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<SEC-DOCUMENT>/in/edgar/work/20000629/0000835768-00-000018/0000835768-00-000018.txt : 20000920
<SEC-HEADER>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
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-17895
FILM NUMBER: 664891
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 7501 26TH AVE S
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55450
BUSINESS PHONE: 6127265151
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 7501 26TH AVE SOUTH
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55450
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
======== ======== ======== ======== ========
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
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
---------- ------ --------- --------- --------- --------- --------------
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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
========== ====== ========= ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
======== ======== ========
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 100,172
<SECURITIES> 0
<RECEIVABLES> 20,090
<ALLOWANCES> 0
<INVENTORY> 6,103
<CURRENT-ASSETS> 139,952
<PP&E> 91,269
<DEPRECIATION> 37,160
<TOTAL-ASSETS> 207,724
<CURRENT-LIABILITIES> 54,109
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 203
<OTHER-SE> 144,515
<TOTAL-LIABILITY-AND-EQUITY> 207,724
<SALES> 406,199
<TOTAL-REVENUES> 406,199
<CGS> 359,364
<TOTAL-COSTS> 359,364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> 51,216
<INCOME-TAX> 20,155
<INCOME-CONTINUING> 31,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,061
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.48
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5
<SEQUENCE>4
<FILENAME>0004.txt
<TEXT>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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(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
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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
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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
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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.
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(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
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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
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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
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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
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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
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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.
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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
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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.
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(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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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(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
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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
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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
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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
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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.
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(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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
ATTEST:
By ___________________________
SHEILA R. HAMMONS
Secretary-Treasurer
59
<PAGE>
MESABA AVIATION, INC.
By
__________________________________
JOHN S. FREDERICKSEN
Chief Executive Officer
60
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5
<SEQUENCE>5
<FILENAME>0005.txt
<TEXT>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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@.
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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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,
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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
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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
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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.
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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
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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
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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.
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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
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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,
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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(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.
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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.
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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
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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
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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.
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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
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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
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