aviation insurers have significantly reduced the maximum amount of insurance coverage available to commercial air carriers for war-risk coverage, while at the same time, significantly increasing the premiums for this coverage as well as for aviation insurance in general. Given the significant increase in insurance costs, the federal government is providing insurance assistance under the Air Transportation Safety and System Stabilization Act. In addition, the federal government has issued war-risk coverage to U.S. air carriers that is generally renewable for 60-day periods. However, the availability of aviation insurance is not guaranteed and our inability to obtain such coverage at affordable rates may result in the grounding of our aircraft. Insurance costs are reimbursed under the terms of our code-share agreement with America West, and our regional jet service agreement with US Airways.

As of September 30, 2002, we employed approximately 3,100 employees. Approximately 2,300 of our employees are represented by various labor organizations. Our continued success is partly dependent on our ability to continue to attract and retain qualified personnel. Historically, we have had no difficulty attracting qualified personnel to meet our requirements.

Our five-year agreement with the Air Line Pilots Association (“ALPA”) for a single pilot contract for MAI and Air Midwest expired in December 2001. We are currently in contract negotiations with the pilots of MAI and Air Midwest for a new collective bargaining agreement. In July 2002, ALPA filed suit against the Company under the Railway Labor Act alleging (i) violation of the duty to bargain in good faith; (ii) attempting to undermine ALPA as the collective bargaining representative of pilots; and (iii) failure to refrain from making changes to status quo rates of pay, rules or working conditions. For more information regarding this matter, see the disclosure under the caption “Item 3 — Legal Proceedings” below.

MAI’s flight attendants are represented by the Association of Flight Attendants (“AFA”). On October 18, 2002, the Company and the AFA amended the terms of the agreement and extended the term through June 2006.

Pilot turnover at times is a significant issue among regional carriers when major carriers are hiring experienced commercial pilots away from regional carriers. The addition of aircraft, especially new aircraft types, can result in pilots upgrading between aircraft types and becoming unavailable for duty during the extensive training periods required. No assurances can be made that pilot turnover and unavailability will not be a significant problem in the future, particularly if major carriers expand their operations. Similarly, there can be no assurance that sufficient numbers of new pilots will be available to support any future growth.

No other Mesa subsidiaries are parties to any other collective bargaining agreement or union contracts.

The Essential Air Service program administered by the United States Department of Transportation (“DOT”) guarantees a minimum level of air service in certain communities, predicated on predetermined guidelines set forth by Congress. Based on these guidelines, the DOT will subsidize air service to communities that might not otherwise have air service. We service 20 such cities for an annual subsidy of approximately $14.0 million. There is no guarantee that we will continue to receive subsidies for the cities we serve. If the funding under this program is terminated for any of the cities served by the Company, in all likelihood we would not continue to fly in these markets, and as a result, we would be forced to find alternative uses for the Beechcraft 1900D 19-seat turboprop aircraft affected.

As an interstate air carrier, we are subject to the economic jurisdiction, regulation and continuing air carrier fitness requirements of the DOT. Such requirements include minimum levels of financial, managerial and regulatory fitness. The DOT is authorized to establish consumer protection regulations to prevent unfair methods of competition and deceptive practices, to prohibit certain pricing practices, to inspect a carrier’s books, properties and records, and to mandate conditions of carriage. The DOT also has the power to bring proceedings for the enforcement of air carrier economic regulations, including the assessment of civil penalties, and to seek criminal sanctions.

We are subject to the jurisdiction of the FAA with respect to its aircraft maintenance and operations, including equipment, ground facilities, dispatch, communication, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain an operating certificate, which is subject to suspension or revocation for cause, and provides for regular inspections.

Effective March 1997, the FAA required that regional airlines with aircraft of 10 or more passenger seats operating under FAR Part 135 rules to begin operating those aircraft under FAR Part 121 regulations. The Company, as one of the largest regional airlines operating under FAR Part 135 regulations, completed the transition to Part 121 within the FAA’s deadline. These requirements have resulted in a significant increase our costs, adversely affecting our ability to profitably serve certain markets. Such increased costs are primarily related to additional training, dispatch and maintenance procedures. We continue to work to minimize the cost of these new operating procedures while fully complying with FAR Part 121 operating requirements.

We are subject to various federal and local laws and regulations pertaining to other issues of environmental protocol. We believe we are in compliance with all governmental laws and regulations regarding environmental protection.

We are also subject to the jurisdiction of the Federal Communications Commission with respect to the use of its radio facilities and the United States Postal Service with respect to carriage of United States mail. Local governments in certain markets have adopted regulations governing various aspects of aircraft operations, including noise abatement and curfews.

We maintain a website where additional information concerning our business can be found. The address of that website is www.mesa-air.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.

Our primary property consists of the aircraft used in the operation of our flights. The following table lists the aircraft owned and leased by the Company as of September 30, 2002.

See “Business — Airline Operations” and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources” for a discussion regarding the Company’s aircraft fleet commitments.

In addition to aircraft, we have office and maintenance facilities to support our operations. Our facilities are summarized in the following table:

We lease ticket counters, check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports we serve and staff those facilities with our personnel. America West, US Airways and Frontier also provide facilities, ticket handling and ground support services for the Company at certain airports.

Our corporate headquarters facility is leased pursuant to a ten-year lease that commenced November 1, 1998. In October 2002, we entered into an amendment to increase the total square footage to 26,000 and

We believe our facilities are suitable and adequate for our current and anticipated needs.

In March 2001, we reached agreement with United Airlines, Inc. to extend the current Mesa/ US Airways regional jet contract by an additional two years, to December 31, 2010, contingent upon completion of the proposed merger between United and US Airways. Under the agreement, Mesa and United agreed to drop all outstanding litigation between the two parties. On July 27, 2001, United and US Airways terminated their proposed merger.

In May 2001, we filed a complaint in Arizona state court against the law firm of Beus Gilbert P.L.L.C. (“Beus Gilbert”) arising out of Beus Gilbert’s representation of the Company in a suit against United Airlines (“UAL litigation”) that was settled in March 2001. The suit seeks a judgment voiding the fee arbitration provision (the “arbitration provision”) of a contingency fee agreement between the Company and Beus Gilbert. The provision purports to require that all disputes as to attorneys’ fees payable to Beus Gilbert be submitted to arbitration for final determination. Notwithstanding the requirement to arbitrate, the provision further purports to grant Beus Gilbert the right, “in its sole and absolute discretion,” to reject the decision of the arbitrator, impose an award in the amount equal to five times the aggregate hourly rate of all attorneys and paralegals who worked on the legal matter (plus costs and expenses), and enforce that award as though it were a civil judgment. Relying on the arbitration provision, following the settlement of the UAL Litigation, Beus Gilbert demanded in excess of $23.0 million, which it claims to have computed by applying a 5X multiplier in the arbitration provision to fees that allegedly accrued in excess of $4.0 million.

The suit against Beus Gilbert alleges that the arbitration provision is void as a matter of law because it is illusory and lacks mutual consideration; that it is also void because it violates a public purpose: a fair and equitable resolution of the parties’ fee dispute by an impartial arbitrator; and that it is unenforceable because it circumvents the legal and ethical requirements that attorneys’ fees be reasonable. The Company seeks a determination by the Court of the fee dispute between the parties. On November 27, 2001, the court granted Beus Gilbert’s motion to compel arbitration to resolve the dispute and ordered the arbitrator to decide whether the fee resulting from a 5X multiplier would be reasonable. On July 9, 2002, the arbitrator awarded Beus Gilbert $5.8 million which is included in other accrued expenses at September 30, 2002. The Company has appealed the arbitrator’s decision.

The Company and/or its subsidiaries is also involved in a lawsuit involving the Air Line Pilots Association, International (“ALPA”), the union that represents the Mesa Airlines and Air Midwest pilots.

The proceeding brought by ALPA, Case No. CV-02-1333-PHX-PGR (D. Ariz.) names as defendants the Company, our Mesa Airlines subsidiary and our Chairman in his individual capacity. It asserts three claims under the Railway Labor Act: (1) violation of the duty to bargain in good faith; (2) attempting to undermine ALPA as the collective bargaining representative of the Mesa Airlines pilots; and (3) failure to refrain from making changes to status quo rates of pay, work rules or working conditions prior to exhausting the statute’s mediation procedures. The latter two counts are based primarily on our announcement that we intend to establish a new subsidiary, Freedom Airlines, to perform flying for America West Airlines using CRJ-700 and CRJ-900 aircraft. We deny that we have violated the statute in any fashion and plan a vigorous defense against ALPA’s suit. The complaint was filed in July 2002. We filed a motion to dismiss in September 2002. Oral arguments are scheduled in January 2003.

We are also involved in various other legal proceedings and FAA civil action proceedings that the Company does not believe will have a material adverse effect upon our business, financial condition or results of operations, although no assurance can be given to the ultimate outcome of any such proceedings.

The following table sets forth the names and ages of the executive officers of the Company and certain additional information:

Jonathan G. Ornstein was appointed President and Chief Executive Officer of Mesa Air Group, Inc. effective May 1, 1998. Mr. Ornstein relinquished his position as President of the Company in June 2000. From April 1996 to his joining the Company as Chief Executive Officer, Mr. Ornstein served as President and Chief Executive Officer and Chairman of Virgin Express S.A./ N.V., a European airline. From 1995 to April 1996, Mr. Ornstein served as Chief Executive Officer of Virgin Express Holdings, Inc. Mr. Ornstein joined Continental Express Airlines, Inc., as President and Chief Executive Officer in July 1994 and, in November 1994, was named Senior Vice President, Airport Services at Continental Airlines, Inc. Mr. Ornstein was previously employed by the Company from 1988 to 1994, as Executive Vice President and as President of the Company’s WestAir Holding, Inc., subsidiary.

Michael J. Lotz, President and Chief Operating Officer, joined the Company in July 1998. In January 1999, Mr. Lotz became Chief Operating Officer. In August 1999, Mr. Lotz became the Company’s Chief Financial Officer and in January 2000 returned to the position of Chief Operating Officer. On June 22, 2000, Mr. Lotz was appointed President of the Company. Prior to joining the Company, Mr. Lotz served as Chief Operating Officer of Virgin Express, S.A./ N.V., a position he held from October 1996 to June 1998. Previously, Mr. Lotz was employed by Continental Airlines, Inc., most recently as Vice President of Airport Operations, Properties and Facilities at Continental Express.

George Murnane III, Executive Vice President, was appointed Executive Vice President of the Company effective December 2001. Mr. Murnane has served as a director of the Company since June 1999. Mr. Murnane has served as the President of Barlow Management, Inc. since 1998. From 1996 to December 2001, Mr. Murnane was a Director and Executive Vice President of International Airline Support Group, Inc., a leading redistributor of aftermarket commercial aircraft spare parts and lessor and trader of commercial aircraft and engines, most recently as its Chief Operating Officer. From 1995 to 1996, Mr. Murnane served as Executive Vice President and Chief Operating Officer of Atlas Air, Inc., an air cargo company. For 1986 to 1996, he was an investment banker with the New York investment banking firm of Merrill Lynch & Co., most recently as a Director in the firm’s Transportation Group. Mr. Murnane currently serves on the Board of Directors of International Airline Support Group, Inc. and North-South Airways, Inc.

Rodena Turner-Bojorquez, Vice President of Human Resources, joined the Company in May 1998. From 1996 to 1998, Ms. Turner-Bojorquez served as a Director at Virgin Express, where she oversaw the customer service and flight crew administration departments. From 1994 to 1996, she was Senior Director of Human Resources at Continental Express. She holds a BA in accounting from California State University, Fresno.

Michael Ferveda, President of Freedom Airlines, Inc. (“FAI”), was appointed President in May 2002. Prior to becoming President of FAI, Mr. Ferveda served as the Senior Vice President of Mesa Airlines, Inc. He joined the Company in September 1990. Mr. Ferverda has served the Company in several capacities including pilot, Flight Instructor/ Check Airman, Assistant Chief Pilot, FAA Designated Examiner, FAA Director of Operations and Divisional Vice President. Mr. Ferverda was a pilot with Eastern Airlines from 1973 to 1989. Prior to joining Eastern Airlines, Mr. Ferverda served as an Aviator in the United States Navy. Mr. Ferverda is a graduate of Indiana University.

Brian S. Gillman, Vice President, General Counsel and Secretary, joined the Company in February 2001. From July 1996 to February 2001, he served as Vice President, General Counsel and Secretary of Vanguard Airlines, Inc. in Kansas City, Missouri. From September 1994 to July 1996, Mr. Gillman was a corporate associate in the law firm of Stinson, Mag & Fizzell, P.C., Kansas City, Missouri. Mr. Gillman received his Juris Doctorate and B.B.A. in Accounting from the University of Iowa in 1994 and 1991, respectively.

Donald Harrison, Vice President of Maintenance of Mesa Airlines, Inc., joined in April 1999. Prior to joining the Company, Mr. Harrison was employed at Dimension Aviation from March 1997 to April 1999 as Vice President and General Manager. Prior to joining Dimension Aviation, Mr. Harrison was employed as an aviation consultant for Dee Howard from 1996 to March 1997.

Robert Hornberg, Vice President and Chief Information Officer, joined the Company in July 1998 as Director of Information Services. Mr. Hornberg was appointed Vice President and Chief Information Officer in September 2000. For October 1994 to April 1998, Mr. Hornberg was Director of Information Services for Western Pacific Airlines.

F. Carter Leake, President of CCAir, Inc., joined the Company as Executive Vice-President of CCAir, in January 2001. In October 2001, Mr. Leake was appointed President. Prior to joining the Company, Mr. Leake served as a Director of Sales for Bombardier Regional Aircraft from November 1996 to January 2001. Previously, Mr. Leake was an analyst with SH&E, an aviation consulting firm in New York, and a US Air Force military pilot.

Mickey Moman, Vice President of Flight Operations of Mesa Airlines, Inc., joined Mesa Airlines in October 1987. Mr. Moman was appointed Vice President of Flight Operations with Mesa Airlines in May 2002. Prior to employment with Mesa, he served eight years with the FAA in various positions and prior to that served eight years in the U.S. Air Force. While at Mesa, Mr. Moman started as a line pilot in the Beech 99. Mr. Moman has served the Company in many capacities including pilot, Chief Pilot, Director of Operations and Vice President of Training.

Jeff P. Poeschl, Vice President — Finance, joined the Company in December 2000. From 1988 to the date, Mr. Poeschl joined the Company, he was employed by Deloitte & Touche in Milwaukee, Wisconsin, most recently as Senior Manager. Mr. Poeschl obtained his Bachelor of Arts in Business Administration, double-majoring in Accounting and Finance, at the University of Wisconsin.

Gregory Stephens, President of Air Midwest, Inc., joined Air Midwest in 1985 as a ground service worker, working his way up to station operations, customer service agent, crew scheduler and dispatcher. Mr. Stephens also held positions as Director of Planning and Pricing, Director of Safety and Vice-President and General Manager of Air Midwest. Mr. Stephens was appointed Vice President of Customer Service in 1998 of Mesa Airlines and appointed President of Air Midwest in December 1999.

Robert B. Stone, Chief Financial Officer and Treasurer, joined the Company in January 2000. Prior to joining the Company, Mr. Stone was employed by the Boeing Company for more than 20 years, most recently as Vice President, Financial Planning and Analysis. Mr. Stone obtained his MBA from Pacific Lutheran University and his Bachelor of Arts in Business Administration at the University of Washington.

The following table sets forth, for the periods indicated, the high and low price per share of Mesa common stock for the two most recent fiscal years, as reported by NASDAQ. Mesa’s common stock is traded on the NASDAQ National Market System under the symbol “MESA.”

On December 6, 2002, we had approximately 1,247 shareholders of record. We have never paid cash dividends on our common stock. The payment of future dividends is within the discretion of our board of directors and will depend upon our future earnings, if any, our capital requirements, bank financing, financial condition and other relevant factors.

On February 7, 2002, in connection with an agreement entered into with Raytheon Aircraft Company (“Raytheon”), we issued a warrant to purchase shares of our common stock to Raytheon. This warrant allows Raytheon to purchase up to an aggregate of 233,068 shares of our common stock at a per share exercise price of $10.00. Raytheon paid a purchase price of $1.50 per share underlying the warrant. The warrant is exercisable at any time over a three-year period following its date of issuance. Absent a default by us under the agreement with Raytheon in which case vesting is accelerated, the shares underlying the warrant vest (and are therefore purchasable by Raytheon) according to the following schedule: 13,401 shares in fiscal year 2001; 116,534 shares in fiscal year 2002; 58,267 shares in fiscal year 2003 and 44,866 shares in fiscal year 2004. On March 12, 2002 and November 22, 2002, Raytheon exercised its option to purchase the 2001 shares and 2002 shares. The sale of the warrant and the shares underlying the warrant were made pursuant to an exemption from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.

The selected financial data as of and for each of the five years ended September 30, 2002, are derived from the Consolidated Financial Statements of the Company and its subsidiaries and should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Form 10-K and the related notes thereto and “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.” The Consolidated Financial Statements of the Company for the fiscal years ended September 30, 2002, 2001 and 2000, have been audited by Deloitte & Touche LLP, independent auditors. The Consolidated Financial Statements of the Company for the fiscal years ended September 30, 1999 and 1998 have been audited by KPMG LLP, independent auditors.

In thousands of dollars except per share data and average fare amounts and as otherwise indicated.


(1)	Net loss in fiscal 2002 includes the effect of impairment and restructuring charges of $26.7 million (pretax).

(2)	Net loss in fiscal 2001 includes the effect of impairment and restructuring charges of $80.9 million (pretax).

(3)	Net earnings in fiscal 2000 include the cumulative effect of the accounting change from the accrual method to the direct expense method for maintenance costs of $18.1 million (pretax) and the benefit of reversing a valuation allowance for deferred tax assets of $21.9 million.

(4)	Includes Mesa as of and for the twelve months ended September 30, 1999, CCAir as of and for the twelve months ended September 30, 1999. Net loss in fiscal 1999 includes the effect of impairment and restructuring charges of $28.9 million (pre-tax) and the reversal of a previous charge for the cancellation of the UAL code share agreement of $14.0 million (pretax).

(5)	Mesa as of and for the twelve months ended September 30, 1998, CCAir as of and for the twelve months ended December 31, 1998.

Our June 9, 1999 acquisition of CCAir was accounted for as a pooling of interests and, accordingly, our consolidated financial statements have been restated to include the results of CCAir for all periods presented. The consolidated financial statements of CCAir for the 1998 fiscal year has not been restated to change CCAir’s audited year end to September 30.

The following discussions and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and the related notes thereto, and the Selected Financial Data and Operating Data contained elsewhere herein.

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. In connection with the preparation of these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, the allowance for doubtful accounts, medical claims reserve, valuation of assets held for sale and costs to return aircraft and a valuation allowance for certain deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Such historical experience and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations. The impact of these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The discussion below is not intended to be a comprehensive list of our accounting policies. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements, which contains accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.

The financial arrangement between Mesa and their code-share partners involve either a revenue-guarantee or pro-rate arrangement. Under a revenue-guarantee arrangement, the major airline generally pays a monthly guaranteed amount. Both the America West code-share agreement and the US Airways regional jet code-share agreement are revenue-guarantee flying agreements. Under the terms of these flying agreements, the major carrier controls marketing, scheduling, ticketing, pricing and seat inventories. The Company receives a guaranteed payment based upon a fixed minimum monthly amount plus amounts related to departures and block hours flown plus direct reimbursement for expenses such as fuel, landing fees and insurance. Among other advantages, revenue-guarantee arrangements reduce the Company’s exposure to fluctuations in passenger traffic and fare levels, as well as fuel prices. The US Airways turboprop and the Frontier JetExpress code-share agreements are pro-rate agreements.

As discussed above, amounts billed under revenue guarantee arrangements are subject to the interpretation of the applicable code-share agreement and are subject to audit by the code-share partner. Periodically our code-share partners dispute amounts billed and pay amounts less than those billed. Ultimate collection of the remaining amounts not only depends upon Mesa prevailing under audit, but also upon the financial well-being of the code-share partner. As such, the Company periodically reviews amounts past due and records a reserve for amounts estimated to be uncollectible. The allowance for doubtful accounts was $12.8 million and $14.7 million at September 30, 2002 and 2001, respectively. If the Company’s actual ability to collect these

receivables and the actual financial viability of its partners is materially different than estimated, the Company’s estimate of the allowance could be materially understated or overstated.

The Company is currently self-insured for health care costs and as such, estimates a reserve for the cost of claims that have not been paid as of the balance sheet date. The Company’s estimate of this reserve is based upon historical claim experience and upon the recommendations of its health care provider. At September 30, 2002 and 2001, the Company has accrued $2.0 million and $1.4 million, respectively, for the cost of future health care claims. If the ultimate development of these claims is significantly different than those that have been estimated, the reserves for future health care claims could be materially overstated or understated.

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The Company determines the fair value based upon estimates of future cash flows, market value of similar assets and/ or independent appraisals.

Long-lived assets to be disposed of and parts held for sale are reported at the lower of carrying amount or fair value less cost to sell. Aircraft and parts held for sale are comprised of aircraft the Company has identified as surplus as well as expendable and rotable inventory that is in excess of the Company’s needs. Aircraft currently identified as held for sale are under contract to return to the manufacturer and are valued at the contract price, less the cost to return the aircraft to meet the manufacturer’s return conditions. The Company estimates quantities of rotable and expendable inventory that are surplus to its needs by employing independent consultants who utilize mathematical models to determine optimum inventory levels based on such variables as size of fleet, number of maintenance bases and desired reliability. Quantities of rotable and expendable inventory that are surplus to the Company’s needs are valued at fair market value, less costs to sell. Fair market value is determined based upon the Company’s experience in selling similar assets and outside appraisals. If the actual value of these surplus parts is materially different than estimated, the Company’s estimate of fair market value could be materially understated or overstated.

The Company periodically returns aircraft to the manufacturer or lessor that have been identified as excess. It is standard practice in the industry that aircraft returns must meet established contractual return conditions. The ultimate cost of completing the maintenance necessary to meet these return conditions is not known until all the work is completed and accepted by the manufacturer or lessor. As such, the Company estimates these costs at the time of the decision to the return aircraft. The Company’s estimates are based upon historical experience in performing this and similar maintenance; however, the ultimate cost cannot be readily determined until the aircraft or engine is opened and examined. At September 30, 2002 and 2001, the Company accrued $8.1 million and $4.7 million, respectively, for the cost to return aircraft. If the ultimate cost to return these aircraft is significantly different than what has been estimated, the reserves for the costs to return aircraft could be materially overstated or understated.

The Company records deferred tax assets for the value of benefits expected to be realized from the utilization of alternative minimum tax credit carryforwards and state and federal net operating loss carryforwards. The Company periodically reviews these assets for realizability based upon expected taxable income in the applicable taxing jurisdictions. To the extent the Company believes some portion of the benefit may not be realizable, an estimate of the unrealized portion is made and an allowance is recorded. At September 30, 2002 and 2001, the Company had a valuation allowance for certain deferred tax assets not expected to be realized of $2.9 million and $2.2 million, respectively. If the ultimate realization of these deferred tax assets is significantly different than those that have been estimated, the valuation allowance for deferred tax assets could be materially overstated or understated.

Mesa Air Group, Inc. and its subsidiaries (collectively referred to herein as “Mesa” or the “Company”) is an independently owned regional airline serving 147 cities in 37 states, Canada and Mexico. At September 30, 2002, Mesa operated a fleet of 124 aircraft and had approximately 889 daily departures.

Mesa’s airline operations during fiscal year 2002 were conducted by three regional airline subsidiaries primarily utilizing hub-and-spoke systems. Mesa Airlines, a wholly owned subsidiary of Mesa, operates as America West Express under a code-share and revenue sharing agreement with America West Airlines, Inc., as US Airways Express under code-sharing agreements with US Airways, Inc. and as Frontier Jet Express under a code-sharing agreement with Frontier. Air Midwest, Inc., a wholly owned subsidiary of Mesa, also operates under a code-sharing agreement with US Airways and flies as US Airways Express and also operates an independent division, doing business as Mesa Airlines, from Albuquerque, New Mexico and Dallas, Texas. Air Midwest also has a code-sharing agreement with Midwest Express in Kansas City on flights operated as US Airways Express. Prior to it ceasing operations on November 4, 2002, CCAir, a wholly owned subsidiary of Mesa, operated under a code-share agreement with US Airways that permitted CCAir to operate under the name US Airways Express and to charge their joint passengers on a combined basis with US Airways. In addition, Freedom Airlines, Inc., a wholly owned subsidiary of Mesa Air Group, Inc. began operating as America West Express pursuant to the code-share and revenue sharing agreement with America West in October 2002.

The following tables set forth selected operating and financial data of the Company for the years indicated below.

In fiscal 2002, operating revenues decreased by $26.6 million (5.1%) to $496.8 million, from $523.4 million in fiscal 2001. Although our revenue decreased, revenue under revenue-guarantee contracts increased by 12.4% in fiscal 2002 over fiscal 2001. The primary reason for the increase was the addition of 13 regional jets that were placed into service in 2002 (eight of which were operated pursuant to revenue-guarantee agreements for the majority of the year). Offsetting this increase, revenue derived from our pro-rate revenue operations, which currently accounts for approximately 25% of our revenue, decreased 35.7% compared to the prior year. The decrease in pro-rate revenue was primarily due to reductions in pro-rate flying capacity and industry-wide declines in load factors as a result of September 11th. As a result of decreases in capacity and the effects of the events of September 11, 2001, passengers traveling on such pro-rate flights decreased 42.9% for the year. Under revenue-guarantee contracts, we are substantially insulated from industry passenger trends.

In fiscal 2002, flight operations expense decreased 3.8% to $262.5 million (7.6 cents per ASM) from $272.9 million (8.3 cents per ASM) in fiscal 2001. The $10.4 million decrease in expense in fiscal 2002, is primarily attributable to the reduction in turboprop flying as well as cost reduction initiatives related to the turboprop operation, which included $1.0 million associated with the Raytheon agreement. The decrease on a cost per ASM basis for the year ended September 30, 2002, is a result of an increase in the proportion of regional jet ASMs in our fleet. Regional jets generally have lower operating costs per ASM than turboprop aircraft.

In fiscal 2002, maintenance expense decreased 0.8% to $100.0 million (2.9 cents per ASM) from $100.8 million (3.1 cents per ASM) in fiscal 2001. The decrease in maintenance costs for fiscal 2002 is primarily the result of $3.4 million in benefits received as part of the cost reduction agreement reached with Raytheon Aerospace and reduced turboprop flights. The decrease was offset by higher than expected engine maintenance in the fourth quarter due to problems related to unexpected component failures, resulting in the premature removal and overhaul of jet engines. The decrease in cost per ASM is a result of an increase in the proportion of regional jet ASMs and the turboprop cost reduction initiatives.

In fiscal 2002, aircraft and traffic servicing expense decreased 14.4% to $46.1 million (1.3 cents per ASM) from $53.8 million (1.6 cents per ASM) in fiscal 2001. The decrease in aircraft and traffic service expense is primarily due to reduced turboprop flights. On an ASM basis, the reduction is a result of the increase in the proportion of regional jet ASMs. The Company can service regional jets with the same number of personnel as smaller turboprop aircraft even though regional jets carry more passengers. In addition, the Company also had more regional jets in service under the US Airways contract in 2002 than in 2001. Under our regional jet contract with US Airways, many of the aircraft and traffic servicing expenses are absorbed directly by US Airways.

In fiscal 2002, promotion and sales expense decreased 43.6% to $12.5 million (0.4 cents per ASM) from $22.2 million (0.7 cents per ASM) in fiscal 2001. The decrease is primarily a result of the decrease in booking fees and franchise fees paid to the Company’s code-share partners as a result of the decrease in pro-rate passenger traffic. Our contract with America West and our jet contract with US Airways eliminate booking fees and travel agency commissions being charged directly to the Company and as such, these costs per ASM are expected to decline as the America West Express and US Airways Express jet operations continue to grow.

In fiscal 2002, general and administrative expense decreased 10.9% to $44.3 million (1.3 cents per ASM) from $49.7 million (1.5 cents per ASM) in fiscal 2001. The decrease is primarily due to a reduction in bad debt expense of $13.0 million, which was due to allowances for receivables recorded in the prior year as a result of the effect that terrorist attacks that took place on September 11, 2001 had on our code-share partners. In addition, professional fees decreased approximately $3.0 million as the majority of the legal costs associated with the Beus Gilbert matter were accrued in 2001. We also reduced our 401(k) matching contribution by $0.7 million in 2002. These decreases were offset by increases in passenger liability insurance of $9.9 million due to increased premiums as a result of the events of September 11, 2001 as well as a $4.3 million contract claim release to US Airways as a result of the US Airways bankruptcy restructuring.

In fiscal 2002, depreciation and amortization expense decreased 20.1% to $10.9 million (0.3 cents per ASM) from $13.7 million (0.4 cents per ASM) in fiscal 2001. The decrease is primarily due to the cessation of depreciation on aircraft and parts held for sale and reduced depreciation expense on the aircraft that were impaired at September 30, 2001. We are also no longer incurring goodwill amortization expense as all goodwill was written off at September 30, 2001.

In the fourth quarter of fiscal 2002, the Company’s subsidiary, CCAir made a decision to discontinue its operations. As a result of this decision, the Company recorded a restructuring and impairment charge of $19.8 million. The charge is comprised of $0.7 million of severance and other employee related liabilities, $4.6 million in aircraft related return costs, $7.8 million for future aircraft lease payments, $4.1 million to reduce the value of rotable and expendable inventory to fair market value less costs to sell, $0.9 million to

Also in the fourth quarter of fiscal 2002, we returned 12 of the 15 B1900D aircraft permitted under our agreement with Raytheon. As a result of unanticipated increases in the cost of meeting return conditions, we recorded an additional impairment charge of $3.3 million. The remaining three aircraft are expected to be returned to Raytheon by the end of the fiscal second quarter of 2003. We also took a charge of $3.6 million to accrue for the remaining lease payments and future costs of returning two Shorts 360 aircraft the Company is subleasing to an operator in Europe.

The decrease in interest expense of $8.1 million from $13.5 million in 2001 to $5.4 million in 2002 is due to reduced interest rates as the majority of our Beechcraft 1900D fleet is financed at variable interest rates as well as $0.9 million in benefits received from Raytheon Aerospace as part of the cost reduction agreement.

In fiscal 2002, other income and expense decreased $14.3 million from income of $10.9 million (0.3 cents per ASM) in 2001 to expense of $3.4 million in 2002. Included in other income is $3.2 million in net investment related losses (unrealized losses of $5.2 million offset by realized gains of $2.0 million). The investment losses include losses from the Company’s portfolio of aviation related securities, including $1.9 million incurred by our subsidiary UFLY. The minority interest in these losses is deducted out of our net income or loss after income taxes. Included in other income for fiscal 2001 was $14.7 million in grants received from the DOT as part of the Airline Transportation Safety and System Stabilization Act.

In fiscal 2001, operating revenues increased by $51.8 million (11.0%) to $523.4 million, from $471.6 million in fiscal 2000. The increase was primarily due to the addition of 13 regional jets employed under revenue guarantee contracts with America West and US Airways.

In fiscal 2001, flight operations expense increased 22.3% to $272.9 million (8.3 cents per ASM) from $223.2 million (7.6 cents per ASM) in fiscal 2000. The $50.0 million increase was primarily due to increased fuel costs of approximately $18.1 million, increased lease costs of approximately $21.6 million and increased pilot wages of approximately $9.0 million as well as an increase of $0.7 million related to health insurance costs. These expense increases were the result of adding additional regional jets in fiscal 2001.

In fiscal 2001, maintenance expense increased 20.8% to $100.8 million (3.1 cents per ASM) from $83.5 million (2.8 cents per ASM) in fiscal 2000. Increased maintenance expenditures are primarily due to the increased number of activity based or time sensitive maintenance events and the expiration of the warranty period on many of our CRJ aircraft.

In fiscal 2001, aircraft and traffic servicing expense decreased 0.1% to $53.8 million (1.6 cents per ASM) from $53.8 million (1.8 cents per ASM) in fiscal 2000. The relative stability of aircraft and traffic servicing expense is due to the Company serving approximately the same number of cities in 2001 as in 2000, 118 versus 120, respectively.

In fiscal 2001, promotion and sales expense decreased 16.2% to $22.2 million (0.7 cents per ASM) from $26.6 million (0.9 cents per ASM) in fiscal 2000. The decrease is primarily due to the Company’s continued downsizing of its B1900D fleet and the resulting decrease in prorate flying.

In fiscal 2001, general and administrative expense increased 83.3% to $49.7 million (1.5 cents per ASM) from $27.1 million (0.9 cents per ASM) in fiscal 2000. The $22.6 million increase is primarily due to $14.6 million in allowances on receivables from our code-share partners as a result of the impact of the attacks of September 11th and the impact that the decline in passenger traffic and softening economy have had on their business and ability to pay, $4.8 million in reserves for professional fees and an increase of approximately $2.3 million in property taxes as a result of increases to the Company’s jet fleet.

In fiscal 2001, depreciation and amortization expense decreased 12.5% to $13.7 million (0.4 cents per ASM) from $15.6 million (0.5 cents per ASM) in fiscal 2000. The decrease is primarily due to the cessation of depreciation on B1900D aircraft held for sale.

In the second quarter of fiscal 2001, we recognized a charge of approximately $22.7 million on 15 B1900D aircraft we returned or intend to return to the manufacturer. The charge was comprised of an impairment loss to write the aircraft down to the contractual selling price less the estimated costs to prepare the aircraft for return to the manufacturer.

Due to the economic slowdown and the effects of the terrorist attacks in the fourth quarter of fiscal 2001, we wrote off the unamortized value of the goodwill associated with certain B1900D route systems totaling $9.3 million. The Company also took an additional charge of approximately $40.7 million related to its B1900D fleet. The charge is comprised of an impairment loss of $40.4 million on the value of 36 B1900D aircraft the Company is planning to continue to fly.

In the fourth quarter of fiscal 2001, the Company made a decision to discontinue operating Jetstream Super 31 aircraft from its Charlotte hub. As a result of this decision, the Company took a $4.9 million charge that is included in other accrued liabilities and other non-current liabilities at September 30, 2001. The charge is comprised of $3.6 million related to the remaining lease payments on nine Jetstream Super 31 aircraft, $1.2 million related to the costs to buyout the remaining term of the maintenance contract associated with these aircraft and $0.1 million related to costs to return the aircraft.

We also elected to accelerate the disposition of excess inventory. During the fourth quarter of fiscal 2001, we hired an independent consulting firm to determine our inventory needs and to value our surplus inventory. Prior to September 11, 2001, the Company had been selling off surplus inventory on a passive basis as opportunities arose. As a result of this decision, the Company took a $3.2 million charge to reduce its surplus inventory to net realizable value, less costs to sell. The surplus inventory is carried on the balance sheet under the heading of aircraft and parts held for sale.

Included in other income is $14.7 million related to amounts received and to be received from the DOT under the Air Transportation Safety and Stabilization Act. This amount is offset by $3.7 million in net investment related losses (unrealized losses of $8.0 million offset by realized gains of $4.3 million).

We had cash, cash equivalents and marketable securities of $54.4 million at September 30, 2002, compared to cash, cash equivalents and marketable securities of $83.3 million at September 30, 2001. Primary uses of cash included (i) repaying $20.0 million in funds borrowed under our line of credit after September 11th, 2001, (ii) reducing accounts payable by $19.7 million after extending the days outstanding in

the periods following the events of September 11, 2001, (iii) capital expenditures of $13.5 million (primarily rotable aircraft parts), (iv) principal payments on long-term debt of $9.4 million, (v) cost to return aircraft of $6.6 million and (vi) repurchases of common stock of $6.0 million. Offsetting these uses of cash, cash sources included (i) receiving $13.0 million from past contractual claims and $5.2 million in various lease incentives that are included in deferred credits, (ii) sales and reductions in levels of expendable and rotable inventory of $19.2 million, (iii) net return of aircraft deposits of $4.9 million and (iv) net contributions from minority interest shareholders of UFLY of $2.0 million. The above factors, among others, resulted in a $28.6 million decrease in cash, cash equivalents and marketable securities during fiscal 2002, which comprises the majority of the decrease noted above.

As of September 30, 2002, we had receivables of approximately $29.1 million (net of an allowance for doubtful accounts of $12.8 million), compared to $29.4 million (net of an allowance for doubtful accounts of $14.7 million) at September 30, 2001. The amounts due consist primarily of receivables due from our code-share partners, passenger ticket receivables due through the Airline Clearing House (“ACH”) and amounts due from the DOT under the Airline Stabilization Act. The allowance for doubtful accounts was decreased as a result of the settlement with US Airways where previously reserved receivables were written off against the allowance.

During fiscal 2002, we had code-share agreements with America West, US Airways, Frontier Airlines and Midwest Express Airlines. Approximately 98%, 97% and 95% of the Company’s consolidated passenger revenue for the years ended September 30, 2002, 2001 and 2000, respectively, were derived from these agreements. Accounts receivable from our code-share partners were 57% and 29% of total gross accounts receivable at September 30, 2002 and 2001, respectively.

A reduction in business travel, a slowing economy and the terrorist attacks of September 11, 2001 all have had a significant impact on the airline industry, including America West and US Airways. Continuing declines in the economy or an inability to receive government grants and loan guarantees could have a material adverse effect on the viability of either of these airlines. A termination of the America West or US Airways code share agreements (specifically the jet contracts) would have a material adverse effect on our business prospects, financial position, results of operations and cash flows.

If a termination without renewal should occur, management believes they would be able to reduce costs quickly through reductions in headcount or parking aircraft. Additionally management believes they could continue flying certain routes or transfer certain aircraft, particularly the regional jets, to new markets and new code-share arrangements with other carriers. As of December 6, 2002, we had cash and marketable securities in excess of $45.0 million. Management believes additional proceeds of approximately $10 million could be generated through the cancellation of aircraft orders. Management believes these actions would provide sufficient working capital to meet its operating needs.

In June 1999, we entered into an agreement with Empresa Brasiliera de Aeronautica SA (“Embraer”) to acquire 36 Embraer ERJ-145 50-passenger regional jets. We introduced the ERJ-145 aircraft into revenue service in the third quarter of fiscal 2000 as US Airways Express. As of September 30, 2002, the Company had taken delivery of 32 ERJ-145’s, which have been financed as operating leases. We have the right to cancel the four remaining firm aircraft. In conjunction with this purchase agreement, we have $4.2 million remaining on deposit with Embraer, which is included with lease and equipment deposits at September 30, 2002. The remaining deposit will be returned either upon the delivery of the last four aircraft or notification by us of our intention to cancel the orders.

We have significant long-term lease obligations primarily relating to our aircraft fleet. The leases are classified as operating leases and are therefore excluded from our consolidated balance sheets. At September 30, 2002, we leased 99 aircraft with remaining lease terms ranging from 1 to 17 years. Future minimum lease payments due under all long-term operating leases were approximately $1.5 billion at September 30, 2002.

Our long-term debt was primarily incurred pursuant to the acquisition of our B1900D aircraft. In 2002, the Company retired $32.7 million in debt by returning 12 B1900D aircraft. At September 30, 2002, we owned 39 B1900D aircraft which have underlying maturities through 2011.

In December 1999, our Board of Directors authorized us to repurchase up to 10% of the outstanding shares of our common stock (approximately 3.4 million shares). In January 2001, the Board approved the repurchase by the Company of up to an additional one million shares of our common stock. As of September 30, 2002, we had acquired and retired approximately 4.0 million shares (approximately 12.5%) of our outstanding common stock at an aggregate cost of approximately $24.0 million, leaving approximately 400,000 shares available for repurchase under the existing Board authorizations. In October 2002, our Board of Directors authorized the repurchase of an additional two million shares. Purchases are made at management’s discretion based on market conditions and the Company’s financial resources.

We have negotiated 10-year engine maintenance contracts with General Electric Aircraft Engines (“GE”) for our CRJ aircraft, Rolls-Royce Allison (“Rolls-Royce”) for our ERJ aircraft and Pratt and Whitney, Canada Aircraft Services (“PWC”) for our Dash 8-200 aircraft. The GE contract requires a monthly payment based upon flight hours incurred. The Rolls-Royce and PWC contracts provide for payment at the time of the repair event for a fixed dollar amount per flight hour. The rate under all contracts is subject to escalation based on changes in certain price indices.

In December 2000, we reached agreement with Fleet Capital for a $35 million line of credit, collateralized by the Company’s inventory and receivables. The agreement, which expires in December 2003, has provisions that allow the expansion of available credit to $50 million by adding new lenders provided that there is additional collateral. The agreement also contains a financial covenant that requires the maintenance of certain financial ratios related to fixed charge coverage and total debt to capital. The Company was in compliance with these covenants at September 30, 2002. We intend to use the facility for general working capital purposes. We also had $13.7 million in letters of credit outstanding at September 30, 2002, which reduced the amount available under our line of credit with Fleet. There were no amounts outstanding under this facility at September 30, 2002. Based upon available collateral, $4.1 million remained available under the line at September 30, 2002.

In May 2001, we entered into an agreement with BRAD to acquire 20 50-seat CRJ-200s, 20 64-seat CRJ-700s and 20 80-seat CRJ-900s (the “2001 BRAD Agreement”). Under the agreement, Mesa has the right to convert up to five CRJ-700 aircraft to CRJ-900 aircraft and to cancel the CRJ-200 aircraft. We have notified BRAD of our intention to convert to CRJ-900s. The total number of firm aircraft orders is now 15 CRJ-700s and 25 CRJ-900s. We secured the order with a $4.0 million deposit and will continue to make 24 monthly deposits of approximately $1.1 million through April 2003. In February 2002, Bombardier returned $7.0 million of deposits to the Company and applied $5.5 million to outstanding obligations. Deposits of $2.5 million will be returned to us upon completion of permanent financing on the first five aircraft ($500,000 per aircraft). The remaining deposits will be returned on a pro rata basis in equal amounts upon completion of permanent financing on each of the last five aircraft ($3.0 million per aircraft). The transaction includes standard product support provisions, including training support, preferred pricing on initial inventory provisioning, maintenance support and technical publication support. The aggregate list value of the 40 CRJ-700 and 900’s to be acquired under the agreement is approximately $1.0 billion. Deliveries of the CRJ-700 commenced in July 2002, with revenue service commencing in October. We are the launch customer of the CRJ-900 and expect to take delivery of the first aircraft in the first calendar quarter of 2003. In addition to the firm orders, we have an option to acquire an additional 80 CRJ-700 and CRJ-900 regional jets. In conjunction with the 2001 BRAD Agreement, we have $8.8 million on deposit with BRAD, which is included with lease and equipment deposits at September 30, 2002.

On August 11, 2002, US Airways, filed for Chapter 11 bankruptcy protection. As a result of this filing, US Airways was required to obtain ratification of its code-share and revenue-guarantee agreements with the Company. Should US Airways not emerge from bankruptcy, this could have a material adverse effect on the Company. Subsequent to year-end, the Company reached agreement with US Airways to expand their regional jet agreement by adding 20 50-seat regional jets to the existing fleet of 32 regional jet aircraft. The 20 additional regional jets are scheduled to be integrated into the US Airways Express network in 2003, subject to compliance with the ‘jets-for-jobs’ provisions of the US Airways pilot contract. The aircraft are expected to be provided from a combination of internal and external sources. The agreement, including the original 32 regional jets under contract, was ratified by the United States Bankruptcy Court on November 8, 2002.

Additionally, on November 22, 2002, the Company signed a non-binding letter of intent with US Airways to provide an additional 50 regional jets and issue a warrant to purchase 3,000,000 shares of our common stock. These aircraft, which will also be subject to ‘jets-for-jobs,’ would be delivered beginning in mid-to late-2003. As part of the US Airways bankruptcy restructuring, the Company also agreed to release our claim against $4.3 million in payments previously withheld by US Airways following the events of September 11, 2001.

Management believes that the Company will have adequate cash flow to meet our operating needs. This is a forward-looking statement. Actual cash flows could materially differ from this forward-looking statement as a result of many factors, including the termination of one or more code-share agreements; failure of US Airways to emerge from bankruptcy protection; failure to sell, dispose of, or redeploy excess aircraft in a timely manner; a substantial decrease in the number of routes allocated to us under its code-share agreements with our code-share partners; reduced levels of passenger revenue, additional taxes or costs of compliance with governmental regulations; fuel cost increases; increases in competition; additional terrorist attacks; increases in interest rates; general economic conditions and unfavorable settlement of existing litigation.

As of September 30, 2002, we had $128.8 million in long-term debt (including current maturities). This amount consisted primarily of $120.8 million in notes payable related to the Company’s fleet of Beechcraft 1900D turboprop aircraft, $4.9 million related to the settlement of past contractual claims of an aircraft manufacturer and $1.0 million related to a mortgage note payable on one of our real estate properties.


(1)	Lease payments on aircraft flown pursuant to the our guaranteed-revenue agreements are reimbursed by the applicable code-share partner.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement will supercede SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-lived Assets to be Disposed of.” SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (i) recognition and measurement of the impairment of long-lived assets to be held and used; and (ii) measurement of the impairment of long-lived assets to be disposed of by sale. The statement requires assets held for sale to be reclassified as held and used if not disposed in one year. The statement further requires that the results of operations of assets to be disposed by other than sale be presented in continuing

operations until the assets are disposed of or abandoned. The Company adopted SFAS No. 144 on October 1, 2002. The adoption did not have a material impact on the Company’s financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002.” This statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”) criteria. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item shall be reclassified. SFAS No. 145 also amends SFAS No. 13, “Accounting for Leases,” as well as other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company is required to adopt SFAS No. 145 effective October 1, 2002. The adoption did not have a material impact on its financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for exit costs, as defined in EITF 94-3, was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated by the Company after December 31, 2002.

We have exposure to market risk associated with changes in interest rates related primarily to our debt obligations and short-term marketable investment portfolio. The Company’s debt obligations are primarily variable in rate and therefore have exposure to changes in interest rates. A 10% change in interest rates would result in an approximately $0.3 million impact on interest expense. The Company also has investments in debt securities. If short-term interest rates were to average 10% more than they did in fiscal year 2002, there would be no material impact on the Company’s interest income. The Company’s investments in equity securities are subject to market risk related to fluctuations in share prices for those shares held. A 10% change in the price of trading securities held at the level of investment at September 30, 2002 would impact the results of the Company by approximately $0.9 million.

We have exposure to certain market risks associated with our aircraft fuel. Aviation fuel expense is a significant expense for any air carrier and even marginal changes in the cost of fuel greatly impact a carrier’s profitability. Standard industry contracts do not generally provide protection against fuel price increases, nor do they insure availability of supply. However, both the US Airways and America West contract code share agreements allow fuel costs to be reimbursed by the code-share partner, thereby reducing our overall exposure to fuel price fluctuations. In fiscal 2002, 76% of our fuel requirements were associated with these contracts. Each one cent change in the price of jet fuel amounts to a $0.2 million change in annual fuel costs for that portion of fuel expense which is not reimbursed by our code-share partners.

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable, not required or the information has been furnished elsewhere.

We have audited the accompanying consolidated balance sheets of Mesa Air Group, Inc. and subsidiaries (the “Company”) as of September 30, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mesa Air Group, Inc. as of September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements substantially all of the Company’s passenger revenue is derived from code share agreements with America West and US Airways.

As discussed in Note 4 to the financial statements, effective October 1, 1999, the Company changed its method of accounting for certain maintenance costs.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of Mesa Air Group, Inc. and its wholly-owned operating subsidiaries (collectively “Mesa” or the “Company”): Mesa Airlines, Inc. (“MAI”), a Nevada corporation and certificated air carrier; Freedom Airlines, Inc. (“Freedom”), a Nevada corporation and certificated air carrier; Air Midwest, Inc. (“Air Midwest”), a Kansas corporation and certificated air carrier; CCAir, Inc. (“CCAir”), a Delaware corporation and certificated air carrier; MPD, Inc., a Nevada corporation, doing business as Mesa Pilot Development; Regional Aircraft Services, Inc. (“RAS”) a Pennsylvania company; Mesa Leasing, Inc., a Nevada corporation; and MAGI Insurance, Ltd., a Barbados, West Indies based captive insurance company. MPD, Inc. provides pilot training in coordination with a community college in Farmington, New Mexico and with Arizona State University in Tempe, Arizona. RAS performs aircraft component repair and overhaul services. MAGI Insurance, Ltd. is a captive insurance company created to handle freight and baggage claims in addition to a portion of the Company’s aviation insurance. At September 30, 2002, the Company owned 56% of UFLY, LLC. (“UFLY”), a Delaware Limited Liability Company, which was established to make strategic investments in US Airways common stock. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s airline subsidiaries have agreements with America West, US Airways, Frontier, and Midwest Express to use those carriers’ designation codes (commonly referred to as a “code-share”). These code-share agreements allow use of the code-share partner’s reservation system and flight designator code to identify flights and fares in computer reservation systems, permit use of logos, service marks, aircraft paint schemes and uniforms similar to the code-share partners and provide coordinated schedules and joint advertising. The Company’s passengers traveling on flights operated pursuant to code-share agreements receive mileage credits in the respective frequent flyer programs of the Company’s code-share partners, and credits in those programs can be used on flights operated by the Company.

Renewal of one code-share agreement with a code share partner does not guarantee the renewal of any other code share agreement with the same code-share partner. The agreement with America West expires in 2012; the agreements with US Airways expire on various dates from 2005 to 2012; the agreements with Frontier and Midwest Express expire in 2006. Although the provisions of the code-share agreements vary from contract to contract, generally each agreement is subject to cancellation should the Company’s subsidiaries fail to meet certain operating performance standards, breach other contractual terms and conditions and, in the case of the US Airways turboprop code-share agreements generally upon six months notice by either party. The US Airways regional jet service agreement and the Kansas City code-share agreement are not subject to the six-month cancellation clause.

The Company also operates Beech 1900D turboprop aircraft as Mesa Airlines in Albuquerque, New Mexico and Dallas, Texas. The Albuquerque and Dallas operations do not have code-share agreements.

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Marketable securities consist of shares of common stock and are stated at market value as determined by the most recently traded price of each security at the balance sheet date. All marketable securities are defined as trading securities under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

The passenger tickets collected by the Company at the time of travel are primarily sold by the code share partners as discussed above. As a result, the Company has a significant concentration of its accounts receivable tied to its relationship with its code share partners. See discussion in Note 2.

Expendable parts and supplies are stated at the lower of cost using the first-in, first-out method or market, and are charged to expense as they are used.

Aircraft and parts held for sale are comprised of aircraft the Company has identified as surplus as well as expendable and rotable inventory that is in excess of the Company’s needs. Aircraft currently identified as held for sale are under contract to return to the manufacturer and are valued at the contract price, less the cost to return the aircraft to meet the manufacturer’s return conditions. The Company estimates quantities of rotable and expendable inventory that are surplus to its needs by employing independent consultants who utilize mathematical models to determine optimum inventory levels based on such variables as size of fleet, number of maintenance bases and desired reliability. Quantities of rotable and expendable inventory that are surplus to the Company’s needs are valued at fair market value, less costs to sell. Fair market value is determined based upon the Company’s experience in selling similar assets and outside appraisals.

At September 30, 2001, the Company had 21 Beechcraft 1900D turboprop aircraft held for sale. During 2002, the Company returned 12 of these aircraft to the manufacturer and returned six of these aircraft to operations leaving three Beechcraft 1900D turboprop aircraft held for sale at September 30, 2002. The six aircraft were returned to operations as a result of the Company being awarded additional essential air service contracts in 2002. The Company has a contract to return the remaining three aircraft to the manufacturer and the returns are anticipated to take place in the second quarter of fiscal 2003.

Property and equipment are stated at cost and depreciated over their estimated useful lives to their estimated salvage values using the straight line method.

Estimated useful lives of the various classifications of property and equipment are as follows:

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount according to the provisions of Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” If the undiscounted future cash flows are found to be less than the carrying amount, an impairment loss is recognized to reduce the carrying amount of the asset to fair market value. Certain long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Interest related to deposits on aircraft purchase contracts is capitalized as part of the aircraft. The Company capitalized approximately $1.2 million and $1.1 million of interest in fiscal 2002 and 2001, respectively.

Other assets primarily consist of the capitalized costs associated with establishing financing for aircraft and the noncurrent portion of prepaid maintenance. The financing costs are amortized over the lives of the associated aircraft leases which are primarily 16-17 years. Prepaid maintenance is amortized over the term of the related maintenance contract (six years).

Air traffic liability represents the cost of tickets sold but not yet used. The Company records the revenue associated with these tickets in the period the passenger flies.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company and its subsidiaries file a consolidated federal income tax return.

Deferred credits consist of lease incentives received at lease inception and other credits related to the aircraft and are amortized on a straight-line basis as a reduction of lease expense over the term of the respective leases.

Both the America West code-share agreement and the US Airways regional jet code-share agreement are revenue-guarantee flying agreements. Under a revenue-guarantee arrangement, the major airline generally pays a monthly guaranteed amount per flight. The Company receives a guaranteed payment for each departure operated and each mile flown, with certain costs, and reimbursement for expenses such as fuel and landing fees. The Company primarily recognizes revenue under its revenue-guarantee agreements when the transportation is provided according to certain formulas as specified in the code-share agreements. Under a prorate agreement, the Company receives an allocated portion of the passengers’ fare based on the percentage of transportation provided. Pursuant to the Company’s prorate agreements and in the independent operation, revenue is recognized when transportation is provided. Tickets sold but not yet used are included in air traffic liability on the consolidated balance sheets. The Company also receives subsidies for providing scheduled air service to certain small or rural communities. Such revenue is recognized in the period in which the air service is provided. The amount of the subsidy payments is determined by the United States Department of Transportation on the basis of its evaluation of the amount of revenue needed to meet operating expenses and to provide a reasonable return on investment with respect to eligible routes.

The cost of engine and aircraft maintenance is charged to expense as incurred. The Company records the expense in the period when the related aircraft or engine is returned.

In 2001, the Company entered into an agreement to form UFLY for the purpose of making strategic investments in US Airways, Inc. In 2002, UFLY was formally established and was capitalized with $5.0 million from the Company and $5.0 million from other members. At September 30, 2002, the Company owned 56% of UFLY and therefore the financial results of UFLY are included in the consolidated financial results of the Company. Amounts included in the consolidated statements of operations as minority interest reflect the after-tax portion of earnings of UFLY that are applicable to the minority interest partners.

The Company accounts for earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share.” Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per share reflects the potential dilution that could occur if outstanding stock options were exercised. The calculation of the weighted average number of shares outstanding is as follows:

The effect of certain options to purchase 599,000 and 363,000 shares of common stock in fiscal 2002 and 2001 would have been antidilutive to the per share calculation. Accordingly, those options were excluded from the calculation.

The Company accounts for its stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Effective October 1, 1996, the Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation,” which permits entities to recognize the fair value of all stock-based awards on the date of grant over the vesting period. Alternatively, SFAS No. 123 also allows entities to continue to apply the measurement provisions of APB Opinion No. 25 and provide pro forma net earnings and pro-forma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair value based measurement method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the measurement provisions of APB Opinion No. 25, and to provide pro-forma disclosures required by SFAS No. 123 (See note 13). Warrants issued to non-employees are also accounted for under SFAS No. 123, at fair value on the measurement date.

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

The Company has adopted SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The statement requires disclosures related to components of a company for which separate financial information is available that is evaluated regularly by a company’s chief operating decision maker in deciding the allocation of resources and assessing performance. The Company is engaged in one line of business, the scheduled and chartered transportation of passengers, which constitutes substantially all of its operating revenues.

excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”) criteria. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item shall be reclassified. SFAS No. 145 also amends SFAS No. 13, “Accounting for Leases,” as well as other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company was required to adopt SFAS No. 145 effective October 1, 2002. The adoption did not have a material impact on its financial condition or results of operations.

Certain reclassifications were made to the 2001 and 2000 financial statements to conform to the 2002 presentation.

The Company has-code share agreements with America West, US Airways, Frontier and Midwest Express. Approximately 98%, 97% and 95% of the Company’s consolidated passenger revenue for the years ended September 30, 2002, 2001 and 2000, respectively, were derived from these agreements. Accounts receivable from the Company’s code-share partners were 57% and 29% of total gross accounts receivable at September 30, 2002 and 2001, respectively.

A reduction in business travel, a slowing economy and the terrorist attacks of September 11, 2001 all have had a significant impact on the airline industry, including America West and US Airways.

In January, America West Airlines, one of the Company’s major code-share partners, closed a term loan in the amount of $429 million and completed arrangements for more than $600 million in concessions, financing and financial assistance following final approval by the Air Transportation Stabilization Board of approximately $380 million in loan guarantees.

provide an additional 50 regional jets. In connection with this letter of intent, the Company agreed to issue 3,000,000 warrants to US Airways. The additional aircraft, which will also be subject to ‘jets-for-jobs,’ would be delivered beginning in mid- to late-2003. The Company also agreed to release its claim against $4.3 million in payments previously withheld by US Airways following the events of September 11, 2001.

Continuing declines in the economy or an inability to receive government grants and loan guarantees could have a material adverse effect on the viability of either of these airlines. A termination of the America West or US Airways code-share agreements (specifically the revenue-guarantee jet contracts) would have a material adverse effect on the Company’s business prospects, financial position, results of operations and cash flows.

As a result of the large financial losses attributed to the terrorist attacks on the United States that occurred on September 11, 2001, the Senate and House of Representatives of the United States of America passed, and the President signed into law H.R. 2926, the Air Transportation Safety and System Stabilization Act (the “Airline Stabilization Act”). The intent of the Airline Stabilization Act was to preserve the continued viability of the United States air transportation system by providing support to passenger airlines in the form of grant money, loan guarantees, and assistance with increased insurance costs.

The terrorist attacks of September 11, 2001 had a significant impact on the Company. Following the attacks, the air transportation system was temporarily shut down, resulting in the cancellation of more than 3,300 Mesa Air Group flights. The cancelled flights and loss of consumer confidence in the airline industry resulted in lost revenue from these cancelled flights and lower load factors and revenue yield on flights operated. The Company was also impacted by the costs incurred during the temporary shutdown that could not be avoided, the write down of receivables related to the Company’s code share partners as well as the resulting impairment and restructuring charges.

In September 2001, the Company recorded as non-operating income $14.7 million associated with amounts claimed under the Airline Stabilization Act. As of September 30, 2002, the Company received $12.4 million and the remaining $2.3 million is included in accounts receivable. The amount recorded in other income in 2001 represents the total amount claimed by the Company as the Company incurred losses in excess of this amount prior to September 30, 2001. Amounts paid or payable under the Airline Stabilization Act are subject to audit and adjustment by the Federal Government. Amounts in accounts receivable at September 30, 2002, remain outstanding as the Company has not finalized its claim with the Department of Transportation. The Company believes that it will ultimately collect the remaining amounts outstanding.

Effective October 1, 1999, the Company elected to change its method of accounting for engine and airframe maintenance costs on its CRJ aircraft and engine maintenance on its DeHavilland Dash 8-200 aircraft from the accrual method to the direct expense method. Under the accrual method, maintenance costs were accrued to expense on the basis of estimated future costs and estimated cycles or flight hours between major maintenance events. Implementation of the change necessitated the write-off of previously recorded accrued amounts. Effective October 1, 1999, the Company began expensing these maintenance costs as they are incurred. The cumulative effect of the change for prior years was a favorable adjustment of $18.1 million. Due to the valuation allowance at October 1, 1999, there is no tax effect related to the cumulative effect of the change. The impact of the change in fiscal 2000 totaled approximately $4.9 million, which is included as a reduction of maintenance expense.

The Company has a cash management program which provides for the investment of excess cash balances primarily in short-term money market instruments, intermediate-term debt instruments and common equity securities of companies operating in the airline industry.

SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” requires that all applicable investments be classified as trading securities, available for sale securities or held to maturity securities. All of the Company’s investments are classified as trading securities during the periods presented and accordingly, are carried at market value with changes in value reflected in current period operations.

The Company enters into short positions on common equity securities when management believes that the Company may capitalize on downward moves in particular securities. The Company marks short positions to market at each reporting period with the associated gain or loss value reflected other income (expense) in the statement of operations. Included in marketable securities are liabilities related to short positions on common equity securities of $7.2 million and $3.5 million at September 30, 2002 and 2001, respectively. Unrealized gains (losses) for the period that relate to trading securities (including short positions) held at September 30, 2002, 2001 and 2000 were ($5.2) million, ($8.0) million and ($0.5) million, respectively.

In December 2000, the Company reached agreement with Fleet Capital for a $35 million line of credit, collateralized by the Company’s inventory and receivables. The agreement, which expires in December 2003, has provisions that allow the expansion of available credit to $50 million by adding new lenders provided that there is additional collateral. The agreement also contains a financial covenant that requires the maintenance of certain financial ratios related to fixed charge coverage and total debt to capital. The Company was in compliance with these covenants at September 30, 2002. The Company will use the facility for general working capital purposes. The Company also had $13.7 million in letters of credit outstanding at September 30, 2002, which reduced the amount available under the line of credit. There were no amounts outstanding under this facility at September 30, 2002. Based upon available collateral, $4.1 million remained available under the line at September 30, 2002.

Deferred credits include the value of lease incentives, such as consumable and rotable inventory received at lease inception, and are amortized over the life of the related lease. In May 2001, Mesa restructured various past contractual claims it had against Bombardier Regional Aircraft Division. Under this restructuring, Mesa received $25.2 million up front and will receive $1.1 million per month through April 2003 to resolve these outstanding claims. Amounts received have been classified as deferred credits and are being amortized over 12 years, the remaining weighted average life of the aircraft leases. Deferred credits totaled $59.8 million and $45.2 million at September 30, 2002 and 2001, respectively.

Principal maturities of long-term debt for each of the next five years and thereafter are as follows:

At September 30, 2002, Mesa has three surplus Beechcraft 1900D aircraft classified as held for sale. Unpaid amounts totaling $8.6 million associated with these aircraft are included under the caption of current portion of long-term debt in the accompanying consolidated balance sheet.

In December 1999, the Company’s Board of Directors authorized the Company’s repurchase of up to 10%, (or 3.4 million shares), of the outstanding shares of its common stock. In January 2001, the Board approved the repurchase by the Company of up to an additional one million shares of its common stock. As of September 30, 2002, the Company has acquired and retired approximately 4.0 million shares (approximately 12.5%) of its outstanding common stock at an aggregate cost of approximately $24.0 million leaving approximately 400,000 shares available for repurchase under the current Board authorizations. In October 2002, the Company’s Board of Directors authorized the repurchase of an additional two million shares. Purchases are made at management’s discretion based on market conditions and the Company’s financial resources.

The difference between the actual income tax expense (benefit) and the statutory tax expense (benefit) (computed by applying the U.S. federal statutory income tax rate of 35 percent to income or loss before income taxes) is as follows:

Deferred tax assets include benefits expected to be realized from the utilization of alternative minimum tax credit carryforwards of approximately $1.9 million which do not expire and consolidated federal net operating loss carryforwards of approximately $47.3 million which expire at various dates between 2018 and 2021. In addition, CCAir has $9.8 million in net operating loss carryforwards that are subject to certain limitations and expire at various dates between 2009 and 2019. During 2002 and 2001, the Company established valuation allowances of $0.7 million and $2.2 million, respectively, for certain state net operating loss carryforwards and federal general business credits that are expected to expire unutilized in the future.

On February 7, 2002, the Company entered into an agreement with Raytheon Aircraft Company (the “Raytheon Agreement”) to, among other things, reduce the operating costs of the Company’s Beechcraft 1900D fleet. In connection with the Raytheon Agreement and subject to the terms and conditions contained therein, Raytheon agreed to provide up to $5.5 million in annual operating subsidy payments to the Company contingent upon the Company remaining current on its payment obligations to Raytheon. Approximately $6.0 million (which included $0.7 million relating to 2001) was recorded as a reduction to flight operations, maintenance and interest expense during 2002. In return, the Company granted Raytheon a warrant to purchase up to 233,068 shares of our common stock at a per share exercise price of $10.00. The Company recorded the issuance of these warrants at a value of $0.4 million within stockholders’ equity as a debit and credit to common stock and therefore the amounts net to zero. The contra equity value of these warrants is being amortized to expense over the vesting period of three years. Raytheon must pay a purchase price of $1.50 per share underlying the warrant. Each of the warrants is exercisable at any time over a three-year period following its date of purchase. Absent an event of default by the Company in which case vesting is accelerated, the option to purchase the warrants vests concurrently with Raytheon’s payment of the related annual operating subsidy for the following periods or January 15 of each year, whichever comes first. The warrants vest according to the following schedule: 13,401 shares for a portion of fiscal year 2001; 116,534 shares in fiscal year 2002; 58,267 shares in fiscal year 2003 and 44,866 shares in fiscal year 2004. As of December 1, 2002, Raytheon has exercised its option to purchase the 2001 and 2002 warrants.

At September 30, 2002, the Company sponsored the following stock-based compensation plans:

In March 1993, and December 1994, the Company adopted stock option plans for outside directors. These plans originally provided for the grant of options for up to 450,000 shares of common stock at fair market value on the date of grant. There are 52,000 shares outstanding under this plan. At September 30, 2002, there were no options available for grant under this plan.

On July 24, 1998, the Company adopted a new stock option plan for outside directors. This plan, as amended, provides for the grant of options for up to 275,000 shares at fair market value. As of September 30, 2002 there are 142,422 options outstanding and 47,843 options available for future grants.

In April 1996, the Company adopted an employee stock option plan under the new management incentive program (the “1996 Stock Option Plan”) which provides for the granting of options to purchase up to 2,800,000 shares of Company common stock at the fair market value on the date of grant. On July 24, 1998, an additional 1,500,000 options were approved by the stockholders to be granted under this plan. As of September 30, 2002 there are 1,960,985 options outstanding and 1,089,428 options available for future grants.

On June 1, 1998, the Company adopted a Key Officer Stock Option Plan for compensating the Company’s Chief Executive Officer and Chief Operating Officer, which provided for the granting of options to purchase up to 1,600,000 shares of the Company’s common stock at the fair market value on the date of grant. As of September 30, 2002 there are 1,112,533 options outstanding and 300,000 options available for future grants.

In 1999, the Company adopted the 1999 Non-Qualified Stock Option Plan and issued options in connection with the CCAir merger. At September 30, 2002, 24,856 options remain outstanding and there are no options available for future grants.

On October 31, 2001, the Company adopted a Key Officer Stock Option Plan for compensating the Company Chief Executive Officer and Chief Operating Officer, which provided for the granting of options to purchase up to 2,000,000 shares of the Company’s common stock at the fair market value on the date of grant. As of September 30, 2002 there are 250,000 options outstanding and 1,750,000 options available for future grants.

Generally, options granted to employees vest over a three-year period and options granted to directors vest immediately upon grant.

Transactions involving stock options under these plans are summarized as follows:

At September 30, 2002, the range of exercise prices for the aforementioned options was $4.04 to $12.24. The number of options exercisable at September 30, 2002 was 1,861,556, and the weighted-average exercise price of these options was $7.55.

The per share weighted-average fair value of stock options granted during 2002, 2001 and 2000 was $4.10, $5.28, and $3.15, respectively, on the grant date as determined by using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0.0%, risk-free interest rate of 3.0%, 4.2% and 5.9% and volatility of 75.5%, 73.5% and 54.2% in 2002, 2001 and 2000, respectively, and an expected life of 6 years.

The following table summarizes information concerning options outstanding at September 30, 2002:

The Company applies the provisions of APB No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for awards made pursuant to its fixed stock option plans. Had the compensation cost for the Company’s four fixed stock-based compensation plans been determined consistent with the measurement provisions of SFAS No. 123, the

Company’s net income (loss) and income (loss) per share would have been as indicated by the pro forma amounts indicated below:

The Company has a 401(k) plan covering the employees of MAI, Air Midwest and the airline support operations (the Mesa Plan). Under the Mesa Plan, employees may contribute up to 15 percent of their annual compensation, as defined. Employer contributions are made at the discretion of the Board of Directors. During fiscal 2002, the Company made matching contributions of 25 percent of employee contributions up to 10 percent of annual employee compensation. Upon completing two years of service, the employee is 20 percent vested in employer contributions and the remainder of the employer contributions vest 20 percent per year thereafter. Employees become fully vested in employer contributions after completing six years of employment. The Company has the right to terminate the 401(k) plan at any time. Contributions by the Company to the Mesa Plan for the years ended September 30, 2002, 2001 and 2000 were approximately $0.3 million, $0.9 million and $0.7 million, respectively.

CCAir also has a 401(k) plan covering the employees of CCAir. The CCAir plan allows employees to defer up to 17% of annual compensation. Company matching contributions vary in accordance with labor agreements in force for contract employees. For non-contract employees, the match is determined annually by the Board of Directors of CCAir. Upon completing two years of service, the employee is 20 percent vested in employer contributions and the remainder of the employer contributions vest 20 percent per year. Employees become fully vested in employer contributions after completing six years of employment. Contributions by CCAir to this plan were approximately $0.1 million, $0.2 million and $0.3 million in fiscal 2002, 2001 and 2000, respectively.

At September 30, 2002, the Company leased 99 aircraft under non-cancelable operating leases with remaining terms of up to 17 years. The aircraft leases require the Company to pay all taxes, maintenance, insurance and other operating expenses. The Company has the option to terminate certain of the leases at various times throughout the lease. At September 30, 2002, two CRJ-700 aircraft are subject to interim financing agreements. The Company expects to replace these interim arrangements with long-term operating leases and, accordingly, requirements under the interim arrangements are included in the minimum lease commitment table below. Aggregate rental expense totaled approximately $109.1 million, $87.4 million and $63.0 million for the years ended September 30, 2002, 2001 and 2000, respectively.

Future minimum lease payments under non-cancelable operating leases are as follows:

In June 1999, Mesa entered into an agreement with Empresa Brasiliera de Aeronautica SA (“Embraer”) to acquire 36 Embraer ERJ-145 50-passenger regional jets. Mesa introduced the ERJ-145 aircraft into revenue service in the third quarter of fiscal 2000 as US Airways Express. As of September 30, 2002, the Company had taken delivery of 32 ERJ-145’s, which have been financed as operating leases. The Company has the right to cancel the four remaining firm aircraft. In conjunction with this purchase agreement, Mesa has $4.2 million remaining on deposit with Embraer, which is included with lease and equipment deposits at September 30, 2002. The remaining deposit will be returned either upon the delivery of the last four aircraft or notification by Mesa of its intention to cancel the orders.

The Company has negotiated 10-year engine maintenance contracts with General Electric Aircraft Engines (“GE”) for its CRJ aircraft, Rolls-Royce Allison (“Rolls-Royce”) for its ERJ aircraft and Pratt and Whitney, Canada Aircraft Services (“PWC”) for its Dash 8-200 aircraft. The GE contract requires a monthly payment based upon flight hours incurred. The Rolls-Royce and PWC contracts provide for payment at the time of the repair event for a fixed dollar amount per flight hour. The rate under all contracts is subject to escalation based on changes in certain price indices.

In 2002, the Company signed a six year agreement with PWC to provide a new fleet management program covering the maintenance of the Company’s Beechcraft 1900D turboprop engines. Pursuant to the agreement, the Company sold certain assets of its Desert Turbine Services unit, as well as all spare PT6 engines at book value. The agreement with PWC covers all of the Beechcraft 1900D turboprop aircraft and engines. Pursuant to the agreement, the Company was required to prepay $6.8 million in future maintenance costs. The prepayment is being amortized to expense over the term of the agreement.

customer of the CRJ-900 and expect to take delivery of the first aircraft in the first calendar quarter of 2003. In addition to the firm orders, we have an option to acquire an additional 80 CRJ-700 and CRJ-900 regional jets. In conjunction with the 2001 BRAD Agreement, we have $8.8 million on deposit with BRAD, which is included with lease and equipment deposits at September 30, 2002.

In May 2001, the Company filed a complaint in Arizona state court against the law firm of Beus Gilbert P.L.L.C. (“Beus Gilbert”) arising out of Beus Gilbert’s representation of the Company in a suit against United Airlines (“UAL litigation”) that was settled in March 2001. The suit seeks a judgment voiding the fee arbitration provision (the “arbitration provision”) of a contingency fee agreement between the Company and Beus Gilbert. The provision purports to require that all disputes as to attorneys’ fees payable to Beus Gilbert be submitted to arbitration for final determination. Notwithstanding the requirement to arbitrate, the provision further purports to grant Beus Gilbert the right, “in its sole and absolute discretion,” to reject the decision of the arbitrator, impose an award in the amount equal to five times the aggregate hourly rate of all attorneys and paralegals who worked on the legal matter (plus costs and expenses), and enforce that award as though it were a civil judgment. Relying on the arbitration provision, following the settlement of the UAL Litigation, Beus Gilbert demanded in excess of $23.0 million, which it claims to have computed by applying a 5X multiplier in the arbitration provision to fees that allegedly accrued in excess of $4.0 million.

The proceeding brought by ALPA, Case No. CV-02-1333-PHX-PGR (D. Ariz.) names as defendants the Company, its Mesa Airlines subsidiary, and its Chairman in his individual capacity. It asserts three claims under the Railway Labor Act: (1) violation of the duty to bargain in good faith; (2) attempting to undermine ALPA as the collective bargaining representative of the Mesa Airlines pilots; and (3) failure to refrain from making changes to status quo rates of pay, rules or working conditions prior to exhausting the statute’s mediation procedures. The latter two counts are based primarily on the Company’s announcement that it intends to establish a new subsidiary, Freedom Airlines, to perform flying for America West Airlines using CRJ-700 and CRJ-900 aircraft. The Company denies that it has violated the statute in any fashion and plans a vigorous defense against ALPA’s suit. The complaint was filed in July 2002, and the Company filed a motion to dismiss in September 2002. Oral arguments are scheduled in January 2003.

The Company is also involved in various other legal proceedings and FAA civil action proceedings that the Company does not believe will have a material adverse effect upon the Company’s business, financial condition or results of operations, although no assurance can be given to the ultimate outcome of any such proceedings.

The carrying amount of cash and cash equivalents, receivables, accounts payable, accrued compensation and other liabilities approximate fair values due to the short maturity periods of these instruments. The fair value of securities is based on quoted marked prices (see note 5). The carrying value of the Company’s long-term debt approximates fair value based on the current terms offered for debt of the same or similar remaining maturities. The difference between the estimated fair values and carrying values of the Company’s financial instruments is not material.

The following table presents selected unaudited quarterly financial data (in thousands):


(1)	Fourth quarter amounts include impairment and restructuring charges totaling $26.7 million (pretax).

(2)	Quarterly amounts include impairment and restructuring charges totaling $22.7 million (pretax) and $58.2 million (pretax) in the second and fourth quarters, respectively. Additionally, an allowance for bad debts of $14.6 million (pretax) was recorded in the fourth quarter.

In the fourth quarter of fiscal 2002, the Company’s subsidiary, CCAir, determined to discontinue its operations. As a result of this decision, the Company took a restructuring and impairment charge of $19.8 million. The charge is comprised of $0.7 million of severance and other employee related liabilities, $4.6 million in aircraft related return costs, $7.8 million for future aircraft lease payments, $4.1 million to reduce the value of rotable and expendable inventory to fair market value less costs to sell, $0.9 million to write off the value of equipment and leasehold improvements and $1.7 million to reduce maintenance deposits held by a lessor to net realizable value.

Also in the fourth quarter of fiscal 2002, the Company returned 12 of the 15 B1900D aircraft permitted under its agreement with Raytheon. As a result of unanticipated increases in the cost of meeting return conditions, the Company recorded an additional impairment charge of $3.3 million. The remaining three aircraft are expected to be returned to Raytheon by the end of the fiscal second quarter of 2003. Also in 2002, the Company’s sublease of two Shorts 360 aircraft the Company had been subleasing to an operator in Europe expired and the Company did not anticipate the lease to be renewed. As a result, the Company took a charge for $3.6 million to accrue for the remaining lease payments and the future costs of returning these aircraft to the lessor.

In fiscal 2001, the Company recognized a charge of approximately $80.8 million. The charge was comprised of $22.7 million to write the net book value of 15 B1900D aircraft down to the contractual selling price, less the cost of preparing the aircraft for return; $9.3 million to write off the unamortized value of the goodwill associated with certain B1900D route systems; an impairment loss of $40.7 million on the Company’s remaining B1900D fleet; $4.9 million to dispose of nine Jetstream Super 31 aircraft and $3.2 million to reduce its surplus inventory to net realizable value.

The changes in the impairment and restructuring charges for the three fiscal years ended September 30, 2002 are as follows:

The reserve balance of $18.0 million above is included in accrued expenses, other non-current liabilities and deferred credits on the accompanying consolidated balance sheets.

In February 1999, the Company entered into an agreement with Barlow Capital, LLC (“Barlow”), whereby Barlow would provide financial advisory services related to aircraft leases, mergers and acquisitions, and certain other financing arrangements. The Company paid fees totaling $846,000, $627,000 and $409,000 to Barlow in fiscal 2002, 2001 and 2000, respectively, for arranging for leasing companies to participate in the Company’s various aircraft financings under this agreement. Messrs. Ornstein, Murnane and Swigart are each members of Barlow Capital, LLC and hold a 20%, 20% and 20% membership interest, respectively therein. Distributions to the members are determined by the members on a year-by-year basis. Substantially all of Barlow’s revenues are derived from its agreement with the Company.

On September 9, 1998, the Company entered into an agreement with International Airline Support Group (“IASG”) whereby the Company would consign certain surplus airplane parts to IASG to sell on the open market. IASG in turn would submit proceeds from such sales to the Company less a market-based fee. At September 30, 2002 and 2001, the Company had $2.4 million and $1.5 million in inventory on consignment with IASG, respectively. During fiscal 2002, 2001 and 2000, respectively, the Company paid IASG approximately $348,000, $553,000 and $611,000 in commissions on sales of surplus aircraft parts. During 2002, IASG provided consultation on determining the fair value of the Company’s surplus inventory. Mr. Murnane is currently a member of the board of directors of IASG and was an executive officer of IASG before joining the Company.

The Company provides administrative support, reservation services and office space to Europe-By-Air, Inc. The Company billed Europe-By-Air approximately $70,000, $64,000 and $78,000 for these services during fiscal 2002, 2001 and 2000, respectively. At September 30, 2002 and 2001, the Company had receivables from Europe-By-Air of $32,000 and $7,000, respectively. Mr. Ornstein and Mr. Swigart are a shareholder and a Chief Executive Officer and shareholder of Europe-By-Air, respectively.

In December 1999, the Company retained Providence Capital, Inc. (“Providence”) to assist with its stock repurchase program as well as other equity trades. Fees and/or commissions totaling approximately $108,000, $200,000 and $136,000 were paid to Providence during fiscal 2002, 2001 and 2000, respectively. Mr. Denton is the President and Chief Executive Officer of Providence.

The Company has used the services of the law firm of Piper Rudnick (formerly Verner, Liipfert, Bernhard, McPherson and Hand) for labor related actions. In 2002, the Company paid Piper Rudnick $571,333 for legal-related services. Mr. Manson is a partner with Piper Rudnick.

On May 1, 2001, the Company loaned $234,000 to Mr. Ornstein pursuant to a promissory note. Amounts outstanding under the promissory note bore interest at a rate of 7.5% per annum and required quarterly payments. On September 30, 2001, the Company’s accounts receivable under the promissory note from Mr. Ornstein totaled $215,000. On July 27, 2002, Mr. Ornstein paid the entire balance of the note and all accrued interest thereon.

On May 1, 2001, the Company loaned $90,000 to Mr. Lotz pursuant to a promissory note. Amounts outstanding under the promissory note bore interest at a rate of 7.5% per annum and required quarterly payments. On September 30, 2001, the Company’s accounts receivable under the promissory note from Mr. Lotz totaled $83,000. On July 17, 2002, Mr. Lotz paid the entire balance of the note and all accrued interest thereon.

During fiscal 2001, the Company assisted in the establishment of Regional Airline Partners (“RAP”), a political interest group formed to pursue the interests of regional airlines, communities served by regional airlines and manufactures of regional airline equipment. Mr. Parker is the Executive Director of RAP. During 2002 and 2001, the Company paid expenses totaling $165,000 and $18,000, respectively, of RAP’s operating costs. Included in these amounts are wages and expense of Mr. Parker, which amounted to $99,000 and $4,000

in fiscal 2002 and 2001, respectively. Since inception, the Company has financed 100% of RAP’s operations. The Company had a note receivable from RAP of $17,732 at September 30, 2001 that was expensed in 2002.

In September 2001, the Company entered into an agreement to form UFLY, LLC, for the purpose of making strategic investments in US Airways, Inc. In September 2001, the Company began making investments in US Airways common stock on behalf of the Company and the other investors. At September 30, 2001, the Company had a capital contribution receivable of $2.6 million from the other investors for such purchases. UFLY, LLC was formally established in October 2001. Shares held by the Company prior to formation sustained an unrealized loss at September 30, 2001 of approximately $1.0 million. In 2002, the Company contributed $5.0 million in investments and the other members contributed $5.0 million in cash to form UFLY. During 2002, UFLY’s investments lost $1.9 million. Also during 2002, UFLY made capital distributions of $2.5 million back to the Company and $3.0 million to the other members. At September 30, 2002, the Company owned approximately 56% of UFLY, Mr. Ornstein is a shareholder/ owner and managing member.

The Company will enter into future business arrangements with related parties only where such arrangements are approved by a majority of disinterested directors and are on terms at least as favorable as available from unaffiliated third parties.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements with accountants on accounting and financial disclosure.

All items in Part III are incorporated herein by reference as indicated below to our definitive proxy statement for our 2003 annual meeting of stockholders anticipated to be held February 11, 2003, which will be filed with the SEC, except for information relating to executive officers under the heading “Executive Officers of the Registrant,” which can be found in Part I following Item 4.

The information required by Item 10 is incorporated herein by reference to the information contained under the headings “Election of Directors” and “Executive Officers” as set forth in our definitive proxy statement for our 2003 annual meeting of stockholders.

The information required by Item 11 relating to our directors is incorporated herein by reference to the information under the heading “Compensation of Directors” and the information relating to our executive officers is incorporated herein by reference to the information under the heading “Executive Compensation” as set forth in our definitive proxy statement for our 2003 annual meeting of stockholders.

The information required by Item 12 is incorporated herein by reference to the information under the headings “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management” as set forth in our definitive proxy statement for our 2003 annual meeting of stockholders.

The information required by Item 13 is incorporated herein by reference to the information under the heading “Certain Relationships and Related Transactions” as set forth in our definitive proxy statement for our 2003 annual meeting of stockholders.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

Within 90 days prior to the date of filing of this report, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the applicable time periods. There have been no


	1. Reference is made to consolidated financial statement schedules in item 8 hereof.

	2. Reports on Form 8-K

We did not file any reports on Form 8-K during the quarter ended September 30, 2002.

The following exhibits are either filed as part of this report or are incorporated herein by reference from documents previously filed with the Securities and Exchange Commission:


(1)	The Company has sought confidential treatment of portions of the referenced exhibits.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ JONATHAN G. ORNSTEIN



	Jonathan G. Ornstein
	Chairman and Chief Executive Officer
	(Principal Executive Officer)


	By:	/s/ ROBERT B. STONE



	Robert B. Stone
	Chief Financial Officer
	(Principal Financial Officer)


	By:	/s/ JEFF P. POESCHL



	Jeff P. Poeschl
	Vice President — Finance
	(Principal Accounting Officer)

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints JONATHAN G. ORNSTEIN and JEFF P. POESCHL, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting onto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully and to all intent and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


	1. I have reviewed this annual report on Form 10-K of Mesa Air Group, Inc.;

	2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	1. I have reviewed this annual report on Form 10-K of Mesa Air Group, Inc.;

	2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


	(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	(d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


(1)	The Company has sought confidential treatment of portions of the referenced exhibit.

66 EX-5.2 3 p67334exv5w2.txt EX-5.2 Exhibit 5.2 MESA AIR GROUP, INC. 2001 KEY OFFICER STOCK OPTION PLAN 1. PURPOSE OF THE PLAN; TYPE OF PLAN (a) Establishment and General Purpose. Mesa Air Group, Inc. (the "Company") hereby establishes the 2001 Key Officer Stock Option Plan (the "Plan"). The purpose of the Plan is to compensate the chief executive officer of the Company ("CEO") and the president and chief operating officer of the Company ("COO," together with the CEO, the "Key Officers") with stock options ("Options") to induce their entry into employment agreements (as to each, their "Employment Agreement") or otherwise to induce them to remain as employees of the Company, and in either event to provide an incentive for them to improve the Company's performance. Without the Plan, the Board does not believe it can attract and retain the caliber of officers necessary to operate the Company in today's competitive environment. An extremely competitive market currently exists for senior executive officers and valuable stock options owned by senior management of competitors of the Company make a generous stock option plan necessary to attract and retain officers. (b) Designation of Stock Options as Non-Qualified Stock Options. Options granted under the Plan shall not be treated as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. ADMINISTRATION OF THE PLAN (a) Creation of the Committee. This Plan will be administered by a committee of persons (hereinafter, the "Committee") as chosen by the Board of Directors of the Company (the "Board"). The Committee will generally consist of one or more members of the Board. If a Committee does not exist, or for any other reason determined by the board, the Board may take any action under the Plan that otherwise would be the responsibility of the Committee. (b) Composition of Committee. With respect to Options granted to a person subject to Rule 16b-3 of the Securities Exchange Act of 1934 or any successor rule ("Rule 16b-3"), unless otherwise determined by the Board, the Committee granting such Options shall be the entire Board or shall be comprised solely of two or more "non-employee directors" as defined by Rule 16b-3. With respect to Options granted to a "covered employee" under Section 162(m) of the Code ("Section 162(m)"), unless otherwise determined by the Board, the Committee granting such Options shall be comprised solely of two or more "outside directors" as defined by Section 162(m). With respect to Options granted to a person subject to both Rule 16b-3 and Section 162(m), unless otherwise determined by the Board, all grants will be made in a manner that complies with both Rule 16b-3 and Section 162(m). The Committee shall be so constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule. (c) Power and Authority of Committee. The Committee will have authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to decide all questions and settle all controversies and disputes which may arise in connection with the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan. 3. STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN (a) Description of Stock and Maximum Shares Allocated. The stock subject to the provisions of this Plan and issuable upon exercise of the Options are shares of the Company's common stock ("Common Stock"), no par value, which may be either unissued or treasury shares, as the Board may from time to time determine. Subject to adjustment as provided in Section 7, the aggregate number of shares of Common Stock covered by the Plan issuable upon exercise of all Options shall be 2,000,000 shares, which shares shall be reserved for issuance upon the exercise of the Options. The maximum number of shares that will be subject to Options granted under the Plan to any Key Officer during any calendar year will be as set forth in Section 4(b)(i) and (ii), subject to adjustment as described in Section 7. (The shares available for Options under this Plan and all other shares of Common Stock of the Company shall be referred to herein as the "Shares.") If the exercise price of any Option is satisfied by tendering Shares to the Company, only that number of Shares issued net of the Shares tendered shall be considered issued and delivered for purposes of determining the maximum number of Shares available for issuance under this Section. (b) Restoration of Unpurchased Shares. If an Option expires or terminates for any reason prior to its exercise in full before the term of the Plan expires, the Shares subject to, but not issued under, such Option shall again be available for other Options hereafter granted. 4. OPERATION OF THE PLAN (a) Plan Participants. Options shall be granted to the Key Officers. (b) Date of Grants and Allotment. (i) CEO. One hundred and fifty thousand (150,000) Options shall be granted to the CEO on April 1, 2002, and on April 1 of each successive calendar year in which the CEO's Employment Agreement remains in effect. The -2- grant of any Options to the CEO in excess of such number of Options will require the approval of the Committee. (ii) COO. One hundred thousand (100,000) Options shall be granted to the COO on January 1, 2002, and on January 1 of each successive calendar year in which the COO's Employment Agreement remains in effect. The grant of any Options to the COO in excess of such number of Options will require the approval of the Committee. (iii) If a scheduled Grant Date in any given year fall on a day on which trading in the Shares is closed, the action which would have taken place on such Grant Date shall be delayed until the first day after the scheduled Grant Date that trading in the Shares commences. (iv) Each of the dates on which Options are granted under this Section 4(b) shall be referred to herein as a "Grant Date." (c) Price. The Option price per Share shall be equal to the fair market value of the underlying Shares on the Grant Date, as determined under Section 4(d) below. (d) Fair Market Value. The fair market value of Shares underlying Options granted on any particular Grant Date shall be determined as follows: (i) If the Shares are listed or admitted to trading on any securities exchange, the fair market value shall be the average sales price on such day on the New York Stock Exchange, or if the Shares have not been listed or admitted to trading on the New York Stock Exchange, on such other securities exchange on which such stock is then listed or admitted to trading, or if no sale takes place on such day on any such exchange, the average of the closing bid and asked price on such day as officially quoted on any such exchange; (ii) If the Shares are not then listed or admitted to trading on any securities exchange, the fair market value shall be the average sales price on such day or, if no sale takes place on such day, the average of the reported closing bid and asked price on such date, in the over-the-counter market as furnished by the National A-2 39 Association of Securities Dealers Automated Quotation ("NASDAQ"), or if NASDAQ at the time is not engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business and selected by the Committee; or (iii) If the Shares are not then listed or admitted to trading in the over-the-counter market, the fair market value shall be the amount determined by the Committee in a manner consistent with Treasury Regulation Section -3- 20.203 l-2 promulgated under the Code or in such other manner prescribed by the Secretary of the Treasury or the Internal Revenue Service. (e) Duration of Plan; Term of Options. The term of the Plan, unless previously terminated by the Board, is five years. The Board may suspend or terminate the Plan at any time. No Option shall be granted under the Plan unless granted within five years after the adoption of the Plan by the Board, but Options outstanding on the date the Plan terminates shall not be terminated or otherwise affected by virtue of the Plan's expiration. Except as otherwise indicated in Section 6, all Options automatically expire ten years from the Grant Date. (f) Vesting of the Options. Subject to Section 6, one-third of the Options granted on a Grant Date shall vest on the first anniversary after the Grant Date; one-third of the Options granted on a Grant Date shall vest on the second anniversary after the Grant Date; and the remaining one-third of Options granted on a Grant Date shall vest on the third anniversary after the Grant Date. 5. TERMS AND CONDITIONS OF OPTIONS (a) Individual Agreements. Options granted under the Plan shall be evidenced by agreements in such form as the Board or the Committee from time to time approves, which agreements shall substantially comply with and be subject to the terms of the Plan. (b) Required Provisions. Each agreement shall state: (i) the total number of Shares to which it pertains; (ii) the exercise price for the Shares covered by the Option; (iii) the time at which the Option becomes exercisable; (iv) the scheduled expiration date of the Option; and (v) the timing and conditions of issuance of any Option exercise. (c) No Fractional Shares. Options shall be granted and shall be exercisable only for whole Shares; no tractional Shares will be issuable upon exercise of any Option granted under the Plan. Fractional Options shall be rounded down to the nearest whole Share number. (d) Method of Exercising Options. Options shall be exercised by written notice to the Company, addressed to the Company at its principal place of business. Such notice shall state the election to exercise the Option and the number of Shares -4- with respect to which it is being exercised, and shall be signed by the person exercising the Option. Such notice shall be accompanied by payment in full of the exercise price for the number of Shares being purchased. Payment may be by any of the following methods or any combination of the following methods: (i) in cash; (ii) by bank cashier's check; (iii) pursuant to a loan from the Company if the Board so determines or if the Key Officer's Employment Agreement so provides; (iv) by delivery to the Company of certificates representing the number of Shares then owned by the Key Officer, the fair market value of which (as determined under Section 4(d)) equals the purchase price of the Shares purchased pursuant to the Option, properly endorsed for transfer to the Company, but Shares used for this purpose must have been held by the Key Officer for at least six months, or for such other minimum period as may be established from time to time by the Committee; or (v) with the surrender of vested Options which have a "spread" equal to the amount of payment (with the spread to be determined by the difference between the fair market value of the common stock that is subject to the Option that is being surrendered, as determined in Section 3(d) of the Plan, and the exercise price of the Option being surrendered). The Company shall deliver a certificate or certificates representing the Option Shares to the purchaser as soon as practicable after payment for those Shares has been received. If an Option is exercised by any person other than the Option holder, such notice shall be accompanied by appropriate proof of the right of such person to exercise the Option. All Shares that are purchased and paid for in full upon the exercise of an Option shall be fully paid and non-assessable. (e) No Rights of a Shareholder. A Key Officer shall have no rights as a shareholder with respect to Shares covered by an Option until such Option is exercised and a certificate for the underlying Shares is issued. Upon such exercise of an Option and issuance of a stock certificate, the holder of the Shares of Common Stock so received shall have all the rights of a shareholder of the Company. No adjustment will be made for cash dividends for which the record date is prior to the date a stock certificate is issued upon exercise of an Option. (f) Registration Rights. Each grant of Options pursuant to this Plan shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Option upon -5- any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval have been effected or obtained on conditions acceptable to the Committee. Notwithstanding the foregoing, the Company agrees: (i) to keep in effect a registration statement under the Securities Act of 1933, as amended (or any successor statute) (the "1933 Act") with respect to the Shares underlying the Options for as long as any of the Options remain unexercised; (ii) to keep in effect a registration statement under the 1933 Act with respect to the resale of any such Shares, to the extent necessary to permit the Key Officer or any transferee of the Key Officer's Shares (acquired pursuant to an Option) to resell such Shares without any restrictions on the resale of such Shares under the 1933 Act; (iii) to comply with any registration or similar requirements under the laws of any state to the extent necessary to permit the Key Officer or any transferee of the Key Officer with respect to such Shares to resell such Shares without any restrictions on the resale of such Shares under such laws and regulations; (iv) to comply with all state and federal laws and regulations regarding disclosure, so as to permit the Key Officer and any transferee of the Key Officer to resell the Shares underlying the Options without liability under such laws and regulations; and (v) to cause all Shares underlying any Option to be listed or admitted to trading on any securities exchange on which the Shares have been listed or admitted to trading, at the time any Option is exercised. 6. TERMINATION OF EMPLOYMENT; ASSIGNABILITY; DEATH (a) Termination of Employment. Except as more specifically provided in Section 6(b), (c), (d) or (e), below, if any Key Officer ceases to be an employee of the Company prior to March 14,2004 (in the case of Ornstein) or January 1,2004 (in the case of Lotz), such Key Officer may, within three months after the date of such Key Officer's termination of employment (but not after the stated expiration date of an Option), exercise any Option that has become vested prior to the date of such termination. If any Key Officer is employed by the Company for the period beginning with the date this Plan is approved by the Board and ending on March 13,2004 (in the case of Ornstein) or December 3 1,2003 (in the case of Lotz), and thereafter ceases to be an employee of the Company, the expiration date for exercise of the Options held by such Key Employee shall not be earlier than ten years from the Grant Date. (b) Disability. If the Key Officer is removed as an employee of the Company due to Disability (as defined in such Key Officer's Employment Agreement), any unvested Option shall become fully vested and the Key Officer (or his representative) may exercise the Options, in whole or in part, at any time prior to -6- the stated expiration date of the Options, and if such removal occurs prior to March 14, 2004 (in the case of Ornstein) or January 1, 2004 (in the case of Lotz), the expiration date for exercise of the Options shall not be earlier than ten years from the Grant Date. (c) Discharge for Cause. If a Key Officer is removed as an employee of the Company for Cause (as such term is defined in such Key Officer's Employment Agreement), the Options shall terminate upon the effective date of the removal. Notwithstanding the foregoing, if such Key Officer is employed by the Company for the period beginning with the date this Plan is approved by the Board and ending on March 13, 2004 (in the case of Ornstein) or December 31, 2003 (in the case of Lotz), such Key Officer may exercise the Options, in whole or in part, to the extent they were exercisable on the date when the Key Officer's removal was effective, at any time prior to the tenth anniversary of the Grant Date of the Options. (d) Termination Without Cause or For Good Reason. If a Key Officer is terminated by the Company without Cause (as such term is defined in such Key Officer's Employment Agreement) or if the Key Officer terminates employment for Good Reason (as such term is defined in such Key Officer's Employment Agreement), any unvested Option held by such Key Officer shall vest immediately, and such Key Officer shall have until the stated expiration date of any Options to exercise them, but if such termination occurs prior to March 14, 2004 (in the case of Ornstein) or January 1, 2004 (in the case of Lotz), the expiration date for exercise of the Options shall not be earlier than ten years from the Grant Date. (e) Death of Option Holder. If a Key Officer dies while serving as an employee of the Company, any unvested Option held by such Key Officer shall become fully vested and shall be exercisable until the stated expiration date thereof by the person or persons ("successors") to whom such Key Officer's rights pass under will or by the laws of descent and distribution, but if the Key Officer's death occurs prior to March 14,2004 (in the case of Ornstein) or January 1, 2004 (in the case of Lotz), the expiration date for exercise of the Options shall not be earlier than ten years from the Grant Date. An Option may be exercised (and payment of the Option price made in full) by the successors only after written notice to the Company, specifying the number of shares to be purchased. Such notice shall comply with the provisions of Section 5(f). (f) Assignability. No Option or the privileges conferred thereby shall be assignable or transferable by a holder except: (i) by will or the laws of descent and distribution; -7- (ii) to an immediate family member (which for this purpose is defined as a spouse, a child by blood or adoption, a grandchild by blood or adoption, and any trust, partnership, limited liability company, or other entity whose primary beneficiaries include one or more of any such immediate family members) of the Key Officer holding such Option; or (iii) to an organization exempt from Federal income tax under Section 501(c)(3) or Section 501(c)(4) of the Code. (g) The provisions of this Section 6 shall be subject to call rights with respect to the Options, if any, that are set forth in the Key Officer's Employment Agreement or in any other agreement between the Key Officer and the Company. 7. CERTAIN ADJUSTMENTS The aggregate number of Shares subject to the Plan, the number of Shares covered by outstanding Options, and the price per share stated in such Options shall be proportionately adjusted for any increase or decrease in the number of outstanding Shares of Common Stock of the Company resulting from a subdivision or consolidation of Shares or any other capital adjustment or from the payment of a stock dividend or from any other increase or decrease in the number of such Shares effected without receipt by the Company of consideration therefor in money, services or property. 8. COMPLIANCE WITH LEGAL REQUIREMENTS (a) Registration Statement Preparation. The Key Officer hereby agrees to supply the Company with such information and to cooperate with the Company, as the Company may reasonably request, in connection with the preparation and filing of the registration statements and amendments thereto under the 1933 Act and applicable state statutes and regulations applicable to the Option Shares. (b) Additional Restrictions on Option Exercise. Notwithstanding any provision to the contrary contained herein, a Key Officer may exercise Options only so long as such exercise does not violate the law or any rule or regulation adopted by any applicable governmental authority. 9. MISCELLANEOUS (a) No Funding. This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure any payment under the Plan. -8- (b) Nevada Law. The Plan and the Options granted thereunder shall be governed by the laws of the State of Nevada. (c) Withholding of Taxes. The Company's obligation to issue Shares upon the exercise of an Option shall be subject to the Key Officer's satisfaction of all applicable federal, state, and local income and other tax withholding requirements. For these purposes, the Company shall have the right to deduct from any other compensation of the Key Officer any such taxes (including FICA taxes) required by law to be withheld with respect to the granting or exercise of any Options. At the time an Option is exercised by a Key Officer, the Committee, in its sole discretion, may permit the Key Officer to satisfy such withholding obligations by transferring previously-owned Shares to the Company, or by directing the Company to withhold from Shares otherwise issuable to such Key Officer upon the exercise of the Option. For these purposes, the value of Shares would be determined under Section 3(d) on the date that the amount of tax to be withheld is to be determined. (d) Other Employee Benefits. The amount of any compensation deemed to be received by a Key Officer as a result of the exercise or grant of any Options shall not constitute "earnings" with respect to which any other employee benefits of such Key Officer are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. DATED to be effective as of October 30, 2001. ---------------- MESA AIR GROUP, INC. By: /s/ Jonathan Ornstein ------------------------------- Jonathan Ornstein Chairman of the Board ATTESTED BY: By: /s/ Brian S. Gillman ------------------------------ Brian S. Gillman Secretary -9- EX-10.1 4 p67334exv10w1.txt EX-10.1 Exhibit 10.1 MESA AIR GROUP, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is entered into as of October ___, 2002, by and between Mesa Air Group, Inc., a Nevada corporation (the "Company"), and ______("Indemnitee"). RECITALS A. The Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for its directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. B. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. C. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection. D. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and, in part, in order to induce Indemnitee to continue to provide services to the Company, wishes to provide for the indemnification and advancing of expenses to Indemnitee to the maximum extent permitted by law. E. In view of the considerations set forth above, the Company desires that Indemnitee be indemnified by the Company as set forth herein. NOW, THEREFORE, the Company and Indemnitee hereby agree as follows: 1. Indemnification. (a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other (hereinafter a "Claim") by reason of (or arising in part out of) any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity (hereinafter an "Indemnifiable Event") against any and all expenses incurred by or on behalf of Indemnitee (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any such action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), costs of supersedes and other appeal bonds, judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld or delayed) of such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (collectively, hereinafter "Expenses"), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. The Company shall make such payment of Expenses as soon as practicable but in any event no later than ten days after written demand by Indemnitee therefor is presented to the Company. (b) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then, with respect to all matters thereafter arising concerning the rights of Indemnitee to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Articles of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel (as defined in Section 9(d) hereof) shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed). Such counsel, among other things, shall render its written opinion to the board of directors of the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (c) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 8 hereof, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any proceeding referred to in Section 1(a) of this Agreement, or in defense of any claims, issue or matter herein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection therewith. If Indemnitee is not wholly successful in any proceeding referred to in Section 1(a) of this Agreement, but is successful on the merits or otherwise (including dismissal without prejudice) as to one or more, but less than all claims, issues or matters therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee (or on his behalf) in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c), and without limitation, the termination of any claim, issue or matter in any proceeding referred to in Section 1 of this Agreement by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 2 2. Expenses; Indemnification Procedure. (a) Advancement of Expenses. To the fullest extent permitted by applicable law, the Expenses incurred by Indemnitee pursuant to Section 1(a) of this Agreement in connection with any proceeding or any claim, issue or matter therein shall be paid by the Company in advance (and "Expense Advance") of the final disposition of such proceeding or any claim, issue or matter therein no later than 10 days after receipt by the Company of an undertaking by or on behalf of Indemnitee ("Indemnitee Undertaking") to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. The Indemnitee Undertaking shall be in a form reasonably acceptable to the Company, shall not be secured and shall be interest free. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Reviewing Party. Upon written request by Indemnitee for indemnification pursuant to Section 2(b) of this Agreement, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, in the manner set forth in Section 1(b) of this Agreement; or (ii) if a Change in Control shall not have occurred, (A) by a vote of the stockholders of the Company, (B) by the board of directors of the Company by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, (C) if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so order, by Independent Legal Counsel in a written opinion to the board of directors of the Company, or (D) if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by Independent Legal Counsel in a written opinion to the board of directors of the Company, a copy of which shall be delivered to Indemnitee; and, if so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 10 days after such determination. (d) Presumptions; Burden of Proof; Effect of Certain Provisions. (i) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 2(b) of this Agreement, and the Company shall have the burden of proof in overcoming such presumption by clear and convincing evidence. The termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not 3 permitted by applicable law. Further, neither the failure of the Company (including its board of directors or Independent Legal Counsel) to have made a determination prior to the commencement of such action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its board of directors or Independent Legal Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (ii) If the person, persons or entity empowered or selected in accordance with the terms of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 2(d) shall not apply if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to the terms of this Agreement. (iii) For purposes of any determination of whether Indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, Indemnitee had no reasonable cause to believe his conduct was unlawful (collectively, "Good Faith"), Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's action is based on the records or books of account of the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent ("Enterprise"), including financial statements, or on information supplied to Indemnitee by the officers of any of Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 2(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (iv) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. (e) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. 4 The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding, inquiry or investigation in accordance with the terms of such policies. (f) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. Additional Indemnification Rights; Nonexclusivity. (a) Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Nevada corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Nevada corporation to indemnify a member of its Board of Directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 7(a) hereunder. (b) Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Nevada, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity. 4. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Articles of Incorporation, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 6. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 7. Exceptions. Except where so ordered by a court of competent jurisdiction, any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for acts, omissions or transactions from which Indemnitee may not be relieved of liability under applicable law; (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Articles of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, (iii) as otherwise required under section 78.7502 (or other applicable code section) of Nevada General Corporation Law, or (iv) in actions involving a counterclaim, interpleader, or third party claim, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be; (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 8. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from 6 the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 9. Construction of Certain Phrases. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (c) For purposes of this Agreement a "Change in Control" shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities (as defined below), (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining 7 outstanding or by being converted into Voting Securities of the surviving entity) at least 50% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company's assets. (d) For purposes of this Agreement, "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(c) hereof, who shall not have otherwise performed services for the Company, the Indemnitee or any officer, director, subsidiary or other affiliate thereof within the last five years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements) and who shall be experienced in matters of corporate law. The Company shall be responsible for any and all fees and expenses of the Independent Legal Counsel. (e) For purposes of this Agreement, a "Reviewing Party" shall mean any appropriate person or body consisting of the stockholders of the Company, the Company's board of directors, or Independent Legal Counsel, as set forth in Section 2(c) of this Agreement in accordance with section 78.751 (or any successor provision) of Nevada General Corporation Law. (f) For purposes of this Agreement, "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 11. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary of the Company or of any other enterprise at the Company's request. 12. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court of competent jurisdiction over such 8 action determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), and shall be entitled to the advancement of Expenses with respect to such action, unless, as a part of such action, a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action was made in bad faith or was frivolous. 13. Notice. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given (a) five calendar days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid, or (d) one calendar day after the business day of delivery by facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed if to the Indemnitee, at the Indemnitee's address as set forth beneath his signature to this Agreement and if to the Company at the address of its principal corporate offices (attention: Secretary) or at such other address as such party may designate by ten calendar days' advance written notice to the other party hereto. 14. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Arizona for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the court of competent jurisdiction of the State of Arizona, which shall be the exclusive and only proper forum for adjudicating such a claim. 15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 16. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Nevada, as applied to contracts between Nevada residents, entered into and to be performed entirely within the State of Nevada, without regard to the conflict of laws principles thereof. 17. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who 9 shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 18. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 19. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 20. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries. [Remainder of Page Intentionally Left Blank.] 10 IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. MESA AIR GROUP, INC., a Nevada corporation By: ----------------------------- Title: -------------------------- Address: 410 North 44th Street Suite 700 Phoenix, Arizona 85008 AGREED TO AND ACCEPTED BY: INDEMNITEE - ------------------------------------- Address: ----------------------------- - ------------------------------------- - ------------------------------------- 11 EX-10.3 5 p67334exv10w3.txt EX-10.3 Exhibit 10.3 FIRST AMENDMENT This First Amendment is entered and made as of October 6, 2000 (the "Amendment") as an amendment to the Agreement dated as of July 29, 1994 by and between US Airways, Inc. ("US Airways") (previously US Air, Inc.) and MESA AIRLINES, INC., d/b/a/FLORIDAGULF AIRLINES ("Contractor") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and Contractor have entered into the Agreement; and WHEREAS, US Airways and Contractor desire to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and Contractor hereby agree as follows: 1. Section 9.01(a) of the Agreement is hereby amended by deleting that provision in its entirety and substituting the following language in lieu thereof: "(a) This Agreement will become effective on the date first written above and will continue in effect thereafter through July 29, 2005, unless it is terminated at an earlier date pursuant to one or more of the provisions of this Article 9." 2. Except as amended hereby, the Service Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /s/ Jonathan Ornstein /s/ Thomas M. Hanley 10/16/00 - ----------------------------------- ---------------------------------- By: Jonathan Ornstein By: Thomas M. Hanley Title: Chairman Title: Vice President US Airway Express EX-10.5 6 p67334exv10w5.txt EX-10.5 Exhibit 10.5 FIRST AMENDMENT TO SERVICE AGREEMENT THIS FIRST AMENDMENT to the SERVICE AGREEMENT made as of November 1, 1991 by and between USAIR, INC. ("USAir") and AIR MIDWEST, INC. ("Contractor"). WITNESSETH: WHEREAS, USAir and Contractor desire to amend certain provisions of the SERVICE AGREEMENT, dated October 15, 1990; and WHEREAS, USAir and Contractor desire to amend certain provisions of the SERVICE AGREEMENT which authorizes Contractor to operate as a USAir Express carrier; and NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for other valuable consideration, the receipt of which are hereby acknowledged, USAir and Contractor hereby agree as follows: 1. Article 2 - AIR SERVICE TO BE PROVIDED BY CONTRACTOR (a) Section 2.01 Schedules to be Operated As of the effective date of this Amendment, Section 2.01(a) is deleted and the following substituted in lieu thereof: "Throughout the life of this Agreement and any amendment or extension thereof, Contractor shall schedule and operate USAir Express service to connect the following cities to Kansas City, Missouri (the "Hub") on a nonstop through-plane or connecting basis: Cedar Rapids, IA Little Rock, AR Denver, CO Lincoln, NE Dodge City, KS Liberal, KS Des Moines, IA Manhattan, KS Fayetteville, AR Omaha, NE Great Bend, KS Salina, KS Garden City, KS Sioux City, IA Goodland, KS Sioux Falls, SD Hays, KS Springfield, MO Joplin, MO Topeka, KS Lamar, CO Wichita, KS (b) Section 2.05 Airports to be Used As of the effective date of this Amendment, the cities and airports listed in Section 2.04 are deleted and the following substituted in lieu thereof: Cedar Rapids, IA: Cedar Rapids Municipal Airport Denver, CO: Stapleton International Airport Dodge City, KS: Dodge City Municipal Airport Des Moines, IA: Des Moines International Airport Fayetteville, AR: Fayetteville Drake Field Airport Great Bend, KS: Great Bend Municipal Airport Garden City, KS: Garden City Municipal Airport Goodland, KS: Goodland Municipal Airport (Renner Field) Hays, KS: Hays Municipal Airport Joplin, MO: Joplin Regional Airport Lamar, CO: Lamar Municipal Airport Little Rock, AR: Little Rock Regional Airport Lincoln, NE: Lincoln Municipal Airport Liberal, KS: Liberal Municipal Airport Manhattan, KS: Manhattan Municipal Airport Omaha, NE: Omaha Eppley Airfield Salina, KS: Salina Municipal Airport Sioux City, IA: Sioux Gateway Airport Sioux Falls, SD: Joe Foss Field Springfield, MO: Springfield Regional Airport Topeka, KS: Forbes Field Wichita, KS: Mid-Continent Airport 2. Article 4 - JOINT PASSENGER FARES AND DIVISION OF REVENUE As of the effective date of this Amendment, the existing language in Article 4 is deleted in its entirety and the following substituted in lieu thereof: "Joint passenger fares between USAir and Contractor shall be established as mutually agreed upon by USAir and Contractor. Division of such fares is set as follows: 1) Full fares (F and Y fares) will be divided by using cost factors as outlined by the joint fare prorate standards formerly required by the Civil Aeronautics Board in Phase 4 of the Domestic Passenger Fare Investigation, Docket 21866; and 2) Discount fares (fares other than F or Y) will be divided using the Straight Rate Prorate formula, unless the division of such fares is otherwise mutually agreed to by USAir and Contractor; and 3) Whether using the procedures in (1) or (2) as outlined above, where either party has a connecting middle city within the routing, revenue shall be decided by deleting the middle city for the prorating process." 3. MISCELLANEOUS (a) Effective Date of this Amendment. This Amendment shall be effective as of the date first written above when executed by authorized officers of each of the parties. (b) Terms. Terms are used in this Amendment as they are defined in the SERVICE AGREEMENT. (c) Continued Effect. Except as amended hereby, the SERVICE AGREEMENT shall remain in full force and effect. (d) Execution in Counterparts. This Amendment may be executed simultaneously 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. IN WITNESS WHEREOF, the parties have executed this Amendment. WITNESS: USAIR, INC. - ------------------------------- By /S/ Gordon Linkon ---------------------------------------- Gordon Linkon, Vice President USAir Express Division WITNESS: AIR MIDWEST, INC. By /S/ Dick Paquette - ------------------------------- ---------------------------------------- Dick Paquette Vice President & General Manager EX-10.6 7 p67334exv10w6.txt EX-10.6 Exhibit 10.6 SECOND AMENDMENT TO SERVICE AGREEMENT THIS SECOND AMENDMENT to the SERVICE AGREEMENT (the "Amendment") made as of February , 1993 by and between USAIR, INC. ("USAir") and AIR MIDWEST ("Contractor"). WITNESSETH: WHEREAS, USAir and Contractor have entered into the SERVICE AGREEMENT, dated as October 15, 1990, as amended; and WHEREAS, USAir and Contractor desire to amend certain provisions of the SERVICE AGREEMENT which authorizes Contractor to operate as an USAir Express carrier; and NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, USAir and Contractor hereby agree as follows: 1. Article 4 - PASSENGER FARES AND DIVISION OF REVENUES As of the effective date of this Amendment, the existing language in Article 4 is deleted in its entirety and the following substituted in lieu thereof: "Section 4.01 Local Fares Contractor shall establish (and USAir shall publish) local (selling) fares applicable to Contractors' USAir Express markets and Contractor shall be paid its local fares for passengers solely on Contractor's USAir Express flights in accordance with industry and Clearing House practices. Section 4.02 All Other Fares USAir will establish all fares using the "US" designator except for those specifically addressed in Section 4.01. Section 4.03 Division of Revenues (1) All fares will be divided in accordance with the straight rate/prorate formula via procedures outlined in USAir Express Revenue Accounting Instruction Manual, unless the division of such fares is otherwise mutually agreed to by USAir and Contractor. (Under the straight rate/prorate formula, each parties' portion of the actual joint (through) fare is determined by the ratio of its prorate coach (Y) fare to the sum of the individual full (prorate) coach (Y) fares for all of the flight segments involved.)" (2) MISCELLANEOUS (a) Effective Date of This Amendment. This Amendment shall be effective as of the date first written above when executed by authorized officers of each of the parties. (b) Terms. Terms are used in this Amendment as they are defined in the Services Agreement. (c) Continued Effect. Except as amended hereby, the SERVICES AGREEMENT shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment. WITNESS: US AIR, INC. By /S/ Keith Houk - ------------------------------- ------------------------------ Keith Houk, Vice President USAir Express Division WITNESS: By /S/ A.R. Dick Paquette - ------------------------------- ---------------------------------- A.R. (Dick) Paquette President and COO EX-10.7 8 p67334exv10w7.txt EX-10.7 Exhibit 10.7 THIRD AMENDMENT This Third Amendment is entered and made as of October 6, 2000 (the "Third Amendment") as an amendment to the Agreement dated as of October 15, 1990, by and between US Airways, Inc. ("US Airways") and Air Midwest, Inc. ("Contractor") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and Contractor have entered into the Agreement; and WHEREAS, on August 6, 1991, US Airways and Contractor amended the Agreement in certain respects ("First Amendment"); and WHEREAS, in February of 1993, the parties further amended the Agreement in certain respects ("Second Amendment"); and WHEREAS, US Airways and Contractor desire to further amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and Contractor hereby agree as follows: 1. The first sentence of Section 9.01 (a) is hereby amended by striking the language contained therein and substituting the following in lieu thereof: "This Agreement will become effective October 15th 1990 and will continue in effect thereafter through October 15, 2005, unless it is terminated at an earlier date pursuant to one or more of the provisions of this Article 9." 2. Section 9.02(h) is hereby deleted in its entirety and existing Section 9.02 (i) is renumbered as Section 9.02(h). 3. Except as amended hereby, the Service Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. AIR MIDWEST, INC. US AIRWAYS, INC. /S/ Jonathan Ornstein /S/ Thomas M. Hanley -------------------------- --------------------------- By: Jonathan Ornstein By: Thomas M. Hanley Title: Chairman Title: Vice President US Airways Express EX-10.8 9 p67334exv10w8.txt EX-10.8 Exhibit 10.8 FOURTH AMENDMENT This Fourth Amendment is entered and made as of March 5, 2001 (the "Fourth Amendment") as an amendment to the Agreement dated as of October 15, 1990, by and between US Airways, Inc. ("US Airways") and Air Midwest, Inc. ("Contractor") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and Contractor have entered into the Agreement; and WHEREAS, in August 6, 1991, the parties further amended the Agreement in certain respects ("First Amendment"); and WHEREAS, in February of 1993, the parties further amended the Agreement in certain respects ("Second Amendment"); and WHEREAS, on October 6, 2000, the parties further amended the Agreement in certain respects ("Third Amendment"); NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and Contractor hereby agree as follows: 1. Section 11.01 of the Agreement is hereby amended by inserting a subsection "(a)" before the word "Contractor" in the first paragraph of such Section. 2. Section 11.01 of the Agreement is hereby amended by inserting a new subsection "(b)" at the end of the first paragraph as follows: "(b)Effective March 5, 2001, US Airways hereby grants to Contractor for a period of one year, the right to conduct operations described in Section 2.01 above, as amended, and any additional operations undertaken by subsequent amendment hereto under the trademark "US Airways Express" on behalf of Midwest Express Airlines, subject to all of the terms and conditions of Article 11 of the Agreement." Air Midwest Airlines flights d/b/a US Airways Express which operate between Kansas City to the airports listed in Section 2.01 will be permitted to carry the YX code when connecting to Midwest Express Airlines flights from Kansas City to the airports listed below. Any one or more of the airports listed is subject to change at the sole discretion of US Airways, provided that US Airways provides 60 days notice to Air Midwest: [***] 3. Except as amended hereby, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. AIR MIDWEST, INC. US AIRWAYS, INC. /S/ Greg Stephens /S/ Thomas M. Hanley -------------------------- --------------------------- By: Greg Stephens By: Thomas M. Hanley Title: President Title: Vice President Express Division EX-10.10 10 p67334exv10w10.txt EX-10.10 Exhibit 10.10 FIRST AMENDMENT TO CODE SHARE AND REVENUE SHARING AGREEMENT This FIRST AMENDMENT TO CODE SHARE AND REVENUE SHARING AGREEMENT (this "First Amendment") is dated to be effective the 27th day of April, 2001 (the "Effective Date"), between AMERICA WEST AIRLINES, INC., a Delaware corporation ("AWA"), and MESA AIRLINES, INC., a Nevada corporation ("MESA"). RECITALS: A. AWA and MESA have entered into a Code Share and Revenue Sharing Agreement, entered into as of March 20, 2001, to be effective retroactive to February 1, 2001 (the "Code Share Agreement"), to provide scheduled air transportation services as America West Express. All capitalized terms used herein but not defined shall have the meaning given to such terms in the Code Share Agreement. B. AWA and MESA desire to amend the Code Share Agreement to provide additional time for MESA to execute the Aircraft Contract. NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, AWA and MESA agree as follows: AMENDMENTS 1. The parties agree that Paragraph 1 of the Code Share Agreement shall be amended in its entirety as follows: Effectiveness. This Agreement replaces the Original Agreement effective upon the date (the "Effective Date") that MESA executes a binding agreement to acquire the CRJ Aircraft required to be provided by MESA pursuant to Section 2.2.2 of this Agreement (the "Aircraft Contract"). MESA shall provide AWA with written notice of the date the Aircraft Contract is executed together with copies of the Aircraft Contract. On the date of execution of the Aircraft Contract, all of the terms and provisions of this Agreement shall be effective retroactive to the Contract Date. On the Effective Date, the Original Agreement shall be terminated in its entirety. All sums payable pursuant to Section 6 of the Original Agreement between the Contract Date and Effective Date shall be recalculated pursuant to the terms of Section 7 of this Agreement, and AWA, subject to the rights regarding disputed amounts contained in Section 7.8, shall pay additional and undisputed sums payable within 30 days after receipt of a written invoice for such recalculation. Until the Effective Date, AWA and MESA shall continue to perform pursuant to the Original Agreement. If the Aircraft Contract is not executed by June 1, 2001, then this Agreement shall automatically terminate and the terms and conditions of the Original Agreement shall remain in full force and effect. Simultaneously with the execution of this Agreement, AWA and MESA shall enter into an amendment to the Original Agreement providing for the addition of 3 CRJs under the Original Agreement if this Agreement is terminated pursuant to this Section. As of the Contract Date, AWA and MESA dispute certain amounts that are payable between AWA and MESA under the Original Agreement (the "Disputed Amounts"). MESA and AWA shall continue to work to resolve their respective obligations concerning the Disputed Amounts pursuant to the terms of the Original Agreement. This is a new and separate agreement from the Original Agreement. The terms of this Agreement shall not be used by either MESA or AWA to determine or interpret the respective payment obligations of the parties for the Disputed Amounts. The respective obligations for the Disputed Amounts and other matters and disputes arising under the Original Agreement prior to the Contract Date shall be resolved pursuant to the terms, covenants, rights and remedies of the Original Agreement, shall not affect the rights, duties and obligations of AWA or MESA under this Agreement and shall not permit AWA or MESA to exercise any remedies under this Agreement. The intent of AWA and MESA is to resolve any disputes concerning the Disputed Amounts or any other matters and disputes under the Original Agreement and not pursuant to this Agreement. MISCELLANEOUS 2. Effect. Except as otherwise set forth in this First Amendment, the Code Share Agreement shall remain in full force and effect as originally set forth. 3. Counterparts. This First Amendment may be executed in counterparts, all of which when taken together shall be one and the same document. 4. Entire Agreement: This First Amendment constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. AWA: AMERICA WEST AIRLINES, INC., A Delaware corporation By: /S/ Andrew Nocella ------------------------------- MESA: MESA AIRLINES, INC., A Nevada corporation By: /S/ Jonathan Ornstein --------------------------------- Jonathan G. Ornstein Chief Executive Office EX-10.13 11 p67334exv10w13.txt EX-10.13 Exhibit 10.13 AMENDMENT NO. 2 TO CODESHARE AGREEMENT This Amendment No. 2 (the "Amendment") is made and entered into as of August 1, 2002 (the "Effective Date"), by and between Frontier Airlines, Inc. ("Frontier"), a corporation organized under the laws of Colorado, and Mesa Airlines, Inc. ("Mesa"), a corporation organized under the laws of Nevada. RECITALS: A. Mesa and Frontier have entered into a Codeshare Agreement, dated as of September 4, 2001 (the "Codeshare Agreement"). All capitalized terms used in this Amendment, but not defined herein, shall have the meaning given to such terms in the Codeshare Agreement. B. Both Mesa and Frontier recognize the importance of maintaining high levels of service in order to attract and retain passengers. C. One such way to attract and retain passengers is to operate the scheduled flights and do so on-time. DEFINITIONS: A. Completion Benchmark: Frontier Airlines' completion rate for its network-wide operations during the same month it is used to benchmark Mesa's performance. B. On-time Benchmark: Frontier Airlines' on-time departure performance rate for its network-wide operations during the same month it is used to benchmark Mesa's performance. An on-time departure is when an aircraft leaves the gate between zero to fifteen minutes after scheduled departure, otherwise the departure is not considered on-time. C. Incentive Penalty: The amount to be paid as a penalty for the difference between the actual number of flights completed or performed on-time and the Completion or the On-time Benchmarks. NOW, THEREFORE, in consideration of the recitals and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Mesa and Frontier agree to amend the Codeshare Agreement by adding the following sub section as follows: 14.2 (d) Fees will be assessed to incentivise Mesa to operate those flights marketed under the Frontier Airlines (F9*) code in a manner equal or exceeding the performance of Frontier Airlines' operations. Mesa shall be penalized if performance falls below either the Completion Benchmark or the On-time Benchmark for any given month. 1. Determination of number of flights to be penalized a) In order to determine if Mesa flights fall below the completion levels required by the Codeshare Agreement, Frontier will first multiply the Completion Benchmark by the total number of Mesa scheduled departures for the month then subtract the number of Mesa flights operated during the month. If the result is a positive number, this number of flights to be penalized for failing to meet the completion performance requirements (see example in section 1(c)). b) In order to determine if Mesa flights fall below the on-time levels required by the Codeshare Agreement, Frontier will first multiply the On-time Benchmark by the total number of Mesa scheduled departures for the month then subtract the number of Mesa flights operated on-time during the month. If the result is a positive number, this is the number of flights to be penalized for failing to meet the on-time performance requirements (see example in section 1(c)). c) Sample Calculations 1. By way of illustration, the following is a sample Completion Penalty Calculation. If, for example, in the month of August, Frontier completes [***] of its flights, the Completion Benchmark for August is [***}. Further, if Mesa has scheduled [***] flights for that month, it needs to complete a minimum of [***] flights during the month of August, it will pay an Incentive Penalty for the thirteen flights it failed to complete. 2. By way of illustration, the following is a sample On-time Penalty Calculation. If, for example, in the month of August, Frontier performs [***] of its flights on-time, the On-time Benchmark for August is [***]. Further, if Mesa has scheduled [***] flights for that month, it needs to complete a minimum of [***] flights on-time in order to meet the On-time Benchmark. If Mesa completes only [***] flights on-time during the month of August, it will pay an Incentive Penalty for the one hundred flights it failed to complete on-time. 2. Penalty fees a) For each flight below the Completion Benchmark, Mesa shall pay Frontier [***]. This penalty will double for each consecutive month Mesa fails to meet the Completion Benchmark. b) For each flight below the On-time Benchmark, Mesa shall pay Frontier [***]. This penalty will double for each consecutive month Mesa fails to meet the On-Time Benchmark. c) The maximum fine for each month will not exceed [***]. d) In the event that Mesa's completion rate exceeds the Completion Benchmark by two or more percentage points and Mesa's on-time performance exceeds the On-Time benchmark by two or more percentage points in the same month, Frontier will pay Mesa [***] 3. Settlement of Penalty fees a) Penalties are only to be paid if Mesa falls below the benchmark performance set by Frontier Airlines. b) Mesa is to pay any penalties for performance which drops below the benchmark requirements within 30 days of receipt of Frontier's notice informing Mesa that it failed to meet the benchmark. 4. Exchange of Performance data. Frontier and Mesa are to exchange performance figures weekly relative to their performance, and specifically for the percentage of departures leaving on-time within 15 minutes of schedule and percentage of scheduled flights departed. 5. This Amendment shall be in full force and effect during the entire term of the Codeshare Agreement. MESA AIRLINES, INC. By: /S/ Mike Lotz ------------------------------- Name: ----------------------------- Title: President ---------------------------- FRONTIER AIRLINES, INC. By: /S/ Sean Menke ------------------------------- Name: ------------------------------- Title: VP Marketing & Planning ---------------------------- EX-10.15 12 p67334exv10w15.txt EX-10.15 Exhibit 10.15 FIRST AMENDMENT This First Amendment is entered and made as of November 24, 1999 (the "Amendment") as an amendment to the Service Agreement dated as of November 11, 1997, by and between US Airways, Inc. ("US Airways") and MESA AIRLINES, INC. ("MesaJet") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and MesaJet have entered in the Agreement; and WHEREAS, on or about the 15th day of June, 1999, US Airways and MesaJet entered into a Memorandum of Understanding relating to the amendment of the Agreement in certain respects; and WHEREAS, US Airways and MesaJet desire to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and MesaJet hereby agree as follows: 1. Exhibit 2.1 of the Agreement is hereby amended by adding the following to the list of operational aircraft set forth therein:

US Airways acknowledges that changes in the delivery schedule may arise due to circumstances beyond MesaJet's control, including, without limitation, manufacturing delays, FAA or other regulatory delays or other operational delays. MesaJet will make every reasonable effort to provide as much advance notice to US Airways of such a change in the delivery schedule as set forth in Exhibit 2.1. Under no circumstances will MesaJet be liable to US Airways in any manner whatsoever for damages claimed by US Airways or claims made against US Airways, resulting from a change in the delivery schedule set forth in this Exhibit 2.1 when delays are beyond MesaJet's reasonable control. 2. A new subsection 2.1(a) is hereby added to the Agreement as follows: "(a) The in-service target date for Aircraft deliveries * in paragraph 1 of this First Amendment will be on or about the 15th day of the month indicated therein. Notwithstanding the preceding sentence, in the event there are two or more deliveries in a given month, the in-service date for the second aircraft will be on or about the 21st day of the month and the in-service date for the third aircraft will be on or about the 30th day of the month. MesaJet will inform US Airways of the exact in-service dates for each month ninety (90) days prior to first day of the in-service month indicated." 3. A new subsection 2.1(b) is hereby added to the Agreement as follows: "Notwithstanding the listing of aircraft numbered * in Schedule 2.1, attached hereto and made a part hereof, such aircraft will only be accepted by US Airways to the extent that fleet growth in the US Airways mainline jet network allows greater than thirty-five (35) regional jets to be operated with the US Airways code pursuant to its labor agreement scope clause. However, if fleet growth in the US Airways mainline jet network does not reach a level to allow greater than thirty-five (35) regional jets to be operated with the US Airways code, and provided that US Airways gives at least three months written notice, MesaJet will not be obligated to provide, and US Airways will not be obligated to accept the additional Aircraft numbered *." 4. New subsections 2.2(a), (b), and (c) are added to the Agreement as follows: "(a) With the exception of Aircraft Numbered * listed in paragraph number 1 of this First Amendment, the additional Aircraft referenced in that paragraph will be a different model from the current regional jets MesaJet operates as US Airways Express under the Agreement. The additional Aircraft are * aircraft. US Airways hereby allows MesaJet to swap regional * currently in service with US Airways under the Agreement into *, as long as the total number of regional jets MesaJet has in service with US Airways is not reduced as a result of such aircraft swap. (b) MesaJet will have the right to perform such aircraft swaps referenced in subsection 2.2 (a), above, upon no less than ninety (90) days notice prior to the first day of the month such swap is contemplated to occur. At such time US Airways and MesaJet will jointly restructure the MesaJet regional jet schedule to accomplish such swap in a manner to minimize any adverse impact on aircraft utilization and on US Airways passengers. (c) US Airways will provide reasonable assistance to MesaJet in meeting the FAA requirements necessary to add the new * onto the MesaJet operating certificate. US Airways will provide a single point of contact US Airways employee to coordinate efforts within US Airways and interface with MesaJet on the new * aircraft, including training and proving run requirements associated with the addition of such aircraft." 5. Section 2.7 is hereby amended by deleting the word "thirteenth" in the ninth line of that Section, substituting the word "seventeenth" in lieu thereof, and inserting the parenthetical "(a "Spare Aircraft")" after the word "aircraft" near the end of that line. 6. A new section 2.9 is hereby added to the Agreement as follows: "2.9 US Airways and MesaJet will cooperate to develop ways to reduce damage to Aircraft caused by impacts from ramp equipment, such as jet bridges, baggage carts, GPU and air conditioning carts and deicing equipment operated by US Airways personnel." 7. A new section 2.10 is hereby added to the Agreement as follows: "2.10 US Airways will coordinate schedule planning with MesaJet to minimize flight crew and maintenance costs, subject to meeting US Airways reasonable marketing objectives." 8. A new subsection 5.2(a) is hereby added to the Agreement as follows: "(a) Notwithstanding the RJ Model referenced in section 5.1 above, US Airways will adjust the reimbursement for * according to the following: (i) *. (ii) Effective as of April 1. 1999, to the extent MesaJet operates greater than * Aircraft under this Agreement, US Airways will * per Aircraft than the monthly ownership costs contained in the RJ Model. In addition, such ownership costs will be subject to adjustments due to changes in interest rates incurred in financing such Aircraft. Such adjustments due to changes in interest rates will be in accordance with the table attached hereto as Appendix A. (iii) The interest rate referenced in subsection 5.2 (a) (ii) above, is primarily predicted upon the * providing the debt financing economically necessary for support of the *. In the event * fails to provide such debt for a given Aircraft, then (a) MesaJet's obligation to supply and US Airways obligation to accept such additional Aircraft is suspended, and (b) US Airways and MesaJet will cooperated to obtain alternative financing from * at a rate acceptable to both Parties. (iv) US Airways will increase reimbursement for MesaJet Crew costs by *. Such adjustment will be amended by mutual agreement of the Parties at the end of the sixth month following the execution of this Amendment, and every six months thereafter, based on increases and decreases in MesaJet's actual flight training costs (excluding pilot salaries)." 9. Sections 5.4 and 5.5 of the Agreement are hereby deleted in their entirety and US Airways hereby * and will eliminate the * from the date hereof and throughout the remainder of the term of the Agreement. US Airways will reimburse MesaJet the full amount withheld for services provided during 1999. 10. Section 7.1 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "7.1 This Agreement is effective as of the date and year first written above, and services provided hereunder will continue, without interruption for a period * from the in-service date of the first *, unless it is terminated on an earlier date pursuant to the provisions of this Article 7. US Airways will have the right to extend the term on each Aircraft by *." 11. Section 7.4 of the Agreement is hereby deleted in its entirety. 12. Section 8.1 of the Agreement is hereby amended by changing "*" and "*" in line one to "*" and "*", respectively. 13. Section 8.2 of the Agreement is hereby amended by changing "arrival" in line one to "*". 14. A new subsection 8.3 is hereby added to the Agreement as follows: "8.3 In the event that an aircraft used by MesaJet to perform services called for in this Agreement is damaged during the execution of agreed to ground support functions set forth in Section 4.3 of the Agreement by a US Airways employee, or an individual contracted by US Airways to perform such ground support services, and such damage is sustained while the aircraft is parked or being pushed or towed by said employee or contract individual, and such damage occurs while the aircraft is not being operated by a MesaJet employee or individual contracted by MesaJet to perform services for MesaJet, then the calculations contained in this Article 8 will be modified as follows: The number of scheduled flights for the month will be reduced by *. This modification to the calculation of performance will only be applied if US Airways is notified in writing within one business day of the date on which such damage occurs of: i) the time, place and circumstances surrounding the damage; ii) the expected flight adjustments/cancellations made or required due to the out of service aircraft and; iii) the estimated return to service date of the damaged aircraft. 15. A new subsection 8.4 is hereby added to the Agreement as follows: "8.4 Both parties agree that attrition of pilots is a normal part of the planning and execution of a regional jet operation. Further both parties understand that from time to time, the pilot hiring at US Airways may be greater than expected and that the increase in US Airways hiring may affect the attrition rate of active Mesa pilots. Since a higher than expected attrition rate may affect MesaJet's operating performance, the parties agree that in the event that the following conditions exist, then the calculations contained in this Article 8 will be modified as set forth below: (a) Triggering Event: If within a given month, US Airways hires an extraordinary number of active Mesa pilots, as defined below, then the calculations contained in this Article 8 will be modified. For use within this section the following definitions will apply: 1. The act of hiring an Mesa pilot will be defined as the successful completion by an active Mesa pilot of the total US Airways pilot employment process up to and including the sign-on process and the attendance at the first day of training. 2. (a) The number of active Mesa pilots hired by US Airways will be deemed to be extraordinary if: i.) Mesa's pilot attrition rate to all certified non-Mesa carriers for any given month increases * over the average attrition rate for the preceding six months; ii)US Airways' hiring of Mesa pilots in any given month exceeds by * the average number of Mesa pilots hired in the preceding six months, and iii) the actual number of Mesa pilots hired as a result of the * increase in Mesa's pilot attrition rate referenced in 2(a)(i) above. (b) Subsequent to the occurrence of a triggering event, as defined in Section 8.4 (a), above, Mesa's attrition rate for any given month shall be calculated using the attrition rate for the month immediately preceding the triggering event. Such attrition rate shall remain Mesa's average attrition rate for the preceding * months, for purposes of the next two subsequent monthly calculations of Mesa's pilot attrition rate, or until the actual number of Mesa pilots hired by US Airways in a given month returns to or falls below the actual number for the month immediately preceding the triggering event. 3. An active Mesa pilot will be defined as any Mesa pilot who is currently a certified Captain or First Officer. 16. A new subsection 8.5 is hereby added to the Agreement as follows: "8.5 Modification of the Article 8 Calculations Once it has been mutually agreed that a triggering event, as described in Section 8.4 (a), above, has occurred, then the monthly calculations in this Article 8 will be modified for the month of the triggering event and the next month in the following manner: (a) The number of scheduled flights that is used to calculate the completion performance measures will be reduced *. The number of normally experienced flight crew cancellations will be determined by *. (b) The number of scheduled flights that is used to calculate the arrival performance measures will be reduced by *. The number of normally experienced flight crew arrival delays will be determined by *." 17. A new section 12.3 is hereby added to the Agreement as follows; "12.3 US Airways will have the right of first refusal on * groups of * supplemental Aircraft * that MesaJet has on firm order (the "Conditional Aircraft"). Such rights of first refusal will expire *. The delivery dates of such Conditional Aircraft are set forth below.

(a) In the event US Airways exercises its right to one or more of the Conditional Aircraft, then within one year of such exercise, the Parties will work together to determine whether and if so, which Conditional Aircraft will be considered as a second Spare Aircraft. Such determination will be based upon completion and on-time statistics of the fleet. Either Party will have the right to determine whether a second Spare Aircraft is necessary after the delivery of the first Conditional Aircraft. The Parties will mutually agree on the timing of the introduction of the second Spare Aircraft. 18. A new subsection 12.4 is hereby added to the Agreement as follows: "12.4 MesaJet has additional aircraft on option order at a rate * Section 12.3, above ("Option Aircraft"). MesaJet's rights to the Option Aircraft are *. US Airways may, by giving written notice one month prior to the Notice Period to MesaJet, direct MesaJet to increase the number of Aircraft ordered beyond *. In the event Us Airways foregoes exercising greater than * consecutive blocks of Option Aircraft, then US Airways will forego rights to *. In the event US Airways directs MesaJet to increase the number of Aircraft ordered beyond *, such Option Aircraft will be delivered to US Airways in accordance with the schedule attached hereto as Exhibit B. The schedule set forth in Exhibit B is indicative only and is subject to change. However, MesaJet will use all reasonable efforts to adhere to said schedule *." Except as reflected above, the Agreement remains unchanged in all other respects. Upon its execution, this First Amendment, together with the Agreement, will be the complete and binding understanding of the Parties with respect to the terms and conditions of the Agreement, as amended by the terms set forth herein. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /S/ William P. Kostel /S/ Thomas M. Hanley - --------------------- --------------------------------- By: By: Thomas M. Hanley Title: Vice President - Planning Title: Vice President US Airways Express Appendix A OWNERSHIP REIMBURSEMENT ADJUSTMENT SCHEDULE

*Where Reference Interest Rate is: Five Year LIBOR as published on Reuters Service under code USD5YDHBEL APPENDIX B OPTION AIRCRAFT SCHEDULE

EX-10.16 13 p67334exv10w16.txt EX-10.16 Exhibit 10.16 SECOND AMENDMENT This Second Amendment is entered and made as of October 6, 2000 (the "Amendment") as an amendment to the Service Agreement dated as of November 11, 1997, by and between US Airways, Inc. ("US Airways") and MESA AIRLINES, INC. ("MesaJet") (the "Agreement"), as amended. WITNESSETH: WHEREAS, US Airways and MesaJet have entered into the Agreement; and WHEREAS, US Airways and MesaJet amended the Agreement in certain respects on November 24, 1999 ("First Amendment"); and WHEREAS, US Airways and MesaJet desire to further amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and MesaJet hereby agree as follows: 1. The first sentence of Section 7.1 of the Agreement is hereby amended as follows: "This Agreement is effective as of the date and year first written above, and services provided hereunder will continue, without interruption through *, unless it is terminated on an earlier date pursuant to the provisions of this Article 7." 2. Section 12.3 of the Service Agreement is hereby amended to reflect that US Airways exercised its right of first refusal on Aircraft *. The delivery dates on the aircraft set forth in that Section shall remain as stated therein. A new third sentence is hereby added in the first paragraph of that section as follows: "In the event that the proposed merger between UAL Corp. and US Airways is not consummated, then US Airways' right of first refusal with respect to the *." 3. Except as amended hereby, the Service Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /S/ Jonathan Ornstein /S/ Thomas M. Hanley - --------------------------- ------------------------------------ By: By: Title: Title: CONSENT This consent, dated as of the 6th day of October, 2000 is made by Mesa Airlines, Inc. ("Mesa), a Nevada corporation having its principal place of business at 410 N. 44th Street, Suite 700, Phoenix, Arizona, 85008 at the request of US Airways, Inc. ("US Airways"), a Delaware corporation having its principal place business at 2345 Crystal Drive, Arlington, Virginia, 22227. RECITALS WHEREAS, Mesa and US Airways are parties to that certain Service Agreement dated November 11, 1997 (as amended, the "Service Agreement") relating to air transportation services provided by Mesa to US Airways; WHEREAS, the Service Agreement specifically provides that neither Mesa's nor US Airways' right and obligations established under the Service Agreement may be assigned, in whole or in part, without prior written consent of the other; WHEREAS, US Airways Group, Inc. (" US Airways Group"), the parent company of US Airways, has entered into a merger agreement (the "Merger Agreement") with UAL Corporation ("UAL"), United Airlines, Inc.'s parent corporation, pursuant to which US Airways Group will merge with a subsidiary of UAL and, in connection with that Merger Agreement, US Airways Group, UAL and Robert Johnson have entered into a memorandum of understanding to create a new airline to be called "DC Air", *; *; NOW, THEREFORE be it known that: CONSENT Pursuant to Article 13.5 of the Service Agreement, Mesa hereby gives its consent to the assignment by US Airways of up to *. *. This Consent is given in anticipation of the consummation of the Merger Agreement. In the event such acquisition is not consummated by December 31, 2001, this Consent shall be void and of no effect. DATED this 6th day of October, 2000. MESA AIRLINES, INC. /s/ Jonathan Ornstein By:____________________________ Name:__________________________ Title:___________________________ EX-10.17 14 p67334exv10w17.txt EX-10.17 Exhibit 10.17 THIRD AMENDMENT This Third Amendment is entered and made as of this 17th day of October, 2002 (the "Amendment") as an amendment to the Service Agreement dated as of November 11, 1997, by and between US Airways, Inc. ("US Airways") and Mesa Airlines, Inc. as amended ("MesaJet" or "Mesa") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and MesaJet have entered into the Agreement; and WHEREAS, US Airways and MesaJet have entered into the First Amendment to the Agreement dated as of November 24, 1999 (the "First Amendment"); and WHEREAS, US Airways and MesaJet have entered into the Second Amendment to the Agreement dated as of October 6, 2000 (the "Second Amendment"); and WHEREAS, MesaJet has entered into a Consent Agreement dated as of October 6, 2000; WHEREAS, US Airways and MesaJet desire to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, US Airways and MesaJet hereby agree as follows: 1. ARTICLE 2.1 is hereby deleted in its entirety and replaced with the following: "2.1 At all times during the term of this Agreement and any amendment or extension thereof, MesaJet will schedule and operate US Airways Express air transportation service between various domestic city-pairs (hereinafter referred to as "the Service") using up to * seat jet aircraft (hereinafter referred to as "the Aircraft"). The city-pairs from which the air transportation services are to be provided by MesaJet pursuant to this agreement will be selected by US Airways in its sole discretion. US Airways may, * days' advance written notice to MesaJet, designate changes in the following: city-pairs served, aircraft routings, or flight frequencies." 2. Exhibit 2.1 shall be deleted in its entirety. 3. The first sentence of ARTICLE 2.2 is hereby deleted in its entirety and replaced with the following: "2.2 The Aircraft will have the capacities and payloads the same as those of the Aircraft performing the Service as of the date of this Amendment, unless established otherwise by mutual agreement." 2. Exhibit 2.2 shall be deleted in its entirety. 3. ARTICLE 5 is hereby deleted in its entirety and replaced with the following: "ARTICLE 5 COMPENSATION FOR SERVICES SECTION 5.1 PRICING MODEL DESCRIPTION US Airways and MesaJet have developed a certain invoicing model, hereinafter referred to as "the Pricing Model" and set forth in Exhibit 5.1, which, in addition to US Airways' requirement in Section 5.12, will be used to determine the full and total compensation to be paid by US Airways for city-pairs flown by the Aircraft pursuant to this Agreement. 2 The Pricing Model is a Microsoft Excel spreadsheet application that calculates the amounts due to/from MesaJet based on defined variables and flight activity of the Aircraft in a particular billing month. The Pricing Model inputs are set into three categories, *, and are collectively referred to as the Pricing Model Variables. For any given billing month, the Pricing Model will be used to calculate * "*" and the Pricing Model will be used to calculate * "*". SECTION 5.2 MONTHLY PRICING MODEL VARIABLES Monthly Pricing Model Variables will refer to the Pricing Model Variables that change from month to month based on *. Examples of support resources are *. Descriptions of the Monthly Pricing Model Variables and the conditions under which the variable may change are presented below and in Exhibit 5.1. (a) The "Active RJ - US" variable set forth in Exhibit 5.1 for a given month shall mean the number of the Aircraft, * flown in the Service, available, by mutual agreement, for scheduled service in a billing month. For any changes to the number of Aircraft under this Agreement, Mesa shall notify and US Airways shall confirm the number of Aircraft available to schedule * days before the billing month. When an Aircraft is placed into service in the middle of a billing month, the Active RJ - US variable shall be calculated by *. (b) The "Spare RJ - US" variable set forth in Exhibit 5.1 for a given month shall mean the number of * Aircraft assigned, by mutual agreement, as a spare aircraft in the billing month. Mesa shall notify and US Airways shall confirm the Aircraft identified as a spare aircraft * days before the billing month. In addition, each month, Mesa shall provide US Airways with a schedule of planned maintenance events or other out of service time for the Aircraft over the next * period. When a spare aircraft is assigned in the middle of a billing month, the Spare RJ - US variable shall be calculated by the 3 number of available aircraft days with respect to the Aircraft as a spare aircraft divided by the number of days in the month. (c) The "Total RJ - US" variable set forth in Exhibit 5.1 for a given month shall mean the sum of the Active RJ - US variable and the Spare RJ - US variable. (d) The "Total RJ - Mesa" variable set forth in Exhibit 5.1 for a given month shall mean the number of *, or such other regional jet aircraft flown by Mesa either in the Service or on behalf of itself or another air carrier, in the billing month. When such aircraft is placed into service in the middle of a billing month, the Total RJ - Mesa variable shall be calculated *. (e) The "Block Hours" variable set forth in Exhibit 5.1 for a given month shall mean the block hours for actual revenue flights operated in the Service under the terms of this Agreement in the billing month. For the purpose of developing a Pre-Bill Invoice, the Block Hours variable shall be equal to *. (f) The "Revenue Passengers" variable set forth in Exhibit 5.1 for a given month shall mean the actual number of enplaned US Airways Express passengers on the Aircraft in the billing month. For the purpose of developing a Pre-Bill Invoice, the Revenue Passengers variable shall be calculated by *. (g) The "Departures" variable set forth in Exhibit 5.1 for a given month shall mean the actual revenue departures operated in the Service under the terms of this Agreement in the billing month. For the purpose of developing a Pre-Bill Invoice, the Departures variable shall be equal to *. (h) The "RPMs" variable set forth in Exhibit 5.1 for a given month shall mean the actual number of US Airways Express revenue passenger miles (RPMs) produced in the billing month by the Aircraft in the Service. For the purpose of developing a Pre-Bill Invoice, the RPMs variable shall be calculated by *. 4 (i) The "Crew Ratio - Pilots" variable set forth in Exhibit 5.1 for a given month shall be calculated by dividing *. The total number of ERJ-145 (and/or CRJ-200, if applicable) pilots shall be determined by selecting pilots who meet one of the four (4) criteria below from the pilot crew bid roster from the fifteenth (15th) day of the billing month. Mesa agrees to provide to US Airways the crew bid roster for the billing month. For the purpose of developing a Pre-Bill Invoice, the Crew Ratio - Pilots variable shall be equal to the prior month's ratio. Note that the Pricing Model applies a formula to adjust the Crew Ratio - Pilots if it is greater than *. 1) Captains who are non-management line holding pilots qualified as Captains for the Aircraft in the Service. 2) First Officers who are non-management line holding pilots qualified as First Officers for Aircraft in the Service. 3) Pilots who are in training for Captain positions for Aircraft in the Service. 4) Pilots who are in training for First Officer positions for Aircraft in the Service. Notwithstanding the above, for the billing months of June 2002 to January 2003, the Crew Ratio - Pilots will be fixed at *. In January 2003, US Airways and Mesa will jointly review the crew ratio based on optimized Bornemann crew schedule and practical allocation of crew bases against the March 2003 published flight schedule, and will establish a revised Crew Ratio - Pilots in good faith which is based on such joint review. If the parties can not reach agreement as to a new fixed Crew Ratio - Pilots based on such joint review, the parties agree to use *. (j) The "Crew Ratio - Flight Attendants" variable set forth in Exhibit 5.1 for a given month shall be calculated by *. Mesa agrees to provide the flight attendant crew bid schedule for the crew bid closest from the fifteenth (15th) day of the billing month as well as the number of aircraft requires a flight attendant or flight attendants by the FAA. Note that if an aircraft requires more than one flight attendant then the block hours will be weighted accordingly. Note also that the Pricing Model applies a formula to adjust the Crew Ratio - Flight Attendants if it is greater than *. 5 Notwithstanding the above, for the billing months of June 2002 to January 2003, the Crew Ratio - Flight Attendants will be the lower of *. In January 2003, US Airways and Mesa will jointly review the crew ratio based on optimized Bornemann crew schedule and practical allocation of crew bases against the March 2003 published flight schedule, and will establish a revised Crew Ratio - Flight Attendants in good faith which is based on such joint review. If the parties can not reach agreement as to a new fixed Crew Ratio - Flight Attendants based on such joint review, the parties agree to use *. (k) The "Number of Maintenance Bases" variable set forth in Exhibit 5.1 for a given month shall mean *. (l) The "Spare Parts Value - US" variable set forth in Exhibit 5.1 for a given month shall mean *. For the purposes of developing a Pre-Bill, the Spare Parts Value - US variable shall be set at the most recent month's actual amount. (m) The "Owned Engine Value - US" variable set forth in Exhibit 5.1 for a given month shall mean the *. When an engine is assigned in the middle of a billing month, the Owned Engine Value - Total RJ - Mesa variable shall be calculated by *. For the purposes of developing a Pre-Bill, the Owned Engine Value - US variable shall be set at the most recent month's actual amount. (n) The "Leased Engine Costs Per Month - US" variable set forth in Exhibit 5.1 for a given month shall mean *. When an engine is assigned in the middle of a billing month, the Leased Engine Costs Per Month - US variable shall be calculated by the number of days the engine was available days divided by the number of days in the month. For the purposes of developing a Pre-Bill, the Leased Engine Costs Per Month - US variable shall be set at the most recent month's actual amount. (o) The "RJ Consignments Cost Per Month - US" variable set forth in Exhibit 5.1 for a given month shall mean *. For the purposes of developing a Pre-Bill, the ERJ Consignments Cost Per Month - US variable shall be set at the most recent month's actual amount. 6 (p) The "Aircraft Ownership Cost Per Month" variable set forth in Exhibit 5.1 for a given month shall mean *. Mesa agrees to provide an aircraft ownership schedule as shown in Exhibit 5.1. For the purposes of developing a Pre-Bill, the Aircraft Ownership Cost Per Month variable shall be set at the most recent month's actual amount plus an estimate for any additional aircraft. SECTION 5.3 MONTHLY PASS-THROUGH COST VARIABLES Monthly Pass-Through Cost Variables will refer to the Pricing Model Variables that change from month to month based on actual costs incurred by the MesaJet operation. Mesa will provide invoices to support the Monthly Pass-Through Costs and will be reimbursed accordingly. Examples include *. Descriptions of the Monthly Pass-Through Costs variables and the conditions under which the variable is changed is presented below and in Exhibit 5.1. (a) The "Hull Insurance Per Aircraft" variable set forth in Exhibit 5.1 for a given month shall mean the *. The insured value of the aircraft shall be *. Mesa agrees to provide a schedule of hull insurance by aircraft as shown in Exhibit 5.1. (b) The "Property Tax Per Aircraft" variable set forth in Exhibit 5.1 for a given month shall mean *. Mesa agrees to provide the property tax rate that will be applicable in a calendar year and has been validated by Mesa's auditor. (c) The "Fuel Cost" variable set forth in Exhibit 5.1 for a given month *. Any fuel costs in excess of * per gallon shall be paid directly by US Airways. Mesa agrees to provide the invoices that support the fuel costs. For the purposes of developing a Pre-Bill, the fuel cost shall be calculated by *. e) The "Oil Cost" variable set forth in Exhibit 5.1 for a given month shall mean the *. Mesa agrees to provide the invoices that support the oil cost. For the purposes of developing a Pre-Bill, the oil cost will be calculated by *. 7 (f) The "Catering Cost" variable set forth in Exhibit 5.1 for a given month shall mean *. Mesa agrees to provide the invoices that support the catering costs. For the purposes of developing a Pre-Bill, the catering cost shall be calculated by multiplying the most recent month's actual catering cost per passenger by the Revenue Passengers. (g) The "Pax Liability Cost" variable set forth in Exhibit 5.1 for a given month shall mean the actual passenger liability insurance cost for MesaJet Revenue Passengers enplaned on the Aircraft in the Service for that billing month. For the purposes of developing a Pre-Bill, the passenger liability cost shall be calculated by *. (h) The "Landing Fees" variable set forth in Exhibit 5.1 for a given month shall mean *. Mesa agrees to provide the invoices that support the landing fee costs. For the purposes of developing a Pre-Bill, the Landing Fees variable shall be calculated by *. SECTION 5.4 SET PRICING MODEL VARIABLES Set Pricing Model Variables will be defined as *. *. Descriptions of the Set Pricing Model Variables and the conditions under which the variable is changed are presented below and in Exhibit 5.1. (a) The "CPI Adjustment" variable set forth in Exhibit 5.1 shall mean the consumer price index (CPI) adjustment that is reset once a year on November 11th and is calculated by dividing the current year CPI as reported by the Bureau of Labor Statistics to the CPI reported in November of 1999. (b) The "Annual Wages Per Crew -- Pilot" variable set forth in Exhibit 5.1 for a given month shall mean * per year, based on a captain rate of * per block hour and a first officer rate of * per block hour and assuming * block hours per crew per year. The base amount shall be adjusted when Mesa's pilot contract wage scales are changed. *. *. 8 (c) The "Benefits As A Percent of Wages" variable set forth in Exhibit 5.1 for a given month shall mean *. (d) The "Per Block Hour -- Pilots" variable set forth in Exhibit 5.1 for a given month shall mean *. *. (e) The "Add'l Per Bhr -- Pilots > 12 AC" variable set forth in Exhibit 5.1 for a given month shall mean *. The base amount shall be changed by mutual agreement *. Note the Add'l Per Block Hour -- Pilots > 12 AC variable applies to block hours generated by aircraft number *. The block hours generated by aircraft number *. (f) The "Annual Wages Per FA" variable set forth in Exhibit 5.1 for a given month shall mean *. *. The adjustment amount will be determined by *. The adjustment percentage is the percent increase or decrease of the average annual wage in the new contract for a flight attendant with the weighted average seniority of the flight attendant population at the time of the adjustment. (g) The "Cost Per FA Training" variable set forth in Exhibit 5.1 for a given month shall mean *. The base amount shall be adjusted each year on November 11th by *. (h) The "Per Block Hour Driven -- FA" variable set forth in Exhibit 5.1 for a given month shall mean the base amount of *. The base amount shall be adjusted each year on November 11th by *. (i) The "Mtx Per Block Hour" variable set forth in Exhibit 5.1 for a given month shall mean *. The base amount shall be adjusted each year on November 11th by *. (j) The "Mtx Per Cycle" variable set forth in Exhibit 5.1 for a given month shall mean the base amount *. *. (k) The "Cost Per Maintenance Base Per Month" variable set forth in Exhibit 5.1 for a given month shall mean the *. The base amount shall be adjusted each year on 9 November 11th by *. Mesa shall reduce the Cost per Maintenance Base per Month in an amount equal to *. (l) The "G/A Per Active Aircraft Per Month" variable set forth in Exhibit 5.1 for a given month shall mean the base amount of *. *. (m) The "G/A Per Pilot Per Month" variable set forth in Exhibit 5.1 for a given month shall mean the base amount of *. The base amount shall be adjusted each year on November 11th by *. Note the pilots assigned to each entity is calculated by *. (n) The "Crew RON Per Active Aircraft Per Day" variable set forth in Exhibit 5.1 for a given month shall mean *. The base amount shall be adjusted each year on November 11th by *. (o) The "Dispatch Per Departure" variable set forth in Exhibit 5.1 for a given month shall mean the base amount *. The base amount shall be adjusted each year on November 11th by multiplying *. (p) The "Indirect G/A Per Total Aircraft Per Month" variable set forth in Exhibit 5.1 for a given month shall mean the base amount of * for *. The base amount shall be adjusted each year on November 11th by *. (q) The "Mesa Profit as a Percent of Total" set forth in Exhibit 5.1 for a given month shall mean *. 10 SECTION 5.5 DELIVERY OF PRE-BILL INVOICE PRICING MODEL VARIABLES Mesa agrees to provide the Pricing Model Variables to US Airways ten days prior to the first day of each month for the purpose of validating the inputs to be used to prepare the Pre-Bill Invoice. SECTION 5.6 REVIEW OF PRE-BILL INVOICE PRICING MODEL VARIABLES Upon receipt of the Pricing Model Variables, US Airways will review the Pricing Model Variables for reasonability. If any Pricing Model Variable is missing or determined by the US Airways to be unreasonable, then US Airways will request, in writing, further support for the "challenged" variable. *. Such "substitute" variables will be reported to Mesa within one business day of their calculation. SECTION 5.7 CALCULATION OF PRE-BILL INVOICE Mesa agrees to prepare the Pre-Bill invoice using the Pricing Model Variables as adjusted per Section 5.6 above and provide the Pricing Model Exhibit 5.1 and related support schedules with each invoice. SECTION 5.8 PAYMENT OF PRE-BILL INVOICE US Airways will pay the Pre-Bill Invoice, *, by wire transfer on the first business day of the billing month provided the Pricing Model Variables were received by US Airways ten days prior to the first business day of the month per Section 5.5 above. * will be paid on a Friday or the last business day of each week in the amount of the following week's projected * from * or applicable vendor as approved by US Airways. A payment will not be made when the fuel invoice from * or applicable vendor has no scheduled payment in the following week. 11 SECTION 5.9 DELIVERY OF FINAL INVOICE PRICING MODEL VARIABLES Mesa agrees to provide Pricing Model Variables and supporting invoices for each Monthly Pass-Through Cost Variable to US Airways no later than one hundred twenty (120) days after the end of the billing month for the purpose of preparing the Final Invoice. Since the statistics and fuel costs for a given month are expected to be available less than thirty (30) days after the end of a billing month, a "Statistical True-up" shall be calculated using the Pre Bill invoice input variables except for actual statistics and fuel costs and settled in the next billing month. SECTION 5.10 REVIEW OF FINAL INVOICE PRICING MODEL VARIABLES Upon receipt of the Pricing Model Variables and Monthly Pass-Through Cost Variable supporting invoices, US Airways will review the Pricing Model Variables for reasonability. For example, US Airways will verify the statistics provided by Mesa using the US Airways statistical database. If any Pricing Model Variable is missing or determined by US Airways to be unreasonable, US Airways will request, in writing, further support for the "challenged" variable. The challenged variable must be must be at least * different from the most recent accepted value. If US Airways reviews the additional support of the "challenged" variable and continues to consider the variable unreasonable, a "substitute" variable which will be no greater than the most recent month's validated amount will be substituted for the "challenged" variable. Such "substitute" variables will be reported to Mesa within one business day of their calculation and prior to payment of the Final Invoice. Disputes regarding "challenged" variables will be resolved following the procedures described in Article 15 of the Agreement. 12 SECTION 5.11 CALCULATION OF FINAL INVOICE Mesa agrees to prepare the Final Invoice using the Pricing Model Variables as adjusted per Section 5.10 above. The amount calculated by the Pricing Model final input will be compared to the amount paid in the Pre-Bill Invoice. If the amount calculated by the Pricing Model with the final input variables is greater than the amount paid in the Pre-Bill Invoice, then the difference will be due to Mesa. If the amount calculated by the Pricing Model with the final input variables is less than the Pre-Bill Invoice, then the difference will be due to US Airways. SECTION 5.12 REIMBURSED EXPENSES US Airways and Mesa recognize that certain expenses that are the responsibility of US Airways will be paid by Mesa each month and that Mesa will be reimbursed by US Airways for these expenses. In order to be reimbursed for these expenses, Mesa must submit an invoice with supporting documentation for each item within one hundred twenty (120) days of the billing month to US Airways. Examples of reimbursed expenses include, but are not limited to, *. In addition to reimbursing the invoiced amount, US Airways agrees to pay an administrative fee equal to * of the invoiced amount. SECTION 5.13 PAYMENT OF FINAL INVOICE AND REIMBURSED EXPENSES If US Airways owes Mesa per the calculation in Section 5.11 above, US Airways will pay the amount owed by wire transfer on the first business day of the next billing month. If Mesa owes US Airways per the calculation in Section 5.11 above, US Airways will take a credit for the amount due from Mesa on the wire transfer for the next billing month. If no amount is due to Mesa in the next billing month, then Mesa will pay via wire transfer the amount owed to US Airways on the first day of the next billing month. Further, US Airways will pay the invoice for reimbursed expenses via wire transfer on 13 the first business day of the next billing month provided however, that the invoice was received ten days before the first of the next billing month. SECTION 5.14 EXCLUSIVE EMBRAER ERJ-145 FLEET The Aircraft assigned to fly under this Agreement are expected to be entirely ERJ-145 aircraft. Should Mesa's entire ERJ-145 aircraft be assigned to this Agreement, the following Pricing Model Variables will be reviewed and revised by mutual agreement. a) The "Actual Crew Ratio -- Pilots" variable b) The "Annual Wages Per Crew -- Pilots" variable c) The "Spare Parts Value -- Total RJ - Mesa" variable d) The "Owned Engine Value -- Total RJ - Mesa" variable e) The "Leased Engine Costs Per Month -- Total RJ - Mesa" variable f) The "ERJ Consignments Cost Per Month -- Total RJ - Mesa" variable 14 Except as reflected above, the Agreement remains unchanged in all other respects. Upon its execution, this Third Amendment, together with the Agreement, will be the complete and binding understanding of the Parties with respect to the terms and conditions of the Agreement, as amended by the terms set forth herein. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /S/ Michael Lotz /S/ N. Bruce Ashby - -------------------------------- ---------------------------------- By: Michael Lotz By: N. Bruce Ashby Title: President Title: Senior Vice President, Corporate Development 15 EX-10.18 15 p67334exv10w18.txt EX-10.18 Exhibit 10.18 FOURTH AMENDMENT This Fourth Amendment is entered and made as of this 17th day of October, 2002 (the "Amendment") as an amendment to the Service Agreement dated as of November 11, 1997, by and between US Airways, Inc. ("US Airways") and Mesa Airlines, Inc. as amended ("MesaJet" or "Mesa") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and Mesa have entered into the Agreement; and WHEREAS, US Airways and Mesa have entered into the First Amendment to the Agreement dated as of November, 24, 1999 (the "First Amendment"); and WHEREAS, US Airways and Mesa have entered into the Second Amendment to the Agreement dated as of October 6, 2000 (the "Second Amendment"); and WHEREAS, Mesa has entered into a Consent Agreement dated as of October 6, 2000; and WHEREAS, US Airways and Mesa have entered into the Third Amendment to the Agreement dated as of October 17, 2002 (the "Third Amendment"); and WHEREAS, US Airways and Mesa desire to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, and intending to be legally bound, US Airways and Mesa hereby agree as follows: The following is added as a new Section 5.15 of the Agreement. 1. Within seven (7) business days of the execution of this Amendment, US Airways shall file with the United States Bankruptcy Court for the Eastern District of Virginia, or any other bankruptcy court (the "Court") having jurisdiction over the cases under Chapter 11, Title 11, of the United States Code (the "Bankruptcy Code" of US Airways (the "Case"), a motion to assume the Agreement, and all amendments thereto, under Section 365 of the Bankruptcy Code. 2. The effectiveness of this Amendment shall be conditioned on and subject to the entry of a final order (the "Order") by the Court, or any other bankruptcy court having jurisdiction over the cases under Chapter 11 Title 11 of the Bankruptcy Code filed by US Airways (a) authorizing and directing US Airways to assume the Agreement, as previously amended and modified by this Agreement, under Section 365 of the Bankruptcy Code, and (b) approving the terms of this Amendment and authorizing and directing US Airways to enter into and be bound by this Amendment. In the event the Order is not entered on or before December 13, 2002, this Amendment shall be null and void and of no force or effect. The Order shall provide that US Airways' obligations under the Agreement and this Amendment shall be post-petition, administrative obligations of US Airways under Section 503 of the Bankruptcy Code, except for obligations that arise, or become due and payable, after the Breach Date (as defined below) as provided below. Notwithstanding the foregoing, in the event US Airways fails to confirm a Chapter 11 plan of reorganization in the Case under which US Airways continues to operate as an air carrier on substantially the same basis as the date hereof or the Case is dismissed or converted to a case under Chapter 7 of the Bankruptcy Code and as a result thereof US Airways suspends or discontinues flight operations, US Airways may terminate the Agreement by providing 10 days prior written notice of Mesa of such termination. In such event, US Airways shall be deemed to have breached the Agreement as of the effective date of such termination (the "Breach Date") and Mesa shall be entitled to assert, subject to objection (x) an administrative claim for any obligations arising before the Breach Date and (y) a general unsecured pre-petition claim for damages resulting from such termination incurred, or for obligations that become due and payable, after the Breach Date. Furthermore, Mesa shall refund any amounts paid to it by US Airways on account of services to be provided for any time period after the Breach Date within three business days of receipt of written demand from US Airways to Mesa. 3. Mesa agrees that it shall waive any claim to, and, upon entry of the Order, release and hold US Airways harmless from, payments of: (a) * (the "*") which has been previously invoiced to US Airways as partial payment for services performed under the Agreement during the period October 1, 2001 through December 31, 2001; (b) * (the "Reimbursable Expense Amount") representing certain claims presented by Mesa and approved by US Airways for reimbursable expenses; and (c) an amount of * related to expenses incurred during the period July 2000 to April 2002 (the "Settlement Amount"), provided that in the event the Agreement is terminated for any reason, other than by reason of Mesa's breach of its obligations under the Agreement, including without limitation a termination under Section 7.2, 7.3 or 7.4 of the Agreement or a termination in the event that US Airways fails to confirm a plan of reorganization in the Case, Mesa shall have an allowed claim against US Airways, which in the event a plan of reorganization has not been confirmed in the case as of such date, shall be treated as a general unsecured pre-petition claim against US Airways, in the full amount of the *, the Reimbursable Expense Amount, and the Settlement Amount. . In the event US Airways breaches this Agreement, and to the extent such breach gives rise to any pre-petition claims by Mesa against US Airways by operation of this Agreement, Mesa shall have a period of thirty (30) days from the date of such breach to file proofs of claim to assert such pre-petition claims against US Airways, whether or not such breach occurs subsequent to the November 4, 2002 bar date for filing proofs of claim. 4. Subject to the provisions of Paragraph 2 above, to the extent Mesa is required to refund any compensation it has received under the *, Mesa shall have a general post-petition administrative claim against US Airways in an amount equal to the amount of such compensation that Mesa is required to refund. 5. Upon execution of an agreement between Mesa and US Airways which contemplates * or more additional regional jets ("Fifth Amendment"), Mesa will defer payment in an amount not to exceed * million of the Pre Bill Invoice as referenced in the Third Amendment Section 5.8 from the first day of the billing month to the first day of the month following the billing month. Any amount above * million shall be paid in advance at the beginning of the month. This payment cycle will continue until US Airways emerges from Chapter 11. Commencing with the billing month following the emergence of US Airways from Chapter 11, Section * of the Agreement shall be hereby amended such that the Pre Bill Invoice for all Mesa flying for the Service will be paid on the * of each billing month with each payment representing * of the Pre Bill Invoice. 6. AUDIT: US Airways and Mesa hereby agree that US Airways will, at its own cost and expense and within three months of executing this Amendment, retain an independent third party auditor to implement a system audit of Mesa's invoices to US Airways under the Agreement for the period July 2000 to April 2002 (the "Audit"), in accordance with the terms of the Third Amendment. Mesa shall promptly provide all information necessary to the independent third party auditor and the auditor shall complete the Audit in a timely manner. The independent third-party auditor shall verify the calculations, statistical data inputs and assumptions used in determining the amounts paid by US Airways to Mesa during the period of the Audit and to determine, without taking into consideration the above "Settlement Amount" payment *, if any amounts are owed by one party to the other for such period. In the event that the net of any such amounts would result in a payment from one party to the other (the "Audit Amount"), US Airways and Mesa agree that the Audit Amount shall be the lesser of: (x) such payment or (y) *. 7. Subject to the terms and conditions hereof, Mesa and US Airways hereby consider all financial matters for billing months prior to March 1, 2002 related to the Agreement as settled and final, and for the billing periods commencing March 1, 2002 through October, 2002 as settled and final other than for adjustments in the normal course of business relating to Reimbursable Expenses and Statistical True-up. 8. Mesa agrees that it will use its commercially reasonable efforts to facilitate the handling of code-share passengers and the processing of alliance partner frequent flyer miles pursuant to domestic and international code-share alliance relationships entered into by US Airways. Except as reflected above, the Agreement remains unchanged in all other respects. Upon its execution, this Fourth Amendment, together with the Agreement, will be the complete and binding understanding of the Parties with respect to the terms and conditions of the Agreement, as amended by the terms set forth herein. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /S/ Michael Lotz /S/ N. Bruce Ashby By: Michael Lotz By: N. Bruce Ashby Title: President Title: Sr. Vice President Corporate Development EX-10.19 16 p67334exv10w19.txt EX-10.19 Exhibit 10.19 FIFTH AMENDMENT This Fifth Amendment is entered and made as of this 17th day of October, 2002 (the "Amendment") as an amendment to the Service Agreement dated as of November 11, 1997, by and between US Airways, Inc. ("US Airways") and Mesa Airlines, Inc. as amended ("MesaJet" or "Mesa") (the "Agreement"). WITNESSETH: WHEREAS, US Airways and Mesa have entered into the Agreement; and WHEREAS, US Airways and Mesa have entered into the First Amendment to the Agreement dated as of November, 24, 1999 (the "First Amendment"); and WHEREAS, US Airways and Mesa have entered into the Second Amendment to the Agreement dated as of October 6, 2000 (the "Second Amendment"); and WHEREAS, Mesa has entered into a Consent Agreement dated as of October 6, 2000; and WHEREAS, US Airways and Mesa have entered into the Third Amendment to the Agreement dated as of October 17th, 2002 (the "Third Amendment"); and WHEREAS, US Airways and Mesa have entered into the Fourth Amendment to the Agreement dated as of October 17th, 2002 (the "Fourth Amendment"); and WHEREAS, US Airways and Mesa desire to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, and intending to be legally bound, US Airways and Mesa hereby agree as follows: 1) The following Section 2.1(b) is hereby added to the Agreement: SECTION 2.1(B) MesaJet will deploy * aircraft, or other similar aircraft subject to mutual agreement of the parties, under the Agreement (hereinafter referred to as the "Additional Aircraft"), at financing terms and return conditions reasonably acceptable to US Airways and in compliance with the applicable provisions * protocol as ratified by US Airways ALPA on August 8, 2002, based on the delivery schedule attached hereto as Exhibit 2.1(b): 2) Section 5.1 is amended by adding before the word "pursuant" in the forth line of the first paragraph "and Additional Aircraft." 3) Section 5.2(p) "Aircraft Ownership Cost Per Month" is amended by adding the following paragraph to the Section: The Aircraft Ownership variable for the Additional Aircraft shall be the actual monthly lease costs for said aircraft. However, if prior to the execution of the documentation procuring Additional Aircraft, US Airways is able to arrange for Mesa to receive more favorable financial terms from the aircraft owner or lessor for the Additional Aircraft at Mesa, the more favorable financial terms will replace those contemplated in Section 5.2 of the Agreement (as amended by the Third Amendment) for the Additional Aircraft. 4) Section 5.4(b) "Annual Wages Per Crew - Pilot" is amended by adding the following sentence to the Section: The Annual Wages Per Crew - Pilot variable will be updated to reflect the impact of actual pilot seniority and related pay scales related to the Additional Aircraft. 5) Section 5.4(f) "Annual Wages Per FA" is amended by adding the following sentence to the Section: The Annual Wages Per FA variable will be updated to reflect the impact of actual flight attendant seniority and related pay scales related to the Additional Aircraft. 6) Section 5.4(i) "Maintenance Per Block Hour" is amended by adding the following sentence to the Section: The Maintenance Per Block Hour variable will be adjusted to reflect actual third party maintenance block hour costs related to the Additional Aircraft, subject to mutual agreement of the parties, such agreement not to be unreasonably withheld by either party. 7) Section 5.4(q) "Mesa Profit as a Percent of Total" is amended by adding the following sentence to the Section: The Mesa Profit as a Percent Total variable for the Additional Aircraft shall be *. 8) Section 5.12, "Reimbursable Expenses" is amended by adding the following sentence to the Section: For the invoiced amount related to the Additional Aircraft, U.S. Airways agrees to pay an administrative fee equal to *. 9) The following Section 5.17 is hereby added to the Agreement: SECTION 5.17 - START-UP CREDIT Commencing upon the first business day of the calendar month following the later of: (x) the completion of Audit as defined in the Fourth Amendment to the Agreement; or (y) US Airways' emergence from Chapter 11 (the "Payment Start Date"), US Airways shall pay to Mesa (or, in the event money is owed to US Airways, Mesa shall pay to US Airways) the "Startup Credit" payment, which shall be calculated as the sum of: (z) * to be paid by US Airways to Mesa; and (w) the Audit Amount (as defined in the Fourth Amendment to the Agreement, and which could result in a payment to either party), which Startup Credit payment shall be made in twelve (12) equal monthly installments. 10) The following Section 7.6 is hereby added to the Agreement: SECTION 7.6 - TERM AND TERMINATION OF ADDITIONAL AIRCRAFT (a) This Agreement with respect to the Additional Aircraft is effective as of the date and year first written above, and Services provided hereunder will continue, without interruption until the tenth (10th) anniversary of the date the first Additional Aircraft is added to Mesa's fleet pursuant to Section 2.1(b) of the Agreement (as amended by this Fifth Amendment), unless it is terminated on an earlier date pursuant to the provisions in Article 7 of the Agreement or as described in (b) as follows. US Airways, at its sole option, may extend the Agreement with respect to the Additional Aircraft by two (2) years upon written notification to MesaJet at any time up to twelve (12) months before the 10th anniversary of the date the first Additional Aircraft is added to Mesa's fleet pursuant to Section 2.1(b) of the Agreement (as amended by this Fifth Amendment). To accomplish an orderly termination of this Agreement with respect to the Additional Aircraft, the Parties agree that any termination of this Agreement with respect to the Additional Aircraft shall be on an aircraft-by-aircraft basis with no more than * Additional Aircraft terminated hereunder and returned to MesaJet each month and, to the extent necessary, the Parties agree to extend the term of this Agreement (but in no event longer than * with respect to the Additional Aircraft to accommodate the orderly termination of the Services under this Agreement with respect to the Additional Aircraft. (b) US Airways shall have the right, commencing at the * anniversary of the date the first Additional Aircraft is added to Mesa's fleet pursuant to Section 2.1(b) of the Agreement, to terminate this Agreement with respect to the Additional Aircraft in the event in US Airways' sole discretion subject to its good faith determination that *, at any time upon three hundred sixty five (365) days' prior written notice to Mesa. Termination of this Agreement with respect to the Additional Aircraft will not relieve either party from any obligation or liability accrued hereunder prior to the time of termination. To accomplish an orderly termination of this Agreement with respect to the Additional Aircraft, the parties agree that any such termination shall be on an aircraft-by-aircraft basis with no more than * Additional Aircraft terminated hereunder each month and, to the extent necessary, the parties agree to extend the term of this Agreement (but in no event longer than *) with respect to the Additional Aircraft to accommodate the orderly termination of the Services pursuant to this Agreement with respect to the Additional Aircraft. In the event of such early termination, at Mesa's option, US Airways shall assume payment of Mesa's lease payments for such terminated Additional Aircraft and upon such assumption, may elect to operate such aircraft or to cause such aircraft to be operated by another party, such election to be made at US Airways' discretion, until the expiration of the lease of such terminated Additional Aircraft to Mesa (but in no event longer than the term reviewed by US Airways at the time such aircraft were first placed into the Service in accordance with Section 2.1(b); or other term, provided that in the event Mesa undertakes to amend the term or other conditions of the leases of any of the Additional Aircraft subsequent to such aircraft entering the Service, such amendments shall have been approved in writing by US Airways prior to their execution) and shall assume the responsibility to satisfy all return condition obligations pursuant to the lease of such terminated Additional Aircraft to Mesa (but in no event more than the obligations reviewed by US Airways at the time such aircraft were first placed into the Service in accordance with Section 2.1(b); or other obligations, provided that in the event Mesa undertakes to amend the return obligations of the leases of any of the Additional Aircraft subsequent to such aircraft entering the Service, such amendments shall have been approved in writing by US Airways prior to their execution). 11) Article 12 "Option for Additional Aircraft" is hereby deleted in its entirety. Except as reflected above, the Agreement remains unchanged in all other respects. Upon its execution, this Fifth Amendment, together with the Agreement, will be the complete and binding understanding of the Parties with respect to the terms and conditions of the Agreement, as amended by the terms set forth herein. Subject to mutual agreement, Mesa and US Airways agree to enter into a restatement of the terms and conditions of the Service Agreement, as amended, in order to substitute Mesa Air Group, Inc. as the signatory party to the Agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written. MESA AIRLINES, INC. US AIRWAYS, INC. /S/ Michael Lotz /S/ N. Bruce Ashby By: Michael Lotz By: N. Bruce Ashby Title: President Title: Sr. Vice President Corporate Development EXHIBIT A

EX-10.27 17 p67334exv10w27.txt EX-10.27 Exhibit 10.27 EMPLOYMENT AGREEMENT BY AND BETWEEN GEORGE MURNANE, III AND MESA AIR GROUP, INC. DATED AS OF DECEMBER 6, 2001 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of December 6, 2001 by and between Mesa Air Group, Inc., a Nevada corporation (the "Company"), and George Murnane, III ("Executive"). RECITALS WHEREAS, the Company wishes to offer and Executive has agreed to accept employment with Mesa Air Group, Inc. WHEREAS, the parties wish to memorialize the terms and conditions of such employment in this employment agreement dated as of December 6, 2001. ARTICLE I DUTIES AND TERM 1.1 EMPLOYMENT. In consideration of their mutual covenants and other good and valuable consideration, the receipt, adequacy and sufficiency of which are acknowledged, the Company agrees to hire Executive, and Executive agrees to remain in the employ of the Company, upon the terms provided in this Agreement. 1.2 POSITION AND RESPONSIBILITIES. (a) Executive shall serve as the Executive Vice President of the Company. Executive agrees to perform services, not inconsistent with his position, as are from time to time assigned to him by the Chief Executive Officer, President or Board of Directors of the Company. (b) During the period of his employment under this Agreement, Executive shall devote substantially all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement, but Executive shall have the right to engage in personal business and to participate in charitable and civic activities, during normal business hours and otherwise, as long as such business and activities do not unreasonably interfere with Executive's duties to the Company. Notwithstanding the foregoing, nothing contained herein shall prohibit the Executive to continue in his capacity as a Director at International Airline Support Group, Inc. and North-South Airways, Inc. 1.3 TERM. The term of Executive's employment under this Agreement shall commence on December 6, 2001, and shall continue, unless sooner terminated, until December 6, 2005. 1 1.4 LOCATION. During the period of his employment under this Agreement, Executive shall not be required, except with his prior written consent (which may be withheld in his discretion), to relocate his principal place of employment outside Maricopa County, Arizona. Required travel on the Company's business shall not be deemed a relocation so long as Executive is not required to provide his services under this Agreement outside of Maricopa County, Arizona, for more than 50% of his working days during any consecutive six-month period. ARTICLE II COMPENSATION For all services rendered by Executive in any capacity during his employment under this Agreement, including, without limitation, services as a director, officer or member of any committee of the Board of the Company or of the board of directors of any subsidiary of the Company, the Company shall compensate Executive as set forth in this Article II. 2.1 BASE SALARY. The Company shall pay to Executive an annual base salary of not less than $145,000 (the "Base Salary") during the term of this Agreement. Executive's Base Salary shall be paid every other week in equal installments. The Base Salary shall be reviewed annually by the Board or a committee designated by the Board, and the Board or such committee may, in its discretion, increase the Base Salary. Notwithstanding the foregoing, beginning December 6, 2002, the Company shall increase the Base Salary effective each January 1 during the term of this Agreement, by an amount which is at least equal to the percentage increase in the Consumer Price Index, all items, Urban Wage Earners and Clerical Workers, for the Phoenix-Mesa, AZ (MSA) from January of the immediately prior year to January of the then current year. Subject to the consent of Executive (which consent shall not be unreasonably withheld), the Company may reduce the Base Salary under circumstances in which the Company has suffered severe financial losses and has imposed cuts in salary of other officers on an across the board basis, but any such reduction may not be at a greater percentage than the reduction imposed on any other officer unless otherwise agreed by the Executive. 2.2 BONUS PAYMENT. The Company shall establish in each fiscal year during the term of this Agreement an executive bonus plan to provide incentive compensation to Executive. During the period of Executive's employment under this Agreement, Executive shall be entitled to the bonus payments with a minimum annual payment of $40,000 and a maximum payment of $180,000. Such bonus payments shall be computed according to the terms set forth in Exhibit A, and incorporated herein. Any bonus payable to Executive under the plan described herein is referred to as an "Incentive Bonus." Any Incentive Bonuses will be paid on a quarterly basis, not later than 45 days after the end of each fiscal quarter (or 90 days after the end of any fiscal year), based on the Company's financial statements in its Form 10-Q or Form 10-K, as the case may be; payments made with respect to any fiscal quarter other than the last fiscal quarter of a fiscal year of the Company will be made on an estimated basis (based on annualized results), and the parties will account to one another and make appropriate payment adjustments promptly after the financial statements for any fiscal year become available. The Company in its discretion may pay bonuses to Executive in addition to the Incentive Bonuses set forth herein. 2 2.3 STOCK OPTIONS. (a) The Company confirms the grant to Executive, effective as of December 6, 2001, of options to purchase 150,000 shares of stock at an exercise price equal to the market value of the Company's common stock on December 6, 2001 ($6.36), under the terms of the existing stock option plan. In addition, as of December 6 of each year during the term of this Agreement (or the next business day if December 6 of any year is not a business day), the Company shall issue options to purchase not fewer than 40,000 shares of common stock of the Company (adjusted appropriately for any stock dividend, stock split, spin-off, reorganization, or similar transaction), under a new stock option plan the terms of which are described in Section 2.3(c). All stock options granted under this Agreement shall vest equally over a three (3) year period. (b) During the term of this Agreement and thereafter so long as any stock option granted to Executive by the Company remains outstanding (whether such stock option was granted prior to or after the date of this Agreement), the Company shall loan to Executive an amount equal to the aggregate exercise price of any such stock option, with such loan to be made upon Executive's giving of notice to the Company that he is exercising a stock option and desires to have the Company loan to him the exercise price of such stock option. Any such loan shall be on a full recourse basis, shall be payable within 60 days, and shall be on such other terms as are reasonably acceptable to Executive but that in any event are no more favorable to Executive than would be available to Executive from an unrelated third party. The proceeds from any such loan shall be used to pay the exercise price of the pertinent stock options. (c) If Executive is terminated without Cause, Executive terminates his employment for Good Reason, or Executive dies or becomes Totally Disabled, then all previously granted stock options shall immediately vest and the expiration date for exercise of such stock options shall be a date not earlier than ten years from the grant of the stock option. 2.4 ADDITIONAL BENEFITS. (a) GENERAL BENEFITS. During the term of this Agreement, Executive shall be entitled (i) to participate in all employee benefit and welfare programs, plans and arrangements (including, without limitation, pension, profit sharing, supplemental pension and other retirement plans, insurance, hospitalization, medical and group disability benefits, travel or accident insurance plans) and (ii) to receive fringe benefits, such as dues and fees of professional organizations and associations, in each case under (i) and (ii) to the extent that such programs, plans, arrangements, and benefits are from time to time available to the Company's executive personnel (the programs and benefits in (i) and (ii) are referred to as "General Benefits"). During the period of his employment under this Agreement, the Company shall continue to provide the General Benefits to Executive at a level which shall in no event be less, in any material respect, than the General Benefits made available to Executive by the Company as of the date of this Agreement. Subject to the consent of Executive (which consent shall not be unreasonably 3 withheld), the Company may reduce the General Benefits under circumstances in which the Company has suffered severe financial losses and has imposed reductions in coverage of the General Benefits of other officers on an across the board basis, but any such reduction may not be disproportionately greater than the reduction imposed on any other officer. (b) DEATH BENEFIT. The Company shall promptly (and in any event not later than 60 days after this Agreement is executed) obtain term life insurance on the life of Executive such that the aggregate death benefit under existing and new policies totals $2,000,000; such insurance shall be obtained under one or more policies from insurers reasonably acceptable to Executive. As long as Executive is employed by the Company, (i) the Company shall pay the premiums on the policy (or policies) and shall maintain the policy (or policies) in full force and effect, and (ii) Executive shall have the exclusive right to designate the beneficiary under such policy (or policies). The Company shall assign the policy (or policies) to Executive, without any cost to Executive, effective immediately after Executive ceases to be an employee of the Company, regardless of the reason for Executive's termination of employment. The Company shall not pledge or otherwise encumber the policy (or policies) at any time. (c) DISABILITY BENEFITS. The Company shall provide Executive with the following disability benefits: (i) During any period of disability, illness or incapacity during the term of this Agreement which renders Executive at least temporarily unable to perform the services required under this Agreement, Executive shall receive the Base Salary payable under Section 2.1 plus any cash bonus compensation earned pursuant to the provisions of this Agreement or any incentive compensation plan then in effect but not yet paid, less any cash benefits received by him under any disability insurance carried by or provided by the Company. Upon Executive's Total Disability (as defined below), which Total Disability continues during the payment periods specified in this Section, the Company shall pay to Executive, on a monthly basis, for the period specified below, an amount (the "Disability Payment") equal to (A) one-twelfth of the sum of (1) Executive's Base Salary in effect immediately prior to the time such Total Disability occurs, plus (2) an amount equal to the greater of (x) the Threshold Bonus or (y) one half of the sum of (i) the bonuses (whether Incentive Bonuses or other bonuses) that have been paid to Executive with respect to the two fiscal years immediately preceding the fiscal year in which the Total Disability occurs, and (ii) the bonuses (whether Incentive Bonuses or other bonuses) that have been accrued with respect to the two fiscal years immediately preceding the fiscal year in which the Total Disability occurs but have not been paid (or if Executive has been employed by the Company for less than two full fiscal years at the time of such Total Disability, then an amount equal to the sum of such paid and accrued bonuses with respect to the fiscal year immediately preceding the fiscal year in which the Total Disability occurs), which payments shall be due in full regardless of any compensation paid to Executive as a result of his employment by any other person after the date that Total Disability occurs, (B) reduced by the amount of any monthly payments under any policy of disability income insurance paid for by the Company (including the policy described in Section 2.4(c)(ii)) which payments are received during the time when any Disability Payment is being made 4 to Executive following Executive's Total Disability. The Company shall pay the Disability Payment to Executive in equivalent installments, at the same time or times as would have been the case for payment of Base Salary if Executive had not become Totally Disabled and had remained employed by the Company, and such payments shall continue until the later of the expiration of the term of this Agreement and 48 months, except that the Company's obligation to make such payments shall cease upon the death of Executive or if Executive ceases to be Totally Disabled. Upon Executive's Total Disability, except as provided in this Agreement, all rights of Executive under this Agreement shall terminate. (ii) In order to provide a ready source of funds with which to pay the benefits provided for in clause (1) above, if Executive becomes disabled (determined in accordance with the policy described below) during the term of this Agreement and such disability extends beyond 180 days, then Executive shall be paid the benefits provided for under the disability insurance policy issued by UNUM Life Insurance Company (Policy #IBD 060676), which the Company agrees to maintain in full force and effect during the term of this Agreement. The Company promptly (and in any event not later than 60 days after this Agreement is executed) shall cause such policy to be amended to the extent necessary to cause Executive to be eligible for disability payments for a minimum of four years from the date of such disability (that is, providing for 3 -1/2 years of coverage, taking into account the 180-day coverage provided by the Company directly under Section 2.4(c)(i)), and to increase the amount payable to a minimum of $33,333 per month. To the extent the Company is unable to cause such policy to be so amended, then the Company shall be obligated to provide such payments to Executive directly. Such coverage shall apply regardless of whether such four-year period extends beyond the term of this Agreement. (d) RELOCATION EXPENSES. Company shall compensate Executive's moving expenses in the following manner: (i) Company shall compensate Executive for reasonable expenses incurred in moving his residence from Atlanta, GA to Phoenix, AZ. (ii) If during the term of this Agreement, if Executive's principal place of employment is relocated outside Maricopa County, Arizona, in accordance with Section 1.4, the Company shall reimburse Executive for all usual relocation expenses incurred by Executive and his household in moving to the new location, including, without limitation, moving expenses and rental payments for temporary living quarters in the area of relocation for a period not to exceed six months, real estate brokerage commissions incurred by Executive in the sale of his then existing principal residence, and loan financing charges and closing costs incurred in connection with the acquisition and financing of a new residence. In addition to the Relocation Expenses described herein, Executive shall receive interim living expenses pending his relocation to Phoenix. (e) REIMBURSEMENT OF BUSINESS EXPENSES. During the term of this Agreement, the Company shall, in accordance with standard Company policies, pay, or reimburse 5 Executive for, all reasonable travel and other expenses incurred by Executive in performing his obligations under this Agreement. (f) VACATIONS. During the term of this Agreement, Executive shall be entitled to vacations with pay, and to such personal and sick leave with pay, in accordance with the policy of the Company as may be established from time to time by the Company and as applies to other executive officers of the Company. In no event shall Executive be entitled to fewer than four weeks' annual vacation. Unused vacation days may be carried over from one year to the next in the maximum amount of four weeks' annual vacation; that is, to the extent that vacation days to which Executive is entitled remain unused, such unused vacation days will cumulate and be useable in any subsequent year, but no more than four weeks' of annual vacation in the aggregate can be carried over from one year to the next. Any vacation days which remain unused at the end of a fiscal year that are in excess of such four weeks' annual vacation shall expire and shall thereafter no longer be useable by Executive, but the Company shall compensate Executive for any such unused vacation days in accordance with the formula set forth in Section 4.1(b). Similarly, any unused paid holidays may be carried over from one year to the next but not in excess of an aggregate of five days of paid holidays may be carried over from one year to the next; to the extent any paid holidays remain unused at the end of a fiscal year that are in excess of such five paid holidays, such paid holidays shall expire and shall thereafter no longer be useable by Executive, but the Company shall compensate Executive for any such unused paid holidays in accordance with the formula set forth in Section 4.1(b). (g) DIRECTOR FEES. During the term of this Agreement, Executive shall not be entitled to be paid any fees for attendance at meetings of the Board of Directors or any committee of the Board of Directors (or the board or committee of the board of any subsidiary). (h) AIRLINE PASSES. During the term of this Agreement the Company shall use its reasonable efforts to obtain for the benefit of Executive and Executive's immediate family (Executive's spouse, Executive's children, and the spouse and children of any of Executive's children), the right to fly on a complimentary basis on the aircraft of other airlines, on a positive space basis. Such efforts shall include negotiating in good faith with other carriers for such rights and offering reciprocal rights to the executives (and their immediate family members) of such other carriers. The Company shall provide to Executive and Executive's immediate family, during the life of each such individual, the right to fly on a complimentary basis on any aircraft operated by the Company or any affiliate at any time (subject only to reasonable and customary rules regarding availability), on a positive space basis. The Company shall use its best efforts to cause any successor or subsequent successor to the business or assets of the Company to grant such rights as to all routes operated by such successor (or subsequent successor) and any of its affiliates. (i) PROFESSIONAL SERVICES. During the term of this Agreement, the Company shall reimburse Executive for his out-of-pocket costs incurred in connection with the retention of professionals by Executive to provide Executive with income tax, estate planning, and investment 6 advisory services. The maximum amount of reimbursable expenses for such purposes shall be $5,000 for each calendar year during the term of this Agreement. The Company shall reimburse Executive for such costs promptly after Executive submits an invoice to Company. In order to preserve Executive's rights to confidentiality, Executive may satisfy the requirement of submitting an invoice by providing the Company with a copy of the facing page of the invoice showing the fees and expenses for the services rendered and the general nature of the services rendered but without any detail concerning the substance of the services rendered. (j) EXECUTIVE SECURITY. During the term of this Agreement, the Company shall provide to Executive such security services as is reasonably necessary for the protection of the life and property of Executive and Executive's immediate family members. 2.5 PAYMENT OF EXCISE TAXES . If any payment received by Executive under this Agreement or under the Consulting Agreement provided for in Section 4.3(i), as a result of or following any termination of employment under this Agreement is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (as amended from time to time, the "Code"), or any successor or similar provision of the Code (the "Excise Tax"), the Company shall pay Executive an additional cash amount (the "Gross Up") such that the net after-tax amount received by Executive under this Agreement is the same as if the Excise Tax had not applied to any payments made under this Agreement. The Company shall pay such amounts promptly after the calculation referred to in Section 2.6 has been made. 2.6 CERTAIN ADJUSTMENT PAYMENTS . For purposes of determining the Gross Up, Executive shall be deemed to pay the federal income tax at the highest marginal rate of taxation (currently 39.6%) in the calendar year in which the payment to which the Gross Up applies is to be made. The determination of whether such Excise Tax is payable and the amount of the Excise Tax shall be made upon the opinion of a national accounting firm selected by Executive and reasonably acceptable to the Company. If such opinion is not finally accepted by the Internal Revenue Service upon audit or otherwise, then appropriate adjustments shall be computed (with interest at the rate required to be paid by Executive under the Code and with Gross Up, if applicable) by such tax counsel based upon the final amount of the Excise Tax so determined, and (a) any additional amount due Executive as a result of such adjustment shall be paid to Executive by the Company in cash in a lump sum within 30 days after such computation, or (b) any amount due the Company as a result of such adjustment shall be paid to the Company by Executive in cash in a lump sum within 30 days after such computation. ARTICLE III TERMINATION OF EMPLOYMENT 3.1 DEATH OR RETIREMENT OF EXECUTIVE . Executive's employment under this Agreement shall automatically terminate upon the death or Retirement of Executive. 3.2 BY EXECUTIVE . Executive shall be entitled to terminate his employment under this Agreement by giving Notice of Termination to the Company: 7 (a) for Good Reason; (b) at any time without Good Reason. 3.3 BY COMPANY . The Company shall be entitled to terminate Executive's employment under this Agreement by giving Notice of Termination to Executive: (a) in the event of Executive's Total Disability; (b) for Cause; and (c) at any time without Cause. ARTICLE IV COMPENSATION UPON TERMINATION OF EMPLOYMENT If Executive's employment under this Agreement is terminated prior to December 31, 2005 (or if the provisions of clause (y) of Section 4.3 apply), then except for any other rights or benefits specifically provided for in this Agreement following his period of employment, the Company shall be obligated to provide compensation and benefits to Executive only as follows: 4.1 UPON TERMINATION FOR DEATH OR TOTAL DISABILITY . If Executive's employment under this Agreement is terminated by reason of his death or Total Disability, the Company shall: (a) pay Executive (or his estate) any Base Salary which has accrued but not been paid as of the termination date (the "Accrued Base Salary"); (b) pay Executive (or his estate) for unused vacation days and paid holidays accrued as of the termination date in an amount equal to his Base Salary multiplied by a fraction the numerator of which is the number of accrued unused vacation days and paid holidays, and the denominator of which is 260 (the "Accrued Vacation Payment"); (c) reimburse Executive (or his estate) for expenses incurred by him prior to the date of termination which are subject to reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses"); (d) provide to Executive (or his estate) any accrued and vested benefits required to be provided by the terms of any Company-sponsored benefit plans or programs (the "Accrued Benefits"), together with any benefits required to be paid or provided in the event of Executive's death or disability under applicable law; (e) pay Executive (or his estate) any Incentive Bonus or other bonus with respect to a prior fiscal quarter which has accrued but has not been paid; 8 (f) pay Executive (or his estate) any payment under the Deferred Compensation Plan which has accrued but has not been paid to the account provided for in such plan; (g) pay Executive the amounts due under Section 2.4; and (h) permit Executive (or his estate) to exercise all vested unexercised stock options (including stock options which by their terms become exercisable upon death or disability) and warrants outstanding at the termination date in accordance with the terms of the plans and agreements pursuant to which such options or warrants were issued. 4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD REASON . If Executive's employment is terminated by the Company for Cause, or if Executive terminates his employment with the Company prior to December 6, 2005, other than (x) upon Executive's death or Total Disability or (y) for Good Reason, the Company shall: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment; (c) reimburse Executive for the Accrued Reimbursable Expenses; (d) provide Executive the Accrued Benefits, together with any benefits required to be paid or provided under applicable law; (e) pay Executive any accrued Incentive Bonus or other bonus with respect to a prior fiscal quarter which has accrued but has not been paid; (f) permit Executive to exercise all vested unexercised stock options and warrants outstanding at the termination date in accordance the terms of the plans and agreements pursuant to which such options and warrants were issued. 4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE, OR BY EXECUTIVE FOR GOOD REASON. If Executive's employment is terminated by the Company without Cause, or if Executive's employment is terminated by Executive for Good Reason, or upon a Change in Control of the Company, the Company shall: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment; 9 (c) reimburse Executive the Accrued Reimbursable Expenses; (d) provide Executive the Accrued Benefits, together with any benefits required to be paid or provided under applicable law; (e) pay Executive any Incentive Bonus or other bonus with respect to a prior fiscal quarter which has accrued but has not been paid; (f) pay Executive, the greater of: (1) such salary and bonus payments, calculated at the Threshold level, due under the remaining term of the contract, or (2) salary and bonus payment, calculated at the minimum level, equal to 2 years of service to the Company. (g) maintain in full force and effect, for Executive's and his eligible beneficiaries continued benefit, all of the General Benefits, for a period of 24 months following the termination date of his employment under this Agreement, except to the extent that, as to any such General Benefit, Executive receives the substantial equivalent of such General Benefit as a result of his employment with another employer after his termination date. If Executive's continued participation in any General Benefit is not permitted under the terms of the plan, program or arrangement under which the General Benefit was provided to the Executive by the Company, the Company shall arrange to provide Executive with the General Benefit substantially similar to the General Benefit which Executive would have been entitled to receive under such plan, program or arrangement; (h) Executive shall have the right to exercise all unexercised stock options and warrants outstanding at the termination date in accordance with the terms of the plans and agreements pursuant to which such options and warrants were issued, including the provisions of Section 2.3(c). 4.4 UPON TERMINATION BY THE COMPANY OR RESIGNATION BY THE EXECUTIVE, FOLLOWING A CHANGE IN CONTROL OF THE COMPANY. If Executive's employment is terminated by the Company following a Change in Control of the Company, or resignation from the Company by the Executive within the first ninety (90) days following a Change in Control, the Company shall: (a) pay Executive the Accrued Base Salary; (b) pay Executive the Accrued Vacation Payment; (c) reimburse Executive the Accrued Reimbursable Expenses; (d) provide Executive the Accrued Benefits, together with any benefits required to be paid or provided under applicable law; 10 (e) pay Executive any Incentive Bonus or other bonus with respect to a prior fiscal quarter which has accrued but has not been paid; (f) in the event of a Change in Control of the Company, Executive shall be entitled to receive payment representing 4 years of salary and bonus, calculated at the minimum level, with an agreed minimum payment of at least one million dollars ($1,000,000); (g) maintain in full force and effect, for Executive's and his eligible beneficiaries continued benefit, all of the General Benefits, for a period of 24 months following the termination date of his employment under this Agreement, except to the extent that, as to any such General Benefit, Executive receives the substantial equivalent of such General Benefit as a result of his employment with another employer after his termination date. If Executive's continued participation in any General Benefit is not permitted under the terms of the plan, program or arrangement under which the General Benefit was provided to the Executive by the Company, the Company shall arrange to provide Executive with the General Benefit substantially similar to the General Benefit which Executive would have been entitled to receive under such plan, program or arrangement; and (h) Executive shall have the right to exercise all unexercised stock options and warrants outstanding at the termination date in accordance with the terms of the plans and agreements pursuant to which such options and warrants were issued, including the provisions of Section 2.3(c). 4.5 CALL RIGHTS. (a) Upon any termination of employment under Section 4.1 or Section 4.3, the Company shall have the right to redeem any stock option, whether vested or unvested, that is held by Executive as of the date of such termination and that is designated by the Company in a notice to Executive (a "Call Election"), at a price equal to 100% of the Black-Scholes Value of such stock option. (b) The Black-Scholes Value for any option shall be determined using the Black-Scholes formula but in any event shall be not less than the Market Price for the common stock on the date the Call Election is made (the "Calculation Date"), less the exercise price under the stock option. The Black-Scholes Value shall be calculated by an independent major investment banking firm selected by the Company, subject to the approval of Executive; if Executive does not approve the firm selected by the Company, then the Black-Scholes Value shall be the average of the amount calculated by the firm selected by Executive and a major investment banking firm selected by the Company. The Black-Scholes Value shall be calculated as of the Calculation Date, and any unvested options for this purpose shall be treated as if fully vested. The Company shall bear the cost of the firm or firms that conduct the Black-Scholes valuation. In determining the Black-Scholes Value of any option, the following rules will apply: (i) The time to maturity of any option will be equal to the period beginning on the Calculation Date and ending on the final expiration date of the option 11 (the "Option Life"), without regard to any analysis of the effect, or likelihood of occurrence, of any event that might cause the expiration date to occur sooner. (ii) The "risk free rate" as to any option will be determined as of the Calculation Date, by the U.S. Treasury YTM, with a maturity approximately equal to the Option Life, as stated by the Federal Reserve. (iii) The volatility factor will be based on an historical sampling of daily stock prices over a period of not less than 24 months from the valuation date, and not more than 120 months from the valuation date, whichever period yields the highest value. (iv) No illiquidity or other discount will be applied to the value determined by application of the Black-Scholes formula, whether by reason of the fact that the options are not publicly traded or otherwise. (c) Unless Executive consents, the Company shall not exercise a Call Election to the extent that the Company would be unable, without violating the provisions of the General Corporation Law of Nevada or the fraudulent conveyance laws of any state, to pay any amount due to Executive under Section 4.4(a); if Executive consents to the exercise of a Call Election by the Company under such circumstances, then, to the extent that the Company is unable, without violating the provisions of the General Corporation Law of Nevada, to pay any amount due Executive under Section 4.4(a), the Company's obligation to make such payment shall be deferred, but only until the legal restriction lapses, at which time the payment shall be due, and in any event, all amounts that otherwise would have been payable but for such restriction shall bear interest at the rate provided for in Section 6.11, from the date such payments would have been payable (but for such legal restriction) until the date they actually are made. (d) All payments due by the Company in connection with any Call Election are payable within 10 business days after the Call Election is made. (e) Any stock option redeemed by the Company under Section 4.4(a) shall be cancelled. ARTICLE V RESTRICTIVE COVENANTS 5.1 CONFIDENTIAL INFORMATION AND MATERIALS. Executive agrees that during the course of his employment with the Company, he has obtained and shall likely obtain in the future "Confidential Information." "Confidential Information" is information concerning the Company which the Company attempts to keep confidential, has not been publicly disclosed by the Company, is not a matter of common knowledge in the airline industry, and was not known by Executive prior to his employment by the Company, including certain information relating to the business plans, marketing plans or programs, forecasts, statistics relating to routes and markets, 12 contracts, customers, compensation arrangements, and business opportunities. Executive agrees that the Confidential Information is proprietary to the Company. 5.2 GENERAL KNOWLEDGE. The general skills and experience gained by Executive during Executive's employment or engagement by the Company, and information publicly available without breach of any duty owed by any person to the Company or generally known within the airline industry, is not considered Confidential Information. Executive is not restricted from working with a person or entity which has independently developed information or materials similar to the Confidential Information, but in such a circumstance, Executive agrees not to disclose the fact that any similarity exists between the Confidential Information and the independently developed information and materials, and Executive understands that such similarity does not excuse Executive from the non-disclosure and other obligations in this Agreement. 5.3 EXECUTIVE OBLIGATIONS AS TO CONFIDENTIAL INFORMATION AND MATERIALS. During Executive's employment or engagement by the Company, Executive shall have access to the Confidential Information and shall occupy a position of trust and confidence with respect to the Confidential Information and the Company's affairs and business. Executive agrees to take the following steps to preserve the confidential and proprietary nature of the Confidential Information: (a) NON-DISCLOSURE. During and for a period of two years after Executive's Employment or engagement by the Company, Executive shall not use, disclose or otherwise permit any person or entity access to any of the Confidential Information other than as required in the performance of Executive's duties with the Company and other than is required to be disclosed by law or by any court, administrative agency, or arbitration panel. (b) PREVENT DISCLOSURE. During and for a period of two years after Executive's Employment or engagement by the Company, except as provided in Section 5.3(a), Executive shall take all reasonable precautions to prevent disclosure of the Confidential Information to unauthorized persons or entities, other than is required to be disclosed by law or by any court, administrative agency, or arbitration panel. (c) RETURN ALL MATERIALS. Upon termination of Executive's employment or engagement by the Company for any reason whatsoever, or earlier if requested by the Company, Executive shall deliver to the Company all tangible materials embodying the Confidential Information, including any documentation, records, listings, notes, data, sketches, drawings, memoranda, models, accounts, reference materials, samples, machine-readable media and equipment which in any way relate to the Confidential Information and shall not retain any copies of any of the above materials. 13 ARTICLE VI MISCELLANEOUS 6.1 DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Accrued Base Salary" - as defined in Section 4.1(a); (b) "Accrued Benefits" - as defined in Section 4.1(d); (c) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c); (d) "Accrued Vacation Payment" - as defined in Section 4.1(b); (e) "Base Salary" - as defined in Section 2.1; (f) "Board" - shall mean the Board of Directors of the Company; (g) "Cause" shall mean the occurrence of any of the following: (i) Executive's willful misconduct with respect to the Company's business which results in a material detriment to the Company; (ii) Executive is convicted of, or enters a plea of nolo contendere with respect to, a felony offense; or (iii) the continued failure or refusal by Executive, other than by reason of Executive's disability, to perform the duties required of him by this Agreement, which failure or refusal is material and is not cured within 45 days following receipt by Executive of written notice from the Board specifying the factors or events constituting such failure or refusal, except that, as to any failure or refusal that is curable but cannot reasonably be cured within such 45-day period, no Cause shall be deemed to have occurred unless Executive fails to take reasonable steps to cure such failure or refusal within such 45-day period, and furthermore, no failure of Executive to satisfy any goals, forecasts, or other financial or business criteria established by the Company, standing alone, shall constitute Cause. (h) "Change of Control" shall mean and shall be deemed to have occurred if: (i) After the date of this Agreement, any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision), or any other persons who the Board of Directors determines in good faith is acting as a group, becomes the beneficial owner 14 (within the meaning of Rule 13d-3 under the Exchange Act or any successor provision) directly or indirectly of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities ordinarily having the right to vote at an election of directors; (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least 60% of the members of the Board, except that any person who becomes a member of the Board subsequent to the date of this Agreement whose election, or nomination for election by the Company's stockholders was approved by a vote of at least 60% of the members then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Consummation of (A) a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of the Company, in each case, with or to a corporation or other person or entity (1) of which persons who were the holders of each class of the Company's capital stock immediately prior to such transaction do not receive voting securities, as a result of their ownership of such capital stock immediately prior to such transaction, that constitute both (x) more than 51% of each class of capital stock and (y) more than 51% of the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors of the reorganized, merged, consolidated or purchasing corporation (or in the case of a non-corporate person or entity, functionally equivalent voting power), or (2) 80% of the members of the Board of which corporation (or functional equivalent in the case of a non-corporate person or entity) were not members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, consolidation or sale; (B) the sale or other disposition of any material route system operated by the Company or any subsidiary (regardless of how such sale or disposition is effected); for this purpose a route system is "material" if the gross revenues attributable to such route system exceed or would exceed 15 50% of the Company's gross revenues on a consolidated basis or if the gross profits reasonably attributable to such route system exceed or would exceed 50% of the gross profits of the Company on a consolidated basis, either (x) for the fiscal year of the Company immediately prior to the sale or disposition or (y) based on reasonable projections, for the fiscal year in which the sale or disposition occurs; or (C) a liquidation or dissolution of the Company. (i) "Confidential Information" - as defined in Section 5.1; (j) "Continued Benefits" - as defined in Section 4.3(g); (k) "Good Reason" shall mean the occurrence of any of the following: (i) Any change by the Company in Executive's title, or any significant diminishment in Executive's function, duties or responsibilities from those associated with his functions, duties or responsibilities as of December 31, 2001; (ii) Any material breach of this Agreement or any other agreement between the Company and Executive (and for purposes of this Agreement, any default by the Company to make any payment or to provide any fringe benefit shall be considered material) which remains uncured for a period of 10 days after Executive gives the Company notice of such breach specifying in reasonable detail the event(s) constituting such breach; (iii) Except with Executive's prior written consent, relocation of Executive's principal place of employment to a location outside of Maricopa County, Arizona, or requiring Executive to travel on the Company's business more than is required by Section 1.4; or (l). "Incentive Bonus" - as defined in Section 2.2; (m) "Market Price" means the officially quoted closing price of the common stock of the Company, as reported by the principal exchange on which the common stock of the Company is traded for the date in question. If there are no transactions on such date, the Market Price shall be determined as of the immediately preceding date on which there were transactions. If no such prices are reported on such exchange, then Market Price shall mean the average of the high and low sale prices for the common stock of the Company (or if no sales prices are reported, the average of the high and low bid prices) as reported by a quotation system of general circulation to brokers and dealers. If the common stock of the Company is not traded on any 16 exchange or in the over-the-counter market, the Market Price of the common stock of the Company on any date shall be determined in good faith by the parties. (n) "Notice of Termination" shall mean a notice which shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. Each Notice of Termination shall be delivered at least 30 days prior to the effective date of termination; (o) "Prime Rate" means the prime rate announced by The Wall Street Journal from time to time. (p) "Retirement" shall mean normal retirement at age 65; (q) "Threshold Bonus" shall mean a cash bonus equal to $80,000 (which is based on the "Threshold" level of bonus under "Bonus Level Fiscal 2002" as set forth in Exhibit A). (r) "Total Disability" or "Totally Disabled" shall mean Executive's failure substantially to perform his duties under this Agreement on a full-time basis for a period exceeding 180 consecutive days or for periods aggregating more than 180 days during any twelve-month period as a result of incapacity due to physical or mental illness, or the occurrence or existence of a condition that would permanently render Executive unable to substantially perform his duties under this Agreement on a full-time basis. If there is a dispute as to whether Executive is or was physically or mentally unable to perform his duties under this Agreement, such dispute shall be submitted for resolution to a licensed physician selected by Executive but subject to the reasonable approval of the Company. If such a dispute arises, Executive shall submit to such examinations and shall provide such information as such physician may request, and the determination of the physician as to Executive's physical or mental condition shall be binding and conclusive. 6.2 KEY MAN INSURANCE. In addition to the insurance policy described in Section 2.4(c), the Company shall have the right, in its sole discretion, to purchase "key man" insurance on the life of Executive. The Company shall be the owner and beneficiary of any such policy. If the Company elects to purchase such a policy, Executive shall take such physical examinations and supply such information as may be reasonably requested by the insurer. 6.3 SUCCESSORS, BINDING AGREEMENT. This Agreement shall be binding upon and run to the benefit of the Company, its successors and assigns, and shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, beneficiaries, designees, executors, administrators, heirs, distributees, devisees and legatees. 6.4 MODIFICATION; NO WAIVER. This Agreement may not be modified or amended except by an instrument in writing signed by the parties to this Agreement. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against 17 the enforcement of any provision of this Agreement, except by written instrument by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated in such waiver, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any other term or condition. 6.5 SEVERABILITY. The covenants and agreements contained in this Agreement are separate and severable and the invalidity or unenforceability of any one or more of such covenants or agreements, if not material to the employment arrangement that is the basis for this Agreement, shall not affect the validity or enforceability of any other covenant or agreement contained in this Agreement. If, in any judicial proceeding, a court shall refuse to enforce one or more of the covenants or agreements contained in this Agreement because the duration thereof is too long, or the scope thereof is too broad, it is expressly agreed between the parties to this Agreement that such duration or scope shall be deemed reduced to the extent necessary to permit the enforcement of such covenants or agreements. 6.6 NOTICES. All the notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, to the parties to this Agreement at the following addresses: If to the Company, to it at: Mesa Air Group, Inc. 410 North 44th Street, Suite 700 Phoenix, AZ 85008 Attn: Chairman of Board of Directors and General Counsel If Executive, to him at: 410 N. 44th Street, Suite 700 Phoenix, AZ 85008 Notices hall be deemed to have been given and received upon personal delivery or three business days after having been deposited, if sent by registered or certified mail. 6.7 ASSIGNMENT. This Agreement and any rights under this Agreement shall not be assignable by either party without the prior written consent of the other party except as otherwise specifically provided for in this Agreement. 6.8 ENTIRE UNDERSTANDING. This Agreement (together with any Exhibits incorporated as a part of this Agreement) constitutes the entire understanding between the parties to this Agreement and no agreement, representation, warranty or covenant has been made by either party except as expressly set forth in this Agreement. 18 6.9 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants that neither the execution and delivery of this Agreement nor the performance of his duties under this Agreement violates the provisions of any other agreement to which he is a party or by which he is bound. 6.10 INTEREST ON PAST DUE AMOUNTS; ATTORNEYS FEES. All amounts under this Agreement that are not paid when due shall bear interest at the rate of 4% per annum above the Prime Rate, from the date such payments were due until paid. In addition, any party who breaches this Agreement shall be obligated to pay the reasonable attorneys fees and costs incurred by the other party in seeking to enforce the terms of this Agreement. 6.11 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED FOR ALL PURPOSES BY THE LAWS OF THE STATE OF ARIZONA APPLICABLE TO CONTRACTS EXECUTED AND WHOLLY PERFORMED WITHIN SUCH STATE. Mesa Air Group, Inc. (Company) By: /S/ Michael Lotz ----------------------------------- Title: President -------------------------------- /S/ George Murnane III -------------------------------------- George Murnane, III (Executive) 19 EXHIBIT A INCENTIVE BONUS

Note 1 - For each fiscal year only the % Change in EPS will be reviewed. The % Change in EPS will not be greater than the initial year. Note 2 - EPS is defined as gross profit/loss before taxes and one-time non-recurring items divided by basic outstanding shares. These percentages will change annually but not be greater than the initial year. Note 3 - The Quarterly Amount will be paid for each of the first three fiscal quarters based on the 10Q financial reports filed with the SEC. Then Annual Amount will be paid for the fourth quarter less any amounts paid for the first three quarters based on the 10K financial reports filed with the SEC. These amounts will not be decreased over the term of the agreement. Note 4 - These amounts will not be decreased over the term of the agreement. i TABLE OF CONTENTS

ii 6.4 Modification; No Waiver................................................................ 17 6.5 Severability........................................................................... 18 6.6 Notices................................................................................ 18 6.7 Assignment............................................................................. 18 6.8 Entire Understanding................................................................... 18 6.9 Executive's Representations............................................................ 19 6.10 Interest on Past Due Amounts; Attorneys Fees........................................... 19 6.11 Governing Law.......................................................................... 19

~~iii~~ EX-10.29 18 p67334exv10w29.txt EX-10.29 Exhibit 10.29 THREE GATEWAY OFFICE LEASE THIS LEASE is made this 16th day of October, 1998, by and between DMB PROPERTY VENTURES LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and MESA AIR GROUP, INC., a Nevada corporation ("TENANT"). Landlord hereby leases to Tenant and Tenant leases from Landlord for the term and upon the conditions and agreements set forth in this Lease a portion of the real property described on EXHIBIT "A", as illustrated by cross-hatching or otherwise on the plan attached as EXHIBIT "B", consisting of 21,003 rentable square feet of space (the "PREMISES") known as Suite 700 in Three Gateway (the "BUILDING") on the 7th floor. The address of the Building is 410 North 44th Street, Phoenix, Arizona 85008. The rentable square footage of the Premises has been measured in accordance with the most recent standards established by the Building Owners and Managers Association (BOMA) for the measurement of rentable square footage of office space. 1. TERM AND POSSESSION (a) Except as otherwise expressly provided in this Lease, the term of this Lease, and Tenant's obligation to pay rent, shall be for a period of one hundred twenty (120) months (the "LEASE TERM"), commencing on the Commencement Date. For purposes of this Lease, the COMMENCEMENT DATE shall be the earlier of (i) sixty (60) days after the issuance of a City of Phoenix building permit, provided Landlord's construction obligations under this Lease are substantially completed, or (ii) the date upon which Tenant begins its business operation in the Premises. Upon request of either party after the term has commenced, Landlord and Tenant shall jointly execute a memorandum confirming the Commencement Date. The Anticipated Commencement Date is November 1, 1998. Notwithstanding anything to the contrary contained herein, Landlord shall allow Tenant access to the Premises at least fourteen (14) days prior to the Commencement Date ("Early Access") in order to install Tenant's equipment, furnishings and trade fixtures, it being acknowledged that any occupancy of the Premises for such purposes shall not trigger the Commencement Date or the payment of rent. Tenant shall not be entitled to Early Access unless Tenant has complied with the Early Access Indemnity Agreement, the form of which is attached hereto as Exhibit "E". (b) Upon the termination or expiration of this Lease or upon the termination of Tenant's right of possession, whether by lapse of time or otherwise, Tenant shall at once surrender possession of the Premises to Landlord and remove all of Tenant's property as provided in Article 10. (c) Tenant shall have no right to hold over after the expiration of the term of this Lease without Landlord's consent. If, with Landlord's consent, Tenant holds over after the expiration of this Lease, Tenant shall become a tenant from month to month only, upon all of the terms of this Lease except that the amount of the Base Rent shall be increased to an amount equal to 125% of the Base Rental Rate in effect immediately prior to the expiration. (d) OPTION TO EXPAND Provided no Event of Default exists under this Lease after any applicable cure period has expired, Tenant shall have a single option ("EXPANSION OPTION") to expand the Premises into any available additional space in the Building, except any space that is subject to renewal by a current tenant, or any space that is subject to options, rights of first refusal or offer, or similar rights in effect at the time of Tenant's notice to Landlord, for a term coterminous with this Lease, on the terms set forth in this Article 1(d) and otherwise set forth in this Lease, except that the Tenant Improvement Allowance (as herein defined) shall be prorated based on the number of months remaining in the Lease Term. The Expansion Option may be exercised with one hundred twenty (120) days prior written notice to Landlord. Tenant's obligation to pay rent on the expansion space shall commence on the earlier of (i) the date upon which an architect certifies to Tenant that Landlord's construction obligations under this Lease with respect to such expansion space are substantially complete or (ii) the date upon which Tenant begins its business operation in the expansion space. Tenant acknowledges that Landlord will require a minimum of one hundred twenty (120) days after lease documents are executed to substantially complete the tenant improvements in the expansion space. (e) RIGHT OF FIRST OFFER Provided no Event of Default exists under this Lease after any applicable cure period has expired, Tenant shall have a right of first offer to lease any contiguous available space in the Building during the initial Lease Term. If Landlord desires to offer for lease any such contiguous available space, Landlord shall so notify Tenant in writing, which notice (the "FIRST OFFER NOTICE") shall also include the 1 [ILLEGIBLE] ----------- INITIALS new Base Rent amount for such space (calculated in accordance with this Article 1(e)). Tenant shall have five (5) business days following receipt of the First Offer Notice to notify Landlord of its intention to lease such space, which notice of intent from Tenant (the "NOTICE OF INTENT") shall be irrevocable. If Tenant gives such Notice of Intent, the terms of such lease with respect to the expansion space shall be the same terms and conditions as this Lease (including without limitation the same initial Lease Term expiration date and Extension Term), except that the Base Rent for such space shall be equal to the average prevailing Base Rent per rentable square foot in the Building. Notwithstanding anything to the contrary herein, if there is less than five (5) years remaining in the initial Lease Term, then the Tenant Improvement Allowance for such contiguous space shall be prorated based on the number of months remaining in the initial Lease Term. If Tenant fails to give the Notice of Intent within five (5) business days following receipt of Landlord's First Offer Notice, then the right set forth in this Article 1(f) shall automatically terminate and Landlord shall be free to market such space to potential tenants, with no further obligation to re-offer such space to Tenant. (f) RIGHT OF FIRST REFUSAL. Provided no Event of Default exists under this Lease after any applicable cure period has expired, Tenant shall have a continuing right of first refusal (the "RIGHT OF REFUSAL") to lease any space on the 6th or the 8th floors of the Building which is available during the Lease Term (a "RIGHT OF REFUSAL SPACE"). Landlord shall offer any Right of Refusal Space to Tenant on the same terms and conditions as those proposed to and accepted by an interested third party (inclusive of a tenant improvement allowance, base year and rental rate) pro rated to reflect a coterminous lease. Tenant shall have two (2) business days after receipt of Landlord's written notice in which to exercise the Right of Refusal. If Tenant has not responded to Landlord within such 2-day period, then Tenant shall be deemed to have elected not to exercise the Right of Refusal. If Tenant elects not to exercise the Right of Refusal, then Landlord shall have one hundred eighty (180) days during which to execute a lease with any third party for the Right of Refusal Space at materially the same terms offered to Tenant without again offering such the Right of Refusal Space to Tenant. Notwithstanding anything to the contrary herein, if Tenant exercises its Right of First Refusal prior to June 30, 1999, the terms shall be on the same terms and conditions as set forth in this Lease. The parties acknowledge and agree that if Tenant exercises any of the options set forth above, this Lease shall be amended, as of the date of the exercise of option to reflect the exercise of such option. Notwithstanding anything set forth herein to the contrary, if Tenant exercises the Right of First Refusal, Right of First Offer or Option to Expand during months 85 to 120 of the Lease Term, then Tenant also must exercise its Option to Extend by the Option Exercise Date as set forth in Article 1(g) hereof. (g) OPTION TO EXTEND. Provided no Event of Default exists under this Lease after any applicable cure period has expired, Tenant shall have the option to extend the Lease Term for two (2) additional terms of sixty (60) months each (each such term to be referred to herein as an "EXTENSION TERM"). Tenant shall exercise each option by giving Landlord notice (the "OPTION EXERCISE NOTICE") of exercise no earlier than three hundred sixty-five (365) days and no later than one hundred eighty (180) days prior to the expiration date of the Initial Lease Term or the then-expiring Extension Term, as applicable (the "OPTION EXERCISE DATE"). If Tenant elects to extend the Initial Lease Term or any Extension Term of this Lease, such Extension Term shall be upon and subject to all of the terms, covenants and conditions of this Lease, except: The Base Rent per rentable square foot during each Extension Term shall be the greater of (a) the Base Rent per rentable square foot in effect immediately prior to the expiration of each Extension Term or (b) a rate equal to ninety-five percent (95%) of the average prevailing Base Rent per rentable square foot in the Building (on leases with a five (5) year term) for all new leases executed during the six (6) month period immediately preceding the Option Exercise Notice ("COMPARABLE LEASES"). If there were no leases executed in the Building during such six (6) month period, then Comparable Leases in the twelve (12) months prior to the date of the Option Exercise Notice will be used to determine the average prevailing Base Rent per rentable square foot in the Building. The average prevailing Base Rent shall be reduced by concessions then being offered or granted by Landlord to tenants in the Building, including free or deferred rents and moving allowances, and tenant improvement allowances for renewing Tenants only. Upon request by Tenant, not less than thirty (30) days prior to the Option Exercise Date, prior to the expiration of the Lease Term, Landlord shall give Tenant notice of the average prevailing Base Rent per rentable square foot. If Tenant fails to exercise its option to extend hereunder by the Option Exercise Date, then the option set forth in this Article 1(g) shall automatically terminate and Landlord shall be free to market the Premises to potential tenants. Refurbishment Allowance. Landlord will provide a refurbishment allowance of $3.00 per usable square foot at the beginning of each Extension Term. 2 [ILLEGIBLE] ----------- INITIALS (h) OPTION TO TERMINATE. Notwithstanding anything to the contrary in this Lease, Tenant shall have the option to terminate this Lease, effective as of the end of the sixtieth (60th) month of the Lease Term, on the terms set forth in this Article 1(h). To exercise such option, Tenant shall give notice to Landlord of such termination no later than the end of the forty-eighth (48th) month of the Lease Term, which notice shall be irrevocable. If such notice is given, Tenant shall pay to Landlord no later than thirty (30) days prior to the termination date, as consideration for exercise of this termination right, an amount equal to the unamortized amount of tenant improvement costs and that portion of the leasing commissions attributable to the second five (5) year period of the Lease Term, plus at a return of 12% per annum on such amounts. If Tenant fails to give timely notice to Landlord of such termination in accordance with this Article 1(h), Tenant shall be conclusively deemed to have forever waived such right to terminate this Lease. 2. RENT (a) Base Rent. Tenant shall pay to Landlord during the term of this Lease at the office of Landlord or at such other place as Landlord may designate, without notice, demand, deduction or set-off, in equal monthly installments in advance on the first day of each calendar month, Base Annual Rent in the amount of: Years 1 - 3 $23.00 per rentable square foot per year $483,069.00 annually; $40,255.75 monthly Years 4 - 7 $25.00 per rentable square foot per year $525,075.00 annually; $43,756.25 monthly Years 8 - 10 $27.00 per rentable square foot per year $567,081.00 annually; $47,256.75 monthly In the event the Commencement Date does not occur on the first day of a calendar month, Tenant shall pay rent on the Commencement Date for the fractional month on a pro rata basis. (b) Nature of Payments. All sums required to be paid by Tenant under this Lease, whether or not so designated, are rent. (c) Late Charges and Interest. Any amount due from Tenant to Landlord which is not paid when due shall bear interest at three percent (3%) in excess of the prime rate as established from time to time by Bank One or its successor in interest (the "Default Rate") from the due date until paid, but the payment of such interest shall not excuse or cure any default by Tenant under this Lease. In addition, any rent or other payment not paid within ten (10) days of its due date shall be subject to five percent (5%) late charge representing the additional costs and burdens of special handling. Notwithstanding anything to the contrary contained herein, if payment of any monetary obligation payable hereunder is received late more than twice in any twelve (12) month period, then Tenant shall have ten (10) days after notice of non-payment is received to cure such late payment before the late fee is assessed. 3. SECURITY DEPOSIT AND GUARANTIES Concurrently with the execution of this Lease, Tenant shall guaranty their performance by posting a Letter of Credit in the form of Exhibit "F", in the amount of $400,000. The Letter of Credit shall be released at the end of the second (2nd) year of the Lease Term, provided that no Event of Default exists after any applicable cure period has expired, and no Event of Default has ever existed after any applicable cure period has expired under any provision of this Lease. 4. USE (a) Tenant shall not use or occupy the Premises for any purpose other than general office purposes without Landlord's prior written consent. Tenant shall maintain, at all times, an average density no greater than one (1) person for each two hundred (200) rentable square feet of the Premises. (b) Tenant shall: (i) Not use or permit upon the Premises anything that would invalidate any policies of insurance now or hereafter carried on the Premises or that will increase the rate of insurance on the Premises or the Building; (ii) Pay all additional insurance premiums which may be caused by any use which Tenant shall make of the Premises other than the permitted use described in 4(a) above; (iii) Not in any manner deface or injure the Premises other than ordinary wear and tear 3 [ILLEGIBLE] ----------- INITIALS and damage caused by a casualty or overload any floor of the Premises; (iv) Not do anything or permit anything to be done upon the Premises in any way creating a nuisance, or unreasonably disturbing any other lessee in the Building or injuring the reputation of the Building, including, without limitation, the playing of music audible outside the Premises and the placement of signs in or displayed through any window or door; (v) Intentionally omitted; (vi) Not use the Premises for lodging or sleeping purposes; (vii) Not commit or suffer to be committed any waste upon the Premises; (viii) Not violate any recorded restriction or covenant affecting the Building, nor use the Premises for any purpose which would be in violation of any exclusive rights or use granted to other tenants in the Building. Landlord shall not grant exclusive rights which would prohibit Tenant from using the Premises for the purposes stated in Article 4(a) above. (c) Tenant, at Tenant's expense, shall comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations (collectively, "LAWS"), and shall procure all permits, certificates, licenses and other authorizations required by applicable Law relating to Tenant's business or Tenant's use or occupancy of the Premises or Tenant's activities on the Premises. Tenant shall make all reports and filings required by applicable Laws. Tenant shall defend, indemnify and hold harmless Landlord and Landlord's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, and reasonable attorneys' fees, arising out of or relating to any failure to Tenant to comply with applicable Laws. Without limiting the foregoing, Tenant shall comply with all applicable Laws relating to environmental matters, and shall defend, indemnify and hold harmless Landlord and Landlord's present and future officers, directors, employees, partners and agents from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, clean-up costs and reasonable attorneys' fees, arising from or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant or hazardous or toxic material, substance or matter from, on or at the Premises or the Building as a result of any act or omission on the part of Tenant. Tenant's indemnification obligations shall survive the expiration or termination of this Lease. Landlord, at Landlord's expense, shall comply with all present and future federal, state and local laws, ordinances, orders, rules and regulations (collectively, "LAWS") applicable to this Lease, and shall procure all permits, certificates, licenses an other authorizations required by applicable Laws relating to Landlord's business. Landlord shall make all reports and filings required by applicable all Laws. Landlord shall defend, indemnify and hold harmless Tenant and Tenant's present and future officers, directors, employees, partners and agents for, from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, and reasonable attorneys' fees, arising out of or relating to any failure of Landlord to comply with applicable Laws. Without limiting the foregoing, Landlord shall comply with all Laws relating to Hazardous Materials and shall defend, indemnify and hold harmless Tenant and Tenant's present and future officers, directors, employees, partners and agents for, from and against all claims, demands, liabilities, fines, penalties, losses, costs and expenses, including but not limited to costs of compliance, remedial costs, clean-up costs and reasonable attorneys' fees, arising from or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any Hazardous Materials from, on or at the Premises or the Building as a result of any act or omission on the part of Landlord. Landlord's indemnification obligations shall survive the expiration or termination of this Lease. 5. TAXES (a) Tenant shall pay, prior to delinquency, all taxes assessed against or levied upon Tenant's fixtures, furnishings, equipment and other personal property located in or upon the Premises. Tenant shall cause the fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real property of which the Premises form a part. In the event any or all of Tenant's fixtures, furnishings, equipment and other personal property shall be assessed and taxed with the real property, Tenant shall pay to Landlord Tenant's share of the taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of the taxes applicable to Tenant's personal 4 [ILLEGIBLE] ----------- INITIALS property. (b) Tenant shall, simultaneously with the payment of any sums required to be paid under this Lease as rent, additional rent or otherwise, reimburse Landlord for any sales, use, rental, transaction privilege or other excise tax imposed or levied on, or measured by, the amount paid. 6. PARKING AND COMMON USE AREAS All parking areas, parking structures, access roads, driveways, pedestrian sidewalks and ramps, landscaped areas, drainage facilities, exterior lighting, signs, courtyards, corridors, elevators (if any), entryways, public restrooms, and other areas and improvements provided by Landlord for the general use in common of tenants, their officers, agents, employees, customers and other invitees (all of which are referred to as "COMMON FACILITIES") shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right from time to time to modify, enlarge or eliminate common facilities and to establish, modify and enforce reasonable rules and regulations with respect thereto. Without limiting the foregoing, Landlord may designate separate or combined parking areas for visitors, tenants and employees. Landlord agrees at all time during the Lease Term to provide the following parking spaces to Tenant at their associated monthly costs: thirteen (13) covered reserved spaces in the parking structure adjacent to the Building free of charge for the Lease Term, sixty-four (64) covered unreserved spaces free of charge in years 1-3 of the Lease Term, and at $30.00 per space per month in years 4-10 of the Lease Term, and twenty-nine (29) uncovered unreserved spaces free of charge for the Lease Term. Landlord shall determine the location of said spaces and may re-assign said spaces from time to time, as Landlord deems necessary. If tenant exercises its option(s) to expand hereunder, Landlord shall provide parking for any such expansion space at the following ratios and associated monthly rates: covered reserved .51 spaces per 1,000 usable square feet at $40.00 per space per month covered unreserved 2.54 spaces per 1,000 usable square feet at $30.00 per space per month uncovered unreserved .81 spaces per 1,000 usable square feet at $20.00 per space per month 7. OPERATING COSTS, REAL PROPERTY TAXES AND UTILITIES (a) Tenant shall pay Tenant's pro rata share of all of the Building's operating cost, but only to the extent the Building's operating cost exceeds the actual operating costs incurred in the calendar year 1998 (the "EXPENSE STOP"). The Building's operating cost consists of those costs and expenses directly associated with managing, operating, maintaining and repairing the office building containing the Premises and the associated parking facilities, grounds and common facilities, including all electrical, heating, ventilating, air conditioning, plumbing and other building systems; exterior and interior water features; utilities; fire and extended coverage insurance; window cleaning; janitorial services; energy management costs; real property taxes and general and special assessments; assessments and other amounts legally payable to the property owner's association created under the restrictive covenants to which the Building is subject; wages, salaries and employee benefits of persons performing services in connection with the Building; parking lot and parking structure sweeping, sealing, patching, restriping, repair and maintenance; property management fees not to exceed five percent (5%) of gross revenues; public liability and property damage insurance; supplies, materials, tools, parts, and equipment; equipment rental charges; bookkeeping, accounting, legal and other professional charges and expenses; fees for permits and licenses; administrative expenses; taxes other than real property taxes; service and maintenance contracts; signage; and landscaping. Notwithstanding the foregoing, the Building's operating costs shall not include the following: (i) Any costs or expenses for which Landlord is reimbursed or indemnified (whether by an insurer, condemnor, tenant or otherwise); (ii) Overhead and administrative costs of Landlord not directly incurred in the operation and maintenance of the Building; (iii) Depreciation or amortization of the Building or its contents or components; (iv) Capital expenditures, except those incurred for the reduction of operating costs; (v) Expenses for the preparation of space or other work which Landlord performs for any tenant or prospective tenant of the Building; (vi) Expenses for repairs or other work which is caused by fire, windstorm, casualty or any other insurable occurrence, except costs subject to Landlord's insurance deductible; (vii) Expenses incurred in leasing or obtaining new tenants or retaining existing tenants, including leasing commissions, legal expenses, advertising or promotion; 5 [illegible] --------- INITIALS (viii) Legal expenses incurred in enforcing the terms of any lease; (ix) Interest, amortization or other costs, including legal fees, associated with any mortgage, loan or refinancing of the Building or any common areas; (x) Expenses incurred for any necessary replacement of any item to the extent that it is covered under warranty; (xi) The cost of any item or service which Tenant separately reimburses Landlord or pays to third parties, or that Landlord provides selectively to one or more tenants of the Building, other than Tenant, whether or not Landlord is reimbursed by such other tenant(s). This category shall include the actual cost of any special electrical, heating, ventilation or air conditioning required by any tenant that exceeds normal building standards or is required during times other than the business hours stated in this Lease; (xii) Accounting and legal fees relating to the ownership, construction, leasing, sale or any litigation relating to the Building, or any common areas; (xiii) Any interest or penalty incurred due to the late payment of any operating costs; (xiv) The cost of correcting defects in the construction of the Building or any common areas; provided, however, that repairs resulting from ordinary wear and tear shall not be deemed to be defects; (xv) The initial cost of tools and small equipment used in the operation and maintenance of the Building, and any common areas which exceeds the cost of $1,000 per year in the aggregate; (xvi) The initial cost or the replacement cost of any permanent landscaping or the regular landscaping maintenance for any property other than the land upon which the Building is located, unless associated with fees or charges arising from or in connection with any governing association or the vested owners for the Building; (xvii) The cost of correcting any applicable building or fire code violation(s) or any other applicable law relating to the Building, or any common areas, or the cost of any penalty or fine incurred for noncompliance with the same; (xviii) Any costs incurred to test, survey, cleanup, contain, abate or remove any environmental or hazardous waste or materials, including asbestos containing materials from the Building or any common areas or to remedy any breach or violation of any environmental laws; (xix) Any personal property taxes of the Landlord for equipment or items not used directly in the operation or maintenance of the Building, nor connected therewith; (xx) All expenditures pertaining to administration of the Building or any common areas including payroll and payroll-related expenses associated with administrative and clerical personnel; general office expenditures; other administrative expenditures (including expenditures for travel, entertainment, dues, subscriptions, donations, data processing, errors and omissions insurance, automobile allowances, political donations and professional fees of any kind) unless specifically enumerated as the Building's operating costs; (xxi) Rentals and other related expenses, if any, incurred in leasing capital items; (xxii) Any costs or expenses for sculpture, paintings, or other works of art, including, costs incurred with respect to the purchase, ownership or leasing of such works of art; (xxiii) Contributions to operating costs reserves; (xxiv) The cost of overtime or other expense to Landlord in performing work expressly provided in this Lease to be borne at Landlord's expense; (xxv) All expenses directly resulting from the negligence or willful misconduct of the Landlord, its agents, servants or other employees; (xxvi) All bad debt loss, rent loss, or reserve for bad debt or rent loss; (xxvii) Any amount paid to an entity related to Landlord which exceeds the amount that would be paid for similar goods or services on an arms-length basis between unrelated parties; (xxviii) Salaries of employees above the grade of building superintendent, building manager or property manager; (xxix) The portion of employee expenses which reflects that portion of such employee's time which is not spent directly and solely in the operation of the property; (xxx) Business interruption insurance and rental value insurance; (xxxi) The operating expenses incurred by Landlord relative to retail stores, hotels and any specialty service in the Building or on the property, except to the extent that such uses share in the cost of operating expenses of the Building or property; and (xxxii) Property management fees exceeding five (5%) of gross revenues, provided that the Expense Stop shall include property management fees calculated at the same rate as the year for which the tenant is being assessed. On the first day of each month Tenant shall pay a monthly advance charge on account of Tenant's pro rata share of the Building's operating cost in excess of the Expense Stop. The amount of the monthly charge shall be established by Landlord and may be adjusted from time to time by Landlord to reflect Landlord's estimate of current and anticipated cost. Within 120 days after the end of each fiscal year as established for the Building by Landlord, Landlord shall provide to Tenant a reasonably detailed summary of the actual operating costs showing Tenant's actual share and the amount by which Tenant has overpaid or [ILLEGIBLE] ----------- initials 6 underpaid. Any overpayment shall be credited to Tenant's account. Any deficiency shall be payable within ten (10) days after receipt of the statement. In the alternative, Landlord may, at its option during all or part of the Lease Term, bill Tenant for its pro rata share of operating cost in excess of the Expense Stop, in arrears, based on actual costs as they are incurred, in which case Tenant shall pay the invoice within ten (10) days after receipt. (b) Tenant's Right to Audit. Tenant shall have the right, at its own cost and expense, to audit and/or inspect Landlord's records at the location of Landlord's financial records, not more that once in any Lease year, with respect to Operating Costs, Real Property Taxes and Utilities payable by Tenant under this Lease for any Lease year. Tenant shall give Landlord not less that thirty (30) days written notice of its intention to conduct any such audit. If such audit discloses that the amount paid by Tenant as operating costs for the Lease years under consideration has been overstated by more than three percent (3%), then, in addition to rebating to Tenant the overcharge, Landlord shall also reimburse Tenant for the reasonable costs incurred by Tenant in conducting the audit and/or inspection. (c) Tenant's pro rata share of the Building's operating cost shall be that proportion that the rentable area of the Premises bears to the total rentable area of all rentable area in the Building. The operating cost for the fiscal year in which this Lease commences or terminates shall be apportioned so that Tenant shall not be responsible for costs that relate to periods prior to or subsequent to the term of this Lease except any period of holding over. Rentable area shall be measured according to BOMA standards as approved July 31, 1980. (d) Tenant shall be solely responsible for the cost of any heating, ventilation or air conditioning provided to the Premises at Tenant's request outside of normal business hours, measured at an hourly rate reasonably established by Landlord and billed to Tenant from time to time by Landlord. Normal business hours for the Building are from 7:00 a.m. to 6:00 p.m. on Monday through Friday, and 8:00 a.m. to 12:00 p.m. on Saturday, excluding holidays. "Excess Consumption" means the consumption of electrical current, heat or cooling in excess of that which would be provided to the Premises other than during the foregoing business hours. If Tenant shall require water, heating, cooling, air or electric current which will result in Excess Consumption, Tenant shall first procure the consent of Landlord to the use thereof, and Landlord may cause separate meters to be installed to measure Excess Consumption or establish another basis for determining the amount of Excess Consumption. Tenant covenants and agrees to pay for the cost of the Excess Consumption based on Landlord's actual cost, plus any additional expense incurred in installing meters or keeping account of the Excess Consumption, at the same time as payment of the Base Rent is made. Tenant further agrees to pay Landlord the cost, if any, to upgrade existing mechanical, electrical, plumbing and air facilities, if required to provide Excess Consumption, upon receipt of a statement therefor. Excess Consumption costs will not be an Operating Cost for purposes of Article 7. 8. CONSTRUCTION, DELIVERY, AND CONDITION (a) If delivery of possession of the Premises to Tenant is delayed beyond the anticipated Commencement Date because of a delay in the completion of construction of the Premises by Landlord or because of a failure of an existing tenant to surrender possession of the Premises to Landlord, then this Lease shall remain in full force and effect, Landlord shall not be liable to Tenant for any damage occasioned by delay, and the Commencement Date shall be changed to the date actual delivery of possession to Tenant is effected. Notwithstanding the foregoing, if delivery of possession is delayed more than sixty (60) days after the anticipated Commencement Date as set forth in Article 1(a), Tenant, by written notice to Landlord, may terminate this Lease prior to taking possession, and upon such termination any security deposit shall be refunded and both Landlord and Tenant shall be released of all further obligation. (b) Landlord shall construct improvements in the Premises in accordance with the plans and specifications attached as or identified in EXHIBIT "C". If no EXHIBIT "C" is attached, Tenant accepts the Premises AS IS. Landlord has no obligation to design or construct improvements or to make alterations in the Premises except as specifically set forth in EXHIBIT "C". Tenant shall pay to Landlord upon the Delivery Date the amount by which the cost of the work performed by Landlord exceeds $10.00 per usable square foot (the "TENANT IMPROVEMENT ALLOWANCE"), and shall pay, in addition, for any increases in costs resulting from changes in the approved plans and specifications made at Tenant's request, provided Tenant has approved in advance of such cost increases. The cost of the work performed shall include all aspects of the improvements, including but not limited to, all architectural (including space planning), engineering, and permit fees, corridor and directory signage, actual construction labor and materials, contractors general conditions, overhead and profit, and Landlord's prestocked materials. Tenant shall make said payment, if any, to Landlord within ten (10) business days after receipt of Landlord's invoice for said payment. Any changes in the approved plans and specifications shall be subject to approval by both Landlord and Tenant. 7 [ILLEGIBLE] ----------- INITIALS Any defects in construction performed by Landlord shall automatically be waived unless specified in a written punchlist delivered to Landlord within ten (10) days after Tenant takes possession. Landlord shall promptly correct all defects set forth in the punchlist. (c) Moving Allowance. If there remains any unused Tenant Improvement Allowance up to $20,000, Tenant may use such amount for relocation costs. Landlord will reimburse Tenant for its out-of-pocket relocation costs within thirty (30) days after the Commencement Date and copies of paid receipts provided to Landlord. (d) 7th Floor Elevator Lobby and Common Corridors. On or before the Commencement Date, Landlord will, at its sole cost and expense, replace the 7th Floor elevator lobby and common corridor carpet and wallcovering with building standard finishes and repaint the painted portions of the 7th Floor elevator lobby and common corridor ceiling. 9. REPAIR AND MAINTENANCE (a) Tenant shall maintain the interior of the Premises in good condition and repair except that Landlord shall provide normal janitorial service five nights per week. If Tenant does not perform necessary repairs and maintenance, Landlord may, but need not, make necessary repairs and replacements, and Tenant shall pay Landlord the cost upon demand. (b) Subject to the provisions of Article 7, Landlord shall repair and maintain the common facilities, all building systems (electrical, heating, ventilation, air conditioning and plumbing), plate glass, and the roof, exterior and structural elements of the Building, and shall provide normal janitorial services. Landlord shall not be responsible to make any repairs or perform any maintenance unless written notice of the need for such repairs or maintenance is given by Tenant. In the event that any repair that is Landlord's obligation is not performed by Landlord as soon as possible but in all events within ten (10) days of written notice from Tenant, then Tenant may perform such repair at Landlord's cost and Landlord shall reimburse Tenant for such cost within thirty (30) days after receipt of a paid invoice from Tenant. Except in the case of a fire or casualty as provided in Article 13, there shall be no abatement of rent and no liability of Landlord by reason of any entry to the Premises, interruption of services or facilities, temporary closure of common facilities, or interference with Tenant's business arising from the making of any repairs or maintenance. Landlord shall not be liable for damages or otherwise in the event of any failure or interruption of any utility or service supplied to the Premises or Building by a regulated utility or municipality and no such failure shall entitle Tenant to terminate this Lease. Tenant shall be entitled to a prorata abatement of rent resulting from an interruption of utility or service supplied to the Premises or Building that is within Landlord's control if and only if Tenant is unable to conduct its business in the Premises or any applicable portion thereof for a period of more than five (5) consecutive days after notice has been given to Landlord of such interruption; Tenant shall not be entitled to any abatement for interruption of utility or service resulting from force majeure events. 10. ALTERATIONS AND PERSONAL PROPERTY Tenant shall not make or suffer to be made any alterations, additions or improvements to the Premises, which require a building permit, including signs, without the prior written consent of Landlord, which shall not unreasonably be withheld. Landlord may reasonably condition its consent upon provision of a payment bond, in amount and form reasonably satisfactory to Landlord, covering the work to be done by Tenant's contractor. Except at expressly provided herein, any alterations, additions or improvements to the Premises, including signs, but not including movable furniture and trade fixtures, shall upon installation become a part of the realty and belong to Landlord. Tenant shall not install any antenna, satellite dish or other fixture or equipment on the roof or in the common facilities, except as provided in Article 22 herein. In the event Landlord consents to the making of any alterations, additions or improvements to the Premises by Tenant, they shall be made by Tenant at Tenant's sole cost and expense and any contractor or person selected by Tenant to perform the work must first be approved in writing by Landlord, which approval shall not be unreasonably withheld. Tenant shall not permit any mechanic's or materialmen's lien to stand against the Premises for any labor or materials provided to the Premises by any contractor or other person hired or retained by Tenant. Tenant shall cause any such lien to be discharged (by bonding or otherwise) within ten (10) days after demand by Landlord, and if it is not discharged within ten (10) days, Landlord may pay or otherwise discharge the lien and immediately recover all amounts so expended from Tenant as additional rent. Upon the expiration or sooner termination of the term of this Lease or of Tenant's right to possession, Tenant shall remove all of its movable furniture and trade fixtures, and, if requested by Landlord, at Tenant's sole cost and expense, forthwith remove any alterations, additions or improvements made by Tenant which are designated by Landlord to be removed at such time as they are approved by Landlord. [ILLEGIBLE] ----------- INITIALS 8 Tenant shall, forthwith at its sole cost and expense, repair any damage to the Premises caused by such removal and restore the Premises to a condition reasonably comparable to their condition at the commencement of the Lease. Notwithstanding any provision to the contrary in this Lease, Tenant will, at its sole cost and expense, remove the UPS system and phone switch upon the expiration or sooner termination of this Lease, and repair any damage to the Premises caused by such removal. 11. CERTAIN RIGHTS RESERVED BY LANDLORD Landlord shall have the right: (i) To change the Building's name or street address, provided that it is not changed to the name of any other airline company which conducts the same or substantially the same business as being conducted by Tenant from the Premises and Landlord reimburses Tenant for its reasonable actual out-of-pocket costs resulting from any such change; (ii) Upon reasonable prior telephonic or personal notice to Tenant, except in the case of an emergency, to enter the Premises either personally or by designated representative at all reasonable times for the purpose of examining or inspecting the same, and showing the same to prospective purchasers; or during the last twelve (12) months of the Lease Term, to exhibit the Premises to prospective lessees. Landlord may not enter the System Dispatch Area, see Exhibit B, without being accompanied by a Tenant representative, except in the case of an emergency; (iii) To grant to anyone the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to exclude Tenant from the use expressly permitted under Article 4. 12. DAMAGE TO PROPERTY; INJURY TO PERSONS; INSURANCE (a) Tenant shall defend, indemnify and hold Landlord harmless from any and all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work, or thing done, permitted or suffered by Tenant in the Premises except to the extent caused by Landlord, its agents, employees or contractors. Tenant shall further defend, indemnify and hold Landlord harmless from any and all claims arising from any breach or default in the performance of this Lease by Tenant, or arising from any act or negligence of Tenant, or of its agents or employees, and from all costs, attorneys' fees, expenses and liabilities incurred as a result of any such claim. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons, in, upon, or about the Premises from any cause, except to the extent caused by Landlord, its agents, employees or contractors, and Tenant hereby waives all claims in respect thereof against Landlord, unless caused by Landlord, its agents, employees or contractors. Landlord shall not be liable for loss of or damage to any property by theft or otherwise, or for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of any building or from the pipes, appliances or plumbing works therein, or from the roof, street or subsurface, or from any other place resulting from dampness or any other cause whatsoever unless Landlord was negligent. Landlord shall not be liable for interference with the natural light. Tenant shall give immediate notice to Landlord of any fire, accident or defect discovered with the Premises. (b) Tenant shall maintain fire and extended coverage insurance throughout the term of this Lease in an amount equal to one hundred percent of the replacement value of Tenant's fixtures, equipment and other personal property located on the Premises together with such other commercially reasonable insurance as may be required by Landlord's lender or by any government agency. All proceeds of Tenant's policy of fire and extended coverage insurance shall be payable to Tenant, and all proceeds of policies of insurance procured by Landlord shall be payable to Landlord. Tenant hereby waives any right to recovery from Landlord and Landlord hereby waives any right of recovery from Tenant for any loss or damage (including consequential loss) resulting from any of the perils insured against in the standard form fire insurance policy with extended coverage endorsement. During the term of this Lease, the Tenant shall, at Tenant's expense, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Premises or in the common areas. The limitation of liability of such insurance shall be not less than One Million Dollars in respect to injury or death of one person and to the limit of not less than One Million Dollars in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars in respect to property damage. All of Tenant's policies of liability insurance shall name Landlord as an additional insured, and all policies of insurance or copies thereof required to be carried by Tenant under this Article 12 shall be delivered to Landlord prior to the Commencement Date and thereafter at least thirty days prior to the expiration of the then current policies. [ILLEGIBLE] ----------- initials 9 Each policy shall contain an endorsement prohibiting cancellation or non-renewal without at least 30 days prior notice to Landlord. 13. FIRE AND CASUALTY If the Premises are wholly or partially destroyed or damaged by fire or other casualty, Landlord shall restore the Premises with reasonable diligence; provided, however, that Landlord shall have no obligation to restore improvements not originally provided by Landlord or to replace any of Tenant's fixtures, furnishings, equipment or personal property. Tenant shall promptly replace and restore all of Tenant's fixtures, furnishings and equipment damaged or destroyed by the casualty. Landlord need not commence repairs until insurance proceeds are available. Proceeds of insurance payable with respect to a fire or other casualty shall be received and held by Landlord. In the event all of the Premises are destroyed or damaged by any fire or casualty and in Landlord's reasonable estimation restoration will require more than ninety days, then either Landlord or Tenant shall have the option to terminate this Lease by giving notice to the other. If a fire or casualty occurs within the last three years of the Lease Term (as extended by any renewal or extension options which have been exercised), or if any portion of the Building other than the Premises is damaged or destroyed by fire or casualty and restoration is expected to require in excess of 45 days, then Landlord may by written notice to Tenant terminate this Lease, provided that Landlord terminates the leases of all other similarly affected tenants. In any case, Landlord shall retain all insurance proceeds paid under Landlord's insurance policies and Tenant shall retain all insurance proceeds paid under Tenant's insurance policies. If this Lease is not terminated as provided above, this Lease shall continue in full force and effect, but rent shall abate until the restoration is substantially complete. The provisions of this Lease shall govern when this Lease shall be terminable as a result of a fire or casualty, and no other rule or statue on the subject shall apply. 14. CONDEMNATION In the event any portion of this Building shall be appropriated or taken under the power of eminent domain, this Lease shall terminate and expire as of the date Tenant is required to vacate the Premises, or, if no portion of the Premises is taken, as of the date designated in a notice from Landlord establishing the date of closure of the Building, provided that Landlord terminates the leases of all other similarly affected tenants. If any portion of the common facilities, excluding the Building, is appropriated or taken under the power of eminent domain, this Lease shall not terminate. All awards or compensation for any taking of any part of the Premises or the Building or common facilities, whether payable to Landlord or Tenant, shall be the sole property of Landlord. Notwithstanding anything to the contrary in this Article, Tenant shall be entitled to receive any portion of an award of compensation relating to damage to or loss of trade fixtures or other personal property belonging to Tenant, and Landlord shall be under no obligation to restore or replace any of Tenant's furnishings, fixtures, equipment and personal property not included in the tenant improvements. For the purposes of this Article 14, a voluntary sale or conveyance in lieu of condemnation shall be deemed an appropriation or a taking under the power of eminent domain. 15. ASSIGNMENT and SUBLETTING; SALE BY LANDLORD (a) Tenant shall not, either voluntarily or by operation of law, assign, hypothecate or transfer this Lease, or sublet the Premises or any part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees, without the Landlord's prior written consent, which shall not be unreasonably withheld. Landlord shall be under no obligation to give or withhold consent until all information reasonably required by Landlord has been provided. No hypothecation, assignment, sublease or other transfer to which Landlord has consented shall be effective for any purpose until such time as fully executed documents of such transaction have been provided to Landlord, and, in the case of an assignment, the assignee has attorned directly to Landlord, and in the case of a sublease, the sublessee has acknowledged that the sublease is subject to all of the terms and conditions of this Lease. Any assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article 15 shall be voidable and shall, at the option of Landlord, terminate this Lease. The consent by Landlord to an assignment or subletting shall not relieve Tenant from obtaining the express written consent of Landlord to any further assignment or subletting or release Tenant from any liability or obligation, whether or not then accrued. Except as provided in this Article, this Lease shall be binding upon and inure to the benefits of the successors and assigns of the parties. Affiliate. Landlord's consent shall not be required with respect to (i) any assignment resulting from a consolidation, merger or purchase of substantially all of Tenant's assets, (ii) any assignment or sublease to a person who wholly owns Tenant or who wholly owns the person who wholly owns Tenant (either of which shall be referred to as a "Parent"), or to a person who is wholly owned by Tenant or a Parent, or is wholly owned by a person who is wholly owned by Tenant or a Parent, of (iii) any firm which acquires, is acquired by, or merges with, Tenant. Tenant, however, shall notify Landlord of [Illegible] Initials 10 such assignment or sublease within ten (10) days of entering into the agreement with the Affiliate. Recapture Right. Landlord shall have rights to recapture the Premises in the event of a sublease of the entire Premises, or to terminate the Lease in the event of an assignment by Tenant, which is not in compliance with the assignment and subletting provisions of the Lease. (b) In the event of a sale or conveyance by Landlord of the Premises, Landlord shall be relieved of all future liability upon any of the covenants or conditions, express or implied, in favor of Tenant, and Tenant shall to look solely to Landlord's successor in interest provided Landlord's successor in interest assumes the Lease. This Lease shall not be affected by any sale, and Tenant shall attorn to the successor in interest. If any security deposit has been made by Tenant, the successor in interest shall be obligated to return it in accordance with the terms hereof and Landlord shall be discharged from any further liability in reference thereto. 16. ESTOPPEL CERTIFICATE (a) Either party shall at any time and from time to time upon not less then fifteen (15) days prior written notice from the other party execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance, if any; (ii) acknowledging that there are not, to such parties knowledge, any uncured defaults on the part of the requesting party hereunder, or specifying such defaults if they are claimed; and (iii) certifying such other matters relating to this Lease as the requesting party may reasonably request. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. (b) Tenant's failure to deliver a statement within the time prescribed shall constitute a material default by Tenant under this Lease and shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rental has been paid in advance. 17. LANDLORD'S REMEDIES (a) Only the following shall constitute Events of Default by Tenant: (i) Tenant's failure to pay rent or any other amount due under this Lease within ten (10) days after notice of nonpayment. Notwithstanding anything to the contrary contained herein, Landlord shall only give Tenant notice of non-payment and ten (10) days from receipt of such notice to cure such non-payment once in any twelve (12) month period before assessing any late fees and/or interest. (ii) Tenant's failure to execute, acknowledge and return an estoppel certificate under Article 16 or a subordination agreement under Article 19, within fifteen (15) days after request. (iii) Tenant's failure to comply with the insurance provisions under this Lease within fifteen (15) days after written notice. (iv) Tenant's failure to perform any other obligation under this Lease within thirty (30) days after notice of nonperformance; provided, however, that if the breach is of such a nature that it cannot be cured within thirty (30) days, Tenant shall be deemed to have cured if cure is commenced promptly and diligently pursued to completion; and provided further, that in the event of a breach involving an imminent threat to health or safety, Landlord may in its notice of breach reduce the period for cure to such shorter period as may be reasonable under the circumstances. (v) Tenant abandons the Premises except temporary absence excused by reason of fire, casualty, or other cause wholly beyond Tenant's control. (b) Upon the occurrence of an Event of Default, Landlord, at any time thereafter without further notice or demand may exercise any one or more of the following remedies concurrently or in succession: (i) Terminate Tenant's right to possession of the Premises by legal process or otherwise, with or without terminating this Lease, and retake exclusive possession of the Premises. (ii) From time to time relet all or portions of the Premises, using reasonable efforts to [ILLEGIBLE] INITIALS 11 mitigate Landlord's damages. In connection with any reletting, Landlord may relet for a period extending beyond the term of this Lease and may make alterations or improvements to the Premises without releasing Tenant of any liability. Upon a reletting of all or substantially all of the Premises, Landlord shall be entitled to recover all of its then prospective damages for the balance of the Lease Term measured by the difference between amounts payable under this Lease and the anticipated net proceeds of reletting. In no event shall Tenant be entitled to receive any amount representing the excess of avails of reletting over amounts payable hereunder. (iii) From time to time recover accrued and unpaid rent and damages arising from Tenant's breach of the Lease, regardless of whether the Lease has been terminated, together with applicable late charges and interest at the Default Rate. (iv) Recover all attorneys' fees and other costs and expenses incurred by Landlord in connection with enforcing this Lease, recovering possession, reletting the Premises or collecting amounts owed. (v) Perform the obligation on Tenant's behalf and recover from Tenant, upon demand, the entire amount expended by Landlord plus 10% for special handling, supervision, and overhead. (vi) Pursue other remedies available at law or in equity. (c) Upon a termination of Tenant's right to possession, whether or not this Lease is terminated, subtenancies and other rights of persons claiming under or through Tenant: (i) shall be terminated or (ii) Tenant's interest shall be assigned to Landlord. Landlord may separately elect termination or assignment with respect to each such subtenancy or other matter. 18. NOTICES All notices, requests, authorizations, approvals, consents and other such communications shall be in writing and shall be delivered in person, by private express overnight delivery service (freight prepaid), by certified or registered mail, return receipt requested, or by facsimile transmission (confirmed by the recipient), addressed as follows: To Landlord: c/o DMB Associates, Inc. 410 North 44th Street, Suite 250 Phoenix, Arizona 85008 (602) 244-0569 (fax) (602) 244-0500 To Tenant: 2325 East 30th Street Farmington, New Mexico 87401 Attn: Gene Hansen (505) 326-4485 (fax) (505) 326-4478 Notices shall be deemed to be given or received on the date of actual receipt (or refusal of delivery) at the applicable above-stated address or at such other address as a party may direct from time to time, upon written notice to the other party at least ten (10) days prior to the proposed change of address. Actual notice shall be no substitute for written notice under any provision of this Lease. 19. SUBORDINATION Landlord expressly reserves the right at any time to place liens and encumbrances on and against the Premises and the Building, superior in lien and effect to this Lease and the estate created hereby, and Tenant shall attorn to the purchaser of the Building under any trustee's, sheriff's or foreclosure sale. The subordination of this Lease shall be self-operative without the necessity of a written instrument. Tenant shall nevertheless execute within ten (10) days after request a subordination and attornment agreement on the form customarily used by the holder of the lien or encumbrance which subordinates this Lease to the lien or encumbrance, which provides that the holder will recognize Tenant's rights under this Lease, notwithstanding any foreclosure of the lien or encumbrance, and which requires Tenant to attorn to the purchaser as provided above. Notwithstanding anything to the contrary contained in this Lease, any subordination of Tenant's leasehold interest pursuant to the terms of this Article 19 shall be conditioned upon Tenant's receipt of a written non-disturbance agreement from any ground lessor, mortgagee, trust deed holder, or other third 12 [illegible] --------- INITIALS party, to the effect that Tenant's rights hereunder shall not be disturbed so long as Tenant is not in default beyond any applicable cure period under this Lease. 20. GENERAL PROVISIONS (a) This Lease and the obligations of one party hereto shall not be affected or impaired because the other party hereto is unable to fulfill any of its obligations or is delayed in doing so if such inability or delay is caused by reason of any strike, lockout, civil commotion, war-like operations, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service or financing, Act of God or other cause beyond the control of the Landlord or Tenant. (b) Tenant and its officers, agents, employees, and customers shall comply with the rules and regulations, as shown on EXHIBIT "D", established by Landlord and with such modifications and additions as Landlord may hereafter make for the Building; provided, however, that rules and regulations shall not materially abrogate any right or privilege expressly granted to Tenant. Any violation of the rules and regulations shall constitute a breach of this Lease, provided Landlord has given Tenant notice of such violation and the applicable cure period provided under Article 17 has expired. (c) The article captions contained in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision. (d) This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. (e) Submission of this instrument for examination shall not bind Landlord in any manner, and no Lease or obligations of Landlord shall arise until this instrument is signed and delivered by Landlord and Tenant. (f) No rights to light or air over any property, whether belonging to Landlord or any other persons, are granted to Tenant by this Lease. (g) No waiver by Landlord of any provision of this Lease or any breach by Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by Tenant of the same or any other provision. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant, whether or not similar to the act so consented to or approved. No act or thing done by Landlord or Landlord's agent during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. (h) Time is of the essence of this Lease. 21. SIGNAGE a) Suite Entry and Lobby Directory. Landlord will provide, and deduct the cost from the Tenant Improvement Allowance, building standard suite signage for Tenant and its proportionate share of alphabetical listings on the main lobby directory. b) Exterior Sign. Tenant may install its name, at its expense, in one (1) location to be designated by Landlord on the existing monument sign at the exterior of the Building. Tenant's signs shall be and remain the property of Tenant and Tenant shall remove such signs at the expiration of the Lease or any extended terms thereof at Tenant's sole cost and expense, which shall include Landlord's cost to repair any material damage caused by such removal. Tenant shall be solely responsible for repairing any damage to its sign unless such damage is caused by Landlord or its employees or contractors. Tenant's sign shall comply with all governmental and quasi-governmental laws, rules, regulations, codes, ordinances, and the like respecting such signage, and shall conform to Landlord's standards for tenant signs on monument signs at the Building. All signs visible from outside the Premises shall be subject to the building standard sign criteria and shall conform with local ordinances and codes. Tenant's exterior signage rights shall not be transferable in the event of a sublease or assignment. 13 [illegible] --------- INITIALS Notwithstanding anything to the contrary herein, if the area of the Premises is increased to at least 35,000 rentable square feet, Tenant shall have the right to erect a separate monument sign for its exclusive use at the exterior of the Building in a location to be approved by Landlord and subject to the terms of this Article 21(b). Tenant's signage right for such separate monument sign shall be surrendered if the area of the Premises is reduced to less than 35,000 rentable square feet. 22. SATELLITE DISH During the term of this Lease, Tenant, at its expense, but without payment of any rent or license fee to Landlord, shall have the right, subject to all applicable governmental regulations and Landlord's prior written approval, which shall not be unreasonably withheld or delayed, to place, maintain, repair and replace on the roof of the Building, in a location and manner of installation to be approved by Landlord, which approval shall not be unreasonably withheld, satellite or microwave dishes, in connection with Tenant's telecommunications and data transmissions network, and to connect the same to the Premises. Tenant shall indemnify and hold Landlord harmless for, from and against any and all costs, damages, liability, or expense (including court costs and reasonable attorney's fees) in connection with the installation, operation and removal of Tenant's satellite dish including, without limitation, any damage to the roof or other portions of the Building and any damage or injury to the person or property of tenants, visitors or other third parties. Such satellite dish installed by Tenant shall remain Tenant's property and shall be removed at or prior to the end of the term of this Lease, at the sole expense of Tenant. If Tenant fails to do so within fifteen (15) days after the termination of this Lease, Landlord may, but shall not be obligated to, perform such removal and restoration at the sole expense of Tenant or Landlord may, at Landlord's option, deem any such satellite dish to be abandoned. Tenant's satellite dish shall not interfere with the proper functioning of any presently existing or any future telecommunications equipment on the roof that is owned or will be owned by others at the time of installation or modification (if applicable). 23. GENERATOR Tenant shall have the right to install and maintain, at its sole cost and expense, a generator on the grounds of the property, in a location to be determined by Landlord, with no additional rental costs. LANDLORD: ADDRESS: DMB PROPERTY VENTURES LIMITED 4201 N. 24th Street, Suite 120 PARTNERSHIP, a Delaware limited Phoenix, Arizona 85016 partnership By: DMB G.P., an Arizona corporation By: /s/ James C. Hoselton -------------------------------- James C. Hoselton Its: Vice President TENANT: ADDRESS: MESA AIR GROUP, INC. 2325 East 30th Street a Nevada corporation Farmington, New Mexico 87401 By: /s/ Jonathan Ornstein -------------------------------- Its: CEO --------------------------------

14 EXHIBIT "A" DESCRIPTION OF REAL PROPERTY Lot 5, PHOENIX GATEWAY AMENDED, according to Book 322 of Maps, Page 18, records of Maricopa County, Arizona. 15 EXHIBIT "B" PREMISES [MESA AIR GROUP 7TH FLOOR DIAGRAM] 16 EXHIBIT "C" TENANT IMPROVEMENTS [PHOENIX GATEWAY CENTER 7TH FLOOR DIAGRAM] 17 EXHIBIT "D" BUILDING RULES AND REGULATIONS 1. No sign, placard, picture, advertisement, name or notice of any kind shall be inscribed, displayed, printed or affixed on or to any part of the outside or inside of the Building, the Premises or the surrounding area without the prior written consent of Landlord. If such consent is given by Landlord, Landlord may regulate the manner of display of the sign, placard, picture, advertisement, name or notice. Landlord shall have the right to remove any such item which has not been approved by Landlord or is being displayed in a non-approved manner without notice to and at the expense of Tenant. Without the written consent of Landlord, Tenant shall not use pictures of the Building in connection with or in promoting or advertising the business of Tenant, except as Tenant's address, without written permission from the Landlord. 2. The directory for the Building will be provided exclusively for the display of the name and location of the Tenants only. Landlord reserves the right to exclude any other names therefrom and to charge a reasonable fee for each name other than Tenant's name, placed upon such directory at the request of Tenant. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant, unless otherwise arranged, by a person approved by Landlord. 3. The sidewalks, parking areas, halls, passageways, exits, entrances, elevators, toilets and stairways shall not be obstructed by Tenant, its customers, invitees, licensees and guests, and (except for toilets) shall not be used for any purpose other than for ingress to and egress from the Premises. Tenant shall not throw or allow anyone else to throw anything out of doors or down the passageways. Tenant shall not place anything or allow anything to be placed near any window or any glass door, partition or wall which may appear unsightly, in Landlords sole discretion. 4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from a violation of this rule shall be borne by the Tenant who, or whose agents, employees or invitees, shall have caused the same. 5. Tenant shall not lay linoleum, tile carpet or other similar floor coverings in any manner except as approved by Landlord. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by Tenant. All interior window coverings must be approved by Landlord and Tenant may not remove or replace existing blinds. Tenant shall not overload the floor of the Premises, shall not mark on or drive nails, drill or screw into the partitions, woodwork or plaster (except as may be incidental to the hanging of wall decorations) or in any way deface the Premises or any part thereof. Tenant shall not allow the installation of telephone wires or electrical wires or circuits, except with Landlords prior approval. The installation of telephones and other office equipment affixed to the Premises shall be installed at the expense of Tenant. 6. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as shall be necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at the expense of Tenant. There shall not be used in the Premises or the Building any hand trucks except those equipped with rubber tires and side guards, and should only be used in appropriate areas. 7. Tenant shall not employ any person or persons, other than the janitor of the Landlord, for the purpose of cleaning the Premises unless otherwise agreed to by Landlord. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness. Landlord shall in no way be responsible to Tenant for any theft or loss of property on the Premises, however occurring, or for any damage done to the effects of Tenant, by or as a result of the acts of the janitor, any other employee or contractor of Landlord, or any other person. Landlord's janitor service shall only include ordinary dusting, housekeeping and cleaning by the janitor assigned to such work and shall not include moving furniture or other special services. Window cleaning shall be done only by landlord at intervals it deems appropriate. Employees or agents of Landlord shall not be requested to perform any work or do anything outside of their regular duties unless under special instructions from Landlord. 8. No bicycles, skateboards or similar vehicles, animals or birds shall be brought in or kept in or about the Premises of the Building. No cooking shall be done or permitted by Tenant in the Premises, 18 [illegible] --------- INITIALS except preparation with the use of a microwave oven and the preparation of coffee, tea, hot chocolate and similar items for Tenant, its employees, clients and guests will be permitted with the approval of Landlord, which approval will not be unreasonably withheld. 9. Tenants shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent the same. Tenant shall not exhibit, sell, or offer to sell, use rent or exchange any item or service in or from the Premises unless ordinarily embraced within Tenant's use of the Premises specified in the Lease. Peddlers, solicitors and beggars shall be reported to the Landlord. No Tenant shall make or permit to be made any disturbing noises or disturb or interfere with occupants, or with those having business with such occupants of the Building, by the use of any musical instrument, radio phonograph, electronic device, or other devices. 10. Tenant shall not use or keep in the Building any noxious gas or combustible fluid or use any method of heating or air conditioning other than that supplied by Landlord, nor install or operate machinery, equipment or any mechanical or electrical device of a nature not directly related to Tenant's ordinary use of the Premises, by reason of safety, odors and/or vibrations, or interfere in any way with other Tenants or occupants conducting business in the Building. Tenant Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises for general office purposes. Tenant shall not conduct any auction or permit any fire sale or bankruptcy sale to be held on the Premises. Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a public stenographer or typist or for the manufacture or sale of liquor, narcotics or tobacco in any form as a medical office, barber shop, manicure shop or as an employment bureau, except with prior written consent of Landlord. The Premises shall not be used for lodging or sleeping or for illegal purposes. 11. All keys and access cards to the Building, offices and rooms shall be obtained from Landlord. All duplicate keys needed by Tenant shall be requested from Landlord, who shall provide such keys at reasonable charge. Tenant, upon termination of its tenancy, shall deliver to Landlord the keys and access cards to the Building, offices, and rooms which shall have been furnished. Tenant shall not alter or replace any lock or install any additional locks or any bolts on any door of the Premises without the written consent of Landlord. 12. Tenant assumes full responsibility for protecting, at all times, the Premises and all personal effects of Tenant, its employees, agents and invitees from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secured, and Landlord shall have no liability with respect thereto. Tenant shall see that the doors of the Premises are closed and securely locked before leaving the Building and that all water faucets, water apparatus, and electrical items are shut off before Tenant or Tenant's employees leave the building. Tenant shall be responsible for any damage to the Building or to other Tenants caused by a failure to comply with this rule. 13. On Sundays and legal holidays, and on other days during certain hours for which the Building may be closed before or after Normal Business Hours, access to the Building may be controlled through the use of security personnel and/or security devises. Such personnel will have the right to demand of any and all persons seeking access to the Building proper identification to determine if they have the right of access to the Premises. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of bomb threats, invasion, mob, riot, public excitement or other condition, Landlord reserves the right to prevent access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of all lessees and protection of the Building and property located therein. The foregoing notwithstanding, Landlord shall have no duty to provide security protection for the Building at any time or to monitor access thereto. 14. The halls, passages, exits, entrances, parking areas, elevators, stairways, toilets and roof are not the use of the general public and the Landlord shall in all cases retain the right to control the same and prevent access thereto by all persons whose presence in the judgement of the Landlord shall be prejudicial to the safety, character, reputation and interests of the Project to its Tenants. Landlord reserves the right to exclude or expel from the Building any person who, in the judgement of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 15. Tenant shall not park in driveways or loading areas or in visitor spaces or reserved parking spaces of other Tenants. Landlord or its agents shall have the right to cause to be removed any car of Tenant, its employees, agents, contractors, customers and invitees that may be parked in unauthorized areas, and Tenant agrees to save and hold harmless Landlord, its agents and employees from any and all claims, losses, damages and demands, arising or asserted in connection with the removal of any such vehicle and for all expenses (including reasonable attorneys' fees and costs) incurred by Landlord in connection with such 19 [illegible] ----------- INITIALS removal. 16. Tenant agrees that it shall comply with all fire regulations that may be issued from time to time by Landlord or the City of Phoenix Fire Department. Tenant shall not waste electricity or water and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning equipment. Tenant shall give prompt notice to Landlord, or its designee, of any injury to or defects in plumbing, electrical fixtures, heating apparatus and/or air conditioning equipment so that the same may be attended to properly. 17. The building has been designated a "non-smoking" building. Employees with a private office may smoke or permit smoking within those areas if other employees, neighboring tenants or members of the public are not affected. Smoking is strictly prohibited in conference and meeting rooms, classrooms, restrooms, waiting areas, hallways, stairways and elevators. Any individual who refuses to refrain from smoking in an enclosed public area may be issued a citation by the Phoenix Police Department and assessed a fine of up to $100. 18. Landlord reserves the right to rescind, alter, waive, modify, add to, and amend any rule or regulation at any time prescribed for the Building when, in Landlord's judgement, it is necessary, desirable or proper for the best interest of the Building or one or more of its Tenants. 19. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain and comply with, Landlord's instructions for their installation. 20. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the passenger elevators. The service level loading dock and freight elevator shall be used for those purposes. 21. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 22. Tenant shall store all its trash and garbage within its Leased Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 23. By executing a copy of these Building Rules and Regulations, Tenant acknowledges and agrees that it has read and understands these Building Rules and Regulations and will fully comply with all of the terms and provisions contained herein. 20 EXHIBIT "E" EARLY ACCESS INDEMNITY AGREEMENT This Access Agreement (the "Agreement") is made and executed this day of October, 1998, by and between DMB PROPERTY VENTURES L.P., a Delaware limited partnership ("Grantor"), and Mesa Air Group, Inc., a Nevada corporation ("Grantee"). RECITALS: A. Grantor owns a certain building known as Three Gateway, 410 North 44th Street, Phoenix, Arizona (the "Building"). B. Grantor intends to lease space (the "Premises") in the Building to Grantee pursuant to a lease agreement between the parties (the "Lease"). C. Grantee wishes access to the Premises at least fourteen (14) days prior to the commencement of the term of the Lease in order to install Grantee's equipment, furnishings and trade fixtures, and Grantor is willing to allow Grantee early access to the Premises for such purpose, on the terms and conditions hereinafter set forth. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Grantor and Grantee hereby agree as follows: 1. Grant of Access. Grantor hereby grants to Grantee and its employees, agents, representatives, contractors, subcontractors, and invitees (the "Grantee's Related Parties") a right of access to and entry upon the Premises prior to the Commencement Date, solely for the purpose of installing Grantee's equipment, furnishings and trade fixtures (the "Work") and moving into and operating in the Premises or portions thereof, subject to the terms and conditions set forth below and in the Lease. 2. Obligations of Grantee. Grantee shall conduct the Work in a first-class workmanlike manner in accordance with all applicable laws, ordinances, rules and any other requirements of state, county or municipal authorities. Grantee shall not create, or cause to be created, any safety or other hazard or nuisance in the Premises, in the Building or in any common area associated with the Building. 3. Restoration Obligations. Subject to the terms of the Lease, Grantor may retain all or any portion of the improvements constructed in the Premises and Grantee shall forfeit all rights thereto without further action by Grantee; and subject to the terms of the Lease, to the extent that Grantor decides not to retain such improvements, Grantee shall promptly restore the Premises to its condition immediately prior to this Agreement. 4. Indemnification. Grantee shall indemnify and hold Grantor and its employees, agents, representatives, contractors, subcontractors, and invitees (the "Grantor's Related Parties") harmless for, from and against any and all damages, injuries, liabilities, losses, obligations, fines, costs, expenses, fees (including without limitation reasonable attorneys' fees), and any and all other sums of whatever nature and type resulting from any claims, mechanics' or materialmen's liens, encumbrances, demands, liens, assertions, charges, actions, suits or proceedings based upon, or arising out of the Work, except to the extent caused by the negligence or willful misconduct of Grantor or any of Grantor's Related Parties. The termination of this Agreement shall not affect or cancel the indemnification obligations of Grantee hereunder. 5. Insurance. Prior to exercising the rights granted hereunder, Grantee shall comply with the insurance requirements set forth in Article 12 of the Lease. 6. Termination. The rights and obligations hereunder are temporary and shall expire upon the Commencement Date of the Lease. DMB PROPERTY VENTURES LIMITED PARTNERSHIP, a Delaware limited partnership By DMB Associates, Inc., an Arizona corporation By /s/ James C. Hoselton ---------------------------------- James C. Hoselton Its Vice President ------------------------------- "GRANTOR" MESA AIR GROUP, INC., a Nevada corporation By /s/ Jonathan Ornstein ---------------------------------- Its CEO ------------------------------- "GRANTEE" 21 EXHIBIT "F" LETTER OF CREDIT Norwest Bank El Paso, National Association (Address) El Paso, TX (Zip) Date: October (Date), 1998 Beneficiary: DMB Property Ventures Limited Partnership 410 N. 44th St., Suite 250 Phoenix, AZ 85008 Applicant: Mesa Air Group, Inc. 410 N. 44th St., Suite 700 Phoenix, AZ 85008 Letter of Credit Agreement We open irrevocable standby letter of credit number ________ in the amount of $400,000.00 (Four hundred thousand dollars and no cents) In favor of yourselves Expires October 31, 2000 at our counters Available against drafts drawn at sight on Norwest Bank El Paso, National Association, El Paso, Texas bearing the clause "drawn under standby letter of credit number ________ of Norwest Bank El Paso, Texas, National Association" accompanied by the following documents: 1. Beneficiary's manually signed representation to (applicant's name) and Norwest Bank El Paso, National Association, written on beneficiary's letterhead reading exactly as follows: "I am an authorized representative of (beneficiary's name) hereby certify an event of default under that certain lease dated ________ between ________ and (applicant's name)." 2. This original letter of credit. Letter of credit may be presented at Norwest Bank Phoenix although payment will be made at the counters of Norwest Bank El Paso, National Association. This credit is subject to the Uniform Customs and practice for Documentary Credits (1993 Revision) International Chamber of Commerce publication No. 500. Unless otherwise stated, all documents are to be forwarded to us by mail, or hand delivered to our counters. Documents to be directed to: Norwest Bank El Paso, National Association, (Address), El Paso, Texas (Zip Code), Attn: International Product Services Division, Letters of Credit. We hereby engage with drawers and/or bona fide holders that drafts drawn and negotiated in strict conformity with the terms of this credit will be duly honored upon presentation. Norwest Bank El Paso, National Association _____________________ ______________________ Authorized Signature Authorized Signature 22 [ILLEGIBLE] ----------- INITIALS FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("Amendment") is made and entered into as of this 9th day of March, 1999, by and between DMB PROPERTY VENTURES LIMITED, PARTNERSHIP, a Delaware limited partnership ("Landlord"), and MESA AIR GROUP, INC., a Nevada corporation ("Tenant"). 1. RECITALS: 1.1 DMB Property Ventures Limited Partnership, a Delaware limited partnership ("Landlord"), and Mesa Air Group, Inc., a Nevada corporation ("Tenant"), entered into a Lease Agreement dated October 16, 1998, wherein Landlord leased to Tenant, and Tenant leased from Landlord, Suite #700 in Three Gateway, located at 410 North 44th Street, Phoenix, Arizona (the "Premises"). The Lease Agreement, as amended, is hereinafter referred to as the "Lease". 1.2 By this First Amendment, the parties desire to further amend the Lease on the terms and conditions hereinafter set forth. 1.3 All capitalized terms not defined herein shall have the same meaning as set forth in the Lease. NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, state, confirm and agree as follows: 2. AGREEMENT 2.1 The Commencement Date referenced in Article 1(a) of the Lease is hereby amended to read October 19, 1998. 2.2 Except as amended by this First Amendment, the Lease is hereby ratified and confirmed in its entirety. LANDLORD: ADDRESS: DMB PROPERTY VENTURES LIMITED 4201 N. 24th Street, Suite 120 PARTNERSHIP, a Delaware limited Phoenix, Arizona 85016 Partnership By: DMB G.P., an Arizona corporation By: /s/ James C. Hoselton ------------------------- James C. Hoselton Its: Vice President TENANT: ADDRESS: MESA AIR GROUP, INC. 410 North 44th Street #700 a Nevada corporation Phoenix, Arizona 85008 (602)685-4000 Phone By: /s/ Jonathan Ornstein (602)685-4350 Fax -------------------------- Jonathan Ornstein Its: CEO SECOND AMENDMENT TO LEASE ------------------------- THIS SECOND AMENDMENT TO LEASE ("SECOND AMENDMENT") is made and entered into as of this 8th day of November, 1999, by and between DMB PROPERTY VENTURES LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and MESA AIR GROUP, INC., a Nevada corporation ("TENANT"). 1. RECITALS -------- 1.1 Landlord and Tenant entered into a Lease Agreement Dated October 16, 1998, as amended by the First Amendment to Lease dated March 9, 1999, wherein Landlord leased to Tenant 21,003 rentable square feet of space known as Suite 700 on the 7th floor at 410 N. 44th Street, Phoenix, Arizona (the "PREMISES"). The Lease Agreement, as amended, is hereinafter referred to as the "LEASE". 1.2 By this Second Amendment, the parties desire to further amend the Lease by adding 3,116 rentable square feet to the definition of the Premises, known as Suite 175 ("SUITE 175") on the 1st floor, as further described on Exhibit "B-2" attached hereto, and by this reference incorporated herein, on the terms and conditions hereafter set forth. 1.3 Except as specifically defined in this Second Amendment, all capitalized items shall have the same meaning as set forth in the Lease. NOW, THEREFORE, the parties hereto, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, state, confirm, and agree as follows: 2. AGREEMENT --------- 2.1 The terms of this Second Amendment shall become effective on November 15, 1999. 2.2 The total rentable area of the Premises shall be increased by 3,116 rentable square feet. The total rentable area of the Premises is 24,119 rentable square feet. 2.3 The Base Rent referenced in Paragraph 2(a) of the Lease shall be amended to include the following: SUITE 175 - 3,116 RENTABLE SQUARE FEET -------------------------------------- 11/15/99 - 10/18/01 $68,552.04 ANNUALLY $5,712.67 MONTHLY 10/19/01 - 10/18/05 $77,900.00 ANNUALLY $6,491.67 MONTHLY 10/19/05 - 10/18/08 $84,132.00 ANNUALLY $7,011.00 MONTHLY 2.4 With respect to Suite 175, Tenant's Proportionate Share of Operating Costs, Real Property Taxes and Utilities referenced in Paragraph 7 of the Lease shall be as follows: Tenant's Proportionate Share: 1.44% of Building operating expenses. 2.5 With respect to Suite 175, the Expense Stop referenced in Paragraph 7 of the Lease shall be equivalent to the actual operating expenses incurred in the calendar year 1999. 2.6 Upon execution of this Second Amendment, Landlord will, at its sole cost and expense, shampoo the carpet, and repair and paint the holes in existing walls. 2.7 Article 6, Parking and Common Use Areas, of the Lease shall be amended to include the following: "With respect to Suite 175, Landlord will provide the following parking spaces for Tenant's use: SECOND AMENDMENT TO LEASE, PAGE 2 TO LEASE DATED OCTOBER 16, 1998 DMB PROPERTY VENTURES LIMITED PARTNERSHIP ("LANDLORD") MESA AIR GROUP, INC. ("TENANT") Three (3) covered reserved spaces free of charge for the Lease Term, Six (6) covered unreserved spaces free of charge until October 18, 2001, and at $30.00 per space per month beginning October 19, 2001, and Three (3) uncovered, unreserved spaces free of charge for the Lease Term." 2.8 Option to Terminate. Notwithstanding anything to the contrary in this Lease, and provided Tenant is not then in default, Tenant shall have the option to terminate this Lease with respect to Suite 175 only, at any time, by providing Landlord with six (6) months prior written notice of its election to do so, which notice shall be irrevocable. 2.9 As amended herein, all of the terms and conditions of the Lease are hereby ratified and confirmed in their entirety. IN WITNESS WHEREOF, the parties, have executed this Second Amendment as of the date first written above. DMB PROPERTY VENTURES LIMITED PARTNERSHIP, a Delaware limited partnership, By DMB G.P., an Arizona corporation By /s/ James C. Hoselton ----------------------------------------- James C. Hoselton Its Vice President --------------------------------- MESA AIR GROUP, INC. a Nevada corporation By /s/ Jonathan Ornstein ----------------------------------------- Jonathan Ornstein Its: CEO --------------------------------- 2 EXHIBIT "B-2" SUITE 175 PREMISES SUITE 175 3,116 RSF [FLOOR PLAN GRAPHIC] LEASE AMENDMENT THREE CMD 174B (8/98) (EXPANSION/NOT CO-TERMINOUS) THIS LEASE AMENDMENT THREE ("Amendment") is made and entered into as of the 7th day of November, 2000, by and between CMD REALTY INVESTMENT FUND IV, L.P., an Illinois limited partnership ("Landlord") and MESA AIR GROUP, INC., a Nevada corporation ("Tenant"). A. Landlord and Tenant are the current parties to that certain lease ("Original Lease") dated October 16, 1998, for premises (the "Premises") in the building (the "Building") known as Three Gateway, located at 410 N. 44th Street, Phoenix, Arizona (the "Property," as may be further described below), which lease has heretofore been amended or assigned by documents described and dated as follows: First Amendment to Lease dated March 9, 1999 and Second amendment to Lease dated November 8, 1999 (collectively, and as amended herein, the "Lease"). B. Tenant has requested that additional space in the Property be added to the Premises, and Landlord is willing to grant the same, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the parties do hereby agree as follows: 1. ADDITIONAL PREMISES; EARLY TERMINATION. The space known as Suite 230 (the "Additional Premises"), the approximate location of which is shown on Exhibit A hereto, and which shall be deemed to contain 1,191 square feet of rentable area for purposes hereof, shall be added to and become a part of the Premises, commencing on November 15, 2000 ("Additional Premises Commencement Date"), and continuing through September 30, 2001 ("Additional Premises Expiration Date"), subject to the terms and conditions set forth hereinafter. Either party shall have the option to terminate this Lease early, at any time after May 31, 2001, by providing the other party with at least thirty (30) days advance written notice of the effective early termination date ("Early Termination Date"), as though such date were the original expiration date set forth in this Lease (i.e., the earliest possible Early Termination Date would be June 1, 2001). Notwithstanding such early termination, Tenant shall timely pay all rentals and other charges under the Lease with respect to the Additional Premises, and shall comply with each and every term and provision hereof, accruing through the Early Termination Date (and all such obligations accruing through the Early Termination Date shall survive such termination, including, but not limited to, any rentals or other charges not yet determined or billed for such period with respect to the Additional Premises prior to the Early Termination Date). This early termination right is personal to Mesa Air Group, Inc. If Tenant shall sublease or assign the Lease with respect to all or any portion of the Premises, then immediately upon such sublease or assignment Tenant's termination right herein shall concurrently terminate and become null and void. Notwithstanding anything contained herein to the contrary, if Tenant leases additional space in the Property, whether pursuant to an expansion right contained in the Lease or otherwise, this option to terminate by Tenant shall thereupon be null and void. Tenant's option hereunder shall, at Landlord's election, terminate if Tenant is in violation of the Lease at the time Tenant seeks to exercise such option, or at any time thereafter and prior to the Early Termination Date. Tenant's exercise of such option shall not operate to cure any violation by Tenant of any of the terms or provisions in the Lease, nor to extinguish or impair any rights or remedies of Landlord arising by virtue of such violation. 1 2. BASE RENT FOR ADDITIONAL PREMISES. The base or minimum monthly rent for the Additional Premises shall be $2,481.25 per month. 3. ADDITIONAL RENT; TENANT'S SHARE. On the Additional Premises Commencement Date, all other rentals or other charges based or computed on the square footage of the Premises, including without limitation, real estate taxes, and operating or other expenses of the Property, shall be adjusted proportionately to reflect the Additional Premises rentable square footage, such that Tenant's share thereof shall be increased by 55/100 percent (0.55%) with respect to the Additional Premises, for a total of eleven and 69/100 percent (11.69%) with respect to the entire Premises including the Additional Premises, through the Additional Premises Expiration Date. The Expense Stop for the Additional Premises shall be the operating cost for the Building (as set forth in Section 7 of the Original Lease) for the calendar year 1998. 4. CONSOLIDATED OR SEPARATE BILLINGS. The minimum or base rentals, real estate taxes, operating or other expenses of the Property, and all other rentals and charges respecting the Additional Premises are sometimes herein called the "Additional Premises Rent". Landlord may compute and bill the Additional Premises Rent (or components thereof) separately or treat the Additional Premises and Premises as one unit for computation and billing purposes. 5. PRORATIONS. If the Additional Premises Commencement Date and/or Additional Premises Expiration Date occurs other than on the beginning or end, respectively, of the applicable payment period under the Lease, Tenant's obligations for base or minimum rentals, real estate taxes, operating or other expenses of the Property and other such charges shall be prorated on a per diem basis. 6. OTHER TERMS; CERTAIN PROVISIONS DELETED. On the Additional Premises Commencement Date, the Additional Premises shall be added to the Premises under the Lease, and all terms and conditions then or thereafter in effect under the Lease shall apply to the Additional Premises, except as provided to the contrary herein. Notwithstanding the foregoing to the contrary, this Amendment is intended to supersede any rights of Tenant under the Lease to expand, reduce or relocate the Premises, extend the term or terminate the Lease early, and all such provisions are hereby deleted. 7. CONDITION OF ADDITIONAL PREMISES; CARPET. Tenant has inspected the Additional Premises (and portions of the Building, Property, systems and equipment providing access to or serving the Additional Premises) or has had an opportunity to do so, and agrees to accept the same "AS IS" without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, or regarding any other matter, except that Landlord shall, at Landlord's sole expense, install carpet in the open area of the Additional Premises (i.e., that area which is uncarpeted as of the date of this Amendment; the open area to be carpeted specifically does not include the existing offices) with carpet selected by Landlord from the Building inventory of carpet (the "Work"). With respect to the Work: (i) Landlord shall use diligent, good faith efforts to substantially complete any such improvements to an extent that Tenant can reasonably occupy the Additional Premises by the Additional Premises Commencement Date set forth in this Amendment, subject to the other provisions of this Amendment, (ii) Tenant shall also use diligent, good faith efforts to cooperate, and to cause its space planners, architects, contractors, agents and employees to cooperate diligently and in good faith, with Landlord and any space planners, architects, contractors or other parties designated by Landlord, such that any such improvements to the Additional Premises can be planned, permits can be obtained, and the work can be substantially 2 completed by the Additional Premises Commencement Date set forth in this Amendment, and (iii) in the event of any dispute as to whether any such improvements have been substantially completed, Landlord may refer the matter to Landlord's independent architect, whose decision shall be final and binding on the parties. 8. ADDITIONAL PREMISES COMMENCEMENT DATE ADJUSTMENTS. a. Additional Premises Commencement Date Adjustments and Confirmation. If the Additional Premises Commencement Date is advanced or postponed as provided below, the Additional Premises Expiration Date set forth above shall not be changed, unless Landlord so elects by notice to Tenant. In addition, if the Additional Premises Commencement Date, as so advanced or postponed herein, occurs other than on the first day of a calendar month, Landlord may further elect by notice to Tenant to: (i) extend the term with respect to the Additional Premises such that the Additional Premises Expiration Date is the last day of the calendar month in which it would otherwise occur, and/or (ii) adjust the dates for any fixed increases in the base rent for the Additional Premises such that they occur on the first day of the calendar month in which they would otherwise occur. Tenant shall execute a confirmation of the Additional Premises Commencement Date, Additional Premises Expiration Date and other dates as adjusted herein in such form as Landlord may reasonably request within ten(10) days after requested; any failure to respond within such time shall be deemed an acceptance of the matters as set forth in Landlord's confirmation. If Tenant disagrees with Landlord's adjustment of the Additional Premises Commencement Date, Additional Premises Expiration Date or other dates as adjusted herein, Tenant shall pay Additional Premises Rent and perform all other obligations commencing and ending on the date or dates determined by Landlord, subject to refund or credit when the matter is resolved. b. Early Additional Premises Commencement Date. The Additional Premises Commencement Date, Additional Premises Rent and Tenant's other obligations respecting the Additional Premises shall be advanced to such earlier date as: (i) Landlord substantially completes any improvements to the Additional Premises required to be performed by Landlord under this Amendment to an extent that Tenant is able to occupy the Additional Premises, and Landlord delivers possession thereof, or (ii) Tenant, with Landlord's written permission, otherwise commences occupying the Additional Premises. If either such events occurs with respect to a portion of the Additional Premises, the Additional Premises Commencement Date, Additional Premises Rent and Tenant's other obligations shall be so advanced with respect to such portion (and fairly prorated based on the rentable square footage involved). During any period that Tenant shall be permitted to enter the Additional Premises prior to the Additional Premises Commencement Date other than to occupy the same (e.g., to perform alterations or improvements), Tenant shall comply with all terms and provisions of the Lease (including this Amendment), except those provisions requiring the payment of Additional Premises Rent. Landlord shall permit early entry, so long as the Additional Premises is legally available, Landlord has completed any work required of Landlord under this Amendment, and Tenant is in compliance with the other provisions of the Lease (including this Amendment), including the insurance requirements. c. Additional Premises Commencement Date Delays. Subject to the other provisions of this Amendment, the Additional Premises Commencement Date, Additional Premises Rent and Tenant's other obligations respecting the Additional Premises shall be postponed to the extent Tenant is unable to reasonably occupy the Additional Premises because Landlord fails: (i) to substantially complete any improvements to the Additional Premises required to be performed by Landlord under this Amendment, or (ii) to deliver 3 possession of the Additional Premises for any other reason, including holding over by prior occupants, except to the extent that Tenant, its space planners, architects, contractors, agents or employees in any way contribute to either such failures. If either such event occurs with respect to a portion of the Additional Premises, the Additional Premises Commencement Date, Additional Premises Rent and Tenant's other obligations shall be so postponed with respect to such portion (and fairly prorated based on the rentable square footage involved). Any such delay in the Additional Premises Commencement Date shall not subject Landlord to liability for loss or damage resulting therefrom, and Tenant's sole recourse with respect thereto shall be the postponement of Additional Premises Rent and other obligations described herein. 9. SUITE 800. Landlord and Tenant are currently parties to those certain License to Occupy Office agreements dated June 17, 1999 and October 18, 1999, each of which is for a portion of Suite 800. Tenant agrees that such agreements shall be deemed to be terminated as of November 15, 2000 and agrees to vacate Suite 800 in its entirety no later than November 15, 2000. Tenant shall pay Landlord 200% of the amounts then applicable under the License to Occupy Office agreements prorated, on a per square foot basis to reflect the rentable square footage of Suite 800, and a per diem basis for each day Tenant shall retain possession of Suite 800 or any part thereof after November 15, 2000, together with all damages sustained by Landlord on account thereof. Tenant shall pay such amounts on demand, and in the absence of demand monthly in advance. The foregoing provisions, and Landlord's acceptance of any such amounts, shall not serve as permission for Tenant to hold-over (although Tenant shall remain a licensee-at-sufferance bound to comply with all provisions of the License to Occupy Office Space agreements Lease during any time Tenant retains possession thereof). Landlord shall have the right, at any time after November 15, 2000, to reenter and possess Suite 800 and remove all property and persons therefrom, and Landlord shall have such other remedies for holdover as may be available to Landlord under the Lease, the License to Occupy Office agreements or applicable laws. 10. CONFIDENTIALITY. Tenant shall keep the content and all copies of this document and the Lease, all related documents or amendments now or hereafter entered, and all proposals, materials, information and matters relating thereto strictly confidential, and shall not disclose, disseminate or distribute any of the same, or permit the same to occur, except to the extent reasonably required for proper business purposes by Tenant's employees, attorneys, insurers, auditors, lenders, and permitted successors and assigns (and Tenant shall obligate any such parties to whom disclosure is permitted to honor the confidentiality provisions hereof), and except as may be required law or court proceedings. 11. REAL ESTATE BROKERS. Tenant represents and warrants that Tenant has not dealt with any broker, agent or finder in connection with this Amendment, and agrees to indemnify and hold Landlord, and its employees, agents and affiliates harmless from all damages, judgments, liabilities and expenses (including reasonable attorneys' fees) arising from any claims or demands of any broker, agent or finder with whom Tenant has dealt for any commission or fee alleged to be due in connection with this Amendment. 12. LIMITATION OF LANDLORD'S LIABILITY. Tenant agrees to look solely to Landlord's interest in the Property for the enforcement of any judgment, award, order or other remedy under or in connection with the Lease or any related agreement, instrument or document or for any other matter whatsoever relating thereto or to the Property or Premises. Under no circumstances shall any present or future, direct or indirect, principals or investors, general or limited partners, officers, directors, shareholders, trustees, beneficiaries, participants, advisors, managers, employees, agents or affiliates of Landlord, or of any of the other foregoing parties, 4 or any of their heirs, successors or assigns have any liability for any of the foregoing matters. In no event shall Landlord be liable to Tenant for any consequential damages. If Landlord shall convey or transfer the Property or any portion thereof in which the Premises are contained to another party, such party shall thereupon be and become landlord hereunder, shall be deemed to have fully assumed all of Landlord's obligations under this Lease accruing during such party's ownership, including the return of any security deposit, and Landlord shall be free of all such obligations accruing from and after the date of conveyance or transfer. 13. OFFER. The submission and negotiation of this Amendment shall not be deemed an offer to enter into the same by Landlord. Tenant's execution of this Amendment constitutes a firm offer to enter into the same which may not be withdrawn for a period of forty-five (45) days after delivery to Landlord. During such period, Landlord may proceed in reliance thereon and permit Tenant to enter the Additional Premises, but such acts shall not be deemed an acceptance. Such acceptance shall be evidenced only by Landlord signing and delivering this Amendment to Tenant. 14. WHOLE AMENDMENTS; FULL FORCE AND EFFECT; CONFLICTS. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. As amended herein, the Lease between the parties shall remain in full force and effect. As an inducement for Landlord to enter into this Amendment, Tenant hereby represents that Landlord is not in violation of the Lease, and that Landlord has fully performed all of its obligations under the Lease as of the date on which Tenant signs this Amendment. In case of any inconsistency between the provisions of the Lease and this Amendment, the latter provisions shall govern and control. This Amendment may be further modified only in writing signed by both parties. 15. INTERPRETATION; DEFINED AND UNDEFINED TERMS. This Amendment has been prepared from a generic form intended for use with a variety of underlying lease forms containing a variety of defined and undefined terms. This Amendment shall be interpreted in a reasonable manner in conjunction with the Lease. If an Exhibit is attached to this Amendment, the term "Lease" therein shall refer to this Amendment or the Lease as amended, and terms such as "Commencement Date" and "Lease Term" shall refer to analogous terms in this Amendment, all as the context expressly provides or reasonably implies. Unless expressly provided to the contrary herein: (a) any terms defined herein shall have the meanings ascribed herein when used as capitalized terms in other provisions hereof, (b) capitalized terms not otherwise defined herein shall have the meanings, if any, ascribed thereto in the Lease, and (c) non-capitalized undefined terms herein shall be interpreted broadly and reasonably to refer to terms contained in the Lease which have a similar meaning, and as such terms may be further defined therein. Notwithstanding the foregoing, the parties agree that terms such as "rentable area" and "rentable square feet" herein do not refer to similar such terms in the Lease, and include the so-called usable area, without deduction for columns or projections, multiplied by one or more load or conversion factors, to reflect a share of certain areas, which may include ground floor and elevator lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms and closets, restrooms, and other common, public and service areas, as determined by Landlord in accordance with existing building records or other sound management practices. 16. DEVELOPMENT OR COMPLEX (IF APPLICABLE). The parties further agree as follows: a. Definition of Property. The term "Property" herein shall mean the Building, and any common areas or facilities, easements, corridors, lobbies, sidewalks, loading areas, driveways, landscaped areas, air rights, development rights, parking rights, skywalks, 5 parking garages and lots, and any and all other rights, structures or facilities operated or maintained in connection with or for the benefit of the Building, and all parcels or tracts of land on which all or any portion of the Building or any of the other foregoing items are located. Landlord reserves the right to add land, buildings, easements or other interests to, or sell or eliminate the same from, the Property and grant interests and rights in the Property to other parties. If the Building shall now or hereafter be part of a development or complex of two or more buildings or structures collectively owned by Landlord or its affiliates, the Property shall, at Landlord's option also be deemed to include such other of those buildings or structures as Landlord shall from time to time designate, and shall as of the date hereof include such buildings and structures (and related facilities and parcels on which the same are located) as Landlord shall be currently using in determining Tenant's share of expenses and taxes. b. Expense and Tax Allocations and Tenant's Share Adjustments. If the Property shall now or hereafter be part of or shall include a development or complex of two or more buildings or structures collectively owned by Landlord or its affiliates, Landlord may allocate expenses and taxes (or components thereof) within such complex or development, and between such buildings and structures and the parcels on which they are located, in accordance with sound accounting and management practices. In the alternative, Landlord shall have the right to determine, in accordance with sound accounting and management practices, Tenant's share of expenses and taxes (or components thereof) based on such items for all or any such buildings and structures, and any common areas or facilities, easements, corridors, lobbies, sidewalks, loading areas, driveways, landscaped areas, air rights, development rights, parking rights, skywalks, parking garages and lots, and any and all other rights, structures or facilities operated or maintained in connection therewith or for the benefit thereof, and all parcels or tracts of land on which all or any portion of any of the other foregoing items are located; in such event, Landlord may adjust Tenant's share to be based on the ratio of the rentable area of the Premises to the rentable area of such buildings as to which such expenses and taxes (or components thereof) are included. If Landlord is not furnishing all or any particular utility or service (the cost of which, if performed by Landlord, would be included in expenses) to a tenant during any period, Landlord may for such period exclude the rentable area of such tenant from the rentable area of the Property in computing Tenant's share of the component of expenses for such utilities or services. 6 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. LANDLORD: CMD REALTY INVESTMENT FUND IV, L.P. [SEAL] an Illinois limited partnership By: CMD/Fund IV GP Investments, L.P. an Illinois limited partnership, its general partner By: CMD REIM IV, Inc., an Illinois corporation, its general partner By:/s/ Lee Moreland ---------------- Name: Lee Moreland Its: Vice President TENANT: MESA AIR GROUP, INC. [SEAL] a Nevada corporation By:/s/ Mike Lotz ------------- Name: Mike Lotz Its: President CERTIFICATE I, ___________________________________________, as _______________________ of the aforesaid Tenant, hereby certify that the individual(s) executing the foregoing Lease on behalf of Tenant was/were duly authorized to act in his/their capacities as set forth above, and his/their action(s) are the action of the Tenant. (Corporate Seal) _________________________________________________ 7 EXHIBIT A Floor Plate Showing Additional Premises Additional Premises - ------------------- [2ND FLOOR - FLOOR PLAN] 8 174D (1/00) LEASE AMENDMENT FOUR (SATELLITE DISH) THIS LEASE AMENDMENT FOUR ("Amendment") is made and entered into as of the 15th day of May, 2001, by and between CMD REALTY INVESTMENT FUND IV, L.P., an Illinois limited partnership ("Landlord") and MESA AIR GROUP, INC., a Nevada corporation ("Tenant"). A. Landlord and Tenant are the current parties to that certain lease ("Original Lease") dated October 16, 1998, for premises known as Suites 175, 230, and 700 (the "Premises") in the building (the "Building") known as Three Gateway, located at 410 N. 44th Street, Phoenix, Arizona 85008 (the "Property"), as it may have been previously amended (collectively, and as amended herein, the "Lease"). B. The parties mutually desire to amend the Lease on the terms hereof. NOW, THEREFORE, the parties hereby agree as follows: 1. ROOF SPACE AND ROOF ITEMS. Landlord hereby grants Tenant a non-exclusive license to use a portion of the roof, or a position on the parapet or penthouse or other such area near the top of the Property or top of any garage or other such structure associated therewith ("Roof Space"), as designated by Landlord in writing, subject to the other provisions hereof. Tenant shall use the Roof Space only for the purpose of installing the following item or items (the "Roof Items"): one (1) satellite reception dish, which shall under no circumstances exceed 18 inches wide by 18 inches tall. The term ("Term") of this license shall commence on July 1, 2001, and continue until the earlier to occur of the expiration or earlier termination of the Lease or, at Landlord's option, Tenant's abandonment or failure to use the Premises or Roof Space or Roof Items, or otherwise by Landlord on thirty days notice. 2. PAYMENTS. Tenant shall pay Landlord, as consideration for reserving the Roof Space and as additional Rent under the Lease, $50.00 ("Roof Charges") on or before the first day of each calendar month of the Term without prior demand, deduction, set-off or counterclaim. Tenant shall also reimburse Landlord for: (a) all utilities consumed by the Roof Items, as reasonably estimated by Landlord's engineer, within 30 days after Landlord bills the same from time to time, and (b) all out-of-pocket costs which Landlord pays to consultants and other parties (such as but not limited to telecommunications, structural and roofing consultants, engineers and contractors) in connection with the Roof Items or the license granted hereunder, together with an amount equal to fifteen percent (15%) thereof to cover Landlord's overhead, within thirty days after presentation to Tenant by Landlord of invoices therefor. 3. INSTALLATION. a. Roof Items. Tenant shall not install the Roof Items, or thereafter make any alterations, additions or improvements to the roof or the Roof Items, or remove the Roof Items, without the prior written consent of Landlord concerning all details thereof, including, but not limited to, the location of the Roof Space. Landlord shall not unreasonably withhold consent, except that Landlord reserves the right to withhold consent in Landlord's sole discretion for Roof Items or work affecting the structure or safety of the Property, or any other parties' rights, or the appearance of the Property from any common or public areas. Landlord shall approve or reject the proposed installation of the Roof Items within a reasonable time after Tenant submits (i) plans 1 and specifications for the installation of the Roof Items, and (ii) copies of all required governmental, quasi-governmental and other approvals, permits, licenses, and authorizations which Tenant will obtain at its own expense (including, but not limited to, approvals from any architectural or design review committee established under any covenants, conditions and restrictions applicable to the Property). Landlord also reserves the right to require that: (a) the Roof Items be placed in a manner that is not attached to the Property and that does not penetrate the roof (e.g. placed in a movable container), (b) any installation or other work be done in accordance with any Property rules, standards or other requirements for roof equipment and/or under the supervision of Landlord's employees or agents, and in a manner so as to avoid damage to the Property, (c) roof pavers or walk pads be installed on the roof, at Tenant's sole cost, to provide a means of access to the Roof Space, (d) screening of a material prescribed by Landlord be installed, at Tenant's sole cost, to prevent the Roof Items from being visible to the public or to other tenants or from other buildings, and (e) all work be performed by contractors approved or designated by Landlord (and any work affecting the roof must be performed only by Landlord's designated roofing contractor). All work shall be performed in a good and workmanlike manner and best industry practices and procedures, in accordance with all governmental requirements and in accordance with all provisions of the Lease respecting work to the Premises. b. Connecting Lines and Related Equipment. If Tenant needs to connect the Roof Items to any other equipment, including connections via telecommunications cables ("Lines") to the Premises, Tenant shall: (i) obtain Landlord's prior written approval of all aspects thereof, (ii) use an experienced and qualified contractor reasonably designated or approved in writing in advance by Landlord, (iii) comply with such reasonable inside wire standards and procedures as Landlord may adopt from time to time, including Landlord's requirements respecting access to and use of the wire closets, riser system and main distribution frame ("MDF"), and all other provisions of this Lease, (iv) not install Lines in the same sleeve, chaseway or other enclosure in close proximity with electrical wire, and not install PVC-coated Lines except as may be permitted by code, (v) thoroughly test any riser Lines to which Tenant intends to connect any Lines to ensure that such riser Lines are available and are not then connected to or used for telephone, data transmission or any other purpose by any other party (whether or not Landlord has previously approved such connections), and not connect to any such unavailable or connected riser Lines, and (vi) not connect any equipment to the Lines which may create an electromagnetic field exceeding the normal insulation ratings of ordinary twisted pair riser cable or cause radiation higher than normal background radiation, unless the Lines therefor (including riser Lines) are appropriately insulated to prevent such excessive electromagnetic fields or radiation (and such insulation shall not be provided by the use of additional unused twisted pair Lines). In addition, all such work shall be performed in a good and workmanlike manner and best industry practices and procedures, in accordance with all governmental requirements and in accordance with all provisions of the Lease respecting work to the Premises. 4. CONDITION; PERMITS. Tenant has inspected the roof and agrees to accept the same hereunder "as is". Landlord does not represent or warrant that use of the roof hereunder will comply with any applicable federal, state, county or local Laws or ordinances or the regulations of any of their agencies, nor any covenants, conditions or restrictions that may apply to the Property, nor that the roof will be suitable for Tenant's purposes. Tenant agrees that Tenant shall at all times comply with any applicable federal, state, county or local laws or ordinances, pertaining to Tenant's use of the roof or the Roof Items, and all applicable covenants, conditions and restrictions. Tenant's failure or inability to obtain any necessary permits, approvals, variances or waivers respecting the Roof Items shall not excuse Tenant from any obligations under this Lease; any variances or waivers shall be subject to Landlord's prior written 2 approval to determine whether such variances or waivers may limit any rights to place or maintain other roof items at the Property or otherwise adversely affect Landlord or the Property. 5. ROOF OR OTHER PROPERTY DAMAGE; REMOVAL OF ROOF ITEMS. Tenant shall take all appropriate actions to prevent any roof or building leaks or other damage or injury to the Roof Space or the Property or contents thereof (collectively, "Property Damage") caused by Tenant's use of the Roof Space or its installation, use, maintenance or removal of the Roof Items, and shall promptly notify Landlord of any such Property Damage. In the event of any such Property Damage, Landlord may: (i) require that Tenant pay Landlord's reasonable costs for repairing such Property Damage within fifteen days after Landlord submits an invoice and reasonable supporting documentation therefor, or (ii) require that Tenant perform the necessary repairs in a good and workmanlike manner using a contractor designated or approved by Landlord at Tenant's expense within fifteen days after Landlord's notice. Upon termination of the Lease or this Exhibit, Tenant shall disconnect and remove the Roof Items, and, at Landlord's written election, any Lines installed by or for Tenant hereunder. If Tenant does not immediately remove the Roof Items or Lines when so required, Tenant hereby authorizes Landlord to remove and dispose of the same and Tenant shall promptly pay Landlord's reasonable charges for doing so. Any Lines not required to be removed pursuant to this Section shall, at Landlord's option, become the property of Landlord (without payment by Landlord). 6. MISCELLANEOUS. Except to the extent expressly inconsistent herewith, all rights and obligations of the parties respecting the Premises under the Lease shall apply to the Roof Space and Roof Items, including, without limitation, obligations respecting compliance with laws, hazardous materials, repairs, casualty damage, indemnities and insurance (including waivers of insurers' subrogation rights). Landlord shall permit Tenant reasonable access to the roof for the purposes permitted hereunder, during normal business hours at the Property upon reasonable advance notice and scheduling through Landlord's management and security personnel. Access after normal business hours may be granted by Landlord in its reasonable discretion, and for such reasonable charges as Landlord shall impose. Landlord reserves the right to enter the roof, without notice, at any time for the purpose of inspecting the same, or making repairs, additions or alterations to the Property, or to exhibit the roof to prospective tenants, purchasers or others, or for any other reason not inconsistent with Tenant's rights hereunder. In connection with exercising such rights, upon ten days prior written or oral notice to Tenant's on-site manager (except that no notice shall be required in an emergency, e.g. to repair roof leaks associated with the Roof Space or Roof Items), Landlord may temporarily disconnect the Roof Items and/or move the Roof Items. Landlord also reserves the right, from time to time upon thirty days prior written notice to Tenant, to relocate the Roof Space and/or move or require that Tenant move the Roof Items, to another location or locations, provided: (i) Landlord shall use reasonable efforts to provide such other space that will be reasonably comparable and feasible for Tenant's purposes, and (ii) Landlord shall pay all reasonable, direct, out-of-pocket expenses incurred by Tenant in connection therewith (excluding lost profits of other consequential damages). Tenant may not assign or sublicense its rights under this Exhibit, nor let any other party tie into or use the Roof Items or the roof, and Tenant may not transmit or distribute signals through the Roof Items to any parties not affiliated with Tenant, and any attempt to assign, sublicense, transmit or distribute signals in violation of the foregoing shall be null and void. Tenant shall comply with all FCC requirements, and shall not use the roof or the Roof Items so as to interfere in any way with the ability of Landlord or its tenants and occupants of the Property and neighboring properties to receive radio, television, telephone, microwave, short-wave, long-wave or other signals of any sort, nor so as to interfere with the use of any antennas, satellite dishes or other electronic or electric equipment or facilities currently or hereafter located on the roof or any floor or area of the Property or other property. If Tenant violates this Exhibit, Landlord shall have the right 3 to disconnect the Roof Items until the violations are cured (without limitation as to Landlord's other remedies under the Lease or at law or equity). 7. BROKERS. Tenant hereby represents and warrants that Tenant has not dealt with any broker, salesman, agent or finder in connection with this Amendment, and agrees to defend, indemnify and hold Landlord, and its employees, agents and affiliates harmless from all damages, losses, judgments, liabilities and expenses (including reasonable attorneys' fees) arising from any claims or demands of any broker, salesman, agent or finder with whom Tenant has dealt for any commission or fee alleged to be due in connection with this Amendment. 8. GUARANTORS. This Amendment is subject to, and conditioned upon, the written acceptance hereof by all guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is expressly waived in writing by Landlord. 9. CONFIDENTIALITY. Tenant shall keep the content and all copies of this document and the Lease, all related documents or amendments now or hereafter entered, and all proposals, materials, information and matters relating thereto strictly confidential. 10. LIMITATION OF LANDLORD'S LIABILITY. Tenant agrees to look solely to Landlord's interest in the Property for the enforcement of any judgment, award, order or other remedy under or in connection with the Lease or any related agreement, instrument or document or for any other matter whatsoever relating thereto or to the Property or Premises. Under no circumstances shall any present or future, direct or indirect, principals or investors, general or limited partners, officers, directors, shareholders, trustees, beneficiaries, participants, advisors, managers, employees, agents or affiliates of Landlord, or of any of the other foregoing parties, or any of their heirs, successors or assigns have any liability for any of the foregoing matters. In no event shall Landlord be liable to Tenant for any consequential damages. If Landlord shall convey or transfer the Property or any portion thereof in which the Premises are contained to another party, such party shall thereupon be and become landlord hereunder, shall be deemed to have fully assumed all of Landlord's obligations under this Lease accruing during such party's ownership, and Landlord shall be free of all such obligations accruing from and after the date of conveyance or transfer. 11. WHOLE AMENDMENT; FULL FORCE AND EFFECT; CONFLICTS. This Amendment shall not be binding unless and until signed and delivered by both parties. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. As amended herein, the Lease between the parties shall remain in full force and effect; provided, this Amendment is intended to supersede any prior rights of Tenant to have any satellite dishes, antennas or other such equipment on the roof or other exterior areas of the Property, and all such provisions are hereby deleted. In case of any inconsistency between the provisions of the Lease and this Amendment, the latter provisions shall govern and control. This Amendment may be further modified only in writing signed by both parties. 4 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above. LANDLORD: CMD REALTY INVESTMENT FUND IV, L.P. [SEAL] an Illinois limited partnership By: CMD/Fund IV GP Investments, L.P., an Illinois limited partnership, its general partner By: CMD REIM IV, Inc., an Illinois corporation, its general partner By: ----------------------------------------- Name: Lee Moreland --------------------------------------- Its: Vice President --------------------------------------- TENANT: MESA AIR GROUP, INC. [SEAL] a Nevada corporation By: /s/ Lorin Carr ----------------------------------------- Name: Lorin Carr --------------------------------------- Its: Sr. Dir. Cust. Serv. --------------------------------------- GUARANTORS: - ----------------- --------------------------------------- - ----------------- --------------------------------------- 5 EX-21.1 19 p67334exv21w1.txt EX-21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF MESA AIR GROUP, INC. 1. Mesa Airlines, Inc. 2. Air Midwest, Inc. 3. CCAir, Inc. 4. MPD, Inc. 5. Regional Aircraft Services, Inc. 6. Mesa Leasing, Inc. 7. MAGI Insurance, Inc. 8. Ritz Hotel Management Corp. 9. WestAir Holding, Inc. 10. Freedom Airlines, Inc. EX-23.1 20 p67334exv23w1.txt EX-23.1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Mesa Air Group, Inc.: We consent to the incorporation by reference in Registration Statement Nos. 333-02791, 333-09395, 33-83799, 333-83801, 333-83803, 333-83805 and 333-58646, of Mesa Air Group, Inc. on Form S-8 of our report dated November 22, 2002, appearing in the Annual Report on Form 10-K of Mesa Air Group, Inc. for the year ended September 30, 2002. DELOITTE & TOUCHE LLP Phoenix, Arizona December 20, 2002 EX-99.1 21 p67334exv99w1.txt EX-99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Mesa Air Group, Inc., a Nevada corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended September 30, 2002 as filed with the Securities and Exchange Commission (the "10-K Report") that: (1) the 10-K Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 20, 2002 /S/ JONATHAN G. ORNSTEIN - ---------------------------------------- Jonathan G. Ornstein Chief Executive Officer EX-99.2 22 p67334exv99w2.txt EX-99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS(a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officer of Mesa Air Group, Inc., a Nevada corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended September 30, 2002 as filed with the Securities and Exchange Commission (the "10-K Report") that: (1) the 10-K Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 10-K Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 20, 2002 /S/ ROBERT B. STONE _____________________________ Robert B. Stone Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----


Nevada		85-0302351
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

410 North 44th Street, Suite 700, Phoenix, Arizona (Address of Principal Executive Offices)		85008 (Zip Code)


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A -- Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Schedules and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-5.2
EX-10.1
EX-10.3
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.10
EX-10.13
EX-10.15
EX-10.16
EX-10.17
EX-10.18
EX-10.19
EX-10.27
EX-10.29
EX-21.1
EX-23.1
EX-99.1
EX-99.2


		Page
		No.

Part I
Item 1.	Business		2
Item 2.	Properties		11
Item 3.	Legal Proceedings		12
Item 4.	Submission of Matters to a Vote of Security Holders		13
Part II
Item 5.	Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters		15
Item 6.	Selected Financial Data		16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk		27
Item 8.	Financial Statements and Supplementary Data		28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		55
Part III
Item 10.	Directors and Executive Officers of the Registrant		55
Item 11.	Executive Compensation		55
Item 12.	Security Ownership of Certain Beneficial Owners and Management		55
Item 13.	Certain Relationships and Related Transactions		55
Item 14.	Controls and Procedures		55
Part IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		56


					Passenger
In thousands	ASM’s				Revenue

America West (Revenue-Guarantee)		1,494,469	43	%	$	193,173	40	%
US Airways (Revenue-Guarantee)		1,281,181	37	%		166,387	35	%
US Airways (Pro-rate)		439,515	13	%		96,608	20	%
Frontier (Pro-rate)		185,071	5	%		15,736	3	%
Mesa Airlines		59,191	2	%		8,922	2	%

Total		3,459,427			$	480,826


				Approximate
Type	Location	Ownership		Square Feet

Headquarters	Phoenix, AZ		Leased		26,000
Training/ Administration	Phoenix, AZ		Leased		27,000
Hangar	Jamestown, NY		Leased		30,000
Hangar	Farmington, NM		Leased		30,000
Engine Shop	Farmington, NM		Leased		6,000
Hangar	Phoenix, AZ		Leased		20,000
Hangar/ Office	Wichita, KS		(1)		30,000
Hangar/ Office	Dubois, PA		Leased		23,000
Hangar	Reading, PA		(1)		56,250
Office	Charlotte, NC		Leased		4,000
Hangar	Charlotte, NC		Leased		30,000


		Canadair		Embraer
		Regional		Regional
		Jet-200		Jet		Beechcraft		DeHavilland		DeHavilland
		(CRJ)		(ERJ)		1900D		Dash 8-100		Dash 8-200		TOTAL

US Airways Express			—		32		34		3		—		69
America West Express			29		—		3		—		12		44
Frontier JetExpress			5		—		—		—		—		5
Mesa Airlines			—		—		6		—		—		6

	Total		34		32		43		3		12		124


							CRJ-700		CRJ-900
					CRJ-200		Firm		Firm		CRJ-700		CRJ-900		ERJ-145		ERJ-145		Cumulative
		CRJ-200			Options		Orders		Orders		Options		Options		Firm Orders		Options		Total

Delivered:
	At 9/30/2002		34	*		—		2		—		—		—		32		—		68
Scheduled deliveries:
	Fiscal 2003		(2	)		4		12		8		—		—		—		4		94
	Fiscal 2004		—			12		1		17		—		—		—		6		130
	Fiscal 2005		—			12		—		—		3		3		—		12		160
	Fiscal 2006		—			12		—		—		12		12		—		12		208
	Fiscal 2007		—			—		—		—		5		5		—		12		230
	Fiscal 2008 and beyond		—			—		—		—		20		20		—		—		270

Total			32			40		15		25		40		40		32		46



		Number of Aircraft

								Operating on		Passenger
Type of Aircraft		Owned		Leased		Total		Sept. 30, 2002		Capacity

CRJ-200 Regional Jet			—		34		34		34		50
CRJ-700 Regional Jet			—		2		2		—		64
Embraer Regional Jet			—		32		32		32		50
Beechcraft 1900D			39		7		46		43		19
Dash 8-100			—		6		6		3		37
Dash 8-200			—		12		12		12		37
Embraer EMB-120			—		6		6		—		30

	Total		39		99		138		124


Name	Age		Position

Jonathan G. Ornstein		45	Chief Executive Officer
Michael J. Lotz		43	President and Chief Operating Officer
George Murnane III		44	Executive Vice President
Rodena Turner-Bojorquez		44	Vice President, Human Resources.
Michael Ferveda		58	President — Freedom Airlines, Inc.
Brian S. Gillman		33	Vice President, General Counsel and Secretary
Donald Harrison		57	Vice President of Maintenance — Mesa Airlines, Inc.
Robert Hornberg		50	Vice President and CIO
F. Carter Leake		40	President — CCAir, Inc.
Mickey Moman		52	Vice President of Flight Operations — Mesa Airlines, Inc.
Jeff P. Poeschl		37	Vice President — Finance
Gregory Stephens		38	President — Air Midwest, Inc.
Robert B. Stone		46	Chief Financial Officer and Treasurer


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*



	Fiscal 2002				Fiscal 2001

Quarter	High		Low		High		Low

First	$	7.89	$	2.80	$	7.00	$	4.72
Second		11.43		7.51		11.56		7.19
Third		11.74		7.05		13.30		8.50
Fourth		10.49		3.62		15.49		3.26


Years Ended:		2002(1)			2001(2)			2000(3)			1999(4)			1998(5)

Operating revenues		$	496,783		$	523,378		$	471,612		$	404,616		$	494,866
Operating expenses		$	503,005		$	594,020		$	429,798		$	402,487		$	533,910
Operating income (loss)		$	(6,222	)	$	(70,642	)	$	41,814		$	2,129		$	(39,044	)
Interest expense		$	5,440		$	13,469		$	15,463		$	19,096		$	25,382
Income (loss) before income taxes		$	(13,524	)	$	(71,375	)	$	28,031		$	(12,815	)	$	(58,229	)
Net income (loss)		$	(9,309	)	$	(48,076	)	$	58,872		$	(13,412	)	$	(50,467	)
Net income (loss) per share:
	Basic	$	(.28	)	$	(1.50	)	$	1.78		$	(0.40	)	$	(1.50	)
	Diluted	$	(.28	)	$	(1.50	)	$	1.77		$	(0.40	)	$	(1.50	)
Working capital (deficit)		$	74,016		$	79,086		$	65,436		$	33,040		$	(1,446	)
Total assets		$	352,343		$	423,986		$	386,594		$	403,773		$	484,376
Long-term debt, excluding current portion		$	109,721		$	117,950		$	135,533		$	114,234		$	245,100
Stockholders’ equity		$	89,100		$	103,126		$	144,574		$	96,435		$	108,649
Net book value per share		$	2.79		$	3.12		$	4.48		$	2.83		$	2.95
Passengers carried			5,118,839			4,789,180			4,457,989			4,255,696			5,969,104
Revenue passenger miles (000)			1,986,164			1,796,058			1,561,197			1,324,867			1,407,345
Available seat miles (“ASM”) (000)			3,459,427			3,289,216			2,951,116			2,594,861			2,581,946
Average passenger journey in miles			388			375			350			311			236
Average stage length in miles			298			268			250			225			190
Load factor			57.4	%		54.6	%		52.9	%		51.1	%		54.5	%
Break-even passenger load factor			60.1	%		63.8	%		48.5	%		52.7	%		60.1	%
Revenue per ASM in cents			14.4			15.9			16.0			15.3			18.7
Operating cost per ASM in cents			14.5			18.1			14.6			15.5			20.7
Average yield per revenue passenger mile in cents			25.0			28.8			30.2			30.1			34.3
Average fare		$	93.93		$	106.18		$	103.45		$	93.59		$	80.91
Aircraft in service			124			118			133			140			138
Cities served			147			153			120			138			134
Number of employees			3,100			2,820			3,480			3,423			3,241


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*



	Operating Data
	Years Ended September 30,

	2002			2001			2000

Passengers		5,118,839			4,789,180			4,457,989
Available seat miles (“ASM”)(000s)		3,459,427			3,289,216			2,951,116
Revenue passenger miles (000s)		1,986,164			1,796,058			1,561,197
Load factor		57.4	%		54.6	%		52.9	%
Yield per revenue passenger mile (cents)		25.0			28.8			30.2
Revenue per ASM (cents)		14.4			15.9			16.0
Operating cost per ASM (cents)		14.6			18.1			14.5
Average stage length (miles)		298			268			250
Number of operating aircraft in fleet		124			118			133
Gallons of fuel consumed		90,969,241			86,977,636			78,832,519
Block hours flown		352,323			383,310			395,446
Departures		285,680			323,675			343,638


		2003		2004		2005		2006		2007		Thereafter		Total

Long-term Debt:
Notes payable related to B1900Ds		$	17,561	$	6,546	$	6,870	$	7,119	$	7,378	$	75,359	$	120,833
Note payable to manufacturer			786		786		786		786		1,791		—		4,935
Mortgage note payable			33		35		38		41		44		838		1,029
Other			656		375		304		304		321		—		1,960

Total long-term debt			19,036		7,742		7,998		8,250		9,534		76,197		128,757

Payments under operating leases:
Cash aircraft rental payments(1)			121,639		113,943		108,625		107,390		108,003		897,892		1,457,492
Lease payments on equipment and operating facilities			572		531		369		214		47		484		2,217

Total lease payments			122,211		114,474		108,994		107,604		108,050		898,376		1,459,709

	Total	$	141,247	$	122,216	$	116,992	$	115,854	$	117,584	$	974,573	$	1,588,466


Item 6.	*Selected Financial Data*


	*Revenue Recognition*


	*Allowance for Doubtful Accounts*


	*Accrued Health Care Costs*


Item 7A —	*Quantitative and Qualitative Disclosures About Market Risk*


Item 8.	*Financial Statements and Supplementary Data*


Page 29	—	Independent Auditors’ Report.
Page 30	—	Consolidated Statements of Operations — Years ended September 30, 2002, 2001 and 2000.
Page 31	—	Consolidated Balance Sheets — September 30, 2002 and 2001.
Page 32	—	Consolidated Statements of Cash Flows — Years ended September 30, 2002, 2001 and 2000.
Page 34	—	Consolidated Statements of Stockholders’ Equity — Years ended September 30, 2002, 2001 and 2000.
Page 35	—	Notes to Consolidated Financial Statements.



			September 30,

			2002			2001


			(In thousands, except
			share data)
Assets
Current assets:
	Cash and cash equivalents		$	45,870		$	74,504
	Marketable securities			8,517			8,793
	Receivables, primarily traffic, net			29,072			29,449
	Expendable parts and supplies, net			21,238			31,449
	Aircraft and parts held for sale			24,546			63,161
	Prepaid expenses and other current assets			25,730			16,392
	Deferred income taxes			16,228			17,264

		Total current assets		171,201			241,012
Property and equipment, net				127,450			122,431
Lease and equipment deposits				15,538			21,277
Deferred income taxes				29,287			23,600
Aircraft held for sale				—			13,100
Other assets				8,867			2,566

		Total assets	$	352,343		$	423,986

Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long-term debt		$	19,036		$	52,927
	Note payable — bank			—			20,000
	Accounts payable			24,434			45,193
	Air traffic liability			3,362			3,506
	Accrued compensation			5,950			3,893
	Income taxes payable			510			—
	Other accrued expenses			43,893			36,407

		Total current liabilities		97,185			161,926
Long-term debt, excluding current portion				109,721			117,950
Deferred credits				52,549			40,345
Other noncurrent liabilities				2,821			639

		Total liabilities		262,276			320,860

Minority interest				967			—
Commitments and contingencies (notes 2, 5, 7, 15, 16 and 21)
Stockholders’ equity:
	Common stock of no par value, 75,000,000 shares authorized; 31,989,886 and 33,049,183 shares issued and outstanding			114,670			119,387
	Retained earnings (accumulated deficit)			(25,570	)		(16,261	)

		Total stockholders’ equity		89,100			103,126

		Total liabilities and stockholders’ equity	$	352,343		$	423,986


							Retained
							Earnings
Years Ended September 30,	Number of			Common			(Accumulated
2002, 2001, and 2000	Shares			Stock			Deficit)			Total


	(In thousands, except number of shares)
Balance at October 1, 1999		34,197,752		$	123,492		$	(27,057	)	$	96,435
Exercise of stock options		50,951			51			—			51
Common stock purchased and retired		(1,962,400	)		(10,784	)		—			(10,784	)
Net income		—			—			58,872			58,872

Balance at September 30, 2000		32,286,303			112,759			31,815			144,574
Exercise of stock options		1,531,000			9,951			—			9,951
Common stock purchased and retired		(768,120	)		(6,770	)		—			(6,770	)
Tax benefit — stock compensation		—			3,447			—			3,447
Net loss		—			—			(48,076	)		(48,076	)

Balance at September 30, 2001		33,049,183			119,387			(16,261	)		103,126
Exercise of stock options		154,123			930			—			930
Common stock purchased and retired		(1,213,420	)		(5,956	)		—			(5,956	)
Tax benefit — stock compensation		—			188			—			188
Amortization of warrants		—			121			—			121
Net loss		—			—			(9,309	)		(9,309	)

Balance at September 30, 2002		31,989,886		$	114,670		$	(25,570	)	$	89,100


Buildings			30 years
Flight equipment			7-20 years
Equipment			5-12 years
Furniture and fixtures			3-5 years
Vehicles			5 years
Rotable inventory			Life of the aircraft or term of the lease
Leasehold improvements			Life of asset or term of lease, whichever is less


		(In thousands)

Years ending September 30,
	2003	$	19,036
	2004		7,742
	2005		7,998
	2006		8,250
	2007		9,534
	Thereafter		76,197


			Weighted
			Average		Weighted
			Remaining		Average
	Number		Contractual		Exercise
Range of Exercise Prices	Outstanding		Life		Price

$4.00 — $5.99		1,092,273		4.4 years	$	4.59
$6.00 — $7.99		705,621		3.9 years	$	6.52
$8.00 — $9.99		1,446,575		2.6 years	$	8.35
$10.00 — $11.99		285,873		5.3 years	$	11.05
$12.00 and higher		12,454		4.9 years	$	12.24

Options outstanding at September 30, 2002		3,542,796		3.7 years	$	7.06


			Additions
	Balance at		Charged to
	Beginning		Costs and					Balance at
	of Year		Expenses		Deductions			End of Year


	(In thousands)
Allowance for Obsolescence Deducted from Expendable Parts and Supplies
September 30, 2002	$	2,496	$	—	$	(2,229	)	$	267
September 30, 2001		1,848		648		—			2,496
September 30, 2000		2,313		—		(465	)		1,848
Allowance for Doubtful Accounts Deducted from Accounts Receivable
September 30, 2002	$	14,695	$	5,605	$	(7,501	)	$	12,799
September 30, 2001		368		14,327		—			14,695
September 30, 2000		—		368		—			368


	First		Second			Third		Fourth
	Quarter		Quarter			Quarter		Quarter

2002(1)
Operating revenues	$	111,234	$	119,575		$	133,797	$	132,177
Operating income (loss)		4,718		8,718			8,448		(28,106	)
Net earnings (loss)		3,666		5,185			2,658		(20,818	)
Net earnings (loss) per share — basic	$	0.11	$	0.16		$	0.08	$	(0.63	)
Net earnings (loss) per share — diluted	$	0.11	$	0.15		$	0.08	$	(0.63	)
2001(2)
Operating revenues	$	133,276	$	128,445		$	140,425	$	121,232
Operating income		9,858		(17,033	)		14,876		(78,343	)
Net earnings		5,708		(12,862	)		7,484		(48,406	)
Net earnings per share — basic	$	0.19	$	(0.40	)	$	0.23	$	(1.49	)
Net earnings per share — diluted	$	0.18	$	(0.40	)	$	0.23	$	(1.49	)


	Reserve					Reserve								Non-		Reserve								Non-		Reserve
Description of	Oct. 1,					Sept. 30,						Cash		Cash		Sept. 30,						Cash		Cash		Sept. 30,
Charge	1999			Utilized		2000			Provision			Utilized		Utilized		2001			Provision			Utilized		Utilized		2002

Restructuring:
Severance and other	$	(826	)	$	590	$	(236	)	$	—		$	236	$	—	$	—		$	(658	)	$	—	$	—	$	(658	)
Costs to return aircraft		(2,202	)		—		(2,202	)		(16,136	)		13,623		—		(4,715	)		(10,040	)		6,648		—		(8,107	)
Aircraft lease payments		—			—		—			(3,610	)		—		—		(3,610	)		(9,238	)		3,610		—		(9,238	)
Cancellation of maintenance agreement		—			—		—			(1,200	)		—		—		(1,200	)		—			1,200		—		—
Impairment:
Impairment of surplus inventory		—			—		—			(3,233	)		—		3,233		—			(4,143	)		—		4,143		—
Impairment of maintenance deposits																	—			(1,682	)		—		1,682		—
Impairment of aircraft and other property		—			—		—			(47,421	)		—		47,421		—			(914	)		—		914		—
Writeoff of goodwill		—			—		—			(9,253	)		—		9,253		—			—			—		—		—

Total	$	(3,028	)	$	590	$	(2,438	)	$	(80,853	)	$	13,859	$	59,907	$	(9,525	)	$	(26,675	)	$	11,458	$	6,739	$	(18,003	)


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*


Exhibit
Number		Description	Reference

	3.1	Articles of Incorporation of Registrant dated May 28, 1996	Filed as Exhibit 3.1 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by reference
	3.2	Bylaws of Registrant as amended	Filed as Exhibit 3.2 to Registrant’s Form 10-K for the fiscal year ended September 30, 1996, incorporated herein by reference
	4.1	Form of Common Stock certificate	Filed as Exhibit 4.5 to Amendment No. 1 to Registrant’s Form S-18, Registration No. 33-11765 filed March 6, 1987, incorporated herein by reference
	4.2	Form of Common Stock certificate (issued after November 12, 1990)	Filed as Exhibit 4.8 to Form S-1, Registration No. 33-35556 effective December 6, 1990, incorporated herein by reference
	5.1	1998 Key Officer Stock Option Plan	Filed as Appendix A to Registrant’s Definitive Proxy Statement, dated June 19, 1998
	5.2	2001 Key Officer Stock Option Plan	Filed herewith
	5.3	Outside Directors’ Stock Option Plan	Filed as Appendix B to Registrant’s Definitive Proxy Statement, dated June 19, 1998
	5.4	Employee Stock Option Plan, as amended	Filed as Appendix C to Registrant’s Definitive Proxy Statement, dated June 19, 1998
	10.1	Form of Directors’ and Officers’ Indemnification Agreement	Filed herewith
	10.2	Agreement between USAirways, Inc. and Air Midwest, Inc. dated July 29, 1994 (Philadelphia)	Filed as Exhibit 10.44 to Form 10-K for fiscal year ended September 30, 1991, Commission File No. 0-15495, incorporated herein by reference


/s/ DANIEL J. ALTOBELLO Daniel J. Altobello	Director	December 20, 2002

/s/ HERBERT A. DENTON Herbert A. Denton	Director	December 20, 2002

/s/ RONALD R. FOGLEMAN Ronald R. Fogleman	Director	December 20, 2002

/s/ MAURICE A. PARKER Maurice A. Parker	Director	December 20, 2002

/s/ GEORGE MURANE III George Murnane III	Director	December 20, 2002

/s/ JULIE SILCOCK Julie Silcock	Director	December 20, 2002

/s/ JOSEPH L. MANSON Joseph L. Manson	Director	December 20, 2002


	/s/ JONATHAN G. ORNSTEIN

	Jonathan G. Ornstein
	Mesa Air Group, Inc.