EXHIBIT 10.1
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE SYMBOL
"[****]" HAS BEEN INSERTED IN PLACE OF THE PORTIONS SO OMITTED.
DRAFT
AIRLINE SERVICES AGREEMENT
AMONG
PINNACLE AIRLINES CORP.,
PINNACLE AIRLINES, INC.
AND
NORTHWEST AIRLINES, INC.
DATED AS OF MARCH 1, 2002
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS...........................................................................................1
Section 1.01 Definitions.............................................................................1
ARTICLE II PROVISION OF REGIONAL AIRLINE SERVICES..............................................................10
Section 2.01 Operation of Scheduled Flights.........................................................10
Section 2.02 Use of Designator, NW Identification and Related Matters...............................10
Section 2.03 Use of Other Designators...............................................................10
Section 2.04 Personnel and Dispatch Control.........................................................11
Section 2.05 Inventory Management...................................................................11
Section 2.06 Passenger Fares........................................................................11
Section 2.07 DOT Certification......................................................................11
Section 2.08 Compliance With Governmental Regulations...............................................11
Section 2.09 Quality of Service.....................................................................11
Section 2.10 Service Standards......................................................................12
Section 2.11 Service Recovery.......................................................................12
Section 2.12 Annual Operating Plan..................................................................13
Section 2.13 Inflight Food, Beverages and Supplies..................................................13
Section 2.14 Exclusivity Arrangements...............................................................14
Section 2.15 Other Operations.......................................................................14
ARTICLE III EQUIPMENT..........................................................................................15
Section 3.01 Use of the Equipment...................................................................15
Section 3.02 Fleet Size and Related Matters.........................................................15
Section 3.03 Lease of the Equipment.................................................................17
Section 3.04 Terms of the Leases....................................................................17
Section 3.05 Manufacturer Benefits Agreement........................................................17
Section 3.06 Equipment Maintenance, Servicing and Cleaning..........................................17
Section 3.07 Third Party Guarantees and Warranties..................................................18
Section 3.08 Related Transfer Arrangements..........................................................18
Section 3.09 Equipment Financing Coordination.......................................................19
Section 3.10 Spare Parts Inventory; Application of Credits..........................................19
ARTICLE IV ANCILLARY ARRANGEMENTS..............................................................................19
Section 4.01 Coordination with Pinnacle.............................................................19
Section 4.02 Ground Handling........................................................................20
Section 4.03 Facilities.............................................................................21
Section 4.04 Data Communications....................................................................23
Section 4.05 Security...............................................................................23
Section 4.06 Reservation Services...................................................................23
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Section 4.07 Ticketing Services and Ticketing Procedures............................................23
Section 4.08 Baggage Handling Services..............................................................24
Section 4.09 Air Cargo Handling Services............................................................25
Section 4.10 Use of COMAT...........................................................................26
Section 4.11 Slots and Route Authorities............................................................26
Section 4.12 Emergency Response and Family Assistance...............................................26
ARTICLE V REVENUES, PAYMENTS AND SETOFF........................................................................26
Section 5.01 Revenues...............................................................................26
Section 5.02 Payments to Pinnacle...................................................................26
Section 5.03 Initial Block Hour and Cycle Rates; IOP Program Adjustment.............................28
Section 5.04 Ground Handling Rates..................................................................29
Section 5.05 Fixed Costs............................................................................30
Section 5.06 Fuel...................................................................................30
Section 5.07 Direct Expenses........................................................................32
Section 5.08 Billing................................................................................34
Section 5.09 Monthly Margin Calculation and Payment.................................................34
Section 5.10 Annual Margin Adjustment Payment.......................................................34
Section 5.11 Rate Adjustments.......................................................................36
Section 5.12 Revised Monthly Margin Calculation and Payment.........................................37
Section 5.13 Revised Annual Margin Adjustment Payment...............................................38
Section 5.14 Non-Scheduled Flight Refund............................................................40
Section 5.15 Incentives and Penalties...............................................................40
Section 5.16 Pinnacle Change of Control.............................................................42
Section 5.17 Credit Card Chargebacks................................................................42
Section 5.18 Returned Checks........................................................................43
Section 5.19 Most Favored Nations...................................................................43
ARTICLE VI REPORTING OBLIGATIONS, AUDITING, INSPECTIONS AND CONFIDENTIALITY/PUBLICITY..........................44
Section 6.01 Reporting Obligations..................................................................44
Section 6.02 Audits.................................................................................44
Section 6.03 Inspections............................................................................45
Section 6.04 Confidentiality/Publicity..............................................................45
ARTICLE VII NORTHWEST IDENTIFICATION...........................................................................45
Section 7.01 Identification License.................................................................45
Section 7.02 Designator License.....................................................................45
Section 7.03 New Identifications....................................................................46
Section 7.04 Use of Identification..................................................................46
Section 7.05 Quality Control........................................................................46
Section 7.06 Reservation of Rights..................................................................46
Section 7.07 Ownership..............................................................................46
Section 7.08 Termination............................................................................46
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Section 7.09 Bankruptcy.............................................................................47
ARTICLE VIII TAXES AND FEES....................................................................................47
Section 8.01 Taxes and Fees.........................................................................47
Section 8.02 Ticket Taxes and Fees..................................................................47
Section 8.03 Refunds of Tax.........................................................................48
ARTICLE IX LIABILITY, INDEMNIFICATION AND INSURANCE............................................................48
Section 9.01 Independent Contractor.................................................................48
Section 9.02 Indemnification........................................................................49
Section 9.03 Insurance..............................................................................49
ARTICLE X TERM AND TERMINATION.................................................................................51
Section 10.01 Term..................................................................................51
Section 10.02 Termination by Either Party...........................................................51
Section 10.03 Termination by Northwest..............................................................52
ARTICLE XI MISCELLANEOUS.......................................................................................53
Section 11.01 Limitation on Performance.............................................................53
Section 11.02 Mutual Cooperation....................................................................53
Section 11.03 Representations and Warranties........................................................53
Section 11.04 Assignment............................................................................53
Section 11.05 Governing Law.........................................................................53
Section 11.06 Interline and Other Agreements........................................................53
Section 11.07 Notices...............................................................................54
Section 11.08 Parties...............................................................................54
Section 11.09 Counterparts..........................................................................54
Section 11.10 Severability..........................................................................54
Section 11.11 Captions, Section Headings and Table of Contents......................................55
Section 11.12 Availability of Equitable Remedies; Procedures........................................55
Section 11.13 Exhibits..............................................................................55
Section 11.14 Integration and Entire Agreement......................................................56
Section 11.15 Relationship of Parties...............................................................56
iii
EXHIBITS
Exhibit A-1 Aircraft Lease Form
Exhibit A-2 Engine Lease Form
Exhibit B Hub City Facility Charges
Exhibit C Parity Pay Agreement
i
AIRLINE SERVICES AGREEMENT
THIS
AIRLINE SERVICES AGREEMENT (the "Agreement") is made as of the 1st
day of March, 2002 by and among
PINNACLE AIRLINES CORP., a Delaware corporation
("Pinnacle Corp."), PINNACLE AIRLINES, INC., a Georgia corporation and wholly
owned subsidiary of Pinnacle Corp. ("Pinnacle"), and NORTHWEST AIRLINES, INC., a
Minnesota corporation ("Northwest").
WITNESSETH:
WHEREAS, Pinnacle Corp., Pinnacle and Northwest desire to make certain
arrangements between them which will enable Pinnacle to provide Northwest with
commercial regional jet and turboprop air transportation services;
WHEREAS, Pinnacle Corp., Pinnacle and Northwest are each willing to
perform in the manner and upon the conditions and terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Northwest, Pinnacle Corp. and Pinnacle do hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms as defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(3) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, or other subdivision.
"ACARS" means the Aircraft Communications Addressing and Reporting System
which provides communications between the Aircraft and Pinnacle with respect to
operational matters.
"AFFILIATE" means, as applied to a Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition "control" (including, with correlative
meanings, the terms "controlling", "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract or otherwise. After an initial
public offering of Pinnacle Corp.'s stock, Pinnacle Corp. and Pinnacle will not
be Affiliates of Northwest.
"AIR CARGO" means air freight, United States mail and small package
services appropriate for the Aircraft.
"AIR CARGO HANDLING SERVICES" means the Air Cargo handling services to be
performed pursuant to SECTION 4.09.
"AIRCRAFT" means (i) the twenty (20) Saab 340 turboprop aircraft in
Pinnacle's fleet as of the Effective Date, (ii) the thirty-four (34) CRJ-200/440
Canadair Regional Jet aircraft in Pinnacle's fleet as of the Effective Date,
(iii) the forty-nine (49) additional CRJ-200 or CRJ-440 Canadair Regional Jet
aircraft when and as such aircraft are added to Pinnacle's fleet pursuant to
SECTION 3.02; and (iv) up to two hundred twenty-one (221) additional CRJ-200/440
Canadair Regional Jet aircraft when, as and if such aircraft are added to
Pinnacle's fleet pursuant to SECTION 3.02. Any Aircraft removed from Pinnacle's
fleet cease to be "Aircraft" hereunder upon the date of such removal.
"AIRCRAFT RENTAL EXPENSE" means the Basic Rent charged in the Leases
between Northwest and Pinnacle which shall be [****] per Aircraft per month for
the CRJ-200/440 Canadair Regional Jet Aircraft and the Basic Rent paid by
Pinnacle pursuant to the Leases between Pinnacle and third parties with respect
to the Saab 340 turboprop aircraft operated by Pinnacle.
"AIRLINK CARRIER" means an airline operating regional jet and/or
turboprop air transportation services as a Northwest Airlink carrier pursuant to
an
airline services agreement between such airline and Northwest.
"AIRLINE ASSETS" means those assets used, as of the date of
determination, in the relevant Person's operation as an air carrier.
"ANNUAL OPERATING PLAN" shall have the meaning ascribed to such term in
SECTION 2.12.
"AVAILABLE SEAT DAY" OR "ASD" means a seat on an Aircraft each day after
such Aircraft has been placed in service by Pinnacle and remains in service for
Northwest (including non-scheduled Aircraft). For purposes of this definition
only, each Canadair Regional Jet Aircraft in Pinnacle's fleet shall be deemed to
be a 50-seat Aircraft. A 50-seat Aircraft placed in service by Pinnacle on
January 1st would have 1,550 available seat days in January (50 seats times 31
days).
"BAGGAGE HANDLING SERVICES" means the baggage handling services to be
performed pursuant to SECTION 4.08.
"BASIC RENT" shall have the meaning ascribed to such term in the Leases.
2
"BENEFICIAL OWNERSHIP" has the meaning given such term as defined as of
the date hereof in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, as amended.
"BLOCK HOUR" means the period of time (in minutes) beginning when an
Aircraft first moves from the ramp blocks in connection with a Scheduled Flight,
a Non-Scheduled Flight or a Charter Flight and ending when the Aircraft next
comes to a stop at the ramp at any station or other point of termination as
recorded by ACARS or another mutually agreed system, divided by sixty (60).
"BLOCK HOUR PAYMENT" means the payment for Block Hours to be made
pursuant to SECTION 5.02(B).
"BLOCK HOUR RATE" shall have the meaning ascribed to such term in SECTION
5.03.
"BLOCK HOUR REPORT" means the report to be prepared by Pinnacle pursuant
to SECTION 5.02(A).
"BOMBARDIER AGREEMENT" means the Aircraft Heavy Maintenance Service
Agreement between Bombardier Services Corporation and Northwest Airlines, Inc.,
dated February 1, 2002, as amended or extended by Northwest; provided, however,
any material expansion of the scope of services to be performed under the
Bombardier Agreement shall be subject to the reasonable approval of Pinnacle.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights
to purchase, options, warrants, participation or other equivalents of or
interests in (however designated) the equity of such Person, including any
preferred stock.
"CHARTER FLIGHTS" means charter flights using the Aircraft, which charter
flights, operational arrangements and the compensation to be received by
Pinnacle in respect thereof are mutually agreed to by Pinnacle and Northwest
from time to time.
"COMAT" means company material, including but not limited to priority
aircraft maintenance parts.
"COMPLEMENTARY SERVICE CITIES" means those Service Cities which both
Northwest and Pinnacle serve or may subsequently serve and which are not Hub
Cities.
"CPPI" means the percent increase, if any, in the PPI for finished goods
published by the United States Department of Labor, Bureau of Labor Statistics,
which increase occurred during the immediately preceding calendar year, defined
as (PPI at end of prior calendar year/PPI at end of two years prior)-1, but in
no event in excess of five percent (5%) and in no event less than zero.
"CYCLE" means an actual takeoff at an origin city and landing at a
destination city of an Aircraft in connection with a Scheduled Flight, a
Non-Scheduled Flight or a Charter Flight.
"CYCLE PAYMENT" means the payment for Cycles to be made pursuant to
SECTION 5.02(B).
3
"CYCLE RATE" shall have the meaning ascribed to such term in SECTION
5.03.
"CYCLE REPORT" means the report to be prepared by Pinnacle pursuant to
SECTION 5.02(A).
"DEFAULT" means the occurrence of an event set forth in SECTION 10.02 or
SECTION 10.03, and the expiration of any cure period provided therein without
cure or other remedial action having occurred, permitting termination of this
Agreement.
"DESIGNATOR" means "NW" or such other designator code selected by
Northwest from time to time in its sole discretion to identify Northwest's own
flights.
"DIRECT COSTS" means Northwest's or Pinnacle's, as applicable, actual
cost for goods and services without any surcharge for administrative or general
overhead expenses.
"DOT" means the United States Department of Transportation or any
successor to its functions with respect to the regulation of air transportation.
"DOT CERTIFICATION" means any and all certifications and approvals by the
DOT, the FAA and other regulatory agencies required for Pinnacle to operate the
Aircraft and to perform pursuant to the terms of this Agreement and all
Governmental Regulations.
"EFFECTIVE DATE" means the date specified in SECTION 10.01 of this
Agreement.
"EQUIPMENT" means the Aircraft and Spare Engines.
"EQUIPMENT RENTAL EXPENSE" means the Aircraft Rental Expense and the
Spare Engine Rental Expense.
"FAA" means the Federal Aviation Administration or any successor
organization.
"FACILITY LEASES" shall have the meaning ascribed to such term in SECTION
4.03(G).
"FIXED COST PAYMENT" means the payment for fixed costs to be made
pursuant to SECTION 5.02(B).
"FLEET VALUE" means the total value of the Aircraft in Pinnacle's fleet
used in calculating the premium for Pinnacle's hull insurance (including war
risk).
"FUEL BURN PENALTY PAYMENT" shall have the meaning ascribed to such term
in SECTION 5.06(D).
"FUEL PRICE" shall have the meaning ascribed to such term in SECTION
5.06(B).
"GAAP" means generally accepted accounting practice and principles at the
time prevailing in the United States for companies engaged in businesses similar
to that of Pinnacle, consistently applied.
4
"GE AGREEMENTS" means the Engine Service Agreement between Northwest
Airlines, Inc. and GE Engine Services, Inc., dated July 17, 2001, as amended or
extended by Northwest, and the General Terms Agreement between General Electric
Company and Northwest Airlines, Inc. for CF34-3B1 Turbofan Engines and Support,
dated July 11, 2001, as amended or extended by Northwest; provided, however, any
material expansion of the scope of services to be performed under the GE
Agreements shall be subject to the reasonable approval of Pinnacle.
"GOVERNMENTAL REGULATIONS" means the rules and regulations prescribed by
an airport authority at a Service City or by any local, state or federal unit of
government having authority and jurisdiction to regulate the business and
affairs of an air carrier having DOT Certification, including without
limitation, the DOT and the FAA.
"GROUND HANDLING FUNCTIONS" shall have the meaning ascribed to such term
in SECTION 4.02.
"GROUND HANDLING PAYMENT" means the payment for ground handling to be
made pursuant to SECTION 5.02(B).
"GROUND HANDLING RATE" shall have the meaning ascribed to such term in
SECTION 5.04.
"HOLDING COMPANY" means, as applied to a Person, any other Person of whom
such person is, directly or indirectly, a Subsidiary.
"HUB CITIES" means Memphis, Tennessee ("MEM"), Minneapolis/St. ▇▇▇▇,
Minnesota ("MSP"), Detroit, Michigan ("DTW") and any other city in the United
States where Northwest, together with its subsidiaries and Airlink Carriers
operating under Northwest's Designator, operate an average of more than fifty
(50) departures per day during any Northwest Schedule Period.
"IDENTIFICATION" means a trade name, trademark, service ▇▇▇▇, graphic,
logo, distinctive color scheme or other trade dress, domain name and/or other
identification or indication of source or origin.
"IOP PAYMENT" means the payment for IOP Program Incidents to be made
pursuant to Section 5.02(b).
"IOP PROGRAM INCIDENT" shall mean Northwest's request that Pinnacle
cancel one or more Scheduled Flights as a result of Northwest's initiation of
its Irregular Operating Procedures Program.
"LEASE" means (i) the leases, subleases and/or sub-subleases entered into
or to be entered into pursuant to SECTION 3.03 in respect of the CRJ-200/440
Aircraft substantially in the form of Exhibit A-1, (ii) the leases, subleases
and/or sub-subleases entered into or to be entered into pursuant to SECTION 3.03
in respect of Spare Engines substantially in the form of Exhibit A-2, and (iii)
the leases between Pinnacle and third parties with respect to the Saab 340
turboprop aircraft operated by Pinnacle.
5
"MAINTENANCE FACILITIES" shall have the meaning ascribed to such term in
SECTION 4.03(C).
"MAINTENANCE PROGRAM" shall have the meaning ascribed to such term in the
Leases.
"MAJOR CARRIER" means an air carrier (other than Pinnacle and its
successors and any Subsidiary thereof or Northwest Airlines, Inc. and its
successors and any Subsidiary thereof), the annual passenger revenues of which
(including its Subsidiaries' predecessor entities) for the most recently
completed fiscal year for which audited financial statements are available are
in excess of the Revenue Threshold as of the date of determination (or the U.S.
dollar equivalent thereof).
"MARGIN" means the operating margin determined in accordance with
SECTIONS 5.10 and 5.13.
"MARGIN ADJUSTMENT PAYMENT" means the payment to be made pursuant to
Sections 5.10 and 5.13.
"MARGIN PAYMENT" means the payment to be made pursuant to SECTIONS 5.09
and 5.12.
"MARKET MARGIN RATE" OR "MMR" means the weighted (by revenue) average
full year operating margin of the five largest (by revenue) publicly traded U.S.
domestic regional airlines operating primarily regional jet aircraft; provided,
however, that if the result of this calculation is greater than 14 percent, the
MMR shall be 14 percent, and if the result is less than 10 percent, the MMR
shall be 10 percent. The MMR shall be initially calculated with respect to
calendar year 2006 and it shall be re-calculated with respect to each fifth year
thereafter so long as this Agreement remains in effect.
"MESABA" means Mesaba Aviation, Inc., a
Minnesota corporation, and/or
Mesaba Holdings, Inc., a
Minnesota corporation, and their respective successors
and/or assigns.
"MONTHLY SEAT DAYS" shall have the meaning ascribed to such term in
SECTION 5.05.
"MONTHLY SEAT DAYS REPORT" means the report to be prepared by Pinnacle
pursuant to SECTION 5.02(A).
"NON-SCHEDULED FLIGHTS" means all flights using the Aircraft which are
not Scheduled Flights or Charter Flights.
"NORTHWEST SCHEDULE PERIOD" means the planned duration of various time
periods for which Northwest's flight schedule is for sale in computer
reservation systems.
"NORTHWEST TICKETS" shall have the meaning ascribed to such term in
SECTION 4.07(A).
6
"NOTE" means the promissory note of Pinnacle Corp. to be issued to NWA
Inc. in partial consideration of the transfer by NWA Inc. of all of the
outstanding common stock of Pinnacle to Pinnacle Corp., in the principal amount
of $150,000,000.00.
"NW IDENTIFICATION" means any Identification specifically selected by
Northwest from time to time in its sole discretion for use by Pinnacle in
connection with the Regional Airline Services (including without limitation
"Northwest Airlink" or any similar name).
"OPTION TERM" means (i) a period of six (6) months following the date of
termination if this Agreement is terminated by Northwest pursuant to SECTION
10.02 or SECTION 10.03; or (ii) a period of thirty (30) days following the date
of termination if this Agreement is terminated by Northwest pursuant to SECTION
10.01.
"PERFORMANCE CRITERIA" shall have the meaning ascribed to such term in
SECTION 5.14(A).
"PERFORMANCE PERIOD" means each six (6) month period ending on a June 30
or December 31 occurring during the term of this Agreement.
"PERSON" means an individual, partnership, corporation, business trust,
joint stock company, limited liability company, unincorporated association,
joint venture or other entity of whatever nature.
"PINNACLE AFFECTED COMPANY" means (a) Pinnacle and its successor, (b) any
Holding Company of Pinnacle, or (c) any Subsidiary of Pinnacle or its successor
or of any Holding Company of Pinnacle, that in each such case owns, directly or
indirectly, all or substantially all of the Airline Assets of Pinnacle or its
successor, such Holding Companies of Pinnacle and such Subsidiaries, taken as a
whole.
"PINNACLE CHANGE OF CONTROL" means:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended) of Beneficial Ownership of 20% or more of the Capital
Stock or Voting Power of a Pinnacle Affected Company; provided, however,
that a Pinnacle Change of Control will not be deemed to have occurred if
the holder of Pinnacle Corp.'s Series A Preferred Stock has taken any
action pursuant to Pinnacle Corp's certificate of incorporation to permit
an acquisition contemplated by this clause (i) or
(ii) the direct or indirect acquisition by a Major Carrier, any of
its Affiliates or any combination thereof of Beneficial Ownership of 10%
or more of the Capital Stock or Voting Power of a Pinnacle Affected
Company.
7
"PINNACLE IDENTIFICATION" means any Identification selected by Pinnacle
from time to time for use in connection with the business of Pinnacle and/or
Pinnacle Corp.
"PPI" means Producer Price Index for finished goods published by the
United States Department of Labor, Bureau of Labor Statistics, and, if no longer
published, any comparable successor index selected by Northwest.
"PRIMARY SERVICE CITIES" means those Service Cities to which Pinnacle
provides service, but which are not served by Northwest.
"QECS" mean quick engine change kits.
"REGIONAL AIRLINE SERVICES" means the provisioning by Pinnacle to
Northwest of Scheduled Flights and Charter Flights using the Aircraft in
accordance with this Agreement.
"RENEWAL TERM" shall have the meaning ascribed to such term in SECTION
10.01.
"REVENUE PASSENGER MILE" OR "RPM" means the number of miles a revenue
passenger is flown on a Scheduled flight or a Charter Flight.
"REVENUE THRESHOLD" means five hundred million dollars ($500,000,000), as
such amount may be increased based on the amount by which, for any date of
determination, the most recently published Consumer Price Index for all-urban
consumers published by the Department of Labor (the "CPI") has increased to such
date above the CPI for calendar year 2001. For purposes hereof, the CPI for
calendar year 2001 is the monthly average of the CPI for the 12 months ending on
December 31, 2001.
"SAAB LEASE" means the leases and/or subleases entered into in respect of
the twenty-four (24) Saab 340 turboprop aircraft in Pinnacle's fleet as of the
Effective Date.
"SCHEDULED FLIGHTS" means revenue passenger flights (other than Charter
Flights) using the Aircraft which, regardless of frequency, are held out to the
public and published in the customary and applicable schedule distribution
systems, such as the Official Airline Guide, or published by Northwest in its
own system timetables. In addition, Scheduled Flights shall include all
regularly scheduled flights which are not revenue passenger flights as
determined by Northwest in its sole discretion.
"SERVICE CITIES" means those cities identified from time to time by
Northwest to which Pinnacle shall provide Regional Airline Services.
"SPARE ENGINE RENTAL EXPENSE" means the Basic Rent charged in the Leases
between Northwest and Pinnacle for the Spare Engines.
"SPARE ENGINES" means (i) the three (3) General Electric CF34-3B1 spare
engines (including QECs where applicable in accordance with the respective Spare
Engine Lease) in Pinnacle's fleet as of the Effective Date, (ii) the three (3)
additional CF34-3B1 spare engines (including QECs where applicable in accordance
with the respective Spare Engine Lease) when and as such spare engines are added
to Pinnacle's fleet pursuant to SECTION 3.02;
8
and (iii) additional CF34-3B1 spare engines (including QECs where applicable in
accordance with the respective Spare Engine Lease) when, as and if such spare
engines are added to Pinnacle's fleet pursuant to SECTION 3.02. Any Spare Engine
removed from Pinnacle's fleet ceases to be a "Spare Engine" hereunder upon the
date of such removal.
"SUBSIDIARY" of any Person means any corporation, association,
partnership, joint venture, limited liability company or other business entity
of which more than 40% of the total Voting Power thereof or the Capital Stock
thereof is at the time Beneficially Owned or controlled, directly or indirectly
by (1) such Person, (2) such Person and one or more Subsidiaries of such Person,
or (3) one or more Subsidiaries of such Person.
"SUPPORT AGREEMENTS" shall have the meaning ascribed to such term in
SECTION 3.08.
"TERMINATION DATE" means the date on which this Agreement terminates
pursuant to Article X.
"TICKET TAXES AND FEES" means any taxes pursuant to Sections 4261 or 4271
of the U.S. Internal Revenue Code of 1986, as amended or succeeded, on any
amounts paid by customers for transportation of persons or packages by air, and
any passenger facility charges, U.S. security fees or other security charges,
stamp taxes, excise taxes, value-added taxes (in the nature of a sales or use
tax), gross receipts taxes (in the nature of a sales or use tax), U.S. APHIS
user fees, U.S. Customs user fees, U.S. Immigration user fees, and any other
taxes and/or user fees imposed by any domestic or foreign governmental entity or
taxing authority on a per-passenger basis on any amounts paid by customers for
transportation of persons or packages by air.
"TICKETING SERVICES" means the ticketing services to be performed
pursuant to SECTION 4.07.
"TOTAL OPERATING COST" means all expenses directly associated with the
provision of Regional Airline Services under this Agreement, including but not
limited to those generally recognized as overhead, determined in accordance with
GAAP. For the avoidance of doubt, Total Operating Cost does not include net
interest expense, principal and interest payments under the Note and those items
that are classified as extraordinary on the audited financial statements.
"TOTAL OPERATING INCOME" means Total Operating Revenue minus Total
Operating Cost.
"TOTAL OPERATING REVENUE" means the amounts Pinnacle receives from
Northwest pursuant to SECTION 5.02 or SECTION 5.15 (including penalties
accounted for as a reduction to revenue) of this Agreement, plus any revenues
Pinnacle receives as a result of performing ground handling services for Mesaba
or other airlines (as and if approved by Northwest), plus any payments Pinnacle
receives from a governmental entity intended to reimburse Pinnacle for lost
revenue, an inability to cover incurred operating expenses, or as a
reimbursement or offset to incurred expenses.
9
"TRAFFIC REFERRAL" shall have the meaning ascribed to such term in
SECTION 4.07(E).
"TRAFFIC MANIFEST" shall have the meaning ascribed to such term in
Section 4.09(A).
"VOTING POWER" means, as of the date of determination, the voting power
in the general election of directors, managers or trustees, as applicable.
ARTICLE II
PROVISION OF REGIONAL AIRLINE SERVICES
SECTION 2.01 OPERATION OF SCHEDULED FLIGHTS. Subject to the terms and
conditions of this Agreement, Pinnacle shall use the Aircraft to operate
Scheduled Flights and Charter Flights as shall be designated by Northwest from
time to time in Northwest's sole discretion. All schedules and aircraft routing
for such Scheduled Flights and all utilization of the Aircraft shall be
determined by Northwest from time to time, in its sole discretion, subject to
the reasonable operating constraints of Pinnacle taking into consideration
reasonable maintenance, crew training and Aircraft rotation requirements.
Scheduled block times and minimum turn times shall be mutually agreed to by
Pinnacle and Northwest and set in conformity with standard industry practices
and Aircraft type.
SECTION 2.02 USE OF DESIGNATOR, NW IDENTIFICATION AND RELATED MATTERS.
Subject to the applicable provisions of Article VII below, Pinnacle shall
operate the Scheduled Flights provided under this Agreement using the
Designator. The Scheduled Flights shall be identified by Pinnacle solely with
flight numbers assigned by Northwest. Subject to the applicable provisions of
Article VII below, Pinnacle shall use only the NW Identification for the
Aircraft (except as otherwise required by Governmental Regulations), and for all
facilities (including maintenance facilities), signage, equipment, uniforms and
advertising, promotional and business materials in any form or media that are
used in connection with the Regional Airline Services; provided, however, all
Pinnacle uniforms (including the use of the NW Identification thereon) shall be
determined by Northwest, provided that such uniforms shall at all times be
consistent with Northwest's existing uniform standards. Pinnacle shall not use
the Pinnacle Identification for the Aircraft (except as required by Governmental
Regulation), facilities (including maintenance facilities), signage, equipment,
uniforms or advertising, promotional or business materials in any form or media
that are used in connection with the Regional Airline Services; provided,
however, nothing in the foregoing prohibition shall preclude Pinnacle from using
the Pinnacle Identification for general corporate purposes, investor relations,
on crew wings and employee service pins, and for other purposes that do not
involve interaction with customers or passengers.
SECTION 2.03 USE OF OTHER DESIGNATORS. Pinnacle shall not use on the
Aircraft the airline designator, Identification, or any other identifying
feature of a foreign or United States airline other than Northwest, without the
express prior written consent of Northwest, or unless Northwest directs Pinnacle
to use such other designator, Identification, or identifying feature.
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SECTION 2.04 PERSONNEL AND DISPATCH CONTROL. Pinnacle shall be
responsible for providing all crews (flight and cabin) to operate the Scheduled
Flights and any Charter Flights and for all aspects (personnel and other) of
dispatch control, including but not limited to load control.
SECTION 2.05 INVENTORY MANAGEMENT. Northwest shall have complete control
over all inventory management functions for all Scheduled Flights operated
pursuant to this Agreement, including, without limitation, overbooking levels,
discount seat levels, and allocation of seats among the various fare buckets. In
performing Pinnacle's inventory management, Northwest shall conform in all
material respects to its own procedures and standards, taking into account the
type of Aircraft operated by Pinnacle.
SECTION 2.06 PASSENGER FARES. Northwest shall be the sole authority for
filing tariffs for Scheduled Flights operated pursuant to this Agreement, and
Northwest shall establish all passenger fares for Scheduled Flights operated
pursuant to this Agreement. All charges for filing of fares or tariffs for
Scheduled Flights operated pursuant to this Agreement shall be paid by
Northwest.
SECTION 2.07 DOT CERTIFICATION. Pinnacle has and shall maintain DOT
Certification and all other permits, licenses, certificates and insurance
required by governmental authorities and Article IX hereof to enable Pinnacle to
perform the services required by this Agreement.
SECTION 2.08 COMPLIANCE WITH GOVERNMENTAL REGULATIONS. All flight
operations, dispatch operations and flights and all other operations undertaken
by Pinnacle pursuant to this Agreement shall be conducted and operated by
Pinnacle in strict compliance with all Governmental Regulations, including,
without limitation, those relating to airport security, the use and
transportation of hazardous materials, flight crew and mechanic qualifications
and licensing requirements, crew training and hours. All Equipment shall be
operated and maintained by Pinnacle in strict compliance with all Governmental
Regulations, Pinnacle's own operations manuals and maintenance manuals and
procedures, and all applicable equipment manufacturer's instructions. At all
times, Pinnacle shall operate with the highest standards of care.
SECTION 2.09 QUALITY OF SERVICE. Northwest policies, procedures,
performance standards and means of measurement thereof concerning the provision
of air passenger and air cargo services shall be applicable to all services
provided by Pinnacle under this Agreement. Pinnacle shall achieve at least the
same quality of airline service provided by Northwest, subject to limitations
imposed by the type of Aircraft used by Pinnacle, its route network, the
availability of equipment and facilities at the Service Cities and the
performance by Northwest of its obligations under this Agreement. Pinnacle shall
maintain adequate staffing levels to ensure at least the same level of customer
service and operational efficiency that Northwest achieves; Pinnacle shall
cooperate with Northwest in any way necessary or desirable to provide such
comparable level of customer service in connection with the operation of
Regional Airline Services; and Pinnacle shall maintain new hire and recurrent
training programs for all job descriptions which are reasonably acceptable to
Northwest.
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SECTION 2.10 SERVICE STANDARDS. Without limiting SECTION 2.09, Pinnacle
shall achieve the following specific performance standards.
(a) MINIMUM COMPLETION FACTOR. Pinnacle shall achieve not less than
a [****] completion factor for all Scheduled Flights which are scheduled to be
operated by Pinnacle during each Performance Period. Scheduled Flights which are
cancelled at Northwest's request will not be included in calculating Pinnacle's
completion factor, and station overflys due to no passenger load will not be
considered a cancellation.
(b) MINIMUM ON-TIME RELIABILITY. Pinnacle shall achieve a [****]
on-time arrival within zero minutes' factor and a [****] on-time departure
within zero minutes' factor for all Scheduled Flights which are scheduled to be
operated by Pinnacle during each Performance Period. Scheduled Flights which are
delayed at Northwest's request will not be included in calculating Pinnacle's
on-time arrival and on-time departure factors.
(c) MISHANDLED LUGGAGE FACTOR. The number of incidents of mishandled
luggage by Pinnacle shall not exceed [****] enplaned revenue passengers during
any Performance Period. The number of incidences of mishandled luggage shall be
determined by Northwest by dividing (i) the total number of Pinnacle caused
claims at Primary Service Cities, Complementary Service Cities and the Hub
Cities during the applicable Performance Period, by (ii) the total number of
enplaned revenue passengers during such Performance Period as reported by
Northwest. Notwithstanding the foregoing, the parties agree that incidents of
mishandled luggage where DTW is the responsible station and such incidents are
not due to Pinnacle's actions, those incidents will not be included in the
mishandled luggage factor unless and until Pinnacle performs luggage handling
for its Scheduled Flights at DTW. In the event incidents of mishandled luggage
at DTW are excluded from the mishandled luggage factor pursuant to the preceding
sentence, the number of enplaned revenue passengers at DTW during the
corresponding time period will also be excluded from the mishandled luggage
factor, and no penalties or incentives will be applicable as to such passengers.
The parties further agree that mishandled luggage at MSP will not be included in
the mishandled luggage factor in the event Mesaba fails to perform luggage
handling in accordance with Pinnacle's requirements and Northwest is unable to
make sufficient space available at MSP to allow Pinnacle to perform luggage
handling for its Scheduled Flights or make other mutually satisfactory luggage
handling arrangements.
(d) CUSTOMER COMPLAINTS FACTOR. The number of customer complaints
received by Northwest in respect of Regional Airline Services shall not exceed
[****] enplaned revenue passengers during any Performance Period. The number of
customer complaints shall be determined by Northwest by dividing (i) the total
number of Pinnacle -caused complaints during the applicable Performance Period,
by (ii) the total number of enplaned revenue passengers during such Performance
Period as reported by Northwest.
SECTION 2.11 SERVICE RECOVERY
(a) PASSENGER AMENITIES. Pinnacle agrees to provide passenger
amenities, including, without limitation, denied boarding compensation, which
Northwest provides under Rule 245 of the Domestic General Rules No. 1 issued by
Airline Tariff Publishing Co. and ATA
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Resolution No. 120.20 or pursuant to any similar contractual arrangement now
existing or hereafter in effect or applicable to Northwest. In any Primary
Service City or Hub City, Pinnacle agrees to pay the full cost of providing such
passenger amenities with the exception of denied boarding compensation resulting
from inventory oversales or other actions of Northwest. In any Primary Service
City or Hub City, for denied boarding compensation resulting from inventory
oversales or the actions of Northwest, Pinnacle will pay the appropriate amount
of denied boarding compensation to the affected passengers and will invoice
Northwest for such amount pursuant to SECTION 5.08 below. Any such invoice will
include sufficient detail and supporting documentation to allow Northwest to
verify the invoiced amount. In Complementary Service Cities, Northwest will
provide all passenger amenities, including but not limited to baggage delivery,
at its sole cost.
(b) DESTINATION BY OTHER MEANS. If Pinnacle transports a revenue
passenger to his or her destination by another means (bus, train, taxi, etc.)
due to a flight cancellation, Northwest shall reimburse Pinnacle for the actual
transportation costs incurred to transport the passenger by such other means;
provided, however, that if the flight cancellation is necessitated by acts of
Pinnacle (e.g., crew curfews, maintenance-related delays, etc.), Pinnacle will
pay the costs incurred to transport the passenger by such other means. Pinnacle
shall use its best efforts to minimize the transportation of passengers by other
means and the costs associated therewith.
SECTION 2.12 ANNUAL OPERATING PLAN. At least 90 days prior to January 1
of each year during the term of this Agreement, Pinnacle and Northwest shall
confer and prepare an operating plan for the succeeding calendar year, which
plan shall include (i) Northwest's forecast with respect to the schedule and
routing for all Scheduled Flights for such year, (ii) Northwest's forecast of
the Service Cities to which Pinnacle shall operate Regional Airline Services,
(iii) Northwest's forecast of specific dates for the commencement of service to
new Service Cities, if any, (iv) Northwest's forecast of the number of Aircraft
to be added to or removed from Pinnacle's fleet (subject to SECTION 3.02), and
(v) such other matters as Northwest and Pinnacle shall determine (as amended in
accordance with this SECTION 2.12, the "Annual Operating Plan"). Northwest and
Pinnacle shall meet and confer on a quarterly basis (or more frequently if
requested by either Northwest or Pinnacle) to review the implementation of the
Annual Operating Plan and to discuss any changes to the Annual Operating Plan.
In the event Northwest elects to alter the Annual Operating Plan during the
course of a year, Northwest shall use its reasonable best efforts to provide at
least sixty (60) days prior notice to Pinnacle. Notwithstanding the foregoing
provisions of SECTION 2.12, Northwest shall promptly notify Pinnacle of any
determination by Northwest to increase or decrease Pinnacle's fleet size, and,
except as provided in SECTION 3.02(A)(II) and SECTION 3.02 (A)(III) below,
Northwest shall give Pinnacle no less than ninety (90) days prior notice.
Northwest agrees that any substantial increases in Pinnacle's fleet size
pursuant to the preceding sentence are subject to Pinnacle's reasonable
operating constraints.
SECTION 2.13 INFLIGHT FOOD, BEVERAGES AND SUPPLIES. Unless otherwise
mutually agreed, Pinnacle will provide Aircraft catering services, food and
beverages for passengers and crews on Scheduled Flights in accordance with
Northwest's specifications and directions and at Pinnacle's sole cost. Pinnacle
shall be solely responsible for maintaining all licenses necessary for the
serving of inflight food and beverages on Scheduled Flights. Northwest shall
furnish Pinnacle, at Northwest's sole cost, adequate supplies of its customary
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inflight supplies including, but not limited to, the Northwest inflight
magazine, cups, napkins, pillows, blankets, trash bags, sick sacks, lavatory
supplies, creamers, swizzle sticks and sugar in a form similar or identical to
that used by Northwest. Notwithstanding anything to the contrary in this
Agreement, Northwest may, at its option, require Pinnacle upon ninety (90) days
prior written notice to utilize Northwest or a Northwest-designated contract
agent to provide catering services, food and beverages for passengers and crews
on Scheduled Flights, provided that (i) the Block Hour Rates set forth in
SECTION 5.03 below are adjusted as necessary to eliminate the costs of catering
services, food and beverages that were included in establishing the Block Hour
Rates, and the Direct Costs to Pinnacle of the new arrangement will be
reimbursed pursuant to Section 5.07 below, and (ii) the service standards
applicable to any such Northwest-designated contract agent are either reasonably
satisfactory to Pinnacle or no less stringent than the standards applicable to
Northwest's own operations.
SECTION 2.14 EXCLUSIVITY ARRANGEMENTS. During the term of this Agreement,
neither Pinnacle Corp., Pinnacle, nor any Affiliate of Pinnacle Corp. shall
operate any flights to or from the Hub Cities using its own airline code or the
airline code, logo, or any other identifying feature of a foreign or United
States airline (other than Northwest) without the express prior written consent
of Northwest. Nothing in this Agreement shall preclude Northwest from (i)
entering into code share, alliance or other commercial cooperation arrangements
with any other airline, or (ii) entering into similar or other arrangements with
other carriers for the provisioning of regional airline services using Canadair
Regional Jets, turboprop aircraft or any other aircraft to or from the Hub
Cities, the same Service Cities or elsewhere.
SECTION 2.15 OTHER OPERATIONS. Pinnacle Corp. and/or an Affiliate of
Pinnacle Corp. may acquire aircraft and operate air transportation services in
its own name or on behalf of or in cooperation with an airline other than
Northwest, subject to the following conditions:
(a) Pinnacle Corp. and/or its Affiliates shall not engage in any such
activity until the earlier of the date on which Pinnacle has eighty-three
CRJ-200/440 Aircraft in its fleet and May 1, 2004;
(b) During the term of this Agreement, no officers, employees,
facilities, Equipment or other assets of Pinnacle shall be used in connection
with such activity without Northwest's prior written approval; provided,
however, that on or after May 1, 2003, officers of Pinnacle may engage in
planning and coordination with respect to such activities to the extent that
such planning and coordination does not have an adverse impact on Pinnacle's
performance of Regional Airline Services hereunder;
(c) This Agreement shall be amended in accordance with SECTION 5.19
("Most Favored Nations") below; and
(d) The aircraft operated by Pinnacle Corp. or an Affiliate of Pinnacle
Corp. pursuant to this Section 2.15 (i) shall not have more seats than the
greater of forty-four (44) seats and the highest number of seats that a jet
aircraft may have and still have one less seat than an aircraft defined as a
"regional jet" under Northwest's collective bargaining agreement with its
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pilots, and (ii) shall not otherwise cause Northwest to be in violation of its
collective bargaining agreement with its pilots.
ARTICLE III
EQUIPMENT
SECTION 3.01 USE OF THE EQUIPMENT. Pinnacle agrees (a) that the Equipment
shall be used only to provide and/or support the Regional Airline Services
contemplated by this Agreement, (b) that the Equipment shall not be used by
Pinnacle for any other purpose without the prior written consent of Northwest,
and (c) that Pinnacle shall not acquire, lease or operate any aircraft or spare
engines other than the Aircraft and Spare Engines.
SECTION 3.02 FLEET SIZE AND RELATED MATTERS.
(a) DETERMINATION OF FLEET SIZE. As of the Effective Date, Pinnacle's
fleet consisted of twenty (20) Saab 340 turboprop aircraft, thirty-four (34)
CRJ-200/440 Canadair Regional Jet aircraft and three (3) Spare Engines.
(i) EQUIPMENT ADDITIONS. Northwest and Pinnacle agree that (A)
subject to Bombardier timely delivering Canadair Regional Jet Aircraft to
Northwest as scheduled as of the Effective Date, an additional forty-nine
(49) CRJ-200/440 Canadair Regional Jet Aircraft shall be added to
Pinnacle's fleet on or before April 30, 2004, (B) three (3) Spare Engines
shall be added to Pinnacle's fleet on or before December 31, 2004, (C) an
additional one (1) Spare Engine shall be added to Pinnacle's fleet if
Pinnacle demonstrates to Northwest's reasonable satisfaction that such
Spare Engine is required for Pinnacle's operations under this Agreement,
(D) Northwest shall have the right to cause from time to time up to an
additional two hundred twenty-one (221) CRJ-200/440 Canadair Regional Jet
Aircraft to be added to Pinnacle's fleet, and (E) Northwest shall have
the right to cause from time to time up to an additional twenty-seven
(27) Spare Engines to be added to Pinnacle's fleet.
(ii) EQUIPMENT REMOVAL RIGHTS. Northwest and Pinnacle agree that
(A) Northwest shall have the right from time to time to cause Pinnacle to
assign the Saab Leases to Northwest (or its designee) or to sublease to
Northwest (or its designee) any or all of the Saab 340 Aircraft; and (B)
from and after that time when Pinnacle has more than eighty-three (83)
▇▇▇-▇▇▇/▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ shall have the right upon at least ninety
(90) days prior written notice to require the removal of CRJ-200/440
Aircraft and related Spare Engines selected by Northwest from Pinnacle's
fleet provided that at no time shall the number of such Aircraft and
Spare Engines removed pursuant to this SECTION 3.02(A)(II)(B) cause the
number of Aircraft in Pinnacle's fleet to be less than eighty-three (83)
or cause the number of Spare Engines in Pinnacle's fleet to be less than
six (6) or, if an additional Spare Engine has been added to Pinnacle's
fleet pursuant to SECTION 3.02(A)(I)(C), seven (7).
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(iii) ADDITIONAL EQUIPMENT REMOVAL RIGHTS. Notwithstanding SECTION
3.02(A)(II)(B), in the event of (A) a labor action or other event giving
rise to Northwest's right to terminate this Agreement pursuant to SECTION
10.03(E) and (B) Northwest has not yet exercised its termination rights,
(1) Northwest shall have the right to terminate Leases for, and take
immediate possession of, up to thirty-three (33) CRJ 200/440 Aircraft and
related Spare Engines selected by Northwest, and (2) if the labor action
or other event continues beyond 45 days Northwest shall have the right to
select and terminate Leases for, and take immediate possession of, up to
that number of CRJ 200/440 Aircraft in excess of fifty (50) and the
related Spare Engines.
(iv) FLEET CONTINUATION OPTION. In the event Northwest terminates
this Agreement on February 29, 2012 pursuant to SECTION 10.01 below,
Pinnacle shall have the option to retain eighty-three (83) Aircraft and
seven (7) Spare Engines in its fleet until February 28, 2017; provided,
however, that in order to exercise this option Pinnacle must provide
Northwest written notice on or before February 28, 2011 of its intent to
exercise the option. In the event Pinnacle exercises this option, (A)
Northwest and Pinnacle shall enter into new Leases for the retained
Aircraft which shall be substantially in the form of Exhibit A-1,
provided that Northwest may require Pinnacle to establish maintenance
reserves in accordance with the terms set forth in the form of Lease
attached and that the Aircraft Rental Expense for each such Aircraft
shall be the greater of fair market rental or [****] per Aircraft per
month, (B) Northwest and Pinnacle shall enter into new Leases for the
retained Spare Engines which shall be substantially in the form of
Exhibit A-2, provided that Northwest may require Pinnacle to establish
maintenance reserves in accordance with the terms set forth in the form
of Lease attached and the Spare Engine Rental Expense for each such Spare
Engine shall be the greater of the fair market rental or the
then-existing Spare Engine Rental Expense for such Spare Engine, and (C)
the retained Aircraft shall be re-painted as soon as possible after the
Termination Date at Pinnacle's sole expense to remove all NW
Identification from the Aircraft, including but not limited to
re-painting the red tails of the Aircraft.
(v) UNSCHEDULED AIRCRAFT. Subject to Pinnacle's approval, which
shall not be unreasonably withheld, Northwest shall determine the
appropriate level of unscheduled Aircraft to be included in Pinnacle's
fleet from time to time.
(vi) SPARE ENGINE REQUIREMENTS. Subject to Section 3.02(a)(i)
above, Northwest and Pinnacle shall mutually determine the appropriate
quantity of Spare Engines to be included in Pinnacle's fleet from time to
time.
(b) INDUCTION AND TERMINATION COSTS. All one-time expenses which are
associated with inducting Equipment shall be paid one hundred percent (100%) by
Pinnacle. All return costs and expenses associated with the return of Equipment
shall be paid one hundred percent (100%) by Pinnacle without reimbursement by
Northwest; provided, however, in the event Northwest exercises its Equipment
removal rights pursuant to SECTION 3.02(A)(II)(B) above, Pinnacle shall not be
required to meet the return conditions in the Leases for the Aircraft and Spare
Engines that are thus removed from Pinnacle's fleet unless Northwest intends to
return such Equipment to the lessor under the Leases.
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(c) AIRCRAFT RE-CERTIFICATION. Northwest may, at its sole option, direct
Pinnacle to take such actions as are necessary to cause 44-seat Aircraft to be
re-certificated as 50-seat Aircraft or to take such actions as are necessary to
cause 50-seat Aircraft to be re-certificated as 44-seat Aircraft and all Direct
Costs which are associated with such Aircraft re-certifications shall be paid
one hundred percent (100%) by Northwest. Any such Aircraft re-certifications
will be accomplished within a mutually agreed time frame, but in any event
within sixty (60) days unless otherwise directed by Northwest.
SECTION 3.03 LEASE OF THE EQUIPMENT. As of the Effective Date, Pinnacle
and Northwest (and/or an Affiliate of Northwest) have entered into Leases with
respect to the thirty-four (34) CRJ-200/440 Aircraft and three (3) Spare Engines
in Pinnacle's fleet and agree to enter into (or, as to Northwest, Northwest
agrees to cause such affiliate as Northwest may designate to enter into) a Lease
with respect to each additional CRJ-200/440 Aircraft and each additional Spare
Engine added to Pinnacle's fleet when and as Northwest takes delivery of such
additional Equipment if Northwest has determined to use such Equipment for
Regional Airline Services pursuant to this Agreement.
SECTION 3.04 TERMS OF THE LEASES. Each Lease for the ▇▇▇-▇▇▇/▇▇▇ ▇▇▇▇▇▇▇▇
▇-▇ and the Spare Engines shall be substantially in the forms of Exhibit A-1 and
Exhibit A-2, respectively, and shall include the following terms:
(a) subject to Section 3.02 (a)(iv) above, the term of each Lease shall
be for a period ending on the Termination Date; provided, however, no Lease
shall be for a term longer than the term of the related head lease, if any;
(b) the rent for Aircraft shall equal the Aircraft Rental Expense and
shall be payable monthly in advance;
(c) the rent for Spare Engines shall equal the Spare Engine Rental
Expense and shall be payable monthly in advance; and
(d) the Leases shall include such terms as are necessary to conform
provisions of the Leases to the head lease and to any ancillary documents
actually entered into by Northwest or its affiliate in connection with such
Equipment (to the extent Northwest requests conformation).
SECTION 3.05 MANUFACTURER BENEFITS AGREEMENT. Northwest and Pinnacle have
concurrently entered into a Manufacturer Benefits Agreement.
SECTION 3.06 EQUIPMENT MAINTENANCE, SERVICING AND CLEANING. Pinnacle
shall be responsible for all aspects of the maintenance in accordance with the
Maintenance Program (including any maintenance or modifications required by FAA
airworthiness directives and all routine and non-routine maintenance), servicing
and cleaning of the Equipment (except for ground handling as specified in
SECTION 4.02); provided, however, that with respect to the Canadair Regional Jet
Aircraft and Spare Engines, Pinnacle shall utilize General Electric for all
major shop-level engine maintenance and shall utilize Bombardier for heavy
airframe maintenance in accordance with the GE Agreements and the Bombardier
Agreement. In the
17
event Pinnacle is or becomes a party to such Agreements, Pinnacle shall not
execute any amendment or side letter to any of those Agreements without
Northwest's prior written consent. In the event spare engine and/or spare parts
pooling agreements are established for Airlink Carriers, Pinnacle will
participate in such agreements so long as such agreements reasonably address
Pinnacle's inventory needs, logistics requirements and configuration concerns.
In the event Northwest enters into agreements for auxiliary power unit (APU)
maintenance, avionics maintenance and/or landing gear overhauls with respect to
the Aircraft, Pinnacle shall utilize the vendors in such agreements for such
services; provided, however, Pinnacle's utilization of such vendors shall be
subject to (i) termination of Pinnacle's existing vendor contracts, if any, and
Northwest's payment of any early termination penalties imposed pursuant to
Pinnacle's contracts and (ii) reasonably satisfactory arrangements in respect of
Pinnacle's operational requirements.
SECTION 3.07 THIRD PARTY GUARANTEES AND WARRANTIES. Pinnacle shall
administer, track and pursue warranty and guaranty claims under the purchase,
support and service agreements for the Equipment, so as to minimize operating
costs for the Equipment. Such efforts shall include establishment of all systems
and procedures necessary to track and submit warranty and guaranty claims,
including providing reports and information required to be provided under the
purchase, support or services agreement. Pinnacle shall not operate or maintain
the Equipment in a manner that could result in any warranty or guaranty being
terminated or voided, without the prior written consent of Northwest.
SECTION 3.08 RELATED TRANSFER ARRANGEMENTS.
(a) All leases and subleases of ground support equipment, tooling and
spare parts inventory agreements and vendor and/or maintenance agreements with
respect to the Equipment (collectively "Support Agreements") entered into by
Pinnacle after the Effective Date shall be assignable to Northwest without the
consent of the other party to such Support Agreement on termination of this
Agreement. Pinnacle shall, at Northwest's option, assign such Support Agreements
as Northwest shall designate to Northwest on termination of this Agreement.
Pinnacle shall use its best efforts to obtain the consent of the other party to
any such Support Agreements in effect as of the Effective Date and, subject to
obtaining such consents, if necessary, shall, at Northwest's option, assign such
Support Agreements as Northwest shall designate to Northwest on termination of
this Agreement. On termination of this Agreement and during the Option Term,
Northwest shall have the option to purchase from Pinnacle all ground support
equipment, tooling and spare parts inventory then owned by Pinnacle which are
used with or related to the Equipment for an amount equal to such assets' then
fair market value or depreciated book value, whichever is less. In the event
Northwest invokes its Equipment removal rights hereunder, on the Equipment
removal date and for a period of thirty (30) days thereafter, Northwest shall
have the option to purchase from Pinnacle all ground support equipment, tooling
and spare parts inventory then owned by Pinnacle which are used with or related
to the returning Equipment for an amount equal to such assets' then fair market
value or depreciated book value, whichever is less.
(b) SUPPORT AGREEMENT CONTINUATION OPTION. Notwithstanding Section
3.08(a) above, in the event Pinnacle exercises its fleet continuation option in
Section 3.02(a)(iv) above, Pinnacle may continue in effect the Support
Agreements reasonably required to support the retained Aircraft and Spare
Engines until the earlier of the expiration date for the Support
18
Agreement and February 28, 2017. In such circumstances, (i) Pinnacle shall, at
Northwest's option, assign such retained Support Agreements as Northwest shall
designate to Northwest on February 28, 2017, and (ii) on February 28, 2017 and
for a period of thirty (30) days thereafter, Northwest shall have the option to
purchase from Pinnacle all ground support equipment, tooling and spare parts
inventory then owned by Pinnacle which are used with or related to the Aircraft
and/or Spare Engines for an amount equal to such assets' then fair market value
or depreciated book value, whichever is less.
SECTION 3.09 EQUIPMENT FINANCING COORDINATION
. Pinnacle shall coordinate and cooperate with Northwest with respect to
Equipment sale, purchase and lease transactions. Such coordination and
cooperation shall include, but is not limited to, cooperating with Northwest in
structuring the closing of Equipment sale, purchase or lease transactions in a
manner that will minimize the imposition of any local, city, county, state,
provincial, federal or foreign taxes or other governmental transfer charges
related to such transactions, providing Northwest with financial information
(audited and unaudited) that Northwest may then provide to third parties,
assisting in raising capital through the sale of either debt and/or equity in
connection with the financing or leasing of the Equipment where and as requested
by Northwest (including but not limited to participating in meeting with the
manufacturer, potential investors and sources of financing or lease equity to
discuss Pinnacle's financial and operational performance and outlook), and full
cooperation in meeting appropriate return conditions of each Equipment upon
expiration of the Equipment's Lease.
SECTION 3.10 SPARE PARTS INVENTORY; APPLICATION OF CREDITS. Northwest
may, at its option, purchase spare parts inventory items designated by Northwest
from Bombardier or other third parties and either sell such parts to Pinnacle at
Northwest's Direct Cost or lease such parts to Pinnacle. Terms of the spare
parts lease agreement, including but not limited to, administration of
inventory, scope of inventory purchase, lease conditions and reimbursement
mechanisms, will be mutually agreed. Northwest and Pinnacle shall from time to
time determine the most economical use of manufacturer, supplier or servicer
credits obtained from third parties in connection with the Regional Airline
Services provided pursuant to this Agreement. If it is determined that the most
economical use of credits provided to Northwest is through Pinnacle's use,
Northwest may require Pinnacle to purchase such credits from Northwest at the
face value of the credits. However, in no event shall Pinnacle be required to
purchase credits from Northwest that it cannot utilize within 180 days of the
date of purchase from Northwest.
ARTICLE IV
ANCILLARY ARRANGEMENTS
SECTION 4.01 COORDINATION WITH PINNACLE.
(a) SCHEDULES AND TIMETABLES. Northwest shall file and maintain schedules
with all applicable schedule distribution systems for all Scheduled Flights, and
such schedules
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shall be filed and maintained by Northwest together with the schedules for its
flights. Northwest shall include and list all Scheduled Flights providing
Regional Airline Services in the schedule publication program of Northwest.
Northwest shall, at its expense and sole discretion, furnish to Pinnacle an
adequate supply of current printed Northwest timetables and contracts of
carriage consistent with Governmental Regulations and Northwest's timetable
publication program. Northwest shall include Scheduled Flights operated by
Pinnacle in all appropriate flight information systems on which Northwest
flights are listed.
(b) TRAVEL PRIVILEGES. Northwest and Pinnacle shall mutually agree upon
the travel privileges which each shall make available to the employees and
directors of the other.
(c) UNITED STATES WEATHER BUREAU INFORMATION. Upon request of Pinnacle or
its flight crews, Northwest shall at its sole cost furnish Pinnacle such United
States Weather Bureau information or data as may be available to Northwest
pursuant to a separate written agreement; provided, however, that neither
Northwest nor its employees will be responsible or liable for the accuracy
thereof. So long as Northwest shall maintain its communications link with the
National Weather Service, Northwest shall provide the necessary communications
to permit Pinnacle to continue providing weather data to the National Weather
Service. Northwest shall provide any available National Weather Service data
through computer link-up to Pinnacle.
(d) INFORMATION SYSTEMS. Northwest and Pinnacle have concurrently entered
into a separate written agreement with respect to the information systems
support Northwest will provide to Pinnacle.
SECTION 4.02 GROUND HANDLING.
(a) PASSENGER AND RAMP HANDLING. Northwest will provide the Ground
Handling Functions at all Complementary Service Cities at the rates set forth in
SECTION 5.04(A); provided, however, that Northwest may, at its option, require
Pinnacle upon ninety (90) days prior written notice to provide the Ground
Handling Functions at Complementary Service Cities at a rate to be mutually
agreed. At a Primary Service City, Pinnacle shall employ its own ground support
equipment and personnel or a contract agent to perform the following functions:
(a) all gate check-in activities, (b) all passenger enplaning/deplaning
services, including but not limited to sky cap and wheel chair services, (c)
aircraft loading/unloading services, including but not limited to airside
busing, (d) passenger ticketing, (e) aircraft cleaning, including but not
limited to overnight cleaning, (f) jetbridge maintenance, and (g) janitorial
services (collectively, the "Ground Handling Functions"). At DTW and MSP,
Pinnacle shall use its own personnel and equipment or a contract agent to
perform the Ground Handling Functions described in this SECTION 4.02, except for
(i) passenger ticketing, (ii) airside busing, sky cap and wheel chair services,
(iii) jetbridge maintenance, and (iv) janitorial services, all of which services
Northwest shall provide [****]. At MEM, Pinnacle shall use only its own
personnel and equipment or a contract agent to perform the Ground Handling
functions described in this SECTION 4.02, except for (i) passenger ticketing,
and (ii) airside busing, sky cap and wheel chair services, all of which services
Northwest shall provide [****]. Notwithstanding anything to the contrary in this
Agreement, Northwest may, at its option, require Pinnacle upon ninety (90) days
prior written notice to utilize Northwest or a Northwest-designated contract
agent to perform the Ground Handling Functions at any or all of the Hub Cities,
Complementary Service Cities and Primary
20
Service Cities, provided that (i) the ground handling rates set forth in SECTION
5.04(A) below are adjusted as necessary to reimburse Pinnacle for the Direct
Cost of utilizing Northwest or a contract agent, as the case may be, and (ii)
the service standards applicable to any such Northwest-designated contract agent
are either reasonably satisfactory to Pinnacle or no less stringent than the
standards applicable to Northwest's own operations.
(b) DEICING AND GLYCOL. At MEM, MSP and the Primary Service Cities,
Pinnacle shall use its own personnel and equipment or a contract agent to
perform deicing services for the Aircraft. Northwest shall provide, [****], all
deicing services in DTW and at Complementary Service Cities. Notwithstanding
anything to the contrary in this Agreement, Northwest may, at its option,
require Pinnacle upon ninety (90) days prior written notice to utilize Northwest
or a Northwest-designated contract agent to perform deicing services for the
Aircraft at MEM, MSP and the Primary Service Cities, provided that the service
standards applicable to any such Northwest-designated contract agent are either
reasonably satisfactory to Pinnacle or no less stringent than the standards
applicable to Northwest's own operations.
SECTION 4.03 FACILITIES.
(a) HUB CITIES. Pinnacle will sublease from Northwest airport facilities
at the Hub Cities as set forth in mutually agreeable sublease agreements. The
applicable Hub City facility charges are set forth in Exhibit B. In the event
Pinnacle requires additional facilities at any of the Hub Cities caused by the
expansion of Regional Airline Services, Northwest shall use its reasonable
efforts to obtain such facilities and provide them to Pinnacle at no additional
charge to Pinnacle. Northwest and Pinnacle agree that Northwest may relocate
Pinnacle to comparable facilities at the Hub Cities, provided that Northwest
pays Pinnacle's reasonable relocation expenses.
(b) SERVICE CITIES. At Complementary Service Cities, Northwest shall
provide Pinnacle with the Ground Handling Functions pursuant to SECTION 4.02
hereof, utilizing Northwest's owned and/or leased premises and equipment
(including jetbridges) located thereon. Northwest shall cooperate with
Pinnacle's efforts to become a signatory carrier at such airports; provided,
however, that if Pinnacle becomes a signatory carrier at any such airport
Pinnacle shall vote as directed by Northwest on any matters submitted to the
signatory carriers for a vote. At Primary Service Cities, Pinnacle shall be
solely responsible for all of its facilities requirements, including but not
limited to jetbridges; provided, however, if Northwest owns and/or leases
facilities at a Primary Service City and elects to provide Ground Handling
Functions to Pinnacle, Northwest shall provide such services to Pinnacle
pursuant to SECTION 4.02 hereof, utilizing Northwest's owned and/or leased
premises and equipment (including jetbridges) located thereon. Northwest will
determine in its sole discretion whether a jetbridge will be used at a Primary
Service City.
(c) MAINTENANCE FACILITIES. Except as provided in Section 3.06,
maintenance facilities used to perform maintenance on the Equipment
("Maintenance Facilities") pursuant to lease or ownership arrangements entered
into after the Effective Date, shall be at such locations and pursuant to terms
mutually agreeable to both parties. In the event Northwest provides the
Maintenance Facility to Pinnacle, it will do so according to the terms of a
mutually agreeable lease or sublease. Northwest shall reimburse Pinnacle on a
monthly basis in accordance with
21
SECTIONS 5.07 and 5.08 for such Maintenance Facilities expenses incurred by
Pinnacle. The cost to Pinnacle for Maintenance Facilities leased or owned by
Pinnacle as of the Effective Date or thereafter, will be reimbursed in
accordance with SECTIONS 5.07 and 5.08.
(d) LANDING FEES. Pinnacle shall be responsible for landing fees at all
airports to which it provides Regional Airline Services pursuant to this
Agreement and at all airports to which a Scheduled Flight, Non-Scheduled Flight
or Charter Flight is diverted.
(e) SIGNAGE. Subject to Governmental Regulations, Pinnacle shall display
at all ticketing and check-in locations such signage or other forms of
advertisement to identify and promote Northwest's service as Northwest may
specify and as approved by the relevant airport authority. All signage utilizing
the NW Identification shall be provided by Northwest at its sole cost, shall be
the property of Northwest and shall be subject to the applicable provisions of
Article VII below. Pinnacle shall not use the Pinnacle Identification on any
signage or other forms of advertisement used to identify or promote the Regional
Airlines Services (except as otherwise required by Governmental Regulations).
(f) RELATED TRANSFER ARRANGEMENTS. All leases and subleases of facilities
used in connection with Regional Airline Services, including Maintenance
Facilities for the Equipment (collectively, "Facilities Leases") entered into by
Pinnacle after the Effective Date shall be assignable to Northwest without the
consent of the other party to such Facility Lease on termination of this
Agreement or the withdrawal of Scheduled Flights from such airport, provided
that if the consent of the facility lessor is required by contract or
Governmental Regulations, Pinnacle will use its best efforts to obtain such
consent at the time the Facility Lease is entered into and to incorporate such
consent in the terms of the Facility Lease. Pinnacle shall, at Northwest's
option, assign such Facilities Leases as Northwest shall designate to Northwest
on termination of this Agreement or the withdrawal of Scheduled Flights from
such airport. Pinnacle shall use its best efforts to obtain the consent of the
other party to such Facilities Leases in effect as of the Effective Date and,
subject to obtaining such consents, if necessary, shall, at Northwest's option,
assign such Facilities Leases as Northwest shall designate to Northwest on
termination of this Agreement or the withdrawal of Scheduled Flights from such
airport. On termination of this Agreement and during the Option Term, Northwest
shall have the option to purchase from Pinnacle all facilities used in
connection with Regional Airline Services, including Maintenance Facilities for
the Equipment, then owned by Pinnacle for an amount equal to such assets' then
fair market value or depreciated book value, whichever is less. On the
withdrawal of Scheduled Flights from an airport and for a period of thirty (30)
days thereafter, Northwest shall have the option to purchase from Pinnacle all
facilities used in connection with Regional Airline Services at such airport,
including Maintenance Facilities for the Equipment, then owned by Pinnacle for
an amount equal to such assets' then fair market value or depreciated book
value, whichever is less.
(g) MAINTENANCE FACILITIES CONTINUATION OPTION. Notwithstanding Section
4.03(f) above, in the event Pinnacle exercises its fleet continuation option in
Section 3.02(a)(iv) above, Pinnacle may continue in effect all leases and
subleases of Maintenance Facilities reasonably required to support the retained
Aircraft and Spare Engines until the earlier of the expiration date for such
agreement and February 28, 2017. In such circumstances, (i) Pinnacle shall, at
Northwest's option, assign such retained leases and subleases of Maintenance
Facilities
22
as Northwest shall designate to Northwest on February 28, 2017, and (ii) on
February 28, 2017 and for a period of thirty (30) days thereafter, Northwest
shall have the option to purchase from Pinnacle all Maintenance Facilities for
the retained Aircraft and Spare Engines then owned by Pinnacle for an amount
equal to such assets' then fair market value or depreciated book value,
whichever is less.
SECTION 4.04 DATA COMMUNICATIONS. Northwest shall provide to Pinnacle at
all Service Cities and Hub Cities [****] telephone data circuit lines, the use
of computer reservation terminals, printers and modems, including hardware,
software and maintenance support for such equipment.
SECTION 4.05 SECURITY. Northwest will provide for Pinnacle's use the
security equipment in place, as of the Effective Date, at all Complementary
Service Cites, at all existing Primary Service Cities and the Hub Cities.
Northwest agrees to provide, at Northwest's sole expense, for Pinnacle's use at
all new Primary Service Cities the same type of security equipment. Any
additional security equipment required due to future Governmental Regulations
shall be provided by Pinnacle at its sole expense at Primary Service Cities, and
shall be provided by Northwest at its sole expense at Hub Cities and
Complementary Service Cities. At all Complementary Service Cities and the Hub
Cities, Northwest agrees to pay Pinnacle's allocated share of all maintenance
expenses associated with all security equipment and to pay Pinnacle's allocated
share of all personnel expenses (including overtime) associated with the
operation of the equipment and all airport security-related functions,
including, without limitation, passenger screening and activities related to
security directives imposed by Governmental Regulations. At Primary Service
Cities, Pinnacle agrees to pay all or its allocated share of all maintenance
expenses associated with all security equipment and to pay all or its allocated
share of all personnel expenses (including overtime) associated with the
operation of the equipment and all airport security related functions,
including, without limitation, passenger screening and activities related to
security directives imposed by Governmental Regulations. Notwithstanding the
foregoing, the parties acknowledge and agree that as of the Effective Date the
U.S. government is in the process of taking over airport security, and the
parties will negotiate in good faith regarding any changes to this Agreement
that may be necessary as a result.
SECTION 4.06 RESERVATION SERVICES. During the term of this Agreement,
Northwest shall handle, at its sole expense, reservations for all passenger air
transportation on Scheduled Flights operated pursuant to this Agreement.
Reservations shall be handled in the same manner and subject to the same
standards utilized by Northwest for its own reservations. All reservations shall
be made in the name of Northwest unless otherwise required by Governmental
Regulations. Northwest shall be sole owner of any customer or passenger data
relating to the Scheduled Flights and related reservation services.
SECTION 4.07 TICKETING SERVICES AND TICKETING PROCEDURES.
(a) TICKETING SERVICES. At all of its ticketing locations, Northwest
shall, at its sole expense, sell, issue and exchange tickets for passenger air
transportation on all Scheduled Flights to be operated pursuant to this
Agreement utilizing Northwest ticket stock and all related accounting forms
printed with the Northwest logo, name and format ("Northwest Tickets").
Northwest hereby appoints Pinnacle as its agent, and Pinnacle hereby agrees to
act as
23
Northwest's agent, at all Pinnacle ticketing locations in connection with the
sale and issuance of all passenger tickets by Pinnacle and with the same duties
owed to Northwest in that capacity as is customary in the industry between
airlines. At all of its ticketing locations, Pinnacle shall sell, issue and
exchange Northwest Tickets for passenger air transportation on all Scheduled
Flights to be operated pursuant to this Agreement and to be provided by and over
the routes of Northwest (collectively, "Ticketing Services"). Nothing in this
SECTION 4.07(A) shall be deemed to alter or conflict with the provisions of
SECTION 9.01 hereof. Air carriers and other agencies other than Northwest may
also issue tickets for travel to be performed by Pinnacle .
(b) TICKETING PROCEDURES. The procedures followed and standards applied
by Pinnacle in performing the Ticketing Services shall conform in all material
respects to Northwest's own procedures and standards applicable to the issuance
of Northwest Tickets and to the collection and remittance of the proceeds of
such sales. Pinnacle employees performing Ticketing Services shall adhere to
Northwest's procedures and standards as shall be provided to Pinnacle in
writing. In accordance with SECTION 8.02 below, Pinnacle shall be responsible
for collecting and shall pay to Northwest any Ticket Taxes and Fees required to
be collected under applicable law on Tickets sold by Pinnacle utilizing
Northwest ticket stock.
(c) FREQUENT FLYER PROGRAM. Pinnacle agrees to accept Northwest frequent
flyer tickets and to provide transportation services pursuant to such tickets at
no charge to Northwest. All travel under the frequent flyer program solely on
Pinnacle shall entitle a passenger to such credit as shall be equivalent to the
credit offered on Northwest for comparable mileage segments. Northwest will
provide such credit to members of its frequent flyer program who travel on
Pinnacle at no charge to Pinnacle.
(d) SUPPLIES. Northwest shall, at its sole expense, provide an adequate
supply of ticket office forms and specialized supplies (such as baggage tags,
but excluding normal office supplies such as paper, stationery, envelopes, memo
pads and the like) bearing the NW Identification for use by Pinnacle subject to
the applicable provisions of Article VII below.
(e) TICKETING COSTS. All travel agency commissions attributable to
Scheduled Flights shall be Northwest's expense. Northwest shall pay all computer
reservation system fees attributable to passengers on Scheduled Flights. In the
event Governmental Regulations preclude the payment of these fees by Northwest
and Pinnacle then pays them, Northwest shall immediately begin paying Pinnacle a
"Traffic Referral" commission on a semi-monthly basis in an amount equal to such
fees formerly paid by Northwest for Pinnacle. Such commission shall be
retroactive to the date on which such fees were no longer lawfully paid by
Northwest and shall be included in the semi-monthly payments to be made by
Northwest pursuant to SECTION 5.02.
SECTION 4.08 BAGGAGE HANDLING SERVICES. "Baggage Handling Services" shall
consist of the following:
(a) At all Complementary and Hub Cities, Pinnacle and Northwest shall
exchange and transfer baggage in accordance with procedures to be mutually
agreed upon and generally utilized by the parties.
24
(b) The procedures utilized in performing such Baggage Handling Services
shall conform in all respects to Northwest's own standards and procedures as
adapted to Pinnacle's Aircraft and operations.
(c) For purposes of baggage claims, Pinnacle will be treated as if it
were a party to standard industry ticketing and baggage agreements with
Northwest and other air carriers. Pinnacle will make available at the request of
any passenger excess valuation insurance, if any, offered by Northwest to the
extent such insurance covers Pinnacle's flights and Northwest's flights. SECTION
4.09 AIR CARGO HANDLING SERVICES. "Air Cargo Handling Services" shall consist of
the following:
(a) At each location at which Northwest operates Ticketing Services,
Northwest shall at no charge to Pinnacle accept Air Cargo for shipment on
flights to be operated by and over the routes of Pinnacle or Northwest.
Northwest shall issue air waybills covering Air Cargo and shall prepare a
"Transfer Manifest" for each Pinnacle flight on which there shall be an Air
Cargo shipment which transfer manifest shall set forth all Air Cargo to be
carried on the flight.
(b) Northwest hereby appoints Pinnacle as its agent, and Pinnacle hereby
agrees to act as Northwest's agent, at all Pinnacle ticketing locations in
connection with the sale and issuance of all air waybills by Pinnacle and with
the same duties owed to Northwest in that capacity as is customary in the
industry between airlines. Pinnacle agrees to observe all Northwest procedures
and standards applicable to the issuance of air waybills and to the collection
and remittance of the proceeds of such sales. Pinnacle employees performing such
duties shall adhere to Northwest's procedures and standards as shall be provided
to Pinnacle in writing. In accordance with SECTION 8.02 below, Pinnacle shall be
responsible for collecting and shall pay to Northwest any Ticket Taxes and Fees
required to be collected under applicable law on air waybills sold by Pinnacle
utilizing Northwest air waybills. Nothing in this SECTION 4.09(B) shall be
deemed to alter or conflict with the provisions of SECTION 9.01 hereof. Air
carriers other than Northwest may also issue air waybills for cargo
transportation to be performed by Pinnacle.
(c) Pinnacle shall provide Air Cargo handling services at Pinnacle's
ticketing locations for and on behalf of Northwest for Air Cargo carried solely
on Pinnacle or on both an Pinnacle flight and a Northwest flight. Such handling
services shall be performed in accordance with Northwest's procedures and
standards as provided to Pinnacle in writing, including but not limited to (1)
accepting all Air Cargo that Northwest accepts, such as pets/AVI (other live
animals), human remains, Priority Service (SPC) freight and perishables, unless
otherwise mutually agreed, and (2) keeping facilities open at least one and
one-half (1.5) hours before and one (1) hour after each Scheduled Flight for
customers to deliver and pick up Air Cargo.
(d) For Air Cargo carried solely on Pinnacle or on both an Pinnacle
flight and a Northwest flight, Pinnacle and Northwest shall charge rates in
accordance with Northwest's applicable rates and tariffs; such revenues shall be
paid 100% to and retained by Northwest.
25
(e) For purposes of Air Cargo claims, Pinnacle will be treated as if it
were a party to standard industry ticketing and baggage agreements with
Northwest and other air carriers.
(f) Northwest shall, at its sole expense, supply Pinnacle with all
necessary Air Cargo forms and supplies in an agreed upon form with the NW
Identification, subject to the applicable provisions of Article VII below.
Northwest and Pinnacle shall utilize such forms and supplies when accepting Air
Cargo for transport on Pinnacle's flights.
SECTION 4.10 USE OF COMAT. Northwest and Pinnacle shall each provide to
the other, at no cost to the other and on a non-discriminatory basis, access to
its respective COMAT system for the movement and acquisition of priority
aircraft maintenance parts and other company material. Northwest's failure to
deliver timely a maintenance component via COMAT, whether timely or at all,
shall not cause an affected Scheduled Flight to be excluded in calculating
Pinnacle's on-time performance and completion factors. All access shall be
consistent with Northwest's and Pinnacle's respective published COMAT procedures
and policies, as amended from time to time. Northwest shall provide to Pinnacle
at no cost and on a non-discriminatory basis, access to Northwest's VIP express
cargo service to the extent necessary for Aircraft out of service recovery.
SECTION 4.11 SLOTS AND ROUTE AUTHORITIES. During the term of this
Agreement (including any Renewal Terms) or upon the expiration or termination of
this Agreement, Northwest may, in its sole discretion, require Pinnacle to
transfer to Northwest or its designee at no charge any airport takeoff or
landing slots, route authorities or other regulatory authorities as Northwest
shall designate which have been or are being used for Regional Airlines Services
under this Agreement.
SECTION 4.12 EMERGENCY RESPONSE AND FAMILY ASSISTANCE. Northwest and
Pinnacle shall enter into a separate written agreement with respect to emergency
response and family assistance services to be provided to Pinnacle by Northwest
at no charge in connection with the Regional Airlines Services operated under
this Agreement.
ARTICLE V
REVENUES, PAYMENTS AND SETOFF
SECTION 5.01 REVENUES. Pinnacle acknowledges and agrees that all revenues
resulting from the sale and issuance of passenger tickets and cargo air waybills
associated with the operation of the Aircraft and all other sources of revenue
associated with the operation of the Aircraft are the sole property of
Northwest, including without limitation ticket change fees, unaccompanied minor
fees, beverage services, excess baggage fees and nonrevenue pass travel charges.
SECTION 5.02 PAYMENTS TO PINNACLE .
26
(a) REPORTS. Pinnacle shall provide to Northwest periodic reports with
respect to the number of actual, completed Block Hours and Cycles of regional
jet and turboprop service flown by Pinnacle (each in respect of Scheduled
Flights, Charter Flights and Non-Scheduled Flights) in accordance with the
following schedule in each calendar month during the term of this Agreement:
DAY OF MONTH REPORT DUE PERIOD COVERED BY REPORT
----------------------- ------------------------
22 1st - 15th of Month
7 Complete Previous Month
Pinnacle shall also provide Northwest periodic reports with respect to its
Monthly Seat Days in accordance with the following schedule in each calendar
month during the term of this Agreement:
DAY OF MONTH REPORT DUE PERIOD COVERED BY REPORT
----------------------- ------------------------
7 Complete Previous Month
(b) PAYMENT SCHEDULE. Northwest shall remit to Pinnacle by wire transfer
of immediately available funds by the close of business on the 30th day of each
calendar month (or the next banking day if the 30th is a bank holiday), as a
provisional payment, Pinnacle's Block Hour Payment, Cycle Payment, IOP Payment,
Ground Handling Payment and any payments due pursuant to SECTION 5.06 below for
the period covered by the Block Hour Report and Cycle Report furnished by
Pinnacle on the 22nd day of the month.
Northwest shall remit to Pinnacle by wire transfer of immediately available
funds by the close of business on the 15th day of each month (or the next
banking day if the 15th is a bank holiday), as a final payment, Pinnacle's Block
Hour Payment, Cycle Payment, IOP Payment, Ground Handling Payment, Fixed Cost
Payment, Monthly Margin Payment, any payments due pursuant to SECTION 5.06 or
SECTION 5.07 below for the preceding month and any payments due with respect to
Charter Flights, less the amount of the provisional payment made on the 30th day
of the preceding month.
For purposes of this SECTION 5.02, the above referenced payments to Pinnacle
shall be calculated as follows for any applicable period:
(i) the Block Hour Payment will be equal to the then applicable
Block Hour Rate multiplied by the number of actual, completed Block Hours
reported in Pinnacle's Block Hour Report for such period for Scheduled
Flights and Non-Scheduled Flights, plus
(ii) the Cycle Payment will be equal to the then applicable Cycle
Rate multiplied by the number of actual, completed Cycles reported in
Pinnacle's Cycle Report for such period for Scheduled Flights and
Non-Scheduled Flights, plus
27
(iii) the IOP Payment, if any, will be determined in accordance
with Section 5.03(c) below.
(iv) the Ground Handling Payment will be equal to the then
applicable Ground Handling Rate multiplied by the number of actual,
completed Cycles reported in Pinnacle's Cycle Report for such period for
Scheduled Flights and Non-Scheduled Flights, plus
(v) any payments due pursuant to SECTION 5.06 below, plus
(vi) with respect to the payment to be made on the 15th day of
each month, Pinnacle's Fixed Cost Payment determined in accordance with
SECTION 5.05 below and any payments due pursuant to SECTION 5.07 below,
plus
(vii) with respect to the payment to be made on the 15th day of
each month, the Monthly Margin Payment determined in accordance with
SECTION 5.09 or SECTION 5.12 below, as applicable, plus
(viii) with respect to the payment to be made on the 15th day of
each month, any payment due with respect to Charter Flights.
Adjustments arising from Northwest's audit of the Block Hour Report, Cycle
Report and/or Monthly Seat Days Report may be made within ninety (90) days
following the end of each month. Any reference to the 30th day of a month in
this Section 5 will be deemed to mean the last day of February with respect to
that month.
SECTION 5.03 INITIAL BLOCK HOUR AND CYCLE RATES; IOP PROGRAM ADJUSTMENT
(a) INITIAL BLOCK HOUR RATE. The Block Hour Rate for the time period
through December 31, 2004 shall be as follows for the applicable period:
Blended Block Block
Hour Rate Hour Rate
PERIOD CRJ-200/440 SAAB 340
------ ----------- --------
Effective Date - 12/31/02 [****] [****]
01/01/03 - 12/31/03 [****]
01/01/04 - 12/31/04 [****]
(b) INITIAL CYCLE RATE. The Cycle Rate for the time period through
December 31, 2004 shall be as follows for the applicable period:
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Blended Cycle Cycle
Rate Rate
PERIOD CRJ-200/440 SAAB 340
------ ----------- --------
Effective Date - 12/31/02 [****] [****]
01/01/03 - 12/31/03 [****]
01/01/04 - 12/31/04 [****]
(c) IOP PROGRAM INCIDENT ADJUSTMENT. If during any month during the term
of this Agreement Pinnacle cancels one or more Scheduled Flights in connection
with one or more IOP Program Incidents, Northwest shall pay to Pinnacle an
amount determined in accordance with the following formula:
P=((IBH)*(BHR)* [****]) + ((ICYC)*(CYCR)* [****])
Where,
P is the IOP Payment to be made to Pinnacle ,
IBH is the number of scheduled Block Hours cancelled
in connection with the IOP Program Incident(s),
calculated by the following formula: IBH=Pinnacle
scheduled Block Hours cancelled * (((% points of
Pinnacle's Scheduled Flights in Hub cancelled)-(%
points of Northwest scheduled flights in Hub
cancelled))/(% points of Pinnacle's Scheduled
Flights in Hub cancelled)),
BHR is the then applicable Block Hour Rate in which such
IOP Program Incident(s) occurred,
ICYC is the number of scheduled Cycles cancelled in
connection with the IOP Program Incident(s),
calculated by the following formula:
ICYC=Pinnacle's scheduled Cycles cancelled * (((%
points of Pinnacle's Scheduled Flights in Hub
cancelled)-(% points of Northwest scheduled
flights in Hub cancelled))/(% points of
Pinnacle's Scheduled Flights in Hub cancelled))),
and
CYCR is the then applicable Cycle Rate in which such IOP
Program Incident(s) occurred.
SECTION 5.04 GROUND HANDLING RATES.
For each year in the Annual Operating Plan prepared in accordance with
SECTION 2.12, the departures for the year will be categorized into the six
categories in the table below. The Ground Handling Rate for the time period
through December 31, 2004 for the Canadair Regional Jet Aircraft operated by
Pinnacle shall be the weighted average of the rates set forth in the following
table for the applicable period:
29
Effective Date - 01/01/03- 01/01/04-
STATION 12/31/02 12/31/03 12/31/04
------- -------- -------- --------
DTW [****] [****] [****]
MEM [****] [****] [****]
MSP [****] [****] [****]
Comp. Cities [****] [****] [****]
PSCother [****] [****] [****]
PSCpin [****] [****] [****]
Comp.Cities means Complementary Service Cities.
PSCother means a Primary Service City where Pinnacle utilizes a contract
agent to perform the Ground Handling Functions.
PSCpin means a Primary Service City where Pinnacle personnel perform the
Ground Handling Functions.
Example: If Pinnacle's 2003 Annual Operating Plan includes 25,000 annual
departures in MEM, 40,000 annual departures in DTW, 35,000 annual
departures in MSP, 50,000 annual departures in Complementary Service
Cities, 30,000 annual departures in PSCpin and 20,000 annual departures
in PSCother, the Ground Handling Rate shall be calculated as follows:
Ground Handling Rate =
[(25,000*[****])+(40,000*[****])+(35,000*[****])+(50,000*[****])
+(30,000*[****])+(20,000*[****])]/200,000 = [****]
SECTION 5.05 FIXED COSTS. Pinnacle's Fixed Cost Payment arising from
operation of the Aircraft shall be calculated on a monthly basis as follows:
Fixed Cost Payment = [****] where,
[****]
[****]
[****]
[****]
[****]
[****]
[****]
SECTION 5.06 FUEL.
(a) FUEL ADMINISTRATION. As soon as practicable, Northwest will provide
to Pinnacle the following fuel-related administrative services: (i) negotiation
of fuel supply, fuel
30
storage and into-plane service contracts for the Aircraft, (ii) payment of all
into-plane and fuel invoices in respect of the Aircraft, (iii) monthly
reconciliations (by the 15th of the following month) with respect to fuel
boarded, inventory and purchases, and (iv) monthly reports with respect to fuel
boarded by station, flight and Aircraft.
(b) In the event Northwest is unable to execute the administrative
functions as outlined in SECTION 5.06 (a) (ii) and (iii), above, and until such
time that it can, the following procedures will apply:
(i) Current reporting mechanisms in place as of the Effective Date
of this Agreement will continue with Pinnacle reporting to Northwest by
the 15th day of the following month, the actual gallons boarded and the
fuel price paid (including into-plane fees and taxes).
(ii) Current payment mechanisms in place as of the Effective Date
of this Agreement will continue with the exception that the applicable
monthly Margin (per SECTION 5.09) will only be paid on the actual fuel
boarded multiplied by the lesser of the actual fuel price, including
into-plane fees and taxes, and $.78/gallon (the "Fuel Price"). In
addition, no adjustment will be made to bring Pinnacle's fuel expense up
to $.78/gallon. The reimbursement will be through the SECTION 5.02 wire
transfer occurring on the 15th day of the following month.
(c) FUEL PAYMENT. On and after the date on which Northwest executes the
administrative functions outlined in Section 5.06(a) (ii) and (iii) above,
Northwest will charge Pinnacle on a pre-pay basis the last week of each month
for fuel to be boarded for the 1st -15th of the succeeding month. Pinnacle will
pay for that fuel through a set-off of the amount due from the SECTION 5.02 wire
transfer on the 15th of the month for which the prepay is occurring. Northwest
will reimburse Pinnacle for this pre-pay amount through the SECTION 5.02 wire
transfer on the 30th of the month. Likewise, Northwest will charge Pinnacle on a
pre-pay basis the second week of the month for fuel to be boarded for the
16th-end of month. Pinnacle will pay for that fuel through a set-off of the
SECTION 5.02 wire transfer on the 30th of the month for which the prepay is
occurring. By the 15th of the following month, Northwest will reconcile the
pre-paid fuel expense for the preceding month with the actual expense (at a
price not to exceed the Fuel Price), and charge or credit Pinnacle with the
difference, including reimbursement for the second half pre-pay. This
reimbursement and month end adjustment for the preceding month will be handled
via the SECTION 5.02 wire transfer occurring the 15th day of the following month
through additional payment or set-off.
The pre-pay will be based on using half of Pinnacle's prior month actual
boarded volume at the Fuel Price.
Pinnacle shall have the right to audit on a semi-annual basis the
determination of the number of gallons of aircraft fuel boarded and shall report
any disputes to Northwest. Any dispute not reported to Northwest within thirty
(30) days of the conclusion of such audit shall be deemed waived.
31
Northwest's fuel department shall have the right to audit on a monthly
basis the determination of the number of gallons of aircraft fuel boarded and
fuel price paid and shall report any disputes to Pinnacle. Any dispute not
reported to Pinnacle within thirty (30) days of the conclusion of such audit
shall be deemed waived.
(d) PINNACLE REPORTING PROCEDURES. Pinnacle will provide to Northwest the
following fuel administrative service assistance: (i) Timely Fuel Management
System ("FMS") data entry by Pinnacle at Primary Service Cities including
month-end reconciling to the fixed base operator ("FBO") by the end of the
second business day, (ii) FMS coverage by Pinnacle when regular FMS person is on
vacation, leave, etc., (iii) Pinnacle will train new Pinnacle employees on FMS
due to turnover, vacation, etc., (iv) problems at FBO regarding supply of fuel
slips and ▇▇▇▇ of lading receipts will be addressed by Pinnacle personnel first
before involving Northwest Fuel Department.
(e) FUEL BURN REVIEW PROCEDURES - CRJ. Northwest and Pinnacle agree to
review the fuel burn performance of the CRJ Aircraft for compliance with the
performance measure (burn rate ceiling) set below. Either party may initiate the
audit of the actual fuel burn against the set measure. The performance measure
includes both scheduled and non-scheduled fuel usage/expense. The ceiling is the
Northwest budgeted scheduled fuel burn per scheduled Block Hour [****] for
non-scheduled usage. For example, the 2002 performance measure (ceiling) is
equal to the Northwest scheduled fuel burn rate of [****] gallons per scheduled
block hour [****], which sets the ceiling at [****].
In the event that the CRJ Aircraft's actual fuel burn for the period of
review is above the ceiling the parties will work together in good faith to
explain the variance relative to the ceiling and to resolve the cause of the
variance. If it is determined that actual fuel burn was above the ceiling for
reasons within the control of Pinnacle, Pinnacle will pay a Fuel Burn Penalty
Payment to Northwest and such payment shall be made in accordance with SECTION
5.08. The Fuel Burn Penalty Payment shall be calculated as follows:
Fuel Burn Penalty Payment = [(total fuel expense/actual fuel price) /
scheduled Block Hours - performance ceiling] * completed scheduled Block Hours *
actual fuel price (not to exceed $.78 per gallon) + Margin applicable to the
fuel expense reimbursement pursuant to SECTION 5.09 or 5.12.
SECTION 5.07 DIRECT EXPENSES. Northwest will reimburse Pinnacle for the
following expenses at the Direct Cost to Pinnacle. Reimbursement for these
expenses paid or accrued by Pinnacle in the prior month will be included in the
wire transfer to Pinnacle on the 15th of each month pursuant to SECTION 5.02(B)
above. Pinnacle will be responsible for providing Northwest with a copy of all
third party invoices and evidence of payment needed to determine the expense
amount and the timeliness of payment.
(a) Equipment Rental Expense - less any performance guarantee payments or
credits that Pinnacle receives from the manufacturers.
(b) Aviation Insurance - Aircraft hull insurance and aviation liability
insurance, including war risk liability and hull war risk insurance, subject to
the following:
32
(i) in the event that Pinnacle obtains aviation insurance coverage
as part of Northwest's aviation insurance placement, the rates used to
determine Pinnacle's share of the aviation insurance expenses shall be
the same as the rates used to determine Northwest's expense for such
insurance, and Pinnacle's aviation liability insurance (including war
risk liability) expense shall be the lesser of the expense based on the
actual rates or [****] per Pinnacle RPM and Pinnacle's hull insurance
(including hull war risk insurance) expense shall be the lesser of the
expense based on the actual rates or [****] per dollar ($) of Pinnacle
Fleet Value; and
(ii) in the event that Pinnacle does not obtain aviation insurance
under Northwest's placement, Pinnacle's aviation insurance expense shall
be equal to [****] per Pinnacle RPM for aviation liability insurance
(including war risk liability) and [****] per dollar ($) of Pinnacle
Fleet Value for hull insurance (including hull war risk insurance) and
such expense amount shall be the amount with respect to which a margin
payment pursuant to Section 5.09 or 5.12 shall be made. If Pinnacle's
actual aviation insurance expense exceeds the amounts above, the
incremental insurance expense above the foregoing limits will be
reimbursed by Northwest. In the event Pinnacle's actual aviation
insurance expense is below the limits, Pinnacle shall remit to Northwest
(through a set-off of the next amount due from the Section 5.02 wire
transfer) an amount equal to the difference.
(c) Engine maintenance - The CRJ 200/440 engine maintenance performed
pursuant to the GE Agreements less any warranty payments or credits that
Pinnacle receives, including but not limited to those from GE. If Northwest and
Pinnacle agree at any time to have the engine work performed elsewhere, the
reimbursement amount will be adjusted to take into account the new arrangement.
Notwithstanding the foregoing, Northwest will not reimburse Pinnacle for engine
maintenance performed pursuant to the GE Agreements which is accomplished
unreasonably in advance of the time such maintenance is required in accordance
with the Maintenance Program or which is accomplished for the sole purpose of
satisfying return conditions under the Lease.
(d) Airframe maintenance - The CRJ 200/440 airframe maintenance performed
pursuant to Bombardier Agreement less any warranty payments or credits that
Pinnacle receives, including but not limited to those from Bombardier. If
Northwest and Pinnacle agree at any time to have the maintenance work performed
elsewhere, the reimbursement amount will be adjusted to take into account the
new arrangement. Notwithstanding the foregoing, Northwest will not reimburse
Pinnacle for airframe maintenance performed pursuant to the Bombardier Agreement
which is accomplished unreasonably in advance of the time such maintenance is
required in accordance with the Maintenance Program or which is accomplished for
the sole purpose of satisfying return conditions under the Lease.
(e) Deicing services and glycol - subject to the provisions of Section
4.02(b) and reimbursed accordingly:
(i) Deicing services and glycol at Primary Service Cities and Hub
Cities where a contracted agent is performing the service.
33
(ii) Glycol at Primary Service Cities and Hub Cities where Pinnacle
performs the deicing function.
(f) Maintenance Facilities, subject to the provisions of SECTION 4.03(C).
(g) Jet bridges-In the event Northwest requires Pinnacle to enter into
agreements for new jet bridges in 2002, Northwest agrees to reimburse Pinnacle
for the depreciation or lease expenses incurred in 2002 only.
(h) CRJ 200/440 auxiliary power unit (APU) maintenance expense, CRJ
200/440 avionics maintenance expense and CRJ 200/440 landing gear overhaul
expense less any warranty payments or credits that Pinnacle receives with
respect to any of the foregoing expenses.
(i) Hub City facility charges pursuant to Exhibit B.
(j) Airport security-related equipment maintenance expenses and personnel
expenses incurred by Pinnacle pursuant to SECTION 4.05.
Notwithstanding the foregoing, Northwest will not reimburse Pinnacle for
any late payment charges, penalties and/or fees which Express incurs in
connection with payment of the expenses listed above.
SECTION 5.08 BILLING. Northwest and Pinnacle shall ▇▇▇▇ each other on a
monthly basis in respect of amounts owed to each other under this Agreement not
contemplated under SECTION 5.02. If such billed items are not paid by the party
within sixty (60) days of the statement date, the aggregate amount of undisputed
items may be offset against or included in the next scheduled wire transfer
pursuant to SECTION 5.02(B). Disputed amounts must be paid when the dispute is
resolved, provided that such amount may be set off against or included in the
next scheduled wire transfer pursuant to SECTION 5.02(B) if the formerly
disputed amount is not paid within seven (7) days of resolution. Northwest may
also offset against the next scheduled wire transfer pursuant to SECTION 5.02(B)
the amount of any payment (including those under any Lease or the Note) with
respect to which Pinnacle shall have defaulted and shall have failed to cure
before the expiration of any applicable grace period.
SECTION 5.09 MONTHLY MARGIN CALCULATION AND PAYMENT. The monthly Margin
Payment for the time period through December 31, 2006 shall be calculated as
follows:
Monthly Margin Payment = (payments due to Pinnacle pursuant to SECTIONS
5.03, 5.04, 5.05, 5.06 and 5.07) * .14 / .86
SECTION 5.10 ANNUAL MARGIN ADJUSTMENT PAYMENT. For the time period
through December 31, 2006, the parties will calculate Pinnacle's Margin in
accordance with SECTION 5.10(A) and, if required pursuant to SECTION 5.10(B)
below, one party will make a Margin Adjustment Payment to the other party.
34
(a) CALCULATION OF THE TOTAL OPERATING COST AND THE MARGIN. Not later
than ninety (90) days following the end of 2002, 2003, 2004, 2005 and 2006,
Pinnacle shall deliver to Northwest its audited financial statements including
the calculation of its operating margin for Regional Airline Services provided
under this Agreement for the prior year (the "Margin") by dividing (x)
Pinnacle's Total Operating Income for Regional Airline Services for such year by
(y) Pinnacle's Total Operating Revenue for Regional Airline Services for such
year, subject to the following:
In calculating the Margin, the amount of any incentives or penalties
(accounted for as a reduction to revenue) pursuant to SECTION 5.06, SECTION 5.14
and/or SECTION 5.15 below and any Saab rental revenue will not be included in
Pinnacle's Total Operating Revenue, and the following expenses will not be
included in Pinnacle's Total Operating Cost:
(1) Increment above predicted employee bonuses and incentives.
Predicted bonus and incentive levels are the amounts used in calculating
the Block Hour, Cycle and Fixed Cost Rates for 2002, 2003, 2004, 2005 and
2006, respectively.
(2) Increment above market pay rates for Pinnacle's employees per
the Parity Pay Agreement in Exhibit C.
(3) The amount of any penalties pursuant to SECTION 5.15 (if not
accounted for as a reduction to revenue).
(4) The amount of any depreciation expense associated with capital
expenditures in excess of $250,000 which are designated by Northwest as
Section 5.10(a)(4) items because Northwest has determined that such
capital expenditures are not necessary after taking into consideration
the Annual Operating Plan and Pinnacle's obligations under this
Agreement, within seventy-five (75) days after receiving written notice
from Pinnacle of such capital expenditure pursuant to Section 6.01(a)(iv)
below.
(5) The amount of any Fuel Burn Penalty Payment pursuant to
SECTION 5.06(D) (if not accounted for as a reduction to revenue).
(6) The amount of any asset write-downs (excluding normal
depreciation) or extraordinary charges as defined by GAAP.
(7) Rental expense associated with the Saab 340 fleet not flown by
Pinnacle.
(8) The amount of any fines or penalties paid by Pinnacle to any
governmental entity.
(9) The CRJ 200/440 Aircraft and Spare Engine return costs
including termination costs incurred by Pinnacle pursuant to Section
3.02(b) above.
(10) The amount of any late payment charges, penalties and/or fees
incurred by Pinnacle.
(11) The amount of any payment from Pinnacle to Northwest pursuant
to Section 5.14 (if not accounted for as a reduction to revenue).
35
The Margin shall be expressed as a decimal rounded to the fourth place.
The calculation of the Margin shall be derived from Pinnacle's reported
financial statements for such year and shall be determined in accordance with
GAAP.
(b) ANNUAL MARGIN ADJUSTMENT PAYMENT. With respect to each calendar year
through and including 2006 (with the exception of 2002 for which the applicable
period is March 1, 2002 through December 31, 2002), if the Margin is less than
12%, Pinnacle shall receive from Northwest an amount determined as follows:
Ppin = [Total Operating Cost/.88] - Rev
where
Ppin is the amount payable to Pinnacle,
Rev is Total Operating Revenue for Regional Airline
Services for the applicable calendar year excluding any
incentives paid to Pinnacle pursuant to SECTION 5.15, and
Total Operating Cost excludes Items 1-11 in SECTION 5.10(A)
above.
With respect to each calendar year through and including 2006, if the Margin is
greater than 16%, Northwest shall receive from Pinnacle an amount determined as
follows:
Pnw = Rev - [Total Operating Cost/.84]
where,
Pnw is the amount payable to Northwest,
Rev is Total Operating Revenue for Regional Airline
Services for the applicable calendar year excluding any
incentives paid to Pinnacle pursuant to SECTION 5.15, and
Total Operating Cost excludes items 1-11 in SECTION 5.10(A)
above.
An amount payable pursuant to this SECTION 5.10(B) is a "Margin Adjustment
Payment." Northwest shall add in or setoff, as appropriate, any Margin
Adjustment Payment in the next wire transfer due to Pinnacle .
(c) AUDIT OF TOTAL OPERATING COST AND THE MARGIN. Northwest shall have
the right to audit the calculation of the Total Operating Cost, the Margin and
the Margin Adjustment Payment, and shall report any disputes to Pinnacle. Any
dispute not reported to Pinnacle in writing within ninety (90) days of the
receipt of the audited financial statements and Margin calculation by Northwest
shall be deemed waived. The payment in respect of any dispute shall be handled
as a disputed amount in accordance with SECTION 5.08.
36
SECTION 5.11 RATE ADJUSTMENTS. For the calendar year 2005, the Block
Hour, Cycle, Ground Handling and Fixed Cost Rates will be adjusted as described
below.
(a) ONE TIME ADJUSTMENT FACTOR. Effective for the twelve-month period
beginning on January 1, 2005 the Block Hour Rate, Cycle Rate, and Ground
Handling rates (other than the rate for ground handling at Complementary Service
Cities) used for the 2004 calendar year will be multiplied by a One Time
Adjustment Factor (OTAF) and multiplied by (1 + CPPI). These adjusted rates will
be used for the twelve-month period beginning January 1, 2005. The OTAF will be
calculated as follows:
(1) Determine Pinnacle's actual operating expenses for the
twelve-month period ending December 31, 2004, excluding [****]
(2) Determine the actual payment made to Pinnacle for the twelve
month period ending December 31, 2004, excluding [****].
(3) Divide the result of step (1) by the result of step (2).
(b) INFLATION ADJUSTMENT. Effective for 2006, the Block Hour Rate, Cycle
Rate, and Ground Handling Rates (other than the rate for ground handling at
Complementary Service Cities) used for 2005 will be multiplied by (1+CPPI) to
establish the 2006 rates.
(c) FIXED COST PAYMENT ADJUSTMENT. Effective for 2005 and 2006, the Fixed
Cost Payment formula will be multiplied by the OTAF.
(d) Effective for 2007 the payment rates and mechanisms set forth in
SECTIONS 5.02 through 5.07 will be re-set through good faith negotiations
utilizing a payment methodology consistent with the methodology utilized through
2006; provided, however, that any increment above market pay rates for
Pinnacle's employees, per the Parity Pay Agreement in Exhibit C, will not be
considered in re-setting such Rates. The Rates for 2008, 2009, 2010 and 2011
will be determined by multiplying the prior year's Rates by (1+CPPI).
(e) So long as this Agreement remains in effect, the payment rates and
mechanisms set forth in SECTIONS 5.02 through 5.07 will be re-set every fifth
year through good faith negotiations, commencing with the Rates effective for
2012, utilizing a payment methodology consistent with the methodology utilized
during the prior five (5) year period; provided, however, that any increment
above market pay rates for Pinnacle's employees, per the Parity Pay Agreement in
Exhibit C, will not be considered in re-setting such Rates. The Rates for the
years between each adjustment year will be determined by multiplying the prior
year's rates by (1 + CPPI).
(f) In the event the parties are unable to reach agreement on new payment
rates and mechanisms through good faith negotiations, the Rates will be set
utilizing the following procedure: (i) The parties shall attempt to agree upon
an impartial industry expert to act as sole arbitrator. If the parties are
unable to agree upon an expert to so act, each party shall appoint an expert,
and the two experts so appointed shall appoint a third expert; (ii) Each party
shall submit a set of proposed Rates to the arbitrator(s); and (iii) The
arbitrator(s) shall choose a set of Rates from those submitted without modifying
either.
37
SECTION 5.12 REVISED MONTHLY MARGIN CALCULATION AND PAYMENT. Effective
January 1, 2007, the monthly Margin Payment shall be calculated as follows:
Monthly Margin Payment = (payments due to Pinnacle pursuant
to SECTIONS 5.03, 5.04, 5.05, 5.06 and 5.07 (all adjusted
pursuant to SECTION 5.11)) * MMR / (1-MMR)
Where, MMR is the Market Margin Rate.
SECTION 5.13 REVISED ANNUAL MARGIN ADJUSTMENT PAYMENT. Effective for 2007
and each calendar year thereafter, the parties will calculate Pinnacle's Margin
in accordance with SECTION 5.13(A) and, if required pursuant to SECTION 5.13(B)
below, one party will make a Margin Adjustment Payment to the other party.
(a) CALCULATION OF THE TOTAL OPERATING COST AND THE MARGIN. Not later
than ninety (90) days following the end of 2007 and each subsequent calendar
year during the term of this Agreement, Pinnacle shall deliver to Northwest its
audited financial statements including the calculation of its operating margin
for Regional Airline Services provided under this Agreement for the prior year
(the "Margin") by dividing (x) Pinnacle's Total Operating Income for Regional
Airline Services for such year by (y) Pinnacle's Total Operating Revenue for
Regional Airline Services for such year, subject to the following:
In calculating the Margin, the amount of any incentives or penalties
(accounted for as a reduction to revenue) pursuant to SECTION 5.06, SECTION 5.14
and/or SECTION 5.15 below and any Saab rental revenue will not be included in
Pinnacle's Total Operating Revenue, and the following expenses will not be
included in Pinnacle's Total Operating Cost:
(1) Increment above predicted employee bonuses and incentives.
Predicted bonus and incentive levels are the amounts used in calculating
the Block Hour, Cycle and Fixed cost rates for 2006, grown each year by
multiplying by (1 + CPPI).
(2) The amount of any penalties pursuant to SECTION 5.15 (if not
accounted for as a reduction to revenue).
(3) The amount of any depreciation expense associated with capital
expenditures in excess of $250,000 which are designated by Northwest as
Section 5.13(a)(3) items because Northwest has determined that such
capital expenditures are not necessary after taking into consideration
the Annual Operating Plan and Pinnacle's obligations under this
Agreement, within seventy-five (75) days after receiving written notice
from Pinnacle of such capital expenditure pursuant to Section 6.01(a)(iv)
below.
(4) The amount of any Fuel Burn Penalty Payment pursuant to
SECTION 5.06(D) (if not accounted for as a reduction to revenue).
(5) The amount of any asset write-downs (excluding normal
depreciation) or extraordinary charges as defined by GAAP.
(6) Rental expense associated with the Saab 340 fleet not flown by
Pinnacle.
38
(7) The amount of any fines or penalties paid by Pinnacle to any
governmental entity.
(8) The CRJ 200/440 Aircraft and Spare Engine return costs
including termination costs incurred by Pinnacle pursuant to Section 3.02
(b) above.
(9) The amount of any late payment charges, penalties and/or fees
incurred by Pinnacle.
(10) The amount of any payment from Pinnacle to Northwest pursuant
to SECTION 5.14 (if not accounted for as a reduction to revenue).
The Margin shall be expressed as a decimal rounded to the fourth place.
The calculation of the Margin shall be derived from Pinnacle's reported
financial statements for such year and shall be determined in accordance with
GAAP.
(b) ANNUAL ADJUSTMENT TO MARGIN PAYMENT
With respect to each calendar year effective 2007, if the Margin is
greater than MMR but less than or equal to (MMR + 0.05), Northwest shall receive
from Pinnacle an amount determined as follows:
Pnw = (Rev - [Total Operating Cost/(1 - MMR)]) / 2
where,
Pnw is the amount payable to Northwest,
Rev is Total Operating Revenue for Regional Airline
Services for the applicable calendar year excluding any
incentives paid to Pinnacle pursuant to SECTION 5.15, and
Total Operating Cost excludes items 1-10 in SECTION 5.13(A)
above.
With respect to each calendar year effective 2007, if the
Margin is greater than (MMR + 0.05), Northwest shall receive from Pinnacle an
amount determined as follows:
Pnw = (Rev - [Total Operating Cost/(0.975 - MMR)])
where,
Pnw is the amount payable to Northwest,
Rev is Total Operating Revenue for Regional Airline
Services for the applicable calendar year excluding any
incentives paid to Pinnacle pursuant to SECTION 5.15, and
Total Operating Cost excludes items 1-10 in SECTION 5.13(A)
above.
39
An amount payable pursuant to this SECTION 5.13(B) is a "Margin
Adjustment Payment." Northwest shall add in or setoff, as appropriate, any
Margin Adjustment Payment in the next wire transfer due to Pinnacle .
(b) AUDIT OF TOTAL OPERATING COST AND THE MARGIN. Northwest shall have
the right to audit the calculation of the Total Operating Cost, the Margin and
the Margin Adjustment Payment, and shall report any disputes to Pinnacle. Any
dispute not reported to Pinnacle in writing within ninety (90) days of the
receipt of the audited financial statements and Margin calculation by Northwest
shall be deemed waived. The payment in respect of any dispute shall be handled
as a disputed amount in accordance with SECTION 5.08.
SECTION 5.14 NON-SCHEDULED FLIGHT REFUND
. With respect to each calendar year during the term of this Agreement,
Northwest shall within thirty (30) days from the receipt of the final Block Hour
and Cycle Report received pursuant to Section 5.02 for the immediately preceding
year, calculate and notify Pinnacle of the ratio of actual Block Hours for
Non-Scheduled Flights to actual Block Hours for Scheduled Flights and the ratio
of actual Cycles for Non-Scheduled Flights to actual Cycles for Scheduled
Flights. In the event that either ratio exceeds [****], Pinnacle shall remit to
Northwest (through a set-off of the next amount due from the SECTION 5.02 wire
transfer) an amount equal to the following:
REFUND CALCULATION:
Actual Block Hours and/or Cycles for Non-Scheduled Flights in excess of
[****] of the actual Block Hours and Cycles for Scheduled Flights,
respectively, multiplied by the Block Hour Rate, Cycle Rate and Ground
Handling Rate, respectively, in effect for the immediately preceding year
pursuant to Section 5.03 or 5.04 and as adjusted pursuant to Section
5.11, plus the amount of any Margin Payments previously paid by Northwest
to Pinnacle in connection with such excess Block Hours and/or Cycles;
provided, however, that no refund will be paid to Northwest with respect
to Non-Scheduled Flights which are Aircraft delivery flights.
SECTION 5.16 INCENTIVES AND PENALTIES.
(a) Pinnacle shall be subject to certain performance incentives and
penalties as described in this SECTION 5.15(A) ("Performance Criteria") which
shall be added to or deducted from the Block Hour Payment. If Pinnacle exceeds
any operational criterion an incentive payment shall be made by Northwest. If
Pinnacle does not achieve the performance criterion, then a penalty shall be
charged against amounts owing to Pinnacle. Any incentive payment or penalty
charge incurred by meeting or failing to meet Performance Criteria shall be made
in the wire transfer due on the 30th day of the second month following the end
of the Performance Period in question pursuant to SECTION 5.02(B). The
applicable performance incentives and penalties are as follows:
(i) Completion Factor (calculated in accordance with SECTION 2.10 (A)):
40
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Additional Additional
Penalty Penalty Neutral Incentive Incentive
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Performance Level [****] [****] [****] [****] [****]
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Penalty/Incentive per enplaned [****] [****] [****] [****] [****]
revenue passenger
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
(ii) On-Time Factors (calculated in accordance with SECTION 2.10(B)):
Departure [****]
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Additional Penalty Neutral Incentive Additional
Penalty Incentive
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Performance Level [****] [****] [****] [****] [****]
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Penalty/Incentive per enplaned [****] [****] [****] [****] [****]
revenue passenger
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Arrival [****]
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Additional Penalty Neutral Incentive Additional
Penalty Incentive
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Performance Level [****] [****] [****] [****] [****]
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
Penalty/Incentive per enplaned [****] [****] [****] [****] [****]
revenue passenger
------------------------------- ------------------ ---------------- ----------------------- -------------------- ------------------
(iii) Luggage Mishandled (calculated in accordance with SECTION 2.10(C)):
----------------------------------- ------------------- ------------------- --------------- -------------------- ------------------
Additional Penalty Penalty Neutral Incentive Additional
Incentive
----------------------------------- ------------------- ------------------- --------------- -------------------- ------------------
Performance Level (incidents per [****] [****] [****] [****] [****]
1,000 enplaned revenues passengers)
----------------------------------- ------------------- ------------------- --------------- -------------------- ------------------
Penalty/Incentive per enplaned [****] [****] [****] [****] [****]
revenue passenger
----------------------------------- ------------------- ------------------- --------------- -------------------- ------------------
41
(iv) Customer complaints (calculated in accordance with SECTION 2.10(D)):
----------------------------------- ------------------- ----------------- ----------------- -------------------- ------------------
Additional Penalty Penalty Neutral Incentive Additional
Incentive
----------------------------------- ------------------- ----------------- ----------------- -------------------- ------------------
Performance Level (incidents per [****] [****] [****] [****] [****]
1,000 enplaned revenue passengers)
----------------------------------- ------------------- ----------------- ----------------- -------------------- ------------------
Penalty/Incentive per enplaned [****] [****] [****] [****] [****]
revenue passenger
----------------------------------- ------------------- ----------------- ----------------- -------------------- ------------------
The parties will review the penalty and incentive levels for customer complaints
after the first year this Agreement is in effect and make such adjustments as
are mutually agreed.
(b) RECONCILIATION OF PERFORMANCE STANDARDS. For each Performance Period,
(i) Northwest shall determine the total number of enplaned revenue passengers on
Scheduled Flights operated by Pinnacle, (ii) Pinnacle shall prepare a
reconciliation of its actual performance to the targeted performance with
respect to its completion factor and its on-time factor and (iii) Northwest
shall prepare a reconciliation of Pinnacle's actual performance to targeted
performance with respect to Pinnacle's incidences of mishandled luggage and its
number of customer complaints. Such reconciliations will be completed and
delivered to the other within thirty (30) days after the end of each Performance
Period. Northwest and Pinnacle will have the right to audit the reconciliation
prepared by the other and shall report any discrepancies to the other. Any
discrepancy not reported in writing within sixty (60) days of the end of any
Performance Period shall be deemed waived. The payment of in respect of any
discrepancy shall be handled as a disputed amount in accordance with SECTION
5.08.
(c) ADDITIONAL PERFORMANCE CRITERIA. During the term of this Agreement,
Northwest may propose other performance criteria for Pinnacle's operations
pursuant to this Agreement. The parties agree that they will meet upon the
introduction of additional performance goals for Northwest's operations, to
develop similar performance targets for Pinnacle, taking into account the
differences in operations between the two companies, and shall use their best
commercially reasonable efforts to develop a system of incentives and penalties
for Pinnacle's performance with respect thereto in a manner consistent with the
performance standards agreed to herein.
SECTION 5.17 PINNACLE CHANGE OF CONTROL. In the event a Pinnacle Change
of Control shall have occurred, SECTIONS 5.09, 5.10, 5.12 and 5.13 shall be
terminated effective immediately.
SECTION 5.18 CREDIT CARD CHARGEBACKS.
(a) Pinnacle shall be billed for credit card chargebacks resulting from
Pinnacle's noncompliance with Northwest's credit card acceptance procedures.
Northwest shall apply the same card acceptance procedures and standards to
Pinnacle as applied to Northwest by
42
Northwest's credit card contractors. Northwest will inform Pinnacle in writing
regarding any material changes in Northwest's agreements with its credit card
contractors to the extent such changes will impact the procedures and standards
to be applied by Pinnacle.
(b) With respect to all credit card charge forms returned to Pinnacle by
Northwest, Northwest will furnish Pinnacle with a complete written explanation
of the reason therefor accompanied by relevant documentation received from the
credit card issuer or credit card holder.
(c) Upon receipt of a chargeback, Pinnacle shall have a reasonable period
of time, but not to exceed 30 days, to review the validity of the chargeback
notice. If the chargeback is valid (within the scope of the circumstances for
the chargeback), Pinnacle shall remit to Northwest within 30 days a gross amount
equal to such credit card charge form. If, in Pinnacle's good faith opinion, the
chargeback is not valid, Pinnacle will so notify Northwest and provide Northwest
with a complete written explanation of the transaction together with any
necessary supporting documentation within the 30-day period.
(d) All revisions to Northwest's credit card acceptance procedures must
be in writing and must be submitted to Pinnacle at least 30 days in advance of
the effective date of such procedures or such shorter notification period as
Northwest may utilize in notifying its own personnel.
SECTION 5.19 RETURNED CHECKS.
(a) Pinnacle shall be billed pursuant to SECTION 5.08 above for all
returned checks resulting from Pinnacle's non-compliance with Northwest's check
acceptance procedures.
(b) Northwest will furnish Pinnacle with a complete written explanation
of the reason, therefore, accompanied with the relevant documentation.
(c) Pinnacle shall refund Northwest the full amount of the dishonored
check within 30 days. If, in Pinnacle's reasonable opinion, the charge is not
valid, Pinnacle will so notify Northwest and provide Northwest with a complete
written explanation of the transaction together with any necessary supporting
documentation within the 30-day period.
(d) All revisions to Northwest's check acceptance procedures will be in
writing and will be submitted to Pinnacle at least 30 days in advance of the
effective date of such procedures or such shorter notification period as
Northwest may utilize in notifying its own personnel.
SECTION 5.20 MOST FAVORED NATIONS. If an Pinnacle Affected Company enters
into an agreement with a Major Carrier to provide regional airline services on a
capacity purchase or other similar economic basis on terms and conditions that
are in the aggregate less favorable to the Pinnacle Affected Company than the
terms and conditions of this Agreement are to Pinnacle, Northwest and Pinnacle
will amend this Agreement (effective as of the date of the
43
agreement with the Major Carrier) to conform the terms and conditions of this
Agreement to the terms and conditions of the agreement with the Major Carrier.
ARTICLE VI
REPORTING OBLIGATIONS,
AUDITING, INSPECTIONS AND CONFIDENTIALITY/PUBLICITY
SECTION 6.01 REPORTING OBLIGATIONS.
(a) Certain Notices to Northwest. Pinnacle shall give prompt written
notice to Northwest of (i) any litigation involving an uninsured claim of more
than $1,000,000 against Pinnacle, (ii) any proceeding before any governmental
agency which, if adversely determined, would materially and adversely affect
Pinnacle's financial condition, affairs, operations or prospects, (iii) any
other matter which would materially and adversely affect the financial
condition, affairs, operations or prospects of Pinnacle or its ability to
perform its obligations under this Agreement, and (iv) any proposed
extraordinary capital expenditures and all capital expenditures in excess of
$250,000. Pinnacle shall also report to Northwest not later than the last day of
each month its completion factor and on-time factor for the prior month.
(b) Financial and Reporting Covenants. Pinnacle Corp., Pinnacle and all
Affiliates of Pinnacle Corp. shall provide to Northwest promptly following the
filing or providing thereof copies of all financial statements, reports, notices
and proxy statements filed with or provided to the Securities and Exchange
Commission or the United States Department of Transportation. Pinnacle Corp. and
Pinnacle shall also promptly provide to Northwest notice of and adequate
information regarding any material weaknesses or reportable conditions noted in
any management letters received by either Company from its independent auditors
and the company's responses thereto. Pinnacle Corp., Pinnacle and all Affiliates
of Pinnacle Corp. shall also provide Northwest with monthly financial
statements, annual expense budgets and periodic business plans and related
projections.
(c) Certain Notices to Pinnacle. Northwest shall report to Pinnacle not
later than the last day of each month the number of incidences of mishandled
luggage and the number of customer complaints for the previous month related to
the Regional Airline Services provided hereunder. Upon the reasonable prior
written request by Pinnacle, Northwest shall make available its books and
records related to incidences of mishandled luggage and customer complaints in
connection with the Regional Airline Services provided hereunder.
SECTION 6.02 AUDITS.
(a) Compliance Audits. Upon the reasonable prior written request by
Northwest, Pinnacle Corp. and Pinnacle shall make available their respective
books and the books of all of their Subsidiaries and Affiliates, including but
not limited to general ledger backup (monthly) for financial statements and
records for operations with respect to this Agreement for inspection by
Northwest. Northwest shall also be entitled to make copies and notes of such
information as it deems necessary and to discuss such records and the finances
and
44
accounts of Pinnacle Corp. and Pinnacle with each Company's Chief Financial
Officer or other employee or agent of Pinnacle Corp. or Pinnacle knowledgeable
about such records.
(b) Inventory Audits. At Northwest's request, during the term of this
Agreement Pinnacle and Northwest shall conduct an annual inventory audit of all
spare parts, tooling and ground support equipment owned by Northwest and leased
to Pinnacle or owned by Northwest and supplied to Pinnacle. Such audit shall not
be requested more than one time per calendar year. In conducting such audit, the
parties shall tabulate the quantity and type of all spare parts and ground
support equipment including recognition of spare parts and ground support
equipment which were scrapped in the preceding year(s). Such audit, when
completed and agreed to by both parties, shall be final.
SECTION 6.03 INSPECTIONS. Northwest shall be entitled to conduct on-site
observations of Pinnacle's in-flight service, flight, maintenance, technical
operations, gate-check in service, ground operations, Aircraft cleaning and any
and all other services and operations performed under this Agreement to monitor
Pinnacle's operations in the same manner as similar functions are evaluated at
Northwest. The purpose of such inspections shall be to determine Pinnacle's
compliance with applicable Governmental Regulations, state and local laws,
equipment manufacturer's instructions and the standards established by this
Agreement. Pinnacle's operation will be evaluated according to the same standard
as Northwest taking into account the differences in size and operational
capabilities between the two airlines. Such inspections may be announced or
unannounced, but under no circumstances shall they interfere with the operation
of Pinnacle's business. Northwest shall report the findings of any such
inspection to Pinnacle in writing. Pinnacle shall provide a timely written
response detailing a plan of corrective action to remedy any deficiencies noted
in an inspection. If any deficiency comes to the attention of Pinnacle through
audits or any other means, Pinnacle shall take immediate corrective action.
SECTION 6.04 CONFIDENTIALITY/PUBLICITY. Each of Northwest and Pinnacle
agrees that, except as otherwise required by Governmental Regulations or any
other applicable law, it shall not disclose to others and shall keep
confidential the terms of this Agreement and any confidential, non-public
information concerning the other that it obtains as a result of or pursuant to
this Agreement. Pinnacle shall not issue any press release or public
announcement relating to new Scheduled Flights, the cessation of Scheduled
Flights in any Service City, schedule changes, customer initiatives, marketing
programs or promotions, without Northwest's prior written approval of the press
release or public announcement. In any such press release or public
announcement, Pinnacle shall identify itself as a Northwest Airlink carrier.
ARTICLE VII
NORTHWEST IDENTIFICATION
SECTION 7.01 IDENTIFICATION LICENSE. Northwest hereby grants to Pinnacle
a non-exclusive, non-transferable, non-sublicensable license to use the NW
Identification in connection with its operation of the Regional Airline Services
as authorized hereunder.
45
SECTION 7.02 DESIGNATOR LICENSE. Northwest hereby grants to Pinnacle a
non-exclusive, non-transferable, non-sublicensable license to use the Designator
in connection with its operation of the Scheduled Flights as authorized
hereunder.
SECTION 7.03 NEW IDENTIFICATIONS. From time to time in its sole
discretion, Northwest may change any NW Identifications and/or Designators upon
notice to Pinnacle. After receipt of such notice, Pinnacle shall, as soon as
practicable, but no later than thirty (30) days thereafter, commence use solely
of the new NW Identifications and/or Designators and cease all use of any
superseded ones. Northwest shall reimburse Pinnacle for the reasonable
out-of-pocket expenses incurred by Pinnacle in making such changes.
SECTION 7.04 USE OF IDENTIFICATION. Northwest shall have exclusive
control over the use and display of all NW Identifications and Designators, and
Pinnacle shall comply with all policies and guidelines of Northwest in this
regard. Pinnacle shall use the NW Identifications and Designators in good faith,
in a dignified manner and in compliance with good trademark practice. Pinnacle
shall use the NW Identifications and Designators exactly as prescribed by
Northwest, and shall not use (i) any stylization, abbreviation or variation
thereof or (ii) the NW Identifications and Designators in connection or
combination with any other Identification, in each case, without Northwest's
prior written consent, which may be withheld in its sole discretion.
SECTION 7.05 QUALITY CONTROL. Pinnacle shall use the NW Identifications
and Designators only in connection with products and services that comply with
the high standards of quality associated with Northwest. At Northwest's request,
Pinnacle shall submit representative samples to Northwest of all uses by
Pinnacle of the NW Identifications and Designators pursuant to this Agreement,
including SECTIONS 2.02, 4.03(F), 4.07(D) and 4.09(E). Pinnacle shall receive
the prior written approval of Northwest for any new uses of the NW
Identifications and Designators, including on any advertising and promotional
materials. Once such approval is received, Pinnacle need not resubmit such
materials for approval unless they contain non-trivial modifications.
SECTION 7.06 RESERVATION OF RIGHTS. All rights not expressly granted to
Pinnacle hereunder are expressly reserved by Northwest, including without
limitation the right to use or license others to use any NW Identifications or
Designators. Pinnacle shall not use the NW Identification or Designator except
as expressly authorized herein, and has no right to use any other Identification
of Northwest other than the specific NW Identification in the exact form
prescribed by Northwest from time to time.
SECTION 7.07 OWNERSHIP. Pinnacle hereby acknowledges that, as between the
parties, Northwest is the sole owner of the names "Northwest" and "Northwest
Airlink," the initials "NW," and any Designators or NW Identifications related
thereto or otherwise licensed to Pinnacle hereunder. Pinnacle agrees not to
directly or indirectly question attack, contest or impugn the validity and/or
Northwest's rights in the Designators and NW Identifications, including without
limitation by attempting to register title to or any intellectual property
rights in same or by participating in any action or proceeding adverse to
Northwest in this regard. Pinnacle agrees to cooperate fully with Northwest in
all actions to enforce, police and defend
46
Northwest's rights in the Designators and NW Identifications, subject to
reimbursement for its out-of-pocket expenses.
SECTION 7.08 TERMINATION. Should this Agreement expire or terminate for
any reason, the licenses in SECTIONS 7.01 and 7.02 shall immediately terminate
(although SECTIONS 7.07 and 7.08 shall survive), and Pinnacle shall promptly,
but in any event within ninety (90) days (one hundred twenty (120) days with
respect to any distinctive color scheme), take all such actions as may be
necessary to change its facilities, equipment, uniforms, supplies and other
materials to cease all use of any Designators and NW Identifications and to
avoid any customer confusion or the suggestion or appearance that Pinnacle
continues to have an operating relationship with Northwest.
SECTION 7.09 BANKRUPTCY. The parties intend that the identity of Pinnacle
as the licensee hereunder is a material condition to Northwest's granting of the
licenses in 7.01 and 7.02, and that this Agreement should be construed overall
as a contract for the personal services of Pinnacle. Therefore, in the event
Pinnacle becomes subject to a bankruptcy proceeding, the parties intend that
this Agreement shall not be assumed and/or assigned by Pinnacle or its
representative without Northwest's consent.
ARTICLE VIII
TAXES AND FEES
SECTION 8.01 TAXES AND FEES.
(a) Pinnacle shall be liable for and pay the amount of any taxes (other
than Ticket Taxes and Fees which are addressed separately in Section 8.02
below), duties, license fees, assessments, and other charges, together with any
interest and penalties thereon, levied, assessed, or imposed by any federal,
foreign, state, or local taxing or airport authority related or attributable to
performance of Regional Airline Services pursuant to this Agreement.
(b) Excluded from the coverage of SECTION 8.01(a) are any taxes based on
the net income of Northwest.
SECTION 8.02 TICKET TAXES AND FEES.
(a) For all sales by Pinnacle using Northwest ticket stock or air
waybills, Pinnacle shall be responsible for (1) collecting all Ticket Taxes and
Fees, and (2) remitting such Ticket Taxes and Fees to Northwest at the same time
as the revenues to which the Ticket Taxes and Fees relate are received by
Northwest. Northwest then shall be responsible for remitting such Ticket Taxes
and Fees to the appropriate governmental entities and taxing authorities.
(a) Pinnacle shall indemnify, defend, and hold harmless Northwest and its
officers, directors, employees, agents, and its affiliates (the "NW
Indemnitees") from and against all assessments or payments for Ticket Taxes and
Fees related to all sales by Pinnacle using Northwest ticket stock or air
waybills, and any interest and/or penalties related thereto. This
47
indemnification specifically includes, but is not limited to, assessments or
payments under Sections 4261, 4263, 4271, 4291, 6662, 6672, 6861, or 7275 of the
Internal Revenue Code of 1986, as amended, and any successor provisions.
Pinnacle further agrees as part of this indemnification to reimburse the NW
Indemnitees for any reasonable out-of-pocket expenses, including attorneys' fees
and expenses, the NW Indemnitees have incurred in connection with any such
assessment or payment. The obligations of Pinnacle under this SECTION 8.02(B)
shall remain in effect and shall survive without limitation the termination of
this Agreement.
SECTION 8.03 REFUNDS OF TAX. Pinnacle shall use its reasonable best
efforts to seek any and all applicable refunds or credits of excise, sales, use,
value-added, or similar transactional taxes paid by Pinnacle that are reimbursed
by Northwest pursuant to this Agreement. Pinnacle shall retain ten percent (10%)
of the amount of any such refund, credit or other benefit (inclusive of
interest) it receives, and the remaining ninety percent (90%) (inclusive of
interest) shall be paid to Northwest within ten (10) days of its receipt or
recognition of benefit by Pinnacle.
ARTICLE IX
LIABILITY, INDEMNIFICATION AND INSURANCE
SECTION 9.01 INDEPENDENT CONTRACTOR.
(a) Except for the limited purpose described in SECTION 5.01 hereof,
Pinnacle shall act as an independent contractor. The employees, agents and/or
independent contractors of Pinnacle engaged in performing any of the services
Pinnacle is obligated to perform pursuant to this Agreement shall be employees,
agents and independent contractors of Pinnacle for all purposes and under no
circumstances shall employees, agents or independent contractors of Pinnacle be
deemed to be employees, agents or independent contractors of Northwest. Except
for the limited purpose described in SECTION 5.01 hereof, in its performance of
obligations under this Agreement, Pinnacle shall act, for all purposes, as an
independent contractor and not as an agent for Northwest. Northwest shall have
no supervisory power or control over any employees, agents or independent
contractors engaged by Pinnacle in connection with Pinnacle's performance of its
obligations hereunder, and all complaints or requested changes in procedure
shall, in all events, be transmitted by Northwest to a designated representative
of Pinnacle. Nothing contained in this Agreement is intended to limit or
condition Pinnacle's control over its operation or the conduct of its business
as an air carrier, and Pinnacle assumes all risks of financial losses which may
result from the operation of the air services to be provided by Pinnacle
hereunder.
(b) Northwest shall act as an independent contractor. The employees,
agents and/or independent contractors of Northwest engaged in performing any of
the services Northwest is to perform pursuant to this Agreement shall be
employees, agents and independent contractors of Northwest for all purposes and
under no circumstances shall employees, agents and independent contractors of
Northwest be deemed to be employees, agents or independent contractors of
Pinnacle. In performing its obligations under this Agreement, Northwest shall
act, for all purposes, as an independent contractor and not as an agent for
Pinnacle. Pinnacle shall
48
have no supervisory power or control over any employees, agents or independent
contractors engaged by Northwest in connection with the performance of its
obligations hereunder, and all complaints or requested changes in procedure
shall, in all events, be transmitted by Pinnacle to a designated representative
of Northwest. Nothing contained in this Agreement is intended to limit or
condition Northwest's control over its operation or the conduct of its business
as an air carrier.
SECTION 9.02 INDEMNIFICATION.
(a) Each party assumes full responsibility for any and all liability to
its own officers, employees or agents on account of injury or death resulting
from or sustained in the performance of their respective services under this
Agreement. Each party shall indemnify, defend, protect, save and hold harmless
the other party, its officers, employees, and agents from and against any and
all liabilities, claims, demands, suits, judgments, damages and losses
(including the costs, fees and expenses in connection therewith and incident
thereto) brought against the other party, its officers, employees or agents by
or on behalf of any other person, by reason of damage to or destruction of
property of any such person, or injury to or death of such person, caused by or
arising out of any act or omission by the indemnifying party occurring while
this Agreement is in effect. Notwithstanding the foregoing, neither party shall
be liable for indemnifying the other for claims of third parties if caused by
the gross negligence or willful misconduct of the other. Each party shall give
the other party prompt and timely notice if it has actual knowledge of any claim
made or suit instituted against the other party which in any way results in
indemnification hereunder, and the other party shall have the right to
compromise or participate in the defense of such claim or suit to the extent of
its own interest.
(b) Northwest shall indemnify Pinnacle against any physical loss of or
damage to the Aircraft caused by Northwest's negligent operation of ground
support equipment or other acts or omissions of Northwest in performing Ground
Handling Functions pursuant to SECTION 4.02 above; provided, however, that
Northwest's liability shall be limited to any such loss or damage to the
Aircraft not exceeding the amount of the deductible with respect to such
Aircraft under Pinnacle's hull risk insurance policy, except that loss or damage
in respect of any incident below $3,000 shall not be indemnified. For the
avoidance of doubt, Northwest shall not be liable to Pinnacle for any
consequential loss or damage arising from physical loss of or damage to the
Aircraft, and Pinnacle shall not make any claim against Northwest and shall
indemnify it against any liability in respect of any and all such consequential
loss or damage howsoever arising.
(c) The obligations of Pinnacle and Northwest under the indemnity and
insurance provisions contained herein shall remain in effect and shall survive
without limitation the termination of this Agreement with respect to any
occurrence or claims arising during the term of or in connection with this
Agreement.
SECTION 9.03 INSURANCE.
(a) Pinnacle agrees, at its sole expense, to maintain in full force and
effect the following insurance coverage with respect to Regional Airline
Services:
49
(1) Workers' compensation and occupational disease insurance,
subject to the laws of the states wherein this Agreement is being
performed. Such coverage shall include employers liability insurance with
a minimum limit of $1,000,000 per incident.
(2) Comprehensive aviation bodily injury and property damage
liability insurance with limits of not less than $1 billion combined
single limit per occurrence (or such other minimum amount as may be
reasonably requested by Northwest from time to time in the event Pinnacle
no longer obtains airline liability insurance coverage as part of the
Northwest's aviation insurance placement), including, but not limited to,
aircraft liability, passenger legal liability, premises and property
damage liability, hangar keepers liability and baggage and cargo
liability. Such insurance shall include personal injury and contractual
liability, and shall also include war risk and allied perils, hijack and
confiscation coverage with a limit of not less than $1 billion per
incident.
(3) All risk hull insurance on the Aircraft, including hull war
risk coverage as required by Northwest.
(b) Prior to the commencement of Regional Airline Services under this
Agreement and at least annually thereafter, certificates of insurance in a form
satisfactory to Northwest shall be delivered to Northwest evidencing compliance
with the insurance terms of this Agreement. All of the above policies shall have
deductible amounts as established by Northwest, and, in any event, all of the
above insurance shall be written through an insurance company or companies
reasonably satisfactory to Northwest, and the certificates of insurance shall be
of a type that unconditionally obligates the insurer to notify Northwest in
writing at least thirty (30) days (or such lesser period as may be available for
war peril coverage) in advance of the effective date in the event of any
material change in or cancellation of such insurance. The policies of insurance
required by paragraphs (2) and (3) of SECTION 9.03(A) shall provide coverage for
events which occur during the policy period, are continuing in nature and not on
a claims made basis, and shall include endorsements that provide:
(1) That the Underwriters acknowledge that the indemnification and
hold harmless provisions of this Agreement are insured under Pinnacle's
blanket contractual liability coverage.
(2) That Northwest, its officers, agents and employees are named
as additional insureds thereunder.
(3) That the insurance is primary with respect to the matters
within such coverage, irrespective of any insurance carried by Northwest.
(4) That with respect to the interest of Northwest, the insurance
shall not be invalidated by any breach of warranty by Pinnacle.
(5) That provide a severability of interest/cross liability
endorsement.
(6) That the insurer shall waive its subrogation rights against
Northwest, its officers, agents and employees.
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(7) That any waiver of rights of subrogation against other parties
by Pinnacle will not affect the coverage provided with respect to
Northwest.
The parties acknowledge and agree that endorsements (2) through (7) above
are only applicable in the event Pinnacle obtains liability insurance coverage
that is not part of Northwest's aviation insurance placement.
(c) In the event the U.S. Government reimburses Pinnacle or its
Affiliates for excess insurance costs incurred as a result of the September 11,
2001 terrorist attacks or other such occurrences, Pinnacle will promptly remit
such reimbursement, including the applicable Margin Payment, if any, to
Northwest in immediately available funds.
ARTICLE X
TERM AND TERMINATION
SECTION 10.01 TERM. This Agreement shall commence on and shall be
effective as of March 1, 2002 (the "Effective Date") and, unless earlier
terminated as provided herein, shall continue in effect until February 29, 2012
and shall thereafter automatically be extended for successive five (5) year
renewal periods (each a "Renewal Term") unless (i) Northwest gives not less than
two years' advance notice of non-renewal prior to February 29, 2012 or the
commencement of any Renewal Term, in which case the Agreement will terminate on
February 29, 2012 or the last day of the then applicable Renewal Term, as the
case may be.
SECTION 10.02 TERMINATION BY EITHER PARTY.
(a) In the event that Pinnacle Corp., Pinnacle or Northwest (i) makes a
general assignment for the benefit of creditors or becomes insolvent, (ii) files
a voluntary petition in bankruptcy, (iii) petitions for or acquiesces in the
appointment of any receiver, trustee or similar officer to liquidate or conserve
its business or any substantial part of its assets, (iv) commences under the
laws of any competent jurisdiction any proceeding involving its insolvency,
bankruptcy, reorganization, readjustment of debt, dissolution, liquidation or
any other similar proceeding for the relief of financially distressed debtors,
(v) becomes the object of any proceeding or action of the type described in
(iii) or (iv) above and such proceeding or action remains undismissed or
unstayed for a period of at least thirty (30) days, or (vi) is divested of a
substantial part of its assets for a period of at least thirty (30) days, then
any of the other parties may by written notice terminate this Agreement
immediately.
(b) Except as otherwise provided in SECTION 10.03, in the event of a
breach of a nonmonetary provision of this Agreement by either party remaining
uncured for more than thirty (30) days after receipt of written notification of
such default by the nondefaulting party, or in the case of a breach requiring
more than thirty (30) days notice to cure, the defaulting party does not begin
and pursue with due diligence a method of cure within thirty (30) days after
receipt of written notification specifying in reasonable detail the nature of
such default from the nondefaulting party, then the nondefaulting party may
terminate this Agreement at its sole option.
51
(c) In the event of a breach of a monetary provision of this Agreement by
either party and such default remaining uncured for more than thirty (30) days
after receipt of written notification specifying in reasonable detail the nature
of such default from the nondefaulting party, then the nondefaulting party may
terminate this Agreement at its sole option.
SECTION 10.03 TERMINATION BY NORTHWEST. Notwithstanding the provisions of
SECTION 10.02(B), Northwest shall have the right to terminate this Agreement
immediately and at its sole option if:
(a) Pinnacle shall default in the payment of any amount due under any
Lease and such default shall continue for more than the period of grace, if any,
specified therein and shall not have been waived.
(b) Pinnacle shall default with respect to any other terms of any Lease,
such default shall continue for more than the period of grace, if any, specified
therein and shall not have been waived.
(c) Pinnacle shall fail to comply with the provisions of SECTION 9.03
and, as a result thereof, the insurance required thereunder is not in effect.
(d) Pinnacle shall fail to comply with the provisions of SECTION 6.03.
(e) More than fifty percent (50%) of the Aircraft do not operate any
Scheduled Flights for more than seven (7) consecutive days or twenty-five
percent (25%) of the Aircraft do not operate any Scheduled Flights for more than
twenty-one (21) consecutive days, other than as a result of (1) an FAA order
which grounds all commercial flights of all air carriers or grounds a specific
Aircraft type of all air carriers, (2) a scheduling action by Northwest, or (3)
Northwest's inability to perform its obligations under this Agreement as a
result of a strike by Northwest employees.
(f) Pinnacle's FAA or DOT Certification is for any reason suspended or
revoked or otherwise not in full force and effect so as to permit Pinnacle to
perform the Regional Airline Services required under this Agreement.
(g) A Pinnacle Change of Control shall have occurred.
(h) Pinnacle or a Pinnacle Affected Company shall commence operating an
aircraft type which causes Northwest to be in violation of its collective
bargaining agreement with its pilots or a Pinnacle Affected Company operates an
aircraft with more seats than the greater of (i) forty-four (44) seats, and (ii)
the highest number of seats that a jet aircraft may have and still have one less
seat than an aircraft defined as a "regional jet" under Northwest's collective
bargaining agreement with its pilots.
(i) The person elected to replace ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as Chief Executive
Officer of Pinnacle and Pinnacle Corp. and any successor Chief Executive Officer
of Pinnacle and Pinnacle Corp. shall not be reasonably acceptable to Northwest.
52
(j) Pinnacle shall default in the payment of any amount due under the
Note and such default shall continue for more than the period of grace, if any,
specified therein and shall not have been waived.
(k) Pinnacle shall default with respect to the material terms of any
other agreement between Pinnacle and Northwest, and such default shall continue
for more than the period of grace, if any, specified therein and shall not have
been waived.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 LIMITATION ON PERFORMANCE. The obligation of either
Northwest or Pinnacle to perform under the terms of this Agreement shall be
limited or modified by, and neither carrier shall be deemed to be in default
hereunder as a result of any of the following causes:
(a) Acts of God or the public enemy, civil war, insurrections or riots;
fires, floods, explosions, embargoes, earthquakes or serious accidents,
epidemics, or quarantine restrictions; any act of government, governmental
priorities, allocations, orders or Governmental Regulations affecting materials
or facilities, inability after due and timely diligence to procure materials,
accessories, equipment or parts; or due to any other cause to the extent it is
beyond that carrier's practical control or not occasioned by that carrier's
fault or negligence.
(b) Cessation, slow-down or interruption of work, or any other labor
disturbance involving Northwest.
SECTION 11.02 MUTUAL COOPERATION. Northwest and Pinnacle shall use their
reasonable best efforts to cooperate with each other in performing their
respective obligations under this Agreement.
SECTION 11.03 REPRESENTATIONS AND WARRANTIES. Except as expressly set
forth herein, neither Northwest nor Pinnacle shall make any representations or
warranties, expressed or implied, under or in connection with this Agreement.
SECTION 11.04 ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other parties.
SECTION 11.05 GOVERNING LAW. This Agreement shall be governed in
accordance with the laws of the State of
Minnesota, notwithstanding the choice
of law provisions thereof.
SECTION 11.06 INTERLINE AND OTHER AGREEMENTS. Northwest agrees, to the
extent it has the right to do so, to permit Pinnacle to avail itself of all its
rights, privileges and amenities pursuant to its interline agreements and all
industry trade or other agreements between Northwest and any other air carriers.
Northwest shall take all action and execute such documents as may be necessary
to enable Pinnacle to avail itself of the maximum benefits afforded by such
53
agreements. Subject to Northwest's prior written approval, Pinnacle may enter
interline agreements with air carriers other than those air carriers covered by
the two preceding sentences.
SECTION 11.07 NOTICES. All notices given hereunder shall be given in
writing and shall be delivered in person or deposited in the United States mail,
certified or registered mail, return receipt requested, with adequate postage
prepaid, or given by Pinnacle courier, telex, facsimile, or other expedient
written means, addressed as follows:
If to Northwest: Northwest Airlines, Inc.
Department A6100
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Vice President - Market Planning
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Northwest Airlines, Inc.
Department A1180
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
With copies to: Facsimile No: (▇▇▇)▇▇▇-▇▇▇▇
Northwest Airlines, Inc.
Department A6030
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▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Director of Airlink Planning
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
If to Pinnacle: Pinnacle Airlines, Inc.
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▇▇▇▇ ▇▇▇
▇▇▇▇: President
Facsimile No: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as the respective parties hereto shall designate by
notice in writing to the other party. Notices shall be deemed received and given
on the date of delivery or the date of refusal of delivery as shown by the
return receipt.
SECTION 11.08 PARTIES. Except as provided to the contrary herein, this
Agreement, and the rights and obligations created hereunder, shall be binding
upon and inure to the benefit of the respective parties hereto and their
respective successors and permitted assigns.
SECTION 11.09 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one agreement.
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SECTION 11.10 SEVERABILITY. If any term of this Agreement shall be
judicially determined to be illegal, invalid or unenforceable at law or in
equity, it shall be deemed to be void and of no force and effect to the extent
necessary to bring such term within the provisions of any such applicable law or
laws, and such terms as so modified and the balance of the terms of this
Agreement shall remain enforceable.
SECTION 11.11 CAPTIONS, SECTION HEADINGS AND TABLE OF CONTENTS. Captions,
section headings and the Table of Contents used herein are for convenience only
and are not a part of this Agreement and shall not be used in construing it.
SECTION 11.12 AVAILABILITY OF EQUITABLE REMEDIES; PROCEDURES.
(a) In the event of a breach by either party of any provision of this
Agreement, the nonbreaching party may give notice thereof to the breaching
party, which notice shall specify in reasonable detail the nature of the breach
and shall demand that the breaching party either cure the breach or refrain from
conduct constituting the breach (herein the "conduct"), as may be applicable. If
(i) the breaching party has not cured the breach or refrained from the conduct,
as may be applicable, within ten (10) days following receipt of the notice from
the nonbreaching party, or (ii) the breaching party does not begin within ten
(10) days following receipt of the notice to pursue with reasonable diligence a
method of cure or begin to take steps toward ceasing the conduct where the
breach or conduct is such that it requires more than ten (10) days to cure or to
cease, as may be applicable, then the nonbreaching party may seek to compel
performance by the breaching party in accordance with the provisions of
paragraph (b) below. If, upon receiving a notice contemplated by this paragraph
(a), a breaching party believes that a breach has not occurred or that the
conduct specified in the notice does not constitute a breach of the provisions
of this Agreement, but the breaching party nonetheless cures the alleged breach
or refrains from the conduct within ten (10) days following receipt of such
notice, such party may thereafter proceed in accordance with the provisions of
paragraph (b) below to seek a determination of whether a breach occurred or
whether the specified conduct constituted a breach of the provisions of this
Agreement.
(b) Because a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any party shall be entitled,
following notification in accordance with the provisions of paragraph (a) above,
to an injunction restraining such breach or threatened breach and to specific
performance of any provision of this Agreement and, in either case, no bond or
other security shall be required in connection therewith, and the parties hereby
consent to the issuance of such injunction and to the ordering of specific
performance. Further, in the event any party refrains from the conduct of any
activity alleged in a notice received pursuant to paragraph (a) above to
constitute a breach of the provisions of this Agreement, such party may
thereafter proceed promptly to bring an action in the District Court, County of
Hennepin, State of
Minnesota, for an expedited judicial determination as to
whether the conduct specified constitutes a breach of the provisions of this
Agreement and, upon a determination that the conduct does not constitute a
breach, such party may promptly thereafter recommence such conduct.
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SECTION 11.13 EXHIBITS. The Exhibits attached hereto are intended to be
an integral part of this Agreement and are incorporated into the Agreement by
reference for all purposes.
SECTION 11.14 INTEGRATION AND ENTIRE AGREEMENT. This Agreement (including
the Exhibits) and the ancillary documents entered into in connection therewith
are intended by the parties as a complete statement of the entire agreement and
understanding of the parties with respect to the subject matter hereof and all
matters between the parties related to the subject matter herein and therein set
forth. This Agreement may only be amended or modified by a written agreement
between Pinnacle, on the one hand, and Northwest, on the other, which
specifically references this Agreement and expressly provides for such
amendment.
SECTION 11.15 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
interpreted or construed as establishing between the parties a partnership,
joint venture or other similar arrangement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
PINNACLE AIRLINES, INC. NORTHWEST AIRLINES, INC.
By: By
----------------------------------- --------------------------------
Name: Name:
----------------------------------- --------------------------------
Title: Title:
PINNACLE AIRLINES CORP.
By:
-----------------------------------
Name:
-----------------------------------
Title:
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EXHIBIT A-1
AIRCRAFT LEASE FORM
Please refer to Exhibit 10.2 to Pinnacle Corp.'s Registration Statement
on Form S-1 (File No. 333-83354).
EXHIBIT A-2
ENGINE LEASE FORM
Please refer to Exhibit 10.3 to Pinnacle Corp.'s Registration Statement
on Form S-1 (File No. 333-83354).
EXHIBIT B
HUB CITY FACILITY CHARGES
Rental rates chargeable to Pinnacle for the sub-leased space at the Hub Cities
shall be as follows:
MSP -- [****] per month
DTW -- [****] per month
MEM -- [****] per month
EXHIBIT C
PARITY PAY AGREEMENT
PARITY PAY AGREEMENT
The parties agree that labor costs resulting from pay rates in excess of Parity
Pay Rates for the pilot, flight attendant, customer service/reservations agent,
ramp service, and mechanic workgroups will be excluded from Total Operating Cost
when calculating the Margin pursuant to SECTION 5.10(A) and 5.13(A).
The parties agree that labor costs resulting from any significant work rule
and/or Premium changes, in lieu of above Parity Pay Rates will be excluded from
Total Operating Cost when calculating the Margin pursuant to SECTION 5.10(A) and
5.13(A).
The parties agree that labor costs resulting from benefits which are in excess
of industry parity for the pilot, flight attendant, customer
service/reservations agent, ramp service, and mechanic workgroups will be
excluded from Total Operating Cost when calculating the Margin pursuant to
SECTION 5.10(A) and 5.13(A).
The following definitions are used throughout this parity pay agreement:
"COMPARISON AIRLINES" shall have the meaning throughout Exhibit C as the
five largest (by revenue) publicly traded U.S. domestic regional airlines
operating primarily regional jet aircraft.
"PREMIUMS" shall mean separate line, longevity, shift, license, skill or
other premiums.
"RAA" shall mean the Regional Airline Association, Washington, D.C.
Definitions provided in the sections below are applicable only to the section in
which such terms appear.
PILOT AND FLIGHT ATTENDANT EMPLOYEES
A. PROCEDURES
Pinnacle's Pay Rates for the pilot and flight attendant workgroups plus hourly
impact of any Bonus Rate are compared to Parity Pay Rates.
If Pay Rates exceed Parity Pay Rates in any classification, the labor cost for
that classification will be multiplied by the overage percentage and such
product will be deducted from Total Operating Cost for purposes of calculating
the Margin.
Significant work rule and Premiums changes are evaluated on a case by case
basis.
B. DEFINITIONS
"PAY RATES" shall be the top of scale hourly rates of pay excluding
Premiums.
"BONUS RATE" shall be the average bonus payment divided by the timeframe
covered (based on 2,080 hours per year).
"PARITY PAY RATES" shall be the simple average of the Pay Rates at the
Comparison Airlines within a classification. In the event that a comparison
airline reduces or eliminates its Premiums and simultaneously increases its
basic hourly rates, the portion of the basic hourly rate equal to the Premiums
shall be excluded in determining Parity Pay Rates.
CUSTOMER SERVICE/RESERVATIONS AGENT, RAMP SERVICE AND MECHANIC EMPLOYEES
A. PROCEDURES
Pinnacle's actual Pay for customer service/reservations agent, ramp service, and
mechanic workgroups is compared to projected Parity Pay.
If Pay exceeds Parity Pay in any classification, the difference will be deducted
from Total Operating Cost for purposes of calculating the Margin.
Significant work rule and Premiums changes are evaluated on a case-by-case
basis.
B. DEFINITIONS
"PAY" is the sum of all customer service/reservation, agent, ramp service
and mechanic employees pay, including any bonus payments, within a
classification (i.e. customer service agents) and shall exclude Premiums and any
overtime premium.
"PARITY PAY" shall be the sum of all customer service/reservation, agent,
ramp service and mechanic employees Pay re-calculated using the Parity Pay Scale
in place of actual Pay rates.
"PARITY PAY SCALE" shall be constructed by taking the average pay rates
for Pay steps for all levels new hire to year 10 (top step) of the Comparison
Airlines as reported by the RAA.
BENEFITS - ALL EMPLOYEES
A. PROCEDURES
Pinnacle's actual Benefits for all above employee groups are compared to the
average Benefits of the same or similar classifications of the Comparison
Airlines as reported by the RAA.
B. DEFINITIONS
"BENEFITS" include but are not limited to pension, 401(k), health and
dental insurance, life and disability insurance, and other post retirement
benefits. Benefits are evaluated on an individual basis (i.e. Pinnacle's pilot
pension is compared to the average pilot pension at the Comparison Airlines as
reported by the RAA).
DATA REQUIREMENTS
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In order to assess compliance with the Parity Pay Agreement, Pinnacle agrees to
provide Northwest with data including but not limited to the following:
- Total labor costs by workgroup or classification (e.g. pilot)
- Pay scales to the extent they exist for all Pinnacle's workgroups.
- Pay scales for the Comparison Airlines as reported by the RAA for
requested workgroups.
- Individual employees' information including workgroup, longevity or
hire date, bonus payments received, hourly rate(s) of pay, hours paid
at hourly rate(s) of pay, projected hours paid at each pay step (1 -
10) if not currently paid based on a defined pay scale, for requested
workgroups.
3