Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number 001-34584

 

 

HARBOR DIVERSIFIED, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-3697002
(State of incorporation)  

(I.R.S. Employer

Identification No.)

W6390 Challenger Drive, Suite 203

Appleton, WI

  54914-9120
(Address of principal executive offices)   (Zip Code)

(920) 749-4188

(Registrant’s telephone number, including area code)

Harbor BioSciences, Inc.

9191 Towne Centre Drive, Suite 409

San Diego, CA

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

None   None   None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.       Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer    
Non-accelerated filer      Smaller reporting company    
     Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of June 28, 2019, the last business day of the registrant’s second fiscal quarter for the year ended December 31, 2019, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock as reported on the OTC Market, was approximately $1,046,000. As of June 30, 2020, the last business day of the registrant’s second fiscal quarter for the year ending December 31, 2020, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock as reported on the OTC Market, was approximately $2,743,000. The determination of affiliate status for this purpose does not reflect a determination that any of such persons shall be deemed to be an affiliate of the registrant for any other purpose.

As of May 31, 2020, the registrant had 54,863,305 shares of common stock outstanding and 4,000,000 shares of Series C Convertible Redeemable Preferred Stock outstanding. The registrant does not have any class of securities registered pursuant to Section 12(b) or Section 12(g) of the Act.

Documents Incorporated by Reference

None

 

 

 


Table of Contents

HARBOR DIVERSIFIED, INC.

ANNUAL REPORT ON FORM 10-K

For the Year Ended December 31, 2019

INDEX

 

         Page  

PART I

  

ITEM 1.

  BUSINESS      2  

ITEM 1A.

  RISK FACTORS      12  

ITEM 1B.

  UNRESOLVED STAFF COMMENTS      27  

ITEM 2.

  PROPERTIES      28  

ITEM 3.

  LEGAL PROCEEDINGS      30  

ITEM 4.

  MINE SAFETY DISCLOSURES      31  

PART II

  

ITEM 5.

  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES      32  

ITEM 6.

  SELECTED FINANCIAL DATA      34  

ITEM 7.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      35  

ITEM 7A.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      52  

ITEM 8.

  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA      53  

ITEM 9.

  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE      85  

ITEM 9A.

  CONTROLS AND PROCEDURES      86  

ITEM 9B.

  OTHER INFORMATION      88  

PART III

  

ITEM 10.

  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      89  

ITEM 11.

  EXECUTIVE COMPENSATION      94  

ITEM 12.

  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS      99  

ITEM 13.

  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE      100  

ITEM 14.

  PRINCIPAL ACCOUNTANT FEES AND SERVICES      102  

PART IV

  

ITEM 15.

  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES      103  

ITEM 16.

  FORM 10-K SUMMARY      105  

SIGNATURES

     106  

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (this “Annual Report”) contains “forward-looking statements,” which reflect our current views about future events and financial results. We have made these statements in reliance on the safe harbor created by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). These forward-looking statements relate to matters such as our industry, business plans and strategies, material contracts, key relationships, consumer behavior, flight schedules, revenue, expenses, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Annual Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are currently expecting, including:

 

   

the dependence of the business of our subsidiary, Air Wisconsin Airlines LLC (“Air Wisconsin”), on a capacity purchase agreement with United Airlines, Inc. (the “United capacity purchase agreement”) given United is currently Air Wisconsin’s sole airline partner;

 

   

the material decline in air travel demand and significant risks and disruptions caused by the novel coronavirus pandemic;

 

   

the possibility that United could provide Air Wisconsin with inefficient flight schedules or change the expected utilization of Air Wisconsin’s aircraft under the United capacity purchase agreement;

 

   

disagreements regarding the interpretation of the United capacity purchase agreement, as well as other business disputes with United;

 

   

the amounts Air Wisconsin is paid or reimbursed under the United capacity purchase agreement;

 

   

the extent to which Air Wisconsin’s current growth opportunities are restricted based on factors impacting the airline industry;

 

   

increases in Air Wisconsin’s labor costs;

 

   

Air Wisconsin’s reliance on only one aircraft type, aircraft manufacturer and engine manufacturer, and the potential issuance of operating restrictions on this aircraft or engine type;

 

   

Air Wisconsin’s significant amount of debt and other contractual obligations;

 

   

the significant portion of Air Wisconsin’s workforce that is represented by labor unions and the terms of its collective bargaining agreements;

 

   

maintenance costs;

 

   

disruptions in service with key third-party service providers;

 

   

regulatory changes or tariffs; and

 

   

the supply of qualified pilots to the airline industry and pilot attrition.

The forward-looking statements contained in this Annual Report are based on management’s current plans, estimates and expectations in light of information currently available to us, and they are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in the section entitled “Risk Factors” within this Annual Report and in the other reports we file with the Securities and Exchange Commission.

Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Should one or more of these risks or uncertainties materialize, or should any of our assumptions or estimates prove to be incorrect, our actual results may be different from, and potentially materially worse than, what we may have expressed or implied by these forward-looking statements. Investors should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Annual Report speaks only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws. We qualify all of our forward-looking statements by these disclaimers.


Table of Contents

PART I

 

ITEM 1.

BUSINESS

General

Harbor Diversified, Inc. is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”). Air Wisconsin is a regional air carrier that, as of December 31, 2019, provided scheduled passenger service to 81 cities in 31 states. Harbor Diversified, Inc. is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC (“Lotus”), which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC (“AWF”), which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc. (“Therapeutics”), which is a non-operating entity with no material assets.

For purposes of this Annual Report on Form 10-K for the year ended December 31, 2019 (this “Annual Report”), where reference is intended to include Harbor Diversified, Inc. together with its consolidated subsidiaries, they are collectively referred to as “we,” “us,” or “our.” Where reference is intended to refer only to Harbor Diversified, Inc., it is referred to as the “Company.”

For the year ended December 31, 2019, Air Wisconsin operated a fleet of 64 CRJ-200 regional jets with an average of approximately 284 daily departures under a capacity purchase agreement (the “United capacity purchase agreement”) with its sole major airline partner, United Airlines, Inc. (“United”), with a significant presence at both Chicago O’Hare and Washington-Dulles, two of United’s key domestic hubs. All of Air Wisconsin’s flights are operated as United Express pursuant to the terms of the United capacity purchase agreement. More than 99% of our operating revenue for the year ended December 31, 2019, and more than 97% of our operating revenue for the year ended December 31, 2018, was derived from operations associated with the United capacity purchase agreement. Prior to March 2018, Air Wisconsin flew for American Airlines (and its predecessor, US Airways) for over ten years.

Subject to certain limited exceptions, the United capacity purchase agreement provides Air Wisconsin fixed daily revenue for each aircraft covered under the agreement, a fixed payment for each departure and block hour flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying service for United. The United capacity purchase agreement also has the effect of protecting Air Wisconsin, to an extent, from many of the elements that typically cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in the number of passengers from flight to flight. In providing regional flying under the United capacity purchase agreement, Air Wisconsin uses United’s logos, service marks, and aircraft paint schemes. United controls route selection, pricing, seat inventories, marketing and scheduling. In addition, United provides Air Wisconsin with ground support services and gate access.

Regional jets provide short and medium-haul scheduled flights that connect outlying communities with larger cities and act as “feeders” for domestic and international hubs. The lower trip costs and the operating efficiencies of regional jets, along with the competitive nature of capacity purchase agreement bidding processes, provide significant value to major airlines. According to the Regional Airline Association, in 2018, Air Wisconsin was the 11th largest regional airline in the United States, as measured by passenger enplanements, and its flights accounted for approximately 2.4% of all passengers carried on U.S. regional airlines.

Regional airlines play a daily, essential role in the U.S. air travel system. Forty-one percent of all scheduled passenger flights in the United States were operated by regional airlines in 2018, according to the Regional Airline Association. Of all the U.S. airports with scheduled passenger service, 63% are served exclusively by regional airlines. Some of the most popular U.S. airports have more than half of their scheduled departures made by regional aircraft, including Chicago-O’Hare, through which Air Wisconsin currently operates, and Washington-Dulles, where Air Wisconsin expects to resume operations in August 2020.

 

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The sharp decline in airline travel demand due to the novel coronavirus (“COVID-19”) pandemic has had a material negative impact on the airline industry. As a result of lower demand, United cut approximately 80% of its scheduled capacity for April 2020, and approximately 90% of its capacity for May and June 2020. In May 2020, United temporarily ceased Air Wisconsin’s operations at Washington-Dulles, where Air Wisconsin expects to resume operations in August 2020, and reduced Air Wisconsin’s average daily scheduled departures to 45, compared to 290 in February 2020 and 284 in December 2019. In June 2020, Air Wisconsin provided scheduled passenger service to 20 cities in 12 states. Air Wisconsin has taken a number of measures to mitigate the health risks and economic impact of the COVID-19 pandemic. For more information, see the sections entitled “Business – Impact of COVID-19 on Our Business and Industry,” “Management’s Discussion and Analysis – Economic Conditions, Challenges and Risks Impacting Financial Results – COVID-19 Pandemic,” and “Risk Factors” within this Annual Report.

Our Business Strategy

Our business strategy consists primarily of serving United and its customers through Air Wisconsin’s provision of regional airline services. We strive to serve as an efficient and reliable provider of flight services to United and to provide a high level of service to United and its customers in accordance with the United capacity purchase agreement.

We also seek to maintain a competitive cost structure. We focus on a disciplined cost control approach through responsible outsourcing of certain operating functions and diligent control of corporate and administrative costs, implementing company-wide efforts to improve our cost position.

Finally, we strive to provide our employees competitive pay and benefit packages and to offer a positive and supportive work environment to make Air Wisconsin an attractive place to work and build a career.

Aircraft Fleet

As of December 31, 2019, Air Wisconsin owned and leased 64 CRJ-200 regional jets originally manufactured by Bombardier, Inc. (“Bombardier”), consisting of the following:

 

Type of Aircraft

   Owned      Leased      Total      Passenger Capacity  

CRJ-200 Regional Jet

     51        13        64        50  

As of May 31, 2020, Air Wisconsin owned and leased 64 CRJ-200 regional jets consisting of the following:

 

Type of Aircraft

   Owned      Leased      Total      Passenger Capacity  

CRJ-200 Regional Jet

     62        2        64        50  

The CRJ-200 regional jet offers many of the capabilities and amenities of larger commercial jet aircraft, including flight attendant service, a stand-up cabin, limited overhead and under seat storage, a lavatory and a galley that allows for in-flight snack and beverage service. The CRJ-200 regional jet has a speed comparable to larger aircraft operated by major airlines and has a range of approximately 1,585 miles.

On January 17, 2020, the Company completed an acquisition from Southshore Aircraft Holdings, LLC and its affiliated entities (“Southshore”) of three CRJ-200 regional jets, each having two General Electric (“GE”) engines, plus five additional GE engines, in exchange for the issuance of shares of the Company’s Series C Convertible Redeemable Preferred Stock. Air Wisconsin had leased each of these regional jets prior to the acquisition. See the section entitled “Certain Relationships and Related Transactions, and Director Independence – Transactions with Southshore Leasing, LLC and Southshore Affiliates” within this Annual Report for additional information.

On May 22, 2020, Air Wisconsin acquired eight additional CRJ-200 regional jets in a single transaction for an aggregate purchase price of $3.0 million. Air Wisconsin had leased each of these regional jets prior to the acquisition.

 

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On June 1, 2020, Bombardier consummated an agreement with Mitsubishi Heavy Industries, Ltd. (“Mitsubishi”), pursuant to which Mitsubishi purchased Bombardier’s regional jet program, including all aspects of the CRJ-200 regional jet, including type certificates, maintenance, support, refurbishment, marketing and sales activities. Air Wisconsin does not have any existing arrangements with Bombardier or Mitsubishi to acquire additional aircraft.

United Capacity Purchase Agreement

Per the terms of the United capacity purchase agreement, United has agreed to purchase the capacity of the Air Wisconsin CRJ-200 regional jets covered under the agreement. Air Wisconsin commenced flying under the United capacity purchase agreement in September 2017. As of December 31, 2019, all of Air Wisconsin’s 64 regional jets were available to support Air Wisconsin’s obligations under the United capacity purchase agreement.

United sets the flight schedules for covered aircraft. In setting the flight schedules, United is required to comply with certain reasonable operating constraints, such as scheduling aircraft for revenue service (that is, not spare aircraft or aircraft in maintenance) for a minimum number of block hours per day, but not more than a maximum number of block hours per day. United also establishes all fares, controls route selection, pricing, seat inventories, and marketing, collects all revenue, and provides airport landing slots, terminal facilities and ground handling services for any flights operated by Air Wisconsin pursuant to the agreement. Air Wisconsin provides the flight and cabin crew and is responsible for dispatch and operational control of each covered aircraft as well as any required maintenance. When providing the flight services under the United capacity purchase agreement, Air Wisconsin uses United’s logos, service marks and aircraft paint scheme. In exchange for providing the flight services under the United capacity purchase agreement, Air Wisconsin receives a fixed payment for 63 covered aircraft and a fixed payment for each departure and block hour flown.

United also reimburses Air Wisconsin for certain costs on an actual basis, including aviation insurance, aircraft property tax per aircraft and air navigation fees. Costs relating to fuel and certain landing fees are directly paid to suppliers by United. Air Wisconsin can also earn incentive payments, and is subject to penalty rebates, based upon its operational performance and the results of customer satisfaction surveys. The United capacity purchase agreement previously constrained Air Wisconsin from flying for another air carrier or from permitting a change of control (as defined in the agreement) to occur; however, while a change of control still constitutes a potential termination event, these restrictions were waived by United in March 2020.

The United capacity purchase agreement prohibits Air Wisconsin from paying dividends or making other distributions of its earnings, in each case in excess of an amount that would result in Air Wisconsin’s available cash balance being less than a specified amount, other than dividends or distributions made for certain specified purposes.

The United capacity purchase agreement expires in February 2023, unless United elects to exercise its option to extend the agreement for an additional two-year period, in which case it expires in February 2025, unless United elects to exercise its second option to extend the agreement for a second additional two-year period, subject to mutual agreement on certain economic terms, in which case it expires in February 2027. During any extension of the term of the United capacity purchase agreement, Air Wisconsin has the right, in its discretion, to reduce the number of aircraft covered under the agreement to no fewer than 50 covered aircraft. Any aircraft Air Wisconsin chooses to remove from the agreement may not be flown for any carrier during the remainder of the term.

The United capacity purchase agreement is subject to early termination under various circumstances, which include, among others:

 

   

if certain operational performance factors fall below a specified percentage for a specified period of time, subject to notice under certain circumstances, or if Air Wisconsin is subject to certain aircraft groundings or to loss of authority to operate, in which case the agreement is subject to early termination by United;

 

   

if the other party (or in the case of Air Wisconsin, the Company or AWAC) fails to perform the material covenants, agreements, terms or conditions of the United capacity purchase agreement or related agreements, subject to certain notice and cure rights in which case, the agreement is subject to early termination by either party; and

 

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if Air Wisconsin engages in, or is subject to, various change of control events enumerated in the agreement, in which case the agreement is subject to early termination by United.

Both the Company and AWAC (which is the sole member of Air Wisconsin) have provided limited guarantees of Air Wisconsin’s monetary obligations under the United capacity purchase agreement.

Long-term contractual agreements, such as the United capacity purchase agreement, are subject to interpretation, and disputes may arise if the parties apply different interpretations to the agreements. Currently, a dispute between United and Air Wisconsin exists under the United capacity purchase agreement with respect to certain amounts owed to Air Wisconsin under the terms of the agreement and with respect to United’s failure to schedule the covered aircraft in accordance with the minimum scheduling parameters contained in the agreement as a result of the COVID-19 pandemic. We cannot predict the outcome of these disputes, or any related negotiations, on the terms of the United capacity purchase agreement or our relationship with United.

The following table summarizes Air Wisconsin’s available seat miles (“ASMs”) flown and contract revenue recognized under the United capacity purchase agreement for the years ended December 31, 2019 and 2018, respectively:

 

     Year Ended
December 31,
2019
     Year Ended
December 31,
2018
 
     (in thousands)  

Available Seat Miles

     1,925,371        1,722,295  

Contract Revenue

   $ 263,495      $ 233,573  

Impact of COVID-19 on Our Business and Industry

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic, and in response, federal, state, local, and foreign governments have implemented travel recommendations and restrictions, “shelter-in-place” guidelines, and similar restrictions in an attempt to control the spread and to mitigate the impact of COVID-19. Air Wisconsin’s business, as well as the industry in which it operates, remains significantly impacted by the unprecedented material decline in demand for air travel resulting from the COVID-19 pandemic. United, Air Wisconsin’s sole airline partner, began experiencing a significant decline in domestic demand related to the COVID-19 pandemic during the first quarter of 2020 and, as of the date of this filing, has stated that it expects demand will remain suppressed for the remainder of 2020 and likely into 2021. As a result of lowered demand, United cut approximately 80% of its scheduled capacity for April 2020, and approximately 90% for May and June 2020. Since March 2020, United has significantly reduced the number of Air Wisconsin’s scheduled departures and block hours actually flown, and United may impose continued reductions. The severity and duration of global health and financial impacts of the COVID-19 pandemic are difficult to predict; thus, the magnitude and scope of the effects of the COVID-19 pandemic on our business and future results of operations are highly uncertain and subject to change.

Maintenance and Repairs

Airlines are subject to extensive regulation. Air Wisconsin has an FAA-mandated and approved maintenance program. Aircraft maintenance and repair consists of routine and non-routine maintenance, and work performed is divided into three general categories: line maintenance, heavy maintenance and component service. Air Wisconsin also outsources certain aircraft, engine and other component maintenance functions. To procure these services, Air Wisconsin uses competitive bidding among qualified vendors.

 

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Line maintenance consists of routine daily and weekly scheduled maintenance checks on Air Wisconsin’s aircraft. Line maintenance is performed at certain locations throughout Air Wisconsin’s operation and represents the majority of the maintenance Air Wisconsin performs. Heavy maintenance consists of a series of major airframe maintenance checks that can take from one to six weeks to accomplish, on average, across Air Wisconsin’s fleet. Component service includes engine overhauls and engine performance restoration events, which are quite extensive and can take several months. We maintain an inventory of spare engines at both Air Wisconsin and Lotus to provide for continued operations during scheduled and unscheduled engine maintenance events. Air Wisconsin provides maintenance services for both its owned and leased CRJ-200 regional jets, engines and equipment. As of May 31, 2020, the Company was in the process of closing its maintenance hangar in Columbia, South Carolina.

Competition

The airline industry is highly competitive. We consider Air Wisconsin’s primary competition to be those U.S. regional airlines that currently have or compete for capacity purchase agreements with major airlines. Air Wisconsin’s competition includes nearly every other domestic regional airline, including CommutAir; Endeavor, Inc. (owned by Delta); Envoy Air, Inc., PSA Airlines, Inc. and Piedmont Airlines, Inc. (Envoy, PSA and Piedmont are owned by American); ExpressJet Airlines, Inc.; GoJet Airlines, LLC; Horizon Air Industries, Inc. (owned by Alaska Air Group, Inc.); Mesa Airlines, Inc.; Republic Airways Holdings Inc.; and SkyWest Inc.

We believe that major airlines typically select regional airline partners based on the following criteria: aircraft type, ability to fly proposed schedules; availability of labor resources, including pilots; proposed economic terms; aircraft and engine resources; financial resources; operational reliability; reputation; customer service levels; and other factors.

Certain Air Wisconsin competitors are larger and have significantly greater financial and other resources than Air Wisconsin. In addition, certain of these competitors may have capacity purchase agreement terms that are more favorable than the United capacity purchase agreement. Moreover, economic downturns, including as a result of the COVID-19 pandemic, combined with competitive pressures, have contributed to a number of reorganizations, bankruptcies, liquidations and business combinations among major and regional carriers which has resulted in changes to the competitive landscape. The effect of economic downturns on our results of operations is currently somewhat mitigated by the terms of the United capacity purchase agreement, but there is an ongoing dispute with United regarding certain terms of the agreement, and the renewal of Air Wisconsin’s partnership with United is not certain.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. While Air Wisconsin’s operations can be negatively impacted by factors outside of its control, including inclement weather, the United capacity purchase agreement mitigates some of the risks associated with seasonal fluctuations.

Aircraft Fuel

The United capacity purchase agreement provides that United sources, procures and directly pays third-party vendors for substantially all fuel used in the performance of the agreement.

Insurance

Air Wisconsin maintains insurance policies we believe are of types customary for the airline industry and as required by the Department of Transportation (“DOT”), lessors and other financing parties, and United under the terms of the United capacity purchase agreement. The policies principally provide liability coverage for public and passenger injury; damage to property; loss of or damage to flight equipment; fire; auto; directors’ and officers’ liability; fiduciary liability; workers’ compensation and employer’s liability; and war risk (terrorism). Although we currently believe Air Wisconsin’s insurance coverage is adequate, we cannot be certain that the amount of such coverage will not change or that Air Wisconsin will not bear substantial losses from incidents or accidents.

 

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Employees

Our continued success is partly dependent on Air Wisconsin’s ability to continue to attract and retain qualified personnel. As of December 31, 2019, Air Wisconsin employed 1,350 full-time employees and 27 part time employees, of whom 1,095 were represented by unions, and the remainder were not.

 

Union Groups

   Number
of Union
Employees
  

Representative

  

Collective
Bargaining
Agreement
Amendable Date

Pilots

   590    Air Line Pilots Association, International    November 21, 2022

Flight Attendants

   261    Association of Flight Attendants    June 27, 2016

Dispatchers

   28    Transport Workers Union of America    November 1, 2020

Mechanics and Aircraft Cleaners

   179    International Association of Machinists and Aerospace Workers AFL-CIO    October 7, 2015

Technical Stores Clerks

   37    International Association of Machinists and Aerospace Workers AFL-CIO    September 20, 2022

As of May 31, 2020, Air Wisconsin employed 1,308 full-time employees and 24 part-time employees, of whom 1,057 were represented by unions, and the remainder were not. Air Wisconsin has never been the subject of a labor strike or labor action that materially impacted its operations.

Federal Aviation Administration (“FAA”) regulations require pilots to have an Airline Transport Pilot (“ATP”) license with specific ratings for the aircraft to be flown, and to be medically certified as physically fit to fly. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience. Mechanics, quality-control inspectors, and flight dispatchers must be certificated and qualified for specific aircraft. Flight attendants must have initial and periodic competency training and qualification. Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance, and aircraft inspection must also meet experience standards prescribed by FAA regulations. All employees performing a safety-sensitive function are subject to pre-employment, random, and post-accident drug testing. While, historically, the airline industry has experienced periodic shortages of qualified personnel, particularly with respect to pilots and maintenance technicians, as a result of the COVID-19 pandemic, Air Wisconsin has experienced a dramatic reduction in demand for pilots, and has not had difficulty retaining employees.

The Railway Labor Act (“RLA”) governs Air Wisconsin’s relations with labor organizations. Under the RLA, collective bargaining agreements generally do not expire, but instead become amendable as of a stated date. If either party wishes to modify the terms of any such agreement, they must notify the other party in the manner agreed to by the parties. Under the RLA, after receipt of such notice, the parties must meet for direct negotiations, and if no agreement is reached, either party may request the National Mediation Board (“NMB”) to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process. It is not unusual for those processes to last for many months, and even several years. If no agreement is reached in mediation, the NMB, in its discretion, may declare at some time that an impasse exists, and if an impasse is declared, the NMB proffers binding arbitration to the parties. Either party may decline to submit to arbitration. If arbitration is rejected by either party, a 30-day “cooling off” period commences. During that period (or after), a Presidential Emergency Board (“PEB”) may be established, which examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and is followed by another “cooling off” period of 30 days. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may strike and the airline may resort to “self-help,” including the imposition of any or all of its proposed amendments and the hiring of new employees to replace any striking workers. Congress and the President have the authority to prevent “self-help” by enacting legislation that, among other things, imposes a settlement on the parties. The table above sets forth Air Wisconsin’s employee groups and status of the collective bargaining agreements. Air Wisconsin’s pilots are represented by the Air Line Pilots Association, International; following mediated negotiations with Air Wisconsin under the auspices of the NMB, Air Wisconsin’s pilots ratified a three-year extension to their collective bargaining agreement in November 2019, and the agreement now becomes amendable in November 2022. Air Wisconsin’s collective bargaining agreements with its mechanics and related employees, represented by the International Association of Machinists and Aerospace Workers, and its flight attendants represented by the Association of Flight Attendants are both amendable and both are in mediated negotiations.

 

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Safety and Security

We are committed to the safety and security of Air Wisconsin’s passengers and employees, and to complying with safety and security requirements. Air Wisconsin has taken many steps, both voluntarily and as mandated by governmental authorities, to increase the safety of its operations. Some of the safety and security measures Air Wisconsin has taken with United include aircraft security and surveillance, and securing of cockpit doors. Additionally, both on its own and in coordination with United, Air Wisconsin has increased its aircraft cleaning procedures both between flights and overnight. Enhanced cleaning measures are intended to ensure that frequently touched surfaces, such as armrests, tray tables and seatbelts, are routinely and comprehensively cleaned utilizing disinfectants to prevent transmission of COVID-19 and other contagions. An increased supply of sanitizing wipes onboard Air Wisconsin’s aircraft is available to aid its crewmembers in efforts to keep the aircraft clean and disinfected.

Our ongoing focus on safety relies on training Air Wisconsin’s employees to proper standards and providing them with the tools and equipment they need to perform their job functions in a safe and efficient manner. Safety in the workplace targets several areas of our operation, including dispatch, flight operations, ground operations, maintenance and sanitization.

The Transportation Security Administration (“TSA”) is responsible for certain civil aviation security matters, including passenger and baggage screening at U.S. airports. Air Wisconsin is currently in compliance with the directives issued by the TSA and maintains active, open lines of communication with the TSA to ensure proper standards for security of its personnel, equipment and facilities are exercised throughout its operation.

Government Regulation

Aviation Regulation

The DOT and FAA have regulatory authority over air transportation in the United States and all international air service is subject to certain U.S. federal requirements and approvals, as well as the regulatory requirements of the appropriate authorities of the foreign countries involved. The DOT has authority to issue certificates of public convenience and necessity, exemptions and other economic authority required for airlines to provide domestic and foreign air transportation. International routes and international code-sharing arrangements are regulated by the DOT and by the governments of the foreign countries involved. A U.S. airline’s ability to operate flights to and from international destinations is subject to the air transport agreements between the United States and the foreign country and the carrier’s ability to obtain the necessary authority from the DOT and the applicable foreign government.

The FAA is responsible for regulating and overseeing matters relating to the safety of air carrier flight operations, including the control of navigable air space, the qualification of flight personnel, flight training practices, compliance with FAA airline operating certificate requirements, aircraft certification and maintenance requirements. The FAA requires each commercial airline to obtain and hold an FAA air carrier certificate. Air Wisconsin currently holds an air carrier certificate with Federal Aviation Regulation Part-121 operation specifications.

 

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Foreign Ownership

Under DOT regulations and federal law, Air Wisconsin must be owned and controlled directly and indirectly by citizens of the United States. The restrictions imposed by federal law and regulations currently require that at least 75% of Air Wisconsin’s voting equity securities must be owned and controlled, directly and indirectly, by persons or entities who are citizens of the United States, as defined in the Federal Aviation Act and interpreted by the DOT, that the Company’s Chief Executive Officer, Air Wisconsin’s President and Chief Executive Officer, and at least two-thirds of the members of Air Wisconsin’s board of managers and the Company’s board of directors and other managing officers be citizens of the United States, and that Air Wisconsin and the Company be under the actual control of citizens of the United States. In addition, at least 51% of Air Wisconsin’s total outstanding equity securities must be owned and controlled, directly and indirectly, by citizens of the United States and no more than 49% of its equity securities may be held, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the U.S. which allow unrestricted access between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country. No more than 25% of Air Wisconsin’s equity securities may be held, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have not entered into an “open skies” air transport agreement with the U.S. We are currently in compliance with these ownership provisions. In addition, the Company’s amended and restated certificate of incorporation and the Company’s amended and restated bylaws currently prohibit the transfer of any shares of the Company’s capital stock that would result in (i) any person or entity becoming a “Five-Percent Stockholder” (as defined under Treasury Regulation Section 1.382-2T(g)) of our then-outstanding capital stock, or (ii) an increase in the percentage ownership of any person or entity who is already a “Five-Percent Stockholder” of our then-outstanding capital stock. These restrictions on the transfer of the Company’s capital stock inhibit the acquisition of control of Air Wisconsin by any foreign citizen.

Consumer Protection Regulation

The DOT also has jurisdiction over certain consumer protection matters related to air transportation. This covers unfair or deceptive practices, unfair methods of competition, advertising, denied boarding compensation, ticket refunds, baggage liability, contracts of carriage, customer service commitments, customer complaints and transportation of passengers with disabilities. The DOT has adopted consumer protection rules regulating lengthy tarmac delays, chronically delayed flights, capacity purchase disclosure and undisclosed display bias. The DOT also has authority to review certain joint venture agreements, code-sharing agreements (where an airline places its designator code on a flight operated by another airline) and wet-leasing agreements (where one airline provides aircraft and crew to another airline) between carriers and regulates other economic matters such as slot transactions. In the future, the DOT may adopt additional regulations that increase the costs of Air Wisconsin’s operations or otherwise adversely impact our financial performance.

Environmental Regulation

We are subject to various federal, state, local and foreign laws and regulations relating to environmental protection matters. These laws and regulations govern such matters as environmental reporting, storage and disposal of materials and chemicals and aircraft noise. We are not currently subject to any environmental cleanup orders or actions imposed by regulatory authorities. We are not aware of any active material environmental investigations related to our assets or properties.

The Environmental Protection Agency regulates operations, including air carrier operations, which affect the quality of air in the United States. Concern about climate change and greenhouse gases may result in additional regulation or taxation of aircraft emissions in the United States and abroad.

Federal law recognizes the right of airport operators with special noise problems to implement local noise abatement procedures so long as those procedures do not interfere unreasonably with interstate and foreign commerce and the national air transportation system. These restrictions can include limiting nighttime operations, directing specific aircraft operational procedures during takeoff and initial climb, and limiting the overall number of flights at an airport.

 

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Other Regulations

Air Wisconsin is also subject to various other federal, state, local and foreign laws and regulations. For example, the U.S. Department of Justice has jurisdiction over certain airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail. As discussed above, labor relations in the airline industry are generally governed by the RLA. The privacy and security of passenger and employee data is regulated by various domestic and foreign laws and regulations.

The U.S. government and foreign governments may consider and adopt new laws, regulations, interpretations and policies regarding a wide variety of matters that could directly or indirectly affect our results of operations. We cannot predict what laws, regulations, interpretations and policies might be considered in the future, nor can we judge what impact, if any, the implementation of any of these proposals or changes might have on our business.

Corporate Information

The Company was originally formed in November 1992 as Initial Acquisition Corp., a Delaware corporation. In March 1997, Initial Acquisition Corp. was merged with Hollis-Eden, Inc., becoming Hollis-Eden Pharmaceuticals, Inc. In February 2010, Hollis-Eden Pharmaceuticals, Inc. was merged with its wholly owned subsidiary and renamed Harbor BioSciences, Inc. In January 2012, the Company acquired 80% of the issued and outstanding capital stock of AWAC from Amun LLC (“Amun”), and in January 2016 the Company acquired the remaining 20% of the issued and outstanding capital stock of AWAC from Amun. AWAC owns all of the equity interests of Air Wisconsin. In February 2012, Harbor BioSciences, Inc. was merged with its wholly owned subsidiary and renamed Harbor Diversified, Inc.

Organizational Structure

The Company is a non-operating holding company that is the parent of a consolidated group of five subsidiaries: (1) AWAC; (2) Air Wisconsin; (3) Lotus; (4) AWF; and (5) Therapeutics. In addition to Air Wisconsin, each of the subsidiaries is described below:

AWAC Aviation, Inc.

AWAC is a holding company and the sole member of Air Wisconsin. Air Wisconsin’s business and operations are described in detail throughout this Annual Report.

Lotus Aviation Leasing, LLC

Lotus was established to acquire and lease flight equipment to Air Wisconsin to support its flight operations. As of December 31, 2019 and May 31, 2020, Lotus owned 39 and 50 engines, respectively. Lotus has no other material assets or operations.

Air Wisconsin Funding LLC

AWF was established to provide flight equipment financing to Air Wisconsin. As of December 31, 2019 and May 31, 2020, Air Wisconsin had an outstanding balance of $24.9 million and $18.0 million, respectively, under a $35.0 million credit facility with AWF. AWF has a first priority security interest in the flight equipment purchased with the loan proceeds. AWF has no other material assets or operations.

Harbor Therapeutics, Inc.

Therapeutics is a non-operating entity with no material assets.

 

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Trademarks

Air Wisconsin, the Air Wisconsin logo, and our other registered or common law trade names, trademarks, or service marks appearing in this Annual Report are Air Wisconsin’s intellectual property. This Annual Report contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us, by these companies. We have omitted the ® and designations, as applicable, for the trademarks used in this Annual Report.

SEC Reporting Obligation

In February 2012, the Company’s predecessor, Harbor Biosciences, Inc., filed a Form 15 with the SEC to deregister its common stock pursuant to Section 12(g) of the Exchange Act. The filing of the Form 15 had the effect of suspending the Company’s obligation, pursuant to Section 15(d) of the Exchange Act, to file reports and other information with the SEC. As of January 1, 2020, the Company no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act. As a result, the Company determined that it is currently required to file reports and other information with the SEC pursuant to Section 15(d) of the Exchange Act. This Annual Report is being filed pursuant to these requirements.

In addition, notwithstanding that the Company is currently required to file certain reports and information with the SEC pursuant to Section 15(d) of the Exchange Act, the Company does not have a class of securities registered pursuant to Section 12 of the Exchange Act. As a result, the Company is not required to comply with, and does not intend to follow, certain disclosure requirements typically applicable to public reporting companies, including the requirement to file proxy statements, information statements, tender offer disclosures, and beneficial ownership filings.

Publicly Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports, filed pursuant to Section 15(d) of the Exchange Act will be filed with the SEC. The SEC maintains a website that contains reports and other information regarding issuers that file electronically with the SEC at www.sec.gov. The Company does not currently maintain a separate website, so the reports and other information provided by the Company pursuant to Section 15(d) of the Exchange Act will be available at www.sec.gov.

 

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ITEM 1A.

RISK FACTORS

Our short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a result, investing in the Company’s common stock involves substantial risk. The Company’s stockholders should carefully consider the risks and uncertainties described below, in addition to the other information contained in or incorporated by reference into this Annual Report, as well as the other information we file with the SEC from time to time. If any of these risks are realized, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that case, the value of the Company’s common stock could decline, and stockholders may lose all or part of their investment. Furthermore, additional risks and uncertainties of which we are currently unaware, or which we currently consider to be immaterial, could have a material adverse effect on our business. Certain statements made in this section constitute “forward-looking statements,” which are subject to numerous risks and uncertainties including those described in this section. Refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” within this Annual Report for additional information.

Risks Related to Our Business

Our current business is highly dependent on the United capacity purchase agreement, since United is currently Air Wisconsin’s sole airline partner.

We derive nearly all of our operating revenue from the United capacity purchase agreement because United is currently Air Wisconsin’s sole airline partner. United accounted for approximately 99.9% and 97.2% of our operating revenue for the years ended December 31, 2019 and 2018, respectively. The termination or non-renewal of the United capacity purchase agreement would have a material adverse effect on our business, financial condition, results of operations, and cash flows.

The United capacity purchase agreement expires in February 2023, unless United elects to exercise its option to extend the agreement for an additional two-year period, in which case it expires in February 2025, unless United elects to exercise its second option to extend the agreement for a second additional two-year period, subject to mutual agreement on certain economic terms, in which case it expires in February 2027. United is also permitted, subject to certain conditions, including giving notice of 60 days or more, to terminate the agreement early in the event of Air Wisconsin’s material breach of the agreement, subject to Air Wisconsin’s right to cure.

The United capacity purchase agreement is also subject to termination prior to expiration in various circumstances, including if Air Wisconsin’s controllable flight completion factor or departure performance falls below certain pre-determined levels, and in the event of a non-carrier-specific grounding of at least a specified number of Air Wisconsin’s aircraft, in each case for a specified period of time. Air Wisconsin currently uses the systems, facilities and services of United to support a significant portion of its operations, including airport and terminal facilities and operations, information technology interface, ticketing and reservations, scheduling, dispatching interface, fuel purchasing and ground handling services. If United were to cease to maintain any of these systems, close any of these facilities, or no longer provide these services to Air Wisconsin, whether due to termination of the United capacity purchase agreement, a strike or other labor interruption by United personnel, bankruptcy or other financial hardship experienced by United, or for any other reason, Air Wisconsin may not be able to obtain access to alternative systems, facilities or services on terms and conditions as favorable as those it currently receives, or at all. Upon certain termination events described in the United capacity purchase agreement, United could require Air Wisconsin to sell or assign to United certain facilities and assets that Air Wisconsin uses in connection with the services it provides. As a result, in order to offer airline service after termination of the United capacity purchase agreement, Air Wisconsin may have to replace these facilities, assets and services. Air Wisconsin may be unable to arrange such replacements on satisfactory terms, or at all.

If the United capacity purchase agreement were to be terminated or not renewed, our business would be significantly impacted, and it is unlikely we would have an immediate source of revenue or earnings to offset the financial impact. United is not under any obligation to extend or renew the United capacity purchase agreement with Air Wisconsin, whether on similar terms or at all. The United capacity purchase agreement permits United to

 

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terminate the agreement upon certain changes of control of Air Wisconsin, which could limit Air Wisconsin’s ability to pursue certain acquisitions, sales or other corporate transactions. A termination or expiration of this agreement would likely have a material adverse effect on our financial condition, results of operations, cash flows and ability to satisfy debt and lease obligations, unless we are able to enter into satisfactory substitute arrangements for the utilization of Air Wisconsin’s aircraft and spare engines. We may not be able to enter into substitute arrangements, and any arrangements we are able to secure may not be as favorable to us as the current agreement.

The COVID-19 pandemic has had a material adverse impact on the business, operating results, financial condition and liquidity of United, which is Air Wisconsin’s sole airline partner, and the duration and spread of the pandemic could result in additional adverse impacts to United, or cause it to declare bankruptcy, which may cause our business, financial condition and results of operations to be negatively impacted.

We may be directly affected by the financial and operating performance of United, which is Air Wisconsin’s sole airline partner. Any events that negatively impact the financial or operating performance of United, including, but not limited to, the impacts of the reduction in passenger flight demand due to pandemics or other widespread outbreaks of communicable diseases such as the COVID-19 pandemic, may have a material adverse effect on our business, financial condition and results of operations. United has experienced significant decline in flight demand related to COVID-19 during the first half of 2020 and a resulting material deterioration in United’s revenue for the first half of 2020. This reduction in demand is expected to continue, and United expects its results of operations to be materially impacted through 2021. As a result of the impact of the COVID-19 pandemic on global passenger flight demand and United’s financial and operational performance, United may be unable to make payments due to Air Wisconsin under the United capacity purchase agreement in a timely manner or at all. Any failure by United to make timely payments due to Air Wisconsin may negatively impact our business, financial condition and results of operations. In addition, if United were to become bankrupt, the United capacity purchase agreement may not be assumed in bankruptcy and could be terminated, and such termination would have a material adverse effect on our business, financial condition and results of operations. The full extent of the impact of the COVID-19 pandemic on United’s, and therefore, on our longer-term operational and financial performance will depend on future developments, many of which are outside of Air Wisconsin’s control, including the effectiveness of United’s mitigation strategies, the duration and spread of COVID-19 and resulting impact on the financial health and operations of United’s and Air Wisconsin’s business partners, and future governmental actions in respect of the COVID-19 pandemic, all of which are highly uncertain and cannot be predicted.

If United provides Air Wisconsin with inefficient flight schedules, or makes certain changes to the expected utilization of Air Wisconsin’s aircraft under the United capacity purchase agreement, our business, financial condition and results of operations may be adversely affected.

Under the terms of the United capacity purchase agreement, United has the ability, subject to certain reasonable operating constraints, to schedule Air Wisconsin’s flights in any manner that serves United’s purposes. These reasonable operating constraints do not prevent United from scheduling Air Wisconsin’s flights inefficiently for Air Wisconsin. From time to time, United has scheduled Air Wisconsin’s flights in a manner which creates operational inefficiencies for Air Wisconsin, such as by building in long crew layovers or overnights, or by providing Air Wisconsin with flight schedules that are inconsistent with Air Wisconsin’s existing operational footprint. These actions may have a material adverse effect on our business, financial condition and operations.

There are also certain factors, such as the COVID-19 pandemic, that have led, and may in the future lead, United to modify the anticipated utilization of Air Wisconsin’s aircraft under the United capacity purchase agreement, some of which are beyond Air Wisconsin’s control. Any factors that cause United to schedule the utilization of Air Wisconsin’s aircraft on routes or at frequencies materially different than we have forecasted could reduce our ability to realize operating efficiencies, which would negatively impact our financial condition and operating results.

 

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Disagreements regarding the interpretation of the United capacity purchase agreement, as well as other business disputes with United, could have an adverse effect on our operating results and financial condition, and negatively impact Air Wisconsin’s relationship with United.

Long-term contractual agreements, such as the United capacity purchase agreement, are subject to interpretation, and disputes may arise if the parties apply different interpretations to the agreements. Currently, a dispute between United and Air Wisconsin exists under the United capacity purchase agreement with respect to certain amounts owed to Air Wisconsin and with respect to United’s failure to schedule the covered aircraft in accordance with the minimum scheduling parameters contained in the agreement as a result of the COVID-19 pandemic. Failure to resolve these ongoing disputes could have a material adverse effect on our business and financial condition. To the extent Air Wisconsin experiences additional disagreements regarding the interpretation of the United capacity purchase agreement, Air Wisconsin may expend valuable management time and financial resources in its efforts to resolve those disagreements. Those disagreements may result in litigation, arbitration, settlement negotiations or other proceedings. We cannot predict the outcome of these disputes, or any related negotiations, on the terms of the United capacity purchase agreement or our relationship with United. An unfavorable result could require Air Wisconsin to modify the terms of the United capacity purchase agreement, or change its business strategy, either of which could have a material adverse effect on our operating results and financial condition. In addition, regardless of the final outcome of any dispute or disagreement, the existence of a dispute with United could harm Air Wisconsin’s relationship with United, which could impact Air Wisconsin’s ability to renew or expand the relationship.

The amounts Air Wisconsin receives under the United capacity purchase agreement may be less than the corresponding costs Air Wisconsin incurs.

Under the United capacity purchase agreement, a portion of the revenue Air Wisconsin receives is based upon predetermined rates determined by reference to certain factors, such as the number of covered aircraft, the number of block hours flown and the number of departures. The primary operating costs intended to be compensated by the predetermined rates include labor costs, including salaries and benefits, training costs, crew room costs, maintenance expenses, simulator and spare parts costs and overhead costs. If Air Wisconsin’s costs for those items exceed the compensation paid at the rates set in the United capacity purchase agreement, our financial position and operating results will be negatively affected.

Air Wisconsin’s current growth opportunities and future growth opportunities may be limited by a number of factors impacting the airline industry, including the COVID-19 pandemic.

Growth opportunities within United’s current flight systems may be limited by various factors, including “scope” clauses in United’s current collective bargaining agreements with its pilots that restrict the number and size of regional aircraft that may be operated in its flight systems that are not flown by its pilots. Although United currently has significant room under its scope clauses with respect to 50-seat aircraft, which currently comprise Air Wisconsin’s fleet, these clauses could limit Air Wisconsin’s ability to operate larger aircraft for United which would limit Air Wisconsin’s expansion opportunities. United is under no obligation to provide Air Wisconsin with an opportunity to fly additional aircraft within its system or to otherwise expand its relationship with Air Wisconsin.

Further, Air Wisconsin’s ability to expand its operations in the future may be limited by a number of factors impacting the airline industry, including access to airport terminals and facilities, terms of United’s collective bargaining agreements limiting the usage of regional carriers, required capital expenditures to maintain or expand fleet operations, significant changes in variable costs, regulatory changes, changes in the availability of necessary parts and equipment, and intense competition and pricing pressure. Given the competitive nature of the airline industry, and the excess capacity in the industry due to the significantly depressed passenger demand for air travel as a result of the COVID-19 pandemic, we believe limited growth opportunities exist. In order to take advantage of these opportunities, to the extent and in the event that passenger demand for air travel rebounds, Air Wisconsin may be required to accept less favorable contract terms in order to secure new or additional flying opportunities. Due to the significant decline in passenger demand for air travel and the resulting economic disruption, there may not be any new or additional flying opportunities available to Air Wisconsin. In addition, even if Air Wisconsin is offered these growth opportunities in the future, they may involve economic terms or financing commitments that are unfavorable to Air Wisconsin or do not result in profitable operations.

 

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Air Wisconsin currently operates only one aircraft type, and relies on one aircraft manufacturer and one engine manufacturer, and any operating restrictions or safety concerns applicable to this aircraft or engine type, or any failure to receive sufficient maintenance and support services from these manufacturers, would negatively impact our business and financial condition.

Air Wisconsin currently relies on a single aircraft type, the CRJ-200 regional jet, and a single engine type, the GE CF34-3B1 engine. The issuance of FAA or manufacturer directives restricting or prohibiting the use of this aircraft type or engine type would negatively impact our business and financial results. In addition, any concerns raised regarding the safety or reliability of the CRJ-200 regional jet or the GE CF34-3B1 engine, whether or not directly associated with Air Wisconsin’s fleet, could result in concerns about Air Wisconsin’s fleet that could negatively impact our business.

Air Wisconsin has been highly dependent upon Bombardier, as the sole manufacturer of Air Wisconsin’s aircraft, and GE, as the sole manufacturer of Air Wisconsin’s aircraft engines, to provide sufficient parts or related maintenance and support services to it in a timely manner. Air Wisconsin’s operations could be materially and adversely affected by the failure or inability of Mitsubishi, as Bombardier’s successor in ownership of the CRJ-200 program, or GE to provide required maintenance or support services, or the interruption of Air Wisconsin’s operations as a result of unscheduled or unanticipated maintenance requirements for Air Wisconsin’s aircraft or engines. On June 1, 2020, Bombardier consummated an agreement with Mitsubishi, pursuant to which Mitsubishi purchased Bombardier’s regional jet program, including all aspects of the CRJ-200 regional jet, including type certificates, maintenance, support, refurbishment, marketing and sales activities. We cannot predict what effect, if any, the closing of this transaction may have on Mitsubishi’s continued support of the CRJ-200 regional jet or Air Wisconsin’s continued ability to obtain required parts and services.

Additionally, GE Aviation recently announced, in response to the COVID-19 pandemic, that it would lay off a significant percentage of its workforce. We cannot predict what effect these layoffs will have on the availability of parts and services to Air Wisconsin from the manufacturer of its aircraft engines.

Air Wisconsin has a significant amount of debt and other contractual obligations that could impair its liquidity and ability to obtain additional financing and, in the event Air Wisconsin is unable to repay its debt and other contractual obligations, our business, results of operations and financial condition may be adversely impacted.

The airline business is capital intensive and, as a result, Air Wisconsin is highly leveraged. As of December 31, 2019, Air Wisconsin had approximately $120.7 million (including capitalized interest of $16.5 million) in total third-party current and long-term debt, which was incurred primarily in connection with the acquisition of aircraft, and which is secured by substantially all of Air Wisconsin’s aircraft, engines and parts. During Air Wisconsin’s year ended December 31, 2019, its principal third-party debt service payments totaled $7.0 million. For future annual cash obligations relating to third-party debt, see the section entitled “Management Discussion and Analysis – Commitments and Capital Obligations” within this Annual Report.

As of December 31, 2019, Air Wisconsin held 13 aircraft pursuant to operating leases, with an average remaining term of less than one year. During the year ended December 31, 2019, Air Wisconsin’s aircraft operating lease payments totaled approximately $26.0 million. As of December 31, 2019, future minimum lease payments due under all operating leases were approximately $20.0 million. For future annual cash obligations relating to all operating leases, see the section entitled “Management Discussion and Analysis – Commitments and Capital Obligations” within this Annual Report. In January 2020, the Company acquired ownership of three aircraft which were previously leased by Air Wisconsin from Southshore. In May 2020, Air Wisconsin acquired ownership of eight of its leased aircraft from the lessor. As a result, as of May 31, 2020, Air Wisconsin had two aircraft under lease with an average remaining term of less than one year, and future minimum lease payments due under all operating leases were approximately $10.3 million.

 

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Air Wisconsin is subject to various covenants under its financing agreements and leases. Its ability to comply with these covenants may be affected by events beyond its control. Air Wisconsin’s failure to comply with obligations under these credit facilities could result in an event of default under the facilities. A default, if not cured or waived, could permit the lender to accelerate payment of the loans. In addition, the lender would have the right to proceed against the collateral security granted to a trustee for its benefit, which consists of substantially all of the aircraft, engines and parts owned by Air Wisconsin. If this debt is accelerated, we cannot be certain that Air Wisconsin will have funds available to pay the debt or that it will have the ability to refinance the debt on terms favorable to it, or at all. If Air Wisconsin could not repay or refinance the accelerated debt, it could be insolvent and could seek to file for bankruptcy protection. In addition, the Payroll Support Program Agreement (the “PSP Agreement”) that Air Wisconsin entered into in April 2020 with the U.S. Department of the Treasury pursuant to the recently enacted federal Coronavirus Aid, Relief, and Economic Security Act (the “Cares Act”) contains various covenants. If Air Wisconsin fails to comply with its obligations under the PSP Agreement, it may be required to repay the funds provided to it under that agreement. Any such default, acceleration, insolvency or failure to comply would likely have a material adverse effect on our business. See the section entitled “Management’s Discussion and Analysis – Debt and Credit Facilitieswithin this Annual Report for more information.

We cannot be certain that Air Wisconsin’s operations will generate sufficient cash flow to make its required payments under its debt and other contractual arrangements. Air Wisconsin currently does not have sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated. If Air Wisconsin is unable to pay its debts as they come due, or is unable to obtain waivers for such payments, its secured lenders could foreclose on any of Air Wisconsin’s assets securing such debt. Additionally, a failure to pay Air Wisconsin’s aircraft, engine and other property leases, debt or other fixed cost obligations, or a breach of its other contractual obligations, could result in a variety of further adverse consequences, including the exercise of remedies by its creditors and lessors, such as acceleration. In such a situation, Air Wisconsin may not be able to cure its breach, fulfill its contractual obligations, make required lease payments or otherwise cover its fixed costs, which could have a material adverse effect on our business, results of operations and financial condition.

If Air Wisconsin is unable to source financing on acceptable terms, or at all, our business could be materially adversely affected. To the extent Air Wisconsin finances its activities with additional debt, it would become subject to additional debt service obligations, as well as additional covenants that may restrict its ability to pursue its business strategy or otherwise constrain its growth and operations. Air Wisconsin’s ability to pay the high level of fixed costs associated with operating a regional airline will therefore depend on its operating performance, cash flows and ability to secure adequate financing, which will in turn depend on, among other things, the success of its current business strategy, availability and cost of financing, as well as general economic and political conditions and other factors that are, to some extent, beyond its control. Such factors include pandemics and the outbreaks of disease, such as the COVID-19 pandemic, which has caused significant volatility in the U.S. and global financial markets.

A significant portion of Air Wisconsin’s workforce is represented by labor unions and the terms of Air Wisconsin’s collective bargaining agreements may increase our operating expenses and negatively impact our financial results.

As of May 31, 2020, 1,057 of Air Wisconsin’s employees were represented by labor unions, including the Air Line Pilots Association, International (“ALPA”), the Association of Flight Attendants (“AFA”), the International Association of Machinists and Aerospace Workers AFL-CIO (“IAMAW”), and the Transport Workers Union of America. In November 2019, Air Wisconsin’s pilots, represented by ALPA, ratified a new three-year extension to the collective bargaining agreement. Similarly, in September 2018 and November 2018, Air Wisconsin reached an agreement with the technical stores clerks and dispatchers with new amendable dates of September 20, 2022 and November 1, 2020, respectively. The terms and conditions of future collective bargaining agreements may be affected by the results of collective bargaining negotiations at other airlines that may have a greater ability, due to larger scale, greater efficiency, or other factors, to bear higher costs than Air Wisconsin, which may result in higher industry wages and increased pressure on Air Wisconsin to increase the wages and benefits of its employees. Future agreements with represented employees may be on terms that are less favorable to Air Wisconsin than its current agreements or not comparable to agreements entered into by its competitors. Moreover, we cannot predict the outcome of any future negotiations relating to union representation or collective bargaining agreements. Any agreements reached in collective bargaining may increase our operating expenses and negatively impact our financial results.

 

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Air Wisconsin’s collective bargaining agreement with its mechanics and related employees, who are represented by the IAMAW, has been amendable since October 2015 and is in mediated negotiation under the auspices of the NMB. Air Wisconsin’s collective bargaining agreement with its flight attendants who are represented by the AFA has been amendable since June 2016, and Air Wisconsin has been engaged in mediated negotiations with the AFA during such period. If Air Wisconsin is unable to reach agreement with any of its unionized work groups in current or future negotiations regarding the terms of their collective bargaining agreements, it may be subject to work interruptions, stoppages or shortages.

Maintenance costs will likely increase as the age of Air Wisconsin’s fleet increases.

The average age of Air Wisconsin’s CRJ-200 regional jets as of December 31, 2019 was approximately 17.3 years. As Air Wisconsin’s fleet continues to age, its maintenance costs may increase, both on an absolute basis and as a percentage of our operating expenses. Certain significant maintenance activities required by Air Wisconsin’s aircraft as they age result in out-of-service periods during which aircraft are dedicated to maintenance activities and unavailable for flying under the United capacity purchase agreement. Any unexpected increase in Air Wisconsin’s maintenance costs as its fleet ages, or decreased revenue resulting from out-of-service periods, could have an adverse effect on our financial condition and operating results.

Air Wisconsin may experience disruption in service with any of its key third-party service providers, which could have a material adverse effect on our business, financial condition and results of operations.

Air Wisconsin’s reliance upon outside vendors to provide essential services critical to its operations may limit its ability to control the efficiency and timeliness of these contracted services. Air Wisconsin’s agreements with service providers are generally subject to termination upon the occurrence of certain events and, in a few cases, at the convenience of the provider. If Air Wisconsin’s third-party service providers terminate their contracts with it, experience bankruptcy or other financial hardship, or do not provide timely or consistently high-quality service for any reason, Air Wisconsin may not be able to replace them in a timely or cost-efficient manner, which could result in it experiencing increased costs, service delays, or maintenance issues, any of which could have a material adverse effect on our business, financial condition and results of operations.

Regulatory changes or tariffs could increase the costs and timing of necessary parts and aircraft and negatively impact our business and financial condition.

Air Wisconsin imports a substantial portion of the parts it needs. For example, the sole manufacturer of Air Wisconsin’s aircraft, Bombardier, is headquartered in Canada, and has sold its regional jet program, which includes the CRJ-200 regional jets comprising Air Wisconsin’s aircraft fleet, and the related services and support programs located in Canada to Mitsubishi. Although Mitsubishi is headquartered in Japan, we believe it intends to operate the regional jet operation it has acquired from Bombardier out of Canada. Air Wisconsin’s current engine maintenance agreement is with a maintenance and repair organization that performs its services in Canada. We cannot predict the impact of potential regulatory changes, or action by U.S. regulatory agencies, including the potential impact of tariffs or changes in international trade treaties on the costs or timing associated with acquiring aircraft parts and services. Our business may be subject to additional costs and uncertainty as a result of potential regulatory changes, which could have an adverse effect on our operations and financial results.

 

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Should the passenger demand for air travel rebound following the COVID-19 pandemic, Air Wisconsin may experience difficulty hiring, training and retaining a sufficient number of qualified pilots, which may negatively affect our operations and financial condition.

Historically, the supply of qualified pilots to the airline industry has been limited, which created difficulty hiring, training and retaining a sufficient number of qualified pilots. In July 2013, the FAA issued stringent pilot qualification and crew member flight training standards, which increased the required training time for new airline pilots (the “FAA Qualification Standards”), and the FAA also mandated stricter rules to minimize pilot fatigue, increasing the number of pilots required to be employed for Air Wisconsin’s operations as they existed prior to the COVID-19 pandemic and correspondingly increasing Air Wisconsin’s labor costs. As a result of the significant decline in passenger demand due to the COVID-19 pandemic, there is no current shortage of qualified pilots in the airline industry.

If passenger demand for air travel increases following the COVID-19 pandemic, Air Wisconsin may again experience challenges in hiring and maintaining sufficient numbers of qualified pilots due to a number of factors, including the increased flight hour requirements under the FAA Qualification Standards, the statutory mandatory retirement age of 65, and attrition resulting from the hiring needs of other airlines. Air Wisconsin has historically also experienced increases in time and resources required to train pilots due to several factors, including limited availability of flight simulators and instructors. If future pilot attrition rates outpace Air Wisconsin’s ability to hire and retain qualified pilots, Air Wisconsin may be unable to fly the number of flights required under the United capacity purchase agreement, which may result in penalties under the agreement, that would negatively impact our operations and financial condition.

Information technology security breaches, hardware or software failures or other information technology infrastructure disruptions may negatively impact Air Wisconsin’s business, operations and financial condition.

The performance and reliability of Air Wisconsin’s technology, and the technology of United, are critical to Air Wisconsin’s ability to compete effectively. Any internal technological error or failure or large-scale external interruption in the technological infrastructure we depend on, such as power, telecommunications or the internet, may disrupt Air Wisconsin’s internal network. Any individual, sustained or repeated failure of Air Wisconsin’s technology or that of United could impact Air Wisconsin’s ability to conduct its business, lower the utilization of Air Wisconsin’s aircraft and result in increased costs. Air Wisconsin’s technological systems and related data, and those of United, may be vulnerable to a variety of sources of interruption due to events beyond its control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues.

In addition, as a part of Air Wisconsin’s ordinary business operations, it collects and store sensitive data, including personal information of its employees and information of United. Air Wisconsin’s information systems are subject to an increasing threat of evolving cybersecurity attacks. Unauthorized parties may attempt to gain access to Air Wisconsin’s systems or information through fraud or other means of deception. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are constantly evolving, and may be difficult to anticipate or to detect for long periods of time. Air Wisconsin may not be able to prevent all data security breaches or misuse of data. The compromise of Air Wisconsin’s technology systems resulting in the loss, disclosure, misappropriation of, or access to, employees’, passengers’ or business partners’ information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information and disruption to its operations any or all of which could adversely affect our business and financial condition.

We may become involved in litigation that may materially adversely affect us.

From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including employment, class action and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming to resolve, divert management’s attention and resources, cause us to incur significant expenses or liability, and require us to change our business practices. Because of the potential risks, expenses and uncertainties associated with litigation, we may, from time to time, settle disputes, even where we believe that we have meritorious claims or defenses. Because litigation is inherently unpredictable, we cannot be certain that the results of any of these actions will not have a material adverse effect on our business, results of operations and financial condition.

 

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Risks Related to Our Industry

The duration and severity of the COVID-19 pandemic, and similar public health threats that we may face in the future, could result in additional adverse effects on the business, operating results, financial condition and liquidity of Air Wisconsin and United.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic, and by March 19, 2020, the U.S. Department of State issued a Level 4 “do not travel” advisory for all international travel due to the global impact of COVID-19.

Our business, as well as the industry in which Air Wisconsin operates, remains significantly impacted by the COVID-19 pandemic. United, Air Wisconsin’s sole airline partner, began experiencing a significant decline in domestic demand related to the COVID-19 pandemic, during the first quarter of 2020, resulting in a first quarter net loss. As of the date of this filing, United expects demand will remain suppressed for the remainder of 2020 and likely into 2021. As a result of lowered demand, United cut approximately 80% of its scheduled capacity for April 2020, and approximately 90% for May 2020 and June 2020. Since March 2020, United has significantly reduced the number of Air Wisconsin’s scheduled departures and block hours flown, and United may impose continued reductions. The severity and duration of global health and financial impacts of the COVID-19 pandemic is difficult to predict; thus, the magnitude and scope of the impact of the COVID-19 pandemic on our business and future results of operations is highly uncertain and subject to change.

The full extent of the ongoing impact of the COVID-19 pandemic on our longer-term operational and financial performance will depend on future developments, many of which are outside of our control, including the effectiveness of the mitigation strategies employed by United, the duration and spread of COVID-19, the impact of COVID-19 on overall long-term demand for air travel, the impact of the COVID-19 pandemic on our financial health and operations and that of United, United’s compliance with the United capacity purchase agreement, and future governmental actions, all of which are highly uncertain and cannot be predicted. A long-term continuation of reduced passenger demand for air travel could have a material adverse effect, on our business, operating results, financial condition and liquidity. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth herein.

In addition, a further outbreak of COVID-19, an outbreak of another disease or similar public health threat, or any other event that would affect travel demand, travel behavior or travel restrictions, could have a material adverse impact on our business, financial condition and operating results and those of United. For more information, see the section entitled “Management’s Discussion and Analysis – Economic Conditions, Challenges and Risks Impacting Financial Results – COVID-19 Pandemic” within this Annual Report.

The airline industry is often negatively impacted by numerous factors that could have a material adverse effect on our business, results of operations and financial condition.

The business of airlines is affected by numerous factors, many of which are beyond Air Wisconsin’s control, including air traffic congestion at airports, air traffic control inefficiencies, facility disruptions, acts of war or terrorism, increased security measures, adverse weather conditions, natural disasters and the outbreak of disease. Factors that cause flight delays frustrate passengers and increase operating costs and decrease revenue, which in turn could adversely affect profitability. Because Air Wisconsin’s revenue (other than the portion of its revenue based on the number of aircraft covered under the United capacity purchase agreement) depends primarily on Air Wisconsin’s completion of flights, and secondarily on service factors such as timeliness of departure and arrival, customer satisfaction, cancellations or delays could have a material adverse effect on our business, results of operations and financial condition.

 

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In addition to the factors noted above, while Air Wisconsin is to some extent protected from certain market conditions under the United capacity purchase agreement, its operations and our financial condition are currently affected, and may in the future be affected, by many other industry factors and conditions beyond Air Wisconsin’s control, including, among others:

 

   

actual or potential changes in economic conditions, including disruptions in the credit markets, recession, inflation, increased interest rates or fluctuations in currency exchange rates;

 

   

actual or potential changes in political conditions, including wars, outbreak of hostilities, terrorism or other political instability;

 

   

changes in demand for airline travel or tourism;

 

   

changes in consumer preferences, perceptions, discretionary spending or demographic trends;

 

   

changes in the competitive environment due to pricing, industry consolidation or other factors; and

 

   

labor disputes, strikes, work stoppages, or similar matters impacting employees.

The effect of any of the foregoing factors or conditions on Air Wisconsin’s operations is difficult to forecast; however, the occurrence of any or all of such factors or conditions could materially and adversely affect its operations and our financial condition.

The airline industry is highly competitive and has undergone a period of consolidation and transition leaving fewer potential major airline partners.

The airline industry is highly competitive. Air Wisconsin competes primarily with other regional airlines, some of which are owned or operated by major airlines. The airline industry has undergone substantial consolidation, including the mergers between Alaska Airlines and Virgin America in 2016, American Airlines and US Airways in 2013, Southwest and AirTran Airways in 2011, United and Continental Airlines in 2010 and Delta and Northwest Airlines in 2008. Any additional consolidation or significant alliance activity within the airline industry could further limit the number of potential partners with whom Air Wisconsin could enter into capacity purchase agreements. In addition, any further consolidation activity involving United, or reduction in the size of its network, could alter its business strategy or its perception of the value of its relationship with Air Wisconsin, which could limit opportunities for Air Wisconsin to provide additional service to United. Similarly, any further consolidation or restructuring of any major air carrier’s regional jet programs could negatively impact Air Wisconsin’s future growth opportunities.

In the course of consolidation, major airlines may also make other strategic changes, such as relocating or consolidating hubs. For example, in May 2020, United temporarily ceased Air Wisconsin’s operations at Washington-Dulles and significantly reduced Air Wisconsin’s average daily scheduled departures. While we expect Air Wisconsin to resume operations at Washington-Dulles in August, we cannot be certain whether these operations will be resumed, and whether United will make future changes to Air Wisconsin’s operations. If United were to make changes such as these in its strategy and operations, or otherwise decide to reduce the size of its network, Air Wisconsin’s operations and our financial results could be adversely impacted.

Terrorist activities or warnings have dramatically impacted the airline industry and will likely continue to do so.

The terrorist attacks of September 11, 2001 and their aftermath have negatively impacted the airline industry in general. If additional terrorist attacks are launched against the airline industry, there may be lasting consequences of the attacks, which may include loss of life, property damage, increased security measures, higher insurance costs, increased concerns about future terrorist attacks and additional government regulation, among other factors. Additional terrorist attacks, and warnings that such attacks may occur, could negatively impact the airline industry, and result in decreased passenger traffic, increased flight delays or cancellations, as well as increased security, fuel and other costs. If a terrorist attack were to occur, whether or not involving Air Wisconsin’s aircraft, it could have a material adverse impact on our business and operations.

 

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The occurrence of an aviation accident or incident involving Air Wisconsin or its aircraft type could negatively impact our financial condition and operating results.

An accident or incident involving Air Wisconsin’s aircraft could result in significant potential claims of injured passengers and others, as well as negative impacts on its operations resulting from the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss from service. In the event of an accident, Air Wisconsin’s liability insurance may not be adequate to offset its exposure to potential claims, and it may be forced to bear substantial losses from the accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that Air Wisconsin’s operations are less safe or reliable than other airlines, which could negatively impact our operations and financial condition and operating results.

Furthermore, given that Air Wisconsin currently operates a single aircraft type, any accident or incident involving the CRJ-200 regional jet aircraft type, whether or not operated by Air Wisconsin, may result in Air Wisconsin temporarily or permanently suspending service on all or a large portion of its fleet. Any grounding of Air Wisconsin’s aircraft could have an adverse impact on Air Wisconsin’s operations, its relationship with United, and our financial results.

Air Wisconsin is subject to significant governmental regulation and potential regulatory changes.

All interstate air carriers, including Air Wisconsin, are subject to regulation by the DOT, the FAA and other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA is responsible for regulating and overseeing matters relating to the safety of air carrier flight operations, including the control of navigable air space, the qualification of flight personnel, flight training practices, compliance with FAA airline operating certificate requirements, aircraft certification and maintenance requirements. We cannot predict whether Air Wisconsin will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on our operations. Air Wisconsin incurs substantial costs in maintaining its current certification and otherwise complying with the laws, rules and regulations to which it is subject. A decision by the FAA to ground, or require time consuming inspections of or maintenance on, all or any of Air Wisconsin’s aircraft for any reason may have a material adverse effect on our operations. Air Wisconsin’s business may also be subject to additional costs as a result of potential regulatory changes, which could have an adverse effect on Air Wisconsin’s operations and our financial results.

In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect Air Wisconsin’s operations and require that it incur substantial ongoing costs.

Air Wisconsin is subject to various environmental and noise laws and regulations, which could have a material adverse effect on our business, results of operations and financial condition.

Air Wisconsin is subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise, including those relating to emissions to the air, discharges to surface and subsurface waters, safe drinking water and the use, management, disposal and release of, and exposure to, hazardous substances, oils and waste materials. Air Wisconsin is or may be subject to new or proposed laws and regulations that may have a direct effect on its operations (or an indirect effect through its third-party specialists or airport facilities at which it operates). Any such existing, future, new or potential laws and regulations could have an adverse impact on our business, results of operations and financial condition.

Similarly, Air Wisconsin is subject to environmental laws and regulations that require it to investigate and remediate soil or groundwater to meet certain remediation standards. Under certain laws, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict, joint and several, meaning that Air Wisconsin could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of wastes directly attributable to it, which liability could have an adverse impact on our results of operations and financial condition.

 

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Risks Related to the Company’s Common Stock

Because there is no active trading market for the Company’s common stock, the common stock may continue to be illiquid.

Although the Company’s common stock is traded under the symbol “HRBR” on the OTC Market, the trading volume for the common stock has historically been very limited. The Company has not listed, and does not currently intend to list, the Company’s common stock for trading on any national securities exchange. Accordingly, we expect the common stock to continue to be illiquid for the foreseeable future. Investors should be aware that an active trading market for the common stock may never develop or be sustained.

The price of the Company’s common stock has been and may continue to be volatile.

The trading price of the Company’s common stock has been volatile. We believe the Company’s stock price will be subject to wide fluctuations in response to a variety of factors, including the following:

 

   

the ongoing impact of the COVID-19 pandemic on demand for air travel, tourism, discretionary spending, consumer behavior and economic conditions;

 

   

actual or anticipated fluctuations in our financial and operating results from period to period;

 

   

our actual or perceived need for additional capital;

 

   

the repayment, restructuring or refinancing of Air Wisconsin’s debt obligations;

 

   

the illiquidity of the Company’s common stock;

 

   

market perceptions about our financial stability generally, and relative to our competitors, and perceptions about the financial stability of Air Wisconsin’s business partners;

 

   

market perceptions regarding Air Wisconsin’s operating performance, reliability and customer service, and the operating performance, reliability and customer service of its partners and competitors;

 

   

factors and perceptions impacting the airline industry generally, including future passenger demand for air travel;

 

   

other pandemics and other widespread outbreaks of communicable diseases;

 

   

announcements of significant contracts, acquisitions or divestitures by us or Air Wisconsin’s competitors, including any new or amended capacity purchase agreement with United;

 

   

bankruptcies or other financial issues impacting Air Wisconsin’s partners or competitors;

 

   

purchases or sales of shares of the Company’s common stock by the Company or its principal stockholders;

 

   

threatened or actual litigation and government investigations;

 

   

changes in the regulatory environment impacting Air Wisconsin’s business and industry;

 

   

speculative trading practices of the Company’s stockholders and other market participants;

 

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perceptions about securities that are traded on the OTC Market;

 

   

the lack of publicly available historical financial information regarding the Company and its subsidiaries; and

 

   

general political or economic conditions.

In recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies across many industries. These changes may occur without regard to the financial condition or operating performance of the affected companies. Accordingly, the price of the Company’s common stock could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations could materially reduce the trading price of the Company’s common stock.

The concentration of ownership of the Company’s capital stock among a small number of stockholders could allow such stockholders to exert significant influence over the Company’s business plans and strategic objectives, control all matters submitted to the Company’s stockholders for approval, or deter a change in control transaction, any of which could negatively affect the trading price or trading volume of the Company’s common stock.

As of May 31, 2020, the Company had 54,863,305 shares of common stock outstanding. As of the same date, Amun held 20,000,000 shares of the Company’s common stock, representing approximately 28.0% of the fully diluted shares of capital stock of the Company, and Southshore held 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock, representing approximately 23.1% of the fully diluted shares of capital stock of the Company (in each case assuming the full conversion of the Series C Convertible Redeemable Preferred Stock into common stock). The shares of Series C Convertible Redeemable Preferred Stock are generally authorized to vote with the Company’s common stock. As a result, Amun and Southshore collectively control a majority of the voting power of the Company’s outstanding capital stock and, therefore, are able to exercise significant influence over the establishment and implementation of the Company’s business plans and strategic objectives, as well as to control all matters submitted to the Company’s stockholders for approval. These stockholders may manage the Company’s business in ways in which certain investors disagree and may be adverse to their interests. This concentration of ownership may also have the effect of delaying, deterring or preventing a change in control transaction, depriving the Company’s stockholders of an opportunity to receive a premium for their capital stock, or otherwise negatively affecting the trading price or trading volume of the Company’s common stock.

Mr. Bartlett, one of the Company’s directors, may be deemed to be the beneficial owner of the shares of the Company’s common stock held by Amun due to his status as a member of the board of managers of Amun, and his indirect ownership of 19.6% of the outstanding equity of Amun. In addition, Mr. Bartlett may be deemed to be the beneficial owner of the shares of the Company’s Series C Convertible Redeemable Preferred Stock held by Southshore due to his status as a member of the board of managers of Southshore, and his direct or indirect ownership of 19.6% of the outstanding equity of Southshore. Accordingly, Mr. Bartlett may be able to exercise influence over decisions involving the voting or disposition of shares of the Company’s capital stock. However, Mr. Bartlett does not control voting or investment decisions made by either Amun or Southshore.

The Company may suspend its obligation to comply with SEC filing requirements in future periods, and thereby cease filing reports and other information with the SEC, which could have the effect of reducing the trading volume and trading price of the Company’s common stock.

In February 2012, the Company’s predecessor, Harbor Biosciences, Inc., filed a Form 15 with the SEC to deregister its common stock pursuant to Section 12(g) of the Exchange Act. The filing of the Form 15 had the effect of suspending the Company’s obligation, pursuant to Section 15(d) of the Exchange Act, to file reports and other information with the SEC. As a result, prior to this Annual Report, the last periodic report filed by the Company was the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the SEC on January 20, 2012. As of January 1, 2020, the Company no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act. As a result, the Company determined that it is currently required to file reports and other information with the SEC pursuant to Section 15(d) of the Exchange Act.

The Company has incurred significant direct and indirect costs, and diversion of management time and resources, as a result of the requirement to comply with certain reporting obligations under the Exchange Act, including those incurred in connection with the preparation and filing of this Annual Report, the audit of the financial statements contained in this Annual Report in accordance with SEC rules and the Public Company Accounting Oversight Board (United States) standards, and compliance with certain provisions of the Sarbanes-Oxley Act of 2002. The Company expects to incur significant additional costs relating to its public reporting obligations, which could have a negative impact on the Company’s results of operations.

The Company would again become eligible to suspend its public reporting obligations if it (i) determines it has fewer than 300 stockholders of record (as determined in accordance with applicable SEC rules) as of certain points in time, (ii) does not file registration statements pursuant to the Securities Act, and (iii) meets certain other requirements under applicable SEC rules. In the event the Company becomes eligible to suspend its public reporting obligations in future periods, it may elect to take the actions necessary to suspend those obligations, which would result in the Company no longer being required to file SEC reports. If the Company ceases filing reports and other information with the SEC, it would significantly reduce the amount of publicly available information about the Company and its subsidiaries, which could have the effect of reducing the trading volume and trading price of the Company’s common stock.

In addition, notwithstanding that the Company is currently required to file certain reports and information with the SEC pursuant to Section 15(d) of the Exchange Act, the Company does not have a class of securities registered pursuant to Section 12 of the Exchange Act. As a result, the Company is not required to comply with, and does not intend to follow, certain disclosure requirements typically applicable to public reporting companies, including the requirement to file proxy statements, information statements, tender offer disclosures, and beneficial ownership filings. Accordingly, there may be significantly less information available about the Company, including its governance policies and ownership structure, than is available for other public reporting companies, which may reduce demand for the Company’s common stock and further reduce the trading volume and trading price.

 

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Provisions in the Company’s charter documents and the United capacity purchase agreement might deter acquisition bids, which could adversely affect the value of the Company’s common stock.

The Company’s amended and restated certificate of incorporation and amended and restated bylaws, as well as the United capacity purchase agreement, contain provisions that, among other things:

 

   

prohibit the transfer of any shares of the Company’s capital stock that would result in (i) any person or entity becoming a “Five-Percent Stockholder” (as defined under Treasury Regulation Section 1.382-2T(g)) of the Company’s then-outstanding capital stock, or (ii) an increase in the percentage ownership of any person or entity who is already a “Five-Percent Stockholder” of the Company’s then-outstanding capital stock;

 

   

authorize the Company’s board of directors, without stockholder approval, to authorize and issue preferred stock with powers, preferences and rights that may be senior to the Company’s common stock, that could dilute the interest of, or impair the voting power of, holders of the Company’s common stock and could also have the effect of discouraging, delaying or preventing a change of control;

 

   

establish advance notice procedures that stockholders must comply with in order to nominate candidates to the Company’s board of directors and propose matters to be brought before an annual or special meeting of the Company’s stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company;

 

   

authorize a majority of the Company’s board of directors to appoint a director to fill a vacancy created by the expansion of the Company’s board of directors or the resignation, death or removal of a director, which may prevent stockholders from being able to fill vacancies on the Company’s board of directors;

 

   

give the Company’s board of directors exclusive authority to set the number of directors and increase or decrease the number of directors by one or more resolutions, which may prevent stockholders from being able to fill vacancies on the Company’s board of directors;

 

   

restrict the ability of stockholders to call special meetings of stockholders; and

 

   

with respect to the United capacity purchase agreement, provide that a change of control of Air Wisconsin results in a termination event under the agreement, pursuant to which United may terminate its relationship with Air Wisconsin.

The requirement that Air Wisconsin remain a citizen of the United States limits the potential purchasers of the Company’s common stock.

Under DOT regulations and federal law, Air Wisconsin must be owned and controlled by citizens of the United States as that term is defined in the Federal Aviation Act and interpreted by DOT. The restrictions imposed by federal law and regulations limit who can purchase Air Wisconsin’s equity securities in the following ways:

 

   

at least 75% of Air Wisconsin’s voting equity securities must be owned and controlled, directly and indirectly, by persons or entities who are citizens of the United States;

 

   

at least 51% of Air Wisconsin’s total outstanding equity securities must be owned and controlled by U.S. citizens and no more than 49% of Air Wisconsin’s equity securities may be held, directly or indirectly, by persons or entities who are not U.S. citizens and are from countries that have entered into “open skies” air transport agreements with the U.S. which allow unrestricted access between the United States and the applicable foreign country and to points beyond the foreign country on flights serving the foreign country; and

 

   

citizens of foreign countries that have not entered into an “open skies” air transport agreements with the U.S. may hold no more than 25% of Air Wisconsin’s total outstanding equity securities.

The restrictions on foreign ownership of Air Wisconsin’s equity securities may impair or prevent a sale of common stock by a stockholder of the Company and may adversely affect the price at which a stockholder can sell the Company’s common stock. We cannot predict the effect that these restrictions may have on the price of the Company’s common stock.

The Company’s amended and restated certificate of incorporation and amended and restated bylaws limit certain transfers of the Company’s stock in order to preserve the Company’s ability to use its net operating loss carryforwards, which could have an effect on the value and liquidity of the Company’s common stock.

To reduce the risk of a potential adverse effect on the Company’s ability to use its net operating loss carryforwards for federal income tax purposes, the Company’s amended and restated certificate of incorporation and amended and restated bylaws prohibit certain transfers of shares of the Company’s capital stock that could result in adverse tax consequences by impairing the Company’s ability to utilize its net operating loss carryforwards. These transfer restrictions are subject to a number of rules and exceptions, and generally may only be repealed or amended by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Company’s capital stock. These transfer restrictions apply to the beneficial owners of the shares of the Company’s capital stock. The Company’s board of directors also has the ability to grant certain waivers and to modify certain terms with respect to transfers of the Company’s stock that would otherwise be prohibited. The transfer restrictions contained in the Company’s amended and restated certificate of incorporation and amended and restated bylaws may limit demand for the Company’s common stock, which may adversely affect the price at which a stockholder can sell the Company’s common stock. In addition, this limitation may have the effect of delaying or preventing a change in control of the Company, creating a perception that a change in control cannot occur, or otherwise discouraging takeover attempts that some stockholders may consider beneficial, any of which could also adversely affect the trading price of the Company’s common stock.

 

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The Company currently does not intend to pay dividends on its common stock and, consequently, the only opportunity to achieve a return on an investment in the Company’s common stock may be the appreciation in value of the price of the Company’s common stock.

The Company has not historically paid dividends on shares of its common stock and does not expect to pay dividends on such shares in the foreseeable future. The United capacity purchase agreement and Air Wisconsin’s credit agreements with its lender contain restrictions that limit Air Wisconsin’s ability to pay, or prohibit it from paying, dividends to the Company. In addition, the PSP Agreement that Air Wisconsin entered into in April 2020 with the U.S. Department of the Treasury pursuant to the recently enacted CARES Act prevents it from paying dividends prior to October 1, 2021. Thus, the source of any future dividends may be limited to cash available from the Company’s other subsidiaries. Any future determination to pay dividends will be at the discretion of the Company’s board of directors and will depend on our results of operations, financial condition, capital requirements, restrictions contained in current or future credit agreements or capacity purchase agreements, business prospects and such other factors as the Company’s board of directors deems relevant. Consequently, investors should consider that their only opportunity to achieve a positive return on their investment in the Company’s common stock may be the appreciation in value of the Company’s common stock. However, as a result of numerous risks and uncertainties described in this Annual Report, the trading price of the Company’s common stock may not appreciate and may decline significantly.

As a “smaller reporting company,” the Company may avail itself of reduced disclosure requirements, which may make the Company’s common stock less attractive to investors.

The Company is a “smaller reporting company” under applicable SEC rules and regulations, and it will continue to be a “smaller reporting company” for so long as either (i) the market value of the Company’s common stock held by non-affiliates as of the end of its most recently completed second quarter is less than $250 million or (ii) if the market value of the Company’s common stock held by non-affiliates is less than $700 million, and the annual revenue of the Company is less than $100 million during the most recently completed fiscal year. As a “smaller reporting company,” the Company has relied on exemptions from certain disclosure requirements that are applicable to other public reporting companies. These exemptions include reduced financial disclosure and disclosure regarding executive compensation. Investors may find the Company’s common stock less attractive because it relies on these exemptions, which could lead to a less active trading market for the Company’s common stock and of the Company’s common stock price.

Complying with the requirements of public reporting companies under the Exchange Act, including the requirement for management to assess our disclosure controls and procedures and internal control over financial reporting, will increase our operating costs and divert management’s attention from executing our business strategy.

The Company is subject to the reporting requirements of Section 15(d) of the Exchange Act, which requires, among other things, that it file annual, quarterly, and current reports with the SEC with respect to our business, financial condition and results of operations. In addition, pursuant to the Sarbanes-Oxley Act of 2002, we are required to assess the effectiveness of our disclosure controls and procedures and, in future periods, we will be required to assess the effectiveness of our internal control over financial reporting. Compliance with these various reporting and compliance obligations has substantially increased our legal and financial compliance costs, made some of our business activities more difficult or costly, and increased demand on our management team.

Significant resources and management oversight may be required to maintain and, as required, enhance our disclosure controls and procedures and internal control over financial reporting. As discussed below, in connection with the audit of our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. We may incur significant costs in an effort to remediate these material weaknesses and enhance our controls and procedures. In addition, these efforts may divert management’s attention from other business concerns, which could harm our results of operations.

 

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As a result of our compliance with Exchange Act reporting obligations, a significant amount of information regarding our business and operations, including our financial condition and operating results, will become publicly available, which may result in threatened or actual litigation or other disputes with our key constituents. If such claims are successful, our business and results of operations could suffer, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, financial condition and results of operations.

Further, the Company’s status as a public reporting company has significantly increased the cost of its director and officer liability insurance, and the Company may be required to accept reduced coverage or incur substantially higher costs in the future to obtain similar coverage. These factors, or other risks associated with being a public reporting company, could make it more difficult for us to attract and retain qualified members of the Company’s board of directors and executive officers, and it may increase the cost of their services.

Our independent registered public accounting firm has identified material weaknesses in our internal control over financial reporting that, if not corrected, could result in material misstatements to our financial statements in future periods.

As further discussed in the section entitled “Controls and Procedures” within this Annual Report, in connection with the audit of our consolidated financial statements as of and for the years ended December 31, 2019 and December 31, 2018, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. The identified material weaknesses as of December 31, 2019 primarily relate to: (i) the application of accounting treatment for certain complex and non-routine transactions, (ii) the adoption of new accounting standards related to Topic 606 and Topic 842, (iii) the establishment and design of processes and controls to document and monitor certain controls over financial reporting, (iv) the design of controls for user access rights related to certain information technology systems, and (v) the accounting for valuation allowances on deferred tax assets. While we intend to enhance our controls and procedures, and to remediate the material weaknesses that remain unremediated, we cannot be certain that these measures will be successful in remediating these material weaknesses, or preventing future significant deficiencies or material weaknesses in internal control over financial reporting. We expect to incur significant costs and diversion of management resources in an effort to remediate any material weaknesses and enhance our controls and procedures. During our ongoing evaluation of our controls and procedures, we may identify additional control deficiencies, which could give rise to additional material weaknesses or significant deficiencies. The material weaknesses described above, or any newly identified material weaknesses, could result in material misstatements of our annual or interim consolidated financial statements that would not be prevented or detected. Any such misstatements of our financial statements could lead to restatements of our financial statements, which could result in an adverse impact to our financial results and a decline in the trading price of the Company’s common stock.

The Company may be at increased risk of securities class action litigation.

In the past, securities class action litigation has been instituted against companies following periods of volatility in the overall market and in the price of a company’s securities. If the Company faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business, financial condition and results of operations.

If securities or industry analysts do not publish reports about our business, an active trading market for the Company’s common stock may not develop.

The extent of any trading market for the Company’s common stock will depend, in part, on any research and reports that securities or industry analysts publish about us or our business. We are not currently aware of any analysts who cover the Company nor do we expect any analysts to commence coverage in the foreseeable future. Investors should not purchase the Company’s common stock with the expectation that we will have analyst coverage, or that an active trading market for the Company’s common stock will be developed or sustained.

 

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ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

 

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ITEM 2.

PROPERTIES

Aircraft Fleet

As of December 31, 2019, Air Wisconsin owned and leased 64 CRJ-200 regional jets, consisting of the following:

 

Type of Aircraft

   Owned      Leased      Total      Passenger Capacity  

CRJ-200 Regional Jet

     51        13        64        50  

As of May 31, 2020, Air Wisconsin owned and leased 64 CRJ-200 regional jets, consisting of the following:

 

Type of Aircraft

   Owned      Leased      Total      Passenger Capacity  

CRJ-200 Regional Jet

     62        2        64        50  

The CRJ-200 regional jet offers many of the capabilities and amenities of larger commercial jet aircraft, including flight attendant service, a stand-up cabin, limited overhead and under seat storage, a lavatory and a galley that allows for in-flight snack and beverage service. The CRJ-200 regional jet has a speed comparable to larger aircraft operated by major airlines and has a range of approximately 1,585 miles.

On January 17, 2020, the Company completed the acquisition from Southshore of three CRJ-200 regional jets, each having two GE engines, plus five additional GE engines, in exchange for the issuance of shares of the Company’s Series C Convertible Redeemable Preferred Stock. Air Wisconsin had leased each of these regional jets prior to the acquisition. For more information, see the section entitled “Certain Relationships and Related Transactions, and Director Independence – Transactions with Southshore Leasing, LLC and Southshore Affiliates” within this Annual Report.

On May 22, 2020, Air Wisconsin acquired eight additional CRJ-200 regional jets in a single transaction for an aggregate purchase price of $3.0 million. Air Wisconsin had leased each of these regional jets prior to the acquisition.

On June 1, 2020, Bombardier consummated an agreement with Mitsubishi, pursuant to which Mitsubishi purchased Bombardier’s regional jet program, including all aspects of the CRJ-200 regional jet, including type certificates, maintenance, support, refurbishment, marketing and sales activities. Air Wisconsin does not have any existing arrangements with Bombardier or Mitsubishi to acquire additional aircraft.

The following table summarizes Air Wisconsin’s ASMs flown and contract revenue recognized under the United capacity purchase agreement and the capacity purchase agreement between Air Wisconsin and American Airlines (which expired in February 2018) for the years ended December 31, 2019 and 2018, respectively.

 

     Year Ended
December 31, 2019
     Year Ended
December 31, 2018
 
     Available
Seat Miles
     Contract
Revenue
     Contract
Revenue
per ASM
     Available
Seat Miles
     Contract
Revenue
     Contract
Revenue
per ASM
 
     (in thousands)      (in thousands)  

United

     1,925,371      $ 263,495      ¢ 13.69        1,722,295      $ 233,573      ¢ 13.56  

American

     —        $ —        ¢ —          40,765      $ 6,979      ¢ 17.12  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,925,371      $ 263,495      ¢ 13.69        1,763,060      $ 240,552      ¢ 13.64  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Facilities

In addition to aircraft, Air Wisconsin has offices, crew bases and maintenance facilities to support its operations. Each of Air Wisconsin’s material facilities held as of December 31, 2019 is summarized in the following table:

 

Type

  

Location

   Ownership    Approximate
Square Footage
 

Corporate Headquarters

   Appleton, Wisconsin    Leased      20,140  

Maintenance Hangar

   Appleton, Wisconsin    Leased      37,200  

Disaster Recovery Center

   Appleton, Wisconsin    Leased      2,610  

Inflight Training Center

   Appleton, Wisconsin    Leased      1,541  

Maintenance Hangar

   Columbia, South Carolina    Leased      35,300  

Maintenance Hangar

   Dayton, Ohio    Leased      21,500  

Maintenance Hangar

   Milwaukee, Wisconsin    Leased      60,000  

The Inflight Training Center lease expired in February 2020, and following such expiration the Inflight Training Center was moved to the Maintenance Hangar located in Appleton, Wisconsin. All other leases above are long term and expire between May 2022 and November 2033.

As of May 31, 2020, the Company was in the process of closing its maintenance hangar in Columbia, South Carolina.

In July 2003, Air Wisconsin financed a hangar through the issuance of approximately $4.3 million principal amount of City of Milwaukee, Wisconsin variable rate industrial development bonds. The bonds mature November 1, 2033. Prior to May 1, 2006, the bonds were secured by a guaranteed investment contract, which was collateralized with cash and interest was payable semiannually. On May 1, 2006, Air Wisconsin acquired the bonds using the cash collateral. The bonds are reported as long-term investments on the balance sheets. The hangar is accounted for as a right-of-use asset.

We believe Air Wisconsin’s facilities are suitable and adequate for its current and anticipated needs.

 

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ITEM 3.

LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings or investigatory inquiries arising from, or related to, matters incident to the ordinary course of our business activities, including, without limitation, actions involving contractual matters, employment law, intellectual property, corporate governance, and regulatory matters. Although the results of such legal proceedings or investigatory inquiries cannot be predicted with certainty, we believe that we are not currently a party to any legal proceedings or investigatory inquiries which, if determined adversely to us, would, individually or taken together, have a material adverse effect on our business, operating results, financial condition or cash flows. However, regardless of the merit of any claims raised or the ultimate outcome of such matters, legal proceedings or investigatory inquiries may generally have an adverse impact on us as a result of defense and settlement costs, compliance costs, diversion of management resources, and other factors. As of December 31, 2019, our management believed, after consultation with legal counsel, that the ultimate outcome of such legal proceedings and investigatory inquiries then outstanding, whether individually or taken together, was not likely to have a material adverse effect on our financial position, liquidity or results of operations.

 

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ITEM 4.

MINE SAFETY DISCLOSURES

The disclosure required by this item is not applicable.

 

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PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is currently traded on the OTC Market under the symbol “HRBR.” The Company has not listed, and does not currently intend to list, the Company’s common stock for trading on any national securities exchange. Accordingly, we expect the Company’s common stock to continue to be illiquid for the foreseeable future. Investors should be aware that an active trading market for the Company’s common stock may never develop or be sustained.

The common stock of Harbor BioSciences, Inc., the Company’s predecessor, was delisted from the NASDAQ Capital Market on September 23, 2010, at which time the Company’s common stock commenced trading on the Over-The-Counter Bulletin Board (“OTCBB”). The Company’s common stock was subsequently delisted from the OTCBB on August 17, 2011 as a result of the filing of a Form 15 by Harbor BioSciences, Inc. with the Securities and Exchange Commission pursuant to Rule 12g-4 under the Exchange Act of 1934, as amended, and subsequently commenced trading on the OTC Market.

Holders of Record

As of January 1, 2020, there were approximately 361 holders of record of the Company’s common stock. Because many of the Company’s shares of common stock are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.

The transfer agent and registrar for the Company’s common stock is American Stock Transfer & Trust Company, LLC.

Dividends

The Company has not declared or paid any cash dividends on its capital stock. The United capacity purchase agreement and Air Wisconsin’s credit agreements with its lender contain restrictions that limit Air Wisconsin’s ability to pay, or prohibit it from paying, dividends to the Company. In addition, the Payroll Support Program Agreement that Air Wisconsin entered into in April 2020 with the U.S. Department of the Treasury pursuant to the recently enacted federal Coronavirus Aid, Relief, and Economic Security Act prevents it from paying dividends prior to October 1, 2021. As a result, the source of any future dividends may be limited to existing cash available at the Company and from its other subsidiaries. Any future determination to pay dividends will be at the discretion of the Company’s board of directors and will depend on our results of operations, financial condition, capital requirements, restrictions contained in current or future credit agreements or capacity purchase agreements, business prospects and such other factors as the Company’s board of directors deems relevant.

 

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Unregistered Sales of Equity Securities

There were no unregistered sales of the Company’s equity securities during the year ended December 31, 2019. On January 17, 2020, the Company completed the acquisition from Southshore Aircraft Holdings, LLC and its affiliated entities of three CRJ-200 regional jets, each having two General Electric (“GE”) engines, plus five additional GE engines, in exchange for the issuance of 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock. This sale of securities was made pursuant to the exemption from the registration provisions of the Securities Act for issuances not involving a public offering provided by Rule 506 of Regulation D promulgated under the Securities Act.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

 

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ITEM 6.

SELECTED FINANCIAL DATA.

As a “smaller reporting company,” the Company is not required to provide the information required by this Item.

 

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements, the accompanying notes, and the other financial information included within this Annual Report on Form 10-K (this “Annual Report”). The following discussion contains forward-looking statements that involve risks and uncertainties such as our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements below. Factors that could cause or contribute to those differences in our actual results include, but are not limited to, those discussed below and those discussed elsewhere within this Annual Report, particularly in the Items entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

Harbor Diversified, Inc. is a non-operating holding company that is the parent of a consolidated group of subsidiaries, including AWAC Aviation, Inc. (“AWAC”), which is the sole member of Air Wisconsin Airlines LLC (“Air Wisconsin”), a regional air carrier that, as of December 31, 2019, provided scheduled passenger service to 81 cities in 31 states. Harbor Diversified, Inc. is also the direct parent of three other subsidiaries: (1) Lotus Aviation Leasing, LLC, which leases flight equipment to Air Wisconsin, (2) Air Wisconsin Funding LLC, which provides flight equipment financing to Air Wisconsin, and (3) Harbor Therapeutics, Inc., which is a non-operating entity with no material assets. Because Harbor Diversified, Inc. consolidates Air Wisconsin for financial statement purposes, disclosures relating to activities of Air Wisconsin also apply to Harbor Diversified, Inc., unless otherwise noted. When appropriate, Air Wisconsin is named specifically for its individual contractual obligations and related disclosures. Where reference is intended to include Harbor Diversified, Inc. and its consolidated subsidiaries, they may be jointly referred to as “we,” “us,” or “our.” Where reference is intended to refer only to Harbor Diversified, Inc., it is referred to as the “Company.”

In compliance with the requirements of Rule 12h-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s predecessor filed a Form 15 with the Securities and Exchange Commission (the “SEC”) to deregister its common stock. Among other things, the filing of the Form 15 had the effect of suspending the Company’s obligation, pursuant to Section 15(d) of the Exchange Act, to file the reports and other information required by Section 13(a) of the Exchange Act. However, as of January 1, 2020, which is the first day of the Company’s current fiscal year, the Company determined it no longer met the eligibility criteria under Rule 12h-3 of the Exchange Act to suspend its reporting obligations under Section 15(d) of the Exchange Act. As a result, the Company determined it was required to file this Annual Report no later than 120 days after the end of such fiscal year, or by April 29, 2020 (the “Original Filing Deadline”). However, on March 4, 2020, in response to the novel coronavirus (“COVID-19”) pandemic, the SEC issued an order under Section 36 of the Exchange Act (SEC Release No. 34-88465), which provides relief to reporting companies that are unable to timely comply with their filing obligations as a result of the impacts and disruptions caused by the COVID-19 pandemic if certain conditions are satisfied (the “SEC Order”). The Company relied on the SEC Order to extend the due date for the filing of this Annual Report. The Company subsequently provided a notification of late filing pursuant to Rule 12b-25(b) under the Exchange Act to further extend the due date for the filing of this Annual Report.

For the year ended December 31, 2019, Air Wisconsin operated a fleet of 64 CRJ-200 regional jets with an average of approximately 284 daily departures under a capacity purchase agreement (the “United capacity purchase agreement”) with its sole major airline partner, United Airlines, Inc. (“United”), with a significant presence at both Chicago O’Hare and Washington-Dulles, two of United’s key domestic hubs. All of Air Wisconsin’s flights are operated as United Express pursuant to the terms of the United capacity purchase agreement. More than 99% of our operating revenue for the year ended December 31, 2019, and more than 97% of our operating revenue for the year ended December 31, 2018, was derived from operations associated with the United capacity purchase agreement. Prior to March 2018, Air Wisconsin flew for American Airlines (and its predecessor, US Airways) for over ten years.

 

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Subject to certain limited exceptions, the United capacity purchase agreement provides Air Wisconsin fixed daily revenue for each aircraft covered under the agreement, a fixed payment for each departure and block hour flown, and reimbursement of certain direct operating expenses in exchange for providing regional flying service for United. The United capacity purchase agreement also has the effect of protecting Air Wisconsin, to an extent, from many of the elements that typically cause volatility in airline financial performance, including fuel prices, variations in ticket prices, and fluctuations in the number of passengers from flight to flight. In providing regional flying under the United capacity purchase agreement, Air Wisconsin uses United’s logos, service marks, and aircraft paint schemes. United controls route selection, pricing, seat inventories, marketing and scheduling. In addition, United provides Air Wisconsin with ground support services and gate access.

The sharp decline in airline travel demand due to the COVID-19 pandemic has had a material negative impact on the airline industry. As a result of lower demand, United cut approximately 80% of its scheduled capacity for April 2020, and approximately 90% of its capacity for May and June 2020. In May 2020, United temporarily ceased Air Wisconsin’s operations at Washington-Dulles, where Air Wisconsin expects to resume operations in August 2020, and reduced Air Wisconsin’s average daily scheduled departures to 45, compared to 290 in February 2020 and 284 in December 2019. In June 2020, Air Wisconsin provided scheduled passenger service to 20 cities in 12 states. Air Wisconsin has taken a number of measures to mitigate the health risks and economic impact of the COVID-19 pandemic. For more information, see the sections entitled “Business – Impact of COVID-19 on Our Business and Industry,” and “Risk Factors” within this Annual Report, as well as the section entitled “COVID-19 Pandemic” within this Annual Report.

2019 Financial Highlights

For the year ended December 31, 2019, we had total operating revenue of $263.6 million, a 9.6% increase, compared to $240.6 million for the year ended December 31, 2018. Net loss for the year ended December 31, 2019 was $(19.2) million, or a net loss of $(.35) per share, compared to net income of $181.3 million, or $3.30 per basic share, and $3.27 per diluted share for the year ended December 31, 2018. See Note 12, Earnings per Share, and Note 13, Stock Options, in our audited consolidated financial statements included in this Annual Report. Net income in 2018 was driven by the gain on the extinguishment of debt of $198.7 million resulting from the troubled debt restructuring in December 2018.

During the year ended December 31, 2019, we increased our completed block hours by 12,557, or 8.4%, compared to the year ended December 31, 2018.

Economic Conditions, Challenges and Risks Impacting Financial Results

We believe that, although the United capacity purchase agreement reduces Air Wisconsin’s exposure to certain risks, its operating and business performance is driven by various factors that typically affect regional airlines and their markets, including factors that affect the broader airline and travel industries. The following key factors may materially affect our future performance.

COVID-19 Global Pandemic. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic, and, in response, federal, state, local, and foreign governments have implemented travel recommendations and restrictions, “shelter-in-place” guidelines, and similar restrictions in an attempt to control the spread and mitigate the impact of COVID-19. In the United States, public events, such as conferences, sporting events and concerts have been canceled. Such restrictions, orders and guidelines have resulted in mandatory closure of “non-essential” businesses, resulting in significant disruptions to businesses and global financial markets, leading to an immediate and unprecedented material decline in demand for all air travel.

In April 2020, the International Air Transport Association reported that April 2020 seat capacity was 60% lower than that of April 2019. Roughly two-thirds of the global commercial fleet was grounded by the end of April. On May 28, the Transportation Security Administration reported that 87% fewer people passed through U.S. airport checkpoints than on the same day in the previous year. Worldwide, several regional and larger carriers have ceased operations as a direct result of the COVID-19 pandemic. As of the date of this filing, Miami Air International, RavnAir Group, Trans States Airlines and Compass Airlines, each domestic regional or charter airlines, either filed for Chapter 11 or Chapter 7 bankruptcy or ceased operations.

 

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Air Wisconsin’s business, as well as the industry in which it operates, remains significantly impacted by the unprecedented material decline in demand for air travel resulting from the COVID-19 pandemic. United, Air Wisconsin’s sole airline partner, began experiencing a significant decline in domestic demand related to the COVID-19 pandemic during the first quarter of 2020 and, as of the date of this filing, has stated that it expects demand will remain suppressed for the remainder of 2020 and likely into 2021. As a result of lowered demand, United cut approximately 80% of its scheduled capacity for April 2020, and approximately 90% for May and June 2020. Since March 2020, United has significantly reduced the number of Air Wisconsin’s scheduled departures and block hours actually flown, and United may impose continued reductions. The severity and duration of global health and financial impacts of the COVID-19 pandemic are difficult to predict; thus, the magnitude and scope of the effects of the COVID-19 pandemic on our business and future results of operations are highly uncertain and subject to change.

We have taken a number of actions in response to the financial uncertainty and health concerns raised by the COVID-19 pandemic. We have implemented cost-saving initiatives to mitigate the impact of the COVID-19 outbreak on our financial position and operations while also protecting the safety of our customers and employees. Air Wisconsin has delayed certain planned capital expenditures and operating expenditures for the remainder of 2020, through actions such as delaying planned heavy airframe maintenance events, delaying maintenance events associated with engines and rotable parts, offering voluntary short-term unpaid leave to employees, suspending all pay increases and bonuses for salaried employees, and instituting a company-wide hiring freeze.

In April 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), intended to provide economic relief to United States businesses affected by the COVID-19 pandemic, was signed into law. In April 2020, Air Wisconsin received a $10.0 million loan under the small business Paycheck Protection Program established under the CARES Act and administered by the Small Business Administration (“SBA”). The loan is forgivable subject to certain limitations, including that the loan proceeds be used to retain workers and for payroll, rent, mortgage payments and utility costs. In April 2020, Air Wisconsin was also granted approximately $41.0 million of payroll support pursuant to a Payroll Support Program Agreement (the “PSP Agreement”) entered into with the U.S. Department of the Treasury and offered under the CARES Act, of which approximately $20.5 million has been received, with the remaining amount to be paid ratably in July, August and September, 2020. These funds will be used to pay for the salaries and benefits of Air Wisconsin’s employees. The PSP Agreement contains various covenants, including that the payroll support proceeds must be used exclusively for the payment of wages, salaries and benefits, that Air Wisconsin cannot involuntarily terminate or furlough any employee prior to October 1, 2020, and that Air Wisconsin cannot reduce any employee’s pay rates or benefits prior to October 1, 2020, without that employee’s consent. Through September 30, 2021, the PSP Agreement also prohibits: (i) Air Wisconsin or any of its affiliates from purchasing an equity security of Air Wisconsin or any direct or indirect parent company of Air Wisconsin that is listed on a national securities exchange and (ii) Air Wisconsin from paying dividends, or making any other capital distributions, with respect to the common stock (or equivalent equity interest) of Air Wisconsin. In addition, the CARES Act authorizes the Secretary of the Department of Transportation to impose certain air service obligations on recipients of payroll support under the CARES Act until March 1, 2022. To date, no such service obligation has been imposed on Air Wisconsin.

Contract Disputes. More than 99% of our operating revenue for the year ended December 31, 2019 was derived from operations associated with the United capacity purchase agreement. Long-term contractual agreements, such as the United capacity purchase agreement, are subject to interpretation, and disputes may arise if the parties apply different interpretations to the agreements. Currently, a dispute between United and Air Wisconsin exists under the United capacity purchase agreement with respect to certain amounts owed to Air Wisconsin under the terms of the agreement and with respect to United’s failure to schedule the covered aircraft in accordance with the minimum scheduling parameters contained in the agreement as a result of the COVID-19 pandemic. We cannot predict the outcome of these disputes, or any related negotiations, on the terms of the United capacity purchase agreement or our relationship with United.

Market Volatility. The airline industry is volatile and affected by economic cycles and other factors, such as tourist activity, consumer confidence, discretionary spending, fear of terrorism or war, global pandemics, as well as economic conditions, fare initiatives, fuel prices, labor actions, changes in governmental regulations, changes in taxes and fees, and weather. These factors have contributed to a number of reorganizations, bankruptcies, liquidations and business combinations among major and regional airlines. The effect of economic cycles and these other factors may be somewhat mitigated by Air Wisconsin’s reliance on the United capacity purchase agreement. If, however, United experiences a prolonged decline in passenger demand, or is negatively affected by low ticket prices or high fuel cost, it may materially reduce or inefficiently schedule Air Wisconsin’s scheduled flights in order to reduce its costs. Our financial performance could be negatively impacted by any adverse changes to the utilization of Air Wisconsin’s aircraft or operating efficiency of the flights scheduled under the United capacity purchase agreement.

 

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Competition. The airline industry is highly competitive. Air Wisconsin competes principally with other regional airlines. We believe that major airlines typically award capacity purchase agreements to regional airlines based on the following criteria: aircraft fleet type; ability to fly proposed schedules; availability of labor resources, including pilots; proposed economic terms; aircraft and engine resources; financial resources; operational reliability; reputation; customer service levels; and other factors. Air Wisconsin’s ability to renew its existing agreement and earn additional flying opportunities in the future will depend, in significant part, on its ability to maintain a low-cost structure competitive with other regional air carriers.

Maintenance Contracts, Costs and Timing. Air Wisconsin’s employees perform routine airframe and engine maintenance along with periodic inspections of equipment at its maintenance facilities. It also uses third-party vendors for certain heavy airframe and engine maintenance work, along with parts procurement and component overhaul services for Air Wisconsin’s aircraft. As of December 31, 2019, the average age of Air Wisconsin’s CRJ-200 regional jets was approximately 17.3 years. We expect that maintenance costs will increase as its fleet continues to age.

We use the direct expense method of accounting for Air Wisconsin’s maintenance of airframes, rotable parts, and normal recurring maintenance pursuant to which we recognize the expense when the maintenance work is completed. We use the deferral method of accounting for planned major maintenance activities for engines pursuant to which the capitalized engine overhaul costs are amortized over the estimated useful life measured in engine cycles remaining until the next scheduled shop visit.

While Air Wisconsin keeps a record of expected maintenance events, the actual timing and costs of maintenance expense are subject to variables such as estimated usage, government regulations and the level of unscheduled maintenance events and their actual costs.

Aircraft Leases. As of December 31, 2019, and May 31, 2020, Air Wisconsin had thirteen and two aircraft in its fleet under lease, respectively. In order to determine the proper classification of its leased aircraft as either operating leases or finance leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of the aircraft, as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management to assess whether the lease is classified as an operating lease or a finance lease under existing accounting standards. All of Air Wisconsin’s aircraft leases have been classified as operating leases. Under the new accounting standard Accounting Standards Codification (“ASC”) 842 that the Company adopted in 2019, these leases have been included on the Balance Sheet under Other Assets as operating lease right-of-use assets.

See Note 1, Recently Adopted Standards, and Note 7, Lease Obligations, in our audited consolidated financial statements included in this Annual Report for a detailed discussion of the new lease accounting standards contained in ASC 842.

Labor. The airline industry is heavily unionized. The wages, benefits and work rules of unionized airline industry employees are determined by collective bargaining agreements. As of December 31, 2019, Air Wisconsin had 1,350 full-time employees and 27 part-time employees, for a total of 1,377 employees, of which 1,095 were represented by unions. Air Wisconsin’s pilots, represented by the Airline Pilots Association, ratified a three-year extension to their collective bargaining agreement with Air Wisconsin in November 2019, and the agreement now becomes amendable in November 2022. Air Wisconsin’s collective bargaining agreements with its mechanics and related employees, represented by the International Association of Machinists and Aerospace Workers, and with its aircraft attendants, represented by the Association of Flight Attendants, are both amendable and both are in mediated negotiations. Conflicts between airlines and their unions can lead to work slowdowns or stoppages. A strike or other significant labor dispute with Air Wisconsin’s unionized employees may adversely affect Air Wisconsin’s ability to conduct business.

 

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Availability and Training of Qualified Pilots. On July 8, 2013, as directed by the U.S. Congress, the FAA issued more stringent pilot qualification and crew member flight training standards, which, among other things, increased the required training time for new airline pilots from 250 hours to 1,500 hours of flight time. These changes dramatically reduced the supply of qualified pilot candidates eligible for hiring by the airline industry and, in response, regional airlines implemented significant pilot wage and bonus increases. In recent years, Air Wisconsin experienced a significant increase in pilot attrition, and our results of operations may be negatively impacted if Air Wisconsin is unable to hire and train pilots in a timely manner; however, as a result of the reduction in scheduled flights due to the COVID-19 pandemic, the airline industry is currently experiencing a surplus of pilots.

See the section entitled “Risk Factors” within this Annual Report for a discussion of certain risks and uncertainties applicable to our business and operations.

Seasonality

Our results of operations for any interim period are not necessarily indicative of those for the entire year, since the airline industry is subject to seasonal fluctuations and general economic conditions. While Air Wisconsin’s operations can be negatively impacted by factors outside of its control, including inclement weather, the United capacity purchase agreement mitigates some of the risks associated with seasonal fluctuations.

Components of Our Results of Operations

The following discussion summarizes the key components of our consolidated statements of operations.

Operating Revenue

Our consolidated operating revenue consists primarily of contract revenue from flight services.

Contract Revenue. Contract revenue consists of the fixed monthly amounts per aircraft received pursuant to the United capacity purchase agreement, along with the additional amounts received based on the number of flights and block hours flown. The United capacity purchase agreement includes provisional cash payments four times a month based on a projected level of flying each month. Air Wisconsin and United subsequently reconcile these payments to the actual completed flight activity on a monthly basis.

Contract Services and Other. Contract services and other revenue are not material and primarily consist of the sale of parts.

Operating Expenses

Our operating expenses consist of the following items:

Payroll and Related Costs. Payroll and related expenses primarily relate to wages, benefits and payroll taxes for all Air Wisconsin’s employees, as well as costs related to lodging of our flight crews and crew training expenses.

Aircraft Fuel and Oil. Substantially all aircraft fuel and related fueling costs for flying under the United capacity purchase agreement are directly paid and supplied by United; we do not record any revenue or expense for such fuel. We include the cost of aircraft oil, which we are responsible for under the United capacity purchase agreement, although that expense is not material.

 

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Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and repairs include costs related to airframe and rotable overhauls, normal recurring maintenance and the cost of aircraft materials and parts related to Air Wisconsin’s CRJ-200 regional jets. With the exception of engine overhauls, we record these costs using the direct expense method of accounting, pursuant to which the expense is recognized when the maintenance work is completed. As a result of using the direct expense method, the timing of maintenance expense reflected in the financial statements may vary from period to period. We capitalize engine overhaul costs, and the amortization expense is included in aircraft maintenance, materials and repairs using the deferral method of accounting; the engine overhaul costs are amortized over the estimated useful life of the overhaul measured in engine cycles remaining until the next scheduled shop visit.

Aircraft Rent. Aircraft rent includes costs related to leased aircraft, including any lease termination expenses related to aircraft acquired prior to the end of their lease term.

Other Rents. Other rents include expenses related to leased engines, costs related to leased flight simulators used to train Air Wisconsin’s pilots, and building rents such as crew and maintenance bases and corporate office space.

Depreciation, Amortization and Obsolescence. Depreciation expense is a periodic non-cash charge primarily related to aircraft, engine and rotable parts depreciation. Obsolescence expense is a periodic non-cash charge primarily related to the provision for obsolescence on our expendable aircraft parts.

Purchased Services and Other. Purchased services and other expense primarily includes third-party aircraft line maintenance support in Chicago (O’Hare) and Washington (Dulles), information technology systems, legal fees, professional and technical fees, insurance and property taxes and other administrative expenses. The majority of insurance and property taxes are pass-through costs to United.

Other (Expense) Income, Net

Interest Expense. Interest expense is interest primarily relating to Air Wisconsin’s debt under the Aircraft Credit Agreements and the Other Credit Agreements.

Interest Income. Interest income includes interest income earned on our cash and cash equivalent balances.

Other. Other income (expense) includes income (expense) derived from activities not classified in any other area of the consolidated statements of income.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, “Segment Reporting,” we are not organized around specific services or geographic regions. We currently operate in one service line providing scheduled flight services in accordance with the United capacity purchase agreement.

Our chief operating decision maker uses condensed consolidated financial information to evaluate our performance, which is the same basis on which she communicates our results and performance to the Company’s board of directors. She bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in Note 1, Recently Adopted Standards, in our audited consolidated financial statements included in this Annual Report, and in accordance with the applicable literature, management has concluded that we are organized and operated as one operating and reportable segment.

 

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Results of Operations

Comparison of the Years Ended December 31, 2019 and 2018

We had an operating loss of $(20.6) million in the year ended December 31, 2019, compared to an operating loss of $(24.5) million in the year ended December 31, 2018. In the year ended December 31, 2019, we had a net loss of $(19.2) million compared to net income of $181.3 million in the year ended December 31, 2018.

Operating Revenue

 

     Year Ended
December 31,
        
     2019      2018      Change  

Operating Revenue ($ in thousands):

           

Contract Revenue

   $ 263,495      $ 240,552      $ 22,943        9.5

Contract Services and Other

     110        58        52        89.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating revenue

   $ 263,605      $ 240,610      $ 22,995        9.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Data:

           

Available Seat Miles (ASMs) (in thousands)

     1,925,371        1,763,060        162,311        9.2

Block Hours

     161,566        149,009        12,557        8.4

Revenue Passenger Miles (RPMs) (in thousands)

     1,548,728        1,400,982        147,746        10.6

Average stage length (in miles)

     373        358        15        4.2

Contract Revenue Per Available Seat Mile (CRASM)

(in cents)

     13.69 ¢       13.64 ¢     $ .0004        0.3

Passengers

     4,109,788        3,854,624        255,164        6.6

Total operating revenue increased by $23.0 million, or 9.5%, during the year ended December 31, 2019, compared to the year ended December 31, 2018. Contract revenue in 2019 increased by $22.9 million, or 9.5%, primarily due to an increase in flying and an increase in performance incentive revenue under the United capacity purchase agreement. Air Wisconsin’s block hours flown during the year ended December 31, 2019 increased 8.4%, compared to the year ended December 31, 2018, due to increased flying with United resulting from improved productivity and the completion of our fleet transition from American.

Operating Expenses

 

     Year Ended
December 31,
        
     2019      2018      Change  

Operating Expenses ($ in thousands):

           

Payroll and Related Costs

   $ 126,505      $ 125,094      $ 1,411        1.1

Aircraft Fuel and Oil

     172        129        43        33.3

Aircraft Maintenance, Materials and Repairs

     57,827        55,118        2,709        4.9

Aircraft Rent

     43,118        32,945        10,173        30.8

Other Rents

     8,372        9,523        (1,151      (12.1 )% 

Depreciation, Amortization and Obsolescence

     25,238        22,145        3,093        13.9

Purchased Services and Other

     23,235        20,154        3,081        15.3
                
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Expenses

   $ 284,467      $ 265,108      $ 19,359        7.3
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Data:

           

Available Seat Miles (ASMs) (in thousands)

     1,925,371        1,763,060        162,311        9.2

Block Hours

     161,566        149,009        12,557        8.4

Average Stage Length (in miles)

     373        358        15        4.1

Departures

     105,360        100,090        5,270        5.3

 

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Payroll and Related Costs. Payroll and related costs increased $1.4 million, or 1.1%, to $126.5 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. The increase was primarily driven by an increase in pilot wages and pilot training expenses offset by improved pilot productivity, and an increase in salaried employee wages and benefits resulting from filling authorized open positions.

Aircraft Fuel and Oil. Substantially all fuel costs related to flying under Air Wisconsin’s capacity purchase agreement with American (during January and February of 2018) and the United capacity purchase agreement during the years ended December 31, 2019 and 2018 were directly paid to suppliers by American and United, respectively. Aircraft fuel and oil expense primarily reflects the costs associated with aircraft oil purchases.

Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and repairs costs increased $2.7 million, or 4.9%, to $57.8 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This increase was primarily driven by a $3.0 million increase in airframe heavy check repairs an increase of $1.6 million in engine repairs and materials, an increase of $0.5 million in amortization expense relating to major engine overhauls, an increase of $0.5 million in materials scrap expense and a decrease of $2.9 million in other airframe repairs and other maintenance costs.

Aircraft Rent. Aircraft rent expense increased $10.2 million, or 30.8%, to $43.1 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This increase was primarily attributable to non-cash lease termination expenses of $19.4 million relating to Air Wisconsin’s acquisition of 14 CRJ-200 aircraft in July 2019 offset by a decrease of $9.2 million in reduced rent expense for these aircraft for the remaining six months of 2019. See Note 4, Property and Equipment, in our audited consolidated financial statements included in this Annual Report.

Other Rents. Other rents expense decreased $1.2 million, or 12.1%, to $8.4 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This decrease was primarily due to a decrease of $1.1 million in spare engine rents, a decrease of $0.8 million in flight training simulator rental expense and an increase of $0.7 million in building rent expense.

Depreciation, Amortization and Obsolescence. Depreciation, amortization and obsolescence expense increased $3.1 million, or 13.9%, to $25.2 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This increase was primarily attributable to Air Wisconsin’s acquisition of 14 aircraft that were previously leased to it as well as the acquisition of new engines. See Note 4, Property and Equipment, in our audited consolidated financial statements included in this Annual Report.

Purchased Services and Other. Purchased services and other expense increased $3.1 million, or 15.3%, to $23.2 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This increase was primarily due to a loss of approximately $2.5 million on the sale of fifteen unserviceable engines, an increase of $0.8 million in legal fees and a decrease of $0.2 million in all other purchased services.

Other Income (Expense)

Interest Income. Interest income increased $0.3 million, or 25.6%, to $1.3 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This increase was primarily due to an increase in interest rates in 2019 and an increase of approximately $9.2 million year-over-year in our cash and cash equivalents available for investing.

Interest Expense. Interest expense decreased $11.6 million, or 86.6%, to $1.8 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This decrease was primarily due to the decrease of approximately $176.8 million in principal resulting from the restructuring of Senior Aircraft Notes and Subordinated Aircraft Notes that occurred in December 2018. Further, as part of the troubled debt restructuring, the expected future undiscounted interest payments of $16.5 million were capitalized as part of the carrying value of the debt.

 

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Gain on Extinguishment of Debt. The gain on extinguishment of debt of approximately $198.7 million for the year ended December 31, 2018 resulted from the troubled debt restructuring of Senior Aircraft Notes and Subordinated Aircraft Notes that occurred in December 2018. The primary elements of the gain resulted from the decrease in principal of approximately $176.8 million, the decrease in accrued interest of approximately $37.2 million, offset by the future undiscounted interest payments of $16.5 million which were capitalized as part of the carrying value of the restructured debt.

Other Income (Expense). Other income decreased $11.9 million, or 82.6%, to $2.5 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. This decrease primarily resulted from the timing of periodic payments from Bombardier in 2018 and 2019 relating to the termination of residual value guarantee agreements on 35 owned aircraft under an agreement reached in January 2018. See Note 4, Property and Equipment, in our audited consolidated financial statements included in this Annual Report.

Income Taxes

In the year ended December 31, 2019, our effective tax rate was 1.8%, compared to 2.9% in the year ended December 31, 2018. Our tax rate can vary depending on changes in tax laws, adoption of accounting standards, the amount of income we earn in each state and the state tax rate applicable to such income, as well as any valuation allowance required on our federal and state net operating losses.

We recorded an income tax provision of $0.3 million and an income tax benefit of $(5.1) million for the years ended December 31, 2019 and 2018, respectively.

The income tax provision for the year ended December 31, 2019 resulted in an effective tax rate of 1.8%, which differed from the U.S. federal statutory rate of 21%, primarily due to the impact of state taxes and permanent differences between financial statement and taxable income and changes in federal and state valuation allowances against deferred tax assets. In addition to the state effective tax rate impact, other state impacts include changes in state apportionment and statutory rates.

The income tax provision for the year ended December 31, 2018 resulted in an effective tax rate of 2.9%, which differed from the U.S. federal statutory rate of 21% as of January 1, 2018, primarily due to permanent differences related to the gain on the troubled debt restructuring and other differences between financial statement and taxable income. Other factors include the creation of valuation allowances against federal and state deferred tax assets and changes in state apportionment and statutory rates.

As a result of a troubled debt restructuring in 2018, any remaining federal and state net operating loss and tax credit carryovers were eliminated, and therefore any related deferred tax assets and valuation allowances were reduced. The Tax Cuts and Jobs Act (the “Tax Act”), signed into law on December 22, 2017, decreased the federal statutory rate to 21% for the year ended December 31, 2018 and subsequent fiscal years. The Tax Act also allowed for federal net operating losses to have an indefinite life with certain limitations. The Company’s net operating losses incurred in the year ended December 31, 2019 and in subsequent years may be used to offset up to 80% of taxable income in a given year.

We continue to maintain a valuation allowance on a portion of our federal and state deferred tax assets.

As of December 31, 2019, we had aggregate federal and state net operating loss carryforwards of approximately $60.9 million and $17.9 million. The federal net operating losses do not have an expiration date while the state net operating losses expire beginning in 2024, with some states having either longer expiration periods or none at all.

See Note 5, Income Taxes, in our audited consolidated financial statements included in this Annual Report.

 

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Liquidity and Capital Resources

Sources and Uses of Cash

Air Wisconsin requires cash to fund its operating expenses and working capital requirements, which include outlays for capital expenditures, labor, maintenance, aircraft rent and to pay debt service obligations, including principal and interest payments. Our cash needs vary from period to period primarily based on the timing and costs of significant maintenance events. Our principal sources of liquidity are cash on hand, and cash generated from operations. In the near term, Air Wisconsin expects to fund its primary cash requirements through cash generated from operations and cash and cash equivalents on hand.

Air Wisconsin’s ability to service its long-term debt obligations and to fund working capital, capital expenditures and business development efforts will depend on its ability to generate cash from operating activities, which is subject to, among other things, our future operating performance, as well as to other factors, some of which may be beyond our control. If Air Wisconsin fails to generate sufficient cash from operations, it may need to obtain equity or additional borrowings to achieve its longer-term objectives which may not be available on acceptable terms.

We believe that cash flow from operating activities, coupled with existing cash and cash equivalents, will be adequate to fund our operating and capital needs. To the extent that results or events differ from our financial projections or business plans, our liquidity may be adversely impacted.

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust operating and capital expenditures to reflect the current market conditions and our projected demand. Our capital expenditures are primarily directed toward Air Wisconsin’s aircraft and flight equipment. During the year ended December 31, 2019, we paid $21.5 million in capital expenditures primarily related to spare engines and capitalized engine overhauls. Future capital expenditures may be impacted by events and transactions that are not currently forecasted.

As of December 31, 2019, our principal sources of liquidity were cash and cash equivalents of $69.5 million, inclusive of the $11.3 million in cash and cash equivalents held by Air Wisconsin. The United capacity purchase agreement and Air Wisconsin’s credit agreements with its lender contain restrictions that limit Air Wisconsin’s ability to pay, or prohibits it from paying, dividends or distributions to the Company. In addition, the PSP Agreement that Air Wisconsin entered into in April 2020 with the U.S. Department of the Treasury pursuant to the recently enacted CARES Act prevents it from paying dividends prior to October 1, 2021.

Furthermore, as of December 31, 2019, Air Wisconsin had $120.7 million in secured indebtedness incurred in connection with the Aircraft Credit Agreements. Air Wisconsin’s primary uses of liquidity are capital expenditures and debt repayments. As of December 31, 2019, Air Wisconsin had $12.9 million of short-term debt, and $107.8 million of long-term debt.

Sources of cash for the year ended December 31, 2019 were primarily cash flow from operations of $25.5 million.

Restricted Cash

As of December 31, 2019, in addition to the cash and cash equivalents of $11.3 million, Air Wisconsin had $0.8 million in restricted cash which primarily relates to cash collateralized letters of credit supporting our worker’s compensation insurance program and landing fees at certain airports. Restricted cash includes amounts escrowed in an interest-bearing account that secure letters of credit.

 

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Cash Flow

The following table presents information regarding our cash flow for each of the years ended December 31, 2019 and 2018:

 

     Year Ended
December 31,

2019
     Year Ended
December 31,
2018
 

Net Cash Provided by Operating Activities

   $ 25,546      $ 15,598  

Net Cash Used in Investing Activities

     (20,941      (31,456

Net Cash Provided by Financing Activities

     4,592        15,199  
  

 

 

    

 

 

 

Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash

     9,197        (659

Cash and Cash Equivalents at Beginning of Year

     60,257        60,916  
  

 

 

    

 

 

 

Cash and Cash Equivalents at End of Year

   $ 69,454      $ 60,257  
  

 

 

    

 

 

 

Net Cash Flow Provided by Operating Activities

During the year ended December 31, 2019, our cash flow provided by operating activities of $25.5 million reflected Air Wisconsin’s improved block hour and departure production. We had a net loss of $(19.2) million adjusted for the following significant non-cash items: depreciation, amortization and obsolescence of $25.2 million, lease termination costs of $19.4 million, amortization of engine overhauls of $4.1 million and amortization of contract costs of $(3.7) million. We had a net change of $(3.7) million within other net operating assets and liabilities largely driven by accounts payable during the year ended December 31, 2019.

During the year ended December 31, 2018, our cash flow provided by operating activities of $15.6 million reflected the impact of Air Wisconsin’s fleet transition to United commencing in early 2018. We had net income of $181.3 million adjusted for the following significant non-cash items: gain on extinguishment of debt of $(198.7) million, depreciation, amortization and obsolescence of $22.1 million, amortization of engine overhauls of $3.6 million, deferred income taxes of $(4.4) million and amortization of contract costs of $(3.5) million. We had a net change of $15.5 million within other net operating assets and liabilities largely driven by non-cash contract liabilities of $12.9 million resulting from the adoption of Topic 606 during the year ended December 31, 2018.

Net Cash Flow Used in Investing Activities

During the year ended December 31, 2019, our net cash flow used in investing activities was $20.9 million. We invested $21.5 million in new and used aircraft engines to support Air Wisconsin’s fleet under the United capacity purchase agreement, offset by $0.6 million from proceeds on disposition of property and equipment.

During the year ended December 31, 2018, our net cash flow used in investing activities was $31.5 million. We invested $31.6 million in new and used aircraft engines to support Air Wisconsin’s fleet under the United capacity purchase agreement, offset by $0.1 million from proceeds on disposition of property and equipment.

Net Cash Flow Provided by Financing Activities

During the year ended December 31, 2019, our net cash flow used in financing activities was $4.6 million. Air Wisconsin received $11.8 million in proceeds from a note payable further described in the section entitled “– Other Credit Agreements” within this Annual Report. Air Wisconsin made $7.2 million of principal repayments on long-term debt during the period under those same agreements.

During the year ended December 31, 2018, Air Wisconsin’s net cash flow provided by financing activities was $15.2 million. Air Wisconsin received $15.2 million in proceeds from issuance of a note payable further described in the section entitled “– Other Credit Agreements” within this Annual Report.

 

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Commitments and Contractual Obligations

As of December 31, 2019, Air Wisconsin had $143.9 million of long-term debt (including principal and projected interest obligations) and operating lease obligations (including current maturities). This amount consisted of $104.2 million in notes payable related to owned aircraft used in continuing operations. As of December 31, 2019, Air Wisconsin also had $20.0 million of operating lease obligations primarily related to flight training simulators, facilities and aircraft leases. Air Wisconsin’s long-term debt obligations set forth below include an aggregate of $19.7 million in projected interest costs through 2025.

The following table sets forth our cash obligations as of December 31, 2019:

 

            Payment Due for
Year Ended
December 31,
(in thousands)
 
     Total      2020      2021      2022      2023      2024      Thereafter  

Aircraft Notes Principal

   $ 70,000      $ —        $ 7,000      $ 7,000      $ 7,000      $ 7,000      $ 42,000  

Aircraft Notes Interest

   $ 16,497      $ 5,647      $ 2,729      $ 2,451      $ 2,170      $ 1,890      $ 1,610  

Other Loans Principal

   $ 34,186      $ 7,198      $ 13,029      $ 13,959      $ —        $ —        $ —    

Other Loans Interest

   $ 3,193      $ 1,664      $ 1,230      $ 299      $ —        $ —        $ —    

Operating Lease Obligations

   $ 20,061      $ 7,384      $ 3,975      $ 3,906      $ 2,722      $ 1,087      $ 987  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 143,937      $ 21,893      $ 27,963      $ 27,615      $ 11,892      $ 9,977      $ 44,597  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2019, we had no variable rate notes in our total long-term debt.

Aircraft Operating Leases

As of December 31, 2019, Air Wisconsin had 13 aircraft remaining on lease with lease terms ending within 12 months. Future minimum lease payments due under these aircraft operating leases were approximately $2.7 million as of December 31, 2019. As of May 31, 2020, Air Wisconsin had two aircraft remaining on lease with lease terms ending within six months. See Note 16, Subsequent Events, in our audited consolidated financial statements included in this Annual Report.

Debt and Credit Facilities

Aircraft Credit Agreements

In seven separate transactions occurring in 2003 and 2004, Air Wisconsin financed the acquisition of 35 CRJ-200 regional jets through the issuance of Senior Aircraft Notes to a loan trustee on behalf of a senior lender (the “Lender”) and Subordinated Aircraft Notes to a loan trustee on behalf of a subordinated lender (the “Subordinated Lender”). The aggregate original outstanding principal amount of the Senior Aircraft Notes and the Subordinated Aircraft Notes was approximately $649.5 million. The Senior Aircraft Notes and the Subordinated Aircraft Notes were governed by seven credit agreements. The aircraft acquired with the proceeds of the notes issued pursuant to a credit agreement secured only the notes issued pursuant to that credit agreement. The Senior Aircraft Notes bore interest at fixed rates ranging from 4.75% to 6.84%. The Subordinated Aircraft Notes bore interest at a base rate plus 6- month LIBOR, with semi-annual adjustments for changes in LIBOR; the base rate was 1.5% for the first 15 months, 2.5% for the following 18 months and 3.5% thereafter.

 

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In April 2016, the Lender, as the holder of the Senior Aircraft Notes, the holder of the Subordinated Aircraft Notes, and a loan trustee, entered into a deferral agreement which was amended several times between April 14, 2016, and February 16, 2018. This agreement, as amended: (i) deferred certain scheduled principal and interest payments on the Senior Aircraft Notes and the Subordinated Aircraft Notes through June 30, 2019, (ii) imposed certain restrictions on Air Wisconsin’s ability to make payments to affiliates, (iii) imposed an obligation on Air Wisconsin to perform certain engine maintenance through June 30, 2019, and (iv) required Air Wisconsin to grant to a trustee for the benefit of the Lender and the Subordinated Lender security interests in certain unencumbered aircraft, engines and spare parts.

On January 25, 2018, Air Wisconsin, the holders of the Senior Aircraft Notes and the holder of the Subordinated Aircraft Notes, entered into an omnibus restructuring agreement whereby, among other things, the Subordinated Lender assigned all its rights and interest in those notes to the Lender.

On December 24, 2018, Air Wisconsin entered into a debt restructuring arrangement with the Lender, as holder of all of the Senior Aircraft Notes and all of the Subordinated Aircraft Notes, and US Bank National Association, as loan trustee for the Lender (the “Loan Trustee”). The seven original credit agreements were amended and restated as part of that restructuring, and those seven amended and restated credit agreements (the “Aircraft Credit Agreements”) remain in effect. Prior to the restructuring, the aggregate outstanding principal amount of the Senior Aircraft Notes and the Subordinated Aircraft Notes was approximately $246.8 million. Pursuant to the restructuring, the Subordinated Aircraft Notes and all interest accrued on the Subordinated Aircraft Notes were forgiven and deemed paid in full, and the Senior Aircraft Notes outstanding under the original credit agreements were cancelled and exchanged for notes in an outstanding principal amount of $70.0 million. All principal on the Senior Aircraft Notes in excess of $70.0 million and all interest accrued on the Senior Aircraft Notes prior to December 24, 2018 was forgiven and deemed paid in full. The notes issued under the Aircraft Credit Agreements (the “Aircraft Notes”) bear interest at the rate of 4% per annum and mature on December 31, 2025. Interest on the Aircraft Notes is paid quarterly, provided that the Lender, on March 30, 2020, agreed to a deferral until September 30, 2020, of all interest and principal payments due between March 31, 2020 and September 29, 2020. The principal amount of the Aircraft Notes is payable in semi-annual installments of $3.5 million commencing June 30, 2021, with certain additional amounts payable based on excess cash flow. Each Aircraft Note issued pursuant to an Aircraft Credit Agreement is secured by each aircraft acquired with the proceeds of any of the original seven credit agreements and by certain spare aircraft, spare engines and spare parts. The Aircraft Credit Agreements contain covenants that, subject to exceptions described in the Aircraft Credit Agreements, include, without limitation, (i) require Air Wisconsin to provide certain financial and other information, (ii) provide certain inspection rights to the Loan Trustee, (iii) restrict Air Wisconsin’s ability to consolidate with or merge into any other person or sell, convey, lease or otherwise transfer all or substantially all of its assets to any other person, (iv) restrict Air Wisconsin’s ability to make payments to its affiliates, and (v) grant to the Loan Trustee security interests in certain after-acquired aircraft, spare engines and spare parts. The Aircraft Credit Agreements also contain customary events of default, including, without limitation: (a) payment defaults, (b) breach of covenants, (c) breach of representations and warranties, (d) cross-defaults, (e) certain bankruptcy-related defaults, (f) the occurrence of certain judgments, and (g) loss of first priority security interest in certain collateral. As of December 31, 2019, Air Wisconsin was in compliance with the covenants under the Aircraft Credit Agreements, and no event of default existed under the Aircraft Credit Agreements. Neither the Company nor any of its other subsidiaries has guaranteed or provided any other credit support with respect to the Aircraft Notes or other obligations of Air Wisconsin under the Aircraft Credit Agreements.

Air Wisconsin concluded that the December 2018 restructuring should be classified as a troubled debt restructuring and recorded a gain of approximately $198.7 million in the year ended December 31, 2018. Accordingly, the carrying value of the restructured debt was reduced to the expected future undiscounted cash flows related to its repayment, which includes future principal and interest payments of $70.0 million and approximately $16.5 million, respectively.

 

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Other Credit Agreements

Air Wisconsin entered into a credit agreement with the Lender in June 2017 in the amount of approximately $14.4 million. This loan bears interest at a rate of 5% per annum. Principal and interest are paid quarterly, provided that the Lender on March 30, 2020 agreed to a deferral until September 30, 2020, of all interest and principal payments due between March 31, 2020 and September 29, 2020. This loan matures on December 31, 2020, and is secured by each aircraft acquired with the proceeds of any of the original seven aircraft credit agreements and by certain spare aircraft, spare engines and spare parts.

On January 25, 2018, Air Wisconsin entered into a second credit agreement with the Lender to borrow approximately $15.2 million in the year ended December 31, 2018. On December 24, 2018, the Lender and Air Wisconsin entered into a first amendment to that credit agreement in which the Lender agreed to make an additional loan in the amount of $5.8 million on April 30, 2019. In April 2019, Air Wisconsin entered into a second amendment with respect to the 2018 credit agreement that extended the due date of one of the payments due in the amount of $7.3 million from July 2019 to July 2020. The $7.3 million payment was included in long-term debt on the balance sheet for the year ended December 31, 2018. In June 2019, Air Wisconsin entered into a third amendment to the 2018 credit agreement that changed the due date of the installment payment of $7.3 million, due July 2020, to December 2021. The amendment also provided Air Wisconsin the option to make the March 2020 and June 2020 payments under the 2017 credit agreement, totaling $7.2 million, in December 2019, in return for allowing the deferral of the December 2019 payment under the 2018 credit agreement, in the amount of $7.9 million, to be made into two installments of $4.0 million due in March and June of 2022. Air Wisconsin exercised this option. The June 2019 amendment also increased the loan amount of the 2018 credit agreement by $6.0 million, to a total of $27.0 million, and the amendment extended the maturity date to June 30, 2022, at which time the $6.0 million is also due. The loans under the 2018 credit agreement have an interest rate of 5% and a maturity date of June 30, 2022, and are secured by Air Wisconsin’s owned aircraft and certain spare engines and spare parts. Air Wisconsin concluded that the amendments discussed above should be classified as a troubled debt restructuring due to the Lender granting changes to the amortization schedule and extending the loan maturity dates in the amendments. The loans made to Air Wisconsin by the Lender pursuant to the 2017 credit agreement and the 2018 credit agreement may be referred to herein as the “Other Credit Agreements.”

SBA Loan and Treasury Payroll Support

In April 2020, Air Wisconsin entered into an agreement with a lender for a $10.0 million loan under the small business Paycheck Protection Program established under the CARES Act and administered by the SBA to promote continued employment, which loan is forgivable subject to certain conditions, such as that the proceeds be used primarily for payroll purposes. Air Wisconsin has received the full amount of that loan.

In April 2020, Air Wisconsin also entered into the PSP Agreement with the U.S. Department of the Treasury for payroll support under the CARES Act in the amount of approximately $41.0 million, payable in several installments through September 2020. The PSP Agreement contains various covenants, including that the payroll support proceeds must be used exclusively for the payment of wages, salaries and benefits, that Air Wisconsin cannot involuntarily terminate or furlough any employee prior to October 1, 2020, and that Air Wisconsin cannot reduce any employee’s pay rates or benefits prior to October 1, 2020, without that employee’s consent.

Maintenance Commitments

Air Wisconsin has entered into two non-exclusive heavy maintenance services agreements for certain maintenance, repair and modification services with respect to airframes owned or operated by Air Wisconsin, and one exclusive engine maintenance agreement to perform certain maintenance, repair, restoration, overhaul, modification and other services on aircraft engines owned or operated by Air Wisconsin, with three maintenance and repair organizations, based on fixed pricing schedules. The non-exclusive heavy maintenance services agreements are subject to certain escalation of labor rates, and have an initial term through September 2022 and December 2022, but Air Wisconsin has the right to extend the term for up to two renewal terms of one year each, on the same terms and conditions as during the initial terms. The exclusive engine maintenance agreement is subject to an annual escalation and has an initial term through May 2021, but Air Wisconsin has the right to extend the term for up to two renewal terms of one year each, on the same terms and conditions, including pricing, as during the initial term. Due to reduced flying caused by the COVID-19 pandemic, we expect that Air Wisconsin’s expenditures under these agreements will be significantly less in 2020 than in 2018 and 2019.

 

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Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) a retained or a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company.

We have no off-balance sheet arrangements of the types described in the four categories above that we believe may have material current or future effect on financial condition, liquidity or results of operations.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with generally accepted accounting principles. In doing so, we must make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting estimates, which we discuss below.

We have identified the accounting policies discussed below as critical to us. The discussion below is not intended to be a comprehensive list of our accounting policies. Our significant accounting policies are more fully described in Note 1, Summary of Significant Accounting Policies in our audited consolidated financial statements included in this Annual Report.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers, (Topic 606) (“Topic 606”). Under Topic 606, revenue is recognized when Air Wisconsin satisfies its obligation by transferring control of the good or service to the customer. The Company adopted this standard as of January 1, 2018, utilizing the cumulative effect (modified retrospective) method of adoption and applied the standard only to open contracts. The cumulative effect of adopting Topic 606 resulted in an adjustment to opening retained earnings on January 1, 2018, in the amount of $5,420. Under the new standard the Company concluded that the individual flights are distinct services and the flight services promised in Air Wisconsin’s capacity purchase agreements represent a series of services that should be accounted for as a single performance obligation recognized over time.

Air Wisconsin’s major airline partners make provisional cash payments to Air Wisconsin during each month of service based on monthly flight schedules and the provisional cash payments are reconciled based on actual completed flights after each month’s flight activity is completed. As a Lessor, for our aircraft operated under the United capacity purchase agreement, Air Wisconsin has historically accounted for the non-lease component under Topic 606 and has historically accounted for the lease component under ASC 840. As of January 1, 2019, under the available practical expedient under ASC 842, Air Wisconsin elected to account for the lease and non-lease components as a single component for all classes of underlying assets. As the predominant component of the combined components are the flight services, the leases are being accounted for entirely under Topic 606 for the year ended December 31, 2019.

 

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Under the nonrefundable up-front fee considerations of Topic 606, payments from United for the up-front fees will be deferred and amortized over the contract term. Under the guidance in ASC 340-40, the related up-front costs to fulfill the contract that were incurred prior to the start of flying for United will also be capitalized and amortized over the contract term. As the amount of the upfront reimbursements received and deferred over the contract term differs from the fulfillment costs that were capitalized, a charge was required to the opening retained earnings in the year ended December 31, 2018 in the amount of $5,420. This adjustment also resulted in the establishment of a deferred tax asset in the amount of $1,788, which has been classified as a “Contract Liability” deferred tax asset in Note 5. The statement of operations for the year ended December 31, 2018 has been adjusted to reflect the adoption of Topic 606. The statement of operations for the year ended December 31, 2018 was impacted by expenses incurred to prepare additional aircraft for service in the amount of $9,439, that were incurred after the performance obligation under the contract had already been partially satisfied in the year ended December 31, 2017. In addition, amortization of the fulfillment costs capitalized in the year ended December 31, 2017 resulted in additional amortization expense of $400 for the year ended December 31, 2018. These expenses were partially offset by amortization of deferred upfront costs resulting in revenue of $3,480, resulting in total adjustments decreasing operating income by $6,359. The Company then analyzed the need for a valuation allowance against its deferred tax assets as of December 31, 2018, and determined that a valuation allowance in the amount of $457 was necessary. For further details, see Note 5, Income Taxes, in our audited consolidated financial statements included in this Annual Report.

Air Wisconsin recognizes revenue under its capacity purchase agreements with United and American over time as the service is provided. For the year ended December 31, 2019, revenue from the United capacity purchase agreement represented 100% of contract revenue. For the year ended December 31, 2018, contract revenue from Air Wisconsin’s capacity purchase agreements with United and American were 97.2% and 2.8%, respectively. United pays Air Wisconsin a fixed-rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per aircraft each month, with additional incentives primarily based on flight completion, on-time performance, and customer satisfaction. Under the United capacity purchase agreement, Air Wisconsin’s performance obligation is met and revenue is recognized over time and is reflected in contract revenue. Contract revenue by type for the year ended December 31, 2019 and 2018 (in thousands) follows:

 

For the year ended December 31,

   2019      2018  

Capacity purchase agreements revenue: flight operations

   $ 263,495      $ 123,375  

Capacity purchase agreements revenue: aircraft lease

     —          117,177  
  

 

 

    

 

 

 

Contract Revenue

   $ 263,495      $ 240,552  

A portion of Air Wisconsin’s compensation under the United capacity purchase agreement is designed to reimburse Air Wisconsin for certain aircraft ownership costs. For the year ended December 31, 2018, the consideration received for the use of the aircraft under the United capacity purchase agreement is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific number of aircraft over a stated period of time. Under the application of ASC 840 for the year ended December 31, 2018, the Company is required to apply the allocation objective of the new revenue recognition standard (Topic 606) to the lease and nonlease components of the United capacity purchase agreement. To meet this allocation objective, the Company calculated a standalone selling price for each distinct cost using a cost-plus margin approach. This resulted in an allocation of 51% of the fixed and variable revenue to the lease component of the capacity purchase agreement when taking into account the executory costs (maintenance, taxes, and insurance), considered to be a part of the lease component under ASC 840. For the year ended December 31, 2018, the lease revenue associated with Air Wisconsin’s capacity purchase agreement is accounted for as an operating lease and is reflected in contract revenue on the Company’s statements of operations. The Company has not separately stated aircraft rental income in the statements of operations since the use of the aircraft is not a separate activity of the total service provided.

 

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The property associated with the aircraft lease had a cost of $45,896, accumulated depreciation of $5,851, and a net carrying value of $40,045 at December 31, 2018.

The contingent variable revenue associated with the aircraft lease for the years ended December 31, 2018 was $57,252.

The United capacity purchase agreement includes weekly provisional cash payments based on a projected level of flying each month. Air Wisconsin and United subsequently reconcile these payments to the actual completed flight activity on a monthly basis.

Under the United capacity purchase agreement, Air Wisconsin is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the United capacity purchase agreement and are measured and determined on a monthly basis. At the end of each month, Air Wisconsin calculates the incentives achieved during that period and recognizes revenue attributable to the agreement accordingly, subject to the variable constraint guidance under Topic 606.

Other revenue are immaterial and primarily consist of the sales of parts to other airlines. The transaction price for the sale of these parts occurs at fair market value.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“Topic 842”). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the balance sheet. The accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted Topic 842 effective January 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company’s contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In July 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements – Leases (Topic 842).” This update provides an optional approach that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years as presented. If this adoption method is elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company elected this adoption method; however, an adjustment was not necessary to opening retained earnings.

Additionally, the Company’s adoption of Topic 842 did not have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the financial statements of income and statement of cash flows. The Company’s prepaid aircraft rents and accrued aircraft rents that were separately stated in the Company’s December 31, 2018 balance sheet have been classified as a component of the Company’s right-of-use assets effective January 1, 2019. The financial statements for 2019 are presented under the new standard, while the comparative year presented is not adjusted and continues to be reported in accordance with the Company’s historical accounting policy.

Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to income taxes in the United States federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2015. With few exceptions, the Company is no longer subject to state, and local income tax examinations for the years prior to 2014. As of December 31, 2019, the Company had no outstanding tax examinations.

 

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2019, the Company had no indebtedness, and Air Wisconsin had $120.7 million in secured indebtedness, including $12.9 million of short-term indebtedness, and $107.8 million of long-term indebtedness. As of December 31, 2019, all of Air Wisconsin’s indebtedness was subject to fixed interest rates. As a result, a hypothetical change in market interest rates would have no impact on the interest expense incurred by Air Wisconsin.

We have not generated or incurred, and do not expect to generate or incur, revenue or expenses in foreign currencies. As a result, we have not been, and do not expect to be, subject to foreign currency exchange risk.

Although airplane fuel is typically a material cost incurred by companies in the airline industry, pursuant to the United capacity purchase agreement, United sources, procures and directly pays third-party vendors for substantially all fuel used in the performance of the agreement. As a result, the effect of the United capacity purchase agreement is to largely insulate Air Wisconsin from volatility related to changes in fuel prices.

 

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company’s consolidated financial statements as of and for the years ended December 31, 2019 and 2018, and the Report of Independent Registered Public Accounting Firm, are included in this Annual Report as set forth in the index.

 

Index to Consolidated Financial Statements   

Report of Independent Registered Public Accounting Firm

     54  

Financial Statements

  

Consolidated Balance Sheets

     55-56  

Consolidated Statements of Operations

     57  

Consolidated Statements of Shareholders’ Equity

     58  

Consolidated Statements of Cash Flows

     59  

Notes to Financial Statements

     60-84  

 

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Harbor Diversified, Inc. and Subsidiaries

Appleton, Wisconsin

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Harbor Diversified, Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases, and its method of accounting for revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.

Emphasis of Matter

As discussed in Notes 2 and 16 to the consolidated financial statements, the Company has been materially impacted by the outbreak of a novel coronavirus (COVID-19), which was declared a global pandemic by the World Health Organization in March 2020. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Securities (CARES) Act, which provides certain relief as a result of the COVID-19 outbreak. The Company is currently evaluating how the CARES Act will impact its financial position, results of operations, and cash flows. Our opinion is not modified with respect to these matters.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2012.

Madison, Wisconsin

July 10, 2020

 

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Harbor Diversified, Inc. and Subsidiaries

Consolidated Balance Sheets (in thousands)

 

 

December 31,

   2019     2018  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 69,454     $ 60,257  

Restricted cash

     819       814  

Accounts receivable, less allowance of $129 in 2019 and $363 in 2018

     5,525       9,514  

Spare parts and supplies, less allowances of $8,389 in 2019 and $7,129 in 2018

     7,819       8,676  

Contract costs

     400       400  

Prepaid aircraft rent

     —         27,396  

Prepaid expenses and other

     1,003       3,542  
  

 

 

   

 

 

 

Total Current Assets

     85,020       110,599  
  

 

 

   

 

 

 

Property and Equipment

    

Flight property and equipment

     242,613       242,004  

Ground property and equipment

     8,305       7,211  

Building leasehold improvements

     —         4,509  

Less accumulated depreciation

     (99,680     (95,336
  

 

 

   

 

 

 

Net Property and Equipment

     151,238       158,388  
  

 

 

   

 

 

 

Other Assets

    

Operating lease right of use asset

     24,026       —    

Intangibles

     5,300       5,300  

Long-term investments

     4,275       4,275  

Long-term contract costs

     867       1,268  

Other

     1,906       1,833  
  

 

 

   

 

 

 

Total Other Assets

     36,374       12,676  
  

 

 

   

 

 

 

Total Assets

   $  272,632     $  281,663  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

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Harbor Diversified, Inc. and Subsidiaries

Consolidated Balance Sheets (in thousands)

 

 

December 31,

   2019     2018  

Liabilities and Shareholders’ Equity

    

Current Liabilities

    

Accounts payable

   $ 16,608     $ 25,079  

Accrued payroll and employee benefits

     15,474       15,846  

Current portion of operating lease liability

     6,311       —    

Other accrued expenses

     327       1,323  

Contract liabilities

     8,342       7,226  

Income taxes payable

     213       313  

Current portion of long-term debt (stated principal amount of $7,198 in both 2019 and 2018)

     12,845       7,198  
  

 

 

   

 

 

 

Total Current Liabilities

     60,120       56,985  
  

 

 

   

 

 

 

Other Liabilities

    

Long-term debt (stated principal amount of $96,988 in 2019 and $92,397 in 2018)

     107,838       108,894  

Long-term promissory note

     4,275       4,275  

Deferred tax liability

     2,599       1,855  

Long-term operating lease liability

     10,538       —    

Long-term contract liabilities

     8,086       11,510  

Other

     1,655       1,409  
  

 

 

   

 

 

 

Total Long-Term Liabilities

     134,991       127,943  
  

 

 

   

 

 

 

Commitments and Contingencies (Note 8)

    

Shareholders’ Equity

    

Common stock

     555       555  

Additional paid-in capital

     288,980       288,980  

Retained deficit

     (211,533     (192,319

Treasury stock

     (481     (481
  

 

 

   

 

 

 

Total Shareholders’ Equity

     77,521       96,735  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 272,632     $ 281,663  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands)

 

 

Year ended December 31,

   2019     2018  

Operating Revenues

    

Contract revenues

   $ 263,495     $ 240,552  

Contract services and other

     110       58  
  

 

 

   

 

 

 

Total Operating Revenues

     263,605       240,610  
  

 

 

   

 

 

 

Operating Expenses

    

Payroll and related costs

     126,505       125,094  

Aircraft fuel and oil

     172       129  

Aircraft maintenance, materials and repairs

     57,827       55,118  

Aircraft rent

     43,118       32,945  

Other rents

     8,372       9,523  

Depreciation, amortization and obsolescence

     25,238       22,145  

Purchased services and other

     23,235       20,154  
  

 

 

   

 

 

 

Total Operating Expenses

     284,467       265,108  
  

 

 

   

 

 

 

Loss From Operations

     (20,862     (24,498
  

 

 

   

 

 

 

Other Income (Expense)

    

Interest income

     1,271       1,012  

Interest expense

     (1,806     (13,450

Gain on extinguishment of debt

           198,729  

Other

     2,505       14,396  
  

 

 

   

 

 

 

Total Other Income (Expense)

     1,970       200,687  
  

 

 

   

 

 

 

Net (Loss) Income Before Taxes

     (18,892     176,189  

Income Tax Expense (Benefit)

     322       (5,124
  

 

 

   

 

 

 

Net (Loss) Income

   $ (19,214   $ 181,313  
  

 

 

   

 

 

 

Basic earnings (loss) per share

   $ (.35   $ 3.30  

Diluted earnings (loss) per share

   $ (.35   $ 3.27  

Weighted average common shares:

    

Basic

     54,863       54,863  

Diluted

     54,863       55,422  

See accompanying notes to consolidated financial statements.

 

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Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (in thousands)

 

 

     Shares                                   
     Common
Stock(a)
     Treasury
Stock
     Common
Stock
     Additional
Paid-In
Capital
     Retained
Deficit
    Cost of
Treasury
Stock
    Total
Shareholders’
Equity
 

Balance, December 31, 2017

     54,863        618        555        288,980        (368,212     (481     (79,158

Impact of adoption of ASU 2014-09 (See Note 1)

 

              (5,420     —         (5,420

Net income

     —          —          —          —          181,313       —         181,313  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2018

     54,863        618        555        288,980        (192,319     (481     96,735  

Net loss

     —          —          —          —          (19,214     —         (19,214
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2019

     54,863        618      $ 555      $ 288,980      $ (211,533   $ (481   $ 77,521  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(a)

Common stock, $.01 par value, 100,000 shares authorized and 55,481 shares issued at December 31, 2019 and 2018. Shares outstanding at December 2019 and 2018 were 54,863.

See accompanying notes to consolidated financial statements.

 

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Harbor Diversified, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

 

 

Year ended December 31,

   2019     2018  

Cash Flows From Operating Activities

    

Net (loss) income

   $ (19,214   $ 181,313  

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

    

Depreciation, amortization and obsolescence allowance

     25,238       22,145  

Aircraft lease termination costs

     19,353       —    

Amortization of contract costs

     (3,725     (3,480

Amortization of engine overhauls

     4,067       3,613  

Deferred income taxes

     744       (4,359

Loss on disposition of property

     2,528       225  

Gain on extinguishment of debt

     —         (198,729

Debt restructuring costs

     —         (641

Changes in operating assets and liabilities:

    

Accounts receivable

     3,989       (1,654

Spare parts and supplies

     (402     1,266  

Prepaid expenses and other

     2,466       (4,995

Operating lease right of use asset

     (1,987     —    

Accounts payable

     (7,706     (3,401

Accrued payroll and employee benefits

     (372     1,560  

Other accrued expenses

     (996     4,985  

Contract liabilities

     1,417       12,941  

Income taxes payable

     (100     146  

Other long-term liabilities

     246       4,663  
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     25,546       15,598  
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Restricted cash

     (5     (4

Additions to property and equipment

     (21,498     (31,583

Proceeds on disposition of property and equipment

     562       131  
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (20,941     (31,456
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

Repayments of long-term debt

     (7,198     —    

Proceeds from note payable

     11,790       15,199  
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     4,592       15,199  
  

 

 

   

 

 

 

Increase (Decrease) in Cash and Cash Equivalents

     9,197       (659

Cash and Cash Equivalents, beginning of year

     60,257       60,916  
  

 

 

   

 

 

 

Cash and Cash Equivalents, end of year

   $ 69,454     $ 60,257  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

See Note 14 for supplemental cash flow information.

 

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Harbor Diversified, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (in thousands)

 

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of Harbor Diversified, Inc. and subsidiaries (collectively, Harbor or the Company). The Company’s subsidiaries consist of its wholly owned subsidiaries, Harbor Therapeutics, Inc. (which is a non-operating entity with no material assets), Lotus Aviation Leasing, LLC, Air Wisconsin Funding LLC, and AWAC Aviation, Inc., (AWAC together with AWAC’s wholly owned subsidiary, Air Wisconsin Airlines LLC (Air Wisconsin)).

Description of Operations

The Company is comprised of principal lines of business focused on (1) providing air transportation (airline business), (2) acquiring aircraft rotable equipment for the purpose of leasing to Air Wisconsin and (3) providing flight equipment financing to Air Wisconsin.

The airline business is operated entirely through Air Wisconsin, an independent regional air carrier that is engaged in the business of providing scheduled passenger service under capacity purchase agreements (CPA) with United Airlines, Inc. (United or UA), and American Airlines, Inc. (American or AA). See Note 3 to the financial statements for further information regarding the service agreements with these partner airlines. The CPA with AA ended in February 2018.

As of December 31, 2019, Air Wisconsin operated as a United Express carrier primarily in Chicago (O’Hare) and Washington, D. C. (Dulles).

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280, “Segment Reporting,” we are not organized around specific services or geographic regions. We currently operate in one service line providing scheduled flying services in accordance with our CPA with United Airlines. Additionally, our chief operating decision maker uses consolidated financial information to evaluate our performance, which is the same basis upon which the results and performance of the Company are communicated to the Board of Directors. The chief operating decision maker bases all significant decisions regarding the allocation of our resources on a consolidated basis. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operate as one operating and reportable segment.

As further discussed below, all of our operating revenue in 2019 and 2018 was derived from operations associated with our United or American CPAs. It is currently impractical to provide certain information on our revenue from our customers for our services and geographic information on our revenues and long-lived assets.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Contract and Other Revenues

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers, (Topic 606)” (“Topic 606”). Under Topic 606, revenue is recognized when the Company satisfies its obligation by transferring control of the good or service to the customer. The Company adopted this standard as of January 1, 2018, utilizing the cumulative effect (modified retrospective) method of adoption and applied the standard only to open contracts. The cumulative effect of adopting Topic 606 resulted in an adjustment to opening retained earnings on January 1, 2018, in the amount of $5,420. Under the new standard the Company concluded that the individual flights are distinct services and the flight services promised in the CPAs represent a series of services that should be accounted for as a single performance obligation recognized over time.

The major airline partners make provisional cash payments to the Company during each month of service based on monthly flight schedules and the provisional cash payments are reconciled based on actual completed flights after each month’s flight activity is completed. As a lessor, for our aircraft operated under our CPA, we have historically accounted for the non-lease component under ASC 606 and have historically accounted for the lease component under ASC 840. As of January 1, 2019, under the available practical expedient under ASC 842, we have elected to account for the lease and non-lease components as a single component for all classes of underlying assets. As the predominant component of the combined components are the flight services, the leases are being accounted for entirely under Topic 606 for the year ended December 31, 2019 (see table below).

Under the nonrefundable up-front fee considerations of Topic 606, payments from United for the up-front fees will be deferred and amortized over the contract term. Under the guidance in ASC 340-40, the related up-front costs to fulfill the contract that were incurred prior to the start of flying for United will also be capitalized and amortized over the contract term. As the amount of the upfront reimbursements received and deferred over the contract term differs from the fulfillment costs that were capitalized, a charge was required to the opening retained earnings in 2018 in the amount of $5,420. This adjustment also resulted in the establishment of a deferred tax asset in the amount of $1,788, which has been classified as a “Contract Liability” deferred tax asset in Note 5. The 2018 income statement has been adjusted to reflect the adoption of Topic 606. The statement of operations in 2018 was negatively impacted by expenses incurred to prepare additional aircraft for service in the amount of $9,439, that were incurred after the performance obligation under the contract had already been partially satisfied in 2017. In addition, amortization of the fulfillment costs capitalized in 2017 resulted in additional amortization expense of $400 for the year ended December 31, 2018. These expenses were partially offset by amortization of deferred upfront costs resulting in revenue of $3,480, and total adjustments decreasing operating income by $6,359. The Company then analyzed the need for a valuation allowance against its deferred tax assets at December 31, 2018, and determined that a valuation allowance in the amount of $457 was necessary (see Note 5 for further details).

The Company recognizes revenue under its CPAs with United and American over time as the service is provided. For the year ended December 31, 2019, revenue from the CPA with United represented 100% of contract revenues. For the year ended December 31, 2018, contract revenues from the Company’s CPAs with United and American were 97.2% and 2.8%, respectively. United pays the Company a fixed rate for each departure and block hour (measured from takeoff to landing, including taxi time), and a fixed amount per aircraft each month, with additional incentives primarily based on flight completion, on-time performance, and customer satisfaction. Under the CPA with United, the Company’s performance obligation is met and revenue is recognized over time and is reflected in contract revenues. Contract revenues by type for the year ended December 31, 2019 and 2018 (in thousands) follows:

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

For the year ended December 31,

   2019      2018  

Capacity purchase agreements revenue: flight operations

   $ 263,495      $ 123,375  

Capacity purchase agreements revenue: aircraft lease

     —          117,177  
  

 

 

    

 

 

 

Contract Revenues

   $ 263,495      $ 240,552  
  

 

 

    

 

 

 

A portion of the Company’s compensation under the CPA is designed to reimburse the Company for certain aircraft ownership costs. For the year ended December 31, 2018, the consideration received for the use of the aircraft under the Company’s CPA is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific number of aircraft over a stated period of time. Under the application of ASC 840 for the year ended December 31, 2018, the Company is required to apply the allocation objective of the new revenue recognition standard (Topic 606) to the lease and non-lease components of the CPA. To meet this allocation objective, the Company calculated a standalone selling price for each distinct cost using a cost-plus margin approach. This resulted in an allocation of 51% of the fixed and variable revenues to the lease component of the CPA when taking into account the executory costs (maintenance, taxes, and insurance), considered to be a part of the lease component under ASC 840. For the year ended December 31, 2018, the lease revenue associated with the Company’s CPA is accounted for as an operating lease and is reflected in contract revenues on the Company’s statements of operations. The Company has not separately stated aircraft rental income in the statements of operations since the use of the aircraft is not a separate activity of the total service provided.

The property associated with the aircraft lease had a cost of $45,896, accumulated depreciation of $5,851, and a net carrying value of $40,045 at December 31, 2018.

The contingent variable revenue associated with the aircraft lease for the year ended December 31, 2018 was $57,252.

The Company’s CPA with United includes weekly provisional cash payments based on a projected level of flying each month. The Company and United subsequently reconcile these payments to the actual completed flight activity on a monthly basis.

Under the CPA with United, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the CPA and are measured and determined on a monthly basis. At the end of each month during the term of the CPA, the Company calculates the incentives achieved during that period and recognizes revenue attributable to the CPA accordingly, subject to the variable constraint guidance under Topic 606.

Other revenues are immaterial and primarily consist of the sales of parts to other airlines. The transaction price for the sale of these parts generally occurs at fair market value.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Cash and Cash Equivalents

Investments and deposits with a maturity of three months or less when acquired and money market funds are considered cash and cash equivalents.

Restricted Cash

Restricted cash represents amounts escrowed in an interest-bearing account relating to the Company’s letters of credit.

Spare Parts and Supplies

Expendable parts are stated at average cost less an obsolescence allowance. The Company provides for an allowance for obsolescence after considering the useful life of the aircraft fleet, the estimated cost of expendable parts expected to be on hand at the end of the useful life and the estimated salvage value of the parts. This allowance is based on management estimates and are subject to change. Expendable parts are charged to expense when used. Expendable parts that are repairable are returned to inventory at the average cost of comparable parts, less a reserve for scrap. Supplies are stated at average cost.

Property and Equipment and Depreciation

Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows:

 

Assets

  

Depreciable Life

   Current Residual Value  

Aircraft

   7 years    $ 50,000  

Rotable parts

   7 years      10

Spare engines

   7 years    $ 25,000  

Ground equipment

   up to 10 years      0

Office equipment

   up to 10 years      0

Leasehold improvements

  

Shorter of asset or lease life

     0

Capitalized engine maintenance costs are amortized over their estimated useful life measured in remaining engine cycles to the next scheduled shop event.

Depreciation expense in 2019 and 2018 was $23,578 and $20,363, respectively, and is included in depreciation, amortization, and obsolescence in the accompanying statements of operations.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for potential impairment and records impairment losses on long-lived assets when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. Impairment losses are measured by comparing the fair value of the assets to their carrying amounts. In determining the need to record impairment charges, the Company is required to make certain estimates regarding such things as the current fair market value of the assets and future net cash flows to be generated by the assets. If there are subsequent changes to these estimates, or if actual results differ from these estimates, such changes could impact the financial statements in the future.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Certain factors occurring in 2017 and 2018 resulted in an impairment triggering event that required the Company to evaluate the carrying value of its long-lived property and equipment assets. Such factors included, but were not limited to, the early termination of aircraft residual value guarantees; significantly increased costs to recruit and retain pilots; the termination of the CPA with American Airlines; transition costs associated with the flying agreement with UA; and significantly reduced revenue from UA to cover the Company’s aircraft ownership costs. After reviewing for impairment, the Company recorded an impairment charge during the year ended December 31, 2017. The Company has determined that no further impairment charges on property and equipment were needed for the years ended December 31, 2019 and 2018.

Intangible Assets

Indefinite-lived intangible assets are not subject to amortization but are subject to an annual assessment for impairment by applying a fair value-based test. The trade names and the air carrier certificate have indefinite lives, therefore, there is no amortization.

Maintenance

The Company operates its aircraft under a continuous inspection and maintenance program. The normal cost of recurring maintenance is expensed when incurred except for planned major maintenance activities for engines where the deferral method of accounting is applied.

Income Taxes

The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are determined based upon the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, as measured by the current applicable tax rates. Deferred tax expense represents the result of changes in deferred tax assets and liabilities.

As required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the uncertain tax position guidance to all tax positions for which the statute of limitations remains open.

The Company is subject to income taxes in the United States (U.S.) federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is no longer subject to U.S. federal income tax examinations for the years prior to 2015. With few exceptions, the Company is no longer subject to state, and local income tax examinations for the years prior to 2014. As of December 31, 2019, the Company had no outstanding tax examinations.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company had accrued $121 and $252 for the payment of interest and penalties at December 31, 2019 and 2018, respectively.

Comprehensive Income

The Company does not have any components of comprehensive income and, as of December 31, 2019 and 2018, comprehensive income is equal to net income reported in the statements of operations.

Concentration of Credit Risk

The Company at times has had cash in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. As of December 31, 2019, there were no bank deposits that exceeded the FDIC insurance limits.

Substantially all the Company’s revenues in 2019 and 2018 were derived from United (see Note 3).

Estimates

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

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, long-term investments, accounts payable, and long-term debt. The Company believes the carrying amounts of these financial instruments are a reasonable estimate of their fair value because of the short-term nature of such instruments, or in the case of long-term debt, because of interest rates available to the Company for similar obligations. Long-term investments are held-to-maturity debt securities and are reported at amortized cost.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). Accounting Standards Codification (ASC) 820 establishes a three-tier fair value hierarchy, which prioritizes inputs used in fair value. The tiers are as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures annually and based on various factors, it is possible that an asset or liability may be classified differently from year to year. However, the Company expects that changes in classifications between different levels will be rare. The Company classifies money market funds and deposits as Level 1 and long-term investments as Level 2. There have been no transfers between Level 1 and Level 2 investments during 2019.

Recently Adopted Standards: ASU 2014-09

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers, (Topic 606)”. The adoption of Topic 606 resulted in changes to the Company’s accompanying financial statements for the year ended December 31, 2018. The change resulted in a charge to the Company’s opening retained (deficit) earnings in the amount of $5,420 as of January 1, 2018. This change also resulted in a contract liability and a capitalized contract cost on the balance sheet. The total contract liabilities and upfront costs upon adoption of Topic 606 were $9,725 and $2,068, respectively. The amounts of contract liabilities amortized for the years ended December 31, 2019 and 2018, were $3,725 and $3,480, respectively. The amounts of contract costs amortized for the years ended December 31, 2019 and December 31, 2018, were $400 for each year.

The Company recast certain prior period amounts to conform to the adoption of Topic 606, as shown in the tables below (in thousands):

 

Balance Sheet

   Previously Reported
December 31, 2018
     Adjustment      As Adjusted
December 31, 2018
 

Assets

        

Contract costs

   $ —        $ 400      $ 400  

Long-term contract costs

     —          1,268        1,268  
  

 

 

    

 

 

    

 

 

 

Total Assets

   $ —        $ 1,668      $ 1,668  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Contract liability

   $ —        $ 3,725      $ 3,725  

Long-term contract liability

     —          11,510        11,510  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

   $ —        $ 15,235      $ 15,235  
  

 

 

    

 

 

    

 

 

 

The $1,668 and the $15,235 adjustment to contract assets and contract liabilities, respectively, reflects the amount of capitalized up-front contract costs and the amount of contract liabilities for up-front reimbursements as of December 31, 2018. These amounts are expected to be amortized over the applicable remaining contract term on a straight-line basis. For the year ended December 31, 2019 and 2018, the Company recorded $400 in both years associated with the amortization of the contract assets. For the year ended December 31, 2019 and 2018, the Company recognized $3,725 and $3,480, respectively, of revenue associated with the amortization of the up-front contract reimbursements.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

In December 2019 and 2018, the Company received payments of $5,539 and $4,999 from UA for services to be rendered in January 2020 and January 2019, respectively. The Company recast the December 31, 2018, amount of $4,999 from accounts payable to contract liabilities on the balance sheet. These customer deposits have been recorded as contract liabilities in the balance sheets as of December 31, 2019 and 2018, and recorded as revenue in January 2020 and 2019, respectively.

The statement of operations was recast as follows for the year ended December 31, 2018 (in thousands):

 

     For the Year Ended
December 31, 2018
 
     Previously
Reported
     Adjustments      As
Adjusted
 

Operating Revenues

        

Contract revenues

   $ 243,272      $ (2,720    $ 240,552  

Operating Expenses

        

Aircraft maintenance repair

     51,879        3,239        55,118  

Amortization expense

     21,745        400        22,145  
  

 

 

    

 

 

    

 

 

 

Loss from Operations

     (18,139      (6,359      (24,498

Income Tax (Benefit)

     (4,297      (827      (5,124
  

 

 

    

 

 

    

 

 

 

Net Income

   $ 186,845      $ (5,532    $ 181,313  
  

 

 

    

 

 

    

 

 

 

Explanations for each of the adjustments above are as follows:

 

   

Contract revenues – revenue of $6,200 was deferred as a contract liability and is partially offset by the amortization of the contract liability in the amount of $3,480.

 

   

Aircraft maintenance and repair – cost incurred in preparing the aircraft for service which were previously treated as a reimbursed expense.

 

   

Amortization expense – amortization of capitalized contract costs.

 

   

Income tax benefit – changes due to Topic 606 resulted in an increased loss from operations in the amount of $6,359. This resulted in an income tax benefit and additional deferred tax asset in the amount of $1,284, offset by the creation of a federal and state valuation allowance of $457 on deferred tax assets.

Recently Adopted Standards: ASU 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“Topic 842”). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the balance sheet. The accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted Topic 842 effective January 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company’s contracts are or contain leases, (2) lease classification, and (3) initial direct costs. In July 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements – Leases (Topic 842).” This update provides an optional approach that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years as presented. If this adoption method is elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company elected this adoption method, however, an adjustment was not necessary to opening retained earnings.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Additionally, the Company’s adoption of Topic 842 did not have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the financial statements of operations and statement of cash flows. The Company’s prepaid aircraft rents and accrued aircraft rents that were separately stated in the Company’s December 31, 2018 balance sheet have been classified as a component of the Company’s right-of-use assets effective January 1, 2019. The financial statements for 2019 are presented under the new standard, while the comparative year presented is not adjusted and continues to be reported in accordance with the Company’s historical accounting policy.

As a result of the adoption of the new lease accounting guidance, the Company recognized the following ROU assets and lease liabilities as of January 1, 2019:

 

Right-of-use assets – operating leases

   $ 70,892  

Lease liabilities – operating leases

   $ 40,921  

2. Liquidity and Management’s Plan, COVID-19

The Company’s ability to meet its liquidity needs is dependent upon generating cash flows from operations in the future in amounts sufficient to meet its obligations and repay its liabilities arising from normal business operations when they come due. There can be no assurance that the Company’s operations will be sufficiently profitable to meet its liquidity needs.

During 2019, the Company’s operations reflected the full effect of operating its fleet entirely under the United CPA compared to 2018; with the substantial growth in its pilot workforce, together with scheduling enhancements which improved crew productivity, the Company’s 2019 block hours increased year-over-year approximately 10 percent.

The Company in 2019 also implemented a number of cost reduction measures and liquidity management actions, including decreasing expenses with third party vendors through competitive bidding processes, strategically reviewing whether to eliminate employee positions caused by attrition, and creating efficiencies through a realignment of its crew domiciles and maintenance bases.

On January 30, 2020, the World Health Organization WHO announced a global health emergency because of a new strain of a novel coronavirus (COVID-19) in Wuhan, China and warned of the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak a pandemic, based on the rapid increase in exposure globally.

In response to the reduction in flying demand due to the COVID-19 pandemic, United has announced and implemented large scale reductions in its domestic flight schedules and the flight schedules of its regional airline partners, such as the Company, and the Company expects reduced demand to continue. Given the fluid nature of the pandemic, the extent of any future reduction in demand and the length of these impacts is unknown. The COVID-19 pandemic has also led local, municipal, county and state governments in the United States to adopt “shelter-in-place” and “stay-at-home” orders, which may be disruptive to the economy and further depress passenger demand for air travel. The Company has experienced, and continues to experience, a significant reduction in revenues as a result of the reduction in its flight schedule. If the decline in air passenger demand and reduced utilization of the Company’s aircraft require it to furlough employees, it may be challenging to recommence operations at the level of such operations prior to the COVID-19 pandemic. If passenger traffic does not return to pre-COVID-19 levels, there may be excess capacity in the airline industry which could lead to long-term reduced utilization or inefficient scheduling of the Company’s aircraft, which may have an adverse effect on its business and results of operations.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of this global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is taking actions based on currently available information to address the changing business environment; however, it cannot predict what changes in circumstances and future developments that are beyond its control may occur or what effect those changes in circumstances and future developments may have on its results of operations, financial condition, or liquidity for fiscal year 2020.

Since a portion of the Company’s revenue is fixed due to the structure of its United CPA, the impact to the Company from the COVID-19 outbreak will be partially mitigated or offset; however, if United ceased to pay the full fixed amount due under the CPA, whether due to its own financial stress resulting from the COVID-19 outbreak or otherwise, the Company could experience a significant adverse effect on its results of operations, financial condition, or liquidity for the year ending December 31, 2020. The Company has very limited exposure to fluctuations in passenger traffic, ticket and fuel prices. While the fixed revenue remains mostly unchanged as it is based on a fixed contractual rate and number of aircraft, the variable revenue based on number of block hours and departures has been significantly reduced, and the Company may experience further reductions. The initiatives and measures put in place to limit the spread of the virus have and will continue to have a materially adverse impact on the Company’s business. As a result of this decline in demand and the subsequent capacity reductions by United, the Company operated approximately 1,860 block hours in May 2020, or approximately 85% less than in May 2019. While the length and severity of the reduction in demand due to COVID-19 is uncertain, the Company anticipates similar schedule reductions will likely continue throughout the remainder of 2020 and into 2021.

In response to these developments, the Company has implemented cost saving initiatives seeking to mitigate the impact of the COVID-19 outbreak on the Company’s financial position and operations while also protecting the safety of the Company’s customers. These measures include, but are not limited to, the following:

 

  (1)

Reducing employee-related costs, including:

 

  (i)

Offering voluntary short-term unpaid leaves to employees,

 

  (ii)

Suspending all pay increases and bonuses for salaried employees, and

 

  (iii)

Instituting a company-wide hiring freeze.

 

  (2)

Reducing other non-employee costs in the current fiscal year, including:

 

  (i)

Delaying planned heavy airframe maintenance events,

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

  (ii)

Delaying maintenance events associated with engines and rotable parts,

 

  (iii)

Reducing or suspending certain discretionary spending, and

 

  (iv)

Reducing rent payments on certain leased engines.

The Company’s primary lender (see Note 6) has agreed to defer approximately $5,000 of interest payments otherwise due in the period from March 31, 2020, through September 29, 2020. All deferred amounts are due in a lump sum payment on September 30, 2020, per the letter agreement dated March 30, 2020. Although the agreement is to pay the full amount back on September 30, 2020, the Company may seek more favorable repayment terms from the lender. There is no certainty as to whether the repayment terms will be able to be modified.

On March 27, 2020, President Trump signed into law the CARES Act. The Company is examining the impact that the CARES Act may have on its business.

In addition to the cost saving measures outlined above, on April 6, 2020, the Company applied to a lender for a $10,000 loan under the small business Paycheck Protection Program (PPP) established under the CARES Act and administered by the SBA (SBA Loan). The application was processed and approved through the SBA system, and the full loan amount of $10,000 was received by the Company on April 13, 2020. The application for these funds required the Company to certify in good faith that current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. The Company was also required to certify that the loan funds would be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. The SBA Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of the loan. The SBA Loan may be prepaid at any time without penalty. The note evidencing the SBA Loan contains events of default that are customary for a loan of this type. Under the terms of the CARES Act and the note, the Company can apply for and be granted forgiveness for all or a portion of the SBA Loan. Such forgiveness, if any, will be determined, subject to limitations, based on the use of loan proceeds for payroll costs, rent and utility costs, provided that the application for the SBA Loan stated that not more than 25% of the forgiven amount may be for non-payroll costs. While the Company believes that its use of the loan proceeds will meet the conditions for forgiveness of the SBA Loan, there can be no assurance that the Company will obtain forgiveness of the loan in whole or in part.

In addition, on April 20, 2020, the Company entered into a Payroll Support Program Agreement (PSP Agreement) with respect to payroll support (Treasury Payroll Support) from the U.S. Department of Treasury (Treasury) with respect to the payroll support program (Payroll Support Program) under the CARES Act, pursuant to which the Company expects to receive approximately $41,000 in the aggregate, of which approximately $20,499 has been received. The remaining amount is expected to be paid to the Company in three equal payments of $6,833 each from July to September 2020. The payments are subject to adjustment in Treasury’s sole discretion. The PSP Agreement contains various covenants, including that the payroll support proceeds must be used exclusively for the payment of wages, salaries and benefits, that the Company cannot involuntarily terminate or furlough any employee prior to October 1, 2020, and that the Company cannot reduce any employee’s pay rates or benefits prior to October 1, 2020, without that employee’s consent.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Given the measures discussed above that the Company has implemented to address its historical net losses from operations and to mitigate the impact of the COVID-19 pandemic on its financial position and operations and its assumptions about its future impact on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company believes the working capital currently available to it and cash flows from operations will be sufficient to meet the Company’s liquidity requirements for at least the next 12 months after the report issuance date.

3. Service Agreements

American Airlines, Inc.

In February 2005, the Company and US Airways, Inc. entered into a CPA under which the Company agreed to provide regional jet service through December 31, 2015, operating 70 CRJ-200 regional jet aircraft. American acquired US Airways, Inc. in 2015, and, in connection with the acquisition, American became party to the CPA. The CPA was amended in October 2008 and November 2009. The amendments, among other changes, granted the Company the right to extend the CPA under certain circumstances. The Company exercised its right under the amendments to extend the CPA beyond December 31, 2015 through mid-February 2018. The Company and AA amended the CPA on April 7, 2017, to allow for an orderly withdrawal of its aircraft from service with AA commencing in August 2017 and ending in February 2018. As aircraft were removed from AA, the amended CPA allowed the Company to place the aircraft into service with United.

Under the terms of the CPA, the Company was paid fees by AA for the number of aircraft in the fleet, completed block hours, completed departures, available seat miles (ASMs), and certain other amounts based on the Company’s performance measured against certain performance criteria.

United Airlines, Inc.

On February 26, 2017, the Company entered into a CPA with United Airlines, Inc. to operate up to 65 CRJ-200 regional jet aircraft. The initial term of the CPA is through February 28, 2023, with a two-year extension at UA’s election and a second two-year extension at UA’s election subject to mutual agreement by the Company and UA as to compensation.

4. Property and Equipment

The following presents the Company’s aircraft as of December 31, 2019 and 2018.

 

December 31, 2019

   Owned      Leased  

CRJ-200

     51        13  
  

 

 

    

 

 

 

December 31, 2018

   Owned      Leased  

CRJ-200

     37        26  
  

 

 

    

 

 

 

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

As part of an agreement reached in January 2018 Bombardier Inc. (BBD) agreed to pay the Company $25,192 in installments through September 2019 provided that BBD had the right to deliver to the Company the unencumbered title to certain CRJ-200 aircraft in satisfaction of any installment payments that remained at the time of such delivery. Under the agreement, the Company and BBD also agreed to terminate all residual value guarantee agreements (RVG’s) on 35 owned aircraft and to terminate certain other agreements that limited BBD’s obligations under such guarantee agreements.

On July 1, 2019, BBD exercised its right under the agreement and delivered to the Company 14 CRJ-200 aircraft which had previously been leased to the Company. The delivery of the aircraft was in lieu of remaining installment payments due to the Company totaling $8,212. All installment payments received from BBD prior to July 1, 2019, were recorded as “Other income” in the statements of operations and amounted to $2,537 and $14,443, for the years ended December 31, 2019 and 2018, respectively.

The Company recorded the 14 CRJ-200 aircraft as “Flight property and equipment” on the Balance Sheet at their fair market value based on recent asset valuations completed around that time. Fair market value was determined to be $15,832 based on one hundred and forty dollars per remaining engine cycle with a minimum value of $50 per engine, and each of the aircraft airframes was assigned a fair market value of $100. The airframes and engines were then depreciated in accordance with the table under “Property and Equipment and Depreciation” as set forth in Note 1. The transaction resulted in a lease termination expense of $19,353 which is included as part of “Aircraft rent” on the 2019 statement of operations. The lease termination expense, net of the recording of the assets at fair market value as noted above, included a charge for the following Balance Sheet items at the time the aircraft were acquired:

 

   

Right-of-use assets in the amount of $26,275, offset by lease liabilities of $1,182.

 

   

Unamortized engine overhauls of $9,535, recorded under “Flight property and equipment” on the Balance Sheet, related to the 28 engines acquired as part of the transaction.

 

   

Leasehold improvements with a remaining book value of $738 and included on the Balance Sheet as “Flight property and equipment,” related to the 14 acquired aircraft.

The delivery in mid-2019 of the 14 CRJ-200 aircraft by BBD to the Company is reflected in the December 31, 2019, table above as an increase to Owned Aircraft and a reduction in Leased Aircraft.

 

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5. Income Taxes

The income tax provision consists of the following (the 2018 amounts have been recast in accordance with Note 1 above):

 

Year ended December 31,

   2019      2018  

Current Benefit

     

Federal

   $ (247    $ (753

State

     (174      (10
  

 

 

    

 

 

 

Total Current Benefit

     (421      (763
  

 

 

    

 

 

 

Deferred Expense (Benefit)

     

Federal

     789        (2,095

State

     (46      (2,266
  

 

 

    

 

 

 

Total Deferred Expense (Benefit)

     743        (4,361
  

 

 

    

 

 

 

Income Tax Expense (Benefit)

   $ 322      $ (5,124
  

 

 

    

 

 

 

The following is a reconciliation between a federal income tax rate of 21% in for the years ended December 31, 2019 and 2018 of income before income taxes and the effective tax rate which is derived by dividing the provision (benefit) for income taxes by the income before the provision for income taxes (in thousands):

 

Year ended December 31,

   2019      2018  

Computed provision for income taxes at the statutory rate

   $ (3,964    $ 37,000  

Increase (decrease) in income taxes resulting from:

     

State income tax provision, net of federal income tax benefit

     (830      (2,880

Non-deductible expenses

     241        198  

Gain on troubled debt restructuring

     —          (44,981

Loss of tax attributes

     —          14,322  

Valuation allowance changes affecting the provision for income taxes

     5,873        (9,562

Return to provision adjustments

     (954      (125

Other, net

     (46      904  
  

 

 

    

 

 

 

Provision (benefit) for income taxes

   $ 322      $ (5,124
  

 

 

    

 

 

 

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

As of December 31, 2019, the Company recorded $6,330 of valuation allowance against certain deferred tax assets primarily associated with federal and state net operating losses. As of December 31, 2018, the company recorded $457 of valuation allowance against certain deferred tax assets primarily associated with state net operating losses. The increase in the valuation allowance for 2019 was primarily based on federal and state net operating losses generated in 2019.

Deferred tax assets and liabilities reflect temporary differences between financial and tax reporting. Significant components of deferred tax assets and liabilities are as follows:

 

December 31,

   2019      2018  

Deferred Tax Assets

     

Accruals and reserves not currently deductible

   $ 6,631      $ 7,084  

Federal NOL and interest expense limitation carryovers

     13,796        286  

State NOL and interest expense limitation carryovers

     1,106        39  

Accrued and deferred compensation

     2,888        2,809  

Prepaid items

     1,198        2,432  

Lease liability

     4,052        —    
  

 

 

    

 

 

 

Contract liability

     2,543        3,242  
  

 

 

    

 

 

 

Residual value guarantee settlement

     —          2,568  
  

 

 

    

 

 

 

Other

     1,010        849  
  

 

 

    

 

 

 

Subtotal before valuation allowance

     33,224        19,309  

Less: valuation allowance

     (6,330      (457
  

 

 

    

 

 

 

Total Deferred Tax Assets

     26,894        18,852  
  

 

 

    

 

 

 

Deferred Tax Liabilities

     

Property and equipment

     (24,696      (20,701

Right-of-use asset

     (4,791      —    

Other

     (6      (6
  

 

 

    

 

 

 

Total Deferred Tax Liabilities

     (29,493      (20,707
  

 

 

    

 

 

 

Net Deferred Income Tax Liabilities

   $ (2,599    $ (1,855
  

 

 

    

 

 

 

At December 31, 2019 and 2018, the Company had federal net operating losses of approximately $60,940 and $0, and state net operating losses of approximately $17,897 and $509, respectively. The estimated effective tax rate applicable to the federal and state net operating losses are 21.0% and 3.1%, respectively. The federal net operating loss is not subject to an expiration date but is subject to an 80% of taxable income limitation, while the Company expects the state net operating losses to begin to expire in 2024. State net operating losses differ with respect to expiration dates and limitations dependent on state specific regulations. For the year ended December 31, 2019 and 2018, the Company had a federal business interest carryforward of $4,724 and $1,360, respectively. These amounts, as well as future interest deductions, are subject to a limitation of 30% of adjusted taxable income. For the years ended December 31, 2019 and 2018, the Company recorded a valuation allowance of $6,330 and $457, respectively, against federal and state deferred tax assets consisting of net operating loss carryovers and interest expense limitation carryovers. As the Company was in a cumulative loss position as of December 31, 2019 and 2018, the reversal of existing temporary differences was used to determine the extent to which valuation allowances were recorded. The Company has no ongoing federal or state examinations. Federal tax years 2016, 2017, and 2018 are open to examination. As a result of the troubled debt restructuring in 2018, any remaining federal and state net operating loss and tax credit carryovers were eliminated, and therefore any related deferred tax assets and valuation allowances have also been reduced as of December 31, 2018.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Under ASC Topic 740, the accounting guidance related to uncertain tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2019 and 2018 is as follows (in thousands):

 

December 31,

   2019      2018  

Unrecognized tax benefits at the beginning of the year

   $ 388      $ 278  

Gross increases – current year tax positions

     —          128  

Gross decreases – lapse of statute

     (140      (18
  

 

 

    

 

 

 

Unrecognized tax benefits at the end of the year

   $ 248      $ 388  
  

 

 

    

 

 

 

Interest and penalties in year-end balance

   $ 121      $ 252  

6. Debt

Long-Term Debt

Long-term debt consists of the following (with interest rates as of December 31, 2019 and December 31, 2018):

 

December 31,

   2019      2018  

Notes due December 31, 2025, 4.0%(a)

   $ 86,497      $ 86,497  

Credit Agreements due through 2022, 5.0%(b)

     34,186        29,595  
  

 

 

    

 

 

 

Total debt

     120,683        116,092  

Less: current maturities

     12,845        7,198  
  

 

 

    

 

 

 

Long-Term Debt

   $ 107,838      $ 108,894  
  

 

 

    

 

 

 

 

(a)

On December 24, 2018, Air Wisconsin entered into a debt restructuring agreement with a lender (Lender), which held certain senior aircraft notes and subordinated aircraft notes. Under the agreement the senior aircraft notes were exchanged for Notes in the aggregate principal amount of $70,000 (Aircraft Notes) and the subordinated aircraft notes were cancelled. The Aircraft Notes bear interest at the rate of 4% per annum. Air Wisconsin concluded the restructuring should be classified as a troubled debt restructuring and, as such, future undiscounted interest payments of $16,497 were capitalized as part of the carrying value of the debt.

(b)

Air Wisconsin entered into a credit agreement with the Lender in June 2017 in the amount of $14,397, and a second credit agreement in January 2018 in the amount of $15,198, which was subsequently amended in December 2018 and again in June 2019 for additional funding of $5,755 and $6,034, respectively, and to extend the maturity date. The loans made by the Lender under these two credit agreements (Other Loans) have an interest rate of 5% and maturity dates of December 31, 2020 and June 30, 2022, respectively.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Aircraft Notes

In seven separate transactions occurring in 2003 and 2004, Air Wisconsin financed the acquisition of 35 CRJ-200 regional jets through the issuance of senior aircraft notes and subordinated aircraft notes. The senior aircraft notes bore interest at fixed rates ranging from 4.75% to 6.84%. The subordinated aircraft notes bore interest at a base rate plus 6-month LIBOR, with semi-annual adjustments for changes in LIBOR; the base rate was 1.5% for the first 15-months, 2.5% for the following 18-months and 3.5% thereafter.

In April 2016, the Lender, as the holder of the senior aircraft notes, the holder of the subordinated aircraft notes, and a loan trustee entered into a deferral agreement which was amended several times between April 14, 2016 and February 16, 2018. This agreement, as amended:

 

  (i)

Deferred certain scheduled principal and interest payments on the senior aircraft notes and the subordinated aircraft notes through June 30, 2019;

 

  (ii)

Imposed certain restrictions on Air Wisconsin’s ability to make payments to affiliates;

 

  (iii)

Imposed an obligation on Air Wisconsin to perform certain engine maintenance through June 30, 2019; and

 

  (iv)

Required Air Wisconsin to grant to a trustee for the benefit of the lenders security interests in certain unencumbered aircraft, engines and spare parts.

On January 25, 2018, Air Wisconsin, the Lender, as the holder of the senior aircraft notes, and the holder of the subordinated aircraft notes entered into an omnibus restructuring agreement whereby, among other things, the holder of the subordinated aircraft notes assigned all of its rights and interest in the subordinated aircraft notes and certain other notes payable due 2020 to the Lender.

On December 24, 2018, Air Wisconsin and the Lender entered into a debt restructuring agreement whereby:

 

  (i)

The senior aircraft notes were exchanged for the Aircraft Notes in an aggregate principal amount of $70,000;

 

  (ii)

The aggregate principal balance outstanding under the senior aircraft notes in excess of $70,000, the entire aggregate principal balance outstanding under the subordinated aircraft notes and certain notes payable due 2020, and all interest accrued on the senior aircraft notes and the subordinated aircraft notes prior to the restructuring date, including deferred amounts, was forgiven and deemed paid in full;

 

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  (iii)

The interest rate for the Aircraft Notes was reset to 4.0% per annum;

 

  (iv)

Commencing on June 30, 2021, there is mandatory amortization of the Aircraft Notes in the aggregate amount of $3,500 semi-annually;

 

  (v)

Certain additional mandatory prepayments based on excess cash flow are required; and

 

  (vi)

The maturity date of the Aircraft Notes was extended to December 31, 2025.

The Aircraft Notes are secured by Air Wisconsin’s owned aircraft and certain spare engines and spare parts. Air Wisconsin concluded the restructuring should be classified as a troubled debt restructuring and recorded a gain of $198,611 in 2018. Accordingly, the carrying value of the restructured debt was reduced to the expected future undiscounted cash flows related to its repayment, which includes future principal and interest payments of $70,000 and $16,497, respectively.

Other Loans

On June 5, 2017, Air Wisconsin and the Lender entered into a credit agreement under which Air Wisconsin borrowed $14,397. The Other Loans under the 2017 credit agreement have an interest rate of 5% and a maturity date of December 31, 2020 and are secured by Air Wisconsin’s owned aircraft and certain spare engines and spare parts.

On January 25, 2018, Air Wisconsin entered into a second credit agreement with the Lender to borrow $15,198 in 2018. On December 24, 2018, the Lender and Air Wisconsin entered into a first amendment to that 2018 credit agreement in which the Lender agreed to make an additional loan in the amount of $5,755 on April 30, 2019. In April 2019, Air Wisconsin entered into a second amendment with respect to the 2018 credit agreement that extended the due date of one of the payments due in the amount of $7,273 from July 2019 to July 2020. As of December 31, 2018, the $7,273 payment was included in long-term debt on the balance sheet. In June 2019, Air Wisconsin entered into a third amendment to the 2018 credit agreement that changed the due date of the installment payment of $7,273, due July 2020, to December 2021. The amendment also provided Air Wisconsin the option to make the March 2020 and June 2020 payments under the 2017 credit agreement in December 2019, which totaled $7,198. In return, the December 2019 payment under the 2018 credit agreement, in the amount of $7,925, would be deferred to be made into two installments of $3,963 each due in March and June of 2022. Air Wisconsin exercised this option. The June 2019 amendment also increased the loan amount of the 2018 credit agreement by $6,034, to a total of $26,987, and the amendment extended the maturity date to June 30, 2022, at which time the $6,034 is also due. The Other Loans under the 2018 credit agreement have an interest rate of 5% and a maturity date of June 30, 2022 and are secured by Air Wisconsin’s owned aircraft and certain spare engines and spare parts.

Air Wisconsin concluded that the amendments discussed above should be classified as a troubled debt restructuring due to the Lender granting changes to the amortization schedule and extending the loan maturity dates in the amendments.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

March 30, 2020 Deferral Agreement

On March 30, 2020, Air Wisconsin entered into a Letter Agreement with the Lender to defer all principal and interest payments on the Aircraft Notes and the Other Loans that would otherwise be due from March 31, 2020 through September 29, 2020 to September 30, 2020. Under this agreement Air Wisconsin deferred a payment of $3,918 due in March 2020 and will defer a second payment of $1,118 due in June 2020.

Maturities of long-term debt for the years subsequent to December 31, 2019, are as follows:

 

Fiscal Year

   Amount  

2020

   $ 12,845  

2021

     22,758  

2022

     23,410  

2023

     9,170  

2024

     8,890  

Thereafter

     43,610  
  

 

 

 

Total

   $ 120,683  
  

 

 

 

The debt agreements include provisions and certain non-financial covenants. At December 31, 2019 and 2018, Air Wisconsin was in compliance with the covenants of all of its debt agreements.

Long-Term Promissory Note

In July 2003, Air Wisconsin financed a hangar through the issuance of $4,275 City of Milwaukee, Wisconsin variable rate Industrial Development Bonds. The bonds mature November 1, 2033. Prior to May 1, 2006, the bonds were secured by a guaranteed investment contract, which was collateralized with cash and interest was payable semiannually on each May 1 and November 1. On May 1, 2006, Air Wisconsin acquired the bonds using the cash collateral. The bonds are reported as long-term investments on the balance sheets. The hangar is accounted for as a right-of-use asset.

7. Lease Obligations

Effective January 1, 2019, the Company adopted Topic 842. The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset (ROU) and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at January 1, 2019. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment.

For all underlying classes of assets, the Company has elected to not recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement and do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are deemed short-term leases with lease costs included in rent expense.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

As of December 31, 2019, the Company’s right-of-use assets were $24,026, the Company’s current maturities of operating lease liabilities were $6,311, and the Company’s noncurrent lease liabilities were $10,538. During 2019, the Company paid $29,502 in operating leases reflected as a reduction from operating cash flows.

The table below presents operating lease related terms and discount rates as of December 31, 2019:

 

Weighted-average remaining lease term

     4.04 years  

Weighted-average discount rate

     7.02

Components of lease costs were as follows for the year ended December 31, 2019:

 

Operating lease cost

   $ 27,624  

Short-term lease cost

     4,331  

Variable lease cost

     182  

Lease termination expense

     19,353  
  

 

 

 

Total lease cost

   $ 51,490  
  

 

 

 

As of December 31, 2019, the Company leased or subleased certain aircraft and engines, training simulators, and facilities. Rent expense recorded under these leases was $51,490 and $42,468 in 2019 and 2018, respectively. The following table summarizes the future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms greater than one year as of December 31, 2019:

 

Fiscal Year

   Amount  

2020

   $ 7,384  

2021

     3,975  

2022

     3,906  

2023

     2,722  

2024

     1,087  

Thereafter

     987  
  

 

 

 

Total lease payments

     20,061  
  

 

 

 

Less imputed interest

     (2,104

Total lease liabilities

   $ 17,957  
  

 

 

 

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

8. Commitments and Contingencies

Legal Matters

The Company is subject to certain legal actions, which it considers routine to its business activities. As of December 31, 2019, management believes, after consultation with legal counsel, that the ultimate outcome of such legal matters will not have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

Standby Letters of Credit

As of December 31, 2019, the Company had ten outstanding letters of credit in the total amount of $814 to guarantee the performance of Company obligations in certain lease agreements and insurance policies. The Company’s restricted cash secures the letters of credit.

The following table sets forth our cash obligations as of December 31, 2019:

 

            Payment Due for Year Ending
December 31,
(in thousands)
 
     Total      2020      2021      2022      2023      2024      Thereafter  

Aircraft Notes principal

   $ 70,000      $ —        $ 7,000      $ 7,000      $ 7,000      $ 7,000      $ 42,000  

Aircraft Notes interest

   $ 16,497      $ 5,647      $ 2,729      $ 2,451      $ 2,170      $ 1,890      $ 1,610  

Other Loans principal

   $ 34,186      $ 7,198      $ 13,029      $ 13,959      $ —        $ —        $ —    

Other Loans interest

   $ 3,193      $ 1,664      $ 1,230      $ 299      $ —        $ —        $ —    

Operating lease obligations

   $ 20,061      $ 7,384      $ 3,975      $ 3,906      $ 2,722      $ 1,087      $ 987  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 143,937      $ 21,893      $ 27,963      $ 27,615      $ 11,892      $ 9,977      $ 44,597  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2019, we had no variable rate notes in our total long-term debt.

9. Retirement Plans

The Company has defined contribution retirement plans that cover substantially all employees. The Company contributes to these plans. Total expense under all plans for 2019 and 2018 was $4,467 and $4,043, respectively.

10. Related-Party Transactions

For 2019 and 2018, the Company paid $3,979 and $4,545, respectively, pursuant to certain aircraft and engines leases with related parties and for other professional services.

Southshore Leasing, LLC (Southshore Leasing), through its affiliates (the Southshore Affiliates, and, together with Southshore Leasing, Southshore), leased aircraft and engines to Air Wisconsin pursuant to various operating lease agreements from April 2010 through January 2020. In 2019, Air Wisconsin paid a total of approximately $3,739 to Southshore, consisting of approximately $1,878 for the leases of three aircraft, approximately $1,661 for the lease of additional engines to support the operations of Air Wisconsin’s aircraft fleet, and $200 for the purchase of two previously leased airframes. In 2018, Air Wisconsin paid a total of approximately $4,305 to Southshore, consisting of approximately $1,525 for the leases of two aircraft, and a total of approximately $2,780 for the lease of additional engines.

Air Wisconsin also from time to time contracted for services to be performed on assets held by Southshore that are used in Air Wisconsin’s operations and received reimbursement from Southshore at the cost of such services. Because Air Wisconsin acted as an agent or an intermediary in facilitating such transactions, the amounts of any such transactions are not included in the amounts described above.

Resource Holdings Associates (Resource Holdings) has provided AWAC and Air Wisconsin with financial advisory and management services pursuant to an agreement entered into in January 2012. AWAC has paid a recurring monthly fee of $20 in exchange for these financial advisory and management services since January 2012. AWAC paid a total of $240 to Resource Holdings in both 2019 and 2018.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

11. Collective Bargaining Agreements

The Company has five collective bargaining units. The Airline Pilots Association (ALPA) represents pilots. The Association of Flight Attendants-CWA (AFA) represents flight attendants. The mechanics and the technical store clerks have two separate collective bargaining agreements that are both represented by the International Association of Machinists and Aerospace Workers AFL-CIO (IAMAW). The Transport Workers Union of America (TWU) represents dispatchers.

As of December 31, 2019, the Company is in negotiations with the unions that represent the flight attendants and mechanics. The Company is in mediated negotiations with AFA representing the flight attendants and the IAMAW representing the mechanics. The Company believes the resolution of its negotiations will not have a material impact on its financial position or operations.

Amendable dates for each bargaining unit are:

 

Bargaining Unit

   Amendable Date  

Pilots

     November 21, 2022  

Dispatchers

     November 1, 2020  

Mechanics

     October 7, 2015  

Technical store clerks

     September 20, 2022  

Flight attendants

     June 27, 2016  

12. Earnings Per Share

Calculations of net income per common share were as follows (in thousands, except per share data):

 

     Year Ended December 31,  
     2019      2018  

Net (loss) Income

   $ (19,214    $ 181,313  

Basic weighted average common shares outstanding

     54,863        54,863  
  

 

 

    

 

 

 

Add: Incremental shares for:

     

Diluted effects of stock options

            559  
  

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     54,863        55,422  
  

 

 

    

 

 

 

Net (loss) income per common share

     

Basic

   $ (.35    $ 3.30  
  

 

 

    

 

 

 

Diluted

   $ (.35    $ 3.27  
  

 

 

    

 

 

 

Basic (loss) income per common share is computed by dividing net (loss) income attributable the Company by the weighted average number of common shares outstanding during the period.

The number of incremental shares from the assumed issuance of shares related to the 2015 Stock Option is calculated by applying the treasury stock method. In loss periods, these incremental shares are excluded from the calculation of diluted loss per share, as the inclusion of these items would have an anti-dilutive effect.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

Net income at December 31, 2018 was driven by the gain on the extinguishment of debt of $198,729, resulting from the troubled debt restructuring in December 2018.

13. Stock Options

2015 Stock Option

In 2015, the Company issued a stock option to purchase 558,835 shares of the common stock of the Company at an exercise price of $0.21386 per share. The value of the option at the date of grant was $.07 per share based on a life of 7.0 years, a risk-free interest rate of 2.01% and expected volatility of 157.1%. This is the only remaining stock option as of December 31, 2019 and 2018.

After July 9, 2019, the 2015 Stock Option became fully exercisable; prior to that date it could be exercised based on the occurrence of certain events.

The 2015 Stock Option terminates on July 9, 2022 or upon the occurrence of certain corporate transactions.

 

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Notes to Consolidated Financial Statements (in thousands)

 

 

14. Supplemental Cash Flow Information

Cash payments for interest for the years ended December 31, 2019 and 2018, were $1,841 and $1,348, respectively. Cash payments for income taxes for the years ended December 31, 2019 and 2018 amounted to $39 and $42, respectively. Cash payments included in the measurement of lease liabilities related to operating leases amount to $29,502 for the year ended December 31, 2019. The Company had noncash additions to property and equipment of $7,210 included in accounts payable as of December 31, 2018. The Company also recorded a fair market value of $15,832 for 14 aircraft acquired in a non-cash lease termination transaction. The aircraft are recorded in property, plant, and equipment (see Note 4).

15. Intangible Assets

Intangible assets at December 31, 2019 and 2018 consist of the following (in thousands):

 

     December 31,  
     2019     2018  
     Gross Carrying Amount     Gross Carrying Amount  

Trade names and air carrier certificate

     5,300       5,300  
  

 

 

   

 

 

 

Total

   $ 5,300     $ 5,300  
  

 

 

   

 

 

 

16. Subsequent Events

The Company evaluated its December 31, 2019, financial statements for subsequent events through July 1, 2020, the date the financial statements were available to be issued. The following subsequent events are noted:

See the subsequent events described in Note 2 regarding the impact of the COVID-19 pandemic and CARES Act on the Company’s operations, and in particular the SBA Loan and the Treasury Payroll Support.

See the subsequent event described in Note 6 regarding the March 30, 2020, deferral agreement of certain principal and interest.

On January 17, 2020, the Company completed the acquisition from Southshore Aircraft Holdings, LLC and its affiliated entities of three CRJ-200 regional jets, each having two General Electric (GE) engines, in addition to five additional GE engines, in exchange for the issuance of shares of the Company’s Series C Convertible Redeemable Preferred Stock. The Company had leased the aircraft and engines prior to the acquisition.

 

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Harbor Diversified, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (in thousands)

 

 

On May 22, 2020, the Company acquired eight CRJ-200 aircraft in a single transaction. The Company had leased the aircraft prior to the acquisition. The aggregate purchase price for the eight aircraft was $3,000.

 

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

 

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ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our principal executive officer and principal financial and accounting officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act) as of December 31, 2019, the last day of the period covered by this Annual Report. Disclosure controls and procedures means controls and other procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to its management, including its principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, primarily as a result of the material weaknesses in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) discussed below, our management, including our principal executive officer and principal financial and accounting officer, concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level. However, notwithstanding this determination, our management, including our principal executive officer and principal financial and accounting officer, concluded that the consolidated financial statements contained in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

In connection with the audit of our consolidated financial statements contained in this Annual Report, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a reporting company’s financial statements will not be prevented or detected on a timely basis. The material weaknesses identified by our independent registered public accounting firm as of December 31, 2019 primarily relate to:

 

   

the application of accounting treatment for certain complex and non-routine transactions, including certain lease termination transactions;

 

   

the adoption of new accounting standards related to Topic 606 and Topic 842;

 

   

the establishment and design of processes and controls to document and monitor certain controls over financial reporting, including the review of journal entries;

 

   

the design of controls for user access rights related to certain information technology systems, including payroll; and

 

   

the accounting for valuation allowances on deferred tax assets.

Remedial Measures

Our management has concluded that the following material weaknesses identified above have been remediated as of the date of the filing of this Annual Report: (i) the adoption of new accounting standards related to Topic 606 and Topic 842; and (ii) the accounting for valuation allowances on deferred tax assets.

We plan to take the following remedial measures to address the remaining identified material weaknesses in internal control over financial reporting:

 

   

hire outside consultants who possess the requisite skillsets in certain areas of accounting and financial reporting, including accounting for certain complex and non-routine transactions;

 

   

assess required training needs to promote the continued development of existing personnel;

 

   

perform a comprehensive review of our current procedures to ensure compliance with our accounting policies and generally accepted accounting principles; and

 

   

consider hiring additional financial and accounting personnel.

We intend to enhance our controls and procedures and remediate the remaining identified material weaknesses, including through the adoption of the remedial measures discussed above. However, we cannot be certain that these measures will be successful in remediating the material weaknesses, or preventing future significant deficiencies or material weaknesses in internal control over financial reporting. We may incur significant costs and diversion of our management in an effort to maintain an effective control environment.

 

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Management’s Annual Report on Internal Control Over Financial Reporting

Pursuant to Rule 15d-15(c) under the Exchange Act, because the Company was not required to file (and did not file) an Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (a “Prior Year Annual Report”), this Annual Report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established pursuant to SEC rules and regulations for newly reporting companies.

Attestation Report of the Registered Public Accounting Firm

Pursuant to an exemption established by the Jumpstart Our Business Startups Act for “smaller reporting companies”, this Annual Report does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

Pursuant to Rule 15d-15(d) under the Exchange Act, because the Company was not required to file (and did not file) a Prior Year Annual Report, it was not required to conduct (and did not conduct) an evaluation of changes in our internal control over financial reporting that occurred during the fourth quarter of the year ended December 31, 2019. However, see the sections entitled “– Disclosure Controls and Procedures” and “– Remedial Measures” within this Annual Report for additional information regarding matters that could impact our internal control over financial reporting in future periods.

 

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ITEM 9B.

OTHER INFORMATION

None.

 

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PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Consistent with the Securities and Exchange Commission (“SEC”) rules and regulations, our executive officers include certain officers of our subsidiary, Air Wisconsin Airlines LLC (“Air Wisconsin”). The following table sets forth information concerning our executive officers and directors as of May 31, 2020:

 

Name    Age    Position

Executive Officers:

     
Christine R. Deister    71   

Chief Executive Officer and Secretary, Harbor Diversified, Inc.

Robert Binns    55    Chief Executive Officer and President, Air Wisconsin Airlines LLC
Gregg Garvey    54   

Senior Vice President, Chief Accounting Officer and Treasurer, Air Wisconsin Airlines LLC

Non-Employee Directors:      
Richard A. Bartlett    62    Director, Harbor Diversified, Inc.
Nolan Bederman(1)    48    Director, Harbor Diversified, Inc.
Kevin J. Degen(1)    63    Director, Harbor Diversified, Inc.

 

(1)

Serves as a member of our audit committee.

Executive Officers

Christine R. Deister

Ms. Deister, 71, has served as the Company’s Chief Executive Officer and Secretary since March 2020. Ms. Deister has also served as Chief Financial Officer and Secretary of Lotus Aviation Leasing, LLC, and Chief Financial Officer and Secretary of Air Wisconsin Funding LLC (“AWF”) since April, 2020, as well as President, Secretary, and a director of Harbor Therapeutics, Inc. since April, 2020. Ms. Deister was initially appointed Chief Financial Officer and Secretary of the Company in March 2012, and was subsequently appointed President of the Company in July 2019. Previously, Ms. Deister served as President and Chief Executive Officer of Air Wisconsin from April 2015 until March 2020. From November 2014 to April 2015, Ms. Deister served as Chief Commercial Officer of Air Wisconsin. From November 2004 to November 2014, Ms. Deister served as Executive Vice President and Chief Financial Officer of Air Wisconsin. Prior to Air Wisconsin Ms. Deister served as Executive Vice President and Chief Financial Officer of Hawaiian Airlines from 2001 to November 2004. Prior to 2001, Ms. Deister held various executive roles with Trans World Airlines, including Senior Vice President of Finance and Treasurer.

Robert Binns

Mr. Binns, 55, has served as Air Wisconsin’s President since April 2019, and as its Chief Executive Officer since April 2020. Mr. Binns has also served as Executive Vice President and director of AWAC Aviation, Inc. (“AWAC”) since April 2020. Mr. Binns brings over 25 years of airline and industry-related leadership to these roles. Prior to joining Air Wisconsin, Mr. Binns held executive roles with Hybrid Enterprises, LLC, the exclusive reseller of Lockheed Martin’s hybrid airship, Global Aviation Holdings, TransMeridian Airlines, Pegasus Aviation and Trans World Airlines. Mr. Binns holds an M.B.A. from the University of Kansas, an M.A. in Political Behavior from Essex University in England, and a B.A. in History and Political Science from the University of Kansas.

Gregg Garvey

Mr. Garvey, 54, has served as Air Wisconsin’s Senior Vice President, Chief Accounting Officer and Treasurer since October 2018, and has worked with Air Wisconsin in various roles since 1999. Mr. Garvey also serves as Vice President, Chief Financial Officer and Treasurer of AWAC. Prior to joining Air Wisconsin in 1999, Mr. Garvey served as a Tax Manager, Tax Supervisor, and Staff Accountant at Schenck & Associates (currently part of CliftonLarsonAllen LLP), a large regional public accounting firm in Appleton, Wisconsin. Mr. Garvey also held positions of Financial Analyst and Forecasting Accountant, and Senior Tax Accountant at Repap Wisconsin, Inc. a paper company formerly located in Kimberly Wisconsin. Mr. Garvey holds a B.B.A. in Accounting from the University of Wisconsin-Whitewater, an M.S. in Taxation from the University of Wisconsin-Milwaukee, and an M.B.A. from the University of Wisconsin-Oshkosh. Mr. Garvey is also a Certified Public Accountant.

 

 

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Non-Employee Directors

Richard A. Bartlett

Mr. Bartlett, 62, has served on the Company’s board of directors since August 2011. Mr. Bartlett is the managing director of Resource Holdings, Ltd., a private equity firm located in New York, New York. He has served on the board of directors of numerous privately-held and publicly-traded companies across a wide variety of industries, including the board of directors of Air Wisconsin for more than 25 years. Mr. Bartlett served on the board of directors of US Airways, Inc. from 2005 to 2008. Prior to joining Resource Holdings, Ltd. in 1984, he served as a law clerk for an associate justice of the Supreme Court of the United States, and prior to that, for a senior judge of the U.S. Circuit Court for the District of Columbia. Mr. Bartlett received his J.D. from Yale Law School and his B.A. from Princeton University.

We believe Mr. Bartlett’s experience serving as a principal at a private equity firm for over 30 years, and on the boards of directors of multiple companies, including Air Wisconsin and US Airways, Inc., provides him with the skills necessary to understand business strategy and planning, financial statements, and board process and functions, all of which qualify him for service as a director.

Nolan Bederman

Mr. Bederman, 48, has served on the Company’s board of directors since March 2019. Mr. Bederman currently serves as a founder and Managing Partner of Bederman Capital Corp., a private equity firm. Prior to forming Bederman Capital Corp., Mr. Bederman served as partner and co-founder of Genuity Capital Partners from 2005 to 2013. Prior to Genuity Capital Partners, Mr. Bederman served as an executive director of private equity with CIBC Capital Partners from 2002 to 2004, and was promoted to Vice President of investment banking with Merrill Lynch & Co., where he served as a mergers and acquisitions advisor from 1998 to 2002. Mr. Bederman received his J.D. and M.B.A. from the University of Toronto, and a B.A. in Economics from the University of Western Ontario.

We believe Mr. Bederman’s experience in private equity, and as the founder of multiple complex organizations, brings to the Company’s board of directors critical skills related to leadership, financial oversight, strategic planning and corporate governance, all of which qualify him for service as a director.

Kevin J. Degen

Mr. Degen, 63, has served on the Company’s board of directors since March 2019. Mr. Degen has served as a principal with Greencastle Advisors LLC, an advisory firm in the transportation sector, since 2010. Prior to founding Greencastle, Mr. Degen was employed by Seabury Group LLC, an aviation advisory firm, from 2000 to 2009, where he was a Managing Director. Prior to Seabury Group, from 1996 to 1999, Mr. Degen served as Senior Vice President for Donaldson, Lufkin and Jenrette, an investment banking firm, and from 1993 to 1996, as a portfolio manager with Southport Management Group. Prior to Southport, Mr. Degen held various investment banking positions with Lehman Brothers, PaineWebber Inc., and E.F. Hutton Inc. from 1982 to 1992. Mr. Degen serves as a director of START III USA LLC, an aircraft leasing SPV. Mr. Degen received an M.B.A. from Harvard Business School and a B.S. in Engineering from Princeton University.

We believe Mr. Degen’s extensive experience within the transportation sector, as well as his many years serving as an advisor and investment banker, provide him with industry experience, knowledge of complex organizations, and financial management and strategic planning skills, all of which qualify him for service as a director.

 

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Promoters and Control Persons

There are no promoters or control persons involved with the Company.

Family Relationships

There are no family relationships between any of our directors or executive officers.

Board of Directors and Director Independence

The Company’s board of directors is presently comprised of three members. While the Company does not have a class of securities listed on a national securities exchange, the Company’s board of directors believes it is a good corporate governance practice to assess whether certain directors would qualify as “independent directors” for purposes of the NASDAQ Listing Rules (the “NASDAQ Rules”). The Company’s board of directors has considered the current “independent director” standards set forth in the NASDAQ Rules and has affirmatively determined that each of Messrs. Bederman and Degen do not have a relationship with the Company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and therefore qualify as “independent directors” under the NASDAQ Rules. Accordingly, a majority of the members of the Company’s board of directors qualify as “independent directors.”

Board Leadership Structure

The Company’s board of directors has not appointed a Chairman of the Board or a Lead Independent Director although it retains the discretion to do so. The Company’s board of directors believes this is the most appropriate leadership structure at this time given the current number of directors and the scope of the Company’s business and operations.

Board Role in Risk Oversight

The Company’s board of directors provides oversight with respect to our management of risk, both as a whole and through the audit committee. The Company’s board of directors typically reviews and discusses with management at each of its regular meetings information presented by management relating to our operational results and outlook, including information regarding risks related to our business and operations. The audit committee oversees the management of risk as part of its responsibilities related to the oversight of the Company’s independent registered public accounting firm, and the review of the Company’s financial results and internal control over financial reporting.

Codes of Business Conduct and Ethics

We have adopted a code of business conduct and ethics (the “Code of Ethics”) applicable to our Chief Executive Officer and other officers that have a financial or operational oversight role, which is intended to comply with the requirements of Item 406 of Regulation S-K. We expect that any amendment to the Code of Ethics, or any waivers of its requirements applicable to our executive officers or directors, will be disclosed in our future filings under the Exchange Act. The Code of Ethics is filed as an exhibit to this Annual Report.

Meetings of the Board of Directors

During 2019, the Company’s board of directors held four regular meetings and numerous additional meetings. Each of the directors attended all of the meetings of the Company’s board of directors during the period for which he was a director.

 

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Board of Director Policies and Procedures

The Company’s board of directors has documented the Company’s corporate governance practices by adopting certain policies and procedures, including the Code of Ethics and the charter of the audit committee. These policies and procedures are designed to ensure the Company’s board of directors, together with the audit committee, will have the necessary authority and governance frameworks in place to make decisions independent of the Company’s management.

Audit Committee

The Company has a standing audit committee of its board of directors. The audit committee oversees the Company’s corporate accounting and financial reporting process and the audits of the Company’s financial statements. For this purpose, the audit committee’s principal functions are to: (i) oversee the integrity of the Company’s financial statements, the audits of the Company’s financial statements conducted by the Company’s independent registered public accounting firm (“Independent Auditors”), the qualifications, and the independence and performance of the Independent Auditors, and compliance with legal, regulatory and disclosure requirements relating to the Company’s accounting and financial reporting processes; (ii) review the Company’s internal control over financial reporting; and (iii) facilitate communication among the Independent Auditors, the Company’s financial and senior management, and the board of directors of the Company. The audit committee is directly responsible for oversight of the work of the Independent Auditors, including resolution of any disagreements between management and the Independent Auditors regarding financial reporting or the application of accounting policies. This oversight includes review and discussion with management and the Independent Auditors of (i) the Company’s financial statements and the reports or information delivered to the audit committee by the Independent Auditors; and (ii) analyses prepared by management and the Independent Auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, as well as assessment of the Company’s system of internal control over financial reporting.

The Company’s board of directors regularly reviews the qualifications of the audit committee members and has determined that each of the members: (i) is “independent” as defined in Rule 10A-3 under the Exchange Act, (ii) is an “independent director” as defined under the NASDAQ Rules, (iii) has the ability to read and understand financial statements, and (iv) qualifies as an “audit committee financial expert” as defined in Item 407 of Regulation S-K. The latter determination is based on a qualitative assessment of each member’s level of knowledge and experience based on a number of factors.

The audit committee is also responsible for the review, approval and monitoring of transactions involving the Company and any “related persons” (directors or executive officers, or stockholders owning five percent or greater of our outstanding capital stock, or any of their respective immediate family members) that involve amounts exceeding $120,000 in which a related person has a direct or indirect material interest.

The audit committee is presently comprised of two directors and operates under a written charter adopted by the Company’s board of directors. The Company’s board of directors reviews and assesses the adequacy of the audit committee’s written charter on an annual basis. The current members of the audit committee are Messrs. Bederman and Degen. During 2019, the audit committee held two regular meetings and numerous additional meetings. Each of the members of the audit committee attended all of the meetings of the audit committee during the period for which he served on the audit committee.

Special Committee

On November 1, 2019, the Company’s board of directors formed a special committee to evaluate the potential acquisition from Southshore Aircraft Holdings, LLC and its affiliated entities (“Southshore”) of three CRJ-200 regional jets, each having two engines, plus five additional engines. Messrs. Bederman and Degen, each of whom were “disinterested directors” for purposes of the Southshore transaction, were appointed to serve as members of the special committee. The special committee met frequently, including with special committee counsel, their financial advisor, and an independent valuation firm, throughout the process of analyzing, negotiating and completing the transaction with Southshore, with both members present for all meetings. On January 17, 2020, following the approval of the special committee, the Company completed the acquisition from Southshore in exchange for the issuance of shares of the Company’s Series C Convertible Redeemable Preferred Stock. For more information, see the section entitled “Certain Relationships and Related Transactions and Director Independence – Transactions with Southshore Leasing, LLC and Southshore Affiliates” within this Annual Report.

 

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Director Compensation

For service on the Company’s board of directors, each director receives a quarterly cash retainer in the amount of $15,000. For service on the audit committee, the members receive an additional quarterly cash retainer in the amount of $2,500. The directors are not paid additional amounts for attendance at board or committee meetings.

To the extent any director serves on the board of directors (or similar governing body) of any of our active wholly owned subsidiaries, the director is typically paid a quarterly cash retainer in the amount of $2,500, which amount is in addition to amounts paid for service on the Company’s board of directors. Mr. Bartlett serves as a director of AWAC. Messrs. Bederman and Degen each serve on the board of managers of Air Wisconsin.

Messrs. Bederman and Degen were each paid $20,000 for serving on the special committee. The payment of this amount was not contingent upon the completion of the Southshore transaction.

None of our current directors has been granted any equity awards in connection with their service on the Company’s board of directors or the audit committee.

We reimburse reasonable expenses incurred in connection with attending meetings of the Company’s board of directors and the audit committee.

Director Compensation Table

 

Name   

Fees Earned
Or Paid in
Cash

($)(1)

   All Other
Compensation
($)
   Total ($)

Richard A. Bartlett(2)

     $ 70,000        —        $ 70,000

Nolan Bederman(3)

     $ 100,000        —        $ 100,000

Kevin J. Degen(3)

     $ 100,000        —        $ 100,000

 

(1)

This amount includes a quarterly cash retainer of $15,000 paid to each director for service on the Company’s board of directors.

(2)

Mr. Bartlett received $10,000 for serving as a director of AWAC.

(3)

Messrs. Bederman and Degen were each appointed to the Company’s board of directors on September 20, 2018, to the audit committee on March 1, 2019, and to the special committee on November 1, 2019. Messrs. Bederman and Degen each earned $10,000 for serving on the audit committee and $20,000 for serving on the special committee. Messrs. Bederman and Degen each received $10,000 for serving on the board of managers of Air Wisconsin, to which they were appointed on March 13, 2019.

 

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ITEM 11.

EXECUTIVE COMPENSATION

This narrative discussion of the compensation objectives, policies and arrangements that apply to our named executive officers is intended to assist your understanding of, and to be read in conjunction with, the Summary Compensation Table and related disclosures set forth below. As a “smaller reporting company,” we are eligible to comply with scaled executive compensation disclosure requirements under applicable SEC rules and regulations.

Named Executive Officers

Our named executive officers include our principal executive officer and our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2019. Consistent with SEC rules and regulations, our named executive officers include certain officers of our subsidiary, Air Wisconsin Airlines LLC, as indicated in the table below.

For 2019, our named executive officers were:

 

Named Executive Officer    Position
Christine R. Deister   

Chief Executive Officer and Secretary, Harbor Diversified, Inc.

Principal Executive Officer

Robert Binns    Chief Executive Officer and President, Air Wisconsin Airlines LLC
Gregg Garvey   

Senior Vice President, Chief Accounting Officer and Treasurer,

Air Wisconsin Airlines LLC

Principal Financial and Accounting Officer

Compensation Overview

The primary objective of our executive compensation program is to attract and retain executives with the skills necessary to lead us in achieving our strategic objectives and creating long-term value for our stockholders. We recognize that there is significant competition for talented executives, especially within the airline industry, and it can be particularly challenging for regional airlines to recruit executives and other key employees of the caliber necessary to achieve our goals.

When making executive compensation decisions, the Company’s board of directors generally informs itself of the compensation amounts paid to executives at other regional airlines, although this is only one of several factors considered. In recent years, our executive compensation program has been impacted by the financial uncertainty impacting our business. This dynamic has resulted in us paying our named executive officers lower amounts of total compensation than might otherwise be expected for executives with similar titles and responsibilities.

When establishing executive compensation, the Company’s board of directors is guided by the following principles:

 

   

Attract, retain and incentivize executives with the background, experience and vision necessary to lead us in achieving our strategic objectives and creating long-term value for our stockholders; and

 

   

Provide a total compensation package that is generally competitive with other companies in our industry that operate in similar geographic locations and are of a similar size and stage of growth.

Compensation Determinations

The Company’s board of directors, which includes two independent directors, is responsible for overseeing our executive compensation program, based on their own experience, their understanding of our business and industry, and feedback from our senior executives. We have not appointed a separate compensation committee. In addition, we have not historically retained a compensation consultant, although we retain the right to do so in the future.

 

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Elements of Compensation Program

In light of the compensation philosophy and objectives discussed above, the compensation program for our named executive officers generally consists of a base salary, a discretionary cash bonus program, and other benefits as described below.

Base Salary

We pay base salaries to attract and retain talented executives with the necessary background, experience and vision required for our future growth and success. Base salaries are reviewed periodically and adjusted in response to factors such as title and responsibility level, individual contributions to achieving our strategic objectives, our operational and financial performance, and competitive pay practices within our industry.

Cash Incentive Program

Historically, we have not adopted a formal cash incentive bonus program. Rather, we have paid discretionary cash bonuses to certain executives and other senior executives. The amounts of these bonuses have generally been based on factors such as title and responsibility level, individual contributions to achieving our strategic objectives, our operational and financial performance, and executive retention concerns. See the section entitled “– Summary Compensation Table” within this Annual Report for additional information.

Going forward, the Company intends to design and implement a long-term cash incentive plan (“LTIP”), to reward our senior executives, including our named executive officers, for the achievement of pre-determined strategic and operational objectives and the creation of long-term value. We expect the LTIP will be developed and recommended by our senior executives for final approval by the Company’s board of directors.

Equity-Based Awards

We have not historically granted equity awards to our named executive officers and our named executive officers do not currently own any shares of our common stock or any equity awards exercisable for or convertible into shares of our common stock. We have not adopted an equity incentive plan, although we retain the right to do so in the future.

Benefits

We offer a standard benefits package that we believe is necessary to attract and retain key executives. Our named executive officers are eligible to participate in our medical, dental, vision and other welfare benefit plans, such as long-term disability insurance and life insurance.

We maintain a 401(k) plan for the benefit of our eligible employees, including our named executive officers. Currently, we contribute up to 3% of a participant’s compensation, and, in addition, we match contributions made by participants in an amount up to 50% of the amount contributed by participants, on up to 8% of their compensation, subject to IRS limitations, provided that all contributions are discretionary.

Certain senior executives, including our named executive officers, are also eligible to participate in our Supplemental Executive Savings Plan (“SESP”), which is a non-qualified deferred compensation retirement benefit plan. Pursuant to the SESP, we contribute, on a discretionary basis, an amount equal to the excess of the full amount of contributions to which the participant would have been entitled under our 401(k) plan, but for the IRS limitations on employer contributions, over the actual amount we contribute to the 401(k) plan for the participant.

Employment Agreements

We have entered into employment agreements with Ms. Deister and Mr. Binns, each of which are summarized below. We have not entered into an employment agreement (or other similar agreement) with Mr. Garvey.

 

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Deister Agreement

Air Wisconsin entered into an employment agreement with Ms. Deister (the “Deister Agreement”), pursuant to which Ms. Deister was initially appointed to serve as President and Chief Executive Officer of Air Wisconsin. Ms. Deister was subsequently appointed Chief Executive Officer of the Company on April 1, 2020 concurrent with Mr. Binns’ appointment as Chief Executive Officer of Air Wisconsin. The Deister Agreement has an initial term of approximately two years, from April 7, 2015 through April 30, 2017, with successive automatic one-year renewal periods, subject to earlier termination in accordance with its terms.

The Deister Agreement initially provided for a minimum annual base salary of $320,000 and provided that the amount may be increased by Air Wisconsin’s board of managers in its sole discretion. As of December 31, 2019, the annual base salary amount payable to Ms. Deister was $425,000. Ms. Deister is also eligible to receive an annual cash payment of $35,000 for her service directly to the Company.

Pursuant to the Deister Agreement, each year during the term of the agreement, Ms. Deister is eligible to receive an annual cash bonus in the amount of $90,000, as well as a retention bonus in the amount of $50,000, provided that, in each case, she remains employed through the respective payment dates. Notwithstanding the terms of the Deister Agreement, Air Wisconsin’s board of managers retains the discretion to award cash bonuses in such amounts, and at such times, as it deems appropriate based upon a number of factors, including the achievement of strategic objectives, financial and operational performance, and retention concerns.

During the term of the Deister Agreement, Ms. Deister shall be eligible to participate in such medical, disability, life insurance and other employee benefit plans and programs as are in effect from time to time on the same basis as the other senior executives.

In the event of the termination of the Deister Agreement “Without Cause” or for “Good Reason” (each as defined in the Deister Agreement), Air Wisconsin shall pay to Ms. Deister: (i) any base salary that has been earned but remains unpaid as of the date of termination; (ii) any vacation benefits that have accrued but remain unused as of the date of termination; (iii) a severance payment equal to one year of base salary, (iv) the next installment of the retention bonus, and (v) the next installment of the annual cash bonus, such payments to be made within 30 days after such termination.

Pursuant to the Deister Agreement, in the event Ms. Deister’s employment is terminated Without Good Cause or for Good Reason in connection with a Change in Control (as defined in the Deister Agreement), on the terms described therein, then Air Wisconsin shall pay Ms. Deister a severance payment equal to two years of base salary to be made within 30 days following such termination.

The Deister Agreement contains customary restrictive covenants, including with respect to confidentiality and non-solicitation.

Binns Agreement

Air Wisconsin entered into an employment agreement with Mr. Binns (the “Binns Agreement”), pursuant to which Mr. Binns was initially appointed to serve as President of Air Wisconsin. The Binns Agreement has an initial term of two years, from April 1, 2019 through April 1, 2021, with successive automatic one-year renewal periods, subject to earlier termination in accordance with its terms.

The Binns Agreement provides for a minimum annual base salary of $350,000, which amount was increased to $425,000 upon Mr. Binns appointment as Chief Executive Officer of Air Wisconsin on April 1, 2020. The base salary amount may be increased by Air Wisconsin’s board of managers in its sole discretion. Mr. Binns was paid a sign-on bonus in the amount of $75,000, which is subject to forfeiture in certain circumstances as described in the agreement, and he was also reimbursed for three months of housing accommodations.

 

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Pursuant to the Binns Agreement, Mr. Binns is eligible to receive an incentive bonus for each year during the term of the Binns Agreement in an amount equal to between 50% and 75% of his base salary for the applicable year, which shall be paid based on the achievement of performance metrics determined by Air Wisconsin’s board of managers from time to time. Mr. Binns is required to be employed through the date of payment of the incentive bonus.

As discussed above, the Company intends to implement an LTIP to reward the senior executives for the achievement of strategic objectives and the creation of long-term value. Mr. Binns shall be eligible to receive LTIP awards once adopted. Until such time as the LTIP has been implemented, Mr. Binns shall be eligible to receive a long-term incentive award (the “LTI Award”), each year during the term of the Binns Agreement in an amount equal to the actual incentive bonus amount for the immediately prior year. The LTI Award shall be payable in cash in four equal annual installments on each of the first four anniversaries of the grant date so long as Mr. Binns remains employed on each such date.

During the term of the Binns Agreement, Mr. Binns shall be eligible to participate in such medical, disability, life insurance and other employee benefit plans and programs as are in effect from time to time on the same basis as the other senior executives.

In the event of the termination of the Binns Agreement “Without Cause” or for “Good Reason” (each as defined in the Binns Agreement), Air Wisconsin shall pay to Mr. Binns: (i) any base salary that has been earned but remains unpaid as of the date of termination; and (ii) a severance payment equal to one year of base salary plus the amount of the actual incentive bonus amount for the prior year, such payment to be made within 30 days after such termination. In addition, Mr. Binns shall be eligible to participate in benefit plans for one year following such termination.

The Binns Agreement does not provide for any payments or benefits to be paid in connection with a change in control transaction (or similar transaction).

The Binns Agreement contains customary restrictive covenants, including with respect to confidentiality, non-solicitation and non-competition.

Severance Agreements / Change in Control Agreements

Except as described under the section entitled “– Employment Agreements” within this Annual Report, we currently do not have severance agreements or change in control agreements (or other similar agreements) with any of our named executive officers. However, we reserve the right to enter into these types of agreements with our named executive officers or other employees in the future.

Summary Compensation Table

The following table sets forth summary compensation information for our named executive officers for the year ended December 31, 2019:

 

Name and Title    Year    

Salary

($)

   

Bonus

($)(1)

 

Non-Equity
Incentive Plan

Compensation

($)(2)

 

All Other

Compensation

($)(3)

   

Total

($)

 

Christine R. Deister(4)

     2019       433,750     300,000       44,813       778,563  

Chief Executive Officer and Secretary

            

Robert Binns(5)

     2019       262,500           104,277       366,777  

Chief Executive Officer and President, Air Wisconsin

            

Gregg Garvey

     2019       215,000     120,000       22,550       357,550  

Senior Vice President, Chief Accounting Officer and Treasurer, Air  Wisconsin

            

 

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(1)

The amounts in this column reflect the payment of discretionary cash bonuses to our named executive officers. See the section entitled “ – Cash Incentive Program” within this Annual Report for additional information.

(2)

We did not adopt a non-equity incentive plan, as defined in the applicable SEC rules and regulations, for 2019.

(3)

All other compensation for 2019 included the following: (i) Ms. Deister: a cash payment in the amount of $10,000 for service provided to the board of managers of Air Wisconsin (consistent with the amount paid to the other managers), and an aggregate of $34,813 for our contributions pursuant to the 401(k) plan and SESP; (ii) Mr. Binns: a one-time $75,000 sign-on bonus and $7,485 for a three-month housing allowance both paid in connection with his appointment as President of Air Wisconsin, and an aggregate of $21,792 for our contributions pursuant to the 401(k) plan and SESP, and (iii) Mr. Garvey: an aggregate of $22,550 for our contributions pursuant to the 401(k) plan and SESP.

(4)

The salary amount for Ms. Deister includes $398,750 for service to Air Wisconsin and $35,000 for service to the Company.

(5)

Mr. Binns joined Air Wisconsin as President on April 1, 2019 and was appointed Chief Executive Officer on April 1, 2020. Mr. Binns was not eligible for a cash bonus for 2019. See the section entitled “– Employment Agreements” within this Annual Report for additional information.

Outstanding Equity Awards at Fiscal Year End

As of December 31, 2019, none of our named executive officers held any outstanding equity awards to acquire shares of our common stock.

Equity Incentive Plans

We do not have outstanding any equity incentive plans, whether or not approved by our stockholders, pursuant to which any equity awards have been or may be issued to our directors, executive officers and other employees.

 

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial ownership of the Company’s common stock as of May 31, 2020 by: (i) each of our directors; (ii) each of our named executive officers; (iii) all of our executive officers and directors as a group; and (iv) all those known to us to be beneficial owners of more than five percent of the Company’s common stock.

 

     Beneficial Ownership(1)(2)  
    

Number of
Shares

     Percentage  

5% Stockholders

     

Amun LLC

     20,000,000        28.0

Southshore Aircraft Holdings, LLC(3)

     16,500,000        23.1

Named Executive Officers and Directors

     

Christine R. Deister

             

Robert Binns

             

Gregg Garvey

             

Kevin J. Degen

             

Nolan Bederman

             

Richard A. Bartlett(4)

     36,500,000        51.2

All executive officers and directors as a group

(6 persons)

     36,500,000        51.2

 

(1)

Unless otherwise indicated in the footnotes to this table, and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 54,863,305 shares of the Company’s common stock and 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock outstanding as of May 31, 2020.

(2)

The address of each stockholder listed is W6390 Challenger Drive, Suite 203 Appleton, WI 54914-9120.

(3)

Consists of 16,500,000 shares of the Company’s common stock issuable upon the conversion of 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock that are immediately convertible.

(4)

Includes (i) 20,000,000 shares of the Company’s common stock held by Amun LLC (“Amun”) and (ii) 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock held by Southshore that are immediately convertible into 16,500,000 shares of the Company’s common stock (based on the conversion price as of May 31, 2020). The 20,000,000 shares of the Company’s common stock held by Amun as of May 31, 2020 represent approximately 28.0% of the fully diluted shares of capital stock of the Company, and the 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock held by Southshore as of May 31, 2020 represent approximately 23.1% of the fully diluted shares of capital stock of the Company (in each case assuming the full conversion of the Series C Convertible Redeemable Preferred Stock into common stock). Mr. Bartlett, one of the Company’s directors, may be deemed to be the beneficial owner of the shares of the Company’s common stock held by Amun due to his status as a member of the board of managers of Amun, and his ownership of a controlling interest in entities that collectively own approximately 19.6% of the outstanding equity interests of Amun. However, Mr. Bartlett does not control voting or investment decisions made by Amun, which are made by the board of managers of Amun. Mr. Bartlett disclaims beneficial ownership of the shares held by Amun except to the extent of his pecuniary interest therein. In addition, Mr. Bartlett may be deemed to be the beneficial owner of the shares of the Company’s Series C Convertible Redeemable Preferred Stock held by Southshore due to his status as a member of the board of managers of Southshore and his ownership of a controlling interest in entities that collectively own approximately 19.6% of the outstanding equity interests of Southshore. However, Mr. Bartlett does not control voting or investment decisions made by Southshore, which are made by the board of managers of Southshore. Mr. Bartlett disclaims beneficial ownership of the shares held by Southshore except to the extent of his pecuniary interest therein.

 

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ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Transactions

Other than the transactions discussed below, and the various compensation arrangements described in the section entitled “Executive Compensation” within this Annual Report, since January 1, 2018, there was not, and there is not currently proposed, any transaction or series of similar transactions to which we were or are expected to be a party for which the amount involved exceeds or is expected to exceed $120,000, and in which any director, executive officer, holder of more than 5% of the Company’s common stock or Series C Convertible Redeemable Preferred Stock, or any member of the immediate family of any of the foregoing, had or will have a direct or indirect material interest.

Transactions with Amun LLC

Since January 2012, Amun has provided AWAC and Air Wisconsin with financial advisory and management services pursuant to a Stock Purchase Agreement entered into with Amun in January 2012 (the “Amun SPA”). In accordance with the Amun SPA, AWAC has paid a recurring monthly fee of $20,000 in exchange for Amun’s financial advisory and management services. Amun assigned the payment of these fees to Resource Holdings Associates (“Resource Holdings”). AWAC paid a total of $240,000 to Resource Holdings in both 2019 and 2018. It also agreed to make monthly payments of $4,500 to each of Geoffrey T. Crowley, William P. Jordan and Patrick J. Thompson pursuant to the Amun SPA; however, because Messrs. Crowley, Jordan, and Thompson are all currently employed by Air Wisconsin, we did not make these monthly payments to them in 2018 or 2019.

Certain of our employees and directors own and control Amun. Amun is owned and controlled by four individuals who are currently directors and/or employees of the Company or its subsidiaries. Richard A. Bartlett, one of the Company’s directors, indirectly holds 19.6% of the outstanding equity of Amun. Jerry M. Seslowe, who served as a director of AWAC from December 2011 until his resignation on April 7, 2020, and as a director of the Company from August 2011 until his resignation in March 2019, holds, directly or indirectly, 19.6% of the outstanding equity of Amun. John C. Shaw, who served as a director of AWAC from December 2011 until his resignation on April 7, 2020, and as a director of the Company from August 2011 until his resignation in March 2019, directly holds 19.6% of the outstanding equity of Amun. Geoffrey T. Crowley, who serves as a director of AWAC and an employee of Air Wisconsin, directly holds 13.8% of the outstanding equity of Amun. William P. Jordan and Patrick J. Thompson, each of whom served as a director of AWAC from February 2017 until his respective resignation on April 7, 2020, and is employed by Air Wisconsin, each directly hold 13.8% of the outstanding equity of Amun.

Certain of our current or former directors own and control Resource Holdings. Richard A. Bartlett, one of the Company’s directors, indirectly holds 33.3% of the outstanding equity of Resource Holdings. Jerry M. Seslowe and John C. Shaw, each or whom served as a director of AWAC from December 2011 until his respective resignation on April 7, 2020, and as a director of the Company from August 2011 until his respective resignation in March 2019, each indirectly hold 33.3% of the outstanding equity of Resource Holdings.

Transactions with Southshore Leasing, LLC and Southshore Affiliates

Southshore Leasing, LLC (“Southshore Leasing”), through its affiliates (the “Southshore Affiliates” and, together with Southshore Leasing, “Southshore”), leased aircraft and engines to Air Wisconsin pursuant to various operating lease agreements from April 2010 through January 2020. During 2019, Air Wisconsin paid a total of approximately $3.7 million to Southshore, consisting of approximately $1.9 million for the leases of three aircraft, approximately $1.7 million for the lease of additional engines to support the operations of Air Wisconsin’s aircraft fleet, and $0.2 million for the purchase of two previously leased airframes. During 2018, Air Wisconsin paid a total of approximately $4.3 million to Southshore, consisting of approximately $1.5 million for the leases of two aircraft, and approximately $2.8 million for the lease of additional engines to support the operations of Air Wisconsin’s aircraft fleet.

 

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Air Wisconsin also from time to time contracted for services to be performed on assets held by Southshore that are used in Air Wisconsin’s operations and received reimbursement from Southshore at the cost of such services. Because Air Wisconsin acted as an agent or an intermediary in facilitating such transactions, and because no amounts were paid to Air Wisconsin for rendering these services other than reimbursement of direct costs, the dollar amounts of these transactions are not included in the dollar amounts described above.

Certain of our employees and directors directly or indirectly own and control Southshore. Richard A. Bartlett, one of the Company’s directors, directly or indirectly holds 19.6% of the outstanding equity of Southshore Leasing. Jerry M. Seslowe and John C. Shaw, each of whom served as a director of AWAC from December 2011 until his respective resignation on April 7, 2020, and as a director of the Company from August 2011 until his respective resignation in March 2019, each directly or indirectly hold 19.6% of the outstanding equity of Southshore Leasing. Geoffrey T. Crowley, who serves as a director of AWAC and as an employee of Air Wisconsin, directly holds 13.8% of the outstanding equity of Southshore Leasing. William Jordan and Patrick Thompson, each of whom served as a director of AWAC from February 2017 until his respective resignation on April 7, 2020, and is currently employed by Air Wisconsin, directly each holds 13.8% of the outstanding equity of Southshore Leasing.

On January 17, 2020, the Company completed an acquisition from Southshore of three CRJ-200 regional jets, each having two GE engines, plus five additional GE engines, in exchange for the issuance of 4,000,000 shares of the Company’s Series C Convertible Redeemable Preferred Stock. Air Wisconsin had leased each of these regional jets from Southshore under the lease arrangements described above prior to the acquisition. As of May 31, 2020, the shares of Series C Convertible Redeemable Preferred Stock were convertible into an aggregate of 16,500,000 shares of the Company’s common stock. On November 1, 2019, the Company’s board of directors formed a special committee to evaluate this acquisition from Southshore. Messrs. Bederman and Degen, each of whom a “disinterested director” for purposes of the transaction, were appointed to serve as members of the special committee. The special committee met frequently, including with special committee counsel, their financial advisor, and an independent valuation firm, throughout the process of analyzing, negotiating and completing the transaction, with both members present for all meetings. The Company completed the acquisition following the approval of the special committee. On January 17, 2020, the Company filed a Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred Stock (“Certificate of Designations”) with the Secretary of State of the State of Delaware, which establishes the rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Convertible Redeemable Preferred Stock. The Certificate of Designations is filed as an exhibit to this Annual Report.

Indemnification Agreements

The Company’s amended and restated certificate of incorporation compels indemnification of its directors to the extent permitted by the Delaware General Corporation Law, and its amended and restated bylaws provide for indemnification of the Company’s directors, officers, employees and other agents to the maximum extent permitted by Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its directors and Chief Executive Officer containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require the Company, among other things, to indemnify its directors and officers against certain liabilities that may arise by reason of their status or service as directors and officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

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ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT AND NON-AUDIT FEES

The following table provides the aggregate fees for services provided by BDO USA, LLP, our independent registered public accounting firm, for the years ended December 31, 2019 and December 31, 2018:

 

     Year Ended
December 31,
 
     2019      2018  

Audit fees(1)

   $ 848,257      $ 223,767  

Audit-related fees(2)

     —          —    

Tax Fees(3)

     19,070        2,500  

Other(4)

     —          —    

Total fees

   $ 867,327      $ 226,267  

 

(1)

Consists of fees billed for professional services rendered in connection with the audit of our consolidated financial statements included in this Annual Report and services normally provided in connection with regulatory filings.

(2)

Consists of fees billed for professional services for assurance and related services that are traditionally performed by our independent registered public accounting firm, including audits of employee benefit plans and special procedures required to meet certain regulatory requirements.

(3)

Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance.

(4)

Consists of fees billed for professional services other than the services reported above.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The audit committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, internal control services, tax services and other services. The audit committee has adopted a policy for the pre-approval of services provided by the independent registered public accounting firm, BDO USA, LLP. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of the audit committee’s approval of the scope of the engagement of the independent registered public accounting firm or on a case-by-case basis before the independent registered public accounting firm is engaged to provide each service.

During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the audit committee requires specific pre-approval before engaging the independent registered public accounting firm.

The audit committee has determined that the rendering of the non-audit services described above by BDO USA, LLP is compatible with maintaining the auditor’s independence.

For the year ended December 31, 2019, all audit and non-audit services provided by the independent registered public accounting firm were pre-approved.

 

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PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report:

1. Consolidated Financial Statements

The financial statements filed as part of this Annual Report are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report.

2. Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or notes to the consolidated financial statements within this Annual Report.

3. Exhibits

The exhibits listed below are filed or furnished as part of this Annual Report.

 

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EXHIBIT INDEX

 

Exhibit
Number

 

Exhibit Description

3.1*   Amended and Restated Certificate of Incorporation of Harbor Diversified, Inc. (as amended through December 31, 2019).
3.2*   Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock of Harbor Diversified, Inc.
3.3*   Amended and Restated Bylaws of Harbor Diversified, Inc. (a Delaware Corporation) (as amended through December 31, 2019).
4.1*   Description of Capital Stock of Harbor Diversified, Inc.
10.1*#   Form of Indemnification Agreement.
10.2*#   Employment Agreement, dated June 24, 2015, between Air Wisconsin Airlines Corporation (now known as “Air Wisconsin Airlines LLC”) and Christine R. Deister.
10.3*#   Employment Agreement, dated March 20, 2019, between Air Wisconsin Airlines LLC and Robert Binns.
10.4.1*+†   Capacity Purchase Agreement, dated February 26, 2017, between United Airlines, Inc. and Air Wisconsin Airlines LLC.
10.4.2*   Letter, dated March 31, 2020, from United Airlines, Inc. to Air Wisconsin Airlines LLC.
10.5*+   Purchase Agreement, dated January 17, 2020, among Harbor Diversified, Inc., Air Wisconsin Airlines LLC, and Southshore Aircraft Holdings, LLC.
10.6*   Note, dated April 6, 2020, payable by Air Wisconsin Airlines LLC to Lender.
10.7*   Payroll Support Program Agreement, dated April 20, 2020, between Air Wisconsin Airlines LLC and the Department of the Treasury.
10.8.1*+   Restructuring Agreement, dated January 25, 2018, among Air Wisconsin Airlines LLC, the Lender, the Subordinated Note Holder, U.S. Bank National Association and Investissement Quebec.
10.8.2*   Form of Amended and Restated Credit Agreement, dated December 24, 2018, among Air Wisconsin Airlines LLC, U.S. Bank National Association and the Lender.
10.9.1*   Credit Agreement, dated June 5, 2017, between Air Wisconsin Airlines LLC and the Lender.
10.9.2*   Amendment No. 1 to Credit Agreement, dated December 24, 2018, between Air Wisconsin Airlines LLC and the Lender.
10.9.3*   Credit Agreement, dated January 25, 2018, between Air Wisconsin Airlines LLC and the Lender.
10.9.4*   Amendment No. 1 to Credit Agreement, dated December 24, 2018, between Air Wisconsin Airlines LLC and the Lender.
10.9.5*   Amendment No. 2 to Credit Agreement, dated April 24, 2019, between Air Wisconsin Airlines LLC and the Lender.
10.9.6*   Amendment No. 3 to Credit Agreement, dated June 20, 2019, between Air Wisconsin Airlines LLC and the Lender.
14.1*   Code of Business Conduct and Ethics for Senior Financial Officers.
21.1*   List of Subsidiaries of Harbor Diversified, Inc.
31.1*   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*  **   Certifications of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section  906 of the Sarbanes-Oxley Act of 2002.
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

*    Filed herewith.
**    The certifications attached as Exhibit 32.1 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing.
#    Management contract or compensatory plan, contract or arrangement.
+    Certain schedules are omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally any omitted schedules to the SEC upon request.
   Portions of this exhibit are redacted pursuant to Item 601(b)(10)(iv) of regulation S-K. The registrant agrees to furnish supplementally an unedited copy of the exhibit to the SEC upon request.

 

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ITEM 16.

FORM 10-K SUMMARY.

Information with respect to this Item is not required and has been omitted at the Company’s option.

 

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  HARBOR DIVERSIFIED, INC.
Date: July 10, 2020       By:  

/s/ Christine R. Deister

    Christine R. Deister
    Chief Executive Officer and Secretary
    Harbor Diversified, Inc.
    (Principal Executive Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Christine R. Deister and Gregg Garvey, and each or either of them, acting individually, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or their or his or her substitutes, may lawfully do or cause to be done or by virtue hereof.

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

 

Signature

  

Title

  

Date

/s/ Christine R. Deister

   Chief Executive Officer and Secretary
Harbor Diversified, Inc.
   July 10, 2020
   (Principal Executive Officer)   

/s/ Gregg Garvey

   Senior Vice President, Chief Accounting Officer and Treasurer, Air Wisconsin Airlines LLC    July 10, 2020
   (Principal Financial and Accounting Officer)   

/s/ Richard A. Bartlett

   Director, Harbor Diversified, Inc.    July 10, 2020

/s/ Nolan Bederman

   Director, Harbor Diversified, Inc.    July 10, 2020

/s/ Kevin J. Degen

   Director, Harbor Diversified, Inc.    July 10, 2020

 

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Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

HARBOR DIVERSIFIED, INC.

(AS AMENDED THROUGH DECEMBER 31, 2019)

*         *         *

ARTICLE I.

The name of this corporation is Harbor Diversified, Inc.

ARTICLE II.

The address of the registered office of the corporation in the State of Delaware is 251 Little Falls Drive, City of Wilmington, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is Corporation Service Company.

ARTICLE III.

The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV.

A.    This Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the corporation is authorized to issue is one hundred ten million (110,000,000) shares. One hundred million (100,000,000) shares shall be Common Stock, each having a par value of one cent ($.01). Ten million (10,000,000) shares shall be Preferred Stock, each having a par value of one cent ($.01), Two million (2,000,000) of which shall be designated Series A Preferred Stock and Three Hundred Thousand (300,000) of which shall be designated Series B Junior Participating Preferred Stock.

B.    Upon the filing of an amendment to the Amended and Restated Certificate of Incorporation on October 26, 2011 (the “Effective Time”), and without regard to any other provision contained herein, each 1,000 shares of Common Stock either issued and outstanding or held by the Corporation as treasury stock immediately prior to the Effective Time shall automatically and without any action on the part of the respective holders thereof or the Corporation, be reclassified and changed into one (1) fully-paid and nonassessable share of Common Stock without increasing or decreasing the amount of stated capital or paid-in surplus of the Corporation; provided, however, that no fractional shares shall be issued to any record holder of fewer than 1,000 shares of Common Stock immediately prior to the Effective Time, and the Corporation shall, in lieu of issuing fractional shares to such record stockholders, pay to each such record stockholder a cash payment, without interest, of $0.142 per share of Common Stock held by such record stockholder immediately prior to the Effective Time and such record stockholder shall no longer have any further rights as a stockholder of the Corporation.

C.    Upon the filing of an amendment to the Amended and Restated Certificate of Incorporation on October 26, 2011, and without regard to any other provision contained herein, each one (1) share of Common Stock either issued and outstanding or held by the Corporation as treasury stock (and including each fractional share) immediately prior to the time this amendment becomes effective shall automatically and without any action on the part of the respective holders thereof or the Corporation, be reclassified and changed into 1,000 fully-paid and nonassessable shares of Common Stock (or, with respect to such fractional shares and interests, such lesser number of shares or interests as may be applicable based on such 1,000 to 1 ratio), without increasing or decreasing the amount of stated capital or paid-in surplus of the Corporation.


D.    In addition to the Series A Preferred Stock and the Series B Junior Participating Preferred Stock, the Preferred Stock may be issued, from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a “Preferred Stock Designation”) pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

E.    The powers, preferences, rights, restrictions, and other matters relating to the Series A Preferred Stock, are as follows:

SECTION 1. Dividends.

(A)    If and to the extent that the Corporation declares or pays dividends on the Common Stock, the Corporation shall declare and pay a participating dividend on each share of Series A Preferred Stock in an amount equal to the dividend that would have been payable to a holder of Series A Preferred Stock if their shares of Series A Preferred Stock had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividends and shall pay such dividends on a pari passu basis with the amounts paid to each share of Common Stock.

(B)    In the event that a dividend or other distribution provided for in this Article IV, Paragraph C, Section 1 shall be payable in property other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors and in a manner consistent with such determination made with respect to a dividend or other distribution on the Common Stock.

SECTION 2. Liquidation Proceeds.

(A)    In any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Common Stock and Series A Preferred Stock pro rata and on a pari passu basis provided that the holders of the Series A Preferred Stock will be deemed to hold that number of shares of Common Stock into which such shares of Series A Preferred Stock are then convertible.


(B)    In the event of a liquidation, dissolution or winding-up of the Corporation, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors and in a manner consistent with such determination made with respect to a distribution of assets upon any liquidation, dissolution or winding-up of the Corporation to the holders of Common Stock.

SECTION 3. Voting Rights. Except as otherwise expressly provided in the Amended and Restated Certificate of Incorporation, or as required by law, the shares of Series A Preferred Stock outstanding together shall (A) be entitled to a number of votes equal to 38.28% of the total number of votes entitled to be cast by holders of Common Stock and Preferred Stock voting together, (B) be entitled to vote on all matters on which the holders of Common Stock shall be entitled to vote, in the same manner and with the same effect as the holders of Common Stock, (C) vote together with the Common Stock as a single class, including with respect to election of directors, and (D) be entitled to receive the same prior notice of any stockholders’ meeting as provided to the holders of Common Stock in accordance with the Bylaws of the Corporation.

SECTION 4. Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons or assets (excluding cash dividends), then, in each such case the holders of a share of Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of that number of shares of Common Stock into which their shares of Series A Preferred Stock are then convertible.

SECTION 5. Conversion. The holders of shares of Series A Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

(A)    Right To Convert.

(I)    Conversion Ratio. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, only in connection with the exercise of its rights to contribute shares of Common Stock pursuant to Section 8.3 of that certain Stockholders’ Agreement dated July 28, 2011, as amended, and without the payment of any additional consideration by the holder thereof, after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Original Issue Price then in effect on the date the certificate is surrendered for conversion by the Conversion Price (as defined below) then in effect on the date the certificate is surrendered for conversion. The “Original Issue Price” per share of Series A Preferred Stock shall be $1.41. The “Conversion Price” per share of Series A Preferred Stock shall initially be $0.2014. The Conversion Price shall be subject to adjustment as hereinafter provided.

(B)    Mechanics of Conversion.

(I)    Before any holder of Series A Preferred Stock shall be entitled voluntarily to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office of election to convert the same and shall state therein the number of shares to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A


Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(II)    Adjustments to Conversion Prices for Stock Splits and Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the Series A Original Issue Date shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), then the applicable Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A Preferred Stock shall be increased in proportion to the increase in the aggregate number of shares of Common Stock outstanding.

(III)    Adjustments to Conversion Prices for Reverse Stock Splits and Combinations of Common Stock. In the event that the Corporation at any time or from time to time after the applicable Original Issue Date shall combine or consolidate, by reclassification or otherwise, its outstanding shares of Common Stock into a lesser number of shares of Common Stock, then the applicable Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such Series shall be decreased in proportion to the decrease in the aggregate number of shares of Common Stock outstanding.

(IV)    Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series A Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 5(B)(II) or Section 5(B)(III) above or a liquidation, dissolution or winding up referred to in Section 2 above), the applicable Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series A Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A Preferred Stock immediately before that change.

(V)    Other Distributions.     In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons or assets (excluding cash dividends), then, in each such case for the purpose of this Section 5(B)(V), the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.


(VI)    Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 5(B)(VI), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate executed by the Corporation’s Chief Executive Officer or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the new Conversion Price, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A Preferred Stock.

(VII)    Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(C)    Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series A Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(D)    Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Amended and Restated Certificate of Incorporation.

(E)    Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series A Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a shares of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors). In case the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered pursuant to Section 5(B)(I) above exceeds the number of shares


to be converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered which are not to be converted.

(F)    Effect of Conversion. All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the time of conversion, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon.

(G)    Notices. Any notice required by the provisions of this Section 5(G) to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation, which notice upon any adjustment of the Conversion Price, shall state the Conversion Price resulting from such adjustment and setting forth in reasonable detail the method upon which such calculation is based.

SECTION 6. No Reissuance of Preferred Stock. No share or shares of Series A Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

SECTION 7. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

SECTION 8. Waiver. Any of the rights, powers, preferences or other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative vote or written consent of the holders of greater than 50% of the shares of Series A Preferred Stock then outstanding.

SECTION 9. Transfer Books. The Corporation will at no time close its transfer books against the transfer of any Series A Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock in any manner which interferes with the timely conversion of such Series A Preferred Stock, except as may otherwise be required to comply with applicable securities laws.

SECTION 10. Amendment. The Amended and Restated Certificate of Incorporation may only be amended with the prior written consent of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock and, in the event that any such amendment materially adversely affects a holder of Series A Preferred Stock in a manner disproportionate to the other holders of Series A Preferred Stock, without the prior written consent of such holder. The Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Corporation shall have obtained the written consent to such action or omission to act, of the holders of at least a majority of the then outstanding shares of Series A


Preferred Stock and, in the event that any such action or omission to act materially adversely affects a holder of Series A Preferred Stock in a manner disproportionate to the other holders of Series A Preferred Stock, without the prior written consent of such holder.

F.    The powers, preferences, rights, restrictions, and other matters relating to the Series B Junior Participating Preferred Stock, are as follows:

SECTION 1. Designation and Amount. Three hundred thousand (300,000) shares of Preferred Stock, $.01 par value, are designated “Series B Junior Participating Preferred Stock” with the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions specified herein (the “Junior Preferred Stock”). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Junior Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Junior Preferred Stock.

SECTION 2. Dividends and Distributions.

(A)    Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Junior Preferred Stock with respect to dividends, the holders of shares of Junior Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share (the “Common Stock”), of the Company, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of April, July, October and January in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Junior Preferred Stock were entitled immediately before such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

(B)    The Company shall declare a dividend or distribution on the Junior Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, that in the event no dividend or distribution shall have been declared on the Common Stock


during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C)    Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is before the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days before the date fixed for the payment thereof.

SECTION 3. Voting Rights. The holders of shares of Junior Preferred Stock shall have the following voting rights:

(A)    Subject to the provision for adjustment hereinafter set forth, each share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Junior Preferred Stock were entitled immediately before such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

(B)    Except as otherwise provided herein, in any other Certificate of Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company.

(C)    Except as set forth herein, or as otherwise provided by law, holders of Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.


SECTION 4. Certain Restrictions.

(A)    Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Company shall not:

(I)    declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock;

(II)    declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(III)    redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Preferred Stock; or

(IV)    purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, or redeem or purchase or otherwise acquire any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except in accordance with a redemption/purchase offer/acquisition offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B)    The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

SECTION 5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law.

SECTION 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior


Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred Stock shall have received the greater of (1) $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (2) an amount, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (B) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Junior Preferred Stock were entitled immediately before such event under clause (A)(2) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

SECTION 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which generally the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately before such event.

If the Company has outstanding, under any stockholder rights plan or rights agreement containing “flip-over” provisions, any rights, then the Company shall have no authority to enter into any transaction of a kind which would implicate or trigger the “flip-over” provisions of such stockholder rights plan or rights agreement, unless the other party to such transaction (and/or, to the extent such “flip-over” provisions would apply to a parent of such other party, such parent) has expressly undertaken, for the benefit of the holders of such rights who would be entitled to exercise such “flip-over” rights, all obligations and duties which the “flip-over” provisions of such stockholder rights plan or rights agreement would purport to impose on such a party to such a transaction (and/or, if applicable, on such a parent), as if such party (and/or parent) had been an original contractual party to such stockholder rights plan or rights agreement.

SECTION 8. No Redemption. The shares of Junior Preferred Stock shall not be redeemable.


SECTION 9. Rank. The Junior Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of the Company’s Preferred Stock.

SECTION 10. Amendment. The Amended and Restated Certificate of Incorporation of the Company shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Junior Preferred Stock, voting together as a single class.

ARTICLE V.

For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A.    

SECTION 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of Directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors.

SECTION 2. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be elected by the stockholders at each annual meeting of stockholders (or any adjournment or continuation thereof) at which a quorum is present, to hold office until the next annual meeting of stockholders, but shall continue to serve despite the expiration of the director’s term until their respective successors are duly elected and qualified. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

B.    

SECTION 1. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.

SECTION 2. The directors of the corporation need not be elected by written ballot unless the Bylaws so provide.

ARTICLE VI.

A.    A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation


Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General corporation Law, as so amended.

B.    Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

ARTICLE VII.

The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation.

ARTICLE VIII.

SECTION 1. Definitions. As used in this Article VIII, the following capitalized terms have the following meanings when used herein with initial capital letters (and any references to any portions of Treasury Regulation § 1.382-2T shall include any successor provisions):

5% Transaction” means any Transfer described in clause (a) or (b) of Section 2.

Agent” has the meaning set forth in Section 6.

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

Corporation Securities” means (i) shares of Common Stock, (ii) shares of Preferred Stock (other than preferred stock described in Section 1504(a)(4) of the Code), (iii) warrants, rights, or options (including options within the meaning of Treasury Regulation § 1.382-2T(h)(4)(v)) to purchase Securities of the Corporation, and (iv) any Stock.

Excess Securities” has the meaning given such term in Section 5.

Expiration Date” means the beginning of the taxable year of the Corporation to which the Board of Directors determines that no Tax Benefits may be carried forward.

Five-Percent Stockholder” means a Person or group of Persons that is (or assuming the exercise of any convertible securities, will be) a “5-percent stockholder” of the Corporation pursuant to Treasury Regulation § 1.382-2T(g).

Percentage Stock Ownership” means the percentage Stock Ownership interest of any Person or group (as the context may require) for purposes of Section 382 of the Code as determined in accordance with Treasury Regulation § 1.382-2T(g), (h), (j) and (k) or any successor provision.

Person” means any individual, firm, corporation or other legal entity, and includes any successor (by merger or otherwise) of such entity.

Prohibited Distribution” has the meaning given such term in Section 6.


Prohibited Transfer” means any purported Transfer of Corporation Securities to the extent that such Transfer is prohibited and/or void under this Article VIII.

Public Group” has the meaning set forth in Treasury Regulation § 1.382-2T(f)(13).

Purported Transferee” has the meaning set forth in Section 5.

Securities” and “Security” each has the meaning set forth in Section 8.

Stock” means any interest that would be treated as “stock” of the Corporation pursuant to Treasury Regulation § 1.382-2T(f)(18).

Stock Ownership” means any direct or indirect ownership of Stock, including any ownership by virtue of application of constructive ownership rules, with such direct, indirect, and constructive ownership determined under the provisions of Code Section 382 and the regulations thereunder.

Tax Benefit” means the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative minimum tax credit carryovers and foreign tax credit carryovers, as well as any loss or deduction attributable to a “net unrealized built-in loss” within the meaning of Code Section 382, of the Corporation or any direct or indirect subsidiary thereof.

Transfer” means, any direct or indirect sale, transfer, assignment, conveyance, pledge or other disposition or other action taken by a person that alters the Percentage Stock Ownership of any Person or group. A Transfer also shall include the creation or grant of an option (including an option within the meaning of Treasury Regulation § 1.382-2T(h)(4)(v)).

SECTION 2. Restrictions on Transfers. Any attempted Transfer of Corporation Securities prior to the Expiration Date and any attempted Transfer of Corporation Securities pursuant to an agreement entered into prior to the Expiration Date, shall be prohibited and void ab initio (a) if the transferor is a Five-Percent Stockholder or (b) to the extent that, as a result of such Transfer (or any series of Transfers of which such Transfer is a part), either (1) any Person or group of Persons would become a Five-Percent Stockholder or (2) the Percentage Stock Ownership in the Corporation of any Five-Percent Stockholder would be increased.

SECTION 3. Exceptions. The restrictions set forth in Section 2 shall not apply to an attempted Transfer that is a 5% Transaction if the transferor or the transferee obtains the prior written approval of the Board of Directors. As a condition to granting its approval pursuant to Section 3, the Board of Directors may, in its discretion, require (at the expense of the transferor and/or transferee) an opinion of counsel selected by the Board of Directors that the Transfer shall not result in the application of any Section 382 limitation on the use of the Tax Benefits. The Board of Directors may impose any conditions that it deems reasonable and appropriate in connection with such approval, including, without limitation, restrictions on the ability of any transferee to Transfer Corporation Securities acquired through a Transfer. The Board of Directors may exercise the authority granted by this Article VIII through duly authorized officers or agents of the Corporation. Approvals of the Board of Directors hereunder may be given prospectively or retroactively. Nothing in this Section 3 shall be construed to limit or restrict the Board of Directors in the exercise of its fiduciary duties under applicable law.


SECTION 4. Legend. Each certificate or book-entry, and any notice of issuance provided to stockholders, representing shares of Common Stock issued by the Corporation shall conspicuously include the following legend:

“THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED (THE “CERTIFICATE OF INCORPORATION”) OF THE CORPORATION CONTAINS RESTRICTIONS PROHIBITING THE TRANSFER (AS DEFINED IN THE CORPORATION’S CERTIFICATE OF INCORPORATION) OF ANY STOCK OF THE CORPORATION (INCLUDING THE CREATION OR GRANT OF CERTAIN OPTIONS) WITHOUT THE PRIOR AUTHORIZATION OF THE BOARD OF DIRECTORS OF THE CORPORATION (THE “BOARD OF DIRECTORS”) IF SUCH TRANSFER AFFECTS THE PERCENTAGE OF STOCK OF THE CORPORATION (WITHIN THE MEANING OF SECTION 382 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) AND THE TREASURY REGULATIONS PROMULGATED THEREUNDER), THAT IS TREATED AS OWNED BY A FIVE PERCENT STOCKHOLDER UNDER THE CODE AND SUCH REGULATIONS. IF THE TRANSFER RESTRICTIONS ARE VIOLATED, THEN THE TRANSFER WILL BE VOID AB INITIO AND THE PURPORTED TRANSFEREE OF THE STOCK WILL BE REQUIRED TO TRANSFER EXCESS SECURITIES (AS DEFINED IN THE CERTIFICATE OF INCORPORATION) TO THE CORPORATION’S AGENT. IN THE EVENT OF A TRANSFER WHICH DOES NOT INVOLVE SECURITIES OF THE CORPORATION WITHIN THE MEANING OF DELAWARE GENERAL CORPORATION LAW (“SECURITIES”) BUT WHICH WOULD VIOLATE THE TRANSFER RESTRICTIONS, THE PURPORTED TRANSFEREE (OR THE RECORD OWNER) OF THE SECURITIES WILL BE REQUIRED TO TRANSFER SUFFICIENT SECURITIES PURSUANT TO THE TERMS PROVIDED FOR IN THE CORPORATION’S CERTIFICATE OF INCORPORATION TO CAUSE THE FIVE PERCENT STOCKHOLDER TO NO LONGER BE IN VIOLATION OF THE TRANSFER RESTRICTIONS. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO THE HOLDER OF RECORD OF THIS CERTIFICATE A COPY OF THE CERTIFICATE OF INCORPORATION, CONTAINING THE ABOVE-REFERENCED TRANSFER RESTRICTIONS, UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.”

The Board of Directors may also require that any certificates issued by the Corporation representing shares of Common Stock issued by the Corporation that are subject to conditions imposed by the Board of Directors under Section 3 of this Article VIII also bear a conspicuous legend referencing the applicable restrictions.

SECTION 5. Excess Securities.

(a)    No employee or agent of the Corporation shall record any Prohibited Transfer, and the purported transferee of such a Prohibited Transfer (the “Purported Transferee”) shall not be recognized as a stockholder of the Corporation for any purpose whatsoever in respect of the Corporation Securities which are the subject of the Prohibited Transfer (the “Excess Securities”). Until the Excess Securities are acquired by another person in a Transfer that is not a Prohibited Transfer, the Purported Transferee shall not be entitled with respect to such Excess Securities to any rights of stockholders of the Corporation, including, without limitation, the right to vote such Excess Securities and to receive dividends or distributions, whether liquidating or otherwise, in respect thereof, if any, and the Excess Securities shall be deemed to remain with the transferor unless and until the Excess Securities are transferred to the Agent pursuant to Section 6 of this Article VIII or


until an approval is obtained under Section 3 of this Article VIII. After the Excess Securities have been acquired in a Transfer that is not a Prohibited Transfer, the Corporation Securities shall cease to be Excess Securities. For this purpose, any Transfer of Excess Securities not in accordance with the provisions of this Section 5 or Section 6 shall also be a Prohibited Transfer.

(b)    The Corporation may require as a condition to the registration of the Transfer of any Corporation Securities or the payment of any distribution on any Corporation Securities that the proposed transferee or payee furnish to the Corporation all information reasonably requested by the Corporation with respect to all the direct or indirect ownership interests in such Corporation Securities. The Corporation may make such arrangements or issue such instructions to its stock transfer agent as may be determined by the Board of Directors to be necessary or advisable to implement this Article VIII, including, without limitation, authorizing such transfer agent to require an affidavit from a Purported Transferee regarding such Person’s actual and constructive ownership of stock and other evidence that a Transfer will not be prohibited by this Article VIII as a condition to registering any transfer.

SECTION 6. Transfer to Agent. If the Board of Directors determines that a Transfer of Corporation Securities constitutes a Prohibited Transfer then, upon written demand by the Corporation sent within 30 days of the date on which the Board of Directors determines that the attempted Transfer would result in Excess Securities, the Purported Transferee shall transfer or cause to be transferred any certificate or other evidence of ownership of the Excess Securities within the Purported Transferee’s possession or control, together with any dividends or other distributions that were received by the Purported Transferee from the Corporation with respect to the Excess Securities (“Prohibited Distributions”), to an agent designated by the Board of Directors (the “Agent”). The Agent shall thereupon sell to a buyer or buyers, which may include the Corporation, the Excess Securities transferred to it in one or more arm’s-length transactions (on the public securities market on which such Excess Securities are traded, if possible, or otherwise privately); provided, however, that any such sale must not constitute a Prohibited Transfer and provided, further, that the Agent shall effect such sale or sales in an orderly fashion and shall not be required to effect any such sale within any specific time frame if, in the Agent’s discretion, such sale or sales would disrupt the market for the Corporation Securities or otherwise would adversely affect the value of the Corporation Securities. If the Purported Transferee has resold the Excess Securities before receiving the Corporation’s demand to surrender Excess Securities to the Agent, the Purported Transferee shall be deemed to have sold the Excess Securities for the Agent, and shall be required to transfer to the Agent any Prohibited Distributions and proceeds of such sale, except to the extent that the Corporation grants written permission to the Purported Transferee to retain a portion of such sales proceeds not exceeding the amount that the Purported Transferee would have received from the Agent pursuant to Section 7 if the Agent rather than the Purported Transferee had resold the Excess Securities.

SECTION 7. Application of Proceeds and Prohibited Distributions. The Agent shall apply any proceeds of a sale by it of Excess Securities and, if the Purported Transferee has previously resold the Excess Securities, any amounts received by it from a Purported Transferee, together, in either case, with any Prohibited Distributions, as follows: (a) first, such amounts shall be paid to the Agent to the extent necessary to cover its costs and expenses incurred in connection with its duties hereunder; (b) second, any remaining amounts shall be paid to the Purported Transferee, up to the amount paid by the Purported Transferee for the Excess Securities (or the fair market value at the time of the Transfer, in the event the purported Transfer of the Excess Securities was, in whole or in part, a gift, inheritance or similar Transfer) which amount shall be determined at the discretion of


the Board of Directors; and (c) third, any remaining amounts shall be paid to one or more organizations qualifying under Section 501(c)(3) of the Code (or any comparable successor provision) selected by the Board of Directors. The Purported Transferee of Excess Securities shall have no claim, cause of action or any other recourse whatsoever against any transferor of Excess Securities. The Purported Transferee’s sole right with respect to such shares shall be limited to the amount payable to the Purported Transferee pursuant to this Section 7. In no event shall the proceeds of any sale of Excess Securities pursuant to this Section 7 inure to the benefit of the Corporation or the Agent, except to the extent used to cover costs and expenses incurred by the Agent in performing its duties hereunder.

SECTION 8. Modification of Remedies for Certain Indirect Transfers. In the event of any Transfer which does not involve a transfer of securities of the Corporation within the meaning of Delaware General Corporation Law (“Securities,” and individually, a “Security”) but which would cause a Five-Percent Stockholder to violate a restriction on Transfers provided for in this Article VIII, the application of Section 6 and Section 7 shall be modified as described in this Section 8. In such case, no such Five-Percent Stockholder shall be required to dispose of any interest that is not a Security, but such Five-Percent Stockholder and/or any Person whose ownership of Securities is attributed to such Five-Percent Stockholder shall be deemed to have disposed of and shall be required to dispose of sufficient Securities (which Securities shall be disposed of in the inverse order in which they were acquired) to cause such Five-Percent Stockholder, following such disposition, not to be in violation of this Article VIII. Such disposition shall be deemed to occur simultaneously with the Transfer giving rise to the application of this provision, and such number of Securities that are deemed to be disposed of shall be considered Excess Securities and shall be disposed of through the Agent as provided in Section 6 and Section 7, except that the maximum aggregate amount payable either to such Five-Percent Stockholder or to such other Person that was the direct holder of such Excess Securities, in connection with such sale shall be the fair market value of such Excess Securities at the time of the purported Transfer. All expenses incurred by the Agent in disposing of such Excess Stock shall be paid out of any amounts due such Five-Percent Stockholder or such other Person. The purpose of this Section 8 is to extend the restrictions in Section 2 and Section 6 to situations in which there is a 5% Transaction without a direct Transfer of Securities, and this Section 8, along with the other provisions of this Article VIII, shall be interpreted to produce the same results, with differences as the context requires, as a direct Transfer of Corporation Securities.

SECTION 9. Legal Proceedings. If the Purported Transferee fails to surrender the Excess Securities or the proceeds of a sale thereof to the Agent within 30 days from the date on which the Corporation makes a written demand pursuant to Section 6 (whether or not made within the time specified in Section 6), then the Corporation shall use reasonable best efforts to take all actions necessary to enforce the provisions hereof, and/or enjoin or rescind any violation hereof, including the institution of legal proceedings to compel the surrender. Nothing in this Section 9 shall (a) be deemed inconsistent with any Transfer of the Excess Securities provided in this Article VIII being void ab initio, (b) preclude the Corporation in its discretion from immediately bringing legal proceedings without a prior demand or (c) cause any failure of the Corporation to act within the time periods set forth in Section 6 to constitute a waiver or loss of any right of the Corporation under this Article VIII.

SECTION 10. Damages. Any stockholder subject to the provisions of this Article VIII who knowingly violates the provisions of this Article VIII and any Persons controlling, controlled by or under common control with such stockholder shall be jointly and severally liable to the Corporation


for, and shall indemnify and hold the Corporation harmless against, any and all damages suffered as a result of such violation, including but not limited to damages resulting from a reduction in, or elimination of, the Corporation’s ability to utilize its Tax Benefits, and attorneys’ and auditors’ fees incurred in connection with such violation.

SECTION 11. Board Authority.

(a)    The Board of Directors of the Corporation shall have the power to determine all matters necessary for assessing compliance with this Article VIII, including, without limitation, (i) the identification of Five-Percent Stockholders, (ii) whether a Transfer is a 5% Transaction or a Prohibited Transfer, (iii) the Percentage Stock Ownership in the Corporation of any Five-Percent Stockholder, (iv) whether an instrument constitutes a Corporation Security, (v) the amount (or fair market value) due to a Purported Transferee pursuant to Section 7, and (vi) any other matters which the Board of Directors determines to be relevant; and the good faith determination of the Board of Directors on such matters shall be conclusive and binding for all the purposes of this Article VIII. In addition, the Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind by-laws, regulations and procedures of the Corporation not inconsistent with the provisions of this Article VIII for purposes of determining whether any Transfer of Corporation Securities would jeopardize the Corporation’s ability to preserve and use the Tax Benefits and for the orderly application, administration and implementation of this Article VIII.

(b)    Nothing contained in this Article VIII shall limit the authority of the Board of Directors to take such other action to the extent permitted by law as it deems necessary or advisable to protect the Corporation and its stockholders in preserving the Tax Benefits. Without limiting the generality of the foregoing, in the event of a change in law making one or more of the following actions necessary or desirable, the Board of Directors may, by adopting a written resolution, (i) accelerate or extend the Expiration Date, (ii) modify the ownership interest percentage in the Corporation or the Persons or groups covered by this Article VIII, (iii) modify the definitions of any terms set forth in this Article VIII or (iv) modify the terms of this Article VIII as appropriate to prevent an ownership change for purposes of Section 382 of the Code as a result of any changes in applicable Treasury Regulations or otherwise; provided, however, that the Board of Directors shall not cause there to be such acceleration, extension, change or modification unless it determines, by adopting a written resolution, that such action is reasonably necessary or advisable to preserve the Tax Benefits or that the continuation of these restrictions is no longer reasonably necessary for the preservation of the Tax Benefits, and its conclusion is based upon a written opinion of tax counsel to the Corporation. Such written resolution of the Board of Directors shall be filed with the Secretary of the Corporation. Stockholders of the Corporation shall be notified of such determination through a filing with the Securities and Exchange Commission or such other method of notice as the Secretary of the corporation shall deem appropriate.

(c)    In the case of an ambiguity in the application of any of the provisions of this Article VIII, including any definition used herein, the Board of Directors shall have the power to determine the application of such provisions with respect to any situation based on its reasonable belief, understanding or knowledge of the circumstances. In the event this Article VIII requires an action by the Board of Directors but fails to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of this Article VIII. All such actions, calculations, interpretations and determinations which are done or made by the Board of Directors in good faith shall be conclusive and binding on the Corporation, the Agent, and all other parties for all other purposes of this


Article VIII. The Board of Directors to the fullest extent permitted by law, may exercise the authority granted by this Article VIII through duly authorized officers or agents of the Corporation. Nothing in this Article VIII shall be construed to limit or restrict the Board of Directors in the exercise of its fiduciary duties under applicable law.

SECTION 12. Reliance. The Corporation and the members of the Board of Directors shall be fully protected in relying in good faith upon the information, opinions, reports or statements of the chief executive officer, the chief financial officer or the chief accounting officer of the Corporation or of the Corporation’s legal counsel, independent auditors, transfer agent, investment bankers or other employees and agents in making the determinations and findings contemplated by this Article VIII, and the members of the Board of Directors shall not be responsible for any good faith errors made in connection therewith. For purposes of determining the existence and identity of, and the amount of any Corporation Securities owned by any stockholder, the Corporation is entitled to rely conclusively on (a) the existence and absence of filings of Schedule 13D or 13G under the Securities and Exchange Act of 1934 (or similar schedules or filings), as of any date and (b) its actual knowledge of the ownership of Corporation Securities.

SECTION 13. Obligation to Provide Information. As a condition to the registration of the Transfer of any Stock, any Person who is a beneficial, legal or record holder of Stock, and any proposed transferee and any Person controlling, controlled by or under common control with the proposed transferee, shall provide such information as the Corporation may request from time to time in order to determine compliance with this Article VIII or the status of the Tax Benefits of the Corporation.

SECTION 14. General Authorization. The purpose of this Article VIII is to facilitate the Corporation’s ability to maintain or preserve its Tax Benefits. If any provision of this Article VIII or any application of any provision thereunder is determined to be invalid, the validity of the remaining provisions shall be unaffected and application of such provision shall be affected only to the extent necessary to comply with such determination.

SECTION 15. Amendment of Transfer Restrictions. Notwithstanding the provisions of Article VII, the Corporation may only amend or repeal any of the provisions set forth in this Article VIII by the affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote thereon.

*         *         *


FOURTH:   That the Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the foregoing Amended and Restated Certificate of Incorporation and directing that said amendment and restatement be submitted to the stockholders of the Corporation for consideration in accordance with Sections 242 and 245 of the Delaware General Corporation Law

FIFTH:   That, thereafter, the Annual Meeting of the Stockholders of the Corporation was dully called and held, upon notice delivered in accordance with Section 222 of the Delaware General Corporation Law, at which meeting the necessary number of shares as required by statute were voted in favor of the foregoing Amended and Restated Certificate of Incorporation.

SIXTH:   The foregoing Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the applicable provisions of Sections 242 and 245 of the Delaware General Corporation Law.

EXHIBIT 3.2

 

              State of Delaware

              Secretary of State

         Division of Corporations

      Delivered 11:09 AM 01/17/2020

        FILED 11:09 AM 01/17/2020

SR 20200360940 – File Number 2316398

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF

SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK

OF

HARBOR DIVERSIFIED, INC.

Pursuant to Sections 103 and 151 of the General Corporation Law

of the State of Delaware

I, the undersigned, Christine R. Deister, Chief Financial Officer of Harbor Diversified, Inc., a Delaware corporation (hereinafter called the “Corporation”), pursuant to the provisions of Sections 103 and 151 of the General Corporation Law of the State of Delaware, do hereby make this Certificate of Designations and do hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Certificate of Incorporation of the Corporation, as amended to date (the “Certificate of Incorporation”), the Board of Directors duly adopted the following resolutions:

RESOLVED, that, pursuant to Paragraph A of Article IV of the Certificate of Incorporation (which authorizes an aggregate of 10,000,000 shares of preferred stock, $0.01 par value (“Preferred Stock”)), the Board of Directors hereby fixes the powers, designations, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions, of a series of Preferred Stock.

RESOLVED, that each share of such series of Preferred Stock shall rank equally in all respects and shall be subject to the following provisions:

A.        Number and Designation. 4,000,000 shares of the Preferred Stock of the Corporation shall be designated as Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”).

B.        Rights, Preferences and Restrictions of Series C Preferred Stock.

1.        The powers, preferences, rights, restrictions, and other matters relating to the Series C Preferred Stock, are as follows:

(a)        Dividends.

(i)        Preferential Dividends. From and after the date any share of Series C Preferred Stock is first issued (the date on which the first share of Series C Preferred Stock is issued, the “Series C Issue Date”), the holders of record of Series C Preferred Stock as they appear on the stock books of the Corporation on the fifteenth (15th) day of the calendar month immediately preceding the first (1st) day of each succeeding calendar quarter (each such date, a “Preferential Dividend Date”), shall be entitled to receive, to the fullest extent permitted by law and out of funds

 

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lawfully available therefor, before any dividends shall be declared, set apart for or paid upon the Common Stock or any other Junior Stock, cash dividends, by wire transfer of immediately available funds, per share of Series C Preferred Stock on the applicable Preferential Dividend Date in arrears for the previous calendar quarter (or any portion thereof during which shares of Series C Preferred Stock are outstanding) equal to an amount of cash calculated at the rate per annum of 6% of the Series C Issue Price (the “Preferential Dividend Rate”) computed on the basis of a 360-day year and twelve 30-day months (the “Preferential Dividends”). Subject to Section B.1(b)(i), the Preferential Dividends shall be paid when, as and if declared by the Board of Directors and shall accrue from day to day, whether or not declared, shall be cumulative and shall compound quarterly. If the assets legally available for payment of dividends shall be insufficient to satisfy the Corporation’s payment obligations to the holders of Series C Preferred Stock, then the dividend to be paid shall be distributed ratably among the holders of the Series C Preferred Stock. From and after December 31, 2023, upon the election of holders of a majority of the shares of Series C Preferred Stock then outstanding, the Preferential Dividend Rate shall be increased by an additional 1% of the Series C Issue Price per annum per share of Series C Preferred Stock for each and every six (6) month period following such election (the “Dividend Ratchet”).    

(ii)        Conversion Cap Excess Dividends. From and after December 31, 2022, so long as any Conversion Cap Excess Shares (as defined below) remain outstanding, the holders of record of Series C Preferred Stock as they appear on the stock books of the Corporation on the fifteenth (15th) day of the calendar month immediately preceding each Preferential Dividend Date, shall be entitled to receive, to the fullest extent permitted by law and out of funds lawfully available therefor, before any dividends shall be declared, set apart for or paid upon the Common Stock or any other Junior Stock, in addition to the Preferential Dividends, cash dividends, payable by wire transfer of immediately available funds, per share of Series C Preferred Stock on the applicable Preferential Dividend Date in arrears for the previous calendar quarter equal to an amount of cash per share equal to one-half percent (0.5%) of the Series C Liquidation Amount of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing by an additional one-half percent (0.5%) of the Series C Liquidation Amount of each outstanding Conversion Cap Excess Share in each subsequent quarter on each such Preferential Dividend Date (the “Conversion Cap Excess Dividends”). The Conversion Cap Excess Dividends shall be paid when, as and if declared by the Board of Directors and shall accrue from day to day, whether or not declared, and shall be cumulative. If the assets legally available for payment of dividends shall be insufficient to satisfy the Corporation’s payment obligations to the holders of Series C Preferred Stock, then the dividend to be paid shall be distributed ratably among the holders of the Series C Preferred Stock.

(iii)        Optional PIK Dividends. At the option of the Board of Directors, in lieu of paying the Preferential Dividends and the Conversion Cap Excess Dividends in cash, all or some of such dividends may instead be paid in additional shares of Series C Preferred Stock based upon the accrued but unpaid dividends divided by the Series C Issue Price (“PIK Dividends”). Notwithstanding anything herein to the contrary, no separate vote of the holders of the Series C Preferred Stock shall be required to increase the number of authorized shares of Series C Preferred Stock in connection with the payment of a PIK Dividend.

(b)        Liquidation Proceeds.

(i)        In the event of any liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event (each, a “Liquidation”), whether voluntary or involuntary,

 

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the holders of Series C Preferred Stock shall be entitled to receive for each outstanding share of Series C Preferred Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of the Common Stock or any other Junior Stock by reason of their ownership thereof, an amount per share equal to $3.30 (as adjusted for subsequent stock dividends, splits, combinations or similar events with respect to the Series C Preferred Stock) (“Series C Issue Price”), plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends on such share payable hereunder (the “Series C Liquidation Amount”). If, upon the occurrence of such event, the assets and funds to be distributed among the holders of the Series C Preferred Stock are insufficient to permit the payment to such holders of the full preferential amounts aforesaid, then, all of the assets available for distribution to holders of the Series C Preferred Stock shall be distributed among and paid to such holders ratably in proportion to the number of shares of Series C Preferred Stock held by such holders. Upon payment of the full preferential amounts set forth above in respect of a share of Series C Preferred Stock, such share of Series C Preferred Stock shall be immediately surrendered and canceled without any further action on the part of the Corporation or the holder thereof.

(ii)        In the event of a Liquidation, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors.

(c)        Voting Rights.

(i)        General. Except as otherwise expressly provided in the Certificate of Incorporation, or as required by law, the holders of shares of Series C Preferred Stock shall (A) be entitled to a number of votes per share of Series C Preferred Stock then held by such holder equal to the quotient of the Series C Issue Price divided by the Conversion Price (without giving effect to any subsequent adjustments thereto pursuant to Section B.1(d)(iii)(A) or Section B.1(d)(iii)(E)), (B) be entitled to vote on all matters on which the holders of Common Stock shall be entitled to vote, in the same manner and with the same effect as the holders of Common Stock, (C) vote together with the Common Stock as a single class and (D) be entitled to receive the same prior notice of any stockholders’ meeting as provided to the holders of Common Stock in accordance with the Bylaws of the Corporation. Notwithstanding the foregoing, if, following the Series C Issue Date, any shares of Series C Preferred Stock are converted into Common Stock, (1) if the total number of shares of Common Stock issued upon conversion of Series C Preferred Stock since the Series C Issue Date has reached the Conversion Cap (as defined below), the remaining shares of Series C Preferred Stock then outstanding shall not be entitled to any votes and (2) if the total number of shares of Common Stock issued upon conversion of Series C Preferred Stock since the Series C Issue Date has not reached the Conversion Cap, the remaining shares of Series C Preferred Stock then outstanding shall be entitled to a number of votes per share equal to the quotient of (X) the Conversion Cap then in effect less the number of shares of Common Stock that were issued upon conversion of Series C Preferred Stock, divided by (Y) the total number of shares of Series C Preferred Stock then outstanding.

(ii)        Protective Provisions. So long as any shares of Series C Preferred Stock remain outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Corporation’s Certificate of Incorporation) the written consent or affirmative vote of holders of a majority of the outstanding shares of Series C Preferred Stock, voting together as

 

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a separate class, given in writing or by vote at a meeting, and any act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

(A)        create, or authorize the creation of, or issue or obligate itself to issue (1) shares of any additional class or series of capital stock, other than Junior Stock, or (2) convertible debt securities convertible into, or warrants exercisable for, equity securities of the Corporation, other than in each case Junior Stock;

(B)        purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) the Common Stock Repurchase, (ii) redemptions of or dividends or distributions on the Series C Preferred Stock as expressly authorized herein, (iii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock, or (iv) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

(C)        increase or decrease (other than by conversion or redemption in accordance with the provisions of this Certificate of Designations or in connection with the payment of a PIK Dividend) the authorized number of shares of Series C Preferred Stock;

(D)        amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series C Preferred Stock;

(E)        effect any Liquidation of the Corporation, effect any merger or consolidation or any Deemed Liquidation Event, or consent to any of the foregoing;

(F)        other than in the ordinary course of business or for bona fide capital raising purposes, enter into or be a party to any material transaction with any director, officer or stockholder of the Corporation, or any of the respective “associates” (as defined in Rule 12b-2 promulgated under the Exchange Act) of such persons;

(G)        create, or hold any capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or permit any subsidiary to issue or obligate itself to issue any capital stock of any direct or indirect subsidiary of the Corporation, except, in each case, to the Corporation or any subsidiary that is wholly owned by the Corporation; or

(H)        effect a Capital Transaction.

(d)        Conversion. The holders of shares of Series C Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

(i)        Right To Convert. Subject to the provisions of Section B.1(d)(ix), each share of Series C Preferred Stock shall be convertible, at any time and from time to time from and after the Series C Issue Date at the option of the holder thereof, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of

 

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Common Stock as is determined by dividing the then applicable Series C Liquidation Amount on the date the certificate is surrendered for conversion by the Conversion Price (as defined below) then in effect on the date the certificate is surrendered for conversion. The “Conversion Price” per share of Series C Preferred Stock shall initially be $0.80. The Conversion Price shall be subject to adjustment as hereinafter provided.

(ii)        Mechanics of Conversion. Before any holder of Series C Preferred Stock shall be entitled voluntarily to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office of election to convert the same and shall state therein the number of shares to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued (a “Conversion Notice”). The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(iii)        Conversion Price Adjustment.

 (A)        Adjustments to Conversion Price for Diluting Issues.

(1)        Deemed Issue of Additional Shares of Common Stock.

(a)        If the Corporation at any time or from time to time after the Series C Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

(b)        If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price pursuant to the terms of Section B.1(d)(iii)(A)(2), are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease

 

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becoming effective, the Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

(c)        If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price pursuant to the terms of Section B.1(d)(iii)(A)(2) (either because the consideration per share (determined pursuant to Section B.1(d)(iii)(A)(3)) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series C Issue Date), are revised after the Series C Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section B.1(d)(iii)(A)(1)(a) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

(d)        Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price pursuant to the terms of Section B.1(d)(iii)(A)(2), the Conversion Price shall be readjusted to such Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

(e)        If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price provided for in this Section B.1(d)(iii)(A)(1) shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Section B.1(d)(iii)(A)(1)). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price that would result under the terms of this Section B.1(d)(iii)(A)(1) at the time of such issuance

 

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or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

(2)        Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series C Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section B.1(d)(iii)(A)(1)), without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or deemed issuance, then the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

CP2 = CP1* (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

CP2” shall mean the Conversion Price in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock;

CP1” shall mean the Conversion Price in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock;

A” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities (including the Series C Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);

B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and

C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

(3)        Determination of Consideration. For purposes of this Section B.1(d)(iii)(A), the consideration received by the Corporation for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows: (a) with respect to cash and property, such consideration shall (1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest; (2) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (3) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors; and (b) the consideration per share received by the Corporation for

 

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Additional Shares of Common Stock deemed to have been issued pursuant to Section B.1(d)(iii)(A)(1), relating to Options and Convertible Securities, shall be determined by dividing: (1) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

(B)        Adjustments to Conversion Prices for Stock Splits and Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the Series C Issue Date shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), then the applicable Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series C Preferred Stock shall be increased in proportion to the increase in the aggregate number of shares of Common Stock outstanding.

(C)        Adjustments to Conversion Prices for Reverse Stock Splits and Combinations of Common Stock. In the event that the Corporation at any time or from time to time after the Series C Issue Date shall combine or consolidate, by reclassification or otherwise, its outstanding shares of Common Stock into a lesser number of shares of Common Stock, then the applicable Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to the decrease in the aggregate number of shares of Common Stock outstanding.

(D)        Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section B.1(d)(iii)(B) or Section B.1(d)(iii)(C) above or a Liquidation), the applicable Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series C Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series C Preferred Stock immediately before that change.

(E)        Adjustments Following Public Reporting or Capital Transactions. In the event that either (i) (1) any registration statement under the Securities Act (other than a registration on Form S-8) or Exchange Act is filed by the Corporation and declared effective

 

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by the SEC following the Series C Issue Date, or (2) an Annual Report on Form 10-K is filed by the Corporation under the Exchange Act following the Series C Issue Date, and (ii) the Corporation provides notice to its stockholders of the occurrence of the event specified in clause (i)(1) or clause (i)(2) above, which notice shall be provided in such form and manner as is determined in good faith by the Board of Directors (the earliest date on which the conditions in clause (i) and clause (ii) are satisfied, the “Reporting Date”), the Conversion Price shall, upon the first Trading Day immediately following the Reporting Adjustment Period, be adjusted to equal the arithmetic average of the Weighted Average Price of the Common Stock during the Reporting Adjustment Period; provided, however, that in the event that, prior to the Reporting Date, the Corporation consummates a Capital Transaction, the Conversion Price shall, immediately following the consummation of such Capital Transaction, be adjusted to equal the per share of price of, or the per share consideration paid with respect to, the Common Stock in such Capital Transaction.

(F)        Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section B.1(d)(iii), the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Preferred Stock a certificate executed by the Corporation’s Chief Executive Officer or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the new Conversion Price, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series C Preferred Stock.

(G)        Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series C Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(iv)        Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

(v)        Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including,

 

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without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Designations.

(vi)        Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series C Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a shares of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors). In case the number of shares of Series C Preferred Stock represented by the certificate or certificates surrendered pursuant to Section B.1(d)(ii) above exceeds the number of shares to be converted, the Corporation shall, upon such conversion, execute and deliver to the holder, at the expense of the Corporation, a new certificate or certificates for the number of shares of Series C Preferred Stock represented by the certificate or certificates surrendered which are not to be converted.

(vii)        Effect of Conversion. All shares of Series C Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the time of conversion, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon.

(viii)        Notices. Any notice required by the provisions of this Section B.1(d) to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his, her or its address appearing on the books of the Corporation, which notice upon any adjustment of the Conversion Price, shall state the Conversion Price resulting from such adjustment and setting forth in reasonable detail the method upon which such calculation is based.

(ix)        Limitation on Conversion. Notwithstanding anything to the contrary contained herein, the Corporation shall not issue any shares of Common Stock pursuant to the terms of this Certificate of Designations, and no holder of shares of Series C Preferred Stock shall have the right to any shares of Common Stock otherwise issuable pursuant to the terms and conditions of this Certificate of Designations and any such issuance shall be null and void and treated as if never made, to the extent that the number of shares of Common Stock that would have been issued upon such conversion of Series C Preferred Stock would cause the total number of shares of Common Stock issued upon conversion of the Series C Preferred Stock since the Series C Issue Date to exceed the Conversion Cap. If and when the total number of shares of Common Stock issued upon conversion of the Series C Preferred Stock reaches the Conversion Cap, then any outstanding shares of Series C Preferred Stock that cannot be converted as a result of the foregoing shall be deemed “Conversion Cap Excess Shares” hereunder and shall no longer be convertible pursuant to this Section B.1(d).

(e)        Redemption.

(i)        Optional Redemption of Preferred Stock Other Than Conversion Cap Excess Shares. At any time following the Preferred Stock Redemption Trigger Date, the Corporation shall have the right to redeem all, but not less than all, of the shares of Series C Preferred Stock then

 

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outstanding as designated in the Preferred Optional Redemption Notice on the Preferred Optional Redemption Date (each as defined below) (a “Preferred Optional Redemption”). The shares of Series C Preferred Stock shall be redeemed by the Corporation by delivery of the Redemption Price on the Preferred Optional Redemption Date in cash at a price equal to the then current Series C Liquidation Amount of the shares of Series C Preferred Stock to be redeemed (the “Redemption Price”). The Corporation may exercise its right to require redemption under this Section B.1(e)(i) by delivering a written notice thereof to all, but not less than all, of the holders of Series C Preferred Stock (the “Preferred Optional Redemption Notice” and the date the Corporation has delivered such notice is referred to as the “Preferred Optional Redemption Notice Date”). The Preferred Optional Redemption Notice shall state (i) the date on which the Preferred Optional Redemption shall occur (the “Preferred Optional Redemption Date”), which date shall be the thirtieth (30th) day following the Preferred Optional Redemption Notice Date; provided that if such date falls on a day that is not a Business Day, such date shall be the next day that is a Business Day, (ii) the aggregate number of shares of Series C Preferred Stock outstanding and thereby subject to Preferred Optional Redemption pursuant to this Section B.1(e)(i) on the Preferred Optional Redemption Date and (iii) the Redemption Price. Notwithstanding anything to the contrary in this Section B.1(e)(i), during the period beginning with the Preferred Optional Redemption Notice Date and ending on the Preferred Optional Redemption Date, the shares of Series C Preferred Stock may be converted, in whole or in part, by the holders thereof into shares of Common Stock pursuant to Section B.1(d) so long as the holder has provided notice within the 30 day period and such shares of Common Stock shall not thereafter be subject to the provisions of this Section B.1(e)(i).

(ii)        Optional Redemption of Conversion Cap Excess Shares. At any time after the outstanding shares of Series C Preferred Stock are deemed Conversion Cap Excess Shares pursuant to Section B.1(d)(ix), the Corporation shall have the right to redeem all, but not less than all, of the Conversion Cap Excess Shares then outstanding, if any, as designated in the Excess Share Optional Redemption Notice on the Excess Share Optional Redemption Date (each as defined below) (an “Excess Share Optional Redemption”). The Conversion Cap Excess Shares shall be redeemed by the Corporation by delivery of the Redemption Price in cash on the Excess Share Optional Redemption Date. The Corporation may exercise its right to require redemption under this Section B.1(e)(ii) by delivering a written notice thereof to all, but not less than all, of the holders of Conversion Cap Excess Shares (the “Excess Share Optional Redemption Notice” and the date the Corporation has delivered such notice is referred to as the “Excess Share Optional Redemption Notice Date”). The Excess Share Optional Redemption Notice shall state (i) the date on which the Excess Share Optional Redemption shall occur (the “Excess Share Optional Redemption Date” and, together with any Preferred Option Redemption Date, a “Redemption Date”), which date shall be the thirtieth (30th) day following the Excess Share Optional Redemption Notice Date; provided that if such date falls on a day that is not a Business Day, such date shall be the next day that is a Business Day, (ii) the aggregate number of Conversion Cap Excess Shares outstanding and thereby subject to Excess Share Optional Redemption pursuant to this Section B.1(e)(ii) on the Excess Share Optional Redemption Date and (iii) the Redemption Price.

(iii)        Payment of Redemption Price. The Corporation shall pay the Redemption Price on the applicable Redemption Date to each holder of shares of Series C Preferred Stock or Conversion Cap Excess Shares, as applicable, in cash by wire transfer of immediately available funds pursuant to wire instructions provided by such holder in writing to the Corporation at least ten (10) Business Days prior to such payment.

 

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(f)        Reacquired Shares of Preferred Stock. Any shares of Series C Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be retired promptly after acquisition thereof. All such shares upon their retirement shall become authorized but unissued shares of Preferred Stock, each having a par value of $0.01, and may be reissued as part of a new series of Preferred Stock, subject to the conditions and restrictions on issuance set forth herein or in the Certificate of Incorporation, or as otherwise restricted by law.

(g)        Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

(h)        Waiver. Any of the rights, powers or preferences of the Series C Preferred Stock set forth herein may be waived on behalf of all holders of Series C Preferred Stock by the affirmative vote or written consent of the holders of a majority of the shares of Series C Preferred Stock then outstanding.

(i)        Transfer Restrictions. Except for transfers to the Permitted Affiliates, no holder of Series C Preferred Stock may offer, sell, assign or transfer any portion of such holder’s shares of Series C Preferred Stock without the approval of the Corporation’s Board of Directors, which shall not be unreasonably withheld or delayed. Any offer, sale, assignment or transfer of any shares of Series C Preferred Stock in violation of any provision of this Certificate of Designation shall be null and void and without any effect. Each certificate evidencing shares of Series C Preferred Stock shall bear a legend indicating that such shares of Series C Preferred Stock are subject to the restrictions on transfer set forth herein.

(j)        Transfer Books. The Corporation will at no time close its transfer books against the transfer of any Series C Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series C Preferred Stock in any manner which interferes with the timely conversion of such Series C Preferred Stock, except as may otherwise be required to comply with applicable securities laws or in connection with the enforcement of any applicable restrictions on the transfer of such shares.

(k)        Amendment. This Certificate of Designation may only be amended with the prior written consent of the holders of a majority of the then outstanding shares of Series C Preferred Stock and, in the event that any such amendment materially adversely affects a holder of Series C Preferred Stock in a manner disproportionate to the other holders of Series C Preferred Stock, without the prior written consent of such holder. The Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Corporation shall have obtained the written consent to such action or omission to act, of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock and, in the event that any such action or omission to act materially adversely affects a holder of Series C Preferred Stock in a manner disproportionate to the other holders of Series C Preferred Stock, without the prior written consent of such holder.

(l)        Certain Definitions. For purposes of this Certificate of Designations the following terms shall have the following meanings:

 

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(i)        “Additional Shares of Common Stock” means all shares of Common Stock issued (or, pursuant to Section B.1(d)(iii)(A)(1), deemed to be issued) by the Corporation after the Series C Issue Date, other than Exempted Securities.

(ii)        “Bloomberg” means Bloomberg Financial Markets.

(iii)        “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(iv)        “Capital Transaction” means (A) any merger or consolidation to which the Corporation is a constituent party and to which one or more third party entities, unaffiliated with the Corporation, are constituent parties or (B) any transaction or series of related transactions to which the Corporation is a party (or effected pursuant to any agreement to which the Corporation is a party) pursuant to which the Corporation shall, directly or indirectly, issue or sell a number of shares of the Corporation’s Common Stock greater than five percent (5%) of the number of shares of Common Stock then outstanding.

(v)        “Common Stock” means shares of the Corporation’s common stock, par value $0.01 per share.

(vi)        “Common Stock Repurchase” means the Corporation’s repurchase of shares of Common Stock, either through open market purchases or privately-negotiated transactions, for an aggregate purchase price not to exceed the aggregate Series C Liquidation Amount for all shares of Series C Preferred Stock; provided, however, that no such repurchases shall be made at any per-share purchase price greater than $0.80.

(vii)        “Conversion Cap” means a number of shares equal to the sum of (A) 16,500,000, plus (B) the quotient of (1) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (2) $0.80, plus (C) the quotient of (1) the number of shares of Series C Preferred Stock issued as PIK Dividends multiplied by the Series C Issue Price, divided by (2) $0.80. In the event that the Corporation at any time or from time to time after the Series C Issue Date shall effect a subdivision or combination of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock (by stock split, combination, reclassification or otherwise), then the applicable Conversion Cap in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately increased or decreased in proportion to the increase or decrease in the aggregate number of shares of Common Stock outstanding.

(viii)        “Convertible Securities” means any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(ix)        “Deemed Liquidation Event” means (A) a merger, consolidation or share exchange in which (1) the Corporation is a constituent party or (2) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger, consolidation or share exchange continue to represent, or are converted into or

 

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exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (a) the surviving or resulting corporation; or (b) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or (B) (1) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or (2) the sale or disposition (whether by merger, consolidation or otherwise, and whether in a single transaction or a series of related transactions) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.

(x)        “Eligible Market” means The New York Stock Exchange, The Nasdaq Global Select Market, The Nasdaq Capital Market, The Nasdaq Global Market, or the NYSE American or any electronic inter-dealer quotation system operated by OTC Markets Group Inc.

(xi)        “Exchange Act” means the Securities and Exchange Act of 1934, as amended.

(xii)        “Exempted Securities” means (A) the following shares of Common Stock and (B) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities: (1) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series C Preferred Stock; (2) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section B.1(d)(iii)(B), B.1(d)(iii)(C) or B.1(d)(iii)(D); (3) shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation; or (4) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Securities.

(xiii)        “Junior Stock” means capital stock of the Corporation, including preferred stock, that is junior in rank to the Series C Preferred Stock in respect of the preferences as to dividends and other distributions, redemption payments and payments upon a Liquidation.

(xiv)        “Option” means rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(xv)        “Permitted Affiliates” means any member or other equity holder, or trust or other estate planning entity of such member or equity holder, of Southshore Holdings LLC, or any entity that is majority owned directly or indirectly by any or a combination of the above described persons.

(xvi)        “Preferred Stock Redemption Trigger Date” means the earlier of (A) the date that is four (4) years after the earlier of the Reporting Date or any Capital Transaction, (B) the date the Dividend Ratchet has been initiated in accordance with Section B.1(a)(i), (C) any time

 

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that less than 800,000 shares of Series C Preferred Stock are outstanding, and (D) December 31, 2024.

(xvii)        “Reporting Adjustment Period” means the first 90-Trading Day period following the first 45 calendar day period following the Reporting Date during which an aggregate number of shares of Common Stock greater than five percent (5%) of the shares of the Common Stock outstanding as of the close of business on the first Business Day of such period are traded on an Eligible Market, as reported by Bloomberg.

(xviii)        “SEC” means the U.S. Securities and Exchange Commission.

(xix)        “Securities Act” means the Securities Act of 1933, as amended.

(xx)        “Trading Day” means any day on which the Common Stock is traded on an Eligible Market.

(xxi)        “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted average price for such security on the applicable Eligible Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Eligible Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the applicable Eligible Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Harbor Diversified, Inc. has caused this Certificate of Designations to be signed and attested by the undersigned this 17th day of January, 2020.

 

HARBOR DIVERSIFIED, INC.
By: /s/ C. R. Deister                    
       Name:   Christine R. Deister
       Title:  

President, Chief Financial Officer and Secretary

Exhibit 3.3

AMENDED AND RESTATED BYLAWS

OF

HARBOR DIVERSIFIED, INC.

(A DELAWARE CORPORATION)

(AS AMENDED THROUGH DECEMBER 31, 2019)

 

 


TABLE OF CONTENTS

 

       Page  
ARTICLE I   
OFFICES   
Section 1.   Registered Office      1  
Section 2.   Other Offices      1  
ARTICLE II   
CORPORATE SEAL   
Section 3.   Corporate Seal      1  
ARTICLE III   
STOCKHOLDERS’ MEETINGS   
Section 4.   Place of Meetings      1  
Section 5.   Annual Meeting      1  
Section 6.   Special Meetings      3  
Section 7.   Notice of Meetings      3  
Section 8.   Quorum      4  
Section 9.   Adjournment and Notice of Adjourned Meetings      4  
Section 10.   Voting Rights      4  
Section 11.   Joint Owners of Stock      5  
Section 12.   List of Stockholders      5  
Section 13.   Organization      5  
ARTICLE IV   
DIRECTORS   
Section 14.   Number and Term of Office      6  
Section 15.   Powers      6  
Section 16.   Election of Directors      6  
Section 17.   Vacancies      6  
Section 18.   Resignation      7  
Section 19.   Removal      7  
Section 20.   Meetings      7  
Section 21.   Quorum and Voting      8  
Section 22.   Action Without Meeting      8  
Section 23.   Fees and Compensation      8  
Section 24.   Committees      8  
Section 25.   Organization      9  
ARTICLE V   
OFFICERS   
Section 26.   Officers Designated      9  

 

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TABLE OF CONTENTS (Cont.)

 

 

 

       Page  
Section 27.   Tenure and Duties of Officers      10  
Section 28.   Delegation of Authority      11  
Section 29.   Resignations      11  
Section 30.   Removal      11  
ARTICLE VI   
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION   
Section 31.   Execution of Corporate Instruments      11  
Section 32.   Voting of Securities Owned by the Corporation      12  
ARTICLE VII   
SHARES OF STOCK   
Section 33.   Form and Execution of Certificates      12  
Section 34.   Lost Certificates      12  
Section 35.   Transfers      13  
Section 36.   Fixing Record Dates      13  
Section 37.   Registered Stockholders      13  
ARTICLE VIII   
OTHER SECURITIES OF THE CORPORATION   
Section 38.   Execution of Other Securities      14  
ARTICLE IX   
DIVIDENDS   
Section 39.   Declaration of Dividends      14  
Section 40.   Dividend Reserve      14  
ARTICLE X   
FISCAL YEAR   
Section 41.   Fiscal Year      14  
ARTICLE XI   
INDEMNIFICATION   
Section 42.   Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents      15  
ARTICLE XII   
NOTICES   
Section 43.   Notices      18  

 

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TABLE OF CONTENTS (Cont.)

 

 

 

       Page  
ARTICLE XIII   
AMENDMENTS   
Section 44.   Amendments      19  
ARTICLE XIV   
LOANS TO OFFICERS   
Section 45.   Loans to Officers      19  
ARTICLE XV   
NET OPERATING LOSS BLOCKING PROVISION   
Section 46.   Definitions      20  
Section 47.   Restrictions on Transfers      21  
Section 48.   Exceptions      21  
Section 49.   Legend      21  
Section 50.   Excess Securities      22  
Section 51.   Transfer to Agent      22  
Section 52.   Application of Proceeds and Prohibited Distributions      23  
Section 53.   Modification of Remedies for Certain Indirect Transfers      23  
Section 54.   Legal Proceedings      24  
Section 55.   Damages      24  
Section 56.   Board Authority      24  
Section 57.   Reliance      25  
Section 58.   Obligation to Provide Information      26  
Section 59.   Amendment of Transfer Restrictions      26  

 

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AS UPDATED

AMENDED AND RESTATED BYLAWS

OF

HARBOR DIVERSIFIED, INC.

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES

Section 1.    Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. (Del. Code Ann., tit. 8, § 131)

Section 2.    Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, § 122(8))

ARTICLE II

CORPORATE SEAL

Section 3.    Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8, § 122(3))

ARTICLE III

STOCKHOLDERS’ MEETINGS

Section 4.    Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, § 211(a))

Section 5.    Annual Meeting.

  (a)    The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (Del. Code Ann., tit. 8, § 211(b))

  (b)    At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the


meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (Del. Code Ann., tit. 8: § 211(b))

  (c)    Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder’s notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A

 

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under the 1934 Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8, §§ 212, 214).

  (d)    For purposes of this Section 5, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

Section 6.    Special Meetings.

  (a)    Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to (x) a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), or (y) upon the written request of the holders of at least twenty-five percent (25%) of the voting power of all of the then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors (the “Voting Stock”), and shall be held at such place, on such date, and at such time as the Board of Directors, shall fix.

  (b)    If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than ninety (90) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within forty-five (45) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

Section 7.    Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing,

 

3


signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, §§ 222, 229)

Section 8.    Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the vote cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, § 216)

Section 9.    Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8, § 222(c))

Section 10.    Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. (Del. Code Ann., tit. 8, §§ 211(e), 212(b))

 

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Section 11.    Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, § 217(b))

Section 12.    List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8, § 219(a))

Section 13.    Organization.

  (a)    At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

  (b)    The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

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ARTICLE IV

DIRECTORS

Section 14.    Number and Term of Office.

  (a)    The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation.

  (b)    Directors need not be stockholders unless so required by the Certificate of Incorporation. No person shall be eligible to be nominated for election to the board of directors of the corporation if such person (i) is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year, (ii) has, in the five years preceding such person’s nomination for election as a director, been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission (the “SEC”) to have violated any federal securities or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated or (iii) has ever been terminated as an executive of the corporation if such termination was for “cause” as defined in any employment or employment-related agreement between such person and the corporation.

  (c)    If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws (Del. Code Ann., tit 8, §§ 141(b), 211(b), (c))”.

Section 15.    Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. (Del. Code Ann., tit. 8, § 141(a))

Section 16.    Election of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next annual meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 17.    Vacancies. Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, except as otherwise provided by law, be filled by (i) the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors or (ii) the affirmative vote of the holders of a majority of the voting power of all Voting Stock. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (Del. Code Ann., tit. 8, § 223(a), (b))

 

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Section 18.    Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, §§ 141(b), 223(d))

Section 19.    Removal. Subject to the rights of the holders of any series of Preferred Stock and to any limitations imposed by law, the Board of Directors or any individual director may be removed at any time for cause or without cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of Voting Stock. The vacancy on the Board of Directors caused by any such removal may be filled by the stockholders at such meeting or as provided in Section 17.

Section 20.    Meetings.

  (a)    Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.

  (b)    Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolution of the Board of Directors or the written consent of all directors. (Del. Code Ann., tit. 8, § 141(g))

  (c)    Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors (Del. Code Ann., tit. 8, § 141(g))

  (d)    Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, § 141(i))

  (e)    Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the

 

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meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, § 229)

  (f)    Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, § 229)

Section 21.    Quorum and Voting.

  (a)    Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 42 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, § 141(b))

  (b)    At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, § 141(b))

Section 22.    Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. (Del. Code Ann., tit. 8, § 141(f))

Section 23.    Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, § 141(h))

Section 24.    Committees.

  (a)    Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one

 

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(1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees. (Del. Code Ann., tit. 8, § 141(c))

  (b)    Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member’s term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, §141(c))

  (c)    Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the committees appointed pursuant to this Section 24 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, §§ 141(c), 229)

Section 25.    Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

Section 26.    Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief

 

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Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, §§ 122(5), 142(a), (b))

Section 27.    Tenure and Duties of Officers.

  (a)    General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, § 141(b), (e))

  (b)    Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 27. (Del. Code Ann., tit. 8, § 142(a))

  (c)    Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

  (d)    Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

  (e)    Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct

 

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any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

  (f)    Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, § 142(a))

Section 28.    Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

Section 29.    Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. (Del. Code Ann., tit. 8, § 142(b))

Section 30.    Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING

OF SECURITIES OWNED BY THE CORPORATION

Section 31.    Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158)

 

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Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158)

All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. (Del. Code Ann., tit. 8, §§ 103(a), 142(a), 158).

Section 32.    Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. (Del. Code Ann., tit. 8, § 123)

ARTICLE VII

SHARES OF STOCK

Section 33.    Form and Execution of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock of the corporation, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by certificate in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by such holder in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. (Del. Code Ann., tit. 8, § 158)

Section 34.    Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to

 

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give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, § 167)

Section 35.    Transfers.

  (a)    Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, § 201, tit. 6, § 8- 401(1))

  (b)    The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8, § 160 (a))

Section 36.    Fixing Record Dates.

  (a)    In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

  (b)    In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, § 213)

Section 37.    Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, §§ 213(a), 219)

 

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ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

Section 38.    Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 33), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

ARTICLE IX

DIVIDENDS

Section 39.    Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. (Del. Code Ann., tit. 8, §§ 170, 173)

Section 40.    Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, § 171)

ARTICLE X

FISCAL YEAR

Section 41.    Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

 

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ARTICLE XI

INDEMNIFICATION

Section 42.    Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.

  (a)    Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, “executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d).

  (b)    Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law.

  (c)    Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

  (d)    Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a

 

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contract between the corporation and the director or executive officer. Any right to indemnification or advances granted by this Bylaw to a director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation.

  (e)    Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law.

  (f)    Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

  (g)    Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.

  (h)    Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

 

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  (i)    Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law.

  (j)    Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:

  (i)    The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

  (ii)    The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

  (iii)    The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

  (iv)    References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

  (v)    References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Bylaw.

 

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ARTICLE XII

NOTICES

Section 43.    Notices.

  (a)    Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8, § 222)

  (b)    Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

  (c)    Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, § 222)

  (d)    Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission.

  (e)    Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

  (f)    Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice.

  (g)    Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision

 

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of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

  (h)    Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. (Del. Code Ann, tit. 8, § 230)

ARTICLE XIII

AMENDMENTS

Section 44.    Amendments. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of Voting Stock. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.

ARTICLE XIV

LOANS TO OFFICERS

Section 45.    Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. (Del. Code Ann., tit. 8, §143)

 

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ARTICLE XV

NET OPERATING LOSS BLOCKING PROVISION

Section 46.    Definitions. As used in this Article XV, the following capitalized terms have the following meanings when used herein with initial capital letters (and any references to any portions of Treasury Regulation § 1.382-2T shall include any successor provisions):

5% Transaction” means any Transfer described in clause (a) or (b) of Section 47.

Agent” has the meaning set forth in Section 51.

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

Corporation Securities” means (i) shares of Common Stock, (ii) shares of Preferred Stock (other than preferred stock described in Section 1504(a)(4) of the Code), (iii) warrants, rights, or options (including options within the meaning of Treasury Regulation § 1.382-2T(h)(4)(v)) to purchase Securities of the corporation, and (iv) any Stock.

Excess Securities” has the meaning given such term in Section 50.

Expiration Date” means the beginning of the taxable year of the corporation to which the Board of Directors determines that no Tax Benefits may be carried forward.

Five-Percent Stockholder” means a Person or group of Persons that is (or assuming the exercise of any convertible securities, will be) a “5-percent stockholder” of the corporation pursuant to Treasury Regulation § 1.382-2T(g).

Percentage Stock Ownership” means the percentage Stock Ownership interest of any Person or group (as the context may require) for purposes of Section 382 of the Code as determined in accordance with Treasury Regulation § 1.382-2T(g), (h), (j) and (k) or any successor provision.

Person” means any individual, firm, corporation or other legal entity, and includes any successor (by merger or otherwise) of such entity.

Prohibited Distribution” has the meaning given such term in Section 51.

Prohibited Transfer” means any purported Transfer of Corporation Securities to the extent that such Transfer is prohibited and/or void under this Article XV.

Public Group” has the meaning set forth in Treasury Regulation § 1.382-2T(f)(13).

Purported Transferee” has the meaning set forth in Section 50.

Securities” and “Security” each has the meaning set forth in Section 53.

Stock” means any interest that would be treated as “stock” of the corporation pursuant to Treasury Regulation § 1.382-2T(f)(18).

 

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Stock Ownership” means any direct or indirect ownership of Stock, including any ownership by virtue of application of constructive ownership rules, with such direct, indirect, and constructive ownership determined under the provisions of Code Section 382 and the regulations thereunder.

Tax Benefit” means the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative minimum tax credit carryovers and foreign tax credit carryovers, as well as any loss or deduction attributable to a “net unrealized built-in loss” within the meaning of Code Section 382, of the corporation or any direct or indirect subsidiary thereof.

Transfer” means, any direct or indirect sale, transfer, assignment, conveyance, pledge or other disposition or other action taken by a person that alters the Percentage Stock Ownership of any Person or group. A Transfer also shall include the creation or grant of an option (including an option within the meaning of Treasury Regulation § 1.382-2T(h)(4)(v)).

Section 47.    Restrictions on Transfers. Any attempted Transfer of Corporation Securities prior to the Expiration Date and any attempted Transfer of Corporation Securities pursuant to an agreement entered into prior to the Expiration Date, shall be prohibited and void ab initio (a) if the transferor is a Five-Percent Stockholder or (b) to the extent that, as a result of such Transfer (or any series of Transfers of which such Transfer is a part), either (1) any Person or group of Persons would become a Five-Percent Stockholder or (2) the Percentage Stock Ownership in the corporation of any Five-Percent Stockholder would be increased.

Section 48.    Exceptions. The restrictions set forth in Section 47 shall not apply to an attempted Transfer that is a 5% Transaction if the transferor or the transferee obtains the prior written approval of the Board of Directors. As a condition to granting its approval pursuant to Section 48, the Board of Directors may, in its discretion, require (at the expense of the transferor and/or transferee) an opinion of counsel selected by the Board of Directors that the Transfer shall not result in the application of any Section 382 limitation on the use of the Tax Benefits. The Board of Directors may impose any conditions that it deems reasonable and appropriate in connection with such approval, including, without limitation, restrictions on the ability of any transferee to Transfer Corporation Securities acquired through a Transfer. The Board of Directors may exercise the authority granted by this Article XV through duly authorized officers or agents of the corporation. Approvals of the Board of Directors hereunder may be given prospectively or retroactively. Nothing in this Section 48 shall be construed to limit or restrict the Board of Directors in the exercise of its fiduciary duties under applicable law.

Section 49.    Legend. Each certificate or book-entry, and any notice of issuance provided to stockholders, representing shares of Common Stock issued by the corporation shall conspicuously include the following legend:

“THE GOVERNING DOCUMENTS OF THE CORPORATION CONTAIN RESTRICTIONS PROHIBITING THE TRANSFER OF ANY STOCK OF THE CORPORATION (INCLUDING THE CREATION OR GRANT OF CERTAIN OPTIONS) WITHOUT THE PRIOR AUTHORIZATION OF THE BOARD OF DIRECTORS OF THE CORPORATION (THE “BOARD OF DIRECTORS”) IF SUCH TRANSFER AFFECTS THE PERCENTAGE OF STOCK OF THE CORPORATION (WITHIN THE MEANING OF SECTION 382 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) AND THE TREASURY REGULATIONS PROMULGATED THEREUNDER), THAT IS TREATED AS OWNED BY A FIVE PERCENT STOCKHOLDER UNDER THE CODE AND SUCH REGULATIONS. IF THE

 

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TRANSFER RESTRICTIONS ARE VIOLATED, THEN THE TRANSFER WILL BE VOID AB INITIO AND THE PURPORTED TRANSFEREE OF THE STOCK WILL BE REQUIRED TO TRANSFER EXCESS SECURITIES TO THE CORPORATION’S AGENT. IN THE EVENT OF A TRANSFER WHICH DOES NOT INVOLVE SECURITIES OF THE CORPORATION WITHIN THE MEANING OF DELAWARE GENERAL CORPORATION LAW (“SECURITIES”) BUT WHICH WOULD VIOLATE THE TRANSFER RESTRICTIONS, THE PURPORTED TRANSFEREE (OR THE RECORD OWNER) OF THE SECURITIES WILL BE REQUIRED TO TRANSFER SUFFICIENT SECURITIES TO CAUSE THE FIVE PERCENT STOCKHOLDER TO NO LONGER BE IN VIOLATION OF THE TRANSFER RESTRICTIONS. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO THE HOLDER OF RECORD OF THIS CERTIFICATE A COPY OF THE RELEVANT GOVERNING DOCUMENTS, CONTAINING THE ABOVE-REFERENCED TRANSFER RESTRICTIONS, UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.”

The Board of Directors may also require that any certificates issued by the corporation representing shares of Common Stock issued by the corporation that are subject to conditions imposed by the Board of Directors under Section 48 of this Article XV also bear a conspicuous legend referencing the applicable restrictions.

Section 50.    Excess Securities.

  (a)    No employee or agent of the corporation shall record any Prohibited Transfer, and the purported transferee of such a Prohibited Transfer (the “Purported Transferee”) shall not be recognized as a stockholder of the corporation for any purpose whatsoever in respect of the Corporation Securities which are the subject of the Prohibited Transfer (the “Excess Securities”). Until the Excess Securities are acquired by another person in a Transfer that is not a Prohibited Transfer, the Purported Transferee shall not be entitled with respect to such Excess Securities to any rights of stockholders of the corporation, including, without limitation, the right to vote such Excess Securities and to receive dividends or distributions, whether liquidating or otherwise, in respect thereof, if any, and the Excess Securities shall be deemed to remain with the transferor unless and until the Excess Securities are transferred to the Agent pursuant to Section 51 of this Article XV or until an approval is obtained under Section 48 of this Article XV. After the Excess Securities have been acquired in a Transfer that is not a Prohibited Transfer, the Corporation Securities shall cease to be Excess Securities. For this purpose, any Transfer of Excess Securities not in accordance with the provisions of this Section 50 or Section 51 shall also be a Prohibited Transfer.

  (b)    The corporation may require as a condition to the registration of the Transfer of any Corporation Securities or the payment of any distribution on any Corporation Securities that the proposed transferee or payee furnish to the corporation all information reasonably requested by the corporation with respect to all the direct or indirect ownership interests in such Corporation Securities. The corporation may make such arrangements or issue such instructions to its stock transfer agent as may be determined by the Board of Directors to be necessary or advisable to implement this Article XV, including, without limitation, authorizing such transfer agent to require an affidavit from a Purported Transferee regarding such Person’s actual and constructive ownership of stock and other evidence that a Transfer will not be prohibited by this Article XV as a condition to registering any transfer.

Section 51.    Transfer to Agent. If the Board of Directors determines that a Transfer of Corporation Securities constitutes a Prohibited Transfer then, upon written demand by the

 

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corporation sent within thirty (30) days of the date on which the Board of Directors determines that the attempted Transfer would result in Excess Securities, the Purported Transferee shall transfer or cause to be transferred any certificate or other evidence of ownership of the Excess Securities within the Purported Transferee’s possession or control, together with any dividends or other distributions that were received by the Purported Transferee from the corporation with respect to the Excess Securities (“Prohibited Distributions”), to an agent designated by the Board of Directors (the “Agent”). The Agent shall thereupon sell to a buyer or buyers, which may include the corporation, the Excess Securities transferred to it in one or more arm’s-length transactions (on the public securities market on which such Excess Securities are traded, if possible, or otherwise privately); provided, however, that any such sale must not constitute a Prohibited Transfer and provided, further, that the Agent shall effect such sale or sales in an orderly fashion and shall not be required to effect any such sale within any specific time frame if, in the Agent’s discretion, such sale or sales would disrupt the market for the Corporation Securities or otherwise would adversely affect the value of the Corporation Securities. If the Purported Transferee has resold the Excess Securities before receiving the corporation’s demand to surrender Excess Securities to the Agent, the Purported Transferee shall be deemed to have sold the Excess Securities for the Agent, and shall be required to transfer to the Agent any Prohibited Distributions and proceeds of such sale, except to the extent that the corporation grants written permission to the Purported Transferee to retain a portion of such sales proceeds not exceeding the amount that the Purported Transferee would have received from the Agent pursuant to Section 52 if the Agent rather than the Purported Transferee had resold the Excess Securities.

Section 52.    Application of Proceeds and Prohibited Distributions. The Agent shall apply any proceeds of a sale by it of Excess Securities and, if the Purported Transferee has previously resold the Excess Securities, any amounts received by it from a Purported Transferee, together, in either case, with any Prohibited Distributions, as follows: (a) first, such amounts shall be paid to the Agent to the extent necessary to cover its costs and expenses incurred in connection with its duties hereunder; (b) second, any remaining amounts shall be paid to the Purported Transferee, up to the amount paid by the Purported Transferee for the Excess Securities (or the fair market value at the time of the Transfer, in the event the purported Transfer of the Excess Securities was, in whole or in part, a gift, inheritance or similar Transfer) which amount shall be determined at the discretion of the Board of Directors; and (c) third, any remaining amounts shall be paid to one or more organizations qualifying under Section 501(c)(3) of the Code (or any comparable successor provision) selected by the Board of Directors. The Purported Transferee of Excess Securities shall have no claim, cause of action or any other recourse whatsoever against any transferor of Excess Securities. The Purported Transferee’s sole right with respect to such shares shall be limited to the amount payable to the Purported Transferee pursuant to this Section 52. In no event shall the proceeds of any sale of Excess Securities pursuant to this Section 52 inure to the benefit of the corporation or the Agent, except to the extent used to cover costs and expenses incurred by the Agent in performing its duties hereunder.

Section 53.    Modification of Remedies for Certain Indirect Transfers. In the event of any Transfer which does not involve a transfer of securities of the corporation within the meaning of Delaware General Corporation Law (“Securities,” and individually, a “Security”) but which would cause a Five-Percent Stockholder to violate a restriction on Transfers provided for in this Article XV, the application of Section 51 and Section 52 shall be modified as described in this Section 53. In such case, no such Five-Percent Stockholder shall be required to dispose of any interest that is not a Security, but such Five-Percent Stockholder and/or any Person whose ownership of Securities is attributed to such Five-Percent Stockholder shall be deemed to have disposed of and shall be required

 

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to dispose of sufficient Securities (which Securities shall be disposed of in the inverse order in which they were acquired) to cause such Five-Percent Stockholder, following such disposition, not to be in violation of this Article XV. Such disposition shall be deemed to occur simultaneously with the Transfer giving rise to the application of this provision, and such number of Securities that are deemed to be disposed of shall be considered Excess Securities and shall be disposed of through the Agent as provided in Section 51 and Section 52, except that the maximum aggregate amount payable either to such Five-Percent Stockholder or to such other Person that was the direct holder of such Excess Securities, in connection with such sale shall be the fair market value of such Excess Securities at the time of the purported Transfer. All expenses incurred by the Agent in disposing of such Excess Stock shall be paid out of any amounts due such Five-Percent Stockholder or such other Person. The purpose of this Section 53 is to extend the restrictions in Section 47 and Section 51 to situations in which there is a 5% Transaction without a direct Transfer of Securities, and this Section 53, along with the other provisions of this Article XV, shall be interpreted to produce the same results, with differences as the context requires, as a direct Transfer of Corporation Securities.

Section 54.    Legal Proceedings. If the Purported Transferee fails to surrender the Excess Securities or the proceeds of a sale thereof to the Agent within thirty (30) days from the date on which the corporation makes a written demand pursuant to Section 51 (whether or not made within the time specified in Section 51), then the corporation shall use reasonable best efforts to take all actions necessary to enforce the provisions hereof, and/or enjoin or rescind any violation hereof, including the institution of legal proceedings to compel the surrender. Nothing in this Section 54 shall (a) be deemed inconsistent with any Transfer of the Excess Securities provided in this Article XV being void ab initio, (b) preclude the corporation in its discretion from immediately bringing legal proceedings without a prior demand or (c) cause any failure of the corporation to act within the time periods set forth in Section 51 to constitute a waiver or loss of any right of the corporation under this Article XV.

Section 55.    Damages. Any stockholder subject to the provisions of this Article XV who knowingly violates the provisions of this Article XV and any Persons controlling, controlled by or under common control with such stockholder shall be jointly and severally liable to the corporation for, and shall indemnify and hold the corporation harmless against, any and all damages suffered as a result of such violation, including but not limited to damages resulting from a reduction in, or elimination of, the corporation’s ability to utilize its Tax Benefits, and attorneys’ and auditors’ fees incurred in connection with such violation.

Section 56.    Board Authority.

  (a)    The Board of Directors of the corporation shall have the power to determine all matters necessary for assessing compliance with this Article XV, including, without limitation, (i) the identification of Five-Percent Stockholders, (ii) whether a Transfer is a 5% Transaction or a Prohibited Transfer, (iii) the Percentage Stock Ownership in the corporation of any Five-Percent Stockholder, (iv) whether an instrument constitutes a Corporation Security, (v) the amount (or fair market value) due to a Purported Transferee pursuant to Section 52, and (vi) any other matters which the Board of Directors determines to be relevant; and the good faith determination of the Board of Directors on such matters shall be conclusive and binding for all the purposes of this Article XV. In addition, the Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind by-laws, regulations and procedures of the corporation not inconsistent with the provisions of this Article XV for purposes of determining whether any Transfer of

 

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Corporation Securities would jeopardize the corporation’s ability to preserve and use the Tax Benefits and for the orderly application, administration and implementation of this Article XV.

  (b)    Nothing contained in this Article XV shall limit the authority of the Board of Directors to take such other action to the extent permitted by law as it deems necessary or advisable to protect the corporation and its stockholders in preserving the Tax Benefits. Without limiting the generality of the foregoing, in the event of a change in law making one or more of the following actions necessary or desirable, the Board of Directors may, by adopting a written resolution, (i) accelerate or extend the Expiration Date, (ii) modify the ownership interest percentage in the corporation or the Persons or groups covered by this Article XV, (iii) modify the definitions of any terms set forth in this Article XV or (iv) modify the terms of this Article XV as appropriate to prevent an ownership change for purposes of Section 382 of the Code as a result of any changes in applicable Treasury Regulations or otherwise; provided, however, that the Board of Directors shall not cause there to be such acceleration, extension, change or modification unless it determines, by adopting a written resolution, that such action is reasonably necessary or advisable to preserve the Tax Benefits or that the continuation of these restrictions is no longer reasonably necessary for the preservation of the Tax Benefits, and its conclusion is based upon a written opinion of tax counsel to the corporation. Such written resolution of the Board of Directors shall be filed with the Secretary of the corporation. Stockholders of the corporation shall be notified of such determination through a filing with the Securities and Exchange Commission or such other method of notice as the Secretary of the corporation shall deem appropriate.

  (c)    In the case of an ambiguity in the application of any of the provisions of this Article XV, including any definition used herein, the Board of Directors shall have the power to determine the application of such provisions with respect to any situation based on its reasonable belief, understanding or knowledge of the circumstances. In the event this Article XV requires an action by the Board of Directors but fails to provide specific guidance with respect to such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of this Article XV. All such actions, calculations, interpretations and determinations which are done or made by the Board of Directors in good faith shall be conclusive and binding on the corporation, the Agent, and all other parties for all other purposes of this Article XV. The Board of Directors, to the fullest extent permitted by law, may exercise the authority granted by this Article XV through duly authorized officers or agents of the corporation. Nothing in this Article XV shall be construed to limit or restrict the Board of Directors in the exercise of its fiduciary duties under applicable law.

Section 57.    Reliance. The corporation and the members of the Board of Directors shall be fully protected in relying in good faith upon the information, opinions, reports or statements of the chief executive officer, the chief financial officer or the chief accounting officer of the corporation or of the corporation’s legal counsel, independent auditors, transfer agent, investment bankers or other employees and agents in making the determinations and findings contemplated by this Article XV, and the members of the Board of Directors shall not be responsible for any good faith errors made in connection therewith. For purposes of determining the existence and identity of, and the amount of any Corporation Securities owned by any stockholder, the corporation is entitled to rely conclusively on (a) the existence and absence of filings of Schedule 13D or 13G under the Securities and Exchange Act of 1934 (or similar schedules or filings), as of any date and (b) its actual knowledge of the ownership of Corporation Securities.

 

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Section 58.    Obligation to Provide Information. As a condition to the registration of the Transfer of any Stock, any Person who is a beneficial, legal or record holder of Stock, and any proposed transferee and any Person controlling, controlled by or under common control with the proposed transferee, shall provide such information as the corporation may request from time to time in order to determine compliance with this Article XV or the status of the Tax Benefits of the corporation.

  (a)    General Authorization. The purpose of this Article XV is to facilitate the corporation’s ability to maintain or preserve its Tax Benefits. If any provision of this Article XV or any application of any provision thereunder is determined to be invalid, the validity of the remaining provisions shall be unaffected and application of such provision shall be affected only to the extent necessary to comply with such determination.

Section 59.    Amendment of Transfer Restrictions. Notwithstanding the provisions of Article XV, the corporation may only amend or repeal any of the provisions set forth in this Article XV by the affirmative vote of the holders of at least two-thirds of the outstanding shares entitled to vote thereon.

ARTICLE XVI

INTRA-CORPORATE LITIGATION

Section 60. Definitions.

“Claim” means (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Certificate of Incorporation or the Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine.

“Foreign Action” means any Claim filed in a court other than a court located within the State of Delaware.

“FSC Enforcement Action” means any action brought to enforce Section 61 of this Article XVI.

“Person” means an individual, any general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise) of such entity.

Section 61. Exclusive Forum. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any Claim.

Section 62. Personal Jurisdiction. If any Foreign Action is filed in the name of any stockholder, such stockholder shall, to the fullest extent permitted by law, be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any FSC Enforcement Action and (ii) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

Section 63. Payment of Litigation Costs and Expenses. To the fullest extent permitted by law, in the event that any Person (i) initiates or asserts a Claim, or joins any such Claim as a named party, and (ii) does not thereby obtain a judgment on the merits that substantially achieves the full remedy or relief sought in the Claim, such Person shall be jointly and severally obligated to reimburse the corporation for all fees, costs and expenses (including attorneys’ fees and the fees of experts) actually and reasonably incurred by the corporation in defending such Claim.

 

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Exhibit 4.1

DESCRIPTION OF CAPITAL STOCK OF HARBOR DIVERSIFIED INC.

The following is a summary of characteristics of the capital stock of Harbor Diversified, Inc., as set forth in our amended and restated certificate of incorporation, as amended, or our Charter, and our amended and restated bylaws, as amended, or our Bylaws. References to “we,” “us,” “our” or the “Company” refer to Harbor Diversified, Inc. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to our Charter and Bylaws, copies of which have been filed as exhibits to our Annual Report on Form 10-K of which this Exhibit is a part. We encourage you to read our Charter and Bylaws and the applicable provisions of the Delaware General Corporation Law, or the DGCL, for additional information.

General

Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share, 2,000,000 of which have been designated Series A Preferred Stock, 300,000 of which have been designated Series B Junior Participating Preferred Stock, or, together with the Series A Preferred Stock, the Junior Stock, and 4,000,000 of which have been designated Series C Convertible Redeemable Preferred Stock. Consistent with the terms of our Charter, all of the shares of the Series A Preferred Stock have been converted to shares of our common stock and may not be reissued as authorized shares of preferred stock, and all of the shares of Series B Junior Participating Preferred Stock shares remain authorized as none have been issued.

Common Stock

Our Charter authorizes the issuance of up to 100,000,000 shares of common stock. All outstanding shares of our common stock are validly issued, fully paid and nonassessable. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and our Charter does not provide for cumulative voting in the election of directors. Subject to preferences that may be applicable to any outstanding series of preferred stock, the holders of our common stock will receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. In the event of our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of or provision for any liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.

Our common stock is not entitled to preemptive rights, and is not subject to redemption. There are no sinking fund provisions applicable to our common stock. Our common stock is not convertible into any other shares of our capital stock.

Series C Convertible Redeemable Preferred Stock

Pursuant to the terms of our Charter, our board of directors is authorized, subject to limitations prescribed by the DGCL, to issue up to 10,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further action by our stockholders. On January 17, 2020, we filed a Certificate of Designations, Preferences, and Rights of Series C Convertible Redeemable Preferred Stock with the Secretary of State of the State of Delaware, or the Certificate of Designations, establishing the rights, preferences, privileges, qualifications, restrictions and limitations relating to 4,000,000 shares of our Series C Convertible Redeemable Preferred Stock, par value $0.01 per share. Our Series C Convertible Redeemable Preferred Stock ranks senior to our common stock and any other class or series of capital stock, with respect to rights to dividends, distributions, redemptions and payments upon the liquidation, dissolution and winding up of the Company. Holders of our Series C Convertible Redeemable Preferred Stock have the right to vote with holders of our common stock on an as-converted basis on all matters, subject to such limitations as set forth in the Certificate of Designations. Each share of our Series C Convertible Redeemable Preferred Stock is convertible at the option of its holder into shares of our common stock. The amount of shares of our common stock that our Series C Convertible Redeemable Preferred Stock is convertible into is determined by dividing the then-applicable Series C Liquidation Amount on the date of conversion by the Conversion Price of the Series C Convertible Redeemable Preferred Stock, which is $0.80, as adjusted. The Series C Liquidation Amount is equal to $3.30, as adjusted, plus all accrued but unpaid preferential dividends, conversion cap excess dividends, and any other accrued but unpaid dividends on such share of Series C Convertible Redeemable Preferred Stock. Our Series C Convertible Redeemable Preferred Stock is convertible into a maximum of 16,500,000 shares of our common stock, as adjusted.


Limitations on Directors’ and Officers’ Liability

The DGCL authorizes corporations to limit or eliminate the personal liability of officers and directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties. Our Charter and Bylaws include provisions that eliminate, to the extent allowable under the DGCL, the personal liability of officers and directors for monetary damages for actions taken as a director or officer, as the case may be. Our Charter and Bylaws also provide that we must indemnify and advance reasonable expenses to our directors and officers to the fullest extent authorized by the DGCL.

The DGCL’s limitation on the elimination of director liability is generally unavailable for acts or omissions by a director which (i) were not in good faith, (ii) were the result of intentional misconduct or a knowing violation of law, (iii) result in a director deriving an improper personal benefit (such as a financial profit or other advantage to which the director was not legally entitled) or (iv) breached the director’s duty of loyalty. The DGCL also prohibits limitations on director liability under Section 174 of the DGCL, which relates to certain unlawful dividend declarations and stock repurchases.

We maintain insurance that insures our directors and officers against certain losses and which insures us against our obligations to indemnify the directors and officers. We have also entered into indemnification agreements with our directors and executive officer, the form of which has been filed as an exhibit to our Annual Report on Form 10-K of which this Exhibit is a part.

The limitation of liability and indemnification provisions in our Charter and Bylaws may discourage stockholders from bringing a lawsuit against officers and directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit our Company and our stockholders. In addition, investment in our common stock may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.

Provisions of Our Charter and Bylaws and Delaware Law That May Have an Anti-Takeover Effect

Provisions of the DGCL and our Charter and Bylaws could make it more difficult to acquire our Company by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of these provisions outweigh the disadvantages of discouraging certain takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms and enhance the ability of our board of directors to maximize stockholder value. However, these provisions may delay, deter or prevent a merger or acquisition of us that a stockholder might consider is in its best interest, including those attempts that might result in a premium over the prevailing market price of our common stock.

Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals

Our Bylaws provide that special meetings of the stockholders may be called only by the chairman of our board, the chief executive officer, a majority of our board or the written request of holders of at least 25% of the voting power of the then-outstanding shares of voting stock of the Company, entitled to vote at an election of directors. Our Bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.


Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors. In order for any matter to be “properly brought” before a meeting, a stockholder must comply with advance notice procedures and provide us with certain information. Our Bylaws allow our board to adopt rules and regulations for the conduct of stockholder meetings which may have the effect of precluding the conduct of certain business at a meeting if such rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of our Company.

No Cumulative Voting

The DGCL provides that a stockholder’s right to vote cumulatively in the election of directors does not exist unless the certificate of incorporation specifically provides otherwise. Our Charter does not provide for cumulative voting.

Size of Board and Vacancies

Our Charter and Bylaws provide that the exact number of directors on our board of directors is fixed exclusively by our board of directors. Newly created directorships resulting from any increase in our authorized number of directors, and any vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, will generally be filled by a majority of our board of directors then in office, although such vacancies may also be filled by the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the Company, entitled to vote at an election of directors.

Authorized but Unissued Shares

Our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. The DGCL does not require stockholder approval for any issuance of authorized shares. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. As discussed above, our board of directors has the ability to issue preferred stock with voting rights or other preferences, without stockholder approval. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of our Company by means of a proxy contest, tender offer, merger or otherwise.

Five-Percent Stockholder Transfer Restrictions

Our Charter generally restricts any direct or indirect transfers of our common stock if the effect would be to (i) increase the direct or indirect ownership of our common stock by any person or group from less than 5.0% to 5.0% or more of our common stock; or (ii) increase the percentage of our common stock owned directly or indirectly by a person or group owning or deemed to own 5.0% or more of our common stock.

Exclusive Forum Clause

Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our Charter or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine, will, to the fullest extent permitted by law, be the Court of Chancery of the State of Delaware.

Exhibit 10.1

Schedule of Omitted Documents

Exhibit 10.1 to Annual Report on Form 10-K

Harbor Diversified, Inc.

LIST OF INDEMNITEES

Each of the individuals identified below is a party to an indemnification agreement with Harbor Diversified, Inc. in the form attached herewith as Exhibit 10.1 to Harbor Diversified, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019:

 

Name    Date Signed
Nolan Bederman    June 30, 2020
Richard A. Bartlett    June 30, 2020
Kevin Degen    June 30, 2020
Christine R. Deister    June 30, 2020

 

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INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”), dated                     , 20        , is by and between Harbor Diversified, Inc., a Delaware corporation (the “Company”), and                      (“Indemnitee”).

RECITALS

A.        Indemnitee is a director or an officer of the Company.

B.        The board of directors of the Company (the “Board”) has determined that enhancing the ability of the Company to attract and retain as directors and officers the most capable persons is in the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification is available.

C.        In recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director or officer of the Company and enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights, the Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses to, Indemnitee as set forth in this Agreement.

D.        The rights provided to Indemnitee pursuant to this Agreement are intended to be enforceable irrespective of, among other things, any amendment to the Company’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws (as amended, and in effect from time to time, the “Constituent Documents”), any change in the composition of the Board, and any change in control or business combination transaction relating to or involving the Company.

NOW, THEREFORE, in consideration of the foregoing and Indemnitee’s agreement to continue to provide services to the Company, the parties hereby agree as follows:

1. Services to the Company. Indemnitee agrees to continue to serve as a director or officer of the Company for so long as Indemnitee is duly elected or appointed, until Indemnitee tenders Indemnitee’s resignation or until Indemnitee is terminated by the Company, as applicable. This Agreement shall not be deemed an employment agreement between Indemnitee and the Company. Indemnitee specifically acknowledges that Indemnitee’s service to the Company is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment agreement (or similar agreement) between Indemnitee and the Company, other applicable severance or change of control agreements duly adopted by the Board or, with respect to service as a director or officer of the Company, by the Constituent Documents or Delaware law. This Agreement shall continue in force after Indemnitee has ceased to serve as a director or officer of the Company.

2. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(a) “Agreement” shall have the meaning ascribed to it in the preamble above.

 

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(b) “Beneficial Owner” has the meaning given to such term in Rule 13d-3 under the Exchange Act.

(c) “Board” shall have the meaning ascribed to it in the recitals above.

(d) “Business Combination” means a reorganization, merger, consolidation or similar transaction relating to or involving the Company.

(e) “Change in Control” means the occurrence after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person who is not a stockholder of the Company as of the effective date of this Agreement becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the Voting Securities, unless the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding Voting Securities;

(ii) Corporate Transactions. The consummation of a Business Combination, unless immediately following such Business Combination, (1) the Beneficial Owners of the Voting Securities of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the outstanding Voting Securities of the entity resulting from such transaction, (2) no Person (excluding any Person resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of twenty percent (20%) or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such Person except to the extent that such ownership existed prior to the Business Combination and (3) at least a majority of the Board of Directors of the Person resulting from such Business Combination were Continuing Directors, at the time of the execution of the initial agreement or of the action of the Board, providing for such Business Combination;

(iii) Change in Board of Directors. The Continuing Directors cease for any reason to constitute at least a majority of the members of the Board; or

(iv) Liquidation. The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions).

(f) “Claim” means:

(i) any threatened, pending or completed action, suit, demand, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; or

(ii) any inquiry, hearing or investigation that Indemnitee determines might lead to the institution of any such action, suit, demand, proceeding or alternative dispute resolution mechanism.

 

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(g) “Company” shall have the meaning ascribed to it in the preamble above.

(h) “Constituent Documents” shall have the meaning ascribed to it in the recitals above.

(i) “Continuing Directors” means, during a period of two consecutive years, not including any period prior to the execution of this Agreement, the individuals collectively who, at the beginning of such period, constituted the Board (including for this purpose any new directors whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved).

(j) “Delaware Court” means the Court of Chancery of the State of Delaware.

(k) “Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.

(l) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(m) “Expense Advance” means any payment of Expenses advanced to Indemnitee by the Company pursuant to Section 4 or Section 5 hereof.

(n) “Expenses” means any and all expenses (including reasonable attorneys’ and experts’ fees), court costs, transcript costs, travel expenses, duplicating costs, and all other costs and expenses incurred in connection with investigating, defending, being a witness in or participating in, or preparing to defend, be a witness in or participate in, any Claim. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Claim, including, without limitation, the premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 5 only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses shall not include amounts paid in settlement by Indemnitee or the amount of any judgments or fines against Indemnitee.

(o) “Indemnifiable Event” means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee or agent of the Company or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such capacity at the time any Loss is incurred for which indemnification can be provided under this Agreement).

(p) “Indemnitee” shall have the meaning ascribed to it in the preamble above.

(q) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently performs, nor in the past five (5) years has performed, services for either: (i) the Company or Indemnitee (other than in connection with matters concerning other indemnitees under similar agreements) or (ii) any other party to the Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

 

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(r) “Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), excise taxes, amounts paid or payable in settlement, including any interest, assessments, any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement and all other charges paid or payable in connection with investigating, defending, being a witness in or participating in, or preparing to defend, be a witness in or participate in, any Claim.

(s) “Notification Date” shall have the meaning ascribed to it in Section 10(c) below.

(t) “Other Indemnity Provisions” shall have the meaning ascribed to it in Section 14 below.

(u) “Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act.

(v) “Standard of Conduct Determination” shall have the meaning ascribed to it in Section 10(b) below.

(w) “Voting Securities” means any securities of the Company that vote generally in the election of directors.

3. Indemnification and Exculpation. Subject to the terms of this Agreement, the Company shall indemnify and hold Indemnitee harmless, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof, or as such laws may from time to time hereafter be amended to increase (but not to decrease) the scope of such permitted indemnification, against any and all Losses if Indemnitee was or is or becomes a party to or participant in, or is threatened to be made a party to or participant in, any Claim by reason of or arising in whole or in part out of an Indemnifiable Event, including, without limitation, Claims brought by or in the right of the Company, Claims brought by third parties, and Claims in which Indemnitee is solely a witness. Without limiting the generality of the foregoing, Indemnitee shall not be liable to the Company for, and the Company hereby releases Indemnitee from, any Claim brought by or in the name of the Company for which (and to the extent) Indemnitee would otherwise be entitled to indemnification from the Company pursuant to this Agreement.

4. Advancement of Expenses. Indemnitee shall have the right to advancement by the Company, prior to the final disposition of any Claim by final adjudication to which there are no further rights of appeal, of any and all Expenses actually and reasonably paid or incurred by Indemnitee in connection with any Claim by reason of or arising in whole or in part out of an Indemnifiable Event. Indemnitee’s right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within thirty (30) calendar days after any request by Indemnitee, the Company shall, in accordance with such request, (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses, as determined in the Company’s discretion. Execution and delivery to the Company of this Agreement by Indemnitee constitutes an undertaking by Indemnitee, and Indemnitee hereby agrees, to repay any amounts paid, advanced or reimbursed by the Company pursuant to this Section 4 in respect of Expenses relating to, arising out of or resulting from any Claim in respect of which it shall be determined, pursuant to Section 10, following the final disposition of such Claim, that Indemnitee is not entitled to

 

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indemnification hereunder. No other form of undertaking shall be required other than the execution of this Agreement. Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.

5. Indemnification for Expenses in Enforcing Rights. To the fullest extent allowable under applicable law, the Company shall also indemnify and hold Indemnitee harmless against, and, if requested by Indemnitee, shall advance to Indemnitee subject to and in accordance with Section 4, any Expenses actually and reasonably paid or incurred by Indemnitee in connection with any action or proceeding by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Claims relating to Indemnifiable Events, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company. However, in the event that Indemnitee is ultimately determined not to be entitled to such indemnification or insurance recovery, as the case may be, then all amounts advanced under this Section 5 shall be repaid. Indemnitee shall be required to reimburse the Company in the event that a final judicial determination is made that such action brought by Indemnitee was frivolous or not made in good faith.

6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of any Losses in respect of a Claim related to an Indemnifiable Event, but not for the total amount thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless for the portion thereof to which Indemnitee is entitled.

7. Contribution in the Event of Joint Liability. To the fullest extent permissible under applicable law, if the indemnification and hold harmless rights provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Indemnifiable Event, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Indemnifiable Event in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees, trustees, fiduciaries and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

8. Notification and Defense of Claims.

(a) Notification of Claims. Indemnitee shall notify the Company in writing as soon as practicable of any Claim of which Indemnitee becomes aware which could relate to an Indemnifiable Event or for which Indemnitee could seek Expense Advances, including a brief description (based upon information then available to Indemnitee) of the nature and amount of, and the facts underlying, such Claim and the anticipated cost of defending such Claim. The failure by Indemnitee to timely notify the Company hereunder shall not relieve the Company from any liability hereunder other than to the extent the Company’s ability to participate in the defense of such claim was materially and adversely prejudiced by such failure.

(b) Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event at its own expense and, except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel

 

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reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any such Claim, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently directly incurred by Indemnitee in connection with Indemnitee’s defense of such Claim other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own legal counsel in such Claim, but all Expenses related to such counsel incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s own expense; provided, however, that if (i) Indemnitee’s employment of its own legal counsel has been authorized by the Company, (ii) Indemnitee’s counsel has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of such Claim, (iii) after a Change in Control, Indemnitee’s employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not in fact have employed counsel to assume the defense of such Claim, then Indemnitee shall be entitled to retain its own separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any such Claim) and all Expenses related to such separate counsel shall be borne by the Company.

(c) Access to Information. In the event of a Claim, upon request by Indemnitee, the Company shall cooperate in providing to Indemnitee’s legal counsel, access to all Company documents and information reasonably necessary to Indemnitee’s defense of such Claim.

9. Procedure Upon Application for Indemnification. In order to obtain indemnification pursuant to this Agreement, Indemnitee shall submit to the Company a written request therefor, including in such request such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification within thirty (30) days following the final disposition of the Claim. Indemnification shall be made insofar as Indemnitee is entitled to indemnification in accordance with Section 10 below.

10. Determination of Right to Indemnification.

(a) Mandatory Indemnification; Indemnification as a Witness.

(i) Mandatory Indemnification. To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Claim relating to an Indemnifiable Event or any portion thereof or in defense of any issue or matter therein, including, without limitation, dismissal without prejudice or settlement of the Claim (subject to the terms of Section 12 below), Indemnitee shall be indemnified against all Losses relating to such Claim in accordance with Section 3 to the fullest extent allowable by law.

(ii) Indemnification as a Witness. To the extent that Indemnitee’s involvement in a Claim relating to an Indemnifiable Event is to prepare to serve and serve as a witness, and not as a party, Indemnitee shall be indemnified against all Losses incurred in connection therewith to the fullest extent allowable by law.

(b) Standard of Conduct. To the extent that the provisions of Section 10(a) are inapplicable to a Claim related to an Indemnifiable Event that shall have been finally disposed of, any determination of whether Indemnitee has satisfied the applicable standard of conduct under Delaware corporate law that is the minimum required condition to Indemnitee’s entitlement to indemnity as provided in Section 3 against Losses relating to such Claim and any determination that

 

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Expense Advances must be repaid to the Company (a “Standard of Conduct Determination”) shall be made as follows:

(i) if no Change in Control has occurred, (A) by a majority vote of the Disinterested Directors, even if less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum or (C) if there are no such Disinterested Directors, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee; and

(ii) if a Change in Control shall have occurred, (A) if Indemnitee so requests in writing, by a majority vote of the Disinterested Directors, even if less than a quorum of the Board or (B) otherwise, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee.

The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within thirty (30) calendar days of such request, any and all Expenses incurred by Indemnitee in cooperating with the Person or Persons making such Standard of Conduct Determination.

(c) Making the Standard of Conduct Determination. The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 10(b) to be made as promptly as practicable. If the Person or Persons designated to make the Standard of Conduct Determination under Section 10(b) shall not have made a determination within thirty (30) calendar days after the later of (i) receipt by the Company of a written request from Indemnitee for indemnification pursuant to Section 9 (the date of such receipt being the “Notification Date”) and (ii) the selection of an Independent Counsel, if such determination is to be made by Independent Counsel, then Indemnitee shall be deemed to have satisfied the applicable standard of conduct, absent (A) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (B) a final judicial determination that any or all such indemnification is expressly prohibited under applicable law; provided, however, that such thirty (30) calendar day period may be extended for a reasonable time, not to exceed an additional fifteen (15) calendar days, if the Person or Persons making such determination in good faith requires such additional time to obtain or evaluate information relating thereto. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of any Claim.

(d) Payment of Indemnification. The Company shall pay to Indemnitee, within thirty (30) calendar days after the later of (A) the Notification Date, or (B) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) below is satisfied, an amount equal to such Losses, if, in regard to any Losses:

(i) Indemnitee shall be entitled to indemnification pursuant to Section 10(a);

(ii) no Standard of Conduct Determination is legally required as a condition to indemnification of Indemnitee hereunder; or

(iii) Indemnitee has been determined or deemed pursuant to Section 10(b) or Section 10(c) to have satisfied the Standard of Conduct Determination.

 

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(e) Selection of Independent Counsel for Standard of Conduct Determination. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 10(b)(i), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is to be made by the Independent Counsel pursuant to Section 10(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within ten (10) calendar days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Section 2, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the individual or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit; and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 10(e) to make the Standard of Conduct Determination shall have been selected within thirty (30) calendar days after the Company gives its initial notice pursuant to the first sentence of this Section 10(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 10(e), as the case may be, either the Company or Indemnitee may petition the Delaware Court to resolve any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or to appoint as Independent Counsel an individual or firm to be selected by the Court or such other person as the Court shall designate, and the individual or firm with respect to whom all objections are so resolved or the individual or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination pursuant to Section 10(b).

(f) Presumptions and Defenses.

(i) Indemnitee’s Entitlement to Indemnification. In making any Standard of Conduct Determination, the Person or Persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the Company shall have the burden of proof to overcome that presumption and establish that Indemnitee is not so entitled. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by Indemnitee in the Delaware Court. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct or failure by the Company to reach such a determination may be used as a defense to any legal proceedings brought by Indemnitee to secure indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.

(ii) Reliance as a Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist,

 

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Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.

(iii) No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable standard of conduct or have any particular belief, or that indemnification hereunder is otherwise not permitted.

(iv) Defense to Indemnification and Burden of Proof. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Losses incurred in defending against a Claim related to an Indemnifiable Event in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any related Standard of Conduct Determination, the burden of proving such a defense or that Indemnitee did not satisfy the applicable standard of conduct shall be on the Company.

(v) Resolution of Claims. The Company acknowledges that a settlement or other disposition short of final judgment may be successful on the merits or otherwise for purposes of Section 10(a)(i) if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Claim relating to an Indemnifiable Event to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with our without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise for purposes of Section 10(a)(i). The Company shall have the burden of proof to overcome this presumption.

11. Exclusions from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated to:

(a) indemnify or advance funds to Indemnitee for Expenses or Losses with respect to proceedings initiated by Indemnitee, including any proceedings against the Company or its directors, officers, employees or other indemnitees and not by way of defense, except:

(i) proceedings referenced in Section 5 above (unless a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous); or

(ii) where the Company has joined in or the Board has consented to the initiation of such proceedings.

 

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(b) indemnify Indemnitee if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law.

(c) indemnify Indemnitee for the disgorgement of profits arising from the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act, or any similar successor statute, state law or other law, in each case to the extent applicable.

(d) indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 in connection with an accounting restatement of the Company or the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).

12. Settlement of Claims. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Claim related to an Indemnifiable Event effected without the Company’s prior written consent, which shall not be unreasonably withheld. The Company shall not settle any Claim related to an Indemnifiable Event in any manner that would impose any Losses on Indemnitee without Indemnitee’s prior written consent. The Company shall not, without the prior written consent of Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event which Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of Indemnitee from all liability on all claims that are the subject matter of such Claim.

13. Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director, officer, employee or agent of the Company and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Claim relating to an Indemnifiable Event (including any rights of appeal thereto) and (ii) throughout the pendency of any proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Claim or proceeding.

14. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, the law of the State of Delaware, any other contract or otherwise (collectively, “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

15. Liability Insurance. For the duration of Indemnitee’s service as a director or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending Claim relating to an Indemnifiable Event, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to obtain and maintain in effect policies of directors’ and officers’ liability insurance providing coverage that is

 

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substantially comparable in scope and amount to that provided by the Company’s current policies. The insurance provided pursuant to this Section 15 shall be primary insurance to Indemnitee for any Indemnifiable Event and/or Expense to which such insurance applies. In all policies of directors’ and officers’ liability insurance maintained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director, or of the Company’s officers, if Indemnitee is an officer (and not a director) by such policy. Upon request, the Company will provide to Indemnitee copies of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials.

16. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Losses to the extent Indemnitee has otherwise received payment under any insurance policy, the Constituent Documents, Other Indemnity Provisions or otherwise of the amounts otherwise indemnifiable by the Company hereunder.

17. Subrogation. In the event of payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all papers required and shall do everything that may be necessary, in each case as may be reasonably requested by the Company, to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

18. Amendments; Waivers. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or delay in exercising any right or remedy hereunder shall constitute a waiver thereof.

19. Enforcement and Binding Effect.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

(b) Without limiting any of the rights of Indemnitee under any Other Indemnity Provisions as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to

 

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assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

20. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any portion thereof) are held by a court of competent jurisdiction to be invalid, illegal, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

21. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, by postage prepaid, certified or registered mail:

(a) if to Indemnitee, to the address set forth on the signature page hereto.

(b) if to the Company, to:

Harbor Diversified, Inc.

Attn: Chief Executive Officer

W6390 Challenger Drive, Suite 203

Appleton, WI 54914-9120

Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to be effective upon receipt.

22. Governing Law and Forum. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to its principles of conflicts of laws. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States or any other country, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement and (c) waive, and agree not to plead or make, any claim that the Delaware Court lacks venue or that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

23. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

24. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

 

 

COMPANY:

 

HARBOR DIVERSIFIED, INC.

 

By:                                                                                                                           

 

Name:                                                                                                                     

 

Its:                                                                                                                            

 

INDEMNITEE:

 

 

 

 

  (Print Name)
 

Address:                                                                                                              

 

                                                                                                                             

 

                                                                                                                             

 

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into on June 24, 2015, effective as of April 7, 2015 (the “Agreement”) by and between Air Wisconsin Airlines Corporation, a Delaware corporation (the “Company”), and Christine R. Deister (the “Executive”) (collectively, the “Parties”).

WHEREAS, the Company is engaged in the business of operating a regional airline company;

WHEREAS, the Company desires to employ the Executive as President and Chief Executive Officer, and the Parties desire to enter into this Agreement to secure the Executive’s employment during the Term of Employment, all on the terms and conditions set forth herein; and

NOW THEREFORE, the Parties agree as follows:

 

1.

Title.    The Company hereby employs the Executive and the Executive agrees to serve the Company as its President and Chief Executive Officer on the terms and conditions hereinafter set forth.

 

2.

Employment Term.    The Executive’s employment by the Company as President and Chief Executive Officer under this Agreement commenced on April 7, 2015 (the “Effective Date”) and shall continue through April 30, 2017, unless sooner terminated pursuant to Paragraph 7 below. The term of the Executive’s employment hereunder shall thereafter automatically renew for successive one year periods unless sooner terminated pursuant to Paragraph 7 below or unless either Party provides notice to the other Party, at least sixty days prior to the commencement of the first or next such renewal period, that the term of the Executive’s employment shall end upon the expiration of the then term. Such term of employment hereunder, including any such automatic renewal periods, shall hereafter be referred to as the “Term of Employment.”

 

1


3.

Duties.

a.         General Duties, Authority and Direction.    The Executive shall report directly to the Company’s Board of Directors (the “Board”). The Executive shall perform her duties under this Agreement principally out of the Company’s Appleton, Wisconsin office. The Executive shall have all the power, authority and responsibilities customarily attendant to the position of President and Chief Executive Officer, consistent with the Company’s By-laws. The Executive shall work under the direction and control of the Board. The Executive will render her services under this Agreement faithfully and to the best of her abilities and in conformance with all laws and Company rules and policies and will cooperate fully with the Board and other executive officers of the Company in the advancement of the best interest of the Company.

b.         Exclusive Services.    During the Term of Employment, the Executive shall, except during vacation periods, periods of illness and the like, devote her exclusive time and attention to her duties and responsibilities for the Company and its affiliates. During the Term of Employment, the Executive shall not engage in any other business activity that would interfere with her responsibilities and the performance of her duties under this Agreement.

 

4.

Compensation.

a.         Base Compensation.    During the Term of Employment, the Executive shall be compensated for her services at an annual rate of base salary of Three Hundred Twenty Thousand Dollars ($320,000.00) or such higher base salary as the Board may determine in its sole discretion (the “Base Salary”). The Executive shall be paid the Base Salary during the Term of Employment on the same payroll terms that are applicable to other senior executive employees of the Company. All payments made to or on behalf of the Executive under the terms of this Agreement, including without limitation all payments of Base Salary and any bonuses, as set forth herein, shall be subject to all withholding required or permitted by law (such as federal, state and local income and payroll taxes)

 

2


and such additional withholding as may be agreed upon by the Executive (such as for payment of the employee portion of insurance or welfare plan premiums).

b.         Retention Bonus.    On September 30 of each year during the Term of Employment, commencing September 30, 2015, the Company shall pay the Executive a lump sum bonus of Fifty Thousand Dollars ($50,000.00) as a retention bonus (the “Retention Bonus”); provided, that the Company shall be obligated to pay the Retention Bonus in any year only if the Executive remains employed by the Company as of the date such payment is due, except as otherwise provided in Section 7(b).

c.         Annual Bonus.    On March 31 of each year during the Term of Employment, commencing March 31, 2016, the Company shall pay the Executive an annual lump sum bonus of Ninety Thousand Dollars ($90,000.00) in respect of her services performed in such year (the “Annual Bonus”); provided, that the Company shall be obligated to pay the Annual Bonus in any year only if the Executive remains employed by the Company as of the date such payment is due, except as otherwise provided in Section 7(b).

 

5.

Employee Benefits.

a.         Vacation.    During the Term of Employment, the Executive shall be entitled to four weeks paid annual vacation in any calendar year. Upon termination of this Agreement for any reason, and notwithstanding any provisions of this Agreement to the contrary, the Executive shall be paid the amount of any accrued but unused vacation.

b.         Business Expenses.    The Executive shall be reimbursed for all reasonable expenses incurred by her during the Term of Employment in the discharge of her duties hereunder, including but not limited to, expenses for travel and entertainment, provided the Executive shall account for and substantiate all such expenses in accordance with the Company’s policies for reimbursement of the expenses of its senior executives.

c.         Air Travel Benefit.    During the Term of Employment, the Executive and her eligible family members shall be entitled to reduced rate air travel on other commercial

 

3


airline companies pursuant to the Company’s interline agreements, subject to the Company’s continuing agreements with such companies. In addition, the Executive and her eligible family members shall be entitled to free air travel on all Company flights on the same terms and conditions generally available to senior level executive employees of the Company.

d.         Benefit Plans.    The Executive shall be eligible to participate in any other employee benefit plans and arrangements sponsored or maintained by the Company for the benefit of its senior executives, including without limitation, all welfare benefits plans (life, medical and disability), retirement plans and deferred compensation plans.

e.         General Company Policies.    Except to the extent specifically provided herein, the provision of all employee benefits to the Executive shall be made in accordance with the Company’s established policies and procedures.

 

6.

Freedom to Contract.    The Executive represents and warrants that she has the right to enter into this Agreement, that she is eligible for employment by the Company and that no other written or verbal agreements exist that would be in conflict with or prevent performance of any portion of this Agreement. The Executive represents and warrants that she has not made and will not make any contractual or other commitments that would conflict with or prevent her performance of any portion of this Agreement or conflict with the full enjoyment by the Company of the rights herein granted.

 

7.

Termination.    Notwithstanding the provisions of Paragraph 2 above, the Executive’s employment under this Agreement and the Term of Employment hereunder shall terminate on the earliest of the following dates:

a.         For Cause.  On the date of delivery of a notice from the Company terminating the Executive’s employment for Cause stating the grounds for termination of the Executive’s employment for Cause, provided, that in the case of termination pursuant to the following clauses (ii), (viii) or (ix), the Executive shall have ten days following the date of notice

 

4


from the Company to cure any conduct or act, which constitutes grounds for termination of the Executive’s employment for Cause, to the extent that the Company determines that the Executive’s breach is subject to cure. The Board shall determine, in its sole discretion, whether the Executive has cured the conduct or act attributable to the grounds for termination. The term “Cause” used in this Agreement shall mean: (i) fraud against the Company; (ii) failure or refusal to implement or undertake the lawful directives of the Company or the Board; (iii) engaging in conduct that causes material injury, monetary or otherwise, to the Company or that reflects adversely on the Company or materially affects the Executive’s ability to perform her duties hereunder; (iv) arrest for commission of a felony or for commission of a crime, whether or not a felony, involving the Executive’s duties for the Company or that may reflect unfavorably on the Company or bring the Executive into public disrepute or scandal; (v) violation of federal, state or local tax laws; (vi) dependence on alcohol or drugs without the supervision of a physician or the illegal use, possession or sale of drugs; (vii) theft, misappropriation, embezzlement or conversion of the assets or opportunities of the Company; (viii) a material breach of the terms, covenants or representations of this Agreement; or (ix) a violation of Company policies. In the event of the termination of the Executive’s employment for Cause pursuant to this subparagraph (a), the Company shall pay to the Executive only such Base Salary as had been accrued but unpaid as of the date of the termination and vacation benefits as had been accrued but unused as of the date of termination and the Executive shall receive no further payments of any kind. All other benefits due upon termination under any other employee benefit plans sponsored by the Company to which Executive may be entitled will be paid out in accordance with the terms of those plans.

b.         Without Cause or For Good Reason.    On the date specified in a written notice from the Company terminating the Executive’s employment Without Cause, or in the event no date is specified in the notice, on the date on which the notice is delivered to the Executive, or on the date specified in a written notice from the Executive terminating her employment for Good Reason stating the grounds for termination of the Executive’s employment for Good Reason; provided, that the Company shall have ten days following

 

5


the date of notice from the Executive to cure any conduct or act, if curable, which constitute grounds for termination of the Executive’s employment for Good Reason, and if such conduct or act is cured within such ten day period, then Executive’s Employment shall not be terminated For Good Reason. For purposes of this Agreement, “Without Cause” shall mean any reason for the Company’s decision to terminate the Executive’s employment other than by reason of Cause, as provided in subparagraph (a) above. For purposes of this Agreement, “Good Reason” shall mean termination due to a material breach by the Company of the terms of this Agreement. In the event of the termination of the Executive’s employment Without Cause or by the Executive for Good Reason, the Company shall pay to the Executive: (i) the Executive’s Base Salary as had been earned but unpaid as of the date of the termination; (ii) the Executive’s vacation benefits as had been accrued but unused as of the date of termination; and (iii) a lump sum severance payment equal to the total amount of Base Salary, calculated as of the date the Executive’s employment with the Company terminated, that would have been paid to the Executive throughout a period commencing on such date and ending on the later of: (a) April 30, 2017, and (b) one year after the date of termination of employment, such payment to be made within thirty days after such termination. Notwithstanding any other provision herein to the contrary, in the event that the Company elects to terminate Executive’s employment Without Cause, or the Executive elects to terminate her employment For Good Reason, then in addition to what the Executive otherwise is entitled to receive under this subparagraph 7(b) at the time her employment is terminated, the Executive will be entitled to receive the next (but not any further) installment of each of the Retention Bonus and of the Annual Bonus that would have been due hereunder, but for such termination, on the next September 30 or March 31, as the case may be, after the date of such termination, such payment to be made within thirty days after the date of such termination. Notwithstanding any other provision herein to the contrary, if the Company, either before or after the date of the Executive’s termination under this subparagraph (b), enters into a legally binding agreement to consummate a transaction that would qualify as a Change of Control (as defined below) and that transaction later is

 

6


consummated within the sixty day period immediately after the date the Executive’s employment with the Company is terminated Without Cause or for Good Reason, then the Company shall pay the Executive a lump sum cash amount equal to the difference between a lump sum payment equal to two full years of the Executive’s annual Base Salary, calculated as of the date the Executive’s employment with the Company terminated, and the lump sum severance payment to which the Executive was already entitled to receive under clause (b)(iii) of this subparagraph, and such payment shall be made within thirty days after the event that constitutes such Change of Control. The Executive acknowledges and agrees that under no circumstances shall she be eligible to receive any payment under subparagraph (c) below if Executive has received or is entitled to receive any payment under this subparagraph (b) in respect of such Change of Control, and further acknowledges and agrees that under no circumstances shall she be eligible to receive any payment under this subparagraph (b) in respect of such Change of Control if Executive has received or is entitled to receive any payment under subparagraph (c) below.

c.           Change of Control.  On the date specified in a written notice from one Party to the other terminating Executive’s employment due to the occurrence of a Change of Control, which notice shall be given within one year after such Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean an event (or related series of events) that results in a change of ownership of the Company in which fifty-one percent (51%) of the Company is owned by individuals or entities other than those individuals or entities owning the Company at the execution of this Agreement. Notwithstanding the foregoing, a “Change of Control” shall not be deemed to occur as a result of: (1) an initial public offering or (2) a transfer of any individual’s interest in the Company to a family trust or other estate planning vehicle for the benefit of such individual and his or her family.

In the event the Executive’s employment with the Company is terminated Without Cause within one year after a Change of Control or if the Executive terminates

 

7


her employment with the Company within one year after a Change of Control, then the Company shall pay the Executive a lump sum cash amount equal in amount to two full years of the Executive’s then current annual Base Salary, such payment to be made within thirty days after such termination.

d.         Death.    On the date of the Executive’s death. In the event of the death of the Executive, the Company shall pay to the Executive’s legal representatives or named beneficiaries (as the Executive may designate from time to time in a writing delivered to the Company) the same payments and other benefits as would be provided to the Executive upon the termination of her employment Without Cause pursuant to subparagraph (b) above.

e.         Expiration of the Full-Time Term of Employment.    On the expiration of the Term of Employment. If the Executive’s employment with the Company terminates at any time for any reason and the Parties have not entered into a new employment agreement, then the Company shall pay the Executive only such Base Salary as had been accrued but unpaid as of the date of the termination and vacation benefits as had been accrued but unused as of the date of termination and the Executive shall receive no further payments of any kind. All other benefits due upon termination under any other employee benefit plans sponsored by the Company to which Executive may be entitled will be paid out in accordance with the terms of those plans.

Following the termination of the Term of Employment and the Executive’s employment under this Agreement, the Company will have no further liability to the Executive and no further payments or benefits will be provided to the Executive, except: (i) as provided in subparagraphs (a) through (d) above; (ii) to the extent the Executive is entitled to payment of any bonus pursuant to Paragraph 4 above; (iii) to the extent the Executive is entitled to payment of benefits following termination of employment under any employee benefit plan made available to the Executive pursuant to Paragraph 5 above; (iv) payment of any accrued but unused vacation pay as provided in Paragraph 5 above; (v) to the extent the Executive is entitled to the reimbursement

 

8


of business expenses incurred prior to termination pursuant to Paragraph 5 above; or (vi) to the extent the Executive is entitled to indemnification pursuant to the terms of the Company’s By-laws.

 

8.

Restrictive Covenants.

a.         Confidentiality.    The Executive agrees that both during her employment with the Company and thereafter she will not disclose to any third party or use in any way (except in furtherance of the best interests of the Company) any confidential information, business secrets, or business opportunity of the Company, including without limitation, marketing, advertising and promotional ideas and strategies, marketing surveys and analyses, technology, budgets, business plans, customer lists, research or financial, purchasing, planning, employment or personnel data or information. Immediately upon termination of the Executive’s employment or at any other time upon the Company’s request, the Executive will return to the Company all memoranda, notes, records or other documents compiled by the Executive or made available to the Executive during her employment with the Company, concerning the business of the Company, all other confidential information and all personal property of the Company, including without limitation, all files, records, documents, lists, equipment, supplies, promotional materials, keys, phone or credit cards and similar items and all copies thereof or extracts therefrom. Notwithstanding the foregoing, information or materials shall not be subject to the provisions of this subparagraph (a) to the extent such information or materials are publicly available other than as a result of a breach by the Executive of her obligations of confidentiality set forth herein. In addition, if the Executive is required by applicable law or regulation in response to any subpoena, summons or judicial order to disclose information or materials subject to the provisions of this subparagraph (a), then the Executive may disclose such information or materials to the extent she is advised to do so by counsel, provided that the Executive shall, to the extent permitted by law, provide the Company with advance prompt written notice of such subpoena, summons or judicial

 

9


order to enable the Company to seek a protective order or other appropriate remedy for such information or material, or to waive the provisions of this subparagraph (a).

b.         No Solicitation.    The Executive agrees that, both during her employment with the Company and for a period of one year following the termination of the Executive’s employment with the Company at any time and for any reason, the Executive will not, directly or indirectly, on behalf of herself or any other person or entity, hire or solicit to hire for employment or consulting or other provision of services, any person who is actively employed (or in the preceding six months was actively employed) by the Company. This includes, but is not limited to, inducing or attempting to induce, or influencing or attempting to influence, any person employed by the Company to terminate his or her employment with the Company.

c.         Enforcement.    The Executive acknowledges and agrees that the services to be provided by her under this Agreement are of a special, unique and extraordinary nature. The Executive further acknowledges and agrees that the restrictions contained in this Paragraph 8 are necessary to prevent the use and disclosure of confidential information and to protect other legitimate business interests of the Company. The Executive acknowledges that all of the restrictions in this Paragraph 8 are reasonable in all respects, including duration, territory and scope of activity. The Executive agrees that the restrictions contained in this Paragraph 8 shall be construed as separate agreements independent of any other provision of this Agreement or any other agreement between the Executive and the Company. The Executive agrees that the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and restrictions in this Paragraph 8. The Executive agrees that the restrictive covenants contained in this Paragraph 8 are a material part of the Executive’s obligations under this Agreement for which the Company has agreed to compensate the Executive as provided in this Agreement. The Executive agrees that the injury the Company will suffer in the event of the breach by the Executive of any clause

 

10


of this Paragraph 8 will cause the Company irreparable injury that cannot be adequately compensated by monetary damages alone. Therefore, the Executive agrees that the Company, without limiting any other legal or equitable remedies available to it, shall be entitled to obtain equitable relief by injunction or otherwise from any court of competent jurisdiction, including, without limitation, injunctive relief to prevent the Executive’s failure to comply with the terms and conditions of this Paragraph 8. The one-year period referenced in subparagraph (b) above shall be tolled on a day-for-day basis for each day during which the Executive violates the provisions of subparagraph (b) in any respect, so that the Executive is restricted from engaging in the activities prohibited by subparagraph (b) for the full one-year period.

 

9.

Intangible Property.    The Executive will not at any time during or after her employment with the Company have or claim any right, title or interest in any trade name, trademark, patent or copyright belonging to or used by the Company and shall not have or claim any right, title or interest in any material or matter of any sort prepared for or used in connection with the advertising, promotion or business of the Company, whatever the Executive’s involvement with such matters may have been, and whether procured, produced, prepared, or published in whole or in part by the Executive, it being the intention of the Parties that the Executive shall and hereby does, recognize that the Company now has and shall hereafter have and retain the sole and exclusive rights in any and all such trade names, trademarks, patents, copyrights (all the Executive’s work in this regard being a work for hire for the Company under the copyright laws of the United States), material and matter as described above. The Executive shall cooperate fully with the Company during her employment and thereafter in the securing of trade name, trademark, patent or copyright protection or other similar rights in the United States and in foreign countries and shall give evidence and testimony and execute and deliver to the Company all papers requested by it in connection therewith. Following the Executive’s termination of employment with the Company, if the Company requests the Executive’s assistance under this Paragraph 9, the Company shall reimburse the Executive for all

 

11


 

reasonable out-of-pocket expenses incurred by her in connection with the rendering of such assistance.

 

10.

Arbitration.    With the exception of any dispute regarding the Executive’s compliance with the provisions of Paragraph 8 (Restrictive Covenants) above, any dispute relating to or arising out of the provisions of this Agreement shall be decided by arbitration in Wisconsin, in accordance with the Expedited Arbitration Rules of the American Arbitration Association then obtaining, unless the Parties mutually agree otherwise in a writing signed by both Parties. This undertaking to arbitrate shall be specifically enforceable. The decision rendered by the arbitrator will be final and judgment may be entered upon it in accordance with appropriate laws in any court having jurisdiction thereof.

 

11.

Nondisclosure.    Except as may be required by law, neither the Executive nor the Company shall disclose the financial terms of this Agreement to persons not involved in the operation of the Company and the Parties shall disclose the financial terms of this Agreement to those involved in the operation of the Company only as needed to implement the terms of this Agreement or carry out the operations of the Company. The above notwithstanding, the financial terms of this Agreement may be disclosed to: (i) the Parties’ attorneys, lenders, accountants, financial or tax advisors, and any potential investors in or purchasers of the Company or a Company affiliate, provided such persons agree not to disclose such terms of this Agreement further; and (ii) members of the Executive’s immediate family, provided such family members agree not to reveal the terms of this Agreement further. The terms of this Paragraph 11 shall not apply to any disclosures that the Company, in its sole discretion, deems are necessary or appropriate in connection with compliance with applicable securities laws.

 

12.

Successors and Assigns.    The rights and obligations of the Company under this Agreement shall be binding on and inure to the benefit of the Company, its successors and permitted assigns. The rights and obligations of the Executive under this Agreement

 

12


 

shall be binding on and inure to the benefit of the heirs and legal representatives of the Executive. Neither Party may assign this Agreement without the prior written consent of the other, except that the Company may assign this Agreement to any entity that owns, is owned by or is under common control with or is affiliated with the Company or to any entity acquiring all or substantially all of the assets or the business of the Company.

 

13.

Insurance.    If the Company desires at any time or from time to time during the Term of Employment to apply in its own name or otherwise for life, health, accident or other insurance covering the Executive, the Company may do so and may take out such insurance for any sum which the Company may deem necessary to protect its interests. The Executive will have no right, title or interest in or to such insurance, but will, nevertheless, assist the Company in procuring and maintaining the same by submitting from time to time to the usual customary medical, physical, and other examinations and by signing such applications, statements and other instruments as may reasonably be required by the insurance company or companies issuing such policies.

 

14.

Waiver or Modification.    Any waiver by either Party of a breach of any provision of this Agreement shall not operate as, or be construed to be, a waiver of any other breach of such provision of this Agreement. The failure of a Party to insist on strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist on strict adherence to that term or any other term of this Agreement. Neither this Agreement nor any part of it may be waived, changed or terminated orally, and any waiver, amendment or modification must be in writing signed by the Executive and the Company.

 

15.

Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument. A facsimile or email signature will be deemed sufficient to constitute an original signature.

 

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16.

Choice of Law.    This Agreement will be governed and construed and enforced in accordance with the laws of the State of Wisconsin, without regard to its conflicts of law rules.

 

17.

Entire Agreement.    This Agreement contains the entire understanding of the Parties relating to the subject matter of this Agreement and supersedes all other prior written or oral agreements, understandings or arrangements, including any previous employment agreements by and between the Parties. The Executive acknowledges that, in entering into this Agreement, she does not rely and has not relied on any statements or representations not contained in this Agreement.

 

18.

Severability.    Any term or provision of this Agreement that is determined to be invalid or unenforceable by any court of competent jurisdiction in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction and such invalid or unenforceable provision shall be modified by such court so that it is enforceable to the extent permitted by applicable law.

 

19.

Notices.    All notices and other communications required or permitted to be given under this Agreement shall be in writing and delivery shall be deemed to have been made (i) three business days following the date when such notice is deposited in first class mail, postage prepaid, return receipt requested; or (ii) the business day following the date when such notice is deposited with any overnight air courier service, to the Party entitled to receive the same, at the address indicated below or at such other address as such Party shall have specified by written notice to the other Party given in accordance with the terms of this Paragraph 19:

 

If to the Company

  

Air Wisconsin Airlines Corporation

W6390 Challenger Drive, Suite 203

Appleton, Wisconsin 54914

Attn: Chairman

 

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If to the Executive

  

Christine R. Deister

Air Wisconsin Airlines Corporation

W6390 Challenger Drive, Suite 203

Appleton, Wisconsin 54914

 

20.

Headings.    The headings of any paragraphs in this Agreement are for reference only and shall not be used in construing the terms of this Agreement.

 

21.

No Third Party Beneficiaries.    This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a Party to this Agreement.

 

22.

Indemnification.    The Company shall take all reasonable actions consistent with the terms of the Company’s By-laws to ensure that the Executive is covered under the terms of any directors and officers’ liability insurance coverage and is subject to coverage under the terms of any indemnification provisions contained in the Company’s By-laws, to the same extent that such coverage and such provisions are provided by the Company with respect to other management level employees of the Company.

 

23.

Survival.    The covenants, agreements, representations and warranties contained in this Agreement shall survive the termination of the Term of Employment and the Executive’s termination of employment with the Company at any time and for any reason.

[Signature page follows]

 

15


IN WITNESS WHEREOF, this Agreement has been executed and delivered by the Parties as of the first date written above.

 

AIR WISCONSIN AIRLINES CORPORATION

 

By:

 

/s/ Patrick J. Thompson

Name:

 

Patrick J. Thompson

Title:

 

  Chairman

 

/s/ C. R. Deister

CHRISTINE R. DEISTER

 

16

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is made and entered into as of March 20, 2019, by and between Air Wisconsin Airlines LLC, a Delaware limited liability company (the “Company”), and Robert Binns (the “Executive” and, together with the Company, collectively, the “Parties”).

RECITALS

The Company is engaged in the business of operating a regional airline company. The Company desires to employ the Executive, and the Executive desires to be employed by the Company, as President, and the Parties desire to enter into this Agreement to secure the Executive’s employment during the term of Executive’s employment, all on the terms and conditions set forth herein.

AGREEMENTS

In consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.           Title.    The Company hereby employs the Executive, and the Executive agrees to serve the Company, as its President on the terms and conditions hereinafter set forth.

2.           Employment Term.    The Executive’s employment by the Company as President under this Agreement shall commence on April 1, 2019 (the “Effective Date”) and shall continue through April 1, 2021, unless sooner terminated pursuant to Paragraph 7 below. The term of the Executive’s employment hereunder shall thereafter automatically renew for successive one year periods unless sooner terminated pursuant to Paragraph 7 below or unless either Party provides notice to the other Party, at least sixty days prior to the commencement of the first or next such renewal period, that the term of the Executive’s employment shall end upon the expiration of the then term. Such term of employment hereunder, including any such automatic renewal periods, shall hereafter be referred to as the “Term.”

3.           Duties.

(a)   General Duties, Authority and Direction.    The Executive shall report directly to the Company’s Chief Executive Officer. The Executive shall perform his duties under this Agreement principally out of the Company’s Appleton, Wisconsin office. Therefore, the Executive shall relocate to the Appleton, Wisconsin area within three months of the Effective Date. The Executive shall have all the power, authority and responsibilities customarily attendant to the position of President, consistent with the Company’s Limited Liability Company Agreement. The Executive shall work under the direction and control of the Chief Executive Officer and the Board of Managers of the Company (the “Board”). The Executive will render his services under this Agreement faithfully and to the best of his abilities and in conformance

 

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with all laws and Company rules and policies and will cooperate fully with the Board and other executive officers of the Company in the advancement of the best interest of the Company.

(b)   Exclusive Services.    During the Term, the Executive shall, except during vacation periods, periods of illness and the like, devote his full and exclusive time and attention to his duties and responsibilities for the Company and its affiliates, and the Executive shall not engage in any other business activity that would interfere with his full time responsibilities and the performance of his duties under this Agreement.

4.           Compensation.

(a)   Base Compensation.    During the Term, the Executive shall be compensated for his services at an annual base salary of $350,000 or such higher base salary as the Board may determine in its sole discretion (the “Base Salary”). The Executive shall be paid the Base Salary on the same payroll terms that are applicable to other senior executives of the Company. The Base Salary shall be reviewed annually by the Board. If the Executive becomes the Chief Executive Officer of the Company during the Term, the Base Salary shall be increased to $425,000.

(b)   Sign-On Bonus.    The Company shall pay the Executive, within thirty days of the Effective Date, a lump sum bonus of $75,000 as a sign-on bonus (the “Sign-on Bonus”). If the Executive terminates his employment with the Company without Good Reason (as defined in subparagraph 7(b)) or if the Company terminates such employment with Cause (as defined in subparagraph 7(a)), in either event within two years of the Effective Date, the Executive shall repay to the Company the entire amount of the Sign-on Bonus within ninety days of such termination. Notwithstanding anything to the contrary contained herein, the Company shall have the right to withhold any amounts owing to the Executive from or after such termination until the Executive has repaid the Sign-on Bonus in full.

(c)   Annual Incentive Bonus.    For each fiscal year during the Term (so long as the Executive remains employed by the Company on the date of payment), the Executive shall be eligible to receive a lump sum incentive bonus (the “Incentive Bonus”) for the prior fiscal year (prorated for 2019). Any such bonus in respect of a fiscal year shall be paid no later than March 31 of the next fiscal year. The payment and amount of the Incentive Bonus in any year is subject to the approval of the Board. The Incentive Bonus will be based on a percentage of the Base Salary for the fiscal year (without regard to any increase of the Base Salary for the subsequent fiscal year). The target percentage shall be 50% of Base Salary with a maximum Incentive Bonus of 75% of Base Salary. The particular percentage shall be determined at the end the fiscal year by the Board based on the Executive’s performance during the fiscal year. The Executive’s performance will be measured based on performance metrics that the Board determines at the beginning of the fiscal year to be reasonably attainable with input from the Chief Executive Officer and the Executive, which metrics may include system operating performance metrics contained in the Company’s Capacity Purchase Agreement with United Airlines, as well as other metrics such as cost control measures, economic efficiency, net income and pilot growth. No amount of the Incentive Bonus is guaranteed, and no payment will be made unless the Executive

 

2


remains a full time active employee of the Company through the date scheduled for payment of the Incentive Bonus.

(d)   Withholding.    All payments made to or on behalf of the Executive under the terms of this Agreement, including without limitation all payments of Base Salary and any bonuses, as set forth herein, shall be subject to all withholding required or permitted by law (such as federal, state and local income and payroll taxes) and such additional withholding as may be agreed upon by the Executive (such as for payment of the employee portion of insurance or welfare plan premiums).

5.           Employee Benefits.

(a)   Temporary Accommodation.    The Company shall reimburse the Executive for the cost of up to three months temporary accommodation in the Appleton, WI area for the Executive and his wife, subject to documentation and reasonable verification.

(b)   Vacation.    During the Term, the Executive shall be entitled to four weeks paid annual vacation in any calendar year. In accordance with Company policy, any accrued vacation time not used in a year shall expire and shall not roll over to any subsequent year.

(c)   Business Expenses.    The Executive shall be reimbursed for all reasonable expenses incurred by him during the Term in the discharge of his duties hereunder, including but not limited to, expenses for travel and entertainment, provided the Executive shall account for and substantiate all such expenses in accordance with the Company’s policies for reimbursement of the expenses of its senior executives.

(d)   Air Travel Benefit.    During the Term, the Executive and his eligible family members shall be entitled to reduced rate air travel on other commercial airline companies pursuant to the Company’s interline agreements, subject to the Company’s continuing agreements with such companies. In addition, the Executive and his eligible family members shall be entitled to free air travel on all Company flights on the same terms and conditions generally available to senior executives of the Company.

(e)   Benefit Plans.    The Executive shall be eligible to participate in any other employee benefit plans and arrangements sponsored or maintained by the Company for the benefit of its senior executives, including without limitation, all welfare benefits plans (life, medical and disability), retirement plans and deferred compensation plans.

(f)   Long Term Incentive Plan.    The Company intends to design and to implement by no later than the beginning of fiscal year 2021 a Long Term Incentive Plan (“LTIP”) to reward the Company’s senior executives, including the Executive, for the achievement of the Company’s strategic objectives and long term value creation. The LTIP will be developed by the senior management of the Company and presented to the Board for its consideration. The Board shall have the sole authority with respect to the adoption of the LTIP and its terms and conditions, including the timing and amounts of awards.

 

3


(g)   Long Term Incentive Awards Prior to Adoption of LTIP.    For each fiscal year during the Term prior to the implementation by the Board of the LTIP, and only for such years, the Company shall grant to the Executive a long term incentive award (the “LTI Award”). The LTI Award for a fiscal year will be granted at the same time as the payment of the Incentive Bonus for that fiscal year and shall be in the amount of such Incentive Bonus. The LTI Award shall be payable in cash in four equal annual installments on each of the first four anniversaries of the date of the LTI Award so long as the Executive is an employee of the Company as of such anniversary. In no event shall the Executive be entitled to an LTI Award and an award under the LTIP for the same fiscal year.

(h)   General Company Policies.    Except to the extent specifically provided herein, the provision of all employee benefits to the Executive shall be made in accordance with the Company’s established policies and procedures.

6.           Freedom to Contract.    The Executive represents and warrants that he has the right to enter into this Agreement, that he is eligible for employment by the Company as contemplated by this Agreement and that no other written or verbal agreements exist that would be in conflict with or prevent performance of any portion of this Agreement. The Executive represents and warrants that he has not made and will not make any contractual or other commitments that would conflict with or prevent his performance of any portion of this Agreement or conflict with the full enjoyment by the Company of the rights herein granted.

7.           Termination.    Notwithstanding the provisions of Paragraph 2 above, the Executive’s employment under this Agreement and the Term hereunder shall terminate on the earliest of the following dates:

(a)   For Cause.    On the date of delivery of a notice from the Company terminating the Executive’s employment for Cause stating the grounds for such termination, provided, that in the case of termination pursuant to the following clauses (ii), (viii) or (ix), the Executive shall have ten days following the date of notice from the Company to cure any conduct or act, which constitutes grounds for termination of the Executive’s employment for Cause, to the extent that the Company determines that the Executive’s breach is subject to cure. The Board shall determine, in its sole discretion, whether the Executive has cured the conduct or act attributable to the grounds for termination. The term “Cause” used in this Agreement shall mean: (i) fraud against the Company; (ii) failure or refusal to implement or undertake the lawful directives of the Company, the Chief Executive Officer or the Board; (iii) engaging in conduct that causes material injury, monetary or otherwise, to the Company or that reflects adversely on the Company or materially affects the Executive’s ability to perform his duties hereunder; (iv) arrest for commission of a felony or for commission of a crime, whether or not a felony, involving the Executive’s duties for the Company or that may reflect unfavorably on the Company or bring the Executive into public disrepute or scandal; (v) violation of federal, state or local tax laws; (vi) dependence on alcohol or drugs without the supervision of a physician or the illegal use, possession or sale of drugs; (vii) theft, misappropriation, embezzlement or conversion of the assets or opportunities of the Company; (viii) a material breach of the terms, covenants or representations of this Agreement; or (ix) a violation of Company policies. In the event of the

 

4


termination of the Executive’s employment for Cause pursuant to this subparagraph (a), the Company shall pay to the Executive only such Base Salary as had been accrued but unpaid as of the date of the termination, and the Executive shall receive no further payments of any kind, except as provided in subparagraph 7(e).

(b)   Without Cause or For Good Reason.    On the date specified in a written notice from the Company terminating the Executive’s employment Without Cause, or in the event no date is specified in the notice, on the date on which the notice is delivered to the Executive, or on the date specified in a written notice from the Executive terminating his employment for Good Reason stating the grounds for termination of the Executive’s employment for Good Reason; provided, that the Company shall have ten days following the date of notice from the Executive to cure any conduct or act, if curable, which constitute grounds for termination of the Executive’s employment for Good Reason, and if such conduct or act is cured within such ten day period, then Executive’s Employment shall not be terminated For Good Reason. For purposes of this Agreement, “Without Cause” shall mean any reason for the Company’s decision to terminate the Executive’s employment other than by reason of Cause, as provided in subparagraph (a) above, and “Good Reason” shall mean termination by the Executive (i) due to a material breach by the Company of the terms of this Agreement or (ii) if he has not become Chief Executive Officer of the Company by April 1, 2021. In the event of the termination of the Executive’s employment by the Company Without Cause or by the Executive for Good Reason, the Company shall pay to the Executive: (i) the Executive’s Base Salary as had been earned but unpaid as of the date of the termination; and (ii) a lump sum severance payment equal to the sum of (A) the total amount of one year of Base Salary, calculated as of the date the Executive’s employment with the Company terminated, plus (B) the total amount of the Incentive Bonus for the prior fiscal year, such payment to be made within thirty days after such termination, and the Executive shall receive no further payments of any kind, except as provided in subparagraph 7(e). In addition, upon termination of the Term by the Company Without Cause or by the Executive for Good Reason, the Executive shall be eligible to participate in the Company’s benefit plans, as provided in subparagraph 5(e), subject to the terms and conditions of those plans, for one year following such termination.

(c)   Death.    On the date of the Executive’s death. In the event of the death of the Executive, the Company shall pay to the Executive’s legal representatives or named beneficiaries (as the Executive may designate from time to time in a writing delivered to the Company) the same payments and other benefits as would be provided to the Executive upon the termination of his employment Without Cause pursuant to subparagraph (b) above.

(d)   Expiration of the Full-Time Term.    On the expiration of the Term other than by termination by either Party pursuant to this Paragraph 7. If the Executive’s employment with the Company terminates at any time for any reason, other than by termination by a Party pursuant to this Paragraph 7, and the Parties have not entered into a new employment agreement, then the Company shall pay the Executive only such Base Salary as had been accrued but unpaid as of the date of the termination, and the Executive shall receive no further payments of any kind, except as provided in subparagraph 7(e).

 

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(e)   No Further Liability.    Following the termination of the Term and the Executive’s employment under this Agreement, the Company will have no further liability to the Executive and no further payments or benefits will be provided to the Executive, except: (i) as provided in subparagraphs (a) through (d) above; (ii) to the extent the Executive is entitled to payment of benefits following termination of employment under any employee benefit plan made available to the Executive pursuant to Paragraph 5 above in accordance with the terms of those plans; (iii) to the extent the Executive is entitled to the reimbursement of business expenses incurred prior to termination pursuant to Paragraph 5 above; or (iv) to the extent the Executive is entitled to indemnification pursuant to the terms of the Company’s Limited Liability Company Agreement.

8.           Restrictive Covenants.

(a)   Confidentiality.    The Executive agrees that both during his employment with the Company and thereafter he will not disclose to any third party or use in any way (except in furtherance of the best interests of the Company) any confidential information, business secrets, or business opportunity of the Company or any of its affiliates, including without limitation, marketing, advertising and promotional ideas and strategies, marketing surveys and analyses, technology, budgets, business plans, customer lists, research or financial, purchasing, planning, employment or personnel data or information. Immediately upon termination of the Executive’s employment or at any other time upon the Company’s request, the Executive will return to the Company all memoranda, notes, records or other documents compiled by the Executive or made available to the Executive during his employment with the Company, concerning the business of the Company or its affiliates, all other confidential information and all personal property of the Company or its affiliates, including without limitation, all files, records, documents, lists, equipment, supplies, promotional materials, keys, phone or credit cards and similar items and all copies thereof or extracts therefrom. Notwithstanding the foregoing, information or materials shall not be subject to the provisions of this subparagraph (a) to the extent such information or materials are publicly available other than as a result of a breach by the Executive of his obligations of confidentiality set forth herein. In addition, if the Executive is required by applicable law or regulation in response to any subpoena, summons or judicial order to disclose information or materials subject to the provisions of this subparagraph (a), then the Executive may disclose such information or materials to the extent he is advised to do so by counsel, provided that the Executive shall, to the extent permitted by law, provide the Company with advance prompt written notice of such subpoena, summons or judicial order to enable the Company to seek a protective order or other appropriate remedy for such information or material, or to waive the provisions of this subparagraph (a).

(b)   No Solicitation.    The Executive agrees that, both during his employment with the Company and for a period of two years following the termination of the Executive’s employment with the Company at any time and for any reason, the Executive will not, directly or indirectly, on behalf of himself or any other person or entity, hire or solicit to hire for employment or consulting or other provision of services, any person who is actively employed (or in the preceding six months was actively employed) by the Company. This includes, but is not limited to, inducing or attempting to induce, or influencing or attempting to influence, any person employed by the Company to terminate his or her employment with the Company.

 

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(c)   Non-Compete.    The Executive agrees that, both during his employment with the Company and for a period of six months following the termination of the Executive’s employment with the Company at any time and for any reason, the Executive will not, compete with the business of the Company and its successors and assigns. The term “not compete” as used herein shall mean that the Executive shall not own, manage, operate, consult or be employed by a regional airline flying aircraft with 76 or fewer seats for a major airline in the United States. The Executive acknowledges that the provisions of this subparagraph are reasonably necessary to protect the Company’s legitimate business interests in preserving the confidentiality of the information that will be obtained by the Executive in the performance of his duties under this Agreement and to prevent such information from being used to the Company’s detriment or for the benefit of the Company’s competitors.

(d)   Enforcement.    The Executive acknowledges and agrees that the services he is to provide under this Agreement are of a special, unique and extraordinary nature. The Executive further acknowledges and agrees that the restrictions contained in this Paragraph 8 are necessary to prevent the use and disclosure of confidential information and to protect other legitimate business interests of the Company. The Executive acknowledges that all of the restrictions in this Paragraph 8 are reasonable in all respects, including duration, territory and scope of activity. The Executive agrees that the restrictions contained in this Paragraph 8 shall be construed as separate agreements independent of any other provision of this Agreement or any other agreement between the Executive and the Company. The Executive agrees that the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and restrictions in this Paragraph 8. The Executive agrees that the restrictive covenants contained in this Paragraph 8 are a material part of the Executive’s obligations under this Agreement for which the Company has agreed to compensate the Executive as provided in this Agreement. The Executive agrees that the injury the Company will suffer in the event of the breach by the Executive of any clause of this Paragraph 8 will cause the Company irreparable injury that cannot be adequately compensated by monetary damages alone. Therefore, the Executive agrees that the Company, without limiting any other legal or equitable remedies available to it, shall be entitled to obtain equitable relief by injunction or otherwise from any court of competent jurisdiction, including, without limitation, injunctive relief to prevent the Executive’s failure to comply with the terms and conditions of this Paragraph 8. The two year period referenced in subparagraph (b) above shall be tolled on a day-for-day basis for each day during which the Executive violates the provisions of subparagraph (b) in any respect, so that the Executive is restricted from engaging in the activities prohibited by subparagraph (b) for the full two year period.

9.           Intangible Property.    The Executive will not at any time during or after his employment with the Company have or claim any right, title or interest in any trade name, trademark, trade secret, patent, copyright or other intellectual property belonging to or used by the Company and shall not have or claim any right, title or interest in any material or matter of any sort prepared for or used in connection with the advertising, promotion or business of the Company, whatever the Executive’s involvement with such matters may have been, and whether procured, produced, prepared, or published in whole or in part by the Executive, it being the intention of the Parties

 

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that the Executive shall and hereby does, recognize that the Company now has and shall hereafter have and retain the sole and exclusive rights in any and all such trade names, trademarks, trade secrets, patents, copyrights (all the Executive’s work in this regard being a work for hire for the Company under the copyright laws of the United States), other intellectual property, material and matter as described above. The Executive shall cooperate fully with the Company during his employment and thereafter in the securing of trade name, trademark, patent or copyright protection or other similar rights in the United States and in foreign countries and shall give evidence and testimony and execute and deliver to the Company all papers requested by it in connection therewith. Following the Executive’s termination of employment with the Company, if the Company requests the Executive’s assistance under this Paragraph 9, the Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by him in connection with the rendering of such assistance.

10.           Arbitration.    With the exception of any dispute regarding the Executive’s compliance with the provisions of Paragraph 8 (Restrictive Covenants) above, any dispute relating to or arising out of the provisions of this Agreement shall be decided by arbitration in Wisconsin, in accordance with the Expedited Arbitration Rules of the American Arbitration Association then obtaining, unless the Parties mutually agree otherwise in a writing signed by both Parties. This undertaking to arbitrate shall be specifically enforceable. The decision rendered by the arbitrator will be final and judgment may be entered upon it in accordance with appropriate laws in any court having jurisdiction thereof.

11.           Nondisclosure.    Except as may be required by law, neither the Executive nor the Company shall disclose the financial terms of this Agreement to persons not involved in the operation of the Company and the Parties shall disclose the financial terms of this Agreement to those involved in the operation of the Company only as needed to implement the terms of this Agreement or carry out the operations of the Company. The above notwithstanding, the financial terms of this Agreement may be disclosed to: (i) the Parties’ attorneys, lenders, accountants, financial or tax advisors, and any potential investors in or purchasers of the Company or a Company affiliate, provided such persons agree not to disclose such terms of this Agreement further; and (ii) members of the Executive’s immediate family, provided such family members agree not to reveal the terms of this Agreement further. The terms of this Paragraph 11 shall not apply to any disclosures that the Company, in its sole discretion, deems are necessary or appropriate in connection with compliance with applicable securities laws.

12.           Successors and Assigns.    The rights and obligations of the Company under this Agreement shall be binding on and inure to the benefit of the Company, its successors and permitted assigns. The rights and obligations of the Executive under this Agreement shall be binding on and inure to the benefit of the Executive and the heirs and legal representatives of the Executive. Neither Party may assign this Agreement without the prior written consent of the other, except that the Company may assign this Agreement to any entity that owns, is owned by or is under common control with or is affiliated with the Company or to any entity acquiring all or substantially all of the assets or the business of the Company.

 

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13.           Insurance.    If the Company desires at any time or from time to time during the Term to apply in its own name or otherwise for life, health, accident or other insurance covering the Executive, the Company may do so and may take out such insurance for any sum which the Company may deem necessary to protect its interests. The Executive will have no right, title or interest in or to such insurance, but will, nevertheless, assist the Company in procuring and maintaining the same by submitting from time to time to the usual customary medical, physical, and other examinations and by signing such applications, statements and other instruments as may reasonably be required by the insurance company or companies issuing such policies.

14.           Waiver or Modification.    Any waiver by either Party of a breach of any provision of this Agreement shall not operate as, or be construed to be, a waiver of any other breach of such provision of this Agreement. The failure of a Party to insist on strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that Party of the right thereafter to insist on strict adherence to that term or any other term of this Agreement. Neither this Agreement nor any part of it may be waived, changed or terminated orally, and any waiver, amendment or modification must be in writing signed by the Executive and the Company.

15.           Counterparts.    This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument. A facsimile or email signature will be deemed sufficient to constitute an original signature.

16.           Choice of Law.    This Agreement will be governed and construed and enforced in accordance with the laws of the State of Wisconsin, without regard to its conflicts of law rules.

17.           Entire Agreement.    This Agreement contains the entire understanding of the Parties relating to the subject matter of this Agreement and supersedes all other prior written or oral agreements, understandings or arrangements, including any previous employment agreements by and between the Parties. The Executive acknowledges that, in entering into this Agreement, he does not rely and has not relied on any statements or representations not contained in this Agreement.

18.           Severability.    Any term or provision of this Agreement that is determined to be invalid or unenforceable by any court of competent jurisdiction in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction and such invalid or unenforceable provision shall be modified by such court so that it is enforceable to the extent permitted by applicable law.

19.           Notices.    All notices and other communications required or permitted to be given under this Agreement shall be in writing and delivery shall be deemed to have been made (i) on the day of delivery if delivered in person; (ii) three business days following the date when such notice is deposited in first class mail, postage prepaid, return receipt requested; or (ii) the business day

 

9


following the date when such notice is deposited with any overnight air courier service, to the Party entitled to receive the same, at the address indicated below or at such other address as such Party shall have specified by written notice to the other Party given in accordance with the terms of this Paragraph 19:

 

If to the Company

 

Air Wisconsin Airlines Corporation

 

W6390 Challenger Drive, Suite 203

 

Appleton, Wisconsin 54914

 

Attn: Chief Executive Officer

 

If to the Executive

 

Robert Binns

 

Air Wisconsin Airlines LLC

 

W6390 Challenger Drive, Suite 203

 

Appleton, Wisconsin 54914

 

20.           Headings.    The headings of any paragraphs in this Agreement are for reference only and shall not be used in construing the terms of this Agreement.

21.           No Third Party Beneficiaries.    This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a Party to this Agreement.

22.           Indemnification.    The Company shall take all reasonable actions consistent with the terms of the Company’s Limited Liability Company Agreement to ensure that the Executive is covered under the terms of any directors and officers’ liability insurance coverage and is subject to coverage under the terms of any indemnification provisions contained in the Company’s Limited Liability Company Agreement, to the same extent that such coverage and such provisions are provided by the Company with respect to other management level employees of the Company.

23.           Survival.    The covenants, agreements, representations and warranties contained in this Agreement shall survive the termination of the Term and the Executive’s termination of employment with the Company at any time and for any reason.

[Signature page follows]

 

10


IN WITNESS WHEREOF, this Agreement has been executed and delivered by the Parties as of the first date written above.

 

AIR WISCONSIN AIRLINES LLC

By:

 

/s/ C. R. Deister

        Christine Deister
        Chief Executive Officer

 

/s/ Robert Binns

ROBERT BINNS

 

11

Exhibit 10.4.1

Certain confidential information contained in this document, marked by [***], has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

Execution Copy

CAPACITY PURCHASE AGREEMENT

BETWEEN

UNITED AIRLINES, INC.

AND

AIR WISCONSIN AIRLINES LLC


TABLE OF CONTENTS

 

         Page  

ARTICLE I       DEFINITIONS

     1  

ARTICLE II     CAPACITY PURCHASE, SCHEDULES AND FARES

     1  

Section 2.01

 

Capacity Purchase

     1  

Section 2.02

 

Flight-Related Revenues

     4  

Section 2.03

 

Pass Travel

     4  

Section 2.04

 

Initial Conversion of Aircraft Livery and Interior

     4  

ARTICLE III   CONTRACTOR COMPENSATION

     4  

Section 3.01

 

Base and Incentive Compensation

     5  

Section 3.02

 

Base Compensation Rates; Certain Start-Up Costs

     5  

Section 3.03

 

Contractor Expenses

     6  

Section 3.04

 

United Expenses

     6  

Section 3.05

 

Audit Rights; Financial Information

     6  

Section 3.06

 

Billing and Payment; Reconciliation

     7  

Section 3.07

 

Duty to Minimize Costs

     8  

ARTICLE IV     CONTRACTOR OPERATIONS AND AGREEMENTS WITH UNITED

     9  

Section 4.01

 

Aircraft, Crews, Pilot Career Path Program Etc.

     9  

Section 4.02

 

Governmental Regulations; Maintenance

     9  

Section 4.03

 

Quality of Service

     10  

Section 4.04

 

Incidents or Accidents

     11  

Section 4.05

 

Emergency Response

     11  

Section 4.06

 

Safety Matters

     12  

Section 4.07

 

Codeshare Terms

     12  

Section 4.08

 

Slots and Route Authorities

     12  

Section 4.09

 

Use of United Marks

     13  

Section 4.10

 

Use of Contractor Marks

     13  

Section 4.11

 

Catering Standards

     13  

Section 4.12

 

Fuel Efficiency Program

     13  

Section 4.13

 

Unauthorized Payments

     13  

Section 4.14

 

Environmental, Health and Safety

     14  

Section 4.15

 

Lease, Use and Modification of Airport Facilities

     17  

Section 4.16

 

Fuel and Fuel Services; Glycol and Deicing Services

     20  

Section 4.17

 

Ground Handling

     21  

Section 4.18

 

Daytime Maintenance

     21  

 

i

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 4.19

 

[***]

     21  

ARTICLE V   CERTAIN RIGHTS OF UNITED

     21  

Section 5.01

 

Exclusivity

     21  

ARTICLE VI   INSURANCE

     22  

Section 6.01

 

Minimum Insurance Coverages

     22  

Section 6.02

 

Endorsements

     22  

Section 6.03

 

Evidence of Insurance Coverage

     23  

Section 6.04

 

Insurance Through Combined Placement

     23  

Section 6.05

 

Insurance Through Joint Marketing Placement

     23  

Section 6.06

 

Current Insurance

     24  

ARTICLE VII   INDEMNIFICATION

     24  

Section 7.01

 

Contractor Indemnification of United

     24  

Section 7.02

 

United Indemnification of Contractor

     25  

Section 7.03

 

Indemnification Claims

     25  

Section 7.04

 

Employer’s Liability; Independent Contractors; Waiver of Control

     26  

Section 7.05

 

Survival

     27  

ARTICLE VIII  TERM, TERMINATION AND DISPOSITION OF AIRCRAFT

     27  

Section 8.01

 

Term

     27  

Section 8.02

 

Early Termination

     28  

Section 8.03

 

Disposition of Aircraft during Wind-Down Period

     30  

ARTICLE IX   REPRESENTATIONS AND WARRANTIES

     31  

Section 9.01

 

Representations and Warranties of Contractor

     31  

Section 9.02

 

Representations and Warranties of United

     33  

ARTICLE X   MISCELLANEOUS

     35  

Section 10.01

 

Certain Arrangements

     35  

Section 10.02

 

Notices

     35  

Section 10.03

 

Binding Effect; Assignment

     36  

Section 10.04

 

Amendment and Modification

     37  

Section 10.05

 

Waiver

     37  

Section 10.06

 

Interpretation

     37  

Section 10.07

 

Confidentiality

     37  

Section 10.08

 

Arbitration

     39  

Section 10.09

 

Counterparts

     41  

 

ii

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 10.10

 

Severability

     41  

Section 10.11

 

Equitable Remedies

     41  

Section 10.12

 

Relationship of Parties

     42  

Section 10.13

 

Entire Agreement; No Third Party Beneficiaries

     42  

Section 10.14

 

Governing Law

     42  

Section 10.15

 

[Intentionally Omitted]

     42  

Section 10.16

 

Right of Set-Off

     42  

Section 10.17

 

Cooperation with Respect to Reporting

     43  

Section 10.18

 

Maintenance Right to Bid

     43  

Section 10.19

 

Parent Guarantee

     44  

Section 10.20

 

Other Remedies for Labor Strike and Other Circumstances

     44  

Section 10.21

 

DISCLAIMER OF CONSEQUENTIAL DAMAGES

     44  

 

iii

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


SCHEDULE 1:

 

Covered Aircraft and Delivery Schedule

SCHEDULE 2:

 

[Intentionally Omitted]

SCHEDULE 3:

 

Compensation

EXHIBIT A:

 

Definitions

EXHIBIT B:

 

[Intentionally Omitted]

EXHIBIT C:

 

[Intentionally Omitted]

EXHIBIT D:

 

Terms of Codeshare Arrangements

EXHIBIT E:

 

Non-Revenue Pass Travel

EXHIBIT F:

 

United Directed Charter Flight Operations

EXHIBIT G:

 

Use of United Marks and Other Identification

EXHIBIT H:

 

Use of Contractor Marks

EXHIBIT I:

 

Catering Standards

EXHIBIT J:

 

Aircraft Cleanliness and Refurbishment Standards

EXHIBIT K:

 

[Intentionally Omitted]

EXHIBIT L:

 

Fuel Efficiency Program

EXHIBIT M:

 

Form of Assignment Agreement

EXHIBIT N:

 

Safety Standards for United and United Express Carriers

EXHIBIT O:

 

Ground Handler Indemnity

EXHIBIT P:

 

Reasonable Operating Constraints

EXHIBIT Q:

 

Form of Guarantee of Parent

EXHIBIT R:

 

IT Security and Data Protection

EXHIBIT S:

 

Pilot Career Path Program

 

iv

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Capacity Purchase Agreement

This Capacity Purchase Agreement (this “Agreement”), dated as of February 26, 2017 (the “Effective Date”), is entered into by and between United Airlines, Inc., a Delaware corporation (together with its successors and permitted assigns, “United”), and Air Wisconsin Airlines LLC, a Delaware limited liability company (“Contractor”).

WHEREAS, as of the Effective Date Contractor operates aircraft on behalf of another commercial air carrier pursuant to one or more agreements; Contractor’s obligation to operate such aircraft on behalf of such other air carrier expires no later than February 15, 2018 (such agreements, as in effect from time to time, the “Prior Commitments”); and

WHEREAS, consistent with and subject to the limitations imposed by the Prior Commitments, United wishes to procure from Contractor, and Contractor wishes to provide to United, regional airline services in accordance with the terms of this Agreement; and

WHEREAS, the parties have previously entered into, or will subsequent to the execution and delivery of this Agreement enter into the Ancillary Agreements (as defined herein), in each case intending that each such Ancillary Agreement be considered, and they are, an integral part of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and obligations hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms used in this Agreement (including, unless otherwise defined therein, in the Schedules, Appendices and Exhibits to this Agreement) shall have the meanings set forth in Exhibit A hereto.

ARTICLE II

CAPACITY PURCHASE, SCHEDULES AND FARES

Section 2.01    Capacity Purchase. United agrees to purchase the capacity of each Covered Aircraft for the Covered Aircraft Term of such Covered Aircraft, under the terms and conditions set forth herein and for the consideration described in Article III. Subject to the terms and conditions of this Agreement, Contractor shall provide all of the capacity of each Covered Aircraft during its Covered Aircraft Term solely to United and use each Covered Aircraft during its Covered Aircraft Term solely to operate the Scheduled Flights or for other activities in connection with or in furtherance of the services provided pursuant to this Agreement.

(a)    Fares, Rules and Seat Inventory. United shall establish and publish all fares and related tariff rules for all seats on the Covered Aircraft. Contractor shall not publish any fares,

 

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


tariffs, or related information for the Covered Aircraft. In addition, United shall have complete control over all seat inventory and inventory and revenue management decisions for the Covered Aircraft, including overbooking levels, discount seat levels and allocation of seats among various fare buckets.

(b)    Flight Schedules. United shall, in its sole discretion, establish and publish all flight schedules for the Covered Aircraft, including determining the city-pairs served, frequencies, utilization and timing of scheduled arrivals and departures, and shall, in its sole discretion, make all determinations regarding the establishment and scheduling of any United Directed Charter Flights;

provided that such schedules shall be subject to Reasonable Operating Constraints;

provided further that United shall use commercially reasonable efforts to provide Contractor at least [***] calendar days’ non-binding written notice prior to introducing any new Hub Airports to Contractor’s flight schedule (it being understood, however, that the failure to provide such non-binding notice shall neither prohibit United from adding, nor relieve Contractor from its obligation to comply with United’s addition of, new Hub Airports to Contractor’s planned flight schedule).

United shall also be entitled, in its sole discretion and at any time prior to takeoff, to direct Contractor to delay or cancel a Scheduled Flight, including without limitation for delays and cancellations that are ATC or weather related, and Contractor shall take all reasonable action to give effect to any such direction.

Contractor and United shall meet monthly (but not later than the fourth (4th) Friday of each calendar month) to review the planned flight schedules for the Covered Aircraft for each of the next three months. At such meeting, or otherwise, United shall:

(i) present a planned flight schedule for the Covered Aircraft for each of the next three months, which shall include, at least fifty (50) days prior to any calendar month, a proposed flight schedule which Contractor may use for the purpose of scheduling its crews (the “Crew Pairing Schedule”), and a proposed Final Monthly Schedule at least forty (40) days prior to any calendar month,

(ii) with respect to any such meeting occurring on or after one hundred eighty (180) calendar days following the entry into service of the first Covered Aircraft, present a non-binding estimate of the aggregate block hours forecasted by United to be flown by Contractor pursuant to this Agreement during the rolling twelve (12) calendar months following the date of such meeting, and

(iii) review and consider in good faith any changes to the planned flight schedule for the Covered Aircraft, including the Crew Pairing Schedule and the proposed Final Monthly Schedule, suggested by Contractor, it being understood that such planned flight schedule and forecast of aggregate block hours are intended to be projections and not binding on United or Contractor.

 

2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


United shall keep Contractor informed of planned schedules of Scheduled Flights. Not later than three (3) Business Days prior to the beginning of each calendar month, United will deliver to Contractor the Final Monthly Schedule. Following such monthly meetings, delivery of the Crew Pairing Schedule, the proposed Final Monthly Schedule, and delivery of the Final Monthly Schedule, however, on reasonable notice to Contractor, United and Contractor may make such adjustments to the Crew Pairing Schedule, the proposed Final Monthly Schedule or the Final Monthly Schedule, as the case may be, as deemed appropriate (subject to Reasonable Operating Constraints). United acknowledges that Contractor has obligations under its collective bargaining agreement for building its crewmember schedules, and United agrees that in the event it proposes to make significant changes after a Crew Pairing Schedules has been established, United will confer with Contractor and take into account the effect on Contractor’s crewmember schedules. In addition, if, after such delivery of the Final Monthly Schedule, United decides to adjust the Final Monthly Schedule by removing a flight or does not include a flight in the Final Monthly Schedule after consultation with Contractor either (x) at Contractor’s request or (y) because United reasonably determines, in good faith, that such flight would have resulted in a Controllable Cancellation (e.g., and without limitation, due to Contractor’s lack of crews or maintenance schedule) then, in each case of clause (x) and (y), notwithstanding the removal of such flight from the Final Monthly Schedule, such flight shall be deemed to have resulted in a Controllable Cancellation for all purposes hereunder, except as otherwise provided in Section B.4(d) of Schedule 3.

(c)    Charter Flights. Upon reasonable prior written notice from United and subject to Reasonable Operating Constraints, Contractor shall operate charter flights (which for all purposes of this Agreement shall include any reasonable repositioning flights related to such charter flights) that are directed or approved by United or that are reasonably necessary to operate such Charter, pursuant to Exhibit F as directed by United in United’s reasonable discretion (“United Directed Charter Flights”). United shall compensate Contractor for United Directed Charter Flights in accordance with the provisions of Exhibit F.

(d)    Aircraft Start-Up Schedule. As of the Effective Date, certain of Contractor’s aircraft are subject to the Prior Commitments. Contractor’s aircraft will become Covered Aircraft and be placed into service under the terms and conditions of this Agreement on such dates set forth in, and in accordance with the provisions of, Schedule 1 as amended from time to time by the parties; provided that United and Contractor shall work together to facilitate the initial scheduling of Covered Aircraft for the provision of Scheduled Flights (the “Covered Aircraft Start-Up Schedule”). Notwithstanding any provision of this Agreement to the contrary, no aircraft of Contractor that is subject to the Prior Commitments shall be subject to the restrictions or other terms of this Agreement during such period as such aircraft is subject to the Prior Commitments.

(e)    Spare Aircraft. Notwithstanding anything in this Section 2.01 or elsewhere in this Agreement to the contrary, but subject to the provisions below in this Section 2.01(e), and unless otherwise agreed by United, United shall remove approximately [***] percent ([***]%) of the Covered Aircraft from planned Scheduled Flights (subject to reasonable adjustments during the Ramp-Up Period), so that such Covered Aircraft are available as spare aircraft to support the

 

3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Scheduled Flights “Spare Aircraft”. Spare Aircraft are Covered Aircraft for all purposes under this Agreement.

Contractor shall maintain a sufficient number of spare engines to support the then-current number of Covered Aircraft in United Express regional service.

United and Contractor shall meet and confer on where to base the Spare Aircraft. In addition, subject to applicable Reasonable Operating Constraints, Contractor shall use such Spare Aircraft to operate flights as directed by United (unless such Spare Aircraft was, prior to such direction by United, already scheduled pursuant to a Final Monthly Schedule or a United Directed Charter Flight), including flights originally scheduled to be operated by United or other United service providers; provided that if a Scheduled Flight is delayed or cancelled due to the unavailability of a Spare Aircraft which unavailability would not have occurred but for Contractor’s use of such Spare Aircraft at United’s direction for a purpose other than support of the Final Monthly Schedule, then, each such delay or cancellation occurring within a reasonable period after such unavailability shall be deemed an Uncontrollable Delay or an Uncontrollable Cancellation, as the case may be, for all purposes hereunder. United shall not include in the Final Monthly Schedule such Covered Aircraft as shall not be available due to heavy maintenance, overhauls and modifications, provided that United reasonably consents to the schedule for such maintenance, and such Covered Aircraft will not be considered Spare Aircraft while not included in the Final Monthly Schedule for such purposes.

Section 2.02    Flight-Related Revenues. Contractor acknowledges and agrees that all revenues resulting from the sale and issuance of passenger tickets associated with the operation of the Covered Aircraft and all other sources of revenue associated with the operation of the Covered Aircraft, including without limitation revenues relating to United Directed Charter Flights, the transportation of cargo or mail, the sale of food, beverages and onboard entertainment, checked baggage fees, duty-free services, exterior and interior advertising and guaranteed or incentive payments from airport or governmental authorities, civic associations or other third parties in connection with scheduling flights to such airport or locality are the sole property of and shall be retained by United (or, if received by Contractor, shall be promptly remitted to United, free and clear of claims of any third party arising by, through or under Contractor or its affiliates). Contractor agrees that it shall reasonably cooperate with United so as to permit United to receive all revenues of the types described above.

Section 2.03    Pass Travel. All pass travel and other non-revenue travel on any Scheduled Flight shall be administered in accordance with Exhibit E.

Section 2.04    Initial Conversion of Aircraft Livery and Interior. Contractor shall be responsible for preparing each Covered Aircraft at the time it is placed into service hereunder in the livery and interior configuration as directed by United and as required by Paragraph 8 of Exhibit G.

ARTICLE III

CONTRACTOR COMPENSATION

 

4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 3.01    Base and Incentive Compensation. For and in consideration of the transportation services, facilities and other services to be provided by Contractor hereunder, United shall pay Contractor the base and incentive compensation as provided in Schedule 3 hereto, subject to the terms and conditions set forth in this Article III.

Section 3.02    Base Compensation Rates; Certain Start-Up Costs.

(a)    Base Compensation Rates. The compensation rates set forth in Appendix 1 to Schedule 3 hereto (the “Base Compensation Rates”) shall remain in effect until the end of the Term of Agreement and any Wind-Down Period.

(b)    Certain Start-Up Costs. For the initial induction of Covered Aircraft to be operated under this Agreement, United and Contractor agree that there are certain one-time costs for which United will reimburse Contractor.

(i)    Contractor’s Start-Up Expenses. United shall include an amount (each a “Start-Up Aircraft Expense”) equal to [***] for each Covered Aircraft in the Invoiced Amount for the month in which each such Covered Aircraft is scheduled to begin operating Scheduled Flights and paid in accordance with the process set forth in Section 3.06(a). United shall not be obligated to include a Start-Up Aircraft Expense in the Invoiced Amount more than one time in respect of any particular Covered Aircraft. [***].

(ii)    Aircraft Livery and Configuration Start-up Costs. In furtherance of Contractor’s provision of Regional Airline Services pursuant to this Agreement, Contractor acknowledges that it is obligated to provide Covered Aircraft in United Express livery and United’s interior configuration. In consideration of the reasonable, actual, out-of-pocket initial livery and interior configuration costs for such Covered Aircraft configuring (as well as livery for a reasonable number of spare exterior aircraft components) paid by Contractor, but excluding overhead (the “Aircraft Livery and Configuration Start-up Costs”), United shall include an estimate of such expenses in the Invoiced Amount for the month in which each such aircraft is scheduled to begin operating Scheduled Flights and paid in accordance with the process set forth in Section 3.06(a), and during the expense reconciliation process for such month the parties shall reconcile the actual costs documented by submission of actual invoices for the Aircraft Livery and Configuration Start-up Costs compared to such previously paid estimate. In addition, United shall pay to Contractor in respect of the flights by each aircraft to and from the paint facility at the rates provided in Schedule 3 for Scheduled Flights (as if such ferry flights were Scheduled Flights). Except as provided in Section 3.04(b), United shall not be obligated to reimburse Contractor for Aircraft Livery and Configuration Start-up Costs more than one time in respect of any particular Covered Aircraft.

(c)    Crew and Maintenance Bases. [***].

 

5

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 3.03    Contractor Expenses. Except as otherwise expressly provided in this Agreement or any Ancillary Agreement, Contractor shall bear all costs and expenses related or incidental to the performance of its obligations under this Agreement.

Section 3.04    United Expenses.

(a)    Certain Expenses. United shall incur directly Passenger and Cargo Revenue-Related Expenses and shall be responsible for payment of the Pass Through Costs.

(b)    Design and Configuration Changes and Modifications. In addition to reimbursement of the initial, one-time livery and configuration of each Covered Aircraft as provided and in accordance with Section 3.02(b)(ii), United shall be responsible, and shall reimburse Contractor, for any reasonable out-of-pocket expenses relating to subsequent United-directed interior and exterior design or configuration changes or modifications to the Covered Aircraft (after their initial placement into service hereunder) and other product-related changes required by United, including facility-related design changes and the cost of changes in uniforms and other livery, in each case that occur outside of Contractor’s normal aircraft and facility refurbishment program.

Section 3.05    Audit Rights; Financial Information. Unless prohibited by confidentiality obligations, Contractor shall make available for inspection by United and its outside auditors during normal business hours, within a reasonable period of time after United makes a written request therefor, which request shall be given no later than twenty-four (24) months after the incurrence of the expense at issue, Contractor’s (and, to the extent relevant, any of its subsidiaries’) financial and accounting records and operations reports, as reasonably necessary to audit any reimbursement or reconciliation of expenses pursuant to this Agreement or any Ancillary Agreement. In connection with such audit, United and its outside auditors shall be entitled to make copies and notes of such information as are reasonably necessary and to discuss such records with Contractor’s President or such other employees or agents designated in writing by Contractor’s President. Upon the reasonable written request of United or its outside auditors, Contractor will cooperate, at United’s expense, with United and its outside auditors to permit United and its outside auditors reasonable access to Contractor’s outside auditors for purposes of reviewing such records.

In addition, Contractor shall deliver or cause to be delivered to United:

(I) as soon as available, but in any event within one hundred twenty (120) days after the end of each fiscal year, subject to any applicable confidentiality restrictions, a copy of the consolidated balance sheet of Contractor, as at the end of such year, and the related consolidated statements of income and retained earnings and of cash flows of Contractor for such year, setting forth in each case, for each year, in comparative form the figures for the previous year, reported on by an independent certified public accountants in good standing; and

(II) as soon as available, but in any event not later than forty-five (45) days after the end of each of the first three (3) quarterly periods of each fiscal year commencing on or after

 

6

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Effective Date, subject to any applicable confidentiality restrictions, the unaudited consolidated balance sheet of Contractor, as at the end of such quarter, and the related unaudited consolidated statements of income and retained earnings and of cash flows of Contractor for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case, for each fiscal quarter during the Term of Agreement, in comparative form the figures for the previous year, certified by a responsible officer of Contractor, as being fairly stated in all material respects (subject to normal year-end audit adjustments and the absence of footnotes);

provided, that Contractor shall not be required to deliver financial statements pursuant to this sentence at any time that Contractor is a reporting issuer pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and such financial statements are timely filed with the Securities and Exchange Commission pursuant thereto.

All financial statements delivered hereunder shall be prepared in accordance with GAAP (subject, in the case of quarterly statements, to normal year-end audit adjustments and the absence of footnotes) applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein).

Section 3.06    Billing and Payment; Reconciliation.

(a)    Billing and Payment. On the [***] Business Day after Contractor receives the Final Monthly Schedule from United pursuant to Section 2.01(b), United shall present a reasonably detailed written billing statement for amounts due under this Agreement in respect of the Base Compensation for the Scheduled Flights during the month to which such Final Monthly Schedule pertains. United shall pay Contractor the amount due under such invoice (the “Invoiced Amount”), subject to Contractor’s right to dispute any calculations set forth on such invoice that do not comply with the terms of this Agreement, and net of amounts then due and payable by Contractor to United, as follows:

(i)    [***] of the Invoiced Amount shall be payable by United to Contractor, by electronic transfer of funds to a bank account designated by Contractor, available on or before [***] (or if such day is not a Business Day, the next Business Day) to which such invoice relates, as adjusted by Section 3.06(b) below;

(ii)    [***] of the Invoiced Amount shall be payable by United to Contractor, by electronic transfer of funds to a bank account designated by Contractor, available on or before [***] (or if such day is not a Business Day, the next Business Day) to which the invoice relates, as adjusted by Section 3.06(b) below;

(iii)    [***] of the Invoiced Amount shall be payable by United to Contractor, by electronic transfer of funds to a bank account designated by Contractor, available on or before [***] (or if such day is not a Business Day, the next Business Day) to which the invoice relates, as adjusted by Section 3.06(b) below; and

 

7

 

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(iv)    [***] of the Invoiced Amount shall be payable by United to Contractor, by electronic transfer of funds to a bank account designated by Contractor, available on or before [***] (or if such day is not a Business Day, the next Business Day) to which the invoice relates, as adjusted by Section 3.06(b) below.

(b)    Reconciliation. Not later than [***] days following the end of each month, Contractor and United shall reconcile actual amounts due in respect of such month with the estimated amounts included in the Invoiced Amount for such items for such month in accordance with the terms and conditions set forth in Schedule 3 (including with respect to any amounts payable pursuant to Paragraphs A(2), A(3) or B(4) of Schedule 3). On or before the [***] day following the end of such month (or if such day is not a Business Day, the next Business Day), such reconciled amounts for such month to the extent applicable:

(i)    shall be paid by United to Contractor (subject to United’s right of recoupment set forth below), or

(ii)    shall be paid by Contractor to United.

Further reconciliations shall be made on or prior to the [***] day following the end of such month (or if such day is not a Business Day, the next Business Day) to the extent necessary as a result of United’s review of financial information provided by Contractor in respect of such month. On or before the [***] day following the end of such month (or if such day is not a Business Day, the next Business Day), such further reconciled amounts for such month to the extent applicable (x) shall be paid by United to Contractor, or (y) shall be paid by Contractor to United or set off by United against any other amounts then due and payable to Contractor. If, subsequent to any reconciliation payments or set-off, as the case may be, Contractor’s net expenses or charges are adjusted or updated, then the reconciled amounts for such period shall be recalculated in accordance with the terms and conditions set forth in Schedule 3, and the parties shall make further payments or set off further amounts as appropriate in respect of such recalculations. If and to the extent that any amounts are due and payable to United from Contractor pursuant to this Agreement or any Ancillary Agreement, United shall have the right to recoup all or a portion of such amounts by applying such amounts against any other amounts then or thereafter owed by United to Contractor under this Agreement or any Ancillary Agreement.

Section 3.07    Duty to Minimize Costs. Contractor agrees that, in connection with its provision of Regional Airline Services to United under this Agreement and the provision of other services contemplated to be performed by Contractor under the Ancillary Agreements, it shall use commercially reasonable efforts to minimize costs incurred by it, if such costs would be Pass Through Costs reimbursable, reconciled or paid by United to Contractor in accordance with this Agreement or the applicable Ancillary Agreement, and costs incurred directly by United, if such costs would be Pass Through Costs in accordance with this Agreement or the applicable Ancillary Agreement had they been incurred directly by Contractor.

If United can provide or arrange to provide any service or item utilized by Contractor in connection with Contractor Services at substantially similar quality or service level, the cost of

 

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which is a Pass Through Cost, at a lower cost then-applicable to Contractor, and the provision or arrangement to provide such service or item by United would not materially adversely affect Contractor under any contracts or agreements, then, subject to existing contractual restrictions, Contractor shall allow United to provide or arrange to provide such service or item in order to permit United to reduce its costs. United shall pay, or reimburse Contractor for, any cancellation or termination payments due by Contractor as a result of United providing such service or item, provided that Contractor provides reasonable notice of the nature of scope of such payments prior to United’s election to provide such item or service. Upon United’s request, Contractor shall (x) meet and confer with United to discuss and/or to identify opportunities for minimizing Pass Through Costs reimbursable or paid by United to Contractor or incurred directly by United pursuant to this Agreement or the Ancillary Agreements and (y) provide reasonable supporting documentation evidencing such Pass Through Costs incurred by Contractor.

ARTICLE IV

CONTRACTOR OPERATIONS AND AGREEMENTS WITH UNITED

Section 4.01    Aircraft, Crews, Pilot Career Path Program Etc.. Contractor shall be responsible for providing all (i) aircraft, (ii) subject to Section 4.19 and Paragraph B(4)(d) of Schedule 3, crews (flight and cabin), and (iii) maintenance (including spare parts, provisions or other personnel) as necessary to operate the Scheduled Flights and for all aspects (personnel and other) of dispatch control. Notwithstanding any provision of this Agreement to the contrary, Contractor will retain operational control of each Covered Aircraft at all times. In addition, each of United and Contractor hereby agree to implement the Pilot Career Path Program set forth on Exhibit S.

Section 4.02    Governmental Regulations; Maintenance. Contractor has, or, in the case of Covered Aircraft, will have not later than [***] days prior to the first Scheduled In-Service Date of a Covered Aircraft hereunder, and shall maintain, all certifications, permits, licenses, certificates, exemptions, approvals, plans, and insurance required by governmental authorities and airport authorities, including, without limitation, FAA, DOT and TSA, to enable Contractor to perform the services required by this Agreement. United shall maintain certifications, permits, licenses, certificates and exemptions required by governmental authorities to enable United to perform services undertaken by United under this Agreement.

All flight operations, dispatch operations and all other operations and services undertaken by Contractor pursuant to this Agreement shall be conducted, operated and provided by Contractor in material compliance with all governmental laws, regulations and requirements of applicable governmental authorities and airport authorities (foreign and domestic), including, without limitation, those relating to airport security, the use and transportation of hazardous materials and dangerous goods, crew qualifications, crew training and crew hours, the carriage of persons with disabilities and without any violation of U.S. or foreign laws, regulations or governmental prohibitions. Upon Contractor’s request United shall provide reasonable assistance to and cooperate with Contractor to facilitate Contractor’s compliance with all laws, regulations and requirements of governmental authorities and airport authorities applicable to services undertaken by Contractor under this Agreement.

 

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All Covered Aircraft shall be operated and maintained by Contractor in compliance with all laws, regulations and governmental requirements or applicable governmental authorities and airport authorities (foreign and domestic), Contractor’s own operations manuals and maintenance manuals and procedures, all applicable provisions of any aircraft lease, mortgage or sublease, and all applicable equipment manufacturers’ manuals, instructions, airworthiness directives and service bulletins.

Contractor shall provide United with prompt notice of any Covered Aircraft that are unavailable to provide Scheduled Flights for purposes of unscheduled maintenance. Upon any issuance by the FAA of an airworthiness directive that requires Contractor to remove any Covered Aircraft from service beyond the regular maintenance schedule, Contractor will consult with United and agree upon the reasonable maintenance schedule associated with complying with the airworthiness directive.

In connection with complying with any airworthiness directive issued, Contractor shall not discriminate against the Covered Aircraft with regard to efforts to satisfy the requirements of the airworthiness directives including the method and date of compliance, and shall use its reasonable commercial efforts to satisfy such requirements, including any efforts used or applied by Contractor or its affiliates with regard to any similar aircraft type owned or operated by Contractor or its affiliates.

In connection with any grounding of any of the Covered Aircraft, Contractor shall not discriminate against such Covered Aircraft with regard to efforts to satisfy the applicable requirements to lift such grounding order, and shall use its reasonable commercial efforts to satisfy such requirements, including any efforts used or applied by Contractor or its affiliates with regard to any similar aircraft type owned or operated by Contractor or its affiliates.

Without limiting the foregoing, Contractor and its subcontractors providing services for United on behalf of Contractor hereunder shall abide by the requirements of 41 CFR §§ 60-1.4(a), 60-300.5(a) and 60-741.5(a), which regulations (x) prohibit discrimination against qualified individuals based on their status as protected veterans or individuals with disabilities, and prohibit discrimination against all individuals based on their race, color, religion, sex, or national origin, and (y) require that covered prime contractors and subcontractors take affirmative action to employ and advance in employment individuals without regard to race, color, religion, sex, national origin, protected veteran status or disability.

Section 4.03    Quality of Service. Subject to the limitations set forth in Section 4.01, United procedures, performance standards and means of measurement thereof concerning the provision of air passenger and air cargo services that are applicable to all United Express carriers shall be applicable to all Regional Airline Services provided by Contractor. Contractor shall achieve at least the comparable (on an aggregate basis) quality of airline service and standards of care generally required by United of its other United Express carriers, subject to limitations imposed by the type of aircraft used by Contractor and its route network. Contractor shall comply with all applicable airline customer service commitments and policies of United applicable to United Express carriers as of the date hereof, including without limitation “Our United Customer Commitment”, and employee conduct, appearance and training policies in

 

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place as of the date hereof, and shall handle customer-related services in a professional, businesslike and courteous manner. In connection therewith, Contractor shall maintain aircraft cleaning cycles and policies, shall comply with the provisions set forth in Exhibit J, and shall, subject to Section 4.19 and Paragraph B(4)(d) of Schedule 3, maintain adequate staffing levels, to ensure at least a comparable level of customer service and operational efficiency that United achieves or generally requires of its other United Express carriers, including without limitation in respect of customer complaint response and boarding timing, and handling of irregular operations. In addition, at the request of United, Contractor shall comply with all such airline customer service commitments, policies and standards of care of United applicable to United Express carriers as adopted, amended or supplemented after the date hereof. Contractor shall ensure that all Covered Aircraft are equipped with an aircraft communications addressing and reporting system (“ACARS”) that provides operational information in a form reasonably acceptable to United. Contractor shall provide United with timely communication regarding the status of all Scheduled Flights, and shall perform the necessary functions to allow the completion of timely closeout procedures at United’s mainline service levels at comparably sized airports. Contractor shall remain Category 2 certified at all times during the Term of Agreement. Contractor will use United’s standard procedures for processing and adjudicating all claims for which Contractor is responsible in an effort to avoid such matters becoming the subject of claims, litigation or an investigation by a governmental agency or authority. At either party’s request, Contractor and United will meet to discuss and review Contractor’s customer service and handling procedures and policies and its employees’ conduct, appearance and training standards and policies. United shall give Contractor not less than fifteen (15) days prior written notice which notice identifies specifically the quality of service failures asserted by United and provides Contractor with an opportunity to cure of any non-safety related breach of this Section 4.03 prior to exercising any remedy regarding such breach.

Section 4.04    Incidents or Accidents. Contractor shall promptly notify United of all irregularities involving a Scheduled Flight or Covered Aircraft operated by Contractor, including, without limitation, aircraft accidents and incidents, which result in any material damage to persons and/or property or would reasonably be expected to result in a complaint or claim by passengers or an investigation by a governmental agency or authority. Contractor shall furnish to United as much detail as practicable concerning such irregularities and shall cooperate with United at Contractor’s own expense in any appropriate investigation.

Section 4.05    Emergency Response. Contractor shall adopt United’s Emergency Response Plan, as may be updated by United from time to time, for aircraft accidents or incidents involving a Covered Aircraft or Scheduled Flight and shall be responsible for United’s direct costs resulting from United’s management of Humanitarian Response Efforts on Contractor’s behalf. In the event of an accident or incident involving a Covered Aircraft or Scheduled Flight, United and Contractor agree to work together in a combined and coordinated emergency response, as outlined in Section 2.B. (“United Express”) of Chapter 11 of United’s Corporate Emergency Response Manual, as may be updated by United from time to time, to manage the Humanitarian Response Efforts. For the purposes hereof, the term “Humanitarian Response Efforts” shall include United’s activation of its Emergency Operations Center (in coordination with the Contractor’s EOC) and the Telephone Enquiry Center and United’s deployment of the members of its Special Assistance Team to the site of the accident or incident

 

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to assist survivors and families. Contractor shall be liable for and will indemnify, defend and hold harmless United, United’s Parent, their respective subsidiaries and their respective directors, officers, employees and agents from and against any and all claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, fines, penalties, costs and expenses, including but not limited to, reasonable attorneys’ fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to or recoverable from United, United’s Parent, their respective subsidiaries or their respective directors, officers, employees or agents arising out of, connected with, or attributable to any act, error, omission, operation, performance or failure of performance of United, regardless of any negligence whether it be active, passive or otherwise on the part of United (but excluding the gross negligence or willful misconduct of United and its subsidiaries or its directors, officers, agents or employees), which in any way relates to United’s provision of post-accident or post-incident Humanitarian Response Efforts as contemplated in this Section 4.05. The provisions of the foregoing indemnification obligation shall survive the termination of this Agreement for a period of seven years.

Section 4.06    Safety Matters. In the event of a reasonable safety concern, United shall have the right, at its own cost, to inspect, review, and observe Contractor’s operations of Scheduled Flights. Notwithstanding the conduct or absence of any such review, Contractor is and shall remain solely responsible for the safe operation of its aircraft and the safe provision of Regional Airline Services, including all Scheduled Flights, in each case in accordance with the standards, agreements, representations and warranties set forth in Exhibit N. Contractor represents and warrants that it has successfully undergone an International Air Transport Authority (“IATA”) Operational Safety Audit (“IOSA”). Contractor hereby covenants (i) to maintain its membership in the IOSA registry and (ii) to comply and maintain compliance with the requirements of IOSA audits within the timeframe required by IATA. Contractor shall bring any failure to maintain compliance immediately to United’s attention along with corrective actions taken or a corrective action plan. Although the IOSA audit is to be completed biennially, United in its sole discretion may require, and Contractor shall comply with additional United safety review audits. Nothing in Exhibit N, this Section 4.06, or otherwise in this Agreement is intended or shall be interpreted to make United responsible for such safety matters or to limit Contractor’s operational control over its flight operations.

Section 4.07    Codeshare Terms. Contractor agrees to operate all Scheduled Flights using the United flight code and flight numbers assigned by United, or such other flight codes and flight numbers as may be assigned by United (to accommodate, for example, a United alliance partner), and otherwise under the codeshare terms set forth in Exhibit D.

Section 4.08    Slots and Route Authorities. At the request of United made during the Term of Agreement or upon termination of this Agreement, Contractor shall use its commercially reasonable efforts to transfer to United or its designee, to the extent permitted by law, any airport takeoff or landing slots, route authorities or other similar regulatory authorizations transferred to Contractor by United for use in connection with Scheduled Flights, or held by Contractor and used for Scheduled Flights, in each case in consideration of the payment by United to Contractor of the net book value (which shall not exceed the actual

 

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out-of-pocket costs paid by Contractor with United’s written permission for such slot, authority, or authorization (it being acknowledged that there is no obligation of Contractor to purchase any slot, authority, or authorization for Scheduled Flights)), if any, of such slot, authority or authorization on Contractor’s books. Contractor’s obligations pursuant to the immediately preceding sentence shall survive the termination of this Agreement for so long as any transfer requested during the Term of Agreement pursuant to this Section 4.08 shall not have been completed. Contractor hereby agrees that all of Contractor’s contacts or communications with any applicable regulatory authority concerning any airport takeoff or landing slots, route authorities or other similar regulatory authorizations used for Scheduled Flights will be coordinated through United. If any airport takeoff or landing slot, route authority or other similar regulatory authorization transferred to Contractor by United for use in connection with Scheduled Flights, held by Contractor and used for Scheduled Flights is withdrawn or otherwise forfeited as a result of Controllable Cancellations or any other reason within Contractor’s reasonable control, then Contractor agrees to pay to United promptly upon demand an amount equal to the market value of such withdrawn or forfeited slot, authority or authorization.

Section 4.09    Use of United Marks. United hereby grants to Contractor the non-exclusive and non-transferable rights to use the United Marks and other Identification as provided in, and Contractor shall use the United Marks and other Identification in accordance with, the terms and conditions set forth in Exhibit G. United may from time to time substitute other marks for the United Marks and in such instance the provisions of this Section 4.09 shall apply with full effect to any such substituted marks. The livery of the Covered Aircraft shall initially be in “United Express” livery, as contemplated by Exhibit G.

Section 4.10    Use of Contractor Marks. Contractor hereby grants to United the non-exclusive and non-transferable rights to use the Contractor Marks as provided in, and United shall use the Contractor Marks in accordance with, the terms and conditions set forth on Exhibit H.

Section 4.11    Catering Standards. United and Contractor shall comply with the catering requirements set forth on Exhibit I.

Section 4.12    Fuel Efficiency Program. Contractor shall use commercially reasonable efforts to promptly adopt and adhere to a fuel efficiency program as described on Exhibit L hereto. Contractor shall implement any incentive program that United requests to be implemented where United agrees in writing to pay the Incentive Program Costs, subject to any restraints imposed by applicable law or collective bargaining or other agreements and the limitations set forth in Section 4.01.

Section 4.13    Unauthorized Payments.

(a)    In connection with any performance under this Agreement, neither Contractor, nor any officer, employee, or agent of Contractor, will make any payment, or offer, promise, give or authorize any payment, of any money or other article of value, to any official, employee, or representative of United or any government official or representative, or to any person or entity doing business with United, in order either to obtain or retain business under this

 

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Agreement, or to direct United’s business under this Agreement to a third party, or to influence any act or decision of any employee or representative of United as pertaining to this Agreement or any government official or representative to perform or to fail to perform his or her duties, in each case, under this Agreement, or to enlist the aid of any third party to do any of the foregoing. The parties agree that (i) payments by Contractor to former employees of United in the ordinary course of Contractor’s business, together with matters relating to contractual relationships between United and any former employee of United employed by Contractor and (ii) incidental expenses incurred for business meetings, meals and other minor business related expenses shall not, in each case, violate this paragraph (“Permitted Actions”).

(b)    In connection with any performance under this Agreement, neither Contractor, nor any officer, employee, or agent of Contractor, will solicit or receive any amount of cash or negotiable paper, or any item, service or favor of value (a “gift”) from United. Contractor will refuse to accept all such gifts and, if received, will return such gifts to the donor. In all such cases Contractor will notify United promptly of such gift or offer thereof. If United deems it necessary, Contractor will turn over such gifts to United for further handling. The parties agree that Permitted Actions shall not violate this paragraph.

(c)    In connection with any performance under this Agreement, Contractor will at all times comply fully with all of the terms and provisions of the Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, et seq.) and any related or successor statute, regulation, or governmental directive regarding payments to foreign nationals or other persons or entities.

(d)    Contractor hereby certifies and represents that no inducements of monetary or other value were offered or given to any United officer, employee or agent, except as is stated in writing to the United official designated to sign this Agreement or except as otherwise stated in this Agreement, prior to execution of this Agreement. Contractor further certifies and represents that, to its knowledge, no official, employee or agent of Contractor shall receive or has received any inducement of monetary or other value from any vendor or contractor of United or has a significant ownership or other interest in a vendor or contractor of United which is or could be perceived by a reasonable person as a conflict of interest, except as is stated in writing to the United official designated to sign this Agreement, prior to execution. The parties agree that Permitted Actions shall not violate this paragraph.

Section 4.14    Environmental, Health and Safety.

(a)    Contractor acknowledges and agrees that it bears sole responsibility for strict compliance with its environmental, health and safety (“EHS”) obligations under this Section 4.14, irrespective of whether United has provided any information, instruction or materials to Contractor or otherwise imposed any mandates on Contractor with respect to the matters addressed in this Section 4.14. Contractor further warrants that its employees and agents are fully trained and possess the requisite expertise and experience to satisfy its obligations as provided in this Section 4.14.

(b)    Contractor shall conduct its operations in a prudent manner, in material compliance with Environmental Laws, taking reasonable preventative measures to avoid

 

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liabilities under any Environmental Laws or harm to human health or the environment, including, without limitation, reasonable preventative measures to prevent releases of Hazardous Materials to the environment, or adverse environmental impacts to on-site or off-site properties, risks of harm to public or worker health and safety, and the creation of any public nuisance. If, in the course of conducting services under this Agreement, Contractor encounters adverse environmental conditions that could reasonably be expected to give rise to liability for United or Contractor under any Environmental Laws or which otherwise could reasonably be expected to result in material harm to human health or the environment, Contractor shall promptly notify United of such conditions.

(c)    Contractor shall, at its own expense, conduct its operations in compliance in all material respects with all applicable Environmental Laws, including obtaining any needed permits or authorizations for Contractor’s operations. If United provides any information, instruction, or materials to Contractor relating to its obligations under any Environmental Laws, Contractor agrees that this shall not in any way relieve Contractor of its obligation to comply with Environmental Laws. Without limiting Contractor’s obligations under Section 10.07, Contractor further agrees that it shall otherwise preserve the proprietary nature of any such information that is clearly identified in writing by United as proprietary and confidential and shall use its commercially reasonable efforts to ensure that the information is not disclosed to any third parties without first obtaining the written consent of United.

(d)    Contractor shall use its commercially reasonable efforts to perform its services under this Agreement so as to minimize the unnecessary generation of waste materials, including consideration of source reduction and re-use or recycling options, and coordination with United on a cabin service recycling program. Contractor shall not cause or permit any Hazardous Materials to be used in the course of conducting the services under this Agreement, except to the extent required for the customary performance of such services, and provided that such Hazardous Materials are used, stored, handled, and disposed of in accordance in all material respects with all Environmental Laws including, without limitation and by way of example only, the terms and conditions of any stormwater, spill prevention or contingency permits or related plans applicable to Contractor Services whether such permits or plans are held by Contractor, United, airports or any other parties. If requested by United, Contractor shall replace specific products used in its operations with less toxic products, as long as there is a reasonable replacement available at a similar cost, or if the product is not available at a similar cost, provide United the option to agree to pay the difference. If requested by United, Contractor shall take reasonable efforts to provide quantitative data on materials recycled and waste disposed of to facilitate coordination and enhancement of cabin service recycling where feasible. Contractor shall ensure that any waste materials generated in connection with the services performed by Contractor under this Agreement are managed in accordance with all applicable Environmental Laws, with Contractor assuming responsibility as the legal generator of such wastes; provided, however, this provision does not apply should United or another vendor of United be the entity who has, in fact, independently generated the wastes.

(e)    For any leased areas or other equipment that is jointly used or operated by Contractor and United (and/or other United contractors), Contractor shall use its commercially reasonable efforts to coordinate its activities with United and/or United contractors and otherwise

 

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perform its activities in compliance in all material respects with all applicable Environmental Laws.

(f)    Except for a release of Hazardous Materials below reportable quantities under Environmental Law or which are immediately and fully remediated to restore the area to the same condition as existed prior to the spill, Contractor shall promptly notify United of any material spills or leaks of Hazardous Materials arising out of Contractor’s provision of services under this Agreement, and, if requested, shall provide copies to United of any written reports provided to any governmental agencies and airport authorities under any Environmental Laws regarding same. Contractor shall promptly undertake reasonable commercial actions to remediate any such spills or leaks to the extent Contractor or United is required to do so (i) by applicable Environmental Laws, (ii) to ensure the protection of public or worker health and safety, (iii) by the relevant airport authority, or (iv) in order to comply with a lease obligation. In the event that Contractor fails to fulfill its remediation obligations under this paragraph and United may otherwise be prejudiced or adversely affected (such as involving United leased property), United may undertake such actions as are reasonable at the cost and expense of Contractor. Subject to reasonable verification, such costs and expenses shall be promptly paid upon Contractor’s receipt of a written request for reimbursement for them by United.

(g)    Contractor shall promptly provide United with written copies of any notices of violation issued or other claims from a third party asserted pursuant to Environmental Laws or associated with a potential release of Hazardous Materials and related to or associated with the provision of Contractor Services. Contractor shall promptly undertake all actions necessary to resolve such matters, including, without limitation, paying all fines and penalties, and promptly addressing any noncompliance identified; provided, however, that Contractor may contest any notice of violation or other alleged violation and defend any claim that it believes is untrue, improper or invalid. In the event that Contractor fails to fulfill its obligations under this paragraph and United may otherwise be prejudiced or adversely affected, United may undertake such actions as are reasonable or legally required at the cost and expense of Contractor. Subject to reasonable verification, such costs and expenses shall be promptly paid upon Contractor’s receipt of a written request for reimbursement for them by United.

(h)    If requested by United, Contractor shall conduct a review and provide information to United regarding Contractor’s compliance with the requirements of this Section 4.14. This review may include the completion of an environmental compliance audit of Contractor’s activities or an environmental site assessment, each subject to a work plan approved by United. Contractor shall provide United with a summary of the results of this audit or assessment, provide United with an opportunity to review any written report generated in connection with such an audit or assessment, and will promptly address any noncompliance or liability identified to the extent required by Environmental Laws and United.

(i)    In the event that Contractor Services include providing bulk (nonbottled) potable water for crew or passenger consumption, Contractor shall ensure compliance with the Aircraft Drinking Water Regulation, FDA requirements, and other similar applicable laws (collectively, the “Drinking Water Requirements”), including without limitation using its commercially reasonable efforts to ensure all water handling equipment is properly and regularly disinfected

 

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and kept in sanitary condition. If Contractor relies upon another contractor to load water onto its aircraft or to maintain water handling equipment, it shall inquire with such contractors to ensure they meet these Drinking Water Requirements as well. Contractor shall immediately notify United if it becomes aware of practices or conditions that may reasonably be expected to negatively impact potable water quality, regardless of the provider or the source of such potable water (including whether such source is an airport, ground handler or aircraft water system). Contractor shall maintain records relating to its compliance with Environmental Laws under this Agreement for the longer of three (3) years or such period of time as is required by Environmental Laws. Contractor shall, at the request of United and with reasonable advance notice, provide United with reasonable access to Contractor’s operations, documents, and employees for the sole purpose of allowing United to assess Contractor’s compliance with its obligations with this Section 4.14, including responding to reasonable information requests. Upon the termination of operations at a space used to support the provision of Contractor Services under this Agreement, Contractor shall use its commercially reasonable efforts to ensure the removal and proper management of any and all Hazardous Materials associated with Contractor’s operations (including its subcontractors) and will comply with any other applicable Environmental Laws applicable to the provision of Contractor Services.

(j)    Contractor has reviewed United’s Environmental Commitment Statement (found at www.united.com/ecoskies) and agrees to conduct the services provided for in this Agreement in a manner consistent with these commitments and shall cooperate with United in meeting these commitments in effect as of the date hereof and in responding to reasonable information requests.

(k)    [Intentionally Omitted]

(l)    All notices to be provided by Contractor to United under this Section 4.14 shall be provided as indicated in Section 10.02 of this Agreement, with a copy to Managing Director–Environmental Affairs, United Airlines, Inc., 233 South Wacker Drive-WHQSE, Chicago, IL 60606.

Section 4.15    Lease, Use and Modification of Airport Facilities.

(a)    United and Contractor agree that the use by Contractor of all Terminal Facilities at all Applicable Airports for the provision of Scheduled Flights shall be at the direction of United. [***]. If required by local rule, ordinance, lease or other contract restriction or obligation, United may determine that it is necessary or appropriate for Contractor to execute a lease, license or airport use agreement to facilitate the provision of Regional Airline Services by Contractor. In furtherance of this Section 4.15, with respect to any Terminal Facilities used for the provision of Scheduled Flights, from time to time, and notwithstanding the execution of any license, lease, sublease or other agreement pursuant to this Section 4.15, at the request and direction of United, Contractor shall take the following actions, in each case as and when directed by United:

(i)    use its commercially reasonable efforts to enter into a lease, sublease or other appropriate agreement with any airport authority at any Applicable Airport for the

 

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lease, sublease or use of any Terminal Facilities used or to be used in connection with the provision of Scheduled Flights;

(ii)    use its commercially reasonable efforts to amend, modify or terminate any agreement to which it is a party with any airport authority at any Applicable Airport for the lease, sublease or use of any Terminal Facilities used or to be used in connection with the provision of Scheduled Flights;

(iii)    use its commercially reasonable efforts to obtain the consent of any relevant airport authority at any Applicable Airport for the Transfer (as defined below) to United or its designee of any lease, sublease or other agreement to which it is a party in respect of any Terminal Facility, or for the right of United or its designee to use any Terminal Facility used or to be used in connection with the provision of Scheduled Flights;

(iv)    enter into a mutually agreed sublease for the sublease to United or its designee of Contractor’s interest in any Terminal Facility used or to be used in connection with the provision of Scheduled Flights;

(v)    enter into an assignment substantially in the form of Exhibit M hereto (or as otherwise agreed) for the assignment to United or its designee of Contractor’s interest under any agreement to which it is a party for the lease, sublease or use of any Terminal Facility used or to be used in connection with the provision of Scheduled Flights;

(vi)    enter into a sublease or license using a mutually agreed form in regard to the use of any Terminal Facility owned, leased or otherwise controlled by United and used or to be used in connection with the provision of Scheduled Flights;

(vii)    enter into an assignment substantially in the form of Exhibit M hereto (or as otherwise agreed) for the assignment to Contractor of United’s interest in any Terminal Facility used or to be used in connection with the provision of Scheduled Flights;

(viii)    in each case as and when directed in writing by United, (a) Contractor shall become, if it is not already, a signatory carrier at any location directed by United; provided, however, that if (i) United directs Contractor to become a signatory at any airport and (ii) there are any direct costs required by such airport to become a signatory carrier, then United agrees to pay such direct costs that are required by the airport to become a signatory carrier, and (b) Contractor shall vote as directed in writing by United on any matters submitted to carriers for a vote if such matters concern, or may result in, any costs, direct or indirect, to be paid for and/or reimbursed by United at any location directed by United; and

(ix)    take any other action reasonably requested by United in furtherance of this Section 4.15.

 

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(b)    United’s direction to Contractor with respect to the foregoing actions shall extend to the action itself (e.g., use commercially reasonable efforts to enter into an agreement) as well as to the substance underlying the action (e.g., directions as to the terms and conditions of such agreement).

(i)    The licenses, assignments and subleases to be entered into pursuant to Section 4.15(a) shall be subject to the rights of the Applicable Airports in such Terminal Facilities and to the receipt of all necessary consents from airport authorities and other third parties to such sublease or assignment.

(ii)    Subject to Paragraph B(2) of Schedule 3, United shall pay for all landing fees for its flights at one or more Applicable Airports, Contractor agrees that any landing fee credits given to Contractor in respect of Scheduled Flights or other flights involving the Covered Aircraft as are permitted hereunder, shall be for the account of United (and if any such credits are applied by Contractor to the payment of any landing fees applicable to flights other than Scheduled Flights or other flights involving the Covered Aircraft as are permitted hereunder, Contractor shall pay the amount of any such credits to United).

(iii)    Contractor shall perform in accordance with the terms thereof (including any applicable notice and cure periods) all its obligations under all leases, subleases and other agreements to which Contractor is or becomes a party for the use of Terminal Facilities in connection with the provision of Contractor Services, including without limitation making all payments of rent and other amounts due under such agreement, and shall use commercially reasonable efforts to keep such agreements in effect (or to promptly renew or extend such agreements on substantially similar terms as directed by United). Contractor shall adhere to United’s space standards with respect to all Terminal Facilities used in connection with the provision of Scheduled Flights; United shall reimburse Contractor for all such payments of rent and other amounts in accordance with, and to the extent provided in, Paragraph B(1)(e) of Schedule 3.

(iv)    Contractor shall obtain the written consent of United (which shall not be unreasonably withheld) prior to entering into an agreement to lease, sublease, assign, dispose of or otherwise transfer (each, a “Transfer”) or any other agreement for the use or modification of, or otherwise relating to, any Terminal Facilities used or to be used in connection with the provision of Contractor Services (or other airport facilities which would become Terminal Facilities), or amending or modifying in any manner any such agreement, or consenting to any of the same. Any purported Transfer of any interest in a Terminal Facility in violation of this Section 4.15 shall be void ab initio, and any rent or other amounts payable under any such Transfer or other agreement shall not be considered a Pass Through Cost for purposes of this Agreement, and Contractor shall be obligated to follow United’s direction with respect to such Transfer or other agreement.

(v)    Contractor shall give United at least thirty (30) days’ prior written notice before ceasing to use any Terminal Facilities; provided that no such notice shall be required where such use is ceasing because United has informed Contractor that no Scheduled Flights will be scheduled in or out of such location (other than due to either

 

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the breach or fault of Contractor) or has terminated this Agreement (other than any termination by United pursuant to Section 8.02(a), 8.02(b) or otherwise due to either the breach or the fault of Contractor). In the event that United either terminates Scheduled Flights from such location (other than due to either the breach or fault of Contractor) or terminates this Agreement (other than any termination by United pursuant to Section 8.02(a), 8.02(b) or otherwise due to either the breach or the fault of Contractor), United shall be responsible for Contractor’s reasonable out-of-pocket costs actually incurred as a result of facilities termination; provided that (x) Contractor shall use commercially reasonable efforts to minimize such costs and (y) the foregoing reimbursement obligation shall be limited to the extent that Contractor fails to use such commercially reasonable efforts.

Section 4.16    Fuel and Fuel Services; Glycol and Deicing Services.

(a)    United shall procure, or arrange for the procurement of, all fuel, glycol, Fuel Services and deicing services required by Contractor in connection with the provision of Regional Airline Services; provided that, if United is prohibited from doing so by local rule, ordinance, lease or other contract restriction or obligation or if it would otherwise not be practicable for United to do so, Contractor shall use commercially reasonable efforts to negotiate and enter into Fuel Services agreements and deicing service agreements with reputable service providers with reasonable terms and conditions. Contractor shall provide any data or analysis of its fuel procurement and Fuel Services as reasonably requested by United. If Contractor enters into such an agreement for Fuel Services or deicing services, then United shall reimburse Contractor for all direct, out-of-pocket expenses incurred by Contractor for the purchase of goods or services that would otherwise be directly incurred expenses of United pursuant to Schedule 3.

(b)    If United procures, or arranges for the procurement of, fuel or glycol for or on behalf of Contractor pursuant to Section 4.16(a) above, then the costs of such procurement, or such arranging for procurement, as applicable (in each case including without limitation the cost of procuring the aircraft fuel) shall be incurred directly by United, pursuant to Paragraph B(1)(d) of Schedule 3. If United does not so procure or arrange for the procurement, then Contractor shall procure or arrange for the procurement of fuel or glycol, and such costs shall be incurred directly by Contractor and reconciled pursuant to Paragraph B(7)(a)(ix) of Schedule 3.

(c)    If United procures, or arranges for the procurement of, Fuel Services or de-icing services for or on behalf of Contractor pursuant to Section 4.16(a) above, then the costs of such procurement, or such arranging for procurement, as applicable shall be incurred directly by United pursuant to Paragraph B(1)(d) of Schedule 3. If United does not so procure or arrange for the procurement, then Contractor shall procure or arrange for the procurement of Fuel Services or de-icing services, and such costs shall be incurred directly by Contractor and reconciled pursuant to Paragraph B(7)(a)(ix) of Schedule 3.

(d)    United and Contractor acknowledge and agree that any fuel and glycol provided to Contractor pursuant to an agreement between United and a fuel or glycol supplier is provided “as is” and without warranty of any kind, including without limitation the warranties of

 

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merchantability and fitness for a particular purpose, by, through or under United, and that no warranties by, through or under United shall be implied by law.

(e)    United and Contractor acknowledge and agree that any aircraft fuel or glycol procured, or arranged for procurement, for on behalf of Contractor by United shall not be deemed to have been procured, purchased or otherwise acquired for on behalf of Contractor, and Contractor shall in no event have any claim to or interest in, any fuel or glycol procured by United or its agents, unless and until such fuel or glycol is delivered into or onto a Covered Aircraft, except as otherwise may be provided in a Fuel Services or de-icing services agreement, if any, between United and Contractor.

Section 4.17    Ground Handling.

(a)    United shall provide or cause to be provided Ground Handling Services for all Scheduled Flights.

(b)    All expenses for Ground Handling Services shall be incurred directly by United, pursuant to Paragraph B(1)(f) of Schedule 3.

(c)    Contractor shall cooperate in all reasonable respects with any ground handling provider(s) as shall be directed by United. In addition, at United’s direction, mainline ground support equipment (“GSE”) and GSE processes shall be used in connection with Contractor’s performance of Scheduled Flights; provided that such GSE and GSE processes shall be modified to be compatible with the Covered Aircraft if necessary, such determination to be made by United.

Section 4.18    Daytime Maintenance. At United’s reasonable request, Contractor will enter into discussions with United regarding the possible implementation of a daytime maintenance program in which aircraft will have maintenance work that is normally performed overnight performed during the day. Not later than the end of the Ramp-Up Period, Contractor and United will meet and confer regarding daytime maintenance program costs and the allocation of any increased costs. The implementation of any such program shall be subject to the reasonable agreement of the parties. The Covered Aircraft that may be subject to a mutually agreed upon daytime maintenance program shall not be included in determining the number of Spare Aircraft for purposes of Section 2.01(e).

Section 4.19    [***].

ARTICLE V

CERTAIN RIGHTS OF UNITED

Section 5.01    Exclusivity. From the Effective Date through the date that is [***] months prior to the expiration of the last Covered Aircraft Term, subject to United’s extension rights set forth in Sections 8.01 (b) and (c), Contractor shall not, except in connection with the Prior Commitments, (i) enter into any discussions relating to the entering into, or enter into, any new capacity purchase agreement, jet service agreement or similar agreement pursuant

 

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to which Contractor would provide flying services for the benefit of any air carrier other than United, (ii) operate any aircraft on behalf of any air carrier other than United, without, in either such case, United’s prior written consent, which may be withheld in United’s sole discretion, or (iii) permit a Change of Control to occur. United acknowledges and agrees that Contractor’s performance of its obligations under the Prior Commitments, as amended from time to time, shall not constitute a violation of the foregoing covenant so long as Contractor does not provide flying services under the Prior Commitments beyond February 15, 2018.

ARTICLE VI

INSURANCE

Section 6.01    Minimum Insurance Coverages. During the Term of Agreement, in addition to any insurance required to be maintained by Contractor pursuant to the terms of any aircraft lease, or by any applicable governmental airport authority, Contractor shall maintain, or cause to be maintained, in full force and effect policies of insurance with insurers of recognized reputation and responsibility, in each case to the extent available on a commercially reasonable basis, as follows:

(a)    Comprehensive aircraft hull and liability insurance, including aircraft third party, passenger liability (including passengers’ baggage and personal effects), cargo and mail legal liability, and all-risk ground and flight physical damage, with a combined single limit of not less than the greater of (i) [***] per occurrence and (ii) the highest single limit per occurrence of any aircraft hull and liability insurance maintained by Contractor under any other capacity purchase arrangement, and a minimum limit in respect of personal injury for non-passengers (per clause AVN 60 or its equivalent) of [***] per occurrence and in the aggregate, and war risk hull and liability insurance as provided by the FAA program or by commercial providers of such insurance with a combined single limit no less than the greater of (i) [***] per occurrence and (ii) the highest single limit per occurrence of any war risk hull and liability insurance maintained by Contractor under any other capacity purchase arrangement;

(b)    Workers’ compensation as required by the appropriate jurisdiction and employer’s liability with a limit of not less than [***] combined single limit; and

(c)    Other property and liability insurance coverages of the types and in the amounts that would be considered reasonably prudent for a business organization of Contractor’s size and nature, under the insurance market conditions in effect at the time of placement. All coverages described in this Section 6.01 shall be placed with deductibles reasonably prudent for a business organization of Contractor’s size and nature, under the insurance market conditions in effect at the time of placement.

Section 6.02    Endorsements. Unless Contractor and United are participating in a combined policy placement, Contractor shall cause the policies described in Section 6.01(a) to be duly and properly endorsed by Contractor’s insurance underwriters with respect to Contractor’s flights and operations as follows:

 

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(a)    To provide that the underwriters shall waive subrogation rights against United, its directors, officers, agents, employees and other authorized representatives;

(b)    To provide that United, its directors, officers, agents, employees and other authorized representatives shall be endorsed as additional insured parties;

(c)    To provide that insurance shall be primary to and without right of contribution from any other insurance which may be available to the additional insureds;

(d)    To include a breach of warranty provision in favor of the additional insureds;

(e)    To accept and insure Contractor’s hold harmless and indemnity undertakings set forth in this Agreement, but only to the extent of the coverage afforded by the policy or policies; and

(f)    To provide that such policies shall not be canceled, terminated or materially altered, changed or amended until thirty (30) days (but seven (7) days or such lesser period as may be available in respect of war risk and allied perils and ten (10) days in the case of a cancellation for nonpayment of premium) after written notice shall have been sent to United.

Section 6.03    Evidence of Insurance Coverage. At the commencement of this Agreement, upon renewal and at United’s request, Contractor shall furnish to United evidence reasonably satisfactory to United of such insurance coverage and endorsements, including certificates certifying that such insurance and endorsements are in full force and effect. If Contractor fails to acquire or maintain insurance as herein provided, then, without limiting United’s remedies pursuant to this Agreement with respect to such failure, United may at its option secure such insurance on Contractor’s behalf at Contractor’s expense, except for amounts that would otherwise be reimbursable as Pass Through Costs as provided in Paragraph B(7)(a)(iii) of Schedule 3.

Section 6.04    Insurance Through Combined Placement.

(a)    Combined Placement. As outlined in Paragraph B(5) of Schedule 3, United, in its sole discretion, may determine at any time after December 21, 2017, and from time to time thereafter upon not less than one-hundred twenty (120) days prior written notice that it and Contractor shall obtain a combined placement of Aviation Insurance covering United’s and Contractor’s combined exposures. Following such notice period, at United’s instruction, Contractor shall enter into such a combined placement. At any time at which United, in its sole discretion, determines to cease a combined placement, it shall give Contractor not less than one-hundred twenty (120) days prior written notice, and the provisions of Section 6.01 shall apply following such notice period.

(b)    Allocation of Costs. United reimbursement of insurance expenses is subject to adjustment in accordance with Paragraph B(5) of Schedule 3.

Section 6.05    Insurance Through Joint Marketing Placement.

 

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(a)    Joint Marketing Placement. United, in its sole discretion, may determine at any time after [***], and from time to time thereafter upon not less than one-hundred twenty (120) days prior written notice that it and Contractor shall obtain Aviation Insurance by jointly marketing their risk to insurers led by United’s insurance team. In such event, each of United and Contractor shall maintain its own separate insurance policies and programs. Following such notice period, at United’s instruction, Contractor shall enter into such a joint marketed placement. At any time at which United, in its sole discretion, determines to cease a joint marketed placement, it shall give Contractor not less than one-hundred twenty (120) days prior written notice, and the provisions of Section 6.01 shall apply following such notice period.

(b)    Allocation of Costs. The parties hereto shall allocate the costs of jointly marketed placements in accordance with Paragraph B(5) of Schedule 3.

Section 6.06    Current Insurance. The Parties agree that Contractor may keep in place its insurance policies existing as of the Effective Date through their current expiration dates.

ARTICLE VII

INDEMNIFICATION

Section 7.01    Contractor Indemnification of United. Contractor shall be liable for and hereby agrees to fully defend, release, discharge, indemnify and hold harmless United, United’s Parent, their respective subsidiaries and their respective directors, officers, employees and agents (each a “United Indemnitee”) from and against any and all third party (such third parties include United Indemnitees other than United) claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, fines, penalties, costs and expenses of any kind, character or nature whatsoever, including reasonable attorneys’ fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from a United Indemnitee, including but not limited to, any such losses, costs and expenses involving (i) death or injury (including claims of emotional distress and other non-physical injury by passengers) to any person including any United Indemnitee or any of Contractor’s or its subsidiaries’ directors, officers, employees or agents, (ii) loss of, damage to, or destruction of property (including real, tangible and intangible property, and specifically including regulatory property such as route authorities, slots and other landing rights), including any loss of use of such property, and (iii) damages due to delays in any manner, in each case arising out of, connected with, or attributable to (x) any act or omission by Contractor or any of its directors, officers, employees or agents relating to the provision of Regional Airline Services, (y) the performance, improper performance, or non-performance of any and all obligations to be undertaken by Contractor or any of its directors, officers, employees or agents pursuant to this Agreement, or (z) the operation, non-operation, or improper operation of the Covered Aircraft or Contractor’s equipment or facilities at any location, in each case excluding only claims, demands, damages, liabilities, suits, judgments, actions, causes of action, fines, penalties, losses, costs and expenses to the extent resulting from the negligence or willful misconduct of a United Indemnitee (other than negligence or willful misconduct (i) imputed to such United Indemnitee by reason of its interest in a Covered Aircraft or its relationship with Contractor; (ii) relating to any duties of such United Indemnitee relating

 

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to the selection or oversight of Contractor, or (iii) relating to any duties of United that Contractor has assumed responsibility under this Agreement or any Ancillary Agreement). United Indemnitees shall not, for any reason, be deemed to be in custody or control, or a bailee, of any of Contractor’s aircraft, equipment or facilities.

Section 7.02    United Indemnification of Contractor. United shall be liable for and hereby agrees fully to defend, release, discharge, indemnify, and hold harmless Contractor, its subsidiaries and their respective directors, officers, employees, and agents (each a “Contractor Indemnitee”) from and against any and all third party (such third parties include Contractor Indemnitees other than Contractor) claims, demands, damages, liabilities, suits, judgments, actions, causes of action, losses, fines, penalties, costs and expenses of any kind, character or nature whatsoever, including reasonable attorneys’ fees, costs and expenses in connection therewith and expenses of investigation and litigation thereof, which may be suffered by, accrued against, charged to, or recoverable from any Contractor Indemnitee, including but not limited to, any such losses, costs and expenses involving (i) death or injury (including claims of emotional distress and other non-physical injury by passengers) to any person including any of Contractor Indemnitees’, United’s or United’s Parent’s directors, officers, employees or agents (excluding any Contractor Indemnitee as such an agent), (ii) loss of, damage to, or destruction of property (including any loss of use of such property including real, tangible and intangible property, and specifically including regulatory property such as route authorities, slots and other landing rights), and (iii) damages due to delays in any manner, in each case arising out of, connected with, or attributable to, (x) the performance, improper performance, or nonperformance of any and all obligations to be undertaken by United or any of its directors, officers, employees or agents (excluding any Contractor Indemnitee as such an agent) pursuant to this Agreement, (y) the operation, non-operation or improper operation of United’s aircraft, equipment or facilities (excluding Covered Aircraft and any equipment or facilities leased or subleased by United to Contractor) at any location, or (z) Contractor’s use of the United Marks or the Identification, in each case excluding only claims, demands, damages, liabilities, suits judgments, actions, causes of action, losses, fines, penalties, costs and expenses to the extent resulting from the negligence or willful misconduct of a Contractor Indemnitee, provided that if United, any of United’s affiliates, or a subcontractor retained by United to provide Ground Handling Services is acting directly in the capacity of a ground handler, then unless superseded by another agreement between United or such affiliate, on the one hand, and Contractor, on the other, the indemnity provisions set forth in Exhibit O shall govern the indemnification obligations of United or such affiliate to Contractor, its directors, officers, employees and agents with respect to the actions of United or such affiliate in its capacity as a ground handler. United will use commercially reasonable efforts to cause and assure that United will at all times be and remain in custody and control of any aircraft, equipment and facilities of, or operated by, United, and the Contractor Indemnitees shall not, for any reason, be deemed to be in the custody or control, or a bailee, of such aircraft, equipment or facilities.

Section 7.03    Indemnification Claims. A party (the “Indemnified Party”) entitled to indemnification from another party under the terms of this Agreement (the “Indemnifying Party”) shall provide the Indemnifying Party with prompt written notice (an “Indemnity Notice”) of any third party claim which the Indemnified Party believes gives rise to a claim for indemnity against the Indemnifying Party hereunder. Notwithstanding the foregoing,

 

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the failure of an Indemnified Party to promptly provide an Indemnity Notice shall not constitute a waiver by the Indemnified Party to any right to indemnification or otherwise relieve such Indemnifying Party from any liability hereunder unless and only to the extent that the Indemnifying Party is prejudiced as a result thereof. The Indemnifying Party shall be entitled, if it accepts financial responsibility for the third party claim, to control the defense of or to settle any such third party claim at its own expense and by its own counsel; provided that unless a settlement includes an unconditional release of an Indemnified Party no settlement by the Indemnifying Party of such a claim will be binding on such Indemnified Party for purposes of the indemnification provisions hereof without the prior written consent of such Indemnified Party to such settlement, which consent may not be unreasonably withheld, conditioned or delayed. The Indemnified Party shall provide the Indemnifying Party with such information as the Indemnifying Party shall reasonably request to defend any such third party claim and shall otherwise cooperate with the Indemnifying Party in the defense of any such third party claim. Except as set forth in this Section 7.03, no settlement or other compromise or consent to a judgment by the Indemnified Party with respect to a third party claim as to which the Indemnifying Party is asserted to have an indemnity obligation hereunder will be binding on the Indemnifying Party for purposes of the indemnification provisions hereof without the prior written consent of such Indemnifying Party to such settlement. Any Indemnifying Party shall be subrogated to the rights of the Indemnified Party to the extent that the Indemnifying Party pays for any loss, damage or expense suffered by the Indemnified Party hereunder. If the Indemnifying Party fails to defend against the third party claim that is the subject of an Indemnity Notice within 30 days of receiving such notice (or sooner if the nature of the third party claim so requires), or otherwise contests its obligation to indemnify the Indemnified Party in connection therewith, the Indemnified Party may, upon providing written notice to the Indemnifying Party, pay, compromise or defend such third party claim without the prior consent of the (otherwise) Indemnifying Party. In the latter event, the Indemnified Party, by proceeding to defend itself or settle the matter, does not waive any of its rights hereunder to later seek reimbursement from the Indemnifying Party.

Section 7.04    Employers Liability; Independent Contractors; Waiver of Control.

(a)    Employer’s Liability and Workers’ Compensation. Each party hereto assumes full responsibility for its employer’s and workers’ compensation (or similar coverage program) liability to its respective officers, directors, employees or agents on account of injury or death resulting from or sustained in the performance of their respective service under this Agreement. Each party, with respect to its own employees, accepts full and exclusive liability for the payment of workers’ compensation and employer’s liability insurance premiums with respect to such employees, and for the payment of all taxes, contributions or other payments for unemployment compensation or old age or retirement benefits, pensions or annuities now or hereafter imposed upon employers by the government of the United States or any other governmental body, including state, local or foreign, with respect to such employees measured by the wages, salaries, compensation or other remuneration paid to such employees, or otherwise.

 

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(b)    Employees, etc., of Contractor. The employees, agents, and independent contractors of Contractor engaged in performing any of the services Contractor is to perform pursuant to this Agreement are employees, agents, and independent contractors of Contractor for all purposes, and under no circumstances will be deemed to be employees, agents or independent contractors of United. In its performance under this Agreement, Contractor will act, for all purposes, as an independent contractor and not as an agent for United. Notwithstanding the fact that Contractor has agreed to follow certain procedures, instructions and standards of service of United pursuant to this Agreement, United will have no supervisory power or control over any employees, agents or independent contractors engaged by Contractor in connection with its performance hereunder and Contractor shall defend, indemnify and hold harmless United and its directors, officers, employees and agents from and against any and all claims alleging that United is the employer of any said employees, agents or independent contractors engaged by Contractor. All complaints or requested changes in procedures made by United will, in all events, be transmitted by United to Contractor’s designated representative. Nothing contained in this Agreement shall be construed as joint employment or is intended to limit or condition Contractor’s control over its operations or the conduct of its business as an air carrier.

(c)    Employees, etc., of United. The employees, agents, and independent contractors of United engaged in performing any of the services United is to perform pursuant to this Agreement are employees, agents, and independent contractors of United for all purposes, and under no circumstances will be deemed to be employees, agents, or independent contractors of Contractor. Contractor will have no supervision or control over any such United employees, agents and independent contractors and any complaint or requested change in procedure made by Contractor will be transmitted by Contractor to United’s designated representative. In its performance under this Agreement, United will act, for all purposes, as an independent contractor and not as an agent for Contractor. United shall defend, indemnify and hold harmless Contractor and its directors, officers, employees and agents from and against any and all claims alleging that Contractor is the employer of any said employees, agents or independent contractors engaged by United.

(d)    Contractor Flights. The fact that Contractor’s operations are conducted under United’s Marks and listed under the UA designator code will not affect their status as flights operated by Contractor for purposes of this Agreement or any other agreement between the parties, and Contractor and United agree to advise all third parties, including passengers, of this fact.

Section 7.05    Survival. The provisions of this Article VII shall survive the termination of this Agreement for a period of seven years.

ARTICLE VIII

TERM, TERMINATION AND DISPOSITION OF AIRCRAFT

Section 8.01    Term.

(a)    The term of this Agreement, with respect to each Covered Aircraft, will commence on the date that such aircraft becomes a Covered Aircraft pursuant to Schedule 1 and

 

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will continue until the scheduled Covered Aircraft Term Expiration Date of such Covered Aircraft specified on Schedule 1, subject to adjustment of Covered Aircraft Terms pursuant to this Article VIII and Schedule 1 (each a “Covered Aircraft Term”). The term of this Agreement, as a whole, will commence on the Effective Date and will continue, unless earlier terminated as provided herein, until the later of the expiration of the last Covered Aircraft Term and the expiration of any applicable Wind-Down Period (the “Term of Agreement”). Each Covered Aircraft will be deemed to be subject to the capacity purchase provisions of this Agreement during the Covered Aircraft Term of such Covered Aircraft.

(b)    United may elect, in its sole discretion, to extend the Covered Aircraft Term of all of the Covered Aircraft for an additional two (2) years beyond the Covered Aircraft Term Expiration Date of each respective Covered Aircraft specified on Schedule 1, by providing written notice of such election to Contractor no less than [***] months prior to the first such Covered Aircraft Term Expiration Date. Upon such election by United, each respective Covered Aircraft Term Expiration Date specified on Schedule 1, will be deemed to be amended to be such extended date. The Base Compensation during any such extension of the Term of Agreement will be escalated in a manner consistent with the methodology used during the initial Term of Agreement. Further, however, Contractor shall have the right to reduce the number of Covered Aircraft during such extension of the Term of Agreement to no less than fifty (50) aircraft, and such removed Covered Aircraft shall be subject to a Wind Down Schedule and shall not be flown for anyone else for the remainder of the Term of Agreement.

(c)    In addition, United may elect, in its sole discretion, to extend the Covered Aircraft Term of all of the Covered Aircraft for an additional two (2) years beyond such initial extension provided in Section 8.01(b), by providing written notice of such election to Contractor no less than [***] months prior to the first Covered Aircraft Term Expiration Date specified on Schedule 1 (as amended in accordance with Section 8.01(b)). The Base Compensation during any such extension of the Term of Agreement will be escalated in a manner consistent with the methodology used during the initial Term of Agreement and first extension term, provided, however, that, Contractor may propose an increase to the Base Compensation to account for any increase in the assumed costs included within the Base Compensation that is increased in an amount greater than the escalation of such Base Compensation provided above. To propose such an increase to the Base Compensation, Contractor must provide United with notice of such request and reasonable substantiation of such claims for increased costs, no later than [***] days after receipt of United’s notice of extension of the Term of Agreement pursuant to this Section 8.01(c). If United does not agree in writing to such an increase to the Base Rates [***] months, or more, prior to the expiration of the Term of the first Covered Aircraft Term Expiration Date specified on Schedule 1 (as amended in accordance with Section 8.01(b)), then United’s extension notice shall automatically be deemed to have been withdrawn and the option provided pursuant to this Section 8.01(c) shall expire.

Section 8.02    Early Termination.

(a)    By United for a Termination Event. United may terminate this Agreement immediately upon written notice to Contractor, following the occurrence of any event that constitutes a Termination Event, which notice is given within six (6) months after United’s

 

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discovery of such Termination Event. Any termination pursuant to this Section 8.02(a) shall supersede any other termination pursuant to any other provision of this Agreement (even if such other right of termination shall already have been exercised), and the date of such notice shall specify the Termination Date for purposes of this Agreement.

(b)    By United for Material Breach. Without limiting any other rights of United under this Agreement, United may terminate this Agreement upon the occurrence of any material breach of this Agreement by Contractor, which breach shall not have been cured within sixty (60) days after written notice of such breach is delivered by United to Contractor, (i) which notice identifies specifically the breach asserted by United (which sixty (60) day notice period may run concurrently with the fifteen (15) day notice period, if any, provided pursuant to Section 4.03 for non-safety-related breaches) and (ii) which notice is given within six (6) months after United’s discovery of such breach. The parties hereto agree that, without limiting the circumstances or events that may constitute a material breach, each of the following shall constitute a material breach of this Agreement by Contractor:

(i)    a material default by Contractor under any material Ancillary Agreement, subject to any cure rights thereunder,

(ii)    Contractor enters into a new codeshare with another airline in breach of Exhibit D(6), and

(iii)    United makes a reasonable and good faith determination, using recognized standards of safety, that there is a material safety concern with Contractor’s on-going operation of future Scheduled Flights.

(c)    By Contractor for Breach. Contractor may terminate this Agreement upon (i) ten (10) Business Days prior written notice upon any failure by United to make any payments that are due and payable under this Agreement, including without limitation, any payments which become due during any Wind-Down Period, excluding payments in an aggregate amount of up to [***] that are subject to good faith dispute, which failure shall not have been cured within such ten (10) Business Day period, or (ii) the occurrence of any other material breach of this Agreement by United, including without limitation, any breach during any Wind-Down Period, which breach shall not have been cured within sixty (60) days after written notice of such breach is delivered by Contractor to United. Any such notice of termination delivered by Contractor to United hereunder will be irrevocable, must be given within six (6) months of Contractor’s discovery of such failure or material breach, and must contain a Termination Date that is not more than [***] days after the date of such notice, in the case of termination pursuant to Clause (i), and not more than [***] days after the date of such notice, in the case of termination pursuant to Clause (ii).

(d)    [Intentionally Omitted]

(e)    By United for Non-Carrier-Specific Groundings. United may terminate this Agreement immediately upon a non-carrier-specific grounding continuing for [***] days of more

 

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than [***] of the Covered Aircraft by [***], such termination to be effective upon [***] Business Days prior written notice given to Contractor at any time prior to [***].

(f)    By United Following Certain Other Events. At any time following the occurrence of any of the following events, United may terminate this Agreement immediately upon written notice (but without any prior notice): (i) if by [***], Contractor cannot commit to deliver at least [***] Covered Aircraft available to operate Scheduled Flights in [***], (ii) if, for any reason, Contractor is unable to operate a fleet of at least [***] Covered Aircraft at any time after [***], or (iii) as provided in notes (e) and (f) of Schedule 1.

(g)    Survival During Wind-Down Period. Upon any termination hereunder, notwithstanding the removal or some or all of the Covered Aircraft from the capacity purchase provisions of this Agreement, the Term of Agreement shall continue, and this Agreement shall survive in full force and effect, beyond the Termination Date until the end of the Wind-Down Period, and the rights and obligations of the parties under this Agreement, including without limitation remedies available upon the occurrence of events constituting material breaches or payment defaults, shall continue until the later of the Termination Date and the end of the Wind-Down Period, if any.

Section 8.03    Disposition of Aircraft during Wind-Down Period.

(a)    Upon Termination by United for Termination Event. If  United  terminates  this Agreement pursuant to Section 8.02(a), then United may elect in its sole discretion to apply the provisions of Section 8.03(b), below, to the disposition of Covered Aircraft, provided that United notifies Contractor of such election in the written notice delivered to Contractor pursuant to Section 8.02(a). If United terminates this Agreement pursuant to Section 8.02(a) and United does not make the foregoing election, then the Covered Aircraft shall be withdrawn automatically from the capacity purchase provisions of this Agreement as of the Termination Date and all of the Covered Aircraft shall cease to be Covered Aircraft as of such date.

(b)    Upon Termination by United for Breach or Grounding. If United terminates this Agreement pursuant to Section 8.02(b) or 8.02(e), then the applicable Covered Aircraft will be withdrawn from the capacity purchase provisions of this Agreement in accordance with the following terms and conditions:

(i)    Within [***] days after delivery of any applicable notice of termination, United shall deliver to Contractor an irrevocable written Wind-Down Schedule (giving effect to any grounding), providing for the withdrawal of all applicable Covered Aircraft from the capacity purchase provisions of this Agreement, delineating the number of each aircraft type to be withdrawn per month.

(ii)    The Wind-Down Schedule may not commence until the Termination Date, shall provide for not less than [***] and no more than [***] Covered Aircraft in each calendar month, and may not provide for the withdrawal of any Covered Aircraft more than [***] months after such Termination Date.

 

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(iii)    Upon the date for withdrawal of a Covered Aircraft specified in the Wind-Down Schedule established pursuant to this Section 8.03(b), such aircraft shall cease to be a Covered Aircraft.

(c)    Upon Termination by Contractor for Breach.

(i)    If Contractor terminates this Agreement pursuant to Section 8.02(c)(i), then as of the Termination Date set forth in the notice of termination, all of the Covered Aircraft shall automatically be withdrawn from the capacity purchase provisions of this Agreement and shall cease to be Covered Aircraft as of such date.

(ii)    If Contractor terminates this Agreement pursuant to Section 8.02(c)(ii), then United shall deliver a Wind-Down Schedule to Contractor within [***] days of receipt of such termination notice. Such Wind-Down Schedule shall begin no sooner than the Termination Date, shall provide for the withdrawal of at least [***] Covered Aircraft per month, provided however that Contractor’s obligation to operate Scheduled Flights during such Wind-Down Schedule will be excused to the extent that Contractor cannot operate such Scheduled Flights due to the acts or omissions of United giving rise to the applicable breach of this Agreement.

(d)    Upon Expiration of the Term of Agreement. Upon the expiration of the Term of Agreement, then the wind-down terms specified in Section 8.03(b) will apply (as if the termination were pursuant to Section 8.02(b)), except that the Termination Date shall be the expiration date of the Term of Agreement and United’s Wind-Down Schedule shall be delivered to Contractor not less than [***] months prior to such expiration date.

ARTICLE IX

REPRESENTATIONS AND WARRANTIES

Section 9.01    Representations and Warranties of Contractor. Contractor represents and warrants to United as of the date hereof as follows:

(a)    Organization and Qualification. Contractor is a duly organized and validly existing limited liability company in good standing under the laws of Delaware and Contractor has the limited liability company power and authority to own, operate and use its assets and to provide the Regional Airline Services. Contractor is duly qualified to do business as a foreign entity under the laws of each jurisdiction that requires such qualification except where the failure to so qualify would not reasonably be expected to have a material adverse effect on Contractor’s ability to perform its obligations hereunder.

(b)    Authority Relative to this Agreement. Contractor has the power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on the part of Contractor. This Agreement has been duly and validly executed and delivered by Contractor and is, assuming due execution and

 

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delivery thereof by United and that United has legal power and right to enter into this Agreement, a valid and binding obligation of Contractor, enforceable against Contractor in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors’ rights generally and legal principles of general applicability governing the availability of equitable remedies (whether considered in a proceeding in equity or at law or otherwise under applicable law).

(c)    Conflicts. Neither the execution or delivery of this Agreement nor the performance by Contractor of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of Contractor’s certificate of formation, limited liability company agreement, or any provision of, or result in the acceleration of any obligation under, any material contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease or other agreement to which Contractor is a party or by which it or any of its properties or assets may be bound, including the Prior Commitments, (ii) result in the creation or imposition of any lien, charge or encumbrance in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority or body, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens, charges or encumbrances.

(d)    No Default. Contractor (i) is not in violation of its certificate of formation or limited liability company agreement, (ii) is not in breach or default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, or loan agreement, or to the best of its knowledge based on reasonable diligence, any other material agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is not in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, where such violation, breach, default or failure would have a material adverse effect on Contractor or on its ability to provide Regional Airlines Services and otherwise perform its obligations hereunder. To the knowledge of Contractor, no third party to any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument that is material to Contractor to which Contractor is a party or by which it is bound or to which any of its properties are subject, is in default in any material respect under any such agreement.

(e)    Broker. Contractor has not retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby.

(f)    Insurance. Contractor is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts and with such deductibles as, to its knowledge, are customary in the businesses in which it is engaged. Contractor has not received notice of cancellation or non-renewal of such insurance. All such insurance is outstanding and duly in force on the date hereof. Contractor has no reason to believe that it will not be able to renew its

 

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existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on Contractor.

(g)    No Proceedings. There are no legal or governmental proceedings pending, or investigations commenced of which Contractor has received notice, in each case to which Contractor is a party or of which any property or assets of Contractor is the subject which, if determined adversely to Contractor, would individually or in the aggregate have a material adverse effect on Contractor or on its ability to provide Regional Airlines Services and otherwise perform its obligations hereunder; and to the best knowledge of Contractor, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.

(h)    No Labor Dispute. No labor dispute with the employees of Contractor exists or, to the knowledge of Contractor, is imminent which would reasonably be expected to have a material adverse effect on Contractor or on its ability to provide Regional Airlines Services and otherwise perform its obligations hereunder.

(i)    Permits. Contractor possesses, or in the case of the Covered Aircraft, will possess not later than [***] days prior to the first Scheduled In-Service Date of a Covered Aircraft hereunder, all material certificates, authorizations and permits issued by FAA, DOT, TSA, DHS, EPA and other applicable federal, state or foreign regulatory authorities necessary to conduct its business, to provide Regional Airlines Services and otherwise to perform its obligations hereunder, and Contractor has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a material adverse effect on Contractor or on its ability to conduct its business, to provide Regional Airlines Services and otherwise to perform its obligations under this Agreement.

(j)    Prior Commitments. Contractor’s obligation to operate aircraft on behalf of other air carriers pursuant to the Prior Commitments expires no later than February 15, 2018.

Section 9.02    Representations and Warranties of United. United represents and warrants to Contractor as of the date hereof as follows:

(a)    Organization and Qualification. United is a duly incorporated and validly existing corporation in good standing under the laws of the State of Delaware.

(b)    Authority Relative to this Agreement. United has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of United. This Agreement has been duly and validly executed and delivered by United and is, assuming due execution and delivery thereof by Contractor and that Contractor has legal power and right to enter into this Agreement, a valid and binding obligation of United, enforceable against United in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, fraudulent conveyance,

 

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reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors’ rights generally and legal principles of general applicability governing the availability of equitable remedies (whether considered in a proceeding in equity or at law or otherwise under applicable law).

(c)    Conflicts; Defaults. Neither the execution or delivery of this Agreement nor the performance by United of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of United’s certificate of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any material contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease or other agreement to which United is a party or by which it or its properties or assets may be bound, (ii) result in the creation or imposition of any lien, charge or encumbrance in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority or body, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens, charges or encumbrances.

(d)    No Default. United is not (i) in violation of its certificate of incorporation or bylaws, (ii) in breach or default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a breach or default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, where such violation, breach, default or failure would have a material adverse effect on United or on its ability to perform its obligations hereunder. To the knowledge of United, no third party to any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument that is material to United to which United is a party or by which it is bound or to which any of its properties are subject, is in default in any material respect under any such agreement.

(e)    Broker. United has not retained or agreed to pay any broker or finder with respect to this Agreement and the transactions contemplated hereby.

(f)    Insurance. United is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts and with such deductibles to its knowledge as are customary in the businesses in which it is engaged. United has not received notice of cancellation or non-renewal of such insurance. All such insurance is outstanding and duly in force on the date hereof. United has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on Contractor.

 

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(g)    No Proceedings. There are no legal or governmental proceedings pending, or investigations commenced of which United has received notice, in each case to which United is a party or of which any property or assets of United is the subject which, if determined adversely to United, would individually or in the aggregate have a material adverse effect on United or on its ability to perform its obligations hereunder; and to the best knowledge of United, no such proceedings are threatened or contemplated by governmental authorities or threatened by others.

ARTICLE X

MISCELLANEOUS

Section 10.01    Certain Arrangements. Subsequent to the execution of this Agreement, and prior to the commencement of the Scheduled Flights, Contractor and United shall work together to facilitate all other relevant aspects of the commencement of Contractor’s provision of Regional Airlines Services as of the commencement of Scheduled Flights, including without limitation the provision of passenger-related airport services and technology-related services, all in accordance with the provisions of Article II.

Section 10.02    Notices. All notices or other communications required or permitted hereunder shall be given in writing and given by (i) certified or registered mail, return receipt requested, (ii) nationally recognized overnight delivery service, (iii) e-mail delivery (including delivery of a document in portable document format) or (iv) personal delivery against receipt to the party to whom it is given, in each case, at such party’s physical or e-mail address set forth below or such other physical address or e-mail address as such party may hereafter specify by written notice to the other party hereto given in accordance with this Section 10.02; provided that, in the case of any such notice or communication transmitted by e-mail delivery, such notice or communication shall not be in compliance with this Section 10.02 unless such e-mail (1) includes in its subject line the following: “United CRJ-200 CPA – Important Notice” and (2) the sender of such email has received a reply which both has not been automatically generated and includes an explicit acknowledgment of the e-mail received. Any such notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by e-mail delivery (or, if delivered or transmitted after normal business hours, on the next Business Day) or on the next Business Day when sent by overnight delivery services or five days after the date so mailed if by certified or registered mail

if to United:

United Airlines, Inc.

Willis Tower

233 S. Wacker Drive

Chicago, IL 60606

Attention: Senior Vice President – United Express

E-mail: [***]

and to:

 

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United Airlines, Inc.

Willis Tower

233 S. Wacker Drive

Chicago, IL 60606

Attention: Vice President – Procurement

E-mail: [***]

with a copy to:

United Airlines, Inc.

Willis Tower

233 S. Wacker Drive

Chicago, IL 60606

Attention: Vice President, Deputy General Counsel and Corporate Secretary

E-mail: [***]

if to Contractor:

Air Wisconsin Airlines LLC

W6390 Challenger Drive, Suite 203

Appleton, WI 54914

Attention: [***]

Telephone: [***]

Facsimile: [***]

E-mail: [***]

with a copy to:

DLA Piper

4365 Executive Drive, Suite 1100

San Diego, CA 92121

Attention: [***]

E-mail: [***]

or to such other address as a party hereto may have furnished to the other party by a notice in writing in accordance with this Section 10.02.

Section 10.03    Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon the parties hereto and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party hereto without the prior written consent of the other party; provided that United may assign without Contractor’s prior written consent this Agreement or any or all of its rights and obligations hereunder to any direct or indirect wholly-owned Subsidiary of United’s Parent.

 

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Section 10.04    Amendment and Modification. This Agreement may not be amended or modified in any respect except by a written agreement signed by the parties hereto that specifically states that it is intended to amend or modify this Agreement.

Section 10.05    Waiver. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but such waiver shall be effective only if it is in writing signed by the party against which such waiver is to be asserted that specifically states that it is intended to waive such term. Unless otherwise expressly provided in this Agreement, no delay or omission on the part of either party in exercising any right or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of either party of any right or privilege under this Agreement operate as a waiver of any other right or privilege under this Agreement nor shall any single or partial exercise of any right or privilege preclude any other or further exercise thereof or the exercise of any other right or privilege under this Agreement. No failure by either party to take any action or assert any right or privilege hereunder shall be deemed to be a waiver of such right or privilege in the event of the continuation or repetition of the circumstances giving rise to such right unless expressly waived in writing by the party against whom the existence of such waiver is asserted.

Section 10.06    Interpretation. The table of contents and the section and other headings and subheadings contained in this Agreement and in the exhibits and schedules hereto are solely for the purpose of reference, are not part of the agreement of the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit or schedule hereto. All references to days or months shall be deemed references to calendar days or months. Unless otherwise specified, all numbers ending in one-half (0.5) and required to be rounded to the nearest integer shall be rounded down. All references to “$” shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to an “Article,” a “Section,” an “Exhibit,” or a “Schedule” shall be deemed to refer to an article, a section of this Agreement or an exhibit or schedule to this Agreement, as applicable. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, unless otherwise specifically provided, they shall be deemed to be followed by the words “without limitation.” This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing the document to be drafted. Unless specified otherwise, all references in this Agreement to an “option”, a right of “consent” or “election” (including terms correlative to the foregoing), or to other similar rights shall be deemed to be consents, rights to elections or options, or other similar rights, as applicable, that may be withheld, conditioned or delayed at the good faith sole discretion of the party holding such option or right of consent or election, or other similar right, as the case may be.

Section 10.07    Confidentiality.

(a)    Except as required by law or stock exchange or other regulation or in any proceeding to enforce the provisions of this Agreement, or as otherwise provided below, each party hereby agrees not to disclose to any third party the Protected Information, without the prior

 

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written consent of the other party thereto (except that (i) a party may disclose such information to its existing and potential lenders, lessors and other financing parties, its third-party consultants, its officers, directors, employees, advisors and its representatives, in each case who are themselves bound to keep such information confidential and (ii) United may disclose the relevant non-financial terms of this Agreement to labor unions representing United’s employees (including their attorneys and representatives, to the extent required to do so under applicable collective bargaining agreements). Except as required by law or stock exchange or other regulation or in any proceeding to enforce the provisions of this Agreement or any of the Ancillary Agreements, or as otherwise provided below, each party hereby agrees not to disclose to any third party Protected Information without the prior written consent of the party providing such Protected Information (except that a party may disclose such information to its third party consultants, advisors and representatives, in each case who are themselves bound to keep such information confidential). Each party hereby agrees not to use any such Protected Information of the other party other than in connection with performing their respective obligations or enforcing their respective rights under this Agreement or any of the Ancillary Agreements, or as otherwise expressly permitted or contemplated by this Agreement or any of the Ancillary Agreements.

Personal Information shall be considered the Protected Information of United. If either party is served with a subpoena or other process requiring the production or disclosure of any of Protected Information, then the party receiving such subpoena or other process, before complying with such subpoena or other process, shall, to the extent permitted by law, immediately notify the other party hereto of the same and permit said other party a reasonable period of time to intervene and contest disclosure or production. Upon termination of this Agreement, upon the request of the other party, each party must return to each other any Protected Information of such requesting party that is still in the recipient’s possession or control. Without limiting the foregoing, neither party shall be prevented from disclosing in any government filing the following terms of this Agreement: the existence of the Agreement, number of aircraft subject hereto, the periods for which such aircraft are subject hereto, and any termination provisions contained herein. The provisions of this Section 10.07 shall survive the termination of this Agreement for a period of ten years.

Notwithstanding anything to the contrary contained in this Agreement or any Ancillary Agreement but without limiting any restrictions relating to Personal Information, Protected Information shall not include information that (i) becomes generally available to the public other than as a result of a disclosure by the recipient, (ii) was available to the recipient on a non-confidential basis prior to its disclosure to the recipient by or on behalf of the disclosing party or becomes available to the recipient on a non-confidential basis thereafter from a source other than the disclosing party, provided that in either case the source of such information is not known to the recipient to be bound by a confidentiality agreement with the disclosing party or other contractual, legal or fiduciary obligation of confidentiality to the disclosing party, or (iii) is independently developed by recipient without use of or reliance on the Protected Information

(b)    Contractor agrees to notify United immediately (which in no event shall be longer than twenty (24) hours) whenever Personal Information has been, or Contractor reasonably believes or suspects that it has been, acquired, destroyed, modified, used, disclosed or accessed by any person in an unauthorized manner or for an unauthorized purpose (collectively,

 

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Security Breach”). Contractor and United shall cooperate with each other to develop reasonable procedures and standards related to Security Breaches. Contractor further agrees to provide all reasonable assistance requested by United or United’s designated representatives, in the furtherance of any correction, remediation, investigation, enforcement or litigation with respect to a Security Breach, including but not limited to, any notification that United may determine appropriate to send to individuals impacted or potentially impacted by a Security Breach. Unless otherwise required by law, Contractor shall not notify law enforcement, any individual or any third party of any Security Breach without first consulting with, and obtaining the written permission of, United.

(c)    Contractor shall establish and maintain environmental, safety and facility procedures, data security procedures, and technical, physical, administrative and other safeguards to protect against the destruction, loss, and unauthorized access, use, possession or alteration of United’s Protected Information in the possession of Contractor. Such procedures and practices shall be compliant, at a minimum, with (a) United’s security and document retention requirements described in Exhibit R, (b) to the extent applicable, the security standards for the protection of cardholder information with which the payment card companies collectively or individually require merchants to comply including but not limited to the Payment Card Industry Data Security Standards currently in effect and as may be updated from time to time while Contractor has such information in its possession (“PCI Standards”), and (c) all applicable laws, rules, regulations, directives, ordinances, codes or similar enactments that apply to United in the conduct of its business (“Data Security Laws”). All such procedures and practices shall take into account the nature of the United Protected Information and the commensurate risks associated with such United Protected Information. Contractor shall also implement and maintain appropriate business continuity, contingency and disaster recovery plans in order to maintain the availability, security, and confidentiality of United Protected Information and restore normal operating procedures as promptly as possible in the event of a major disruption, business interruption, or failure.

(d)    United may, where reasonably necessary to ensure its compliance with legal obligations and the security of United Protected Information, restrict, discontinue, suspend, cancel, terminate, or modify Contractor’s right to use, obtain, access, hold, or process United Protected Information, in order to protect and secure United Protected Information.

The provisions of this Section 10.07 shall survive the termination of this Agreement for a period of ten years.

(e)    Notwithstanding any provision of this Agreement to the contrary, neither party will issue any press releases related to this Agreement, without the prior consent of the other party.

Section 10.08    Arbitration.

(a)    Agreement to Arbitrate. Subject to the equitable remedies provided under Section 10.11, any and all claims, demands, causes of action, disputes, controversies and other matters in question (all of which are referred to herein as “Claims”) arising out of or relating to

 

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this Agreement, shall be resolved by binding arbitration pursuant to the procedures set forth by the American Arbitration Association (the “AAA”). Each of the parties agrees that arbitration under this Section 10.08 is the exclusive method for resolving any Claim and that it will not commence an action or proceeding based on a Claim hereunder, except to enforce the arbitrators’ decisions as provided in this Section 10.08, to compel the other party to participate in arbitration under this Section 10.08. The governing law for any such action or proceeding shall be the law set forth in Section 10.08(f).

(b)    Initiation of Arbitration. If any Claim has not been resolved by mutual agreement on or before the 15th day following the first notice of the Claim to or from a disputing party, then the arbitration may be initiated by one party by providing to the other party a written notice of arbitration specifying the Claim or Claims to be arbitrated. If a party refuses to honor its obligations to arbitrate under this provision, the other party may compel arbitration in either federal or state court in Chicago, Illinois and seek recovery of its attorneys’ fees and court costs incurred if the arbitration is ordered to proceed.

(c)    Place of Arbitration. The arbitration proceeding shall be conducted in Chicago, Illinois, or some other location mutually agreed upon by the parties.

(d)    Selection of Arbitrators. The arbitration panel (the “Panel”) shall consist of three arbitrators from the AAA panel who are qualified to hear the type of Claim at issue. They may be selected by agreement of the parties within thirty days of the notice initiating the arbitration procedure, or from the date of any order compelling such arbitration to proceed. If the parties fail to agree upon the designation of any or all the Panel, then the Parties shall request the assistance of the AAA. The Panel shall make all of its decisions by majority vote. Evident partiality on the part of an arbitrator exists only where the circumstances are such that a reasonable person would have to conclude there in fact existed actual bias, and a mere appearance or impression of bias will not constitute evident partiality or otherwise disqualify an arbitrator. The decision of the Panel will be binding and non-appealable, except as permitted under the Federal Arbitration Act.

(e)    Choice of Law as to Procedural Matters. The enforcement of this agreement to arbitrate, including but not limited to, the issues subject to arbitration (i.e., arbitrability), the scope of the arbitrable issues, and the rules governing the conduct of the arbitration, unless otherwise agreed by the Parties, shall be governed by and construed pursuant to the Federal Arbitration Act. All procedural aspects of the proceedings pursuant to this agreement to arbitrate shall be pursuant to the procedures established by the AAA.

(f)    Choice of Law as to Substantive Claims. In deciding the substance of the parties’ Claims, the arbitrators shall apply the substantive laws of the State of Illinois (excluding Illinois choice-of-law principles that might call for the application of the law of another jurisdiction).

(g)    Procedure. It is contemplated that the arbitration proceeding will be self-administered by the parties and conducted in accordance with procedures jointly determined by the Panel and the parties; provided, however, that if either or both parties believes the process will be enhanced if it is administered by the AAA, then either or both parties shall have the right

 

40

 

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to cause the process to become administered by the AAA and, thereafter, the arbitration shall be conducted, where applicable or appropriate, pursuant to the administration of the AAA. In determining the extent of discovery, the number and length of depositions, and all other pre-hearing matters, the Panel shall endeavor to the extent possible to streamline the proceedings and minimize the time and cost of the proceedings.

(h)    Final Hearing. The final hearing shall be conducted within one hundred twenty (120) days of the selection of the entire Panel. The final hearing shall not exceed ten (10) Business Days, with each party to be granted one-half of the allocated time to present its case to the arbitrators, unless otherwise agreed by the parties.

(i)    Damages. Only actual damages may be awarded. It is expressly agreed that the Panel shall have no authority to award treble, indirect, exemplary, special, consequential or punitive damages of any type under any circumstances regardless of whether such damages may be available under the applicable law.

(j)    Decision of the Arbitration. The Panel shall render its final decision and award in writing within 20 days of the completion of the final hearing completely resolving all of the Claims that are the subject of the arbitration proceeding. The Panel shall certify in its decision that no part of its award includes any amount for treble, indirect, exemplary, special, consequential or punitive damages. The Panel’s decision and award shall be final and non-appealable to the maximum extent permitted by law. Any and all of the Panel’s orders and decisions will be enforceable in, and judgment upon any award rendered in the arbitration proceeding may be confirmed and entered by, any federal or state court in Chicago, Illinois having jurisdiction.

(k)    Confidentiality. All proceedings conducted hereunder and the decision and award of the Panel shall be kept confidential by the Panel and the parties.

Section 10.09    Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The Agreement may be executed by facsimile or electronic (i.e., “pdf”) signature.

Section 10.10    Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11    Equitable Remedies. Each party acknowledges and agrees that, under certain circumstances, the breach by a party of a term or provision of this Agreement will materially and irreparably harm the other party, that money damages will accordingly not be an adequate remedy for such breach and that the non-defaulting party, in its sole discretion and in addition to its rights under this Agreement and any other remedies it may have at law or in equity, may apply to any court of law or equity of competent jurisdiction (without posting any

 

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bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any breach of the provisions of this Agreement. Neither the right of either party to terminate this Agreement, nor the exercise of such right, shall constitute a limitation on such party’s right to seek damages or such other legal redress to which such party may otherwise be entitled.

Section 10.12    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.

Section 10.13    Entire Agreement; No Third Party Beneficiaries. This Agreement (including the exhibits and schedules hereto) and the Ancillary Agreements 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 or therein set forth. This Agreement is made among, and for the benefit of, the parties hereto, and the parties do not intend to create any third-party beneficiaries hereby, and no other Person shall have any rights arising under, or interests in or to this Agreement.

Section 10.14    Governing Law. Except with respect to matters referenced in Section 10.08(e) (which shall be governed by and construed pursuant to the Federal Arbitration Act), this Agreement shall be governed by and construed in accordance with the laws of the State of Illinois (excluding Illinois choice-of-law principles that might call for the application of the law of another jurisdiction) as to all matters, including matters of validity, construction, effect, performance and remedies. Except as otherwise provided in Section 10.08(e), any action arising out of this Agreement or the rights and duties of the parties arising hereunder may be brought, if at all, only in the state or federal courts located in the United States District Court for the Northern District of Illinois or the County of Cook, Illinois, as applicable. Each party further agrees to waive any right to a trial by jury.

Section 10.15    [Intentionally Omitted]

Section 10.16    Right of Set-Off. If either party hereto shall be in default in the payment of any amounts due hereunder to the other party, then in any such case the non-defaulting party shall be entitled to set off from any payment owed by such non-defaulting party to the defaulting party hereunder any amount then due and payable by the defaulting party to the non-defaulting party thereunder; provided that contemporaneously with any such set-off, the non-defaulting party shall give written notice of such action to the defaulting party; provided further that the failure to give such notice shall not affect the validity of the set-off. It is specifically agreed that (i) for purposes of the set-off by the non-defaulting party, mutuality shall be deemed to exist between the parties; (ii) reciprocity between the parties exists with respect to their relative rights and obligations in respect of any such set-off; and (iii) the right of set-off is given as additional security to induce the parties to enter into the transactions contemplated hereby and by the Ancillary Agreements. Upon completion of any such set-off, the obligation of the defaulting party to the non-defaulting party shall be extinguished to the extent of the amount so set-off. Each party hereto further waives any right to assert as a defense to any attempted set-off the requirements of liquidation or mutuality. This set-off provision shall be without

 

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prejudice, and in addition, to any right of set-off, combination of accounts, lien or other right to which the non-defaulting party is at any time otherwise entitled (either by operation of law, contract or otherwise), including without limitation pursuant to Section 3.06(b) hereof).

Section 10.17    Cooperation with Respect to Reporting. Contractor shall be responsible for filing all reports relating to its operations that are required by the DOT, FAA or other applicable government agencies (other than any such reports for which United, where permitted by law, has assumed in writing the responsibility to file on Contractor’s behalf), and Contractor shall promptly furnish United with copies of all such reports and such other available traffic and operating reports as United may reasonably request from time to time. Each of the parties hereto agrees to use its commercially reasonable efforts to cooperate with the other party in providing necessary data, to the extent in the possession of the first party, required by such other party in order to meet any reporting requirements to, or otherwise in connection with any filing with or provision of information to be made to, any regulatory agency or other governmental authority. If a party fails to provide any such data to the other party sufficiently in advance of the applicable deadline for such filings, and the other party is unable to submit such filings by the deadline because of such delay, the first party will reimburse the other party for any fines or penalties incurred by the other party as a result of its failure to submit such filings by the deadline. Unless Contractor is otherwise notified by United in writing not less than five (5) Business Days prior to the filing deadline (the “Tarmac Delay Notice”), Contractor and United agree that United will file the DOT filing required under 49 U.S.C. 42301(h) on Contractor’s behalf. United will be liable for any fines assessed by the DOT attributable to United’s failure to file this report by the deadline for such report, unless (i) that failure is caused by or otherwise results from Contractor’s failure to provide United in a timely manner with the necessary data required by United in connection with the filing or (ii) United had provided the Tarmac Delay Notice specified above. The obligations under this Section 10.17 shall survive the termination of this Agreement.

Section 10.18    Maintenance Right to Bid. Prior to Contractor entering into a contract with an expected value in excess of [***] per year with a third party for any heavy maintenance, repair or overhaul with respect to any Covered Aircraft (including without limitation any structural repair of an aircraft, in each case which maintenance, repair or overhaul is for scheduled or routine on-condition activities (i.e., this provision will not apply to unexpected work requests) and relates to engines, landing gear, composites and certain components as such components may be agreed upon by the parties, each party acting reasonably (collectively, the “United Maintenance”), Contractor shall offer United an opportunity to bid in respect of such United Maintenance. In addition, United may elect to perform certain aspects of United Maintenance with an expected value in excess of [***] per year on Covered Aircraft, provided that United meets all applicable regulatory standards, is qualified and capable of performing such United Maintenance in accordance with Contractor’s FAA approved maintenance program at the same overall performance level, when measured in the aggregate, including quality, reliability, timeliness, convenience, and service level standards as alternative providers, provided further, that United shall provide such United Maintenance at an overall cost no more than the lowest rate otherwise available to Contractor, including qualitative factors, provided further, that the provision or arrangement to provide such United Maintenance by United would not adversely affect Contractor under any contracts or agreements, and provided

 

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further, United shall pay, or reimburse Contractor for, any cancellation or termination payments due by Contractor as a result of United providing such United Maintenance. Nothing in the application of this Section 10.18 shall require Contractor to breach any of its confidentiality obligations. The parties shall cooperate and negotiate any adjustments to the terms of this Agreement to the extent such adjustments are reasonable and appropriate to address any increases in pricing or reductions in service levels related to United’s performance of such United Maintenance compared to Contractor’s otherwise preferred vendor to ensure that, on the whole, Contractor is not put at a disadvantage due to United’s election to perform such United Maintenance.

Section 10.19    Parent Guarantee. Contemporaneously with the execution and delivery of this Agreement, Contractor shall cause Parent and AWAC Aviation, Inc. (“AWAC”) to execute the agreement in the form of Exhibit Q (the “Parent Guarantee”). In addition, Contractor shall not declare or pay any dividends or other distribution of earnings of Contractor to its shareholders that, as of the date of such payment or distribution, would result in Contractor’s available cash balance to be less than the Cash Threshold Amount. Such limitation will not restrict (i) debt payments by Contractor to Parent or AWAC, or (ii) payments from time to time to Parent or AWAC for the purpose of paying obligations in respect of Federal, state and local taxes of the consolidated, unitary or other affiliated group of which Contractor is a member, or any member thereof, in each case to the extent attributable to Contractor’s operations, assets or related activities.

Section 10.20    Other Remedies for Labor Strike and Other Circumstances. In addition to and without limiting any of United’s other rights and remedies, in the event of (i) a Labor Strike or (ii) the mandatory grounding of the Covered Aircraft by regulatory or court order or other governmental action, then, for so long as such Labor Strike or grounding shall continue and thereafter until the number of Scheduled Flights that are On-Time Departures on any day of the week equals or exceeds the number of Scheduled Flights that were On-Time Departures on the same day of the week prior to such Labor Strike or grounding, United shall not be required to pay any of the amounts set forth on Appendix 1 to Schedule 3 as being required “for each Covered Aircraft for each month in the Term” (prorated to the appropriate number of days).

Section 10.21    DISCLAIMER OF CONSEQUENTIAL DAMAGES. NEITHER PARTY TO THIS AGREEMENT OR ANY OF ITS AFFILIATES SHALL BE LIABLE TO THE OTHER PARTY HERETO OR ANY OF ITS AFFILIATES FOR CLAIMS FOR INDIRECT, PUNITIVE, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, REGARDLESS OF WHETHER A CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, VIOLATION OF ANY APPLICABLE DECEPTIVE TRADE PRACTICES ACT OR SIMILAR LAW OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLE, AND EACH PARTY RELEASES THE OTHER PARTY AND ITS AFFILIATES FROM LIABILITY FOR ANY SUCH DAMAGES. NEITHER PARTY SHALL BE ENTITLED TO RESCISSION OF THIS AGREEMENT AS A RESULT OF BREACH OF THE OTHER PARTY’S REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS, OR FOR ANY OTHER MATTER; PROVIDED THAT NOTHING IN THIS SECTION 10.21 SHALL RESTRICT THE RIGHT OF EITHER PARTY

 

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TO EXERCISE ANY RIGHT TO TERMINATE THIS AGREEMENT PURSUANT TO ANY OTHER PROVISION IN THIS AGREEMENT.

[Signature Page to Follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Capacity Purchase Agreement to be duly executed and delivered as of the date and year first written above.

 

UNITED AIRLINES, INC.

By:    

/s/ Gerry Laderman

 

Name: Gerry Laderman

 

Title: SVP of Finance, Procurement

          and Treasurer

AIR WISCONSIN AIRLINES LLC

By:    

/s/ C. R. Deister

 

Name: Christine R. Deister

 

Title: President and CEO

 

Signature Page to

Capacity Purchase Agreement

 

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SCHEDULE 1

Covered Aircraft and Delivery Schedule

[***]

 

Schedule 1-1

 

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SCHEDULE 2

[Intentionally Omitted]

 

Schedule 2-1

 

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SCHEDULE 3

Compensation

 

A.

Base and Incentive Compensation.

 

  1.

Base Compensation. United will pay to Contractor, in respect of the block hours, departures, and each month in the Term of Agreement, an amount calculated for each of the foregoing measurements and aggregated, as follows for each calendar month (collectively, the amounts payable under paragraphs (a) though (d) below, “Base Compensation”):

 

  a.

the number of block hours set forth on the Final Monthly Schedule for such month, multiplied by the rate “for each actual block hour” as set forth in Appendix 1 hereto, multiplied by [***]%; plus

 

  b.

the number of departures set forth on the Final Monthly Schedule for such month, multiplied by the rate “for each Scheduled Flight departure” set forth in Appendix 1 hereto, multiplied by [***]%; plus

 

  c.

the weighted average number of Covered Aircraft for such month, multiplied by the rate “for each Covered Aircraft for each month in the term” as set forth in Appendix 1 hereto.

For purposes of this Paragraph 1, the weighted average number of Covered Aircraft during any month shall be calculated by determining, for each Covered Aircraft, the number of days during such month during which such aircraft was a Covered Aircraft, and then aggregating such number of days for all Covered Aircraft, and then dividing such aggregate number of days by the number of days in such month. An aircraft shall be included in the foregoing calculation only for the period beginning on the date such aircraft becomes a Covered Aircraft pursuant to Schedule 1 and ending on the date on which such aircraft is withdrawn from the capacity purchase provisions of this Agreement and is no longer a Covered Aircraft hereunder, unless otherwise agreed by United and Contractor or unless the Covered Aircraft is earlier removed from the capacity purchase provisions hereunder pursuant to Article VIII).

In addition to and separate from the amounts payable in respect of the foregoing clauses (a) through (c), United will include in Base Compensation an allocation for projected Pass Through Costs for the following items at the rates set forth on Appendix 3A, and as reconciled and further described in Paragraph B(7) below:

 

  d.

for Pass Through Costs constituting payments for Aviation Insurance costs, aircraft property tax, or air navigation fees shall include the amount set forth for such Pass Through Costs on Appendix 3A.

 

Schedule 3-1

 

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The aggregate Base Compensation shall be invoiced as provided in Section 3.06(a).

 

  2.

Incentive Compensation. With respect to each calendar month after expiration of the Ramp-Up Period, incentive compensation (“Incentive Compensation”) shall be calculated as specified in Appendix 4 to this Schedule 3 and as follows:

 

  a.

On-Time Bonus/Rebate. The reconciliation for any calendar month shall include, as applicable, a bonus (represented by a payment by United to Contractor) or a rebate (represented by a payment by Contractor to United), in each case in respect of on-time performance, as determined pursuant to Appendix 4 to this Schedule 3.

 

  b.

Customer Satisfaction Bonus/Rebate. The reconciliation for any calendar month shall include, as applicable, a bonus (represented by a payment by United to Contractor) or a rebate (represented by a payment by Contractor to United), in each case in respect of customer satisfaction performance, as determined pursuant to Appendix 4 to this Schedule 3.

The aggregate Incentive Compensation shall be invoiced as provided in Section 3.06(b).

 

  3.

United-Directed Cancellations. If United, following delivery of a Final Monthly Schedule, directs the cancellation of flights (each, a “United Cancelled Flight”) and that flight cancellation is coded in United’s systems as a United initiated cancel, then [***]. Any Scheduled Flight canceled at United’s direction shall be coded in accordance with United’s standard practices as an Uncontrollable Cancellation. All payments will be based upon [***]. No payments will be made for Pass Through Costs on Appendix 3A of Schedule 3 with the statistical category of “departures”. The United directed cancellations will not affect payments relating to [***].

 

B.

Expenses and Reconciliation.

 

  1.

Passenger and Cargo Revenue-Related Expenses. In consideration of the operation by Contractor of Scheduled Flights and its compliance with the other terms and conditions of this Agreement, the following expenses (collectively, “Passenger and Cargo Related Expenses”) shall be incurred directly by United:

 

  a.

passenger and cargo revenue-related expenses, including but not limited to commissions, taxes and fees related to the transportation of passengers or cargo, food and beverage costs, charges for fare or tariff filings, sales and advertising costs, computer reservation system fees, credit card fees, interline fees, revenue taxes, GDS fees, airport collateral materials, reservation costs, revenue accounting costs, including costs associated with ticket sales reporting and unreported sales, MileagePlus participation

 

Schedule 3-2

 

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costs, beverage voucher coupons, and usage, maintenance and replacement costs related to equipment relevant to onboard sales and payment transaction processes;

 

  b.

oversales, denied boarding amenities and travel certificates;

 

  c.

interrupted trip costs (including hotel, meal and ground transportation vouchers), at a per passenger cost not unreasonably in excess of United’s per passenger cost for regional airline passengers (“Interrupted Trip Costs”), subject to Paragraph B(6) of Schedule 3.

 

  d.

if United procures, or arranges for the procurement of, aircraft fuel and/or Fuel Services, glycol and/or de-icing services, as the case may be, pursuant to Section 4.16(a), and in consideration of Contractor’s compliance with its obligations under such Section 4.16, (I) the cost of such fuel and glycol procurement, including any administration fees, taxes or other charges of any fuel supplier or glycol supplier /or (II) charges for such Fuel Services and de-icing services, as applicable;

 

  e.

in accordance with Section 4.15, rents and any associated expenses for Terminal Facilities used by Contractor for exclusive and/or common use at Applicable Airports, and for line maintenance, crew rooms and management offices at Hub Airports; provided that rents and any associated expenses for non-Hub Contractor flight operations facilities, including maintenance bases, training facilities, flight ops crew rooms, in-flight crew rooms, break rooms, management office space and corporate headquarters are Contractor expenses and shall be borne by Contractor; provided further that expenses for parking shall be borne by Contractor at both Hub Airports and non-Hub Airports;

 

  f.

the costs or charges for Ground Handling Services;

 

  g.

technology services related to all passenger services processes;

 

  h.

TSA fees or charges and any other passenger security fees or charges for security, but without limiting the parties respective obligations relating to regulatory and other fines pursuant to Article VII; and

 

  i.

with respect to each Applicable Airport, if such airport allows United’s payment thereof, landing fees at such airport, subject to Paragraph B(2) of Schedule 3.

 

  2.

Landing Fees. United and Contractor acknowledge that, with respect to any Applicable Airport, United shall be ultimately responsible for the cost of landing fees pursuant to the following provisions:

 

Schedule 3-3

 

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  a.

If such airport allows United’s payment of such landing fees, then United shall pay such landings fees on Contractor’s behalf as a directly-incurred expense pursuant to Paragraph B(1)(i); and.

 

  b.

If such airport prohibits United’s payment of such landing fees, then Contractor shall pay such landings fees; provided that all costs actually incurred by Contractor for such payment of landing fees shall subsequently be reconciled pursuant to the final two sentences of Paragraph B(7)(a).

 

  3.

Flight Reconciliation.

 

  a.

With respect to Scheduled Flights, for any calendar month in which Contractor’s actual block hours flown exceeds the block hours invoiced pursuant to Paragraph A(1)(a) for such calendar month, then the reconciliation for such period shall include a payment by United to Contractor in an amount equal to the product of (i) the difference between the actual block hours flown for Scheduled Flights and such invoiced block hours, multiplied by (ii) the Base Compensation per block hour as set forth in Appendix 1 hereto.

 

  b.

With respect to Scheduled Flights, for any calendar month for which the block hours invoiced pursuant to Paragraph A(1)(a) exceed Contractor’s actual block hours flown in such calendar month, then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (i) the difference between such invoiced block hours and the actual block hours flown for Scheduled Flights, multiplied by (ii) the Base Compensation per block hour as set forth in Appendix 1 hereto.

 

  c.

With respect to Scheduled Flights, for any calendar month in which Contractor’s actual departures exceed the scheduled departures invoiced pursuant to Paragraph A(1)(b) for such calendar month, then the reconciliation for such period shall include a payment by United to Contractor in an amount equal to the product of (i) the difference between the departures for Scheduled Flights and such invoiced departures, multiplied by (ii) the Base Compensation per Scheduled Flight departure as set forth in Appendix 1 hereto.

 

  d.

With respect to Scheduled Flights, for any calendar month for which the scheduled departures invoiced pursuant to Paragraph A(1)(b) exceeds Contractor’s actual departures in such calendar month, then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (i) the difference between such invoiced departures and the actual departures for Scheduled Flights,

 

Schedule 3-4

 

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multiplied by (ii) the Base Compensation per Scheduled Flight departure as set forth in Appendix 1 hereto.

 

  4.

Flight Cancellation Reconciliation. Following the expiration of the Ramp-Up Period, the following provisions of this Paragraph 4 shall apply:

 

  a.

With respect to Scheduled Flights in each calendar month, the actual number of Controllable Cancellations in such month shall be compared to both the Benchmark Controllable Cancellation Number (as defined below) and the United Controllable Cancellation Number (as defined below). With respect to any calendar month, for the purpose of this Paragraph 4, (i) “Benchmark Controllable Cancellation Number” means the product of (A) [***], and (B) the total number of actual Scheduled Flight departures in such calendar month; and (ii) “United Controllable Cancellation Number” means the product of (C) 1 minus the United Controllable Completion Fraction (as defined below) and (D) the total number of actual Scheduled Flight departures in such calendar month; and (iii) “United Controllable Completion Fraction” for a calendar year shall be United’s system-wide goal (expressed as a fraction) for United Express carrier operations during such year. Each December United will establish a goal for the rate of controllable flight completions in respect of the immediately succeeding calendar year, following which determination Contractor shall be notified by United of such goal promptly but in any event prior to the beginning of such calendar year.

 

  b.

For any calendar month in which the United Controllable Cancellation Number is greater than or equal to the Benchmark Controllable Cancellation Number:

If the actual number of Controllable Cancellations is fewer than the Benchmark Controllable Cancellation Number, then the reconciliation for such period shall include a payment by United to Contractor in an amount equal to the product of (i) the Controllable Completion Factor Incentive Rate set forth on Appendix 2 multiplied by (ii) the excess of the Benchmark Controllable Cancellation Number over the actual number of Controllable Cancellations.

If the actual number of Controllable Cancellations is greater than or equal to the Benchmark Controllable Cancellation Number and fewer than or equal to the United Controllable Cancellation Number, then the reconciliation for such period shall not include any additional reconciliation pursuant to this Paragraph 4.

If the actual number of Controllable Cancellations is greater than the United Controllable Cancellation Number but less than or equal to

 

Schedule 3-5

 

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the product of (A) [***] minus the United Controllable Completion Fraction and (B) the total number of actual Scheduled Flight departures in such calendar month (the product of the foregoing (A) and (B), the “Grace Threshold Above United Controllable Cancellation Number”), then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (C) the quotient obtained by dividing Controllable Completion Factor Incentive Rate set forth on Appendix 2 by [***], and (D) the excess of the actual Controllable Cancellations over the United Controllable Cancellation Number.

If the actual number of Controllable Cancellations is greater than the Grace Threshold Above United Controllable Cancellation Number, then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (C) the Controllable Completion Factor Incentive Rate set forth on Appendix 2, and (D) the excess of the actual Controllable Cancellations over the United Controllable Cancellation Number.

 

  c.

For any calendar month in which the United Controllable Cancellation Number is less than the Benchmark Controllable Cancellation Number:

If the actual number of Controllable Cancellations is fewer than the United Controllable Cancellation Number, then the reconciliation for such period shall include a payment by United to Contractor in an amount equal to the product of (i) the Controllable Completion Factor Incentive Rate as set forth in Appendix 2 multiplied by (ii) the excess of the United Controllable Cancellation Number over the number of actual Controllable Cancellations.

If the actual number of Controllable Cancellations is greater than or equal to the United Controllable Cancellation Number and fewer than or equal to the Benchmark Controllable Cancellation Number, then the reconciliation for such period shall not include any additional reconciliation pursuant to this Paragraph 4.

If the actual number of Controllable Cancellations is greater than the Benchmark Controllable Cancellation Number but less than or equal to the product of (A) [***] and (B) the total number of actual Scheduled Flight departures in such calendar month (the product of the foregoing (A) and (B), the “Grace Threshold Above Benchmark Controllable Cancellation Number”), then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (C) the quotient obtained by dividing the Controllable Completion Factor Incentive Rate set forth on Appendix 2 by [***], and (D) the

 

Schedule 3-6

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


excess of the actual Controllable Cancellations over the Benchmark Controllable Cancellation Number.

If the actual number of Controllable Cancellations is greater than the product of (A) [***] and (B) the total number of actual Scheduled Flight departures in such calendar month, then the reconciliation for such period shall include a payment by Contractor to United in an amount equal to the product of (C) the Controllable Completion Factor Incentive Rate set forth on Appendix 2, and (D) the excess of the actual Controllable Cancellations over the Benchmark Controllable Cancellation Number.

 

  d.

[***].

 

  e.

Contractor acknowledges and agrees that flight cancellation reconciliation is based on United’s performance goals and measured by United’s performance statistics that shall be added to this Agreement. The final methodology and measurement of the flight cancellation reconciliation is subject to consultation between the Parties. However, United at its discretion may adjust the target to be set forth in this Paragraph B(4) of Schedule 3, to be added to this Agreement not later than [***].

Example 1

Benchmark Controllable Cancellation Number

<= United Controllable Cancellation Number

 

A:

Total Number of Scheduled Flight Departures in such calendar month: 1,000

 

B:

Benchmark Controllable Cancellation Number ([***] * A): [***] * 1,000 = [***]

 

C:

United Controllable Completion Fraction: [***]

 

D:

United Controllable Cancellation Number: ((1- C) * A) = ((1-[***]) * 1000) = ([***] * 1000) = [***]

 

E:

Grace Threshold Above United Controllable Cancellation Number: ([***] – [***]) * 1000 = [***] * 1000 = [***]

Scenario 1: Actual number of Controllable Cancellations: [***]. This is less than the Benchmark Controllable Cancellation Number so United pays Contractor [***]

Scenario 2: Actual number of Controllable Cancellations: [***]. This is greater than the Benchmark Controllable Cancellation Number and less than the United Controllable Cancellation Number so no payment is made.

 

Schedule 3-7

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Scenario 3: Actual number of Controllable Cancellations: [***]. This is greater than the United Controllable Cancellation Number, but falls in the zone as set forth in Paragraph B(4)(b)(III), so Contractor pays United [***]

Scenario 4: Actual number of Controllable Cancellations: [***]. This is greater than the Grace Threshold Above United Controllable Cancellation Number so Contractor pays United [***]

Example 2

Benchmark Controllable Cancellation Number

> United Controllable Cancellation Number

 

A:

Total Number of Scheduled Flight Departures in such calendar month: 1,000

 

B:

Benchmark Controllable Cancellation Number: ([***] * A) = [***] * 1,000 = [***]

 

C:

United’s Controllable Completion Fraction: [***]

 

D:

United Controllable Cancellation Number: ((1- C) * A) = ((1-[***]) * 1000) = ([***] * 1000) = [***]

 

E:

Grace Threshold Above Benchmark Controllable Cancellation Number: ([***]) * 1000 = [***]

Scenario 1: Actual number of Controllable Cancellations: [***]. This is less than the United Controllable Cancellation Number so United pays Contractor [***]

Scenario 2: Actual number of Controllable Cancellations: [***]. This is greater than the United Controllable Cancellation Number and less than the Benchmark Controllable Cancellation Number so no payment is made.

Scenario 3: Actual number of Controllable Cancellations: [***]. This is greater than the Benchmark Controllable Cancellation Number, but falls in the zone as set forth in Paragraph B(4)(c)(III) above, so Contractor pays United [***].

Scenario 4: Actual number of Controllable Cancellations: [***]. This is greater than the Grace Threshold Above Benchmark Controllable Cancellation Number so Contractor pays United [***].

 

  5.

Payment and Reimbursement of Aviation Insurance Premiums.

 

      

The cost of premiums for Aviation Insurance shall be paid and reimbursed as follows:

 

Schedule 3-8

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Type of Aviation Insurance

  

Payment and Reimbursement of Aviation Insurance

Premium Costs

Contractor places its own Aviation Insurance:   

Contractor pays all premiums (the “Total Paid Aviation Insurance Premium Amount”) to the insurance provider. United shall reimburse an estimated amount as Base Compensation pursuant to Paragraph A(1)(d) and Paragraph B(7)(b) of Schedule 3, and such reimbursement shall be reconciled pursuant to Paragraph B(7)(a) of Schedule 3 (including clause (iii) and the final two sentences of such section).

Jointly Marketed Aviation Insurance (pursuant to Section 6.05):   

Contractor pays the Total Paid Aviation Insurance Premium Amount to the insurance provider. United shall reimburse an estimated amount as Base Compensation pursuant to Paragraph A(1)(d) and Paragraph B(7)(b) of Schedule 3, and such reimbursement shall be reconciled pursuant to Paragraph B(7)(a) of Schedule 3 (including clause (iii) and the final two sentences of such section).

Combined Placement Aviation

Insurance (pursuant to Section 6.04):

  

If there has been no Contractor Major Loss during any of the previous two annual renewal periods, then United shall pay the combined placement premium.

 

If there has been a Contractor Major Loss during any of the previous two annual renewal periods, then United shall pay the combined placement premium, and Contractor shall pay to United an amount equal to the excess of the Premium Reimbursement Cap over an amount equal to the product of (A) the combined policy composite rates and (B) Contractor’s exposure units (such product, “Contractor’s Combined Placement Allocated Portion”), in each case in accordance with Paragraph B(7)(a)(iv) of Schedule 3.

 

  6.

Interrupted Trip Costs. United and Contractor acknowledge that the responsibility for Interrupted Trip Costs shall be allocated between United and Contractor as follows: (x) United shall initially pay [***], and (y) Contractor shall be responsible, and United shall not be responsible, for [***]. Since United directly incurs [***] pursuant to the foregoing clause (x), United will charge Contractor for [***] as part of the monthly reconciliation provided in the last two sentences of Paragraph B(7)(a) below, up to a maximum amount of [***] in any calendar year (pro rated for any partial calendar year).

 

  7.

Pass Through Costs.

 

  a.

The following expenses incurred in connection with the operation of Scheduled Flights and calculated either pursuant to the statistical drivers and rates, in the case of Pass Through Costs set forth on Appendix 3A, or upon presentation of actual invoice, in the case of Pass Through Costs set

 

Schedule 3-9

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


 

forth on Appendix 3B, as the case may be, shall be reconciled monthly (except as specifically set forth below) to actual costs:

(i) insurance broker fees (any reconciliation of this fee will be accounted for in reconciliation of insurance premiums);

(ii) aircraft property taxes (but excluding all other taxes including without limitation income, profits, withholding, employment, social security, disability, occupation, severance, excise ad valorem, sales, use franchise and personal property taxes) related to aircraft, spare parts and engines, which is reconciled annually;

(iii) if Contractor places its own Aviation Insurance or if Contractor enters into a jointly marketed Aviation Insurance placement pursuant to Section 6.05, the Total Paid Aviation Insurance Premium Amount; provided, that, with the exception of the initial rates for such insurance costs set forth on Appendix 5 to Schedule 3, United shall not pay to Contractor any amount in respect of the foregoing clause (iii) that is in excess of the Premium Reimbursement Cap;

(iv) if there has been a combined placement of Aviation Insurance pursuant to Section 6.04 and there has been no Contractor Major Loss during the prior annual renewal period, the combined placement premium;

(v) if there has been a combined placement of Aviation Insurance pursuant to Section 6.04 and there has been a Contractor Major Loss during any of the previous two annual renewal periods, an amount equal to the Combined Placement Allocated Portion pursuant to Paragraph B(5) of Schedule 3;

(vi) [intentionally omitted];

(vii) air navigation fees paid to NavCanada (or any Canadian successor thereto) and Servicios a la Navegación en el Espacio Aéreo Mexicano (SENEAM) (or any Mexican successor thereto), in each case in respect of the provision of Scheduled Flights;

(viii) the amount of TSA fees or charges and any other passenger security fees or charges for security;

(ix) if United shall not have procured fuel or glycol pursuant to Section 4.16(a), the cost of such fuel or glycol procurement, including any administration fees and other fuel or glycol reclamation fees and expenses of any fuel supplier, glycol supplier, de-icing or fuel related facility or airport that relates to fuel or de-icing or if United shall not have procured

 

Schedule 3-10

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Fuel Services or de-icing services for or on behalf of Contractor pursuant to Section 4.16(a), charges for Fuel Services or de-icing services;

(x) [intentionally omitted];

(xi) if applicable, a liquor management fee for procurement of alcoholic beverage products owned by contractor and boarded and/or unloaded in Virginia per Exhibit I;

(xii) Contractor’s directly incurred costs due to a staged overnight pursuant to Paragraph 4 of Exhibit P;

(xiii) [intentionally omitted];

(xiv) [intentionally omitted];

(xv) [intentionally omitted]; and

(xvi) [intentionally omitted] (collectively, the “Pass Through Costs”).

The parties acknowledge that the Base Compensation includes allocations of the Pass Through Costs as set forth in Appendix 3A and with respect to certain Pass Through Costs, as further provided in Paragraph B(7)(b) below. If in any month the sum of (A) the amount of Pass Through Costs actually incurred by Contractor and (B) any amounts paid by Contractor pursuant to Paragraph B(2)(b) exceeds the sum of (C) the amount of allocated Pass Through Costs included in the Base Compensation in accordance with Paragraph A(1)(d), Appendix 3A and as further provided in Paragraph B(7)(b) below for such month and (D) the amount of Interrupted Trip Costs paid by United relating to Controllable Cancellations and Controllable Delays, then United shall pay to Contractor an amount equal to such difference. If in any month the sum of (I) the amount of allocated Pass Through Costs included in the Base Compensation in accordance with Paragraph A(1)(e), Appendix 3A and as further provided in Paragraph B(7)(b) below for such month, and (II) the amount of Interrupted Trip Costs paid by United relating to Controllable Cancellations and Controllable Delays exceeds the sum of (III) the amount of Pass Through Costs actually incurred by Contractor and (IV) any amounts paid by Contractor pursuant to Paragraph B(2)(b), then Contractor shall pay to United an amount equal to such difference.

 

  b.

The allocations included in Base Compensation for Pass Through Costs of the type set forth in Paragraph A(1)(d), as applicable, for any particular month shall be calculated as provided below:

  The total amount of Aviation Insurance referred to in Paragraph A(1)(d) shall be calculated as a sum of all of the products obtained by

 

Schedule 3-11

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


vutilizing the following calculation in respect of each rate of insurance set forth on Appendix 3A: the product of (1) the applicable insurance rate set forth on Appendix 3A multiplied by (2) the applicable statistical driver for such month as set forth on Appendix 3A.

  The amount of Canada and Mexico air navigation fees referred to in clause (vii) of Paragraph B(7)(a) included in the Base Compensation for any particular month will be equal to the aggregate sum of the following products: (1) the Canadian and Mexican air navigation rates set forth in Appendix 3A, multiplied by (2) the number of scheduled departures in Canada and Mexico set forth in the Final Monthly Schedule, multiplied by (3) [***].

  The amount of aircraft property taxes referred to in clause (ii) of Paragraph B(7)(a) included in the Base Compensation for any particular month will be equal to the product of (1) the rate set forth on Appendix 3A multiplied by (2) the number of Covered Aircraft per month.

 

  c.

Pass Through Costs will be passed through to United without any markup and will be reconciled as part of the normal monthly reconciliation of Pass Through Costs.

 

  8.

No Reconciliation for Fines, Etc. Notwithstanding anything to the contrary contained in this Paragraph B, United shall not be required to incur any cost or make any reconciliation payment pursuant to this Paragraph B to the extent that such cost or reconciliation payment is attributable to any costs, expenses or losses (including fines, penalties and any costs and expenses associated with any related investigation or defense) incurred by Contractor as a result of any violation by Contractor of any law, statute, judgment, decree, order, rule or regulation of any governmental or airport authority; provided, however, that United shall incur or reconcile costs based on any violation by a third party that is attributed to Contractor as the air carrier, unless such third party is an employee, agent or contractor of Contractor that was not appointed or directed by United.

 

  9.

[***].

Schedule 3 Appendices

 

Appendix 1

  

Base Compensation Rates

Appendix 2

  

Benchmark Rates

Appendix 3A

  

Calculation of Certain Pass Through Costs

Appendix 3B

  

Other Pass Through Costs

Appendix 4

  

Incentive Bonuses/Rebate

Appendix 5

  

Insurance Rates

Appendix 6

  

Payments for Scheduled Flight Cancellations Directed by United

 

Schedule 3-12

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 1 to Schedule 3

Base Compensation Rates

 

                     
Cost Category    2017      2018      2019      2020      2021      2022      2023      2024      2025      2026  
   

[***]

   $ [***]      $ [***]      $ [***]      $ [***]      $ [***]      $ [***]      $ [***]      $ [***]      $ [***]      $ [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
                     

Revenue Block Hour

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
                     

Revenue Departure

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
   

[***]

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  
                     

Per Aircraft per Day

     [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]        [***]  

First Month Covered Aircraft Term

$    [***]

 

Schedule 3 - Appendix 1-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 2 to Schedule 3

Controllable Completion Factor Incentives

Controllable Completion Factor Incentive Rate” shall be [***].

 

Schedule 3 - Appendix 2-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 3A to Schedule 3

Calculation of Certain Pass Through Costs

 

Pass Through Cost   

Schedule 3

Reference

   Statistical Driver    Rate*
       
Aircraft Property Tax    Sched3.B.7(a)(ii)   

Per Covered Aircraft

Per Month

   $(1)**
       
Hull Insurance    Sched3.B.7(a)(iii)   

Per Covered Aircraft

Per Day

   $(1)**
       
Passenger Liability    Sched3.B.7(a)(iii)   

Per Forecasted

Passenger

   $(1)**
       
Passenger Liability    Sched3.B.7(a)(iii)    Per Departure    $(1)**
       
Passenger Liability    Sched3.B.7(a)(iii)    Per 1000 RPMs    $(2)**
       
Hull and Passenger Liability Insurance Broker Fee    Sched3.B.7(a)(i)    Per Month    $(1)**
       
War Risk Insurance    Sched3.B.7(a)(iii)    Per 1000 RPMs    $(2)**
       
War Risk Insurance    Sched3.B.7(a)(iii)   

Per Forecasted

Passenger

   $(1)**
       
War Risk Insurance    Sched3.B.7(a)(iii)    Per Departure    $(2)**
       
War Risk Insurance    Sched3.B.7(a)(iii)   

Per Covered Aircraft

Per Day

   $(1)**
       

Canadian and Mexican Air Navigation

   Sched3.B.7(a)(vii)    Per Departure    (3)**

 

 

* 

The Appendix 3A Rates shall be adjusted from time to time with the mutual agreement of the parties (each party acting reasonably) to reflect the actual rates charged to Contractor.

 

** 

United and Contractor to cooperate in good faith to determine appropriate rates.

 

(1)

The Parties agree that Contractor will update the rates table on or before March 31, 2017 to reflect the rates in Contractor’s insurance policies existing as of the Effective Date.

 

(2)

Not applicable under Contractor’s insurance policies existing as of the Effective Date.

 

(3)

Air navigation fees to be determined based on estimated schedule.

 

Schedule 3 - Appendix 3A-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 3B to Schedule 3

Other Pass Through Costs

 

Pass Through Cost

  

Schedule 3 Reference

Crew Overnights

   Sched3.B.7(a)(xii)

Charges for fuel or Fuel Services pursuant to Section 4.16*

Charges for Glycol or de-icing services pursuant to Section 4.16*

TSA fees or charges and any other passenger security fees or charges for security

Liquor management fee for alcoholic beverage product owned by contractor

  

Sched3.B.7(a)(ix)

Sched3.B.7(a)(ix)

Sched3.B.7(a)(vii)

Sched3.B.7(a)(xi)

Insurance broker fees

   Sched3.B.7(a)(i)

 

Schedule 3 - Appendix 3B-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 4 to Schedule 3

Incentive Bonuses/Rebates

United and Contractor have developed a monthly incentive payment program (the “Incentive Program”) under which Contractor shall have incentive bonus or rebate payments as more fully set forth below:

Under the Incentive Program, operating performance goals (the “Operating Goals”) for Contractor’s operation of Scheduled Flights shall be set with respect to the following measurements (each, an “Operating Performance Measure”): (i) On-Time Departure Rate, and (ii) Customer Satisfaction Score.

Each initial Operating Goal, effective through and including the next succeeding December 31, will be established on the Commencement Date and shall be reestablished for each succeeding calendar year, using the methodology set forth below.

The methodology set forth below shall be used to determine the Operating Goal relating to such Operating Performance Measure for each month in such calendar year (or any portion thereof, as the case may be).

Contractor’s Operating Goal relating to On-Time Departure Rate (the “On-Time Zero Operating Goal”) for a calendar year shall be equal to United’s system-wide operating goal for On-Time Departure Rate for its domestic mainline operations for such year, (x) adjusted upwards or downwards by [***]* percentage points, (y) further adjusted for regional differences by multiplying such number by a quotient, the numerator of which is the weighted average of each separate On-Time Departure Rate for the prior calendar year for United’s domestic mainline operations at each Hub Airport from which Contractor operates Scheduled Flights, weighted by the number of Scheduled Flight departures from each such Hub Airport, and the denominator of which is United’s aggregate On-Time Departure Rate for its domestic mainline operations for such prior calendar year, and (z) further adjusted by the Seasonality Adjustment Factor, if applicable, as provided below.

[***].

Contractor’s Operating Goal relating to Customer Satisfaction Score (the “Customer Satisfaction Operating Goal”) for a calendar year shall be equal to the customer satisfaction operating goal for United’s domestic mainline operations (set by United for the current calendar year), (x) adjusted upwards or downwards by [***]* percentage points and (y) further adjusted for regional differences by multiplying such number by a quotient, the numerator of which is the weighted average of each separate Customer Satisfaction Score for the prior calendar year of United’s domestic mainline operations at each Hub Airport from which Contractor operates Scheduled Flights, weighted by the number of Scheduled Flight departures from each such Hub Airport, and the denominator of which is United’s aggregate Customer Satisfaction Score for its domestic mainline operations for such prior calendar year.

 

Schedule 3 - Appendix 4-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Setting All Performance Levels. Immediately following the periodic establishment of the Operating Goals, constituting the low end of “B” Performance Level, and using the Grade Widths, the level of performance corresponding to each of the “A,” “B,” “C”, “D” Performance Levels will be computed, provided that the “A” Performance Level shall extend to 100, the “D” Performance Level shall extend to [***] for the On-Time Zero Operating Goal and the Customer Satisfaction Operating Goal. For example, if the On-Time Zero Operating Goal for a measurement period is determined to be [***], such number shall be the lowest end of the “B” Performance Level. Applying the methodology, in the Grade Width table referenced above, the bottom of the “A” Performance Level would be [***]. Furthermore, the bottom of the “C” Performance Level would be [***]. Based on these numbers and the Grade Widths, and before application of any Seasonality Adjustment Factors, the range of the Performance Levels would be as follows:

 

“A” Performance Level        =        [***]

“B” Performance Level        =        [***]

“C” Performance Level        =        [***]

“D” Performance Level        =        [***]

As a second example pertaining to the Customer Satisfaction Operating Goal, if the Customer Satisfaction Operating Goal for a measurement period is determined to be [***], based on the Grade Width table referenced above, the range of the Performance Levels would be as follows:

 

“A” Performance Level        =        [***]

“B” Performance Level        =        [***]

“C” Performance Level        =        [***]

“D” Performance Level        =        [***]

Markup. Following the determination of each Contractor Grade for each month, any applicable bonus or rebate amount calculated per Covered Aircraft, as the case may be, shall be determined pursuant to Schedule 3, and such bonus or rebate amount shall be applied to Contractor’s net payment as part of the reconciliation process set forth in Section 3.06 (any such payment owed to Contractor by United or owed to United by Contractor associated with such bonus or rebate amount, an “Incentive Markup Payment”).

 

Schedule 3 - Ap\pendix 4-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Bonus/Rebate Amounts and Performance Grade Widths

 

Performance Metric    A    B    C    D   

On-Time Departure Rate

(“On-Time Zero”)

   [***]    [***]    [***]    [***]   

Customer Satisfaction

   [***]    [***]    [***]    [***]   

Performance Grade Widths

 

Performance Metric    Bottom
of A
   Bottom
of B*
   Bottom
of C
   D   

On-Time Departure Rate

(“On-Time Zero”)

   X + [***]    X    X – [***]   

Anything

Below C

  

Customer Satisfaction

   Z + [***]    Z    Z – [***]   

Anything

Below C

  

*Contractor acknowledges and agrees that incentive / rebate compensation based on United’s performance goals and measured by United’s performance statistics shall be added to this Agreement. The final methodology and measurement of the incentive compensation is subject to further discussion. United at its discretion will set the goal to be set forth in this Appendix 4 to Schedule 3, to be added to this Agreement not later than [***]. Specific categories of performance to be included in the incentive / rebate program are expected to include but not limited to On-Time and Customer Satisfaction.

 

Schedule 3 - Appendix 4-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 5 to Schedule 3

Insurance Rates*

 

Insurance Type

  

Rate

  

Driver Units

Hull Insurance

   $(1)   

per [***] value

Liability Insurance

   $(1)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per passenger

Liability Insurance

   $(1)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per departure

Liability Insurance

   $(2)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per 1000 RPMs

War Risk Insurance

   $(1)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per passenger

War Risk Insurance

   $(2)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per departure

War Risk Insurance

   $(2)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per 1000 RPMs

War Risk Insurance

   $(1)   

per allocation, based on the liability rating factor used by the insurance underwriter(s), per Covered Aircraft Per Day

War Risk Insurance

   $(1)   

per [***] value

 

 

* 

United and Contractor to cooperate in good faith to determine appropriate statistical drivers.

 

* 

The Appendix 5 Rates shall be adjusted from time to time with the mutual agreement of the parties (each party acting reasonably) to reflect the actual rates charged to Contractor.

 

(1)

The Parties agree that Contractor will update the rates table on or before March 31, 2017 to reflect the rates in Contractor’s insurance policies existing as of the Effective Date.

 

(2)

Not applicable under Contractor’s insurance policies existing as of the Effective Date.

 

Schedule 3 - Appendix 5-1

 

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Appendix 6 to Schedule 3

Payments for Scheduled Flight Cancellations Directed by United

 

Payment Category

  

Rate

per block hour   

[***] of the sum of the rates “for each scheduled block hour” set forth on Appendix 1 to Schedule 3

per departure   

[***] of the rate “for each Scheduled Flight departure” set forth on Appendix 1 to Schedule 3

 

Schedule 3 - Appendix 6-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT A

Definitions

AAA” – is defined in Section 10.08(a).

Actual In-Service Date – means, with respect to any specific Covered Aircraft, the date on which such aircraft first enters service under this Agreement, it being understood that the Actual In-Service Date with respect to any such aircraft may differ from the anticipated “Scheduled In-Service Date” set forth on Schedule 1 for such aircraft.

Agreement” – is defined in the preamble.

Aircraft Transfer” – is defined in note (l) of Schedule 1.

Aircraft Livery and Configuration Start-up Costs” – is defined in Section 3.02(b)(ii).

Ancillary Agreements” – means each of the other agreements entered into by United and Contractor pursuant hereto, together with all amendments, exhibits, schedules and annexes thereto.

Applicable Airport” – means any airport into or from which Scheduled Flights are scheduled to arrive or depart or to which a Scheduled Flight is diverted.

Available Covered Aircraft” means a Covered Aircraft available to schedule for revenue service pursuant to Section 2.01.

Aviation Insurance means any airline hull, war risk, or passenger liability insurance.

“AWAC” – is defined in Section 10.19.

Base Compensation” – is defined in Paragraph A(1) of Schedule 3.

Base Compensation Rates” – is defined in Section 3.02(a).

Benchmark Controllable Cancellation Number” – is defined in Paragraph B(4)(a) of Schedule 3.

Business Day” – means each Monday, Tuesday, Wednesday, Thursday and Friday unless such day shall be a day when financial institutions in Chicago, Illinois are authorized by law to close.

Cash Threshold Amount” – means the greater of (i) [***] of Contractor’s gross revenue for the previous twelve (12) months and (ii) [***].

Change of Control” – means:

(i)    a transaction as a result of which Contractor and a Major Carrier (other than United) are legally combined;

 

Exhibit A-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


(ii)    a transaction as a result of which Contractor acquires, directly or indirectly, beneficial ownership of [***]% or more of the capital stock or voting power of a Major Carrier (other than United and its successors and any Subsidiary thereof);

(iii)    the direct or indirect acquisition by a Major Carrier (other than United) or any Person directly or indirectly controlling a Major Carrier of beneficial ownership of [***]% or more of the capital stock or voting power of Contractor;

(iv)    the direct or indirect acquisition by any “person” or “group” (as such terms are used in Section 13(d) of the Securities Exchange Act of 1934) not described in clause (iii) above, of beneficial ownership of more than [***]% of the capital stock or voting power of Contractor, other than (A) United or its Subsidiaries or (B) any “person” or “group” that is a Person who has a Schedule 13D on file with the Securities and Exchange Commission pursuant to the requirements of Rule 13d-l under the Securities Exchange Act of 1934 (the “Exchange Act”) with respect to its holdings of Contractor’s voting securities (a “13D Person”), so long as (1) such 13D Person is principally engaged in the business of managing investment funds for unaffiliated securities investors and, as part of such 13D Person’s duties as agent for fully managed accounts, holds or exercises voting or dispositive power over Contractor’s voting securities, (2) such 13D Person acquires and continues to have beneficial ownership of Contractor’s voting securities pursuant to trading activities undertaken in the ordinary course of such 13D Person’s business and not with the purpose nor the effect, either alone or in concert with any 13D Person, of exercising the power to direct or cause the direction of the management and policies of Contractor or of otherwise changing or influencing the control of Contractor, nor in connection with or as a participant in any transaction having such purpose or effect, including any transaction subject to Rule 13d-3(b) of the Exchange Act and (3) such 13D Person is not obligated to, and does not, file a Schedule 13D with respect to the securities of Contractor; provided, that a “Change of Control” shall not occur pursuant to this clause (iv) (x)if such “person” or “group” reduces its ownership of the capital stock or voting power of Contractor, as the case may be, to less than [***]% within thirty (30) days of the acquisition of ownership of at least [***]% of such capital stock or voting power or (y) such “person” or “group” holds less of the capital stock or voting power of the Contractor as do those individuals, in the aggregate, who hold such capital stock or voting power as of the Effective Date;

(v)    the liquidation or dissolution of Contractor in connection with which Contractor ceases operations as an air carrier;

(vi)    the sale, transfer or other disposition of all or substantially all of the airline assets of Contractor on a consolidated basis directly or indirectly to a Major Carrier (other than United) or its affiliate, whether in a single transaction or a series of related transactions;

(vii)    the direct or indirect acquisition, whether in a single transaction or a series of related transactions, by Contractor of airline assets and associated employees, which airline assets on a stand-alone basis would have pro forma annual passenger revenues for

 

Exhibit A-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


the most recently completed four fiscal quarters for which financial statements can be reasonably prepared in excess of the Revenue Threshold;

(viii)    incumbent Directors (meaning in each case, members of the applicable Board of Directors who (a) were members of the Board of Directors of Contractor as of the date hereof or (b) became a director subsequent to the date hereof, whose appointment to fill a vacancy or to fill a new position on the applicable Board of Directors or whose nomination for election by the shareholders of Contractor was approved by a vote of at least a majority of the directors then comprising the Incumbent Directors) cease for any reason to constitute at least a majority of the Board of Directors of Contractor; or

(ix)    the execution by Contractor of bona fide definitive agreements, the consummation of the transactions contemplated by which would result in a transaction described in the immediately preceding clauses.

Claim” – is defined in Section 10.08(a).

Contractor – is defined in the preamble.

Contractor’s Combined Placement Allocated Portion” – is defined in Paragraph B(5) of Schedule 3.

Contractor Marks” – is defined in Exhibit H.

Contractor Services” – means (i) Regional Airline Services and (ii) any other services or activities in connection with or in furtherance of the services provided by Contractor pursuant to this Agreement or any Ancillary Agreement.

Controllable Completion Factor” – means, for any period of determination, the number of actual departures completed divided by the number of scheduled departures, excluding Uncontrollable Cancellations.

Controllable Completion Factor Incentive Rate” – is defined in Appendix 2 to Schedule 3.

Controllable Cancellation” – means a cancellation of a Scheduled Flight that is not an Uncontrollable Cancellation.

Controllable Delay” – means a delay other than an Uncontrollable Delay.

Covered Aircraft” – means each aircraft listed on Schedule 1, from the date such aircraft becomes a Covered Aircraft pursuant to Schedule 1 through the date such aircraft is removed from the capacity purchase provisions of this Agreement; Schedule 1 shall be adjusted from time to time by the parties to reflect the addition and removal of Covered Aircraft as provided pursuant to this Agreement.

Covered Aircraft Term”- is defined in Section 8.01

 

Exhibit A-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Covered Aircraft Start-Up Schedule” – is defined in Section 2.01(d).

CPI” – means (i) the Consumer Price Index for All Urban Consumers – U.S. City Average, All Items, Not Seasonally Adjusted Base Period: 1982-84 = 100, as published by the Bureau of Labor Statistics, United States Department of Labor, or (at any time when the Bureau of Labor Statistics is no longer publishing such Index) as published by any other agency or instrumentality of the United States of America, or (ii) at any time after the index described in clause (i) shall have been discontinued, any reasonably comparable replacement index or other computation published by the Bureau of Labor Statistics or any other agency or instrumentality of the United States of America. If any such index shall be revised in any material respect (such as to change the base year used for computation purposes), then all relevant determinations under this Agreement shall be made in accordance with the relevant conversion factor or other formula published by the Bureau of Labor Statistics or any other agency or instrumentality of the United States of America, or (if no such conversion factor or other formula shall have been so published) in accordance with the relevant conversion factor or other formula published for that purpose by any nationally recognized publisher of such statistical information.

“Crew Pairing Schedule” – is defined in Section 2.01(b)(i).

DOT” – means the United States Department of Transportation.

Drinking Water Requirements” – is defined in Section 4.14(i).

Effective Date – is defined in the preamble.

Environmental Laws” means all applicable federal, state, local and foreign laws and regulations, guidance documents and policy statements of the Environmental Protection Agency, Centers for Disease Control, the Occupational Health and Safety Administration, the Department of Transportation, and the Federal Aviation Administration, and any other governmental agency or authority as well as any airport rules or any other applicable federal, state, local and foreign regulations, policies, or lease requirements relating to the prevention of pollution, protection of the environment or public and occupational health and safety, or remediation of environmental contamination, including, without limitation, laws, regulations and rules relating to emissions to the air, discharges to surface and subsurface soil and waters, regulation of potable or drinking water, the use, storage, release, disposal, transport or handling of Hazardous Materials, protection of endangered species, and aircraft noise, vibration, exhaust and over flight.

FAA” – means the United States Federal Aviation Administration.

Final Monthly Schedule” – means the final schedule of Scheduled Flights for the next calendar month delivered by United to Contractor pursuant to Section 2.01(b).

Forecasted Passengers” – means, for any month, the forecasted Revenue Onboards derived from the Final Monthly Schedule for the previous month.

Fuel Services – means the act of putting fuel product into an aircraft and taking fuel product out of an aircraft, and any other incidental tasks as are customarily required from time to time in

 

Exhibit A-4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


connection therewith; provided that the cost of aircraft fuel shall not be included as a cost of Fuel Services; provided further that the movement of fuel into or out of an aircraft in the course of base or heavy maintenance activities will not be considered Fuel Services.

GAAP” – means U.S. generally accepted accounting principles.

Grace Threshold Above Benchmark Controllable Cancellation Number” is defined in Paragraph B(4)(c)(III) of Schedule 3.

Grace Threshold Above United Controllable Cancellation Number” is defined in Paragraph B(4)(b)(III) of Schedule 3.

Ground Handling Services” – means the ground handling services performed in connection with regional and/or mainline airline services and as determined by United or United’s designee in United’s, or United’s designee’s, sole option and discretion, which services will typically (but not necessarily) include without limitation the following: (i) gate check-in activities, (ii) passenger enplaning/deplaning activities, (iii) sky cap and wheelchair services, (iv) aircraft loading/unloading services, (v) passenger ticketing, (vi) jetbridge maintenance, (vii) janitorial services, (viii) deicing and glycol services, (ix) pushback, (x) airstarts, (xi) aircraft overnight cleaning, including lavatory service and water service, and (xii) provision and management of aircraft ballast.

Hazardous Materials” – means any substances, whether solid, liquid or gaseous, which are listed and/or regulated as hazardous, toxic, or similar terminology under any Environmental Laws or which otherwise cause or pose threat or hazard to human health, safety or the environment, including, but not limited to, petroleum and petroleum products.

Hub Airport” – means, as of any date of determination, (i) each of [***], and (ii) any other airport at which United and its subsidiaries, together with all other operators operating under United’s livery or a derivative thereof, operate an average of at least [***] Scheduled Flights per day at such airport during the [***] day period immediately prior to such date of determination.

Humanitarian Response Efforts” – is defined in Section 4.05.

IATA” – is defined in Section 4.06.

Identification” – means the United Marks, the aircraft livery set forth on Exhibit G, the United flight code and other trade names, trademarks, service marks, graphics, logos, employee uniform designs, distinctive color schemes and other identification selected by United in its sole discretion for the Regional Airline Services to be provided by Contractor, whether or not such identification is copyrightable or otherwise protected or protectable under federal law.

Incentive Compensation” – is defined in Paragraph A(2) of Schedule 3.

Incentive Program Costsmeans the out-of-pocket costs or expenses arising directly from the implementation of any incentive program implemented pursuant to Section 4.12, excluding overhead and general operating expenses, including, without limitation, salaries.

 

Exhibit A-5

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Indemnified Party” – is defined in Section 7.03.

Indemnifying Party” – is defined in Section 7.03.

Indemnity Notice” – is defined in Section 7.03.

Interrupted Trip Costs” – is defined in Paragraph B(1)(c) of Schedule 3.

Invoiced Amount” – is defined in Section 3.06.

IOSA” – is defined in Section 4.06.

Labor Strike” – means a labor dispute, as such term is defined in 29 U.S.C. Section 113(c) involving Contractor and some or all of its employees, which dispute results in a union-authorized strike occurring after the National Mediation Board has released the Contractor and such employees to self-help and the thirty (30) day “cooling-off” period relating thereto shall have expired.

Major Carriermeans an air carrier (other than United and its successors and any Subsidiary thereof), the consolidated annual revenues of which 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 US dollar equivalent thereof).

Major Loss” – means an aviation-related (but excluding any ground handling related) accident or incident that results in the combined policy insurance providers establishing an incurred loss amount greater than the aggregate combined base premium amount for the year in which such accident or incident occurs.

Offer Notice” – is defined in note (l) of Schedule 1.

On-Time Departure – means a Scheduled Flight other than a Charter Flight departing within zero minutes of the scheduled departure time.

Permitted Actions” – is defined in Section 4.13(a).

Panel” – is defined in Section 10.08.

Parent” – means Harbor Diversified, Inc.

“Parent Guarantee” – is defined in Section 10.19.

Pass Through Costs” – is defined in Paragraph B(7)(a) of Schedule 3.

Passenger and Cargo Revenue-Related Expenses” – is defined in Paragraph B(1) of Schedule 3.

Person” – means an individual, partnership, limited liability company, corporation, joint stock company, trust, estate, joint venture, association or unincorporated organization, or any other form of business or professional entity.

 

Exhibit A-6

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Personal Information” – means any information that identifies a natural person, including without limitation United customer data and personal information that is provided by United or collected or learned by Contractor, employment records, medical and health records, personal financial records.

“Pilot Career Path Program” – means the program described in Exhibit S.

Premium Reimbursement Cap” – means, with respect to any insurance premium, an amount equal to [***] of the highest premium rate of any participant in the joint insurance program (or if there is no joint program, then [***] of the highest premium rate of United or any other United Express carrier the insurance premium of which is reimbursed by United) multiplied by Contractor’s relevant exposure (taking into account applicable statistics regarding the number of aircraft, the number of passengers and revenue seat miles).

“Prior Commitments” – is defined in the recitals.

Protected Information” means the terms of this Agreement or any of the Ancillary Agreements, any non-public data provided by one party to the other that by its nature is sensitive or would otherwise be considered confidential and proprietary to the disclosing party, provided that the existence of the Agreement or Ancillary Agreements or the general nature and structure thereof, including the Term of Agreement, the number of Covered Aircraft, the existence of the Career Path Program and the general terms and eligibility requirements thereof are not Protected Information. Protected Information includes, but is not limited to, Personal Information and classified government information.

Ramp-Up Period” means the period commencing on the first Actual In-Service Date of a Covered Aircraft pursuant to this Agreement and ending [***].

Reasonable Operating Constraints” – means the requirements set forth on Exhibit P.

Regional Airline Services” – means the provisioning by Contractor to United of Scheduled Flights and related ferrying flights for repositioning or maintenance using the Covered Aircraft in accordance with this Agreement.

Revenue Onboard” – means one revenue-generating passenger on one flight segment, regardless of whether such flight segment is all or part of such passenger’s entire one-way flight itinerary.

Revenue Threshold” – means [***], as such amount may be increased based on the amount by which, for any date of determination, the most recently published CPI has increased to such date above the CPI for calendar year 2017. For purposes hereof, the CPI for calendar year 2017 is the monthly average of the CPI for the twelve months ending on December 31, 2016.

Scheduled ASMs” – means, for any period of calculation, the available seat miles for all Scheduled Flights during such period of calculation.

 

Exhibit A-7

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Scheduled Flight” – means scheduled flights and United Directed Charter Flights operated using the Covered Aircraft, together with related ferrying flights for repositioning, or flights otherwise made at United’s request, but excluding ferry and test flights related to maintenance.

Spare Aircraft” – means any Covered Aircraft that is designated by Contractor as spare aircraft pursuant to Section 2.01(e), which may be used by Contractor to replace another aircraft in the operation of a Scheduled Flight that otherwise would be cancelled or as otherwise provided in Section 2.01(e).

Start-Up Costs” – is defined in Section 3.02(b).

Start-Up Aircraft Expense” – is defined in Section 3.02(b)(i).

Start-Up Employee Expense” – is defined in Section 3.02(b)(i).

Subsidiary” – means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, association, joint venture, limited liability company, joint stock company or any other form of business or professional entity, in which such Person directly or indirectly through Subsidiaries has more than 50% equity interest at any time.

System Flight Disruption” – means, following the Ramp-Up Period, the failure by Contractor to complete at least [***] of the aggregate Scheduled ASMs in any [***] consecutive calendar months, or at least [***] of the aggregate Scheduled ASMs in any consecutive [***] day period, in each case excluding the effect of Uncontrollable Cancellations; provided, that if the average number of Block Hours flown per Covered Aircraft during such period is more than the average number of Block Hours flown per Covered Aircraft during the three consecutive calendar months immediately preceding the period first measured, then the calculation for purposes of this definition shall disregard that number of Scheduled ASMs for such period as is necessary to reduce the average number of Block Hours flown per Covered Aircraft during such period to the average number of Block Hours flown per Covered Aircraft during prior three consecutive calendar month period; provided further, that a System Flight Disruption shall be deemed to continue until the next occurrence of a single calendar month in which Contractor completes at least [***] of the aggregate Scheduled ASMs; and provided further, that completions and cancellations of Scheduled Flights on any day during which a Labor Strike is continuing shall not be taken into account in the foregoing calculations.

Term of Agreement” – is defined in Section 8.01.

Terminal Facilities” – means all airport terminal facilities that are directly related to passenger operations, including gates, jet bridges, hold rooms, and ticket counters, as applicable, that are leased, subleased or otherwise retained or used by a party at an Applicable Airport.

 

Exhibit A-8

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Termination Date” – means the date of early termination of this Agreement, as provided in a notice delivered from one party to the other party pursuant to Section 8.02, or, if no such early termination shall have occurred, the date of the end of the Term of Agreement.

Termination Event” means any of the following events:

(i) the occurrence of a Change of Control,

(ii) the suspension for [***] consecutive days or longer or the revocation of Contractor’s authority to operate as a scheduled airline,

(iii) [***],

(iv) [***],

(v) a Controllable Completion Factor of [***] or below for each of any [***] consecutive calendar months following the Ramp-Up Period,

(vi) an On-Time Departure Rate of [***] or below for each of any [***] consecutive calendar months following the Ramp-Up Period,

(vii) the occurrence of a willful or intentional material breach of this Agreement by Contractor that substantially deprives United of the benefits of this Agreement, which breach shall have continued for [***] days after notice thereof is delivered by United to Contractor,

(viii) the occurrence of a System Flight Disruption,

(ix) [***],

(x) a material breach by Parent of the Parent Guarantee, subject to any cure period specified in the Parent Guarantee.

Total Paid Aviation Insurance Premium Amount” – is defined in Paragraph B(5) of Schedule 3.

Transfer” – is defined in Section 4.15 (b)(iv).

TSA” – means the United States Transportation Security Administration.

Uncontrollable Cancellation” – means a cancellation of a Scheduled Flight that is due to weather, air traffic control, or circumstances described in Paragraphs B(4)(d) or A(3) of Schedule 3, in each case as coded on Contractor’s operations reports in accordance with United’s standard coding policies and consistent with Contractor’s past practices under this Agreement, or as provided in Section 2.01(e). [***].

 

Exhibit A-9

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Uncontrollable Delay” – means a delay of a Scheduled Flight for any reason that, if it resulted in the cancellation of such flight, would constitute an Uncontrollable Cancellation, or as provided in Section 2.01(e).

United” – is defined in the preamble.

United Cancelled Flight” – is defined in Paragraph A(3) of Schedule 3.

United Controllable Completion Fraction” – is defined in Paragraph B(4) of Schedule 3.

United Directed Charter Flights” – is defined in Section 2.01(c).

United Maintenance” – is defined in Section 10.18.

United Marks” – is defined in Exhibit G.

United’s Parent” – means United Continental Holdings, Inc..

Wind-Down Period” – means, as the context may require, (i) with respect to any specific Covered Aircraft, the period after the Termination Date and until the time when such Covered Aircraft has been withdrawn from the capacity purchase provisions of this Agreement, and (ii) with respect to the Agreement as a whole, the period after the Termination Date and until the time when the last Covered Aircraft has been withdrawn from the capacity purchase provisions of this Agreement.

Wind-Down Schedule” – means the schedule, determined as provided in Article VIII of this Agreement, for Covered Aircraft to be withdrawn from the capacity purchase provisions of this Agreement.

 

Exhibit A-10

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT B

[Intentionally Omitted]

 

Exhibit B-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT C

[Intentionally Omitted]

 

Exhibit C-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT D

Terms of Codeshare Arrangements

1.     Contractor’s use of UA code. During the Term of Agreement, United shall place its designator code, “UA”, on all Scheduled Flights operated by Contractor. United may suspend the display of its code on flights operated by Contractor if Contractor is in breach of any of its safety-related obligations, or material breach of any of its operational obligations, under the Agreement during the period that such breach continues. All Contractor operated flights that display the UA code are referred to herein as “UA* Flights”.

2.     Contractor’s display of UA code.

 

  (a)

All UA* Flights will be included in the schedule, availability and fare displays of all computerized reservations systems in which United and Contractor participate, the Official Airline Guide (to the extent agreed upon) and United’s and Contractor’s internal reservation systems, under the UA code, to the extent possible. United and Contractor will take the appropriate measures necessary to ensure the display of the schedules of all UA* Flights in accordance with the preceding sentence.

 

  (b)

United and Contractor will disclose and identify the UA* Flights to the public as actually being a flight of and operated by Contractor, in at least the following ways:

 

  (i)

a symbol will be used in timetables and computer reservation systems indicating that UA* Flights are actually operated by Contractor, using a disclosure such as “Operated by Air Wisconsin Airlines LLC dba United Express”;

 

  (ii)

to the extent reasonable, messages on airport flight information displays will identify Contractor as the operator of flights shown as UA* Flights, using a disclosure such as “Operated by Air Wisconsin Airlines LLC dba United Express”;

 

  (iii)

United and Contractor advertising concerning UA* Flights and United and Contractor reservationists will disclose Contractor as the operator of each UA* Flight, using a disclosure such as “Operated by Air Wisconsin Airlines LLC dba United Express”; and

 

  (iv)

in any other manner prescribed by law.

3.     Terms and Conditions of Carriage. In all cases the contract of carriage between a passenger and a carrier will be that of the carrier whose code is designated on the ticket. United and Contractor shall each cooperate with the other in the exchange of information necessary to conform each carrier’s contract of carriage to reflect service offered by the other carrier.

 

Exhibit D-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


4.     Notification of irregularities in operations. Contractor shall promptly notify United of all irregularities involving a UA* Flight which result in any material damage to persons or property as soon as such information is available and shall furnish to United as much detail as practicable. For purposes of this section, notification shall be made as follows:

United Airlines Dispatch

233 South Wacker Drive, 27th Floor

Chicago, IL 60606

Attention: Operations Director

Phone no.: (847) 700-4190

Fax no.: (872) 825-0985

Ops Spec A008

5.    Code Sharing License.

 

  (a)

Grant of License. Subject to the terms and conditions of the Agreement, United hereby grants to Contractor a nonexclusive, nontransferable, revocable license to use the UA* designator code on all of its flights operated as a UA* Flight.

 

  (b)

Control of UA* Flights. Subject to the terms and conditions of the Agreement, Contractor shall have sole responsibility for and control over, and United shall have no responsibility for, control over or obligations or duties with respect to, each and every aspect of Contractor’s operation of UA* Flights.

6.    Display of other codes. During the Term of Agreement, United shall have the exclusive right to determine which other airlines (“Alliance Airlines”), if any, may place their two letter designator codes on flights operated by Contractor with Covered Aircraft and to enter into agreements with such Alliance Airlines with respect thereto. Contractor will cooperate with United and any Alliance Airlines in the formation of a code share relationship between Contractor and the Alliance Airlines and enter into reasonably acceptable agreements and make the necessary governmental filings, as requested by United, with respect thereto.

7.    Our United Customer Commitment. During the period that United places its designator code on flights operated by Contractor, Contractor will adopt and follow plans and policies comparable (to the extent applicable and permitted by law and subject to operational constraints) to “Our United Customer Commitment” as presently existing and hereafter modified. Contractor acknowledges that it has received a copy of United’s presently existing “Our United Customer Commitment”. United will provide Contractor with any modifications thereto promptly after they are made.

8.    Network Operations Center (NOC) Playbook. During the period that United places its designator code on flights operated by Contractor, Contractor will work with the United NOC to incorporate United’s policies and procedures into Contractor’s business policies to drive operational performance.

 

Exhibit D-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT E

Non-Revenue Pass Travel

United will have the sole right to design, implement and oversee a pass travel program for the Regional Airline Services (including jump seat policies).

 

Exhibit E-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT F

United Directed Charter Flight Operations

Subject to the provisions of Section 2.01 establishing, without limitation, that United shall, in its sole discretion, establish all schedules for United Directed Charter Flights, including determining the city-pairs served, frequencies, utilization and timing of scheduled arrivals and departures, and shall, in its sole discretion, make all determinations regarding the establishment and scheduling of any United Directed Charter Flights, and that Contractor shall operate such United Directed Charter Flights pursuant to the terms of the Agreement, each of Contractor and United agrees to the following:

 

  1.

United agrees to schedule United Directed Charter Flights using only aircraft that are available to schedule, including Remain Over Night (“RON”) aircraft that are not otherwise in maintenance.

 

  2.

United Directed Charter Flights shall be performed at the rates as set forth on Appendix 1 to Schedule 3; provided that the parties, acting in good faith, shall determine an increase in such rates in excess of those set forth in Appendix 1 to Schedule 3 in respect of each United Directed Charter Flight to compensate Contractor for any reasonably documented, incremental costs incurred by Contractor as a result of such United Directed Charter Flight that would not have been incurred in connection with a Scheduled Flight, such as, but not limited to, crew inefficiencies, hotel and crew transportation expenses and additional staffing and maintenance support; provided further that (x) United shall pay Contractor for any reasonably documented incremental costs incurred by Contractor as a result of a termination or cancellation directed by United of a United Directed Charter Flight occurring after the delivery of the Final Monthly Schedule, and (y) Contractor shall use commercially reasonable efforts to minimize the incremental costs incurred by Contractor as a result of such cancellation.

 

  3.

Contractor agrees to have its System Operations Control (“SOC”) employees work directly with United to successfully operate United Directed Charter Flights.

 

  4.

Contractor’s SOC will ensure charter briefings provided by United are distributed to and reviewed by its crews before the operation of any United Directed Charter Flight.

 

  5.

Contractor agrees to provide United’s Charter Operations Planner aircraft routing and assigned crew information (including contact information for the crew) seventy-two (72) hours before the start of any United Directed Charter Flight.

 

  6.

Contractor agrees to withhold United Directed Charter Flights from its normal monthly crew bid, in order to minimize re-crewing costs in the event that United should need to alter the schedule of a United Directed Charter Flight or cancel the United Directed Charter Flight altogether.

 

Exhibit F-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  7.

Contractor’s SOC will remain in constant contact with United’s Charter Operations Planners while conducting any United Directed Charter Flight on behalf of United, advising them of weather, maintenance issues, and other factors that could impact, delay, or cause the cancellation of any United Directed Charter Flight.

 

  8.

United personnel will be the sole contact with the charterer and will advise the customer of any delay or cancellation to a United Directed Charter Flight.

 

  9.

Contractor will provide Operations Engineering support capable of providing United Directed Charter Flight approval for new airports and routes within seventy-two (72) hours of the initial request from United provided that the city pairs served are on Contractor’s Operations Specifications. If any requested airport is not on Contractor’s Operations Specifications, the parties shall cooperate with one another to determine if such airport should be added.

 

  10.

Contractor agrees to provide, to the extent allowed by its existing labor agreements, a charter-trained subset of flight attendants at each base to be used on United Directed Charter Flights operated on behalf of United.

 

  11.

United agrees to train the above described charter-trained subset of flight attendants, at its own expense, on the special requirements of working a United Directed Charter Flight.

 

  12.

To the extent allowed by its existing labor agreements, Contractor agrees to allow United, based upon Customer Satisfaction scores, to select specific flight attendants to fly specific United Directed Charter Flights. Nothing in this provision shall operate or be construed to limit Contractor’s responsibility for the acts or omissions of Contractor’s employees, independent contractors or agents, or be construed as joint employment, or excuse any of Contractor’s obligations under Section 4.01(a) or under any other provision of this Agreement.

 

Exhibit F-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT G

Use of United Marks and Other Identification

1.    Grant. United hereby grants to Contractor, and Contractor accepts, a non-exclusive, personal, non-transferable, royalty-free right and license to adopt and use the United Marks and other Identification in connection with the rendering by Contractor of Regional Airline Services, subject to the conditions and restrictions set forth herein.

2.    Ownership of the United Marks and Other Identification.

 

  (a)

United shall at all times remain the owner of the United Marks and the other Identification and any registrations thereof and Contractor’s use of any United Marks or other Identification shall clearly identify United as the owner of such marks (to the extent practical) to protect United’s interest therein. All use by Contractor of the United Marks and the other Identification shall inure to the benefit of United. Nothing in this Agreement shall give Contractor any right, title, or interest in the United Marks or the other Identification other than right to use the United Marks and the other Identification in accordance with the terms of this Agreement.

 

  (b)

Contractor acknowledges United’s ownership of the United Marks and the other Identification and agrees not to challenge the validity of the Identification. Contractor agrees that it will not do anything that in any way infringes or abridges United’s rights in the Identification or directly or indirectly challenges the validity of the Identification

3.    Use of the United Marks and the Other Identification.

 

  (a)

Contractor shall use the United Marks and other Identification only as authorized herein by United and in accordance with such standards of quality as United may establish from time to time and provide to Contractor.

 

  (b)

Contractor shall use the Identification on all Covered Aircraft and all facilities, equipment and printed materials as necessary and appropriate in connection with the Regional Airline Services.

 

  (c)

Contractor shall not use the Identification for any purpose other than as set forth in this Exhibit G, and specifically shall have no right to use the United Marks or other Identification on or in any aircraft other than Covered Aircraft or in connection with any other operations of Contractor.

 

  (d)

United shall have exclusive control over the use and display of the United Marks and other Identification, and may change the Identification at any time and from time to time (including by adding or deleting marks from

 

Exhibit G-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


 

the list specified in this Exhibit G), in which case Contractor shall as soon as practicable make such changes as are requested by United to utilize the new Identification; provided that United shall either pay directly the reasonable costs of making such changes to the Identification or shall promptly reimburse Contractor for its reasonable expenses incurred in making such changes.

 

  (e)

Nothing shall abridge United’s right to use and/or to license the Identification, and United reserves the right to the continued use of all the Identification, to license such other uses of the Identification and to enter into such agreements with other carriers providing for arrangements similar to those with Contractor as United may desire. No term or provision of this Agreement shall be construed to preclude the use of the United Marks or other Identification by other persons or for similar or other uses not covered by this Agreement.

4.    United-Controlled Litigation. United at its sole expense shall take all steps that in its opinion and sole discretion are necessary and desirable to protect the United Marks and other Identification against any infringement or dilution. Contractor agrees to cooperate fully, at United’s expense, with United in the defense and protection of the United Marks and other Identification as reasonably requested by United. Contractor shall report to United any infringement or imitation of, or challenge to, the United Marks and other Identification, immediately upon becoming aware of same. Contractor shall not be entitled to bring, or compel United to bring, an action or other legal proceedings on account of any infringements, imitations, or challenges to any element of the United Marks and other Identification without the written agreement of United. United shall not be liable for any loss, cost, damage or expense suffered or incurred by Contractor because of the failure or inability to take or consent to the taking of any action on account of any such infringements, imitations or challenges or because of the failure of any such action or proceeding. If United shall commence any action or legal proceeding on account of such infringements, imitations or challenges, Contractor agrees to provide all reasonable assistance requested by United in preparing for and prosecuting the same.

5.    Revocation of License. United shall have the right to cancel the license provided herein in whole or in part at any time and for any reason, in which event all terminated rights to use the Identification provided Contractor herein shall revert to United and the United Marks and the other Identification shall not be used by Contractor in connection with any operations of Contractor. The following provisions shall apply to the termination of the license provided herein: (i) in the case of a termination of the license to use the globe element of the United Marks, Contractor shall cease all use of the globe element of the United Marks with respect to each Covered Aircraft within ninety (90) days of such aircraft being withdrawn from the capacity purchase provisions of the Agreement, and shall cease all use of the globe element of the United Marks in all other respects within ninety (90) days of expiration of the last Covered Aircraft Term (unless this Agreement is terminated for a Termination Event or pursuant to Section 8.02(a) or the first sentence of Section 8.02(b), in which case Contractor shall cease all use of the globe element of the United Marks within forty-five (45) days of the Termination Date); (ii) in the case of a termination of the license to use any other United Marks and

 

Exhibit G-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Identification, Contractor shall cease all use of such other United Marks and Identification within forty-five (45) days of the termination of the license for such other United Marks and other Identification. Within such specified period, Contractor shall cease all use of such other United Marks and Identification, and shall change its facilities, equipment, uniforms and supplies to avoid any customer confusion or the appearance that Contractor is continuing to have an operating relationship with United, and Contractor shall not thereafter make use of any word, words, term, design, name or mark confusingly similar to the United Marks or other Identification or take actions that otherwise may infringe the United Marks and the other Identification.

6.    Assignment. The non-exclusive license granted by United to Contractor is personal to Contractor and may not be assigned, sub-licensed or transferred by Contractor in any manner without the written consent of a duly authorized representative of United.

7.    United Marks. The United Marks are as follows:

 UNITED EXPRESS

 UNITED EXPRESS’S LOGO (DESIGN) IN COLOR

 UNITED EXPRESS’S LOGO (DESIGN) IN BLACK & WHITE

 

LOGO

8.    Aircraft Livery. The aircraft livery shall be as follows, unless otherwise directed by United: The colors blue, gray, white and gold are used on the aircraft. The color white appears on the top approximate two-thirds (2/3) of the body of the aircraft; the color gray appears below the color white on the remainder of the bottom portion of the body of the aircraft; the color gold is used as a stripe or band dividing the white and gray colors. The tail of the aircraft is primarily blue with the globe logo design in a gold and white combination and the trade name is written in blue on the white portion of the body of the aircraft. Interior décor shall be as directed by United. Except as required by law or regulation, there shall be no Contractor Marks displayed on the aircraft exterior or in the aircraft interior, including without limitation any marks on any backwall or cabin separator.

9.    Survival. The provisions of this Exhibit G shall survive the termination of this Agreement for a period of six years.

 

Exhibit G-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT H

Use of Contractor Marks

1.    Grant. Contractor hereby grants to United, and United accepts, a non-exclusive, personal, non-transferable, royalty-free right and license to adopt and use the Contractor Marks (as defined below) in connection with United’s entering into this Agreement, subject to the conditions and restrictions set forth herein.

2.    Ownership of the Contractor Marks.

 

  (a)

Contractor shall at all times remain the owner of the Contractor Marks and any registrations thereof and United’s use of any Contractor Marks shall clearly identify Contractor as the owner of such marks (to the extent practical) to protect Contractor’s interest therein. All use by United of the Contractor Marks shall inure to the benefit of Contractor. Nothing in this Agreement shall give United any right, title, or interest in the Contractor Marks other than right to use the Contractor Marks in accordance with the terms of this Agreement.

 

  (b)

United acknowledges Contractor’s ownership of the Contractor Marks and agrees not to challenge the validity of the Contractor Marks. United agrees that it will not do anything that in any way infringes or abridges Contractor’s rights in the Contractor Marks or directly or indirectly challenges the validity of the Contractor Marks.

3.    Use of the Contractor Marks.

 

  (a)

United shall use the Contractor Marks only as authorized herein by Contractor and in accordance with such standards of quality as Contractor may establish from time to time and provide to United.

 

  (b)

United shall use the Contractor Marks as necessary or appropriate in United’s sole discretion in connection with the Regional Airline Services, including without limitation the sale or disposition by United of the seat inventory of the Scheduled Flights.

 

  (c)

United shall not use the Contractor Marks for any purpose other than as set forth in this Exhibit H, and specifically shall have no right to use the Contractor Marks in connection with any other operations of United.

 

  (d)

Contractor shall have exclusive control over the use and display of the Contractor Marks, and may change the Contractor Marks at any time and from time to time (including by adding or deleting marks from the list specified in this Exhibit H), in which case United shall as soon as practicable make such changes as are reasonably requested by Contractor to utilize the new Contractor Marks; provided that Contractor shall either

 

Exhibit H-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


 

pay directly the reasonable costs of making such changes to the Contractor Marks or shall promptly reimburse United for its reasonable expenses incurred in making such changes.

 

  (e)

Nothing shall abridge Contractor’s right to use and/or to license the Contractor Marks, and Contractor reserves the right to the continued use of all the Contractor Marks, to license such other uses of the Contractor Marks and to enter into such agreements with other carriers providing for arrangements similar to those with United as Contractor may desire. No term or provision of this Agreement shall be construed to preclude the use of the Contractor Marks by other persons or for other similar uses not covered by this Agreement.

4.    Contractor-Controlled Litigation. Contractor at its sole expense shall take all steps that in its opinion and sole discretion are necessary and desirable to protect the Contractor Marks against any infringement or dilution. United agrees to cooperate fully, at Contractor’s expense, with Contractor in the defense and protection of the Contractor Marks as reasonably requested by Contractor. United shall report to Contractor any infringement or imitation of, or challenge to, the Contractor Marks, immediately upon becoming aware of same. United shall not be entitled to bring, or compel Contractor to bring, an action or other legal proceedings on account of any infringements, imitations, or challenges to any element of the Contractor Marks without the written agreement of Contractor. Contractor shall not be liable for any loss, cost, damage or expense suffered or incurred by United because of the failure or inability to take or consent to the taking of any action on account of any such infringements, imitations or challenges or because of the failure of any such action or proceeding. If Contractor shall commence any action or legal proceeding on account of such infringements, imitations or challenges, United agrees to provide all reasonable assistance requested by Contractor in preparing for and prosecuting the same.

5.    Revocation of License. Contractor shall have the right to cancel the license provided herein in whole or in part at any time and for any reason, in which event all terminated rights to use the Contractor Marks provided United herein shall revert to Contractor and the Contractor Marks shall not be used by United in connection with any operations of United. United shall cease all use of the Contractor Marks in all respects upon the last Covered Aircraft being delivered to United (or its designee). United shall not thereafter make use of any word, words, term, design, name or mark confusingly similar to the Contractor Marks or take actions that otherwise may infringe the Contractor Marks.

6.    Assignment. The non-exclusive license granted by Contractor to United is personal to United and may not be assigned, sub-licensed or transferred by United in any manner without the written consent of a duly authorized representative of Contractor.

7.    Contractor Marks. Contractor’s Mark is:

 

LOGO

 

Exhibit H-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


8.    Survival. The provisions of this Exhibit H shall survive the termination of this Agreement for a period of six years.

 

Exhibit H-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT I

Catering Standards

INFLIGHT PRODUCT SALES PROGRAM

United will market a portfolio of inflight products for purchase on United Express flights which includes liquor, beer, wine, food, or other product offerings. Contractor will administer the program related to such in-flight sales (the “Inflight Product Sales Program”) as United’s representative following all policies and procedures of United. The initial policies and procedures established by United for the sale of products onboard Contractor’s flights under the Agreement with United are set forth below. United reserves the right to change the product offerings, policies and procedures associated with the Inflight Product Sales Program at any time and in its sole discretion.

Station Services

 

 

United, or United’s catering agent, will provide catering services as directed by United.

 

 

United or its catering agent will provide supplies, food, liquor, other beverage, and other product uplift as necessary and will remove, store and re-board perishable supply and beverage items on Remain Over Night (RON)/originating flights at airports designated by United as catering airports.

 

 

In respect of all catering items (including the Inflight Product Sales Programs), Contractor will coordinate and communicate with United or United’s catering agent regarding all flight activity, cancellations and irregular operations providing necessary information in a timely manner.

Onboard Services

 

 

United has right to determine meal/beverage and other product offering service parameters and scheduling for Scheduled Flights.

 

 

United has right to conduct onboard service audits on Scheduled Flights to ensure service standards are being met.

 

 

Contractor shall ensure that all flight attendants providing Regional Airline Services are trained on meal and beverage service procedures, including liquor and duty-free sales and financial transaction handling, and will collect all on-board revenue for food, liquor, duty-free sales and/or any other products for sale.

 

 

Contractor will provide, at Contractor’s cost and expense, certain initial and replacement galley service ship’s equipment to operate, such as hot jugs, coffee makers and trash bins. Contractor will also provide the initial shipset of galley carts and associated carrier boxes, drawers and inserts. United will provide all supplemental United galley carts, carrier

 

Exhibit I-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


 

boxes, drawers and inserts as well as replacements sufficient to operate cart exchange operations. All galley carts, carrier boxes, drawers and inserts used for the United inflight services will be maintained by United per United’s maintenance program.

 

 

United will provide all liveried catering items, including cups, napkins, etc. as well as all products in the Inflight Product Sales Program.

TECHNOLOGY

The sale of product onboard Contractor’s flights under the Agreement will involve non-cash transactions. United will provide a single hand held device (each such device, an “HHD” and collectively with peripherals, including, but not limited to, device case, sled and external battery charger, the “HHD units”) necessary to process credit and debit card transactions for each aircraft in Contractor’s fleet operating as United Express. Contractor shall only swipe the customer’s credit or debit card into the HHD unit for the purpose of processing the customer’s transaction and shall not otherwise use or record the customer information. In the event Contractor is unable to process transactions during any flights through the HHD unit (e.g., because the unit(s) are not working properly or are unable to process transactions for any reason), Contractor (i) is not required to process transactions through any alternative means; and (ii) will not be liable or responsible to United or any passenger as a result of its failure to accept and process transactions during flight. The HHD units provided by United shall only be used for United’s business purposes. United shall pay the cost of any modifications required in connection with the HHD units.

The HHD units and the information contained therein shall be deemed the confidential and proprietary equipment and information of United and its licensors and shall be subject to the confidentiality terms and conditions set forth in the Agreement for other types of confidential information of United. Contractor shall not, and shall not permit others to, reverse engineer, decompile, disassemble or translate the HHD units, including any firmware or software that is loaded upon the units, or otherwise attempt to view, display or print the source code embedded in the HHD units, or any firmware or software loaded on the HHD units. Contractor shall ensure that any and all HHD units and all other supplies and equipment of United or its licensors that are provided by or on behalf of United in connection with United’s Inflight Product Sales Program remain free and clear from any liens attributable to Contractor. Except for any specific obligations set forth in this Agreement that apply directly to Contractor, United, and not Contractor, is responsible for ensuring that the HHD units meet Payment Card Industry Data Security Standards (PCI-DSS).

Upon the earlier to occur of (i) the termination of United’s Inflight Product Sales Program, (ii) the termination of this Agreement, or (iii) the cessation of the use of the HHD units by Contractor, as determined by United in its sole discretion, Contractor shall cooperate with United or its designated vendor for the collection and return of all HHD units to United at the address designated by United, at United’s cost. Contractor shall return the HHD units in as good a condition as reasonably possible, except for reasonable wear and tear thereof.

 

Exhibit I-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Contractor shall store the HHD units in a locked cabinet or container on each aircraft, when the HHD units are not in use. Contractor agrees to notify United whenever any HHD unit has been, or Contractor reasonably believes or suspects that any HHD unit has been, lost, acquired, destroyed, modified, used, disclosed or accessed by any person in an unauthorized manner or for an unauthorized purpose (collectively, “Security Breach”). Contractor and United shall cooperate with each other to develop reasonable procedures and standards related to Security Breaches. Contractor further agrees to provide reasonable assistance requested by United or United’s designated representatives, in the furtherance of any correction, remediation, investigation, enforcement or litigation with respect to a Security Breach. Subject to the terms Article VII, United shall be responsible for sending and determining the contents of any notices United deems appropriate in response to a Security Breach.

Lost equipment will be replaced by United. Any HHD unit that is unaccounted for will be considered “lost” if no transactions have been logged by the same HHD unit for thirty (30) days. If United shows an HHD unit is lost due to Contractor’s negligence, United reserves the right to set-off the replacement cost of such lost equipment by taking a credit of such excess replacement cost pursuant to the procedures set forth in Section 10.16 of the Agreement.

Any HHD unit that is damaged beyond reasonable wear and tear which is shown by United to be due to Contractor’s negligence, will be replaced at Contractor’s expense. United reserves the right to set-off the replacement cost associated with such damaged HHD unit by taking a credit of such excess replacement cost pursuant to the procedures set forth in Section 10.16 of the Agreement.

United, at its cost, will provide or cause to be provided by a vendor of United’s choice the maintenance and battery replacement for the HHD units. Such maintenance and battery replacement will be provided at predetermined intervals designed to maximize HHD and battery useful life, and Contractor will have the right to request maintenance at different times than the predetermined intervals or additional battery replacement at United’s cost upon request. In the event Contractor’s request for maintenance is related to a faulty or defective HHD unit, United shall pay the vendor directly for such non-routine service call.

United will provide at its sole cost and expense (including all out-of-pocket costs and reimbursement of Contractor’s labor costs) for initial “train the trainer” training to a reasonable number of Contractor-designated “trainers” on the use of the HHD. Such cost will be negotiated and agreed upon by the parties. Contractor will be required to (i) retain the training skill beyond the initial “train the trainer” training provided by United and (ii) provide training to Contractor’s crew personnel at Contractor’s own expense.

Contractor acknowledges that the HHD units are owned solely by United. Contractor shall ensure that any and all HHD units and all other supplies and equipment of United that are provided by or on behalf of United in connection with United’s Inflight Product Sales Program remain free and clear from any liens. In the event that any such liens arise, Contractor will obtain a bond to fully satisfy such liens or otherwise remove such liens at its sole cost and expense within fourteen (14) days.

 

Exhibit I-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


PRODUCT LOSS AND PILFERAGE

United will establish procedures aimed at limiting product loss. At a minimum, it is required that Contractor’s Flight Attendants record opening and closing inventories of each product to be sold onboard, accounting for all sales and complimentary liquor or other items distributed.

Seals may be required to prevent tampering with product inventories and to deter pilferage. United will monitor all inventories and reserves the right to charge Contractor for identified loss (including breakage and other damage) and pilferage on a cost (non mark-up) basis determined monthly. Any discrepancies in inventories, seal numbers recorded, or excessive complimentary activity for any product sold must be reported at the catering airport for use in pilferage investigations by United. Contractor’s failure to provide documentation as reasonably requested by United or its representatives will result in Contractor being charged for pilferage as reasonably determined by United on a cost basis. United reserves the right to set off the value of the loss and/or pilferage on a cost (non mark-up) basis, by taking a credit of such loss and/or pilferage pursuant to the procedures set forth in Section 10.16 of the Agreement. All reasonable product loss and pilferage procedures established by United must be adhered to by Contractor.

United may, at any time during normal operating hours inspect, monitor, or audit Contractor’s administration of the Inflight Product Sales Program described in this Appendix or in other policies and procedures, in order to verify that Contractor is in compliance, in all material respects, with United’s requirements for the Inflight Product Sales Program. Contractor will work with United to ensure reasonably appropriate controls exist designed to comply with United’s requirements and will ensure corrective actions are in place as necessary.

LIQUOR, BEER AND WINE PROGRAM

The alcoholic beverage products offering will be determined by United and provided for by United in the liquor kit supplied to each aircraft. Except as prohibited by law or otherwise agreed by United and Contractor due to the various applicable liquor license laws and regulations, the alcoholic beverage products will be purchased by United prior to being placed onboard Contractor’s aircraft and sold onboard all United Express flights designated by United.

Once onboard Contractor’s aircraft, liquor drawers, bags or other liquor containment mechanisms used by Contractor, as determined by Contractor, are considered a part of ship’s equipment and will be used for the distribution of United’s inflight products.

Contractor shall not serve any Alcoholic Beverage Product(s) on the ground without United’s consent. Contractor will obtain and maintain liquor licenses in the states where they board and/or unload any Alcoholic Beverage Product. United shall reimburse Contractor for the cost of obtaining any such liquor license. Unless otherwise agreed by the parties, Contractor will not board or unload any alcoholic beverage products in Virginia but in the event it is agreed that Contractor will board or unload any alcoholic beverage products in Virginia, the parties shall comply with the procedures for Virginia below.

VIRGINIA ALCOHOLIC BEVERAGE HANDLING PROCEDURES

 

Exhibit I-4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Contractor will comply with Virginia’s liquor purchase procedures. In Virginia, Contractor will board and/or unload only alcoholic beverage products that Contractor owns. To that end, in the event it is agreed by the parties that Contractor will board and/or unload any alcoholic beverage products in Virginia, Contractor will purchase such alcoholic beverage products directly. Contractor will timely pay the supplier of such alcoholic beverage products directly for such order(s). Once out of Virginia airspace, Contractor will transfer to United the title to the purchased alcoholic beverage products. United will be responsible for any sales tax attributable to the foregoing title transfer.

FOOD AND OTHER PRODUCTS

United reserves the right to introduce other products for sale onboard including food offerings. Food offerings may come in a variety of packaging options and will be integrated into the entire portfolio with regards to specifications and procedures established by United.

Provisioning of product offering will follow United’s procedures at distribution points.

 

Exhibit I-5

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT J

Aircraft Cleanliness and Refurbishment Standards

AIRCRAFT CLEANLINESS STANDARDS

United requires Contractor to adhere to certain aircraft interior deep clean standards provided by United to Contractor from time to time (the “Deep Clean Scope of Work”). With the exception of certain heavy cleaning events which will occur during heavy maintenance and shall be incorporated into the C-Check schedule, the elements of the Deep Clean Scope of Work shall be performed by Contractor according to a work schedule set forth by United but no less than every [***] days. The Deep Clean Scope of Work is comprised of the minimum required interior deep clean work required of Contractor and identifies the items in scope for all interior aircraft cleaning work over and above routine Remain Over Night (“RON”) cleaning standards, including, but not limited to, carpets, seats, cabin interior, lavatories etc. Contractor will audit the deep clean provider and provide monthly written results to United in a format determined by United. United retains the right to audit Contractor’s compliance with United’s deep clean standards and the performance of the deep clean provider, as well as any of the aircraft upon the completion of the Deep Clean Scope of Work. Items identified through United’s audit will be corrected by Contractor within five (5) days of United’s written notification or any other mutually agreed upon date. United will charge Contractor [***] for each day that the Deep Clean Scope of Work standards are not corrected after the later of such five (5) day correction period or such other mutually agreed upon date.

At the end of each flight, the flight attendants will ensure that the aircraft is left in a clean condition.

United Express Deep Clean Minimum Specifications

The minimum standards outlined here serve as an auditable baseline standardizing this clean type. Contractor is responsible for the Deep Clean programs and cycle times and may choose to have standards above and beyond those listed in this section. Any audits performed on United Express Deep Clean missions will be based on these minimum standards.

Deep Cleans are the most intense and thorough clean missions, including complete provisioning change out of linens, headsets, etc., with new or refurbished product. Scheduled at approved intervals, Deep Clean events are performed in designated stations during the aircraft’s overnight layover by authorized personnel that receive scheduled available aircraft.

Interior Cabin Security Search

 

  1.

Perform aircraft security check as contained in the AOSSP or published Security Directives.

  2.

Security searches are integrated with United’s cleaning standard operating procedures for each clean mission, including but not limited to, Deep Cleans. As a result, security checks must be performed as outlined in the Aircraft Appearance

 

Exhibit J-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


 

Cabin Interior Search procedures during the course of accomplishing the cleaning tasks outlined hereinafter.

Flight Deck

 

  1.

While it is true all aspects of cleaning require safety awareness, cleaning personnel must give special attention to safety during the Flight Deck cleaning process, including but not limited to, the following:

  a.

Notify Maintenance immediately should you accidentally move or trip a switch/circuit breaker.

  b.

Do not spray liquids on instruments or dashboards.

  c.

Do not dampen brush or cloth excessively as water may come in contact with electrical equipment and cause injury to personnel and damage to the aircraft.

  d.

Dip sponge or cleaning rag into cleaning solution and scrub surfaces until soil loosens. Repeat procedure on stubborn stains.

  e.

Avoid getting surfaces excessively wet.

  f.

Dry all surfaces.

  2.

Remove trash and debris from flight deck.

  3.

Remove and replace trash bag.

  4.

Vacuum clean the following areas:

  a.

Seats, seat pockets

  b.

Creases around and between seat cushion areas

  c.

Floor, seat tracks, seat assemblies and vent grills

  5.

Clean and remove soil from the following areas:

  a.

Ceiling panels and vents

  b.

Sidewall panels

  c.

Floor, seat tracks, seat assemblies and vent grills

  d.

Front, back and side of Flight Deck door

  6.

Damp wipe and dry the following areas assuring a streak free appearance:

  a.

Glare-shield; sun-visors

  b.

Windshield / side windows interior (Sani-Coms replacement)

  7.

Clean and dry the following areas:

  a.

Recessed areas instrument panels; center console

  b.

Control yokes and columns

  c.

Base plate and nose gear steering wheel

  d.

Captains and 1st Officers rudder pedals

  e.

Captains, 1st Officers, 1st Observer

  f.

Cup / drink holders

  g.

Log compartments

  h.

Engineers table

  i.

Crew coatroom

Cabin

 

Exhibit J-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  1.

Remove all trash from seats, seat pockets, floor, overheads, shelves, closets and overhead bins.

  2.

Inspect seat covers. Report covers with any size stain or tear into local Maintenance for replacement.

  3.

Brush crumbs off seats. Seat Cushions to be left in the upright position, exposing the seat frame for pre-departure security inspection.

  4.

Pull up seat cushions; vacuum all sides to remove crumbs, lint, etc. Place in overhead bin.

  5.

Vacuum / brush seat pan free of crumbs and debris.

  6.

Scrub seat frames including all exterior surfaces of seat panels, armrests, luggage restraints, seat legs, connect points, seat control panels, seat shroud and gap between seats. Rinse, dry.

  7.

Return seat cushions to original position.

  8.

Place armrest in DOWN position and Cross seatbelts.

  9.

Vacuum and scrub seat tracks.

  10.

Scrub seat tracks covers. Rinse, dry and reinstall.

  11.

Spray cleaning solution on the cloth and clean Emergency Aisle path track lighting. Do not spray solution directly on the path lighting system. Follow by wiping the cover with a clean cloth dampened in clean rinse water and dry.

  12.

Vacuum and scrub stowage wells, including tray table wells.

  13.

Scrub tray tables including latch area on seatback, edging, hinges, mating surfaces, bridges and arms. Rinse and dry before stowing.

  14.

Scrub center seat console areas; side stowage coves. Rinse, dry.

  15.

Remove trash and seat back pocket materials. Vacuum seat pockets. Tuck any loose seat cover flaps into the seat shroud.

  16.

Scrub clean passenger service units, reading lights, call button, air vents and panel. Rinse, dry.

  17.

Scrub clean sidewalls and sidewall air vents. Rinse, dry.

  18.

Clean and dry windows, window shades, and window shade tracks with approved cleaner.

  19.

Scrub clean Flight Attendant jump seat area(s); including the call station, phone entry walls, ceiling, compartments and floors.

  20.

Provision and organize seat pockets with literature and supplies. Discard and replace worn or dog-eared literature and/or when missing. Replace Hemispheres/Play guides with new after the 10th day of the month.

      

1 - SAFETY INFORMATION CARD – As required by Contractor

  2 - MAGAZINE

(S) – As required by Contractor

  3 - AIR

SICK BAG – As required by Contractor

      

Replace soiled blankets with clean ones and place neatly on top as designated in the provisioning chart (UF only on 2-cabin Covered Aircraft).

  21.

Vacuum air vent covers.

  22.

Vacuum sidewall upper and lower air vents and section dividers.

  23.

Overhead Bins, Ceilings, Closets, Bassinets, Storage Areas

  a.

Remove trash from overhead bins, storage areas, closets.

 

Exhibit J-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  b.

Scrub clean inside of overhead bins, all exposed surfaces of overhead bin doors, latches, hinges and inner rim that runs perimeter of bin. Rinse, dry.

  c.

Scrub ceilings, centerline ceiling vents, curtain class dividers. Rinse, dry.

  d.

Vacuum storage areas, closets to remove dust, debris.

  e.

Scrub clean inside of storage areas, closets, exterior doors and latches. Rinse, dry.

  f.

Onboard wheelchair compartment, remove wheelchair, wipe clean and dry (when applicable).

  g.

Vacuum inside onboard wheelchair compartment. Scrub interior/exterior door and latches. Rinse, dry (when applicable).

Galley

 

  1.

Remove and dispose of all trash.

  2.

Clean counters, storage doors and galley extension tables.

  3.

Spot wipe walls, ceiling and doors to remove fingerprints, scuff marks, spills, graffiti, etc.

  4.

Scrub interior and exterior of storage space. Pay particular attention to all protrusions, corners, cracks, crevices, sliding tracks, hinges, latches, control panel, etc. Rinse with clean water and dry with clean cloth.

  5.

If applicable, empty all ice and water drawers.

  6.

Vacuum and damp mop the floor.

  7.

Thoroughly scrub, wash, rinse and dry the following:

  a.

Serving carts and folding meal carts.

  b.

Interior and exterior of trash compartments and trash chutes.

  c.

All light fixtures and cover lights and air vents.

  8.

Thoroughly scrub (Eraser Pad), wash, rinse and dry the following:

  9.

Wipe clean coffee makers, hot plates and spigots when applicable. (Coffee pots to be handled and cleaned by catering).

  a.

Note: Interior of coffeepots is not to be cleaned by cleaning personnel, only by catering staff.

  10.

Cleaning personnel to clean interior and exterior of all compartments (pay particular attention to latches, corner hinges and locks).

  a.

Interior and exterior of trash compartments and trash chute.

  b.

All light fixtures, cove lights, and air vents.

  c.

Clean exterior of coffee makers/hot jugs.

  d.

Walls, ceiling, air vents, service door and floor.

  e.

Polish stainless steel areas with approved Airline’s chemical (appendix 1).

  f.

Thoroughly scrub walls, ceiling and floors. Rinse with clean water and dry with clean rag.

  g.

Scrub the galley entry door, doorframe, sill and rubber seal on bottom of door.

  h.

Ensure the drain holes on the sill are clear and free of debris.

  i.

Replenish Galley paper towel dispensers (where applicable).

Lavatory

 

Exhibit J-4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  1.

Remove trash and other debris from counters, bin and floor.

  2.

Scrub, wash and rinse all of the following:

  Toilet

bowl, shroud and chute.

  Toilet

seat cover and hinges.

  Inside

and outside of storage compartments.

  Walls,

ceiling, door and floor.

  3.

Clean all stainless steel or hard surface areas; basin, counter, sink, light fixtures and toilet chute.

  4.

Clean and dry mirror.

  5.

Clean all exposed surfaces of fold down diaper changing table (if applicable).

  6.

Restock supply dispenser and storage bins.

  7.

Deodorize with air freshener spray.

  8.

Replace deodorant disk.

  9.

All Paper Supplies, Soap and Hand Sanitizer, as applicable (if no certified potable water available please utilize waterless hand sanitizer).

Entrance Areas and Doors

 

  1.

Scrub aircraft door, hinge, handle area, sills, walls, ceilings and floor. Ensure weep holes on the sill are clean and free of debris.

  2.

Clean all exposed surfaces of entrance doors: remove all fingerprints, grease stains and graffiti.

  3.

Scrub entryway floor and doorsill. Rinse, dry or Vacuum if carpeted.

  4.

Damp wipe ceiling air vent.

  5.

Clean rubber seal on bottom of door.

  6.

Clean inside door windows.

Carpets and Curtains (When Applicable)

 

  1.

Remove gum spots on carpeting using approved chemical.

  2.

Clip any frayed or raveled carpet strings.

  3.

Vacuum all carpeted areas.

  4.

Vacuum top of all cabin curtains.

Aircraft Refurbishment Standards

United requires Contractor to adhere to certain aircraft interior cabin refurbishment standards described in this Exhibit J, which such standards are outlined in the table below (the “Refurbishment Scope of Work”). The elements of the Refurbishment Scope of Work shall be performed by Contractor according to a work schedule set forth by United. The Refurbishment Scope of Work is comprised of the minimum required interior cabin refurbishment work required of Contractor, itemized by type of aircraft service visit, e.g., heavy maintenance, RON (as such term is defined in this Exhibit J). The Refurbishment Scope of Work identifies the items in scope for all interior refurbishment work, e.g., carpets, seats, cabin decor/interior, lavatories etc., as specifically set forth in the table below, as well as the timing of when such refurbishment work shall be performed by Contractor.

 

Exhibit J-5

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Subject to the consent of Contractor (such consent not to be unreasonably withheld or delayed), United may change the Refurbishment Scope of Work. Upon such consent of Contractor, such change shall be made part of the Refurbishment Scope of Work.

All refurbishment work performed by Contractor with respect to the Refurbishment Scope of Work set forth below, whether replacement, repair, or reconditioning/cleaning, must result in like-new interior cabin condition of the refurbished aircraft. United may, from time-to-time, or at any time, monitor and audit the interior cabin refurbishment work undertaken by Contractor pursuant to the Refurbishment Scope of Work, in order to ensure that the interior cabins of the Contractor-refurbished aircraft are in like-new condition post-refurbishment. If United reasonably determines that any Contractor-refurbished interior cabins are not returned to like-new condition, then United will require Contractor to repeat the refurbishment work on that specific aircraft, whether such work requires replacement, repair, or reconditioning/cleaning, at Contractor’s sole cost and expense, until such aircraft interior cabin is returned to like-new condition. Items identified through United’s audit will be corrected by Contractor within five (5) days of United’s written notification or any other mutually agreed upon date. United will charge Contractor [***] for each day that the Refurbishment Scope of Work standards are not corrected after the later of such five (5) day correction period or such other mutually agreed upon date.

Interval for refurbishment work by type of aircraft service visit:

 

 

Heavy maintenance category should be similar to the carrier “C Check” interval timeframe, which occurs at approximately every [***] hours of flight time.

 

 

Intermediate category should be similar to half of the “C Check” interval timeframe, which occurs at approximately every [***] hours of flight time, or about every [***] “A Check” interval.

Note: These definitions/intervals are guidelines and are subject to change by United, with any such change subject to consent of the Contractor (such consent not to be unreasonably withheld or delayed).

 

Exhibit J-6

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Statement of Work
    Heavy Maintenance   Intermediate Visits   In-Service/Overnight

Floor Coverings

   

Carpet

 

Replace All

 

Replace Aisle/Heavy Traffic Areas or All on Condition

 

Cleaned/Replace On Condition

Galley Flooring

 

Replace All

 

Replace On Condition

 

Cleaned/Replace On Condition

Lav Flooring

 

Replace All

 

Replace On Condition

 

Cleaned/Replace On Condition

             

Seats

           

Seat Covers (Fabric)

 

Replace All with new/cleaned

 

Dry Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Seat Covers (Leather)

 

Replace All with new/cleaned

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Seat Cushions

 

Replace All

 

Replace On Condition

 

Replace On Condition

Headrest Covers

 

Replace All with new/cleaned

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Headrest Cushions

 

Replace All

 

Replace On Condition

 

Replace On Condition

Tray Tables

 

Cleaned/Replace On Condition

 

Replace On Condition

 

Cleaned/Replace On Condition

Literature Pockets (seat back)

 

Replace All with new/cleaned

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Armrests

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Recline Actuation

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Safety Belt Webbing

 

Replace All

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Seat Overhaul

 

Completed

 

As needed

 

As needed

             
             

Cabin Décor

   

Bulkhead Décor

 

Replace On Condition

 

Replace On Condition

 

Replace On Condition

Bulkhead Literature Pockets

 

Replace All

 

Replace On Condition

 

Replace On Condition

Seat/Row Placards

 

Replace On Condition

 

Replace On Condition

 

Replace On Condition

Passenger Service Units

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Dado Panel Décor

 

Replace On Condition

 

Replace On Condition

 

Replace On Condition

Weather Curtain

 

Replace On Condition

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Seat Track Covers

 

Replace All

 

Replace if missing or damaged

 

Replace if missing or damaged

Cabin Curtain Dividers

 

Replace On Condition

 

Replace On Condition

 

Replace On Condition

             
             

Lavatories

   

Flush

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Sink

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Drain

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Faucet

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Lighting

 

Replace All

 

Replace On Condition

 

Replace On Condition

Infant Changing Tables

 

Repaired to function properly

 

Repaired to function properly

 

Repaired to function properly

Door Lock Indicators

 

Replace All

 

Replace On Condition

 

Replace On Condition

Door Thresholds

 

Replace All

 

Replace On Condition

 

Replace On Condition

             
             

Cabin Interiors

   

Cabin Lighting

 

Replace All

       

Sidewall Panels

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

 

Cleaned/Replace On Condition

Placards

 

Replace All

 

Replace On Condition

 

Replace On Condition

Lighted Lavatory In-Use Indicators

 

Clean/Repair to proper functionality

 

Clean/Repair to proper functionality

 

Clean/Repair to proper functionality

Overhead Bins

 

Cleaned/Paint/Repair to proper functionality

 

Cleaned/Paint/Repair to proper functionality

 

Cleaned/Paint/Repair to proper functionality

Window Shades

 

Clean/Repair to proper functionality

 

Clean/Repair to proper functionality

 

Repair to proper functionality

Stairs

 

Clean/Repair to proper functionality

 

Clean/Repair to proper functionality

 

Repair to proper functionality

Windows

 

Clean/Repair damage

 

Clean/Repair as needed

 

Cleaned/Repair as needed

 

On Condition:

   

-worn, torn, ripped, soiled, scratched, pilled, fraying, dented, gouged, soaked

-altered from original installation state

-not functioning for intended use

Assumption: A separate cleaning program is in place for daily, intermediate, and heavy cleaning at various levels.

Any reference to “replace all” shall refer to replacement of such article, unless such article is in “like new” condition.

 

Exhibit J-7

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT K

[Intentionally Omitted]

 

Exhibit K-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT L

Fuel Efficiency Program

Contractor shall use commercially reasonable efforts to develop and maintain a comprehensive fuel efficiency program, reasonably acceptable to United, in a timely manner and with the overall objective of operating and maintaining the Covered Aircraft in a manner that maximizes fuel efficiency, with due consideration to other performance objectives. The program will include applicable data collection and trend analysis, and will set and track target metrics. United shall audit Contractor’s program at its discretion, but at no less than annual intervals. Such audits will be based on the IATA Fuel and Emissions Efficiency Checklist, supplemented by the IATA Guidance Material and Best Practices for Fuel and Environmental Management, any applicable manufacturer material, United’s own Fuel efficiency program applicable to its own fleet, and any other material standard in the industry.

Contractor’s fuel efficiency program shall emphasize at least the following:

 

  1.

A “cost index” (CI) based flight planning system, or as an alternative a flight planning system that adequately balances the cost of Fuel versus the cost of time on a segment specific basis. The ability to provide the system with current and accurate applicable costs is required.

 

  2.

Flight planning technology that accurately predicts fuel burn and optimizes both lateral and vertical profiles for takeoff, climb, cruise, and descent while considering Air Traffic Control crossing restrictions, special use airspace, preferred routings (where applicable), and letters of agreements. On segments over 600nm, Contractor shall utilize a system which dynamically selects the route of flight yielding the lowest total fuel burn. This route shall be based upon current forecast weather, winds aloft, and in accordance with the FAA North American Route Program (NRP) or its replacement, as applicable. The system shall have the ability to enable the dispatcher to select a route that yields lowest total cost based on the direction from the mainline operator. In situations where a route is payload restricted, the system can revert to a speed that will maximize payload.

 

  3.

The ability to provide the system with current and accurate applicable costs and to utilize those costs in determining the most efficient speed profile.

 

  4.

Appropriate, implemented, well documented, and thoroughly trained policies and procedures for dispatchers, pilots, load planners, station agents, mechanics and management that maximize opportunities for fuel efficiency.

 

  5.

An active interface with appropriate Air Traffic Control (ATC) facilities, management, and other personnel to minimize operational restrictions, and improve ATC handling of Contractor flights.

 

Exhibit L-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  6.

Well-defined and fully integrated flight planning fuel policies, including statistical tracking of fuel added by pilots and dispatchers, efficient reserves, guidelines for efficient alternate selection, a “no-alternate” policy, and target “fuel on deck”.

 

  7.

Reporting of fuel data on a monthly basis or when requested including but not limited to: post-flight data (e.g. Dispatch Manager’s Flight Plan Statistics data), single engine taxi data, APU if available, and city pair data by fleet.

 

  8.

Thorough and effective pilot and dispatcher training on aerodynamics, cruise performance and overall fuel efficient flying in initial, transition, upgrade, and recurrent programs, with an emphasis on operating the aircraft at the most efficient speeds and altitudes as well as correct descent and approach planning.

 

  9.

Maximized use of on-board Flight Management Systems (FMS) or performance management computers as an in-flight Fuel efficiency tool. Applicable thorough and effective training is required.

 

  10.

An effective fuel tankering program, including automated tankering suggestions and calculations, using validated methods and formulas.

 

  11.

Thorough statistical tracking, analysis and measurement of fuel efficiency using actual data, data from flight plans, and ACARS data with a comprehensive plan to identify and correct deficiencies, including individual pilot and dispatcher issues.

 

  12.

A designated manager charged with overall responsibility for fuel efficiency either as a stand alone position, or as a substantial element of an individual job description.

 

  13.

The inclusion of fuel efficiency issues and targets in appropriate job descriptions and performance objectives. Applicable work groups include, but are not limited to, pilots, dispatchers, SOCC managers, and gate and ramp personnel.

 

  14.

A weight management program that prevents the carriage of unnecessary galley supplies, spare parts and equipment, customer service items, etc.

 

  15.

A center of gravity management system that considers the most efficient center of gravity in load distribution.

 

  16.

An APU management program that prevents unnecessary or costly operation of the APU as well as a mechanism for reporting station-related APU use drivers (e.g. station personnel not hooking up aircraft to ground power) to United.

 

  17.

A single engine taxi-in and taxi-out program.

 

  18.

Fuel and operationally efficient takeoff and landing flap selection priorities.

 

Exhibit L-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  19.

An engine maintenance program or maintenance contracts that track deterioration in Specific Fuel Consumption (SFC) and allow for cost effective early removal and repair/overhaul of high burn engines.

 

  20.

An airframe maintenance program that measure airframe drag and corrects high drag airframes that exceed an agreed upon threshold. An airframe maintenance program shall also include scheduled thorough aerodynamic conformity checks and corrective action.

 

Exhibit L-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT M

Form of Assignment Agreement

This Agreement (this “Agreement”) is made and entered into, and is to be effective on, this the ____ day of ____________ (the “Effective Date”), by ____________, a ____________ corporation (“Assignor”) and ____________, a ____________ corporation (“Assignee”), [and the ____________ (“Airport Lessor”)].

W I T N E S S E T H:

WHEREAS, Assignor leases space], designated on Exhibit(s) _____ attached hereto and made a part hereof (together the “Premises”), at ____________ at the ____________ Airport, ____________ (the “Airport”) under a certain [Airport Use and Lease Agreement dated ____________, (as amended, hereinafter referred to as the “Lease”)] between Assignor and the Airport Lessor;

WHEREAS, a copy of the Lease has been provided to Assignee and is incorporated herein by reference;

WHEREAS, Assignee operates at the Airport and from portions of the Premises;

WHEREAS, Assignor desires to assign to Assignee [all] [a portion] of Assignor’s remaining right, title and interest in the Lease [insofar (and only insofar) as the Lease pertains to certain leased premises and improvements described on the attached Annex 1], such space herein called the “Assigned Space” and the improvements located within the Assigned Space are herein called the “Assigned Space Improvements”. The Assigned Space and Assigned Space Improvements are herein called the “Assigned Premises”;

WHEREAS, Assignee desires to accept such assignment from Assignor;

[WHEREAS, such assignment requires the prior written consent of the Airport Lessor];

[WHEREAS, pursuant to the Lease, such assignment does not require the consent of the Airport Lessor (but written notice of such assignment is required to be given to the Airport Lessor)].

NOW, THEREFORE, in consideration of the assignment herein made and of the mutual agreements and covenants hereinafter set forth, the parties hereto agree as follows:

 

  1.

DEMISE AND USE

Effective on the Effective Date, Assignor hereby assigns to Assignee all of the interest of the lessee under the Lease [insofar (and only insofar) as the Lease pertains to the Assigned Premises].

 

  2.

ACCEPTANCE OF ASSIGNMENT

 

Exhibit M-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Assignee accepts the foregoing assignment of the Lease [insofar (and only insofar) as the Lease pertains to the Assigned Premises] and covenants to Assignor, from and after the Effective Date, to pay all rent and other charges provided for in the Lease, as amended and to perform and observe all of the other covenants, conditions and provisions in the Lease, as amended, to be performed or observed by or on the part of Assignor as tenant under the Lease [in respect of the Assigned Premises].

 

  3.

WARRANTIES

Assignor hereby warrants and covenants that (i) except for the rights and interests of the Airport Lessor under the Lease, Assignor is now the sole owner of all rights and interests in and to the Assigned Premises, (ii) the Lease[, as it relates to the Assigned Premises,] is in full force and effect, (iii) Assignor has complied with all material terms and provisions of the Lease [as it relates to the Assigned Premises] and same is not currently in default and Assignor knows of no condition which with the passage of time or giving of notice might constitute a default under the Lease by any party, and (iv) the Assigned Premises and the Lease [, insofar as it relates to the Assigned Premises,] are free from all liens and encumbrances. A copy of the Lease (and all amendments thereto) are attached as Annex 2.

Subject to the foregoing, Assignee accepts the Assigned Premises and equipment thereon “AS IS” and acknowledges that there is, with respect to the Assigned Premises and equipment thereon, NO WARRANTY, REPRESENTATION, OR CONDITION OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTY OF HABITABILITY, MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, and that none shall be implied by law. Except as stated in this Agreement, Assignee acknowledges that Assignor has made no representations with respect to the Assigned Premises or equipment. Final determination of the suitability of the Assigned Premises or equipment for the use contemplated by Assignee is the sole responsibility of Assignee, and Assignor shall have no responsibility in connection with such suitability.

 

  4.

ASSIGNEE TO COMPLY WITH LEASE TERMS

Assignee agrees to perform and observe all of the covenants, conditions and terms of the Lease relating to the period of time from and after the Effective Date [(insofar, but only insofar, as the same related to the Assigned Premises)], and to protect, defend, indemnify and hold harmless Assignor from and against all claims, damages, and expenses of any kind asserted by any person or entity, including the Airport Lessor, arising out of the nonperformance, nonobservance or improper performance or observance of the covenants, conditions or terms of the Lease arising after the Effective Date [(insofar, but only insofar, as the same relates to the Assigned Premises)]. Assignor shall comply with all remaining terms of the Lease, to the extent any non-compliance could adversely affect Assignee’s rights in or to the Assigned Premises. Assignor agrees to protect, defend, indemnify and hold harmless Assignee from and against all claims, damages, and expenses of any kind asserted by any person or entity, including the Airport Lessor, arising out of the nonperformance, nonobservance or improper performance or observance prior to the Effective Date of the covenants, conditions or terms of the Lease [(insofar, but only insofar as the same relates to or effects the Assigned Premises)]. Nothing

 

Exhibit M-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


herein shall be construed as to obligate Assignee to be responsible in any way for any hazardous material located in, or the environmental condition of, the Assigned Premises as of the Effective Date to the extent not caused by or arising from Assignee’s operations.

 

  5.

APPROVALS

This Agreement shall not become effective unless and until the consent of the Airport Lessor is given by execution of consents for the assignments herein made, which consents shall be requested on the standard form for such consents by the lessor as attached hereto as Annex 3. Assignor and Assignee hereby mutually agree to expeditiously take any and all actions, and to cooperate fully with each other, with respect to obtaining any approvals, authorizations, licenses or similar items that may be necessary or desirable in order to carry out the agreements set forth herein or contemplated hereby. The parties hereto agree to request the consent of the Lessor on the consent form attached hereto as Annex 3. The parties agree to make such reasonable changes to such form as may be required by Airport Lessor.

Consent by Airport Lessor. Airport Lessor, as evidenced by its execution below, does hereby consent to this Assignment, releases Assignor from all of its responsibilities and obligations under the Lease that are attributable to the period of time after the Effective Date, and agrees to look solely to Assignee for performance of all obligations arising thereafter under the Lease [as it relates to the Assigned Premises.

[Acknowledgement. Assignor and Airport Lessor hereby represent to Assignee that the Lease is currently in full force and effect, and that they know of no events of default relating to the Lease or the Assigned Premises as of the date hereof.]

 

  6.

APPLICABLE LAW

[The laws of the State where the Assigned Premises are located shall be used in interpreting this Agreement and in determining the rights of the parties under it.]

 

  7.

SEVERABILITY

If any part of this Agreement is held to be invalid by final judgment of any court of competent jurisdiction, the part held invalid shall be modified to the extent necessary to make it valid or, if necessary, excised, and the remainder of the Agreement shall continue to remain effective.

 

  8.

ENTIRE AGREEMENT

This Agreement contains the entire agreement between the parties with respect to its subject matter and may not be changed in any way, except by a written instrument executed by the parties and, if necessary, approved by the Airport Lessor.

 

  9.

SUCCESSORS AND ASSIGNS

 

Exhibit M-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


The provisions of this Agreement shall be binding on the parties, their successors and assigns.

IN WITNESS WHEREOF, the parties have properly executed this Agreement effective the date first above written.

 

ATTEST:

    

[ASSIGNOR]

 

 

 

 

   BY:    

 

        

TITLE:

    

 

        

DATE:

    

 

ATTEST:

    

[ASSIGNEE]

  

 

   

 

  

BY:

    

 

        

TITLE:

    

 

        

DATE:

    

 

 

[Consent of Airport Lessor
By:    
  Name:
  Title:
Date:  

]

Exhibits to be Attached:

Annex 1 – Description of Assigned Space

Annex 2 – Copy of Lease

Annex 3 – Request for Consent

 

Exhibit M-4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


ANNEX 1

to the Form of Assignment

DESCRIPTION OF ASSIGNED SPACE

 

Exhibit M – Annex I - 1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


ANNEX 2

to the Form of Assignment

COPY OF LEASE

 

Exhibit M – Annex 2 - 1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


ANNEX 3

to the Form of Assignment

REQUEST FOR CONSENT TO ASSIGNMENT

____________, a ____________ corporation (“Assignor”) and ____________, a ____________ corporation (“Assignee”) hereby apply to the [____________] (the “Airport Lessor”) for its consent to an Assignment attached as Exhibit A and dated ____________ (the “Effective Date”), for premises described therein (the “Assigned Premises”) as required by the [____________ Use and Lease Agreement] (the “Agreement”) with ____________ for certain premises at ____________ Airport. As consideration for the granting of the aforesaid consent and without limitation of any right or remedy of the Airport Lessor as set out in the Agreement, Assignor and Assignee agree with the Airport Lessor as follows:

 

1.

Assignor represents to Assignee that to its knowledge as of the date hereof, the agreement dated ____________, by and between the Airport Lessor, as Lessor, and Assignor, as Lessee, is in full force and effect and there are no rental fees in arrears and no notices of termination or default are outstanding.

 

2.

The parties hereto recognize and agree that the cancellation, termination, or expiration of the Agreement shall serve to terminate Assignor’s and Assignee’s rights and obligations concerning the Assigned Premises.

 

3.

All notices to Assignee (as Lessee) with respect to the Assigned Premises pursuant to the Agreement shall hereinafter be sent to Assignee at the following address:

____________________

____________________

____________________

 

4.

In addition, it is expressly understood and agreed as follows:

 

  (a)

That by the granting of this consent to Assignment, the Airport Lessor is not consenting in advance to any future subleases or assignments of the Assigned Premises or any other facilities by [either Assignor or] Assignee.

 

  (b)

That no future amendment, modification or alteration to the Assignment shall be or become effective without prior notice to and approval by the Airport Lessor if required by the provisions of the Agreement.

 

  (c)

That Airport Lessor, as evidenced by it execution of this consent below, [releases Assignor from all of its responsibilities and obligations under the Agreement that are attributable to the period of time after the Effective Date, and] agrees to look solely to Assignee for performance of all obligations arising thereafter under the Lease, [as it relates to the Assigned Premises].

 

Exhibit M – Annex 3 - 1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  (d)

[That Assignor and Airport Lessor hereby represent to Assignee that the Lease is currently in full force and effect, and that they know of no events of default relating to the Lease or the Assigned Premises as of the date hereof.]

The parties accept the foregoing acknowledgments and agreements and the Airport Lessor hereby consents to the Assignment attached as Exhibit A. However, the terms of the Agreement and this Request for Consent shall prevail over any conflicting terms or provisions contained in Exhibit A hereto.

 

FOR THE AIRPORT LESSOR:

   

FOR [ASSIGNOR]:

APPROVED

   

APPROVED

       

Name:

    Name:

Title: Director, Department of Aviation

    Title:                       

Date:

 

                             

    Date:    

ATTEST/SEAL:

   

FOR [ASSIGNEE]

   

APPROVED

       

Name:

    Name:

Title: Corporate Secretary

    Title:    

Date:

        Date:    

 

Exhibit M – Annex 3 - 2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT N

Safety Standards for United and United Express Carriers

Contractor agrees and, as applicable, represents and warrants, to each of the following:

 

1.

Contractor is in compliance with, has obtained the applicable air carrier approvals with respect to, and shall remain in compliance throughout the Term of Agreement, with the U.S. Department of Defense (DoD) Quality and Safety Requirements (including without limitation 32 CFR Part 861 and any other applicable governmental quality or safety requirement), and will maintain approval and continue to materially comply with all applicable Federal Aviation Regulations (F.A.R.). In the event any change to such compliance or status occurs at any time during the Term of Agreement, Contractor shall notify United immediately of both (x) any such change and (y) the corrective actions taken by Contractor or a correction action plan.

 

2.

Any material non-compliance with any safety requirements or corrective action plans shall be grounds for partial or complete suspension by United, without further liability, of this Agreement or any of the terms or conditions of this Agreement; but, with reservation of all other rights and remedies available to United.

 

3.

Additional safety reviews and audits may be required at United’s discretion and Contractor shall cooperate with all such reviews and audits.

 

4.

Contractor shall perform all operations in accordance with United Airlines Policies and Procedures and Regional Ground Operations Manual (RGOM).

 

5.

In all facets of United Express Carrier operations, SAFETY shall be Contractor’s #1 priority. Contractor shall ensure all personnel maintain this same standard during the course of performing their duties.

 

6.

In addition, without limiting Contractor’s duty to comply with all applicable regulations, Contractor agrees to implement or maintain, as applicable, the following:

 

  a.

Mutual support of one another in implementing these standards by sharing safety data, information and expertise.

 

  b.

Maintenance and operations training programs that meet both FAA standards and standards generally of other United Express carriers.

 

  c.

A carrier internal evaluation program to monitor all operational divisions to include, at a minimum, key safety issues, dangerous goods handling, and training records and qualifications for all personnel.

 

  d.

Quality control programs to manage outsourcing of services.

 

Exhibit N-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


  e.

A formalized maintenance quality assurance program to monitor all maintenance and maintenance support activities including but not limited to maintenance practices, required inspection items and technical document control.

 

  f.

Implementation of a program to rectify FAA inspection findings.

 

  g.

Presence of a voluntary self-disclosure reporting program.

 

  h.

Formal process to routinely bring safety and compliance issues to the attention of carrier’s senior management.

 

  i.

Anonymous and non-punitive safety hazard reporting system.

 

  j.

A Senior Management policy statement supporting open safety reporting by employees.

 

  k.

Director of Safety, reporting to the highest levels of management, overseeing the carrier’s safety programs.

 

  l.

Process for managing corrective actions from FAA and internal audit program as well as employee disclosure.

 

  m.

Ongoing flight safety education/feedback program.

 

  n.

Ground safety program in airport operating areas.

 

  o.

Incident investigation process that includes accountability, recommendations and corrective actions taken.

 

  p.

Establishment and maintenance of emergency response procedures and manual.

 

  q.

Participation in UAL/industry safety information exchange forum.

 

  r.

Compliance with the safety standards set forth by the International Air Transport Authority (IATA) Operational Safety Audit (IOSA) and shall not be suspended from such IOSA registry.

 

  s.

Compliance with 14 CFR Part 5, Safety Management System, no later than [***].

 

Exhibit N-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT O

Ground Handler Indemnity

Unless superseded by another agreement between a United Ground Handler (as defined below) and Contractor, the following provisions shall apply with respect to the actions of United, or any of United’s affiliates, or subcontractors retained by United to provide Ground Handling Services, in each case only to the extent that such person is acting directly in the capacity as a ground handler (a “United Ground Handler”) for Contractor.

 

1.

Indemnification. United (the “Indemnitor”), on the one hand, shall indemnify, defend and hold harmless Contractor and its directors, officers and employees, on the other hand (the “Indemnitees”), from and against any and all losses or liabilities incurred by Indemnitee arising out of physical loss of or damage to the Covered Aircraft (hereinafter, a “Claim”) resulting from the negligence of the Indemnitor in providing Ground Handling Services to Indemnitees, except to the extent caused by the negligence or willful misconduct of any Indemnitee; provided that the Indemnitor’s liability pursuant to this Exhibit O with respect to any such Claim shall not exceed, in the aggregate, the lesser of (i) the amount of the deductible under Contractor’s applicable insurance (Hull “All Risks” policy or similar), or (ii) [***]; provided further, that the Indemnitor shall not indemnify Indemnitee for any individual Claim in an amount less than [***]. EXCEPT FOR CLAIMS FOR WHICH INDEMNITY IS OWED PURSUANT TO THE FOREGOING SENTENCE, CONTRACTOR AGREES TO WAIVE ALL CLAIMS FOR PROPERTY DAMAGE ARISING OUT OF THE PROVISION OF GROUND HANDLING SERVICES AGAINST UNITED OR ANY UNITED GROUND HANDLER (OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, OR SUBCONTRACTORS), WHETHER OR NOT ATTRIBUTABLE TO THE NEGLIGENCE OR FAULT OF ANY SUCH PARTY.

If the United Ground Handler is a party other than United, then the Indemnitee shall use commercially reasonable efforts (which shall not require the commencement of legal proceedings) to pursue recovery of the amounts recoverable under this indemnity from such Untied Ground Handler, prior to enforcement of this indemnity against United. United shall cooperate with Contractor and shall provide reasonable assistance to Contractor in pursuit of such claims, including without limitation through enforcement or assignment of any indemnification rights or other remedies available to United.

 

2.

Exclusion of Consequential Damages. THE INDEMNITOR SHALL NOT BE LIABLE TO ANY PERSON PURSUANT TO THIS EXHIBIT O FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF REVENUE OR LOST PROFITS, EVEN IF THE INDEMNITOR HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND EACH INDEMNITEE HEREBY RELEASES AND WAIVES ANY CLAIMS AGAINST THE INDEMNITOR REGARDING SUCH DAMAGES.

 

Exhibit O-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


3.

Prompt Notification. Any Indemnitee seeking indemnification hereunder shall give prompt and timely notification to the Indemnitor of any such claim, fine, penalty, action or proceeding, and allow the Indemnitor the right to compromise or participate in the defense of same.

 

Exhibit O-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT P

Reasonable Operating Constraints

The schedules for the Covered Aircraft shall meet all of the following requirements:

 

4.

Minimum & Maximum Scheduling Parameters:

 

     
      Minimum    Maximum
     

Scheduled Block Hours per Available
Covered Aircraft per day

 

   [***]*

 

   [***]*

 

*Note: The above minimum and maximum schedule parameters apply only to Covered Aircraft in revenue service and do not apply to Spare Aircraft. The above minimum and maximum schedule parameters are per day per Available Covered Aircraft calculated on the Final Monthly Schedule.

 

5.

Aircraft Maintenance Requirements.

At least [***] of the Available Covered Aircraft (rounded up to the nearest whole number excluding Spare Aircraft) shall be scheduled for a minimum of [***] hours of daytime or overnight maintenance per aircraft per day. In addition, Contractor and United agree that a reasonable number of Available Covered Aircraft shall be scheduled for [***] hours of continuous maintenance time per Available Covered Aircraft per [***]. The number of Available Covered Aircraft deemed scheduled for overnight maintenance on any day for purposes of the calculation pursuant to the first sentence of this paragraph shall include (i) each Available Covered Aircraft scheduled for [***] hours continuous maintenance on such day as set forth in the previous sentence and (ii) each Available Covered Aircraft scheduled for daytime maintenance as defined in Section 4.18 on such day.

 

6.

Maintenance Bases.

United shall initially provide a schedule of regional jet departures, including frequencies and overnight turnarounds, that operate on behalf of United from [***] to support required maintenance activity for the Covered Aircraft at Contractor’s primary maintenance bases at those locations.

 

7.

[***].

 

8.

Maintenance Aircraft.

Upon at least [***] days’ notice, Contractor shall inform United of Covered Aircraft that need to be removed from providing Scheduled Flights for purposes of accomplishing heavy maintenance, mutually agreed-upon overhauls and mutually agreed-upon modifications.

 

Exhibit P-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT Q

Form of Guarantee of Parent

GUARANTEE AGREEMENT

THIS GUARANTEE AGREEMENT (this “Guarantee”), effective as of February 26, 2017 (the “Effective Date”) by HARBOR DIVERSIFIED, INC., a Delaware corporation (“Harbor”), and AWAC AVIATION, INC., a Delaware corporation (“AWAC”, together with Harbor, the “Guarantors” and each a “Guarantor”), for the benefit of UNITED AIRLINES, INC., a Delaware corporation (“United”).

RECITALS

WHEREAS, United and Air Wisconsin Airlines LLC, a Delaware limited liability company (“Contractor”), have entered into that certain Capacity Purchase Agreement dated as of the date hereof (the “CPA”);

WHEREAS, pursuant to the CPA, Contractor is obligated, among other things, to provide Regional Airline Services to United and, in certain circumstances, to make certain reconciliation or indemnity payments to United;

WHEREAS, Contractor is a wholly-owned subsidiary of AWAC;

WHEREAS, AWAC is a wholly-owned subsidiary of Harbor; and

WHEREAS, United and Contractor are entering into the CPA as of the date hereof, and it is a condition precedent to the CPA that each Guarantor execute and deliver this Guarantee;

NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which the Guarantors acknowledge, Guarantors each covenant and agree for the benefit of United as follows:

ARTICLE I

DEFINITIONS

Section 1.01    Certain Definitions. As used in this Agreement, the following terms have the following meanings:

AWAC” has the meaning given to that term in the preamble.

Beneficiaries” has the meaning given to that term in Section 3.07.

Contractor” has the meaning given to that term in the Recitals.

CPA” has the meaning given to that term in the Recitals.

Default Interest” has the meaning given to that term in Section 3.06.

 

Exhibit Q-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Documents” has the meaning given to that term in Section 2.02(b).

Effective Date” has the meaning given to that term in the preamble.

Guarantee” has the meaning given to that term in the preamble.

Guarantor” has the meaning given to that term in the preamble.

Harbor” has the meaning given to that term in the preamble.

United” has the meaning given to that term in the preamble.

Section 1.02    Other Definitions. Other terms defined in this Guarantee have the meanings so given them. Capitalized terms used but not defined herein that are defined in the CPA shall the same meaning herein as in the CPA.

Section 1.03    Terminology. Unless the context of this Guarantee clearly requires otherwise, (a) pronouns, wherever used herein, and of whatever gender, shall include natural persons and corporations, partnerships, limited liability companies and entities of every kind and character, (b) the singular shall include the plural wherever and as often as may be appropriate, (c) the word “includes” or “including” shall mean “including without limitation”, and (d) the words “hereof”, “herein”, “hereunder”, and similar terms in this Guarantee shall refer to this Guarantee as a whole and not any particular section or article in which such words appear. The section, article, and other headings in this Guarantee are for reference purposes and shall not control or affect the construction of this Guarantee or the interpretation hereof in any respect. Article, section, subsection, and exhibit references are to this Guarantee unless otherwise specified. All references to a specific time of day in this Guarantee shall be based upon Central Standard Time or Central Daylight Time, whichever is applicable.

ARTICLE II

GUARANTEE

Section 2.01    Guarantee of Obligations. Each Guarantor unconditionally, absolutely and irrevocably guarantees unto the Beneficiaries the timely payment by Contractor of all of its monetary obligations under the CPA, including the obligation to make all indemnification payments and reconciliation payments that Contractor is required to make pursuant to the CPA. Each Guarantor shall be jointly and severally liable for the obligations of Guarantors under this Guarantee. Notwithstanding any provision of this Guarantee to the contrary, the total liability of the Guarantors arising under or pursuant to this Guarantee will not exceed [***] (the “Guaranty Cap”); provided that if Guarantors make any cash contributions to the capital of Contractor after the Effective Date the Guaranty Cap shall be reduced by the aggregate amount of such contributions; provided, further, that the foregoing limitation will not apply to any cost of enforcement of this Guarantee incurred by United as a result of Guarantors’ willful breach of this Guarantee.

Section 2.02    Guarantee Absolute. This Guarantee, subject to the Guaranty Cap, is absolute, continuing and independent of, and in addition to, any and all rights and remedies

 

Exhibit Q-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


United may have under the CPA and any other guaranties or documents now or hereafter given in connection therewith by either Guarantor or others. Except as otherwise expressly herein provided, the enforceability of Guarantors’ obligations hereunder in accordance with the terms hereof shall not in any way be discharged, impaired or otherwise affected by:

(a) Any change in the time, manner or place of payment of amounts due under the CPA, or any other change or modification in or of any terms, provisions, covenants or conditions of any or all of them;

(b) The entering into, or the modification or amendment in or of, any lease, sublease or other agreement relating to the use of any terminal or non-terminal airport facility or other document or agreement entered into by Contractor relating to the provision of Regional Airline Service under the CPA (together with the CPA, the “Documents”);

(c) Any lack of validity or enforceability of any of the Documents;

(d) Any release or amendment or waiver of or consent to the modification of any other guarantee of payment or performance of all or any obligations under the CPA, or any sale or transfer by Contractor of any of its interest in the CPA (without implying that Contractor has consented or will consent to any such sale or transfer);

(e) Any sale or transfer by either Guarantor of any of its interest in Contractor (without implying that either Guarantor has consented or will consent to any such sale or transfer);

(f) Any release or waiver of or delay in the enforcement of rights against Contractor, either Guarantor or any other person or entity under any of the Documents or against any security thereunder;

(g) The exercise by United of any of its rights or remedies under any one or more of the Documents; or

(h) Any other circumstance which might otherwise constitute a defense available to, or discharge of, Guarantors.

Section 2.03    Guarantee of Payment . This Guarantee is a guarantee of payment and not merely a guarantee of collection, and Guarantors’ liabilities and obligations under this Guarantee are and shall at all times continue to be absolute, irrevocable and unconditional in all respects in accordance with the terms of this Guarantee, and shall at all times be valid and enforceable without set off, deduction or counterclaim irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Guarantee or the obligations of Guarantors under this Guarantee.

Section 2.04    [Intentionally Omitted]

Section 2.05    Representations. Each Guarantor represents, warrants and covenants as of the Effective Date that:

 

Exhibit Q-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


(a) Such Guarantor is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to enter into and perform its obligations under this Guarantee, and is duly qualified to do business as a foreign corporation under the laws of each jurisdiction that requires such qualification where failure to so qualify would reasonably be expected to have a material adverse effect on such Guarantor’s ability to perform its obligations under this Guarantee;

(b) This Guarantee has been duly executed and delivered by such Guarantor and constitutes the legal, valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with the terms hereof except as may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally and legal principles of general applicability governing the availability of equitable remedies (whether considered in a proceeding in equity or at law or otherwise under applicable law);

(c) Except as would not reasonably be expected to have a material adverse effect upon the Guarantors’ ability to perform their obligations under this Guarantee, neither the execution or delivery of this Agreement nor the performance by such Guarantor of the transactions contemplated hereby will (i) violate, conflict with, or constitute a default under any of the terms of Guarantor’s certificate of incorporation, by-laws, or any provision of, or result in the acceleration of any obligation under, any material contract, sales commitment, license, purchase order, security agreement, mortgage, note, deed, lien, lease or other agreement to which such Guarantor is a party or by which it or any of its properties or assets may be bound, (ii) result in the creation or imposition of any lien, charge or encumbrance in favor of any third person or entity, (iii) violate any law, statute, judgment, decree, order, rule or regulation of any governmental authority or body, or (iv) constitute any event which, after notice or lapse of time or both, would result in such violation, conflict, default, acceleration or creation or imposition of liens, charges or encumbrances;

(d) No consent of any other person and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery or performance by such Guarantor, the enforceability against such Guarantor, or the validity, of this Guarantee against such Guarantor;

(e) Such Guarantor has, independently and with advice of counsel of its choice and without reliance upon United, and based upon such documents and information as it has deemed appropriate, made its own analysis and decision to enter into this Guarantee; and

(f) No litigation, arbitration, investigation or administrative proceeding of or before any court, arbitrator or governmental authority, bureau or agency is currently pending or, to the knowledge of such Guarantor, threatened: (i) with respect to this Guarantee or any of the transactions contemplated by this Guarantee; (ii) with respect to the CPA or any of the transactions contemplated thereby; or (iii) against or affecting Guarantor, or any of its property or assets, that would reasonably be expected to have a material adverse effect on the ability of such Guarantor to perform its obligations hereunder.

 

Exhibit Q-4

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 2.06    Reinstatement. Subject to the Guaranty Cap, this Guarantee shall continue to be effective, or be reinstated (as the case may be) if at any time payment by Contractor of all or any part of any sum payable pursuant to the CPA is rescinded or otherwise must be returned by United upon Contractor’s insolvency, bankruptcy or reorganization, all as though such payment had not been made. Until all of the obligations guaranteed hereunder shall have been paid or performed in full or Guarantors have paid amounts pursuant to this Guarantee equal in the aggregate to the Guaranty Cap, Guarantors shall have no right of subrogation or any other right to enforce any remedy which any of the Beneficiaries now has or may hereafter have against Contractor.

Section 2.07    Self-Help Rights. If either Guarantor fails or refuses to perform any or all monetary obligations that are guaranteed hereunder and such failure or refusal continues for twenty (20) days following written notice thereof to Guarantors, then, in addition to any other rights and remedies which any Beneficiary may have hereunder or elsewhere, and not in limitation thereof, any Beneficiary shall have the right (but without any obligation so to do) to take action (including the payment of amounts due to any third party) to satisfy such obligation either before or after the exercise of any right or remedy of United against Contractor or Guarantors. The amounts of any and all reasonable expenditures so made by United in satisfaction of such obligation (INCLUDING ANY SUCH EXPENDITURE ARISING FROM OR IN CONNECTION WITH UNITEDS NEGLIGENCE IN TAKING SUCH ACTION, BUT EXCEPTING ANY SUCH EXPENDITURES TO THE EXTENT PROVEN TO HAVE BEEN CAUSED BY OR ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF UNITED) shall be immediately due and payable to United by Guarantor. Any such payments shall be subject to the Guaranty Cap and shall reduce the Guaranty Cap dollar for dollar.

Section 2.08    Limitation on Distributions. Neither AWAC nor Harbor shall cause or allow the payment of dividends or other distribution of earnings by Contractor to its shareholders that, as of the date of such payment or distribution, would result in Contractor’s available cash balance to be less than the Cash Threshold Amount. Such limitation will not restrict (i) debt payments by Contractor to Harbor or AWAC, or (ii) payments from time to time to the Guarantors for the purpose of paying obligations in respect of Federal, state and local taxes of the consolidated, unitary or other affiliated group of which Contractor is a member, or any member thereof, in each case to the extent attributable to Contractor’s operations, assets or related activities.

ARTICLE III

MISCELLANEOUS

Section 3.01    Exhausting Recourse. United shall not be obligated to pursue or exhaust its recourse against Contractor or any other Person or guarantor, or any security it may have for satisfaction of the obligations guarantied hereunder, before being entitled to performance by Guarantors of each and every one of the obligations hereunder. No delay on the part of Beneficiaries in exercising any right or remedy under this Guarantee or failure to exercise the same shall operate as a waiver in whole or in part of any such right or remedy. No notice to or demand on Contractor or failure to give any such notice to or make any such demand on

 

Exhibit Q-5

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Contractor shall be deemed to be a waiver of the obligations of Guarantors hereunder or of the right of Beneficiaries to take further action without notice or demand as provided in this Guarantee. No course of dealing between Guarantors and Beneficiaries shall change, modify or discharge, in whole or in part, this Guarantee or any of the obligations of Guarantors hereunder.

Section 3.02    Guarantee Remains Effective. This Guarantee shall remain in full force and effect, notwithstanding any invalidity, irregularity, or unenforceability of the CPA. No release or discharge of Contractor in any receivership, bankruptcy, winding-up or other creditor proceedings shall affect, diminish or otherwise impair or otherwise be a defense to the enforcement of this Guarantee by the Beneficiaries. The liability of Guarantors shall not be affected by United causing work necessary for the provision of Regional Airline Service to be done under the CPA, nor by United’s pursuing any other remedies provided for in the Documents.

Section 3.03    No Conditions. This Guarantee has been delivered free of any conditions and, except as otherwise expressly set forth herein, no representations have been made to Guarantor affecting or limiting the liability of Guarantor hereunder except as expressly provided herein.

Section 3.04    No Bar or Defense; Waiver of Defenses. No action or proceeding brought or instituted under this Guarantee and no recovery in pursuance thereof shall be a bar or defense to any further action or proceeding which may be brought under this Guarantee by reason of any further default or defaults hereunder or in the performance and observance of the terms, covenants, conditions, and provisions in the Documents. Guarantors hereby waive all suretyship defenses and defenses in the nature thereof. Guarantors hereby further waive presentment, protest, notice, demand, or action or delinquency in respect to any obligation hereby guarantied except as expressly provided herein. Guarantors waive acceptance of this Guarantee. Without limiting the generality of the foregoing, Guarantors specifically waive any requirements imposed by or to which Guarantors may otherwise be entitled by virtue of any State suretyship laws.

Section 3.05    Liability Independent. The liability of Guarantor hereunder is independent of any other bonds or guaranties or other obligations at any time in effect with respect to the Documents and may be enforced regardless of the existence, validity, enforcement or non-enforcement of any such other guaranties or other obligations.

Section 3.06    Expenses. Any and all amounts due and owing by Guarantors to United hereunder that are not paid in full to United within ten (10) days following the date on which Guarantors receive written demand therefor shall bear interest from the date such amounts were due hereunder until paid in full at the highest contract rate of interest permitted by applicable law (the “Default Interest”).

Section 3.07    Binding Effect. Neither this Guarantee nor any provisions hereof may be amended, modified, waived, discharged, or terminated orally, except by an instrument in writing duly signed by or on behalf of the party against whom enforcement of such amendment, modification, waiver, discharge or termination is sought. This Guarantee shall inure to the

 

Exhibit Q-6

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


benefit of United and its successors and assigns (collectively, the “Beneficiaries”), and shall be binding upon Guarantors and their respective successors and assigns; provided, however, that Guarantors shall in no event have the right to assign or transfer Guarantors’ obligations and liabilities under this Guarantee in whole or part and any such attempted assignment or transfer without the prior written consent of United shall be null and void and of no force or effect. This Guarantee is intended to be for the benefit of, and shall be enforceable by, only the Beneficiaries and not by any third parties (including creditors of the Beneficiaries).

Section 3.08    Entire Agreement. This Guarantee, together with the CPA, to the extent references are made thereto in this Guarantee, contain the undersigned’s sole and entire understanding and agreement with respect to its entire subject matter, and all prior negotiations, discussions, commitments, representations, agreements and understandings heretofore had between United and Guarantors with respect thereto are merged herein.

Section 3.09    Governing Law . This instrument shall be governed by and construed in accordance with the laws of the State of Illinois.

Section 3.10    Reliance. Guarantors acknowledge that United will rely upon this Guarantee in entering into the CPA of even date herewith.

Section 3.11    Notices. Unless otherwise expressly permitted by the terms of this Guarantee, all notices, consents, approvals and other communications required or permitted hereunder shall be in writing and shall be deemed to have been properly given if delivered by hand personally to the addressee or sent overnight by a nationally recognized air courier, and

If directed to either Guarantor, addressed to:

Harbor Diversified, Inc. or AWAC Aviation, Inc., as the case may be

W6390 Challenger Drive, Suite 203

Appleton, WI 54914

Attention: [***]

Telephone: [***]

Facsimile: [***]

E-mail: [***]

with a copy to:

DLA Piper

4365 Executive Drive, Suite 1100

San Diego, CA 92121

Attention: [***]

E-mail: [***]

 

Exhibit Q-7

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


If directed to United, addressed to:

United Airlines, Inc.

233 South Wacker Drive

Chicago, IL 60606

Attention: Senior Vice President –United Express

Facsimile No.: (872) 825-0467

with a copy to:

United Airlines, Inc.

233 South Wacker Drive

Chicago, IL 60606

Attention:    Vice President, Deputy General Counsel and Corporate Secretary

or to such other address as last designated by a party by notice in writing to the other party hereto.

Section 3.12    Waiver of Jury Trial. Each Guarantor and, by its acceptance of this Guarantee, United each hereby knowingly, voluntarily and intentionally waive the right to a trial by jury in respect of any litigation based hereon, arising out of, under or in connection with this Guarantee. This waiver is a material inducement for Guarantors to deliver and United to accept this Guarantee.

Section 3.13    Drafting of Guarantee. Each Guarantor represents and warrants that (i) it was represented by counsel of its choice, who has reviewed this Guarantee and advised it of the contents and meaning; (ii) it is signing this Guarantee voluntarily and with full understanding of its contents and meaning; and (iii) it waives any claim or defense that this Guarantee should be construed more strictly against the other party as the drafter thereof.

Section 3.14    Severability. If any provision of this Guarantee or its application to any Person or circumstance is held invalid or unenforceable to any extent, the remainder of this Guarantee and the application of that provision to other Persons or circumstances is not affected and that provision shall be enforced to the greatest extent permitted by law.

Section 3.15 Successor Guarantee. Without derogating from any other terms of the CPA, Guarantor hereby agrees that it shall not voluntarily participate in any transaction or series of transactions if, after giving effect to such transaction or series of transactions, Contractor will become the subsidiary of another person or entity, unless at the time such transactions are consummated the entity with respect to which Contractor is or will be a subsidiary executes and delivers to United a guarantee of the obligations of Contractor under the CPA and all related agreements substantially in the form of this Guarantee.

 

Exhibit Q-8

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


Section 3.16. Multiple Counterparts. This Guarantee may be executed in any number of counterparts and with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.

[Signature page follows]

 

Exhibit Q-9

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXECUTED as of the Effective Date.

 

   

HARBOR DIVERSIFIED, INC.:

    By:    
     

Name:

     

Title:

   

AWAC AVIATION, INC.:

    By:    
     

Name:

     

Title:

 

Exhibit Q-10

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT R

IT Security and Data Protection

1.        Definitions. As used in this Exhibit R, the following definitions shall have the meaning as set forth below. All other capitalized terms that are not defined below or elsewhere in this Exhibit R shall have the meaning ascribed to such terms in the Agreement:

Subcontractor” means, for purposes of this Exhibit R, all subcontractors or outsourced or downstream contractors, of whatever tier, of Contractor, that store Protected Information or host applications that process Protected Information.

2.        Information Security. Contractor agrees to the following:

2.1      General. Notwithstanding any other obligation of Contractor under the Agreement, Contractor agrees that it is responsible for the safe-keeping of all Protected Information.

2.2      Minimum Standard for Data at Rest and Data in Motion. Where Contractor is provided with United Protected Information, Contractor agrees to apply commercially reasonable physical, technological and administrative safeguards that comply with all laws applicable to Contractor. Notwithstanding this requirement, Contractor acknowledges that it shall fully comply with each additional obligation contained in this Exhibit R.

2.3      RESERVED.

2.4      Requirement to Maintain Security Program. Contractor acknowledges that United has implemented an information security program to protect United’s Data and Information Assets. Contractor shall be responsible for establishing and maintaining an information security program that is designed to: (i) ensure the security and confidentiality of Protected Information; (ii) protect against any anticipated threats or hazards to the security or integrity of Protected Information; (iii) protect against unauthorized access to or use of Protected Information; (iv) ensure the proper disposal of Protected Information; and, (v) ensure that all Subcontractors of Contractor that perform obligations with respect to Protected Information, if any, are subject to materially equivalent obligations as applied to Contractor in this Section 2.4.

2.5      RESERVED.

2.6      Right of Audit by United. In addition to audit rights in the Agreement, in lieu of an on-site audit, upon request by United, no more than once annually or upon a Security Breach, Contractor agrees to complete, within forty-five (45) days of receipt, an audit questionnaire provided by United or United’s designee regarding Contractor’s information security program. The scope of the audit questionnaire shall be limited to Contractor’s compliance with its data security obligations under this Agreement.

 

Exhibit R-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


2.7      Demonstrate PCI Compliance. No less than annually, Contractor agrees to participate in United’s PCI DSS audit to assist with demonstrating compliance with relevant requirements within the PCI DSS (Payment Card Industry Data Security Standard). Upon United’s request, Contractor shall be prepared to demonstrate compliance of any of its services or processes used to process or transmit cardholder data. No less than annually, Contractor agrees to train its Flight Attendants, obtain written attestation from each Flight Attendant acknowledging that they have read and will comply with the training, and provide United with written certification that such training has been delivered, and upon United’s request will provide sufficient evidence of each Flight Attendant’s written attestation.

2.8      RESERVED

2.9      Limitation of Access. Contractor will not knowingly permit any Contractor personnel to have access to any United facility or any records or data of United if the person has been convicted of a crime within the last five (5) years in connection with (i) a dishonest act, breach of trust, or money laundering, or (ii) a felony. Contractor agrees, to the extent permitted by law, to conduct public records search for at least the last five (5) years in order to verify the above.

2.10    Data Re-Use. The parties agree that Protected Information will be only be used (1) the purposes enumerated in the Agreement or as otherwise necessary for Contractors performance under the Agreement; and (2) for the administration of Contractor’s business, including assessing, improving and developing Contractor’s business practices and systems. Contractor agrees that it will only disclose the Protected Information as follows: (1) to Subcontractors within the scope of services such Subcontractors are performing for Contractor; (2) as permitted under this Agreement; (3) with the consent of United; or (4) where required by law or legal process.

2.11    Safekeeping and Security. Contractor agrees to be responsible for safekeeping all keys, access codes, passwords, combinations, access cards, personal identification numbers and similar security codes and identifiers issued to Contractor’s employees, agents or Contractors. Contractor agrees to require its employees, agents, or Contractors to promptly report a lost or stolen access device or information to their primary business contact and to United IT Security & Risk Management team

2.12    Mandatory Disclosure of Protected Information. If Contractor is compelled by law or regulation to disclose any Protected Information, Contractor will, to the extent permitted by applicable law, provide to United prompt written notice so that United may seek an appropriate protective order or other remedy. If a remedy acceptable to United is not obtained by the date that the Contractor must comply with the request, Contractor will furnish only that portion of the Protected Information that it is legally required to furnish.

2.13    Data Sanitization and Safe Disposal. When disposing of Protected Information, Contractor agrees to erase, destroy, and render unreadable such Protected Information in

 

Exhibit R-2

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


its entirety in a manner that prevents its physical reconstruction through the use of commonly available file restoration utilities within thirty (30) days. Once complete, Contractor will provide United with written certification that all Protected Information has been deleted or destroyed as described above.

2.14    End of Agreement Data Handling. Contractor agrees that upon termination of this Agreement it shall dispose of Protected Information in its entirety in accordance with the prior stated Data Sanitization and Safe Disposal provisions, except that Contractor is permitted to retain a copy of such Protected Information (but not including any Personal Information) as part of its routine backup procedures and/or necessary under applicable law or Contractor’s data retention policies. Nothing herein shall impose any obligation on Contractor with respect to any data that is or has been publicly available, except for Personal Information.

2.15    Subcontractors. Contractor agrees to ensure that its Subcontractors to whom it provides Protected Information or that otherwise has access to Protected Information has agreed in writing to materially the same restrictions and conditions that apply through this Exhibit R to Contractor. Contractor will be responsible and liable for its Subcontractors, and shall notify United if any Subcontractor breaches such agreement in any material respect. Contractor shall provide a list of Subcontractors to United upon United’s request.

2.16    Incorporation. The terms of this Exhibit R are hereby incorporated by reference into the Agreement; provided, however, that to the extent there is a conflict between the terms of this Exhibit R and the remaining terms of the Agreement, the terms of this Exhibit R shall control.

 

Exhibit R-3

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]


EXHIBIT S

Pilot Career Path Program

[***]

 

Exhibit S-1

 

[***]=[CONFIDENTIAL PORTION HAS BEEN OMITTED BECAUSE IT (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED]

LOGO   EXHIBIT 10.4.2

Willis Tower

233 South Wacker Drive

Chicago, Illinois 60606

united.com

March 31, 2020

Air Wisconsin Airlines LLC

W6390 Challenger Drive, Suite 203

Appleton, WI 54914

Attention: Robert Binz, President and Chief Executive Officer

with a copy to:

DLA Piper

4365 Executive Drive, Suite 1100

San Diego, CA 92121

Attention: Michael J. Brown

 

  Re:

Waiver of United’s Article 5 Rights

Dear Rob:

Reference is made to that certain Capacity Purchase Agreement, dated as of February 26, 2017 (the “CPA”), by and between Air Wisconsin Airlines LLC (“Contractor”) and United Airlines, Inc. (“United”).

In accordance with Section 10.05 of the CPA, United hereby waives compliance by Contractor with the terms and conditions of Article V of the CPA from and after the date of this letter.

This letter shall not constitute a waiver of any other term or condition of the CPA, and, except as expressly set forth in this letter, all of the terms and conditions of the CPA shall continue to be, and remain, in full force and effect in accordance with their respective terms.    

 

With best regards,
UNITED AIRLINES, INC.
/s/ Sarah Murphy
SVP United Express

Exhibit 10.5

Execution Version

 

 

 

PURCHASE AGREEMENT

dated as of January 17, 2020

among

THE SOUTHSHORE ENTITIES NAMED HEREIN

(“Sellers”)

HARBOR DIVERSIFIED, INC.

(“Buyer”)

AIR WISCONSIN AIRLINES LLC

(“Lessee”)

and

SOUTHSHORE AIRCRAFT HOLDINGS, LLC

(as “Seller Representative”)

 

 

in respect of three Bombardier Regional Jets

model CL600-2B19 aircraft, each having

two General Electric model CF34-3B1 engines, plus

five additional General Electric model CF34-3B1 engines

 

 

 


TABLE OF CONTENTS

 

         Page  

Section 1.

  Definitions      1  

Section 2.

  Sales and Purchases and Lease Assignments      3  

2.1

  Agreement to Assign Leases and Sell and Purchase      3  

2.2

  Terms of Lease Assignments      4  

2.3

  Closing and Transfers      4  

2.4

  Indemnity      4  

Section 3.

  Purchase Price      5  

Section 4.

  Inspection      5  

Section 5.

  Conditions Precedent      5  

5.1

  Conditions Precedent to the Purchases      5  

5.2

  Conditions Precedent to the Sales      7  

Section 6.

  Representations and Warranties; Disclaimer      8  

6.1

  Representations and Warranties of the Sellers      8  

6.2

  Representations and Warranties of the Buyer      10  

6.3

  Representations and Warranties of the Lessee      12  

Section 7.

  Taxes      13  

Section 8.

  Further Assurances      13  

Section 9.

  Notices      13  

Section 10.

  Miscellaneous      13  

10.1

  Time is of the Essence      13  

10.2

  Confidentiality      14  

10.3

  Binding Effect      14  

10.4

  Transaction Costs and Expenses      14  

10.5

  Entire Agreement      14  

10.6

  Amendments      14  

10.7

  Assignment      15  

10.8

  Headings and References      15  

10.9

  Counterparts      15  

10.10

  Non-Waiver      15  

10.11

  Brokers      15  

10.12

  Seller Representative      15  

 

i


TABLE OF CONTENTS

(continued)

 

         Page  
            10.13   Governing Law      16  

Exhibits

 

Exhibit 1

  

Description of Leases

Exhibit 2

  

Bill of Sale

Exhibit 3

  

Form of Lease Assignment

Exhibit 4

  

Delivery Receipt

Exhibit 5

  

Form of Certificate of Designation

 

ii


This Purchase Agreement (this “Agreement”), dated as of January 17, 2020, is entered into by (a) Southshore Aircraft I, LLC (“SS1”), Southshore Aircraft II, LLC (“SS2”), Southshore Aircraft III, LLC (“SS3”), Southshore Aircraft IV, LLC (“SS4”), Southshore Aircraft V, LLC (“SS5”), and Southshore Aircraft Holdings, LLC (“SSH”) (each a “Seller”), each a Delaware limited liability company, (b) Harbor Diversified, Inc. (the “Buyer”), a Delaware corporation, (c) Air Wisconsin Airlines LLC (the “Lessee”), a Delaware limited liability company, and (d) SSH, in its capacity as Seller Representative (as hereinafter defined).

Recitals:

The Sellers own the following assets, some of which are leased to the Lessee. The Sellers want to sell those assets (subject to the leases) and assign the leases to the Buyer, who wants to buy such assets and assume such leases, and the Lessee desires to consent to the assignment and assumption of such leases.

 

    Seller        Airframe    Engine(s)
SS1      N405AW [msn 7362]        GE-E-872636 and GE-E-873158
SS2         GE-E-873157 and GE-E-872731
SS3         GE-E-872791 and GE-E-872792
SS4    N409AW [msn 7447]    GE-E-872843 and GE-E-872844
SS5    N410AW [msn 7490]    GE-E-872947 and GE-E-872948
SSH         GE-E-801217

Agreements:

The Sellers, Seller Representative, the Buyer, and the Lessee agree as follows:

Section 1.    Definitions. The following terms shall have the following meanings:

“Aircraft”: a Bombardier Regional Jet model CL600-2B19 aircraft bearing the manufacturer’s serial number and U.S. registration number shown in the table in the Recitals, including the two Engines related to such Aircraft as shown in that table.

 


[Purchase Agreement]

 

“Airframe”: an Aircraft minus the Engines related to that Aircraft.

“Bill of Sale”: a bill of sale for an Aircraft or Engine, substantially in the form of Exhibit 2 hereto.

“Cape Town Treaty”: as defined in 49 U.S. Code subtitle VII.

“Certificate of Designation”: a Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock of the Buyer, substantially in the form of Exhibit 5 hereto.

Closing: the closing of the transactions contemplated by § 2.1(a) to occur on the date hereof.

“Closing Date”: the date hereof.

“Closing Time”: 11:10 a.m. Eastern Time on the Closing Date.

“Delivery Location” for an Aircraft or Engine: the place selected by the Buyer and reasonably acceptable to the Seller for the Transfer of that Aircraft or Engine. In order for such location to be “reasonably acceptable”, such Seller must have received from the Buyer, before the Transfer Time for such Aircraft or Engine, a sales tax exemption certificate with respect to that location, or such Seller shall be otherwise reasonably satisfied, that no Transfer Taxes shall be payable by such Seller in connection with the Transfer of such Aircraft or Engine, and such Seller shall have received confirmation of the location at the Delivery Location of such Aircraft or Engine at the Transfer Time therefor.

“Delivery Receipt” for an Aircraft or Engine: the delivery receipt for that Aircraft or Engine, substantially in the form of Exhibit 4 hereto.

“Engine”: a General Electric model CF34-3B1 engine bearing the manufacturer’s serial number shown in the Recitals table.

“FAA Bill of Sale” for an Aircraft: the FAA AC Form 8050-2 Aircraft Bill of Sale for that Aircraft, dated the Transfer Date therefor, from the pertinent Seller to the Buyer.

“International Registry”: the International Registry located in Dublin, Ireland, established pursuant to the Cape Town Treaty.

“Investors’ Rights Agreement”: the Investors’ Rights Agreement between the Buyer and SSH as of the date hereof.

“Lease” for an Aircraft or Engine: the lease agreement for that Aircraft or Engine identified in Exhibit 1 hereto.

 

2


[Purchase Agreement]

 

“Lease Assignment” for an Aircraft or Engine: the Assignment and Assumption Agreement for that Aircraft or Engine, between the pertinent Seller and the Buyer, substantially in the form of Exhibit 3 hereto.

Preferred Stock”: Series C Convertible Redeemable Preferred Stock, $0.01 par value, of the Buyer, having the terms and conditions specified in the Certificate of Designation.

“Purchase Price”: for all Aircraft and Engines, an aggregate number of 4,000,000 shares of Preferred Stock, which the Sellers and the Buyer agree has an aggregate value as of the date of this Agreement equal to $13,200,000.

“Sale Documents”: this Agreement, the Bills of Sale, the FAA Bills of Sale, the Lease Assignments, the Delivery Receipts, and the Investors’ Rights Agreement.

Seller Representative”: defined in § 10.12.1.

“Transfer”: defined in § 2.3.

“Transfer Date” for an Aircraft or Engine: the date on which the Transfer for that Aircraft or Engine occurs, as set forth in the Delivery Receipt for that Aircraft or Engine.

“Transfer Taxes”: defined in § 7.

“Transfer Time” for an Aircraft or Engine: the time when the Transfer for that Aircraft or Engine occurs, as set forth in the Delivery Receipt for that Aircraft or Engine.

Section 2.     Sales and Purchases and Lease Assignments.

2.1     Agreement to Assign Leases and Sell and Purchase.

(a)            On the Closing Date, each Seller shall become obligated to sell to the Buyer all of such Seller’s right, title, and interest in and to its Aircraft or Engine(s) by means of a Transfer occurring after the Closing, as soon as practicable thereafter at a time when such Aircraft or Engine is in a suitable location for Transfer Tax purposes under § 7. Each Seller will be obligated at the time of such Transfer to assign to the Buyer all of such Seller’s right, title, and interest in and to any related Lease from and after the Transfer Time therefor. On the Closing Date, the Buyer shall become obligated to buy all of each Seller’s right, title and interest in and to its Aircraft and Engine(s) and accept delivery of such Aircraft or Engine(s) from such Seller, and shall become obligated to accept all of such Seller’s rights and to assume all of such Seller’s obligations under any related Lease pursuant to § 2.2 below.

(b)            On the Transfer Date for each Aircraft or Engine, the pertinent Seller shall sell to the Buyer all of such Seller’s right, title, and interest in and to its Aircraft or

 

3


[Purchase Agreement]

 

Engine(s), and that Seller will assign to the Buyer all of such Seller’s right, title, and interest in and to any related Lease from and after the Transfer Time therefor. On the Transfer Date for each Aircraft or Engine, the Buyer shall buy all of the pertinent Seller’s right, title and interest in and to its Aircraft and Engine(s) and accept delivery of such Aircraft or Engine(s) from such Seller, and shall accept all of such Seller’s rights and shall assume all of such Seller’s obligations under any related Lease pursuant to § 2.2 below. In addition, upon and subject to the Transfer to it of an Engine, (i) the Buyer hereby assumes all obligations of the applicable Seller to reimburse the Lessee for $1,255,222.00, incurred by the Lessee prior to the Transfer Date associated with scheduled shop visits for such Engine facilitated by the Lessee for the benefit of the applicable Seller, which costs are not otherwise the obligation of the Lessee under the applicable Lease, and (ii) the Lessee hereby releases the applicable Seller from any obligation or liability to reimburse it for such costs and agrees to look solely to the Buyer for such reimbursement.

(c)            The Lessee hereby consents to all the foregoing, all in accordance with the terms of this Agreement.

2.2    Terms of Lease Assignments. On the Transfer Date for each Aircraft or Engine, the pertinent Seller and Buyer will execute the applicable Lease Assignment therefor, if any, and pursuant to such Lease Assignment, effective at the Transfer Time for such Aircraft or Engine, (a) the pertinent Seller will assign to the Buyer all of such Seller’s right, title, and interest in, to, and under the Lease for that Aircraft or Engine, except such rights as have arisen or accrued before such Transfer Time (including such Seller’s right to receive any amounts due or accrued to such Seller under the relevant Lease before such Transfer Time and the right to receive any indemnity payment pursuant to such Lease with respect to events occurring before such Transfer Time), but for the avoidance of doubt, any rights arising or accrued before such Transfer Time in connection with a Casualty Occurrence shall transfer to the Buyer, in each case subject to the Lessee’s rights thereunder, (b) the Buyer will accept the assignment set forth in clause (a) and will assume all the duties and obligations of the “Lessor” under the relevant Lease, and (c) the Lessee will execute the applicable Lease Assignment therefor and thereby consent to the foregoing assignment and assumption.

2.3    Closing and Transfers. The transactions contemplated by § 2.1(b) and § 2.2 for an Aircraft or Engine (the “Transfer” therefor) shall occur at such time and on such date as the Buyer shall specify, which date and time shall be specified on the applicable Delivery Receipt (but in any event no later than 3:30 p.m. Central Time on January 31, 2020) and the Transfer Date for the assignment of any related Lease thereto shall be made effective as of the same such date and time and be set forth on the applicable Lease Assignment.

2.4    Indemnity. For the avoidance of doubt, each party’s obligations under the indemnity provisions of a Lease shall survive the assignment of that

 

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Lease with respect to acts occurring and conditions existing during the term thereof.

Section 3.    Purchase Price. On the Closing Date, subject to the satisfaction of all conditions precedent set forth in § 5.1, the Buyer shall issue to Seller Representative, on behalf of the Sellers, 4,000,000 shares of Preferred Stock as the Purchase Price for all the Aircraft and Engines, without any set-off, withholding, or other deduction of any kind. Each Seller hereby acknowledges and agrees that upon such issuance by the Buyer to Seller Representative on behalf of such Seller, the Purchase Price with respect to such Seller’s Aircraft or Engine(s) shall be deemed to have been paid in full.

Section 4.    Inspection. The Buyer acknowledges that the Lessee was the most-recent operator of the Aircraft and Engines and has full control over all records related thereto, and the Buyer has had the opportunity to inspect the Aircraft and Engines.

Section 5.    Conditions Precedent.

5.1    Conditions Precedent to the Purchases. The Buyer’s obligations to agree on the Closing Date to buy each Aircraft and Engine, to agree to assume any related Leases, and to pay the Purchase Price on the Closing Date are subject to the satisfaction or waiver of all of the following conditions on or before the Closing Date:

5.1.1 Agreements and Other Documents. The Buyer shall have received the following with respect to each Aircraft, Engine, and Lease, in each case duly executed or otherwise in proper form:

(a)    the Bill of Sale therefor, duly executed by the applicable Seller, for delivery at the Transfer Time,

(b)    the FAA Bill of Sale therefor (in the case of an Aircraft), duly executed by the applicable Seller, for delivery at the Transfer Time,

(c)    other than in the case of ESN 872791, the Lease Assignment therefor, duly executed by the applicable Seller and the Lessee, for delivery at the Transfer Time, and

(d)    a counterpart signature page to the Investors’ Rights Agreement, duly executed by the Investor (as defined therein).

5.1.2 FAA-IR Opinion. The Buyer shall have received a satisfactory opinion of Crowe & Dunlevy, special FAA-IR counsel.

5.1.3 Representations and Warranties True. All representations and warranties of the pertinent Seller in § 6.1 shall be true and correct in each case

 

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as of the date of this Agreement and at and as of the Closing Time, as though such representations and warranties were made at and as of the Closing Time.

5.1.4 The Buyer shall have received a certificate executed by an officer of such Seller, dated as of the Closing Date, (a) certifying the authorization by all necessary action of the execution, delivery, and performance by the pertinent Seller of this Agreement and the Sale Documents to which it is a party and the resolutions of such Seller with respect thereto, and (b) identifying by name, title, and specimen signature, the persons authorized to execute and deliver the Sale Documents to which it is a party. No Casualty Occurrence. No Casualty Occurrence, as that term is defined in any Lease, with respect to the pertinent Aircraft or Engine shall have occurred under such Lease.

5.1.5 Contract(s) of Sale. The pertinent Seller shall have authorized the registration of the Buyer’s interest under the Bill of Sale in respect of (as applicable) the pertinent Airframe and Engines or the pertinent Engine with the International Registry at the pertinent Transfer Time.

5.1.6 Evidence of Authority.

5.1.7 Payment of Certain Pre-Closing Amounts. On January 16, 2020, a payment in the amount of $741,413.00 shall have been paid by the applicable Sellers to the Buyer for work relating to engine overhauls and maintenance.

5.1.8 Taxes. The Buyer shall be satisfied that no Transfer Taxes shall be payable by the Buyer in connection with the transfer of such Aircraft or Engine at the expected Delivery Location.

5.1.9 Illegality. On the Closing Date, the performance of the transactions contemplated hereby, upon the terms and conditions set forth herein, shall not, violate, and shall not subject the Buyer to any penalty or liability under, any law, rule, or regulation binding upon the Buyer.

5.1.10        No Proceedings. On the Closing Date, no legal or governmental action, suit, or proceeding shall have been instituted or overtly threatened before any court, administrative agency, or tribunal nor shall any order, judgment, or decree have been issued or proposed to be issued by any court, administrative agency, or tribunal to set aside, restrain, enjoin or prevent the consummation of the transactions contemplated hereby.

5.1.11        Lien Release Documents. The Buyer shall have received, at its sole cost and expense, (a) satisfactory lien search and registration opinions in respect of the Aircraft and Engines as the Buyer shall deem necessary or appropriate and (b) evidence that any encumbrances against the Aircraft and Engines (other than the Leases) or against the Leases shall have been (or at the Transfer Time will be) terminated or released.

 

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5.1.12        Good Standing Certificate. Buyer shall have received a good standing certificate with respect to each Seller issued by the Secretary of State of the State of Delaware, dated as of a date not more than ten (10) business days prior to the Closing Date.

5.2    Conditions Precedent to the Sales. Each Seller’s obligations to agree on the Closing Date to sell its Aircraft or Engine(s) and to assign the related Lease on the pertinent Transfer Date are subject to the satisfaction or waiver of all of the following conditions on or before the Closing Date:

5.2.1    Purchase Price. With respect to such Seller’s Aircraft or Engine(s), the Buyer shall have issued, or stand ready at the Closing to issue, to Seller Representative, on behalf of the Sellers, the Purchase Price in accordance with § 3.

5.2.2 Agreements. Such Seller shall have received, for delivery at the Transfer Time, the Delivery Receipt and, if applicable, the Lease Assignment therefor, duly executed by the Buyer and, with respect to the Lease Assignment, the Lessee.

5.2.3 Representations and Warranties True. All representations and warranties of the Buyer and the Lessee contained in § 6.2 and § 6.3 shall be true and correct as of the date of this Agreement and at and as of the Closing Time, as though such representations and warranties were made at and as of the Closing Time.

5.2.4 Evidence of Authority. Such Seller shall have received a certificate executed by an officer of the Buyer, dated as of the Closing Date, (a) certifying the authorization by all necessary action of the execution, delivery, and performance by the Buyer and the Lessee of this Agreement and the Sale Documents to which it is a party and the resolutions of the Buyer with respect thereto, and (b) identifying by name, title, and specimen signature, the persons authorized to execute and deliver the Sale Documents to which it is a party.

5.2.5 Taxes. Such Seller shall have received from the Buyer a sales tax exemption certificate with respect to potential Delivery Locations, or shall be otherwise reasonably satisfied that no Transfer Taxes shall be payable by such Seller in connection with the transactions contemplated hereby.

5.2.6 Illegality. On the Closing Date, the performance of the transactions contemplated hereby, upon the terms and conditions set forth herein, shall not violate, and shall not subject such Seller to any penalty or liability under, any law, rule, or regulation binding upon such Seller.

5.2.7 No Proceedings. On the Closing Date, no legal or governmental action, suit, or proceeding shall have been instituted or overtly threatened

 

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before any court, administrative agency, or tribunal nor shall any order, judgment, or decree have been issued or proposed to be issued by any court, administrative agency, or tribunal to set aside, restrain, enjoin or prevent the consummation of the transactions contemplated hereby with respect to such Seller.

5.2.8 Certificate of Designation. The Buyer shall have filed the Certificate of Designation with the Secretary of State of the State of Delaware.

5.2.9 Good Standing Certificate. Such Seller shall have received a good standing certificate with respect to the Buyer issued by the Secretary of State of the State of Delaware, dated as of a date not more than ten (10) business days prior the date of this Agreement.

Section 6.    Representations and Warranties; Disclaimer.

6.1    Representations and Warranties of the Sellers. In order to induce the Buyer to enter into this Agreement, to purchase, and to assume any related Lease of, such Seller’s Aircraft or Engine(s), and to pay the Purchase Price therefor, each Seller hereby makes, as of the date hereof, the following representations and warranties to the Buyer with respect to such Seller and such Seller’s Aircraft or Engine(s) and Lease:

6.1.1 Organization, Power, etc. Such Seller was duly organized, is validly existing, and is in good standing under the laws of Delaware and has the power and authority to carry on its business and to enter into, deliver, perform its obligations and consummate the transactions contemplated under this Agreement and all other Sale Documents executed by it in connection herewith.

6.1.2 Authorization and Binding Effect. Such Seller’s execution, delivery, and performance of this Agreement and the other Sale Documents to be executed by such Seller and the transactions contemplated hereby and thereby relating to such Seller have been duly and validly authorized by all necessary action of such Seller and no other or further action or proceeding on the part of such Seller (or its equity holders) is necessary to authorize the execution and delivery by such Seller of this Agreement and the other Sale Documents to which such Seller is a party, the performance by such Seller of its obligations hereunder and thereunder, and the consummation by such Seller of the transactions contemplated hereby or thereby. This Agreement and each other Sale Document to which such Seller is a party have been duly executed and delivered by such Seller, and, upon due authorization, execution, and delivery by the other parties hereto and thereto, this Agreement and the other Sale Documents to which such Seller is a party shall be the legal, valid, and binding obligations of such Seller enforceable against such Seller in accordance with their terms, except as may be limited by applicable

 

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bankruptcy, insolvency, and other similar laws affecting creditors’ rights generally or by equitable principles.

6.1.3 No Consent; No Violation. Neither such Seller’s execution and delivery of this Agreement and the other Sale Documents to which it is or is to be a party, nor its performance of its obligations hereunder and thereunder, (a) requires the consent or approval of, the giving of notice to, the registration with, or the taking of any action in respect of, any federal or state governmental authority on its part, except (x) such as have been duly obtained, given, made or taken, (y) filings with the FAA and registrations and discharges at the International Registry with respect to its Aircraft or Engine(s), and (z) routine reporting or regulatory requirements with governmental authorities which do not affect the validity, legality, or enforceability of the transactions contemplated hereby, (b) violates any law, rule, or regulation binding on it, or any order, writ, injunction, or decree of any court or governmental agency or instrumentality binding on it, (c) contravenes its organizational documents, (d) will result in any breach of any of the terms or provisions of, or constitute a default under, any agreement, document, or instrument to which it is a party or by which it is bound or to which such Seller’s Aircraft or Engine(s) is subject, or (e) result in the creation of any lien upon such Seller’s Aircraft or Engine(s) or the related Lease.

6.1.4 Title to Aircraft or Engine(s). Such Seller has good, valid and marketable title to such Seller’s Aircraft or Engine(s) and any related Lease. At the Transfer Time for such Seller’s Aircraft or Engine(s), such Seller shall convey to the Buyer full legal and beneficial title to such Seller’s Aircraft or Engine(s) and related Lease free and clear of all Lessor Liens (as defined in the applicable Lease) (or, in the case of ESN 872791, free and clear of liens to the extent provided in the applicable Bill of Sale).

6.1.5 Investment Representation. Such Seller (and Seller Representative on behalf of such Seller) is acquiring the portion of the Preferred Stock with respect to such Seller’s Aircraft or Engine(s) with the present intention of holding such securities for investment purposes and not with a view to, or for sale in connection with, any distribution of such securities in violation of any federal or state securities laws. Such Seller (and Seller Representative on behalf of such Seller) is an “accredited investor” as defined in Regulation D promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “Securities Act”). Such Seller (and Seller Representative on behalf of such Seller) acknowledges that it is informed as to the risk of the transactions contemplated hereby and of ownership of the Preferred Stock. Such Seller (and Seller Representative on such Seller’s behalf) acknowledges that, as of the Closing Date, the Preferred Stock will not have been registered under the Securities Act or any state or foreign securities laws and that the Preferred Stock may not be sold, transferred, offered for sale,

 

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assigned, pledged, hypothecated or otherwise disposed of unless such transfer, sale, assignment, pledge, hypothecation or other disposition is pursuant to the terms of an effective registration statement under the Securities Act, and the Preferred Stock is registered under any applicable state or foreign securities laws or sold pursuant to an exemption from registration under the Securities Act, and any applicable state or foreign securities laws. Seller (and Seller Representative on behalf of such Seller) is able to bear the economic and financial risk of an investment in the Buyer for an indefinite period of time.

6.1.6 No Brokers. No person retained or engaged by such Seller is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with this transaction.

6.1.7 Disclaimer. EXCEPT AS SPECIFICALLY AND EXPRESSLY SET FORTH IN THIS § 6.1 OR IN ANY BILL OF SALE, NO SELLER MAKES ANY REPRESENTATION WHATSOEVER IN RESPECT OF THE AIRCRAFT OR ENGINES (EACH AIRCRAFT AND ENGINE BEING SOLD AND TRANSFERRED “AS-IS, WHERE-IS”) AND, EXCEPT AS SPECIFICALLY AND EXPRESSLY SET FORTH HEREIN OR THEREIN, EACH SELLER SPECIFICALLY DISCLAIMS, AND EXCLUDES HEREFROM, IN RESPECT OF THE AIRCRAFT AND ENGINES (a) ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, AIRWORTHINESS, VALUE, DESIGN, QUALITY, MANUFACTURE, OR OPERATION OF ANY KIND OR NATURE, (b) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, (c) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY OF FREEDOM FROM ANY RIGHTFUL CLAIM BY WAY OF INFRINGEMENT OR THE LIKE, (d) ANY IMPLIED REPRESENTATION OR WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE, AND (e) SOLELY AS RELATES TO THE CONDITION OF THE AIRCRAFT AND ENGINES, ANY OBLIGATION OR LIABILITY OF SUCH SELLER ARISING IN CONTRACT OR IN TORT, WHETHER OR NOT ARISING FROM ITS NEGLIGENCE, ACTUAL OR IMPUTED, OR IN STRICT LIABILITY, INCLUDING ANY OBLIGATION OR LIABILITY FOR LOSS OF USE, REVENUE, OR PROFIT WITH RESPECT TO THE AIRCRAFT OR ENGINES OR FOR ANY LIABILITY OF THE BUYER TO ANY THIRD PARTY OR ANY OTHER DIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGE WHATSOEVER.

6.2     Representations and Warranties of the Buyer. In order to induce each Seller to enter into this Agreement, to assign its Lease, and to sell its Aircraft or Engine(s), the Buyer hereby makes, as of the date hereof, the following representations and warranties to each Seller:

6.2.1 Organization, Power, etc. The Buyer was duly incorporated, is validly existing, and is in good standing under the laws of Delaware and has the power and authority to carry on its business and to enter into, deliver,

 

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perform its obligations and consummate the transactions contemplated under this Agreement and all other Sale Documents executed by it in connection herewith.

6.2.2 Authorization and Binding Effect. The Buyer’s execution, delivery, and performance of this Agreement and the other Sale Documents to be executed by it and the transactions contemplated hereby and thereby relating to the Buyer have been duly and validly authorized by all necessary corporate action of the Buyer and no other or further action or proceeding on the part of the Buyer (or its equity holders) is necessary to authorize the execution and delivery by the Buyer of this Agreement and the other Sale Documents to which the Buyer is a party, the performance by the Buyer of its obligations hereunder and thereunder, and the consummation by the Buyer of the transactions contemplated hereby or thereby. This Agreement and each other Sale Document to which the Buyer is a party have been duly executed and delivered by it, and, upon due authorization, execution, and delivery by the other parties hereto and thereto, this Agreement and the other Sale Documents to which the Buyer is a party shall be the legal, valid, and binding obligations of the Buyer enforceable against the Buyer in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors’ rights generally or by equitable principles.

6.2.3 No Consent; No Violation. Neither the Buyer’s execution and delivery of this Agreement and the other Sale Documents to which it is or is to be a party, nor its performance of its obligations hereunder and thereunder, (a) requires the consent or approval of, the giving of notice to, the registration with, or the taking of any action in respect of, any federal or state governmental authority on the Buyer’s part except such as have been duly obtained, given, made, or taken, except for registering the Aircraft in the name of the Buyer (or, at the Buyer’s option, the Buyer’s transferee) and filing the Lease Assignments at the FAA, registering the Buyer’s interests in the Aircraft and Engines and in the Leases at the International Registry, and except routine reporting or regulatory requirements with governmental authorities which do not affect the validity, legality, or enforceability of the transactions contemplated hereby, (b) violates any law, rule, or regulation binding on it, or any order, writ, injunction, or decree of any court or governmental agency, or instrumentality binding on the Buyer, (c) contravenes its organizational documents, or (d) will result in any breach of any of the terms or provisions of, or constitute a default under, any agreement, document, or instrument to which it is a party or by which it is bound.

6.2.4 No Brokers. No person retained or engaged by the Buyer is or will be entitled to any broker’s fee, commission, or finder’s fee in connection with this transaction.

 

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6.3    Representations and Warranties of the Lessee. In order to induce the Sellers and the Buyer to enter into this Agreement, to assign and assume the Leases, and to sell and buy the Aircraft and Engines, the Lessee hereby makes, as of the date hereof, the following representations and warranties to each Seller and to the Buyer:

6.3.1 Organization, Power, etc. The Lessee was duly organized, is validly existing, and is in good standing under the laws of Delaware and has the power and authority to carry on its business and to enter into, deliver, perform its obligations and consummate the transactions contemplated under this Agreement and all other Sale Documents executed by it in connection herewith.

6.3.2 Authorization and Binding Effect. The Lessee’s execution, delivery, and performance of this Agreement and the other Sale Documents to be executed by it and the transactions contemplated hereby and thereby relating to the Lessee have been duly and validly authorized by all necessary action of the Lessee and no other or further action or proceeding on the part of the Lessee (or its equity holders) is necessary to authorize the execution and delivery by the Lessee of this Agreement and the other Sale Documents to which the Lessee is a party, the performance by the Lessee of its obligations hereunder and thereunder, and the consummation by the Lessee of the transactions contemplated hereby or thereby. This Agreement and each other Sale Document to which the Lessee is a party have been duly executed and delivered by the Lessee, and, upon due authorization, execution and delivery by the other parties hereto and thereto, this Agreement and the other Sale Documents to which the Lessee is a party shall be its legal, valid, and binding obligations enforceable against it in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors’ rights generally or by equitable principles.

6.3.3 No Consent; No Violation. Neither the Lessee’s execution and delivery of this Agreement and the other Sale Documents to which it is or is to be a party, nor its performance of its obligations hereunder, (a) requires the consent or approval of, the giving of notice to, the registration with, or the taking of any action in respect of, any federal or state governmental authority on the part of the Lessee except such as have been duly obtained, given, made, or taken, except for filing the FAA Bills of Sale and Applications for Aircraft Registration for the Aircraft at the FAA and making registrations and discharges at the International Registry, and except routine reporting or regulatory requirements with governmental authorities which do not affect the validity, legality, or enforceability of the transactions contemplated hereby, (b) violates any law, rule, or regulation binding on the Lessee, or any order, writ, injunction, or decree of any court or governmental agency or instrumentality binding on the Lessee, (c) contravenes the Lessee’s organizational documents, or (d) will result in any breach of any of the terms or

 

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provisions of, or constitute a default under, any agreement, document, or instrument to which it is a party or by which it is bound.

Section 7.    Taxes. Each Seller, the Buyer, and the Lessee shall cooperate and use reasonable efforts to avoid or minimize any and all sales, stamp, transfer, value-added, gross receipts, goods-and-services, and other similar taxes and duties imposed on the sale of the Aircraft and Engines to the Buyer or otherwise imposed on the transactions contemplated hereby (for the avoidance of doubt, “any similar taxes and duties” shall not include any corporation, franchise, or other similar tax or any tax imposed in its jurisdiction of residence with respect to, or measured by, income or gain) (such taxes and duties being “Transfer Taxes”). The Buyer shall on written demand indemnify each Seller for all Transfer Taxes imposed on such Seller on the sale of any of such Seller’s Aircraft or Engine(s) to the Buyer.

Section 8.    Further Assurances. Each party agrees, upon the reasonable request of any other party and at the cost and expense of the requesting party, at any time and from time to time, promptly to execute and deliver all such documents and take all such actions, as shall be reasonably necessary or appropriate in order more effectively to confirm or carry out the provisions of this Agreement. Without limiting the generality of the foregoing, each Seller agrees, from time to time after the Closing with respect to such Seller’s Aircraft or Engine(s), at the Buyer’s request, to execute, acknowledge, and deliver to the Buyer such other instruments of conveyance and transfer, and take such other actions and execute and deliver such other documents, certifications, and further assurances, as the Buyer may reasonably require in order to vest more effectively in the Buyer, or to put the Buyer more fully in possession of, such Aircraft or Engine(s) or the applicable Lease therefor.

Section 9.    Notices. Any notice required or permitted under this Agreement or any other Sale Document shall be sent by email to all addressees shown below. Each such notice shall adequately identify the party or parties giving the notice and the party or parties being notified. Notice shall be deemed effective when sent and transmission is confirmed.

Kevin@greencastleadvisors.com; njb@bedermancapital.com; JWolters@MNAT.com; rwilkins@sycr.com; jestes@sycr.com; psmith@sycr.com; ssmith@cov.com; rbartlett@resourceholdings.com; daniel.philips@jdjcapital.com; Christine.Deister@airwis.com; Gregg.Garvey@airwis.com; Stan.Petersen-Gauthier@airwis.com; Tim.Kelley@airwis.com; rstrauss@taylorenglish.com; jbodner@cov.com

Section 10. Miscellaneous.

10.1    Time is of the Essence. Unless stated expressly to the contrary herein, time shall be of the essence for all events contemplated hereunder.

 

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10.2    Confidentiality. Each party hereto agrees that, for three years after the date of this Agreement, it will treat the Purchase Price as privileged and confidential and will not, without the prior written consent of the other parties, disclose such Purchase Price to any third party, except for disclosure to its affiliates, attorneys, and auditors and to its successors and permitted assigns (who in each case are notified of the confidential nature of such information and are bound by obligations of confidentiality with respect thereto) and as may be required by applicable law or as may be necessary to effect the transactions contemplated hereby, in which case the party so disclosing shall use good faith efforts to limit disclosure to such third parties on a need-to know basis. In connection with any such disclosure, the party making such disclosure shall notify the other parties prior to such disclosure and request and use its diligent efforts to obtain confidential treatment of such information.

10.3    Binding Effect. This Agreement shall benefit and bind each of the parties hereto and their successors and permitted assigns.

10.4    Transaction Costs and Expenses. Whether or not the transactions contemplated hereby are consummated, each Seller and the Buyer shall bear and be responsible for its own costs and expenses incurred in connection with the negotiation, preparation, execution, and delivery of the Sale Documents, and any other agreements, documents, and instruments relating hereto, and neither any Seller nor the Buyer shall have any right of reimbursement or indemnity for such costs and expenses as against each other. Notwithstanding the foregoing, however, the Buyer shall be responsible for 50%, and the Sellers shall jointly and severally be responsible for 50%, of the fees and expenses of the Lessee and of the fees and expenses of FAA-IR counsel referred to in § 5.1.2.

10.5    Entire Agreement. This Agreement (including the exhibits attached hereto) and the other Sale Documents constitute, on and as of the date hereof, the entire agreement of the parties hereto with respect to the subject matter hereof, and all prior understandings or agreements, whether written or oral, between the parties hereto with respect to the subject matter hereof are hereby superseded in their entirety.

10.6    Amendments. No provision of this Agreement or any other Sale Document may be amended, changed, waived, or discharged orally, but only by an instrument in writing signed by the party against whom enforcement of such amendment, change, waiver, or discharge is sought, and no provision of any Sale Document shall be varied, contradicted, or explained by any oral agreement, course of dealing, or performance or any other matter not set forth in an agreement in writing and signed by the party against whom enforcement of such agreement is sought.

 

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10.7    Assignment. No party may assign any of its rights hereunder without the prior written consent of the other parties.

10.8    Headings and References. The division of this Agreement into sections, and the insertion of headings, are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

10.9    Counterparts. This Agreement may be executed in any number of separate counterparts by each of the parties hereto, all such counterparts together constituting but one and the same instrument. Copies of this Agreement and the documents to be delivered hereunder, if executed, transmitted by pdf scan, shall be deemed to be and treated the same as executed originals.

10.10 Non-Waiver. Any failure at any time of any party to enforce any provision of this Agreement or any other Sale Document shall not constitute a waiver of such provision or prejudice the right of such party to enforce such provision at any subsequent time.

10.11 Brokers. The Buyer and each Seller shall indemnify each other party hereto from and against all claims, demands, liabilities, and losses suffered by any such other party hereto that arise from the actions of any agent or broker engaged or claiming to have been engaged by such indemnifying party.

10.12 Seller Representative.

10.12.1        Appointment. Each Seller hereby irrevocably nominates, constitutes and appoints SSH as its agent and true lawful attorney in fact (“Seller Representative”), with full power of substitution, to act in the name, place and stead of the Sellers for purposes of executing any documents and taking any actions that Seller Representative may, in its sole discretion, determine to be necessary, desirable or appropriate in connection with such Seller Representative’s duties and obligations under this Agreement or the Investors’ Rights Agreement.

10.12.2        Authority. Each Seller hereby grants to Seller Representative full authority to execute, deliver, acknowledge, certify and file on behalf of such Seller (in the name of any or all of the Sellers or otherwise) any and all documents that Seller Representative may, in its sole discretion, determine to be necessary, desirable or appropriate, in such forms and containing such provisions as Seller Representative may, in its sole discretion, determine to be appropriate, in performing its duties as contemplated by this Agreement or the Investors’ Rights Agreement. Notwithstanding anything to the contrary set forth in this Agreement or in any other Sale Document executed in connection with the transactions contemplated hereby and

 

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[Purchase Agreement]

 

thereby: (i) the Buyer shall be entitled to deal exclusively with Seller Representative on all matters relating to the allocation of the Purchase Price and issuance of the Purchase Price on behalf of any Seller under § 3, and on all matters related to the Investors’ Rights Agreement; and (ii) the Buyer shall be entitled to rely conclusively (without further evidence of any kind whatsoever) on any document executed or purported to be executed on behalf of any Seller by Seller Representative, and on any other action taken or purported to be taken on behalf of any Seller by Seller Representative, as fully binding upon such Seller. The Sellers, individually and independently, hereby acknowledge and agree that (x) Seller Representative shall be solely responsible for ensuring that each Seller receives that portion of any amount(s) to which such Seller is entitled in connection with the transactions contemplated hereunder and under any other Sale Document and which is paid or issued by the Buyer to Seller Representative on such Seller’s behalf; and (y) the Buyer shall bear no obligation or responsibility to any Seller with regard to the obligations of Seller Representative relating to the distribution of such payments or otherwise.

10.12.3        Power of Attorney. Each Seller recognizes and intends that the power of attorney granted in this § 10.12: (i) is coupled with an interest and is irrevocable; (ii) may be delegated by Seller Representative; and (iii) shall survive the death, incapacity, dissolution, liquidation or winding up of each of the Sellers.

10.12.4        Replacement. If Seller Representative shall die, resign, become disabled, or otherwise be unable to fulfill its responsibilities hereunder, the Sellers shall (by consent of the Sellers entitled to at least a majority of the Purchase Price), within ten (10) days after such death, resignation, disability, or inability, appoint a successor to Seller Representative (who shall be reasonably satisfactory to the Buyer) and immediately thereafter notify the Buyer of the identity of such successor. Any such successor shall succeed Seller Representative as Seller Representative hereunder. If for any reason there is no Seller Representative at any time, all references herein to the Seller Representative shall be deemed to refer to the Sellers.

10.13 Governing Law. This Agreement and each other Sale Document is being delivered in, and shall in all respects (including all matters of construction, validity, and performance) be governed by, and construed and enforced in accordance with, the laws of the state of New York, as would apply to contracts entered into in that state between citizens of that state and to be performed wholly within that state, without reference to any rules governing conflicts of laws.

[The rest of this page is intentionally left blank.]

 

16


[Purchase Agreement]

 

IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as of the date first written above.

 

SOUTHSHORE AIRCRAFT I, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary

SOUTHSHORE AIRCRAFT II, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary

SOUTHSHORE AIRCRAFT III, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary

SOUTHSHORE AIRCRAFT IV, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary:

SOUTHSHORE AIRCRAFT V, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary

 


[Purchase Agreement]

 

SOUTHSHORE AIRCRAFT HOLDINGS, LLC, as a Seller

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary:

HARBOR DIVERSIFIED, INC., as the Buyer

By:  /s/ C. R. Deister                               

Title: President, CFO, and Secretary

AIR WISCONSIN AIRLINES LLC, as the Lessee

By:  /s/ Gregg Garvey                             

Title: Sr. VP, CAO, and Treasurer

SOUTHSHORE AIRCRAFT HOLDINGS, LLC, as Seller Representative

By:  /s/ William P. Jordan                       

Title: Vice Chairman, Vice President and Secretary

EXHIBIT 10.6

 

LOGO

NOTE  

 

   
Date      4/6/2020
   
Note Amount    $ 10,000,000
   
Borrower      AIR WISCONSIN AIRLINES LLC
   
Lender    JPMorgan Chase Bank, N.A.

 

  1.

PROMISE TO PAY.

Borrower promises to pay to the order of Lender the Note Amount, plus interest on the unpaid principal balance at the Note Rate, and all other amounts required by this Note.

 

  2.

DEFINITIONS.

“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act.

“Deferral Period” means the six month period beginning on the date of this Note.

“Loan” means the loan evidenced by this Note.

“Maturity Date” means twenty-four (24) months from the date of this Note.

“Note Rate” means an interest rate of 0.98% Per Annum and interest shall accrue on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days.

“Per Annum” means for a year deemed to be comprised of 360 days.

“SBA” means the Small Business Administration, an Agency of the United States of America.

 

  3.

CONDITIONS PRECEDENT TO FUNDING OF LOAN.

Before the funding of the Loan, the following conditions must be satisfied:

 

  A.

Lender has approved the request for the Loan.


  B.

Lender has received approval from SBA to fund the Loan.

 

  4.

PAYMENT TERMS.

Borrower will pay this Note as follows:

 

  A.

No Payments During Deferral Period. There shall be no payments due by Borrower during the Deferral Period.

 

  B.

Principal and Interest Payments. Commencing one month after the expiration of the Deferral Period, and continuing on the same day of each month thereafter until the Maturity Date, Borrower shall pay to Lender monthly payments of principal and interest, each in such equal amount required to fully amortize the principal amount outstanding on the Note on the last day of the Deferral Period by the Maturity Date.

 

  C.

Maturity Date. On the Maturity Date, Borrower shall pay to Lender any and all unpaid principal plus accrued and unpaid interest plus interest accrued during the Deferral Period. This Note will mature on the Maturity Date.

 

  D.

If any payment is due on a date for which there is no numerical equivalent in a particular calendar month then it shall be due on the last day of such month. If any payment is due on a day that is not a Business Day, the payment will be made on the next Business Day. The term “Business Day” means a day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed.

 

  E.

Payments shall be allocated among principal and interest at the discretion of Lender unless otherwise agreed or required by applicable law. Notwithstanding, in the event the Loan, or any portion thereof, is forgiven pursuant to the Paycheck Protection Program under the federal CARES Act, the amount so forgiven shall be applied to principal.

 

  F.

Borrower may prepay this Note at any time without payment of any premium.

 

  5.

CERTIFICATIONS.

Borrower certifies as follows:

 

  A.

Current economic uncertainty makes this Loan necessary to support the ongoing operations of Borrower.

 

  B.

Loan funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.


  C.

During the period beginning on February 15, 2020 and ending on December 31, 2020, Borrower has not and will not receive another loan under this program.

 

 

  D.

Borrower was in operation on February 15, 2020 and (i) had employees for whom it paid salaries and payroll taxes, or (ii) paid independent contractors as reported on a 1099-Misc.

 

 

  6.

AGREEMENTS.

Borrower understands and agrees, and waives and releases Lender, as follows:

 

  A.

The Loan would be made under the SBA’s Paycheck Protection Program. Accordingly, it must be submitted to and approved by the SBA. There is limited funding available under the Paycheck Protection Program and so all applications submitted will not be approved by the SBA.

 

  B.

Lender is participating in the Payroll Protection Program to help businesses impacted by the economic impact from COVID-19. However, Lender anticipates high volume and there may be processing delays and system failures along with other issues that interfere with submission of your application to SBA. Lender does not represent or guarantee that it will submit the application before SBA funding is no longer available or at all. You agree that Lender is not responsible or liable to you (i) if the application is not submitted to the SBA until after SBA stops approving applications, for any reason or (ii) if the application is not processed. You forever release and waive any claims against Lender concerning failure to obtain the Loan. This release and waiver applies to but is not limited to any claims concerning Lender’s (i) pace, manner or systems for processing or prioritizing applications, or (ii) representations by Lender regarding the application process, the Paycheck Protection Program, or availability of funding. This agreed to release and waiver supersedes any prior communications, understandings, agreements or communications on the issues set forth herein. 

 

  C.

Forgiveness of the Loan is only available for principal that is used for the limited purposes that qualify for forgiveness under SBA requirements, and that to obtain forgiveness, Borrower must request it and must provide documentation in accordance with the SBA requirements, and certify that the amounts Borrower is requesting to be forgiven qualify under those requirements. Borrower also understand that Borrower shall remain responsible under the Loan for any amounts not forgiven, and that interest payable under the Loan will not be forgiven but that the SBA may pay the Loan interest on forgiven amounts.

 

 

  D.

Forgiveness is not automatic and Borrower must request it. Borrower is not relying on Lender for its understanding of the requirements for forgiveness such as eligible expenditures, necessary records/documentation, or possible reductions due to changes in number of employees or compensation. Rather Borrower will consult the SBA’s program materials.

 


  E.

The application for this Loan is subject to review and that Borrower may not receive the Loan. The Loan also remains subject to availability of funds under the SBA’s Payment Protection Program, and to the SBA issuing an SBA loan number.

 

 

  7.

DEFAULT.

Borrower is in default under this Note if Borrower:

 

  A.

Fails to make a payment when due under the Note or otherwise fails to comply with any provision of this Note.

 

  B.

Does not disclose, or anyone acting on its behalf does not disclose, any material fact to Lender or SBA.

 

  C.

Makes, or anyone acting on its behalf makes, a materially false or misleading representation, attestation or certification to Lender or SBA in connection with Borrower’s request for this Loan under the CARES Act, or makes a false certification under paragraph 5 of this Note.

 

  D.

Fails to comply with all of the provisions of this Note.

 

  E.

Becomes the subject of a proceeding under any bankruptcy or insolvency law, has a receiver or liquidator appointed for any part of its business or property, or makes an assignment for the benefit of creditors.

 

  F.

Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent.

 

  G.

Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Note.

 

  8.

LENDER’S RIGHTS IF THERE IS A DEFAULT.

Without notice or demand and without giving up any of its rights, Lender may:

 

  A.

Require immediate payment of all amounts owing under this Note.

 

  B.

Collect all amounts owing from Borrower.

 

  C.

File suit and obtain judgment.

 

  9.

LENDER’S GENERAL POWERS.

Without notice or Borrower’s consent, Lender may incur expenses to collect amounts due under this Note and enforce the terms of this Note. Among other things, the expenses may include reasonable


attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

 

  10.

GOVERNING LAW AND VENUE; WHEN FEDERAL LAW APPLIES.

When SBA is the holder, this Note shall be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

If the SBA is not the holder, this Note shall be governed by and construed in accordance with the laws of the State of Ohio where the main office of Lender is located. MATTERS REGARDING INTEREST TO BE CHARGED BY LENDER AND THE EXPORTATION OF INTEREST SHALL BE GOVERNED BY FEDERAL LAW (INCLUDING WITHOUT LIMITATION 12 U.S.C. SECTIONS 85 AND 1831u) AND THE LAW OF THE STATE OF OHIO. Borrower agrees that any legal action or proceeding with respect to any of its obligations under this Note may be brought by Lender in any state or federal court located in the State of Ohio, as Lender in its sole discretion may elect. Borrower submits to and accepts in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. Borrower waives any claim that the State of Ohio is not a convenient forum or the proper venue for any such suit, action or proceeding. The extension of credit that is the subject of this Note is being made by Lender in Ohio.

 

  11.

SUCCESSORS AND ASSIGNS.

Under this Note, Borrower includes its successors, and Lender includes its successors and assigns.

 

  12.

GENERAL PROVISIONS.

 

  A.

Borrower must sign all documents necessary at any time to comply with the Loan.

 

  B.

Borrower’s execution of this Note has been duly authorized by all necessary actions of its governing body. The person signing this Note is duly authorized to do so on behalf of Borrower.

 

  C.

This Note shall not be governed by any existing or future credit agreement or loan agreement with Lender. The liabilities guaranteed pursuant to any existing or future guaranty in favor of Lender shall not include this Note. The liabilities secured by any existing or future security instrument in favor Lender shall not include this Note.

 

  D.

Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.

 

  E.

Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

 

  F.

If any part of this Note is unenforceable, all other parts remain in effect.


  G.

To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor.

 

  H.

Borrower’s liability under this Note will continue with respect to any amounts SBA may pay Bank based on an SBA guarantee of this Note. Any agreement with Bank under which SBA may guarantee this Note does not create any third party rights or benefits for Borrower and, if SBA pays Bank under such an agreement, SBA or Bank may then seek recovery from Borrower of amounts paid by SBA.

 

  I.

Lender reserves the right to modify the Note Amount based on documentation received from Borrower.

 

  13.

ELECTRONIC SIGNATURES.

Borrower’s electronic signature shall have the same force and effect as an original signature and shall be deemed (i) to be “written” or “in writing” or an “electronic record”, (ii) to have been signed and (iii) to constitute a record established and maintained in the ordinary course of business and an original written record when printed from electronic files. Such paper copies or “printouts,” if introduced as evidence in any judicial, arbitral, mediation or administrative proceeding, will be admissible as between the parties to the same extent and under the same conditions as other original business records created and maintained in documentary form.

14. BORROWER’S NAME AND SIGNATURE:

Borrower:

AIR WISCONSIN AIRLINES LLC

 

By:    /s/ GREGG GARVEY
Printed Name:            GREGG GARVEY
Title:      SVP, CHIEF ACCOUNTING OFFICER & TREASURER
Date Signed:    4/6/2020

EXHIBIT 10.7

PAYROLL SUPPORT PROGRAM AGREEMENT

 

       
Recipient: AIR WISCONSIN AIRLINES LLC     PSP Participant Number: PSA-2004031284    
     
W6390 CHALLENGER DRIVE, SUITE 203     Employer Identification Number:    
     

APPLETON, WI 54914

 

     

DUNS Number:                                         

 

   
   

Amount of Initial Payroll Support Payment: $13,666,004.35

 

   
   

The Department of the Treasury (Treasury) hereby provides Payroll Support (as defined herein) under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act. The Signatory Entity named above, on behalf of itself and its Affiliates (as defined herein), agrees to comply with this Agreement and applicable Federal law as a condition of receiving Payroll Support. The Signatory Entity and its undersigned authorized representatives acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in connection with this Agreement may result in administrative remedies as well as civil and/or criminal penalties.

 

   
   

The undersigned hereby agree to the attached Payroll Support Program Agreement.

 

   

/s/ Brent McIntosh

   

/s/ Robert Binns

   
   
Department of the Treasury     AIR WISCONSIN AIRLINES LLC    
   
Authorized Representative: Brent McIntosh     First Authorized Representative:    
   
Title: Under Secretary for International Affairs     Title: President & CEO    
   
Date: 04/20/2020    

Date: 4/17/2020

 

   
     

/s/ Gregg Garvey

   
   
      AIR WISCONSIN AIRLINES LLC    
   
      Second Authorized Representative:    
   
      Title: SVP, CAO & Treasurer    
   
       

Date: 4/17/2020

 

 

  

 

OMB Approved No. 1505-0263

Expiration Date: 09/30/2020

 

1


PAYROLL SUPPORT PROGRAM AGREEMENT

INTRODUCTION

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act or Act) directs the Department of the Treasury (Treasury) to provide Payroll Support (as defined herein) to passenger air carriers, cargo air carriers, and certain contractors that must be exclusively used for the continuation of payment of Employee Salaries, Wages, and Benefits (as defined herein). The Act permits Treasury to provide Payroll Support in such form, and on such terms and conditions, as the Secretary of the Treasury determines appropriate, and requires certain assurances from the Recipient (as defined herein).

This Payroll Support Program Agreement, including the application and all supporting documents submitted by the Recipient and the Payroll Support Certification attached hereto (collectively, Agreement), memorializes the binding terms and conditions applicable to the Recipient.

DEFINITIONS

As used in this Agreement, the following terms shall have the following respective meanings, unless the context clearly requires otherwise. In addition, this Agreement shall be construed in a manner consistent with any public guidance Treasury may from time to time issue regarding the implementation of Division A, Title IV, Subtitle B of the CARES Act.

Act or CARES Act means the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. No. 116-136).

Additional Payroll Support Payment means any disbursement of Payroll Support occurring after the first disbursement of Payroll Support under this Agreement.

Affiliate means any Person that directly or indirectly controls, is controlled by, or is under common control with, the Recipient. For purposes of this definition, “control” of a Person shall mean having the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by ownership of voting equity, by contract, or otherwise.

Benefits means, without duplication of any amounts counted as Salary or Wages, pension expenses in respect of Employees, all expenses for accident, sickness, hospital, and death benefits to Employees, and the cost of insurance to provide such benefits; any Severance Pay or Other Benefits payable to Employees pursuant to a bona fide voluntary early retirement program or voluntary furlough; and any other similar expenses paid by the Recipient for the benefit of Employees, including any other fringe benefit expense described in lines 10 and 11 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

 

2


Corporate Officer means, with respect to the Recipient, its president; any vice president in charge of a principal business unit, division, or function (such as sales, administration or finance); any other officer who performs a policy-making function; or any other person who performs similar policy making functions for the Recipient. Executive officers of subsidiaries or parents of the Recipient may be deemed Corporate Officers of the Recipient if they perform such policy-making functions for the Recipient.

Employee means an individual who is employed by the Recipient and whose principal place of employment is in the United States (including its territories and possessions), including salaried, hourly, full-time, part-time, temporary, and leased employees, but excluding any individual who is a Corporate Officer or independent contractor.

Involuntary Termination or Furlough means the Recipient terminating the employment of one or more Employees or requiring one or more Employees to take a temporary suspension or unpaid leave for any reason, including a shut-down or slow-down of business; provided, however, that an Involuntary Termination or Furlough does not include a Permitted Termination or Furlough.

Maximum Awardable Amount means the amount determined by the Secretary with respect to the Recipient pursuant to section 4113(a)(l), (2), or (3) (as applicable) of the CARES Act.

Payroll Support means funds disbursed by the Secretary to the Recipient under this Agreement, including the first disbursement of Payroll Support and any Additional Payroll Support Payment.

Permitted Termination or Furlough means, with respect to an Employee, (I) a voluntary furlough, voluntary leave of absence, voluntary resignation, or voluntary retirement, (2) termination of employment resulting from such Employee’s death or disability, or (3) the Recipient terminating the employment of such Employee for cause or placing such Employee on a temporary suspension or unpaid leave of absence for disciplinary reasons, in either case, as reasonably determined by the Recipient acting in good faith.

Person means any natural person, corporation, limited liability company, partnership, joint venture, trust, business association, governmental entity, or other entity.

Recipient means, collectively, the Signatory Entity; its Affiliates that are air carriers as defined in 49 U.S.C. § 40102; and their respective heirs, executors, administrators, successors, and assigns.

 

3


Salary means, without duplication of any amounts counted as Benefits, a predetermined regular payment, typically paid on a weekly or less frequent basis but which may be expressed as an hourly, weekly, annual or other rate, as well as cost-of-living differentials, vacation time, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

Secretary means the Secretary of the Treasury.

Severance Pay or Other Benefits means any severance payment or other similar benefits, including cash payments, health care benefits, perquisites, the enhancement or acceleration of the payment or vesting of any payment or benefit or any other in-kind benefit payable (whether in lump sum or over time, including after March 24, 2022) by the Recipient to a Corporate Officer or Employee in connection with any termination of such Corporate Officer’s or Employee’s employment (including, without limitation, resignation, severance, retirement, or constructive termination), which shall be determined and calculated in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed in 17 CFR 229.402(j) (without regard to its limitation to the five most highly compensated executives and using the actual date of termination of employment rather than the last business day of the Recipient’s last completed fiscal year as the trigger event).

Signatory Entity means the passenger air carrier, cargo air carrier, or contractor that has entered into this Agreement.

Taxpayer Protection Instruments means warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by the Recipient to Treasury as compensation for the Payroll Support under this Agreement, if applicable.

Total Compensation means compensation including salary, wages, bonuses, awards of stock, and any other financial benefits provided by the Recipient or an Affiliate, as applicable, which shall be determined and calculated for the 2019 calendar year or any applicable 12-month period in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed under paragraph e.5 of the award term in 2 CFR part 170, App. A, but excluding any Severance Pay or Other Benefits in connection with a termination of employment.

Wage means, without duplication of any amounts counted as Benefits, a payment, typically paid on an hourly, daily, or piecework basis, including cost-of-living differentials, vacation, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

 

4


PAYROLL SUPPORT PAYMENTS

 

  1.

Upon the execution of this Agreement by Treasury and the Recipient, the Secretary shall approve the Recipient’s application for Payroll Support.

 

  2.

The Recipient may receive Payroll Support in multiple payments up to the Maximum Awardable Amount, and the amounts (individually and in the aggregate) and timing of such payments will be determined by the Secretary in his sole discretion. The Secretary may, in his sole discretion, increase or reduce the Maximum Awardable Amount (a) consistent with section 4113(a) of the CARES Act and (b) on a pro rata basis in order to address any shortfall in available funds, pursuant to section 4113(c) of the CARES Act.

 

  3.

The Secretary may determine in his sole discretion that any Payroll Support shall be conditioned on, and subject to, such additional terms and conditions (including the receipt of, and any terms regarding, Taxpayer Protection Instruments) to which the parties may agree in writing.

TERMS AND CONDITIONS

Retaining and Paying Employees

 

  4.

The Recipient shall use the Payroll Support exclusively for the continuation of payment of Wages, Salaries, and Benefits to the Employees of the Recipient.

 

  a.

Furloughs and Layoffs. The Recipient shall not conduct an Involuntary Termination or Furlough of any Employee between the date of this Agreement and September 30, 2020.

 

  b.

Employee Salary, Wages, and Benefits

 

  i.

Salary and Wages. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee’s consent, (A) the pay rate of any Employee earning a Salary, or (B) the pay rate of any Employee earning Wages.

 

  ii.

Benefits. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee’s consent, the Benefits of any Employee; provided, however, that for purposes of this paragraph, personnel expenses associated with the performance of work duties, including those described in line 10 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, may be reduced to the extent the associated work duties are not performed.

 

5


Dividends and Buybacks

 

  5.

Through September 30, 2021, neither the Recipient nor any Affiliate shall, in any transaction, purchase an equity security of the Recipient or of any direct or indirect parent company of the Recipient that, in either case, is listed on a national securities exchange.

 

  6.

Through September 30, 2021, the Recipient shall not pay dividends, or make any other capital distributions, with respect to the common stock (or equivalent equity interest) of the Recipient.

Limitations on Certain Compensation

 

  7.

Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient’s Corporate Officers or Employees whose Total Compensation exceeded $425,000 in calendar year 2019 (other than an Employee whose compensation is determined through an existing collective bargaining agreement entered into before March 27, 2020):

 

  a.

Total Compensation which exceeds, during any 12 consecutive months of such twoyear period, the Total Compensation the Corporate Officer or Employee received in calendar year 2019; or

 

  b.

Severance Pay or Other Benefits in connection with a termination of employment with the Recipient which exceed twice the maximum Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

 

  8.

Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient’s Corporate Officers or Employees whose Total Compensation exceeded $3,000,000 in calendar year 2019 Total Compensation in excess of the sum of:

 

  a.

$3,000,000; and

 

  b.

50 percent of the excess over $3,000,000 of the Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

 

  9.

For purposes of determining applicable amounts under paragraphs 7 and 8 with respect to any Corporate Officer or Employee who was employed by the Recipient or an Affiliate for less than all of calendar year 2019, the amount of Total Compensation in calendar year 2019 shall mean such Corporate Officer’s or Employee’s Total Compensation on an annualized basis.

Continuation of Service

 

  10.

If the Recipient is an air carrier, until March 1, 2022, the Recipient shall comply with any applicable requirement issued by the Secretary of Transportation under section 4114(b) of the CARES Act to maintain scheduled air transportation service to any point served by the Recipient before March 1, 2020.

 

6


Effective Date

 

  11.

This Agreement shall be effective as of the date of its execution by both parties.

Reporting and Auditing

 

  12.

Until the calendar quarter that begins after the later of March 24, 2022, and the date on which no Taxpayer Protection Interest is outstanding, not later than 45 days after the end of each of the first three calendar quarters of each calendar year and 90 days after the end of each calendar year, the Signatory Entity, on behalf of itself and each other Recipient, shall certify to Treasury that it is in compliance with the terms and conditions of this Agreement and provide a report containing the following:

 

  a.

the amount of Payroll Support funds expended during such quarter;

 

  b.

the Recipient’s financial statements (audited by an independent certified public accountant, in the case of annual financial statements); and

 

  c.

a copy of the Recipient’s IRS Form 941 filed with respect to such quarter; and

 

  d.

a detailed summary describing, with respect to the Recipient, (a) any changes in Employee headcount during such quarter and the reasons therefor, including any Involuntary Termination or Furlough, (b) any changes in the amounts spent by the Recipient on Employee Wages, Salary, and Benefits during such quarter, and (c) any changes in Total Compensation for, and any Severance Pay or Other Benefits in connection with the termination of, Corporate Officers and Employees subject to limitation under this Agreement during such quarter; and the reasons for any such changes.

 

  13.

If the Recipient or any Affiliate, or any Corporate Officer of the Recipient or any Affiliate, becomes aware of facts, events, or circumstances that may materially affect the Recipient’s compliance with the terms and conditions of this Agreement, the Recipient or Affiliate shall promptly provide Treasury with a written description of the events or circumstances and any action taken, or contemplated, to address the issue.

 

  14.

In the event the Recipient contemplates any action to commence a bankruptcy or insolvency proceeding in any jurisdiction, the Recipient shall promptly notify Treasury.

 

  15.

The Recipient shall:

 

  a.

Promptly provide to Treasury and the Treasury Inspector General a copy of any Department of Transportation Inspector General report, audit report, or report of any other oversight body, that is received by the Recipient relating to this Agreement.

 

  b.

Immediately notify Treasury and the Treasury Inspector General of any indication of fraud, waste, abuse, or potentially criminal activity pertaining to the Payroll Support.

 

7


  c.

Promptly provide Treasury with any information Treasury may request relating to compliance by the Recipient and its Affiliates with this Agreement.

 

  16.

The Recipient and Affiliates will provide Treasury, the Treasury Inspector General, and such other entities as authorized by Treasury timely and unrestricted access to all documents, papers, or other records, including electronic records, of the Recipient related to the Payroll Support, to enable Treasury and the Treasury Inspector General to make audits, examinations, and otherwise evaluate the Recipient’s compliance with the terms of this Agreement. This right also includes timely and reasonable access to the Recipient’s and its Affiliates’ personnel for the purpose of interview and discussion related to such documents. This right of access shall continue as long as records are required to be retained.

Recordkeeping and Internal Controls

 

  17.

If Treasury notifies the Recipient that the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount (subject to any pro rata reductions and as determined by the Secretary as of the date of such disbursement), the Recipient shall maintain the Payroll Support funds in a separate account over which Treasury shall have a perfected security interest to continue the payment of Wages, Salary, and Benefits to the Employees. For the avoidance of doubt, regardless whether the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount, if the Recipient is a debtor as defined under 11 U.S.C. § 101(13), the Payroll Support funds, any claim or account receivable arising under this Agreement, and any segregated account holding funds received under this Agreement shall not constitute or become property of the estate under 11 U.S.C. § 541.

 

  18.

The Recipient shall expend and account for Payroll Support funds in a manner sufficient to:

 

  a.

Permit the preparation of accurate, current, and complete quarterly reports as required under this Agreement.

 

  b.

Permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used as required under this Agreement.

 

  19.

The Recipient shall establish and maintain effective internal controls over the Payroll Support; comply with all requirements related to the Payroll Support established under applicable Federal statutes and regulations; monitor compliance with Federal statutes, regulations, and the terms and conditions of this Agreement; and take prompt corrective actions in accordance with audit recommendations. The Recipient shall promptly remedy any identified instances of noncompliance with this Agreement.

 

8


  20.

The Recipient and Affiliates shall retain all records pertinent to the receipt of Payroll Support and compliance with the terms and conditions of this Agreement (including by suspending any automatic deletion functions for electronic records, including e-mails) for a period of three years following the period of performance. Such records shall include all information necessary to substantiate factual representations made in the Recipient’s application for Payroll Support, including ledgers and sub-ledgers, and the Recipient’s and Affiliates’ compliance with this Agreement. While electronic storage of records (backed up as appropriate) is preferable, the Recipient and Affiliates may store records in hardcopy (paper) format. The term “records” includes all relevant financial and accounting records and all supporting documentation for the information reported on the Recipient’s quarterly reports.

 

  21.

If any litigation, claim, investigation, or audit relating to the Payroll Support is started before the expiration of the three-year period, the Recipient and Affiliates shall retain all records described in paragraph 20 until all such litigation, claims, investigations, or audit findings have been completely resolved and final judgment entered or final action taken.

Remedies

 

  22.

If Treasury believes that an instance of noncompliance by the Recipient or an Affiliate with (a) this Agreement, (b) sections 4114 or 4116 of the CARES Act, or (c) the Internal Revenue Code of 1986 as it applies to the receipt of Payroll Support has occurred, Treasury may notify the Recipient in writing of its proposed determination of noncompliance, provide an explanation of the nature of the noncompliance, and specify a proposed remedy. Upon receipt of such notice, the Recipient shall, within seven days, accept Treasury’s proposed remedy, propose an alternative remedy, or provide information and documentation contesting Treasury’s proposed determination. Treasury shall consider any such submission by the Recipient and make a final written determination, which will state Treasury’s findings regarding noncompliance and the remedy to be imposed.

 

  23.

If Treasury makes a final determination under paragraph 22 that an instance of noncompliance has occurred, Treasury may, in its sole discretion, withhold any Additional Payroll Support Payments; require the repayment of the amount of any previously disbursed Payroll Support, with appropriate interest; require additional reporting or monitoring; initiate suspension or debarment proceedings as authorized under 2 CFR Part 180; terminate this Agreement; or take any such other action as Treasury, in its sole discretion, deems appropriate.

 

  24.

Treasury may make a final determination regarding noncompliance without regard to paragraph 22 if Treasury determines, in its sole discretion, that such determination is necessary to protect a material interest of the Federal Government. In such event, Treasury shall notify the Recipient of the remedy that Treasury, in its sole discretion, shall impose, after which the Recipient may contest Treasury’s final determination or propose an alternative remedy in writing to Treasury. Following the receipt of such a submission by the Recipient, Treasury may, in its sole discretion, maintain or alter its final determination.

 

9


  25.

Any final determination of noncompliance and any final determination to take any remedial action described herein shall not be subject to further review. To the extent permitted by law, the Recipient waives any right to judicial review of any such determinations and further agrees not to assert in any court any claim arising from or relating to any such determination or remedial action.

 

  26.

Instead of, or in addition to, the remedies listed above, Treasury may refer any noncompliance or any allegations of fraud, waste, or abuse to the Treasury Inspector General.

 

  27.

Treasury, in its sole discretion, may grant any request by the Recipient for termination of this Agreement, which such request shall be in writing and shall include the reasons for such termination, the proposed effective date of the termination, and the amount of any unused Payroll Support funds the Recipient requests to return to Treasury. Treasury may, in its sole discretion, determine the extent to which the requirements under this Agreement may cease to apply following any such termination.

 

  28.

If Treasury determines that any remaining portion of the Payroll Support will not accomplish the purpose of this Agreement, Treasury may terminate this Agreement in its entirety to the extent permitted by law.

Debts

 

  29.

Any Payroll Support in excess of the amount which Treasury determines, at any time, the Recipient is authorized to receive or retain under the terms of this Agreement constitutes a debt to the Federal Government.

 

  30.

Any debts determined to be owed by the Recipient to the Federal Government shall be paid promptly by the Recipient. A debt is delinquent if it has not been paid by the date specified in Treasury’s initial written demand for payment, unless other satisfactory arrangements have been made. Interest, penalties, and administrative charges shall be charged on delinquent debts in accordance with 31 U.S.C. § 3717, 31 CFR 901.9, and paragraphs 31 and 32. Treasury will refer any debt that is more than 180 days delinquent to Treasury’s Bureau of the Fiscal Service for debt collection services.

 

  31.

Penalties on any debts shall accrue at a rate of not more than 6 percent per year or such other higher rate as authorized by law.

 

  32.

Administrative charges relating to the costs of processing and handling a delinquent debt shall be determined by Treasury.

 

  33.

The Recipient shall not use funds from other federally sponsored programs to pay a debt to the government arising under this Agreement.

 

10


Protections for Whistleblowers

 

  34.

In addition to other applicable whistleblower protections, in accordance with 41 U.S.C. § 4712, the Recipient shall not discharge, demote, or otherwise discriminate against an Employee as a reprisal for disclosing information to a Person listed below that the Employee reasonably believes is evidence of gross mismanagement of a Federal contract or grant, a gross waste of federal funds, an abuse of authority relating to a Federal contract or grant, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract) or grant:

 

  a.

A Member of Congress or a representative of a committee of Congress;

 

  b.

An Inspector General;

 

  c.

The Government Accountability Office;

 

  d.

A Treasury employee responsible for contract or grant oversight or management;

 

  e.

An authorized official of the Department of Justice or other law enforcement agency;

 

  f.

A court or grand jury; or

 

  g.

A management official or other Employee of the Recipient who has the responsibility to investigate, discover, or address misconduct.

Lobbying

 

  35.

The Recipient shall comply with the provisions of 31 U.S.C. § 1352, as amended, and with the regulations at 31 CFR Part 21.

Non-Discrimination

 

  36.

The Recipient shall comply with, and hereby assures that it will comply with, all applicable Federal statutes and regulations relating to nondiscrimination including:

 

  a.

Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d et seq.), including Treasury’s implementing regulations at 31 CFR Part 22;

 

  b.

Section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. § 794);

 

  c.

The Age Discrimination Act of 1975, as amended (42 U.S.C. §§ 6101–6107), including Treasury’s implementing regulations at 31 CFR Part 23 and the general age discrimination regulations at 45 CFR Part 90; and

 

  d.

The Air Carrier Access Act of 1986 (49 U .S.C. § 41705).

 

11


Additional Reporting

 

  37.

Within seven days after the date of this Agreement, the Recipient shall register in SAM.gov, and thereafter maintain the currency of the information in SAM.gov until at least March 24, 2022. The Recipient shall review and update such information at least annually after the initial registration, and more frequently if required by changes in the Recipient’s information. The Recipient agrees that this Agreement and information related thereto, including the Maximum Awardable Amount and any executive total compensation reported pursuant to paragraph 38, may be made available to the public through a U.S. Government website, including SAM.gov.

 

  38.

For purposes of paragraph 37, the Recipient shall report total compensation as defined in paragraph e.5 of the award term in 2 CFR part 170, App. A for each of the Recipient’s five most highly compensated executives for the preceding completed fiscal year, if:

 

  a.

the total Payroll Support is $25,000 or more;

 

  b.

in the preceding fiscal year, the Recipient received:

 

  i.

80 percent or more of its annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and

 

  ii.

$25,000,000 or more in annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and

 

  c.

the public does not have access to information about the compensation of the executives through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986. To determine if the public has access to the compensation information, the Recipient shall refer to U.S. Securities and Exchange Commission total compensation filings at http://www.sec.gov/answers/execomp.htm.

 

  39.

The Recipient shall report executive total compensation described in paragraph 38:

 

  a.

as part of its registration profile at https://www.sam.gov; and

 

  b.

within five business days after the end of each month following the month in which this Agreement becomes effective, and annually thereafter.

 

12


  40.

The Recipient agrees that, from time to time, it will, at its own expense, promptly upon reasonable request by Treasury, execute and deliver, or cause to be executed and delivered, or use its commercially reasonable efforts to procure, all instruments, documents and information, all in form and substance reasonably satisfactory to Treasury, to enable Treasury to ensure compliance with, or effect the purposes of, this Agreement, which may include, among other documents or information, (a) certain audited financial statements of the Recipient, (b) documentation regarding the Recipient’s revenues derived from its business as a passenger or cargo air carrier or regarding the passenger air carriers for which the Recipient provides services as a contractor (as the case may be), and (c) the Recipient’s most recent quarterly Federal tax returns. The Recipient agrees to provide Treasury with such documents or information promptly.

 

  41.

If the total value of the Recipient’s currently active grants, cooperative agreements, and procurement contracts from all Federal awarding agencies exceeds $10,000,000 for any period before termination of this Agreement, then the Recipient shall make such reports as required by 2 CFR part 200, Appendix XII.

Other

 

  42.

The Recipient acknowledges that neither Treasury, nor any other actor, department, or agency of the Federal Government, shall condition the provision of Payroll Support on the Recipient’s implementation of measures to enter into negotiations with the certified bargaining representative of a craft or class of employees of the Recipient under the Railway Labor Act (45 U.S.C. 151 et seq.) or the National Labor Relations Act (29 U.S.C. 151 et seq.), regarding pay or other terms and conditions of employment.

 

  43.

Notwithstanding any other provision of this Agreement, the Recipient has no right to, and shall not, transfer, pledge, mortgage, encumber, or otherwise assign this Agreement or any Payroll Support provided under this Agreement, or any interest therein, or any claim, account receivable, or funds arising thereunder or accounts holding Payroll Support, to any party, bank, trust company, or other Person without the express written approval of Treasury.

 

  44.

The Signatory Entity will cause its Affiliates to comply with all of their obligations under or relating to this Agreement.

 

  45.

Unless otherwise provided in guidance issued by Treasury or the Internal Revenue Service, the form of any Taxpayer Protection Instrument held by Treasury and any subsequent holder will be treated as such form for purposes of the Internal Revenue Code of 1986 (for example, a Taxpayer Protection Instrument in the form of a note will be treated as indebtedness for purposes of the Internal Revenue Code of 1986).

 

  46.

This Agreement may not be amended or modified except pursuant to an agreement in writing entered into by the Recipient and Treasury, except that Treasury may unilaterally amend this Agreement if required in order to comply with applicable Federal law or regulation.

 

13


  47.

Subject to applicable law, Treasury may, in its sole discretion, waive any term or condition under this Agreement imposing a requirement on the Recipient or any Affiliate.

 

  48.

This Agreement shall bind and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, and assigns.

 

  49.

The Recipient represents and warrants to Treasury that this Agreement, and the issuance and delivery to Treasury of the Taxpayer Protection Instruments, if applicable, have been duly authorized by all requisite corporate and, if required, stockholder action, and will not result in the violation by the Recipient of any provision of law, statute, or regulation, or of the articles of incorporation or other constitutive documents or bylaws of the Recipient, or breach or constitute an event of default under any material contract to which the Recipient is a party.

 

  50.

The Recipient represents and warrants to Treasury that this Agreement has been duly executed and delivered by the Recipient and constitutes a legal, valid, and binding obligation of the Recipient enforceable against the Recipient in accordance with its terms.

 

  51.

This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which together shall constitute a single contract.

 

  52.

The words “execution,” “signed,” “signature,” and words of like import in any assignment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Notwithstanding anything herein to the contrary, delivery of an executed counterpart of a signature page of this Agreement by electronic means, or confirmation of the execution of this Agreement on behalf of a party by an email from an authorized signatory of such party, shall be effective as delivery of a manually executed counterpart of this Agreement.

 

  53.

The captions and paragraph headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

 

  54.

This Agreement is governed by and shall be construed in accordance with Federal law. Insofar as there may be no applicable Federal law, this Agreement shall be construed in accordance with the laws of the State of New York, without regard to any rule of conflicts of law (other than section 5-1401 of the New York General Obligations Law) that would result in the application of the substantive law of any jurisdiction other than the State of New York.

 

  55.

Nothing in this Agreement shall require any unlawful action or inaction by either party.

 

  56.

The requirement pertaining to trafficking in persons at 2 CFR 175.15(b) is incorporated herein and made applicable to the Recipient.

 

14


  57.

This Agreement, together with the attachments hereto, including the Payroll Support Certification and any attached terms regarding Taxpayer Protection Instruments, constitute the entire agreement of the parties relating to the subject matter hereof and supersede any previous agreements and understandings, oral or written, relating to the subject matter hereof. There may exist other agreements between the parties as to other matters, which are not affected by this Agreement and are not included within this integration clause.

 

  58.

No failure by either party to insist upon the strict performance of any provision of this Agreement or to exercise any right or remedy hereunder, and no acceptance of full or partial Payroll Support (if applicable) or other performance by either party during the continuance of any such breach, shall constitute a waiver of any such breach of such provision.

ATTACHMENT

Payroll Support Program Certification of Corporate Officer of Recipient

 

15


PAYROLL SUPPORT PROGRAM

CERTIFICATION OF CORPORATE OFFICER OF RECIPIENT

In connection with the Payroll Support Program Agreement (Agreement) between AIR WISCONSIN AIRLINES LLC and the Department of the Treasury (Treasury) relating to Payroll Support being provided by Treasury to the Recipient under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief and Economic Security Act, I hereby certify under penalty of perjury to the Treasury that all of the following are true and correct. Capitalized terms used but not defined herein have the meanings set forth in the Agreement.

(1) I have the authority to make the following representations on behalf of myself and the Recipient. I understand that these representations will be relied upon as material in the decision by Treasury to provide Payroll Support to the Recipient.

(2) The information and certifications provided by the Recipient in an application for Payroll Support, and in any attachments or other information provided by the Recipient to Treasury related to the application, are true and correct and do not contain any materially false, fictitious, or fraudulent statement, nor any concealment or omission of any material fact.

(3) The Recipient has the legal authority to apply for the Payroll Support, and it has the institutional, managerial, and financial capability to comply with all obligations, terms, and conditions set forth in the Agreement and any attachment thereto.

(4) The Recipient and any Affiliate will give Treasury, Treasury’s designee or the Treasury Office of Inspector General (as applicable) access to, and opportunity to examine, all documents, papers, or other records of the Recipient or Affiliate pertinent to the provision of Payroll Support made by Treasury based on the application, in order to make audits, examinations, excerpts, and transcripts.

(5) No Federal appropriated funds, including Payroll Support, have been paid or will be paid, by or on behalf of the Recipient, to any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement.

 

16


(6) If the Payroll Support exceeds $100,000, the Recipient shall comply with the disclosure requirements in 31 CFR Part 21 regarding any amounts paid for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the Payroll Support.

I acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in this certification, or in the application that it supports, may be the subject of criminal prosecution and also may subject me and the Recipient to civil penalties and/or administrative remedies for false claims or otherwise.

 

/s/ Robert Binns

   

/s/ Gregg Garvey

Corporate Officer of Signatory Entity     Second Authorized Representative
Name: Robert Binns     Name: Gregg Garvey
Title: President & CEO     Title: SVP, CAO & Treasurer
Date: 4/17/2020     Date: 4/17/2020

 

17

Exhibit 10.8.1

 

 

 

RESTRUCTURING AGREEMENT

dated as of January 25, 2018

among

AIR WISCONSIN AIRLINES LLC

HER MAJESTY IN RIGHT OF CANADA

BOMBARDIER INC.

U.S. BANK NATIONAL ASSOCIATION

and

INVESTISSEMENT QUÉBEC

 

 

 


Table of Contents

 

1.

 

Definitions: Usage

  

1

2.

 

Lease Rental Payments

  

1

3.

 

Bombardier’s Additional Payment

  

2

4.

 

Termination of RVGs for Debt Aircraft

  

2

5.

 

Termination of Other AWA-Bombardier Agreements

  

3

6.

 

Assignment of Bombardier’s Loans

  

3

7.

 

EDC Loans

  

3

8.

 

IQ Fee Payments

  

3

9.

 

Representations

  

3

10.

 

Closing; Conditions Precedent

  

5

11.

 

Transaction Expenses

  

5

12.

 

Instructions to Loan Trustee

  

5

13.

 

Consent

  

6

14.

 

Further Assurances

  

6

15.

 

Miscellaneous

  

6

Exhibits

A

  

Definitions; Usage

B

  

Description of Credit Agreements and Debt Aircraft

C

  

Form of RVG Termination Agreement

D

  

Form of LMA Termination Agreement

E

  

Form of Offset Termination Agreement

F

  

Form of EDC Deferral Amendment

G

  

Form of IQ Deferral Agreement

H

  

Equity Portion of Basic Rent for Verizon USLL Aircraft


RESTRUCTURING AGREEMENT

This Restructuring Agreement (this “Agreement”) is entered into as of January 25, 2018, by (1) Air Wisconsin Airlines LLC (“AWA”), a Delaware limited liability company and successor to Air Wisconsin Airlines Corporation, (2) Her Majesty in Right of Canada (“EDC”), (3) Bombardier Inc. (“Bombardier”), (4) U.S. Bank National Association (as successor to Wachovia Bank, National Association) as trustee under each of the Credit Agreements (“Loan Trustee”), and (5) Investissement Québec (“IQ”), as agent of the government of the province of Québec.

EDC, Bombardier, and IQ have provided financial support for AWA’s lease financing of 24 Bombardier CRJ-200 aircraft currently in AWA’s fleet and for AWA’s loan financing of 35 Bombardier CRJ-200 aircraft currently in AWA’s fleet. At the effective time of this Agreement, the parties are taking actions and making agreements that change existing financial arrangements and commit to new ones, all as described in this Agreement.

The parties to this Agreement agree as follows:

1.      Definitions: Usage. Exhibit A has usage rules and definitions that apply to this Agreement.

2.      Lease Rental Payments. Bombardier shall pay to AWA the following amounts, in the case of § 2.1, on the Closing Date, and in the case of § 2.2, within five Business Days after receiving a copy of the wire transfer record (including the federal reference number) or other confirmation that AWA has made the payment(s) of “Basic Rent” (as defined in the Lease for the pertinent Verizon USLL Aircraft):

 

  2.1.

a single payment of $1,968,527, payable on the Closing Date, representing payments made by AWA in October, November, and December 2017 in respect of the equity portion of such Basic Rent; and

 

  2.2.

a series of payments, each representing the equity portion of an installment of such Basic Rent owed in 2018 and 2019 (the scheduled payment date and equity portion amount for each such payment, and the number for the relevant Verizon USLL Aircraft, are shown on Exhibit H).

Bombardier shall pay such amounts to AWA by wire transfer to the following account: JP Morgan Chase Bank, 111 E. Wisconsin Ave., Milwaukee, WI 53202, Swift Code CHASUS33, ABA no. 021000021 (Wire) 075000019 (ACH), Ref. Verizon Leases, Account Name: Air Wisconsin Airlines, Account No. 510114518,

 

1


Attention: Joanne Grishaber, 920-749-4103, treasury@airwis.com, unless AWA otherwise instructs Bombardier in writing.

Any amount not paid when due under this § 2 or §3 shall bear interest from the due date until the date on which such amount is paid at the rate of 10% per annum.

3.      Bombardiers Additional Payment. Bombardier shall pay $7,000,000 (the “Additional Payment”) to AWA, by wire transfer to AWA’s account described in § 2 of this Agreement, no later than July 1, 2019. The Additional Payment:

 

  3.1

shall be subject to AWA’s delivery to Bombardier of a certificate, signed by EDC and AWA in connection with a restructuring of AWA’s scheduled payments on its obligations to EDC, that such obligations have been restructured in a manner that, in the opinion of EDC and AWA, provides AWA with sufficient liquidity based upon projections provided to EDC by AWA (which projections EDC may share with Bombardier) to allow AWA to meet its Lease obligations through June 2021;

 

  3.2

may be satisfied by Bombardier’s causing the transfer to AWA, no later than July 1, 2019, by documentation reasonably satisfactory to AWA, of unencumbered title to all the Owner Participant interests in all the Verizon USLL Aircraft; and, upon completion of such transfer, Bombardier shall be excused from any further obligation under § 2 of this Agreement to make any future payments to AWA for the equity portion of Basic Rent payments that become due by AWA after the transfer date; and

 

  3.3

shall be subject to AWA’s delivery to Bombardier of a certificate to the effect that no “Event of Default” (as defined in any Lease) exists; provided, that if such an Event of Default exists on the proposed payment date for the Additional Payment but all such Events of Default are thereafter cured (whether before or after July 1, 2019) then (subject to § 3.1 and § 3.2 above) Bombardier shall pay the Additional Payment to AWA promptly upon delivery by AWA of a certificate to the effect that no Event of Default is continuing.

4.      Termination of RVGs for Debt Aircraft. At the Closing, Bombardier and AWA shall execute and deliver the RVG Termination Agreement.

 

2


5.      Termination of Other AWA-Bombardier Agreements. At the Closing, Bombardier and AWA shall execute and deliver the LMA Termination Agreement and the Offset Termination Agreement. In addition, at the Closing, all of Bombardier’s rights under the Existing Deferral Agreements shall automatically terminate without any further action by the parties.

6.      Assignment of Bombardiers Loans. At the Closing, by means of a Loan Purchase Agreement, Bombardier shall transfer or cause to be transferred to EDC all right, title, and interest in the loans that Bombardier or its Affiliates made directly or indirectly to AWA in connection with Bombardier CRJ-200 aircraft (including indirect loans made through a trustee), including accrued interest on the date of transfer. This includes loans in respect of the Debt Aircraft. It also includes the Bridging Loans. If either Bombardier or any of its Affiliates has any legal or beneficial interest in any loan (funded or otherwise) to AWA, or in any other claim of indebtedness, either directly, or indirectly through a trustee, in connection with any loan or lease financing for CRJ-200 aircraft operated by AWA, then all right, title, and interest thereto shall be deemed to be assigned to EDC at Closing (and Bombardier shall ensure that such assignment occurs).

7.      EDC Loans. At the Closing, EDC and AWA shall execute and deliver the EDC Deferral Amendment and the EDC USLL Loan Documents.

8.      IQ Fee Payments. At the Closing, IQ and AWA shall execute and deliver the IQ Deferral Agreement.

9.      Representations.

9.1    EDC represents that:

 

  9.1.1

it is the sole legal and beneficial owner of the Senior Certificates issued to it in respect of the Debt Aircraft under the Credit Agreements; and

 

  9.1.2

this Agreement and each other Transaction Document to which it is a party have been duly authorized, executed, and delivered by it, and constitute its legal, valid, and binding obligations, enforceable against it in accordance with their terms, except as such terms may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the rights of creditors generally and by general principles of equity.

9.2    Bombardier represents that:

 

3


  9.2.1

(a) it is the sole legal and beneficial owner of the Subordinated Certificates issued to it in respect of the Aircraft under each of the Credit Agreements and the sole legal and beneficial owner of the Senior Certificates issued to it under the Credit Agreement dated April 30, 2004, (b) Bombardier Services Corporation is the sole legal and beneficial owner of the Bridging Loans, and (c) neither Bombardier nor any of its Affiliates is the legal or beneficial owner of any other loans (funded or otherwise) to AWA, or of any other claim of indebtedness, either directly, or indirectly through a trustee, in connection with any loan or lease financing for CRJ-200 aircraft operated by AWA; and

 

  9.2.2

this Agreement and each other Transaction Document to which it is a party have been duly authorized, executed, and delivered by it, and constitute its legal, valid, and binding obligations, enforceable against it in accordance with their terms, except as such terms may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the rights of creditors generally and by general principles of equity.

 

  9.3

IQ represents that (a) it is the sole legal and beneficial owner of the fees payable under the IQ Agreements (as defined in the IQ Deferral Agreement), and (b) this Agreement and each other Transaction Document to which it is a party have been duly authorized, executed, and delivered by it, and constitute its legal, valid, and binding obligation, enforceable against it in accordance with their terms, except as such terms may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the rights of creditors generally and by general principles of equity.

 

  9.4

AWA represents that:

 

  9.4.1

it is a limited liability company duly organized and existing in good standing under the laws of Delaware, has the company power and legal authority to own or lease property and to carry on business as a United States air carrier, and is duly qualified to do business in all jurisdictions wherein such qualification is necessary (except in any jurisdictions in which the failure to qualify would have no materially adverse effect on AWA’s ability to perform its obligations under the Transaction Documents);

 

4


  9.4.2

its execution, delivery, and performance of each Transaction Document are within AWA’s company powers; and the Transaction Documents have been duly authorized by all necessary company action on AWA’s part, and do not contravene, result in a breach of, or require any consent under any law, judgment, decree, order, or contractual restriction binding on AWA or any agreement or instrument to which AWA is a party or to which it or any of its property is subject;

 

  9.4.3

the Transaction Documents are legal, valid, and binding obligations of AWA enforceable against AWA in accordance with their terms, except as may be limited by bankruptcy, insolvency, or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity; and

 

  9.4.4

it is a United States air carrier who is a citizen of the United States holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of the Transportation Code (49 U.S. Code subtitle VII).

10.    Closing; Conditions Precedent. All aspects of the Closing are intended to become effective simultaneously, at the time that Bombardier makes the payment described in § 2.1. Each party’s willingness to execute and deliver this Agreement was subject to the satisfaction or waiver of the following conditions precedent:

 

  10.1

the following documents have been executed and delivered: the RVG Termination Agreement, the LMA Termination Agreement, the Offset Termination Agreement, the EDC Deferral Amendment, the EDC USLL Loan Documents, and the IQ Deferral Agreement;

 

  10.2

no Event of Default under AWA’s lease and loan agreements for the USLL Aircraft or the Debt Aircraft exists on the Closing Date; and

 

  10.3

AWA has submitted updated 5 years of cash projections to Bombardier and EDC.

11.    Transaction Expenses. Each party will pay its own expenses in connection with the negotiation and documentation of this Agreement, except that AWA shall pay for such expenses of Loan Trustee and for the fees and expenses of Crowe & Dunlevy as FAA/IR counsel.

12.    Instructions to Loan Trustee. EDC and Bombardier hereby

 

5


authorize and direct Loan Trustee to execute, deliver, and perform its obligations under this Agreement, the EDC Deferral Amendment, and the EDC USLL Loan Documents.

13.    Consent. By its execution hereof, Bombardier hereby acknowledges and consents to the terms and conditions hereof for all purposes of the Bombardier Guarantee referred to in each of the Credit Agreements.

14.    Further Assurances. Each party shall execute such documents and take such actions at its own expense as any other party may reasonably request to effectuate the transactions contemplated by this Agreement.

15.    Miscellaneous. The following provisions of the Credit Agreements are hereby incorporated into this Agreement by this reference, mutatis mutandis, with respect to all parties: § 13.01 [No Waivers; Cumulative Remedies], § 13.02 [Notices], § 13.04 [Amendments], § 13.05(a) [Binding Effect; Consent to Assignment], § 13.07 [Governing Law; Jurisdiction; Waiver of Jury Trial], § 13.08 [Headings], § 13.09 [Execution in Counterparts], and § 13.12 [Confidentiality]. In addition to the terms of such § 13.12, AWA agree that EDC may disclose AWA’s quarterly and annual financial statements to Bombardier. Further, IQ’s current address for notices purposes is as follows:

Investissement Québec

600, de la Gauchetière Ouest, bureau 1500

Montréal, Québec H3B 4L8

Canada

Attention: Secrétaire

In addition, each party to this Agreement represents and warrants that it is subject to civil and commercial law with respect to its obligations under the Transaction Documents, that its making and performance of the Transaction Documents to which it is a party constitute private and commercial acts rather than governmental or public acts, and that neither it nor any of its properties or revenues has any right of immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment, or from any other legal process with respect to its obligations under the Transaction Documents. To the extent that any party hereto may hereafter be entitled, in any jurisdiction in which judicial or arbitral proceedings may at any time be commenced with respect to any Transaction Document, to claim for itself or its revenues or assets any such immunity, and to the extent that in any such jurisdiction there may be attributed to such party such an immunity (whether or not claimed), such party hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity. The foregoing waiver of immunity shall have effect under all United States and Canadian sovereign immunity laws.

 

6


IN WITNESS WHEREOF, AWA, EDC, Bombardier, Loan Trustee, and IQ have executed this Restructuring Agreement.

 

AIR WISCONSIN AIRLINES LLC
By:   /s/ C. R. Deister
  Title:   President & CEO
HER MAJESTY IN RIGHT OF CANADA
By:   /s/ Geoff Bleich
  Title:   Geoff Bleich, Special Risks Manager
By:   /s/ Brian Craig
  Title:   Sr. Special Risks Manager
BOMBARDIER INC.
By:   /s/ Martin Herman
  Title:   Martin Herman, Director
By:   /s/ Alison Payne
  Title:   Alison Payne, Legal Counsel
U.S. BANK NATIONAL ASSOCIATION

as trustee

By:   /s/ Charles Gallagher
  Title:   Charles Gallagher, Asst. Vice President
INVESTISSEMENT QUÉBEC
By:   /s/ Marie-Josée Giroux
  Title:   Director, Specialized Financing

 

7


Exhibit A

Definitions; Usage

Any agreement, instrument, or statute referred to in this Exhibit means such agreement, instrument, or statute as from time to time supplemented and amended. Unless the context otherwise requires, any provision of any law includes any such provision as amended, modified, supplemented, substituted, reissued, or reenacted before the date of this Agreement, and thereafter from time to time. A definition in singular form applies to the plural form of the term, and vice versa. “Including” means “including but not limited to”. “Or” is copulative and not disjunctive. “Herein”, “hereof”, “hereunder”, etc. mean in, of, under, etc. this Agreement (and not merely in, of, under, etc. the section or provision where the reference appears). References in this Agreement to sections, paragraphs, clauses, appendices, schedules, and exhibits are to sections, paragraphs, clauses, appendices, schedules and exhibits in and to this Agreement unless otherwise specified.

The following terms, when capitalized as below, shall have the following meanings for all purposes of this Agreement:

Affiliate of any Person: any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, “control” means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise, and “controlling”, “controlled by”, and “under common control with” have correlative meanings.

Bridging Loans: a total of $3.3 million original principal amount of maintenance bridging loans, made by Bombardier Services Corporation to AWA for the four Verizon-DVB USLL Aircraft, pursuant to four $825,000 Promissory Notes dated November 7, 2002, November 8, 2002, November 27, 2002, and December 13, 2002.

Closing: the consummation of the transactions described in §§ 2.1, 4, 5, 6, 7, and 8 of this Agreement.

Closing Date: the date of this Agreement.

Credit Agreements: the Credit Agreements among AWA, EDC, Bombardier, and Loan Trustee described in Exhibit B.

Debt Aircraft: the 35 Bombardier CRJ-200 aircraft identified in Exhibit B.


EDC Deferral Amendment: Amendment No. 4 to Deferral Agreement, in the form of Exhibit F.

EDC USLL Loan Documents: the Credit Agreement between AWA as borrower and EDC as lender, and the Security Agreement and Subordination Acknowledgment between AWA as borrower and Loan Trustee as mortgagee, each dated on or about the date of this Agreement.

Existing Deferral Agreements: the September 30, 2015, January 25, 2016, February 25, 2016, and April 7, 2016 Deferral Agreements entered into by AWA and some or all of EDC, Bombardier, and Loan Trustee.

FLDG: (1) a Loan Deficiency Agreement entered into with respect to a USLL Aircraft by IQ and the Loan Trustee for that USLL Aircraft, or (2) an Equity Deficiency Agreement entered into with respect to a USLL Aircraft by IQ, the Owner Participant for that USLL Aircraft, and the related Owner Trustee.

IQ Deferral Agreement: Deferral Agreement No. 7, in the form of Exhibit G.

Lease: a Lease Agreement between an owner trustee as “Lessor” and AWA as “Lessee”, covering a USLL Aircraft.

LMA Termination Agreement: an agreement in the form of Exhibit D.

Offset Termination Agreement: an agreement in the form of Exhibit E.

Other EDC USLL Aircraft: the ten Bombardier CRJ-200 aircraft having the following FAA registration numbers / manufacturer’s serial numbers: N408AW/7568,       N411ZW/7569,       N412AW/7582,       N413AW/7585,       N414ZW/7586,       N415AW/7593,       N416AW/7603,       N417AW/7610,       N418AW/7618, and N419AW/7633.

Owner Participant: the entity defined as the “Owner Participant” in a Lease.

Person or person: an individual, firm, business, partnership, joint venture, trust, trustee, government entity, organization, association, corporation, limited liability company, government agency, governmental committee, governmental department, governmental authority, and other body or organization, corporate or incorporate, whether having distinct legal status or not, or any member of any of them.

RVG Termination Agreement: an agreement in the form of Exhibit C.

Transaction Documents: this Agreement, the RVG Termination Agreement, the LMA Termination Agreement, the Offset Termination Agreement, the EDC


Deferral Amendment, the EDC USLL Loan Documents, and the IQ Deferral Agreement.

USLL Aircraft: the Other EDC USLL Aircraft and the Verizon USLL Aircraft.

Verizon USLL Aircraft: the Verizon-DVB USLL Aircraft and the Verizon-EDC USLL Aircraft.

Verizon-DVB USLL Aircraft: the four Bombardier CRJ-200 aircraft having the following FAA registration numbers / manufacturer’s serial numbers: N431AW/7256, N432AW/7257, N433AW/7289, andN434AW/7322.

Verizon-EDC USLL Aircraft: the ten Bombardier CRJ-200 aircraft having the following FAA registration numbers / manufacturer’s serial numbers: N420AW/7640,       N423AW/7636,       N424AW/7656,       N425AW/7663,       N426AW/7669,       N427ZW/7685,       N428AW/7695,       N429AW/7711,       N430AW/7719, and N435AW/7724.


Exhibit B

Description of Credit Agreements and Debt Aircraft

1. Credit Agreement dated as of April 15, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N436AW (7734), N437AW (7744), N438AW (7748), N439AW (7753), N440AW (7766), N441ZW (7777), N442AW (7778), N443AW (7781), and N444ZW (7788).

2. Credit Agreement dated as of July 25, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N445AW (7804), N446AW (7806), N447AW (7812), N448AW (7814), N449AW (7818), and N450AW (7823).

3. Credit Agreement dated as of September 11, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N451AW (7832), N452AW (7835), and N453AW (7838).

4. Credit Agreement dated as of October 24, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N454AW (7842), N455AW (7848), N456ZW (7849), N457AW (7854), and N458AW (7861).

5. Credit Agreement dated as of November 21, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N459AW (7863), N460AW (7867), and N461AW (7870).

6. Credit Agreement dated as of December 5, 2003, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N462AW (7875) and N463AW (7878).

7. Credit Agreement dated as of April 30, 2004, among AWA, EDC, Bombardier and Loan Trustee, relating to Bombardier aircraft model CL-600-2B19 bearing the following FAA registration numbers (and manufacturer’s serial numbers): N464AW (7890), N465AW (7893), N466AW (7899), N467AW (7900), N468AW (7916), N469AW (7917), and N470ZW (7927).

Exhibit 10.8.2

Schedule of Omitted Documents

Exhibit 10.8.2 to Annual Report on Form 10-K

Harbor Diversified, Inc.

LIST OF INDIVIDUAL AMENDED AND RESTATED CREDIT AGREEMENTS

Below are the specific terms of the various Amended and Restated Credit Agreements Nos. 1 through 7, which are based upon the form of Amended and Restated Credit Agreement filed as Exhibit 10.8.2 to Harbor Diversified, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019:

 

     
Agreement   Date of Original
Credit
Agreement /
Mortgage
  Aircraft Models Covered
       

A&R Credit Agreement No. 1

  April 15, 2003  

FAA

Registration

Mark

  Manufacturer’s Serial Number
  N436AW   7734
  N437AW   7744
  N438AW   7748
  N439AW   7753
  N440AW   7766
  N441ZW   7777
  N442AW   7778
  N443AW   7781
  N444ZW   7788
       

A&R Credit Agreement No. 2

  July 25, 2003   FAA
Registration
Mark
  Manufacturer’s Serial Number
  N445AW   7804
  N446AW   7806
  N447AW   7812
  N448AW   7814
  N449AW   7818
  N450AW   7823
       

A&R Credit Agreement No. 3

  September 11, 2003  

FAA
Registration

Mark

  Manufacturer’s Serial Number
  N451AW   7832
  N452AW   7835
  N453AW   7838


     
Agreement   Date of Original
Credit
Agreement /
Mortgage
  Aircraft Models Covered
       

A&R Credit Agreement No. 4

  October 24, 2003  

FAA
Registration

Mark

  Manufacturer’s Serial Number
  N454AW   7842
  N455AW   7848
  N456ZW   7849
  N457AW   7854
  N458AW   7861
       

A&R Credit Agreement No. 5

  November 21, 2003  

FAA
Registration

Mark

  Manufacturer’s Serial Number
  N459AW   7863
  N460AW   7867
  N461AW   7870
       

A&R Credit Agreement No. 6

  December 5, 2003  

FAA
Registration

Mark

  Manufacturer’s Serial Number
  N462AW   7875
  N463AW   7878
       

A&R Credit Agreement No. 7

  April 30, 2004   FAA
Registration
Mark
  Manufacturer’s Serial Number
  N464AW   7890
  N465AW   7893
  N466AW   7899
  N467AW   7900
  N468AW   7916
  N469AW   7917
  N470ZW   7927


EXECUTION VERSION

 

 

 

AMENDED AND RESTATED

CREDIT AGREEMENT NO. [•]

dated as of December 24, 2018

among

AIR WISCONSIN AIRLINES LLC,

Borrower,

U.S. BANK NATIONAL ASSOCIATION,

Loan Trustee,

and

HER MAJESTY IN RIGHT OF CANADA,

Lender,

 

 

 


TABLE OF CONTENTS

 

          Page  

Section 1.

   Definitions; Usage      1  

1.01

   Definitions      1  

1.02

   Usage      8  

Section 2.

   Exchange of Notes; Payments; Replacement Notes      9  

2.01

   Exchange of Notes      9  

2.02

   Procedure for Exchange of Notes      9  

2.03

   Replacement Notes      9  

2.04

   Obligations Absolute      10  

Section 3.

   Security for Borrower’s Obligations      10  

3.01

   Security Interest in Collateral      10  

Section 4.

   Payments by Borrower and Loan Trustee      10  

4.01

   How Payments Are Made      10  

4.02

   Right to Prepay      11  

4.03

   Mandatory Prepayments      11  

4.04

   Amount of Prepayment      11  

4.05

   Interest on Past-Due Amounts      11  

4.06

   Limit on Interest Payable      12  

4.07

   Payments by Loan Trustee      12  

Section 5.

   Borrower’s Representations and Warranties      12  

5.01

   Company Standing      12  

5.02

   Company Powers      12  

5.03

   Binding Effect      12  

5.04

   Litigation      12  

5.05

   Financial Statements      12  

5.06

   Taxes      12  

5.07

   Status as United States Citizen and Air Carrier      13  

5.08

   UCC Location      13  

5.09

   No Governmental Approvals, Notices and Filings      13  

5.10

   Sanctions and Laws      13  

Section 6.

   Covenants      13  

6.01

   Financial Statements      13  

6.02

   Inspection of Aircraft and Records      14  

6.03

   Corporate Existence      14  

6.04

   Merger, etc      14  

6.05

   Citizenship and Air Carrier Status      15  

6.06

   ERISA Information      16  

6.07

   Cash Position Notice      16  

6.08

   Restricted Payments      16  

 

i


TABLE OF CONTENTS

(continued)

 

          Page  

6.09

   Restricted Activities      17  

6.10

   Additional Collateral      17  

6.11

   Sanctions      17  

Section 7.

   Conditions Precedent      17  

7.01

   Conditions Precedent to Effective Date      17  

7.02

   Conditions Precedent to Borrower’s Obligations      19  

Section 8.

   Events of Default; Remedies      19  

8.01

   Events of Default      19  

8.02

   Remedies      21  

Section 9.

   Borrower’s Indemnities      21  

9.01

   General Indemnity      21  

9.02

   General Tax Indemnity      23  

Section 10.

   Yield Protection      33  

10.01

   Additional Costs      33  

10.02

   Substitute Office or Rate for Notes      34  

Section 11.

   Loan Trustee      34  

11.01

   Appointment; Powers and Indemnities      34  

11.02

   Reliance by Loan Trustee      35  

11.03

   Defaults      35  

11.04

   Rights as a Lender      36  

11.05

   Indemnification      36  

11.06

   Nonreliance on Loan Trustee or Lenders      36  

11.07

   Failure to Act      37  

11.08

   Investment of Funds      37  

11.09

   Loan Trustee’s Representations and Warranties      37  

11.10

   [Intentionally Omitted.]      38  

11.11

   Action Upon Written Instructions      38  

11.12

   Expenses      38  

11.13

   Procedures for Disposing of Collateral      39  

11.14

   Appointment of Additional Trustee or Co-Trustee      39  

11.15

   Resignation of Trustee; Appointment of Successor      40  

Section 12.

   Receipt, Distribution, and Application of Income      41  

12.01

   Payment by Loan Trustee Generally      41  

12.02

   Payment upon Event of Loss      41  

12.03

   Payments After Event of Default      41  

12.04

   Indemnity and Certain Other Payments      43  

12.05

   Other Payments      43  

12.06

   Method of Payment      44  

 

ii


TABLE OF CONTENTS

(continued)

 

          Page  

12.07

   Payments from Proceeds from Borrower      44  

12.08

   Termination of Notes      44  

Section 13.

   Miscellaneous      44  

13.01

   No Waivers; Cumulative Remedies      44  

13.02

   Notices      44  

13.03

   Transaction Expenses      45  

13.04

   Amendments      46  

13.05

   Successors and Assigns; Lender Transfers      47  

13.06

   Lenders’ Representations and Warranties      49  

13.07

   Governing Law; Jurisdiction; Waiver of Jury Trial      49  

13.08

   Headings      49  

13.09

   Execution in Counterparts      50  

13.10

   Survival of Representations and Warranties      50  

13.11

   Severability      50  

13.12

   Confidentiality      50  

13.13

   U.S. Dollars      51  

13.14

   Decisions Binding      51  

13.15

   Entire Agreement      51  

 

Exhibit A

         

Form of Note

Exhibit B

         

Basic Documents

Exhibit C

         

Description of Aircraft

Exhibit D

         

Description of CRJ Aircraft Leases

Exhibit E

         

Designated Leases

 

iii


AMENDED AND RESTATED CREDIT AGREEMENT NO. [•]

THIS AMENDED AND RESTATED CREDIT AGREEMENT NO. [•] is entered into as of December 24, 2018, among (1) AIR WISCONSIN AIRLINES LLC (“Borrower”), a Delaware limited liability company, formerly known as Air Wisconsin Airlines Corporation, (2) HER MAJESTY IN RIGHT OF CANADA (“Lender”), and (3) U.S. BANK NATIONAL ASSOCIATION (as successor to Wachovia Bank, National Association), in its individual capacity when referred to as “U.S. Bank” and otherwise solely as trustee (“Loan Trustee”) amends and restates that certain Credit Agreement dated as of [•], 2003 (“Original Credit Agreement”) among, inter alia, Borrower, Lender and Loan Trustee.

Recitals: Borrower’s liabilities exceed its assets, so Borrower is insolvent. The parties to this Agreement believe that it is in their best interests to change their financial arrangements as set forth in this Agreement and related agreements dated the same date, so that Borrower’s long term viability will be more likely. In this Agreement and the related agreements, the parties intend (among other things) that (1) Borrower’s debt to Loan Trustee (for Lender’s benefit) be reduced to US$70 million plus the amount of certain “USLL Loans” made or to be made on the due dates of certain of Borrower’s leveraged lease rent payments, (2) all such loans be cross collateralized by 35 Borrower owned aircraft and certain additional collateral, (3) the loan amortization and final maturity date be modified as provided herein, and (4) the interest rate on the debt for the 35 aircraft notes be modified as provided herein.

Borrower, the Lender, U.S. Bank, and Loan Trustee agree as follows:

Section 1.    Definitions; Usage.

1.01    Definitions. Terms defined in the Mortgage and not in this Agreement have the same meanings as in the Mortgage. The following terms, when capitalized as below, have the following meanings:

Additional Collateral Security Agreement”: defined in § 6.10.

After-Tax Basis”: a basis such that any payment to be received or receivable by any Person is supplemented by a further payment or payments to that Person so that the sum of all such payments, after deducting all Taxes (taking into account any related credits or deductions) payable by such Person or any of its Affiliates under any law or governmental authority, is equal to the payment due to such Person, provided, that for these purposes, such Person shall be assumed to be subject to tax at the highest marginal rate(s) applicable to such Person with respect to the amounts in question.

Agreement”: this Amended and Restated Credit Agreement No. [•].

Aircraft”: any of the CRJ-200 aircraft identified in the following table, each of which was financed with proceeds of the Original Notes and Certificates and has two General Electric model CF34-3B1 engines.


[Amended and Restated Credit Agreement No. [•]]

 

   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]
   
[•]    [•]

Applicable Law”: all applicable laws, statutes, treaties, rules, codes, ordinances, regulations, permits, certificates, and orders, all binding interpretations thereof, and all requirements and mandatory conditions of licenses, certifications, approvals, authorizations, orders, and permits, of any governmental authority, and judgments, decrees, injunctions, writs, orders, or like action of any court, arbitrator or other administrative, judicial, or quasi-judicial tribunal or agency of competent jurisdiction.

Approved Jurisdictions”: Australia, Austria, Bahamas, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Monaco, New Zealand, Norway, Netherlands, Portugal, Singapore, Sweden, Switzerland, and United Kingdom, and, as to (sub)leasing, but not as to re-registration, Bermuda, Jamaica, Mexico, and any Category B Jurisdiction.

AW Funding”: Air Wisconsin Funding LLC.

Basic Documents”: this Agreement, the Mortgage, the Additional Collateral Security Agreement, each Note, and each Mortgage Supplement.

Business Day”: any day, other than a Saturday or Sunday, on which commercial banks are open for business in New York, New York, Appleton, Wisconsin, and Milwaukee, Wisconsin.

Cape Town Treaty”: collectively, the official English language texts of the Convention on International Interests in Mobile Equipment (the “Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the “Protocol”), both signed in Cape Town, South Africa on November 16, 2001, together with any protocols, regulations, rules, orders, agreements, instruments, amendments, supplements, revisions or otherwise that have or will be subsequently made in connection with the Convention or the Protocol by the “Supervisory Authority” (as defined in the Convention), the International Registry or “Registrar” (as defined in the Convention) or any other international or national, body or authority, all as in effect in the United States or other relevant Contracting State (as used in the Convention). Except to the extent otherwise defined in the Basic Documents, terms used in the Basic Documents that are defined in the Cape Town Convention shall when used in relation to the Cape Town Convention have the meanings ascribed to them in the Cape Town Convention.

 

2


[Amended and Restated Credit Agreement No. [•]]

 

Category B Jurisdictions”: Argentina, Brazil, Chile, and Taiwan, but in each case only if, in addition to any other (sub)leasing requirements contained in the Basic Documents, (1) the pertinent (sub)lessee located therein is (prior to effecting a proposed (sub)lease) a then-current commercial operator of at least one commercial passenger jet aircraft, (2) the number of Aircraft (sub)leased to any one such (sub)lessee and its Affiliates after giving effect to a proposed (sub)lease do not exceed 50% of the fleet of such (sub)lessee and its Affiliates (excluding any such (sub)leased Aircraft in calculating such 50%), and (3) the number of CRJ-200 aircraft that are (x) financed or refinanced with debt provided by Her Majesty in Right of Canada, and (y) (sub)leased by Borrower, is not more than (a) five CRJ-200 aircraft to (sub)lessees domiciled in any one of the countries named in this definition, and (b) in the aggregate, ten CRJ-200 aircraft to (sub)lessees domiciled in all countries named in this definition.

Code”: the Internal Revenue Code of 1986.

Collateral”: defined in the Mortgage.

CRJ-200”: a Bombardier regional jet aircraft, model CL-600-2B19.

Default”: any event or condition that would become an Event of Default upon the giving of notice or lapse of time or both, or any Event of Default.

Designated Leases”: the leases listed on Exhibit E.

Disclosure Certificate”: a certificate executed by Borrower, and delivered to Lender shortly before the Effective Date, describing certain developments and contingencies applicable to Borrower.

Dollars” and “$”: United States dollars.

Effective Date”: the date of this Agreement.

Engine”: either of the two General Electric model CF34-3B1 engines listed by manufacturer’s serial numbers on a supplement to the Original Mortgage, or any Replacement Engine substituted for an Engine under the Original Mortgage or the Mortgage, and including all Parts incorporated in such engine, whether or not such engine is from time to time installed on an Airframe or on any other airframe.

ERISA”: the Employee Retirement Income Security Act of 1974.

ERISA Source of Funds”: used by a purchaser of any Note: any source of funds that includes the assets of any Plan, other than a plan exempt from the coverage of ERISA, but in any event excluding any source of funds that the relevant purchaser represents to Borrower:

(1)    is an insurance company general account as such term is used in U.S. Department of Labor Prohibited Transaction Class Exemption (“PTCE”) 95-60 (issued July 12, 1995), and the amount of reserves and liabilities (as defined in the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”) and before reduction for

 

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credits on account of any reinsurance ceded on the coinsurance basis) (the “Reserves and Liabilities”), for the general account contract(s) held by or on behalf of any Plan, together with the amount of the Reserves and Liabilities for the general account contract(s) held by or on behalf of any other Plans maintained by the same employer (or any “affiliate” thereof within the meaning of § V(a)(1) of PTCE 95-60), does not exceed 10% of the total Reserves and Liabilities of such general account plus surplus, as set forth in the NAIC Annual Statement filed with the state of domicile of the insurance company maintaining such general account; or

(2)    is a separate account that is maintained solely in connection with that purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any mariner by the investment performance of the separate account; or

(3)    is either (a) an insurance company pooled separate account, within the meaning of PTCE 90-1 (issued January 29, 1990), or (B) a bank collective investment fund, within the meaning of PTCE 91-38 (issued July 12, 1991) and, except as consented to by Borrower in writing pursuant to this clause (3), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

(4)    constitutes assets of an “investment fund” (within the meaning of Part V of PTCE 84-14) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V of PTCE 84-14), no employee benefit plan’s assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of § V(c)(1) of PTCE-84-14) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of PTCE 84-14 are satisfied, and neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in § V(e) of PTCE 84-14) owns a 5% or more interest in Borrower; or

(5)    constitutes assets managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV of PTCE 96-23), the conditions of Part I(a) of PTCE 96-23 are satisfied, and neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in § IV(d) of PTCE 96-23) owns a 5% or more interest in Borrower; or

(6)    is a governmental plan; or

(7)    is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of such has been consented to by Borrower in writing pursuant to this clause (7).

 

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As used in this definition, “employee benefit plan”, “governmental plan”, and “separate account” have the same meanings as in § 3 of ERISA.

Event of Default”: defined in § 8.01.

Event of Loss”: defined in the Mortgage.

FAA”: the Federal Aviation Administration of the United States, or any instrumentality of the United States succeeding to its function.

Funding Date” [•], 2003, which is the date on which the Borrower financed each Aircraft under the Original Credit Agreement.

GAAP”: generally accepted accounting principles as in effect in the United States and applied on a basis consistent with that used in the preparation of the financial statements referred to in § 5.05, except for changes therein with which Borrower’s independent public accountants concur that are disclosed in the notes to the relevant financial statements.

Group of Notes”: all promissory notes issued under all the Related Credit Agreements for the aircraft listed on Exhibit C, which as of the Effective Date will collectively have an outstanding principal balance in aggregate for all such notes of $70 million.

Indemnitee”: Loan Trustee, U.S. Bank, or a Lender, or any agent, employee, officer, director, successor, or permitted assign of any of the foregoing.

Interest Rate”: 4% per annum (calculated on the basis of a 360-day year of twelve 30-day months).

International Registry”: defined in the Cape Town Treaty.

Item”: defined in the Mortgage.

Lender”: Her Majesty in Right of Canada, or a successor or assign of such Lender, including any future holder of a Note.

Liabilities”: defined in § 9.01.

Lien”: any mortgage, pledge, assignment, security interest, lien (statutory or other), or other encumbrance of any kind or nature whatsoever (including any conditional sale or other title retention agreement, or any lease in the nature thereof).

Loan Trustee”: U.S. Bank National Association (as successor to Wachovia Bank, National Association), not in its individual capacity but solely in its capacity as trustee for the Lenders, or the successor trustee pursuant to § 11.

Manufacturer”: Bombardier Inc.

 

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Majority in Interest of Lenders”: Lenders who, at the pertinent time, have more than a 50% interest in the aggregate principal of all outstanding Notes, excluding any Notes then held by Borrower or any Affiliate of Borrower.

Materially Adverse Change or Materially Adverse Effect”: any event, act, condition, or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding) that, singly or in conjunction with any other event(s), act(s), condition(s), occurrence(s), whether or not related, results in a materially adverse change in, or has a materially adverse effect upon, Borrower’s financial position or results of operations (as measured against Borrower’s status based on December 31, 2017 year-end audited financial statements) or in Borrower’s ability to perform its obligations under the Basic Documents.

Maturity Date”: December 31, 2025.

Mortgage”: Amended and Restated Security Agreement and Chattel Mortgage No. [•] between Borrower and Loan Trustee, entered into between Borrower and Loan Trustee on the Effective Date.

Mortgage Supplement”: defined in the Mortgage.

Note”: each of Borrower’s promissory notes, in the form of Exhibit A, issued under this Agreement in connection with a designated Aircraft on the Effective Date, or thereafter, a note issued in exchange or replacement for such a note.

Officer’s Certificate”: a certificate signed in the name of Borrower (or, with respect to § 6.04(d), of the Successor) by the chairman of the board, the president, a vice president, or the treasurer of Borrower (or the Successor).

Original Credit Agreement”: defined in the first paragraph of this Agreement.

Original Mortgage”: the [•], 2003 Security Agreement and Chattel Mortgage between Borrower and Loan Trustee, as supplemented prior to the Effective Date.

Original Notes and Certificates”: defined in § 2.01.

“Parent Loan Agreement”: the Second Amended and Restated Loan Agreement to be entered into, between AW Funding as lender and Borrower as borrower, substantially simultaneously with the execution and delivery of this Agreement.

Parent Loan Documents”: the Parent Loan Agreement, the Parent Intercreditor Agreement, and the Parent Loan Mortgage.

Parent Loan Intercreditor Agreement”: the Intercreditor Agreement, dated as of June 22, 2016, among AW Funding (as successor to AWAC Aviation, Inc.), Lender, Loan Trustee, and Borrower (formerly known as Air Wisconsin Airlines Corporation).

 

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Parent Loan Mortgage”: the Security Agreement and Chattel Mortgage, dated as of June 22, 2016, between Loan Trustee and Borrower (formerly known as Air Wisconsin Airlines Corporation).

Payment Date”: (i) in respect of interest payments, each March 31, June 30, September 30 and December 31, beginning on March 31, 2020 through the Maturity Date, and (ii) in respect of principal payments, each June 30 and December 31, beginning on June 30, 2021; except, in either case, that any Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.

Permitted Lessee”: defined in the Mortgage.

Permitted Lien”: defined in the Mortgage or in the Additional Collateral Security Agreement.

Person”: any individual, corporation, limited liability company, partnership, joint venture, or other legal or governmental entity.

Plan”: an employee benefit plan or individual retirement account subject to Title I of ERISA or to Code § 4975.

Regulatory Change”: with respect to any Lender, any change after the Effective Date for the Note(s) involved in Applicable Law, or the adoption or making after such date of any interpretations, directives, or mandatory requests applying to a class of Persons including any Lender of or under any United States federal, state, or local law or mandatory regulations or Canadian federal or provincial law or mandatory regulations (whether or not having the force of law), by any court or governmental or monetary authority charged with the interpretation or administration thereof.

Related Basic Documents”: the “Basic Documents” as defined in each of the Related Credit Agreements.

Related Credit Agreement”: each Credit Agreement listed on Exhibit B hereto under the heading “Related Credit Agreements”.

Related Mortgage”: each Security Agreement and Chattel Mortgage listed on Exhibit B hereto under the heading “Related Mortgages”.

Responsible Officer”: the President, or the Chief Financial Officer, or any other officer of Loan Trustee or U.S. Bank, Borrower, or a Lender customarily bearing responsibility for matters relating to the transactions contemplated by the Basic Documents, or any officer of Borrower, Loan Trustee, U.S. Bank, or a Lender specifically authorized to take responsibility for any matter relating to the transactions contemplated by the Basic Documents.

Sanctions”: economic or financial sanctions administered, enacted, or enforced by any Sanctions Authority including any restriction on Lender’s or its Affiliates’ ability to conduct business with any Person in any country relevant to the Basic Documents.

 

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Sanctions Authority”: Canada, the United States of America, or any governmental institution, agency. or subdivision of any of the foregoing

Section 1110 Airline”: a “citizen of the United States” (within the meaning of 49 U.S.C. § 40102(a)(15)), who is an air carrier holding a valid air carrier operating certificate issued pursuant to 49 U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.

Secured Obligations”: defined in § 1.01 of the Mortgage.

Specified Default”: a Default under § 8.01(a) or (h), or an Event of Default.

Successor”: defined in § 6.04(a).

Taxes”: defined in the fourth paragraph of § 9.02(a).

Transportation Code”: 49 U.S. Code subtitle VII, or its successor.

UCC” or “Uniform Commercial Code”: the Uniform Commercial Code as in effect in any applicable jurisdiction (or as in effect in a jurisdiction which is specified).

U.S. Bank”: U.S. Bank National Association, in its individual capacity and not as trustee.

USLL Deals”: each lease for each of the aircraft listed on Exhibit D hereto.

USLL Loan Credit Agreement”: each Credit Agreement listed on Exhibit B hereto under the heading “USLL Loan Credit Agreements”.

USLL Loan Documents”: the USLL Loan Credit Agreements and the USLL Loan Mortgages.

USLL Loan Mortgage”: each Security Agreement and Subordination Acknowledgment listed on Exhibit B hereto under the heading “USLL Loan Mortgages”.

USLL Loans Payoff Date”: December 31, 2020 (the date on which all principal, interest, and any other amounts owed by Borrower under the USLL Loan Documents is to have been paid).

1.02    Usage. Any agreement or statute referred to in § 1.01 means such agreement or statute as from time to time supplemented and amended. A definition in singular form applies to the plural form of the term, and vice versa. References to sections, exhibits, and the like refer to those in or attached to this Agreement unless otherwise specified. “Including” means “including but not limited to”. “Or” means one or more, or all, of the alternatives listed or described. “Herein”, “hereof’, “hereunder”, etc. mean in, of, under, etc. this Agreement (and not merely in, of, under, etc. the section or provision where the reference appears).

 

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Section 2.    Exchange of Notes; Payments; Replacement Notes.

2.01    Exchange of Notes. On the Effective Date, (i) the Notes and Certificates (as defined in the Original Credit Agreement) (“Original Notes and Certificates”) issued and purchased pursuant to the terms of the Original Credit Agreement will be cancelled, and (ii) without prejudice to the amounts due and owing under the Notes issued on the Effective Date, upon the issuance of the Notes on the Effective Date pursuant to § 2.02, any principal in excess of $2 million, interest, fees and other amounts relating to the Original Notes and Certificates shall be forgiven and deemed to have been paid in full. In exchange for the Original Notes and Certificates being cancelled, new Notes shall be issued pursuant to § 2.02 on the Effective Date (subject to the satisfaction or waiver of the conditions precedent set forth in § 7).

The parties hereto acknowledge and agree that (i) this Agreement and the other Basic Documents, whether executed and delivered in connection herewith or otherwise, do not constitute a novation or repayment and reborrowing of the loans and obligations under the Original Credit Agreement or the other Basic Documents as in effect prior to the Effective Date and which remain outstanding as of the Effective Date, (ii) such loans and obligations under the Original Credit Agreement and the other Basic Documents, as applicable, are in all respects continuing (as amended and restated and reduced hereby and which are in all respects hereinafter subject to the terms herein), and (iii) the Liens and security interests as granted under the applicable Basic Documents securing payment of such loans and obligations are in all respects continuing (without interruption) and in full force and effect and are reaffirmed hereby.

2.02    Procedure for Exchange of Notes. At the offices of Lender’s counsel in Chicago, Illinois, with originals of all conveyance documents being delivered in New York, New York, not later than 3:00 p.m. Central time on the Effective Date, upon fulfillment or waiver of the conditions set forth in § 7, Loan Trustee will cancel the Original Notes and Certificates for each Aircraft and exchange them for a Note related to that Aircraft. Upon the acceptance by Lender of the Notes to be issued hereunder, the following shall be cancelled and of no further effect: (i) to the extent (if any) still in effect, the Deferral Agreement dated September 30, 2015, among Borrower, Lender, and Loan Trustee, (ii) the Deferral Agreement dated April 7, 2016 among, inter alia, Borrower, Lender, and Loan Trustee, as amended, and (iii) the Security Agreement dated April 7, 2016 between Borrower and Loan Trustee, as amended.

2.03    Replacement Notes. If (a) any Note becomes mutilated, defaced, lost, stolen, or destroyed, or (b) Borrower, Loan Trustee, or a Lender otherwise reasonably requests, then, upon the request of Borrower, Loan Trustee, or a Lender, (x) Borrower shall promptly execute and deliver to the pertinent Lender a replacement Note for each such Note as to which such a request is made, and (y) Loan Trustee shall surrender to Borrower, in exchange for such replacement Note, the Note being replaced (if not lost, stolen, or destroyed). The applicant for a new Note shall furnish to Loan Trustee evidence to Loan Trustee’s reasonable satisfaction of the loss, theft, or destruction of such Note alleged to have been lost, stolen, or destroyed, and of the ownership and authenticity of such mutilated, defaced, lost, stolen, or destroyed Note, and also such security and indemnity as Loan Trustee reasonably requires (provided, that the written undertaking of any institutional holder of a Note having a net worth (or in the case of a bank, having combined capital, surplus, and undivided profits) of at least $100,000,000 shall be sufficient security and indemnity), and shall pay all expenses and charges of such substitution or

 

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exchange. All Notes shall be issued, held, and owned upon the express condition that the foregoing provisions are exclusive in respect of the replacement of mutilated, defaced, lost, stolen, or destroyed Notes and shall preclude (to the extent lawful) any and all other rights and remedies, any present or future law or statute to the contrary notwithstanding. Each replacement Note shall have identical terms as the Note that it replaces, except for such changes as Borrower, Loan Trustee, and the Lenders agree upon (such agreement not to be unreasonably withheld) following a request by any of them for such a change.

2.04    Obligations Absolute. Borrower’s obligations under each Note shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of such Note and this Agreement under any and all circumstances whatsoever and irrespective of:

(a)    any lack of validity or enforceability of any Basic Document, or any term or provision therein;

(b)    the existence of any claim, setoff, defense, or other right that Borrower (or any Affiliate of Borrower) or any other Person may at any time have against Loan Trustee or any Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction; and

(c)    any other act or omission to act or delay of any kind of the Lenders, Loan Trustee, or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this § 2.04, constitute a legal or equitable discharge of Borrower’s obligations hereunder.

Section 3.    Security for Borrowers Obligations.

3.01    Security Interest in Collateral. To secure Borrower’s obligations to Loan Trustee, U.S. Bank, and the Lenders under the Original Notes and Certificates and the other Basic Documents, Borrower executed and delivered to Loan Trustee supplements to the Original Mortgage, substantially in the form of Schedule A to the Original Mortgage, granting to Loan Trustee, for the benefit of Loan Trustee, U.S. Bank, and the Lenders, a perfected first-priority security interest in the Aircraft.

Section 4.    Payments by Borrower and Loan Trustee.

4.01    How Payments Are Made. Borrower shall make its payments and prepayments of principal and interest due on the Notes, and all other amounts payable by Borrower to Loan Trustee or any Lender under the Basic Documents, to Loan Trustee at U.S. Bank National Association (ABA #091 000 022) at Milwaukee, Wisconsin, for credit to account no. 1731033211118, Reference Air Wisconsin [N__AW] (or at such other U.S. bank or account as Loan Trustee from time to time notifies Borrower), in immediately available funds and in Dollars, no later than 1:00 p.m. (New York City time) on the date when due. Any payment made by Borrower to Loan Trustee after 5:00 p.m. (New York City time) on any day shall be deemed to have been made on the following Business Day. If any payment due under the Basic Documents comes due on a day which is not a Business Day, such payment shall instead be made on the following Business Day, and no interest shall accrue if the payment thereon is made on such following Business Day. As between Borrower and the Lenders, any payment made to

 

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Loan Trustee shall be deemed to be payment to the Lenders. Loan Trustee will distribute to each Lender its distributable share of each such payment in accordance with § 12 hereof.

4.02    Right to Prepay. Borrower shall have the right to prepay, without premium or penalty, all or part of the outstanding principal amount of the Notes issued with respect to any designated Aircraft. Borrower shall give to Loan Trustee at least five Business Days’ prior written notice (which notice shall be irrevocable) of such prepayment (which notice shall specify the amount to be prepaid, the date on which such prepayment shall be made, and the Note to which such prepayment applies), and Loan Trustee shall relay that notice promptly to each Lender. Any partial prepayment of a Note under this § 4.02 must be at least $100,000 of principal. Prepayment of a Note under this § 4.02 may be made on any Business Day. Upon any prepayment of any Note under this § 4.02, Borrower shall pay all accrued and unpaid interest on the principal of that Note to the date of prepayment. At any time while any note included in the Group of Notes remains outstanding, Borrower may sell up to five of the aircraft financed under the Related Basic Documents without the permission of the Lender, provided, however, thereafter Borrower must obtain prior written consent of the Lender in order to sell an aircraft. If a Note is to be prepaid in connection with a bona fide, arms-length sale of the related Aircraft by Borrower to a buyer who is not an Affiliate of Borrower, and the net proceeds from that sale are less than the then outstanding principal amount of the outstanding Note(s) associated with that Aircraft, then, upon payment of such net proceeds to the Loan Trustee, (x) Loan Trustee shall release all interest in that Aircraft, and (y) such applicable Note shall remain outstanding until paid in full; provided, that this sentence shall not apply to a sale of substantially all of Borrower’s assets or other transaction contemplated by § 6.04.

4.03    Mandatory Prepayments. Following the occurrence of an Event of Loss with respect to any Aircraft, unless Borrower effects a replacement in accordance with § 7.01(a) of the Mortgage, Borrower shall prepay the Notes executed in connection with that Aircraft, in accordance with § 7.01(b) of the Mortgage. Upon acceleration of the Notes pursuant to § 8.02, Borrower shall prepay such Notes. Upon Borrower’s sale of any Collateral under the USLL Loan Mortgages or the Additional Collateral Security Agreement such sale proceeds shall be paid to Lender provided that such payment may be delayed until Borrower’s sales in the cumulative amount of $1,000,000 or more have occurred, Borrower shall apply the net proceeds from the sales to prepay the Notes and “Notes” issued under the other Related Credit Agreements, pro rata in proportion to the outstanding principal thereof; provided, that this sentence shall not require any prepayment from the proceeds of goods sold as an intermediary or agent for an Affiliate, on a fully reimbursed basis, as permitted by clause (hh) in § 6.08.

4.04    Amount of Prepayment. Subject to § 4.06, a Note shall be deemed satisfied in full upon the prepayment of all principal of such Note, the payment of all accrued and unpaid interest on or with respect to such Note as of such prepayment date and the payment of all past-due interest on or with respect to such Note.

4.05    Interest on Past-Due Amounts. Any amounts past due (by acceleration or otherwise) and at any time outstanding under any Note or from Borrower under any Basic Document shall (to the extent permitted by law) bear interest, payable on demand, from the due date until payment in full, at a rate equal to 1% per annum above the Interest Rate for the relevant Note.

 

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4.06    Limit on Interest Payable. The amount of interest due or payable under this Agreement or any Note shall not in any event exceed the maximum allowable by applicable law, and this sentence shall override any contrary provision in thus Agreement or any Note.

4.07    Payments by Loan Trustee. Loan Trustee shall hold and disburse all amounts that it receives under this Agreement, the Mortgage, the Additional Collateral Security Agreement, each Note, and each Mortgage Supplement, in accordance with the terms of this Agreement.

Section 5.    Borrowers Representations and Warranties. Borrower represents and warrants as follows:

5.01    Company Standing. Borrower is a duly formed limited liability company existing in good standing under the laws of Delaware, has the company power and legal authority to own or lease property and to carry on business as a Section 1110 Airline, and is duly qualified to do business in all jurisdictions wherein such qualification is necessary (except in any jurisdictions in which the failure to qualify would have no Materially Adverse Effect).

5.02    Company Powers. Borrower’s execution, delivery, and performance of the Basic Documents to which it is (or is to become) a party are within Borrower’s company powers; and the Basic Documents to which it is (or is to become) a party have been duly authorized by all necessary company action on Borrower’s part, and do not contravene, result in a breach of, or require any consent under any law, judgment, decree, order, or contractual restriction binding on Borrower or any agreement or instrument to which Borrower is a party or to which it or any of its property is subject.

5.03    Binding Effect. The Basic Documents to which Borrower is (or is to become) a party are (or will be when executed and delivered) legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with the terms of the Basic Documents, except as may be limited by bankruptcy, insolvency, or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity.

5.04    Litigation. Except to the extent (if any) described in the Disclosure Certificate, there are no actions, suits, or proceedings pending or (to Borrower’s knowledge) threatened against Borrower in any court or before any governmental authority, arbitrator, or administrative agency that may reasonably be expected to have a Materially Adverse Effect.

5.05    Financial Statements. (a) The audited balance sheet as of December 31, 2017, for Borrower and its consolidated subsidiaries, and the related results of operations for the year then ended, have been prepared in accordance with GAAP and fairly present, in all material respects, Borrower’s financial condition as of such date and results of operations for such period, and (b) except to the extent (if any) described in the Disclosure Certificate, since December 31, 2017, there has been no Materially Adverse Change.

5.06    Taxes. Borrower and its Affiliates have filed or caused to be filed all federal, state, and material local and non-U.S. tax returns that are required to be filed and have paid or caused to be paid all taxes shown to be due on such returns or on any assessment received by Borrower or its Affiliates, except any that are being contested diligently and in good faith by

 

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appropriate proceedings and for which adequate provision for payment has been made in accordance with GAAP.

5.07    Status as United States Citizen and Air Carrier. Borrower is a Section 1110 Airline.

5.08    UCC Location. Borrower’s jurisdiction of formation for the purposes of UCC § 9-503(a)(1) is Delaware, its true and complete name as indicated on the public record of Delaware is “Air Wisconsin Airlines LLC”, and its organizational number is 2327923.

5.09    No Governmental Approvals, Notices and Filings. No consent or approval of, giving of notice to, registration with, or taking of any action in respect of or by, any federal, state, or local governmental authority is or will be required with respect to Borrower’s execution, delivery, or performance of each Basic Document to which it is a party or to establish and perfect Loan Trustee’s first-priority Lien in each Aircraft against all Persons, or if any such consent, approval, notice, registration, or action is required, it will have been duly given or obtained on or before the Effective Date. All necessary filings with the FAA and registrations on the International Registry with respect to the transactions contemplated by this Agreement shall be made on or before the Effective Date. On the Effective Date, Borrower has good and marketable title to each Aircraft and Loan Trustee, for the benefit of the Lenders, has a duly-perfected first-priority Lien on each Aircraft (to the extent that a first-priority security interest can be perfected by filing a UCC financing statement, or having made an FAA filing), subject to no Liens other than Permitted Liens not of record, as security for the Secured Obligations.

5.10    Sanctions and Laws. Borrower is in material compliance with the Sanctions, and is in material compliance with all laws, regulations, and requirements of governmental authorities regarding corruption or bribery that are binding on Borrower.

Section 6.    Covenants. So long as any Note, or any amount owed by Borrower to Lender, Loan Trustee, or U.S. Bank under any Basic Document, remains outstanding or unpaid:

6.01    Financial Statements. Borrower shall furnish to Lender:

(a)    within 60 days after the end of each of the first three quarters in each fiscal year, consolidated statements of operations of Borrower and its consolidated subsidiaries for the period from the beginning of the then-current fiscal year to the end of such quarterly period, and balance sheets of Borrower and its consolidated subsidiaries, on a consolidated basis, as of the end of such quarter prepared in accordance with GAAP and setting forth in each case in comparative form figures for the corresponding period in the preceding year, all in reasonable detail and certified by a financial officer of Borrower, subject to changes resulting from year-end adjustments;

(b)    within 120 days after the end of each fiscal year, consolidated statements of operations of Borrower and its consolidated subsidiaries, for such year, and the balance sheets of Borrower and its consolidated subsidiaries, on a consolidated basis, as of the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all in reasonable detail, and certified to Borrower by its independent certified public accountants and to Loan Trustee by a financial officer of Borrower, as presenting fairly in all

 

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material respects the financial position and results of operations of Borrower and its consolidated subsidiaries and as having been prepared in accordance with GAAP;

(c)    within five Business Days after any officer of Borrower obtains actual knowledge of any Default, an Officer’s Certificate specifying its nature, the period of its existence, and what action Borrower proposes to take with respect to it; and

(d)    promptly, such other data or information (financial or otherwise, including (without limitation) evidence of Borrower’s compliance with § 5.02 of this Agreement and § 4.01 of the Mortgage), subject to any confidentiality restrictions applicable to Borrower, regarding Borrower or the Collateral as Loan Trustee from time to time reasonably requests.

6.02    Inspection of Aircraft and Records. Not more than once during any consecutive 12-month period (unless an Event of Default exists) and on at least five days’ prior written notice, Borrower shall permit any person(s) from time to time designated in writing by Loan Trustee, at the Lenders’ expense (or at Borrower’s expense if the inspection is conducted (x) in connection with a Specified Default or a maintenance related Default, or (y) to confirm the cure of a previously-identified Defaults), to visit and inspect any Aircraft and Borrower’s (or any Permitted Lessee’s) records with respect to the Aircraft, at such reasonable times as Loan Trustee reasonably requests and (in respect of an inspection of an Aircraft and such Aircraft’s records) during normal business hours and during regularly-scheduled maintenance of such Aircraft, and to discuss Borrower’s affairs, finances, and accounts with Borrower’s officers. No such inspection shall interfere with Borrower’s (or any Permitted Lessee’s) normal operations or maintenance. Neither the Lenders nor Loan Trustee shall have any duty to make any such inspection, and the Lenders and Loan Trustee shall not incur any liability or obligation by reason of not making any such inspection. Any such inspection of an Aircraft shall be a visual, walk-around inspection that may include going on board the Aircraft but which shall not include opening any panels, bays, or the like. Upon Loan Trustee’s request, Borrower shall promptly notify Loan Trustee of the maintenance operations then scheduled on the Aircraft for the six-month period following such request. Loan Trustee shall notify each Lender of each proposed inspection a reasonable time in advance of giving notice to Borrower of such inspection. Loan Trustee shall provide to each Lender on request a copy of each inspection report received.

6.03    Corporate Existence. Except as permitted by § 6.04, Borrower shall maintain its existence as a corporation or limited liability company in good standing.

6.04    Merger, etc. Borrower shall not consolidate with or merge into any other Person, or sell, convey, lease, or otherwise transfer all or substantially all of its assets as an entirety (whether in one transaction or a series of transactions) to any Person (a “Reorganization Transaction”), unless:

(a)    (1) the Person formed by such consolidation or surviving such merger, or the Person who acquires by sale, conveyance, transfer, or lease all or substantially all of Borrower’s assets as an entirety (the “Successor”) is a Section 1110 Airline, and (2) immediately after such Reorganization Transaction, the Successor has a tangible net worth (in accordance with GAAP) not less than the greater of (aa) the lesser of (x) Borrower’s tangible net worth immediately preceding such transaction and (y) Borrower’s tangible net worth as of

 

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December 31, 2017, and (bb) 60% of Borrower’s tangible net worth immediately before the completion of such transaction;

(b)    the Successor (1) executes and delivers to Loan Trustee and the Lenders an agreement, in form and substance reasonably satisfactory to Loan Trustee and the Lenders, containing an assumption by the Successor of the due and punctual performance and observance of Borrower’s obligations under the Basic Documents to which Borrower is then a party (including this covenant), and (2) makes such filings and recordings, including any filing or recording with the FAA or any filing under the UCC, as are necessary to evidence such Reorganization Transaction and all filings necessary in order to preserve and protect the rights of Loan Trustee and the Lenders under the Mortgage;

(c)    (1) such Reorganization Transaction does not create any Event of Default, and no Event of Default exists immediately after such Reorganization Transaction, (2) such Reorganization Transaction does not materially impair the Successor’s ability to perform its obligations under the Basic Documents, and (3) the benefits of Section 1110 of the Bankruptcy Code available to Loan Trustee immediately prior to such Reorganization Transaction are not adversely affected as a result of such Reorganization Transaction; and

(d)    Borrower (in the case of a merger) or the Successor delivers to Loan Trustee and the Lenders an Officer’s Certificate stating that the conditions precedent set forth in clauses (a), (b), and (c) have been complied with and an opinion of counsel for Borrower or for the Successor, from counsel and in form and substance reasonably satisfactory to Loan Trustee and the Lenders, (1) stating that the agreements entered into to effect such Reorganization Transaction and such assumption agreements have been duly authorized, executed, and delivered by the Successor (or in the case of a merger, by Borrower) and that they (and the Basic Documents so assumed) constitute legal, valid, and binding obligations of the Successor (or in the case of a merger, of Borrower), enforceable in accordance with their terms (to the same extent as the Basic Documents so assumed were enforceable against Borrower immediately prior to such transaction), (2) stating that all conditions precedent which are legal in nature provided for in this Agreement and relating to such transaction have been fulfilled, and (3) containing such other matters as Loan Trustee or the Lenders reasonably request.

Upon any such Reorganization Transaction, the Successor shall succeed to, shall be substituted for, and may exercise every right and power of Borrower under the Basic Documents to which Borrower is a party, with the same effect as if the Successor had been named as Borrower therein. No such Reorganization Transaction shall have the effect of releasing Borrower (or any Successor) from its liability under the Basic Documents to which it is a party. Nothing in this § 6.04 shall permit any lease, sublease, or other arrangement for the use, operation, or possession of the Aircraft except in compliance with the applicable provisions of this Agreement and the Mortgage. Borrower shall pay all reasonable out-of-pocket expenses of Loan Trustee and the Lenders in respect of such Reorganization Transaction.

6.05    Citizenship and Air Carrier Status. Borrower will at all times remain a Section 1110 Airline.

 

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6.06    ERISA Information. Borrower will cooperate with all reasonable requests by Lenders (including reasonable requests for information) to determine whether any proposed transfer by a Lender of its interest in the Basic Documents would violate ERISA.

6.07    Cash Position Notice. Not later than four Business Days prior to each principal Payment Date occurring after the USLL Loans Payoff Date, Borrower shall notify Lender in writing of its consolidated cash position as the Borrower determined as of such date.

6.08    Restricted Payments. From the date of this Agreement until the Notes have been paid in full (together with interest thereon), Borrower shall not, without Lender’s consent (which shall not be unreasonably withheld):

(a)    declare or make any dividend, payment, or other distribution of cash, assets, or property with respect to any equity securities or other equity interests issued by Borrower (whether existing on the date of this Agreement or thereafter outstanding), other than dividends, payments, or other distributions consisting solely of shares or other equity interests issued by Borrower;

(b)    redeem, purchase, or otherwise acquire any securities issued by Borrower or any option or other right to acquire any such securities;

(c)    make any payment to any of its shareholders or to any other beneficial owner of any equity interest in Borrower; or

(d)    offer or agree to do any of the foregoing.

Notwithstanding the preceding sentence, Borrower may:

(aa)    make payments required under the Designated Leases (provided, that Borrower’s payment obligations under the Designated Leases shall not be increased without Lender’s consent);

(bb)    make ongoing payments to persons or entities described in clause (c) of this §6.08, for services rendered, not to exceed a total of $500,000 per year;

(cc)    make payments to or from other members of Borrower’s consolidated group on account of Borrower’s taxable income or loss;

(dd)    pay reasonable expenses (including legal fees) in connection with indemnification and reimbursement of directors, officers, and employees in respect of liabilities relating to their serving in such capacities, and obligations in respect of directors’ and officers’ insurance (including any premiums therefor);

(ee)    make payments under the Parent Loan Documents;

(ff)    make payments under any loan or lease financing of any aircraft, airframe, or engine that Borrower finances after the Effective Date (including loan and lease financings of any aircraft that are being leased to Borrower on the Effective Date), provided that any such

 

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financing is on terms substantially similar to those available in the marketplace on an arm’s length basis from unrelated third parties at such time;

(gg)    buy engine cores, engine components, or spare parts from any Person, or sell such cores, components, or spare parts to any Person, for a fair market value price;

(hh)    as an intermediary or agent, on a fully reimbursed basis, to procure goods and services for Affiliates; and

(ii)     Borrower may repurchase from an Affiliate up to two used General Electric model CF34-3 aircraft engines that Borrower previously purchased from an independent third party and then sold to that Affiliate, and pay to that Affiliate in consideration of such purchase an amount for each such engine no greater than (x) the purchase price Borrower originally paid to the independent third party for such engine plus (y) up to 5% per annum from the date of purchase by such Affiliate.

6.09    Restricted Activities. From the date of this Agreement until the Notes have been paid in full (together with interest thereon), Borrower shall not, without Lender’s prior consent, engage in any business other than the businesses engaged in by Borrower on the date hereof and any businesses similar, related, complementary or ancillary thereto or that constitute reasonable extensions or expansions thereof.

6.10    Additional Collateral. As further security for Borrower’s obligations to Lender and Loan Trustee under the Basic Documents and the USLL Loan Documents, Borrower is granting to Loan Trustee for the benefit of Lender, on the date of this Agreement, by means of a security agreement between Borrower and Loan Trustee (the “Additional Collateral Security Agreement”), a first-priority security interest in all of Borrower’s right, title and interest in and to certain unencumbered (other than any encumbrance from the USLL Loan Mortgages) aircraft, engines, and spare parts, all as more specifically described in that Additional Collateral Security Agreement.

6.11    Sanctions. Borrower will remain in material compliance with the Sanctions, and will remain in material compliance with all laws, regulations, and requirements of governmental authorities regarding corruption or bribery that are binding on Borrower.

Section 7.    Conditions Precedent.

7.01    Conditions Precedent to Effective Date. The parties hereto agree that all conditions precedent were met or waived with respect to the issuance of the Original Notes and Certificates. Each Lender’s obligation and Loan Trustee’s obligation to enter into the exchange of the Original Notes and Certificates for the new Notes pursuant to § 2.02 on the Effective Date are subject to satisfaction of the following conditions precedent:

(a)    Loan Trustee’s receipt on or before the Effective Date of the following, in form and substance reasonably satisfactory to Loan Trustee and Lender:

(1)    an executed copy of this Agreement,

 

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(2)    a certificate of Borrower’s secretary, dated the Effective Date, certifying attached copies of the resolutions of Borrower’s managers evidencing approval of the transactions contemplated by the Basic Documents to which it is (or is to become) a party, and showing the names and specimen signature(s) (or copies thereof) of Borrower’s officer(s) authorized to sign this Agreement and the related documents to which it is (or is to become) a party,

(3)    a Note for each Aircraft, executed by Borrower,

(4)    an executed Mortgage,

(5)    an Officer’s Certificate to the effect that: (x) Borrower’s representations and warranties in § 5 of this Agreement are true and accurate as though made on the Effective Date, and (y) no Event of Default exists or will result from the exchange of the Notes,

(6)    opinion letters from Borrower’s outside counsel, in form and substance reasonably satisfactory to Lender,

(7)    the consent of Investissement-Québec as agent of the government of the province of Québec under each of the Loan Deficiency Guarantees referred to herein and in each of the Related Credit Agreements,

(8)    a favorable opinion from Shipman & Goodwin LLP, counsel to Loan Trustee and U.S. Bank, covering the relevant Aircraft,

(9)    a favorable opinion from Crowe & Dunlevy, special FAA counsel, in customary form, covering the Mortgage and the Additional Collateral Security Agreement,

(10)    Parent Loan Documents, and

(11)    such additional opinion(s) and document(s) as Loan Trustee reasonably requests;

(b)    Borrower’s representations and warranties in this Agreement are true and accurate as though made on and as of the Effective Date;

(c)    all filings, recordings, registrations, and other actions necessary to establish, protect, preserve, and perfect Loan Trustee’s and the Lenders’ interests under the Additional Collateral Security Agreement, including (1) Uniform Commercial Code filings concerning the security interest created by the Additional Collateral Security Agreement naming Borrower as debtor and Loan Trustee as secured party, have been duly made or taken in the appropriate jurisdictions, (2) FAA filings of the Additional Collateral Security Agreement, and any supplement thereto, have been made, and (3) International Registry registrations of the international interests created by the Additional Collateral Security Agreement have been made or provided for under the Cape Town Treaty, and evidence of such filings, recordings, and other actions provided to Loan Trustee;

 

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(d)    all necessary consents, approvals, licenses, permits, declarations, or registrations then required in connection with Borrower’s execution, delivery, and performance of the Basic Documents and the transactions contemplated thereby have been obtained; and

(e)    except to the extent (if any) described in the Disclosure Certificate, since December 31, 2017, no Materially Adverse Change has occurred.

7.02    Conditions Precedent to Borrowers Obligations. Borrower’s obligations on the Effective Date are subject to Borrower’s receipt, on or before the Effective Date, of the following, each in form and substance reasonably satisfactory to Borrower:

(a)    this Agreement, executed by Loan Trustee and each Lender;

(b)    the Mortgage, executed by Loan Trustee;

(c)    the Additional Collateral Security Agreement, executed by Loan Trustee;

(d)    the Original Notes and Certificates being cancelled;

(e)    an agreement executed by Investissement-Québec (“I Q”) in which I Q agrees to terminate all Borrower’s obligations to pay unpaid fees due or to become due as guarantee fees in connection with I Q’s credit support of certain of Borrower’s CRJ 200 financings; and

(f)    such additional opinion(s) and document(s) as Borrower reasonably requests.

Section 8.    Events of Default; Remedies.

8.01    Events of Default. Each of the following shall constitute an “Event of Default”:

(a)    Payments: Borrower fails to make any payment due, including without limitation, payments of interest and any payment required under the Notes measured by Excess Cash Flow (as such term is defined in the Notes), from Borrower on any Note or under any Basic Document when due, and such failure continues for five Business Days (as to principal, interest, and amounts payable under § 4.02 or § 4.03), or five Business Days after Borrower’s receipt of notice of such failure from Lender or Loan Trustee (as to all other amounts due).

(b)    Representations: Any representation or warranty made by Borrower in the Basic Documents, or in any certificate or other document that it furnishes pursuant to the Basic Documents, is incorrect in any material respect when made (and, if the effect(s) of such incorrectness is/are reasonably curable, such effect(s) continue(s) for 30 days after Borrower’s receipt of notice of such incorrectness from Loan Trustee).

(c)    Insurance: Borrower fails to carry and maintain insurance on or with respect to any Aircraft in accordance with the terms of the Mortgage.

 

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(d)    Prohibited Lease: Borrower leases any Item to any Person other than a Permitted Lessee.

(e)    Prohibited Merger, Asset Transfer, etc.: Borrower violates § 6.04.

(f)    Covenants Generally: Borrower fails in any material respect to perform any other covenant or agreement in the Basic Documents, and such failure to perform continues for 30 days after Borrower’s receipt of notice of such default from Loan Trustee (150 days after Borrower’s receipt of such notice if (1) such covenant or agreement is reasonably curable, (2) such failure to perform creates no material risk of loss or damage to the Aircraft, and (3) Borrower is diligently pursuing a cure of such failure).

(g)    Voluntary Bankruptcy, etc.: Borrower (1) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of all or a majority of its property, (2) makes a general assignment for the benefit of its creditors, (3) commences a voluntary case under the federal Bankruptcy Code (as now or hereafter in effect), (4) files a petition seeking to take advantage (as debtor) of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (5) fails to controvert in a timely manner, or acquiesces in writing to, any petition filed against it in an involuntary case under the federal Bankruptcy Code, (6) shall generally not pay its debts as they come due, or (7) admits in writing its inability to pay its debts generally as they come due.

(h)    Involuntary Bankruptcy: A proceeding or case is commenced, without Borrower’s application or consent, in any court of competent jurisdiction, seeking (1) its liquidation, reorganization, dissolution, or winding-up, or the composition or readjustment of its debts, (2) the appointment of a trustee, receiver, custodian, liquidator, or the like of Borrower or of all or a majority of its assets, or (3) similar relief in respect of Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and (if Borrower is contesting the proceeding on a reasonable basis and in good faith) such proceeding or case continues undismissed, or an order, judgment, or decree approving or ordering any of the foregoing is entered and continues unstayed and in effect, for a period of 90 days; or an order for relief against Borrower is entered in an involuntary case under the federal Bankruptcy Code.

(i)    Loss of Priority Mortgage Lien: Loan Trustee fails to have a perfected first-priority security interest in any Aircraft for which a Note is outstanding, subject only to Permitted Liens.

(j)    Judgments: One or more judgment(s) is/are rendered by one or more court(s) of competent jurisdiction against Borrower for a total of more than $3 million (or, if greater, 20% of Borrower’s tangible net worth, based on Borrower’s most-recent quarterly financial statements prepared in accordance with the requirements of § 6.01), excluding any amount insured by a solvent insurer who has admitted coverage for the underlying claim(s), and such judgment(s) is/are not stayed or discharged, or fully bonded against, within 30 days of the date of entry.

 

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(k)    Related Financing Default: An “Event of Default” exists under any other Basic Document, any Related Credit Agreement, any USLL Loan Document, or any existing or future aircraft lease or loan financing in which Her Majesty in Right of Canada or Export Development Canada was initially and is then a lender and Borrower is then the borrower or lessee.

(l)    Cash Portion Notice. Borrower fails to notify Lender as provided in § 6.07 and such failure continues for two Business Days after receipt of notice of such failure from Lender.

(m)    Parent Loan Default. An event of default under the Parent Loan Agreement occurs, and as a result, outstanding indebtedness of Borrower thereunder in excess of $5 million becomes due and payable before its stated maturity or due date.

8.02    Remedies. If an Event of Default (other than under § 8.01(g) or (h)) exists, Loan Trustee may (and upon its receipt of written request by a Majority in Interest of Lenders shall) declare all Notes to be immediately due and payable, whereupon all Notes shall become and be immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which Borrower hereby waives. If an Event of Default under § 8.01(g) or (h) occurs, all Notes automatically shall become immediately due and payable, without presentment, demand, protest, or notice of any kind, all of which Borrower hereby waives. Upon the occurrence of any Event of Default, Loan Trustee may exercise any of its rights and remedies under the Basic Documents, including the Mortgage.

Section 9.    Borrowers Indemnities.

9.01    General Indemnity.

(a)    General. Borrower assumes liability for, and agrees to indemnify each Indemnitee, on an After-Tax Basis, against, whether or not the transactions contemplated herein or in any of the other Basic Documents are consummated, any and all Liabilities.

Liabilities” means any and all liabilities, obligations, losses, damages, penalties, claims (including claims involving negligence, strict or absolute liability, liability in tort, and liabilities arising out of violation of laws or regulatory requirements of any kind), suits, actions, costs, expenses, and disbursements (including reasonable legal fees and expenses) of any kind and nature whatsoever imposed on, incurred by, or asserted against an Indemnitee, whether or not such Indemnitee is indemnified as to such matter by any other Person, relating to or arising out of: (aa) any of the Basic Documents or any of the transactions contemplated herein or therein or the enforcement thereof, including any misrepresentation or breach of warranty of Borrower contained therein or in any document or certificate of Borrower delivered pursuant thereto or the breach of any agreement or covenant by Borrower, or the failure by Borrower to perform any of its obligations under the Basic Documents, or (bb) the manufacture, assembly, design, purchase, acceptance, resale, rejection, refinancing, non-use, alteration, replacement, existence, control, refurbishment, service, removal, redelivery, substitution, ownership, delivery, lease, sublease, financing, possession, repossession, return, use, operation, maintenance, condition, overhaul, testing, registration, deregistration, insuring, transportation, importation,

 

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exportation, modification, repair, fitness for use, merchantability, abandonment, sale, return, storage, transfer of title, or other disposition of the Collateral, any Note, or the Aircraft or any part thereof or any accident in connection therewith whether or not relating to loss or damage to any property, or death or injury of, or other loss suffered by, any Person (including latent and other defects, whether or not discoverable, strict tort liability, and any claim for patent, trademark, or copyright infringement), or (cc) the Aircraft or any part thereof, or any engine installed on the Airframe or any airframe on which the Engine is installed, (dd) the offer or sale of any interest in the Aircraft or any Note, or (ee) any “prohibited transaction” within the meaning of ERISA § 406 or Code § 4975(c) in any way relating to, arising out of or resulting from the offer, sale, resale, purchase, delivery or holding of any Notes or interest thereon or in the Collateral or any transaction contemplated by the Basic Documents, whether occurring before, on, or after the date hereof, or (ff) any violation of any law, including securities and environmental laws, relating to the possession, use or maintenance of the Aircraft.

However, Borrower shall not be required to indemnify any Indemnitee: (aa) for any Liability arising out of the gross negligence, willful misconduct or misrepresentation or breach of contract of such Indemnitee (other than gross negligence imputed to an Indemnitee solely by reason of its interest in the Aircraft), or such Indemnitee’s ordinary negligence in exercising its right of inspection, (bb) for any Liability constituting Taxes, whether or not Borrower is required to indemnify therefor pursuant to § 9.02; provided, that this clause (bb) shall not apply to Taxes (x) taken into consideration in making any payment pursuant to this § 9.01 on an After-Tax Basis, or (y) arising out of any “prohibited transaction” within the meaning of ERISA § 406 or Code § 4975(c) (but in the case of clause (y), only to the extent occurring because of a misrepresentation by Borrower), (cc) for any Liability attributable to the sale or other transfer of all or part of such Indemnitee’s interest in the Aircraft or any Note, other than a sale or other transfer as a result of (e.g., such sale or transfer is viewed by the transferor as the transferor’s “exit strategy” in connection with such Event of Default), or in connection with the exercise of remedies during the continuance of, an Event of Default, pursuant to an Event of Loss, or at Borrower’s request or direction, or as required by any of the Basic Documents, or (dd) for any financial or other loss inherent in the forgiveness of debt or the exchange of new Notes for the Original Notes and Certificates contemplated by § 2.01.

Borrower hereby waives and releases any claim now or hereafter existing against any Indemnitee arising out of death or personal injury to personnel or agents of Borrower or any Affiliate, loss or damage to property of Borrower, its agents, or any Affiliate, which may result from or arise out of the items referred to in clause (bb) of the definition of Liabilities set forth in this § 9.01 while any of the Notes are outstanding, including any latent or patent defect, whether or not discoverable, except to the extent any such claim arises out of the gross negligence, willful misconduct, or misrepresentation of or breach of its obligations under the Basic Documents by such Indemnitee.

(b)    Contests. If any claim for a Liability is made against Borrower or any Indemnitee and such party has received notice thereof, such party receiving notice of such Liability shall promptly notify all affected Indemnitees or Borrower, as the case may be; provided, that the failure to provide such notice promptly or to notify Borrower shall not release Borrower from any of its obligations to indemnify hereunder, except to the extent that such failure adversely affects any applicable defense or counterclaim, or otherwise increases the

 

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amount Borrower would have been liable for in the absence of such failure. Subject to the rights of any insurer under any policy of insurance maintained pursuant to the Mortgage or any Permitted Lease, and if no Specified Default shall exist, Borrower shall have the right to investigate and defend or (so long as Borrower has acknowledged in writing to the relevant Indemnitee that Borrower is liable to such Indemnitee for such Liability), compromise any Liability for which it may be required to indemnify under this § 9.01, and each Indemnitee agrees to cooperate with all reasonable requests of Borrower in connection therewith. Notwithstanding any of the foregoing to the contrary, Borrower shall not be entitled to assume responsibility for and control of any such judicial or administrative proceedings or compromise any Liability if (aa) any Specified Default shall exist, (bb) such proceedings will involve a material risk of the sale, forfeiture, or loss of, or the creation of any Lien (other than a Permitted Lien) on, any Item or other material part of the Collateral, unless Borrower posts a bond or other security reasonably satisfactory to the relevant Indemnitees in respect to such risk, or (cc) such proceedings would involve the imposition of criminal liability on an Indemnitee or if such contest will, in the reasonable opinion of such Indemnitee, be inappropriate under applicable standards of professional conduct. The reasonable fees and expenses of such Indemnitee’s counsel shall be paid by Borrower if any of the circumstances described in clauses (aa) - (cc) above exists. An Indemnitee may participate at its own expense and with its own counsel in any judicial proceeding controlled by Borrower pursuant to the preceding provisions. In the case of any Liability covered by any policy of insurance maintained pursuant to the Mortgage or any Permitted Lease, each Indemnitee shall cooperate with all reasonable requests of the insurers in the exercise of their rights to investigate, defend, or compromise such claim as may be required by such policy to maintain the insurance coverage provided to the parties thereunder. To the extent that any Indemnitee receives indemnification payments under this § 9.01, Borrower shall be subrogated to such Indemnitee’s rights with respect to the transaction or event requiring or giving rise to such indemnity to the extent of any indemnity payment made, other than to any insurance policies maintained by such Indemnitee.

(c)    Survival. The indemnities in this § 9.01 shall survive the expiration or other termination of the Basic Documents as to acts occurring or circumstances existing on or before such expiration or termination.

(d)    Payment. Borrower agrees to pay an uncontested claim for any Liability by an Indemnitee within 10 Business Days of written demand therefor.

9.02    General Tax Indemnity.

(a)    General. Borrower agrees that all payments on or with respect to any Note, and all payments to any Lender, or Loan Trustee (both in its individual capacity and as trustee), in connection with the transactions contemplated by the Basic Documents shall be free and clear of, and without deduction for, any and all withholdings of any nature whatsoever, whether or not an exclusion pursuant to this § 9.02(a) applies. If any deduction or withholding is required with respect to any amount payable by the Loan Trustee, any amount payable on any Note or any other amounts payable by Borrower that are enumerated above, Borrower shall pay an additional amount such that the net amount actually received by each Indemnitee, after such deduction or withholding, will be equal to all such amounts that would be received by such Indemnitee if no such deduction or withholding had been required.

 

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Each Indemnitee shall file and provide to Borrower such returns, statements, or other documentation as shall enable it to claim any reduced rate of Tax withholding and any exemption from Tax withholding with respect to any Taxes to which the terms of this § 9.02(a) apply, in each case, to the extent properly available under Applicable Law; provided that, (i) except in the case of Tax withholding required by the United States government on interest income, Borrower shall have provided to such Indemnitee written timely notice of the requirement for such returns, statements, or other documentation, (ii) such Indemnitee has in good faith determined it would suffer no adverse tax consequences by providing the applicable return, statement, or other documentation, and (iii) Borrower has agreed to pay, and does pay after demand therefor, on an After-Tax Basis, all costs and expenses incurred by such Indemnitee in providing the applicable return, statement, or other documentation. If, and to the extent that, as a result of (A) in the case of Taxes other than withholding Taxes imposed by the United States on interest income, such Indemnitee fails to file or provide any such return, statement, or other documentation required pursuant to the preceding sentence (after taking into account all provisos), and (B) in the case of withholding Taxes imposed by the United States on interest income, such Indemnitee fails to comply with its obligations pursuant to § 9.02(k) hereof, and (1) Tax withholding is required at a rate which is higher than that which would have been applicable had such return, statement or other documentation been filed or provided or such obligations been fulfilled or (2) Tax withholding is required which would not have been required had such return, statement, or other documentation been filed or provided or such obligations been fulfilled, Borrower’s obligation to make the increased payment otherwise required by this § 9.02(a) shall be limited to the amount which would have been required if such Indemnitee had filed or provided such return, statement, or other documentation or complied with such obligations.

Notwithstanding the foregoing, if any deduction or withholding of Taxes imposed by the United States government is required by Applicable Law (after taking into account any applicable treaty) with respect to any amount payable on any Note (other than to or for the benefit of an initial Lender), Borrower shall make, and Loan Trustee or the pertinent Lender(s) shall receive, such payment net of such required deduction or withholding, and Borrower shall not be required to make the additional payment otherwise required by this § 9.02(a) with respect to such deduction or withholding, unless, in the case of a transferee of any Lender, any such deduction or withholding is required as a result of any amendment to or change in Applicable Law, which amendment or change becomes effective after the date the pertinent Lender becomes a Lender hereunder (a “Change in Law”), in which case, Borrower shall make the additional payment otherwise required by this § 9.02(a), provided, however, that Borrower shall have no obligation to make an additional payment to a transferee Lender as a result of a Change in Law unless and until, such Lender provides Borrower written notice of such Change in Law as promptly as practicable after it obtains knowledge thereof. Borrower shall not be required to make any additional payment to a transferee Lender pursuant a Change in Law for any period prior to receipt by Borrower of such notice of such Change in Law. In the event that there is a Change in Law and Loan Trustee or a Lender (other than to or for the benefit of an initial Lender) becomes subject to a deduction or withholding requirement, (x) such Lender shall use reasonable efforts to transfer the affected Note to a branch or Affiliate located in a jurisdiction not affected by such withholding Tax or with respect to which a lower withholding Tax applies, if such transfer would not result in any economic disadvantage or adverse Tax consequences to such Lender and would not otherwise be disadvantageous (except to a de minimis extent)

 

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(unless, in the case of any economically quantifiable detriment, Borrower has agreed to indemnify against such detriment in a manner reasonably satisfactory to such Lender), and (y) if such transfer is not made, Borrower shall have the right to prepay (in part, if relevant) any affected Note, or to cause another entity to purchase any affected Note, for an amount equal to the unpaid principal amount of the affected Note (with no unindemnified adverse tax consequences to the affected Lender), together with interest thereon through the date of prepayment or purchase, without any breakage costs or any prepayment premium, plus all other Secured Obligations then due and payable to such Lender with respect to such Note. If such transfer is made, such Lender shall, as promptly as practicable, fulfill or cause to be fulfilled the obligations under § 9.02(k) with respect to any branch or Affiliate. A transferee Lender shall indemnify and hold harmless a Borrower for any withholding Taxes, including interest and penalties with respect thereto, that Borrower is required to pay as a direct result of such Lender’s failure to provide notice of a Change in Law as required by this § 9.02(a). Notwithstanding any other provision of this paragraph, a Lender (or Loan Trustee with respect to a Lender) shall be indemnified, to the extent provided for elsewhere in this § 9.02, for any deduction or withholding that is required because payments are made by Borrower from outside the United States. Regardless of the applicability of any other provision of this paragraph, if any deduction or withholding is required by Applicable Law with respect to payments by Borrower or Loan Trustee on any Note, Borrower shall promptly pay the full amount of such required deduction or withholding to the appropriate taxing authority (or to Loan Trustee for payment to the appropriate taxing authority) and deliver to the Lender as soon as practicable thereafter a receipt issued by such taxing authority or a statement of Borrower confirming the payment to such taxing authority of all amounts so required to be deducted or withheld.

Whether or not any of the transactions contemplated hereby or in any of the other Basic Documents are consummated, subject to § 9.02(b), Borrower shall pay, and shall indemnify and hold harmless on an After-Tax Basis each Indemnitee from and against, any and all fees, taxes, licenses, levies, imposts, duties, excises, assessments, charges, or withholding of any nature, together with any penalties, fines, additions to tax, or interest thereon, however imposed, whether levied or imposed upon such Indemnitee, Borrower, or an Aircraft or any part thereof, by any federal, state, or local taxing authority within the United States or any territory or possession thereof, or by any foreign or international taxing authority (all such fees, taxes, licenses, levies, imposts, duties, excises, assessments, charges, withholdings, penalties, fines, additions to tax, and interest thereon being “Taxes”) relating to (aa) an Aircraft or any Engine or any part or any interest therein, (bb) the acquisition, manufacture, purchase, mortgaging, financing, refinancing, ownership, delivery, nondelivery, redelivery, transport, location, lease, sublease, hire, assignment, alteration, improvement, possession, repossession, registration, deregistration, transfer of registration, presence, use, replacement, substitution, pooling, operation, insurance, installation, modification, rebuilding, overhaul, condition, storage, maintenance, repair, sale to, return, abandonment, preparation, transfer of title, acceptance, importation, exportation, rejection, or other disposition of an Aircraft, any Engine, any Part, or any interest in any of the foregoing; (cc) the rentals, receipts, income or earnings arising from the purchase, financing, refinancing, ownership, delivery, redelivery, leasing, subleasing, possession, use, operation, return, storage, or transfer of an Aircraft, any Part, or any interest in any of the foregoing; (dd) any Note, or issuance, acquisition, transfer, or assumption thereof, or refinancing thereof, or the payment of any amounts thereon; (ee) the execution, delivery, or performance of any of the Basic Documents or any future amendment, supplement, waiver, or consent thereto

 

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(requested or consented to by Borrower, or in connection with a Specified Default or any of the transactions contemplated thereby), or any proceeds or payments or amounts payable under any thereof; (ff) the property or the income or other proceeds with respect to the Collateral; or (gg) otherwise with respect to or in connection with the transactions contemplated by the Basic Documents.

Notwithstanding the foregoing, Borrower shall not be obligated to pay or indemnify an Indemnitee for any Taxes to the extent such Taxes are attributable to the following:

(i)    any Tax imposed on any Lender by withholding (other than withholding taxes for which a Lender may be indemnified hereunder pursuant to the first or third paragraphs of this § 9.02(a)) or otherwise based on, or measured by or with respect to net or gross income, net or gross receipts, capital, franchise, net worth, value added or conduct of business (other than any such Taxes that are in the nature of sales or use taxes, license or property taxes, ad valorem taxes or value added taxes to the extent not imposed in direct and clear substitution for an income tax), capital gains taxes, excess profits taxes, minimum and/or alternative minimum taxes, accumulated earnings taxes, personal holding company taxes, succession taxes and estate or other similar taxes by any taxing authority in any jurisdiction as a result of such Lender’s being organized in, physically holding any Note in, or conducting business unrelated to the transactions contemplated by the Basic Documents;

(ii)    Taxes imposed with respect to any period following the payment by Borrower of all amounts due and payable under the Basic Documents, except to the extent coinciding with such event;

(iii)    Taxes imposed on or with respect to an Indemnitee’s transfer or other disposition of all or a portion of its interest in an Aircraft or any part thereof, the Collateral, any Note or Basic Document, unless (a) attributable to a transfer of an Aircraft to Borrower pursuant to the transactions contemplated under the Basic Documents on the Funding Date, (b) such transfer or disposition is pursuant to the replacement, modification or substitution of an Aircraft or any part thereof, or an Event of Loss or casualty (including such events occurring upon Borrower’s exercise of its rights or deemed exercise of its rights) under the Mortgage, or such transfer or disposition is attributable to an exercise of remedies pursuant to § 8 hereof during the continuation of an Event of Default;

(iv)    in the case of the Loan Trustee, Taxes on, with respect to, or measured by any trustee fees, commissions or compensation received by the Loan Trustee for services rendered under the Mortgage;

(v)    Taxes that have been properly paid by Borrower as transaction expenses under § 13.03 and timely and properly paid to the appropriate taxing authority;

 

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[Amended and Restated Credit Agreement No. [•]]

 

(vi)    Taxes imposed on Lender as a result of the breach of its ERISA representation set forth in § 13.06(d) of the Original Credit Agreement;

(vii)    any Tax to the extent that such Tax would not have been imposed but for the failure of such Lender to comply with any certification, documentation, or similar requirements concerning the nationality, residence, or identity of such Lender which, if properly complied with, would have resulted in an exemption from, or a reduced rate of, such Tax for which such Lender was otherwise eligible, provided that Borrower gave such Lender timely notice of such requirement, such Lender would suffer no adverse consequences by so complying, and Borrower has agreed to pay, and does pay after demand therefor, on an After-Tax Basis, all costs and expenses incurred by such Lender in so complying;

(viii)    any Tax imposed by means of withholding, other than any such Tax indemnified under the first or third paragraphs of § 9.02(a) hereof; or

(ix)    (A) Taxes which arise out of or are caused by a breach by such Lender of its obligations under the Basic Documents, and (B) Taxes to the extent resulting from the gross negligence or willful misconduct of such Lender other than any gross negligence or willful misconduct imputed to such Lender by reason of any action or inaction of (a) Borrower, (b) any lessee, or other Person in possession of an Aircraft or any part thereof, (c) any sublessor of an Aircraft, (d) the beneficial owner of an Aircraft, if other than such Lender, (e) a Lender if other than such Lender, or (f) any officer, director, agent, employee of any Person described in clauses (a) through (e) above.

(b)    Contests. If any written claim is made against any Indemnitee or if any proceeding is commenced against any Indemnitee for any Taxes as to which Borrower may have an indemnity obligation pursuant to § 9.02(a), such Indemnitee shall promptly notify Borrower of such written claim after such Indemnitee receives notice of such claim or proceeding; provided, that failure to provide such notice to Borrower shall not affect the obligation of Borrower to provide indemnification hereunder with respect to the Taxes that are the subject of such claim or proceeding unless and except to the extent that, (i) such failure (whether by adversely affecting a counterclaim or defense, or otherwise) increases the amount for which Borrower would have been liable in the absence of such failure, or (ii) such failure results in the imposition of, or an increase in the amount of, any penalties, interest, or additions to Tax related to the Tax which is the subject of such claim or proceeding.

Upon Borrower’s timely written request, such Indemnitee shall, in good faith, with due diligence, and at Borrower’s expense, contest the validity, applicability, or amount of such Taxes by, in such Indemnitee’s sole discretion after consultation with Borrower, (aa) resisting payment thereof, (bb) not paying the same except under protest, if protest is necessary and proper, or (cc) if payment is made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings; provided, that the Indemnitee shall not be required to take or continue any action pursuant to this sentence (1) unless and until Borrower agrees to pay and shall timely pay, on an After-Tax Basis on demand to such

 

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[Amended and Restated Credit Agreement No. [•]]

 

Indemnitee all reasonable costs and expenses that such Indemnitee actually incurs in connection with and reasonably allocable to contesting such claim (including reasonable out of pocket costs, legal and accounting fees, penalties, interest, and additions to tax); (2) while a Specified Default has occurred and is continuing, unless Borrower provides security for its obligations under this § 9.02 reasonably satisfactory to such Indemnitee; (3) if the Indemnitee decides to pay the Tax prior to the contest, Borrower provides to the Indemnitee an interest-free advance in an amount equal to the Tax which the Indemnitee is required to pay and shall, in such case, pay any additional amount required to hold such Indemnitee harmless against any adverse Tax consequences arising from such advance (and if such contest is finally determined adversely, the amount of such advance shall be applied against Borrower’s obligation to indemnify the Indemnitee against the Tax which is the subject of such contest), (4) if the action to be taken will involve any risk of criminal liability on the Indemnitee or a material risk of a sale, forfeiture, or loss of any Item, or the creation of any Lien other than Liens for the Taxes being contested unless Borrower posts a bond or other security reasonably satisfactory to the Indemnitee in respect to such risk (other than in the case of a risk of criminal liability), and (5) if in the case of an income tax contest, unless and until the Indemnitee shall have received from Borrower’s independent tax counsel (reasonably acceptable to such Indemnitee) a written opinion to the effect that a reasonable basis, within the meaning of ABA Formal Opinion No. 85-352, or successor thereto, exists for making such claim or not paying such Tax.

Any contest conducted pursuant to the preceding paragraph shall, at such Lender’s option, be conducted by such Lender or Borrower in the name of Borrower or such Lender (unless, in such Lender’s judgment such contest by Borrower is reasonably likely to have a materially adverse impact on Lender’s business or operations, in which case Lender may retain or reassert control over the contest). If Borrower satisfies the conditions imposed on it in this § 9.02(b) and an Indemnitee nevertheless fails to comply with its obligation to contest as provided in this § 9.02(b) and refuses to permit Borrower to contest under and as and to the extent required by this § 9.02(b), then Borrower shall not be obligated to indemnify such Indemnitee for such claim or for any other claim to the extent that such failure to contest or to permit a contest (i) increases the amount for which Borrower would have been liable in the absence of such failure, or (ii) results in the imposition of, or an increase in the amount of, any penalties, interest, or additions to Tax related to the Tax which is the subject of such claim or proceeding.

In addition, subject to the terms of the preceding paragraph, the Indemnitee shall not settle, concede, or compromise any contest without Borrower’s prior written consent unless the Indemnitee forgoes its right to be indemnified for such claim, and any such settlement, concession, or compromise without the prior written consent of Borrower shall constitute a waiver of such Indemnitee’s rights to indemnification hereunder with respect to such claim and any other related claim for which a successful contest is adversely affected in any material respect because of such settlement, concession, or compromise. If the settlement proposal of a claim is acceptable to the Indemnitee but is unacceptable to Borrower, Borrower shall inform such Indemnitee of the amount for which Borrower would be willing to settle such claim and such Indemnitee may accept the settlement proposal; provided, that the amount of any indemnity payment which Borrower shall be required to pay to such Indemnitee under § 9.02(a) in respect of such claim shall not exceed the amount for which Borrower would have been willing to settle such claim. Such Indemnitee shall promptly return such portion of any amounts (including any

 

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[Amended and Restated Credit Agreement No. [•]]

 

“gross up” paid thereon), previously advanced by Borrower for the payment of the Taxes which were the subject of the contest, (other than expenses of the contest) as exceeds the amount to which Borrower did not withhold its consent. If Borrower notifies such Indemnitee that the settlement proposal is unacceptable to Borrower, the Indemnitee shall treat such notification as Borrower’s request that such Indemnitee contest such claim for Taxes, in which case Borrower’s and such Indemnitee’s rights and obligations with respect to such taxes shall be as provided in this § 9.02(b) without regard to the settlement proposal. If requested to do so by Borrower, and all conditions to contest set forth in this § 9.02(b) have been satisfied, an Indemnitee will appeal, or permit Borrower to appeal, an adverse administrative or judicial opinion, provided that, an Indemnitee will not be required to appeal any decision to the United States Supreme Court or any similar court in a jurisdiction outside the United States.

Nothing in this § 9.02(b) shall require any Indemnitee to contest or permit the contest of a claim which it would otherwise be required to contest pursuant to this § 9.02(b) if such Indemnitee waives payment by Borrower of (x) any amount that might otherwise be payable by Borrower under this § 9.02 by way of indemnity in respect of such claim, and (y) any other amount that might otherwise be payable by Borrower by way of indemnification in respect of any other claim for which a successful contest is adversely affected in any material respect because of such failure to contest. In such event, such Indemnitee shall reimburse Borrower for all amounts paid by or on behalf of Borrower with respect to such non-contested claim other than the expenses of the contest.

If any Indemnitee actually obtains a refund (or would have actually received such a refund but for offset by matters not indemnifiable by Borrower under § 9.02(a)) of all or any part of any Tax paid or reimbursed by Borrower, such Indemnitee shall promptly pay to Borrower the amount equal to the lesser of (x) the amount of such refund (or the amount of such offset) plus any interest thereon (less any Taxes imposed on such Indemnitee with respect to such interest) received from the relevant taxing authority (or which would have been received with respect to the amount of such an offset) plus the amount of any Tax benefits realized by such Indemnitee as a result of such payment (and net of any net Tax detriment resulting from the receipt of the refund and any interest thereon), and (y) the sum of (i) such Tax payment by Borrower to such Indemnitee plus (ii) any interest received by such Indemnitee with respect to such refund or offset plus (iii) any other payment (other than the expenses of any applicable contest) by Borrower to such Indemnitee with respect to such Tax payment theretofore made (and not theretofore repaid to Borrower) pursuant to § 9.02(a); provided, such amount shall not be payable (a) before such time as Borrower shall have made all payments or indemnities then due and owing to such Indemnitee by Borrower pursuant to the Basic Documents, (b) while a Specified Default has occurred and is continuing, or (c) to the extent the amount of such payment by such Indemnitee exceeds the aggregate amount paid by Borrower to the Indemnitee pursuant to § 9.02(a) with respect to such Tax (net of any amounts paid in respect of Taxes required to be paid by such Indemnitee in respect of the receipt or accrual of such amounts) other than the expenses of the contest less the aggregate amount of all prior payments with respect to such Tax by such Indemnitee to Borrower pursuant to this paragraph. Any subsequent loss or disallowance of such refund (as a result of a re-determination of the claim giving rise to such refund by any taxing authority or as a result of a judicial proceeding with respect to such claim) or tax benefit shall be treated as a Tax subject to indemnification under § 9.02(a) without regard to the exclusions in § 9.02(a). If an Indemnitee receives an award of attorneys’ fees in a contest

 

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[Amended and Restated Credit Agreement No. [•]]

 

for which Borrower has paid an allocable portion of the contest expenses, such Indemnitee shall pay to Borrower that portion of the award that is directly related to the issues contested with respect to a Tax indemnified under § 9.02(a), taking into account the rules applicable to obtaining such an award and any decision of the court in making such award up to the amount of attorneys’ fees actually paid by Borrower in connection with such contest.

(c)    Payments and Repayments. All Taxes shall be paid when due and payable to the appropriate taxing authority, and all amounts payable as indemnities pursuant to this § 9.02 shall be payable, to the extent not theretofore paid, promptly, on written demand by the appropriate Indemnitee, but in any event within 30 days, except that Taxes being contested pursuant to § 9.02(b) shall not be required to be paid, subject to clause (3) in the second paragraph of § 9.02(b), before the Final Determination of such contest. For the purposes of this § 9.02(c), a “Final Determination” is (1) a decision, judgment, decree or other order by any court of competent jurisdiction, that occurs pursuant to the provisions of § 9.02(b), which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted or the time for filing such appeals has expired, (2) a closing agreement entered into in accordance with § 9.02(b), that has become binding and is not subject to further review of appeal (absent fraud or misrepresentation, etc.), (3) the expiration of the time for instituting suit with respect to the claimed deficiency or (4) the expiration of the time for instituting a claim for refund, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto. If, for any reason, Borrower makes any payment with respect to any Taxes imposed on any Indemnitee in respect of the transactions contemplated by the Basic Documents or on an Aircraft, which Taxes are not the responsibility of Borrower with respect to such Indemnitee under this § 9.02, then such Indemnitee shall pay to Borrower within 30 days of Borrower’s demand therefor an amount that equals the amount paid by Borrower with respect to such Taxes, plus interest at the Interest Rate from the date paid by Borrower to the date repaid to Borrower by such Indemnitee.

(d)    Reports and Returns. If any report or return is required to be made with respect to Taxes that are Borrower’s obligations under this § 9.02, Borrower shall, at its sole expense, in a timely and proper fashion, (x) to the extent required or permitted by law, make and file in its own name such return or report, and (y) in the case of any such return or report required to be made in the name of any Indemnitee, inform such Indemnitee of such fact and prepare such return or report for filing by such Indemnitee in a manner reasonably acceptable to the Indemnitee or, where such return or report is required to reflect items in addition to any obligations of Borrower under or arising out of this § 9.02, provide such Indemnitee with information sufficient to permit such return or report to be properly made and timely filed with respect to any Taxes that are obligations of Borrower under this § 9.02 no later than 30 days prior to the filing date of such return or report. Each Indemnitee shall provide to Borrower such information (other than tax returns) within that Indemnitee’s possession or control as is reasonably necessary for Borrower to complete and file any such report or return properly.

(e)    Receipts and Records. Borrower shall use reasonable efforts to obtain official receipts indicating the payment of all Taxes that are subject to indemnification under § 9.02(a) and that are paid by Borrower, and shall promptly on request send to the Indemnitee each such receipt obtained by Borrower or other such evidence of payment as is reasonably acceptable to such Indemnitee and reasonably available to Borrower. Within a reasonable time

 

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[Amended and Restated Credit Agreement No. [•]]

 

after Borrower receives from an Indemnitee a written request for specified information or copies of specified records reasonably necessary to enable an Indemnitee to fulfill its Tax filing, Tax audit or other Tax obligations or to contest Taxes imposed upon it, Borrower shall provide such information or copies of such records to the requesting party.

(f)    Borrower a Primary Obligor. Borrower’s obligations under the indemnities provided for in this Agreement are those of a primary obligor whether or not the Indemnitee is also indemnified against the same matter under any other Basic Documents or any other document or instrument, and the Person seeking indemnification from Borrower may proceed directly against Borrower without first seeking to enforce any other right of indemnification.

(g)    Payments on After-Tax Basis. Each payment and indemnity under § 9.02(a) shall be made on an After-Tax Basis. If any Indemnitee realizes any credits, deductions, or other tax benefits (or would have realized such a benefit if properly claimed) by reason of such payment or indemnity or, to the extent not otherwise taken into account in the computation of such payment or indemnity, as a result of the imposition or payment of any Tax with respect to which an indemnity has been paid hereunder, such Indemnitee shall pay to Borrower an amount equal to the lesser of (1) the sum of the amount by which such credits, deductions, and other tax benefits reduces the Taxes of such Indemnitee plus any tax benefit realized minus any tax detriment realized as a result of any payment made pursuant to this clause (1) and (2) the amount of such payment by Borrower to or for the account of such Indemnitee plus the amount of any other payments pursuant to § 9.02(a) (other than the expenses of any applicable contest) by Borrower to or for the account of such .Indemnitee theretofore made with respect to such payment and not already paid to Borrower pursuant to § 9.02(g); provided, that any amount due to Borrower pursuant to this sentence shall be withheld to the extent of any payment or indemnity then due from Borrower to or on behalf of such Indemnitee pursuant to the Basic Documents and not made (and any amount so withheld shall not be payable before such time and to such extent as Borrower shall have made such payments or indemnities), provided, further, such amount shall not be payable while a Specified Default shall have occurred and be continuing or to the extent that the amount of the payment by such Indemnitee exceeds the aggregate amount paid by Borrower to the Indemnitee pursuant to § 9.02 (net of any amounts paid in respect of taxes required to be paid by such Indemnitee in respect of the receipt or accrual of such amounts) other than the expense of any applicable contest less the aggregate amount of all prior payments by such

Indemnitee to Borrower pursuant to this paragraph, but such excess shall be carried forward and reduce Borrower’s obligations to make subsequent payments to the Indemnitee pursuant to § 9.02. Any Taxes that are imposed on any Indemnitee as a result of the disallowance or reduction of a tax benefit referred to in the first sentence of this § 9.02(g) in a subsequent taxable year shall be indemnifiable pursuant to § 9.02(a) (without regard to the exclusions in § 9.02(a)).

In determining the order in which any Indemnitee utilizes withholding or other foreign taxes as a credit against such Indemnitee’s United States income taxes for any taxable year, such Indemnitee shall be deemed to utilize (i) first, all foreign taxes other than those described in clause (ii) below; provided, in the case of a Lender, that such other foreign taxes which are carried back to the taxable year for which a determination is being made shall be deemed utilized after foreign taxes described in clause (ii) below, and (ii) then, on a pro rata

 

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basis, all foreign taxes with respect to which such Indemnitee is entitled to obtain indemnification pursuant to an indemnification provision contained in any loan agreement, or other financing document (including this Agreement) that is similar to the indemnification provision in this § 9.02.

(h)    Interest. Borrower will pay to each Indemnitee, on demand, to the extent permitted by Applicable Law, interest at the Interest Rate applicable to such Indemnitee plus 1% per annum on the amount of any indemnity not paid when due pursuant to this § 9.02, until it is paid. Such interest shall be paid in the same manner as the unpaid amount on which it is due. An Indemnitee will pay to Borrower, on demand, to the extent permitted by Applicable Law, interest at the Interest Rate applicable to such Indemnitee plus 1% per annum on the amounts of any payment required hereunder to be made by such Indemnitee to Borrower not paid when due pursuant to this § 9.02, until it is paid.

(i)    Survival. All indemnities, obligations, adjustments, and payments provided for in this § 9.02 shall survive, and remain in full force and effect, notwithstanding the expiration or other termination of this Agreement or any other Basic Document. The obligations of Borrower in respect of all such indemnities, obligations, adjustments, and payments are made for the benefit of, and shall be enforceable by, the Indemnitee entitled thereto, without declaring any Basic Document to be in default or taking any other action hereunder or thereunder, and notwithstanding any provision of the Mortgage or any other Basic Document.

(j)    Required Forms. Borrower agrees to the extent required by Applicable Law with respect to payments by it or by Loan Trustee, to withhold from each payment due hereunder or under any Note United States federal withholding Taxes at the appropriate rate, and, on a timely basis, to deposit such amounts with an authorized depository and make such reports, filings, and other reports in connection therewith, and in the manner, required under Applicable Law. Borrower shall furnish no later than March 15 of each year to each Lender a U.S. Treasury Form 1042S (or similar forms at any relevant time in effect), if applicable, indicating payment in full of any Taxes withheld from any payments by Borrower to such Lender together with all such other information and documents reasonably requested by such Lender and necessary or appropriate to enable such Person to substantiate a claim for credit or deduction with respect thereto for income tax purposes of any jurisdiction with respect to which such Person is required to file a tax return.

Each Lender who is a not a U.S. person (as defined in Code § 7701(a)(30), such person a “Non-U.S. Person.”)) or who is a trustee or agent for a Non-U.S. Person shall deliver to the Loan Trustee and the Borrower on the Closing Date a complete original signed copy of Internal Revenue Service Form W-8ECI, Form W-8BEN or W-8EXP, as applicable, evidencing such Lender’s qualification for a reduction of, or complete exemption from, United States federal withholding tax on all interest payments made under the Mortgage and any Note, in each case, to the extent properly available under applicable law or any applicable treaty. On or prior to the date on which all or any portion of any Note is transferred to a subsequent Lender who is a Non-U.S. Person, or who is a trustee or agent for a Non-U.S. Person, such subsequent Lender shall deliver to the Loan Trustee and the Borrower: (aa) a complete original signed copy of Internal Revenue Service Form W-8BEN (or successor thereto) evidencing such subsequent Lender’s qualification for a reduction of, or complete exemption from, withholding of United States

 

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federal income tax on interest payments made under the Mortgage and any Note during the taxable year of such Lender to which such Form W-8BEN relates, (bb) a complete original signed copy of Internal Revenue Service Form W-8BEN (or successor thereto) evidencing such subsequent Lender’s qualification for a complete exemption from, or in the case of a Change in Law, a partial exemption from, withholding of United States federal income tax on all interest payments made under the Mortgage and any Note on the basis of any treaty between the United States and the country in which such Lender is a resident (or under the laws of which such Lender is entitled to the benefits of such treaty) during the taxable year of such Lender to which such Form W-8BEN relates, or (cc) a complete original signed copy of Internal Revenue Service Form W-8ECI (or successor thereto) evidencing the Lender’s qualification for a complete exemption from withholding of United States federal income tax on interest payments made under the Mortgage and any Note during the taxable year of such Lender to which such Form W-8ECI relates, in each case, to the extent properly available under applicable law or any applicable treaty. From time to time thereafter as is necessary to evidence a Lender’s properly available qualification for a reduction of, or complete exemption from, withholding of United States federal income tax on all interest payments under the Mortgage and any Note, each Lender upon timely notice by Borrower, shall deliver to the Loan Trustee and the Borrower additional complete signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN, or W-8EXP as applicable (or any successor form(s)) evidencing such qualification. Notwithstanding the foregoing, each Lender hereby agrees to provide prompt notice to the Loan Trustee and Borrower of any change or event which would cause the Forms to be invalid. If and for any period during which the provisions of this § 9.02(k) are not satisfied by or with respect to a Lender, § 9.02(a) shall not require the Borrower to indemnify with respect to any resulting withholding of U.S. federal income taxes imposed on or with respect to such Lender as a result of such noncompliance for the periods to which such non-compliance relates (if such indemnification would otherwise be required pursuant to the terms of such § 9.02(a)), and the Borrower shall deduct and withhold any. U.S. federal income taxes as required by law from interest payments made under the Mortgage and any Note.

Section 10.    Yield Protection.

10.01    Additional Costs. (a) Borrower shall pay directly to each Lender from time to time such amounts as such Lender reasonably determines are necessary to compensate such Lender, on an after-tax basis, for any costs which are attributable to its purchase or holding of any Notes hereunder or the funding arrangements in respect thereof, or any reduction in any amount effectively receivable by such Lender in respect of any of such Notes, resulting from any Regulatory Change which imposes or modifies any reserve, special deposit, minimum capital, capital ratio, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (or, without duplication, the bank holding company of which such Lender is a subsidiary), or changes in interpretation of such requirements or other similar measures effectively imposed or directed by public controlling bodies. Each Lender will notify Borrower of any event occurring after the date of this Agreement which will entitle that Lender to compensation pursuant to this § 10.01 as promptly as practicable after it obtains knowledge thereof, if it determines to request such compensation. Each Lender will furnish Borrower with a certificate setting forth the basis and amount of each request by such Lender for compensation under this § 10.01. No indemnity shall be payable under this § 10.01: (aa) for any costs accruing earlier than such notice by such Lender to

 

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Borrower, (bb) unless such Lender is seeking similar compensation for such costs from its borrowers generally in connection with aircraft loan or aircraft leveraged lease financings, or (cc) to the extent caused by a Lender’s relocation or by its voluntary relocation of its Note(s).

(b)    Determinations and allocations by any Lender for purposes of this § 10.01 of the effect of any Regulatory Change pursuant to § 10.01 on such Lender’s costs or rate of return of maintaining any Note, or on amounts receivable by it in respect of any Note, and of amounts required to compensate such Lender under this § 10.01, shall be made by such Lender reasonably and in good faith and shall be conclusive, subject only to verification, upon Borrower’s request, in accordance with the procedures set forth in § 9.02(g).

10.02    Substitute Office or Rate for Notes. If any Lender’s Notes become eligible for compensation pursuant to § 10.01 (Notes of such type being herein called “Affected Notes”), if Borrower so requests, then such Lender will promptly designate a different lending office (if available) for booking its holdings of affected Notes, or transfer such Affected Notes to another of its branches or Affiliates, if such designation or transfer would eliminate or reduce Borrower’s payment obligations under § 10.01 as to any of its Affected Notes and would not have materially disadvantageous regulatory or tax consequences to such Lender uncompensated for by Borrower reasonably determined by such Lender in good faith; provided that, notwithstanding the foregoing, no Lender shall be obligated to take any action that would, in its reasonable judgment, cause such Lender to incur any loss or cost reasonably deemed by such Lender to be material, unless Borrower agrees to reimburse such Lender hereunder. To the extent that any such designation or transfer does not eliminate such compensation or suspension, such Lender and Borrower shall negotiate in good faith to arrive at a substitute rate. Upon the determination of a substitute rate, interest on such Affected Notes shall (but only to the extent held by such Lender) accrue at such substitute rate instead of the interest rate(s) at which such Affected Notes would have otherwise accrued. For the avoidance of doubt, if such Lender and Borrower cannot arrive at a substitute rate, then Borrower shall compensate such Lender pursuant to § 10.01, and Borrower shall have the right to prepay the existing Notes, if any, on and subject to the terms of § 4.02.

Section 11.    Loan Trustee

11.01    Appointment; Powers and Indemnities.

(a)    Each Lender hereby irrevocably appoints and authorizes U.S. Bank to act as Loan Trustee hereunder and in respect of the other Basic Documents, with the power to execute and deliver this Agreement and the other Basic Documents to which it is to be a party, including the Notes, and any other agreements, instruments, or documents (including UCC continuation statements) in which Loan Trustee is shown as a party in the forms delivered from time to time by the Lenders to Loan Trustee for execution and delivery and, subject to the terms of this Agreement, to exercise its rights and perform its duties under such documents in accordance with their terms, and with such other powers as are reasonably incidental thereto. U.S. Bank accepts the trusts and duties created by this Agreement and, as Loan Trustee, agrees to those trusts and duties on the terms hereof, including receiving and disbursing all money that it receives as part of the Collateral upon the terms of this Agreement. Except with respect to any representation, warranty, or covenant expressly made by Loan Trustee in any Basic Document,

 

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(i) Loan Trustee shall have no duties or responsibilities except those expressly set forth in this Agreement and (ii) Loan Trustee shall not be responsible to any Lender (or to any other party) for any recitals, statements, representations, or warranties contained in this Agreement or any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of this Agreement or any other Basic Document, or any other document referred to or provided for herein or therein or for any failure by Borrower or any third party to perform any of its obligations hereunder or thereunder. Loan Trustee may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither U.S. Bank nor Loan Trustee nor any of U.S. Bank’s directors, officers, employees, or agents shall be liable or responsible to any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Basic Document, or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct or for U.S. Bank’s failure to use ordinary care in handling funds.

(b)    Loan Trustee shall not be obligated to take any action or refrain from taking any action under any Basic Document that might in its reasonable judgment impose upon it any liability unless it is indemnified, in form and substance satisfactory to Loan Trustee, which indemnity may be furnished by any Lender.

(c)    Loan Trustee shall not have any duty or obligation to any Lender to manage, control, use, operate, store, lease, sell, dispose of, or otherwise deal with the Aircraft or any part of the Collateral, or otherwise to take or refrain from taking any action under, or in connection with, any Basic Document to which Loan Trustee is a party, except as expressly provided by the terms hereof or any other Basic Document, or as specified in written instructions not inconsistent with § 13.04 and from a Majority in Interest of Lenders as to the Notes or related Collateral affected by such actions.

11.02    Reliance by Loan Trustee. Loan Trustee may rely upon, and shall not be bound or obligated to make any investigation into the facts or matters stated in, any certificate, notice, or other communication (including any thereof by telephone or fax) believed by it to be genuine and correct and to have been made, signed, or sent by or on behalf of the proper Person or Persons, and upon advice and statements of outside legal counsel, independent accountants, and other experts selected by Loan Trustee (and Loan Trustee shall not be liable to any Lender for anything that Loan Trustee does, suffers, or omits in good faith in accordance with the advice or opinion of any such counsel, accountants, or experts within such Person’s or Persons’ particular area of competence, provided that Loan Trustee has exercised due care in selecting such counsel, accountants, or other experts). As to any matters not expressly provided for by this Agreement, Loan Trustee shall as to all Lenders be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions not inconsistent with § 13.04 and signed by a Majority in Interest of Lenders and such instructions of a Majority in Interest of Lenders and any action taken or failure to act pursuant thereto shall be binding on all Lenders.

11.03    Defaults. Loan Trustee shall not be deemed to have knowledge of the occurrence of a Default unless Loan Trustee has received actual written notice from a Lender or from Borrower, specifying such Default and stating that such notice is a “Notice of Default”. If Loan

 

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Trustee receives actual notice of the occurrence of a Default, Loan Trustee shall give prompt notice thereof to each Lender and to Borrower. Loan Trustee shall (subject to § 11.07) take action with respect to such Default as directed by a Majority in Interest of Lenders; provided, that, unless and until Loan Trustee receives such directions, Loan Trustee may take such action, or refrain from taking such action, with respect to such Default as it deems advisable in the best interest of the Lenders.

11.04    Rights as a Lender. With respect to any loan made or acquired by it, U.S. Bank, in its capacity as a Lender hereunder, shall have the same rights, powers, and obligations hereunder as any other Lender and may exercise the same as though it were not acting as Loan Trustee, and the term “Lender” or “Lenders” shall, unless the context otherwise requires, include U.S. Bank in its individual capacity. U.S. Bank and its Affiliates may (without having to account therefor to any Lender) lend money (on a secured or unsecured basis) to, and generally engage in any kind of other business with, Borrower, and any of Borrower’s Affiliates, as if U.S. Bank were not acting as trustee hereunder.

11.05    Indemnification. Each Lender shall indemnify Loan Trustee (to the extent not reimbursed under § 9 hereof but without limiting the obligations under § 9), ratably in accordance with the aggregate principal amount of the Notes held by such Lender, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind and nature whatsoever that may be imposed on, incurred by, or asserted against Loan Trustee in any way relating to or arising out of this Agreement or any other document contemplated by or referred to herein or the transactions contemplated hereby or the enforcement of any of the terms hereof or of any such other documents; provided, that no Lender shall be liable for any of the foregoing to the extent they arise from Loan Trustee’s gross negligence or willful misconduct.

11.06    Nonreliance on Loan Trustee or Lenders. Each Lender agrees that it has, independently and without reliance on Loan Trustee or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and its own decision to become a lender under the Basic Documents and that such Lender will, independently and without reliance upon Loan Trustee or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking action under this Agreement and the Basic Documents to which it is a party. Loan Trustee shall not be required to keep itself informed as to the performance or observance by Borrower of any other document referred to (directly or indirectly) or provided for herein or therein or to inspect the properties or books of any such entity. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by Loan Trustee hereunder, Loan Trustee shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of Borrower or any of its Affiliates that may come into the possession of Loan Trustee or any of its Affiliates. Except as otherwise specifically required herein, Loan Trustee shall not be required to forward to the Lenders any notices, reports, or other documents and information otherwise required to be forwarded to the Lenders by any other party to the Basic Documents.

 

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11.07    Failure to Act. Except for action expressly required of Loan Trustee hereunder, Loan Trustee shall as to all Lenders be fully justified in failing or refusing to act unless it is indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

11.08    Investment of Funds. Except as otherwise provided in § 7.03 of the Mortgage, any money held by Loan Trustee hereunder as part of the Collateral shall, until paid out by Loan Trustee as herein provided, be held by Loan Trustee for the purposes for which held, and Loan Trustee shall not have any liability for interest upon any such money, and such money need not be invested or reinvested except as provided in this § 11.08. Any amounts held by Loan Trustee pursuant to this § 11.08 shall be invested by Loan Trustee from time to time (unless the costs of the investment would exceed the gains reasonably anticipated therefrom) in obligations of, or fully secured by, the United States or Canadian government maturing in not more than 30 calendar days. Loan Trustee shall have no liability for any loss resulting from any such investment. Loan Trustee may sell any such investment (without regard to maturity date) whenever necessary to make any distribution required by any provision of § 12. Except as otherwise provided in § 7.03 of the Mortgage, Loan Trustee shall hold and apply any income realized as a result of any investment pursuant to this § 11.08 in the same manner as the payments held by Loan Trustee pursuant to § 12.

11.09    Loan Trustees Representations and Warranties.

(a)    Neither any Lender nor Loan Trustee makes any representation or warranty as to the sufficiency, validity, legality, or enforceability of any Basic Document, or as to the correctness of any statement contained in any thereof, except as expressly set forth in this Agreement. Neither any Lender nor Loan Trustee makes any representation as to the value or condition of the Collateral or any part thereof, or as to the title thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any security at any time pledged and deposited with Loan Trustee hereunder.

(b)    U.S. Bank represents and warrants that:

(1)    neither it nor anyone authorized to act on its behalf has directly or indirectly offered any beneficial interest or security interest relating to any Aircraft or any interest in any Note for sale to, or solicited any offer to acquire any such interest or security from, any Persons other than the Lenders in such a manner as to require any of the Notes, or documents signifying security interests to be registered under the Securities Act of 1933, as amended, and that it has no present intention of reselling any Note or any interest therein; provided, that the foregoing shall not be deemed to impose responsibility with respect to any such offer, sale, or solicitation by any other Person;

(2)    it has all power, authority, and legal right under the laws of the United States to execute, deliver, and carry out the terms of each of the Basic Documents to which Loan Trustee is a party;

(3)    Loan Trustee has duly authorized the execution and delivery of this Agreement and the other Basic Documents to which it is a party;

 

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(4)    its execution and delivery of each Basic Document to which it is a party will not result in any violation of, or be in conflict with, or constitute a default under, any of the provisions of its charter or by-laws, or of any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, note or bond purchase agreement, license, bank loan, credit agreement, or other agreement to which it is a party or by which it is bound, or any law, judgment, governmental rule, regulation, or order of any U.S. governmental authority or agency; and

(5)    neither Loan Trustee’s execution and delivery, of the Basic Documents to which it is a party, nor Loan Trustee’s consummation of any of the transactions contemplated thereby, requires the consent or approval of, giving of notice to, or registration with any U.S. governmental authority or agency.

11.10    [Intentionally Omitted.]

11.11    Action Upon Written Instructions. Subject to the terms of §§ 11.03, 11.12, and 11.13, upon the written instructions not inconsistent with § 13.04 at any time and from time to time of a Majority in Interest of Lenders, Loan Trustee will take such actions as are specified in such instructions, including the following actions: (a) give such notice or direction or exercise such right, remedy, or power hereunder or under any of the Basic Documents to which Loan Trustee is a party, or in respect of all or any part of the Collateral, or take such other action as is specified in such instructions; (b) take such action to preserve or protect the Collateral (including the discharge of any Liens) as is specified in such instructions; and (c) approve as satisfactory to it all matters required by the terms of the Basic Documents to be satisfactory to Loan Trustee, and, except as otherwise provided in § 11.03 or in the last sentence of this § 11.11, without written instructions not inconsistent with § 13.04 of a Majority in Interest of Lenders, Loan Trustee shall not approve any such matter as satisfactory to it. Upon the written instructions not inconsistent with § 13.04 of a Majority in Interest of Lenders, Loan Trustee will authorize, execute, and file any financing statement (and any continuation statement with respect to any such financing statement) or similar document relating to the security interests and assignments created by the Basic Documents as is specified in such instructions and accompanies such instructions (and Loan Trustee shall have no duty to authorize, execute, or file any financing statement, continuation statement, or any other documents of the type referred to in this sentence unless it receives such written instructions and a final form of such statement or document). If Loan Trustee is unsure of the application of any provision of this Agreement or any other agreement relating to the transactions contemplated hereby, Loan Trustee may request and rely upon instructions not inconsistent with § 13.04 of a Majority in Interest of Lenders, but if Loan Trustee does not receive such instructions from the Majority in Interest of Lenders within 20 days after the date of such request, until instructed otherwise Loan Trustee may, but shall be under no duty to, take or refrain from taking such action as it deems advisable in the best interests of the Lenders.

11.12    Expenses.

(a)    Expenses After Default. While an Event of Default exists, Loan Trustee shall not be under any obligation to any Lender to take any action under any of the Basic Documents (including action under § 11.13) if U.S. Bank reasonably determines, or is advised by

 

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independent counsel, that such action is contrary to the terms of the Basic Documents to which Loan Trustee is a party, or is otherwise contrary to law, and unless and until requested in writing to do so in a manner not inconsistent with § 13.04 by a Majority in Interest of Lenders and furnished, from time to time as it may require, with reasonable security and indemnity, satisfactory to U.S. Bank, from the Lenders against the costs, expenses, and liabilities which it might incur in compliance with such requests or direction.

(b)    Expenses for Actions Upon Written Instructions. Loan Trustee shall not be obligated to any Lender to take any action under § 11.03 or § 11.11 unless Loan Trustee shall have been furnished, from time to time as it may require, with reasonable security and indemnity, satisfactory to Loan Trustee, from the Lenders, against the costs, expenses, and liabilities which it might incur in complying with § 11.03 or § 11.11.

11.13    Procedures for Disposing of Collateral.

(a)    If an Event of Default exists, Loan Trustee shall, upon written instruction from a Majority in Interest of Lenders, declare all or part of the Secured Obligations due and payable to the extent permitted by § 8.02. Thereafter, the Majority in Interest of Lenders shall have the sole responsibility for directing Loan Trustee in the enforcement of rights and remedies, pursuant to the Basic Documents, as to the item(s) of Collateral, including the time and manner of repossessing and remarketing of such Collateral.

(b)    Any assignment, sale, transfer, or other conveyance of the Collateral by Loan Trustee made pursuant to the terms hereof or of the other Basic Documents to which it is a party shall bind the Lenders and shall be effective to assign, sell, transfer, or convey all right, title and interest of Loan Trustee and the Lenders that it purports to assign, sell, transfer, or otherwise convey in and to the Collateral. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency, or regularity of such assignment, sale, transfer, or conveyance or as to the application of any sale or other proceeds with respect thereto by Loan Trustee.

11.14    Appointment of Additional Trustee or Co-Trustee.

(a)    At any time(s), for the purpose of meeting the legal requirements of the Transportation Code, Loan Trustee shall have power to appoint one or more Persons to act as additional trustee(s) or co-trustee(s) as to all or any part of the Collateral, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person(s) any property, title, right, or power deemed necessary or desirable, subject to the remaining provisions of this § 11.14.

(b)    Every additional trustee or co-trustee shall to the extent permitted by law be appointed subject to the following terms:

(1)    The rights, powers, duties, and obligations conferred or imposed upon any such trustee or co-trustee shall not be greater than those conferred or imposed upon Loan Trustee, and such rights and powers shall be exercisable only jointly with Loan Trustee, except to the extent that, under any law of any jurisdiction in which any particular act(s) are to be performed, Loan Trustee shall be unqualified to perform such

 

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act or acts, in which event such rights and powers shall be exercised by such trustee or co-trustee subject to § 11.14(b)(4).

(2)    Loan Trustee may at any time, by an instrument in writing executed by it, accept the resignation of or remove any trustee or co-trustee appointed under this § 11.14.

(3)    No trustee or co-trustee hereunder shall be liable by reason of any act or omission of any other trustee or co-trustee hereunder.

(4)    No power given to such trustee or co-trustee shall be separately exercised hereunder by such trustee or co-trustee except with the consent in writing of Loan Trustee, anything herein contained to the contrary notwithstanding.

(c)    Upon the acceptance in writing of such appointment by any such trustee or co-trustee, it shall be vested with the estates, properties, rights, powers, duties, and trusts specified in the instrument of appointment, subject to all the terms of the Basic Documents.

11.15    Resignation of Trustee; Appointment of Successor.

(a)    Resignation or Removal. U.S. Bank or any successor acting as trustee hereunder may resign at any time without cause by giving at least 60 days’ prior written notice to all the Lenders and Borrower, such resignation to be effective when the successor trustee accepts its appointment under § 11.15(b). In addition, a Majority in Interest of Lenders at any time remove the institution serving as Loan Trustee hereunder without cause by so notifying such institution and Borrower, such removal to be effective when the successor trustee accepts its appointment under § 11.15(b). Upon such a resignation or removal, a Majority in Interest of Lenders may appoint a successor in writing. If no successor is appointed within 30 days after such notice of resignation or removal, then Loan Trustee, a Majority in Interest of Lenders, or Borrower may apply to any court of competent jurisdiction to appoint a successor to act until a successor is appointed as provided in this § 11.15(a). Any such appointment of a successor by a court shall immediately and without further act be superseded by the appointment of any successor by a Majority in Interest of Lenders, as provided above, within one year from the date of the appointment by such court.

(b)    Execution and Delivery of Documents, etc. Any successor trustee hereunder, however appointed, shall execute and deliver to the predecessor an instrument accepting such appointment, and thereupon, without further act, such successor shall become vested with all the estates, properties, rights, powers, duties, and trusts of the predecessor in the trusts hereunder as if originally named as “Loan Trustee” herein. Nevertheless, upon the written request of such successor, such predecessor shall execute and deliver an instrument transferring to such successor, upon the trusts herein expressed, all the estates, properties, rights, powers, and trusts of such predecessor, and such predecessor shall duly assign, transfer, deliver, and pay over to such successor all money or other property then held by such predecessor upon the trusts herein expressed.

(c)    Qualification. Any successor trustee hereunder, however, appointed, must be a “citizen of the United States” within the meaning of Transportation Code § 40102(a)(15),

 

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and shall also be a bank or trust company organized under the laws of the United States or any state thereof having a combined capital and surplus of at least $500 million, if there is then such an institution willing, able, and legally qualified to perform the duties of the trustee hereunder upon reasonable or customary terms.

(d)    Merger, etc. Any corporation into which the institution then serving as trustee hereunder is merged or converted or with which it is consolidated, or any corporation resulting from any merger, conversion, or consolidation to which such institution is a party, or any corporation to which substantially all the corporate trust business of such institution is transferred, shall, subject to § 11.15(c), be the Loan Trustee hereunder without further act.

Section 12.    Receipt, Distribution, and Application of Income.

12.01    Payment by Loan Trustee Generally. Subject to §§ 4.02, 12.02, 12.03, 12.04, and 12.05, (a) all payments (including prepayments under the first sentence of § 4.03 of this Agreement, except prepayments covered by § 12.02) of principal of and interest on any Note received by Loan Trustee shall be paid to the holder(s) of the Group of Notes pro rata in accordance with the principal and interest then due on the Group of Notes; and (b) each payment received by Loan Trustee as a result of Borrower’s voluntary prepayment of less than all the principal amount of a Note shall be paid to the holder(s) of the Group of Notes pro rata in accordance with the principal then due on the Group of Notes, for application to the unpaid interest accrued thereon, and to principal of such notes.

12.02    Payment upon Event of Loss. Upon the occurrence of an Event of Loss with respect to an Aircraft and the receipt of proceeds therefor by the Loan Trustee under § 7.01(b) of the Mortgage, Loan Trustee shall apply the proceeds to prepay the Note(s) for that Aircraft, and (subject to § 12.03) the remaining proceeds shall be paid to Borrower.

12.03    Payments After Event of Default. During the continuance of any Event of Default which would permit the acceleration of any Notes, all payments received by Loan Trustee and all amounts then held by Loan Trustee on behalf of Lenders, in each case received in respect of any Notes, the Aircraft or other Collateral, shall be applied in the following order of priority:

 First, to pay all proper fees, charges, expenses, or advances made or incurred by Loan Trustee or in the collection or distribution of such payment or otherwise in respect of the Group of Notes in accordance with the provisions of the Related Credit Agreements, or the Related Mortgages, and of any and all other sums then owing to Loan Trustee in respect of the Group of Notes by Borrower under the Related Basic Documents (including any amount payable by or for the account of Loan Trustee in respect of the Group of Notes under § 9.04(b) of each Related Mortgage), without priority of one holder of any of the Group of Notes over any other, in the proportion that the unreimbursed total of such amounts of each such holder on such date of application bears to the outstanding total of all such holders on such date of application;

 Second, to pay to the then-existing and prior holders of the Group of Notes all proper fees, charges, expenses (including expenses under § 13.03, and all amounts payable under § 9, of each Related Credit Agreement), and advances made or incurred by

 

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such then-existing and prior holders in respect of the Group of Notes and for which Borrower is responsible pursuant to the Related Basic Documents (to the extent not previously reimbursed), without priority of one holder of any of the Group of Notes over any other, in the proportion that the unreimbursed total of such amounts of each such holder on such date of application bears to the outstanding total of all such holders on such date of application;

 Third, to pay in full the unpaid interest on the Group of Notes due to the date of distribution (as well as interest on overdue principal and, to the extent permitted by applicable law, overdue interest at the rate set forth in § 4.05), and the then-outstanding principal of the Group of Notes, without priority of one holder of any of the Group of Notes over any other, in the proportion that the outstanding principal of each such holder’s notes related to the Group of Notes on such date of application bears to the outstanding principal of all the Group of Notes outstanding on such date of application;

 Fourth, to pay all other amounts then due by Borrower to the holders of the Group of Notes, without priority of one holder of any of the Group of Notes over any other, in the proportion that the total of such amounts of each such holder on such date of application bears to the outstanding total of all such holders on such date of application;

 Fifth, to pay all proper fees, charges, expenses, or advances made or incurred by Loan Trustee or in the collection or distribution of such payment or otherwise in respect of the USLL Loan Documents in accordance with the provisions of the USLL Loan Documents or the Additional Collateral Security Agreement, and of any and all other sums then owing to Loan Trustee in respect of the USLL Loan Documents or the Additional Collateral Security Agreement by Borrower under the USLL Loan Documents or the Additional Collateral Security Agreement (including any amount payable by or for the account of Loan Trustee in respect of the Group of Notes under § 7.04(b) of each USLL Loan Mortgage and the Additional Collateral Security Agreement), without priority of one obligor over any other, in the proportion that the unreimbursed total of such amounts of each such obligor on such date of application bears to the outstanding total of all such obligors on such date of application;

 Sixth, to pay to the then-existing and prior obligors under the USLL Loan Documents or the Additional Collateral Security Agreement all proper fees, charges, expenses, and advances made or incurred by such then-existing and prior obligors and for which Borrower is responsible pursuant to the USLL Loan Documents or the Additional Collateral Security Agreement (to the extent not previously reimbursed), without priority of any obligor over any other, in the proportion that the unreimbursed total of such amounts of each such obligor on such date of application bears to the outstanding total of all such obligors on such date of application;

 Seventh, to pay in full the unpaid interest on the outstanding obligations under the USLL Loan Documents due to the date of distribution (as well as interest on overdue principal and, to the extent permitted by applicable law, overdue interest at the rate set forth in the USLL Loan Documents), and the then-outstanding principal of the USLL Loan Documents, without priority of one obligor under the USLL Loan Documents over

 

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any other, in the proportion that the outstanding principal of each such obligor’s obligations related to the USLL Loan Documents on such date of application bears to the outstanding principal of all obligations under the USLL Loan Documents outstanding on such date of application;

 Eighth, to pay all other amounts then due by Borrower to the obligors under the USLL Loan Documents or the Additional Collateral Security Agreement, without priority of one obligor under the USLL Loan Documents or the Additional Collateral Security Agreement over any other, in the proportion that the total of such amounts of each such obligor on such date of application bears to the outstanding total of all such obligors on such date of application; and

 Ninth, the balance, if any, of such payments remaining thereafter shall be distributed to Borrower.

12.04    Indemnity and Certain Other Payments.

(a)    Subject to § 12.03, any indemnity payment under § 9 received by Loan Trustee or U.S. Bank shall, if owed to Loan Trustee or U.S. Bank, be applied to any such indemnity amounts owing to it, but if owed to another Indemnitee, be paid to the appropriate Indemnitee.

(b)    Except as otherwise provided in this § 12, if Loan Trustee receives any payment that a provision of the Mortgage or this Agreement (other than this § 12) describes how to apply, Loan Trustee shall promptly apply that payment as provided in such other provision of this Agreement or the Mortgage, as applicable.

(c)    If a Specified Default exists when Loan Trustee receives any payment referred to in § 12.04(b) or (d) Loan Trustee may hold such payment as part of the Collateral, and Loan Trustee shall cease to hold such payment and shall apply and distribute it as provided in § 12.04(b) or (d) if and when no Specified Default exists.

(d)    If an Indemnitee receives a refund of any amount that Borrower indemnified such Indemnitee for, that Indemnitee shall pay to Borrower an amount equal to that refund; provided, that any subsequent loss of that refund by the Indemnitee shall be treated as a loss subject to indemnification by Borrower.

12.05    Other Payments.

(a)    Provided no Specified Default exists, any money that Loan Trustee receives with respect to any right or obligation contained in the Basic Documents, and that the Basic Documents do not specify how to apply, shall be applied to any Secured Obligations then due, and the balance shall be distributed to Borrower.

(b)    Any payments received and amounts realized by Loan Trustee with respect to the Aircraft or otherwise to the extent received or realized, or remaining, at any time after payment in full of the Secured Obligations, as well as any other amounts remaining as part

 

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[Amended and Restated Credit Agreement No. [•]]

 

of the Collateral after payment in full of the Secured Obligations, shall be distributed to Borrower.

12.06    Method of Payment. Loan Trustee shall make distributions or cause distributions to be made to the Lenders and Borrower by wire transfer of immediately available funds, to the respective bank accounts specified in writing to Loan Trustee by such Persons, not later than 4:00 p.m. (New York City time) on the date they are received by Loan Trustee (if received by 1:00 p.m. (New York City time), or, if received later, as soon as practicable but not later than 11:00 a.m. (New York City time) on the next Business Day), or with commercially reasonably promptness after receipt in the case of payments to bank accounts located outside the United States.

12.07    Payments from Proceeds from Borrower. All payments to be made by Loan Trustee under the Notes and this Agreement shall be made only from the proceeds received by Loan Trustee under the Related Basic Documents. Each holder of a Note, by its acceptance of such Note, agrees that between itself and U.S. Bank, such Note holder will look solely to the proceeds received by Loan Trustee under the Related Basic Documents to the extent available for distribution to such holder as herein provided, and that U.S. Bank is not personally liable to the holder of any Note under such Note or this Agreement.

12.08    Termination of Notes. A holder of a Note shall have no further interest in, or other right with respect to, the proceeds received by Loan Trustee under the Related Basic Documents when and if all Secured Obligations payable to such holder have been paid in full.

Section 13.    Miscellaneous.

13.01    No Waivers; Cumulative Remedies. No failure or delay in exercising any power or right under any Basic Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude other or further exercise thereof or the exercise of any other right or power under any Basic Document. No notice to or demand on any party in any case shall, of itself, entitle such party to any other or further notice or demand in similar or other circumstances.

13.02    Notices. All communications and notices provided for under this Agreement shall be in writing (including telecopies and emails), shall be in English, shall be effective on delivery, and shall be addressed as follows (or to such other address as any such party shall designate by notice to each other such party):

 

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[Amended and Restated Credit Agreement No. [•]]

 

if to Borrower:

Air Wisconsin Airlines LLC

W6390 Challenger Drive, Suite 203

Appleton, WI 54915-9120

Attn: President and Chief Executive Officer

Fax: (920) 749-4158

Email: christine.deister@airwis.com

with a copy to the same address,

Attn: Chief Accounting Officer and Treasurer

Email: gregg.garvey@airwis.com

if to Lenders:

Her Majesty in Right of Canada

c/o Export Development Canada

150 Slater Street

Ottawa, Ontario Canada K1A 1K3

Attn: Loans Services & Asset Management -

          Transportation

Fax: (613) 598-2514 and (613) 598-3186

Email: ls-aerospace@edc.ca

if to Loan Trustee:

U.S. Bank - Corporate Trust Services

EX-DE-WDAW

300 Delaware Avenue, 9th Floor

Wilmington, DE 19801

Attn.: Charles Gallagher, Assistant Vice President

Fax: 302-576-3717

Email: charles.gallagher@usbank.com

Wherever “notice”, “notify”, or similar variations are used in this Agreement, the Mortgage, or the Notes, they mean the provision of a notice in accordance with this § 13.02.

13.03    Transaction Expenses.

(a)    (1) Borrower will pay on demand (aa) all reasonable out-of-pocket expenses in connection with the negotiation, preparation, execution, and delivery of the Basic Documents, or in connection with any scheduled closing that is postponed or cancelled, including all reasonable fees and expenses actually incurred of (i) Vedder Price P.C., special counsel to Her Majesty in Right of Canada, (ii) Shipman & Goodwin LLP, special counsel for Loan Trustee, (iii) Crowe & Dunlevy, special FAA counsel, and (iv) Taylor English Duma LLP,

 

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[Amended and Restated Credit Agreement No. [•]]

 

special counsel for Borrower, not to exceed $10,000 per Aircraft; provided, that the foregoing shall not limit Borrower’s responsibility for enforcement expenses under clause (2) of this § 13.03(a); and (bb) all FAA and UCC filing and lien search fees.

(2)    Borrower will pay on demand (aa) all fees and expenses (including legal fees and expenses) of each Lender and Loan Trustee in connection with actual or proposed amendments, waivers, or consents to or under this Agreement or the other Basic Documents (except for such amendments, waivers, or consents initiated by any Lender or Loan Trustee); and (bb) all fees and expenses (including legal fees and expenses) of each Lender and Loan Trustee in connection with the actual or proposed enforcement of any Basic Document against Borrower during the existence of any Specified Default. The “legal fees and expenses” of the Lenders and Loan Trustee referred to in clauses (aa) and (bb) may not include those of a Lender’s or Loan Trustee’s in-house counsel.

(3)    All reimbursable expenses shall be payable to Loan Trustee within 60 days after Borrower receives bills or invoices showing in reasonable detail the components of such expenses (for law firm bills, time expended by attorney or paralegal and expenses by category). Except as otherwise set forth in the Basic Documents, Borrower shall not be responsible for any fees or expenses of counsel to Loan Trustee or the Lenders other than those described in § 13.03(a)(1) and (2). Except as provided in § 13.03(a)(1) and (2), each Lender shall pay its own fees and expenses for legal counsel, and its own out-of-pocket expenses in connection with this Agreement and the documents contemplated hereby.

(b)    U.S. Bank shall be entitled to receive compensation, together with reimbursement within two months of its request for all reasonable expenses incurred or made by it in accordance with any of the provisions of the Basic Documents (including the reasonable compensation and expenses of its counsel, accountants, other skilled persons, and other persons not regularly in its employ). For its services during the existence of an Event of Default, U.S. Bank shall be entitled to receive compensation, reasonable as regards its additional responsibilities, and payment or reimbursement for its expenses as provided above. Under § 2.01 of the Mortgage, U.S. Bank is granted, and such obligations are secured by, a Lien on the Collateral entitling U.S. Bank to priority as to payment thereof (by virtue of § 12.03 hereof) over payment to any other Person under the Basic Documents. Borrower shall pay to U.S. Bank the compensation and reimbursement of expenses that U.S. Bank is entitled to under this § 13.03(b).

13.04    Amendments. Any provision of this Agreement, the Notes, or the Mortgage may be amended, terminated, waived, or otherwise modified only in writing by Borrower, Loan Trustee, and a Majority in Interest of Lenders, and any such amendment, termination, waiver, or other modification shall bind all of the Lenders to the same extent and with the same effect as if each Lender had joined therein; provided, that the written consent of U.S. Bank shall be required to effect any amendment, termination, waiver, or other modification of the Basic Documents that affects the rights or duties of Loan Trustee or U.S. Bank (but not in its capacity as a Lender)). Notwithstanding the foregoing, no amendment, modification, or waiver of the Basic Documents shall, unless in writing and signed by each Lender, be effective to (1) subject such Lender to any additional obligation, (2) reduce the principal of or interest on such Lender’s Notes related thereto, or any other amounts payable to such Lender hereunder (whether under § 9 or

 

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[Amended and Restated Credit Agreement No. [•]]

 

otherwise), or change the ratable distribution of funds received by Loan Trustee for account of the Lenders hereunder (including under § 4 hereof), (3) postpone any date fixed for any payment of the principal of, or interest on such Lender’s Notes related thereto or any other amounts payable to such Lender hereunder, (4) change the definition of “Majority in Interest of Lenders” as set forth in § 1.01, or amend, modify, or waive this § 13.04, or (5) change § 11.11 of this Agreement.

13.05    Successors and Assigns; Lender Transfers.

(a)    Binding Effect; Consent to Assignment. This Agreement shall bind and benefit each Lender, Loan Trustee, and Borrower and their successors and assigns, except that (except as provided in § 13.05(c), or as otherwise expressly provided in the Basic Documents) Borrower may not assign or transfer its rights under this Agreement without Loan Trustee’s prior written consent.

(b)    Lender Transfers.

 (1)    Right to Transfer; Limitations. Each Lender shall have the right to sell all or part of its interest in the Basic Documents upon obtaining the prospective transferee’s or assignee’s representations set forth in § 13.06(a); provided, that no Lender shall assign, convey, or otherwise transfer any of its interest in the Basic Documents, or offer to do any of the foregoing, (aa) in any manner that would result in a violation of the Securities Act of 1933 or any other applicable law, or (bb) unless the transferor obtains Borrower’s consent, to any airline, any airframe or engine manufacturer, or any controlled Affiliate of an airline or airframe or engine manufacturer, or (cc) to any transferee using an ERISA Source of Funds to purchase its Note(s). Except with respect to the transfer to a transferee entitled to claim all of the benefits of a tax treaty binding on the United States between the United States and any of the Federal Republic of Germany, the United Kingdom, Canada, France, Italy, Austria, or the Netherlands, that provides a complete exemption from United States Taxes for all interest received with respect to transactions contemplated under the Basic Documents, in no event, other than a transfer attributable to an Event of Default, shall any transfer be permitted if, under applicable law in effect or enacted or adopted at the time of such transfer, Borrower shall be obligated to make any indemnity payment (including any increased cost or withholding indemnity) to such transferee in an amount greater than Borrower would be obligated to make had such transfer not occurred; however, such transfer shall not be prohibited by this sentence if it is made to a “United States person” (as defined in Code § 7701(a)(30)). Borrower agrees to cooperate fully with each Lender (at such Lender’s cost) in efforts or proposals by that Lender to transfer, assign, or sell, in one or more transactions, all or any portion of that Lender’s Notes, whether in connection with a private placement, bank placement or syndication, Rule 144A offering, or registered public offering, provided that such offering contains terms and conditions customary for the applicable market. By accepting a Note, each transferee or assignee thereof shall be deemed to be a “Lender” for all purposes of the Basic Documents, and to be subject to all the terms of the Basic Documents, and shall be deemed to have made the representations set forth in § 13.06(a).

 

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[Amended and Restated Credit Agreement No. [•]]

 

 (2)    Transfer. Loan Trustee shall maintain at its office a register for the purpose of registering transfers and exchanges of all Notes and in which shall be entered the names and addresses of the owners of such Notes and particulars of the \Notes owned by them. The holder of any Note wishing to transfer such Note shall give at least ten Business Days’ prior written notice thereof to Loan Trustee and Borrower and shall, in person or by a duly authorized attorney, surrender to Loan Trustee at its office such Note, duly endorsed by the registered holder or such attorney, or accompanied by a written instrument of transfer duly executed by the registered holder or by such attorney, in form reasonably satisfactory to Loan Trustee. Upon presentation to Loan Trustee of any Note for transfer, Loan Trustee will execute and deliver to the transferee thereof in exchange therefor a new Note or Notes relating to the same Aircraft and in the same aggregate principal amount and with the same terms as the Note so surrendered, in registered form and in any denomination of $1 million or more (or the aggregate principal amount of all Notes relating to the same Aircraft held by such transferee, whichever is less) as is specified in such instrument of transfer. Nothing in this paragraph shall be interpreted as giving any Lender the right or power to transfer one or more of its Notes or to transfer any right or interest in such Notes to another Person in contravention of § 13.05(b)(1) without Borrower’s prior written consent.

 (3)    Exchange. The holder of one or more Notes may at any time surrender such Note or Notes for exchange at Loan Trustee’s office and shall be entitled to receive in exchange therefor a new Note or Notes, relating to the same Aircraft and in the same aggregate principal amount with the same terms as the Note or Notes surrendered, in registered form and in any denomination of $1 million or more (or the aggregate principal amount of all such Notes relating to the same Aircraft held by such holder, whichever is less).

 (4)    Effect of Transfer or Exchange. All Notes issued upon any transfer or exchange of Notes shall be the valid obligations of Loan Trustee evidencing the same respective obligations, and entitled to the same security and benefits under this Agreement, as the Notes surrendered upon such transfer or exchange. Loan Trustee shall make a notation on each new Note of the date to which interest on the replaced Note(s) has been paid.

 (5)    Evidence of Ownership. Loan Trustee and Borrower shall deem and treat the Person in whose name any Note is registered as the absolute owner and holder of such Note for the purpose of mailing payment of all amounts payable by Loan Trustee or Borrower with respect to such Note and for all other purposes, and Loan Trustee and Borrower shall not be affected by any notice to the contrary.

 (6)    Expenses, Taxes, etc. The transferring or exchanging Lender shall pay all expenses incurred in connection with the transfer or exchange of a Note, including Loan Trustee’s expenses (including legal fees), stamp taxes, transfer taxes, sales taxes, governmental fees and charges, broker’s fees and commissions, any other fees and charges of the same or similar type as any of the foregoing, and other fees and expenses associated with amendments, supplements, waivers, or consents required as a result of any transfer or sale of a Note after the initial issuance on the Effective Date. In addition,

 

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[Amended and Restated Credit Agreement No. [•]]

 

for any transfer or exchange of a Note, Loan Trustee may require the transferor to pay a sum sufficient to cover any stamp tax or other governmental charge connected therewith.

 (7)    No Transfer Within Three Days Before Payment Date. Loan Trustee shall not be required to transfer or exchange any Note during the three-day period preceding the due date of any payment on such Note.

13.06    Lenders Representations and Warranties.

(a)    Each Lender represents and warrants that:

(i)    it acquired its interest in the Notes for its own account and not with a view to resale; provided, that any resale is in its sole discretion;

(ii)    no part of the funds used by it to purchase its interest in the Original Notes and Certificates constituted the assets of any “employee benefit plan” within the meaning of ERISA or any “plan” as such a term is defined in § 406 of ERISA or Code § 4975.

(b)    On the Effective Date, Lender represents and warrants that:

(i)    Lender is the sole owner of the Certificates (as defined in the Original Credit Agreement) immediately prior to the closing;

(ii)    Lender making and performance under the Basic Documents to which it is a party constitutes private and commercial activity.

13.07    Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)    This Agreement shall be governed by the laws of the state of New York (excluding any conflict-of-laws rule that would apply the laws of any other jurisdiction).

(b)    EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY). EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (2) ACKNOWLEDGES THAT IT AND OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

13.08    Headings. Section headings used in this Agreement are for convenience only and are not a substantive part of this Agreement.

 

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[Amended and Restated Credit Agreement No. [•]]

 

13.09    Execution in Counterparts. This Agreement may be executed in separate counterparts.

13.10    Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing in connection with this Agreement shall survive the execution and delivery of this Agreement and the Mortgage.

13.11    Severability. If any part of any provision contained in this Agreement, or any document contemplated hereby, is or becomes invalid or unenforceable under applicable law, that part shall be ineffective to the extent of such invalidity only, without in any way affecting the remaining parts of that provision or the remaining provisions.

13.12    Confidentiality. Each party hereto agrees that it will not disclose, directly or indirectly, to any person not a party hereto or their respective counsel or advisors any information obtained from Borrower hereunder or in connection herewith or any portion of any Basic Document not filed with the FAA or other governmental agency or authority and available for public inspection, and will use all reasonable efforts to have all such information kept confidential and not used in any way known to such party to be detrimental to Borrower, except that (a) each party may use, retain, and disclose any such information to its special counsel, financial advisors, and public accountants, any potential transferees, any Affiliate, and any governmental agency or instrumentality or other supervisory body (including bank regulators) requesting such disclosure or pursuant to its regulatory or supervisory authority over such party or any Affiliate thereof, provided that such special counsel, financial advisors, public accountants, or potential transferees agree in advance to keep such information confidential, (b) each party may use, retain, and disclose any such information that has been publicly disclosed (other than by such party or any Affiliate thereof in breach of this paragraph) or has rightfully come into the possession of such party or any Affiliate thereof (other than from Borrower) on a non-confidential basis, (c) each party may use, retain, and disclose any such information as required by law, rule, regulation, or any governmental agency, or to the extent required pursuant to Canada’s or any Lender’s international commitments (including in respect of the WTO Subsidies and Countervailing Measures Agreement and Lender’s status as Her Majesty in Right of Canada or Canadian government policy), (d) each party may use, retain, and disclose any such information where such information was previously known to the subject party free of any obligation to keep it confidential, (e) each party may use, retain, and disclose any such information to third parties in connection with or in response to any order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading (provided, that each party shall endeavor to prevent the disclosure of such information pursuant to any such order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading) or as part of its normal reporting or review procedure to its auditors, regulators, parent company, or Affiliates, (f) Her Majesty in Right of Canada and Export Development Canada shall be entitled to disclose any matters in relation to the transactions contemplated herein to the government of Canada (but such Lender must request confidential treatment thereof) and (g) each party may use, retain, and disclose any such information to the extent necessary to obtain appropriate insurance or in order to enforce its rights and performance obligations pursuant to the Basic Documents. For any breach of the foregoing covenants, the injured party shall be entitled to injunctive relief or any other legal or equitable remedies available, including the recovery of damages suffered as a

 

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[Amended and Restated Credit Agreement No. [•]]

 

result of such breach, but no such breach shall constitute an Event of Default under the Basic Documents.

13.13    U.S. Dollars. All payments due and payable hereunder shall be made in U.S. Dollars.

13.14    Decisions Binding. Except to the extent otherwise specified in the Basic Documents, any decision made or consent given by Export Development Canada shall bind Her Majesty in Right of Canada.

13.15    Entire Agreement. This Agreement constitutes the entire contract between the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. For avoidance of doubt, however, all documents described in Exhibit B shall survive the Effective Date, as shall the following: (x) Restructuring Agreement dated as of January 25, 2018, among Borrower, Lender, Bombardier Inc., and Loan Trustee, (y) Loan Purchase Agreement dated as of January 25, 2018, among Lender, Bombardier Inc., and Bombardier Services Corporation, and (z) Consent and Waiver dated as of September 1, 2017, among Borrower, Lender, and Loan Trustee.

 

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[Amended and Restated Credit Agreement No. [•]]

 

IN WITNESS WHEREOF, Loan Trustee, Borrower, and Lenders have executed this Amended and Restated Credit Agreement No. [•].

 

AIR WISCONSIN AIRLINES LLC

By:   /s/ C. R. Deister
Title:   President & C.E.O.

U.S. BANK NATIONAL ASSOCIATION

By:   /s/ Charles Gallagher
Title:   Charles Gallagher, Asst. Vice President

HER MAJESTY IN RIGHT OF CANADA

By:   /s/ Sean Mitchell
Title:   Sean Mitchell, Principal Special Risks
By:   /s/ Brain Craig
Title:   Brain Craig, Sr. Special Risks Manager

EXHIBIT 10.9.1

EXECUTION VERSION

 

 

CREDIT AGREEMENT

dated as of June 5, 2017

between

AIR WISCONSIN AIRLINES LLC,

Borrower

and

HER MAJESTY IN RIGHT OF CANADA,

Lender

 

 


TABLE OF CONTENTS

 

                   Page  
1.     

DEFINITIONS; USAGE

     1  
    

Section 1.01

    

Definitions

     1  
    

Section 1.02

    

Usage

     3  
2.     

LOAN; PAYMENTS

     3  
    

Section 2.01

    

Loan

     3  
    

Section 2.02

    

Procedure for Borrowing of the Loan

     3  
    

Section 2.03

    

Obligations Absolute

     3  
    

Section 2.04

    

Amortization

     4  
    

Section 2.05

    

Interest

     4  
3.     

PAYMENTS BY BORROWER

     4  
    

Section 3.01

    

How Payments Are Made

     4  
    

Section 3.02

    

Right to Prepay

     4  
    

Section 3.03

    

Mandatory Prepayments

     4  
    

Section 3.04

    

Amount of Prepayment

     4  
    

Section 3.05

    

Interest on Past Due Amounts

     5  
    

Section 3.06

    

Limit on Interest Payable

     5  
    

Section 3.07

    

Illegality

     5  
4.     

BORROWER’S REPRESENTATIONS AND WARRANTIES

     5  
    

Section 4.01

    

Company Standing

     5  
    

Section 4.02

    

Company Powers

     5  
    

Section 4.03

    

Binding Effect

     5  
    

Section 4.04

    

Litigation

     5  
    

Section 4.05

    

Financial Statements; No Materially Adverse Change

     5  
    

Section 4.06

    

Taxes

     6  
    

Section 4.07

    

Status as United States Citizen and Air Carrier

     6  
    

Section 4.08

    

Governmental Consents

     6  
    

Section 4.09

    

No Governmental Approvals, Notices and Filings

     6  
    

Section 4.10

    

Compliance with Laws

     6  
5.     

AFFIRMATIVE COVENANTS

     6  
    

Section 5.01

    

Company Existence

     6  
    

Section 5.02

    

Merger, etc.

     6  
    

Section 5.03

    

Compliance with Laws

     7  
6.     

CONDITIONS PRECEDENT

     7  
    

Section 6.01

    

Conditions Precedent to Funding

     7  

 

-i-


TABLE OF CONTENTS

(continued)

 

                   Page  
7.     

EVENTS OF DEFAULT; REMEDIES

     8  
    

Section 7.01

    

Events of Default

     8  
    

Section 7.02

    

Remedies

     9  
8.     

MISCELLANEOUS

     9  
    

Section 8.01

    

No Waivers; Cumulative Remedies

     9  
    

Section 8.02

    

Notices

     9  
    

Section 8.03

    

Transaction Expenses

     10  
    

Section 8.04

    

Amendments

     10  
    

Section 8.05

    

Successors and Assigns; Binding Effect; Consent to Assignment

     10  
    

Section 8.06

    

Governing Law; Jurisdiction; Waiver of Jury Trial

     10  
    

Section 8.07

    

Headings

     11  
    

Section 8.08

    

Execution in Counterparts

     11  
    

Section 8.09

    

Survival of Representations and Warranties

     11  
    

Section 8.10

    

Severability

     11  
    

Section 8.11

    

Dollars

     11  
    

Section 8.12

    

Entire Agreement

     11  
    

Section 8.13

    

Confidentiality

     11  
    

Section 8.14

    

Additional Collateral

     12  

Exhibit A        Designated Leases

  

 

-ii-


CREDIT AGREEMENT

THIS CREDIT AGREEMENT is entered into as of June 5, 2017, between (1) AIR WISCONSIN AIRLINES LLC (“Borrower”), a Delaware limited liability company, and (2) HER MAJESTY IN RIGHT OF CANADA, as lender (“Lender”).

Borrower and Lender agree as follows:

1.         DEFINITIONS; USAGE

Section 1.01     Definitions. The following terms, when capitalized as below, have the following meanings:

Affiliate”: any other Person who controls 50% or more of any class of voting securities of such Person or is controlled by, or is under common control with, such Person. For purposes of this definition, control of any specified Person means having direct or indirect power to direct, or cause the direction of, the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.

Agreement”: this Credit Agreement.

Bankruptcy Code”: the Title 11 of the United States Code, 11 U.S.C. Section 101 et seq., as amended, or any successor statutes thereto.

Business Day”: any day, other than a Saturday or Sunday, on which commercial banks are open for business in New York, New York, Toronto, Ontario, and Ottawa, Ontario.

Default”: any event or condition that would become an Event of Default upon the giving of notice or lapse of time or both, or any Event of Default.

Default Rate”: defined in Section 3.05.

Deferral Security Agreement”: the Security Agreement dated as of April 7, 2016, by and between Borrower, as mortgagor, and the Deferral Security Agreement Trustee, as mortgagee.

Deferral Security Agreement Trustee”: U.S. Bank National Association, not in its individual capacity, but solely as security trustee under the Deferral Security Agreement.

Designated Leases”: the leases identified on Exhibit A hereto.

Dollars”: and “$”: United States dollars.

Event of Default”: defined in Section 7.01.

Funding Dates”: June 13, 2017 and June 21, 2017, which are the dates on which Lender shall fund the Loan under Section 2.01.


[Credit Agreement]

 

GAAP: generally accepted accounting principles as in effect in the United States and applied on a basis consistent with that used in the preparation of the financial statements referred to in Section 4.05, except for changes therein with which Borrower’s independent public accountants concur that are disclosed in the notes to the relevant financial statements.

Interest Payment Date: March 31, June 30, September 30 and December 31 of each year, beginning on June 30, 2018, through the Maturity Date; except that any Interest Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.

Interest Period: each period beginning on an Interest Payment Date (or, in the case of the first Interest Period, beginning on the Funding Date) and ending on (but excluding, for purposes of computing interest) the following Interest Payment Date.

Interest Rate: 5.00% per annum.

Loan”: the loan provided by Lender to Borrower under Section 2.01.

Loan Amount: a total of $14,396,878, consisting of $6,070,290 to be advanced on the June 13, 2017 Funding Date and $8,326,588 to be advanced on the June 21, 2017 Funding Date.

Materially Adverse Change”: the occurrence and continuation of one or more of the following events (i) a material adverse change in the financial condition, financial results, business or operations of Borrower which could reasonably be expected to materially adversely affect its ability to perform its obligations under this Agreement, or (ii) Borrower, as debtor, shall have commenced or there shall be pending or there shall have been commenced against Borrower and be pending a case, proceeding or other action under applicable bankruptcy or insolvency laws or similar legislation.

Maturity Date”: December 31, 2020.

Officer’s Certificate”: a certificate signed in the name of Borrower by the president, a vice president, the treasurer or the assistant treasurer of Borrower.

Other EDC Transaction”: any other financing (present or future) by Lender for, or for the benefit of, the Borrower (or any Affiliate of Borrower) in respect of which Lender is, at the applicable time, a creditor or interest holder of at least ten percent (10%) of the outstanding debt amount or other interest thereunder.

Person”: any individual, corporation, limited liability company, partnership, joint venture, or other legal or governmental entity.

Principal Installment Amount”: with respect to any Principal Payment Date, an amount equal to 25% of the Loan Amount.

Principal Payment Date”: each of March 31, 2020, June 30, 2020, September 30, 2020 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.

 

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[Credit Agreement]

 

Section 1110 Airline”: a “citizen of the United States” (within the meaning of 49 U.S.C. § 40102(a)(15)), who is an air carrier holding a valid air carrier operating certificate issued pursuant to 49 U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.

Security Agreement and Subordination Acknowledgment”: defined in Section 8.14.

Security Trustee”: U.S. Bank National Association, not in its individual capacity, but solely as security trustee under the Security Agreement.

Section 1.02     Usage. Any agreement or statute referred to in Section 1.01 means such agreement or statute as from time to time supplemented and amended. A definition in singular form applies to the plural form of the term, and vice versa. References to sections, exhibits, and the like refer to those in or attached to this Agreement unless otherwise specified. “Including” means “including but not limited to”. “Or” means one or more, or all, of the alternatives listed or described. “Herein”, “hereof’, “hereunder”, etc. mean in, of, under, etc. this Agreement (and not merely in, of, under, etc. the section or provision where the reference appears).

2.         LOAN; PAYMENTS

Section 2.01     Loan. Subject to the satisfaction of the conditions precedent set forth in Section 6, and on the terms and conditions set forth in this Section 2, on each Funding Date, Lender shall make a loan to Borrower in a principal amount equal to the portion of the Loan Amount for that Funding Date, bearing interest at the Interest Rate.

Section 2.02     Procedure for Borrowing of the Loan. On each Funding Date, upon fulfillment of the conditions set forth in Section 6, Lender will make available the portion of the Loan Amount for that Funding Date to Borrower (or its designee) by transfer to the following bank account (or to such other bank account(s) in the United States designated by Borrower on or prior to the Funding Date):

 

Bank Name:  

JPMorgan Chase Bank

 

Milwaukee, WI

ABA#:  

021 000 021 – Wire

Swift Code:  

CHASUS33

Account:  

Air Wisconsin Airlines

Account #:  

300 08 542

Contact:  

Joanne Grishaber

Telephone:  

920-749-4103

Email:  

joanne.grishaber@airwis.com

Section 2.03     Obligations Absolute. Borrower’s obligations under this Agreement shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of: any lack of validity or enforceability of this Agreement, or any term or provision herein; the existence of any claim, setoff, defense, or other right that Borrower (or any Affiliate of Borrower) or any other Person may at any time have against the Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or

 

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transaction; any other act or omission to act or delay of any kind of the Lender or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.03, constitute a legal or equitable discharge of Borrower’s obligations hereunder.

Section 2.04     Amortization. Borrower shall pay to the Lender on each Principal Payment Date, the Principal Installment Amount due on such Principal Payment Date; provided that, the amount payable on the Maturity Date shall in all cases be an amount equal to the entire principal amount of the Loan outstanding on such date, together with all accrued and unpaid interest and all other amounts then due and payable hereunder.

Section 2.05     Interest. Borrower shall pay to Lender interest on the unpaid principal amount of the Loan for each Interest Period at the Interest Rate until the Loan is paid in full. Accrued interest on the unpaid principal of the Loan shall be payable in arrears on each Interest Payment Date therefor and otherwise upon the payment or prepayment thereof (but only on the principal amount so paid or prepaid), except that interest payable at the Default Rate shall be payable from time to time on demand in accordance with Section 3.05.

3.        PAYMENTS BY BORROWER

Section 3.01     How Payments Are Made. Borrower shall make its payments and prepayments of principal and interest due on the Loan, and all other amounts payable by Borrower to Lender hereunder, to the credit of such account as Lender may from time to time notify Borrower in immediately available funds and in Dollars, no later than 11:00 a.m. (New York City time) on the date when due. Any payment made by Borrower to Lender after 3:00 p.m. (New York City time) on any day shall be deemed to have been made on the following Business Day. If any payment due hereunder comes due on a day which is not a Business Day, such payment shall instead be made on the following Business Day, and interest shall accrue at the applicable rate to the day of payment (except that no additional interest shall accrue if the payment thereon is made on such following Business Day).

Section 3.02     Right to Prepay. Borrower shall have the right at any time on or after the Funding Date to prepay all or part of the outstanding principal amount of the Loan. Borrower shall give to Lender at least five Business Days’ prior written notice (which notice shall be irrevocable) of such prepayment (which notice shall specify the date on which such prepayment shall be made). Upon any prepayment of the Loan under this Section 3.02, Borrower shall pay all accrued and unpaid interest on the Loan to (but excluding) the date of prepayment. Amounts prepaid shall not be available for re-borrowing.

Section 3.03     Mandatory Prepayments. Upon acceleration of the Loan pursuant to Section 7.02, Borrower shall prepay the Loan, and shall pay all amounts payable hereunder with respect to such prepayment.

Section 3.04     Amount of Prepayment. Subject to Section 3.06, the Loan shall be deemed satisfied in full upon the prepayment of all principal of the Loan, the payment of all accrued and unpaid interest on or with respect to the Loan as of such prepayment date and the payment of all past-due interest on or with respect to the Loan.

 

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[Credit Agreement]

 

Section 3.05     Interest on Past Due Amounts. Any amounts past due (by acceleration or otherwise) and at any time outstanding under the Loan or from Borrower shall (to the extent permitted by law) bear interest, payable on demand, from the due date (and shall be compounded on a quarterly basis) until (but excluding the date of) payment in full, at a rate equal to 2.00% per annum above the Interest Rate for the Loan (the “Default Rate”).

Section 3.06     Limit on Interest Payable. The amount of interest due or payable under this Agreement shall not in any event exceed the maximum allowable by applicable law, and this sentence shall override any contrary provision in this Agreement.

Section 3.07     Illegality. If, at any time, it is or becomes illegal (as determined in the reasonable opinion of counsel to Lender (including in-house counsel)) under the applicable laws of any jurisdiction for Lender to perform its obligations under this Agreement, upon not less than thirty (30) days’ written notice to Borrower from Lender, the Loan shall become due and payable by Borrower, together with all other amounts then due and payable under this Agreement.

4.         BORROWER’S REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

Section 4.01     Company Standing. Borrower is a duly organized limited liability company existing in good standing under the laws of Delaware, has the company power and legal authority to own or lease property and to carry on business as a Section 1110 Airline, and is duly qualified to do business in all jurisdictions wherein such qualification is necessary (except in any jurisdictions in which the failure to qualify would result in no Materially Adverse Change).

Section 4.02     Company Powers. Borrower’s execution, delivery, and performance of this Agreement is within Borrower’s company powers; and this Agreement has been duly authorized by all necessary company action on Borrower’s part, and do not contravene, result in a breach of, or require any consent under any law, judgment, decree, order, or contractual restriction binding on Borrower or any agreement or instrument to which Borrower is a party or to which it or any of its property is subject.

Section 4.03     Binding Effect. This Agreement is a legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with the terms hereof, except as may be limited by bankruptcy, insolvency, or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity.

Section 4.04     Litigation. There are no pending actions or proceedings before any court or administrative agency which reasonably may be expected to result in a Materially Adverse Change.

Section 4.05     Financial Statements; No Materially Adverse Change. The unaudited balance sheet as of March 31, 2017, for Borrower, and the related results of operations for the quarter then ended, have been prepared on a basis consistent with prior periods and present fairly, in all material respects, Borrower’s financial condition as of such date and results of

 

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[Credit Agreement]

 

operations for such period. As of the date of this Agreement, there has been no Materially Adverse Change.

Section 4.06     Taxes. Borrower has filed all tax returns which it is or was required to file, and has paid all taxes shown to be due and payable on those returns or on any assessment received by it, except such taxes of Borrower, if any, as are being contested diligently in good faith, and by appropriate proceedings, and as to which adequate reserves have been provided in accordance with GAAP.

Section 4.07     Status as United States Citizen and Air Carrier. Borrower is a Section 1110 Airline.

Section 4.08     Governmental Consents. Borrower’s execution, delivery, and performance of this Agreement do not require the consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any federal, state, or foreign governmental authority or agency (including any judicial body).

Section 4.09     No Governmental Approvals, Notices and Filings. No consent or approval of, giving of notice to, registration with, or taking of any action in respect of or by, any federal, state, or local governmental authority is or will be required with respect to Borrower’s execution, delivery, or performance of this Agreement or if any such consent, approval, notice, registration, or action is required, it will have been duly given or obtained on or before the Funding Date.

Section 4.10     Compliance with Laws. Borrower is in compliance with all applicable laws and regulations, including, without limitation, environmental laws and laws and regulations relating to corruption and bribery, provided that, in the case of such laws and regulations (other than laws and regulations relating to corruption and bribery), Borrower may have complied only to the extent necessary to ensure that non-compliance with such laws would not, individually or in the aggregate, reasonably be expected to have a Materially Adverse Effect.

5.         AFFIRMATIVE COVENANTS

So long as the Loan, or any amount owed by Borrower under this Agreement, remains outstanding or unpaid:

Section 5.01     Company Existence. Except as permitted by Section 5.02, Borrower shall maintain its existence as a corporation or limited liability company in good standing.

Section 5.02     Merger, etc. Borrower shall not consolidate with or merge into any other Person, or convey, transfer, or lease all or substantially all of its assets as an entirety to any Person, unless:

(a)         the Person formed by such consolidation or merger, or the Person who acquires by conveyance, transfer, or lease all or substantially all of Borrower’s assets as an entirety (the “Successor”) is a Section 1110 Airline;

(b)         in the case of such a consolidation, merger, conveyance, transfer, or lease, the Successor: (x) executes and delivers to Lender an agreement, in form and substance

 

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[Credit Agreement]

 

reasonably satisfactory to Lender, containing an assumption by the Successor of the due and punctual performance and observance of Borrower’s obligations under this Agreement (including this covenant), and (y) makes such filings, registrations and recordings, as are necessary to evidence such consolidation, merger, conveyance, transfer, or lease with or to the Successor;

(c)         such transaction shall not (1) create any Event of Default, or (2) materially impair Borrower’s or the Successor’s (as the case may be) ability to perform its obligations under this Agreement; and

(d)         Borrower or the Successor delivers to Lender, promptly upon consummation of such transaction, an Officer’s Certificate stating that the conditions precedent set forth in clauses (a), (b), and (c) above have been complied with and an opinion of counsel for Borrower or for the Successor, in form and substance reasonably satisfactory to Lender, (1) stating that the agreements entered into to effect such consolidation, merger, conveyance, transfer, or lease and such assumption agreements have been duly authorized, executed, and delivered by the Successor (or in the case of a merger, by Borrower) and that they (and this Agreement) constitute legal, valid, and binding obligations of the Successor (or in the case of a merger, of Borrower), enforceable in accordance with their terms (to the same extent as this Agreement was enforceable against Borrower immediately prior to such transaction), (2) stating that all conditions precedent which are legal in nature provided for in this Agreement and relating to such transaction have been fulfilled and (3) containing such other customary matters Lender reasonably requests.

Upon any such consolidation, conveyance, merger, transfer, or lease, the Successor shall succeed to, shall be substituted for, and may exercise every right and power of Borrower under this Agreement, with the same effect as if the Successor had been named as Borrower therein. No such conveyance, transfer, or lease of substantially all Borrower’s assets as an entirety shall have the effect of releasing Borrower (or any Successor) from its liability under this Agreement.

Section 5.03     Compliance with Laws. Borrower will comply with all applicable laws and regulations, including, without limitation, environmental laws and laws and regulations relating to corruption and bribery, provided that, in the case of such laws and regulations (other than laws and regulations relating to corruption and bribery), Borrower need comply only to the extent necessary to ensure that non-compliance with such laws would not, individually or in the aggregate, reasonably be expected to have a Materially Adverse Effect.

6.         CONDITIONS PRECEDENT

Section 6.01     Conditions Precedent to Funding. Lender’s obligation to fund any installment of the Loan on the Funding Date therefor is subject to the satisfaction of the following conditions precedent and the Lender’s receipt on or before the Funding Date of the following, in form and substance reasonably satisfactory to Lender:

(a)         an executed copy of this Agreement;

(b)         an executed copy of the Security Agreement and Subordination Acknowledgment;

 

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[Credit Agreement]

 

(c)     evidence that all payments due by Borrower during June 2017 and on or before that Funding Date with respect to the Designated Leases have been paid in full;

(d)     a certificate of Borrower’s secretary, dated the Funding Date, certifying attached copies of the resolutions of Borrower’s board of managers evidencing approval of the transactions contemplated by this Agreement, and showing the names and copies of the specimen signature(s) of Borrower’s officer(s) authorized to sign this Agreement and the related documents to which it is (or is to become) a party;

(e)     an Officer’s Certificate certifying: (x) Borrower’s representations and warranties in Section 4 of this Agreement are true and accurate as though made on the Funding Date, (y) no Event of Default exists or will result from the Loan and (z) no “Event of Default” or similar event exists under any Other EDC Transaction,

(f)     all necessary consents, approvals, licenses, permits, declarations, or registrations then required in connection with Borrower’s execution, delivery, and performance of this Agreement and the transactions contemplated hereby shall have been obtained; and

(g)     such additional opinion(s) and document(s) the Lender requests.

7.     EVENTS OF DEFAULT; REMEDIES

Section 7.01     Events of Default. Each of the following shall constitute an “Event of Default”:

(a)     Borrower fails to make any payment due from Borrower hereunder when due, and such failure continues for five (5) Business Days after Borrower’s receipt of notice of such failure from Lender;

(b)     any representation or warranty made by Borrower hereunder, or in any certificate or other document that it furnishes pursuant to this Agreement, is incorrect in any material respect when made (and, if the effect(s) of such incorrectness is/are reasonably curable, such effect(s) continue(s) for thirty (30) days after Borrower’s receipt of notice of such incorrectness from Lender);

(c)     Borrower fails in any material respect to perform any other covenant or agreement hereunder, and such failure to perform continues for thirty (30) days after Borrower’s receipt of notice of such default from Lender;

(d)     Borrower (1) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of all or a majority of its property, (2) makes a general assignment for the benefit of its creditors, (3) commences a voluntary case under the federal Bankruptcy Code (as now or hereafter in effect), (4) files a petition seeking to take advantage (as debtor) of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, or (5) fails to controvert in a timely manner, or acquiesces in writing to, any petition filed against it in an involuntary case under the federal Bankruptcy Code;

 

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[Credit Agreement]

 

(e)     a proceeding or case is commenced, without Borrower’s application or consent, in any court of competent jurisdiction, seeking (1) its liquidation, reorganization, dissolution, or winding-up, or the composition or readjustment of its debts, (2) the appointment of a trustee, receiver, custodian, liquidator, or the like of Borrower or of all or a majority of its assets, or (3) similar relief in respect of Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and (if Borrower is contesting the proceeding on a reasonable basis and in good faith) such proceeding or case continues undismissed, or an order, judgment, or decree approving or ordering any of the foregoing is entered and continues unstayed and in effect, for a period of ninety (90) days; or an order for relief against Borrower is entered in an involuntary case under the federal Bankruptcy Code; or

(f)     an “Event of Default” or similar event shall have occurred and be continuing under any Other EDC Transaction.

Section 7.02     Remedies. If an Event of Default (other than under Section 7.0l(d) or (e)) exists, Lender may declare the Loan to be immediately due and payable, whereupon the Loan shall become and be immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which Borrower hereby waives, and all lending commitments hereunder shall terminate. If an Event of Default under Section 7.01(d) or (e) occurs, the Loan automatically shall become immediately due and payable and all lending commitments hereunder automatically shall immediately terminate, without presentment, demand, protest, or notice of any kind, all of which Borrower hereby waives. Upon the occurrence of any Event of Default, Lender may exercise any of its rights and remedies hereunder.

8.         MISCELLANEOUS

Section 8.01     No Waivers; Cumulative Remedies. No failure or delay in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude other or further exercise thereof or the exercise of any other right or power hereunder. No notice to or demand on any party in any case shall, of itself, entitle such party to any other or further notice or demand in similar or other circumstances.

Section 8.02     Notices. All communications and notices provided for under this Agreement shall be in writing (including telecopies), shall be in English, shall be effective on delivery, and shall be addressed as follows (or to such other address as any such party shall designate by notice to each other such party):

 

if to Borrower:

 

Air Wisconsin Airlines LLC

W6390 Challenger Drive

Suite 203

  Appleton, WI 54915-9120
  Attention: Chief Executive Officer
  Fax: (920) 749-4158

 

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[Credit Agreement]

 

if to Lender:

 

Her Majesty in Right of Canada

c/o Export Development Canada

  150 Slater Street
  Ottawa, Ontario
  Canada K1A 1K3
  Attn: Loans Services & Asset Management – Transportation
  Fax: (613) 598-2514 and (613) 598-3186

Wherever “notice”, “notify”, or similar variations are used herein, they mean the provision of a notice in accordance with this Section 8.02.

Section 8.03     Transaction Expenses. Borrower will pay on demand (accompanied with a reasonably-detailed invoice or other suitable verification) all reasonable out-of-pocket expenses in connection with the negotiation, preparation, execution, delivery, and enforcement of this Agreement, including (a) all reasonable fees and expenses actually incurred of Vedder Price P.C., special counsel to Lender, (b) all fees and expenses (including legal fees and expenses) of Lender in connection with actual or proposed amendments, waivers, or consents to or under this Agreement (except for such amendments, waivers, or consents initiated by Lender); and (c) all fees and expenses (including reasonable legal fees and expenses) of Lender in connection with the actual or proposed enforcement against Borrower.

Section 8.04     Amendments. Any provision of this Agreement may be amended, terminated, waived, or otherwise modified only in writing by Borrower and Lender.

Section 8.05     Successors and Assigns; Binding Effect; Consent to Assignment. This Agreement shall bind and benefit Lender and Borrower and their successors and assigns, except that Borrower may not assign or transfer its rights under this Agreement (other than as provided in Section 5.02) without Lender’s prior written consent.

Section 8.06     Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)     THIS AGREEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

(b)     EACH PARTY HERETO HEREBY WAlVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY). EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY

 

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WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (2) ACKNOWLEDGES THAT IT AND OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 8.07     Headings. The section headings used in this Agreement are for convenience only and are not a substantive part of this Agreement.

Section 8.08     Execution in Counterparts. This Agreement may be executed in separate counterparts.

Section 8.09     Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing in connection with this Agreement shall survive the execution and delivery of this Agreement.

Section 8.10     Severability. Any provision hereof prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall be ineffective in such jurisdiction without modifying the remaining provisions of this Agreement or its effectiveness in any other jurisdiction. Where, however, the provisions of such applicable law may be waived, they are hereby waived by the parties hereto to the full extent permitted by law, to the end that this Agreement shall be a valid and binding agreement enforceable in accordance with its terms.

Section 8.11     Dollars. All payments due and payable hereunder shall be made in Dollars.

Section 8.12     Entire Agreement. This Agreement constitutes the entire contract between the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

Section 8.13     Confidentiality. Each party hereto agrees that it will not disclose, directly or indirectly, to any person not a party hereto or their respective counsel or advisors any information obtained from Borrower hereunder or in connection herewith or any portion of this Agreement not filed with any governmental agency or authority and available for public inspection, and will use all reasonable efforts to have all such information kept confidential and not used in any way known to such party to be detrimental to Borrower, except that (a) each party may use, retain, and disclose any such information to its special counsel, financial advisors, and public accountants, any potential transferees, any Affiliate, and any governmental agency or instrumentality or other supervisory body (including bank regulators) requesting such disclosure or pursuant to its regulatory or supervisory authority over such party or any Affiliate thereof, provided that such special counsel, financial advisors, public accountants, or potential transferees agree in advance to keep such information confidential, (b) each party may use, retain, and disclose any such information that has been publicly disclosed (other than by such party or any Affiliate thereof in breach of this paragraph) or has rightfully come into the possession of such party or any Affiliate thereof (other than from Borrower) on a non-confidential basis, (c) each party may use, retain, and disclose any such information as required by law, rule, regulation, judicial or administrative process, or any governmental agency, or to the extent required pursuant

 

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to Canada’s or Lender’s international commitments (including, without limitation, any requirement that such information be disclosed by virtue of Lender’s status as an agent of Her Majesty in Right of Canada or by virtue of any law, regulation, order-in-council, court or administrative order, or Canadian government policy or by virtue of any international agreement to which the Government of Canada or Lender is a party, and including, without limitation, in respect of the Organisation for Economic Co-operation and Development (OECD) including Appendix V of the Sector Understanding of Export Credits for Civil Aircraft and the WTO Subsidies and Countervailing Measures Agreement or Canadian government policy), (d) each party may use, retain, and disclose any such information where such information was previously known to the subject party free of any obligation to keep it confidential, (e) each party may use, retain, and disclose any such information to third parties in connection with or in response to any order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading (provided, that each party shall endeavor in good faith to prevent the disclosure of such information pursuant to any such order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading) or as part of its normal reporting or review procedure to its auditors, regulators, parent company, or Affiliates, (f) each party may use, retain, and disclose any such information to the extent necessary to obtain appropriate insurance or in order to enforce its rights and performance obligations hereunder and (g) Lender shall be entitled to disclose any matters in relation to the transactions contemplated herein to the government of Canada (but Lender must request confidential treatment thereof) and shall be entitled to make publicly available the following information: the name of Borrower, the financial service provided by Lender, the date of this Agreement, a general description of the commercial transaction (including country) contemplated hereby, the amount of support in the approximate Canadian dollar range, and the name of the airframe manufacturer and engine manufacturer. For any breach of the foregoing covenants, the injured party shall be entitled to injunctive relief or any other legal or equitable remedies available, including the recovery of damages suffered as a result of such breach, but no such breach shall constitute an Event of Default hereunder.

Notwithstanding any other provision herein to the contrary, Borrower and Lender (and each employee, representative, or other agent of any thereof) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated hereunder (including any fact relevant to understanding the federal income tax treatment of such transactions) and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment or tax structure.

Section 8.14     Additional Collateral. As further security for the Borrower’s obligations to Lender under this Agreement, Borrower is granting to a trustee for the benefit of Lender, on the date of this Agreement, by means of a security agreement and subordination acknowledgment in form and substance reasonably satisfactory to Lender (the “Security Agreement and Subordination Acknowledgment”), a security interest in all of Borrower’s right, title and interest in and to certain aircraft, engines and spare parts, all as more specifically described in that Security Agreement and Subordination Acknowledgment. Such Security Agreement and Subordination Acknowledgment also acknowledges the subordination of the Deferral Security Agreement security interests in favor of the Deferral Security Agreement Trustee in the Collateral (as defined in the Deferral Security Agreement) to the security interest of the Security Trustee.

 

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IN WITNESS WHEREOF, Borrower and Lender have executed this Credit Agreement.

 

AIR WISCONSIN AIRLINES LLC,

Borrower

By: /s/ C. R. Deister                                           

Title:   President and C.E.O.

HER MAJESTY IN RIGHT OF CANADA,

Lender

By: /s/ Sean Mitchell                                          

Title:   Sean Mitchell

            Principal Special Risks

By: /s/ Brian Craig                                             

Title:   Brian Craig

            Sr. Special Risks Manager


[Credit Agreement]

 

EXHIBIT A

DESIGNATED LEASES

 

FAA

REGISTRATION

   MSN    DATE OF LEASE    OWNER TRUSTEE   

ORIGINAL

EQUITY

PARTICIPANT

 

N408AW

   7568    December 21, 2001    U.S. Bank National Association    Fleet National Bank

N411ZW

   7569    December 21, 2001    U.S. Bank National Association    Fleet National Bank

N412AW

   7582    December 21, 2001    U.S. Bank National Association    Fleet National Bank

N413AW

   7585    December 21, 2001    U.S. Bank National Association    Fleet National Bank

N414ZW

   7586    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N415AW

   7593    December 21, 2001    U.S. Bank National Association    Fleet National Bank

N416AW

   7603    January 17, 2002    U.S. Bank National Association    Fleet National Bank

N417AW

   7610    January 28, 2002    U.S. Bank National Association    Fleet National Bank

N418AW

   7618    February 22, 2002    U.S. Bank National Association    ICX Corporation

N419AW

   7633    April 12, 2002    U.S. Bank National Association    ICX Corporation

N420AW

   7640    October 30, 2002    U.S. Bank National Association    NCC Solar Company

N423AW

   7636    October 30, 2002    U.S. Bank National Association    NCC Solar Company

N424AW

   7656    October 30, 2002    U.S. Bank National Association    NCC Solar Company

N425AW

   7663    October 30, 2002    U.S. Bank National Association    NCC Solar Company

N426AW

   7669    November 14, 2002    U.S. Bank National Association    NCC Solar Company

N427ZW

   7685    November 14, 2002    U.S. Bank National Association    NCC Solar Company

N428AW

   7695    December 13, 2002    U.S. Bank National Association    NCC Solar Company

N429AW

   7711    December 13, 2002    U.S. Bank National Association    NCC Solar Company

N430AW

   7719    December 5, 2002    U.S. Bank National Association    NCC Solar Company

N435AW

   7724    December 13, 2002    U.S. Bank National Association    NCC Solar Company

 

EXHIBIT A

Page 1

EXHIBIT 10.9.2

EXECUTION VERSION

AMENDMENT NO. 1 TO CREDIT AGREEMENT

THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this Amendment) is dated as of December 24, 2018 between AIR WISCONSIN AIRLINES LLC (the Borrower) and HER MAJESTY IN RIGHT OF CANADA (the “Lender”) and amends that certain Credit Agreement dated as of June 5, 2017 between the Borrower and the Lender (the “Credit Agreement”).

WHEREAS, except as otherwise defined in this Amendment, the capitalized terms used herein shall have the meanings attributed thereto in the Credit Agreement; and

WHEREAS, in order to amend the Credit Agreement, the parties have agreed to execute this Amendment.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

Section 1.       Amendments to Section 1.01 of the Credit Agreement. Section 1.01 of the Credit Agreement is hereby amended in the following manner:

(a)         The definition of “Business Day” is hereby deleted in its entirety and replaced with the following:

““Business Day: any day, other than a Saturday or Sunday, on which commercial banks are open for business in New York, New York, Milwaukee, Wisconsin and Appleton, Wisconsin.”

(b)         A definition of “Disclosure Certificate” is hereby added as follows:

““Disclosure Certificate: a certificate dated December 7, 2018, executed by Borrower and delivered to Lender, describing certain developments and contingencies applicable to Borrower.”

(c)         The definitions of “Deferral Security Agreement” and “Deferral Security Agreement Trustee” are hereby deleted in their entirety.

(d)         The definition of “Materially Adverse Change” is hereby deleted in its entirety and replaced with the following:

““Materially Adverse Change: the occurrence and continuation of one or more of the following events: (i) a material adverse change in the financial condition, financial results, business or operations of Borrower (as measured against Borrower’s status based on December 31, 2017 year-end audited financial statements) which could reasonably be


expected to materially adversely affect its ability to perform its obligations under this Agreement, or (ii) Borrower, as debtor, shall have commenced or there shall be pending or there shall have been commenced against Borrower and be pending a case, proceeding or other action under applicable bankruptcy or insolvency laws or similar legislation.”

Section 2.       Amendment to Section 3.01 of the Credit Agreement. The references to “11:00 a.m.” and “3:00 p.m.” in Section 3.01 of the Credit Agreement are hereby deleted and replaced with references to “1:00 p.m.” and “5:00 p.m.”, respectively.

Section 3.       Amendment to Section 4.05 of the Credit Agreement. The text of Section 4.05 of the Credit Agreement is hereby deleted and replaced with the following:

“(a) The audited balance sheet as of December 31, 2017, for Borrower and its consolidated subsidiaries, and the related results of operations for the year then ended, have been prepared in accordance with GAAP and fairly present, in all material respects, Borrower’s financial condition as of such date and results of operations for such period, and (b) except to the extent (if any) described in the Disclosure Certificate, since December 31, 2017. there has been no Materially Adverse Change.”

Section 4.       Amendment to Section 8.02 of the Credit Agreement. Section 8.02 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

“Section 8.02 Notices. All communications and notices provided for under this Agreement shall be in writing (including telecopies and emails), shall be in English, shall be effective on delivery, and shall be addressed as follows (or to such other address as any such party shall designate by notice to each other such party):

if to Borrower:

Air Wisconsin Airlines LLC

W6390 Challenger Drive, Suite 203

Appleton, WI 54915-9120

Attn: President and Chief Executive Officer

Fax: (920) 749-4158

Email: christine.deister@airwis.com

with a copy to the same address,

Attn: Chief Accounting Officer and Treasurer

Email: gregg.garvey@airwis.com

if to Lender:

Her Majesty in Right of Canada

c/o Export Development Canada

150 Slater Street

Ottawa, Ontario

 

2


Canada K1A 1K3

Attn: Loans Services & Asset Management - Transportation

Fax: (613) 598-2514 and (613) 598-3186

Email: ls-aerospace@edc.ca

Wherever “notice”, “notify”, or similar variations are used in this Agreement, the Mortgage, or the Notes, they mean the provision of a notice in accordance with this Section 8.02.”

Section 5.       Amendment to Section 8.14 of the Credit Agreement. The last sentence of Section 8.14 of the Credit Agreement is hereby deleted in its entirety.

Section 6.       Amendment to Exhibit A of the Credit Agreement. Exhibit A to the Credit Agreement is hereby deleted in its entirety and replaced with Exhibit A attached hereto.

Section 7.       Ratification. Except as amended hereby, the Credit Agreement continues and shall remain in full force and effect in all respects and each of the parties hereby confirms and ratifies its obligations thereunder. From and after the date hereof, each and every reference in the Credit Agreement to “this Agreement”, “herein”, “hereof” or similar words and phrases referring to the Credit Agreement or any word or phrase referring to a section or provision of the Credit Agreement is deemed for all purposes to be a reference to the Credit Agreement or such section or provision as amended pursuant to this Amendment.

Section 8.       Counterparts. This Amendment may be signed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Amendment.

Section 9.       Governing Law. This Amendment shall in all respects be governed by and construed in accordance with the laws of the state of New York, including all matters of construction, validity and performance.

*     *     *

 

3


IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their authorized officers as of the date first written above.

 

AIR WISCONSIN AIRLINES LLC,
as Borrower
By: /s/ C. R. Deister                                   
Name: Christine R. Deister
Title:   President and C.E.O.
HER MAJESTY IN RIGHT OF
CANADA, as Lender
By: /s/ Sean Mitchell                                  
Name: Sean Mitchell
Title:  Principal Special Risks
By: /s/ Brian Craig                                   
Name: Brian Craig
Title:  Sr. Special Risks Manager


EXHIBIT A

DESIGNATED LEASES

 

FAA

REGISTRATION

    MSN      DATE OF LEASE    OWNER TRUSTEE       

ORIGINAL

EQUITY

PARTICIPANT

 

N408AW

  7568    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N411ZW

  7569    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N412AW

  7582    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N413AW

  7585    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N414ZW

  7586    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N415AW

  7593    December 21, 2001    U.S. Bank National

Association

   Fleet National Bank

N419AW

  7633    April 12, 2002    U.S. Bank National

Association

   ICX Corporation

N420AW

  7640    October 30, 2002    U.S. Bank National

Association

   NCC Solar Company

N423AW

  7636    October 30, 2002    U.S. Bank National

Association

   NCC Solar Company

N424AW

  7656    October 30, 2002    U.S. Bank National

Association

   NCC Solar Company

N425AW

  7663    October 30, 2002    U.S. Bank National

Association

   NCC Solar Company

N426AW

  7669    November 14, 2002    U.S. Bank National

Association

   NCC Solar Company

N427ZW

  7685    November 14, 2002    U.S. Bank National

Association

   NCC Solar Company

N428AW

  7695    December 13, 2002    U.S. Bank National

Association

   NCC Solar Company

N429AW

  7711    December 13, 2002    U.S. Bank National

Association

   NCC Solar Company

N430AW

  7719    December 5, 2002    U.S. Bank National

Association

   NCC Solar Company

N435AW

  7724    December 13, 2002    U.S. Bank National

Association

   NCC Solar Company

 

Exhibit A

Page 1

EXHIBIT 10.9.3

EXECUTION COPY

 

 

 

CREDIT AGREEMENT

dated as of January __, 2018

between

AIR WISCONSIN AIRLINES LLC,

Borrower

and

HER MAJESTY IN RIGHT OF CANADA,

Lender

 

 


TABLE OF CONTENTS

 

                Page  

1.

 

DEFINITIONS; USAGE

     1  
 

Section 1.01

    

Definitions

     1  
 

Section 1.02

    

Usage

     3  

2.

 

LOAN; PAYMENTS

     3  
 

Section 2.01

    

Loan

     3  
 

Section 2.02

    

Procedure for Borrowing of the Loan

     3  
 

Section 2.03

    

Obligations Absolute

     4  
 

Section 2.04

    

Amortization

     4  
 

Section 2.05

    

Interest

     4  

3.

 

PAYMENTS BY BORROWER

     4  
 

Section 3.01

    

How Payments Are Made

     4  
 

Section 3.02

    

Right to Prepay

     5  
 

Section 3.03

    

Mandatory Prepayments

     5  
 

Section 3.04

    

Amount of Prepayment

     5  
 

Section 3.05

    

Interest on Past Due Amounts

     5  
 

Section 3.06

    

Limit on Interest Payable

     5  
 

Section 3.07

    

Illegality

     5  

4.

 

BORROWER’S REPRESENTATIONS AND WARRANTIES

     5  
 

Section 4.01

    

Company Standing

     5  
 

Section 4.02

    

Company Powers

     5  
 

Section 4.03

    

Binding Effect

     6  
 

Section 4.04

    

Litigation

     6  
 

Section 4.05

    

Financial Statements; No Materially Adverse Change

     6  
 

Section 4.06

    

Taxes

     6  
 

Section 4.07

    

Status as United States Citizen and Air Carrier

     6  
 

Section 4.08

    

Governmental Consents

     6  
 

Section 4.09

    

No Governmental Approvals, Notices and Filings

     6  
 

Section 4.10

    

Compliance with Laws

     6  

5.

 

COVENANTS

          7  
 

Section 5.01

    

Company Existence

     7  
 

Section 5.02

    

Merger, etc.

     7  
 

Section 5.03

    

Compliance with Laws

     8  

6.

 

CONDITIONS PRECEDENT

     8  
 

Section 6.01

    

Conditions Precedent to Funding

     8  

 

-i-


TABLE OF CONTENTS

(continued)

 

                Page  

7.

 

EVENTS OF DEFAULT; REMEDIES

     8  
 

Section 7.01

    

Events of Default

     8  
 

Section 7.02

    

Remedies

     9  

8.

 

MISCELLANEOUS

     10  
 

Section 8.01

    

No Waivers; Cumulative Remedies

     10  
 

Section 8.02

    

Notices

     10  
 

Section 8.03

    

Transaction Expenses

     10  
 

Section 8.04

    

Amendments

     10  
 

Section 8.05

    

Successors and Assigns; Binding Effect; Consent to Assignment

     10  
 

Section 8.06

    

Governing Law; Jurisdiction; Waiver of Jury Trial

     11  
 

Section 8.07

    

Headings

     11  
 

Section 8.08

    

Execution in Counterparts

     11  
 

Section 8.09

    

Survival of Representations and Warranties

     11  
 

Section 8.10

    

Severability

     11  
 

Section 8.11

    

Dollars

     11  
 

Section 8.12

    

Entire Agreement

     12  
 

Section 8.13

    

Confidentiality

     12  
 

Section 8.14

    

Additional Collateral

     13  

Exhibit A         Designated Leases

  

 

-ii-


CREDIT AGREEMENT

THIS CREDIT AGREEMENT is entered into as of January     , 2018, between (1) AIR WISCONSIN AIRLINES LLC (“Borrower”), a Delaware limited liability company, and (2) HER MAJESTY IN RIGHT OF CANADA, as lender (“Lender”).

Borrower and Lender agree as follows:

1.       DEFINITIONS; USAGE

Section 1.01   Definitions. The following terms, when capitalized as below, have the following meanings:

2017 Securitv Agreement”: the Security Agreement dated as of June 5, 2017, by and between Borrower, as mortgagor, and the 2017 Security Agreement Trustee, as mortgagee.

2017 Security Agreement Trustee”: U.S. Bank National Association, not in its individual capacity, but solely as security trustee under the 2017 Security Agreement.

Affiliate”: any other Person who controls 50% or more of any class of voting securities of such Person or is controlled by, or is under common control with, such Person. For purposes of this definition, control of any specified Person means having direct or indirect power to direct, or cause the direction of, the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.

Agreement”: this Credit Agreement.

Bankruptcy Code”: the Title 11 of the United States Code, 11 U.S.C. Section 101 et seq., as amended, or any successor statutes thereto.

Business Day”: any day, other than a Saturday or Sunday, on which commercial banks are open for business in New York, New York, Toronto, Ontario, and Ottawa, Ontario.

Default”: any event or condition that would become an Event of Default upon the giving of notice or lapse of time or both, or any Event of Default.

Default Rate”: defined in Section 3.05.

Deferral Security Agreement”: the Security Agreement dated as of April 7, 2016, by and between Borrower, as mortgagor, and the Deferral Security Agreement Trustee, as mortgagee.

Deferral Security Agreement Trustee”: U.S. Bank National Association, not in its individual capacity, but solely as security trustee under the Deferral Security Agreement.

Designated Leases”: the leases identified on Exhibit A hereto.

Dollars”: and $: United States dollars.


[Credit Agreement]

Event of Default”: defined in Section 7.01.

Funding Dates”: June 21, 2018, October 30, 2018, November 14, 2018 and December 13, 2018, which are the dates on which Lender shall fund the Loan under Section 2.01.

GAAP”: generally accepted accounting principles as in effect in the United States and applied on a basis consistent with that used in the preparation of the financial statements referred to in Section 4.05, except for changes therein with which Borrower’s independent public accountants concur that are disclosed in the notes to the relevant financial statements.

Interest Payment Date”: March 31, June 30, September 30 and December 31 of each year, beginning on September 30, 2018, through the Maturity Date; except that any Interest Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.

Interest Period”: each period beginning on an Interest Payment Date (or, in the case of the first Interest Period, beginning on the Funding Date) and ending on (but excluding, for purposes of computing interest) the following Interest Payment Date.

Interest Rate”: 5.00% per annum.

Loan”: the loan provided by Lender to Borrower under Section 2.01.

Loan Amount”: a total of $15,198,388, consisting of $7,925,303 to be advanced on the June 21, 2018 Funding Date, $3,140,786 to be advanced on the October 30, 2018 Funding Date, $1,447,413 to be advanced on the November 14, 2018 Funding Date and $2,684,886 to be advanced on the December 13, 2018 Funding Date.

Materially Adverse Change”: the occurrence and continuation of one or more of the following events: (i) a material adverse change in the financial condition, financial results, business or operations of Borrower which could reasonably be expected to materially adversely affect its ability to perform its obligations under this Agreement, or (ii) Borrower, as debtor, shall have commenced or there shall be pending or there shall have been commenced against Borrower and be pending a case, proceeding or other action under applicable bankruptcy or insolvency laws or similar legislation.

Maturity Date”: December 1, 2019.

Officer’s Certificate”: a certificate signed in the name of Borrower by the president, a vice president, the treasurer or the assistant treasurer of Borrower.

Other EDC Transaction”: any other financing (present or future) by Lender for, or for the benefit of, the Borrower (or any Affiliate of Borrower) in respect of which Lender is, at the applicable time, a creditor or interest holder of at least ten percent (10%) of the outstanding debt amount or other interest thereunder.

Person”: any individual, corporation, limited liability company, partnership, joint venture, or other legal or governmental entity.

 

2


[Credit Agreement]

 

Principal Installment Amount”: $7,273,085 on the July 1, 2019 Principal Payment Date and $7,925,303 on the Maturity Date.

Principal Payment Date”: each of July 1, 2019 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.

Section 1110 Airline”: a “citizen of the United States” (within the meaning of 49 U.S.C. § 40102(a)(15)), who is an air carrier holding a valid air carrier operating certificate issued pursuant to 49 U.S.C. ch. 447 for aircraft capable of carrying 10 or more individuals.

Security Agreement and Subordination Acknowledgment”: defined in Section 8.14.

Security Trustee”: U.S. Bank National Association, not in its individual capacity, but solely as security trustee under the Security Agreement.

Section 1.02   Usage. Any agreement or statute referred to in Section 1.01 means such agreement or statute as from time to time supplemented and amended. A definition in singular form applies to the plural form of the term, and vice versa. References to sections, exhibits, and the like refer to those in or attached to this Agreement unless otherwise specified. “Including” means “including but not limited to”. “Or” means one or more, or all, of the alternatives listed or described. “Herein”, “hereof’, “hereunder”, etc. mean in, of, under, etc. this Agreement (and not merely in, of, under, etc. the section or provision where the reference appears).

2.         LOAN; PAYMENTS

Section 2.01   Loan. Subject to the satisfaction of the conditions precedent set forth in Section 6, and on the terms and conditions set forth in this Section 2, on each Funding Date, Lender shall make a loan to Borrower in a principal amount equal to the portion of the Loan Amount for that Funding Date, bearing interest at the Interest Rate.

Section 2.02   Procedure for Borrowing of the Loan. On each Funding Date, upon fulfillment of the conditions set forth in Section 6, Lender will make available the portion of the Loan Amount for that Funding Date to Borrower (or its designee) by transfer of immediately available funds to the following bank account (or to such other bank account(s) in the United States designated by Borrower on or prior to that Funding Date):

 

3


[Credit Agreement]

 

  Bank Name:    JPMorgan Chase Bank
     Milwaukee, WI
  ABA#:    021 000 021 – Wire
  Swift Code:    CHASUS33
  Account:    Air Wisconsin Airlines
  Account #:    510114518
  Contact:    Joanne Grishaber
  Telephone:    920-749-4103
  Email:    joanne.grishaber@airwis.com

Section 2.03   Obligations Absolute. Borrower’s obligations under this Agreement shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of: any lack of validity or enforceability of this Agreement, or any term or provision herein; the existence of any claim, setoff, defense, or other right that Borrower (or any Affiliate of Borrower) or any other Person may at any time have against the Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction; any other act or omission to act or delay of any kind of the Lender or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.03, constitute a legal or equitable discharge of Borrower’s obligations hereunder.

Section 2.04   Amortization. Borrower shall pay to the Lender on each Principal Payment Date, the Principal Installment Amount due on such Principal Payment Date; provided that, the amount payable on the Maturity Date shall in all cases be an amount equal to the entire principal amount of the Loan outstanding on such date, together with all accrued and unpaid interest and all other amounts then due and payable hereunder.

Section 2.05   Interest. Borrower shall pay to Lender interest on the unpaid principal amount of the Loan for each Interest Period at the Interest Rate until the Loan is paid in full. Accrued interest on the unpaid principal of the Loan shall be payable in arrears on each Interest Payment Date therefor and otherwise upon the payment or prepayment thereof (but only on the principal amount so paid or prepaid), except that interest payable at the Default Rate shall be payable from time to time on demand in accordance with Section 3.05.

3.        PAYMENTS BY BORROWER

Section 3.01   How Payments Are Made. Borrower shall make its payments and prepayments of principal and interest due on the Loan, and all other amounts payable by Borrower to Lender hereunder, to the credit of such account as Lender may from time to time notify Borrower in immediately available funds and in Dollars, no later than 11:00 a.m. (New York City time) on the date when due. Any payment made by Borrower to Lender after 3:00 p.m. (New York City time) on any day shall be deemed to have been made on the following Business Day. If any payment due hereunder comes due on a day which is not a Business Day, such payment shall instead be made on the following Business Day, and interest shall accrue at the applicable rate to the day of payment (except that no additional interest shall accrue if the payment thereon is made on such following Business Day).

 

4


[Credit Agreement]

 

Section 3.02   Right to Prepay. Borrower shall have the right at any time on or after the first Funding Date to prepay all or part of the outstanding principal amount of the Loan. Borrower shall give to Lender at least five Business Days’ prior written notice (which notice shall be irrevocable) of such prepayment (which notice shall specify the date on which such prepayment shall be made). Upon any prepayment of the Loan under this Section 3.02, Borrower shall pay all accrued and unpaid interest on the Loan to (but excluding) the date of prepayment. Amounts prepaid shall not be available for re-borrowing.

Section 3.03   Mandatory Prepayments. Upon acceleration of the Loan pursuant to Section 7.02, Borrower shall prepay the Loan, and shall pay all amounts payable hereunder with respect to such prepayment.

Section 3.04   Amount of Prepayment. Subject to Section 3.06, the Loan shall be deemed satisfied in full upon the prepayment of all principal of the Loan, the payment of all accrued and unpaid interest on or with respect to the Loan as of such prepayment date and the payment of all past-due interest on or with respect to the Loan.

Section 3.05   Interest on Past Due Amounts. Any amounts past due (by acceleration or otherwise) and at any time outstanding under the Loan or from Borrower shall (to the extent permitted by law) bear interest, payable on demand, from the due date (and shall be compounded on a quarterly basis) until (but excluding the date of) payment in full, at a rate equal to 2.00% per annum above the Interest Rate for the Loan (the Default Rate”).

Section 3.06   Limit on Interest Payable. The amount of interest due or payable under this Agreement shall not in any event exceed the maximum allowable by applicable law, and this sentence shall override any contrary provision in this Agreement.

Section 3.07   Illegality. If, at any time, it is or becomes illegal (as determined in the reasonable opinion of counsel to Lender (including in-house counsel)) under the applicable laws of any jurisdiction for Lender to perform its obligations under this Agreement, upon not less than thirty (30) days’ written notice to Borrower from Lender, the Loan shall become due and payable by Borrower, together with all other amounts then due and payable under this Agreement.

4.         BORROWER’S REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

Section 4.01   Company Standing. Borrower is a duly organized limited liability company existing in good standing under the laws of Delaware, has the company power and legal authority to own or lease property and to carry on business as a Section 1110 Airline, and is duly qualified to do business in all jurisdictions wherein such qualification is necessary (except in any jurisdictions in which the failure to qualify would result in no Materially Adverse Change).

Section 4.02   Company Powers. Borrower’s execution, delivery, and performance of this Agreement are within Borrower’s company powers; and this Agreement has been duly authorized by all necessary company action on Borrower’s part, and does not contravene, result in a breach of, or require any consent under any law, judgment, decree, order, or contractual

 

5


[Credit Agreement]

 

restriction binding on Borrower or any agreement or instrument to which Borrower is a party or to which it or any of its property is subject.

Section 4.03     Binding Effect. This Agreement is a legal, valid, and binding obligation of Borrower enforceable against Borrower in accordance with the terms hereof, except as may be limited by bankruptcy, insolvency, or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity.

Section 4.04     Litigation. There are no pending actions or proceedings before any court or administrative agency which reasonably may be expected to result in a Materially Adverse Change.

Section 4.05     Financial Statements; No Materially Adverse Change. The unaudited balance sheet as of September 30, 2017, for Borrower, and the related results of operations for the quarter then ended, have been prepared on a basis consistent with prior periods and present fairly, in all material respects, Borrower’s financial condition as of such date and results of operations for such period. Since September 30, 2017, there has been no Materially Adverse Change.

Section 4.06     Taxes. Borrower has filed all tax returns which it is or was required to file, and has paid all taxes shown to be due and payable on those returns or on any assessment received by it, except such taxes of Borrower, if any, as are being contested diligently in good faith, and by appropriate proceedings, and as to which adequate reserves have been provided in accordance with GAAP.

Section 4.07     Status as United States Citizen and Air Carrier. Borrower is a Section 1110 Airline.

Section 4.08     Governmental Consents. Borrower’s execution, delivery, and performance of this Agreement do not require the consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any federal, state, or foreign governmental authority or agency (including any judicial body).

Section 4.09     No Governmental Approvals, Notices and Filings. No consent or approval of, giving of notice to, registration with, or taking of any action in respect of or by, any federal, state, or local governmental authority is or will be required with respect to Borrower’s execution, delivery, or performance of this Agreement or if any such consent, approval, notice, registration, or action is required, it will have been duly given or obtained on or before the Funding Date.

Section 4.10     Compliance with Laws. Borrower is in compliance with all applicable laws and regulations, including, without limitation, environmental laws and laws and regulations relating to corruption and bribery, provided that, in the case of such laws and regulations (other than laws and regulations relating to corruption and bribery), Borrower may have complied only to the extent necessary to ensure that non-compliance with such laws would not, individually or in the aggregate, reasonably be expected to cause a Materially Adverse Change.

 

6


[Credit Agreement]

 

5.         COVENANTS

So long as the Loan, or any amount owed by Borrower under this Agreement, remains outstanding or unpaid:

Section 5.01     Company Existence. Except as permitted by Section 5.02, Borrower shall maintain its existence as a corporation or limited liability company in good standing.

Section 5.02     Merger, etc. Borrower shall not consolidate with or merge into any other Person, or convey, transfer, or lease all or substantially all of its assets as an entirety to any Person, unless:

(a)         the Person formed by such consolidation or merger, or the Person who acquires by conveyance, transfer, or lease all or substantially all of Borrower’s assets as an entirety (the Successor”) is a Section 1110 Airline;

(b)         in the case of such a consolidation, merger, conveyance, transfer, or lease, the Successor: (x) executes and delivers to Lender an agreement, in form and substance reasonably satisfactory to Lender, containing an assumption by the Successor of the due and punctual performance and observance of Borrower’s obligations under this Agreement (including this covenant), and (y) makes such filings, registrations and recordings, as are necessary to evidence such consolidation, merger, conveyance, transfer, or lease with or to the Successor;

(c)         such transaction shall not (1) create any Event of Default, or (2) materially impair Borrower’s or the Successor’s (as the case may be) ability to perform its obligations under this Agreement; and

(d)         Borrower or the Successor delivers to Lender, promptly upon consummation of such transaction, an Officer’s Certificate stating that the conditions precedent set forth in clauses (a), (b), and (c) above have been complied with and an opinion of counsel for Borrower or for the Successor, in form and substance reasonably satisfactory to Lender, (1) stating that the agreements entered into to effect such consolidation, merger, conveyance, transfer, or lease and such assumption agreements have been duly authorized, executed, and delivered by the Successor (or in the case of a merger, by Borrower) and that they (and this Agreement) constitute legal, valid, and binding obligations of the Successor (or in the case of a merger, of Borrower), enforceable in accordance with their terms (to the same extent as this Agreement was enforceable against Borrower immediately prior to such transaction), (2) stating that all conditions precedent which are legal in nature provided for in this Agreement and relating to such transaction have been fulfilled and (3) containing such other customary matters Lender reasonably requests.

Upon any such consolidation, conveyance, merger, transfer, or lease, the Successor shall succeed to, shall be substituted for, and may exercise every right and power of Borrower under this Agreement, with the same effect as if the Successor had been named as Borrower therein. No such conveyance, transfer, or lease of substantially all Borrower’s assets as an entirety shall have the effect of releasing Borrower (or any Successor) from its liability under this Agreement.

 

7


[Credit Agreement]

 

Section 5.03     Compliance with Laws. Borrower will comply with all applicable laws and regulations, including, without limitation, environmental laws and laws and regulations relating to corruption and bribery, provided that, in the case of such laws and regulations (other than laws and regulations relating to corruption and bribery), Borrower need comply only to the extent necessary to ensure that non-compliance with such laws would not, individually or in the aggregate, reasonably be expected to cause a Materially Adverse Change.

6.         CONDITIONS PRECEDENT

Section 6.01     Conditions Precedent to Funding. Lender’s obligation to fund any installment of the Loan on the Funding Date therefor is subject to the satisfaction of the following conditions precedent and the Lender’s receipt on or before that Funding Date of the following, in form and substance reasonably satisfactory to Lender:

(a)           an executed copy of this Agreement;

(b)           an executed copy of the Security Agreement and Subordination Acknowledgment;

(c)           evidence that all Basic Rent payments due by Borrower during June 2018 or thereafter and on or before that Funding Date with respect to the Designated Leases have been paid in full;

(d)           a certificate of Borrower’s secretary, dated the Funding Date, certifying attached copies of the resolutions of Borrower’s board of managers evidencing approval of the transactions contemplated by this Agreement, and showing the names and copies of the specimen signature(s) of Borrower’s officer(s) authorized to sign this Agreement and the related documents to which it is (or is to become) a party;

(e)           an Officer’s Certificate certifying: (x) Borrower’s representations and warranties in Section 4 of this Agreement are true and accurate as though made on the Funding Date, (y) no Event of Default exists or will result from the Loan and (z) no “Event of Default” or similar event exists under any Other EDC Transaction:

(f)           all necessary consents, approvals, licenses, permits, declarations, or registrations then required in connection with Borrower’s execution, delivery, and performance of this Agreement and the transactions contemplated hereby shall have been obtained; and

(g)           such additional opinion(s) and document(s) the Lender requests.

7.         EVENTS OF DEFAULT; REMEDIES

Section 7.01     Events of Default. Each of the following shall constitute an Event of Default”:

(a)           Borrower fails to make any payment due from Borrower hereunder when due, and such failure continues for five (5) Business Days after Borrower’s receipt of notice of such failure from Lender;

 

8


[Credit Agreement]

 

(b)           any representation or warranty made by Borrower hereunder, or in any certificate or other document that it furnishes pursuant to this Agreement, is incorrect in any material respect when made (and, if the effect(s) of such incorrectness is/are reasonably curable, such effect(s) continue(s) for thirty (30) days after Borrower’s receipt of notice of such incorrectness from Lender);

(c)           Borrower fails in any material respect to perform any other covenant or agreement hereunder, and such failure to perform continues for thirty (30) days after Borrower’s receipt of notice of such default from Lender;

(d)           Borrower (1) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of all or a majority of its property, (2) makes a general assignment for the benefit of its creditors, (3) commences a voluntary case under the federal Bankruptcy Code (as now or hereafter in effect), (4) files a petition seeking to take advantage (as debtor) of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, or (5) fails to controvert in a timely manner, or acquiesces in writing to, any petition filed against it in an involuntary case under the federal Bankruptcy Code;

(e)           a proceeding or case is commenced, without Borrower’s application or consent, in any court of competent jurisdiction, seeking (1) its liquidation, reorganization, dissolution, or winding-up, or the composition or readjustment of its debts, (2) the appointment of a trustee, receiver, custodian, liquidator, or the like of Borrower or of all or a majority of its assets, or (3) similar relief in respect of Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and (if Borrower is contesting the proceeding on a reasonable basis and in good faith) such proceeding or case continues undismissed, or an order, judgment, or decree approving or ordering any of the foregoing is entered and continues unstayed and in effect, for a period of ninety (90) days; or an order for relief against Borrower is entered in an involuntary case under the federal Bankruptcy Code; or

(f)           an “Event of Default” or similar event shall have occurred and be continuing under any Other EDC Transaction.

Section 7.02     Remedies. If an Event of Default (other than under Section 7.01(d) or (e)) exists, Lender may declare the Loan to be immediately due and payable, whereupon the Loan shall become and be immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which Borrower hereby waives, and all lending commitments hereunder shall terminate. If an Event of Default under Section 7.01(d) or (e) occurs, the Loan automatically shall become immediately due and payable and all lending commitments hereunder automatically shall immediately terminate, without presentment, demand, protest, or notice of any kind, all of which Borrower hereby waives. Upon the occurrence of any Event of Default, Lender may exercise any of its rights and remedies hereunder.

 

9


[Credit Agreement]

 

8.         MISCELLANEOUS

Section 8.01     No Waivers; Cumulative Remedies. No failure or delay in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude other or further exercise thereof or the exercise of any other right or power hereunder. No notice to or demand on any party in any case shall, of itself, entitle such party to any other or further notice or demand in similar or other circumstances.

Section 8.02     Notices. All communications and notices provided for under this Agreement shall be in writing (including telecopies), shall be in English, shall be effective on delivery, and shall be addressed as follows (or to such other address as any such party shall designate by notice to each other such party):

 

  if to Borrower:   

Air Wisconsin Airlines LLC

W6390 Challenger Drive

Suite 203

     Appleton, WI 54915-9120
     Attention: Chief Executive Officer
     Fax: (920) 749-4158
  if to Lender:   

Her Majesty in Right of Canada

c/o Export Development Canada

    

150 Slater Street

Ottawa, Ontario

Canada K1A 1K3

    

Attn: Loans Services & Asset Management –

Transportation

     Fax: (613) 598-2514 and (613) 598-3186

Wherever “notice”, “notify”, or similar variations are used herein, they mean the provision of a notice in accordance with this Section 8.02.

Section 8.03     Transaction Expenses. Borrower will pay on demand (accompanied with a reasonably-detailed invoice or other suitable verification) all reasonable out-of-pocket expenses in connection with the negotiation, preparation, execution, delivery, and enforcement of this Agreement, including (a) all reasonable fees and expenses actually incurred of Vedder Price P.C., special counsel to Lender, (b) all fees and expenses (including legal fees and expenses) of Lender in connection with actual or proposed amendments, waivers, or consents to or under this Agreement (except for such amendments, waivers, or consents initiated by Lender); and (c) all fees and expenses (including reasonable legal fees and expenses) of Lender in connection with the actual or proposed enforcement against Borrower.

Section 8.04     Amendments. Any provision of this Agreement may be amended, terminated, waived, or otherwise modified only in writing by Borrower and Lender.

Section 8.05     Successors and Assigns; Binding Effect; Consent to Assignment. This Agreement shall bind and benefit Lender and Borrower and their successors and assigns, except

 

10


[Credit Agreement]

 

that Borrower may not assign or transfer its rights under this Agreement (other than as provided in Section 5.02) without Lender’s prior written consent.

Section 8.06     Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)          THIS AGREEMENT HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

(b)          EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY). EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (2) ACKNOWLEDGES THAT IT AND OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 8.07     Headings. The section headings used in this Agreement are for convenience only and are not a substantive part of this Agreement.

Section 8.08     Execution in Counterparts. This Agreement may be executed in separate counterparts.

Section 8.09     Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing in connection with this Agreement shall survive the execution and delivery of this Agreement.

Section 8.10     Severability. Any provision hereof prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall be ineffective in such jurisdiction without modifying the remaining provisions of this Agreement or its effectiveness in any other jurisdiction. Where, however, the provisions of such applicable law may be waived, they are hereby waived by the parties hereto to the full extent permitted by law, to the end that this Agreement shall be a valid and binding agreement enforceable in accordance with its terms.

Section 8.11     Dollars. All payments due and payable hereunder shall be made in Dollars.

 

11


[Credit Agreement]

 

Section 8.12     Entire Agreement. This Agreement constitutes the entire contract between the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

Section 8.13     Confidentiality. Each party hereto agrees that it will not disclose, directly or indirectly, to any person not a party hereto or their respective counsel or advisors any information obtained from Borrower hereunder or in connection herewith or any portion of this Agreement not filed with any governmental agency or authority and available for public inspection, and will use all reasonable efforts to have all such information kept confidential and not used in any way known to such party to be detrimental to Borrower, except that (a) each party may use, retain, and disclose any such information to its special counsel, financial advisors, and public accountants, any potential transferees, any Affiliate, Bombardier Inc., Investissement Québec, and any governmental agency or instrumentality or other supervisory body (including bank regulators) requesting such disclosure or pursuant to its regulatory or supervisory authority over such party or any Affiliate thereof, provided that such special counsel, financial advisors, public accountants, potential transferees, Bombardier Inc., or Investissement Québec agrees in advance to keep such information confidential, (b) each party may use, retain, and disclose any such information that has been publicly disclosed (other than by such party or any Affiliate thereof in breach of this paragraph) or has rightfully come into the possession of such party or any Affiliate thereof (other than from Borrower) on a non-confidential basis, (c) each party may use, retain, and disclose any such information as required by law, rule, regulation, judicial or administrative process, or any governmental agency, or to the extent required pursuant to Canada’s or Lender’s international commitments (including, without limitation, any requirement that such information be disclosed by virtue of Lender’s status as an agent of Her Majesty in Right of Canada or by virtue of any law, regulation, order-in-council, court or administrative order, or Canadian government policy or by virtue of any international agreement to which the Government of Canada or Lender is a party, and including, without limitation, in respect of the Organisation for Economic Co-operation and Development (OECD) including Appendix V of the Sector Understanding of Export Credits for Civil Aircraft and the WTO Subsidies and Countervailing Measures Agreement or Canadian government policy), (d) each party may use, retain, and disclose any such information where such information was previously known to the subject party free of any obligation to keep it confidential, (e) each party may use, retain, and disclose any such information to third parties in connection with or in response to any order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading (provided, that each party shall endeavor in good faith to prevent the disclosure of such information pursuant to any such order, decree, judgment, subpoena, notice of discovery, or similar ruling or pleading) or as part of its normal reporting or review procedure to its auditors, regulators, parent company, or Affiliates, (f) each party may use, retain, and disclose any such information to the extent necessary to obtain appropriate insurance or in order to enforce its rights and performance obligations hereunder and (g) Lender shall be entitled to disclose any matters in relation to the transactions contemplated herein to the government of Canada (but Lender must request confidential treatment thereof) and shall be entitled to make publicly available the following information: the name of Borrower, the financial service provided by Lender, the date of this Agreement, a general description of the commercial transaction (including country) contemplated hereby, the amount of support in the approximate Canadian dollar range, and the name of the airframe manufacturer and engine manufacturer. For any breach of the foregoing covenants, the injured party shall be entitled to injunctive relief or any other legal or equitable

 

12


[Credit Agreement]

 

remedies available, including the recovery of damages suffered as a result of such breach, but no such breach shall constitute an Event of Default hereunder.

Notwithstanding any other provision herein to the contrary, Borrower and Lender (and each employee, representative, or other agent of any thereof) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated hereunder (including any fact relevant to understanding the federal income tax treatment of such transactions) and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment or tax structure.

Section 8.14     Additional Collateral. As further security for the Borrower’s obligations to Lender under this Agreement, Borrower is granting to a trustee for the benefit of Lender, on the date of this Agreement, by means of a security agreement and subordination acknowledgment in form and substance reasonably satisfactory to Lender (the Security Agreement and Subordination Acknowledgment”), a security interest in all of Borrower’s right, title and interest in and to certain aircraft, engines and spare parts, all as more specifically described in that Security Agreement and Subordination Acknowledgment. Such Security Agreement and Subordination Acknowledgment also acknowledges the subordination of the 2017 Security Agreement and the Deferral Security Agreement security interests in favor of the 2017 Security Agreement Trustee and the Deferral Security Agreement Trustee in the Collateral (as defined in the 2017 Security Agreement and the Deferral Security Agreement, as applicable) to the security interest of the Security Trustee.

*    *    *

 

13


[Credit Agreement]

 

IN WITNESS WHEREOF, Borrower and Lender have executed this Credit Agreement.

 

AIR WISCONSIN AIRLINES LLC,

Borrower

By:  

/s/ C. R. Deister

Title:   President & CEO

HER MAJESTY IN RIGHT OF

CANADA,

Lender

By:  

/s/ Brian Craig

Title:  

Brian Craig

Sr. Special Risks Manager

By:  

/s/ Geoff Bleich

Title:  

Geoff Bleich

Special Risks Manager


[Credit Agreement]

 

EXHIBIT A

DESIGNATED LEASES

 

FAA

REGISTRATION  

   MSN      DATE OF LEASE    OWNER TRUSTEE   

ORIGINAL

EQUITY

PARTICIPANT

 

N408AW

   7568    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N411ZW

   7569    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N412AW

   7582    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N413AW

   7585    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N414ZW

   7586    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N415AW

   7593    December 21, 2001   

U.S. Bank National

Association

   Fleet National Bank

N416AW

   7603    January 17, 2002   

U.S. Bank National

Association

   Fleet National Bank

N417AW

   7610    January 28, 2002   

U.S. Bank National

Association

   Fleet National Bank

N418AW

   7618    February 22, 2002   

U.S. Bank National

Association

   ICX Corporation

N419AW

   7633    April 12, 2002   

U.S. Bank National

Association

   ICX Corporation

N420AW

   7640    October 30, 2002   

U.S. Bank National

Association

   NCC Solar Company

N423AW

   7636    October 30, 2002   

U.S. Bank National

Association

   NCC Solar Company

N424AW

   7656    October 30, 2002   

U.S. Bank National

Association

   NCC Solar Company

N425AW

   7663    October 30, 2002   

U.S. Bank National

Association

   NCC Solar Company

N426AW

   7669    November 14, 2002   

U.S. Bank National

Association

   NCC Solar Company

N427ZW

   7685    November 14, 2002   

U.S. Bank National

Association

   NCC Solar Company

N428AW

   7695    December 13, 2002   

U.S. Bank National

Association

   NCC Solar Company

N429AW

   7711    December 13, 2002   

U.S. Bank National

Association

   NCC Solar Company

N430AW

   7719    December 5, 2002   

U.S. Bank National

Association

   NCC Solar Company

N435AW

   7724    December 13, 2002   

U.S. Bank National

Association

   NCC Solar Company

 

EXHIBIT A

Page 1

EXHIBIT 10.9.4

EXECUTION VERSION

AMENDMENT NO. 1 TO CREDIT AGREEMENT

THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”) is dated as of December 24, 2018 between AIR WISCONSIN AIRLINES LLC (the “Borrower”) and HER MAJESTY IN RIGHT OF CANADA (the “Lender”) and amends that certain Credit Agreement dated as of January 25, 2018 between the Borrower and the Lender (the “Credit Agreement”).

WHEREAS, except as otherwise defined in this Amendment, the capitalized terms used herein shall have the meanings attributed thereto in the Credit Agreement; and

WHEREAS, in order to amend the Credit Agreement, the parties have agreed to execute this Amendment.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

Section 1.       Amendments to Section 1.01 of the Credit Agreement. Section 1.01 of the Credit Agreement is hereby amended in the following manner:

(a)         The definition of “Business Day” is hereby deleted in its entirety and replaced with the following:

  ““Business Day”: any day, other than a Saturday or Sunday, on which commercial banks are open for business in New York, New York, Milwaukee, Wisconsin and Appleton, Wisconsin.”

(b)         A definition of “Disclosure Certificate” is hereby added as follows:

  ““Disclosure Certificate”: a certificate dated December 7, 2018, executed by Borrower and delivered to Lender, describing certain developments and contingencies applicable to Borrower.”

(c)         The definitions of “Deferral Security Agreement” and “Deferral Security Agreement Trustee” are hereby deleted in their entirety.


(d)         The definition of “Funding Dates” is hereby deleted in its entirety and replaced with the following:

  ““Funding Dates”: June 21, 2018, October 30, 2018, November 14, 2018, December 13, 2018 and April 30, 2019, which are the dates on which Lender shall fund the Loan under Section 2.01.”

(e)         The definition of “Loan Amount” is hereby deleted in its entirety and replaced with the following:

  ““Loan Amount”: a total of $20,953,595, consisting of $7,925,303 to be advanced on the June 21, 2018 Funding Date, $3,140,786 to be advanced on the October 30, 2018 Funding Date, $1,447,413 to be advanced on the November 14, 2018 Funding Date, $2,684,886 to be advanced on the December 13, 2018 Funding Date and $5,755,207 to be advanced on the April 30, 2019 Funding Date.”

(f)         The definition of “Materially Adverse Change” is hereby deleted in its entirety and replaced with the following:

  ““Materially Adverse Change”: the occurrence and continuation of one or more of the following events: (i) a material adverse change in the financial condition, financial results, business or operations of Borrower (as measured against Borrower’s status based on December 31, 2017 year-end audited financial statements) which could reasonably be expected to materially adversely affect its ability to perform its obligations under this Agreement, or (ii) Borrower, as debtor, shall have commenced or there shall be pending or there shall have been commenced against Borrower and be pending a case, proceeding or other action under applicable bankruptcy or insolvency laws or similar legislation.”

(g)         The definition of “Maturity Date” is hereby deleted in its entirety and replaced with the following:

  ““Maturity Date”: April 30, 2020.”

(h)         The definition of “Principal Installment Amount” is hereby deleted in its entirety and replaced with the following:

  ““Principal Installment Amount”: $7,273,085 on the July 1, 2019 Principal Payment Date, $7,925,303 on the December 1, 2019 Principal Payment Date and $5,755,207 on the Maturity Date.”

(i)         The definition of “Principal Payment Date” is hereby deleted in its entirety and replaced with the following:

  ““Principal Payment Date”: each of July 1, 2019, December 1, 2019 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.”

 

2


Section 2.       Amendment to Section 3.01 of the Credit Agreement. The references to “11:00 a.m.” and “3:00 p.m.” in Section 3.01 of the Credit Agreement are hereby deleted and replaced with references to “1:00 p.m.” and “5:00 p.m.”, respectively.

Section 3.       Amendment to Section 4.05 of the Credit Agreement. The text of Section 4.05 of the Credit Agreement is hereby deleted and replaced with the following:

“(a) The audited balance sheet as of December 31, 2017, for Borrower and its consolidated subsidiaries, and the related results of operations for the year then ended, have been prepared in accordance with GAAP and fairly present, in all material respects, Borrower’s financial condition as of such date and results of operations for such period, and (b) except to the extent (if any) described in the Disclosure Certificate, since December 31, 2017, there has been no Materially Adverse Change.”

Section 4.       Amendment to Section 8.02 of the Credit Agreement. Section 8.02 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

Section 8.02 Notices. All communications and notices provided for under this Agreement shall be in writing (including telecopies and emails), shall be in English, shall be effective on delivery, and shall be addressed as follows (or to such other address as any such party shall designate by notice to each other such party):

if to Borrower:

Air Wisconsin Airlines LLC

W6390 Challenger Drive, Suite 203

Appleton, WI 54915-9120

Attn: President and Chief Executive Officer

Fax: (920) 749-4158

Email: christine.deister@airwis.com

with a copy to the same address,

Attn: Chief Accounting Officer and Treasurer

Email: gregg.garvey@airwis.com

if to Lender:

Her Majesty in Right of Canada

c/o Export Development Canada

150 Slater Street

Ottawa, Ontario

Canada K1A 1K3

Attn: Loans Services & Asset Management - Transportation

Fax: (613) 598-2514 and (613) 598-3186

Email: ls-aerospace@edc.ca

 

3


Wherever “notice”, “notify”, or similar variations are used in this Agreement, the Mortgage, or the Notes, they mean the provision of a notice in accordance with this Section 8.02.”

Section 5.       Amendment to Section 8.14 of the Credit Agreement. The last sentence of Section 8.14 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

“Such Security Agreement and Subordination Acknowledgment also acknowledges the subordination of the 2017 Security Agreement security interest in favor of the 2017 Security Agreement Trustee in the Collateral (as defined in the 2017 Security Agreement) to the security interest of the Security Trustee.”

Section 6.       Amendment to Exhibit A of the Credit Agreement. Exhibit A to the Credit Agreement is hereby deleted in its entirety and replaced with Exhibit A attached hereto.

Section 7.       Ratification. Except as amended hereby, the Credit Agreement continues and shall remain in full force and effect in all respects and each of the parties hereby confirms and ratifies its obligations thereunder. From and after the date hereof, each and every reference in the Credit Agreement to “this Agreement”, “herein”, “hereof” or similar words and phrases referring to the Credit Agreement or any word or phrase referring to a section or provision of the Credit Agreement is deemed for all purposes to be a reference to the Credit Agreement or such section or provision as amended pursuant to this Amendment.

Section 8.       Counterparts. This Amendment may be signed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Amendment.

Section 9.       Governing Law. This Amendment shall in all respects be governed by and construed in accordance with the laws of the state of New York, including all matters of construction, validity and performance.

*    *    *

 

4


IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their authorized officers as of the date first written above.

 

  AIR WISCONSIN AIRLINES LLC,
  as Borrower
  By: /s/ C. R. Deister                                      
  Name: Christine R. Deister
  Title:   President and C.E.O.
  HER MAJESTY IN RIGHT OF
  CANADA, as Lender
 

By: /s/ Sean Mitchell                                    

 

Name:   Sean Mitchell

 

Title:     Principal Special Risks

 

By: /s/ Brian Craig                                         

 

Name:  Brian Craig

 

Title:    Sr. Special Risks Manager


EXHIBIT A

DESIGNATED LEASES

 

FAA

REGISTRATION

   MSN    DATE OF LEASE    OWNER TRUSTEE   

ORIGINAL

EQUITY

PARTICIPANT

 

N408AW

   7568    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N411ZW

   7569    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N412AW

   7582    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N413AW

   7585    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N414ZW

   7586    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N415AW

   7593    December 21, 2001    U.S. Bank National    Fleet National Bank
               Association     

N419AW

   7633    April 12, 2002    U.S. Bank National    ICX Corporation
               Association     

N420AW

   7640    October 30, 2002    U.S. Bank National    NCC Solar Company
               Association     

N423AW

   7636    October 30, 2002    U.S. Bank National    NCC Solar Company
               Association     

N424AW

   7656    October 30, 2002    U.S. Bank National    NCC Solar Company
               Association     

N425AW

   7663    October 30, 2002    U.S. Bank National    NCC Solar Company
               Association     

N426AW

   7669    November 14, 2002    U.S. Bank National    NCC Solar Company
               Association     

N427ZW

   7685    November 14, 2002    U.S. Bank National    NCC Solar Company
               Association     

N428AW

   7695    December 13, 2002    U.S. Bank National    NCC Solar Company
               Association     

N429AW

   7711    December 13, 2002    U.S. Bank National    NCC Solar Company
               Association     

N430AW

   7719    December 5, 2002    U.S. Bank National    NCC Solar Company
               Association     

N435AW

   7724    December 13, 2002    U.S. Bank National    NCC Solar Company
               Association     

 

Exhibit A

Page 1

EXHIBIT 10.9.5

AMENDMENT NO. 2 TO CREDIT AGREEMENT

THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this “Amendment”) is dated as of April 24, 2019 between AIR WISCONSIN AIRLINES LLC (the “Borrower”) and HER MAJESTY IN RIGHT OF CANADA (the “Lender”) and further amends that certain Credit Agreement dated as of January 25, 2018, as amended by that certain Amendment No. 1 to Credit Agreement dated as of December 24, 2018, in each case between the Borrower and the Lender (collectively, the “Credit Agreement”).

WHEREAS, except as otherwise defined in this Amendment, the capitalized terms used herein shall have the meanings attributed thereto in the Credit Agreement; and

WHEREAS, in order to amend the Credit Agreement, the parties have agreed to execute this Amendment.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

Section 1.      Amendments to Section 1.01 of the Credit Agreement. Section 1.01 of the Credit Agreement is hereby amended in the following manner:

(a)        The definition of “Maturity Date” is hereby deleted in its entirety and replaced with the following:

““Maturity Date”: July 1, 2020.”

(b)        The definition of “Principal Installment Amount” is hereby deleted in its entirety and replaced with the following:

““Principal Installment Amount”: $7,925,303 on the December 1, 2019 Principal Payment Date, $5,755,207 on the April 30, 2020 Principal Payment Date and $7,273,085 on the Maturity Date.”

(c)        The definition of “Principal Payment Date” is hereby deleted in its entirety and replaced with the following:

““Principal Payment Date”: each of December 1, 2019, April 30, 2020 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.”


Section 2.      Ratification. Except as amended hereby, the Credit Agreement continues and shall remain in full force and effect in all respects and each of the parties hereby confirms and ratifies its obligations thereunder. From and after the date hereof, each and every reference in the Credit Agreement to “this Agreement”, “herein”, “hereof’ or similar words and phrases referring to the Credit Agreement or any word or phrase referring to a section or provision of the Credit Agreement is deemed for all purposes to be a reference to the Credit Agreement or such section or provision as amended pursuant to this Amendment.

Section 3.      Counterparts. This Amendment may be signed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Amendment.

Section 4.      Governing Law. This Amendment shall in all respects be governed by and construed in accordance with the laws of the state of New York, including all matters of construction, validity and performance.

*    *    *

 

2


IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their authorized officers as of the date first written above.

 

AIR WISCONSIN AIRLINES LLC,

as Borrower

By:  

/s/ C. R. Deister

Name:   Christine R. Deister
Title:   CEO

HER MAJESTY IN RIGHT OF CANADA,

as Lender

By:  

/s/ Katie Furfaro

Name:   Katie Furfaro
Title:   Senior Associate
By:  

/s/ Geoff Bleich

Name:   Geoff Bleich
Title:   Special Risks Manager

EXHIBIT 10.9.6

EXECUTION VERSION

AMENDMENT NO. 3 TO CREDIT AGREEMENT

THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT (this “Amendment”) is dated as of June 20, 2019 between AIR WISCONSIN AIRLINES LLC (the “Borrower”) and HER MAJESTY IN RIGHT OF CANADA (the “Lender”) and further amends that certain Credit Agreement dated as of January 25, 2018, as amended by that certain Amendment No. 1 to Credit Agreement dated as of December 24, 2018 and Amendment No. 2 to Credit Agreement dated as of April 24, 2019, in each case between the Borrower and the Lender (collectively, the “Credit Agreement).

WHEREAS, except as otherwise defined in this Amendment, the capitalized terms used herein shall have the meanings attributed thereto in the Credit Agreement; and

WHEREAS, in order to amend the Credit Agreement, the parties have agreed to execute this Amendment.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

Section 1.        Amendments to Section 1.01 of the Credit Agreement. Section 1.01 of the Credit Agreement is hereby amended in the following manner:

(a)        The definition of “2017 Credit Agreement” is hereby added as follows:

““2017 Credit Agreement”: the Credit Agreement dated as of June 5, 2017, as amended by that certain Amendment No. 1 to Credit Agreement dated as of December 24, 2018, in each case between the Borrower and the Lender.”

(b)        The definition of “Funding Dates” is hereby deleted in its entirety and replaced with the following:

““Funding Dates”: June 21, 2018, October 30, 2018, November 14, 2018, December 13, 2018, April 30, 2019 and June 21, 2019, which are the dates on which Lender shall fund the Loan under Section 2.01.”

(c)        The definition of “Loan Amount” is hereby deleted in its entirety and replaced with the following:

““Loan Amount”: a total of $26,988,070.00, consisting of $7,925,303 to be advanced on the June 21, 2018 Funding Date, $3,140,786 to be advanced on the October 30, 2018 Funding Date, $1,447,413 to be advanced on the November 14, 2018 Funding Date, $2,684,886 to be advanced on the December 13, 2018 Funding Date, $5,755,207 to be advanced on the April 30, 2019 Funding Date, and $6,034,465 to be advanced on the June 21, 2019 Funding Date.”


(d)        The definition of “Maturity Date” is hereby deleted in its entirety and replaced with the following:

““Maturity Date”: June 30, 2022.”

(e)        Subject to Section 2 below, the definition of “Principal Installment Amount” is hereby deleted in its entirety and replaced with the following:

““Principal Installment Amount”: $7,925,303 on the December 1, 2019 Principal Payment Date, $5,755,207 on the July 31, 2021 Principal Payment Date, $7,273,085 on the December 31, 2021 Principal Payment Date and $6,034,475 on the Maturity Date.”

(f)        Subject to Section 2 below, the definition of “Principal Payment Date” is hereby deleted in its entirety and replaced with the following:

““Principal Payment Date”: each of December 1, 2019, July 31, 2021, December 31, 2021 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.”

Section 2.        Notwithstanding anything to the contrary in the Credit Agreement, and provided no Event of Default has occurred and is continuing, so long as the “Principal Installment Amounts” (as defined in the 2017 Credit Agreement) due on the “Principal Payment Dates” (as defined in the 2017 Credit Agreement) of March 31, 2020 and June 30, 2020 are prepaid on or before December 1, 2019, then Section 1.01 of the Credit Agreement is hereby amended in the following manner:

(a)        The definition of “Principal Installment Amount” is hereby deleted in its entirety and replaced with the following:

““Principal Installment Amount”: $5,755,207 on the July 31, 2021 Principal Payment Date, $7,273,085 on the December 31, 2021 Principal Payment Date, $3,962,651.50 on the March 31, 2022 Principal Payment Date, $3,962,651.50 on the June 30, 2022 Principal Payment Date and $6,034,475 on the Maturity Date.”

(b)        The definition of “Principal Payment Date” is hereby deleted in its entirety and replaced with the following:

““Principal Payment Date”: each of July 31, 2021, December 31, 2021, March 31, 2022, June 30, 2022 and the Maturity Date; except that any Principal Payment Date that falls on a day which is not a Business Day shall instead occur on the following Business Day.”

Section 3.        Ratification. Except as amended hereby, the Credit Agreement continues and shall remain in full force and effect in all respects and each of the parties hereby confirms and ratifies its obligations thereunder. From and after the date hereof, each and every reference in the Credit Agreement to “this Agreement”, “herein”, “hereof” or similar words and phrases referring to the Credit Agreement or any word or phrase referring to a section or provision of the Credit

 

2


Agreement is deemed for all purposes to be a reference to the Credit Agreement or such section or provision as amended pursuant to this Amendment.

Section 4.        Counterparts. This Amendment may be signed in counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same Amendment.

Section 5.        Governing Law. This Amendment shall in all respects be governed by and construed in accordance with the laws of the state of New York, including all matters of construction, validity and performance.

*    *    *

 

3


IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their authorized officers as of the date first written above.

 

AIR WISCONSIN AIRLINES LLC, as Borrower
By:  

/s/ C. R. Deister

Name:   Christine R. Deister
Title:   CEO
HER MAJESTY IN RIGHT OF

CANADA, as Lender

By:  

/s/ Brian Craig

Name:   Brian Craig
Title:   Sr. Special Risks Manager
By:  

/s/ Geoff Bleich

Name:   Geoff Bleich
Title:   Special Risks Manager

Exhibit 14.1

 

CODE OF BUSINESS CONDUCT AND ETHICS

FOR SENIOR FINANCIAL OFFICERS

HARBOR DIVERSIFIED, INC.

 


Code of Business Conduct and Ethics

for Senior Financial Officers

Harbor Diversified, Inc.

 

I.

Purpose

Harbor Diversified, Inc., a Delaware corporation (the “Company”), is committed to promoting high standards of ethical business conduct and compliance with applicable laws, rules, regulations and listing standards. The Board of Directors (the “Board”) of the Company has adopted this Code of Business Conduct and Ethics for Senior Financial Officers (this “Code”) as part of this commitment. This Code is also intended to comply with the requirements of Section 406 of the Sarbanes-Oxley Act of 2002, and Item 406 of Regulation S-K adopted by the Securities and Exchange Commission (the “SEC”) thereunder. This Code was adopted by the Board on June 30, 2020 (the “Effective Date”).

As a general matter, this Code is designed to deter wrongdoing and promote:

 

   

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

   

Full, fair, accurate, timely and understandable disclosure in reports and documents filed by the Company with, or submitted to, the SEC and in the Company’s other public communications;

   

Compliance with applicable laws, rules, regulations and the listing standards of any national securities exchange on which the Company’s securities are listed for trading (“listing standards”);

   

Prompt internal reporting of violations of this Code in the manner described herein; and

   

Accountability for adherence to this Code.

 

II.

Applicability

This Code applies to the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller of the Company, and any other officer of the Company (or any of its subsidiaries) that is performing similar functions or that is performing a financial oversight role (collectively, the “Senior Financial Officers). The Senior Financial Officers are also bound by any other corporate governance policies and procedures that have been, or may hereafter be, adopted by the Company (or any of its subsidiaries) and are applicable to the Company’s officers or employees (collectively, the “Governance Policies”). Nothing in this Code is intended to limit the requirements or obligations imposed on the Senior Financial Officers by the Governance Policies.

By accepting this Code, each Senior Financial Officer agrees that he or she will promote high standards of ethical business conduct and compliance with applicable laws, rules, regulations and listing standards, including by adhering to the principles and responsibilities set forth in this Code.

In addition, part of each Senior Financial Officer’s ethical responsibility is to help enforce this Code and encourage others to comply with this Code. Each Senior Financial Officer should promptly report violations or suspected violations of this Code to the Audit Committee of the Board (the “Audit Committee”).

 

1


III.

Principles and Responsibilities

 

  A.

Standard of Conduct

Each Senior Financial Officer has a duty to comply with applicable laws, rules, regulations and listing standards; act with honesty and integrity in all dealings with the Company and any of its constituents; and use care and diligence in performing his or her responsibilities to the Company. Each Senior Financial Officer also has a duty to advocate compliance with these principles by other employees.

 

  B.

Relationship with Independent Auditors

Each Senior Financial Officer has a duty to work cooperatively with the Company’s independent auditors in the conduct of the audit of the Company’s annual financial statements, the review of the Company’s quarterly financial statements, the evaluation of the Company’s internal controls, and the preparation of reports and documents filed by the Company with, or submitted to, the SEC.

 

  C.

Company Disclosures

Each Senior Financial Officer shall be responsible for full, fair, accurate and timely disclosure in the reports and documents that the Company files with, or submits to, the SEC and in other public communications made by the Company. Each Senior Financial Officer must promptly bring to the attention of the Audit Committee any material information that he or she may become aware of that is likely to materially affect the timing, accuracy or completeness of disclosures made by the Company in its SEC filings or other public communications.

 

  D.

Internal Controls / Fraud

Each Senior Financial Officer must promptly bring to the attention of the Audit Committee any information he or she may have or become privy to concerning (i) significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data, and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.

 

  E.

Conflicts of Interest

Each Senior Financial Officer is expected to avoid conflicts of interest that interfere (or are reasonably likely to interfere) with the performance of his or her duties to the Company, or that deprive the Company of the Senior Financial Officer’s undivided loyalty in business dealings. Each Senior Financial Officer must report to the Audit Committee any actual or apparent conflicts of interest involving any employee who has a significant role in financial reporting, disclosures or internal controls.

 

2


  F.

Confidentiality

Each Senior Financial Officer must maintain the confidentiality of Company information (except when authorized or legally required to make any disclosure) and avoid any personal use of Company information.

 

  G.

Legal Compliance

Each Senior Financial Officer must comply with applicable laws, rules, regulations and listing standards, including, without limitation, the laws of the Company’s state of incorporation, the rules and regulations of the SEC, and the rules and listing standards of any national securities exchange on which the Company’s securities are listed for trading. Each Senior Financial Officer shall promptly bring to the attention of the Audit Committee any information he or she may have or become privy to concerning any violation, or evidence of any potential violation, of any laws, rules, regulations or listing standards applicable to the Company.

 

  H.

Trading Restriction

Subject to the specific exception described below, the Senior Financial Officers are prohibited from trading in Company Securities from and after the Effective Date. The trading restriction shall apply to all Company securities, including, without limitation, common stock and any securities convertible into or exercisable for common stock (the “Company Securities”). The trading restriction shall apply to any purchase, sale or other transfer of the Company Securities, including any transaction that seeks to (or has the effect of) transferring the economic consequences of ownership of the Company Securities. Notwithstanding the foregoing, any Senior Financial Officer that owns or controls (whether directly or through affiliates) any Company Securities as of the Effective Date is permitted to sell or transfer such Company Securities with the prior approval of the Audit Committee, provided that any such sale or transfer shall be completed in compliance with all applicable laws, rules, regulations and listing standards. Exceptions to this trading restriction may be granted by the Audit Committee on a case by case basis in its sole discretion.

 

  I.

Violations of the Code

Each Senior Financial Officer shall promptly report violations of this Code to the Audit Committee. The Audit Committee shall have the authority to determine whether there has been any violation of this Code, as well as to determine (or designate appropriate persons to determine) the appropriate action to be taken as a result of any violation of this Code. Any such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code, and may include, without limitation, demotion or re-assignment, reduction in compensation, suspension of employment, or termination of employment.

 

  J.

Waivers and Amendments

The Audit Committee shall have the ability to waive or amend any provision of this Code provided that any such waiver or amendment is not inconsistent with applicable laws, rules, regulations or listing standards. Any such waivers of or amendments to this Code shall be disclosed in accordance with applicable laws, rules, regulations and listing standards.

 

3

EXHIBIT 21.1

LIST OF SUBSIDIARIES

 

NAME OF SUBSIDIARY

  

STATE OF FORMATION OR INCORPORATION

Lotus Aviation Leasing, LLC

(100% subsidiary of Harbor Diversified, Inc.)

   Delaware

Air Wisconsin Funding LLC

(100% subsidiary of Harbor Diversified, Inc.)

   Delaware

Harbor Therapeutics, Inc.

(100% subsidiary of Harbor Diversified, Inc.)

   Delaware

AWAC Aviation, Inc.

(100% subsidiary of Harbor Diversified, Inc.)

   Delaware

Air Wisconsin Airlines LLC

(100% subsidiary of AWAC Aviation, Inc.)

   Delaware

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine R. Deister, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Harbor Diversified, Inc.;

 

2.

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

 

3.

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

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

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

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 10, 2020

  

        

  

/s/ Christine R. Deister

  

        

     

Christine R. Deister

  
     

Chief Executive Officer and Secretary

  
     

Harbor Diversified, Inc.

  
     

(Principal Executive Officer)

  

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregg Garvey, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Harbor Diversified, Inc.;

 

2.

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

 

3.

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

 

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

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

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: July 10, 2020

  

        

  

/s/ Gregg Garvey

  

        

     

Gregg Garvey

  
     

Senior Vice President, Chief Accounting Officer and Treasurer

  
     

Air Wisconsin Airlines LLC

  
     

(Principal Financial and Accounting Officer)

  

Exhibit 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certifications are hereby made in connection with the Annual Report on Form 10-K of Harbor Diversified, Inc. (the “Company”) for the period ended December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”):

I, Christine R. Deister, Principal Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.

 

Date: July 10, 2020

   

By:

 

/s/ Christine R. Deister                                        

 

                

     

Christine R. Deister

 
     

Chief Executive Officer and Secretary

 
     

Harbor Diversified, Inc.

 
     

(Principal Executive Officer)

 

I, Gregg Garvey, Principal Financial and Accounting Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented.

 

Date: July 10, 2020

   

By:

 

/s/ Gregg Garvey                                                 

 

                

     

Gregg Garvey

 
     

Senior Vice President, Chief Accounting Officer and Treasurer

 
     

Air Wisconsin Airlines LLC

 
     

(Principal Financial and Accounting Officer)

 

The foregoing Certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.