Exhibit 10.25
AMENDMENT NO. 1
to the
ZK / UNITED
CODE SHARE AND REGULATORY COOPERATION AND
MARKETING AGREEMENT
This Amendment No. 1 (this "Amendment"), effective as of July 18, 2003, amends
that certain ZK/United Code Share and Regulatory Cooperation and Marketing
Agreement, which was effective as of May 1, 2001 (United Contract No. 155716)
(the "Agreement" or the "Code Share Agreement") executed by and between United
Air Lines, Inc. ("UA") and Great Lakes Aviation, Ltd. ("ZK").
RECITALS
--------
WHEREAS, UA and ZK engage in code share services pursuant to the Agreement;
WHEREAS, pursuant to the terms of the Agreement, UA places its annotated airline
designator code "UA*" on certain ZK - operated flights, as permitted under
applicable law, regulations and policy; and
WHEREAS, UA and ZK wish to amend the Agreement, as envisioned by the provisions
of that certain Memorandum of Understanding dated July 10, 2003, and
acknowledged in writing by UA and ZK on July 11, 2003 (the "MOU").
AGREEMENT
NOW, THEREFORE, in exchange for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, UA and ZK agree as follows:
1. INTRODUCTION
------------
ZK and UA are amending the Agreement in order to (i) provide UA with the
ability to introduce United Express services in five existing and currently
exclusive ZK operated code share markets and (ii) to allow ZK commercial
flexibility to seek other code share partners.
2. CONSTRUCTION
------------
Capitalized terms used herein shall have the same meanings set forth in the
Agreement unless otherwise defined herein. In the event of any conflict
between the terms in this Amendment and the terms in the Agreement, the
terms in this Amendment shall prevail. Captions appearing in this Amendment
have been inserted
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for convenience only and will not control, define, limit, enlarge, or
affect the meaning of this Amendment, the Agreement, or any of their
provisions.
3. EFFECT OF AMENDMENT
-------------------
Except as expressly set forth herein, this Amendment shall not by
implication or otherwise limit, impair, constitute a waiver of, or
otherwise affect the rights and remedies of either UA or ZK under the
Agreement, as amended, and shall not alter, modify, amend or in any way
affect the terms, conditions, obligations, covenants or agreements
contained in the Agreement, as amended, all of which shall continue in full
force and effect. This Amendment shall apply and be effective only with
respect to the provisions of the Agreement specifically referred to herein.
Except as specifically amended hereby, the Agreement, as amended, shall
continue in full force and effect in accordance with the provisions thereof
as in existence on the date hereof. After the date hereof, any reference to
the Agreement shall mean the Agreement as amended hereby.
4. COUNTERPARTS
------------
This Amendment may be executed in two or more counterparts, each of which
shall constitute an original but all of which when taken together shall
constitute but one contract.
5. RELEASE OF MARKET EXCLUSIVITY
-----------------------------
Effective July 8, 2003, by letter of authority to UA, ZK released market
exclusivity to operate UA* code share services for flights between Denver,
Colorado and Casper, Wyoming (the "Casper Release"). The signing of the MOU
officially recognized this release of market exclusivity.
In addition to the Casper Release, effective with the execution of this
Amendment, ZK reaffirms the Casper Release, and additionally hereby
relinquishes, as of the effective date hereof, UA* code share service
exclusivity in the following markets:
a. Santa Fe, New Mexico
b. Telluride, Colorado
c. Amarillo, Texas
d. Cody, Wyoming
The existing Section A of Attachment 1 to the Agreement, regarding
exclusive UA* code share markets, is hereby deleted in its entirety and a
new Section A regarding the complete listing of exclusive UA* code share
markets as of the effective date of this Amendment, and in the form of
Section A of Attachment 1 to this Amendment, shall be substituted as
Section A of Attachment 1 to the Agreement.
6. FREQUENT FLYER
--------------
A. Section 4.F. of the Agreement is hereby amended in its entirety and
replaced with the following:
"The Carriers shall participate in each other's frequent flyer programs.
This Amendment does not preclude either UA or ZK from participating in
frequent flyer programs with other transportation companies."
B. Section 4.F. of the Agreement shall be further amended to add the
following:
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"UA will commit to Mileage Plus redemption payments to ZK at ******/1/ per
Y cabin booking on UA* flights operated by ZK, through April 30, 2004.
Payment of the Mileage Plus redemptions at the ******/1/ level will be
subject to further review by UA and ZK for either a possible continuation
at such level or being replaced by a new Mileage Plus agreement to be
executed by and between the parties. For the period from the execution of
this Amendment through April 30, 2004, redemption bookings in XY inventory
will not be reimbursable to ZK, and UA will not bill ZK for any Mileage
Plus accruals on UA* flights operated by ZK. Mileage Plus redemption
credits will only be valid for UA* flight segments and will not be
applicable for any ZK sold and operated flights. No Mileage Plus redemption
credits will be allowed for any ZK operated but UA* sold (direct sell)
flight segments in local markets. Details of the agreed terms for Mileage
Plus redemption credits are set forth in Attachment 3 to this Amendment,
which Attachment 3 to this Amendment shall constitute Attachment 8 to the
Agreement."
7. ADDITIONAL AMENDMENTS
---------------------
A. Preferential Selling. Section 4.G. of the Agreement is hereby amended in
its entirety and replaced with the following:
"The Carriers will make all reasonable efforts to implement procedures in
their respective reservations sales offices to sell the other Carrier's
services."
B. Air Cargo Services. Section 4.I.(6) of the Agreement is hereby amended
in its entirety and replaced with the following:
"The Carriers shall review cargo activities to investigate what
opportunities may exist to offer competitive and cost effective air cargo
services between points in the United States. Further, ZK and UA shall
cooperatively endeavor to improve the quality of air cargo transportation
to the shipping community. The Carriers will make all reasonable efforts to
implement procedures in their respective sales offices to sell the other
Carrier's cargo services."
C. Display Improvement. Section 4.J.(1) of the Agreement is hereby amended
in its entirety and replaced with the following:
"To the extent permitted by applicable law and regulations, UA and ZK shall
make all reasonable efforts to display their connecting flights in their
respective internal reservation systems and direct access displays provided
through computerized reservations systems."
D. Distribution/Preferential Selling. Section 4.J.(3) of the Agreement is
hereby amended in its entirety and replaced with the following:
"The Carriers shall make all reasonable efforts to implement procedures in
their respective reservations sales offices to sell the other Carrier's
services."
E. Display Improvement. Section A of Attachment 5 to the Agreement is
hereby amended in its entirety and replaced with the following:
"To the extent permitted by applicable law and regulations, UA and ZK shall
make all reasonable efforts to display their connecting flights in the
Carrier specific display option or direct access programs either UA or ZK
has with any other computer reservation systems used by travel agents,
corporate accounts, or any non-airline staff for the purpose of making
airline reservations, or internal displays."
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F. Preferential Selling/Reservation Sales. Section C of Attachment 5 to the
Agreement is hereby amended in its entirety and replaced with the
following: "The Carriers shall make all reasonable efforts to implement
procedures in their respective reservations sales offices to sell the other
Carrier's services."
8. TERM
----
Section 5 of the Agreement is hereby amended in its entirety and replaced
with the following:
"This Agreement, as amended, will continue through and expire on December
31, 2005; provided, however, that if, as of December 31, 2005, ZK is in
compliance with the terms of this Agreement, as amended, then the term of
this Agreement, as amended, shall be extended automatically through, and
expire on, April 30, 2007. This Agreement, as amended, may be terminated
for convenience, and without default, by either party's election upon
ninety (90) days' prior written notice."
9. EXCLUSIVITY
-----------
Section 7 of the Agreement is hereby amended in its entirety and replaced
with the following:
"This Agreement is non-exclusive and does not preclude either UA or ZK from
entering into or maintaining existing marketing relationships, including
code sharing with other Carriers. Notwithstanding the previous provision,
this Agreement shall be exclusive as related to ZK's right to use the UA*
code on all flights for the markets described in Section A of Attachment 1
to this Agreement."
10. STATION SUPPLIES
----------------
A new Section 4.L., "Station Supplies," shall be added to the Agreement as
follows:
"Effective for orders of station supplies placed by ZK on or after July 1,
2003, ZK will pay for, or reimburse UA for, ***/1/ of the cost of such
station supplies ordered by ZK to support this code share relationship,
including, but not limited to, boarding pass stock, baggage tag stock,
ticket wallets and other passenger related supplies. In the event that the
order totals for a calendar year for station supplies ordered by ZK exceeds
********/1/, ZK will also reimburse UA for ****/1/ of the net amount of
such annual order totals to the extent such annual order totals are in
excess of ********/1/, with settlement to be made via the monthly Airline
Clearing House ("ACH") settlement process. For purposes of calculating the
calendar year order totals, each calendar year shall commence as of January
1st of each year; provided, however, that the first calendar year shall
commence as of July 1, 2003 and end on December 31, 2003, and the second
calendar year shall commence as of January 1, 2004."
11. DATA CIRCUITS
-------------
A new Section 4.M., "Data Circuits"), shall be added to the Agreement as
follows:
"Effective for Quantitude data circuit services utilized by ZK on or after
July 1, 2003, ZK will pay for the Quantitude data circuits in Denver and
Cheyenne at the rate of ******/1/ per data circuit per month. In addition,
effective July 1, 2003, ZK will pay for a maintenance retainer for the
Quantitude data circuits in the amount of ****/1/ per month. Monthly
payments by ZK for the Quantitude data circuits and maintenance retainer
shall be collected by UA through the normal monthly Airline Clearing House
settlement process."
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12. COMPLIANCE WITH GOVERNMENT AND SAFETY REQUIREMENTS
--------------------------------------------------
Section 6.C. of the Agreement is hereby replaced in its entirety with the
following:
"ZK represents and warrants that it is in compliance with the U.S.
Department of Defense (DoD) Quality and Safety Requirements and that ZK
continues to comply with applicable Federal Air Regulations (F.A.R.). ZK
further warrants that it shall maintain compliance with such requirements
and regulations for the term of this Agreement. Any failure by ZK to
maintain compliance shall immediately be brought to UA's attention along
with a description of the corrective actions already implemented by ZK
and/or a description or plan of correction actions to be taken by ZK. Any
failure by ZK to maintain compliance with the above-referenced requirements
and regulations shall be grounds for immediate termination of this
Agreement by UA without further liability, but with reservation of all
other rights and remedies available to UA. Additional safety reviews may be
required at UA's discretion and ZK shall cooperate with all such reviews;"
13. TERMINATION FOR CAUSE
---------------------
Section 12.B. of the Agreement is hereby amended in its entirety and
replaced with the following:
"If either party (the "Defaulting Party") fails to observe or perform any
of such party's material obligations (excluding ZK's safety, ACH
settlements or repayment obligations to UA) under the Code Share Agreement,
as amended, and if this failure continues for a period of ninety (90) days
after written notice by the non-defaulting party to the Defaulting Party
(the "cure period"), then, without prejudice to any other rights or
remedies the non-defaulting party may have, the non-defaulting party may
terminate the Code Share Agreement upon the passage of ninety (90) days
after the expiration of such cure period."
14. ASSUMPTION OF THE AGREEMENT
---------------------------
Neither the execution or delivery of or entry into this Amendment by either
party, nor any party's actions taken in support thereof or in accordance
therewith, shall be deemed to be an assumption or adoption of the
Agreement, as amended. ZK, its successors, assigns, its officers,
directors, agents, employees, attorneys, servants, subsidiaries, affiliated
companies, and parent companies (collectively, "ZK") agree and acknowledge,
notwithstanding anything expressly or impliedly to the contrary in the
Agreement, as amended, this Amendment, or under applicable law, (1) that
the execution of this Amendment shall not alter the pre-petition nature of
the Agreement, as amended, for the purposes of UA's bankruptcy cases under
Title 11 of Chapter 11 of the United States Code; (2) that the execution of
this Amendment will not alter the validity, priority or amount of any
claims of ZK that may arise under the Agreement, as amended; (3) that any
claims of ZK against UA arising under the Agreement, as amended, shall not
be elevated to administrative expense priority by reason of the execution
or delivery of this Amendment; (4) not to assert or claim at any time that
the execution of this Amendment operates in any way as an assumption or
adoption of the Agreement, as amended; and (5) not to assert or claim at
any time that the execution of this Amendment, or any actions taken in
accordance therewith, (a) alters in any way the pre-petition nature of the
Agreement, as amended, or the validity, priority or amount of any claims of
ZK against UA that may arise under the Agreement, as amended, or (b)
elevates to administrative expense priority.
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15. MODIFICATION OF TERMS
---------------------
UA reserves the right to assume or reject the Code Share Agreement, as
amended, at any time before confirmation of UA's plan of reorganization by
the bankruptcy court; provided, however, that UA will not make any
unilateral requests for changes to the terms of the Code Share Agreement
between the time the execution of this Amendment and the time that the Code
Share Agreement, as amended, is either assumed or rejected.
16. ASSIGNMENT AND CHANGE OF OWNERSHIP
----------------------------------
Section 21.B. of the Agreement is hereby amended in its entirety and
replaced with the following:
"Should for any reason whatsoever the ownership of either Carrier change
such that another air carrier or affiliate of an air carrier acquires a ***
*******/1/ (***/1/) or more ownership interest in either party, then within
thirty (30) days of such occurrences either party may request renegotiation
of this Agreement and, failing unsuccessful renegotiation within sixty (60)
days of the request to renegotiate, either party may terminate this
Agreement upon thirty (30) days written notice to the other party.
Provided, however, that any change of ownership arising out of, resulting
from, or relating to UA's restructuring process or Chapter 11 case is
excepted from the operation of this paragraph.
17. AIRLINE CLEARING HOUSE
----------------------
Both parties agree to abide by Airline Clearing House procedures related to
interline billing ("ACH procedures"). Upon the second instance of breach of
such ACH procedures by either party (the defaulting party), the
non-defaulting party shall have the right to terminate the Agreement, as
amended, immediately upon written notice to the defaulting party.
18. PERFORMANCE MEASURES
--------------------
The following line set forth in Attachment 6 to the Agreement shall be
amended as follows: On-time departures as scheduled (zero) ****%/1/
19. SIDE LETTERS
------------
The following side letters to the Agreement, which side letters are all
dated February 1, 2001, are hereby withdrawn and terminated, effective
immediately:
a. Frequent Flyer negotiations
b. Exclusivity restrictions on code share partners
c. UA* code share commitment at Phoenix, Arizona and Minneapolis,
Minnesota.
20. ATTACHMENTS
-----------
A. Section A of Attachment 1 "Code Sharing" to this Amendment updates the
market exclusivity list and hereby replaces Section A of Attachment 1 to
the Agreement.
B. Attachment 2 "Agreement Regarding Interline Billing Disputes And Outline
of Terms of New Prorate Agreement" to this Amendment is hereby added as
Attachment 7 to the Agreement.
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C. Attachment 3 "Settlement of Mileage Plus Accruals and Redemptions And
Terms of New Mileage Plus Agreement" to this Amendment is hereby added as
Attachment 8 to the Agreement.
IN WITNESS WHEREOF, the Carriers hereto have, by their duly authorized
officers, executed this Amendment as of the dates set forth below to be
effective as of July 18, 2003.
GREAT LAKES AVIATION, LTD.
By: /s/ Charles R. Howell IV
-------------------------------------------------
Name: Charles R. Howell IV
Title: Chief Executive Officer
Date: July 31, 2003
-------------------------
UNITED AIR LINES, INC.
By: /s/ Graham W. Atkinson
-------------------------------------------------
Name: Graham W. Atkinson
Title: Senior Vice President Worldwide Sales & Alliances
Date: July 30, 2003
-------------------------
/1/ Material omitted pursuant to a request for confidential treatment. Omitted
material has been filed separately.
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ATTACHMENT 1
------------
CODE SHARING
A. Exclusive city pairs displayed as UA*
-------------------------------------
UA shall exclusively display its UA* designation code on the following
selected flights operated by ZK, provided, however, that UA may remove, and
ZK shall stop carrying, the UA* designation code from all such flights,
upon expiration of the Code Share Agreement:
ZK Operated Flights Between
---------------------------
Denver and
----------
Alamosa, CO
Alliance, NE
Chadron, NE
Cheyenne, WY
Cortez, CO
Dickinson, ND
Dodge City, KS
Farmington, NM
Garden City, KS
Gillette, WY
Grand Island, NE
Hays, KS
Huron, SD
Kearney, NE
Laramie, WY
Liberal, KS
Moab, UT
McCook, NE
Norfolk, NE
North Platte, NE
Page, AZ
Pierre, SD
Pueblo, CO
Riverton, WY
Rock Springs, WY
Salina, KS
Scottsbluff, NE
Sheridan, WY
Vernal, UT
Williston, ND
Worland, WY
ZK Operated Flights Between
---------------------------
Phoenix and
-----------
Page, AZ
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Attachment 2
------------
Agreement Regarding Interline Billing Disputes
----------------------------------------------
And Outline of Terms of New Prorate Agreement
---------------------------------------------
The agreed methodology to settle past and current interline pricing/billing
disputes is to review six sample months in detail, August, September, and
November of 2001, and January, March, and April of 2002. The findings from these
months will be applied to all subsequent months in the current ACH process (June
2001 - June 2002), along with remaining months (July 2002 forward) which lead up
to the effective date of a new prorate agreement.
The pricing methodology to be applied to the six sample months referenced is
described in more detail below. All discount percentages are based on published
through and local fares as applicable.
o CVA discounts will be split *****/1/ with a maximum discount cap of
***./1/ Additional CVA discounts in excess of the ***/1/ cap will be
absorbed by UA, i.e. a ***/1/ discount would be ***/1/ to ZK and
***/1/ to UA. Other "ticket designator" fares will also be included in
this methodology.
o UA will absorb Covia certificates.
o UA will absorb "customer relations" and similar certificate discounts
(cs25, pw50, pw100, dbc, etc.).
o Bulk & "zero value" tickets settle @ ***/1/ per coupon.
o Private fares will settle at fare collected.
o UA will absorb web discounts (Orbitz, United.com and other web fares)
up to **/1/. Web discounts in excess of **/1/ will be settled on a
*****/1/ split.
o T-fare add-on "mistakes" by UA will be absorbed by UA.
o Senior or "Silver Travel Pak" tickets will be honored if within the
originally specified time frames. Outside those time frames they will
be priced at the next highest published fare.
o ZK or UA pricing errors will be corrected as agreed.
It has been determined that UA has no record of ZK disputing billings for July
2001 and December 2001, though ZK felt that rejection notices had been forwarded
to UA. It is agreed that these two months will be included in the resolution
process as described above.
Once this methodology has been applied to all relevant months, the total amounts
actually collected by ZK for these months will be compared to the amounts that
would have been billed using this methodology. The difference will be added to
or subtracted from the pre-petition operational amounts owed by ZK.
These terms will be incorporated into a new prorate agreement effective July 1,
2003.
/1/ Material omitted pursuant to a request for confidential treatment. Omitted
material has been filed separately.
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Attachment 3
------------
Settlement of Mileage Plus Accruals and Redemptions
---------------------------------------------------
And Terms of New Mileage Plus Agreement
---------------------------------------
UA and ZK will adopt a Mileage Plus settlement methodology (for the period
ending April 30, 2004, as outlined below. This may be superceded by a new
Mileage Plus agreement.
o Mileage Plus accrual and redemption will apply to UA* segments for
connecting itineraries only.
o ZK will not pay for mileage accrual on UA* flight segments
o No accrual or redemption will be permitted on flight segments
reflecting the "ZK" code or the direct sell of UA* in local segment ZK
markets, i.e. lacking a connecting UA flight in the itinerary:
o ORD-UA-DEN-UA*(ZK) CYS accrual and/or redemption applies
o ORD-UA-DEN-ZK-CYS no accrual or redemption DEN-CYS
o DEN-ZK-CYS no accrual or redemption on ZK
o DEN-UA* (direct sell) CYS no accrual or redemption on UA*
in a local market
o "XY" redemption coupons will settle at "zero value".
o Redemption payments by UA to ZK of ***/1/ per coupon for all coupons
reflecting other than "XY" inventory.
/1/ Material omitted pursuant to a request for confidential treatment. Omitted
material has been filed separately.
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