================================================================= MESABA BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2005 (ISSN XXXX-XXXX) October 14, 2005 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- MESABA BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Tara Eliza E. Tecarro, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of MESABA BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO MESABA BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF MESABA AIRLINES [00002] MAIR HOLDINGS' BALANCE SHEET AS OF JUNE 30, 2005 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] MESABA AVIATION'S CHAPTER 11 DATABASE [00005] MESABA AVIATION'S 20 LARGEST UNSECURED CREDITORS [00006] MESABA'S MOTION TO OBTAIN $35 MIL. DIP FACILITY FROM MAIR [00007] MAIR PRESIDENT ASSURES SHAREHOLDERS COMPANY IS SOLVENT KEY DATE CALENDAR ----------------- 10/13/05 Mesaba's Voluntary Petition Date 10/28/05 Deadline for Mesaba's Schedules of Assets & Liabilities 10/28/05 Deadline for Mesaba's Statements of Financial Affairs 10/28/05 Deadline for Mesaba's Lists of Leases and Contracts 11/02/05 Deadline for Mesaba to provide Utility Deposits 12/13/05 Deadline to make Sec. 1110 aircraft lease decisions 12/12/05 Mesaba's Deadline to make Lease Disposition Decisions 01/11/06 Mesaba's Deadline to remove actions under FRBP 9027 02/10/06 Expiration of Mesaba's Exclusive Plan Proposal Period 04/11/06 Expiration of Mesaba's Exclusive Solicitation Period 10/13/07 Deadline for Mesaba to Commence Avoidance Actions 04/__/08 Maturity Date of $35 Mil. MAIR-Backed DIP Financing Pact Organizational Meeting to form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim against Mesaba ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO MESABA BANKRUPTCY NEWS ----------------------------------------------------------------- MESABA BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MESABA BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. 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Please enter my personal subscription to MESABA BANKRUPTCY NEWS at US$45 per issue until I tell you to cancel my subscription. Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) MESABA BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MESABA BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF MESABA AIRLINES ----------------------------------------------------------------- Mesaba Aviation, Inc. d/b/a Mesaba Airlines, Inc. 1000 Blue Gentian Rd., Suite 200 Eagan, Minnesota 55121 Telephone 651/367-5000 Fax 651/367-5392 http://www.mesaba.com/ Mesaba Aviation, Inc., operates as a regional air carrier providing scheduled passenger service as "Mesaba Airlines/ Northwest Airlink" and "Mesaba Airlines/Northwest Jet Airlink" under an Airline Services Agreement dated August 29, 2005, with Northwest Airlines, Inc. Mesaba is a wholly owned subsidiary of MAIR Holdings, Inc., a Minnesota corporation. Mesaba serves 109 cities in the United States and Canada from Northwest's hub airports in Minneapolis/ St. Paul, Minnesota; Detroit, Michigan; and Memphis, Tennessee. As part of Mesaba's route structure, it provides essential air service to numerous small communities in Minnesota and throughout the United States. In many cases, the service Mesaba provides is the only service available to these small communities. Mesaba's History Mesaba was founded in 1944 in Coleraine, Minnesota, to air- shuttle employees of the Blandin Paper Company from Grand Rapids to Minneapolis-St. Paul. Mesaba began flying scheduled airline service in 1973. In 1984, Mesaba became Northwest's first code-share partner, providing passenger feed to its Minneapolis/St. Paul hub with turboprop aircraft. In 1996, Mesaba signed a Regional Jet Service Agreement with Northwest to provide commercial jet transportation services to Northwest using the British Aerospace Avro Regional Jet aircraft. The following year, Mesaba and Northwest signed an Airline Services Agreement under which Mesaba provided Northwest with commercial turboprop air transportation services using the Saab 340 aircraft. These agreements reshaped Mesaba's business substantially because they provided that Northwest would be Mesaba's exclusive customer for these regional services. Mesaba has experienced substantial growth since 1944. By fiscal year 1996, Mesaba's fleet consisted of 55 aircraft and generated annual revenues of $170 million. By fiscal year 2006, Mesaba was projected to grow to 114 aircraft with annual revenues of $471 million. The number of Mesaba's employees also grew from 1,540 in fiscal year 1996 to approximately 3,800 today. In 2000 Mesaba's growth began to level off. That year Mesaba took delivery of the last Avro aircraft. In 2001, 11 Saab B model aircraft were added to Mesaba's fleet. Mesaba then began to position itself for the new generation of regional jets that Northwest began to place into its network with its other regional partner, Pinnacle Airlines. According to John Spanjers, president and chief operating officer of Mesaba, the airline has faced many challenges in the past five years. Shortly after the events of September 11, 2001, Mesaba was required by Northwest to reduce capacity by 20%. This event caused substantial layoffs and required other actions to reduce Mesaba's cost structure. Moreover, other cost pressures, like increased insurance costs, higher maintenance costs for an aging fleet, lower utilization of the aircraft impacting fleet profitability, increased landing fees, and increased health insurance costs, reduced margins and negatively affected Mesaba's financial performance. In late 2003, Northwest decided to reduce the size of the Avro fleet by five aircraft while considering whether to eliminate it completely as permitted by a provision in the 1996 Jet Service Agreement. Northwest later decided to restore the fleet to use all 35 aircraft, but the temporary reduction and uncertainty again adversely affected Mesaba's cost structure. The Prior ASAs between Northwest and Mesaba were structured to require Mesaba to incur the cost associated with these significant unanticipated fleet resizing challenges, while agreements of many other regional carriers allowed the costs to be passed through to their major carrier partner. The New Services Agreement & Northwest's Default In April 2005, after a competitive bidding process, Northwest awarded 15 new Bombardier CRJ-200 Regional Jets to Mesaba. The new CRJs provided Mesaba with an opportunity to substantially expand its fleet in the future. Consequently, Northwest and Mesaba negotiated the August 2005 Airline Services Agreement to govern the parties' relationship covering all three aircraft types -- the CRJs, Saabs and Avros. The New ASA replaced the Prior ASAs covering the Saabs and Avros. As part of the overall agreement, MAIR Holdings contributed a $31,600,000 capital to Mesaba on September 7, 2005. On September 12, 2005, Northwest failed to make a $18,500,000 semi-monthly payment due to Mesaba under the New ASA for services rendered in the last half of August 2005. Mesaba promptly sent a notice of default to Northwest seeking a cure within the seven days as required by the New ASA. Two days later, Northwest filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. On September 26, the next payment due date, Northwest paid only $1,900,000 of the $19,100,000 due for services rendered under the New ASA in the first half of September 2005. The $1,900,000 payment represented payment for services rendered by Mesaba after Northwest's bankruptcy petition was filed. Northwest made the semi-monthly payment due for the second half of September on October 11, but reduced it by $3,000,000 to reflect Essential Air Service payments for May and June 2005 and a quarterly rate adjustment for the period of July through September 14. After accounting for offsetting charges under the New ASA, Mesaba estimates that it may have a $30,000,000 net claim against Northwest. Northwest's Efforts to Reduce Schedule Mr. Spanjers relates that at the time the New ASA was executed, Mesaba believed that it had remedies to deal with a shortfall in payments due to a possible Northwest bankruptcy filing. Mesaba expected that even in bankruptcy, Northwest would comply with the terms of the New ASA, which had been negotiated in the shadow of Northwest's prospective filing. Otherwise, Northwest could not expect Mesaba to continue to provide the critical flight and ground handling services it provides to Northwest. On September 15, 2005, Northwest advised Mesaba that it intended to abide by the New ASA, and that it wanted Mesaba to be a successful partner as it proceeds through and emerges from bankruptcy. Northwest, however, recanted the next day. Northwest said it intended to remove 10 Saabs and nine Avros from the October 31, 2005 flight schedule. Mesaba's management convinced Northwest to temporarily defer the Saab removal. Mesaba also sent a letter to Northwest advising that Northwest was in default under the New ASA because: (i) Northwest failed to provide the required 90-day notice of removal of the Avros from the fleet; and (ii) the removal of the 10 Saabs is not permitted under the New ASA until January 2014, unless an early termination event in that lease occurs. On September 20, Northwest advised Mesaba that it may remove all of the Avros from Mesaba's fleet on or after December 20, 2005. Northwest's notice purported to reserve to Northwest the "right" to withdraw the notice as to some or all of the aircraft. Mesaba responded that since the purpose of the notice is to permit Mesaba to restructure its costs in anticipation of the removal of a certain number of Avro aircraft, the ambivalence of the notice rendered it legally ineffective. Mesaba also threatened to cease ground handling services if Northwest fails to make adequate payment arrangements for the services. There is no written agreement governing the ground handling services. On October 5, Northwest advised Mesaba that 10 Saabs would be removed from the flight schedule on January 4, 2006. Northwest also advised that it would not meet the aircraft delivery commitment pursuant to the New ASA for the 13 remaining CRJ aircraft. Two CRJ aircraft were delivered to Mesaba in September prior to Northwest filing its bankruptcy petition, leaving Mesaba with a cost intensive two-aircraft fleet. Mesaba's Need for Bankruptcy Protection Northwest's actions "have caused not only significant cash shortages at Mesaba, but the significant capacity changes and uncertainty have made it almost impossible for Mesaba to adjust its business plan and operations so that it could conduct business outside of bankruptcy court protection," Mr. Spanjers says. Mr. Spanjers explains that Northwest's notice regarding termination of the Avro leases presents challenges to Mesaba, because the company has significant fixed costs and infrastructure associated with the Avros. If Northwest proceeds to remove the Avros from Mesaba's fleet as part of its Chapter 11 reorganization process, Mesaba in turn will be required to sustain significant financial costs and consequently make substantial cost cuts in its own financial reorganization. Mesaba's Chapter 11 petition, Mr. Spanjers says, is necessary to permit Mesaba the time and flexibility to restructure its costs and operations, and become a lean and competitive regional carrier flying for Northwest or other major airlines. ----------------------------------------------------------------- [00002] MAIR HOLDINGS' BALANCE SHEET AS OF JUNE 30, 2005 ----------------------------------------------------------------- MAIR Holdings, Inc.'s balance sheets include the accounts of its wholly owned subsidiaries, Mesaba Aviation, Inc., and Big Sky Transportation Co. MAIR Holdings, Inc. Unaudited Condensed Consolidated Balance Sheets As of June 30, 2005 ASSETS Current Assets Cash and cash equivalents $66,516,000 Short-term investments 63,936,000 Accounts receivable, net of reserves 27,678,000 Inventories, net 11,955,000 Prepaid expenses and deposits 5,586,000 Deferred income taxes and other 11,627,000 ------------ 187,298,000 ------------ Property and Equipment Flight equipment 94,871,000 Other property and equipment 41,749,000 Less: Accumulated depreciation & amortization (98,549,000) ------------ 38,071,000 ------------ Noncurrent Assets Long-term investments 42,118,000 Goodwill 2,503,000 Other intangible assets, net 2,717,000 Other assets, net 6,027,000 ------------ Total Assets $278,734,000 ============ LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $16,128,000 Accrued liabilities: Payroll 18,230,000 Maintenance 20,201,000 Deferred income 3,401,000 Other current liabilities 21,302,000 ------------ 79,262,000 Other Noncurrent Liabilities 5,480,000 Shareholders' Equity Undesignated preferred stock - Common stock 206,000 Paid-in capital 54,378,000 Warrants 16,500,000 Accumulated other comprehensive loss (165,000) Retained earnings 123,073,000 ------------ 193,992,000 ------------ Total Liabilities & Shareholders' Equity $278,734,000 ============ * * * MAIR's latest annual report indicates that Mesaba transports 65 passengers for every passenger Big Sky transports, and MAIR provides this limited amount of deconsolidated financial disclosure about total assets at March 31, 2005: Total Assets at Deconsolidated Entity March 31, 2005 --------------------- --------------- Mesaba Aviation, Inc. $120,877,000 Big Sky Transportation Co. 11,308,000 MAIR Holdings, Inc. 148,769,000 ------------ Consolidated Total $280,954,000 ============ ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- Mesaba Aviation Failes for Chapter 11 Reorganization to Expedite Restructuring; Mesaba Will Continue Normal Operations EAGAN, Minnesota -- October 13, 2005 -- Mesaba Aviation, Inc., a subsidiary company of MAIR Holdings, Inc. (NASDAQ: MAIR), today announced it has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Minnesota. The company emphasized that it will continue its regular operations to serve customers, honor tickets, and operate its schedule as a Northwest Airlink partner. "This was a difficult but necessary step; Northwest's actions since filing bankruptcy along with the continuing distress affecting the entire industry requires us to change and to do so quickly," said John Spanjers, Mesaba Airlines president and chief operating officer. "The changes imposed on us by Northwest since its filing in September have left us with insufficient revenues to support our cost structure. "This work will be invisible to our passengers," Spanjers continued. "As we go through this process, we will remain focused on delivering the highest levels of safety, reliability and service that our passengers have come to expect from us." Prior to its filing, Northwest on September 12th failed to make a semi-monthly payment of approximately $18.5 million due to Mesaba under the Airline Services Agreement (ASA) for services rendered in the last half of August. On the following payment due dates of September 26 and October 11, Northwest made partial payments of $1.6 million and $15.7 million respectively. As a result, Mesaba has a net unsecured claim of approximately $30 million in the Northwest Chapter 11 case. In addition, Northwest has advised Mesaba that it intends to reduce the number of Avro and Saab aircraft in Mesaba's fleet and that Mesaba should count on receiving only two of the fifteen new CRJ aircraft committed under the ASA. Further, Northwest also has notified Mesaba of Northwest's intent to terminate the sub- leases on all 35 of the Avros. "The combination of the loss of $30 million of revenue and the reduction in our fleet size by at least 28 percent has left us with no choice but to take this difficult step," Spanjers said. "We view bankruptcy as a last resort, but a necessary one because no other alternatives would allow us to change as rapidly as we need to." "We worked hard to avoid Chapter 11, but we firmly believe this action affords us the best opportunity to restructure our finances and to be successful over the long run," Spanjers added. "We have valuable assets, including our dedicated employees who continue to focus on operating a safe, reliable airline. We plan to emerge from this Chapter 11 case as a lean and competitive regional carrier flying for Northwest or other major airlines." MAIR Holdings, Mesaba's parent company, supports the airline's decision to pursue restructuring through the Chapter 11 process and has, in fact, offered to extend debtor-in-possession financing to Mesaba. For further information regarding Mesaba's restructuring, visit http://www.mesaba-restructuring.com/ ABOUT MESABA AVIATION Mesaba Aviation, Inc., d/b/a Mesaba Airlines, operates as a Northwest Airlink partner under the new service agreement with Northwest Airlines. Mesaba Aviation serves 109 cities in 29 states and Canada from Northwest's and Mesaba Aviation's three major hubs: Detroit, Minneapolis/St. Paul, and Memphis. Mesaba Aviation operates an advanced fleet of 98 regional jet and jet- prop aircraft, consisting of the 69-passenger Avro RJ85 and the 30- 34-passenger Saab SF340. More information about Mesaba Airlines is available on the Internet at: http://www.mesaba.com/ ABOUT MAIR HOLDINGS MAIR Holdings' primary business units are its regional airline subsidiary Mesaba Aviation, Inc., d/b/a Mesaba Airlines, and its regional airline subsidiary Big Sky Transportation Co., d/b/a Big Sky Airlines. MAIR Holdings, Inc. is traded under the symbol MAIR on the NASDAQ National Market. More information about MAIR Holdings is available on the Internet at http://www.mairholdings.com/ ----------------------------------------------------------------- [00004] MESABA AVIATION'S CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor: Mesaba Aviation, Inc. d/b/a Mesaba Airlines 1000 Blue Gentian Road Eagan, Minnesota 55121 Bankruptcy Case No.: 05-39258 Chapter 11 Petition Date: October 13, 2005 Bankruptcy Court: United States Bankruptcy Court District of Minnesota Courtroom 7W, U.S. Courthouse 300 South Fourth Street Minneapolis, Minnesota 55415 Bankruptcy Judge: The Honorable Gregory F. Kishel Debtor's Counsel: Michael L. Meyer Ravich Meyer Kirkman McGrath & Nauman PA 4545 IDS Center 80 South Eight Street Minneapolis, Minnesota 55402-2225 Tel: (612) 332-8511 Fax: (612) 332-8302 Debtors' Financial Advisor: Mercer Management Consulting, Inc. Financial Condition as of August 31, 2005: Total Assets: $108,540,000 Total Debts: $87,000,000 ----------------------------------------------------------------- [00005] MESABA AVIATION'S 20 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Allied Signal Engines Goods & Services $3,645,249 1944 East Sky Harbor Circle Phoenix, AZ 85034 Attn: Mike Beazley Tel: (937) 602-1827 British Aerospace - AVRO Goods & Services $1,619,077 13850 McLearen Road Herndon, VA 20171 Attn: David Spears Tel: (703) 736-4300 GE Aircraft Engines Goods & Services $721,794 1 Neumann Way Cincinnati, OH 45215-6301 Attn: Tom Hofer Tel: (513) 552-3173 AVMAX Group Inc. Goods & Services $686,036 380 McTavish Road NE #2 Calgary, Alberta T2E7G5 Canada Attn: Don Parkin Tel: (403) 735-3299 Bombardier Services Corp. Goods & Services $681,144 800 Rene Levesque Boulevard W Montreal, Quebec H3B1Y8 Canada Attn: Faouzi Mokhtar Tel: (514) 7373 Corp. Lodging Consultants Goods & Services $584,402 8110 East 32nd N #200 Wichita, KS 67226 Attn: Ladd Welch Tel: (316) 219-4214 Detroit Metropolitan Airport Goods & Services $509,305 Airport Managers Office LC Smith Terminal Mezzanine Detroit, MI 48242 Attn: Jean Kearney Tel: (734) 942-3566 Messier Services Inc. Goods & Services $501,962 4360 Severn Way Sterling, VA 20166-8910 Attn: Mark McDuffie Tel: (703) 450-8400 AAR Aircraft & Turbine Center Goods & Services $493,030 3312 Paysphere Circle Chicago, IL 60674 Attn: Chris Cooper Tel: (630) 227-2000 Pan Am International Goods & Services $471,518 Flight Academy 5000 NW 36th Street Miami, FL 33122 Attn: Ralph Leach Tel: (703) 433-2201 ext. 8935 BAE Systems Regional Aircraft Goods & Services $338,183 13850 McLearen Road Herndon, VA 20171 Attn: David Spears Tel: (703) 736-4300 Aircraft Braking Systems Goods & Services $289,339 P.O. Box 73252 Cleveland, OH 44193-0165 Embraer Aircraft Goods & Services $236,285 10 Airways Boulevard Nashville, TN 37217 Dunlop Aerospace North America Goods & Services $234,275 5673 Old Dixie Highway Suite 120 Forest Park, GA 30297 Metro Airport Commission Goods & Services $232,148 6040 28th Avenue South Minneapolis, MN 55450 Dowty Properllers-UK Goods & Services $214,009 Cheltenham Road East Staverton Gloucester GL2 9QN, UK SAAB Aircraft of America Goods & Services $182,280 21300 Ridgetop CR Sterling, VA 20166 Aerospace Composite Tech Goods & Services $177,320 3220 South Grove Street Fort Worth, TX 76110 Dowty Propellers - Americas Goods & Services $165,135 114 Powers Court Sterling, VA 20166-8321 Aramark Facility Service Goods & Services $151,470 22506 Network Place Chicago, IL 60673-1225 ----------------------------------------------------------------- [00006] MESABA'S MOTION TO OBTAIN $35 MIL. DIP FACILITY FROM MAIR ----------------------------------------------------------------- John Spanjers, president and chief operating officer of Mesaba, tells the Bankruptcy Court that as the probability of a bankruptcy filing increased and Mesaba Aviation, Inc.'s liquidity issues became more severe. It became evident, Mr. Spanjers continues, that the airline would need postpetition financing. Without access to financing, Mesaba will be unable to meet its postpetition working capital needs and operate its business in the normal course. Mesaba engaged in good faith, extensive arm's-length negotiations with MAIR Holdings, Inc., to put together a debtor-in-possession financing facility that would provide the company with post- petition working capital financing. On October 12, 2005, Mesaba and MAIR entered into a commitment letter. MAIR Holdings agrees to provide up to $35,000,000 in secured financing to Mesaba. Mesaba agrees to pay the money back, pay fees, and abide by a number of typical, but restrictive, covenants. The DIP Credit Facility consists of: (1) a $15,000,000 Tranche A revolving credit facility (with a $6,000,000 sublimit to back standby letters of credit); and (2) a $20,000,000 Tranche B revolving facility. To date, Mr. Spanjers tells Judge Kishel, Mesaba has been unable to obtain postpetition financing from any other lender on terms and conditions more favorable than those set forth in the Commitment Letter. Accordingly, Mesaba asks the Court to approve its DIP credit facility with MAIR Holdings. Mesaba also seeks permission to grant MAIR Holdings a first priority lien on all of Mesaba's assets to secure its obligations to MAIR under or with respect to the DIP Credit Facility. The salient terms of the DIP Credit Facility are: Use of Proceeds: Proceeds of the Loans will be used for general corporate purposes, including working capital and capital expenditures, professional fees and other payments or expenditures authorized by the Court, in each instance, to the extant permitted under the Agreement. Term: Borrowings will be repaid in full, and the Credit Facility will terminate, at the earliest of: * 18 months after the date of signing of the Agreement -- the Maturity Date; * the substantial consummation of a plan of reorganization that is confirmed by the Court pursuant to an order reasonably satisfactory to MAIR; and * the acceleration of the Loans and the termination of the Credit Facility in accordance with the Agreement. Letters of Credit: Upon Mesaba's request, MAIR will cause Letters of Credit to be issued for Mesaba's account by Wells Fargo Bank, N.A. or another bank, each of which will be reasonably satisfactory to the Parties. All Letters of Credit will expire no later than 15 days prior to the Maturity Date. Closing Date: Closing Date will occur promptly upon, but no later than 10 days after, the entry of the DIP Financing Order. Priority & Liens: All borrowings and reimbursement obligations under Letters of Credit and other obligations with respect to the Credit Facility, will at all times be: * entitled to superpriority claim status; * secured by a perfected first priority lien on, among others, Mesaba's present and future accounts receivable, customer contracts, intercompany receivables, spare parts inventory, routes, slots, QEC kits, ground service equipment, flight simulators, airport gate leaseholds, and all their proceeds, and on all other property that is not subject to valid, perfected and non-avoidable liens as of the Petition Date, and on all cash and cash equivalents; * secured by a perfected junior lien on all tangible and intangible property of Mesaba's estate that is subject to valid, perfected and non-avoidable liens existing as of the Petition Date or to valid liens in existence at that time that are perfected subsequent to the Petition Date as permitted by Section 546(b) of the Bankruptcy Code. Carve-out: MAIR agrees to a carve-out from its superpriority lien to permit payment of up to $1,500,000 to professionals retained by the company and any official committees plus all fees payable to the U.S. Trustee or the Court Clerk pursuant to 28 U.S.C. Sec. 1930 The Carve-Out may not be used in connection with the investigation, initiation or prosecution of any claims, causes of action, adversary proceedings or other litigation against MAIR. Fees payable to MAIR: (1) a $350,000 Facility Fee; (2) an Unused Line Fee equal to 0.05% per annum for each dollar not borrowed from MAIR; (3) Customary letter of credit fees to any Fronting Bank fees for fronting, issuance, amendments and processing of Letters of Credit; (4) a $100,000 Work Fee (refundable if the DIP Facility doesn't close); and (5) a $75,000 Commitment Fee (which will be credited against he Facility Fee to the extent MAIR's expenses are less than $75,000). Interest rate: Interest on the Loans will be computed and payable monthly, in arrears, at a rate equivalent to (x) the Base Rate plus the Applicable Margin or (y) at Mesaba's option, LIBOR plus the Applicable Margin. The "Applicable Margin" means, from time to time, the percentages per annum: Loan LIBOR plus Base Rate plus ---- -------- -------------- Tranche A Loan 4.00% 3.00% Tranche B Loan 6.00% 5.00% Reporting: Mesaba will furnish MAIR: -- on a weekly basis, Mesaba's rolling 13-week cash flow projections; and -- within 30 days after the beginning of each fiscal year, an operating budget for that fiscal year. Disposition of Assets: Mesaba promises MAIR that it will not sell or otherwise dispose of any assets except for: -- sales in arm's-length transactions, at fair market value and for cash in an aggregate amount not to exceed $50,000; and -- other disposals to be mutually agree upon. Financial Covenants: Mesaba covenants that it will not make capital expenditures during the fiscal quarter ending December 31, 2005, greater than $1,500,000. The DIP Loan may be extended, subject to certain conditions. An outline of the terms and conditions for the parties' DIP Credit Facility is available at no charge at: http://bankrupt.com/misc/mesabadipfacility.pdf MAIR is represented by Haynes and Boone, LLP, in Mesaba's case. The Court will convene a hearing on November 29, 2005, at 9:30 a.m. to consider the Debtor's request. Any response to the request must be filed and delivered not later than November 23. Unless a response opposing the Motion is timely filed, the Court may grant the Debtor's request without a hearing. ----------------------------------------------------------------- [00007] MAIR PRESIDENT ASSURES SHAREHOLDERS COMPANY IS SOLVENT ----------------------------------------------------------------- "MAIR is solvent and well-structured to support its corporate objectives," Paul Foley, president and chief executive officer of MAIR Holdings, Inc., assures shareholders. In a letter posted on MAIR Holdings, Inc.'s Web Site, Mr. Foley notes that the bankruptcy filing of Mesaba Aviation, Inc., does not include MAIR. "MAIR is a legally separate, independent company that owns Big Sky Airlines as well as Mesaba," Mr. Foley says. "MAIR's stock continues to trade on the NASDAQ National Market, and MAIR will continue to operate with very little debt and a significant amount of unencumbered cash and equivalents." Mr. Foley explains that the Mesaba filing was necessitated by the cash shortages and significant fleet changes and uncertainties imposed on it by Northwest Airlines, Mesaba's sole customer, relative to Northwest Airlines' bankruptcy filing on September 14, 2005. "Mesaba's filing does not mean that Mesaba is going out of business, but rather that Mesaba will be better-positioned to restructure its business obligations and operations to better compete in an era of rapid industry consolidation and change. Mr. Foley also notes that the problems facing Mesaba are structural and require a structural solution. The airline's cost structure must be correctly calibrated to match its revenue generating potential before anyone, including MAIR, could expect a competitive return on their investment, he says. "These structural changes are best accomplished through the bankruptcy process." Mr. Foley discloses that in the last several weeks, MAIR has been advised by Mesaba's management team and its financial advisors about the options before them. "MAIR supports Mesaba's decision to pursue restructuring through the Chapter 11 process and has, in fact, offered to extend debtor-in-possession financing to the airline. MAIR will continue its efforts to assist Mesaba." There are no plans to sell Mesaba or any material assets, according to Mr. Foley. *** End of Issue No. 1 ***