-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OO+2oW09H/qZYUrskty+TxlsWnoXS+DnT+9QJRrcHVce4U3auDo9Y8ACWoE9hMcN 500rW0b0nsU8Hy1f5KrjUw== /in/edgar/work/20000629/0000835768-00-000018/0000835768-00-000018.txt : 20000920 0000835768-00-000018.hdr.sgml : 20000920 ACCESSION NUMBER: 0000835768-00-000018 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MESABA HOLDINGS INC CENTRAL INDEX KEY: 0000835768 STANDARD INDUSTRIAL CLASSIFICATION: [4512 ] IRS NUMBER: 411616499 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-17895 FILM NUMBER: 664891 BUSINESS ADDRESS: STREET 1: 7501 26TH AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55450 BUSINESS PHONE: 6127265151 MAIL ADDRESS: STREET 1: 7501 26TH AVE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55450 10-K405 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 0-17895 MESABA HOLDINGS,INC. (Exact name of registrant as specified in its charter) Minnesota 41-1616499 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7501 26th Avenue South Minneapolis, Minnesota 55450 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 726-5151 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- 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. The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 5, 2000 was approximately $248,291,000. As of June 5, 2000, there were 20,268,641 shares of Common Stock of the registrant issued and outstanding. Documents Incorporated By Reference Certain portions of the documents listed below have been incorporated by reference into the indicated part of this Form 10-K. Document Incorporated Part of Form 10-K --------------------- ----------------- Proxy Statement for 2000 Annual Meeting of Shareholders Part III CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this Annual Report on Form 10-K under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company's behalf, that are not historical fact may constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward looking statements involve factors that could cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements. The Company cautions the public not to place undue reliance on forward-looking statements, which may be based on assumptions and anticipated events that do not materialize. Factors which could cause the Company's actual results to differ from forward-looking statements include material changes in the relationship between the Company and Northwest Airlines; reductions or interruptions in Northwest Airlines' air service; changes in regulations affecting the Company, including DOT and FAA regulations or directives affecting airworthiness of aircraft; the acquisition and phase-in of a new aircraft; downturns in economic activity; seasonal factors; and labor relationships, including labor shortages, slow downs and/or work stoppages associated with the outcome of contract negotiations between the Company and the Association of Flight Attendants. PART I Item 1. BUSINESS Mesaba Holdings, Inc. ("Mesaba Holdings" or the "Company") is the holding company for Mesaba Aviation, Inc. ("Mesaba"). Mesaba is a regional airline currently providing scheduled passenger service under the name "Mesaba Airlines/Northwest Airlink" or "Mesaba Airlines/Northwest Jet Airlink" to 103 cities and metropolitan areas in 27 states and 3 provinces of Canada. All flights currently operated by Mesaba are designated as Northwest Airlines flights under agreements with Northwest Airlines, Inc. ("Northwest"). Mesaba's flight schedules are coordinated with those of Northwest to facilitate interline connections at the Minneapolis/St. Paul International Airport, Detroit Metropolitan Airport and the Memphis International Airport. AGREEMENTS WITH NORTHWEST The Company operates as a regional air carrier providing scheduled jet-prop and air freight service as Mesaba Airlines/Northwest Airlink under an Airline Services Agreement (the "Airlink Agreement") with Northwest to 84 cities in the Upper Midwest and Canada from Northwest's hub airports in Minneapolis/St. Paul and Detroit. The Airlink Agreement provides for exclusive jet-prop rights to designated service areas and extends through June 30, 2007. Either Northwest or Mesaba has the right to terminate the Airlink Agreement without cause upon 365 days notice, such notice not to be given before July 1, 2000. Mesaba also operates regional jet aircraft under a separate Regional Jet Services Agreement (the "Jet Agreement"), under which Mesaba operates Avro RJ85 ("RJ85") regional jets for Northwest. As of June 2000, Mesaba had taken delivery of all 36 RJ85 aircraft which currently serve 46 cities. The aircraft are subleased from Northwest and are operated as Northwest Jet Airlink from the Minneapolis/St. Paul, Detroit and Memphis hubs. Northwest has the right to terminate the Jet Agreement without cause upon not less than 180 days nor more than 365 days notice, such notice not to be given before October 25, 2003. Under the agreements, all flights that Mesaba currently operates are designated as Northwest flights using Northwest's designator code in all computer reservations systems, including the Official Airline Guide, with an asterisk and a footnote indicating that Mesaba is the carrier providing the service. In addition, flight schedules of Mesaba and Northwest are closely coordinated to facilitate interline connections, and Mesaba's passenger gate facilities at the Minneapolis/St. Paul International Airport, Detroit Metropolitan Airport and Memphis International Airport are integrated with Northwest's facilities in the main terminal buildings, rather than at the more remote commuter air terminals. The agreements with Northwest also permit Mesaba to offer its passengers fares between the cities serviced by Mesaba and all of the destinations served by Northwest as well as participation in Northwest's frequent flyer program. Mesaba's jet aircraft are painted in the colors of Northwest Airlines and the jet-prop aircraft are painted in a distinctive "Northwest Airlink" configuration, with a Northwest Airlines logo in addition to Mesaba's name. Mesaba, through the agreements, receives ticketing and certain check-in, baggage, freight and aircraft handling services from Northwest at certain airports. In addition, Mesaba receives its computerized reservations services from Northwest. Northwest also performs all marketing schedules, yield management and pricing services for Mesaba's flights. Mesaba believes that its competitive position is enhanced as a result of its marketing and other agreements with Northwest, particularly through the ability of Mesaba to offer its passengers coordinated flight schedules to the destinations served by Northwest. Loss of Mesaba's affiliation with Northwest or Northwest's failure to materially perform under the Airlink or Jet Agreement for any reason would have a material adverse effect on the Company's operations and financial position. ROUTE SYSTEM The following sets forth certain information with respect to Mesaba's scheduled route system for June 2000. Cities served from Minneapolis/St. Paul: Grand Rapids, MN, Brainerd, MN, Pierre, SD, Sioux Falls, SD, Bemidji, MN, Thief River Falls, MN, Aberdeen, SD, Wausau, WI, Lincoln, NE, Grand Forks, ND, Watertown, SD, Fargo, ND, Omaha, NE, Moline, IL, Houghton/Hancock, MI, Marquette, MI, LaCrosse, WI, Bloomington, IL, Thunder Bay, Ontario, St. Cloud, MN, Escanaba, MI, Ely, MN, Bismarck, ND, Kalamazoo, MI, Rochester, MN, Kenora, Ontario, Green Bay, WI, Cincinnati, OH, Traverse City, MI, Waterloo, IA, Mason City, IA, Fort Dodge, IA, Sioux City, IA, Hibbing, MN, Duluth, MN, Rhinelander, WI, Eau Claire, WI, Dubuque, IA, Peoria, IL, Rockford, IL, Appleton, WI , International Falls, MN, Pellston, MI, Cedar Rapids, IA, Regina, Saskatchewan, Aspen, CO, White Plains, NY, Saginaw, MI, Madison, WI, Rapid City, SD, Flint, MI, Pittsburgh, PA, St. Louis, MO, Charlotte, NC, Columbus, OH, Dayton, OH. Cities served from Detroit: Erie, PA, Akron/Canton, OH, Dayton, OH, Flint, MI, Traverse City, MI, Pellston, MI, Wausau, WI, Houghton/Hancock, MI, Marquette, MI, Toledo, OH, Muskegon, MI, Columbus, OH, Kalamazoo, MI, Cincinnati, OH, Lansing, MI, Youngstown, OH, Fort Wayne, IN, Lexington, KY, Charleston, WV, London, Ontario, Binghamton, NY, Roanoke, VA, Lafayette, IN, Bloomington, IL, South Bend, IN, Louisville, KY, Escanaba, MI, Champaign, IL, Evansville, IN, Knoxville, TN, State College, PA, Saginaw, MI, Benton Harbor, MI, Harrisburg, PA, Ottawa, Ontario, Elmira, NY, Allentown, PA, Cleveland, OH, Rochester, NY, Appleton, WI, Rockford, IL, Pittsburgh, PA, Des Moines, IA, Green Bay, WI, Peoria, IL, Rhinelander, WI, Montreal, Quebec, White Plains, NY, Alpena, MI, Sault Ste. Marie, MI, Dubuque, IA, Duluth, MN, Greensboro, NC, Portland, ME, Winston-Salem, NC, St. Louis, MO Cities served from Memphis: Cincinnati, OH, St. Louis, MO, Knoxville, TN, Atlanta, GA, Huntsville, AL, Wichita, KS, Cleveland, OH, Fayetteville, AK, Dallas/Ft. Worth, TX, Baton Rouge, LA, Jackson MS, Biloxi/Gulfport, MS, Nashville, TN, Raleigh/Durham, NC, St. Louis, MO. From time to time Mesaba reviews the feasibility of expanding the frequency of its service to airports currently being served, as well as initiating passenger service to additional cities generally within its service area. Mesaba works closely with Northwest to coordinate flight schedules and to facilitate connections between Mesaba and Northwest. See "Business . Agreements with Northwest." AIRCRAFT The following table sets forth-certain information as to Mesaba's passenger aircraft fleet as of June 1, 2000: Approximate Approximate single Average flight Cruising Type of Number of Seating range Speed Aircraft Aircraft Capacity (miles) (M.P.H.) --------- --------- --------- ----------- ------------ Avro RJ85 36 69 1,400 410 Saab 340 73 30/34 500 300 Mesaba leases or sub-leases its Avro RJ85 aircraft from Northwest under operating leases with terms of up to 10 years. The Jet Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events. The Avro RJ85 aircraft are fast, pressurized jet airplanes with galleys, dual class cabins, standup headroom, lavatories, ACARS, radar, ground proximity warning, traffic collision avoidance and de-icing systems. Mesaba leases all of its Saab 340 aircraft, either directly from aircraft leasing companies or through sub-leases with Northwest under operating leases with terms of up to 17 years. The Airlink Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events. The Saab 340 aircraft are fast, fuel efficient, pressurized jet- prop airplanes with galleys, standup headroom, lavatories, radar, global positioning, ground proximity warning, traffic collision avoidance and de- icing systems. All of Mesaba's aircraft comply fully with all current Federal Aviation Regulations issued by the Federal Aviation Administration ("FAA"). As of June 2000, Mesaba's existing fleet of Avro RJ85 and Saab 340 aircraft had remaining lease terms of nine months to 16 years. The current aggregate monthly lease payments for all aircraft is approximately $8,500,000. COMPETITION The airline industry is highly competitive as a result of the Airline Deregulation Act of 1978 (the "Deregulation Act"). In general, the Deregulation Act increased competition by eliminating restrictions on fares and route selection. The Deregulation Act also contributed to the withdrawal of national and major carriers from short-haul markets by allowing them to more easily obtain additional long-haul routes, which can be more efficiently and profitably served by larger jet aircraft. Elimination of barriers to entry into new markets, however, also creates greater potential for competing service by other carriers operating small, fuel-efficient aircraft on short-haul routes serving small and medium-sized cities. Mesaba currently competes directly with other regional airlines on some routes it serves. Mesaba also faces competition from regional carriers offering service to alternative hubs for connecting flights. No assurance can be given that other carriers, including major carriers, will not institute competing service on routes served by Mesaba. Competitive factors in the airline industry generally include fares, frequency and dependability of service, convenience of flight schedules, type of aircraft flown, airports served, relationships with travel agents, and efficiency and reliability of reservations systems and ticketing services. The compatibility of flight schedules with those of other airlines and the ability to offer through fares and convenient inter-airline flight connections are also important competitive factors. The Company believes that Mesaba is competitive with respect to each of such factors because of its established reputation, cost structure, aircraft fleet which is properly suited for the small and medium-sized cities served, and especially its relationship with Northwest. FUEL The cost of aviation fuel accounted for 7.5% of total operating costs for the year ended March 31, 2000, 8.5% the year ended March 31, 1999, and 10.1% for the year ended March 31, 1998. The Company has arrangements with Northwest and ten major fuel suppliers for substantial portions of its fuel requirements. The Company believes that such arrangements assure an adequate supply of fuel for current and anticipated future operations. Both the cost and availability of fuel, however, are subject to factors beyond the control of the Company. Certain provisions of the Airlink Agreement protect Mesaba from fluctuations in aviation fuel prices and Northwest provides fuel for all of the jet operations. FARES Mesaba derives its passenger revenues by selling its capacity to Northwest at predetermined rates. Passenger fares vary primarily in relation to length of the flight and other factors and are established by Northwest. Under the agreements with Northwest, the Company has the ability to enter into arrangements with other air carriers for service to cities not served by Northwest, so long as the Company does not use the "NW" designator code, Avro RJ85 or Saab 340 aircraft with respect to such service. The Company would need to acquire additional aircraft if it entered into an arrangement for service to carriers other than Northwest. REGULATION Pursuant to the Federal Aviation Act of 1958, as amended (the "Aviation Act"), the federal Department of Transportation ("DOT"), principally through the FAA, has certain regulatory authority over the operations of all air carriers. The jurisdiction of the FAA extends primarily to the safety and operational provisions of the Aviation Act, while the responsibility of the DOT involves principally the regulation of certain economic aspects of airline operations. FAA REGULATION. Mesaba holds an "Air Carrier Certificate" from the FAA, under Part 119 of the Federal Aviation Regulation, permitting it to conduct flight operations in compliance with Part 121 of the Federal Aviation Regulations. The Part 121 regulations are the same regulatory requirements applied to major airlines. The FAA regulations to which Mesaba is subject are extensive and include, among other items, regulation of aircraft maintenance and operations, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel and other matters affecting air safety. To ensure compliance with its regulations, the FAA requires airlines to obtain operating, airworthiness and other certificates that are subject to suspension or revocation for cause. Mesaba holds all certificates necessary for its operations. DOT REGUALTION. Prior to October 1992, Mesaba was registered under Part 298 of the economic regulations of the DOT. On October 26, 1992, the DOT granted Mesaba a Certificate of Public Convenience and Necessity under Section 401 of the Aviation Act. As a certificated carrier, Mesaba is required to file certain additional quarterly reports with the DOT, including a report of aircraft operating expenses and related statistics. The Certificate of Public Convenience and Necessity is a prerequisite for operations with aircraft larger than 60 seats. OTHER REGULATION. Under the Noise Control Act of 1972 and the Aviation Safety and Noise Abatement Act of 1979, the FAA has authority to monitor and regulate aircraft engine noise. Management of the Company believes that Mesaba's aircraft comply with or are exempt from such regulations and that Mesaba complies with standards for aircraft exhaust emissions and fuel storage facilities issued by the Environmental Protection Agency. The Company is also required to comply with the drug-testing program adopted under Part 14 CFR by the DOT. As a foreign carrier operating in Canada, the Company is subject to regulation by the Canadian Department of Transport and has been issued Foreign Air Carrier Operating Certificates by such agency. Because Northwest maintains certain contracts with the Department of Defense (the "DOD"), Mesaba is subject to periodic inspections by the DOD. INSURANCE Mesaba carries the types of insurance customary in the airline industry, including coverage for public liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability, and workers' compensation. The Company believes that this insurance is adequate as to amounts and risks covered. There can be no assurance, however, that the insurance carried would be sufficient to protect the Company adequately in the event of a catastrophic accident. AIRCRAFT MAINTENANCE Mesaba employs its own aircraft, avionics and engine maintenance staff that perform substantially all routine maintenance to its aircraft and engines. Major overhauls on its airframes, engines, and other rotable parts on Saab 340 and RJ85 aircraft are performed internally or at FAA authorized facilities. AIRPORT AND TEMINAL FACILITIES Mesaba's ticket counter and baggage-handling space is leased from local airport authorities or other airlines at all of the airports served. In 47 of the cities it serves, Mesaba receives support service under agreements with Northwest. The duration of the leases and service agreements vary. Mesaba pays local airport authorities for the use of landing fields at rates that are based on the number of flights per day, fixed fees, or on the number of aircraft landings and aircraft weight. PROPERTIES The Company's principal executive offices are located at the Minneapolis/Saint Paul International Airport. Mesaba leases approximately 293,000 square feet of facilities, ramp, parking and unimproved land at the airport under separate ground and facilities leases with the Metropolitan Airports Commission. The lease expires on December 31, 2008 and provides that Mesaba will have a right of first refusal on any new lease covering the premises. Mesaba's primary facility contains approximately 83,000 square feet of office, shop, and hangar space. Mesaba is obligated to make payments of approximately $35,000 per month under the lease for the hangar, office and maintenance facility, in addition to approximately $13,000 per month under the ground lease for the underlying land and access ramp. Mesaba leases approximately 394,000 square feet of facilities, ramp, parking and unimproved land at the Detroit Metropolitan Airport under separate ground and facilities leases. The facilities lease covers approximately 45,000 square feet of hangar and maintenance space and obligates Mesaba to pay monthly rentals ranging between approximately $22,000 and $36,000 until August 1, 2002 as part of Special Facilities Bond financing provided by Wayne County, Michigan. The ground lease has a 20-year term concurrent with the facilities lease, which expires August 1, 2010. Monthly lease payments of approximately $7,000 are currently required under the ground lease, subject to an annual adjustment on January 1 each year based upon the percentage change in an index published by the Bureau of Labor Statistics of the U.S. Department of Commerce. Mesaba owns approximately 38,000 square feet of hangar and office space located on approximately 102,000 square feet of land and parking areas of which Mesaba is ground lessee, at the Central Wisconsin Airport in Mosinee, Wisconsin. Mesaba pays approximately $800 per month under the terms of the ground lease relating to such facility, which expires on December 31, 2011, subject to two 10-year renewal options. Mesaba leases approximately 497,000 square feet of facilities, ramp, parking and unimproved land at the Cincinnati/Northern Kentucky Airport under separate ground and facilities leases. The facilities lease covers approximately 126,000 square feet of hangar and maintenance space and Mesaba pays monthly rentals of approximately $88,000 until January 29, 2029 as part of Special Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport Authority. The ground lease has a 30-year term concurrent with the facilities lease, which expires January 29, 2029. Monthly lease payments of approximately $10,500 are required under the ground lease. EMPLOYEES As of June 2000, Mesaba employed 3,372 persons, of whom 935 were pilots, 338 were management, administrative and clerical personnel, 325 were aircraft maintenance personnel, 1,190 were station managers, station agents and line services personnel, and 584 were flight attendants. Approximately 840 of Mesaba's employees are part-time. The Air Line Pilots Association ("ALPA") represents Mesaba's pilots. Mesaba concluded negotiations with ALPA and reached a new collective bargaining agreement effective June 1, 1996, with a term of four years. In October 1996, Mesaba and ALPA reached agreement on a modification of the collective bargaining agreement which, in addition to other enhancements, extended the term of the agreement to June 1, 2002. The Aircraft Mechanics Fraternal Association ("AMFA") represents Mesaba's mechanics. Mesaba concluded negotiations with AMFA and reached a new collective bargaining agreement effective August 22, 1999, with a term of four years. The Transportation Workers Union ("TWU") represents Mesaba's dispatchers. Mesaba concluded negotiations with TWU and reached a new collective bargaining agreement effective May 26, 2000, with a term of five years. The Association of Flight Attendants ("AFA") represents Mesaba's flight attendants. Formal negotiations between Mesaba and AFA are currently in progress. The Company has yet to achieve its first contract with AFA, since negotiations only began in May 2000. The Railway Labor Act precludes any job action without a formal declaration of an impasse by the NMB, which has not yet occurred. Any work stoppage, whether from a failure to enter into a new collective bargaining agreement or otherwise, could have a material adverse impact on the Company. Mesaba has had no work stoppages and management, in general, believes that its relations with its employees are good. CYCLICITY AND SEASONALITY The airline industry generally is subject to cyclical moves in the economy. Because both personal discretionary travel and business travel may be expected to decline during periods of economic weakness, the airline industry tends to experience poorer financial results during such periods. Seasonal factors, primarily weather conditions and passenger demand, historically have affected Mesaba's monthly passenger boardings. The first and second fiscal quarters have typically shown a higher level of passenger boardings as compared with the third and fourth quarters for many of the cities served by Mesaba. As a result of such factors, the Company's revenues and earnings historically have been higher during the first six months of the fiscal year. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information regarding the executive officers of the Company and its subsidiary, Mesaba Aviation, Inc. Name Age Position Officer since Carl R. Pohlad 84 Chairman of the Company and 1995 Mesaba Paul F. Foley 47 President and Chief Executive 1999 Officer of the Company and Mesaba John S. Fredericksen 51 Executive Vice President, 1992 Administration, General Counsel and Secretary of the Company and Mesaba Robert E. Weil 35 Vice President, Chief Financial 2000 Officer and Treasurer of the Company and Mesaba Scott L. Durgin 38 Vice President, Customer Service 1996 of Mesaba John G. Spanjers 45 Vice President, Flight Operations 1999 of Mesaba Scott R. Bussell 47 Vice President, Technical 2000 Operations of Mesaba Carl R. Pohlad is a Class Two director and Chairman of the Board of Directors. Mr. Pohlad has been President and a director of Marquette Bancshares, Inc. since 1993. Prior to 1993, Mr. Pohlad served as President and Chief Executive Officer of Marquette Bank Minneapolis and Bank Shares Incorporated. Mr. Pohlad was Chairman of the Board of MEI Corporation from 1972 to 1986 and Chairman of the Board of MEI Diversified Inc. from 1986 to 1994. Mr. Pohlad is also an owner, director and the President of CRP Sports, Inc., the managing general partner of the Minnesota Twins baseball club, and is a director of Genmar Holdings, Inc. Paul F. Foley is a Class One director and President and Chief Executive Officer of the Company. Mr. Foley was appointed President and Chief Executive Officer of the Company in October 1999. Prior to joining the Company, Mr. Foley was Vice President of Operations Support at Atlas Air, Inc. In this position, he was responsible for Airline Flight Crew and Ground Operations in 66 cities and 33 countries. He was previously at LSG Lufthansa Service/Sky Chefs as Group Vice President of Operations, North America. He also served as President of Continental Airline's subsidiary, Chelsea Catering Corporation. Mr. Foley holds a Bachelor of Science degree from Cornell University and a Masters Degree from Southern Methodist University. John S. Fredericksen joined the Company as Vice President, General Counsel in July 1992. In August 1993, Mr. Fredericksen was appointed Senior Vice President, Operations of the Company and Mesaba. He was appointed Secretary of the Company and Mesaba in November 1994. In October 1999, he was appointed to his current positions with the Company and Mesaba. From March 1987 until joining the Company, Mr. Fredericksen was employed by the Regional Airline Association, Washington, D.C., serving most recently as its President. From 1980 until 1987, Mr. Fredericksen was an attorney with the Federal Aviation Administration. Robert E. Weil was named Vice President, Chief Financial Officer and Treasurer of the Company and Mesaba in January 2000. Mr. Weil was the Managing Director of Finance - Ground Operations for Northwest Airlines from December 1997 until joining the Company. He also held the position of Controller - Ground Operations and held various other finance positions at Northwest since 1991. Mr. Weil holds a Masters degree in Business from the Kellogg Graduate School of Management at Northwestern University. Scott L. Durgin joined the Company as Vice President, Customer Service in December 1996. Mr. Durgin was Vice President, Customer Service of Business Express Airlines from May 1995 until joining the Company. He served as a Regional Director for Express I Airlines from December 1991 to May 1995, and held various positions, the last being Director of Stations, at Pilgrim Airlines from 1983 until December 1991. John G. Spanjers was named Vice President, Flight Operations of the Company and Mesaba in November 1999. Mr. Spanjers joined the Company in November 1999. Mr. Spanjers was employed by Northwest Airlines from June 1988 to November 1999, serving most recently as Director Performance Engineering. Prior to that, Mr. Spanjers held various operational positions within the regional and charter airline industry. Scott R. Bussell was named Vice President, Technical Operations of the Company and Mesaba in May 2000. Mr. Bussell joined the Company in October 1995 as Director of Maintenance for Mesaba Airlines. Before coming to Mesaba in 1995, Mr. Bussell held the position of Director of Maintenance for Renown Aviation in Roswell, NM. From 1977 to 1994 Mr. Bussell held numerous positions in Technical operations while employed at Continental Airlines and Frontier Airlines in Denver, CO. Mr. Bussell graduated with honors from Colorado Aero Tech and holds a FAA Airframe and Powerplant License. Item 2. PROPERTIES See information provided under the captions "Business . Aircraft," ". Airport and Terminal Facilities and Services," and ". Properties" in Item 1 herein. Item 3. LEGAL PROCEEDINGS The Company is not currently a party to any material pending legal proceedings. From time to time the Company may become involved in routine litigation incidental to its business. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FOURTH QUARTER OF FISCAL YEAR There were no matters submitted to a vote of the Company's shareholders during the three-month period ended March 31, 2000. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded under the symbol "MAIR" on the NASDAQ National Market. The following table sets forth the range of high and low sale prices for the Company's Common Stock and the dividends per share for each of the fiscal quarters of the two years ended March 31, 2000. Quotations for such periods are as reported by NASDAQ for National Market issues. All prices have been adjusted to reflect the Company's three-for-two stock split effective April 30, 1998. The Company has not issued cash dividends since September 1995. STOCK QUOTATIONS ($)High ($)Low ------- ------ Fiscal 1999 First quarter 24.25 20.00 Second quarter 28.75 13.00 Third quarter 21.00 9.75 Fourth quarter 21.00 12.13 Fiscal 2000 First quarter 17.00 12.00 Second quarter 14.75 10.75 Third quarter 14.13 8.88 Fourth quarter 12.56 10.00 On June 12, 2000, the number of holders of record of Common Stock was 863. The transfer agent for the Company's Common Stock is Norwest Bank Minnesota, National Association, 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064. Item 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON The following table sets forth selected financial data with respect to the Company as of the dates and for the periods indicated. The selected financial data has been derived from the audited financial statements. The financial data set forth below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7. March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Statement of Operations Data: (amounts in thousands, except per share data) Operating revenues $406,199 $331,753 $277,225 $185,701 $170,455 Operating expenses $359,364 $299,531 $246,856 $166,118 $158,148 --------- -------- -------- -------- -------- Operating income $ 46,835 $ 32,222 $ 30,369 $ 19,583 $ 12,307 ======== ======== ======== ======== ======== Net income $ 31,061 $ 21,271 $ 19,804 $ 11,986 $ 6,972* ======== ======== ======== ======== ======== Net income per share - Basic $ 1.54 $ 1.07 $ 1.03 $ 0.63 $ 0.41* ======== ======== ======== ======== ======== Weighted Average number of shares outstanding-Basic 20,177 19,793 19,270 19,143 16,857 ======== ======== ======== ======== ======== Net income per share-Diluted $ 1.48 $ 0.99 $ 0.95 $ 0.62 $ 0.40* ======== ======== ======== ======== ======== Weighted Average number of shares outstanding and common share equivalents-Diluted 21,043 21,512 20,846 19,310 17,43 ======== ======== ======== ======== ======== *Excludes non-taxable gain of $49,303 from distribution of subsidiary As of March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Balance Sheet Data: (dollars in thousands) Current assets $139,952 $116,369 $ 89,499 $ 67,601 $ 43,212 Net property and equipment 54,109 47,195 32,097 19,772 12,388 Other noncurrent assets 13,663 15,659 15,595 17,193 2,604 --------- -------- -------- -------- -------- Total assets $207,724 $179,223 $137,191 $104,566 $ 58,204 ======== ======== ======== ======== ======== Current liabilities $ 44,686 $ 48,674 $ 42,509 $ 33,393 $ 17,323 Long-term liabilities 18,320 21,310 19,136 21,379 6,466 Shareholders' equity 144,718 109,239 75,546 49,794 34,415 --------- -------- -------- -------- -------- Total liabilities and shareholders' equity $207,724 $179,223 $137,191 $104,566 $ 58,204 ======== ======== ======== ======== ======== Mesaba Aviation, Inc. (1) Year ended March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Selected Operating Data: Revenue passengers carried 5,667,600 4,342,200 3,324,146 1,959,632 1,572,401 Revenue passenger miles (000's)(2) 1,534,116 1,112,050 805,495 445,871 344,592 Available seat miles (000's) (3) 2,677,712 1,994,626 1,469,229 864,083 732,018 Passenger revenue per available seat mile $ .150 $ .165 $ .186 $ .212 $ .204 Cost per available seat mile $ .134 $ .150 $ .168 $ .192 $ .190 Passenger load factor (4) 57.3% 55.8% 54.8% 51.6% 47.1% Break-even load factor (5) 50.1% 49.8% 48.3% 46.3% 43.3% Yield per revenue passenger mile (6) $ .262 $ .295 $ .340 $ .416 $ .434 Departures 274,357 236,209 201,622 144,266 123,985 __________________________ (1) Does not include the operations of AirTran Airways, Inc. which was spun off from the Company on September 7, 1995. (2) "Revenue passenger miles" are determined by multiplying the number of fare paying passengers carried by the distance flown. (3) "Available seat miles" are determined by multiplying the number of seats available for passengers by the number of miles flown. (4) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles. (5) "Break-even load factor" is computed by dividing the sum of the airline operating expenses and net interest expense by total airline operating revenues and multiplying the result by the passenger load factor. (6) "Yield per revenue passenger mile" is determined by dividing passenger revenue by revenue passenger miles. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (As used herein, "unit cost" means operating cost per available seat mile. Dollars and shares outstanding are expressed in thousands) EARNINGS SUMMARY The Company reported net income of $31.1 million or $1.48 per diluted share for the fiscal year ended March 31, 2000, compared to $21.3 million or $0.99 per diluted share in fiscal 1999 and $19.8 million or $0.95 per diluted share in fiscal 1998. Weighted average common shares and common share equivalents outstanding was 21.0 million, 21.5 million and 20.8 million in fiscal years 2000, 1999 and 1998 respectively. Earnings per share and weighted average shares outstanding for fiscal 1998 have been adjusted to reflect a three-for-two stock split in the form of a 50% stock dividend declared by the Board of Directors on April 6, 1998 for shares held of record on April 17, 1998. RSULTS OF OPERATIONS OPERATING REVENUES. Operating revenues rose 22.4% to $406.2 million in fiscal 2000 from $331.8 million in fiscal 1999 and $277.2 million in fiscal 1998. Passenger revenue per available seat mile ("RASM") decreased 9.1% to $0.150 from $0.165 in 1999 and 19.4% from $0.186 in 1998, primarily due to additional deliveries of the higher capacity RJ85 aircraft. Mesaba's revenue per available seat mile is lower on the RJ85 than the Saab 340 because Northwest provides more services related to the jet operation. Mesaba's average passenger load factor was 57.3% in 2000, up from 55.8% in 1999 and 54.8% in 1998. The improvements in traffic and load factor are attributable to the introduction of 11 RJ85 aircraft as well as overall increases in passenger demand within the industry. OPERATING EXPENSES. Due to additional aircraft, total operating expenses increased 20.0% to $359.4 million in 2000 from $299.5 million in 1999 and $246.9 million in 1998. Mesaba experienced a 10.7% decrease in the cost per available seat mile ("CASM") to 13.4 cents compared with 15.0 cents in 1999. Seat capacity (measured in available seat miles or "ASM") increased 34.2% in 2000 to 2.68 billion, primarily as a result of the introduction of 11 RJ85 aircraft. The following table compares components of Mesaba's operating cost per ASM for the years ended March 31, 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Wages and benefits 3.7 CENTS 4.0 CENTS 4.6 CENTS Fuel 1.0 1.3 1.7 Direct maintenance 2.6 2.8 2.9 Rents 3.3 3.5 3.9 Landing fees 0.3 0.4 0.4 Insurance and taxes 0.2 0.4 0.5 Depreciation and amortization 0.5 0.5 0.4 Other 1.8 2.1 2.4 ---- ---- ---- Total 13.4 15.0 16.8 Wages and benefits increased 23.4% to $99.1 million in fiscal 2000 compared to $80.3 million in fiscal 1999 and $67.2 million in fiscal 1998. However, the increased capacity generated by the additional aircraft has caused these costs to be reduced on a unit cost basis 7.5% to 3.7 cents from 4.0 cents. The overall dollar increase is a result of increased cost of flight crews due to a 21.5% increase in block hours flown and the addition of flight crews to support the continued introduction of the RJ85 aircraft. Wage and benefit cost of support personnel also increased due to an increase in scheduled operations. Normal wage and benefit increases also contributed to the higher expenses. Overall, personnel levels (measured on a full time equivalent basis at the fiscal year end) increased to approximately 3,000 from 2,700. Total fuel costs increased 5.1% to $26.8 million in fiscal 2000 from $25.5 million in fiscal 1999 and $25.0 million in fiscal 1998. The change is attributable to increased consumption caused by an increase in block hours flown by the jet-prop operation. The average price per gallon, including taxes and into plane fees, was 83.5 cents in fiscal years 2000, 1999 and 1998. Certain provisions of the Airlink Agreement protect Mesaba from future fluctuations in fuel prices. Unit cost decreased 23.1% to 1.0 cents from 1.3 cents. Mesaba is not required to provide fuel for the jet operation. Direct maintenance expense, excluding wages and benefits costs, increased to $69.8 million in fiscal 2000 from $56.7 million in fiscal 1999 and $42.2 million in fiscal 1998. This increase was attributable to the addition of 11 RJ85 aircraft to the fleet during fiscal 2000. On a unit cost basis the cost decreased 7.1% from 2.8 to 2.6 cents Aircraft rentals were $88.9 million in fiscal 2000, $70.4 million in fiscal 1999 and $57.2 million in fiscal 1998. Mesaba added 11 RJ85 aircraft during the period. However, unit costs decreased 5.7% to 3.3 cents from 3.5 cents. Fiscal year 1998 costs include $7.7 million in wet leased aircraft expenses. Landing fees were $7.5 million in fiscal 2000, $6.9 million in fiscal 1999 and $6.3 million in fiscal 1998. The increase is attributable to a 6.2% increase in jet-prop departures, which caused an increase in the total gross landing weight. On a unit cost basis the cost decreased to 0.3 cents from 0.4 cents in fiscal 1999. Mesaba is not required to pay landing fees for the jet operation. Insurance and taxes were $5.7 million in fiscal 2000, $6.9 million in fiscal 1999 and $6.8 million in fiscal 1998. This is due primarily to a 40% reduction in passenger liability and hull insurance rates offset by increases in passenger volume and an increase in property taxes and hull insurance caused by increasing fleet values. Due to the additional capacity generated by the jet and jet-prop equipment, unit cost decreased 50.0% to 0.2 cents from 0.4 cents. Depreciation and amortization totaled $14.4 million in fiscal 2000 compared to $10.0 million in fiscal 1999 and $6.5 million in fiscal 1998. The increase in Mesaba's depreciation and amortization resulted primarily from the acquisition of spare parts to support the RJ85 and Saab 340 fleet and the amortization of the Northwest warrants. In April and June 1998, the Company paid a contract rights fee in the form of stock purchase warrants to Northwest as part of amendments to the Regional Jet Services Agreement allowing for the increase from 12 to 36 aircraft. Contract rights are being amortized on a straight-line basis over the minimum term of the Jet Agreement. Unit cost was unchanged at 0.5 cents. Administrative and other costs totaled $47.3 million in fiscal 2000, $42.8 million in fiscal 1999 and $35.7 million in fiscal 1998. This increase is primarily attributable to 11.3% higher crew related expenses due to increased flying and training to support the RJ85 and Saab 340 fleet. Additionally, higher passenger and airport related expenses were incurred due to increases in traffic and the number of cities served. Unit cost decreased 14.3% to 1.8 cents from 2.1 cents. Mesaba is generally not required to provide airport and passenger related services for the jet operation. OPERATING INCOME. The Company's operating income was $46.8 million in fiscal 2000, $32.2 million in fiscal 1999 and $30.4 million in fiscal 1998. Mesaba's operating margins were 11.5% in 2000, 9.7% in 1999 and 11.0% in 1998. Both operating income and operating margins were adversely impacted by the pilot's strike at Northwest Airlines, which resulted in an 18-day suspension of service, in fiscal 1999. NONOPERATING INCOME. Nonoperating income was $4.4 million in fiscal 2000, $4.0 million in fiscal 1999 and $2.6 million in fiscal 1998. Interest income increased $0.6 million to $4.3 million in 2000 from $3.7 million in 1999. PROVISION FOR INCOME TAXES. The provision for income taxes was $20.2 million in fiscal 2000, $14.1 million in fiscal 1999 and $13.1 million in fiscal 1998. The effective tax rate was 39.4% in 2000, 39.0% in 1999 and 39.9% (not including the gain on distribution which is not taxable) in 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital increased to $95.3 million with a current ratio of 3.1 at March 31, 2000 compared to $67.7 million and 2.4 at March 31, 1999. Cash and cash equivalents increased by $17.0 million to $100.2 million at March 31, 2000. Net cash flows provided by operating activities totaled $31.5 million in fiscal 2000, $35.9 million in fiscal year 1999 and $30.0 million in fiscal 1998. The change from fiscal 1999 is primarily due to the decrease in payables. Net cash flows used for investing activities totaled $18.4 million in fiscal 2000, $22.7 million in fiscal 1999 and $13.2 million in fiscal 1998. The change from fiscal 1999 is primarily due to lower levels of capital expenditures. Net cash flows provided by financing activities amounted to $4.0 million in fiscal 2000 and consisted of $4.4 million in proceeds from the exercise of stock options by current and former employees offset by principal payments of $0.5 million. Long term debt, net of current maturities, totaled $3.9 million at March 31, 2000 and $4.4 million as of March 31, 1999. Long-term debt consists principally of capitalized lease financing for the Minneapolis/St. Paul and Detroit hangar facilities. The ratio of long-term debt to stockholders' equity was 3% at March 31, 2000, compared to 4% at the end of fiscal 1999. As of June 2000, Mesaba's fleet consisted of 109 aircraft covered under operating leases with remaining terms of nine months to 16 years and aggregate monthly lease payments of approximately $8.5 million. Operating leases have been the Company's primary method for acquiring aircraft, and management expects to continue relying on this method to meet most of its future aircraft financing needs. The three remaining undelivered aircraft will require additional monthly lease payments of $0.5 million per month and will be funded from operations. Continued funding of the monthly lease payments is ensured as long as the current operating contracts with Northwest are in effect. During fiscal 2000, Mesaba leased approximately 497,000 square feet of facilities, ramp, parking and unimproved land at the Cincinnati/Northern Kentucky Airport. The lease covers approximately 126,000 square feet of hangar and maintenance space and obligates Mesaba to pay monthly rentals of $77.0 until January 29, 2029 as part of Special Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport Authority. The ground lease has a 30-year term concurrent with the facilities lease, which expires January 29, 2029. Monthly lease payments of approximately $10.5 are required under the ground lease. Mesaba intends to make these lease payments from operations. Approximately 80% of Mesaba's passengers connected with Northwest in fiscal 2000, 81% in 1999 and 79% in 1998. Approximately 84% of the Company's accounts receivable balance at March 31, 2000 are due from Northwest. Loss of the Company's affiliation with Northwest or Northwest's failure to make timely payment of amounts owed to the Company or to otherwise materially perform under the Airlink or Jet Agreement for any reason would have a material adverse effect on the Company's operations and financial results. The Company has historically relied upon internally generated funds to support its working capital requirements. Management believes that funds from operations will provide adequate resources for meeting non-aircraft capital needs in fiscal 2001. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and the related Report of Independent Public Accountants are included in this Form 10-K on the pages indicated below. Page Report of Independent Public Accountants 19 Consolidated balance sheets as of March 31, 2000 and 1999 20 Consolidated statements of operations for the years ended March 31, 2000, 1999 and 1998 21 Consolidated statements of shareholders' equity for the years ended March 31, 2000, 1999 and 1998 22 Consolidated statements of cash flows for the years ended March 31, 2000, 1999 and 1998 23 Notes to consolidated financial statements 24 Report of independent public accountants To Mesaba Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Mesaba Holdings, Inc. (a Minnesota corporation) and Subsidiary as of March 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2000. 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. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Mesaba Holdings, Inc. and Subsidiary as of March 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Note 2 to the financial statements, effective April 1, 1998, the Company changed its method of accounting for start-up costs. Arthur Andersen LLP Minneapolis, Minnesota, May 5, 2000 MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Balance Sheets (In Thousands, Except Share and Per Share Information) As of March 31, --------------------- 2000 1999 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $100,172 $ 83,152 Accounts receivable, net 20,090 15,905 Inventories 6,103 6,564 Prepaid expenses and deposits 4,371 3,719 Deferred income taxes 9,216 7,029 --------- -------- Total current assets 139,952 116,369 PROPERTY AND EQUIPMENT: Facilities under capital lease 9,147 9,147 Flight equipment 55,446 41,178 Other property and equipment 26,676 21,635 Accumulated depreciation and amortization (37,160) (24,765) --------- -------- Net property and equipment 54,109 47,195 OTHER ASSETS, net 13,663 15,659 --------- -------- $207,724 $179,223 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations $ 429 $ 393 Accounts payable 13,003 20,857 Accrued liabilities- Payroll 8,271 8,786 Maintenance 14,064 10,415 Other 8,919 8,223 --------- --------- Total current liabilities 44,686 48,674 CAPITAL LEASE OBLIGATIONS, net of current maturities 3,866 4,359 OTHER NONCURRENT LIABILITIES 14,454 16,951 SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 60,000,000 shares authorized; 20,267,141 and 19,863,829 shares issued and outstanding, respectively 203 199 Paid-in capital 49,427 45,013 Warrants 16,500 16,500 Retained earnings 78,588 47,527 --------- --------- Total shareholders' equity 144,718 109,239 --------- --------- $207,724 $179,223 ========= ========= The accompanying notes are an integral part of these consolidated balance sheets. MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Operations (In Thousands, Except Per Share Information) For the Years Ended March 31, ----------------------------- 2000 1999 1998 -------- -------- --------- OPERATING REVENUES: Passenger $401,342 $328,244 $273,973 Freight and other 4,857 3,509 3,252 -------- -------- --------- Total operating revenues 406,199 331,753 277,225 OPERATING EXPENSES: Wages and benefits 99,070 80,297 67,194 Aircraft fuel 26,809 25,512 24,983 Aircraft maintenance 69,767 56,682 42,172 Aircraft rents 88,877 70,422 57,235 Landing fees 7,520 6,886 6,330 Insurance and taxes 5,677 6,894 6,761 Depreciation and amortization 14,354 10,027 6,500 Other 47,290 42,811 35,681 -------- -------- --------- Total operating expenses 359,364 299,531 246,856 -------- -------- --------- Operating income 46,835 32,222 30,369 NONOPERATING (EXPENSE) INCOME: Interest expense (404) (443) (458) Interest income and other 4,785 4,405 3,022 -------- -------- --------- Income before income taxes and change in accounting principle 51,216 36,184 32,933 PROVISION FOR INCOME TAXES 20,155 14,113 13,129 -------- -------- --------- Net income before change in accounting principle $ 31,061 $ 22,071 $ 19,804 PRE-OPERATING COST WRITE-OFF, net of tax - (800) - -------- -------- --------- Net income $ 31,061 $ 21,271 $ 19,804 ======== ======== ======== Earnings Per Common Share Before Accounting Change - Basic $ 1.54 $ 1.12 $ 1.03 ======== ======== ======== Earnings Per Common Share - Basic $ 1.54 $ 1.07 $ 1.03 ======== ======== ======== Weighted Average Number of Common Shares Outstanding - Basic 20,177 19,793 19,270 ======== ======== ======== Earnings Per Common Share Before Accounting Change - Diluted $ 1.48 $ 1.03 $ 0.95 ======== ======== ======== Earnings Per Common Share - Diluted $ 1.48 $ 0.99 $ 0.95 ======== ======== ======== Weighted Average Number of Common Shares Outstanding and Common Share Equivalents Outstanding - Diluted 21,043 21,512 20,846 ======== ======== ======== The accompanying notes are an integral part of these consolidated statements. BALANCE, March 31, 1997 19,176,069 $ 192 $ 40,050 922,500 $ 3,100 $ 6,452 $ 49,794 Issuance of warrants - - - 1,320,000 4,800 - 4,800 Exercise of stock options, net of related tax effects 221,184 2 1,146 - - - 1,148 Net income - - - - - 19,804 19,804 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 1998 19,397,253 194 1,196 2,242,500 7,900 26,256 75,546 Issuance of warrants - - - 1,909,422 8,600 - 8,600 Exercise of stock options, net of related tax effects 466,576 5 3,817 - - - 3,822 Net income - - - - - 21,271 21,271 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 1999 19,863,829 199 45,013 4,151,922 16,500 47,527 109,239 Exercise of stock options, net of related tax effects 403,312 4 4,414 - - - 4,418 Net income - - - - - 31,061 31,061 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 2000 20,267,141 $ 203 $49,427 4,151,922 $16,500 $78,588 $ 144,718 ========== ====== ========= ========= ========= ========= ==========
MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity For the Years Ended March 31, (In Thousands, Except Share Information) Total Common Stock Paid-In Warrants Retained Shareholders' Shares Amount Capital Shares Amount Earnings Equity ---------- ------ --------- --------- --------- --------- --------------
The accompanying notes are an integral part of these consolidated statements. MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (In Thousands) For the Years Ended March 31, ----------------------------- 2000 1999 1998 --------- -------- --------- OPERATING ACTIVITIES: Net income $ 31,061 $ 21,271 $ 19,804 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 14,354 10,027 6,500 Gain on sale of equipment (125) - - Deferred income taxes (2,889) (2,581) (819) Change in current operating items: Accounts receivable, net (4,185) (1,018) (266) Inventories 461 (443) (1,835) Prepaid expenses and deposits (652) 69 (734) Accounts payable and other (6,521) 8,557 7,305 --------- -------- --------- Net cash flows provided by operating activities 31,504 35,882 29,955 INVESTING ACTIVITIES: Purchases of property and equipment, net (19,343) (22,669) (13,418) Proceeds from sale of equipment 898 - 175 --------- -------- --------- Net cash flows used for investing activities (18,445) (22,669) (13,243) FINANCING ACTIVITIES: Repayment of capital lease obligations (457) (437) (432) Proceeds from issuance of common stock 4,418 3,822 1,148 --------- -------- --------- Net cash flows provided by financing activities 3,961 3,385 716 --------- -------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 17,020 16,598 17,428 CASH AND CASH EQUIVALENTS: Beginning of year 83,152 66,554 49,126 --------- -------- --------- End of year $100,172 $ 83,152 $ 66,554 ========= ======== ========= SUPPLEMENTARY CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 404 $ 443 $ 458 ========= ======== ========= Income taxes $ 19,636 $ 14,569 $ 15,169 ========= ======== ========= The accompanying notes are an integral part of these consolidated statements. MESABA HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Dollars in Thousands, Except Share and Per Share Information) 1. Corporate Organization and Business: COPORATE ORGANIZATION The consolidated financial statements include the accounts of Mesaba Holdings, Inc. (the "Company") and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). All significant intercompany balances have been eliminated in consolidation. BUSINESS The Company operates a regional air carrier providing scheduled passenger and air freight service as Mesaba Airlines/Northwest Airlink and Mesaba Airlines/Northwest Jet Airlink under two separate agreements with Northwest Airlines, Inc. ("Northwest") to 103 cities from Northwest's hub airports, Minneapolis/St. Paul, Detroit and Memphis. Under the Airline Services Agreement (the "Airlink Agreement") the Company operates SAAB 340 jet-prop aircraft for Northwest. This agreement provides for exclusive rights to designated service areas and extends through June 30, 2007, automatically renewing indefinitely thereafter. Either Northwest or the Company may terminate the Airlink Agreement on 365 days notice any time after June 30, 2000. In addition, Mesaba purchases fuel, reservation systems, ground handling and other services from Northwest. The Company paid $20,645 to Northwest in fiscal 2000, $16,440 in 1999 and $17,963 in 1998 for these services. Under the Regional Jet Services Agreement (the "Jet Agreement") the Company operates Avro RJ85 ("RJ85") regional jets for Northwest. This agreement extends through April 30, 2007, automatically renewing indefinitely thereafter. Northwest may terminate the Jet Agreement on not less than 180 days nor more than 365 days notice any time after October 25, 2003. Under the Jet Agreement, Mesaba is not required to provide fuel and airport and passenger related services. Under the agreements, all Mesaba flights appear in Northwest's timetables and Mesaba receives ticketing and certain check-in, baggage and freight- handling services from Northwest at certain airports. Mesaba also benefits from its relationship with Northwest through advertising and marketing programs. The Airlink Agreement and Jet Agreement provides for certain incentive payments from Northwest to Mesaba based on achievement of certain operational or financial goals, as defined. Such incentives totaled $5,159 in 2000, $4,830 in 1999 and $4,297 in 1998 and are included in passenger revenues in the accompanying consolidated statements of operations. Approximately 80% of Mesaba's passengers connected with Northwest in fiscal 2000, 81% in 1999 and 79% in 1998. Approximately 84% of the March 31, 2000 accounts receivable balances in the accompanying consolidated balance sheets are due from Northwest. Although Mesaba maintains an expanding air system serving those different markets, loss of Mesaba's affiliation with Northwest or Northwest's failure to make timely payment of amounts owed to the Company or to otherwise materially perform under the Airlink or Jet Agreement would have a material adverse effect on the Company's operations, financial position and cash flows. Northwest and the Company review contract compliance on a periodic basis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS Cash equivalents consist primarily of U.S. government securities and interest-bearing deposits with average maturities of less than 90 days and are stated at cost, which approximates market. INVENTORIES Inventories are stated at the lower of average cost or market and consist of expendable aircraft service parts and fuel. Expendable parts are charged to maintenance as used. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated on a straight- line basis for financial reporting purposes over estimated useful lives of 5-10 years for aircraft engines, flight equipment and rotable parts; 3-10 years for all other equipment; 5-36 years for buildings and improvements; and over the lease term for facilities under capital lease. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. OTHER ASSETS In connection with the Jet Agreement as amended, the Company paid a contract rights fee in the form of stock purchase warrants to Northwest. Contract rights totaled $11,700 and related accumulated amortization totaled $3,204 and $1,759 at March 31, 2000 and 1999, respectively. Contract rights are amortized on a straight-line basis over six years to coincide with the minimum term of the Jet Agreement. In connection with the Airlink Agreement, the Company paid a contract rights fee in the form of a stock purchase warrant to Northwest. Contract rights totaled $4,800 and related accumulated amortization totaled $1,320 and $840 at March 31, 2000 and 1999, respectively. Contract rights are amortized on a straight-line basis over ten years to coincide with the term of the Airlink Agreement. The Company periodically evaluates whether events and circumstances have occurred which may affect the estimated useful life or the recoverability of the remaining balance of its long-lived assets. If such events or circumstances were to indicate that the carrying amount of these assets would not be recoverable, the Company would estimate the future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) were less than the carrying amount of the intangible assets, the Company would recognize an impairment loss. REVENUE RECOGNITION Passenger revenues are recorded as income when the respective services are rendered. FREQUENT FLYER AWARDS As a Northwest Airlink carrier, Mesaba participates in Northwest's frequent flyer program (WorldPerks), and passengers may use mileage accumulated in that program to obtain discounted or free trips that might include a flight segment on one of Mesaba's flights. However, under the Airlink and Jet Agreement, Northwest is responsible for the administration of WorldPerks, and Mesaba receives revenue from Northwest for WorldPerks travel awards redeemed on Mesaba flight segments. INCOME TAXES The Company accounts for income taxes under the liability method whereby deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities. These differences will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. OTHER NONCURRENT LIABILITIES In order to assist the Company in integrating new aircraft into its fleet, certain manufacturers provide the Company with spare parts or other credits. The Company has deferred these amounts and amortizes them over the terms of the Airlink agreement as a reduction of rent expense. Amortization of $2,497, $1,822 and $1,071 was recorded during the years ended March 31, 2000, 1999 and 1998, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. START UP COSTS In April of 1998, the Company adopted AICPA Statement of Position (SOP) 98- 5 "Reporting on the Costs of Start-Up Activities" which requires all start- up costs to be charged to expense as incurred. The adoption of SOP 98-5 resulted in an $800 charge (net of tax) to operations, or $0.04 per basic and diluted share for previously capitalized start-up costs and was recorded as a cumulative effect of change in accounting principle. COMPREHENSIVE INCOME The Company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any transactions that are required to be reported as comprehensive income. SEGMENT REPORTING The Company has reviewed SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and determined that the aggregation criteria outlined in SFAS No. 131 has been achieved and therefore the Company's two operating divisions are reported as a single reportable segment. DERIVATIVES In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company is not required to adopt SFAS No. 133 until January 1, 2001, since SFAS No. 137 amended the effective date of SFAS No. 133 to apply for all fiscal quarters of all fiscal years beginning after June 15, 2000. As the Company does not currently engage or plan to engage in derivative or hedging activities, management does not expect any impact to the Company's results of operations, financial position or cash flows upon adoption of this standard. 3. FLIGHT EQUIPMENT The Company's airline fleet consisted of the following aircraft held under operating leases as of March 31, 2000: Number of Seating Aircraft Type of Aircraft Capacity -------- ----------------- ---------- 73 Saab 340 30/34 33 Avro RJ85 69 Under terms of the Jet Agreement, the Company subleases its RJ85 aircraft from Northwest under operating leases with original terms of up to ten years. The Jet Agreement allows the Company to return aircraft to Northwest upon the occurrence of certain events, including termination or breach of the Jet Agreement. The Company leases all of its Saab 340 aircraft, either directly from aircraft leasing companies or through subleases with Northwest under operating leases with terms of up to 17 years. The Airlink Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events. Aircraft maintenance and repairs on Saab 340 and RJ85 aircraft are charged to expense when incurred, except for the cost of major airframe inspections, for which the estimated cost is accrued and charged to maintenance expense based upon hours flown, thus providing for the inspection cost when it occurs. The aircraft operating leases require future minimum rental payments as follows at March 31, 2000: 2001 $106,438 2002 $106,242 2003 $105,535 2004 $102,457 2005 $ 99,617 Thereafter $347,696 Mesaba has firm lease commitments for the remaining 3 undelivered RJ85 aircraft. The table above does not reflect any minimum lease payments for those undelivered aircraft. Rent expense under aircraft operating leases totaled approximately $88,877 in 2000, $70,422 in 1999 and $49,500 (not including wet lease expense) in 1998 (including $48,422, $32,472 and $27,172 paid to Northwest in 2000, 1999 and 1998, respectively). 4. INCOME TAXES: The provision for income taxes for the three years ended March 31 is comprised of the following elements: 2000 1999 1998 ------- ------- ------- Current: Federal $19,213 $11,657 $11,053 State 3,831 2,973 2,895 Deferred (2,889) (517) (819) ------- ------- ------- Total provision for income taxes $20,155 $14,113 $13,129 ======= ======= ======= The actual income tax expense differs from the expected tax expense for 2000, 1999 and 1998 (computed by applying the U.S. federal corporate tax rate of 35 percent to earnings before income taxes) as follows: 2000 1999 1998 -------- -------- -------- Computed tax expense at statutory rate $ 17,926 $ 12,664 $ 11,527 Increase (decrease) in income taxes resulting from: State taxes, net of federal tax benefit 2,490 1,932 1,672 Non-deductible flight crew expenses 877 754 552 Other, net (1,138) (1,237) (622) -------- -------- -------- Total income tax expense $ 20,155 $ 14,113 $ 13,129 Deferred tax assets and liabilities are comprised of the following as of March 31: 2000 1999 1998 -------- -------- -------- Deferred tax assets: Maintenance $ 4,064 $ 3,456 $ 2,126 Prepaids 1,938 1,288 229 Warrants 3,069 411 489 Leases 3,181 1,320 1,887 Inventories 678 892 1,344 Other Accruals 2,536 1,460 219 Gross deferred tax assets 15,466 8,827 6,294 Deferred tax liabilities: Property and equipment 4,563 746 1,042 Preoperating costs - 67 457 Integration funds - - 93 Gross deferred tax liabilities 4,563 813 1,592 -------- -------- -------- Net deferred tax assets $10,903 $ 8,014 $ 4,702 ======== ======== ======== 5. SHAREHOLDERS' EQUITY: STOCK SPLIT On April 6, 1998 the Company's board of directors declared a three-for-two stock split of the Company's common stock for shares held of record on April 17, 1998. The par value per common share remained at $0.01. This stock split has been retroactively reflected in these financial statements. STOCK OPTION PLANS The Company has stock option plans for key employees and directors, which authorize the issuance of shares of common stock for such options. Under the plans, options are granted by the compensation committee of the board of directors and vest over a period of four to five years commencing one year after the date of grant. The purchase price of the stock is 110% of the fair market value of the stock at the date of grant for participants owning 10% or more of the outstanding common stock and 100% of the fair market value for all other participants. Stock option transactions for the three years ended March 31 were as follows: Shares Price Per Share ---------- ---------------- Options outstanding, March 31, 1997 1,310,250 $2.75-$8.92 Granted 217,500 $8.25-$14.25 Exercised (221,184) $2.75-$8.92 ---------- Options outstanding, March 31, 1998 1,306,566 $2.92-$14.25 Granted 190,000 $18.00-$23.00 Exercised (470,779) $2.92-$12.42 ---------- Options outstanding, March 31, 1999 1,025,787 $3.50-$23.00 Granted 420,000 $9.63-$13.81 Exercised (403,312) $3.50-$9.50 Cancelled (265,475) $4.75-$23.00 ========== Options outstanding, March 31, 2000 777,000 $3.50-$23.00 ========== Exercisable at March 31, 2000 205,000 ========== Available for grant at March 31, 2000 399,475 ========== As of March 31, 2000, of the total shares available for grant, 54,000 are available for non-employee directors and 345,475 are available for certain management personnel. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized in the accompanying consolidated statements of operations. Had compensation cost been recognized based on the fair values of options at the grant dates consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per common share would have been decreased to the following pro forma amounts: 2000 1999 1998 ------- ------- ------- Net Income As reported $31,061 $21,271 $19,804 Pro forma $30,191 $19,904 $18,873 Basic Earnings Per Share As reported $ 1.54 $ 1.07 $ 1.03 Pro forma $ 1.50 $ 1.01 $ 0.98 Diluted Earnings Per Share As reported $ 1.48 $ 0.99 $ 0.95 Pro forma $ 1.43 $ 0.93 $ 0.91 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions summarized below: 2000 1999 1998 ------------- ------------- ------------ Risk free interest rate 5.26% - 6.23% 5.56% - 5.59% 5.66% - 5.68% Expected life of option grants 6 yrs. 6 yrs. 6 yrs. Expected volatility of option grants 51.08% 54.91% 36.63% Expected dividend yield $0 $0 $0 Weighted average fair value of options $6.28 $11.90 $13.98 6. COMMITMENT AND CONTINGENCIES : LEASE COMMITMENTS In addition to the aircraft described in Note 3, the Company leases land, office and hangar facilities and certain terminal facilities under capitalized and operating leases which provide for approximate future minimum rental payments as follows at March 31, 2000: Capitalized Operating Leases Leases ----------- --------- 2001 $ 785 $ 2,701 2002 786 1,680 2003 643 1,399 2004 643 1,350 2005 643 1,334 Thereafter 2,881 25,351 ------- ------- 6,381 $33,815 Less- Amount representing interest 2,086 ======= ------- 4,295 Less- Current maturities 429 ------- Total long-term capital lease obligations 3,866 ======= Rent expense under all facility operating leases totaled approximately $3,850 in 2000, $3,421 in 1999 and $3,410 in 1998. BENEFIT PALN The Company maintains a 401(k) benefit plan for eligible employees whereby the Company will match 25% to 75% of employee contributions to the plan, up to 8% of each employee's compensation, depending on each employee's length of service. The Company's contribution to the plan totaled $1,086 in 2000, $882 in 1999 and $701 in 1998. LITIGATION The Company is a party to ongoing legal and tax proceedings arising in the ordinary course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or its cash flows. 7. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock that would have been outstanding if potentially dilutive common shares related to stock options and warrants had been issued. Options and warrants totaling 4,063, 3,459 and 1,973 were excluded from the computation of diluted earnings per share for the years ended March 31, 2000, 1999 and 1998, respectively. The following table reconciles the number of shares utilized in the earnings per share calculations: 2000 1999 1998 -------- -------- -------- Numerator: Net Income $ 31,061 $ 21,271 $ 19,804 Denominator: For Earnings per Common Share - Basic: Weighted average number of issued shares outstanding 20,177 19,793 19,270 Effect of dilutive Securities: Computed shares outstanding under the Company's stock option plan utilizing the treasury stock method 230 486 711 Computed shares outstanding under warrants issued utilizing the treasury stock method 636 1,233 865 -------- -------- -------- For earnings per Common Share - Diluted: Weighted Average Common Shares and Share Equivalents Outstanding 21,043 21,512 20,846 ======== ======== ======== Earnings per share - Basic $ 1.54 $ 1.07 $ 1.03 ======== ======== ======== Earnings per share - Diluted $ 1.48 $ 0.99 $ 0.95 ======== ======== ======== 8. QUARTERLY FINANCIAL DATA (Unaudited) (in thousands except share and per share data) Quarters of Fiscal Year Ended March 31, 2000 ---------------------------------------------------- June 30, September December March 31, Fiscal 1999 30, 1999 31, 1999 2000 Year 2000 - ------------------------------------------------------------------------------- Total operating revenues $ 99,815 $102,503 $101,008 $102,873 $ 406,199 Operating income 14,028 11,224 11,593 9,990 46,835 Net income 9,076 7,318 7,851 6,816 31,061 Earnings per Common Share - Basic $ 0.45 $ 0.36 $ 0.39 $ 0.34 $ 1.54 Weighted average Common shares outstanding - Basic 19,968 20,221 20,252 20,267 20,177 Earnings per Common Share - Diluted $ 0.43 $ 0.35 $ 0.38 $ 0.33 $ 1.48 Weighted average Common shares and Share Equivalents outstanding - Diluted 21,266 21,119 20,913 20,875 21,043 Quarters of Fiscal Year Ended March 31,1999 ---------------------------------------------------- June 30, September December March 31, Fiscal 1998 30, 1998 31, 1998 1999 Year 1999 - ------------------------------------------------------------------------------- Total operating revenues $80,469 $71,689 $89,641 $89,954 $331,753 Operating income 10,464 1,806 10,242 9,710 32,222 Net income 6,033 2,080 6,730 6,428 21,271 Earnings per Common Share - Basic $ 0.31 $ 0.10 $ 0.34 $ 0.32 $ 1.07 Weighted average Common shares outstanding - Basic 19,616 19,824 19,838 19,864 19,793 Earnings per Common Share - Diluted $ 0.28 $ 0.10 $ 0.32 $ 0.30 $ 0.99 Weighted average Common shares and Share Equivalents outstanding - Diluted 21,755 21,638 21,230 21,246 21,512 Consent of independent public accountants As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements File Nos. 33-89930, 33-62386, 33-42757, 33- 42759, 33-19528 and 2-93739. Arthur Andersen LLP Minneapolis, Minnesota, June 26, 2000 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the directors of the Company is incorporated herein by reference to the descriptions set forth under the caption "Election of Directors" in the Proxy Statement for the 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement"). Information regarding executive officers of the Company is incorporated herein by reference to Item 1 of this Form 10-K under the caption "Executive Officers of the Company" on page 9. Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein by reference to the information set forth under the caption "Compensation of Executive Officers" in the 2000 Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2000 Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions with the Company is incorporated herein by reference to the information set forth under the caption "Certain Transactions" in the 2000 Proxy Statement. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed with this report. (1) Financial Statements of Mesaba Holdings, Inc. Page of this Form 10-K Report of Independent Public Accountants 19 Consolidated balance sheets as of March 31, 20 2000 and 1999 Consolidated statements of operations for the 21 years ended March 31, 2000, 1999 and 1998 Consolidated statements of shareholders' 22 equity for the years ended March 31, 2000, 1999 and 1998 Consolidated statements of cash flows for the 23 years ended March 31, 2000, 1999 and 1998 Notes to consolidated financial statements 24 (2) Not applicable (3) Exhibits 3A. Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended September 31, 1995. 3B. Articles of Amendment to the Company's Articles of Incorporation. Incorporated by reference to exhibit 3A to the Company's 10-Q for the quarter ended September 30, 1997. 3C. Bylaws. Incorporated by reference to Exhibit 3.2 to the Form S-4. 4A. Specimen certificate for shares of the Common Stock of the Company. Incorporated by reference to Exhibit 4A to the Company's Form 10-K for the year ended March 31, 1989. 4B. Common Stock Purchase Warrant dated October 25, 1996 issued to Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the Company's 10-Q for the quarter ended September 30, 1996. 4C. Common Stock Purchase Warrant dated October 17, 1997 issued to Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the Company's 10-Q for the quarter ended September 30, 1997. 9A. Shareholder's Agreement regarding election of representative of Northwest Aircraft Inc. to Board of Directors. Incorporated by reference to Exhibit 9A to Mesaba's Registration Statement on Form S-1, Registration No. 33-820. 10A.FAA Air Carrier Operating Certificate. Incorporated by reference to Exhibit 10A to the Company's Form 10-K for the year ended March 31, 1989. 10B.1986 Stock Option Plan (as Amended). Incorporated by reference to Exhibit 10D to the Company's Form 10-K for the year ended March 31, 1990. 10C.1991 Director Stock Option Plan. Incorporated by reference to Exhibit 10(i) to the Company's Registration Statement on Form S-8, Registration No. 33-62386. 10D.CAB Part 298 Registration. Incorporated by reference to Exhibit 10G to Mesaba's Form 10-K for the year ended March 31, 1987. 10E.Revolving Credit and Term Loan Agreement Dated as of November 7, 1988 between Norwest Bank Minnesota, N.A. and Mesaba Aviation, Inc. Incorporated by reference to Exhibit 10F to the Company's Form 10-K for the year ended March 31, 1989. 10F.Airline Services Agreement between Mesaba Aviation, Mesaba Holdings, Inc. and Northwest Airlines, Inc. dated July 1, 1997 (certain portions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended September 30, 1997. 10G.Regional Jet Services Agreement between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc., dated October 25, 1996 (certain provisions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10- Q for the quarter ended September 30, 1996. 10H.Foreign Air Carrier Operating Certificates issued May 6, 1991 by the Canadian Department of Transport. Incorporated by reference to Exhibit 10H to the Company's Form 10-K for the year ended March 31, 1991. 10I.Facility Lease and Operating Agreement dated April 18, 1988, between the Metropolitan Airport Commission and Mesaba Aviation, Inc. Incorporated by reference to Exhibit 10K to the Company's Form 10-K for the year ended March 31, 1989. Incorporated by reference to Exhibit 10J to the Company's Form 10-K for the year ended March 31, 1997. 10J.Ninth Amendment to Revolving Credit and Term Loan Agreement and Amendment to Revolving Note between Mesaba Aviation, Inc. and Norwest Bank Minnesota, National Association. 10K.Letter of Credit and Reimbursement Agreement dated as of August 1, 1990 between Mesaba Aviation, Inc. and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended September 30, 1990. 10L.Special Facilities Lease dated as of August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba Aviation, Inc. Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended September 30, 1990. 10M.Ground Lease dated August 1, 1990 between Charter County of Wayne, State of Michigan and Mesaba Aviation, Inc. Incorporated by reference to Exhibit 10C to the Company's Form 10-Q for the quarter ended September 30, 1990. 10N.Combination Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture Financing Statement dated as of August 1, 1990 between Mesaba Aviation, Inc. and Norwest Bank Minnesota, National Association. Incorporated by reference to Exhibit 10D to the Company's Form 10-Q for the quarter ended September 30, 1990. 10O.Letter Agreement dated December 24, 1992 relating to the repurchase of shares of Common Stock from Northwest Aircraft, Inc. Incorporated by reference to Exhibit 10EE to the Company's Form 10-K for the year ended March 31, 1993. 10P.DOT Certificate of Public Convenience and Necessity dated October 26, 1992. Incorporated by reference to Exhibit 10FF of the Company's Form 10-K for the year ended March 31, 1993. 10Q.Stock Purchase Agreement between AirTran Corporation and Carl R. Pohlad dated as of October 18, 1993. Incorporated by reference to Exhibit 10 of the Company's Form 8-K dated October 19, 1993. 10R.1994 Stock Option Plan (as amended July 1, 1997). Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended September 30, 1997. 10S.Agreement between AirTran Corporation, Mesaba Aviation, Inc., Northwest Aircraft, Inc., and Northwest Airlines, Inc. dated May 18, 1995. Incorporated by reference to Exhibit 10A of the Company's Form 8-K as filed May 18, 1995. 10T.Preliminary Agreement between AirTran Corporation, Mesaba Aviation, Inc. and Northwest Airlines, Inc. dated March 8, 1995. Incorporated by reference to Exhibit 10 of the Company's Form 8-K as filed March 8, 1995. 10U.Term Sheet Proposal for the Acquisition of Saab 340 Aircraft by Mesaba Aviation, Inc. dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10U to the Company's Form 10-K/A for the year ended March 31, 1996. 10V.Letter Agreement regarding Saab 340B Plus Acquisition Financing dated March 7, 1996 (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10V to the Company's Form 10-K/A for the year ended March 31, 1996. 10W.Letter Agreement of April 26, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10W to the Company's Form 10- K/A for the year ended March 31, 1996. 10X.Letter Agreement of October 25, 1996 relating to Regional Jet Services Agreement between Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10-Q/A for the quarter ended September 30, 1996. 10Y.Amendment No. 1 to Regional Jet Services Agreement dated April 1, 1998 between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended June 30, 1998 10Z.Amendment No. 2 to Regional Jet Services Agreement dated June 2, 1998 between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions of this document have been deleted pursuant to an application for confidential treatment under Rule 24b-2). Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended June 30, 1998 10AA.Lease Agreement, dated as of July 1, 1999, between Kenton County Airport Board and Mesaba Aviation, Inc. 10BB.Ground Lease, dated as of September 1, 1999, between Kenton County Airport Board and Mesaba Aviation, Inc. 21. Subsidiaries. Incorporated by reference to Exhibit 21 to the Company's Form 10-K for the year ended March 31, 1997. 23. Consent of independent public accountants. 24. Powers of Attorney. SIGNATURES 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. MESABA HOLDINGS, INC. Dated: June 29, 2000 By /S/ Paul F. Foley ------------------------ Paul F. Foley President and Chief Executive Officer 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. /s/ Paul F. Foley - -------------------- Paul F. Foley President and Chief Executive Officer Principal Executive Officer) and Director June 29, 2000 /s/ Robert E. Weil - -------------------- Robert E. Weil Vice President and Chief Financial Officer (Principal Financial Officer) June 29, 2000 /s/ Jon R. Meyer - -------------------- Jon R. Meyer Director of Accounting and Controller (Principal Accounting Officer) June 29, 2000 * - -------------------- Donald E. Benson Director June 29, 2000 * - -------------------- Richard H. Andersen Director June 29, 2000 * - -------------------- Douglas M. Steenland Director June 29, 2000 * - -------------------- Carl R. Pohlad Director June 29, 2000 * - -------------------- Robert C. Pohlad Director June 29, 2000 * - -------------------- Pierson M. Grieve Director June 29, 2000 * - -------------------- Raymond W. Zehr, Jr. Director June 29, 2000 *By /s/Paul F. Foley -------------------- Paul F. Foley Attorney-in-fact June 29, 2000 EX-27 2 0002.txt
5 12-MOS MAR-31-2000 MAR-31-2000 100,172 0 20,090 0 6,103 139,952 91,269 37,160 207,724 54,109 0 0 0 203 144,515 207,724 406,199 406,199 359,364 359,364 0 0 404 51,216 20,155 31,061 0 0 0 31,061 1.54 1.48
EX-24 3 0003.txt POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. Fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Richard H. Andersen --------------------------- Richard H. Andersen POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Donald E. Benson --------------------------- Donald E. Benson POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Carl R. Pohlad --------------------------- Carl R. Pohlad POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Robert C. Pohlad --------------------------- Robert C. Pohlad POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Raymond W. Zehr, Jr. --------------------------- Raymond W. Zehr, Jr. POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Pierson M. Grieve --------------------------- Pierson M. Grieve POWER OF ATTORNEY The undersigned officer and/or director of Mesaba Holdings, Inc. hereby constitutes and appoints Paul F. Foley and John S. fredericksen, or either of them, with power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substituition and resubstituition, for him and in his stead, in any and all capacities to sign Form 10-K of Mesaba Holdings, Inc. for the year ended March 31, 2000, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing necessary or advisable to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, herby ratifying and confiming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue herof. Dated: June 21, 2000 Signed: /s/ Douglas M. Steenland --------------------------- Douglas M. Steenland EX-5 4 0004.txt LEASE AGREEMENT THIS LEASE AGREEMENT (the AAgreement@), dated as of July 1, 1999, by and between the KENTON COUNTY AIRPORT BOARD (the AIssuer@), a public body corporate and politic established as a local air board, constituting a political subdivision of the Commonwealth of Kentucky, duly organized and validly existing under the laws of the Commonwealth of Kentucky, including Chapter 183 of the Kentucky Revised Statutes, and MESABA AVIATION, INC., d/b/a/ Mesaba Airlines, a corporation duly organized and validly existing under the laws of the State of Minnesota, and duly qualified to do business in the Commonwealth of Kentucky (the ACompany@); WHEREAS, the Company has previously requested the Issuer to authorize and issue, for the benefit of the Company, one or more series of Special Facilities Revenue Bonds pursuant to the statutory authority of Chapter 183 and Sections 103.200 to 103.285, inclusive, of the Kentucky Revised Statutes (the AAct@), for the purpose of funding qualified airport facilities to be leased, operated and used by the Company in its operations, consisting of an aircraft hanger and related maintenance and repair facilities approximately 126,000 square feet in size, of which approximately 63,000 square feet will be comprised of hanger bay space for the Company=s commercial passenger aircraft and approximately 63,000 square feet will be comprised of aircraft maintenance shops and facilities and support space, including functionally related and necessary machinery and equipment, plus associated and adjacent aircraft parking ramp areas (collectively, the AProject Facilities@), which Project Facilities will be situated at the Cincinnati/ Northern Kentucky International Airport in Boone County, Kentucky (the "Airport") and which will constitute an airport or facilities functionally related and subordinate to an airport within the meaning of Section 142(a)(1) of the Internal Revenue Code of 1986, as amended (the ACode@). The Project facilities will be used for airport and air transportation purposes, be available for public use and will provide public benefit; and WHEREAS, the Issuer owns and operates the Cincinnati/Northern Kentucky International Airport in Boone County, Kentucky and is authorized by the provisions of the Constitution and laws of the Commonwealth of Kentucky, including KRS Chapter 183, KRS Sections 103.200 to 103.286, inclusive, and Section 142 of the Code, to cause the Project Facilities to be acquired and constructed and to lease the Project Facilities to the Company for such rentals and upon such conditions as are herein provided; and WHEREAS, the airport facilities to be financed, constructed and installed for lease to the Company, an airline and a common carrier, will promote the economic development of the Commonwealth of Kentucky, relieve conditions of unemployment and encourage the increase of industry in Kentucky and will otherwise perform public purposes as provided by the Act, and as approved in the cases, inter alia of Faulconer v. City of Danville (Ky), 232 SW2d 80, Norvell v. City of Danville (Ky), 355 SW2d 689, Gregory v. City of Lewisport (Ky), 369 SW2d 133 and Massey v. City of Franklin (Ky), 384 SW2d 505; and WHEREAS, in accordance with such requests by the Company, the Issuer adopted a Resolution on January 18, 1999 agreeing to the 1 issuance of such Special Facilities Revenue Bonds, to be paid solely and only by lease payments and other payments to be made by the Company or from the Proceeds of such Bonds or from moneys derived from enforcement of the Leasehold Mortgage, hereinafter defined; and the corporate parent of the Company, Mesaba Holdings, Inc., a Minnesota corporation, has, pursuant to the Guaranty, guaranteed (i) the payment of principal of, premium, if any and interest on the 1999 Series A Bonds, hereinafter defined and (ii) the full and prompt performance and observance by the Company of all of the Company=s obligations and covenants under this Lease, the Ground Lease, as hereinafter defined, and the Leasehold Mortgage; and WHEREAS, the Company has, pursuant to the foregoing, caused to be designed and has initiated construction and acquisition of, certain airport facilities constituting the Project Facilities to the Company's specifications to meet the Company's special air transportation business needs and purposes, which will be exclusively leased by the Company under this Agreement for the periods specified herein and which will be financed in whole or in part pursuant to KRS Sections 103.200 to 103.285, inclusive; and WHEREAS, the Issuer has, by resolution duly adopted on August 16, 1999, duly authorized the issuance of its Special Facilities Revenue Bonds, 1999 Series A (Mesaba Aviation, Inc. Project) (the A1999 Series A Bonds@) to provide funds to finance some or all of the Project Facilities; and WHEREAS, pursuant to an Indenture of Trust of even date herewith (said Indenture of Trust, as hereafter amended and supplemented from time to time, being herein referred to as the AIndenture@) between the Issuer and Norwest Bank Minnesota, National Association, as trustee (said trustee, or its successors under the Indenture, being herein referred to as the ATrustee@), the Issuer has issued $14,000,000 aggregate principal amount of 1999 Series A Bonds, the Proceeds of which are to be applied for financing the Project Facilities; and WHEREAS, contemporaneously with the issuance of the 1999 Series A Bonds, the Issuer will assign its rights and benefits under this Agreement (except for certain Unassigned Rights) to the Trustee as further security for the 1999 Series A Bonds; and WHEREAS, the Bonds issued pursuant to this Agreement and the Indenture shall be special and limited obligations of the Issuer, payable solely and only from and secured by, the Trust Estate, as defined in the Indenture, including but not limited to the revenues or other receipts, funds or moneys to be derived by the Issuer under this Agreement, from the Guaranty, from the Leasehold Mortgage, as security for its performance hereunder, from the unexpended Proceeds of the Bonds, and from the earnings on all of 2 the amounts held by the Trustee under the Indenture (except moneys held in the Rebate Fund); and WHEREAS, the execution and delivery of this Agreement has been duly and lawfully authorized by both the Issuer and the Company, and all conditions, acts and things necessary and required by the Constitution and statutes of the Commonwealth of Kentucky (the ACommonwealth@) or otherwise, to exist, to have happened, or to have been performed precedent to and in the execution and delivery of this Agreement and in the issuance of the 1999 Series A Bonds authorized in the Indenture, do exist, have happened and have been performed in regular form, time and manner. NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, covenants and agreements herein set forth, the Issuer and the Company, each binding itself, its successors and assigns,do mutually promise, covenant and agree as follows, provided that in the performance of the agreements of the Issuer herein contained, any obligation it may incur for the payment of money shall not be an obligation, debt or liability or give rise to any pecuniary liability of the Issuer, the Commonwealth or any political subdivision thereof, including the Issuer and the County of Kenton, Kentucky and neither the Issuer, the Commonwealth, the County of Kenton, Kentucky, nor any such political subdivision shall be liable on any obligation so incurred, but any such obligation shall be payable solely and only from, and secured by, the Trust Estate, including the Receipts and Revenues. ARTICLE I DEFINITIONS Section 1.01. Use of Defined Terms. In addition to the words and terms defined elsewhere in this Agreement or in the Indenture or by reference to another document, the words and terms set forth in Section 1.02 and 1.03 shall have the meanings set forth therein unless the context or use clearly indicates another meaning or intent. Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms defined therein. Section 1.02. Incorporation of Certain Terms by Reference. When and if used in this Agreement, the following terms shall have the meaning set forth in Section 1.01 of the Indenture: AAct@ AAdditional Bonds@ AAgreement@ AAirport@ AAuthenticating Agent@ AAuthorized Company Representative@ 3 ABankruptcy Code@ ABankruptcy Counsel@ ABond Fund@ ABusiness Day@ ACompany@ AConstruction Fund@ ACosts of Construction@ ACounsel@ ADate of Issuance@ AFacility Rentals@ AFavorable Opinion of Bond Counsel@ AGovernment Obligations@ AGround Lease@ AGround Lease Termination@ AGuaranty@ AGuarantor@ AIndenture@ AInterest Payment Date@ AInvestment Securities@ AIssuer@ AMoody's@ AOutstanding@ AOwner@ APaying Agent@ APerson@ ARating Category@ AReceipts and Revenues@ ARegistrar@ ASeries@ or ASeries of Bonds@ AS&P@ ATrust Estate@ ATrustee@ AUnassigned Rights@ A1999 Series A Bonds@ Section 1.03. Additional Definitions. In addition to the terms whose definitions are incorporated by reference herein pursuant to Section 1.02, the following terms shall have the meanings set forth in this Section unless the use or context clearly indicates otherwise: AAcquisition and Construction@ means, as appropriate, any design and any temporary or permanent acquisition, construction, equipping, demolition, installation, additional improvement to, restoration, reacquisition, expansion, reconstruction, reproduction or reequipping of the Project Facilities and including any related and necessary demolition of existing facilities or improvements. AAdministration Expenses@ shall mean the reasonable administrative expenses incurred by the Issuer with respect to the Bonds, the Indenture, this Agreement, the Leasehold Mortgage and the Guaranty (except for expenses incurred by the Issuer excluded 4 from indemnification pursuant to Section 6.08 hereof, if any), including, without limitation, the reasonable fees and disbursements of Bond Counsel and Counsel for the Issuer and reasonable out-of-pocket expenses of the Issuer incurred in connection with the authorization, issuance and sale of the Bonds and the compensation and reimbursement of reasonable fees, expenses and advances payable to the Trustee, the Registrar and the Paying Agent and the Authenticating Agent (including the reasonable fees and expenses of their counsel) under the Indenture, together with applicable taxes and other governmental charges. A Arbitrage Certificate@ means the Arbitrage Certificate dated as of the Date of Issuance and delivery of the 1999 Series A Bonds, to be issued by the Issuer, based upon a certification furnished by the Company. AAuthorized Issuer Representative@ means the person or persons at the time designated by written certificate furnished to the Company and the Trustee containing the specimen signature of each such person and signed on behalf of the Issuer by its Chairman or its Secretary-Treasurer, to act on behalf of the Issuer. Such certificate shall designate an alternate or alternates. ABond@ or ABonds@ means all 1999 Series A Bonds and all Additional Bonds, delivered under and pursuant to the Indenture and any Supplemental Indenture, including any bonds issued in substitution therefor. ABond Counsel@ means Harper, Ferguson & Davis or any other firm of attorneys approved by the Issuer and not unacceptable to the Company, having a national reputation in the field of municipal law whose opinions with respect to the exclusion of interest on state or local governmental obligations from gross income for purposes of federal income taxation are generally accepted by purchasers of state or local governmental obligations. ABond Resolution@ shall mean the resolution of the Issuer adopted on August 16, 1999, authorizing the issuance and sale of the 1999 Series A Bonds and authorizing the execution, delivery and performance of this Agreement and the Indenture and determining other matters in connection therewith. ABond Year@ shall have the meaning ascribed to such term in the Indenture. ACode@ means the Internal Revenue Code of 1986, as amended, or any successor legislation applicable to the Bonds, and the regulations and published rulings promulgated thereunder. ACommonwealth@ means the Commonwealth of Kentucky. 5 ACompany Tax Certificate@ means the Company Tax Certificate and Compliance Agreement, executed and delivered by the Company on the Date of Issuance, regarding compliance with the Code to assure that interest on the 1999 Series A Bonds which is intended to be excluded from gross income for federal income tax purposes is so excluded. ACompletion Date@ means the date of completion of the Acquisition and Construction of the Project Facilities financed by the 1999 Series A Bonds, as such date or dates shall be certified as provided in Section 3.04 hereof. ADetermination of Taxability@ shall have the meaning specified in Section 9.02 of this Agreement. AExcluded Equipment@ shall have the meaning specified in Section 5.03 of this Agreement. AGross Award@ means the total of amounts awarded to or received by the Issuer and/or the Company as damages, compensation or otherwise, by reason of the taking of the Project Facilities or any part thereof as a result of or in anticipation of the exercise of the right of condemnation or eminent domain. The term AGross Award@ shall include any amounts awarded as damages, compensation or otherwise, by reason of the taking as a result of or in anticipation of the exercise of the right of condemnation or eminent domain of any of the land leased to the Company pursuant to any ground lease. AGround Lease@ means the Ground Lease, dated as of September1, 1999 by and between the Issuer and the Company. ALeasehold Mortgage@ means the Leasehold Mortgage dated as of July 1, 1999, granted by the Company to the Trustee, as the same may be amended, supplemented or otherwise modified from time to time. ANet Proceeds@ means, with respect to the 1999 Series A Bonds and all Additional Bonds, the Proceeds of such issue of Bonds reduced by amounts of such Proceeds in a reasonably required reserve or replacement fund. ANet Insurance Proceeds@ means the gross receipts from the policy or policies of property insurance required to be procured and maintained pursuant to Section 5.06 remaining after payment of all expenses (including attorney's fees and any extraordinary fee of the Trustee) incurred in the collection of such gross receipts. APerson@ means any natural person, corporation, cooperative, partnership, trust or unincorporated organization, government or governmental body or agency, political subdivision or other legal entity as in the context may be appropriate. 6 APlans and Specifications@ means the plans and specifications for the Acquisition and Construction of the Project Facilities, prepared by the Company and approved by the Issuer, as the same may be supplemented, amended or modified from time to time upon the approval of the Issuer as to any such substantial and material amendments, supplementations or modifications, and shall include all plans and specifications prepared by the Company and approved by the Issuer for any additions or improvements to, or any restoration, reacquisition, expansion, reconstruction, reproduction or reequipping of the Project Facilities in accordance with Section 3.01. All such Issuer approvals shall be for the purpose of assuring compatibility of the Project Facilities with existing Airport facilities and with the continuous operation of the Airport and for assuring that the Project Facilities do not violate, or cause the Issuer to violate, applicable law or regulations as provided in Section 3.01(a). Such Issuer approvals shall not be unreasonably withheld. AProceeds@ shall have the meaning ascribed to such term by Section 1.141-2 of the Treasury Regulations promulgated under Section 141 of the Code. AProject Facilities@ shall mean, collectively, the airport facilities and improvements financed with the Proceeds of the 1999 Series A Bonds and the site thereof, all as described in Exhibit A attached hereto, as such exhibit may be amended by the Company in its discretion from time to time (provided that no such amendment shall materially change or alter the nature and character of the Project Facilities as facilities constituting an airport or facilities functionally related and subordinate thereto), and including, until completion thereof, inter alia, any necessary temporary facilities, necessary utilities, public ways, thoroughfares and roads, and similar facilities. A Rebatable Arbitrage@ means with respect to any series of Bonds, the amount required to be rebated to the United States pursuant to Section 148(f)(2) of the Code or successor provisions applicable to the Bonds. ARebate Expert@ means any of the following, chosen by the Company and acceptable to the Issuer: (a) any national firm of certified public accountants or (b) any reputable firm which offers to the tax-exempt bond industry rebate calculation services and holds itself out as and is generally recognized as having expertise in that area. ARebate Fund@ means the fund bearing such name created in by Section 6.02 of the Indenture. A S.E.C.@ means the United States Securities and Exchange Commission. 7 Section 1.04. Interpretation. Any reference herein to the Issuer or to any member or officer thereof includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the Commonwealth or the Act, or to a section, provision or chapter of the Kentucky Revised Statutes, as amended, or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way an impairment of the rights or obligations of the Issuer, the Owners of the Bonds, the Trustee or the Company under this Agreement. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms Ahereof@, Ahereby@, Aherein@, Ahereto@, Ahereunder@ and similar terms refer to this Agreement; and the term Ahereafter@ means after, and the term Aheretofore@ mean before, the date of delivery of the 1999 Series A Bonds. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. Any reference to an Article number (e.g., Article IV) or a Section number (e.g., Section 8.03) without further qualification shall be construed to be a reference to the designated Article number or Section number hereof unless the use or context clearly indicates otherwise. Section 1.05. Captions and Headings. The captions and headings in this Agreement are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof. ARTICLE II REPRESENTATIONS Section 2.01. Representations, Warranties and Covenants of the Issuer. The Issuer makes the following representations, warranties and covenants as the basis for the undertakings on its part herein contained, provided, however, that the Issuer shall incur no liability whatsoever arising out of or in any way related to the reliance by the Company, the Trustee or any other person upon the truth or accuracy of any such representation or warranty 8 by the Issuer and/or performance of any such covenant by or on the part of the Issuer: (a) Authorization. The Issuer is a body politic and corporate and a local air board established pursuant to Chapter 183 of the Kentucky Revised Statutes constituting a political subdivision of the Commonwealth of Kentucky and existing pursuant to the Kentucky Revised Statutes. (b) Power and Authority. The Issuer has full power and authority to execute, deliver, issue and perform its duties under the 1999 Series A Bonds, the Indenture, this Agreement and the Ground Lease and to execute, deliver and perform all other agreements and instruments executed and delivered or to be executed and delivered by the Issuer pursuant to or in connection with this Agreement and the transactions contemplated hereby. (c) Obligations Legal, Valid and Binding. This Agreement, the Indenture and the Ground Lease have been duly and validly executed and delivered by the Issuer, and the Bonds constitute and will constitute the legal, valid and binding limited and special obligations of the Issuer payable solely from the Trust Estate; and the 1999 Series A Bonds, the Indenture, this Agreement and the Ground Lease are enforceable against the Issuer in accordance with their respective terms, except insofar as enforcement may be limited by applicable bankruptcy, insolvency, or similar laws affecting and enforcement of creditors= rights and remedies generally, and by equitable principles. (d) No Legal Bar. The Issuer is not in violation of the Act, or any other laws of the Commonwealth, which would affect the Issuer's existence or its powers referred to in this Agreement. The execution, delivery and performance by the Issuer of the 1999 Series A Bonds, the Indenture, this Agreement and the Ground Lease and all other agreements and instruments relating to all the foregoing to be executed and delivered by the Issuer in connection herewith and therewith, (a) do not and will not violate any provision of the Act, the laws of the Commonwealth, or any other applicable law, regulation, order, writ, judgment or decree of any court, arbitrator or governmental authority, (b) do not and will not violate any provision of, constitute a default under, or result in the creation or imposition of any lien on any of the assets of the Issuer pursuant to the provisions of, any mortgage, indenture, contract, agreement or other undertaking to which the Issuer is a party or which purports to be binding on the Issuer or on any of its assets, and (c) will not create, with respect to the obligations of the Issuer under this Agreement, a general or subordinated revenue obligation of the Issuer, but only a special obligation payable solely from the Trust Estate, including the Receipts and Revenues. 9 (e) Consents. Except as otherwise disclosed in an exhibit attached to this Agreement on or before the Date of Issuance of the 1999 Series A Bonds, the Issuer will have obtained any consents, permits, licenses and approvals required under law to authorize the execution, delivery and performance of the Indenture, this Agreement and the Ground Lease, the issuance of the 1999 Series A Bonds and the consummation of the transactions contemplated thereby, and all such consents, permits, licenses and approvals remain in full force and effect. (f) Litigation. There is no litigation pending or threatened (a) which might materially affect the transactions contemplated by this Agreement and the Ground Lease, or affect the validity or enforceability hereof or thereof, or any agreement or instrument to which the Issuer is bound and which is used or contemplated for use in the consummation of the transactions contemplated by the Indenture, this Agreement and the Ground Lease, or (b) which in any way contests the existence or organization of the Issuer; or (c) which in any way contests or seeks to enjoin the issuance of any of the 1999 Series A Bonds. The Issuer is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal or under any agreement, indenture, mortgage, lease or other instrument to which the Issuer is a party or by which it is or may be bound or affected. (g) Maintenance of Exempt Status. The Issuer will take no action that may cause the Plans and Specifications to be materially changed or revised, or the Project Facilities to be operated, maintained, repaired or renovated, in a manner such that the Project Facilities financed by the Proceeds of the 1999 Series A Bonds or any Additional Bonds will not qualify as an airport or facilities functionally related and subordinate to an airport within the meaning of Section 142 of the Code and the income tax regulations promulgated thereunder, as determined by a written opinion of Bond Counsel. (h) No Defaults. No event has occurred and no condition exists with respect to the Issuer which would constitute an Event of Default under this Agreement, the Ground Lease or the Indenture or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Agreement, the Ground Lease or the Indenture. (i) No Prior Pledge. Neither this Agreement, the Ground Lease nor the Receipts and Revenues have been or will be pledged, assigned or hypothecated by the Issuer, in whole or in part, in any manner or for any purpose other than as 10 provided in the Indenture as security for the payment of the interest, principal and premium on the 1999 Series A Bonds. Section 2.02. Limited Obligations. Notwithstanding anything herein contained to the contrary, no obligation or liability, either direct or contingent, that the Issuer may incur for the payment of money arising out of this Agreement, the Indenture, the issuance of the Bonds or any other related document to which the Issuer is a party or by which the Issuer is bound shall constitute a debt or a pledge of the faith and credit of the Issuer or of the Commonwealth or of any political subdivision thereof, but shall be special and limited obligations of the Issuer payable solely from (i) the Trust Estate, (ii) Proceeds derived from the sale of the 1999 Series A Bonds and (iii) amounts on deposit from time to time in the Bond Fund, subject to the provisions of this Agreement and the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein and therein. Section 2.03. No Warranty by Issuer of Condition or Suitability of the Project Facilities. The Issuer makes no representations or warranty, either express or implied, as to the suitability, fitness or utilization of the Project Facilities or the absence of mechanic=s or materialments liens thereon or with respect thereto or as to the condition of the Project Facilities or that the same is or will be free from defects, latent or patent, or will be suitable for the Company's purposes or needs, all of the same being leased to the Company as is, where is, with all faults and without warranty of merchantability or fitness for a particular purpose. Section 2.04. Representations and Warranties of the Company. The Company makes the following representations as the basis for the undertakings on its part herein contained: (a) Corporate Organization and Power. The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and is qualified to do business and is in good standing under the laws of the Commonwealth, and (ii) has all requisite power and authority and all material licenses and permits to own and operate its properties and to carry on its business as now being conducted and as presently proposed to be conducted and to enter into and to perform and observe the agreements on its part contained in this Agreement and the Ground Lease; and by proper corporate action has been duly authorized to execute and deliver this Agreement and the Ground Lease. The Company is a wholly-owned subsidiary of Mesaba Holdings, Inc., a Minnesota corporation. (b) Pending Litigation. There are no actions, suits, proceedings, inquiries or investigations pending, or to the knowledge of the Company threatened, against or affecting the 11 Company in any court or before any governmental authority or arbitration board or tribunal which, in the Company's opinion, are likely to materially and adversely affect the transactions contemplated by this Agreement, the Ground Lease or the Indenture, or which, in any way, adversely affect the validity or enforceability of the 1999 Series A Bonds, the Indenture, this Agreement or the Ground Lease. (c) Agreements Are Valid and Authorized. The execution and delivery by the Company of this Agreement, the Ground Lease and the Leasehold Mortgage and the compliance by the Company with all of the provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) materially conflict with or result in any material breach of any of the terms, conditions or provisions of, or constitute a material default under, any agreement, charter document, by-law or other instrument to which the Company is a party or by which it may be bound, or any licenses, judgment, decree, law, statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its activities or properties, or (ii) result in the creation or imposition of any prohibited material lien, charge or encumbrance of any nature whatsoever upon any material property or assets of the Company under the terms of any instrument or agreement to the extent that any of the events described in clauses (i) and (ii) would have a material adverse effect on the financial condition of the Company. (d) Governmental Consent. In connection with the transactions contemplated by this Agreement, the Ground Lease and the Indenture, no circumstances in connection with the execution, delivery and performance by the Company of this Agreement or the offer, issue, sale or delivery by the Issuer of the 1999 Series A Bonds, is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of the Company, other than those already obtained as of the Date of Issuance of the 1999 Series A Bonds;provided, however, no representation is made herein as to compliance with the securities or Ablue sky@ laws of any jurisdiction. (e) No Defaults. No event has occurred and no condition exists with respect to the Company that would constitute an Event of Default under this Agreement or the Ground Lease or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under this Agreement or the Ground Lease. (f) Consents and Permits. All necessary orders, consents, authorizations, permits, licenses and approvals legally required by governmental authorities to be obtained by the Company as of the date hereof in connection with the 12 Acquisition and Construction of the Project Facilities have been obtained and are in full force and effect, and the Company knows of no reason why it is not eligible to obtain all other necessary orders, consents, authorizations, permits, licenses and approvals legally required by governmental authorities to be obtained by the Company after the date hereof in connection with the completion of the Acquisition and Construction and the operation of the Project Facilities. (g) Useful Life of Project Facilities. The reasonably expected economic life of the Project Facilities to be financed with the Proceeds of the 1999 Series A Bonds (as determined under Section 147(b) of the Code) is ______ years, as shown in Exhibit B, attached hereto and made a part hereof. The Company presently intends to continue to operate or cause the Project Facilities to be operated as airport facilities or facilities functionally related and subordinate thereto pursuant to the Code until all of the 1999 Series A Bonds are paid and discharged. (h) Average Maturity of 1999 Series A Bonds. The weighted average maturity of the 1999 Series A Bonds does not exceed 120% of the reasonably expected weighted average economic life of the Project Facilities to be financed with the Proceeds of the 1999 Series A Bonds, as reflected in Exhibit B, attached hereto and made a part hereof. (i) Tax Status of 1999 Series A Bonds. The Company has not taken and will not take any action, and knows of no action that any other person, firm or corporation has taken or intends to take, which would cause interest on the 1999 Series A Bonds to be includable in the gross income of the recipients thereof for federal income tax purposes (except any 1999 Series A Bond for any period during which such 1999 Series A Bond is held by a Asubstantial user@ of the Project Facilities financed with the Proceeds of the 1999 Series A Bonds or a Arelated person@ to such Asubstantial user@ as such terms are defined in Section 147(a) of the Code). (j) No Change in Financial Condition. The Company=s financial operations are consolidated with those of its corporate parent, the Guarantor, for accounting presentation and federal income tax purposes. The annual, quarterly and other required filings periodically made by the Guarantor with the United States Securities and Exchange Commission (the AS.E.C.@) are incorporated herein by reference. Since the adoption by the Issuer on January 18, 1999, of a reimbursement resolution in respect of the financing of the Project Facilities, there has been no material adverse change in the financial condition of the Guarantor from the condition reflected in the S.E.C. statements filed by the Guarantor as of such date. 13 (k) Inducement. The availability of the financial assistance by the Issuer in issuing the 1999 Series A Bonds has been an important inducement to the Company to undertake the Project Facilities and to locate the Project Facilities in the Commonwealth. (l) Title to Project Facilities Financed with Proceeds of the 1999 Series A Bond s. The Company agrees that in accordance with Section 142(a)(1) of the Code, title to the Project Facilities financed with the Proceeds of the 1999 Series A Bonds shall be governmentally owned by the Issuer. (m) Ground Lease. The Ground Lease continues in full force and effect as the legal, valid and binding obligation of the Company thereunder, without material default by the Company, or to the best knowledge of the Company, by the Issuer thereunder; and the Company has neither received nor delivered any notice of default or termination under the Ground Lease. (n)Guaranty Agreement. The Guaranty Agreement continues in full force and effect as the legal, valid and binding obligation of the Guarantor, Mesaba Holdings, Inc., without material default by the Guarantor, and the Guarantor has neither received nor delivered any notice of default or termination under the Guaranty Agreement. The Company also represents that this Agreement does not cause a default under the Guaranty Agreement. (o) Leasehold Mortgage. The Leasehold Mortgage continues in full force and effect as the legal, valid and binding obligation of the Company, without material default by the Company, or to the best knowledge of the Company, by the Trustee thereunder; and the Company has neither received nor delivered any notice of default or termination under the Leasehold Mortgage. ARTICLE III COMMENCEMENT AND COMPLETION OF THE PROJECT FACILITIES; ISSUANCE OF BONDS Section 3.01. Agreement Regarding the Acquisition and Construction of the Project Facilities. (a) Subject to (i) the provisions of Section 3.05 hereof, (ii) compliance with the provisions of the Ground Lease and (iii) the obtaining of all governmental approvals required for the Acquisition and Construction of the Project Facilities, including, but not limited to, any necessary approvals or permits of the Federal Aviation Administration (AFAA@), the Company will use its best efforts and proceed 14 with reasonable speed and dispatch to cause the Acquisition and Construction of the Project Facilities substantially in accordance with the Plans and Specifications as prepared by the Company in reasonable detail and delivered to and approved by the Issuer. Any supplements, amendments, changes and additions to such Plans and Specifications shall be subject to the reasonable approval of the Issuer as to their compliance with the rules, regulations and procedures of the Issuer, however, that the Issuer shall incur no pecuniary liability to the Company, the Trustee or any other Person as a result of having given or withheld such approval. No material supplements, amendments, changes or additions to the Plans and Specifications shall materially change the descriptions set forth in the exhibits hereto or change the function of any principal component described in the Plans and Specifications, unless there shall be filed with the Issuer and the Trustee the written approving opinion of Bond Counsel to the effect that such supplement, amendment, change or addition will not result in the inclusion of interest on any 1999 Series A Bond in the gross income of the holder thereof for federal income tax purposes (except in respect to Asubstantial users@ and Arelated persons@ as described in Section 147(a)(1) of the Code) and will not adversely affect the qualification of the Project Facilities as a financeable project under the Act or the Code. In the event of such a change in the descriptions set forth in the exhibits hereto and following receipt by the Issuer and the Trustee of such opinion of Bond Counsel, the Issuer and the Company shall amend (without any requirement for Bondholder consent) any or all of the exhibits to this Agreement and the Ground Lease to reflect such change. (b) In no event shall any changes or revisions in Plans and Specifications (i) cause the Project Facilities, or any portion thereof, to be structurally unsound, unsafe or hazardous; (ii) fail to provide for sufficient clearance for taxiways and aprons, if applicable; (iii) provide for use of the Project Facilities, or any portion thereof, for purposes other than those initially contemplated and agreed to by the Issuer, unless approved in writing by the Issuer; (iv) adversely affect the qualification of the Project Facilities as a financeable project under the Act or the Code or impair the exclusion of interest on any of the 1999 Series A Bonds from gross income for purposes of federal income taxation (except with respect to Asubstantial users@ and Arelated persons@ as described in Section 147(a)(1) of the Code); or (v) fail to comply with or be inconsistent with the terms and conditions of this Agreement. The Company shall not be deemed to be in default under the provisions of this Section 3.01 if the Acquisition and Construction of all or any portion of the Project Facilities shall be delayed or prevented by the Company's inability to secure needed labor or material, stormy or inclement weather, strikes, labor 15 disputes, lockouts or like trouble, acts of God, acts of neglect of the Issuer or its agents or employees, laws, regulations or restrictions of or imposed by any governmental entity, agency or board, orders of any court, or fire or other similar catastrophe or any other cause that is beyond the Company's reasonable control;provided, however, that if any of such events occur in connection with the Acquisition and Construction of all or any portion of the Project Facilities, the Company shall in good faith use its best efforts to remedy the cause or causes preventing it from carrying out such Acquisition and Construction if practicable, at reasonable cost (in the Company's judgment) and subject to the remaining terms hereof; and provided further that settlement of strikes, lockouts and other labor disputes shall be entirely within the discretion of the Company. (c) Issuer approvals required by this Section 3.01 shall be for the purpose of assuring the compatibility of the Project Facilities with existing Airport facilities and with the continuous operation of the Airport and to assure compliance with the Ground Lease and/or applicable federal and/or Issuer regulations as provided in clause (a) of this Section 3.01. Such Issuer approvals shall not be unreasonably withheld. The Issuer's approval rights under this Section 3.01 are Unassigned Rights, which are not assigned to, or granted to the Issuer for the benefit of, the Trustee, and the Trustee shall not have any right pursuant to this Agreement or the Indenture to approve any supplements, amendments, changes and additions to or deletions from the Plans and Specifications or the Project Facilities. (d) The Plans and Specifications, including any supplements, amendments and additions thereto and as-built Plans and Specifications, in form as reasonably stipulated by the Issuer, shall be filed by the Company with the Issuer. Section 3.02. Agreement to Issue 1999 Series A Bonds. (a) In order to provide funds for payment of the Costs of Construction of the Project Facilities, the Issuer agrees to use its best efforts to issue the 1999 Series A Bonds in an aggregate principal amount not to exceed $14,000,000. The Company may request the Issuer to issue Additional Bonds pursuant to Section 2.17 of the Indenture to (1) finance the cost of completing any portion of the Project Facilities, (2) refund any of the 1999 Series A Bonds or Additional Bonds, including the costs of issuance and sale of such 1999 Series A Bonds or (3) finance the Acquisition and Construction of additions, expansions and improvements to the Project Facilities or additional facilities at the Airport for operation and use by the Company. If the Company is not in default hereunder, the Issuer, upon request of the Company to 16 issue such Additional Bonds pursuant to the preceding sentence and the authorizations of the Issuer=s governing board, will endeavor to issue such Additional Bonds if it is legally permitted to do so. Additional Bonds shall be issued upon such terms and conditions as may be agreed upon by the Issuer and the Company in accordance with the provisions of Section 2.17 of the Indenture. The Issuer and the Company hereby agree that, to the extent permitted by law, any statutory mortgage lien provided for by KRS 103.250(1) or KRS 103.250(2) is expressly waived and released and shall not be applicable to the Project Facilities or constitute security for the payment of the 1999 Series A Bonds. (b) It is understood and agreed that the principal amount, interest rate or rates, terms and other provisions of any Additional Bonds shall be subject to the direction and written consent of the Company prior to the issuance of any such Additional Bonds and that the Issuer will not issue any such Additional Bonds without such direction and approval. If, however, the Issuer is unable to issue any such Additional Bonds as aforesaid after a request of the Company under this Section 3.02, the Company shall, upon demand, pay or reimburse the Issuer for all reasonable costs and expenses, if any, expended by the Issuer in attempting to issue such Additional Bonds. The Issuer shall not refund any 1999 Series A Bonds or change or modify any 1999 Series A Bonds, this Agreement, the Ground Lease or the Indenture in any way without prior written direction and approval of the Company. (c) The Company hereby approves the form of the Indenture and the terms, provisions and conditions thereof. Section 3.03. Application of the Proceeds of 1999 Series A Bond s. The Proceeds of the 1999 Series A Bonds shall be deposited with the Trustee in the funds and accounts specified in the Indenture. The application of such Proceeds shall be subject to the conditions set forth in the Indenture. Payments shall be made by the Trustee under the Indenture for the Costs of Construction, acquisition, installation and equipping of the Project Facilities, and all such payments shall be made at the times, to the persons, subject to the conditions, and in accordance with the procedures set forth in the Indenture. The Proceeds of the 1999 Series A Bonds which are deposited in the Construction Fund shall be expended only for the cost of the construction, acquisition and installation of the Project Facilities, as provided in the Indenture. No 1999 Series A Bond Proceeds shall be subject to attachment or levy in the suit of any creditor of the Company or any agent, manufacturer, supplier, contractor or subcontractor. Section 3.04. Establishment of the Completion Date. The Company covenants that it has obtained or will cause to be obtained all necessary approvals and permits from any and all governmental 17 agencies requisite to the construction and operation of the Project Facilities, and that the Project Facilities have been or will be, as applicable, acquired, constructed and operated in all material respects in compliance with all federal, state and local laws, ordinances and regulations applicable thereto. The Company shall, with all reasonable dispatch, commence construction and proceed with due diligence to complete the construction, acquisition and installation of the Project Facilities. The Completion Date of the Project Facilities financed by the 1999 Series A Bonds shall be evidenced in each case to the Issuer and the Trustee by issuance of the Company=s Completion Certificate, as provided by Section 6.01 of the Indenture. Any amounts to be retained by the Trustee for payment of Costs of Construction not then due and payable shall be the subject of specific instructions and directions of the Company to the Trustee. Notwithstanding the foregoing, each certificate of completion shall state that it is given without prejudice to any rights of the Issuer or the Company, as the case may be, against third parties which exist at the date of such certificate or which may subsequently come into being. Section 3.05. Company Required to Pay Costs of Construction in Event Proceeds of 1999 Series A Bonds Insufficient. (a) In the event that moneys held in the Construction Fund available for payment of the Costs of Construction of the Project Facilities are not sufficient to pay such Costs of Construction in full, the Company either (i) shall request the Issuer to issue Additional Bonds pursuant to Section 3.02 hereof to pay any or all of such excess Costs of Construction, or (ii) shall complete and pay all Costs of Construction of such Project Facilities in accordance with the Plans and Specifications, as such Plans and Specifications may be modified with the approval of the Issuer, which approval shall not be unreasonably withheld, at the Company's expense; provided that in the event the Company requests the Issuer to issue Additional Bonds and the Issuer does not do so, the Company shall comply with clause (ii) of this sentence. (b) The Issuer does not make any warranty, either express or implied, that the moneys paid into the Construction Fund and available for payment of the Costs of Construction of the Project Facilities will be sufficient for such purpose. The Company agrees that if after exhaustion of such moneys the Company should pay any portion of the Costs of Construction of the Project Facilities pursuant to the provisions of this Section 3.05, it shall not be entitled to any reimbursement therefor from the Issuer (except from the Proceeds of any Additional Bonds or pursuant to separate agreement) or from the holders of any 1999 Series A Bonds, nor 18 shall the Company be entitled to any diminution of the rents payable under Article IV hereof. Section 3.06. Company to Pursue Remedies Against Contractors, Subcontractors and Suppliers and Their Sureties. In the event of default of any contractor, subcontractor or supplier under any contract made in connection with the Project Facilities, the Company will, if in its sole discretion it deems it appropriate, promptly proceed, either separately or in conjunction with the Issuer (but at the expense of the Company), if the Issuer consents (which consent shall not be unreasonably withheld) or with others, to pursue the remedies of the Company against the contractor, subcontractor or supplier so in default and against any surety for the performance of such contractor, subcontractor or supplier. The Company agrees to advise the Issuer and the Trustee of any default by a contractor, subcontractor or supplier material to the operations of the Airport and any legal actions or proceedings it intends to commence in connection with any such default. Any amount recovered by way of damages, refunds, adjustment or otherwise in connection with the foregoing shall, after reimbursement to the Issuer and the Company of any cost incurred by them by reason of such default and legal and other related costs expended in prosecuting all claims against such defaulting party, (i) prior to the Completion Date shall be used to pay Costs of Construction of the Project Facilities and (ii) after the Completion Date shall be paid to the Trustee for deposit into the Bond Fund and applied, at the direction of the Authorized Company Representative, (A) to purchase 1999 Series A Bonds in the open market (excluding any portion of the purchase price which is attributable to interest accrued and/or accruing on such 1999 Series A Bonds until the date of purchase) for the purpose of cancellation; (B) to redeem 1999 Series A Bonds on their earliest redemption date, as applicable (paying principal sums only) for the purpose of cancellation; or (C) used to pay the principal of and/or interest on the 1999 Series A Bonds, provided that prior to exercising the rights set out in clause (C) above the Company shall deliver to the Trustee and the Issuer a Favorable Opinion of Bond Counsel to the effect that such transfer will not impair the exclusion of the interest on the 1999 Series A Bonds from gross income for federal income tax purposes. The Company agrees that if the Issuer participates in any legal action or proceedings, it and its officers and employees shall be fully indemnified and held harmless by the Company in connection therewith. Section 3.07. Directions by Company. In all cases where action may be taken under this Agreement or the Indenture by the Issuer at or upon the direction of the Company, the Issuer hereby authorizes the Company to give notice on behalf of the Issuer of the exercise of such action. Such notice shall be given concurrently to both the Issuer and the Trustee and may be given either in writing or by telephone or telegraph, confirmed in writing. 19 Section 3.08. Title to the Project Facilities. (a) The Company agrees and acknowledges that, subject to Section 3.09, all right, title and interest in the Project Facilities, including any portion thereof heretofore or hereafter acquired or constructed, whether constituting real, personal or mixed property, shall, pursuant to the requirements of Section 142(b)(1)(B) of the Code, be governmentally-owned by the Issuer, subject to the leasehold estate of the Company (and the rights of all successors thereto, whether by law, equity or contract) created by this Agreement in respect of the Project Facilities. The Company hereby agrees to execute any further written instrument as shall be necessary to satisfy the requirements of Section 142(b)(1)(B) of the Code, with respect to such governmental ownership, subject to the leasehold estate of the Company created by this Agreement. It is intended that nothing in this Section 3.08 shall cause any Company property not financed by the Proceeds of the 1999 Series A Bonds which is or may be installed in or on the Project Facilities pursuant to Article V or cause any AExcluded Equipment@ under Article V hereof to become part of the Project Facilities. (b) Pursuant to Section 142(b)(1)(B)(i) of the Code, the Company hereby makes an irrevocable election, binding upon the Company, the Guarantor and all their successors in interest under this Agreement, not to claim depreciation or any investment tax credit with respect to the 1999 Series A Bond- financed Project Facilities. Section 3.09. Failure to Issue 1999 Series A Bonds. If for any reason the 1999 Series A Bonds are not issued, this Agreement shall automatically terminate and the Project Facilities, if then constructed in whole or in part by the Company, shall continue to be owned by the Company. In that event, notwithstanding any other provision in this Agreement to the contrary, there shall be no rental applicable to such facilities for the original Agreement term and any additional option terms. Furthermore, upon any such occurrence, the Issuer agrees to take, at the Company=s cost and expense, whatever actions the Company may reasonably request to carry out the intent of this provision, including, without limitation conveying all present and future right, title and interest of the Issuer in such Project Facilities as may be now or hereafter constructed, to the Company and executing any further deed, conveyance, bill of sale or other written instrument as shall be necessary or desirable to convey any interest it has in such facilities to the Company. ARTICLE IV LEASE OF THE PROJECT FACILITIES; OPTIONS TO 20 RENEW; EFFECTIVE DATE OF THIS AGREEMENT; DURATION OF AGREEMENT TERM; RENTAL PROVISIONS; PREPAYMENTS AND CREDITS Section 4.01. Demise of Project Facilities. The Issuer does, by these presents, hereby lease and demise to the Company, and the Company does, by these presents, hereby take and hire from the Issuer, for and during the term provided in Section 4.02 and upon and subject to the terms, provisions and conditions herein set forth, the Project Facilities. It is the intention of the Issuer and the Company that the Project Facilities shall at all times be governmentally-owned by the Issuer, as provided by Section 142(b)(1)(B) of the Code. Section 4.02. Effective Date of This Agreement; Duration of Agreement Term; Options to Renew. (a) This Agreement shall become effective upon the delivery hereof, and the leasehold estate created in this Agreement shall then begin, and shall continue in full force and effect, subject to Section 2.02 hereof, unless terminated prior thereto as hereinafter provided, for an initial term expiring July 1, 2029, subject to the options set forth in clause (b) of this Section 4.02. Notwithstanding any other provisions of this Agreement, the aggregate sum of the initial term of this Agreement, plus all option terms, including the Fair Market Value Term, if applicable, shall not exceed 40 years. (b) Upon expiration of the initial Agreement term, the Company is hereby granted the options, exercisable in the case of each such option not more than 18 months nor less than 12 months prior to the expiration of either the initial Agreement term or the applicable option term, to renew this Agreement in respect of the Project Facilities for two additional option terms ending respectively on (i) July 1, 2034 (the AFirst Option Term@) and (ii) July 1, 2039 (the ASecond Option Term@). In the event the First Option Term and the Second Option Term (as adjusted, pursuant to clause (d) of this Section 4.02) in the aggregate equal 80% of the reasonably expected economic life of the Project Facilities, as of the Date of Issuance of the 1999 Series A Bonds, determined pursuant to Section 147(b) of the Code, but do not, in the aggregate, equal 40 years, the Company is hereby granted an option to renew this agreement, at fair market rental value, from the date of the expiration of the Second Option Term to July 1, 2039 (the AFair Market Value Term@). The Company represents to the Issuer that (y) the initial Agreement term plus both (z) the First Option Term and the Second Option Term do not, in the aggregate, exceed 80% of the reasonably expected economic life of the Project Facilities, as of the Date of Issuance of the 1999 Series A Bonds, determined pursuant to Section 147(b) of the Code. 21 (c) The rental payable for the Project Facilities during each of the First Option Term and Second Option Term shall be $1.00 per annum plus payment of Facility Rentals described in Sections 4.03(a) and 4.03(b) hereof, if any. The rental payable for the Project Facilities during the Fair Market Value Term shall be the fair market rental value of the Project Facilities during such term, determined in accordance with clause (e) of this Section 4.02. (d) Upon completion of Acquisition and Construction of the Project Facilities, the Company shall recalculate the reasonably expected economic life of the Project Facilities to be leased pursuant hereto, based on final, definitive costs of the Project Facilities; and to the extent required to assure that the Project Facilities to be leased pursuant hereto are not leased for more than 80% of their reasonably expected economic life (as determined under Section 147(b) of the Code) by the Company at rental rates other than fair market rent (the A80% Test@), the First Option Term and Second Option Term commencement and termination dates shall, if necessary, be adjusted to dates identified by the Company which comply with the 80% Test. The Company shall notify the Issuer in writing of any such rental period adjustments and shall provide upon request reasonable information to verify compliance with the 80% Test. (e) (i) For purposes of clause (c) of this Section 4.02, in determining the fair market rental value of the Project Facilities for purposes of the Fair Market Value Term, the Issuer and the Company shall, not more than four (4) months nor less than three (3) months prior to the expiration of the term preceding the Fair Market Value Term, each select an appraiser, which shall be knowledgeable, experienced and qualified in the evaluation of the fair market value of airport properties and leases of airport properties, whose fees shall be paid, respectively, by the Issuer and the Company. Those two appraisers shall, within 5 days of their appointments, select a third similarly qualified appraiser, whose fee shall be shared equally by the Issuer and the Company. In the event the three appraisers so selected cannot agree upon the fair market rental value for the Project Facilities during the Fair Market Value Term, each of the three appraisers shall, within 15 days of appointment, independently appraise the fair market rental value of the Project Facilities for the Fair Market Value Term. For purposes of those appraisals, fair market rental value shall mean the rental value as of the expiration date of the Option Term preceding the Fair Market Value Term payable in cash in monthly installments, that a bona fide willing lessee who is not in possession and a bona fide willing lessor who is under no compulsion to lease are willing to pay to lease the Project Facilities for the Fair Market Value Term. The Company's 22 option to lease under this subparagraph (e) shall be at the fair market rental value as determined either by (i) the agreement of the three appraisers or (ii) the average of such three separate appraisals. The Issuer agrees to cooperate with the Company to ensure that the appraisals and rental rates determined thereby are made available to the Company at least fifteen (15) days in advance of the latest date on which the Company can exercise its option. If the Company exercises any option to renew granted by this Agreement, this Agreement shall continue in full force and effect for such Fair Market Value Term. (ii) Notwithstanding the provisions of Section 4.02(e)(i) of this Agreement, the fair market rental value of the Project Facilities during the Fair Market Value Term must, at the time of any exercise of the Fair Market Value Term Option, comply with the provisions of Section 142 of the Code and the provisions of this Agreement shall be construed to accomplish such requirements. Section 4.03. Rentals Payable. Throughout the Agreement term, the Company shall pay or cause to be paid to the Issuer each of the following Facility Rentals at the following times and in the following amounts: (a) With respect to any Outstanding 1999 Series A Bonds, in the manner, at the times and in the amounts set forth in clauses (i) and (ii) of this subsection 4.03(a), the Company shall make such payments so that there shall be on deposit in the Bond Fund (i) on each maturity, redemption or principal payment date (whether by scheduled maturity or optional or mandatory redemption), an amount equal to the principal of and redemption premium, if any, due on such 1999 Series A Bonds (whether such payment date be by reason of maturity or upon redemption, prepayment or by acceleration or otherwise) on such maturity, redemption or principal payment date and (ii) on each Interest Payment Date, an amount equal to the interest due on such 1999 Series A Bonds on such Interest Payment Date; provided, however, the Company shall receive a credit against any rental amount due under this Section 4.03(a) and such obligation shall be deemed satisfied in the amount of any sum required to be paid under this Section 4.03(a) which is paid from any amounts on hand available for such purposes under the Trust Indenture, including any amounts paid pursuant to the Guaranty; and In order to satisfy the requirements of this subsection (a), the Company shall pay on or prior to the first day of each month: (y) To the Bond Fund, taking into account any amounts already on deposit therein, an amount sufficient 23 to produce the interest component of then accrued Debt Service Requirement of the 1999 Series A Bonds and thereafter monthly an amount equal to one-sixth (1/6) of the interest coming due on the 1999 Series A Bonds on the next Interest Payment Date; (z) To the Bond Fund, taking into account any amounts already on deposit therein, an amount sufficient to produce the principal and sinking fund installment component of then accrued Debt Service Requirement of the 1999 Series A Bonds and thereafter monthly an amount equal to one-twelfth (1/12) of the principal and sinking fund installment coming due on the 1999 Series A Bonds on the next July 1. (b) A rental commencing upon delivery of this Agreement payable from time to time within thirty (30) days after receipt by the Company of a requisition therefor from the Issuer, until the principal of and premium, if any, and interest on all 1999 Series A Bonds shall have been fully paid or provision for the payment thereof shall have been made, in an amount equal to previously unreimbursed Administration Expenses, which may be payable to the Issuer or to third parties, at the request of the Issuer. (c) The Company further agrees to pay or cause to be paid to the Trustee until the principal of, premium, if any, and interest on the 1999 Series A Bonds shall have been fully paid or provision for the payment thereof shall have been made in accordance with the provisions of the Indenture, (i) an amount equal to the annual fee of the Trustee for the ordinary services of the Trustee, as trustee, rendered and its ordinary expenses incurred under the Indenture, as and when the same become due, (ii) the reasonable fees, charges and expenses of the Trustee, for acting as Registrar and Paying Agent as provided in the Indenture, as and when the same become due and (iii) the reasonable fees, charges and expenses of the Trustee and its counsel for the necessary extraordinary services rendered by it and extraordinary expenses incurred by it under the Indenture with prior written notice to the Company, as and when the same become due. (d) In the event the Company should fail to make or cause to be made any of the payments required in this Section 4.03, the item or installment so in default shall continue as an obligation of the Company until the amount in default shall have been fully paid, and the Company agrees to pay the same with interest on all outstanding amounts due hereunder at the rate of interest per annum then borne by the 1999 Series A Bonds until paid. (e) Notwithstanding any other provision of this Agreement, the Company shall (i) make payments or cause 24 payments to be made at such times and in such amounts as will enable the Issuer to meet all of its obligations under the 1999 Series A Bonds and the Indenture, including any payment required to be made to the Rebate Fund under the Indenture and to the Bond Fund under the Indenture, (ii) to pay and thereby eliminate any deficiency in the minimum requirements of any other funds created by and under the Indenture and (iii) to make any payment due on an acceleration of the maturity of the 1999 Series A Bonds pursuant to the terms thereof. Accordingly, the Company agrees (but such agreement shall not limit the generality of the preceding sentence) that if any additional amounts become payable by the Issuer to the Owners of the 1999 Series A Bonds pursuant to the terms thereof, then additional amounts shall be due and payable by the Company to the Issuer hereunder equal to any additional amounts that may be so payable by the Issuer, whether before or after payment of principal on the 1999 Series A Bonds, all of which amounts shall be paid by the Company no later than the date that the comparable amounts are due by the Issuer to the Owners of the 1999 Series A Bonds. The Company further agrees to pay or cause to be paid all costs of maintenance and repair, all taxes and assessments, insurance premiums and other costs and expenses concerning or in any way related to ownership, maintenance and use of the Project Facilities, or any part thereof, during the term of this Agreement or any renewal thereof. (f) Notwithstanding anything to the contrary which may be contained in this Agreement, any amount payable pursuant to this Agreement with respect to the principal of (whether at maturity or upon redemption or acceleration or otherwise) or premium, if any, and interest on the 1999 Series A Bonds shall be deemed satisfied and discharged to the extent moneys are available for such payment in accordance with the terms of the Indenture. Section 4.04. Assignment of Rights; Payees of Rental Payments. As security for the payment of the 1999 Series A Bonds, the Issuer will assign to the Trustee the Issuer's rights under this Agreement, including the rights to receive payments hereunder, but exclusive of Unassigned Rights and the Company herewith assents to such assignment. The rent provided for in Section 4.03(a) (i) and (ii) hereof shall be paid by the Company directly to the Trustee and shall be used by the Trustee to pay principal of and premium, if any, and interest on the 1999 Series A Bonds. The rent provided for in Section 4.03(b) shall be paid either to the Issuer or directly to third parties, at the direction and request of the Issuer. Section 4.05. Obligations of the Company Hereunder Absolute and Unconditional. The obligations of the Company to make the payments required under Section 4.03(a), 4.03(b), 4.03(c), and 25 4.03(e) and to pay the premiums or charges necessary to maintain or cause to be maintained the insurance required by Section 5.06 not otherwise paid in accordance with other provisions of this Agreement shall be absolute and unconditional and the Company will not suspend or discontinue any such payments referred to in Section 4.03(a), 4.03(b), 4.03(c), and 4.03(e) so long as any 1999 Series A Bonds are Outstanding and will not terminate this Agreement for any cause including, without limiting the generality of the foregoing, (A) any abatement, suspension, deferment, reduction, setoff, defense (other than payment), counterclaim or recoupment whatsoever, or any right to any thereof, which the Company may now or hereafter have, (B) any insolvency, composition, bankruptcy, reorganization, arrangement, liquidation or similar proceedings relating to the Issuer or the Company, (C) any delay or failure of the Project Facilities, or any portion thereof, to be completed, operating or operable, or any defect in the title, quality, condition, design, operation or fitness for use of, or any damage to, or loss of, or loss of use of, or destruction or theft of, all or any part of the Project Facilities from any cause whatsoever, (D) any interruption or prohibition of the use or possession by the Issuer or the Company of, or any ouster or dispossession by paramount title or otherwise of the Issuer or the Company from, all or any part of the Project Facilities, or any interference with such use or possession by any governmental agency or board or other person or otherwise, (E) the invalidity or unenforceability or disaffirmance, in whole or in part, of this Agreement or any failure, omission, delay or inability of the Issuer to perform any of its obligations contained in this Agreement, (F) any amendment, extension or other change of, or any assignment or encumbrance of any rights or obligations under, this Agreement, or any waiver or other action or inaction, or any exercise or non-exercise of any right or remedy, under or in respect of this Agreement, (G) any sale, release, substitution, exchange or other action or inaction with respect to the Project Facilities, (H) any acts or circumstances that may constitute failure of consideration, (I) any change in the tax or other laws of the United States of America or of the Commonwealth or any political subdivision of either thereof, (J) any failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connection with this Agreement, or (K) any other circumstance, happening or event whatsoever, whether foreseeable or unforeseeable and to the extent permitted by applicable law, any and all rights which it may now have or which may at any time hereafter be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender any of its obligations under this Agreement in regard to payments referred to in Section 4.03 and agrees that if, for any reason whatsoever, this Agreement shall be terminated in whole or in part by operation of law or otherwise, the Company will nonetheless promptly pay to the Trustee as assignee of the Issuer amounts equal to all such amounts referred to in Section 4.03(a) and 4.03(b) which shall become due and payable pursuant to this Agreement, to the same extent as if this Agreement had not been terminated in whole or in part. Each 26 payment referred to in Section 4.03(a) and 4.03(b) made by the Company pursuant to this Agreement, including such other amounts, shall be final, and the Company shall not seek to recover all or any part of such payment from the Issuer, the Trustee or any holder of 1999 Series A Bonds for any reason whatsoever. Nothing contained in this Section 4.05 shall be construed to relieve the Issuer or the Trustee from the performance of any of the agreements on their part contained herein or in the Indenture or to constitute a waiver by the Company of its rights to enforce the performance thereof. Section 4.06. Prepayment of Rents. (a) There is expressly reserved to the Company the right, and the Company is authorized, at any time or times it may choose, to prepay or cause to be prepaid all or any part of the Facility Rentals to provide for the redemption of 1999 Series A Bonds in whole or in part, or to provide for the defeasance of 1999 Series A Bonds pursuant to the Indenture, and the Issuer agrees that the Trustee shall accept such prepayment of rents when the same are tendered by the Company. All Facility Rentals so prepaid (including interest accrued thereon) shall be deposited in accordance with the Indenture and applied to such payment, redemption or defeasance in accordance with the terms thereof. (b) At the time of the issuance of the 1999 Series A Bonds, the Company shall file a certificate with the Issuer and the Trustee allocating the Proceeds of the 1999 Series A Bonds to the several airport facilities comprising the Project Facilities, on the basis of the amount of the Proceeds of the 1999 Series A Bonds expected to be expended for each such airport facility. Within a reasonable period of time after completion of Acquisition and Construction of the Project Facilities, the Company, based on final, definitive costs of the Project Facilities shall file a supplemental certificate with the Trustee to the extent required to accurately allocate the Proceeds of the 1999 Series A Bonds to the Project Facilities. ARTICLE V MAINTENANCE, TAXES AND INSURANCE Section 5.01. Maintenance of Project Facilities by the Company. (a) During the term of this Agreement, the operation, maintenance and repair of the Project Facilities and the related Leased Premises, as defined in the Ground Lease, shall be the obligation and responsibility of the Company and shall be in strict accordance with all of the relevant terms of the Ground Lease, which are incorporated herein by reference. In 27 such regard, the Company shall pay, as the same shall become due, all costs and expenses incurred by it in the operation, maintenance and repair of the Project Facilities and such Leased Premises, including any machinery, equipment or related property substituted for any equipment therein. (b) The Company shall at all times stipulated in clause (a), keep or cause to be kept the Project Facilities, together with all property of the Company located in or on the Project Facilities, in a clean, sanitary and orderly condition and appearance, as required by the Ground Lease. Section 5.02. Utility Services. (a) The Issuer shall, in accordance with the provisions of the Ground Lease, at the expense of the Company, bring or cause to be brought and maintained such utility facilities and connections for the supply of water, gas, electricity, telephone and other utilities, and for the disposal of sewage, as the Company shall require up to such point or points on the boundary or boundaries of the Leased Premises upon which the Project Facilities, are to be situated, as the parties shall mutually determine. The obtaining and maintaining of all other or additional utility services with respect to the Project Facilities shall be in accordance with the Ground Lease. As provided in the Ground Lease, the Company shall accept from the Issuer and pay for all water supply services and sanitary sewer connection services required by the Company. All other utility services and supplies shall be obtained and paid for by the Company from the appropriate public utilities. (b) The Company shall pay all lawful charges for utility services furnished to the Company as the same become due, both during and after Acquisition and Construction of the Project Facilities. (c) So long as any 1999 Series A Bonds are Outstanding, no failure, delay or interruption in any utility service or services, whether such are supplied by the Issuer or others, shall relieve or be construed to relieve the Company of any of its obligations hereunder, or shall be or construed to be an eviction of the Company, or shall constitute grounds for diminution or abatement of the Facility Rentals payable by the Company pursuant to this Agreement, except as provided in Section 8.02 hereof, the provisions of which are incorporated herein by reference. Section 5.03. Installation of the Company's Property. Except as otherwise provided in the Ground Lease, the Company shall have the right (i) to make structural 28 improvements, alterations or modifications not inconsistent with the Plans and Specifications to the Project Facilities which shall become part thereof and be the property of the Issuer, and (ii) to install its own furnishings, equipment, machinery or other personal property in or on the Project Facilities or to attach fixtures or structures in or on the Project Facilities which, if same can be removed without material damage to or alteration of the Project Facilities, shall not become a part of the Project Facilities (the AExcluded Equipment@). Except as otherwise provided in the Ground Lease, from time to time, including upon the termination of the term of this Agreement by lapse of time or otherwise (including without limitation, upon exercise by the Issuer of the remedies reserved to it in Article VIII, Section 8.07), the Company may remove from the Project Facilities, at its own expense, any of its furnishings, equipment, machinery or other personal property, fixtures or structures added by it which constitute Excluded Equipment and do not constitute part of the Project Facilities; provided, however, that such removal shall be accomplished so as to leave the Project Facilities, except for ordinary wear and tear, in substantially the same condition as they were before the Company's furnishings, equipment, machinery or other personal property, fixtures or structures were added by it to the Project Facilities, and that any damage occasioned by such removal shall be repaired by the Company at its own expense. The Company shall, before or within a reasonable time after the termination of the term of this Agreement by lapse of time or otherwise (including, without limitation, upon the exercise by the Issuer of the remedies reserved to it in Article VIII, Section 8.07), remove its Excluded Equipment from the Project Facilities. Except as otherwise provided in the Ground Lease, all furnishings, equipment, machinery or other personal property installed by the Company pursuant to clause (ii) of the first sentence of this Section 5.03(a) shall remain the property of the Company in which the Issuer shall have no interest and shall not in any way be subject to the terms and provisions of this Agreement. Section 5.04. Changes to the Project Facilities After the Completion Thereof. (a) The Company may remove any item of equipment or any other part of the Project Facilities which in the opinion of the Company has become inadequate, obsolete, worn out, unsuitable, undesirable or unnecessary. The Company shall be under no obligation to replace removed items or parts with other items or parts unless and to the extent such replacement is required in order to avoid a material adverse effect on the overall operating efficiency of the Project Facilities remaining after such removal. Any replacement items and parts required to be so replaced (hereinafter referred to as the 29 AReplacement Property@), other than any item or part of the Company's own furnishings, equipment, machinery, other personal property, fixtures, structures in or on the Project Facilities furnished by the Company pursuant to clause (ii) of the first sentence of Section 5.03(a)(ii) which are Excluded Equipment, shall be and become a part of the Project Facilities and shall be subject to this Agreement. Nothing in this paragraph shall be a limitation upon or be construed as a limitation upon, the obligations of the Company set forth in Section 5.01. (b) The Company may, with the consent of the Issuer, on behalf of the Issuer in the case of any part of the Project Facilities other than Excluded Equipment, sell, trade in, exchange or otherwise dispose of (as a whole or in part) any property removed from the Project Facilities pursuant to subsection (a) of this Section 5.04. The Company shall not be accountable to the Issuer or the Trustee for such property or for the Proceeds of the disposition thereof (except as specifically set forth in subsection (a) and (d) of this Section 5.04). (c) The Company will promptly report to the Issuer and the Trustee each removal, substitution, installation, sale and other disposition made pursuant to this Section 5.04, other than Excluded Equipment; provided, that no such report need be made, and no such payment need be made, as the case may be, until the amount so to be reported, or so to be paid, as the case may be, not previously reported, or not previously paid, as the case may be, aggregates at least $25,000. (d) The removal from the Project Facilities of any part of the Project Facilities pursuant to the provisions of this Section 5.04, or the installation by the Company of any new or additional property thereon pursuant to the provisions of this Section 5.04 shall not entitle the Company to any abatement or diminution of the rentals payable hereunder. The Company shall not remove or permit the removal of any other machinery, apparatus, furnishings, equipment or other personal property constituting part of the Project Facilities except in accordance with the provisions of Sections 5.03 and 5.04. In the event that the removal of the property causes material damage to any remaining buildings or structures, the Company shall promptly restore and repair the same at its own expense. Section 5.05. Taxes, Other Governmental Charges and Utility Charges. (a) Subject to Section 5.05(b), the Company will pay during the term of this Agreement, as the same respectively become due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied 30 against or with respect to the Project Facilities or any machinery, equipment or other property installed, brought by the Company therein or thereon or with respect to the issuing of 1999 Series A Bonds (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to the rentals of the Issuer derived under this Agreement, or any transaction privilege taxes or rental taxes payable as a result of any rental payments hereunder and similar charges, pursuant to this Agreement) and all assessments and charges lawfully made by any governmental body for public improvements; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the Company shall be obligated to pay only such installments as are required to be paid during the term of this Agreement. Upon receipt of notice thereof by the Issuer, the Issuer will promptly provide notice to the Company as to the levy or assessment of any such taxes or governmental charges, but the failure of the Issuer to provide such notice will not affect the responsibilities of the Company as set forth in this subsection (a) once such notice is provided to the Company. (b) The Company may, at its expense and in its own name and behalf or in the name and on behalf of the Issuer, but only after written notice to the Issuer, in good faith contest any assessed valuation or the amount or the legality of such taxes, assessments and other charges, and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the enforcement of any such contested items is so stayed and such stay thereafter expires or unless by nonpayment of any such contested items, any part of the Project Facilities will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid promptly or secured by posting a bond, in form satisfactory to the Issuer, with the Issuer. The Issuer will cooperate with the Company in any such contest at the Company=s expense. The Issuer shall cooperate with the Company, at the Company=s expense, in connection with any administrative or judicial proceedings for determining the validity or amount of any such taxes, assessments or other charges or any payments in lieu of taxes and appoints the Company to take any action which the Issuer may lawfully take in respect of such payments and all matters relating thereto, and the Company shall bear and pay all reasonable costs and expenses of the Issuer thereby incurred at the request of the Company or by reason of any such action taken by the Company on behalf of the Issuer. Section 5.06. Insurance Required. The Company shall maintain reasonably adequate insurance against risks, accidents or casualties, including self-insurance, with respect to the Project 31 Facilities as is customarily carried by persons engaged in similar businesses and operating facilities like the Project Facilities. Specifically, the Company shall obtain and maintain all insurance coverage required by the provisions of the Ground Lease and provided continuous evidence thereof to the Issuer in accordance with Section XIII thereof. The Company shall annually file a certificate of the Authorized Company Representative or other authorized Company officer affirming such required insurance coverage with the Trustee upon issuance of the 1999 Series A Bonds and thereafter within 45 days following the end of each Company fiscal year. ARTICLE VI SPECIAL COVENANT S Section 6.01. Maintenance of Existence. (a) The Company agrees that so long as any 1999 Series A Bond remains Outstanding, it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and licenses and will not merge into or consolidate with any other corporation or other entity; provided, however, that the Company may, without violating any provision hereof and without the necessity of any consent of the Issuer or any owner of any 1999 Series A Bond, so long as the Guaranty remains in full force and effect, and except as otherwise provided in the Ground Lease, consolidate with or merge into another corporation or other entity or permit one or more other corporations or other entities to consolidate with or merge into it, or transfer or convey all or substantially all of its property, assets or licenses to another corporation or other entity and be released from any further responsibility hereunder, but only on the condition that the corporation or other entity resulting from or surviving such merger (if other than the Company) or consolidation or the corporation or other entity to which such transfer or conveyance is made shall either be a subsidiary of the Company or an affiliate of the Company or such entity shall (i) be legally qualified to occupy, use and operate the Project Facilities as exempt facilities constituting an airport or being functionally related and subordinate to an airport under Section 142(a)(1) of the Code and covenant to continue to operate and use the Project Facilities as such, (ii) expressly assume in writing and agree to perform all of the Company's obligations under this Agreement, (iii) be qualified to do business in the Commonwealth and (iv) if such corporation or other entity shall not be organized and existing under the laws of the United States of America or any state or territory thereof or the District of Columbia, deliver to the Issuer and the Trustee an irrevocable consent to service of process in, and 32 to the jurisdiction of the courts of, the Commonwealth with respect to any action or suit, in law or in equity, brought by the Issuer or the Trustee to enforce this Agreement. Additionally, a Favorable Opinion of Bond Counsel must be issued to the effect that the action to be taken will not adversely affect the exclusion of interest on the 1999 Series A Bonds from gross income for federal income tax purposes. If the Company is the surviving corporation in such a merger, the express assumption referred to in the preceding sentence shall not be required. (b) The Company shall preserve and keep in full force and effect all material licenses and permits necessary to the proper conduct of its business and necessary to its use and beneficial occupancy of the Project Facilities. Section 6.02. Financial Information. (a) (i) The Company agrees to furnish to the Issuer a copy of the Guarantor=s annual report and Report on S.E.C. Form 10-K setting forth the Guarantor=s financial statements and the report of the independent public accountants with respect thereto and a copy of the Guarantor=s quarterly reports on S.E.C. Form 10-Q not later than 60 days after the Guarantor files such reports with the S.E.C. (ii) Upon request of the Underwriter and/or the Trustee, the Company will furnish to such parties copies of the Guarantor=s annual report and any public financial statements and reports filed by the Company with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. (iii) If at any time the Guarantor is not required to file S.E.C. forms 10-K or 10-Q, the Company shall cause the Guarantor to prepare and file with the Issuer, the original underwriter of the 1999 Series A Bonds and the Trustee within 120 days following the end of the fiscal year of the Guarantor audited (i) financial statements of the Guarantor for such period and (ii) unaudited operating statements and balance sheets of the Guarantor within 60 days of the end of each fiscal quarter of the Guarantor. (b) The Company, the Issuer and the Kentucky Economic Development Finance Authority (AKEDFA@), a Kentucky state agency, intend, at the special instance and request of the Company, in order to assist the Company to obtain financial incentives from the Commonwealth, to enter into a certain AService and Technology Agreement@ (the AService Agreement@). The Service Agreement will require the Issuer to provide to KEDFA in writing, the following: (i) on an annual basis, no 33 later than ninety (90) days following the end of each fiscal year of the Company, a report as to the rentals paid under this Agreement by the Company to the Issuer; (ii) notice of all defaults of the Company, specifying the nature thereof, within 10 days of the default declaration; and (iii) notice of expiration or early termination of this Agreement, without extension or renewal, within ten (10) days of such expiration or termination. The Company covenants that it will annually file the data required by clause (i) in writing with the Trustee within forty-five (45) days following the end of each fiscal year of the Company and will file the data required by clauses (ii) and (iii) in writing with the Trustee within five (5) days of any default declaration or termination or expiration of the Lease, so as to enable the Trustee, on behalf of the Issuer, to comply with such required reporting, in accordance with the Service Agreement. Section 6.03. Right of Access to the Project Facilities. (a) The Issuer or its designees shall have, during the term of this Agreement at reasonable times and upon reasonable prior written notice, the right of entry upon the Project Facilities: (i) to examine and inspect the same, (ii) for any purpose connected with the Issuer's rights or obligations or the Company's obligations under the Ground Lease and this Agreement, (iii) to service or post or keep posted thereon notices provided by any law or rules or regulations of the Commonwealth which the Issuer deems to be necessary for the protection of the Issuer or the Project Facilities; and (iv) for all other lawful purposes;provided that in exercising the right of entry pursuant hereto the Issuer shall not unreasonably interfere with the Company's use or occupancy of the Project Facilities. (b) Without limiting the generality of the foregoing, the Issuer, by its officers, employees, agents, representatives, contractors and furnishers of utilities and other services, shall have the right for its own benefit, for the benefit of the Company or for the benefit of other persons at reasonable times and upon reasonable prior written notice, to maintain existing and future utility, mechanical, electrical and other systems and to enter upon the Project Facilities at all reasonable times and upon reasonable prior written notice to make such repairs, replacements or alterations to such systems as may, in the opinion of the Issuer, be necessary or desirable and, from time to time, to construct or install such systems over, in or under the Project Facilities for access to other parts of the Airport, provided that the maintenance, construction and installation of such systems does not unreasonably interfere with the operation by the Company of the Project Facilities. 34 (c) Nothing in this Section 6.03 shall, or shall be construed to impose upon the Issuer any obligations so to maintain, construct or install such systems or to make repairs, replacements, alterations or additions to the Project Facilities, or shall create any liability for any failure to do so provided that nothing herein shall be construed to reduce or abrogate any of the obligations of the Issuer arising under Section 5.02(a) hereof. (d) The Issuer and the Company shall have the rights of ingress, egress, rights of use of the public streets, roadways, ramps, taxiways, access roads and runways, as provided in the Ground Lease. Section 6.04. Company's Performance Under Indenture; Amendments to Indenture. The Company agrees, for the benefit of the Owners from time to time of the 1999 Series A Bonds, to do and perform all acts and things contemplated in the Indenture to be done or performed by it, including specifically, but not by way of limitation, the duties with respect to arbitrage rebate set forth in the Indenture. The Issuer agrees that it shall not execute or permit any amendment or supplement to the Indenture which affects any rights, obligations, powers or authorities of the Company under the Indenture or this Agreement or which requires a revision of this Agreement without the prior written consent of the Company. Section 6.05. Qualification in the Commonwealth. The Company agrees (except as may be otherwise permitted pursuant to the provisions of Section 6.01) that throughout the term of this Agreement, it will continue to be a corporation either organized under the laws of the Commonwealth or duly qualified to do business in the Commonwealth as a foreign corporation. Section 6.06. Compliance with Applicable Laws. The Company will comply with all laws, ordinances, orders, rules and regulations of all federal, state and municipal governments and the appropriate departments, commissions, boards and offices thereof, including the Issuer, having jurisdiction over the Airport and the Project Facilities, legally applicable to the Company's construction, acquisition, installation, use and operation of the Project Facilities (AApplicable Laws@), including any reasonable rules and regulations of general applicability of the Issuer; provided that the Issuer agrees that all Applicable Laws so promulgated by the Issuer shall not be inconsistent with any Applicable Laws of the Federal Aviation Administration which are binding on the Company, as the same now are or may from time to time be amended or supplemented. Without limiting the generality of the foregoing, the Company shall construct, acquire and install and at all times thereafter (subject to the provisions of this Agreement) use and occupy the Project Facilities in strict accordance with any and all Applicable Laws that may be imposed by the Federal Aviation Administration which are binding on the 35 Company with respect to the Project Facilities or the operations thereof or the Airport and the operations thereof. The Company may, so long as such action does not, in the reasonable opinion of the Issuer, subject the Issuer to any liability and the Company shall indemnify and hold harmless the Issuer from such liability, in good faith and with due diligence contest any Applicable Laws and their application, and in the event of such contest, may, without breach of this covenant, continue any then-existing noncompliance with any such Applicable Laws during the period of the contest and any appeal therefrom unless and until it is judicially determined that such non-compliance will subject the Project Facilities or any part thereof to loss or forfeiture, in which event the Company shall, upon such determination, thereafter promptly comply with such Applicable Laws in issue pending a final outcome on such contest and the exhaustion of or the failure to timely pursue the Company's appeal rights. Section 6.07. Illegal Acts. The Company shall not use the Project Facilities or any parts thereof or permit within its knowledge the same to be used by any of its sublessees, concessionaires, tenants, officers, agents or employees for any illegal purposes. Section 6.08. Indemnification of Issuer and Trustee. (a) The Company will pay, and will protect, indemnify and save the Issuer and the Trustee, including all officers, employees and agents of the Issuer and the Trustee (each of the Issuer, the Trustee or any such officer or employee, an AIndemnified Party@) harmless from and against any and all fines, penalties, liabilities, losses, damages, costs and expenses (including reasonable attorneys' fees and expenses of the Company, the Issuer and the Trustee), causes of action, suits, claims, demands and judgments of whatsoever kind and nature (including, but not by way of limitation, those arising or resulting from any injury to or death of any person or damage to property), arising out of the following: (i) the design, Acquisition and Construction by the Company of the Project Facilities; (ii) the use, operation or occupancy by the Company of the Project Facilities; (iii) violation by the Company of any agreement, warranty, covenant or condition of this Agreement; (iv) violation by the Company of any other contract, agreement or restriction relating to the Project Facilities;(v) violation by the Company of any Applicable Laws affecting the Project Facilities; (vi) the offering, sale and issuance of the 1999 Series A Bonds and any Additional Bonds; and (vii) the taking of any action on the part of the Issuer authorized or required to be taken by the Issuer under the Indenture provided that the Company shall not be required to indemnify any Indemnified Party for such party's sole negligence or wilful misconduct. To the extent such indemnification is unavailable to the Issuer, the Company 36 agrees, in lieu of such indemnification, to contribute to the Issuer an amount equal to all amounts paid or payable by the Issuer as a result of such claim to the fullest extent contribution is permitted by law. (b) Subject to the provisions of Section 10.01 of this Agreement, the Issuer or the Trustee, as the case may be, shall promptly notify the Company in writing of any claim or action brought against the Issuer or the Trustee, as the case may be, in respect of which indemnity may be sought against the Company, setting forth the particulars of such claim or action, and the Company will assume the defense thereof, including the employment of counsel reasonably acceptable to the Indemnified Party, and the payment of all expenses. The Issuer or Trustee, as the case may be, may reasonably employ separate counsel in any such action and participate in the defense thereof, and the fees and expenses of such counsel shall be payable by the Company. The Company shall not be liable for any settlements of any action effected without its consent, which consent shall not be unreasonably withheld. (c) The obligation of the Company under this Section 6.08 shall survive the termination of this Agreement. Section 6.09. Issuer's Expenses; Release and Indemnification Provision s. The Company agrees, regardless of whether the transactions contemplated by this Agreement and the Indenture are consummated, to indemnify and save the Issuer and the Trustee harmless against liability for the payment of all Administration Expenses arising in connection with the transactions contemplated by this Agreement. Section 6.10. Compensation and Other Indemnification Provisions. The Company will pay to the Trustee, the Paying Agent and the Registrar reasonable compensation for their services rendered under the Indenture and any Tender Agreement and the Remarketing Agreement, pursuant to the provisions thereof. Section 6.11. Discharge of Liens. (a) The Company shall pay or cause to be satisfied and discharged or make adequate provision to satisfy and discharge, within 60 days after the same shall accrue, any lien or charge upon the payments under Section 4.03(a), and all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid might be or become a lien thereon; provided, that, if the Company shall first notify the Trustee of its intention so to do, the Company may in good faith and with due diligence contest any such lien or charge or claims or demands in appropriate legal proceedings, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest 37 and any appeal therefrom, unless the Trustee shall notify the Company in writing that, in the opinion of Counsel acceptable to the Trustee, by nonpayment of any such item the lien of the Indenture as to the Trust Estate shall be materially endangered, in which event the Company shall promptly secure a bond for or pay and cause to be satisfied and discharged all such unpaid items. The Issuer and the Trustee shall cooperate fully with the Company in any such contest at the Company's sole cost and expense. (b) The Company agrees to pay (to the extent moneys therefor are not then available from the Proceeds of the Bonds) or cause to be paid when due, all sums of moneys that may lawfully become due for any labor, services, materials, supplies, utilities, furnishings, machinery or equipment alleged to have been furnished or to be furnished to, or for the Company in, upon or about the Project Facilities. The Company agrees that, if a mechanic's lien is filed upon the Project Facilities or the leasehold or against the Construction Fund or any Receipts and Revenues, the Company shall protect and save harmless the Issuer against any loss, liability or expense whatsoever by reason thereof. Upon receipt of notice thereof by the Issuer, the Issuer will promptly provide notice to the Company as to the existence of any such mechanic's lien on the Project Facilities or against the Construction Fund or any Receipts and Revenues, but the failure of the Issuer to provide such notice will not affect the responsibilities of the Company as set forth in this subsection (b). (c) The Company may, however, in good faith and with due diligence, contest any mechanics' or other liens filed or established against all or any portion of the Project Facilities or against the Construction Fund or any Receipts and Revenues or the leasehold, or contest any rule, law, regulation or other governmental requirement even though such contest may result in the imposition of a lien or charge against all or any portion of the Project Facilities or against the Construction Fund or any Receipts and Revenues or the leasehold, and in such event may permit the items so contested and such lien or charge to remain undischarged and unsatisfied during the period of such contest and appeal therefrom, (i) if the Company shall effectively prevent or stay the execution, foreclosure or enforcement of such lien or charge, and (ii) if and so long as such contest or appeal shall prevent or stay the execution or enforcement or foreclosure of such lien or charge; provided, however, that if such lien or charge is so stayed and such stay thereafter expires or the Company is notified by the Issuer that by non-payment of any such items the Project Facilities or any part thereof or the Construction Fund or any Receipts and Revenues will be subject to loss or forfeiture, then the 38 Company shall forthwith pay and cause to be satisfied and discharged such lien or charge or comply with such governmental requirement or secure such payment by posting a bond, in form satisfactory to the Issuer, as the case may be. The Issuer will cooperate fully with the Company in any such contest, at the cost and expense of the Company. Section 6.12. Redemption and Purchase of 1999 Series A Bonds. The Issuer, upon the request in writing at any time of the Company, shall forthwith take all steps that may be necessary under the provisions of the Indenture to effect redemption or purchase of all or a portion of the then Outstanding 1999 Series A Bonds, as may be specified by the Company, on the earliest date on which such redemption or purchase may be made under such applicable provisions. The Issuer shall not redeem, purchase or call for redemption any 1999 Series A Bonds subject to optional redemption except upon the written direction of the Company. Section 6.13. Assignment or Sublease. The Company shall not assign this Agreement or any part thereof, or sublet all or any portion of the Project Facilities, without the consent in writing of the Issuer in accordance with the provisions of Section XVII, inter alia, of the Ground Lease. No consent of the Trustee, the owners of the 1999 Series A Bonds or any other party to any such assignment or sublease shall be required. The consent of the Issuer shall not be required if the requirements of Section 6.01 hereof are satisfied. Additionally, the following conditions must be met as to any Sublease: (a) The sublease does not relieve the Company from liability for any of its obligations hereunder (without the Issuer's consent), and, so long as any 1999 Series A Bonds are Outstanding, in the event of any such sublease, the Company shall continue to remain liable for payment of the amounts referred to in Section 4.03 and for performance and observance of the other covenants, warranties, representations and agreements on its part herein provided to be performed and observed to the same extent as though no sublease had been made; (b) The sublessee shall assume in writing the obligations of the Company hereunder to the extent of the interest assigned; and (c) The Company shall, at least thirty (30) days prior to any such sublease, provide the Issuer and the Trustee with written notice thereof and promptly, but in any event no later than thirty (30) days after any such event, furnish or cause to be furnished to the Issuer and to the Trustee a true and complete copy of such sublease. 39 (d) The Issuer shall receive a Favorable Opinion of Bond Counsel in respect of the proposed transaction. Section 6.14. No Liability of Issuer. The 1999 Series A Bonds shall be special and limited obligations of the Issuer payable solely and only out of the Facility Rentals paid pursuant to Section 4.03 hereof. No holder of any 1999 Series A Bond shall have the right to compel any exercise of the taxing power of the Commonwealth or any political subdivision thereof or the Issuer or to require the Issuer to pay or apply any of its general revenues to pay principal of, premium, if any, or interest on or purchase price of the 1999 Series A Bonds, and the 1999 Series A Bonds shall not constitute a general indebtedness of the Issuer, the Commonwealth or any political subdivision thereof or a loan of credit thereof within the meaning of any constitutional or statutory provision or limitation of indebtedness. Section 6.15. Tax Covenants. A. Notwithstanding any other provision hereof, the Company generally covenants and agrees that it will at all times do and perform all acts and things necessary or desirable and within its reasonable control in order to assure that interest paid on the 1999 Series A Bonds shall be excludable from the gross income of the recipients thereof for the purposes of federal income taxation, except, in the case of the 1999 Series A Bonds, in the event that such recipient is a Asubstantial user@ of the Project Facilities or Arelated person@ within the meaning of Section 147(a)(1) of the Code. B. The Company and the Issuer each covenants that it shall take no action, nor shall the Issuer or the Company approve the Trustee's taking of any action or making of any investment or use the Proceeds of the 1999 Series A Bonds or any other moneys which may arise out of or in connection with, this Agreement, Indenture or the Project Facilities, which would cause any of the 1999 Series A Bonds to be treated as Aarbitrage bonds@ within the meaning of Section 148 of the Code and applicable Treasury Regulations thereunder. Without limiting the generality of the foregoing, the Company covenants and agrees to comply with the requirements of Section 148 of the Code as the same may be applicable to the 1999 Series A Bonds or the Proceeds derived from the sale of the 1999 Series A Bonds or any other moneys which arise out of or in connection with, this Agreement, the Indenture or the Project Facilities. C. The Company further agrees that, in the case of the 1999 Series A Bonds, not more than 2% of the Proceeds of the 1999 Series A Bonds shall be used to pay the cost of issuance of the 1999 Series A Bonds; and (ii) at no time will any funds constituting Agross proceeds@ (as used with respect to Section 40 148 of the Code) of the 1999 Series A Bonds be used in a manner that would constitute failure of compliance with Section 148 of the Code. D. The Company covenants and agrees that at least ninety-five percent (95%) of the Net Proceeds of the 1999 Series A Bonds, including investment earnings thereon not subject to rebate, will be applied to acquire, construct, install and equip an exempt facility constituting an airport or facilities functionally related and subordinate to an airport, within the meaning of Section 142(a)(1) of the Code and the rules and regulations promulgated thereunder from time to time applicable to the 1999 Series A Bonds. The Company further agrees that it will not apply the Proceeds of the 1999 Series A Bonds, including investment earnings not subject to rebate, in a manner which will result in more than five percent of (reduced by any allocation of Proceeds not exceeding 2% of Proceeds for cost of issuance of the 1999 Series A Bonds) of such Proceeds of the 1999 Series A Bonds at any time being used for a facility which would not be exempt under such Section 142(a)(1) or for working capital, for property of a character not subject to the allowance for depreciation as prescribed in Section 167 of the Code and such rules and regulations or for otherwise non-qualifying costs paid or incurred prior to action taken by the Issuer in respect of any of the Project Facilities pursuant to Treas. Reg. ' 1.150-2. Except for the expenditures described in this Section 6.15(C) above, nothing in this Section 6.15 is intended to limit the uses to which any nonqualifying expenditure may be applied by the Company. The Company will not cause the Plans and Specifications to be changed or revised, or the Project Facilities to be operated, maintained, repaired or renovated, in a manner, or take or fail to take any other action, such that the Project Facilities to be financed by the application of the Proceeds of the 1999 Series A Bonds will not qualify as an exempt facility within the meaning of Section 142(a)(1) of the Code and the rules and regulations promulgated thereunder applicable to the 1999 Series A Bonds. E. Notwithstanding any other provision hereof, the Company covenants and agrees that it will not knowingly take or authorize or permit action to be taken or omit to take any action (to the extent that such action is within the control of the Company) with respect to the Project Facilities, or the Proceeds of the 1999 Series A Bonds (including investment earnings thereon), or insurance, condemnation, or any other Proceeds derived directly or indirectly in connection with the Project Facilities, that will knowingly cause the interest on the 1999 Series A Bonds to be included in gross income for federal income tax purposes under Section 103 of the Code (except for any 1999 Series A Bond during any period while any 41 such 1999 Series A Bond is held by a person referred to in Section 147(a) of the Code). F. So long as the 1999 Series A Bonds remain Outstanding, the Company will fully comply with all effective rules, rulings and regulations promulgated by the Department of Treasury and the Internal Revenue Service with respect to obligations issued in accordance with Section 142 of the Code so as to maintain in accordance with Section 142 of the Code the exclusion of interest on the Bonds from gross income for federal income tax purposes; and specifically the Company will not cause the Plans and Specifications to be changed or revised, or the Project Facilities to be operated, maintained, repaired or renovated, in a manner such that the Project Facilities financed with the proceeds of the 1999 Series A Bonds will not qualify as an airport or facilities functionally related and subordinate to an airport within the meaning of Section 142 of the Code and the income tax regulations promulgated thereunder. G. The Company has not taken and will not take any action, and knows of no action that any other person, firm or corporation has taken or intends to take, which would cause interest on the 1999 Series A Bonds to be includable in the gross income of the recipients thereof for federal income tax purposes (except any 1999 Series A Bonds for any period during which such 1999 Series A Bonds are held by a Asubstantial user@ of the Project Facilities financed with the Proceeds of the 1999 Series A Bonds or a Arelated person@ to such Asubstantial user@ as such terms as defined in Section 147(a) of the Code). H. The Company will at all times comply with all provisions of Section 148 of the Code so long as the 1999 Series A Bonds remain outstanding. I. The Proceeds of the 1999 Series A Bonds will not be applied to finance any Project Facilities unless such use of the Project Facilities shall constitute the first use of such property. J. No aircraft, skybox, or other private luxury box, health club facility, facility primarily used for gambling, store the principal business of which is the sale of alcoholic beverages for consumption off premises, private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (including handball or racquetball courts), hot tub facility, suntan facility, racetrack, impermissible retail food and drink establishments, automobile sales or service or provision of recreation or entertainment will be financed from the Proceeds of the 1999 Series A Bonds. 42 K. The 1999 Series A Bonds are not and will not be Afederally guaranteed@ (within the meaning of Section 149(b) of the Code). L. The Company will provide all information relating to the Project Facilities or the Company reasonably requested by the Issuer necessary to evidence compliance with the requirements of the Code, including the information in United States Internal Revenue Service Form 8038 filed by the Issuer with respect to the 1999 Series A Bonds and the airport facilities constituting the Project Facilities, and such information (not to include any information relating to the Issuer, as to which no representations will be made) will be true and correct in all material respects. M. At least ninety-five per cent (95%) of the Net Proceeds of the 1999 Series A Bonds and interest thereon (i) will be used to provide property chargeable to the capital account of the Project Facilities financed by Proceeds of the 1999 Series A Bonds for federal income tax purposes and subject to Section 167 of the Code, and will be used either to provide qualified airport facilities or properties functionally related and subordinate thereto which shall serve or be available on a regular basis for the general public use, or be used by a common carrier, within the meaning of Treasury Regulations 1.103-8(a)(2), all within the meaning of Sections 142(a), (b) and (c) of the Code and applicable Treasury Regulations promulgated thereunder and (ii) shall be expended on costs incurred after the date which is sixty (60) days prior to the date of adoption of the preliminary approving resolution of the Issuer adopted in respect of the acquisition, construction and financing of the Project Facilities being, to wit: January 18, 1999 N. Within one year prior to the date of issuance of the 1999 Series A Bonds the Company will cooperate with the Issuer in order to comply with the public approval requirements of Section 147 of the Code and at or following the issuance of the 1999 Series A Bonds the Company will cooperate with the Issuer in order to comply with the information reporting requirements of Section 149 of the Code by the filing of Internal Revenue Service Form 8038 with the United States Internal Revenue Service. O. Arbitrage Rebate Compliance. (i) The Company hereby covenants that in connection with the 1999 Series A Bonds it will comply with the requirement for payment of Rebatable Arbitrage to the United States. The Company acknowledges and agrees that the calculation of Rebatable Arbitrage and 43 the payment of the Rebatable Arbitrage to the United States shall be the responsibility of the Company and that neither the Issuer nor the Trustee shall have obligation therefor. The Trustee shall be entitled to rely on any certificate delivered to it by the Company accompanied by an opinion of a Rebate Expert in accordance with the Indenture and shall have no duty to verify the accuracy of such certificate. The Company agrees to indemnify the Issuer and the Trustee against any loss, liability or expense incurred in connection with the Company's failure to pay the Rebatable Arbitrage to the United States as required by this Section. (ii) The Company hereby covenants that on or prior to forty-five (45) days subsequent to the end of each fifth Bond Year applicable to the 1999 Series A Bonds and the retirement of the last obligation of the 1999 Series A Bonds, the Company shall retain a Rebate Expert to compute the Rebatable Arbitrage with respect to the 1999 Series A Bonds for the period ending on the last day of such fifth Bond Year completed, or the retirement of the last obligation of the 1999 Series A Bonds occurring, within forty-five (45) days thereof. Within such forty-five (45)-day period, the Company shall cause to be delivered to the Trustee and the Issuer an opinion of the Rebate Expert concerning its conclusions with respect to the amount of such Rebatable Arbitrage together with a written report providing a summary of the calculations relating thereto. In connection with each such determination of the Rebatable Arbitrage, the Trustee, pursuant to the Indenture, shall report to the Issuer and the Company (i) the amount, if any, theretofore paid to the United States with respect to the 1999 Series A Bonds by the Trustee on behalf of the Issuer pursuant to the Indenture, (ii) the amount in the account of the Rebate Fund established for the payment of Rebatable Arbitrage with respect to the 1999 Series A Bonds at the end of each fifth Bond Year, or at the time of the computation, in the case of the retirement of the last 1999 Series A Bond, (iii) the balance to be added to the account of the Rebate Fund established for the payment of Rebatable Arbitrage with respect to the 1999 Series A Bonds, (iv) if additional amounts are required to be added to the amount in the account of the Rebate Fund established for the payment of Rebatable Arbitrage with respect to the 1999 Series A Bonds, and (v) the balance, if any, to be paid by the Company. (iii) The Company hereby covenants that in the event the amount in the Rebate Fund shall be insufficient to properly fund the account in the Rebate Fund established for the payment of Rebatable Arbitrage with 44 respect to the 1999 Series A Bonds in the manner specified herein, the Company shall, within five (5) days of receipt of the report furnished by the Trustee pursuant to this Section hereof, pay or cause to be paid to the Trustee for deposit into the account in the Rebate Fund established for the payment of Rebatable Arbitrage with respect to the 1999 Series A Bonds, the difference between the amount required to be added to such account in the Rebate Fund and the amount then available for such purpose in the Project Fund. If the Company fails to make or cause to be made any payment required pursuant to this Section 6.16(O)(iii) when due, the Issuer or the Trustee shall have the right, but shall not be required, to make any such payment on behalf of the Company. Any amount advanced by the Issuer or the Trustee pursuant to this clause (iii) shall be added to the moneys owing by the Company under this Agreement and shall be payable on demand with interest. (iv) The Company hereby covenants that it shall direct the Trustee to withdraw from the Rebate Fund and pay over to the United States the Rebatable Arbitrage with respect to the 1999 Series A Bonds in installments as follows: The first payment shall be made not later than 60 days after the end of the fifth Bond Year of the 1999 Series A Bonds. Each subsequent payment shall be made not later than 60 days after the succeeding fifth Bond Year of the 1999 Series A Bonds. Each installment shall be in an amount which ensures that at least 90 percent of the amount of the Rebatable Arbitrage with respect to the 1999 Series A Bonds as of the close of the period ending on the last day of the most recent fifth Bond Year of the 1999 Series A Bonds will have been paid to the United States (determined in accordance with the opinion of the Rebate Expert and accompanying written summary given to the Trustee by the Company concerning Rebatable Arbitrage with respect to the 1999 Series A Bonds for the period ending on the last day of such fifth Bond Year). Not later than 60 days after the retirement of the last obligation of the 1999 Series A Bonds, the United States shall be paid the remaining balance of the Rebatable Arbitrage with respect to the 1999 Series A Bonds. (v) The Company hereby covenants that it shall request the Issuer to direct the Trustee to file the payments to the United States of Rebatable Arbitrage with respect to the 1999 Series A Bonds at the then applicable Internal Revenue Service Center, Ogden, Utah 84201 or such other Internal Revenue Service office authorized to receive payments of Rebatable Arbitrage. All payments of Rebatable Arbitrage shall be accompanied by Form 8038-T 45 or such other form prescribed by the Internal Revenue Service to accompany payments of Rebatable Arbitrage, prepared by the Company, together with any other information which the Company requests the Issuer to instruct the Trustee to accompany such payments. In furtherance of the foregoing, the Issuer shall cooperate with the Company by timely executing the Form 8038-T or such other applicable form prescribed by the Internal Revenue Service. (vi) The Company hereby covenants that the Issuer shall have the right at any time and in the sole and absolute discretion of the Issuer to obtain from the Company and the Trustee the information necessary to determine the amount required to be paid to the United States pursuant to Section 148(f) of the Code. If the Company fails to make or retain a Rebate Expert to make the determination of the amount to be paid to the United States, the Issuer may make or retain a Rebate Expert to make the determination of the amount to be paid to the United States. The Company hereby agrees to be bound by any such determination, to pay the costs of such determination, including without limitation the reasonable fees and expenses of counsel or a Rebate Expert retained by the Issuer and all Administration Expenses of the Issuer relating thereto, and to pay to the Trustee any additional amounts for deposit in the Rebate Fund required as the result of any such determination. P. In the event the Issuer and the Company receive a written opinion of Bond Counsel to the effect that one or more of the provisions of this Section 6.15 is no longer in effect or is no longer applicable to the 1999 Series A Bonds and that compliance therewith is no longer required, the Issuer and the Company may amend (without any requirement for Bondholder consent) this Section 6.15 to comport with such opinion and shall be under no further duty to comply with any such requirements. Section 6.16. Qualified Exempt Facility. The Company covenants that in the event all or a portion of the Project Facilities shall no longer qualify as an airport or property which is functionally related and subordinate to an airport which is an exempt facility within the meaning of Section 142(a)(1) of the Code, the Company shall within ninety (90) days either (i) cause 1999 Series A Bonds to be redeemed pursuant to the Indenture in an amount that will retire all nonqualified bonds (if any) within the meaning of Treasury Regulations Section 1.142-2(e), (ii) establish a defeasance escrow within the meaning of Treasury Regulations Section 1.142-2(c) and deposit therein sufficient funds to defease all nonqualified bonds (if any) or (iii) purchase the 1999 Series 46 A Bonds in the open market for delivery to the Paying Agent for cancellation in the amount that will retire all nonqualified bonds within the meaning of Treasury Regulations Section 1.142-2(e), unless the Company shall obtain a Favorable Opinion of Bond Counsel to the effect that failure to take one or more of the actions described in clauses (i), (ii) or (iii) of the foregoing will not adversely affect the exclusion of interest on the 1999 Series A Bonds from gross income for federal income tax purposes. Section 6.17. No Liability of Issuer. The 1999 Series A Bonds shall be special and limited obligations of the Issuer payable solely and only out of the Trust Estate, including the rental payments made pursuant to Section 4.03 hereof. No holder of any 1999 Series A Bond shall have the right to compel any exercise of the taxing power of the Commonwealth or any political subdivision thereof or of the Issuer to pay principal of, premium, if any, or interest on the 1999 Series A Bonds, and the 1999 Series A Bonds shall not constitute a general indebtedness of the Issuer, the Commonwealth or any political subdivision thereof or a loan of credit thereof within the meaning of any constitutional or statutory provision or limitation of indebtedness. ARTICLE VII DAMAGE AND DESTRUCTION; CONDEMNATION Section 7.01. Damage or Destruction. (a) The receipts and recoveries of insurance carried pursuant to Section 5.06 shall be applied as provided in this Section 7.01 and the Ground Lease. In the event that all or any part of the Project Facilities is destroyed in whole or damaged by fire or other casualty requiring more than $250,000 for rehabilitation and reconstruction, the Company shall by notice given pursuant to Section 10.01, notify the Trustee and the Issuer within 30 days of said occurrence as to whether or not the Project Facilities, or the damaged or destroyed portion thereof, shall be reconstructed and reequipped. If the damage or destruction does not exceed $250,000, the Company shall be obligated to reconstruct and reequip the Project Facilities and shall apply the Net Insurance Proceeds, with the consent of the Issuer, to such reconstruction and reequipping. To the extent the Net Insurance Proceeds exceed $250,000, the Company shall elect that the Project Facilities or some portion thereof be reconstructed and reequipped, (i) all Net Insurance Proceeds with respect to the Project Facilities shall be paid to the Trustee for deposit in a separate account in the Construction Fund and application in accordance with this Section 7.01, or if no 1999 Series A Bonds applicable to such destroyed or damaged Project Facilities are Outstanding, shall be so applied by the Company and (ii) the Company will promptly use its best efforts and 47 proceed with reasonable speed and dispatch to reconstruct and reequip the applicable Project Facilities in accordance with the Plans and Specifications to a condition equivalent to that immediately prior to the event of damage or destruction (subject to any changes, modifications, additions and deletions which the Company desires and to which the Issuer consents in accordance with Section 3.01(c) hereof) and will apply for such purposes so much as may be necessary of any such Net Insurance Proceeds. In the event that the Net Insurance Proceeds are not sufficient to pay in full the costs of such Project Facilities reconstruction and reequipping, the Company will nonetheless complete the work thereof and pay that portion of the costs thereof in excess of the amount of such Net Insurance Proceeds, provided that the Company may request that Additional Bonds be issued to provide Project Facilities costs. Any balance of Net Insurance Proceeds incident to the Project Facilities received by the Trustee remaining after paying therefrom the costs of such reconstruction and reequipping of the Project Facilities pursuant to this Section 7.01 shall be paid to the Trustee for deposit into a separate account in the Bond Fund, and shall be promptly applied, at the direction of the Authorized Company Representative, (a) to be applied by the Trustee to purchase 1999 Series A Bonds in the open market (excluding any portion of the purchase price which is attributable to interest accrued and/or accruing on such 1999 Series A Bonds until the date of purchase) for the purpose of cancellation; (b) to redeem 1999 Series A Bonds on the earliest redemption date thereof (paying principal sums only) for the purpose of cancellation; or (c) to pay the principal of and/or interest on the 1999 Series A Bonds, provided that if the Company directs the Trustee to apply said balance pursuant to clause (c) above, the Company shall also deliver to the Trustee and the Issuer a Favorable Opinion of Bond Counsel to the effect that such use will not impair the exclusion of the interest on the 1999 Series A Bonds from gross income for federal income tax purposes. If the Company shall elect that the Project Facilities, or any damaged or destroyed portion thereof, not be reconstructed and reequipped, and any 1999 Series A Bonds are then Outstanding, then all Net Insurance Proceeds allocable to those portions of the Project Facilities that will not be reconstructed and reequipped shall be paid to the Trustee. All such Net Insurance Proceeds received by the Trustee shall be deposited into a separate account in the Bond Fund, and applied to redeem 1999 Series A Bonds (paying principal sums only) on the earliest redemption date permissible for the purpose of cancellation. If the Net Insurance Proceeds are inadequate to pay and discharge the relevant 1999 Series A Bonds, the Company shall pay to the Trustee such moneys as may be required for such payment and discharge. If such Net Insurance Proceeds are in excess of the amount required to pay, redeem, purchase in the open 48 market or defease 1999 Series A Bonds equal in aggregate principal amount to all the then Outstanding 1999 Series A Bonds allocable to such damaged or destroyed portion of the Project Facilities, all such excess shall be paid to the Issuer, as the governmental owner of the Project Facilities. (b) The Company shall not, by reason of the payment of any excess costs as required by the foregoing provisions of this Section 7.01 be entitled to any reimbursement from the Trustee or the Issuer or any abatement or diminution of any of the rents payable under Section 4.03, except as set forth above. (c) In the event that (i) the Company shall have elected that the damaged or destroyed portion of the Project Facilities shall not be reconstructed and reequipped, or the damaged or destroyed portions of the Project Facilities shall be reconstructed and reequipped at the Company's direction, and (ii) 1999 Series A Bonds allocable to the Project Facilities so damaged or destroyed are not then Outstanding, the Net Insurance Proceeds shall be paid to the Issuer, as the governmental owner of the Project Facilities. Section 7.02. Condemnation. (a) The Company, or the Issuer immediately upon obtaining knowledge of the institution of any proceedings for the condemnation or taking of the Project Facilities or any portion thereof for public or quasi-public use, shall notify one another and the Trustee of the pendency of such proceedings. (b) In the event that title to, or the temporary use of, the Project Facilities or any part thereof shall be taken as a result, or in anticipation of, the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the provisions of this Section 7.02 shall apply. (c) Subject to the provisions of Section 10.01 of this Agreement, in the event that all, or any portion of the Project Facilities shall be so taken by the exercise of the power of eminent domain, the Company shall promptly by notice given pursuant to Section 10.01 notify the Trustee and the Issuer whether or not the Project Facilities, or portion thereof so taken, shall be reconstructed and reequipped. In the event the Company determines to reconstruct and reequip the Project Facilities or some portion thereof, (i) the Gross Award in respect of the Project Facilities shall be paid to the Trustee for deposit in a special account or accounts within the Construction Fund and be applied in accordance with this Section 7.02, or if no 1999 Series A Bonds are 49 outstanding shall be deposited in a segregated bank account in the name of the Issuer and applied by the Company for reconstruction and reequipping of the Project Facilities and (ii) the Company will promptly use its best efforts and proceed with reasonable speed and dispatch to reconstruct and reequip the Project Facilities in accordance with the Plans and Specifications to a condition equivalent to that of the Project Facilities immediately prior to the taking (subject to any changes, modifications, additions and deletions which the Company desires and to which the Issuer consents in accordance with Section 3.01(c) hereof) and will apply for such purposes so much as may be necessary of such Gross Award. In the event that such Gross Award is not sufficient to pay in full the costs of such reconstruction and reequipping of the Project Facilities, the Company will nonetheless complete the work thereof and will pay that portion of the costs thereof in excess of the amount of such Gross Award provided that the Company may request that Additional Bonds be issued to provide Project Facilities costs. Any balance of any Gross Award incident to the Project Facilities received by the Trustee remaining after paying therefrom the costs of such reconstruction and reequipping of the Project Facilities pursuant to this Section 7.02 shall be paid to the Trustee for deposit into a separate account in the Bond Fund, and applied either (a) to be applied by the Trustee to purchase 1999 Series A Bonds in the open market (excluding any portion of the purchase price which is attributable to interest accrued and/or accruing on such 1999 Series A Bonds until the date of purchase) for the purpose of cancellation or (b) to redeem 1999 Series A Bonds on the earliest redemption date thereof as may be permitted by the Indenture (paying principal sums only) for the purpose of cancellation. If the Company shall elect that all or any portion of the Project Facilities so taken not be reconstructed and reequipped, then the Gross Award allocable to the Project Facilities not being reconstructed or reequipped shall be paid to the Trustee, who shall apply all or so much of such Gross Award as shall be required to redeem 1999 Series A Bonds on the earliest permissible redemption date (paying principal sums only) for the purpose of cancellation. (d) In case such Gross Award shall exceed the costs of reconstruction and reequipping of the Project Facilities undertaken pursuant to this Section 7.02 and no 1999 Series A Bonds, as applicable, are Outstanding, the balance of such Gross Award received by the Trustee remaining after paying therefrom the costs of such reconstruction and reequipping shall be paid to the Issuer, as the governmental owner of the Project Facilities. (e) The Company shall not, by reason of payment of any excess costs as required by the foregoing provisions of this 50 Section or by reason of any diminution of all or any part of the Project Facilities resulting from any taking thereof, be entitled to any reimbursement from the Trustee or the Issuer of any abatement or diminution of the rent payable pursuant to Section 4.03, except as set forth above. (f) In the event that less than the whole or less than substantially the whole of the Project Facilities shall be so taken and the remaining part thereof is reconstructed and reequipped as provided in the preceding subsections of this Section 7.02 and the cost of such reconstruction or reequipping exceeds the Gross Award available therefor, the Company may request the Issuer to issue Additional Bonds to provide moneys to pay all or part of such excess costs. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES Section 8.01. Events of Default. Each of the following events shall constitute and is referred to in this Agreement as an AEvent of Default@: (a) (i) the Company shall fail to pay when due and owing any installment of Facility Rentals payable pursuant to Section 4.03(a)(i); or (ii) the Company shall fail to pay when due and owing any installment of Facility Rentals payable pursuant to Section 4.03(a)(ii). (b) a failure by the Company to pay when due any other amount required to be paid under this Agreement (including, but not limited to Administration Expenses, pursuant to Section 4.03(b)) or to observe and perform any covenant, condition or agreement on its part to be observed or performed hereunder (other than a failure described in Section 8.01(a) and other than as provided in Section 6.06), which failure shall continue for a period of 30 days after written notice, specifying such failure and requesting that it be remedied, shall have been given to the Company by the Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing to an extension of such period prior to its expiration; provided, that the Issuer and the Trustee shall be deemed to have agreed to an extension of such period if corrective action, approved in advance by the Issuer, is initiated by the Company within such period and is being diligently pursued and provided further, that failure by the Company to observe tax covenants herein shall not constitute an Event of Default unless (1) such failure results in a Determination of Taxability and (2) the subject 1999 Series A Bonds are not either mandatorily redeemed in accordance with their terms and as provided in the Indenture or defeased as 51 provided in the Indenture prior to such Determination of Taxability. (c) the Company shall file a voluntary petition or institute any proceeding under the United States Bankruptcy Code, either as such Code now exists or under any amendment thereof which may hereafter be enacted, or under any act or acts, State or Federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment to such act or acts, either as a bankrupt, or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the Company asks, seeks or prays to be adjudicated a bankrupt, or to be discharged from all of the Company=s debts or obligations, or asks, seeks or prays for a reorganization or to effect a plan of reorganization or for a readjustment of the Company=s debts or for any similar relief; or any involuntary petition in bankruptcy or any other proceedings of the foregoing of similar kind or character shall be filed or be instituted or taken against the Company and shall not be dismissed within ninety (90) days thereof; or a custodian or receiver of the Company or of a substantial portion of the property or assets of the Company shall be appointed by any court and shall not be dismissed within ninety (90) days thereof; or the Company shall make a general assignment for the benefit of the Company=s creditors or the Company shall enter into an agreement of composition with the Company=s creditors; or the Company shall admit in writing its inability to pay its debts generally as they become due. Section 8.02. Force Majeure. The provisions of Section 8.01, other than payment of Facility Rentals, are subject to the following limitations: If by reason of acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; order of any kinds of the government of the United States of America or of the Commonwealth or any department, agency, political subdivision, court or official of any of them or any civil or military authority; riots; lightning; earthquakes; fires; hurricanes; tornados; storms; floods; washouts; arrests; restraint of government and people; civil disturbances; explosions; breakage or accident to machinery; partial or entire failure of utilities; the Company=s ability to carry out any one or more of its agreements or obligations contained herein (other than its obligations under Sections 4.03, 5.06, 6.01, 6.10, 6.11 and 6.16) is rendered impossible, the Company shall not be deemed in default by reason of not carrying out said agreement or agreements or performing such obligation or obligations during the continuance of such impossibility. The Company shall make reasonable efforts to remedy with all reasonable dispatch the cause or causes preventing it from carrying out its agreements;provided,that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Company. 52 Section 8.03. Remedies. (a) Whenever any Event of Default referred to in clauses (a) or (c) of Section 8.01 hereof shall have occurred and be continuing, and in accordance with the terms of the Indenture, the 1999 Series A Bonds shall have been declared to be immediately due and payable pursuant to any provision of the Indenture, the Trustee shall forthwith declare all amounts payable under this Agreement to be immediately due and payable. The amount payable upon such an event shall be an amount equal to the amounts due and payable on the 1999 Series A Bonds, together with all fees and expenses payable pursuant to Sections 6.10 and 8.05, and the Trustee may thereafter take whatever action at law or in equity may be appropriate to collect any payments then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company under this Agreement or enforcement of the Guaranty or the Leasehold Mortgage. Any waiver of any AEvent of Default@ under the Indenture and a rescission and annulment of its consequences shall be in writing and shall constitute a waiver of the corresponding Event or Events of Default under this Agreement and a rescission and annulment of the consequences thereof. (b) Upon the occurrence and continuance of any Event of Default, the Issuer may take, or cause to be taken, any action at law or in equity to collect any payments then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Company hereunder. (c) Any amounts collected from the Company pursuant to this Section 8.03 shall be applied in accordance with the Indenture. Section 8.04 No Remedy Exclusive. No remedy conferred upon or reserved to the Issuer hereby is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right of power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. Section 8.05. Reimbursement of Attorneys' Fees. If the Company shall default under any of the provisions hereof and the Issuer or the Trustee shall employ attorneys or incur other 53 reasonable expenses for the collection of payments due hereunder or for the enforcement of performance or observance of any obligation or agreement on the part of the Company contained herein, the Company will on demand therefor reimburse the Issuer or the Trustee, as the case may be, for the reasonable fees and expenses of such attorneys and such other reasonable expenses so incurred, to the extent permitted by law. Section 8.06. Waiver of Breach. If any obligation created hereby shall be breached by either of the parties and such breach shall thereafter be waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. In view of the assignment of certain of the Issuer's rights and interests hereunder to the Trustee, the Issuer shall have no power to waive any default hereunder by the Company in respect of such rights and interests (except Unassigned Rights) without the consent of the Trustee, and the Trustee may exercise any of the rights of the Issuer hereunder. Section 8.07. Remedies Reserved Solely to the Issuer. Upon the occurrence of any Event of Default referred to in clauses (a), (b) or (c) of Section 8.01 or upon the occurrence of either of the following: (i) Any event of default shall have occurred and be continuing under the provisions of the Ground Lease and such event of default shall continue unremedied for a period of thirty (30) days after the Issuer shall have given to the Company written notice specifying wherein the Company has failed to observe or perform any such covenant, agreement or obligation, plus such additional time as is reasonably required to correct any such failure if the Company has initiated corrective action in such thirty (30) day period and is diligently pursuing the same to completion, or (ii) The Company shall abandon all or substantially all of the Project Facilities for a period of 90 days, other than pursuant to and as permitted by Section 8.08 at any time thereafter so long as the same shall be continuing the Issuer may, at its election, give the Company written notice of intention to terminate this Agreement on a date specified in said notice, which date shall not be earlier than thirty (30) days after such notice is given, and if all Events of Default and events specified in clauses (i) and (ii) of this Section 8.07 have not been cured on the date so specified and if curative action has not been commenced in accordance with clause (b) of Section 8.01 or clause (i) of this Section 8.07 hereof, the Company's rights to possession of the Project Facilities shall cease and this Agreement and term hereof shall thereupon cease; provided that the Company shall be, and shall remain, liable for all Facility Rentals accrued hereunder to the date such termination becomes effective and for all other sums then owing by the Company hereunder; and provided 54 further, that notwithstanding the termination of this Agreement and the term hereof, the Company nevertheless shall continue to be liable for the payment of all rentals reserved under Section 4.03 and shall pay such rentals at the same time and in the same manner as provided in Section 4.03. Section 8.08. Termination by the Company After 1999 Series A Bonds are Paid or Defeased. At any time after all of the 1999 Series A Bonds issued under the Indenture have been paid in full, or provisions for the timely payment thereof have been duly made and provided for, and the lien of the Indenture has been defeased according to Article IX thereof, the Company may terminate its obligations hereunder as to the Project Facilities, except that the covenant and obligation of the Company to maintain and keep the Project Facilities in good condition (ordinary wear and tear excepted) so long as the Ground Lease remains in effect, subject to certain exceptions upon reletting by the Issuer, as set forth in Section 5.01 hereof, shall remain in full force and effect in accordance with its terms, and to pay all accrued and unpaid Facility Rentals and to pay any accounts payable pursuant to Section 8.05 hereof. Section 8.09. Termination of Ground Lease or Related Agreement. The termination of the Ground Lease for any reason (AGround Lease Termination@) shall automatically terminate this Agreement. ARTICLE IX REDEMPTION OF 1999 SERIES A BONDS; COMPLIANCE WITH INDENTURE Section 9.01. Redemption of 1999 Series A Bonds. The Company shall have the option to prepay the Facility Rentals due hereunder at any time in whole or in part in order to defease all or a portion of the 1999 Series A Bonds under the circumstances provided in Article IX of the Indenture or to provide for the redemption of 1999 Series A Bonds pursuant to Article IV of the Indenture. The Issuer shall take, or cause to be taken, the actions required by the Indenture to discharge the lien thereof through the redemption, or provision for payment or redemption, of all 1999 Series A Bonds then Outstanding, or to effect the redemption, or provision for payment or redemption, of less than all the 1999 Series A Bonds then Outstanding, upon receipt, not less than five Business Days prior to the day on which the Registrar shall be required to give notice of any such redemption or payment pursuant to the Indenture, by the Issuer, the Registrar and the Trustee from the Company of a notice designating the principal amount of the 1999 Series A Bonds to be redeemed, or for the payment or redemption of which provision is to be made, and specifying the date of redemption and the applicable redemption provision of the Indenture. In addition, the Company shall simultaneously with such notice, furnish to the 55 Registrar a proposed form of notice of such redemption as required by the Indenture. In connection with any redemption pursuant to Section 4.04(4) of the Indenture, the Company shall also deliver to the Trustee the certificate of the Company required by such Section. Pursuant to Section 5.03, the Company shall provide, any moneys required by the Indenture to be deposited with the Trustee or otherwise paid by the Issuer in connection with any of the foregoing purposes. Section 9.02. Extraordinary Mandatory Redemption of 1999 Series A Bonds Upon Determination of Taxability. The Issuer and the Company shall take all actions required to mandatorily redeem the 1999 Series A Bonds at the cost of the Company upon the terms specified in this Agreement and in Section 4.04(3) of the Indenture following the occurrence of a Determination of Taxability, including, but not limited to, prepaying appropriate amounts due on the 1999 Series A Bonds in order to effect such redemption. The 1999 Series A Bonds shall be redeemed by the Issuer, in whole, or in such part as described below, at a redemption price equal to 103% of the principal amount thereof, without redemption premium, plus accrued interest, if any, to the redemption date, within 180 days following a Determination of Taxability. For purposes of this section, a ADetermination of Taxability@ shall mean the receipt by the Trustee of written notice from a current or former registered owner of a 1999 Series A Bond or from the Company or the Issuer of (i) the issuance of a published or private ruling or a technical advice memorandum by the Internal Revenue Service in which the Company participated or has been given the opportunity to participate, and which ruling or memorandum the Company, in its discretion, does not contest or from which no further right of judicial review or appeal exists, or (ii) a final determination from which no further right of appeal exists of any court of competent jurisdiction in the United States in a proceeding in which the Company has participated or has been a party, or has been given the opportunity to participate or be a party, in each case, to the effect that the interest on the 1999 Series A Bonds is included in the gross income of the owners thereof for federal income tax purposes, other than with respect to a person who is a Asubstantial user@ or a Arelated person@ of a substantial user within the meaning of the Section 147 of Internal Revenue Code of 1986, as amended (the ACode@). No Determination of Taxability described above will result from the inclusion of interest on any 1999 Series A Bond in the computation of minimum or indirect taxes. All of the 1999 Series A Bonds shall be redeemed upon a Determination of Taxability as described above unless, in the opinion of Bond Counsel, redemption of a portion of the 1999 Series A Bonds of one or more series or one or more maturities would have the result that interest payable on the remaining 1999 Series A Bonds outstanding after the redemption would not be so included in any such gross income. 56 In the event any of the Issuer, the Company or the Trustee has been put on notice or becomes aware of the existence or pendency of any inquiry, audit or other proceedings relating to the 1999 Series A Bonds being conducted by the Internal Revenue Service, the party so put on notice shall give immediate written notice to the other parties of such matters. Promptly upon learning of the occurrence of a Determination of Taxability (whether or not the same is being contested), or any of the events described in this Section 9.02, the Company shall give notice thereof to the Trustee and the Issuer. Section 9.03. Extraordinary Mandatory Redemption of 1999 Series A Bonds Upon Ground Lease Termination. The Issuer and the Company shall take all actions required to mandatorily redeem the 1999 Series A Bonds in whole upon the terms specified in Section 4.01(2) of the Indenture following the occurrence of a Ground Lease Termination. The Issuer and the Company shall give prompt notice to the Trustee of the occurrence of a Ground Lease Termination. ARTICLE X MISCELLANEOUS Section 10.01. Notices. Except as otherwise provided in this Agreement, all notices, certificates, requests, requisitions and other communications hereunder shall be in writing and shall be sufficiently given and shall be deemed given when mailed by registered or certified mail, postage or delivery fee prepaid, return receipt requested addressed as provided in Section 15.08 of the Indenture. A copy of each notice, certificate, request or other communication given hereunder to the Issuer, the Company, the Trustee, the Registrar or the Paying Agent shall also be given to the others. Any of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 10.02. Parties in Interest. This Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Company and their respective successors and assigns, and no other person, firm or corporation, other than the Trustee shall have any right, remedy or claim under or by reasons of this Agreement. Section 10.03. No Personal Liability. (A) No covenant, obligation or agreement of the Issuer shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Issuer in other than his official capacity, and neither the members of the Issuer nor any official executing the 1999 Series A Bonds shall be liable personally with respect to the 57 1999 Series A Bonds or be subject to any personal liability or accountability by reason of the issuance thereof or by reason of the covenants, obligations or agreements of the Issuer contained in this Agreement or in the Indenture. (B) No covenant, obligation or agreement of the Company shall be deemed to be a covenant, obligation or agreement of any present or future officer, agent or employee of the Company in other than his official capacity, and neither the officers, agents or employees of the Company nor any officer executing this Agreement shall be liable personally on the Agreement or the 1999 Series A Bonds or be subject to any personal liability or accountability by reason of the delivery or issuance thereof, respectively or by reason of the covenants, obligations or agreements of the Company contained in this Agreement. Section 10.04. Amendments. This Agreement may be amended only by written agreement of the parties hereto, subject to the limitations set forth herein and in the Indenture. Section 10.05. Counterparts. This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original; but such counterparts shall together constitute but one and the same Agreement. Section 10.06. Severability. If any clause, provision or section of this Agreement shall, for any reason, be held illegal or invalid, such illegality or invalidity shall not affect any other provision of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provisions had not been contained herein. Section 10.07. Governing Law. The laws of the Commonwealth shall govern the construction and enforcement of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KENTON COUNTY AIRPORT BOARD (SEAL) By __________________________________ GARY R.BOCKELMAN Chairman 58 ATTEST: By ___________________________ SHEILA R. HAMMONS Secretary-Treasurer 59 MESABA AVIATION, INC. By __________________________________ JOHN S. FREDERICKSEN Chief Executive Officer 60 EX-5 5 0005.txt GROUND LEASE BETWEEN KENTON COUNTY AIRPORT BOARD AND MESABA AVIATION, INC. FOR HANGAR AND RELATED MAINTENANCE FACILITY * * * * * * * THIS AGREEMENT made and entered into in Boone County, Kentucky, as of the first day of September, 1999, by and between KENTON COUNTY AIRPORT BOARD, a local air board and a body corporate and politic created pursuant to the provisions of Chapter 183 of the Kentucky Revised Statutes, hereinafter referred to as the "Board" and MESABA AVIATION, INC., d/b/a Mesaba Airlines, a Minnesota corporation, authorized to do business in the Commonwealth of Kentucky, hereinafter referred to as the "Company". WHEREAS, the Board operates an airport located in Boone County, Kentucky, known as the Cincinnati/Northern Kentucky International Airport; WHEREAS, the Company is engaged in the business of transporting passengers and cargo by air and other related activities and desires to construct an aircraft hangar and maintenance facility on the Airport in connection with the Company's business; WHEREAS, the Company has requested the Board to provide assistance to the Company in leasing to the Company of an acceptable tract of land at the Airport and issuing its special facilities revenue Bonds for the financing of the Project Facilities, herein defined; and the Board desires to induce the Company to enter into this Ground Lease for the terms and pursuant to conditions, provisions and covenants hereinafter set forth. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties agree as follows: SECTION I DEFINITIONS -1- Unless the context clearly indicates some other meaning, the following words and terms shall, for all purposes of this Ground Lease, have the following meanings: "Airport" means the Cincinnati/Northern Kentucky International Airport located in Boone County, Kentucky, together with any improvements thereto or enlargements thereof and all functionally related and subordinate facilities related thereto. AApplicable Laws@ means all laws, ordinances, orders, rules and regulations of all Federal, state and municipal governments and the appropriate departments, commissions, boards and offices thereof, including the Board, having jurisdiction over the Airport and the Leased Premises, legally applicable to the Company's activities hereunder. "Board" means the Kenton County Airport Board, a public and governmental body corporate and politic created pursuant to the provisions of Chapter 183 of the Kentucky Revised Statutes, or, if such entity shall be abolished, the board, body, commission or agency succeeding to the principal functions thereof or to which the powers and duties thereof shall be given by law. "Bond" or "Bonds" means the bonds authorized to be issued by the Board at the request of the Company pursuant to this Ground Lease and Indenture. ACode@ means the Internal Revenue Code of 1986, as amended to date, and all applicable Treasury Regulations promulgated thereunder. "Company" means Mesaba Aviation, Inc., d/b/a Mesaba Airlines, a corporation duly incorporated and existing under the laws of the State of Minnesota and qualified to do business in the Commonwealth of Kentucky or, if such corporation shall merge, consolidate or shall sell substantially all of its assets, the corporation or other entity succeeding to the principal functions thereof. "Director of Aviation" or ADirector@ means the Director of Aviation of the Board, or his/her designee. AGround Lease@ means this agreement, dated as of September 1, 1999, entered into by and between the Board and the Company, together with all amendments and supplements hereto hereafter made in accordance with the provisions hereof. AIndenture @ means the Indenture of Trust dated as of July 1, 1999, between the Board and Norwest Bank, Minnesota, N.A., a national banking association, as Trustee, pursuant to which the Bonds shall be issued. ALease Agreement@ means that agreement dated as of July 1, 1999, between the Board and the Company pertaining to the financing of the costs of installation, construction and equipping of the Project Facilities, and any and all modifications, alterations, amendments and supplements to said Lease Agreement. -2- ALeased Premises@ means that parcel of land containing approximately 515,307.2 square feet leased to the Company hereunder and specifically identified on Exhibit AA@ attached hereto and incorporated herein by reference. APersonal Property@ means all furniture and other portable property furnished or used by the Company in its operations hereunder. AProject Facilities@ means all improvements acquired, installed or constructed on the Leased Premises by or on behalf of the Company as set forth and identified on Exhibit AB@. ARental Commencement Date@ means the first day of the first month next following the earlier of the date the Company commences its business on the Leased Premises or the date twelve (12) months after the date of this Ground Lease. ARestricted Use Area@ means that part of the Leased Premises specifically identified on Exhibit AA@ attached hereto and incorporated herein by reference. The Restricted Use Area of the Leased Premises contains approximately 17,982.7 square feet. "Term or Term of this Ground Lease" means the term as set forth in Section V hereof. ATrade Fixtures@ means all appliances, signs and other major equipment or improvements commonly regarded as trade fixtures with a useful life in excess of three (3) years, installed by the Company on the Leased Premises. The term Trade Fixtures shall not include carpeting, floor covering, attached shelving, lighting fixtures other than free standing lamps, or wall coverings. Any item normally defined as a Trade Fixture which is affixed to the Leased Premises in such a manner as to cause structural damage to the Leased Premises upon such item's removal shall be deemed a Fixed Improvement. SECTION II LEASED PREMISES A. The Board does hereby devise and exclusively lease unto the Company, and the Company does hereby take from the Board, that parcel of land located on the Airport containing approximately 515,307.2 square feet of land, and including the Restricted Use Area, all as set forth and identified on Exhibit AA@ attached hereto and hereafter referred to as the ALeased Premises@. B. The Company shall have the option to enlarge the area of the Leased Premises by adding thereto on or before the expiration of ten (10) years after the commencement of the Rental Commencement Date that parcel of land containing approximately 202,248.2 square feet (the AOption Parcel@), all as set forth and identified on Exhibit AA@ attached hereto and incorporated herein by reference. The Company may exercise the option to add such Option Parcel to the area of the Leased Premises by giving -3- written notice to the Board within such ten (10) year period of the exercise of such option and said parcel shall become a part of the Leased Premises on the first day of the month next following receipt by the Board of Company's written notice of exercise of this option. This option shall expire ten (10) years after the Rental Commencement Date. The rental to be paid by the Company to the Board for such Option Parcel shall be at the same per square foot rental then being paid for the initial parcel being leased hereunder as set forth and described in Section VI hereof, and such parcel as a part of the Leased Premises shall be otherwise subject to the terms and conditions of this Ground Lease. The rental to be paid by the Company for such Option Parcel shall commence on the earlier of (a) the first day of the first month next following the date the Company commences its business on the Option Parcel or (b) the first day of the first month next following the later of the date twelve (12) months after the date of the exercise of such option or the date the Board gives written notice to the Company that the stream referenced in Section III. C. below has been redirected off of the Option Parcel. The consideration to be paid by the Company to the Board for this option is as set forth in Section VI B. The Company may upon the giving of not less than thirty (30) days prior written notice to the Board terminate the option herein granted to it to lease the Option Parcel, and the consideration to be paid by the Company to the Board for the terminated option for the period after the date of termination likewise shall terminate. 3. The Board represents and warrants that it is the owner of the Leased Premises and of the Option Parcel and has the full right and lawful authority to enter into this Ground Lease. SECTION III DEVELOPMENT OF THE LEASED PREMISES BY THE BOARD A. The Board shall commence and complete the clearing, grading, draining and improving of the Leased Premises in accordance with documentation entitled AProposal, Contract Documents and Specifications for Mesaba Hangar Site Preparation@ dated January 1999 (the AContract Documents@) which Contract Documents form the basis for a contract to perform such work awarded by the Board to Baker Concrete. Changes in the Contract Documents may be made by the Board without the approval of the Company provided that such changes are consistent and in harmony with the development of the Project Facilities on the Leased Premises. All other changes in the Contract Documents shall be made only after approval by the Company, which approval shall not be unreasonably withheld or delayed. The Company shall designate a representative authorized to give approvals on behalf of the Company under the provisions of this Section III which representative shall at all reasonable times be available on the Airport to representatives of the Board. B. In consideration of the performance of the construction work on the Leased Premises by the Board as hereinabove set forth, the Company -4- shall at the time of the execution of this Ground Lease pay to the Board the sum of $200,000. C. The Board shall, at its sole cost and expense,(1) no later than November 1, 2000, complete the redirection of the stream running through the Leased Premises off of the Leased Premises and,(2) no later than twelve months after receipt of notice by the Board from the Company of the exercise of the Company's option to add the Option Parcel to the Leased Premises, complete the redirection of the stream running through the Option Parcel off of the Option Parcel. SECTION IV CONSTRUCTION OF IMPROVEMENTS BY COMPANY A. The Company shall, at its own expense and without cost to the Board, commence and complete construction of the Project Facilities, including directly related vehicular parking and other support facilities, fixtures and landscaping, all as set out in Exhibit A B@ as it may be modified from time to time. The Project Facilities shall be of good material, sound construction, attractive in design and in accordance with the Guidelines For Design and Review of Tenant Facilities established by the Board which are attached hereto as Exhibit AC@ and made a part hereof. B. Prior to commencement of construction by the Company on the Leased Premises, the Company shall submit to the Board for written approval, preliminary plans and specifications for the Project Facilities, including the identification of facilities and methods for the handling of Hazardous wastes on the Leased Premises, as well as a schedule for their construction. The Company's plans and specifications shall be subject to approval by the Board, which reserves the right to withhold approval for any and all provisions or portions thereof. Said Board approval shall not be unreasonably withheld. C. After approval by the Board of the preliminary plans and specifications for the Project Facilities, the Company shall submit all construction plans as they are developed by the Company and/or its architects, engineers and other professionals for review and written approval by the Director of Aviation of the Board or his designee, which approval shall not be unreasonably withheld. Such plans shall designate the location and boundaries of the various areas in the Project Facilities and the proposed uses thereof. The Company shall not commence construction of any phase of the Project Facilities until the plans applicable to such phase or portion of construction have been approved as set out above. After completion of construction on the Leased Premises by the Company, but in no event later than three months after the Company commences use of the Project Facilities on the Leased Premises, the Company shall at its cost furnish to the Board a reproducible set of as-built drawings of the Project Facilities for use by the Board for its purposes in accordance with the guidelines set forth in Exhibit AC@. -5- D. All construction work, workmanship, materials and installations shall be in substantial compliance with the approved plans and specifications. No changes in the plans or specifications shall be made without the prior written consent of the Director of Aviation or his designee, other than minor and insignificant changes which do not affect the designed use or the structural integrity of the improvements or their appearance. E. The Board agrees to cooperate with the Company in regard to the construction and installation of the Project Facilities and any approval required by the Board or any of its members, officers, employees or agents shall be given in a timely fashion so as not to delay or interfere with the progress of the construction work by the Company. Furthermore, all such approvals shall not be unreasonably withheld. F. During the period of construction, the Board, at its expense, shall have the right to inspect any or all construction work, workmanship, material and installation involved in or incidental to the construction of the Project Facilities. G. If to the extent it is required by Applicable Law, not less than the prevailing hourly rate of wages as determined by the Commissioner of Labor of the Commonwealth of Kentucky shall be paid to all laborers, workers, and mechanics performing work in the Construction of the Project Facilities. Subject to the provisions hereof, in connection with the construction of the Project Facilities and in the exercise of the Company's rights and obligations hereunder, the Company shall not permit a mechanics lien for any labor or materials nor any claim for labor or wages, or penalties in relation thereto, including, but not limited to, claims arising under or by reason of the provisions of Kentucky Revised Statutes 337.505 through 337.994, inclusive, to attach to or against the Leased Premises or the leasehold interest granted hereunder, or the Board (including within the definition thereof for purposes of this Subsection G, the Board's members, officers, agents, servants or employees, individually) and, if any such lien or claim is filed against the Leased Premise or the leasehold interest granted hereunder or made against the Board, the Company shall protect and save the Board harmless against any loss, liability or expense whatsoever by reason thereof and shall proceed with or defend, at its own expense, such action or proceeding as may be necessary to remove the lien or satisfy the claim, notwithstanding any other provision contained in this agreement. H. Title to all improvements made to and upon the Leased Premises by the Company will vest in the Board at the expiration of the Term set forth herein or such time as this Ground Lease, including options if exercised, is terminated. Notwithstanding the foregoing, in the event Bonds are issued by the Board, at the request of the Company for the financing of the Project Facilities, title to the Project Facilities shall vest in the Board, pursuant to Section 142 of the Code. -6- SECTION V TERM A. Initial Term. This Ground Lease shall become effective as of the date hereof, and shall continue in full force and effect for an Initial Term expiring September 1,2029, unless terminated prior thereto as hereinafter provided. B. Extended Term. Upon expiration of the Initial Term of this Ground Lease, and provided that the Company is in compliance with all of the terms and conditions hereof to be performed by the Company, the Company may extend the Term of this Ground Lease for two(2) additional periods of five years each exercisable in the case of each such option by the giving of written notice by the Company to the Board not more than eighteen (18) months nor less than twelve (12) months prior to the expiration of either the initial Term or the applicable renewal term. There shall be no further privilege of renewal of this Ground Lease beyond that specified herein. If the Company fails to renew this Ground Lease for the first renewal term, then the option to renew for the additional renewal term shall terminate. C. Modification of Terms. Notwithstanding the foregoing, if Bonds are issued by the Board for financing of the Project Facilities, the initial term and extended terms of this Ground Lease are and shall be automatically modified for a term or terms as set forth in the Lease Agreement; provided that in no event shall the total length of the initial term together with all extended terms extend beyond forty (40) years after the commencement of the Initial Term of this Ground Lease. SECTION VI RENTAL PAYMENTS TO BOARD A. Ground Rental for Leased Premises. Commencing on the Rental Commencement Date and continuing on the same day of each and every month thereafter, the Company shall pay to the Board for the use and occupancy of the Leased Premises through the initial term and extended terms of this Ground Lease an annual Ground Rental, payable in monthly installments, based upon the total square footage of the Leased Premises less the square footage of the Restricted Use Area, calculated as hereinafter set forth: ANNUAL RENTAL PER RENTAL YEAR SQ. FT. OF LAND AREA ANNUAL RENTAL Year 1 through 10, $0.25 $124,331.125 inclusive Year 11 through 20, inclusive $0.32 $159,143.840 Year 21 through 30, inclusive $0.41 $203,903.045 -7- Year 31 through 35, inclusive $0.49 $243,689.005 Year 36 through termination $0.56 $278,501.720 B. Fee for Option. In consideration for the option to add an additional parcel to the Leased Premises as set forth under the provisions of paragraph B of Section II above, the Company shall pay to the Board an annual charge, payable in monthly installments, commencing on the Rental Commencement Date based upon the total square footage of the Option Parcel less the square footage of the Restricted Use Area, calculated as hereinafter set forth: ANNUAL FEE PER RENTAL YEAR SQ. FT. OF LAND AREA ANNUAL FEE Year 1 through 3, $0.000 $00.00 inclusive Year 4 through 5, $0.075 $15,168.62 inclusive Year 6 through 10, $0.125 inclusive Said annual charge payable for the option shall be paid to and until the date that the Company commences paying the annual Ground Rental for the Option Parcel under the provisions of paragraph A above of this Section VI. As used in this Section VI, and elsewhere in this Ground Lease, the term "Rental Year" means a consecutive twelve (12) month period commencing on the Rental Commencement Date and terminating twelve (12) months thereafter, and each consecutive twelve (12) month period thereafter. C. In addition to the Ground Rental provided herein to be paid by Company to the Board, the Company shall pay to the Board such rentals and charges as are set forth in the Lease Agreement applicable to the lease of the Project Facilities. D. Delinquency Charges. If the Company shall fail to pay, when the same is due and payable, any rent, or amounts or charges as contained in this Ground Lease to be paid by the Company to the Board, such unpaid sums shall bear interest from the due date thereof to the date of payment at the rate which is the lesser of twelve percent (12%) per annum or the maximum interest rate permitted by law. SECTION VII RIGHT OF ACCESS TO THE LEASED PREMISES -8- A. The Company, its directors, officers, employees, customers, agents, representatives, guests, contractors, suppliers of materials, furnishers of services and invitees, shall have the non-exclusive right of ingress to and egress from the Leased Premises and such other portions of the Airport to or from which said persons shall reasonably require ingress and egress; provided, however, that such right of ingress and egress shall be subject to the reasonable rules, regulations and requirements of general applicability of the Board as the same may be in effect from time to time. B. The Board shall at all times furnish the Company the non-exclusive use of and means of access (suitable to the nature of Company's business and operations) from the Leased Premises to and from the public streets and thoroughfares and to the Airport roadways, ramps, taxiways and runways. The access road, or roads, and taxiways need not be the same throughout the Term of this Ground Lease so long as the Company is provided at all times with a suitable access road or roads and taxiways. C. The Board shall manage, maintain and operate the Airport in a prudent manner and shall maintain and operate with adequate and efficient personnel and keep in good repair the Airport and the existing runways, taxiways, common use aprons and roadways and any additions thereto during the term hereof; provided that the Board may, at any time, temporarily or permanently, close or consent to or request (to the extent required by Applicable Laws) the closing of any roadway, taxiway or runway and any other area at the Airport presently or hereafter used as such, so long as a reasonable alternative means of ingress and egress remains available to the Company, its employees, customers, guests, contractors, suppliers of materials, furnishers of services and invitees. D. The Board or its designee shall have the right of entry upon the Leased Premises: (i) to examine and inspect the same, (ii) for any purpose connected with the Board's rights or obligations or the Company's obligations hereunder, (iii) to service or post or keep posted thereon notices provided by any law or rules or regulations of the Commonwealth of Kentucky or the United States which the Board deems to be necessary for the protection of the Board or the Leased Premises; and (iv) for all other lawful purposes; provided that in exercising the right of entry pursuant hereto the Board or its designees as the case may be shall not unreasonably interfere with the Company's use, occupancy or operation of the Leased Premises or the Project Facilities. E. Without limiting the generality of the foregoing, the Board, by its officers, employees, agents, representatives, contractors and furnishers of utilities and other services, shall have the right for its own benefit, for the benefit of the Company or for the benefit of parties other than the Company at the Airport, to maintain existing and future utility, mechanical, electrical and other systems on the Leased Premises and to enter upon the Leased Premises at all reasonable times to make such repairs, replacements or alterations thereto as required in the determination of the Board and, from time to time, to construct or install such systems over, in or under the Leased Premises for access to other -9- parts of the Airport, provided that the maintenance, construction and installation of such systems does not unreasonably interfere with the Company's operation of the Project Facilities or the Leased Premises. F. Nothing in this Section VII shall, or shall be construed to, impose upon the Board any obligations so to maintain, construct or install such systems or to make repairs, replacements, alterations or additions to the Leased Premises or the Project Facilities, or shall create any liability for any failure to do so. SECTION VIII USE OF LEASED PREMISES A. The Company shall use the Leased Premises specifically for the construction, installation and operation of the Project Facilities to be operated at the Airport as aircraft hangar facilities and functionally related and subordinate aircraft parking ramps and aircraft maintenance and repair facilities in connection with the Company's air transportation business at the Airport and consistent with the provisions of this Agreement. The Project Facility shall be utilized for the maintenance, servicing and storage of Company's aircraft, including companies which are wholly owned subsidiaries of or which have a Acode-share@ arrangement with the Company, and such other purposes and uses as may be approved by the Board in writing, which approval shall not be unreasonably withheld. The Company shall comply with the following and shall be permitted to conduct AEngine Run-ups@ as hereafter defined only under the following conditions: 1. If the required safety measures are taken by the Company to avoid damage from jet blast by constructing and installing appropriate blast fences and/or blast deflectors and on/or a hush house. 2. Between the hours of 6:00 a.m. and 11:00 p.m. without any acoustical treatment. Between the hours of 11:00 p.m. and 6:00 a.m., unless otherwise approved in writing by the Director of Aviation, acoustical treatment acceptable to the Director of Aviation must be provided if Engine Run-ups other than emergency Engine Run-ups are to be conducted. 3. The term, AEngine Run-up@ shall mean any operation of an aircraft engine on the Leased Premises for the purpose of determining air worthiness as part of a required maintenance or inspection program and any other operation of an aircraft engine on the Leased Premises above idle power for any purpose, other than taxing of aircraft directly related to flight activities. The Leased Premises shall not be used as a Fixed Base Operator or as a general aviation aircraft service facility nor for the providing of services or sales of any type or nature to the general public or to any third parties; provided that nothing herein shall prohibit the Company from providing maintenance and repair sales and services to it's wholly owned -10- subsidiary companies or airline companies with which it has a Acode share@ arrangement. The Leased Premises shall not be used for providing by sale or otherwise of foods or beverages or for the operation of sales, services or concession stands of any kind or for the furnishing or selling of insurance, banking, car rental, money exchanging, advertising or other commercial service. Nothing contained herein shall prohibit the Company from installing and operating either or both food and beverage service facilities and vending machines for the use of the Company's employees and other persons employed by the Company as independent contractors or the installation and operation of one or more automatic teller machines for the use of Company's employees and other persons employed by the Company as independent contractors; provided that such facilities and machines shall be located in areas that are not visible or accessible to the general public. It is understood and agreed that the operation, leasing and subletting of space and facilities anywhere on the Airport for concession purposes of any type including service or goods to the members of the general public is reserved to the Board. B. The Company shall not install or operate any signs on or in the Leased Premises or Project Facilities except such signs as shall have been approved as a part of the plans and specifications approved by the Director of Aviation for the construction of the Project Facilities and such additional signs as may thereafter be approved by the Director of Aviation in writing. This requirement for approval shall not apply to signs located within any building or other structure on the Leased Premises which signs are not visible from the exterior of such building or structure. No antenna, aerial, or satellite dish shall be erected or maintained on the roof or exterior walls of any structure on the Leased Premises or ground of the Leased Premises or on the Airport without in each instance first obtaining the prior written consent of the Director of Aviation. C. The Company shall not: 1. Store or allow to be placed any non-functional mobile equipment such as carts, tugs, tractors, tractor trailers, box vans and automobiles or any other vehicle or mobile equipment other than in a completely enclosed building; or, 2. Store any equipment, vehicle or other thing which is not actively or continuously utilized as part of the Company's operation under this Ground Lease other than in a completely enclosed building. In place of storage and placement in completely enclosed buildings as required under the provisions of Item 1 and Item 2 above, the Company, with the written approval of the Board, may utilize screening for such storage or placement provided that said screening is located in areas and so constructed that the equipment and other items stored or placed in accordance with Item 1 and Item 2 are not visible from outside of the Leased Premises and appropriate arrangements, approved by the Board, are provided by the Company to prevent the seepage or passage of toxic or hazardous waste or materials off of the Leased Premises or into the sanitary or storm sewer facilities serving the Leased Premises. -11- D. Except for the taxiway connector located on the Restricted Use Area, the Company shall use the Restricted Use Area only as a green space and maintain the Restricted Use Area with grass and landscaping. No buildings, paving or other structures shall be located on the Restricted Use Area and no vehicles or other equipment shall be located or stored, permanently or temporarily, on the Restricted Use Area. E. The Leased Premises and the Project Facilities located on the Leased Premises shall be used only for the purposes specified in this Ground Lease. The Company shall, at all times, during the Term of this Ground Lease, use the Leased Premises and the Project Facilities located thereon for those purposes. SECTION IX GENERAL OBLIGATIONS OF COMPANY A. Except for the construction being performed by the Board in accordance with Section III hereof, and subject to the provisions of said Section III, and to the provisions of Section IX C below, the operation, maintenance and repair of the Leased Premises, including the Project Facilities and all other improvements thereon, shall be the obligation and responsibility of the Company. The Company shall pay, as the same shall become due, all costs and expenses incurred by it in the operation, maintenance and repair of the Leased Premises, including the Project Facilities and all other improvements thereon, and any machinery, equipment or related property substituted for any equipment therein. The Company agrees it will, at its own expense, maintain or cause to be maintained, and will keep or cause to be kept, the Leased Premises, including the Project Facilities and all other improvements and landscaping thereon, in good condition (ordinary wear and tear excepted) and in a reasonably safe condition as its operations permit. B. The Company shall at all times keep or cause to be kept the Leased Premises, including the Project Facilities and all other improvements thereon, together with all property of the Company located in or on the Leased Premises, in a clean, neat, orderly, sanitary and presentable condition and appearance and will perform mowing and snow removal on the Leased Premises during the appropriate periods of the year. The Company will not permit any waste or destruction of the runways, taxiways, common use aprons and roadways of the Airport during the term hereof (ordinary wear and tear excepted). C. At no cost to the Board, the Company agrees to maintain in a good state of repair and functionality, and make all necessary repairs to the Leased Premises, including the Project Facilities and all other improvements located thereon, including, by way of example, without limitation, the interior and exterior windows, doors and entrances, utility systems (electrical, data, telephone, HVAC), signs, floor coverings, interior walls and ceiling, interior columns, structural improvements, -12- partitions, interior and exterior lighting (including bulbs), electrical equipment and plumbing fixtures. Beginning with the commencement of the Term of this Ground Lease, the Company shall provide each Lease Year, upon request of the Board, written documentation and report to the Board of any preventative maintenance or repair completed by the Company since the time of the furnishing of the prior annual documentation and report. The Company shall keep and maintain the Leased Premises, including appropriate landscaping, in a sanitary and sightly condition. In the event the Company fails to perform any obligation required by this section, within Thirty (30) days after written notice from the Board so to do, the Board may enter upon the Leased Premises and perform such obligation, and charge Company the reasonable cost and expense thereof plus twenty (20) percent thereof for administrative overhead. Company shall pay the Board such charge in addition to any other amounts payable by Company pursuant to this Ground Lease. Notwithstanding the provisions of this paragraph C above, the taxiway connector located on the Restricted Use Area shall be maintained and repaired by and at the expense of the Board. All repairs done by the Company or on its behalf shall be of first class quality in both materials and workmanship. All repairs will be made in conformity with the Board's specifications and guidelines and with the rules and regulations prescribed from time to time by the Board or any Federal, state, or local authority having jurisdiction over the work on the Leased Premises. The Company shall keep and maintain, at its sole expense, such interior maintenance, custodial, and cleaning services as may be necessary to ensure that the interior portions of the Leased Premises are maintained in a clean, neat and orderly fashion. D. The Company will pay during the Term of this Ground Lease, as the same respectively become due, all taxes and governmental charges and assessments of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Leased Premises and all improvements thereon or any machinery, equipment or other property installed by the Company therein or thereon. The Company may, at its expense and in its own name and behalf or in the name and on behalf of the Board, but only after written notice to the Board, in good faith contest any assessed valuation or the amount or legality of said taxes, assessments and other charges, and in the event that any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the enforcement of any such contested items is so stayed and such stay thereafter expires or unless, by non-payment of any such contested items, any part of the Project Facilities or the Leased Premises will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid promptly or secured by posting a bond, in form satisfactory to the Board, with the Board. The Board will cooperate fully with the Company in any such contest. The Board shall cooperate with the Company in connection with any administrative or judicial proceedings for determining the validity or amount of any such -13- taxes, assessments or other charges or any payments in lieu of taxes and appoints the company to take any action which the Board may lawfully take in respect of such payments and all matters relating thereto and the Company shall bear and pay all costs and expenses of the Board thereby incurred at the request of the Company or by reason of any such action taken by the Company on behalf of the Board. E. The Company shall provide a complete and proper arrangement for the adequate sanitary handling and disposal, away from the Airport, of all trash, garbage and other refuse caused as a result of the operation of the Leased Premises. F. The Company shall provide and use suitable covered metal receptacles for all garbage, trash and other refuse in or in connection with the Leased Premises. Piling of boxes, cartons, barrels or other similar items, in an unsightly or unsafe manner, on or about the Leased Premises, is forbidden. G. The Company shall acquire and pay for all licenses, permits and other similar authorizations as required under federal, state or local laws and regulations insofar as they are necessary to comply with the requirements of this Ground Lease and the rights and privileges extended hereunder. The Company also agrees to repair or pay for all damage to the Board and its property caused by the wrongful or negligent acts or omissions of the Company, its agents, servants, employees or contractors, arising out of the Company's use or occupancy of the Leased Premises. H. The Company shall not do anything or permit anything to be done on the Leased Premises, including, but not limited to, the release or disposal of any Hazardous Wastes, which may interfere with the effectiveness or accessibility of the drainage and sewage system, including, but not limited to, the sewage facilities of the Sanitation District No. One with which the Airport sewage system connects, the fire protection system, the alarm system and any existing facilities for the protection of the Airport and the public. I. The Company agrees to accept from the Board water for use on the Leased Premises. Such water shall be metered by meters furnished by the Company and the Company shall purchase and take from the Board all of its supply of water used by the Company on the said premises. Unless otherwise agreed, the Company shall pay the Board for such water at the same rates no higher than that permitted to be charged by the Board by the Public Service Commission of the Commonwealth of Kentucky. The Board shall bill Company for the water so consumed on a regular quarter-annual basis and within ten (10) days following the end of each such quarter, and each bill shall be payable within fifteen (15) days after the date of the mailing of such statement. J. The Company shall accept from the Board a sanitary disposal connection for sanitary sewage from the Leased Premises and, unless otherwise agreed, the Company shall pay for such sanitary sewage disposal charges made by the Board on a like or similar basis as shall be charged -14- to other users of the same on the Airport property. Said charges shall be billed and paid as set out above in Subsection I above. K. The Board may, but shall not be required to, furnish a fiber optics network available at or on the Leased Premises and may, but shall not be required to, permit the Company to make use of such fiber optics network. In the event that the Board provides such fiber optics network and the Company is permitted to make use thereof, the Company shall pay to the Board for such use at the same rates and charges made by the Board on a like or similar basis to other users of the fiber optics network. L. Except as set forth above in Subsections I and J, the Company shall obtain all utility services and supplies, such as gas, electricity, telephone, etc. for use on the Leased Premises from the public utilities furnishing same and shall pay directly therefor to such public utilities. M. After completion of construction of the Project Facilities contemplated hereunder, the Company shall make no other improvements, additions or alterations upon or about the Leased Premises or the improvements constructed thereon without the prior written consent of the Director of Aviation, which consent shall not be unreasonably withheld. Prior to the construction of such improvements, additions or alterations, the Company shall submit to said Director of Aviation for his approval the preliminary plans and specifications therefor which shall conform to the general architectural scheme and overall plans adopted by the Board for the Airport. All such improvements, additions or alterations constructed by the Company on the Leased Premises, including the plans and specifications therefor, shall conform in all respects to the applicable statutes, ordinances, building code, rules and regulations of such governmental authority as may have jurisdiction. The Director of Aviation's approval given as provided above shall not constitute a representation or warranty as to such conformity, which shall remain the Company's responsibility. The Company, at its own cost and expense, shall procure all permits necessary for such construction. After completion of construction by the Company under the provisions of this Section IX L, but in no event later than three months after commencement by the Company of use of such improvements, additions or alterations, the Company shall at its cost furnish to the Board a reproducible set of as-built drawings of such improvements, additions or alterations for use by the Board for its purposes in accordance with the guidelines set forth on Exhibit AC@ as the same may be from time to time amended by the Board. N. The Company shall maintain and keep in a good state of repair all fuel lines, fuel tanks, fuel systems, and related facilities installed by or for the Company on the Leased Premises. The Company shall, during the Term of this Ground Lease, have a sufficient number of trained personnel and procedures for safely storing, dispensing and otherwise handling fuel, lubricants and oxygen used or located on the Leased Premises or used or handled by or for the Company on the Airport including: (1) grounding and fire protection; (2) public protection; (3) control of access to storage areas; and (4) marking and labeling storage tanks and tank trucks, including identification of specific types and fuel octane designations. -15- O. The Company shall use its best efforts to prevent unauthorized persons from gaining access to restricted flight and aircraft operational areas through its facilities. In the event that security guards or other similar personnel are required under any federal regulation or otherwise in order to prevent trespass and unauthorized access to flight and aircraft operational areas from the Leased Premises, the costs of such personnel and/or equipment and all expenses related thereto shall be paid by the Company. P. All personnel employed by the Company shall prominently display Airport identification badges on their person while on duty or while in areas of the Airport where display of an Airport identification badge is required by Applicable Laws. Q. Upon the termination of the Ground Lease, whether by expiration of the Term of this Ground Lease or otherwise, the Company shall surrender the Leased Premises to the Board, including all improvements constructed on the Leased Premises, and the Board may remove all persons and property from the Leased Premises. All non-Bond financed Trade Fixtures and Personal Property of the Company shall remain the property of the Company and shall be removed from the Leased Premises by the Company. If the Company fails to remove such Trade Fixtures and Personal Property from the Leased Premises, at the sole option of the Board, (i) said Trade Fixtures and Personal Property may be stored at a public warehouse or elsewhere at the Company's sole cost and expense; or (ii) title to said Trade Fixtures and Personal Property shall vest in the Board at no cost to the Board. SECTION X ENVIRONMENTAL MATTERS A. Board responsibilities: 1. The Board shall be responsible for the removal or mitigation of any contamination on the Leased Premises which violates Federal or state environmental law and for the removal or mitigation of any other environmental condition, i.e. burial grounds, exotic plants, wildlife conditions, etc. on the Leased Premises, which contamination or environmental condition, existed prior to the date of this Ground Lease, and which substantially interfere with the use of the Leased Premises by the Company for the purposes contemplated hereunder, except for such contamination for which the Company is responsible under the provisions of paragraph B of this Section below. The Board shall notify the Company in the event that the Board shall become knowledgeable of any contamination or environmental condition existing on the Leased Premises which may impede the construction of the Project Facilities by the Company. 2. Upon completion of the work to be performed by the Board in accordance with paragraph A of Section III above and prior to the commencement of the installation of the paving by the Company on the Leased Premises, a Phase One Environmental Audit and related studies as determined -16- necessary by the Board shall be performed on the Leased Premises and on the Option Parcel by an engineering firm retained by the Board and the report thereof shall be available to the Board and Company. Unless otherwise agreed between the Board and the Company, any contamination found to exist on the Leased Premises or the Option Parcel shall be handled subject to the provisions of paragraph A.1 of this Section above and after removal or remedying of the contamination by the Board a supplemental study and report shall be prepared by the engineers to show the removal or remeding by the Board of the contamination. All costs of the Environmental Audit(s) and related studies and reports shall be borne by the Board. Such report(s) by the engineering firm shall be conclusive evidence of the condition of the Leased Premises and of the Option Parcel for purposes of determining the Board's obligations under paragraph A of this Section X and Company's obligations under the provisions of paragraph B below of this Section X. B. Company responsibilities: 1. The Company covenants and agrees that it will not use, store, maintain, discharge or operate, whether intentionally or unintentionally, on the Leased Premises, in violation of any applicable federal, state, county or local statutes, laws, regulations, rules, ordinances, codes, standards, orders, licenses or permits of any governmental authorities, relating to environmental matters (being hereafter collectively referred to as the Environmental Laws), including by way of illustration and not be way of limitation; the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, the Compensation and Liability Act of 1980 and the Toxic Substances Control Act (including any amendments or extensions thereof and any rules, regulations, standards, or guidelines issued pursuant to any Environmental Laws). Except in compliance with all Environmental Laws, the Company, its subsidiaries, subcontractors or suppliers, or anyone on the Leased Premises with the consent of the Company shall not discharge "Hazardous Substances" (as defined hereinafter) into the sewer and/or storm water drainage systems serving the Airport, or cause any Hazardous Substances to be placed, held, stored, processed, treated, released or disposed of on or at the Leased Premises. Upon termination of this Ground Lease the Company will, at its sole cost and expense, immediately remove from the Leased Premises all Hazardous Substances and all tanks or other containers which are being used or were used by the Company, its subsidiaries, subcontractors or suppliers, or anyone on the Leased Premises with the consent of the Company, to hold Hazardous Substances, discharged or occasioned from the Company's operations or the operations of any of its subsidiaries, subcontractors or suppliers, or anyone on the Leased Premises with the consent of the Company. "Hazardous Substances" shall mean any material that, because of its quantity, concentration or physical or chemical characteristics is deemed by any federal, state or local governmental authority to pose a present or potential hazard to human health safety or to the environment. Hazardous Substances include, by way of illustration and not by way of limitation, any substance defined as a Ahazardous substance@ or Apollutant@ or Acontaminant@ pursuant to any Environmental Law; any asbestos containing -17- materials; petroleum, including crude oil or any fraction thereof, natural gas liquids; and any other toxic, dangerous or hazardous chemicals, materials or substance of waste(s). 2. Neither the Company, its members, officers, agents, servants, employees and customers shall cause any Hazardous Substance to be brought upon, kept, used, stored, generated or disposed of in, on, or about the Leased Premises or the Airport, or transported to or from the Leased Premises or the Airport unless such action is in compliance with all applicable Environmental Laws and the Airport's Guidelines and Rules and Regulations. The Company shall be required to keep, at the Leased Premises in an orderly and easily accessible manner, all records evidencing its compliance with all applicable Environmental Laws and the Airport's Guidelines and Rules and Regulations for all Hazardous Substances brought upon, kept, used, stored, generated or disposed of in, on or about the Leased Premises or the Airport, or transported to or from the Leased Premises. The Company shall maintain such records from the date of this Ground Lease until the expiration or termination of this Ground Lease. 3. The Company shall indemnify, defend, and hold harmless the Board from and against any and all losses arising during or after the date of this Ground Lease and any renewal date as a result of or arising from: (a) a breach by the Company of its obligations contained in the preceding Paragraphs B(1) or (2), or (b) any release of Hazardous Substance from, in, on or about the Leased Premises or the Airport caused by any act or omission of the Company, its members, officers, agents, servants, employees and customers, or, (c) the existence of any Hazardous Substance on the Leased Premises. 4. Upon reasonable notice, the Director shall have the right but not the obligation to conduct or cause to be conducted an environmental audit or any other appropriate investigation of the Leased Premises for possible environmental contamination or violation of any applicable Environmental Laws or violation of the Airport's Guidelines and Rules and Regulations. The Company shall pay all costs associated with said investigation in the event such investigation shall disclose any Hazardous Substance contamination or violation of Environmental Law or violation of the Airport's Guidelines and Rules and Regulations as to which the Company is liable hereunder unless determined to be caused by any act or omission of the Board, its members, officers, agents, servants or employees. . 5. Prior to the expiration or the earlier termination of this Ground Lease, the Company shall be required to provide documentation, prepared by a firm acceptable to the Director, that the Leased Premises is free of Hazardous Substance Contamination and that the removal of any Hazardous Substance has been done in compliance with the Airport's Guidelines, Rules and Regulations and all applicable laws. Such documentation may require an immediate remediation plan and/or long-term care and surveillance of any contamination identified and an acknowledgment of responsibility and indemnification for any and all losses associated with such contamination. -18- SECTION XI DISCRIMINATION The Company, for itself, its successors in interest, and assigns, as a part of the consideration hereof, does hereby covenant and agree as a covenant running with the land that in the event facilities are constructed, maintained, or otherwise operated on the said property described in this Ground Lease for a purpose for which a Department of Transportation program or activity is extended or for another purpose involving the provision of similar services or benefits, the Company shall maintain and operate such facilities and services in compliance with all other requirements imposed pursuant to 49 CFR Part 21, Nondiscrimination in Federally Assisted Programs of the Department of Transportation, and as said Regulations may be amended. The Company for itself, its successors in interest, and assigns, as a part of the consideration hereof, does hereby covenant and agree, as a covenant running with the land, (1) that no person on the grounds of race, color, or national origin shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in the use of said facilities, (2) that in the Construction of any improvements on, over, or under such land and the furnishing of services thereon, no person on the grounds of race, color, or national origin shall be excluded from participation in, denied benefits of, or otherwise be subjected to discrimination, and (3) that the Company shall use the premises in compliance with all other requirements imposed by or pursuant to Title 49 Code of Federal Regulation (CFR), Part 21, Nondiscrimination in Federally Assisted Programs of the Department of Transportation, and as said Regulations may be amended. In the event of breach of any of the above nondiscrimination covenants, the Board shall have the right to terminate this agreement and re-enter and repossess said land and the facilities thereon, and hold the same as if said Agreement had never been made or issued. This provision shall not be effective until the procedures of 49 CFR, Part 21, are followed and completed including exercise or expiration of all appeal rights. The Company shall furnish its service permitted hereunder on a fair, equal and not unjustly discriminatory basis to all users thereof, and shall charge fair, reasonable, and not unjustly discriminatory prices for each unit of service, provided that the Company may make reasonable and nondiscriminatory discounts, rebates and other similar types of price reduction to volume purchasers. The Company assures that it will undertake an affirmative action program if required by 14 CFR, Part 152, Subpart E, to insure that no person shall on the grounds of race, creed, color, national origin, or sex be excluded from participating in any employment activities covered in 14 CFR, Part 152, Subpart E. If required, the Company assures that no person shall be excluded on these grounds from participating in or receiving the -19- services or benefits of any program or activity covered by this Subpart. If required, the Company assures that it will require that its covered suborganizations provide assurances to the Company that they similarly will undertake affirmative action programs and that they will require assurances from their suborganizations, as required by 14 CFR, Part 152, Subpart E, to the same effect. The Company assures that when applicable during the term of this Ground Lease, it will comply with pertinent statutes, Executive Orders, and such rules as are promulgated to assure that no person shall, on the grounds of race, creed, color, national origin, sex, age, or handicap be excluded from participating in any activity conducted with or benefiting from Federal assistance. This provision obligates Company for the period during which Federal assistance is extended to the Airport program, except where federal assistance is to provide, or is in the form of personal property or real property or interest therein or structures or improvements thereon. In these cases, when applicable during the term of this Ground Lease, this provision obligates the Company or its transferee for the longer of the following periods: (a) the period during which the property is used by the Board or any transferee for a purpose for which Federal assistance is extended or for another purpose involving the provision of similar services or benefits; or (b) the period during which the Board or any transferee retains ownership or possession of the property. The Company hereby assures that it will include the above provisions in all subleases and cause sublessees to similarly include clauses in further subleases. As used herein, the term "Department of Transportation" means the United States Department of Transportation. SECTION XII INDEMNIFICATION OF BOARD Each party hereto shall give to the other prompt and timely written notice of any claim made or suit instituted coming to its knowledge which in any way directly or indirectly, contingently or otherwise, affects or might affect either, and each shall have the right to participate in the defense of the same to the extent of its own interests. A. The Company shall keep, hold and defend the Board, including all directors, members, officers, agents, servants and employees thereof, harmless from any and all liabilities, losses, suits, judgments, fines, penalties, costs, damages, expense (including cost of suit and reasonable expenses of legal services), claims, demands and causes of actions whatsoever claimed by anyone by reason of injury to or death of any persons or property sustained in, on, or about the Airport, as a result of acts or omissions of the Company, its agents, servants, employees, contractors, -20- suppliers or invitees, or arising out of any operations of the Company upon or about the Airport, excepting such liability as may be the result from the sole negligence of the Board provided, however, that upon the filing of any claim with the Board for damages arising out of incidents for which the Company herein agrees to hold Board harmless, then and in that event, the Board, with which party the claim has been filed, shall notify the Company of such claim and the Company shall have the right to settle, compromise, or defend the same. The Board shall have the right to defend against any such claim, and if the Board elects to do so, the Company shall be responsible, as and to the extent provided in Section XII.C. below, for the Board's reasonable legal fees, costs and expenses in addition to any resulting liability. Any final judgment rendered against Board for any cause for which the Company is liable hereunder shall be conclusive against the Company as to liability and amount, where the time for appeal therefrom has expired. The indemnity provisions set forth herein shall survive the expiration or cancellation of this Ground Lease. B. In the event that the Company shall utilize any deicing pad or deicing facility (ADeicing Facility@), located on any ramp or other premises on the Airport owned by or exclusively leased to any person, corporation or entity (AOther Entity@), the Company shall indemnify, defend and hold harmless the Other Entity and against any and all claims, liabilities or damages to persons or property (including, but not limited to, any portion of the ramp facility, deicing facility, or property of such Other Entity) in any manner arising out of or related to said Company's acts or omissions in connection with its use of the ramp facility or the deicing facility. Under no circumstances shall the Other Entity be responsible with respect to claims, liabilities or damages related to or arising out of any deicing or failure to de-ice by the Company's aircraft. The Company does hereby release any existing or future claim with respect to such matters. The provisions of this Paragraph shall inure to the benefit of such Other Entity as a third party beneficiary under this Ground Lease. C. The Company and the Board, at the special instance and request of the Company, intends to enter into a Service and Technology Agreement with the Kentucky Economic Development Finance Authority (the AAuthority@), a public body corporate and politic created under Section 154.20-010 of the Kentucky Revised Statutes in which Agreement the Board has is required, under certain circumstances, to indemnify the Authority against any and all losses, liabilities, claims, etc. asserted against the Authority in certain circumstances, all as specifically set forth in the Service and Technology Agreement. The Company agrees that it will indemnify and save harmless the Board against any and all losses, liabilities, claims, actions, proceedings, cost and expenses which the Board may incur by reason of the provisions and agreements contained in the Service and Technology Agreement excepting such liability as may be the result from the sole negligence of the Board. D. The Board shall promptly notify the Company in writing of any claim or action brought against the Board in respect of which indemnity may be sought against the Company, setting forth the particulars of such claim -21- or action, and the Company will assume the defense thereof, including the employment of counsel, and the payment of all expenses. The Board may employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall not be payable by the Company unless such employment has been specifically authorized by the Company. The Company shall not be liable for any settlements of any action effected without its consent. E. The obligation of the Company under this Section XII shall survive the termination of this Ground Lease until such time, unless legal action be sooner filed, as the Kentucky Statute of Limitations period applicable to written contracts shall have expired. SECTION XIII INSURANCE A. Insurance - During Construction. 1. In connection with the construction and installation of the Project Facilities, the Company shall cause to be obtained and maintained, in a company or companies authorized to write insurance in Kentucky, such insurance as will protect the Board, the Company and the Company's contractors performing any portion of the Construction of the Project Facilities from claims set forth below which may arise out of or result from said contractor's operations under any construction or installation contract, whether such operations be by the contractor or by any of its subcontractors or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: a. Claims under workers' or workmen's compensation, disability benefit and other similar employee benefit acts. Further, contractor shall relieve the Board and the Company from any costs due to accidents or other liabilities mentioned in workers' or workmen's compensation act. Contractor or subcontractors with either an insufficient number of employees or in certain excluded occupational classifications are required to maintain workers' or workmen's compensation coverage on a voluntary basis regardless of the statutory regulations. If a contractor is from a state other than Kentucky, before it begins work on the Project Facilities it shall take whatever measures as are necessary to eliminate conflicts regarding which state's laws shall govern workers' or workmen's compensation claims. b. Claims for damages because of bodily injury, occupational sickness or disease, or death of his employees. c. Claims for damages because of bodily injury, occupational sickness or disease or death of any person other than his employees. d. Claims for damages insured by usual personal injury liability coverage. -22- e. Claims for damages, other than to the Project Facilities themselves, because of injury to or destruction of tangible property, including loss of use resulting therefrom. f. Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motor vehicle. 2. The insurance required by subsection 1 above, shall be written for not less than the following amounts, or greater if required by law: a. Workmen's Compensation: State - Kentucky Statutory Employer's Liability - $500,000 each accident b. Comprehensive General: coverage limits of not less than $10,000,000 shall be provided. Commercial general liability (CGL) shall be written on ISO Occurrence Form CG 00 01 10 96 (or a substitute form providing comparable coverage) and shall include all major divisions of coverage and be on a comprehensive basis including: Premises, operations Independent Contractors; Products and Completed Operations; Contractual Liability; Owned, non-owned and hired mobile equipment; There shall be no endorsement or modification of the policy limiting the scope of coverage for liability arising from explosion, collapse or underground property damage. Products and Completed Operations insurance shall be maintained for three years after issuance of the final certificate for payment. 3. Business Auto shall cover the liability arising out of any auto (including owned, hired and non-owned). Automotive liability shall be written on ISO Form CA-00-11 (or a substitute form providing comparable coverage) and provide limits not less than $10,000,000 each accident. 4. Umbrella Excess Liability: The limits of liability outlined in Items b and c may be satisfied by a combination of primary and umbrella liability coverages. 5. The insurance required by this Subparagraph A shall include contractual liability insurance applicable to the contractor's obligations. -23- 6. The contractor or the Company shall purchase and maintain property insurance (including boiler and machinery insurance) upon the entire work constituting the Project Facilities at the site in the limits of the Afull insurable value@ of the work. If the insurance obtained in compliance with this is builder's risk, coverage shall be written on a completed value form. Such insurance shall be with a company or companies against which the Board has no reasonable objection. This insurance shall include the interest of the Board, the company, the contractor and subcontractors/sub-subcontractors in the work constituting the Project Facilities and shall insure against the perils of fire and extended coverage and shall include Aall-risk@ insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If the Board is damaged by the failure of the contractor to maintain such insurance and to so notify the Board, then the contractor shall bear all reasonable costs properly attributable thereto, and if he fails so to do, the Company, as between the Board and the Company, shall bear such costs. If not covered under the Aall-risk@ insurance or otherwise provided in the contract documents applicable to construction of the Project Facilities, the contractor or the Company shall effect and maintain similar property insurance on the work stored off the site or in transit when such portions of the work are to be included in an application for payment under the contract. The Board and the Company shall be named as Aloss payees@ as their interest may appear on all policies and certificates. The Company and its contractors and subcontractors are also responsible for its construction tools and equipment, whether owned, leased, rented, borrowed or used at the project site. The Company and the Company's contractors (of any tier) shall waive any right of claim for any loss or damage to its tools and equipment. 7. In order to protect the Board and the Company against any claims which may arise from operations under the construction contract(s), the Board and the Company shall be included as additional insureds on all policies of insurance along with a waiver of Subrogation in favor of the additional insureds. All policies shall provide coverage on a primary basis without right of contribution of any insurance carried by the additional insureds. These changes shall be endorsed to the policies and shall be stated on the certificate of insurance. 8. Certificates of Insurance acceptable to the Board evidencing existence of valid policies of insurance with coverages specified shall be filed with the Board prior to commencement of work on the Project Facilities. These Certificates shall contain a provision that coverages afforded under the policies will not be cancelled until at least thirty (30) days' prior written notice has been given to the Board. 9. Each policy shall contain a clause to the effect that no material, adverse modification or change in the policy will be made, nor -24- will such policy be cancelled, non-renewed, or expired without thirty (30) days' prior written notice to the Board and the Company, as evidenced by receipt of registered or certified mail. When any certified insurance (due to the attainment of a normal expiration date or renewal date) shall expire, it is the responsibility of the contractor to supply to the Board and the Company updated replacement Certificates of Insurance that clearly evidence the continuation and scope of coverage as was supplied by the Certificates originally submitted. The contractor shall furnish to the Board and the Company copies of any endorsements that are subsequently issued amending coverage or limits of any policies. B. Property Insurance after Completion of Construction. The Company, at all times during the Term of this Ground Lease after Construction is completed on the Project Facilities, at the cost of the Company, shall maintain all risk coverage insurance on all buildings, premises and personal property (other than personal property owned or leased by the Company) located on or constituting the Project Facilities to the extent insurable in an insurance company or companies qualified and authorized under the laws of Kentucky in an amount equal to the full replacement value thereof. All insurance policies shall contain loss payable endorsements in favor of the Board as its interest may appear hereunder. The Company shall furnish to the Board Certificates of Insurance evidencing such coverages issued by the insurance Company(s) providing such policy(s) and further shall notify the Board in the event of cancellation of and/or change of insurance carriers providing such policy(s). C. Liability Insurance - Company. 1. The Company shall, at its own expense, maintain with insurance underwriters satisfactory to the Board commercial general liability (CGL) insurance covering the Company and the Board, as their interests may appear, against claims for bodily injury, personal injury, death and property damage occurring on, in or about the Leased Premises or the Airport in the amount of the greater of (a) Ten Million Dollars ($10,000,000) or such amount as the Board may from time to time otherwise reasonably require) or (b) the amount of the maximum policy limits for the various liability coverages provided thereunder maintained by the Company from time to time in its discretion. 2. Such insurance shall provide coverages comparable to commercial general liability (CGL) insurance written on standard ISO occurrence form CG 00 01 10 96 (or a substitute form providing equivalent coverage) and shall cover liability arising from premises, operations, independent contractors, products-completed operations, personal injury and advertising injury and liability assumed under an insured contract. 3. If the Company in its operations uses motor vehicles or mobile equipment on the ramps, taxiways or runways of the Airport, the amount of the motor vehicle and mobile equipment liability insurance to be furnished by the Company shall contain the same policy limits as set forth -25- above for CGL. Motor vehicle insurance shall cover liability arising out of an auto (including owned, non-owned or hired autos) while on Airport premises. Motor vehicle insurance shall provide coverage comparable to automobile liability insurance written on ISO form CA 00 01 (or a substitute form providing equivalent coverage). 4. Worker's Compensation and Employer's Liability: The Company shall, at its own expense, procure its own worker's compensation and employer's liability insurance or be a qualified self-insurer as provided under the rules and regulations of the Commonwealth of Kentucky. 5. Unemployment Insurance: The Company shall, at its own expense, maintain statutory unemployment insurance protection for all of its employees. 6. Additional Insureds: All liability policies (except worker's compensation and unemployment insurance) shall include the Board and all of its respective officers, employees and agents as additional insureds. The Board shall have no liability for any premiums charged for such coverage, and the inclusion of the Board as additional insured is not intended to, and shall not, make the Board a partner or joint venturer with the Company in the Company's operations at the Airport. 7. Evidence of Insurance: The Company shall furnish the Board with certificates evidencing existence of valid policies of insurance with the coverage specified, which certificates shall state that the coverage shall not be amended so as to decrease the protection below the limits specified herein or be subject to cancellation without at least thirty (30) calendar days' advance written notice to the Board. A renewal policy or renewal certificate shall be delivered to the Director at least thirty (30) calendar days prior to a policy's expiration date, except for any policy expiring on the expiration date of this Agreement or thereafter. 8. General Insurance Provisions: The Company's insurance shall be primary and non-contributory with respect to any other insurance available to or for the benefit of the Board. The Company's insurance provisions shall contain a severability of interest clause. Any deductibles or retentions shall be noted on the Certificate(s) of Insurance evidencing such coverage. D. Waiver of Subrogation. Each of the Board and the Company hereby releases the other from any and all liability or responsibility for any loss or damage to property caused by an insured fire or any other insured peril to the extent of any insurance proceeds received by the releaser, even if such fire or other casualty shall have been caused by the fault or negligence of the other party or anyone for whom such party may be responsible; provided, however, that the Board's and the Company's policies contain a clause or endorsement or policy wording to the effect that any such release shall not adversely affect or impair said policy or prejudice the right of the releaser to recover thereunder; provided further that each of the Board and the Company -26- shall promptly notify the other party in the event of either cancellation or material change in such endorsement or policy wording. SECTION XIV DAMAGE AND DESTRUCTION, CONDEMNATION A. In the event that all or any part of a discrete portion of the Project Facilities is destroyed in whole or in part or damaged by fire or other casualty, or title, or the temporary use thereof, shall be taken as a result or in anticipation of the exercise of the power of eminent domain, this Ground Lease shall not terminate. If the Company shall elect that the Project Facilities, or discrete portion thereof so damaged, destroyed or taken, not be reconstructed or reequipped, the Company shall at its expense: 1. Except as to the Project Facilities, or discrete portion thereof taken by eminent domain, remove the debris and level the site as directed by the Board, and 2. To the extent practical and possible, replace and restore as directed by the Board any walls, doors or other connecting points of any facility or premise to which the Project Facilities or discrete portion thereof not reconstructed and re-equipped was attached or physically connected to their condition existing as of the effective date of this agreement, reasonable wear and tear excepted. B. If the whole of the Leased Premises shall be taken by any public authority under the power of eminent domain, or if so much of the Leased Premises shall be taken by any such authority under the power of eminent domain so that the Company cannot continue to operate its business on the Leased Premises, then this Ground Lease shall cease and terminate as of the day possession shall be taken by such public authority and the rent shall be paid up to that day. In the event of a partial taking of the Leased Premises by any public authority that does not cause the termination of this Ground Lease, the ground rental shall be adjusted based on the rate set forth in Article VI(A) and the remaining square feet of the Leased Premises. SECTION XV EVENTS OF DEFAULT AND REMEDIES A. Events of Default Defined. The following shall be "events of default" under this Ground Lease and the term "event of default" shall mean, whenever it is used in this Ground Lease, any one or more of the following events: 1. The Company shall fail to pay when due and owing any installment of rent, or any part thereof provided for in this Ground Lease, and such failure shall continue unremedied for a period of thirty (30) days; or -27- 2. The Company shall fail to observe or perform any other of the Company's covenants, agreements or obligations hereunder (including, without limitation, the Company's obligation under Section XI hereof) other than those referred to in clause (1) set out above in this Section XV, and such failure shall continue unremedied for a period of sixty (60) days after the Board shall have given to the Company written notice specifying wherein the Company has failed to observe or perform any such covenant, agreement or obligation, plus such additional time as is reasonably required to correct any such failure if the Company has instituted corrective action within such sixty (60) day period and is diligently pursuing the same to completion; or 3. There shall occur the dissolution or liquidation of the Company, except that the Company may, without constituting an event of default, consolidate with or merge into another corporation or other entity or permit one or more other corporations or other entities to consolidate with or merge into it, or transfer or convey all or substantially all of its property, assets and licenses to another corporation or other entity but only on condition that the corporation or other entity resulting from or surviving such merger (if other than the Company) or consolidation or the corporation or other entity to which such transfer or conveyance is made shall (a) expressly assume in writing and agree to perform all of the Company's obligations hereunder, (b) be qualified to do business in the Commonwealth of Kentucky, and (c) if such corporation or other entity shall not be organized and existing under the laws of the United States of America or any state or territory thereof or the District of Columbia, deliver to the Board an irrevocable consent to service of process in and to the jurisdiction of the Courts of the Commonwealth of Kentucky with respect to any action or suit, in law or in equity, brought by the Board to enforce this agreement. If the Company is the surviving corporation in such a merger, the express assumption referred to in the preceding sentence shall not be required; or 4. The Company shall file a voluntary petition or institute any proceeding under the United States Bankruptcy Code, either as such code now exists or under any amendment thereof which may hereafter be enacted, or under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment to such act or acts either as bankrupt, or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby the Company asks, seeks or prays to be adjudicated a bankrupt, or to be discharged from the Company's debts or obligations, or offers to the Company's creditors to effect a composition or extension of time to pay the Company's debts, or asks, seeks or prays for a reorganization or to effect a plan of reorganization or for a readjustment of the Company's debts, or for any other similar relief; or any involuntary petition in bankruptcy or any other proceedings of the foregoing or similar kind or character shall be filed or be instituted or taken against the Company and shall not be dismissed for a period or ninety (90) days; or a custodian or receiver of the Company or of a substantial portion of the property or assets of the Company shall be appointed by any court and shall not be dismissed for a period of ninety (90) days; or the Company shall make a general assignment for the benefit of the Company's -28- creditors or the Company shall enter into an agreement of composition with the Company's creditors; or the Company shall admit in writing its inability to pay its debts generally as they become due; or 5. The Company shall abandon or vacate all or substantially all of the Leased Premises for a period of ninety (90) days, other than pursuant to and as permitted by Section XVI hereof. 6. The termination of the Lease Agreement for any reason. The provisions of clauses (2) and (5) of this Section XV are subject to the following limitations: if by reason of force majeure the Company is unable in whole or in part to carry out any of its agreements contained herein (other than its payment obligations contained in Section V hereof), the Company shall not be deemed in default during the continuance of such inability. The term "force majeure" as used herein shall mean, without limitation, the following: acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the Commonwealth of Kentucky or of any of their departments, agencies or officials, or of any civil or military authority; insurrections; riots; landslides; earthquakes; fires; storms; droughts; floods; explosions; breakage or accident to machinery, transmission pipes or canals; and any other cause or event not reasonably within the control of the Company. The Company agrees, however, if practicable, at reasonable cost (in the Company's judgment) and subject to the remaining terms hereof to remedy with all reasonable dispatch the cause or causes preventing the Company from carrying out its agreements, provided that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Company. B. Remedies on Default by the Company. Upon the occurrence of any event of default referred to above in Subsection A and at any time thereafter so long as the same shall be continuing the Board may, at its election, give the Company written notice of intention to terminate this agreement on a date specified in said notice, which date shall not be earlier than thirty (30) days after such notice is given, and if all events of default have not been cured on the date so specified and if curative action has not been commenced in accordance with clause (2) or (4) of Subsection A hereof, the Board may forthwith terminate this Ground Lease, but the Company shall be, and shall remain, liable for all sums then owing by the Company and for all Ground Lease rentals hereunder from such date of termination until the end of the then term of this Ground Lease, and the Board may then reenter and take possession of the Leased Premises as the Board's former estate, and the Company shall forthwith surrender possession of the Leased Premises. No waiver, expressed or implied, of default by the Board of any of the terms, covenants or conditions hereof to be performed, kept and observed by the Company shall be construed to be or act as a waiver of any subsequent default of any of the terms, covenants and conditions herein -29- contained to be performed, kept and observed by the Company. The acceptance of rental or the performance of all or any part of this agreement by the Board for or during any periods after default of any of the terms, covenants or conditions herein contained to be performed, kept and observed by the Company shall not be deemed a waiver of any right on the part of the Board to cancel this agreement for failure by the Company to so perform, keep or observe any of the terms, covenants or conditions hereof to be performed, kept and observed. C. Notice to Trustee; Right to Cure. Any notice permitted or required to be given under this Section XV by the Board to the Company likewise shall be given by the Board to the Trustee then serving under the Indenture. The Trustee may cure any default of the Company hereunder and a curing by the Trustee of an event of default by the Company shall be deemed a curing by the Company for purposes of this Ground Lease. SECTION XVI TERMINATION BY COMPANY The Company may terminate this Ground Lease in the event that the Board shall fail to observe or perform any of the Board's covenants, agreements or obligations hereunder and such failure shall continue unremedied for a period of sixty (60) days after the Company shall have given to the Board written notice specifying wherein the Board has failed to observe or perform any such covenant, agreement or obligation, plus such additional time as is reasonably required to correct any such failure if the Board has instituted corrective action within such sixty (60) day period and is diligently pursuing the same to completion. Notwithstanding the foregoing, in the event Bonds have been issued by the Board at the request of the Company for the financing of the Project Facilities, prior to termination of this Ground Lease and as a condition thereto, the Company, at its sole expense, must have made arrangements suitable to the Trustee for the redemption of all outstanding Bonds and payment of all costs in connection therewith. The provisions of this Section XVI are subject to the following limitations: if by reason of force majeure the Board is unable in whole or part to carry out any of its agreements contained herein, the Board shall not be deemed in default during the continuance of such inability. The term " force majeure" as used herein shall mean, without limitation, the following disturbances: acts of public enemies; orders or restraints of any kind of the government of the United States of America or of the Commonwealth of Kentucky or of any of their departments, agencies or officials (other than the Board) or of any civil or military authority; insurrections; riots; landslides; earthquakes; fires; storms; droughts; floods; explosions; breakage or accident to machinery, transmission pipes or canals; and any other cause or event not reasonably within the control of the Board. The Board agrees, however, if practicable, at reasonable cost (in the Board's judgment) and subject to the remaining terms hereof, to remedy with all reasonable dispatch the cause or causes preventing the Board from carrying out its agreements, provided that the settlement of -30- strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Board. No waiver, expressed or implied, of default by the Company of any of the terms, covenants or conditions hereof to be performed, kept and observed by the Board shall be construed to be or act as a waiver of any subsequent default of any of the terms, covenants and conditions herein contained to be performed, kept and observed by the Board. The payment of rentals, charges or fees or the performance of all or any part of this Ground Lease by the Company for or during any periods after default of any of the terms, covenants or conditions herein contained to be performed, kept, or observed by the Board shall not be deemed a waiver of any right on the part of the Company to cancel this Ground Lease as aforesaid for failure by the Board to so perform, keep or observe any of the terms, covenants or conditions hereof to be performed, kept and observed. SECTION XVII ASSIGNMENT AND SUBLETTING The Company shall not at any time assign this Ground Lease or any part thereof without the consent in writing of the Board, provided that the foregoing consent shall not be required as to the assignment of this Ground Lease or any rights hereunder to any corporation or entity with which the Company may merge or consolidate or which may succeed to the business or assets of the Company or a substantial part thereof, subject to compliance with Clauses (a) through (c) inclusive of Section XV, subsection A., paragraph 3 above. The Company shall not at any time sublet or underlet the Leased Premises or any part thereof without the written consent in writing of the Board, which consent shall not be unreasonably withheld. Any consent of the Board to an assignment of this Ground Lease or any rights hereunder or to any subletting or underletting of the Leased Premises shall further be given only subject to the following conditions: 1. The assignment or sublease shall not relieve the Company from liability of any of its obligations under this Ground Lease; 2. The Assignee or Sublessee, as applicable, shall assume in writing the obligations of the Company hereunder to the extent of the interest assigned or sublet; 3. The Company shall, at least thirty (30) days prior to any such assignment or sublease, provide the Board with written notice thereof and promptly, but in no event later than thirty (30) days after any such event, furnish or cause to be furnished to the Board a true and complete copy of the assignment or sublease; and 4. So long as any 1999 Series A bonds are outstanding, as such term is defined in the Indenture, the Board shall receive a Favorable Opinion of Bond Counsel (as said terms are defined in the Indenture) in respect to the proposed transaction. -31- SECTION XVIII HOLDING OVER In the event the Company shall hold over and remain in possession of the Leased Premises after expiration of this agreement without any renewal thereof, such holding over shall not be deemed to operate as a renewal or extension of this agreement but shall only create a tenancy from month to month which may be terminated at any time by the Board. SECTION XIX RULES AND REGULATIONS The Board shall have the right to and may adopt and enforce reasonable rules and regulations with respect to the use of the Airport and facilities thereon which the Company agrees to observe and obey. Specifically, the Board shall have the right to and may adopt and enforce reasonable rules and regulations with respect to the use of the Leased Premises and the exercise by the Company of its rights hereunder in respect to the handling and storing of hazardous articles and materials, as the Board may determine is necessary under the provisions of Federal Aviation Regulations, Part 139, or other regulations which from time to time may be enacted or become required by ruling or other enactment. SECTION XX NO PERSONAL LIABILITY A. No covenant, obligation or agreement of the Board shall be deemed to be a covenant, obligation or agreement of any present or future member, officer, agent or employee of the Board in other than his official capacity, and neither the members of the Board, any official nor any officer, agent or employee of the Board shall be subject to any personal liability or accountability by reason of the covenants, obligations or agreements of the Board contained in this Ground Lease. B. No covenant, obligation or agreement of the Company shall be deemed to be a covenant, obligation or agreement of any present or future director, officer, agent or employee of the Company in other than his official capacity, and neither the directors of the Company nor any officer, agent or employee of the Company shall be subject to any personal liability or accountability by reason of the covenants, obligations or agreements of the Company contained herein. SECTION XXI LEASEHOLD FINANCING AND RELATED PROVISIONS Leasehold Mortgage. The Company shall not mortgage or otherwise encumber this Ground Lease except pursuant to a Leasehold Mortgage as -32- defined in and meeting the terms and conditions set forth in this Section XXI. 1. Definitions. For purposes of this Ground Lease, the term ALeasehold Mortgage@ shall mean a first mortgage lien to an Eligible Mortgagee with a term not longer than the term of this Lease, on all of the Company's right, title and interest under this Ground Lease, which mortgage has been approved by the Board pursuant to this Section XXI, and which does not exceed the greater of (i) undepreciated amount of improvements encumbered by such mortgage at the time such mortgage is entered into, calculated on a straight line basis and assuming a useful life of 37.9 years or, if Bonds are issued to finance the Project Facilities, (ii) the final maturity date of principal of any Bonds issued, with the consent of the Board, to finance the Project Facilities. The term AEligible Mortgagee@ shall mean the holder of any such Leasehold Mortgage, provided that such holder is either (A) an independent third party, an institutional lender, another lender unrelated to the Company or any related person of the Company or is a lender having a relationship with the Company apart from the loan but only to the extent that the Company demonstrates by a writing contemporaneous with the loan that such lender advanced funds for the purpose of constructing leasehold improvements and then only to the extent of such improvements or (B) in the case of the issuance of Bonds, a duly authorized financial institution having trust powers which is acting in a fiduciary capacity as Trustee for the Board and owners of an issue of Bonds approved by the Board, the proceeds of which will finance the Project Facilities, and in either case (i) has been approved by the Board in the Board's reasonable discretion, and (ii) has provided to the Board a statement of its name and address. 2. Consent to Leasehold Mortgage. Any Leasehold Mortgage approved by the Board must be in favor of an Eligible Mortgagee, and shall be subject to the terms and conditions of this Ground Lease, including, but not limited to, the terms and conditions of this Section XXI. The Board shall not, by virtue of any consent to a Leasehold Mortgage or otherwise, be deemed bound by any provision of the Leasehold Mortgage, anything herein or in the Leasehold Mortgage to the contrary notwithstanding. In no event shall the Leasehold Mortgage be deemed to encumber the fee interest of the Board in the Leased Premises, but shall only involve the leasehold estate of the Company therein. The terms and conditions of this Ground Lease shall control and supersede any provision of the Leasehold Mortgage that is inconsistent herewith. 3. Foreclosure. Except as provided in clauses (3), (4) and (5) of this Section XXI, an Eligible Mortgagee shall have absolutely no right, whether pursuant to a foreclosure proceeding or otherwise, (i) to enforce by foreclosure or otherwise the Leasehold Mortgage, (ii) to convert or to require the Board to convert the Leased Premises or the Project Facilities to any use other than the qualified airport uses as expressly permitted by this Ground Lease, or (iii) to sell, assign or transfer or cause or permit to be sold, assigned and/or transferred at judicial foreclosure sale or otherwise, the right, title and/or interest of the Company in and under this Ground Lease to any person, firm or entity which has not been approved -33- in writing by the Board in advance of any such sale, assignment and/or transfer. Any such purported sale, assignment and/or transfer of this Ground Lease and/or the Company's right, title and/or interest herein and hereunder, whether pursuant to a judicial foreclosure proceeding or otherwise, in contravention of this Section XXI(3) shall be void and of no force and effect and shall give the Board the right to declare a default under this Ground Lease and to terminate this Ground Lease. It shall be the obligation of the Eligible Mortgagee in any such judicial foreclosure sale to be the successful bidder. Notwithstanding the foregoing, any Eligible Mortgagee acting as a Bond Trustee shall have the authority, obligation, duty and power to use its best efforts to relet and rerent the Project Facilities for the benefit of the owners of the Bonds and for the benefit of the Board, and to cure defaults, as may be provided in the applicable Leasehold Mortgage, which provisions shall and must include that any reletting be subject to (a) approval by the Board, which will not be unreasonably withheld, (b) receipt of an approving opinion of bond counsel as to no adverse effect on the tax exemption of the outstanding Bonds, and (c) qualification of any substitute and successor tenancy as an airport facility, under Section 142(A) of the Internal Revenue Code. 4. Leasehold Mortgage Default. The Eligible Mortgagee shall, contemporaneously with the delivery of same to the Company, deliver notice to the Board of any declaration of the Company's default under the terms and conditions of the Leasehold Mortgage, and thereafter (except in the case of a Bond Trustee which is an Eligible Mortgagee), in the event the Company's rights, titles and interests under this Ground Lease shall be transferred to the Eligible Mortgagee pursuant to the terms of the Leasehold Mortgage, the loan secured thereby, or otherwise, it is expressly agreed that the Eligible Mortgagee shall be deemed to have assumed, and shall be primarily obligated to the Board with respect to performance of, all obligations of the Company under this Ground Lease. 5. Right to Deal with Eligible Mortgagee. Except as provided in clauses (3), (4), and (5) of this Section XXI, following receipt by the Board of written notice from the Eligible Mortgagee that (i) the Company has defaulted under the terms and conditions of the Leasehold Mortgage, and (ii) that the Eligible Mortgagee has exercised one or more of its remedies and succeeded to the interest of the Company under this Ground Lease, the Board shall thereafter be authorized to deal directly with the Eligible Mortgagee with respect to all right, title and interest of the Company under this Ground Lease. The Company waives any and all rights it may have against the Board with respect to any and all dealings between the Board and Eligible Mortgagee relative to this Lease and pursuant to this clause 5. 6. Additional Provisions. Except as provided in clauses (3), (4), and (5) of this Section XXI, hereof, (i) The Eligible Mortgagee may not sell, negotiate, assign or transfer the obligations secured by the Leasehold Mortgage to any other person or entity without first releasing its interest in the Leasehold Mortgage. Any such actions shall be void and of no legal force and effect. -34- (ii) The Eligible Mortgagee shall not in any event seek or obtain the appointment of a receiver for the Company and/or the Leased Premises or the Project Facilities, notwithstanding that the right to appointment of a receiver may be authorized under the terms of the Leasehold Mortgage, by statute or common law. Any such actions shall be void and of no legal force and effect. (iii) The Company shall provide the Board with a copy of any and each document executed in connection with the obligations secured by the Leasehold Mortgage. (iv) The Board and the Company may, without the consent or further joinder of Eligible Mortgagee, enter into any amendment(s) to this Ground Lease which in the sole opinion of the Board are necessary for safe and/or efficient Airport operations. SECTION XXII CERTAIN COVENANTS WITH RESPECT TO BOND FINANCING The Company acknowledges that the Project Facilities may be financed by the Board at the request of the Company through the issuance of exempt facilities tax-exempt revenue bonds. In order to comply with the requirements of Section 142 and other applicable provisions of the Code with respect to such Bonds, and to enable the Board to properly comply with the Code, the Company acknowledges, agrees and covenants as follows: A. The Company cannot claim depreciation or an investment credit with respect to the Project Facilities and by the execution hereof makes an irrevocable election (binding on the Company and all successors in interest under this Agreement) not to claim depreciation or any investment credit with respect to the Project Facilities, which shall be binding on the Company and any assignee or sublessee of the Company. The Company shall reaffirm such waivers in the Bond documentation. B. The lease term (as defined in Section 168(i)(3) of the Code) of this Agreement is not more than 80 percent of the reasonably expected economic life of the Project Facilities (as defined under Section 147(b) of the Code. C. The Company will have no option to purchase the Project Facilities. D. In order to enable the Bonds to be issued, the Company, upon request by the Board, will provide to the Board, in such detail as is requested by or on behalf of the Board, information regarding the nature, identification, character, function and use of Project Facilities to be financed by the Bonds, the estimated or actual costs of the Project Facilities, the weighted average useful lives of the Project Facilities, and other related data, together with such certificates and legal opinions of the Company as may be so requested. -35- SECTION XXIII GENERAL PROVISIONS A. Rights Cumulative. Each right of the parties hereto is cumulative and in addition to each of the other legal rights that a party may have in the event of a default of the other. B. Captions. The captions in this Ground Lease are for convenience or reference only and shall in no way define, limit or describe any of the provisions of this Ground Lease. C. Nonwaiver of Rights. No waiver of breach by either party of any of the terms, covenants, and conditions hereof to be performed, kept, and observed by the other party shall be construed as, or shall operate as, a waiver of any subsequent breach of any of the terms, covenants, or conditions herein contained, to be performed, kept, and observed by the other party. No notice shall be required to restore time of the essence. D. Notices. Notices required herein may be given by registered or certified mail, return receipt requested, by depositing the same in the United States mail in the continental United States, postage prepaid. Either party shall have the right by giving written notice to the other, to change the address at which its notices are to be received. Notices to the Board shall be addressed as follows: Director of Aviation Cincinnati/Northern Kentucky International Airport P. O. Box 752000 Cincinnati, Ohio 45275-2000 Notices to Company shall be addressed as follows: Mesaba Aviation, Inc. 7501 26th Avenue South Minneapolis, Minnesota 55450 Attention: Vice President - Administration If notice is given in any other manner or at any other place, it will also be given at the place and in the manner specified above. E. Severability. In the event any covenant, condition or provision herein contained is held to be invalid by any court of competent jurisdiction, the invalidity of any such covenant, condition or provision herein contained will not affect the validity of any other covenant, condition or provision; provided that the validity of any such covenant, condition, or provision does not materially prejudice either the Board or Company in its respective rights and obligations contained in the valid covenants, conditions or provisions of this Ground Lease. -36- F. Agent for Service of Process. It is expressly understood and agreed that if Company is not a resident of the Commonwealth of Kentucky, or is an association or partnership without a member or partner resident of said Commonwealth, or is a foreign corporation, Company will appoint an agent for service of process in the Commonwealth of Kentucky. Due to any failure on the part of said agent, or the inability of said agent to perform, or the Company's failure to appoint an agent when required, Company does hereby designate the Secretary of State, Commonwealth of Kentucky, its agent for the purpose of service of process in any court action between it and the Board arising out of or based upon this Agreement, and the service shall be made as provided by the laws of the Commonwealth of Kentucky for service upon a non-resident. It is further expressly agreed, covenanted, and stipulated that, if for any reason, service of such process is not possible, and as an alternative method of service of process, Company may be personally served with such process out of this State by the registered mailing of such complaint and process to Company at the address set forth herein. Any such service out of this State shall constitute valid service upon Company as of the date of mailing. It is further expressly agreed that Company is amenable to and hereby agrees to the process so served, submits to the jurisdiction, and waives any and all objections and protests thereto, any laws to the contrary notwithstanding. G. Waiver of Claims. Company hereby waives any claim against the Board and its officers, agents, or employees caused by any suit or proceedings directly or indirectly attacking the validity of this Ground Lease or any part thereof, or by any judgment or award in any suit or proceeding declaring this Ground Lease null, void or voidable, or delaying the same or any part thereof from being carried out. H. Right to Develop Airport. It is further covenanted and agreed that the Board reserves the right to further develop or improve the Airport and all landing areas and taxiways as it may see fit, regardless of the desires or views of Company and without interference or hindrance of same. Nothing contained within this subparagraph H shall be construed, to limit and/or affect, Company's rights in and to the Leased Premises demised hereunder or elsewhere to Company by the Board except as limited by the terms of the lease applicable to said premises. I. Incorporation of Exhibits. All exhibits referred to in this Ground Lease are intended to be and hereby are specifically made a part of this Ground Lease. J. Incorporation of Required Provisions. The parties incorporate herein by this reference all provisions lawfully required to be contained herein by any governmental body or agency. K. Relationship of Parties. Nothing contained herein shall be deemed or construed by the parties hereto, or by any third party, as creating the relationship of principal and agent, partners, joint venturers, or any other similar such relationship. The parties shall understand and agree that neither the method of payment provided for hereunder, nor any other -37- provision contained herein, nor any acts of the parties hereto creates a relationship other than the relationship of Company as permittee of the Board. L. Liability of Agents or Employees. No officer, agent, or employee of the Board or Company shall be charged personally or held contractually liable by or to the other party under the provisions of this Ground Lease or because of any breach thereof or because of its or their execution or attempted execution. M. Successors and Assigns Bound. This Ground Lease shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto, where permitted by this Ground Lease. N. Right to Amend. In the event that the Federal Aviation Administration or its successors requires modifications or changes in this Ground Lease as a condition precedent to the granting of funds for the improvement of the Airport, or otherwise, Company agrees to consent to such amendments, modifications, revisions, supplements, or deletions of any of the terms, conditions, or requirements of this Ground Lease as may be reasonably required. O. Representative of the Board. The Director of Aviation shall be designated as the official representative of the Board in all matters pertaining to this Ground Lease and shall have the right and authority to act on behalf of the Board with respect to all action required of the Board in this Ground Lease. P. Governing Law. This Ground Lease is governed by the laws of the Commonwealth of Kentucky. Any disputes relating to this Ground Lease must be resolved in accordance with the laws of Kentucky. Q. Writing Required. Neither this Ground Lease nor any term or provision hereof may be changed, waived, discharged, or terminated orally but only by an instrument in writing signed by both parties. R. Federal Aviation Act. Nothing herein contained shall be deemed to grant the Company any exclusive right or privilege within the meaning of Section 308 of the Federal Aviation Act. S. Subordination. This Ground Lease is subject and subordinate to the provisions of any agreement heretofore or hereafter made between the Board and the United States Government relative to the financing, operation, or maintenance of the Airport, the execution of which has been required as a condition precedent to the transfer of rights, money or property to the Board for Airport purposes, or the acquisition or expenditure of funds for the improvement or development of the Airport, including the expenditure of federal funds for the development of the Airport. T. The Company represents that it has carefully reviewed the terms and conditions of this Ground Lease, is familiar with such terms and -38- conditions and agrees faithfully to comply with the same to the extent to which said terms and conditions apply to its activities as authorized and required by this Ground Lease. SECTION XXIV ENTIRE AGREEMENT The parties hereto understand and agree that this instrument contains the entire Ground Lease between the parties. The parties further understand and agree that neither party nor its agents have made representations or promises with respect to this Ground Lease except as expressly set forth herein and that no claim or liability shall arise for any representations or promises not expressly stated in this Ground Lease. Any other writing or parol agreement with the other party being expressly waived. SECTION XXV SUCCESSORS AND ASSIGNS BOUND BY COVENANTS All covenants, stipulations and agreements in this agreement shall extend to and bind the legal representatives, successors and assigns to the respective parties hereto. SECTION XXVI MEMORANDUM OF AGREEMENT The Company or the Board may have this agreement placed of record. In addition, the parties shall at any time hereafter at the request of the Company promptly execute duplicate originals of an instrument, in recordable form, which shall constitute a short form of this agreement, setting forth a description of the Leased Premises, the Term of this Ground Lease and any portion thereof that the Company may request. SECTION XXVII COUNTERPARTS This agreement may be executed in any number of counterparts each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. -39- IN WITNESS WHEREOF, the parties have caused this agreement to be executed by their duly authorized officers and their respective seals to be hereunto affixed the day and year first written above. KENTON COUNTY AIRPORT BOARD By:_____________________________ ATTEST: Gary R. Bockelman, Chairman _______________________ Sheila R. Hammons Secretary-Treasurer COMMONWEALTH OF KENTUCKY COUNTY OF BOONE On this 20 day of September, in the year 1999, before me, Wilbert L. Ziegler, a Notary Public in and for the County and State aforesaid, personally appeared Gary R. Bockelman known to me to be the Chairman of the Kenton County Airport Board, one of the corporations that executed the within instrument; and he acknowledged to me that such corporation executed the same. _____________________________ NOTARY PUBLIC My commission expires: 10/8/2002 My jurisdiction is: Kentucky -40- MESABA AVIATION, INC. By:________________________ Its: Chief Executive Officer ATTEST: _______________________ STATE OF Minnesota COUNTY OF Hennepen On this 15th day of September, in the year 1999, before me, a Notary Public of such State, duly commissioned and sworn, personally appeared John S. Fredericksen, known to me to be the Chief Executive Officer of MESABA AVIATION, INC. and he/she acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year in this Certificate first above written. ______________________________ NOTARY PUBLIC My commission expires:1-31-2000 My jurisdiction is: Minnesota -41- -----END PRIVACY-ENHANCED MESSAGE-----