<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Mesa Air Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
LOGO
3753 HOWARD HUGHES PARKWAY
SUITE 200
LAS VEGAS, NEVADA 89109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 24, 1998
To the Shareholders:
The Annual Meeting of Shareholders of Mesa Air Group, Inc. (the "Company")
will be held on Friday, July 24, 1998 at 11:00 a.m., Pacific Daylight Time, at
the Holiday Inn Crowne Plaza, 4255 S. Paradise Road, Ballroom A, Las Vegas,
Nevada. The purpose of the Annual Meeting is to consider and vote upon the
following matters, as more fully described in the accompanying Proxy Statement:
1. To elect nine directors of the Company to serve until the next
Annual Meeting of Shareholders.
2. To approve a Key Officer Stock Option Plan which provides for the
issuance of 1,600,000 options to purchase 1,600,000 shares of Common Stock.
3. To approve the new Outside Directors' Stock Option Plan which
provides for the issuance of 150,000 options to purchase 150,000 shares of
Common Stock.
4. To approve an amendment to the 1996 Employee Stock Option Plan to
authorize the issuance of additional options to purchase 1,500,000 shares
of Common Stock and for certain other reasons set forth herein.
5. To ratify Indemnification Agreements controlled by the laws of
Nevada for the executive officers and directors of the Company.
6. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors for the Company during fiscal 1998.
7. To vote on a shareholder proposal to hire an investment banker.
8. To transact such other business as may properly come before the
Annual Meeting or any postponement or adjournments thereof.
The Board of Directors has fixed the close of business on May 26, 1998 as
the record date for determination of shareholders entitled to receive notice of
and to vote at the Annual Meeting or any adjournments thereof.
EVEN IF YOU NOW EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IT IS IMPORTANT THAT THE PROXY BE RETURNED
REGARDLESS OF THE NUMBER OF SHARES OWNED. IF YOU DO ATTEND THE ANNUAL MEETING,
YOU MAY VOTE IN PERSON, IF YOU WISH, WHETHER OR NOT YOU HAVE ALREADY MAILED THE
ENCLOSED PROXY.
By Order of the Board of Directors
LOGO
GARY RISLEY
Secretary
Las Vegas, Nevada
June 15, 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROXY STATEMENT............................................. 1
General................................................... 1
Quorum and Required Vote.................................. 1
Revocability of Proxies................................... 1
Solicitation.............................................. 2
PROPOSAL 1 -- ELECTION OF DIRECTORS......................... 2
Committees................................................ 4
Common Stock Ownership and Compensation................... 4
PROPOSAL 2 -- APPROVAL OF KEY OFFICER STOCK OPTION PLAN..... 5
Background................................................ 5
Consequences of Failure to Ratify Key Officer Plan........ 5
Purpose................................................... 5
Terms of Key Officer Stock Option Plan.................... 5
Tax Consequences.......................................... 7
Vote Required for Approval................................ 7
PROPOSAL 3 -- RATIFICATION OF OUTSIDE DIRECTORS' STOCK
OPTION PLAN............................................... 7
General................................................... 7
Purpose................................................... 7
Terms of Outside Directors' Stock Option Plan............. 8
Tax Consequences.......................................... 9
Vote Required for Approval................................ 9
PROPOSAL 4 -- AMENDMENT TO 1996 EMPLOYEE STOCK OPTION
PLAN...................................................... 9
General................................................... 9
Purpose................................................... 10
Terms of Employee Stock Option Plan, As Amended........... 11
Tax Consequences.......................................... 12
Vote Required for Approval................................ 13
PROPOSAL 5 -- RATIFICATION OF NEVADA INDEMNIFICATION
AGREEMENTS................................................ 14
Background of Indemnification Agreements.................. 14
Principal Reasons for Adopting New Indemnification
Agreements............................................. 14
Comparison of Indemnification Agreements.................. 14
Certain Differences Between the Indemnification Laws of
New Mexico and Nevada.................................. 15
Possible Adverse Effects on Shareholders.................. 16
Director and Officer Insurance............................ 16
Vote Required for Approval................................ 16
PROPOSAL 6 -- RATIFICATION OF SELECTION OF INDEPENDENT
AUDITORS.................................................. 17
PROPOSAL 7 -- SHAREHOLDER PROPOSAL -- SELL OR MERGE MESA
AIR....................................................... 17
Supporting Statement...................................... 18
Recommendation by the Board of Directors Against This
Proposal............................................... 19
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS............ 20
Compensation Committee Report on Executive Compensation... 20
Compensation Summary of Executive Officers................ 22
Options................................................... 22
Employment Agreements..................................... 23
Compensation of Directors................................. 25
Compensation Committee Interlocks......................... 27
RELATED PARTY TRANSACTIONS.................................. 27
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
FIVE-YEAR SHAREHOLDER RETURN COMPARISON..................... 28
Comparison of Five-Year Cumulative Total Returns.......... 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 28
GRANTS OF OPTIONS UNDER COMPENSATION PLANS.................. 31
OTHER BUSINESS.............................................. 31
ADDITIONAL INFORMATION...................................... 32
APPENDICES:
Appendix A -- Key Officer Stock Option Plan
Appendix B -- Outside Directors' Stock Option Plan
Appendix C -- Employee Stock Option Plan, As Amended
Appendix
C-1 -- First Amendment to Stock Option Plan
Appendix D -- Nevada Indemnification Agreement
Appendix E -- New Mexico Indemnification Agreement
</TABLE>
ii
<PAGE> 5
LOGO
3753 HOWARD HUGHES PARKWAY
SUITE 200
LAS VEGAS, NEVADA 89109
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JULY 24, 1998
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Mesa Air Group, Inc., a
Nevada corporation (the "Company" or "Mesa"), for use at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at the Holiday Inn Crowne Plaza,
4255 S. Paradise Road, Ballroom A, Las Vegas, Nevada, on Friday, July 24, 1998,
at 11:00 a.m., Pacific Daylight Time, or any postponement or adjournment
thereof. The Board has fixed the close of business on May 26, 1998 as the record
date for determining the shareholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. On the record date, the Company had
outstanding and entitled to vote 28,327,917 shares of Common Stock, no par value
("Common Stock"). Each share of Common Stock is entitled to one vote per share.
The Common Stock constitutes the only class of capital stock of the Company
issued and outstanding.
The Company's principal executive offices are located at 3753 Howard Hughes
Parkway, Suite 200, Las Vegas, Nevada 89101. The approximate date on which this
Proxy Statement and the accompanying proxy are first being sent to shareholders
is June 15, 1998.
QUORUM AND REQUIRED VOTE
Shares of Common Stock represented by properly executed proxies received by
the Company will be voted at the Annual Meeting in accordance with instructions
thereon. If there are no such instructions, the shares will be voted (i) for the
election of the nominees for director named in this Proxy Statement; (ii) for
the Key Officer Stock Option Plan; (iii) for the Outside Directors' Stock Option
Plan; (iv) for the amendment to the 1996 Employee Stock Option Plan to authorize
the issuance of an additional 1,500,000 options to purchase shares of Common
Stock and to make certain other amendments; (v) for the ratification of the
Director and Officer Indemnification Agreements governed by the laws of Nevada;
(vi) for the ratification of the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending September 30, 1998,
and (vii) against a shareholder proposal to hire an investment banker
(collectively, the "Proposals").
Holders of shares of Common Stock entitled to a majority of the votes of
all shares entitled to vote, represented in person or by proxy, will constitute
a quorum at the Annual Meeting. The nine nominees receiving a plurality of votes
by shares represented and entitled to vote at the Annual Meeting, if a quorum is
present, will be elected as Directors of the Company. Cumulative voting is not
permitted by the Company's Articles of Incorporation or Bylaws. An affirmative
vote of a majority of the shares present and voting at the Annual Meeting is
required for approval of all other Proposals being submitted to the shareholders
for their consideration. Abstentions cast by proxy and broker non-votes are
counted towards a quorum. Abstentions and broker non-votes cast by proxy will
have no effect with respect to any of the Proposals.
REVOCABILITY OF PROXIES
A Shareholder may revoke a proxy by a later proxy or by giving notice of
such revocation to the Company in writing or at the Annual Meeting before such
proxy is voted. Attendance at the Annual Meeting will not in and of itself
constitute the revocation of a proxy.
<PAGE> 6
SOLICITATION
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, officers, directors and regular employees of
the Company may solicit proxies by telephone, telefax or in person without
additional compensation. Brokerage houses, bank nominees, fiduciaries and other
custodians will be requested to forward soliciting material to the beneficial
owners of shares held of record by them and will be reimbursed for their
reasonable expenses. The Company may use the services of paid solicitors and
Georgeson & Co. has been retained at a base fee of $7,500 for that purpose.
Georgeson & Co. may receive additional fees based upon its customary rates if
unanticipated services are required.
ELECTION OF DIRECTORS
(PROPOSAL ONE)
The Company's Articles of Incorporation provide that the number of
Directors shall be fixed from time to time by the Board of Directors. On January
29, 1998 the Board voted to amend the Company's Bylaws to increase the number of
Directors from seven to nine. All nominees are currently members of the Board.
The nine nominees named herein have been recommended for election as Directors
until the next annual meeting or until their successors have been elected and
qualified. It is intended that proxies received in response to this solicitation
will be voted for the election of the nine persons so nominated, unless
otherwise specified. If, for any reason, any nominee shall become unavailable
for election or shall decline to serve, persons named in the Proxy may exercise
discretionary authority to vote for a substitute nominee proposed by the Board.
No circumstances are presently known which would render a nominee named herein
unavailable.
The following directors have been nominated for election:
PAUL R. MADDEN, age 71, was appointed as Chairman of the Board and Chairman
of the Executive Committee on February 3, 1998 and as a director of Mesa in
April 1997. Mr. Madden is currently Of Counsel to the Phoenix law firm of
Gallagher & Kennedy and specializes in the corporate and securities areas. From
June 1994 through November 1997, Mr. Madden was a partner of the Chicago firm of
Chapman and Cutler serving in its Phoenix office. Mr. Madden served as a partner
with the Phoenix law firm of Beus, Gilbert & Morrill from January 1991 until
June 1994. Prior to joining the Board, Mr. Madden served as securities counsel
to Mesa for approximately nine years.
JONATHAN G. ORNSTEIN, age 41, was appointed Chief Executive Officer
effective May 1, 1998 and was appointed to the Compensation Committee on
February 3, 1998, the Executive Committee on March 13, 1998, and as a director
on January 29, 1998. Mr. Ornstein is the controlling shareholder of Barlow
Management, Inc., the general partner of Barlow Partners II L.P., an investment
partnership which owns approximately eight percent of CCAir, Inc., a regional
airline based in Charlotte, North Carolina and approximately six percent of the
Company and is Chairman of the Board of Virgin Express Holdings, plc, which
operates through a subsidiary called Virgin Express, S.A./N.V. as a low-cost
European airline. From April 1996 to his joining the Company as CEO, Mr.
Ornstein served as President and Chief Executive Officer of Virgin Express
Holdings, plc. Mr. Ornstein joined Continental Express Airlines, Inc. as
President and Chief Executive Officer in July 1994 and in November 1994, he
assumed additional duties at Continental Airlines, Inc. as Senior Vice
President, Airport Services. Mr. Ornstein was employed by Mesa from 1988 to July
1994 where his positions included President of Mesa's WestAir Holding, Inc.
subsidiary and Executive Vice President. Mr. Ornstein's employment agreement
provides the Company will use its good-faith efforts to cause the Board to
include Mr. Ornstein among its nominees and to appoint him as Chief Executive
Officer through March 13, 2001.
From March 1985 to December 1987, Mr. Ornstein was a securities broker. In
separate proceedings in 1991 and 1992, he was sanctioned by the NASD and the
American Stock Exchange ("ASE"), respectively, for certain violations of the
NASD's Rules of Fair Practice, the Rules and Constitution of the ASE, and the
Securities Exchange Act of 1934, as amended. The relevant activities took place
between March 1985 and December 1987 and included effecting unauthorized trades
in customers' option accounts. In connection with these NASD and ASE
proceedings, Mr. Ornstein was (i) censured by the NASD and ASE, (ii) fined a
total of $30,000, (iii) suspended for two years and three years, respectively,
from association with any member of
2
<PAGE> 7
the NASD or the ASE, and (iv) ordered subject to one year of increased
supervision by the ASE. Mr. Ornstein has advised the Company that he has
complied fully with the requirements of the sanctions.
JAMES E. SWIGART, age 46, has served as a director and as Vice Chairman of
the Board since January 29, 1998, a member of the Company's Audit Committee
since February 3, 1998 and a member of the Nominating Committee since April 27,
1998. Mr. Swigart is a minority shareholder of Barlow Management, Inc., the
general partner of Barlow Partners II, L.P. which owns approximately 8 percent
of CCAir, Inc., a regional airline based in Charlotte, North Carolina and
approximately 6 percent of the Company. Mr. Swigart is currently the President
and Chief Executive Officer of Virgin Express, S.A./N.V., a low-cost European
commuter airline, positions he has held since May 1, 1998. He was appointed a
director of Virgin Express Holdings, plc on May 22, 1998. From December 1995 to
April 1998, Mr. Swigart served as the Chief Financial Officer of Virgin Express,
S.A./N.V. Mr. Swigart served as the Chief Financial Officer of Continental
Express Airlines, Inc. from July 1994 to November 1996 and President and
controlling shareholder of Hydralign, a manufacturer of machinery for the paper
and plastics industries from September 1993 to July 1994. From 1986 until August
1993, Mr. Swigart served as the Senior Vice President of the Transportation
Group at Lehman Brothers. He previously served as a member of the Board of the
Company from December 6, 1993 until August 10, 1994.
J. CLARK STEVENS, age 48, was named President of Mesa in January 1995 and
has been a director of the Company since May 1995. From February 1993 until
January 1995, Mr. Stevens was President of the Company's FloridaGulf Airlines
division and from December 1992 until February 1993, Mr. Stevens served as Vice
President, DFW Division with Simmons Airlines, dba American Eagle. From
September 1990 to December 1992, he served as Executive Vice President of
MetroFlight, Inc. dba American Eagle ("Metro").
DANIEL J. ALTOBELLO, age 57, has been a director since January 29, 1998,
Chairman of the Company's Compensation Committee since February 3, 1998 and
Chairman of the Company's Nominating Committee since April 27, 1998. Mr.
Altobello served as Chairman of the Board of Directors, Chief Executive Officer
and President of Caterair International Corporation, a multi-national airline
catering company from 1989 until 1995. He currently is the Chairman of the Board
of Directors of Onex Food Service, a director and Chairman of the Audit
Committee of Sodexho Marriott Services, Inc. and serves on the boards of AMS,
Inc., Colorado Prime Holdings and World Airways.
JACK BRALY, age 56, has served as a director of Mesa since December 6,
1993, a member and Chairman of the Company's Audit Committee since March 1994,
as a member of the Company's Compensation Committee since December 6, 1993, and
as a member of the Company's Nominating Committee since April 27, 1998. Since
August 5, 1996, Mr. Braly has served as the President, Chief Executive Officer
and a member of the Board of Directors of Sino Swearingen Aircraft Company, a
private aircraft manufacturer. From June 1994 to August 5, 1996, Mr. Braly was
an officer of North American Aircraft Modification of Rockwell Industries. He
served as Vice President Aircraft Manufacturing from June 1994 to October 1994,
as Executive Vice President from October 1994 to October 1995 and was Vice
President and General Manager from October 1995 to August 5, 1996. Before
joining Rockwell Industries, Mr. Braly served as a consultant to various
aircraft manufacturers and regional airlines from August 1993 until June 1994.
Prior thereto, Mr. Braly was President of Beech Aircraft Corporation from March
1991 until July 1993.
HERBERT A. DENTON, age 51, has been a director since January 29, 1998 and
has been a member of the Company's Executive Committee since February 3, 1998.
Mr. Denton is the President of Providence Capital Inc., an investment banking
firm he co-founded in 1991. He also serves on the Board of Directors of Chic by
H.I.S, Inc., an apparel manufacturing company, where he is the Chairman of the
Compensation Committee.
GENERAL RONALD R. FOGLEMAN, U.S.A.F., retired, age 56, has been a director
since January 29, 1998. General Fogleman has been a member of the Company's
Audit Committee since February 3, 1998, the Company's Executive Committee since
March 13, 1998, and its Nominating Committee since April 27, 1998. In September
1997, he retired from the Air Force with the rank of general. He served as Chief
of Staff of the United States Air Force from 1994 until 1997 and as
Commander-in-Chief of the United States Transportation Command from 1992 until
1994. General Fogleman currently serves on the Board of Directors
3
<PAGE> 8
of North American Airlines, a feeder airline for El Al; Southern Air, a private
air transportation company; Rolls Royce of North America; and World Airways.
LARRY L. RISLEY, age 53, is Chairman Emeritus of the Board of Directors of
Mesa and presently serves as Manager of Special Projects. He formerly served as
Chairman of the Board from the incorporation of Mesa until February 3, 1998 and
as Chief Executive Officer from the incorporation of Mesa until April 30, 1998.
He served as President of Mesa from 1983 through January 13, 1995. Mr. Risley's
employment agreement with the Company provides the directors will continue to
vote to nominate Mr. Risley and to use their best efforts to cause his election
to the Board through the fiscal year ending September 30, 2003.
The Board held six meetings during the fiscal year ended September 30,
1997. Each of the directors attended at least 75 percent of the meetings held by
the Board and any committees on which he served during the year.
COMMITTEES
The Company has an Audit Committee which in fiscal 1997 consisted of Jack
Braly, Chairman, and Richard C. Poe and George W. Pennington, former members of
the Board. The principal functions of the Audit Committee include the review of
the annual financial statements, reports and recommendations regarding the
adequacy of internal accounting controls made by the independent auditors and
such other matters with respect to the accounting, auditing and financial
reporting procedures as it may deem appropriate or as may be brought to its
attention. The Audit Committee had one meeting during fiscal 1997.
The Company has a Compensation Committee which in fiscal 1997 consisted of
Jack Braly, Chairman, and Richard C. Poe and George W. Pennington. The principal
functions of the Compensation Committee are to review and to make
recommendations to the Board as to the compensation of executive officers and to
administer compensation programs including the granting or ratification of
options to persons subject to Section 16 of the Securities Exchange Act of 1934
("Section 16"). The Compensation Committee had one meeting in fiscal 1997.
The Company did not have an Executive Committee in fiscal 1997. However,
effective February 3, 1998, the Board appointed Mr. Madden, Chairman, and Mr.
Denton and Mr. Swigart as members of the Executive Committee. On March 13, 1998,
Mr. Swigart resigned from the Executive Committee and Messrs. Ornstein and
Fogleman were appointed to it.
The Company did not have a Nominating Committee in fiscal 1997. However,
effective April 27, 1998, the Board elected Mr. Altobello, Chairman, and Messrs.
Braly, Fogleman, and Swigart as members of the Nominating Committee. The
Nominating Committee is responsible for the nominations of persons to serve as
directors and corporate officers of the Company. The Nominating Committee will
consider, but is not required to approve, nominations for directors by
shareholders for all annual meetings to be held after July 31, 1998, provided a
written recommendation is received by the Company no later than the date
shareholder proposals must be submitted for consideration.
COMMON STOCK OWNERSHIP AND COMPENSATION
For information concerning Common Stock ownership of the nominees for
director, see, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
herein. For information concerning the compensation of directors and executive
officers, see, "Compensation of Directors" herein.
The nine nominees receiving a plurality of votes by shares represented and
entitled to vote at the Annual Meeting, if a quorum is present, will be elected
as directors of the Company. All of the directors and executive officers of the
Company have advised the Company that they will vote their shares of Company
Common Stock "FOR" the nine nominees named in this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT.
4
<PAGE> 9
APPROVAL OF KEY OFFICER STOCK OPTION PLAN
(PROPOSAL TWO)
BACKGROUND
At the Annual Meeting, the shareholders are being asked to approve a Key
Officer Stock Option Plan (the "Key Officer Plan") which provides for the grant
of 1,300,000 options to purchase 1,300,000 shares of Common Stock to the
Company's new Chief Executive Officer, Jonathan G. Ornstein, and the grant of
300,000 options to purchase 300,000 shares of Common Stock to the Company's new
Chief Financial Officer, Blaine M. Jones. The Key Officer Plan and each of these
grants have already been approved by the Board, subject to approval by the
shareholders, and is required by their employment agreements. Neither officer
will receive any options pursuant to the Company's other stock option plans.
After interviewing a number of candidates for Chief Executive Officer, the
Board determined that an extremely competitive market exists for experienced
airline executive officers. Competitors and major airlines have granted valuable
stock options to their senior management making it difficult to attract and
retain qualified management without enactment of a generous stock option plan.
The Board also determined that that the compensation package needed to attract
top candidates would have included a cash salary in excess of $500,000 per year
and a substantial option grant in addition to options allocated by the Company's
existing employee stock option plan. In addition, the Board believes that the
compensation needed to attract a qualified Chief Financial Officer would have
been approximately $300,000. In exchange for the grant of options described
above, Mr. Ornstein, the Company's new Chief Executive Officer, agreed to a
reduced base salary of $200,000, and Mr. Jones, the Company's new Chief
Financial Officer, agreed to a reduced base salary of $100,000. In light of the
restructuring of the Company, the Board believed that the requested compensation
was reasonable and will closely align the interests of its new Chief Executive
Officer and Chief Financial Officer (each a "Key Officer") with the interests of
the shareholders. The grant of a significant number of stock options also
permits the Company to conserve cash it would otherwise pay as salaries.
CONSEQUENCES OF FAILURE TO RATIFY KEY OFFICER PLAN
Should the Key Officer Plan be disapproved by the shareholders, the
employment agreements of Messrs. Ornstein and Jones require the Company to grant
stock appreciation rights equivalent to the value of the stock options which
were approved by the Board. As the Company needs to retain cash reserves during
its restructuring, the Company believes that the grant of options is a better
alternative than the grant of stock appreciation rights which may require
additional cash payments.
PURPOSE
The purpose of the Key Officer Plan is to attract and retain the new Chief
Executive Officer and new Chief Financial Officer by providing an
incentive-based form of compensation. The Company believes that it is in the
best interests of its shareholders to conserve cash reserves and align the
interests of its upper management with its shareholders.
TERMS OF KEY OFFICER STOCK OPTION PLAN
Administration. The Key Officer Plan will be administered by the Board,
the Compensation Committee or other persons chosen by the Board. Certain
material amendments may not be made to the Key Officer Plan without shareholder
approval, including (i) an increase in the aggregate number of shares of Common
Stock subject to the Key Officer Plan; (ii) a change in the class of persons
eligible to receive options thereunder ("Options"); (iii) a modification of the
period within which Options may be exercised; or (iv) an increase in the
material benefits accruing to participants under the Key Officer Plan.
Grant of Options. Under the Key Officer Plan, Jonathan G. Ornstein will
receive 1,000,000 Options effective March 13, 1998 and 150,000 Options on April
1, 1999 and on April 1, 2000 for a total of 1,300,000
5
<PAGE> 10
Options. Blaine M. Jones will receive 150,000 Options as of April 13, 1998, and
75,000 Options on April 1, 1999 and on April 1, 2000 for a total of 300,000
Options. (Each date of grant shall be referred to herein as a "Grant Date").
Options granted to the Chief Executive Officer on March 13, 1998 and to the
Chief Financial Officer on April 13, 1998 shall be referred to herein as the
"Initial Grant Options." Options granted annually thereafter shall be referred
to herein as the "Annual Options."
Vesting of Options. One-third of the total Initial Grant Options shall
vest immediately on the Grant Date, one-third of the total Initial Grant Options
shall vest on the first anniversary date after the Grant Date, and the remaining
one-third of the total Initial Grant Options shall vest on the second
anniversary after the Grant Date. One-third of the Annual Options granted on a
Grant Date shall vest on the first anniversary date after the Grant Date;
one-third of the Annual Options granted on a Grant Date shall vest on the second
anniversary date after the Grant Date; and the remaining one-third of the Annual
Options shall vest on the third anniversary date after the Grant Date.
Exercise Price. The exercise price of the 1,000,000 Options granted to the
new Chief Executive Officer is the closing price of the Common Stock on March
13, 1998, which was $8.25. The exercise price of all other Options shall not be
less than the average sales price of the Common Stock on the Grant Date as
reported by NASDAQ, which, with respect to the grant of options to Mr. Jones on
April 13, 1998, was $7.82.
Additional Restrictions. Options may be exercised only during the period
beginning on the third business day following the release for publication of
quarterly or annual summary statements of sales and earnings and ending two
weeks prior to the end of the then-current fiscal quarter of the Company.
Certain Termination of Options; Accelerated Vesting. Although the maximum
term of the Options under the Key Officer Plan is 10 years, in certain
circumstances the maximum term may be less. If any Key Officer ceases to be an
employee of the Company and also ceases to be a director, if a director, other
than by reason of death, disability, termination by the Company "Without Good
Cause," termination by the Key Officer for "Good Reason," or discharge for good
cause, such Key Officer may, within three months after the date of termination,
purchase some or all of the shares with respect to which such Key Officer was
entitled to exercise such Option on the date such employment terminated or, if
also a director, within three months after removal or resignation as a director,
whichever is later.
If the Key Officer is removed as an employee due to disability, the Key
Officer may exercise the Options in whole or in part to the extent they are
exercisable on the date when the Key Officer's employment terminated, at any
time prior to the expiration date of the Options or within one year of the date
of removal, whichever is earlier.
If the Key Officer is removed as an employee of the Company for good cause,
the Options shall terminate on the effective date of the removal.
If the Key Officer dies while employed by the Company, the Options shall be
exercisable until the stated expiration date thereof by the person or persons to
whom the holder's rights pass under will or by laws of descent and distribution
to the extent that the holder was entitled to exercise the Option at the date of
death.
If any Key Officer is terminated by the Company "Without Good Cause" (as
such term is defined in his employment agreement) or if any Key Officer
terminates his employment for "Good Reason" (as such term is defined in his
employment agreement), all of the Options granted to the Key Officer shall vest
immediately and the Key Officer shall have until the expiration term of the
Options to exercise them.
If the Key Officer's employment is terminated as a result of a "Change in
Control" event (as such term is defined in his employment agreement), all of the
Options granted to the Key Officer shall vest immediately, and the Key Officer
shall have until the expiration term of the Options to exercise them.
Adjustment Provisions. The aggregate number of shares subject to the Key
Officer Plan, the number of shares covered by outstanding Options, and the price
per share stated in such Options must be proportionately adjusted for an
increase or decrease in the number of outstanding shares of Common Stock of the
Company resulting from a subdivision or consolidation of shares or any other
capital adjustment or a stock dividend or
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any other increase or decrease in the number of such shares effected without
receipt by the Company of consideration therefore in money, services or
property.
Maximum Shares Allocated. The aggregate number of shares of Common Stock
covered by the Key Officer Plan issuable upon exercise of all Options is
1,600,000 shares, and such shares have been reserved for issuance by the Company
upon the exercise of the Key Officer Options.
TAX CONSEQUENCES
There are no tax consequences to the Key Officer or to the Company upon the
grant of the Options, which are non-statutory stock options. Accordingly, upon
exercise of an Option, the Key Officer normally will recognize taxable ordinary
income equal to the excess of the stock's fair market value on the date of
exercise over the Option exercise price. The Company will be entitled to a
business expense deduction equal to the taxable ordinary income realized by the
Key Officer. Upon disposition of the stock, the Key Officer will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the Option. Such gain or loss shall either be long-term,
mid-term or short-term depending upon the period of time the stock sold or
exchanged was held. If an Option is exercised, the holding period of the stock
so acquired will not include the period during which the option was held. The
1997 Tax Act produced a variety of capital gains tax rates depending upon the
holding period, the marginal tax bracket of the taxpayer and the application of
certain transitional rules. For most individuals, a holding period of more than
eighteen months will be required to obtain a maximum capital gains rate of 20
percent and a more than twelve-month holding period will result in a maximum
rate of 28 percent.
VOTE REQUIRED FOR APPROVAL
The Key Officer Plan will require the affirmative vote of the holders of at
least a majority of the Company's outstanding Common Stock represented in person
or by proxy at the Annual Meeting. All of the directors and executive officers
of the Company have advised the Company that they will vote their shares of
Company Common Stock "FOR" the Key Officer Plan attached hereto as Appendix "A."
A vote "FOR" the Key Officer Plan is a vote "FOR" the grant of the options to
the Key Officers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE KEY OFFICER STOCK OPTION
PLAN.
RATIFICATION OF OUTSIDE DIRECTORS' STOCK OPTION PLAN
(PROPOSAL THREE)
GENERAL
On June 1, 1998, the Board of Directors adopted, subject to shareholder
approval, a new Outside Directors' Stock Option Plan (the "New Formula Plan").
The Company's existing stock option plans for outside directors no longer have
any options available for grant. A brief summary of the New Formula Plan is set
forth below.
The New Formula Plan provides for the grant of non-statutory stock options
to the Company's outside directors. Stock options granted under the New Formula
Plan are not intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
PURPOSE
The purpose of the New Formula Plan is to attract and retain qualified
outside directors who are and will be responsible for the growth and success of
the Company by providing an incentive-based form of compensation to encourage
investment in the shares of the Company's Common Stock, thereby increasing the
directors' personal interests in the continued success and profitability of the
Company.
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TERMS OF OUTSIDE DIRECTORS' STOCK OPTION PLAN
Administration. The New Formula Plan is to be administered by the Board or
other persons chosen by the Board.
Formula. Beginning on April 1, 1998 and continuing each April 1st
thereafter, each outside director shall receive (i) 3,000 options to purchase
3,000 shares of Common Stock, plus (ii) the number of options equal to a value
of $13,000 calculated in accordance with the Black-Scholes valuation method at a
risk-free rate of a 10-year zero coupon bond ("Black-Scholes Amount") until his
resignation or removal from the Board (collectively, the "Formula Amount"). New
outside directors will be granted a percentage of the Formula Amount calculated
by dividing the number of days remaining between the first day of appointment to
the Board and April 1 by 365. An outside director serving as Chairman of the
Board shall receive, in addition to the options granted to him as a director, an
annual grant of the number of options equal to a value of $10,000 calculated in
accordance with the Black-Scholes method (as specified above) (the "Chairman's
Options").
Amount of Options. If approved by the shareholders, as of April 1, 1998,
each outside director shall receive (i) 3,000 options to purchase 3,000 shares
of Common Stock plus (ii) the Black-Scholes Amount of 2,772 options to purchase
2,772 shares of Common Stock, or a total of 5,772 options. The Chairman of the
Board shall receive an additional 2,132 options. Each of the options has an
exercise price of $8.94 per share.
Vesting of Options. Options granted to directors as of April 1, 1998
become exercisable immediately upon approval by the shareholders and all future
options will be exercisable immediately upon grant. Options granted to future
directors not serving as a director as of April 1, 1998 shall vest in full six
months after the date of grant.
Exercise Price. The exercise price of the options granted under the New
Formula Plan may not be less than the fair market value (as defined by the New
Formula Plan) of the Common Stock on the date of the grant.
Additional Restrictions. Options may be exercised only during the period
beginning on the third business day following the release for publication of
quarterly or annual summary statements of sales and earnings and ending two
weeks prior to the end of the then-current fiscal quarter of the Company.
Term; Certain Termination of Options. Although the maximum term of the
options under the New Formula Plan is 10 years, in certain circumstances the
maximum term may be less. If any option holder ceases to be a director of the
Company, other than by reason of death, disability or discharge for cause, such
holder may, within three months after the date of termination but in no event
after the stated expiration date, purchase some or all of the shares with
respect to which such option holder was entitled to exercise such option on the
date such directorship terminated; provided that if after the directorship is
terminated, the holder commits acts detrimental to the Company's interest, then
the option shall thereafter be void for all purposes. If the option holder is
removed as a director due to disability, the option holder may exercise the
options in whole or in part to the extent they are exercisable on the date when
the option holder's directorship terminated at any time prior to the expiration
date of the options or within one year of the date of removal, whichever is
earlier. If an option holder is removed as a director of the Company for cause,
the option shall terminate upon receipt by the option holder of notice of such
removal or on the effective date of the removal, whichever is earlier. If the
option holder dies while serving as a director, an option shall be exercisable
until the stated expiration date thereof by the person or persons to whom the
holder's rights pass under will or by laws of descent and distribution to the
extent that the holder was entitled to exercise the option at the date of death.
Adjustment Provisions. The aggregate number of shares subject to the New
Formula Plan, the number of shares covered by outstanding options, and the price
per share stated in such options must be proportionately adjusted for an
increase or decrease in the number of outstanding shares of Common Stock of the
Company resulting from a subdivision or consolidation of shares or any other
capital adjustment or a stock
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<PAGE> 13
dividend or any other increase or decrease in the number of such shares effected
without receipt by the Company of consideration therefor in money, services or
property. Also, if the Company is the surviving corporation in any merger or
consolidation, any options granted under the New Formula Plan shall pertain to
and apply to the securities to which a holder of the number of shares subject to
the option would have been entitled. A dissolution or liquidation of the Company
shall cause every option outstanding hereunder to terminate, unless specifically
provided otherwise by the Board. A merger or consolidation in which the Company
is not the surviving corporation shall also cause every option outstanding
hereunder to terminate, unless specifically provided otherwise by the Board, but
each holder shall have the right immediately prior to a merger or consolidation
in which the Company is not the surviving corporation to exercise such option in
whole or in part without regard to any installment provisions contained in the
applicable option agreement.
Maximum Shares Allocated. The aggregate number of shares of Common Stock
covered by the New Formula Plan issuable upon exercise of all options is 150,000
shares, and such shares have been reserved for issuance by the Company upon the
exercise of the options.
TAX CONSEQUENCES
There are no tax consequences to the option holder or to the Company upon
the grant of options under the New Formula Plan, which are non-statutory stock
options. Accordingly, upon exercise of an option, the optionee normally will
recognize taxable ordinary income equal to the excess of the stock's fair market
value on the date of exercise over the option exercise price. The Company will
be entitled to a business expense deduction equal to the taxable ordinary income
realized by the option holder. Upon disposition of the stock, the option holder
will recognize a capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
shall either be long-term, mid-term or short-term depending upon the period of
time the stock sold or exchanged was held. If an option is exercised, the
holding period of the stock so acquired will not include the period during which
the option was held. The 1997 Tax Act produced a variety of capital gains tax
rates depending upon the holding period, the marginal tax bracket of the
taxpayer and the application of certain transitional rules. For most
individuals, a holding period of more than eighteen months will be required to
obtain a maximum capital gains rate of 20 percent and a more than twelve-month
holding period will result in a maximum rate of 28 percent.
VOTE REQUIRED FOR APPROVAL
The Outside Directors' Stock Option Plan will require the affirmative vote
of the holders of at least a majority of the Company's outstanding Common Stock
represented in person or by proxy at the Annual Meeting. All of the directors
and executive officers of the Company have advised the Company that they will
vote their shares of Company Common Stock "FOR" the Outside Directors' Stock
Option Plan attached hereto as Appendix "B." A vote "FOR" the Outside Directors'
Stock Option Plan is a vote "FOR" the grant of the options to the outside
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE OUTSIDE
DIRECTORS' STOCK OPTION PLAN.
AMENDMENT TO 1996 EMPLOYEE STOCK OPTION PLAN
(PROPOSAL FOUR)
GENERAL
The Board believes that stock options are an important factor in
attracting, motivating and retaining qualified employees essential to the
success of the Company. As a result of the significant restructuring of the
Company and tight labor conditions, the Company may have difficulty retaining
qualified employees if no stock options are available for grant.
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At the Annual Meeting, the shareholders are being asked to approve an
amendment (the "Stock Option Plan Amendment") to the Company's 1996 Restated and
Amended Employee Stock Option Plan ("Employee Stock Option Plan") to increase by
1,500,000 the number of options issuable to its key employees ("Key Employees").
The adoption of the Employee Stock Option Plan and the reservation of 2,800,000
shares for issuance thereunder was approved by the shareholders on April 8,
1996. As of April 1, 1998, 2,454,288 options to purchase an aggregate of
2,454,288 shares were outstanding and 345,712 options to purchase 345,712 shares
were available for future grant.
Pursuant to the Employee Stock Option Plan as adopted in April 1996, on
April 1, 1998, the Company would have issued 150,000 options to its Chief
Executive Officer, 80,000 options to its Chief Operating Officer, 50,000 options
to its Chief Legal Officer, 50,000 options to its Chief Financial Officer and
249,000 options to its other Key Employees. However, as of April 1, 1998, the
Company did not have a sufficient number of options to make the allocations
listed above and the shareholders previously approved option allocations only
through April 1, 1997. (Although Larry L. Risley was serving as Chief Executive
Officer of the Company on April 1, 1998, in light of his retirement on April 30,
1998 and the grant of options to the new Chief Executive Officer pursuant to the
Key Officer Plan, Mr. Risley has elected to forego the grant of 150,000 options
which, subject to shareholder approval, would have been allocated to him
effective April 1, 1998.) The Board has agreed to allocate the options described
above to each of the officers (other than Larry L. Risley) as of April 1, 1998,
subject to approval by the shareholders of the Stock Option Plan Amendment. The
Company has 345,712 options previously approved by shareholders for grant to its
Key Employees and will grant those options to its Key Employees effective April
1, 1998 if the Stock Option Plan Amendment is approved.
In addition to increasing the total number of options available for
issuance by 1,500,000, the Stock Option Plan Amendment will result in several
other changes to the options issued under the Employee Stock Option Plan. With
respect to the officers of the Company, the Board would like to assure their
loyalty to the Company during the Company's restructuring. Specifically, the
Board would like to conform certain of the accelerated option vesting provisions
of certain Key Employees to those granted to the Chief Executive Officer and
Chief Financial Officer pursuant to the Key Officer Plan. Similar to the Key
Officer Plan described above, the Stock Option Plan Amendment provides for the
immediate vesting of all options granted to any officer of the Company who has
entered into an employment agreement if terminated by the Company "Without Good
Cause" or if the officer terminates his employment for "Good Reason," as such
terms are defined in the Key Employees' respective employment agreements. The
Stock Option Plan Amendment also gives the Compensation Committee, upon the
recommendation of the Chief Executive Officer, the right to award options to
future senior management of the Company and the right to decrease the amount of
options to be awarded to existing senior management positions filled after
August 1, 1998.
The Stock Option Plan Amendment revises the Employee Stock Option Plan to
reflect changes in Regulation 240.16b-3 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Subsequent to the original approval of the
Employee Stock Option Plan, the Securities and Exchange Commission revised the
rules applicable to employee stock option plans. The revised rules alleviate the
need for disinterested administration of a written plan and no longer prohibit
more than one material change in any one year to an option plan. Also, as the
Company is now domiciled in Nevada, the Company believes it best to have its
agreements governed by Nevada law. Accordingly, the Stock Option Plan Amendment
revises the Employee Stock Option Plan and the options issued thereunder to be
governed by Nevada law.
PURPOSE
The purpose of the Employee Stock Option Plan is to attract and retain Key
Employees who are and will be responsible for the growth and the success of the
Company by providing an incentive-based form of compensation. The Company
believes that it is in the best interests of its shareholders to reward the
performance of all of its Key Employees with a broad-based grant of stock
options. The Stock Option Plan Amendment provides the Company with a sufficient
number of options to issue to Key Employees through April 1, 2000 and provides
greater discretion to the Compensation Committee in the allocation of Options.
The Stock Option Plan Amendment also provides certain Key Employees with the
right to accelerate the
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vesting of previously granted options if termination of employment occurs under
specific circumstances and conforms the Employee Stock Option Plan to current
securities regulations and to Nevada law.
TERMS OF EMPLOYEE STOCK OPTION PLAN, AS AMENDED
Administration. The Employee Stock Option Plan will be administered by the
Board, the Compensation Committee, or persons chosen by the Board. Certain
material amendments may not be made to the Employee Stock Option Plan without
shareholder approval, including (i) an increase in the aggregate number of
shares of Common Stock subject to the Employee Stock Option Plan; (ii) a
modification of the period within which options may be exercised; or (iii) an
increase in the material benefits accruing to participants under the original
Employee Stock Option Plan.
Grant of Options. Under the Employee Stock Option Plan, employees were
initially granted Options on June 28, 1995 and on April 1 of each year
thereafter (each, a "Grant Date") according to the amounts set forth on a
schedule (the "Schedule") developed by the Compensation Committee of the Board.
(For a copy of the original Schedule, please refer to Schedule "B" attached to
Appendix "C"). There was not a sufficient number of options available for grant
on April 1, 1998 and the Schedule approved by shareholders in 1996 made
allocations only through April 1, 1997. If the Stock Option Plan Amendment is
approved, the Company will grant the amount of options on April 1, 1998 to each
Key Employee as indicated on the New Schedule "B" ("New Schedule") and an
additional 249,000 options to certain other Key Employees not listed on the New
Schedule at an exercise price of $8.75. Other than a one-time grant to the Chief
Financial Officer, the New Schedule excludes the Chief Executive Officer and
Chief Financial Officer altogether from the Employee Stock Option Plan as they
each will participate in the Key Officer Plan. Future option grants will
continue on April 1 through the year 2000. New Key Employees are, upon the first
day of employment, granted a pro rata portion of the Options set forth on the
New Schedule ("Pro Rata Options"). The Chief Executive Officer has discretion to
decrease the amount of Options allocated to Key Employees other than to those
employees subject to Section 16 and employed prior to August 1, 1998 (from the
amounts set forth in the New Schedule), and to award Options to officers who
fill positions not listed on the New Schedule.
Vesting of Options and Pro Rata Options. One-third of the total Options
granted on a Grant Date vest on the first anniversary date of the Grant Date;
one-third of the total Options granted on a Grant Date vest on the second
anniversary date of the Grant Date; and the remaining one-third of the total
options granted on a Grant Date vest on the third anniversary date of the Grant
Date. One-third of the total Pro Rata Options vest on the first April 1 after
their Grant Date (the "Initial Vesting Date"); one-third of the total Pro Rata
Options vest on the first anniversary date of the Initial Vesting Date; and the
remaining one-third of the total Pro Rata Options vest on the second anniversary
date of the Initial Vesting Date. However, Pro Rata Options granted to Key
Employees who are subject to Section 16 on or after October 1 and prior to April
1 in any year do not vest until the second April 1 following the Grant Date at
which time two-thirds of the total Pro Rata Options vest and the remaining
one-third of the total Pro Rata Options vest on the first anniversary date
thereof.
Exercise Price. The exercise price of the options may not be less than the
fair market value (as defined by the Employee Stock Option Plan) of the Common
Stock on the Grant Date. With respect to options granted which are intended to
qualify as incentive stock options, the fair market value of the shares of
Common Stock is defined as the average sales price of the Common Stock on the
Grant Date as reported by NASDAQ. With respect to all options which do not
qualify as incentive stock options, the fair market value is the low sales price
of the Common Stock on the Grant Date as reported by NASDAQ.
Additional Restrictions. The aggregate fair market value, determined as of
the time an incentive stock option is granted, of the Common Stock with respect
to which such options are exercisable by an employee for the first time during
any calendar year shall not exceed $100,000. There is no such limit for
non-statutory options. Options may be exercised only during the period beginning
on the third business day following the release for publication of quarterly or
annual summary statements of sales and earnings and ending two weeks prior to
the end of the then-current fiscal quarter of the Company.
Certain Termination of Options. Although the maximum term of the options
under the Employee Stock Option Plan is 10 years, in certain circumstances the
maximum term may be less. If any option holder ceases to be an employee of the
Company, other than for death, disability, retirement, discharge for cause or,
with respect to Key Employees who have entered into a written employment
agreement with the Company,
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termination by the Company "Without Good Cause" or by the Key Employee for "Good
Reason" (as such terms are defined in the Key Employees' respective employment
agreements), such holder may, within three months after the date of termination
but in no event after the stated expiration date, purchase some or all of the
shares with respect to which such option holder was entitled to exercise such
option on the date such employment terminated.
If the option holder is removed as an employee due to disability, the
option holder may exercise the options in whole or in part to the extent they
are exercisable on the date when the option holder's employment terminated, at
any time prior to the expiration date of the options or within one year of the
date of removal, whichever is earlier.
If an option holder is removed as an employee of the Company for cause, the
option shall terminate upon receipt by the option holder of notice of such
removal or on the effective date of the removal, whichever is earlier.
If any option holder (i) ceases to be an employee of the Company other than
for death, disability or discharge for cause; and (ii) has been continuously
employed by the Company for five or more years; and is (iii) over 59 1/2 years
of age (collectively referred to as "Retirement"), all of the options which have
been granted to such option holder prior to Retirement vest 30 days after
Retirement (the "Vested Options"). Such holder (or his successors in the case of
the holder's death after Retirement) may, within three months after the date of
Retirement or prior to the stated expiration date, whichever first occurs,
purchase some or all of the shares which such option holder was entitled to
exercise; provided, that if after employment is terminated, the holder commits
acts detrimental to the Company's interests, then the option is void for all
purposes.
If the option holder dies while employed by the Company, an option shall be
exercisable until the stated expiration date thereof by the person or persons to
whom the holder's rights pass under will or by laws of descent and distribution
to the extent that the holder was entitled to exercise the option at the date of
death.
Upon termination by the Company of any Key Employee who has entered into a
written employment agreement with the Company "Without Good Cause" or upon
termination by any Key Employee who has entered into a written employment
agreement with the Company for "Good Reason," all options granted to such Key
Employees shall vest immediately, and such Key Employees shall have until the
expiration term of the option to exercise them.
Adjustment Provisions. The aggregate number of shares subject to the
Employee Stock Option Plan, the number of shares covered by outstanding options,
and the price per share stated in such options must be proportionately adjusted
for an increase or decrease in the number of outstanding shares of Common Stock
of the Company resulting from a subdivision or consolidation of shares or any
other capital adjustment or a stock dividend or any other increase or decrease
in the number of such shares effected without receipt by the Company of
consideration therefore in money, services or property. Also, if the Company is
the surviving corporation in any merger or consolidation, any options granted
under the Employee Stock Option Plan shall pertain to and apply to the
securities to which a holder of the number of shares subject to the option would
have been entitled. A dissolution or liquidation of the Company shall cause
every option outstanding hereunder to terminate, unless specifically provided
otherwise by the Board. A merger or consolidation in which the Company is not
the surviving corporation shall also cause every option outstanding hereunder to
terminate, unless specifically provided otherwise by the Board, but each holder
shall have the right immediately prior to a merger or consolidation in which the
Company is not the surviving corporation to exercise such option in whole or in
part without regard to any installment provisions contained in the option
agreement.
Maximum Shares Allocated. If the Stock Option Plan Amendment is approved,
the aggregate number of shares of Common Stock covered by the Employee Stock
Option Plan issuable upon exercise of all options will be 4,300,000 shares, and
such shares will be reserved for issuance by the Company upon the exercise of
the options.
TAX CONSEQUENCES
Non-Statutory Options. There are no tax consequences to the option holder
or to the Company upon the grant of a non-statutory stock option. Upon exercise
of a non-statutory stock option, the option holder
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normally will recognize taxable ordinary income equal to the excess of the
stock's fair market value on the date of exercise over the option exercise
price. The Company will be entitled to a business expense deduction equal to the
taxable ordinary income realized by the option holder. Upon disposition of the
stock, the option holder will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss shall be long-term, mid-term or short-term depending on the
period the stock was held, without considering the period the option itself was
held.
Incentive Options. No taxable income will be recognized by an option
holder upon receipt of an incentive stock option, and the Company will not be
entitled to a tax deduction in respect of such grant.
In general, no taxable income for Federal income tax purposes will be
recognized by an option holder upon exercise of an incentive stock option, and
the Company will not then be entitled to any tax deduction. Assuming that the
option holder does not dispose of the option shares before the expiration of the
longer of (i) two years after the date of grant, or (ii) one year after the
exercise of the option, upon disposition, the option holder will recognize
capital gain equal to the difference between the sale price on disposition and
the exercise price.
If, however, the option holder disposes of his option shares prior to the
expiration of the required holding period, he will recognize ordinary income for
Federal income tax purposes in the year of disposition equal to the lesser of
(i) the difference between the fair market value of the shares at date of
exercise and the exercise price, or (ii) the difference between the sale price
upon disposition and the exercise price. Any additional gain on such
disqualifying disposition will be treated as capital gain which shall either be
long-term, mid-term or short-term depending upon the period of time the Common
Stock sold or exchanged was held. If an option is exercised, the holding period
of the Common Stock so acquired will not include the period during which the
option was held. The 1997 Tax Act produced a variety of capital gains tax rates
depending upon the holding period, the marginal tax bracket of the taxpayer and
the application of certain transitional rules. For most individuals, a holding
period of more than eighteen months will be required to obtain a maximum capital
gains rate of 20 percent and a more than twelve-month holding period will result
in a maximum rate of 28 percent. Taxpayers in the 15 percent marginal tax
bracket can expect much lower rates. In addition, if a disqualifying disposition
is made by the option holder, the Company will be entitled to a deduction equal
to the amount of ordinary income recognized by the option holder provided such
amount constitutes an ordinary and reasonable expense of the Company.
The amount by which the fair market value of the shares at the time of
exercise exceeds the exercise price of an incentive stock option will be a tax
preference item for purposes of the alternative maximum tax. In general, the
alternative minimum tax is applied to the extent (i) an individual's adjusted
gross income plus certain tax preference items exceeds (ii) $33,750 ($45,000 for
joint returns) reduced by $.25 for each $1.00 by which the alternative minimum
taxable income exceeds $112,500 ($150,000 for joint returns). The tax is applied
at the rate of 26 percent on the first $87,500 ($175,000 for joint returns) and
28 percent on any additional amounts. An individual will be liable for the
alternative minimum tax only to the extent that the amount of such tax exceeds
the liability for regular Federal income tax.
VOTE REQUIRED FOR APPROVAL
The Stock Option Plan Amendment will require the affirmative vote of the
holders of at least a majority of the Company's outstanding Common Stock
represented in person or by proxy at the Annual Meeting. All of the directors
and executive officers of the Company have advised the Company that they will
vote their shares of Company Common Stock "FOR" the Stock Option Plan Amendment.
Please see Appendix "C" for a copy of the Employee Stock Option Plan and
Appendix "C-1" for a copy of the Stock Option Plan Amendment. A vote "FOR" the
Stock Option Plan Amendment is a vote "FOR" the grant of the options as
indicated in new Schedule "B" contained in Appendix "C-1."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE EMPLOYEE STOCK OPTION
PLAN AMENDMENT.
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RATIFICATION OF NEVADA INDEMNIFICATION AGREEMENTS
(PROPOSAL FIVE)
BACKGROUND OF INDEMNIFICATION AGREEMENTS
In January 1988, to recruit and attract capable persons to serve on its
Board and because, at that time, it was unable to obtain directors' and
officers' liability insurance at affordable premiums, the Company entered into
indemnification agreements with its directors and certain officers. These
agreements were later ratified by the Company's shareholders in March 1988. At
that time, the Company was incorporated in the State of New Mexico, which did
not provide as favorable statutory indemnification as some other states. At the
time of ratification, the New Mexico statutes, however, did permit a company to
contract with its officers and directors to provide them with more favorable
indemnification.
In 1996, the Company changed its state of incorporation from New Mexico to
Nevada. The indemnification agreements previously approved by the shareholders
of the Company in 1988 provide that New Mexico law applies to their
interpretation without regard to conflict of law principles. For the reasons
described below, each of the nominees for director, all directors who served on
the Board during the 1997 fiscal year and certain of the officers have executed
new indemnification agreements governed by Nevada law. The new indemnification
agreements do not cover any pending or threatened proceeding which existed prior
to their execution but apply Nevada law to all proceedings which arise after the
date of execution.
PRINCIPAL REASONS FOR ADOPTING NEW INDEMNIFICATION AGREEMENTS
The Board believes that it is in the best interests of the Company and its
shareholders to indemnify the Company's directors and certain officers under
Nevada rather than New Mexico law. Although Nevada law provides greater
statutory protection than New Mexico law and although the Company obtained
directors' and officers' liability insurance effective March 6, 1998, the newly
appointed Board believes it is appropriate to supplement the statutory
protection and insurance with the contractual protection the Company has had
since 1988. Furthermore, several of the directors and officers who served
through March 6, 1998 could not avail themselves of insurance as it did not
become effective until March 6, 1998. Four of the nine current members of the
Board never served as members of the Board when the Company was incorporated in
New Mexico. In addition, the Company seeks to have Nevada law govern most of its
contracts. Although one of its operating subsidiaries is domiciled in New
Mexico, Mesa Air Group, Inc. no longer has any contacts with New Mexico.
COMPARISON OF INDEMNIFICATION AGREEMENTS
The newly executed Nevada Indemnification Agreements (the "NIA") and the
existing New Mexico Indemnification Agreements (the "NMIA") (sometimes
collectively referred to in this section as the "Agreements") contain both
similarities and differences.
The NIA comply with the Nevada Revised Statutes, as currently enacted, by
providing that indemnification is available if the indemnitee shows he or she
was acting (i) in good faith; and (ii) in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation; plus, (iii)
with respect to criminal proceedings, the indemnitee must not have had
reasonable cause to believe that his or her conduct was unlawful. The NIA may
require amendment should Nevada law be amended in a way that materially affects
the NIA. The NMIA incorporate by reference the provisions of the New Mexico
Business Corporation Act and the NMIA provide for indemnification "to the
fullest extent permitted by law."
Both Agreements provide that the termination of any action adverse to the
indemnitee, whether by settlement, judgment, conviction, or plea of nolo
contendere does not in and of itself create a presumption that the standards of
conduct have not been met. Both Agreements provide for the advancing of
attorneys' fees and all other costs incurred by an indemnitee in connection with
the investigation, defense or participation in any threatened, pending or
completed action, suit or proceeding.
Under both Agreements, a determination as to the propriety of
indemnification is required. The Agreements differ as to the parties determining
the propriety of indemnification. Both Agreements provide
14
<PAGE> 19
that the Company may advance expenses to a indemnitee upon a written undertaking
to repay such amounts if it is ultimately determined that the indemnitee is not
entitled to indemnification. The NIA add the requirement that the indemnitee
must affirm a good-faith belief in the entitlement to indemnification and a
determination must be made that the facts then known to those making the
determination would not preclude indemnification under the agreement.
Additionally, both Agreements provide that the Company shall indemnify the
indemnitee for expenses incurred in enforcing the Agreements regardless of
whether the indemnitee ultimately is determined to be entitled to
indemnification.
Both the NIA and the NMIA further provide that, if any payment is made
under the Agreements, the Company shall be subrogated to the extent of such
payments to all rights of recovery from any indemnitee and the Company shall not
be liable for duplication of payments actually received by any indemnitee. Both
Agreements place the burden of proof that indemnification is not required upon
the Company and the Company must consent, in writing, to any settlement to which
it will be liable. Both Agreements provide that, subject to applicable law, the
court shall have discretion to order indemnification notwithstanding the
indemnitee's failure to meet the required standard of conduct.
The NIA and the NMIA also provide that the rights of the indemnitee are not
exclusive of any other rights under Mesa's Bylaws or respective state law.
Indemnitees will receive increased rights and protections if the law changes
during the term of their Agreements. If, however, the law is amended to curtail
the rights and protections afforded to indemnitees, it is the intention of the
parties under the Agreements that the indemnitees not lose their broader
indemnification rights unless the amended law expressly prohibits the broader
indemnification afforded in the Agreements.
The NMIA contain control provisions that are not included in the NIA. The
NMIA provide (i) in the event of a change in control of Mesa, the Company will
seek legal advice from counsel selected by the director or officer and approved
by Mesa with respect to matters thereafter arising concerning rights of the
indemnitee under the Agreements, Bylaws or any other agreement relating to
claims for indemnifiable events; and (ii) if a potential change in control
exists or occurs the Company will, at the request of the indemnitee, create a
trust to fund all expenses reasonably anticipated to be incurred by such
indemnitee.
A copy of the form of the NIA is attached to this Proxy Statement as
Appendix "D." A copy of the form of the NMIA is attached to this Proxy Statement
as Appendix "E." The description of the Agreements set forth herein is qualified
in its entirety by the text of Appendices "D" and "E."
CERTAIN DIFFERENCES BETWEEN THE INDEMNIFICATION LAWS OF NEW MEXICO AND NEVADA
The laws of Nevada are more favorable than the laws of New Mexico to
indemnify officers, employees and directors for the reasons set forth below.
New Mexico law allows indemnification of reasonable expenses to a director,
officer, agent or employee who, in the board of directors' opinion, has been
wholly successful on the merits or otherwise in the defense of any action
against him; or the court, upon petition of the director, will award
indemnification of reasonable expenses based on the successful outcome of the
proceedings. Nevada law requires indemnification of expenses including
reasonable attorneys' fees to the extent that an agent of the corporation has
been successful on the merits in defense of any proceeding without regard to the
opinion of the board of directors of the corporation or petition to a court.
New Mexico law provides that the indemnification of directors will not be
valid (i) unless consistent with the indemnification statute or (ii) to the
extent that indemnification is limited by the articles of incorporation. Nevada
law provides that the rights pursuant to the Nevada indemnification statutes are
not exclusive of any other rights to which directors, officers, employees or
agents are entitled by bylaw, agreement, vote of shareholders, disinterested
directors, or otherwise.
Unlike Nevada, New Mexico law distinguishes the conduct of a person acting
in his "official capacity" on behalf of a corporation from the conduct of a
person not acting in his "official capacity." A person seeking to qualify for
indemnification who acted in his "official capacity" on behalf of the
corporation must show, among other factors, that he reasonably believed that his
actions were in the corporation's best interests. A person not
15
<PAGE> 20
acting in the "official capacity" on behalf of the corporation must show, among
other factors, that he reasonably believed that his conduct was at least not
opposed to the corporation's best interests. New Mexico law defines "official
capacity" to mean, when used with respect to a director, the office of director
in the corporation and, when used with respect to a person who is not only a
director but acts also in another capacity, the elective or appointive office in
the corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation.
The Nevada indemnification statutes distinguish between derivative and
third-party actions. Nevada law generally provides that a corporation shall have
the power to indemnify any person who was or is a party or threatened to be made
a party to any threatened, pending or completed action against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit.
Indemnification for derivative suits is limited to expenses, specifically
including attorneys' fees, actually and reasonably incurred in the defense or
settlement of a suit if the statutory standards are met.
The New Mexico statute also prohibits indemnification with respect to
derivative suits if a director has been found liable for negligence or
misconduct in the performance of a duty owed the corporation. Under Nevada law,
indemnification, unless ordered by a court or for the advancement of expenses,
may not be made to or on the behalf of any director or officer if a final
adjudication establishes the acts or omissions in question involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
New Mexico law requires, if arising out of a proceeding by or in the right
of a corporation, the reporting in writing to the shareholders with or before
the notice of the next shareholders meeting of either indemnification or
advancement of expenses. Nevada law has no similar requirement.
POSSIBLE ADVERSE EFFECTS ON SHAREHOLDERS
Notwithstanding the belief of the Board as to the benefits to shareholders
of indemnification under Nevada law, shareholders should realize that there are
certain possible adverse effects of such indemnification. The more expansive
provisions of Nevada law could lead to increased expenses for the Company. New
Mexico law allows indemnification of reasonable expenses to a director, officer,
agent or employee who, in a board of directors' opinion, has been wholly
successful on the merits or otherwise in the defense of any action against him;
or the court, upon petition of the director, will award indemnification of
reasonable expenses based on the successful outcome of the proceedings. Nevada
law requires indemnification of expenses including reasonable attorneys' fees to
the extent that an agent of the corporation has been successful on the merits in
defense of any proceeding without regard to the opinion of the board of
directors of the corporation or petition to a court. However, as the NMIA
require indemnification regardless of New Mexico law, unless a court would find
them opposed to the public policy of the laws of the State of New Mexico, the
enforcement of the New Mexico agreements would most likely result in the same
expenses to the Company as the Nevada agreements.
DIRECTOR AND OFFICER INSURANCE
On March 6, 1998, the Company purchased an errors and omissions policy to
insure its directors and officers. The policy provides coverage up to $20
million per occurrence. Prior to procuring such insurance, the Company was
self-insured. As a result of obtaining insurance, the Company has a third-party
to insure recovery of certain costs and expenses and is not solely relying on
the indemnification agreements alone.
VOTE REQUIRED FOR APPROVAL
The Company's shareholders are being asked to ratify the NIA entered into
by each of the members of the Board serving as of September 16, 1996 and by
members of the Board as of the date each member was appointed to the Board. The
NIA are effective only as to events occurring after such date. To the extent
that the Board or the shareholders of Mesa may in the future wish to limit or
repeal the ability of the Company to indemnify directors, such repeal or
limitation may not be effective as to directors or officers who are parties to
the Indemnification Agreements, since their rights to full protection are
contractually assured by the NIA. Shareholders who vote to ratify the NIA may be
estopped from later claiming that the agreements are invalid.
16
<PAGE> 21
It is anticipated that similar contracts may be entered into, from time to time,
with future directors and officers of the Company. Shareholder ratification of
the NIA shall also constitute approval of similar contracts for future directors
and officers of the Company.
Nevada law does not require shareholder approval of the NIA. If such
approval is not obtained, the Board will reconsider its decision to enter into
NIA. Since members of the present Board are potentially benefited by such
agreements, shareholder ratification is being requested for the purpose of
eliminating any question regarding conflict of interest. The Board has approved
the indemnification agreements and believes they are fair to the Company. There
is no material litigation pending and neither Mesa nor any of its directors and
officers know of any threatened litigation that might result in claims for
indemnification under the NIA. Expenses incurred and payments made in connection
with the ongoing derivative shareholder lawsuits have been and will continue to
be made pursuant to the NMIA approved by shareholders in 1988. If the
shareholders fail to approve the indemnification agreements governed by Nevada
law, the NMIA will continue to be used by the Company.
Ratification of the Indemnification Proposal will require the affirmative
vote of the holders of at least a majority of the Company's outstanding Common
Stock represented in person or by proxy at the Annual Meeting. All of the
directors and executive officers of the Company have advised the Company that
they will vote their shares of Company Common Stock "FOR" the ratification of
the Nevada Indemnification Agreements attached hereto as Appendix "D."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
INDEMNIFICATION PROPOSAL.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL SIX)
For fiscal year 1997, the Board retained KPMG Peat Marwick LLP as
independent auditors for the Company. The representatives of KPMG Peat Marwick
LLP will be present at the Annual Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
KPMG Peat Marwick LLP has been selected by the Board as the Company's
independent auditors for fiscal year 1998. KPMG Peat Marwick LLP has served as
the independent auditors of the Company from 1985 through fiscal year 1997.
Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for fiscal year 1998 will require the affirmative vote of
the holders of at least a majority of the Company's outstanding Common Stock
represented in person or by proxy at the Annual Meeting. All of the directors
and executive officers of the Company have advised the Company that they will
vote their shares of Company Common Stock "FOR" the ratification of the
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
fiscal year 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
FISCAL YEAR 1998.
SHAREHOLDER PROPOSAL -- SELL OR MERGE MESA AIR
(PROPOSAL SEVEN)
A shareholder has given the Company notice of his intention to introduce
the following proposal for consideration and action by the shareholders at the
Annual Meeting. The proposed resolution and accompanying statement have been
provided by the shareholder/proponent. For the reasons stated, the Board does
NOT support this proposal. The affirmative vote of at least a majority of the
Company's outstanding Common Stock represented in person or by proxy at the
Annual Meeting is required for approval of the proposal.
17
<PAGE> 22
The following shareholder resolution and Supporting Statement are submitted
by Lee Greenwood, owner of 1,000 shares, 510 S. Burnside Avenue, No. 10K, Los
Angeles, California 90036, (213) 933-8645:
Recommend the Board of Directors hire an investment banker to explore all
alternatives to enhance the value of Mesa Air, including the sale or merger of
Mesa Air.
SUPPORTING STATEMENT
In support of this resolution, the proponent believes that due to Mesa
Air's unacceptable performance over the past five years, the deplorable stock
price, and in his opinion, ineffective management, the Board should immediately
hire a nationally recognized investment banker to explore all alternatives to
enhance the value of Mesa Air. This includes, but is not limited to, the sale,
merger or other transaction involving Mesa Air.
Nell Minow, a highly acclaimed corporate governance specialist, and
principle of the LENS Fund, which specializes in increasing the value of
underperforming companies, said:
"Companies can only justify asking investors to take the risk of investing
in equities by delivering a competitive rate of return on the invested capital.
When a company's management and board cannot meet that goal, they owe it to
their investors to submit themselves to an independence evaluation by an outside
firm, to insure that all options are objectively evaluated."
"If a company's performance lags over a sustained period, it is time for
the shareholders to send a message of no-confidence to the Board, reminding them
that they have to hold management -- and themselves -- to a higher standard."
Mesa Air's poor performance leads institutional and individual shareholders
to hold the Directors and Management to a higher standard.
These news reports highlight Mesa Air's problems:
United Airlines canceled Mesa Air's connecting flights to Los Angeles from
8 cities. United gave the job to Skywest Airlines starting October 1, 1997.
Mesa Air News Release
August 19, 1997
Colorado Senator Campbell and Representative McInnis request a
congressional investigation into Mesa Air -- cite disturbing incidents
experienced first hand.
Denver Post
August 1, 1996
More Flack for Mesa Air: VIPs latest to be stranded. Colorado House Speaker
Chuck Berry and Colorado Ski Country USA President John Frew left on the ground
after Mesa flight canceled.
Denver Post
September 7, 1996
Mesa Air signs consent order with the FAA requires improved management,
improved crew training plus a $500,000 fine.
Wall Street Journal
September 26, 1996
Mesa Air said it expects quarterly earning to fall substantially from Wall
Street estimates.
Wall Street Journal
December 23, 1996
Mesa Air said 25% of its flights canceled Thursday. Cause: Computer
breakdown. Mesa spokeswoman Sarah Pitcher said the breakdown came at the worst
time for Mesa Air.
Denver Post
March 22, 1997
Mesa Air is castigated as unreliable at U.S. Senate hearing.
18
<PAGE> 23
Denver Post
April 3, 1997
Institutional investors and mutual fund managers may also be concerned that
negative publicity for Mesa Air (a United Airlines commuter) can adversely
impact the stock value of United Airlines, other United Airlines commuter
airlines and the entire commuter airline industry.
VOTE YES FOR RESOLUTION NO. 7: TO HIRE AN INVESTMENT BANKER TO EXPLORE ALL
ALTERNATIVES TO ENHANCE THE VALUE OF MESA AIR, INCLUDING THE POSSIBLE SALE OR
MERGER OF MESA AIR.
RECOMMENDATION BY THE BOARD OF DIRECTORS AGAINST THIS PROPOSAL
Although concurring with the spirit and goal of the proposal -- the
enhancement of the Company's value -- the Board does not believe that hiring an
investment banker is an efficient, effective or necessary means to reach this
goal at this time.
Since the submission of this proposal by the shareholder, the Company has
appointed a new Chairman of the Board, new Chief Executive Officer and a new
Chief Financial Officer as well as five new members to its Board. The new
nominees for the Board to be elected at this Annual Meeting bring a great deal
of industry experience to the Company. Jonathan G. Ornstein and James E. Swigart
of Barlow Management, Inc. are experienced airline executives with previous Mesa
affiliation. Herbert A. Denton, President of Providence Capital, Inc., is
himself an investment banker. Daniel J. Altobello is Chairman of the Board of
Directors of Onex Food Services and serves on several other Boards of Directors
as well, including World Airways, Sodexho Marriott Services, Inc., AMS, Inc. and
Colorado Prime Holdings. General Ronald R. Fogleman, former Chief of Staff of
the Air Force, serves on the Board of Directors of North American Airlines,
Southern Air, Rolls Royce of North America and World Airways.
The new Chief Executive Officer and Chief Financial Officer have been given
financial packages which provide significant financial rewards for share price
appreciation and are serving at salaries substantially below those paid to
previous executives. Also, the new Board members themselves indirectly control
over 10 percent of the total outstanding shares of Common Stock of the Company.
The Board believes that before the Company commits substantial shareholder
resources to outside consultants, ample time should first be given to the new
Board and senior management to institute its policies and vision.
The Board concurs that the Company has experienced problems in the past.
However, the Company was profitable for the five years ended September 30, 1996.
In fact, the fiscal year ended September 30, 1996 was the most profitable year
in the Company's history. After incurring the large operating loss in fiscal
1997, the Company embarked on a business restructuring focusing on expansion of
its jet operations into markets of its code-sharing partners. In November 1997,
the Company exercised its option to purchase 16 Canadair Regional Jet Series
200LR ("CRJ") from Bombardier Regional Aircraft Division, a Canadian-based
aircraft manufacturer. This exercise increased the Company's firm jet orders to
32. These new aircraft will help ongoing expansion into new markets.
Moreover, as of May 31, 1998, the Company will no longer have any
code-sharing relationship with United Airlines, the partner which management
believes has caused many of the problems it encountered in the past. Since
appointment of the Company's new Board members, the Company has ceased
independent jet operations out of Fort Worth, Texas and redeployed those jet
aircraft to profitable markets, expanded US Airways code-sharing operations and
is negotiating a new code-sharing agreement with America West Airlines. At the
present time, management does not believe that an investment banker would add
any additional value beyond that being presently provided by its new Board and
management team.
The proponent has been given an opportunity to reconsider his proposal and
not include it for a shareholder vote but has chosen to include it against the
judgment of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE RECOMMENDATION TO
HIRE AN INVESTMENT BANKER.
19
<PAGE> 24
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
THE REPORT OF THE COMPENSATION COMMITTEE AND THE FIVE-YEAR SHAREHOLDER
RETURN COMPARISON AND PERFORMANCE GRAPH AND RELATED EXPLANATION AND FOOTNOTES
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY FILINGS UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE EXCHANGE ACT, NOTWITHSTANDING
STATEMENTS MADE WITHIN THE COMPANY'S PREVIOUS FILINGS THAT ALL SUBSEQUENT
FILINGS, IN WHOLE OR IN PART, INCLUDE, WITHOUT LIMITATION, THIS PROXY STATEMENT.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists of three non-employee directors of the
Company and has responsibility for allocation of cash compensation and options
to senior executive officers of the Company. The Compensation Committee
primarily administers the Company's cash compensation plans, employee stock
option plans, and employee stock purchase plans. The full Board regularly
reviews the Compensation Committee decisions relating to executive compensation.
The Compensation Committee has allocated certain compensation decisions to the
Chairman of the Board and Chief Executive Officer of the Company.
The Board approved new levels of base compensation and related structured
bonus plan (the "Compensation Plan") and an Employee Stock Option Plan (the
"Stock Option Plan"), collectively the "Omnibus Plan," on December 1, 1995 which
was later approved by the shareholders of the Company on April 8, 1996. The
Omnibus Plan has not been modified since shareholder approval. The Compensation
Plan and Stock Option Plan were based on an independent consultant's report on
base pay and annual and long-term incentive compensation with respect to 21
positions from four large carriers and three regional or commuter airlines. Only
one of the airlines furnishing information is included in the SIC Industry Group
("SIC Group") included in the stock performance graph appearing elsewhere
herein. Since most of the companies included in the SIC Group did not
participate in the survey, the Compensation Committee was unable to consider any
differences which may exist between members of the SIC Group and the Company.
While the comparisons considered annual revenues, number of employees and years
in the position, financial performance of the competitors or other airlines
providing information was not directly considered. The alternatives presented by
the consultant included: (i) a program providing for base salaries slightly
below general industry market with a strong above market, at risk, annual bonus
potential; or (ii) a program with base salaries slightly above general industry
market with an annual, at risk, bonus potential below the general industry
market. Based upon its study and review and the recommendations of the
compensation consultant, the Committee concluded and recommended to the Board
that the first alternative more closely aligned executives' interests with the
interests of the Company's shareholders. The Compensation Committee was unable
to secure sufficient data from competitor or peer publicly held regional or
commuter airlines to determine whether the base salaries so established were at
the low, medium or high range of compensation paid by those in the comparative
group. Based on the limited data available, the Compensation Committee believes
that the base salaries, bonus ranges and stock options provided in the Omnibus
Plan fall between the medium and high range of the general industry group.
Under the Compensation Plan, salaries for all executive officers and key
employees have been capped. Bonuses for executive officers and key employees are
limited to prescribed percentages of base salary, based upon the percentage
growth in earnings per share. Growth in earnings per share ("EPS") is
categorized at four levels: Minimum -- any growth in EPS during the prior fiscal
year; Threshold -- 7.0 percent to 12.9 percent growth in EPS; Target 13.0
percent to 17.9 percent growth in EPS and Maximum -- 18.0 percent or greater
growth in EPS. The Compensation Plan provides that the former Chief Executive
Officer (who formerly was also the Chairman of the Board) was entitled to
receive a cash bonus of 15 percent, 30 percent, 60 percent and 120 percent if
the Minimum, Threshold, Target and Maximum, respectively, levels of EPS are
reached. Other executive officers and key employees, other than key employees of
a division or subsidiary, receive cash bonuses of from 3.75 percent to 100
percent, graded as to each position at the four levels of EPS. Division and
subsidiary employee bonuses are based on earnings before taxes and interest
divided by total revenues of the division or subsidiary (the "Rate of Return").
The Rate of Return has been categorized at four levels: Minimum -- a Rate of
Return of 5.0 to 9.9 percent; Threshold -- a Rate of Return of 10.0 to 12.9
percent; Target -- a Rate of Return of 13.0 to 17.9 percent and Maximum -- a
Rate of Return of 18.0 percent
20
<PAGE> 25
or more. Under the Compensation Plan, division and subsidiary key employees are
entitled to cash bonuses of from 7.5 percent to 100 percent of base salary,
depending upon the level of the Rate of Return. Bonuses are actually paid after
the end of each fiscal year and reflect the growth in EPS for the prior year.
In addition to the bonus component of the Omnibus Plan, the 150,000 options
granted to Mr. Larry Risley pursuant to the Stock Option Plan during fiscal 1997
provided incentive to Mr. Risley to increase shareholder return.
Since salary and bonuses are capped under the Compensation Plan, an
integral part of the Omnibus Plan is the issuance of stock options on an
annualized basis to key employees under the Stock Option Plan.
The Stock Option Plan provides for options to be issued to officers and key
employees on an annualized basis which vest at the rate of approximately
one-third per year. The options have a 10-year term and are subject to standard
option provisions such as are included in existing Company plans and exclude the
requirement of continued employment and provisions to deal with termination of
employment due to retirement, death or disability. Under the plan, options
historically have been issued at the low selling price of the Company's Common
Stock on the date of grant.
The total number of options granted under the Stock Option Plan in fiscal
1997 was 664,000.
The Compensation Committee believes that the Omnibus Plan, which provides
for established salary levels, a limit on cash bonuses and provides for the
issuance of stock options to officers and key employees related to the
appreciation of the Company's Common Stock, provides equitable incentives to
increase the profitability of the Company.
Compensation Committee
Jack Braly, Chairman
George W. Pennington, former member of
the Board
Richard C. Poe, former member of the
Board
Dated as of September 30, 1997
21
<PAGE> 26
COMPENSATION SUMMARY OF EXECUTIVE OFFICERS
The following table sets forth certain compensation paid or accrued by the
Company during the fiscal year ended September 30, 1997 to the Chief Executive
Officer and the three most highly compensated executive officers of the Company
whose total annual salary and bonuses exceeded $100,000.
<TABLE>
<CAPTION>
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
SALARY BONUS(1) COMPENSATION AWARD(S)(2) OPTIONS PAYOUT COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ------- -------- ------------ ----------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry L. Risley.............. 1997 350,000 -- -- -- 150,000 -- 4,750
Chairman of the Board 1996 350,000 420,000 150,000 4,750
and Chief Executive Officer 1995 350,000 -- 300,000 4,620
J. Clark Stevens............. 1997 235,000 -- -- -- 80,000 -- 4,750
Chief Operating Officer 1996 235,000 235,000 80,000 4,750
and President 1995 198,000 -- 160,000 4,846
Gary E. Risley............... 1997 150,000 -- -- -- 50,000 -- 4,750
Vice President of Legal 1996 150,000 150,000 50,000 4,076
Affairs and Secretary 1995 150,000 -- 110,000 5,151
W. Stephen Jackson........... 1997 150,000 -- -- -- 50,000 -- 4,750
Chief Financial Officer, 1996 150,000 150,000 50,000 4,615
Vice President Finance 1995 150,000 -- 150,000 3,080
and Treasurer
</TABLE>
- ---------------
(1) Bonuses are actually paid after the end of each fiscal year and reflect
performance for the prior year. As the Company incurred a loss for fiscal
1997, no bonuses were paid in fiscal 1998.
(2) As of March 31, 1998, Larry L. Risley owned 516,380 shares of Mesa Common
Stock, Gary E. Risley owned 15,300 shares of Mesa Common Stock, J. Clark
Stevens owned 2,000 shares of Mesa Common Stock, and W. Stephen Jackson
owned 2,400 shares of Mesa Common Stock.
(3) These amounts represent both vested and non-vested Company contributions to
the named executive officer's 401(k) plan. Under the Company's 401(k) plan,
employees may contribute up to 15 percent of their annual salary and bonus
up to a specified maximum. The Company currently makes matching
contributions of 50 percent of employees' contribution (including officers)
with a cap of 10 percent of the employees' annual compensation.
Contributions by the Company to its 401(k) plans for the year ended
September 30, 1997 was $1,679,802.
OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE VALUE AT
UNDERLYING SARS ASSUMED ANNUAL RATES OF
OPTIONS/ GRANTED TO STOCK PRICE APPRECIATION
SARS EMPLOYEES EXERCISE FOR OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------
(#) YEAR ($/SH) DATE 5% ($) 10% ($)
NAME(A) (B) (C) (D) (E) (F) (G)
- ------- ---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Larry L. Risley........ 150,000 22.6% 5.88 04/01/07 $441,000 $882,000
J. Clark Stevens....... 80,000 12.0% 5.88 04/01/07 $235,200 $470,400
Gary E. Risley......... 50,000 7.5% 5.88 04/01/07 $147,000 $294,000
W. Stephen Jackson..... 50,000 7.5% 5.88 04/01/07 $147,000 $294,000
</TABLE>
22
<PAGE> 27
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
VALUE SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- --------------- -------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Larry L. Risley............... -0- -0- 600,000 / 350,000 $0 / $83,700
J. Clark Stevens.............. -0- -0- 204,665 / 193,335 $0 / $44,640
Gary E. Risley................ -0- -0- 164,998 / 120,002 $0 / $27,900
W. Stephen Jackson............ -0- -0- 116,665 / 133,335 $0 / $27,900
</TABLE>
- ---------------
(1) Based on the closing price of the Common Stock on September 30, 1997 at
$6.438.
EMPLOYMENT AGREEMENTS
Larry L. Risley. On February 4, 1998, the Company entered into an
employment agreement (the "Agreement") with Larry L. Risley as Manager of
Special Projects effective as of May 1, 1998. As Manager of Special Projects,
Mr. Risley will be retained by the Board from time to time to advise and assist
in the strategic acquisition of assets, businesses and mergers and acquisitions
of other airline companies. The Agreement is for a period of five years and will
pay Mr. Risley an annual salary of $275,000. Under the Agreement, Mr. Risley is
not eligible for vacation pay, stock option grants or other fringe benefits,
except for health insurance for himself and his wife.
The Agreement further provides that Mr. Risley shall continue to hold the
position of Chairman Emeritus while serving on the Board. The directors are
required to vote to nominate Mr. Risley and to use their best efforts to cause
his election as a member of the Board through the fiscal year ending September
30, 2003.
In exchange for entering into a covenant not to compete and a covenant of
confidentiality, the Agreement provides that Mr. Risley's employment will be
non-terminable through the fifth anniversary of his retirement as CEO. The
Agreement also provides that the Board will offer to sell FCA, Inc. dba Four
Corners Aviation to Mr. Risley at a price determined by an independent appraisal
firm. If such sale is not consummated, the Agreement provides that Mr. Risley
will receive an annual office expense allowance of $9,000 during the term of the
Agreement.
Jonathan G. Ornstein. Upon his appointment as Chief Executive Officer of
the Company as of May 1, 1998, Jonathan G. Ornstein and the Company entered into
an employment agreement (the "Agreement").
The Agreement is for a term of three years ending March 13, 2001 and is
subject to automatic renewal unless either party gives written notice of its
intent to terminate. Under the Agreement, Mr. Ornstein will be compensated by a
combination of a minimum base salary of $200,000 per year plus an annual bonus
based on positive growth in earnings per share. Mr. Ornstein will receive a
"Minimum Bonus" of $52,500 if the Company achieves any positive growth in
earnings per share, a "Threshold Bonus" of $105,000 for growth between 7.0
percent and 12.9 percent, a "Target Bonus" of $210,000 for growth between 13.0
percent and 17.9 percent and a "Maximum Bonus" of $420,000 for growth of 18.0
percent or better.
In addition to salary and bonus, Mr. Ornstein's employment agreement gives
him the right to receive an initial grant of 1,000,000 stock options vesting in
one-third increments on the date of grant and the first and second anniversaries
thereof and additional annual option grants of 150,000 shares throughout the
term of the Agreement, subject to shareholder approval. If the shareholders do
not approve such grants, Mr. Ornstein's employment agreement requires the
Company to issue stock appreciation rights in an amount necessary to provide the
same level of compensation as would have been provided by the grant of stock
options.
The Agreement provides that upon permanent disability, as defined in the
Agreement, Mr. Ornstein will receive his base salary plus an amount equal to the
Minimum Bonus plus any monthly payments under any
23
<PAGE> 28
policy of disability income insurance paid for by the Company. The Company will
pay such permanent disability payments for the remaining term of the Agreement,
but in no case will the period exceed 24 months.
Mr. Ornstein may terminate the Agreement at any time, upon written notice,
within one year following the occurrence of an event constituting "Good Reason,"
as defined below. Upon the termination by the Company "Without Good Cause" or
termination by Mr. Ornstein for Good Reason, Mr. Ornstein will be entitled to a
lump-sum severance payment equal to the sum of (1) the number of years (or
fractions thereof) remaining in the then-unexpired term or two, whichever is
greater, multiplied by (a) base salary times the number of years, plus (b) the
amount of cash equal to the Target Bonus or the minimum amount of any similar
bonus then in effect, plus (c) any other cash or other bonus earned prior to the
date of termination; and (2) any additional payments necessary to discharge
certain tax liabilities as defined in the Agreement. Upon Mr. Ornstein's
termination Without Good Cause or upon Good Reason, any and all vesting or
performance requirements affecting outstanding stock and other compensation
under the Employee Stock Option Plan will be deemed fully satisfied and any risk
of forfeiture with respect thereto will be deemed to have lapsed.
"Good Reason" is defined to mean the occurrence of the following
circumstances without Mr. Ornstein's consent: (i) assignment to any duties
substantially inconsistent with the duties or a reduction in the duties
contemplated by the Agreement; (ii) removal of any titles bestowed under the
Agreement; (iii) the Company's failure to include Mr. Ornstein as a nominee for
the Board in its proxy or his failure to be reelected to the Board; (iv) any
breach or failure of the Company to carry out the provisions of the Agreement
after notice and an opportunity to cure; (v) a Change in Control (as defined
below); or (vi) relocation of Mr. Ornstein, his office, facilities or personnel
except if such relocation is to any future location of the Company's
headquarters and such new location is in a metropolitan area with a population
of over 1,000,000 people.
A "Change in Control" is defined to include (i) a change in control
reportable on Form 8-K or Schedule 14A of the Exchange Act; (ii) the
acquisition, other than by an employee benefit plan, of twenty-five percent
(25%) or more of the combined voting power of the Company's outstanding
securities; (iii) failure of the Incumbent Directors (as defined in the
employment agreements) to constitute at least a majority of all directors of the
Company; (iv) the closing of a sale of all or substantially all the assets of
the Company; (v) the Company's adoption of a plan of dissolution or liquidation;
or (vi) the closing of a merger or consolidation in which the Company is not the
surviving corporation or at least seventy-five percent (75%) of the surviving
corporation's stock is not held by persons who were stockholders of Company
immediately prior to such merger or consolidation.
If under the Agreement Mr. Ornstein is to receive any payment for
termination for Good Reason, death or permanent disability payment, payment for
termination Without Good Cause or any payment as a result of a Change of Control
of the Company, Mr. Ornstein shall be entitled to receive the amounts sufficient
to cover the excise tax, if any, imposed on such payments.
Blaine M. Jones. Upon his appointment as Chief Financial Officer,
Treasurer and Vice President of Finance, Blaine M. Jones and the Company entered
into an employment agreement.
Mr. Jones' employment agreement contains the same material provisions as
Mr. Ornstein's Agreement except his cash and non-cash compensation is less than
Mr. Ornstein's and the definition of Change in Control excludes provisions
regarding being a director of the Company. Mr. Jones' base salary is $100,000
with a Minimum Bonus of $22,500, a Threshold Bonus of $45,000, a Target Bonus of
$90,000 and a Maximum Bonus of $180,000.
In addition, Mr. Jones will be entitled to an initial grant of 150,000
stock options and additional annual grants of 75,000 shares throughout the term
of the Agreement, subject to shareholder approval. If the shareholders do not
approve such grants, the Company will issue stock appreciation rights to Mr.
Jones in an amount necessary to provide the same level of compensation as would
have provided by the grant of stock options.
Other Officers. Employment agreements have also been entered into with the
Chief Operating Officer and Chief Legal Officer of the Company and the
Presidents of the America West Express, Mesa Airlines,
24
<PAGE> 29
Inc., WestAir Commuter Airlines, Inc. and Air Midwest, Inc. The employment
agreements with Mr. Stevens and Mr. Gary Risley provide for a term of one year
after a new CEO is appointed or April 30, 1999, whichever is earlier
("Termination Date"). Mr. Stevens is paid $235,000 per year and Mr. Risley is
paid $150,000 per year. If still employed on the Termination Date, Mr. Stevens
and Mr. Risley will each receive a bonus equal to his annual base salary. If
terminated "without cause" or they elect to terminate employment with "Good
Reason," (as defined below) each is entitled to severance pay of 90 percent of
base salary payable for 12 months and 10 percent of base salary for an
additional 12 months. Also, Mr. Stevens and Mr. Risley shall continue to be
treated as employees for the purpose of the Company's stock option plan during
the period severance is paid.
Mr. Risley's and Mr. Stevens' employment agreements define Good Reason as
the occurrence of any of the following events to which the executive has not
expressly agreed in writing: (i) assignment to duties inconsistent with the
executive's position, duties, responsibilities at the time of entering the
agreement or the failure to re-elect the executive to his present positions;
(ii) a material reduction in compensation; (iii) relocation to any city other
than the principal location at which the executive performed his duties on the
effective date of the agreement; provided, however, if the Company moves its
principal executive offices, the Company shall pay the executives' reasonable
moving expenses, including but not limited to, financial assistance with the
purchase and sale of a personal residence and the Company shall make such
adjustments in compensation reasonably necessary to reflect an increased cost of
living; (iv) failure of the Company to obtain the assumption of the agreement by
any successor to substantially all of the assets or business of the Company; (v)
any material breach and failure to cure by the Company after written notice; or
(vi) a good faith determination by the executive that he is unable to carry out
the duties, responsibilities, authorities or powers attendant to the executive's
position by reason of the conditions surrounding the employment, which
conditions did not exist on the effective date of the agreement.
W. Stephen Jackson resigned from his positions as Vice President of
Finance, Treasurer and Chief Financial Officer. Mr. Jackson's resignation was
for "Good Reason" as defined under his employment agreement. Mr. Jackson has
been requested by the Company to remain as a full-time employee for a transition
period which has yet to be determined. As severance, Mr. Jackson will receive
$135,000 payable over 12 months beginning on the date his requested service with
the Company has ended and $15,000 payable over the following 12 months. In
addition, during the severance period he will be considered an employee and will
continue to receive fringe benefits except for use of a Company car or travel
allowance. Mr. Jackson will not be entitled to any bonus during the 24-month
severance period, and although he cannot participate in any future option
grants, all options granted under the Company's option plans will continue to be
governed by the terms and conditions therein and vest through two years after
the date his full-time employment with the Company has ended.
COMPENSATION OF DIRECTORS
Each outside director receives a retainer of $10,000 per year, along with
the payment of $1,000 per meeting attended in person; $500 for each committee
meeting attended in person; $500 for each telephone Board meeting attended and
reimbursement of all expenses associated with attending committee or Board
meetings. Pursuant to the Company's Additional Outside Directors' Stock Option
Plan (the "Additional Plan"), each outside director serving in fiscal 1997 was
granted 3,000 options in December 1996 (other than Mr. Madden who received 3,000
options on June 6, 1997 when he was appointed to the Board). All options granted
to Blaine Jones expired on September 6, 1997 as a result of his resignation from
the Board of Directors on June 6, 1997. Options granted to Messrs. Poe,
Pennington and Braly were granted on December 11, 1996 at an exercise price of
$9.75 per share and were fully vested on December 11, 1997. Options granted to
Messrs. Pennington and Poe expired in April 1998, three months after their
resignation from the Board. Options granted to Mr. Madden were granted June 6,
1997 at an exercise price of $4.88 and will be fully vested on June 6, 1998.
Upon their appointment to the Board, Messrs. Ornstein, Swigart, Fogleman,
Altobello and Denton were entitled to a grant of 3,000 stock options pursuant to
the Additional Plan. However, due to an inadequate number of stock options
available under the Additional Plan, each received 2,800 stock options at an
exercise
25
<PAGE> 30
price of $6.60 per share on January 30, 1998. No additional options remain for
grant pursuant to the Additional Plan.
Each outside director serving as a director during fiscal 1997 also
participated in the Company's original Outside Directors Stock Option Plan (the
"Formula Plan"). Other than initial grants under this plan, grants pursuant to
the Formula Plan are contingent on improved returns for the shareholders. Each
outside director is granted 10,000 options as of the first business day of the
month following appointment to the Board. (The date of the first grant of option
is referred to herein as the "Initial Grant Date"). Each outside director
receives a grant of an additional 10,000 options (the "Second Grant") if: (i)
the director is still serving as a director of the Company on the date of the
Second Grant; and (ii) the annual percentage increase in shareholder return
either:
(a) exceeds seven percent for any fiscal year within four years of the
Initial Grant Date (the "Target Percent"), provided that the effective date
of the grant shall be delayed until the second anniversary of the Initial
Grant Date if the Target Percent is achieved in the first two fiscal years
following the Initial Grant Date, or
(b) exceeds an aggregate of 10 percent for any two consecutive fiscal
years within four years after the Initial Grant Date (the "Alternative
Target Percent").
Each outside director receives a third grant of an additional 10,000
options (the "Third Grant") if: (i) the director is still serving as a director
of the Company on the date of the Third Grant; and (ii) the annual percentage
increase in shareholder return either:
(a) exceeds seven percent for any fiscal year within six years of the
Initial Grant Date (the "Additional Target Percent"), provided that the
effective date of the grant shall be delayed until the fourth anniversary
of the Initial Grant Date if the Additional Target Percent is achieved in
the first four fiscal years following the Initial Grant Date, or
(b) exceeds an aggregate of 10 percent for any two consecutive fiscal
years within six years after the Initial Grant Date (the "Additional
Alternative Target Percent").
Options granted to the outside directors on the Initial Grant Date become
exercisable one year after the Initial Grant Date and when the fair market value
(as defined by the Formula Plan) of the Common Stock has increased by three
percent from the Initial Grant Date.
All other options become exercisable immediately upon satisfaction of the
following conditions: six months after the date the option was granted, and when
the fair market value of the shares (as defined in the Formula Plan) has
increased by seven percent from the date the option was granted.
With respect to options granted on the Initial Grant Date, the exercise
price of the options granted under the Formula Plan may not be less than the
fair market value of the Common Stock on the date of the grant. With respect to
options granted on the Second Grant Date, the option price per share may not be
less than the fair market value of the shares on the last business day of the
fiscal year that the Company achieves the Target Percent or the Alternative
Target percent. With respect to options granted on the Third Grant Date, the
option price per share may not be less than the fair market value of the shares
as of the last business day of the fiscal year that the Company achieves the
Additional Target percent or the Additional Alternative Target percent.
Mr. Madden received 10,000 options at an exercise price of $5.32 on July 1,
1997, which will vest on July 1, 1998 if the fair market value of the Common
Stock has increased by three percent over the exercise price. No other options
were granted in fiscal 1997 pursuant to this plan. Pursuant to the Formula Plan,
Messrs. Ornstein, Swigart, Fogleman, Altobello and Denton were each granted
10,000 stock options at an exercise price of $6.56 per share on February 2,
1998. The Board has discontinued granting options under the Formula Plan.
Each director receives free travel on Mesa for himself and certain family
members and through arrangements with certain major air carriers receives free
or reduced-fare travel on those at no cost to the
26
<PAGE> 31
Company. The Company believes that the directors' use of free air travel is "de
minimis" and therefore did not maintain any records of their travel during
fiscal 1997.
Directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualified.
During fiscal 1997, the Company paid legal fees and expenses aggregating
approximately $347,517 incurred in connection with the defense of a
shareholders' derivative action on behalf of the Company and a class action
suit, as a nominal defendant, the directors of the Company, a former director
and a non-director officer. The aggregate amount paid has not been allocated
between the Company and the individuals who are being indemnified pursuant to
indemnification agreements and New Mexico law.
The Chairman of the Board received a retainer for the months of February,
March and April 1998 based on an annual retainer of $250,000 and will receive an
a retainer for the months of May, June and July 1998 based on an annual retainer
of $100,000. The retainer of the Board's Chairman is subject to adjustment and
review by the Board and depends on the amount of time devoted by the Chairman to
the Company.
COMPENSATION COMMITTEE INTERLOCKS
Richard C. Poe, Jack Braly and George W. Pennington all served as members
of the Compensation Committee during the fiscal year ended September 30, 1997.
None of these directors held any executive officer position or other employment
with the Company prior to or during such service nor did any executive officer
serve on any other company's compensation committee. Mr. Pennington resigned
from the Board on January 5, 1998, and Mr. Poe resigned from the Board on
January 29, 1998.
RELATED PARTY TRANSACTIONS
On January 9, 1997, one of the Company's wholly owned subsidiaries, FCA,
Inc., entered into a distributorship agreement ("the Distributor Agreement")
with Sino Swearingen Aircraft Company, L. P. (SSAC) for the distribution of
corporate jets. The Distributor Agreement grants FCA distribution rights in the
states of Colorado, Louisiana, New Mexico and Texas for sale of SSAC aircraft
and parts. The Distributor Agreement also requires FCA to maintain a retail
sales area, hangar and maintenance facility, with appropriate staff, and an
adequate supply of spare parts at a general aviation airport strategically
located within FCA's distribution area. FCA has agreed to purchase eight
aircraft from SSAC with delivery dates beginning in the first quarter of 1999
and ending in the first quarter of 2001. The current purchase price of each
aircraft is approximately $3.5 million and is subject to change by SSAC. FCA is
required to make progress payments to SSAC on each aircraft as follows: upon
execution of the purchase agreement, $75,000; 365 days prior to delivery date,
$50,000; 180 days prior to delivery date, $150,000; at delivery, approximately
$3.225 million (based upon the current purchase price) reduced by the
distributors' profit. In total, FCA is presently obligated to purchase eight
aircraft for approximately $28 million at current prices. FCA is also obligated
to purchase an adequate supply of parts to support aircraft sold in the
distribution area. In February 1997, FCA made progress payments of $600,000 to
SSAC against its purchase order for eight aircraft. SSAC has subsequently
notified FCA that the delivery schedule for the eight aircraft will be delayed
for at least one year. The Distributor Agreement may be terminated by either
party, upon 90 days' notice, on January 9, 2000, or annually thereafter, and is
cancelable by mutual agreement of the parties or unilaterally by SSAC. The Chief
Executive Officer of SSAC, Mr. Jack Braly, is a member of the Board of Mesa Air
Group, Inc.
Mr. Larry Risley's employment agreement provides that the Board will offer
to sell him FCA, Inc. dba Four Corners Aviation at a price determined by an
independent appraisal firm. If such sale is not consummated, Mr. Risley will
receive an annual office expense allowance of $9,000 during the term of his
employment agreement.
Paul R. Madden received a cash retainer of $25,000 for his assistance to
the Company in interviewing and selecting a qualified CEO candidate and in
seeking qualified outside directors to be appointed to the Board prior to his
appointment as Chairman of the Company.
27
<PAGE> 32
Mesa enters into business arrangements with related parties only where such
arrangements are approved by a majority of disinterested directors and are on
terms at least as favorable as available from unaffiliated third parties.
FIVE-YEAR SHAREHOLDER RETURN COMPARISON
Set forth below is a graph comparing the five-year cumulative shareholder
return on the Common Stock of Mesa Air Group, Inc. against the five-year
cumulative total return on the CRSP Index for NASDAQ Stock Market (US Companies)
and the CRSP Index for NASDAQ Stocks (SIC 4510-4519) (an index composed of
NASDAQ companies engaged in air transportation, and includes regional airlines
whose stocks trade on NASDAQ) for the periods indicated. The graph assumes an
initial investment of $100.00 and reinvestment of dividends, if any.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE REPORT FOR
MESA AIR GROUP, INC.
<TABLE>
<CAPTION>
'NASDAQ STOCKS
(SIC 4510-4519
US COMPANIES)|AIR
NASDAQ STOCK TRANSPORTATION,
MEASUREMENT PERIOD 'MESA AIR GROUP, MARKET (US SCHEDULED, AND AIR
(FISCAL YEAR COVERED) INC.' COMPANIES) COURIER SERVICES'
<S> <C> <C> <C>
9/30/92 100.000 100.000 100.000
9/30/93 169.399 130.981 170.255
9/30/94 57.924 132.057 143.572
9/29/95 89.071 182.407 261.741
9/30/96 79.781 216.450 233.979
9/30/97 56.284 297.140 261.173
</TABLE>
The index level for all series was set to 100.0 on 09/30/92.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 by all directors,
by each person who is known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock, by each executive officer
named in the Summary Compensation Table and by all directors and executive
officers as a group.
The number of shares beneficially owned by each director or executive
officer is determined under rules of the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the individual has
the sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within
28
<PAGE> 33
60 days of March 31, 1998 through the exercise of any stock option or other
right. Unless otherwise indicated, each person has sole investment and voting
power (or shares such powers with his or her spouse) with respect to the shares
set forth in the following table. In certain instances, the number of shares
listed includes, in addition to shares owned directly, shares held by the spouse
or children of the person, or by a trust or estate of which the person is a
trustee or an executor or in which the person may have a beneficial interest.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------------
NAME AND ADDRESS OF VESTED
BENEFICIAL OWNER SHARES OPTIONS(1) TOTAL(1) PERCENT(1)
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Paul R. Madden................................ 1,000 13,000 14,000 --%
5847 North 46th Street
Phoenix, Arizona 85018
James E. Swigart.............................. -- -- -- --%
c/o Virgin Express
Melsbroek Airport, Building 116
Melsbroek, Belgium B1820
Jonathan G. Ornstein.......................... 1,746,513(2) -- 1,746,513 6.2%
2325 East 30th Street
Farmington, New Mexico 87401
Daniel J. Altobello........................... -- -- -- --%
6550 Rock Spring Drive, Suite 550
Bethesda, Maryland 20817
J. Clark Stevens.............................. 2,000 204,665 206,665 0.7%
2325 East 30th Street
Farmington, New Mexico 87401
Jack Braly.................................... -- 19,000 19,000 --%
c/o Sino Swearingen Aircraft Co
1770 Sky Place Boulevard
San Antonio, Texas 78216
Herbert A. Denton............................. 233,300(3) 42,000(4) 275,300 0.9%
c/o Providence Capital, Inc.
730 5th Avenue, Suite 2102
New York, New York 10019
Ronald R. Fogleman............................ -- -- -- --%
406 Snowcap Lane
Durango, Colorado 81301
Larry L. Risley............................... 516,380 600,000 1,116,380 3.9%
2325 East 30th Street
Farmington, New Mexico 87401
Gary E. Risley................................ 15,300 164,998 180,298 0.6%
2325 East 30th Street
Farmington, New Mexico 87401
W. Stephen Jackson............................ 2,400 116,665 119,065 0.4%
2325 East 30th Street
Farmington, New Mexico 87401
State of Wisconsin............................ 2,762,000 -- 2,762,000 9.8%
P.O. Box 7842
Madison, Wisconsin 53707
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------------------
NAME AND ADDRESS OF VESTED
BENEFICIAL OWNER SHARES OPTIONS(1) TOTAL(1) PERCENT(1)
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Nicholas Applegate Capital Management......... 1,640,000 -- 1,640,000 5.8%
600 West Broadway, 29th Floor
San Diego, California 92101
Merrill Lynch & Co. et al..................... 1,490,000 -- 1,490,000 5.3%
250 Vesey Street
New York, New York 10281
FMR Corp...................................... 1,589,600 -- 1,589,600 5.6%
82 Devonshire Street
Boston, Massachusetts 02109
Franklin Resources, Inc., et al............... 1,670,000 -- 1,670,000 5.9%
77 Mariners Island Blvd., 6th Floor
San Mateo, California 94404
Dimensional Fund Advisors, Inc., et al........ 1,901,400 -- 1,901,400 6.7%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
American Express Co. et al.................... 1,500,000 -- 1,500,000 5.3%
200 Vesey Street
New York, New York 10285
All directors and officers as a group......... 821,700 1,120,328 3,637,221 12.6%
</TABLE>
- ---------------
(1) Includes options vested on March 31, 1998 and options which will become
vested on or before July 1, 1998. This table is based upon information
supplied by executive officers, directors and principal stockholders and
Schedules 13D and 13G filed with the SEC.
(2) These amounts include shares owned by Barlow Partners II LP and Lisa
Ornstein, Mr. Ornstein's wife. Mr. Ornstein is the controlling shareholder
of Barlow Management, Inc., the general partner of Barlow Partners II, L.P.
(3) 209,300 shares of which are owned by a limited liability company, of which
Mr. Denton has voting and investment power.
(4) Options held by a corporation of which Mr. Denton is the sole shareholder.
30
<PAGE> 35
GRANTS OF OPTIONS UNDER COMPENSATION PLANS
The following table sets forth certain information with respect to options
to be granted under the Key Officer Plan, the 1996 Employee Stock Option Plan,
as amended, and the Outside Directors' Stock Option Plan as of April 1, 1998,
subject to the approval of such plans by the shareholders.
<TABLE>
<CAPTION>
1996 EMPLOYEE
STOCK OPTION PLAN OUTSIDE DIRECTORS'
NAME AND PRINCIPAL POSITION KEY OFFICER PLAN (AS AMENDED) STOCK OPTION PLANS(1)
--------------------------- ---------------- ----------------- ---------------------
<S> <C> <C> <C>
Larry L. Risley.......................... 0 0 0
Former Chairman of the Board
and Chief Executive Officer
J. Clark Stevens......................... 0 240,000 0
Chief Operating Officer and President
Gary E. Risley........................... 0 150,000 0
Chief Legal Officer and Corporate
Secretary
W. Stephen Jackson....................... 0 50,000 0
Former Chief Financial Officer,
Vice President of Finance and Treasurer
All current executive officers as a
group(2)
(4 persons)............................ 1,600,000 390,000 0
Paul R. Madden........................... 0 0 3,000(3)
Nominee for director Chairman
of the Board
James E. Swigart......................... 0 0 3,000
Nominee for director Vice Chairman of
the Board
Jonathan G. Ornstein..................... 1,300,000 0 0
Nominee for director Chief Executive
Officer
Daniel J. Altobello...................... 0 0 3,000
Nominee for director
Jack Braly............................... 0 0 3,000
Nominee for director
Herbert A. Denton........................ 0 0 3,000
Nominee for director
Ronald R. Fogleman....................... 0 0 3,000
Nominee for director
All current directors as a group......... 1,300,000 0 18,000
All non-executive employees as a group... 0 1,405,000 0
</TABLE>
- ---------------
(1) Each outside director will receive annual grants each April 1st until his
resignation or removal of 3,000 options plus an amount equal to the value of
$13,000 as determined pursuant to the Black-Scholes method at a risk-free
rate equal to the rate paid on the 10-year zero coupon bond. The chart does
not include the Black-Scholes Amounts.
(2) Includes options to be granted to Jonathan G. Ornstein, the Company's
current Chief Executive Officer, which are also reported separately in the
table.
(3) Mr. Madden will also receive the number of options equal to a value of
$10,000, calculated pursuant to the Black-Scholes method at a risk-free rate
equal to the rate paid on the 10-year zero coupon bond.
OTHER BUSINESS
So far as is presently known, there is no business to be transacted at the
Annual Meeting other than that referred to in the Notice of Annual Meeting of
Shareholders and it is not anticipated that other matters will be brought before
the Annual Meeting. If, however, other matters should properly be brought before
the Annual
31
<PAGE> 36
Meeting, it is intended that the proxy holders may vote or act in accordance
with the Board's recommendation on such matters.
ADDITIONAL INFORMATION
LATE FILING DURING FISCAL YEAR 1997
Larry L. Risley, J. Clark Stevens, W. Stephen Jackson and Gary E. Risley
each filed a late Form 5 reporting option grants made during fiscal 1997 on June
3, 1998.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholder proposals for consideration at the next Annual Meeting, which
the Company expects to hold in March 1999, must be received by the Company no
later than September 30, 1998 for them to be included in the Company's proxy
materials and form of proxy for the 1999 Annual Meeting. To be included,
proposals must be proper under law and comply with the rules and regulations of
the U.S. Securities and Exchange Commission.
ANNUAL REPORT
The financial statements for the Company are contained in the Company's
Annual Report accompanying this Proxy Statement.
By Order of the Board of Directors
Gary Risley
Secretary
Las Vegas, Nevada
June 15, 1998
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APPENDIX "A"
MESA AIR GROUP, INC.
KEY OFFICER STOCK OPTION PLAN
1. PURPOSE OF THE PLAN; TYPE OF PLAN
(a) General Purpose. The purpose of the Key Officer Stock
Option Plan (the "Plan") is to compensate the new Chief Executive Officer and
Chief Financial Officer with stock options ("Options") to induce their entry
into employment agreements with salaries substantially below industry norm.
Without the Plan, the Board of Directors does not believe it can attract the
caliber of officers necessary to assist in the Company's restructuring. An
extremely competitive market currently exists for senior executive officers and
valuable stock options owned by senior management of competitors of the Company
which would be forfeited upon departure make a generous stock option plan
necessary to attract key officers.
(b) Designation of Stock Options as Non-Qualified Stock
Options. Stock options granted under the Plan (the "Options") shall not be
treated as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
(c) Exemption from Short-Swing Liability. Options granted to
the Chief Executive Officer and Chief Financial Officer pursuant to this Plan
shall be exempt from Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(d) Administration. This Plan may be administered by the Board
of Directors of the Company (the "Board"), by the Compensation Committee or by
any person or persons chosen by a majority of the Board. Grants or awards made
pursuant to this Plan are to be made pursuant to the formula set forth in
Section 3 (the "Formula").
2. STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
(a) Description of Stock and Maximum Shares Allocated. The
stock subject to the provisions of this Plan and issuable upon exercise of the
Options are shares of the Company's Common Stock, no par value, which may be
either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 6, the aggregate number
of shares of Common Stock covered by the Plan issuable upon exercise of all
Options shall be one million six hundred thousand (1,600,000) shares, which
shares shall be reserved for issuance upon the exercise of the Options. (The
shares available for Options and all other shares of Common Stock of the Company
shall be referred to as the "Shares.")
(b) Restoration of Unpurchased Shares. If an Option expires or
terminates for any reason prior to its exercise in full before the term of the
Plan expires, the
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Shares subject to, but not issued under, such Option shall again be available
for other Options hereafter granted.
3. FORMULA AND OPERATION OF THE PLAN
(a) Eligible Persons. Options shall be granted solely to the
Chief Executive Officer and Chief Financial Officer ("Key Officers").
(b) Date of Grants; Allotment; Adjustment.
One million (1,000,000) Options shall be granted to
the Chief Executive Officer on March 13, 1998 and one hundred fifty
thousand (150,000) Options shall be granted to the Chief Executive
Officer on April 1, 1999 and on April 1, 2000 (for a total grant of one
million three hundred thousand (1,300,000) Options). Three hundred
thousand Options shall be granted to the Chief Financial Officer as
follows: one hundred fifty thousand Options (150,000) on April 13,
1998; seventy-five thousand (75,000) Options on April 1, 1999; and
seventy-five thousand (75,000) Options on April 1, 2000. (Options
granted on March 13, 1998 to the Chief Executive Officer and on April
13, 1998 to the Chief Financial Officer shall be referred to herein as
the "Initial Options." Options granted annually shall be referred to
herein as the "Annual Options." Each of the dates on which Options are
granted shall be referred to herein as the "Grant Date.")
(c) Price. The Option price per Share shall not be less than
the fair market value of the Shares, as defined below, on the Grant Date.
(d) Fair Market Value. The fair market value of the Shares
granted on March 13, 1998 shall be the closing asked price as furnished by
NASDAQ on March 13, 1998. The fair market value of all other Shares granted on
any particular day shall be determined as follows:
(i) If the Shares are listed or admitted to trading
on any securities exchange, the fair market value shall be the average
sales price on such day on the New York Stock Exchange, or if the
Shares have not been listed or admitted to trading on the New York
Stock Exchange, on such other securities exchange on which such stock
is then listed or admitted to trading, or if no sale takes place on
such day on any such exchange, the average of the closing bid and asked
price on such day as officially quoted on any such exchange;
(ii) If the Shares are not then listed or admitted to
trading on any securities exchange, the fair market value shall be the
average sales price on such day or, if no sale takes place on such day,
the average of the reported closing bid and asked price on such date,
in the over-the-counter market as furnished by the National
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Association of Securities Dealers Automated Quotation ("NASDAQ"), or if
NASDAQ at the time is not engaged in the business of reporting such
prices, as furnished by any similar firm then engaged in such business
and selected by the Board; or
(iii) If the Shares are not then listed or admitted
to trading in the over-the-counter market, the fair market value shall
be the amount determined by the Board in a manner consistent with
Treasury Regulation Section 20-2031-2 promulgated under the Code or in
such other manner prescribed by the Secretary of the Treasury or the
Internal Revenue Service.
(e) Duration of Plan; Term of Option. The term of the Plan,
unless previously terminated by the Board, is three (3) years or March 13, 2001.
No Option shall be granted under the Plan unless granted within three years
after the adoption of the Plan by the Board, but Options outstanding on that
date shall not be terminated or otherwise affected by virtue of the Plan's
expiration. Except as otherwise indicated in Section 5, all Options
automatically expire ten (10) years from the date of grant.
(f) Vesting of the Options. One-third of the Initial Options
granted on a Grant Date shall vest on the Grant Date; one-third of the Initial
Options shall vest on the first anniversary date after the Grant Date; and the
remaining one-third of the Initial Options shall vest on the second anniversary
date after the Grant Date. One-third of the Annual Options granted on a Grant
Date shall vest on the first anniversary after the Grant Date; one-third of the
Annual Options granted on a Grant Date shall vest on the second anniversary
after the Grant Date; and the remaining one-third of Annual Options granted on a
Grant Date shall vest on the third anniversary after the Grant Date.
NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY, OPTIONS
GRANTED TO THE KEY OFFICERS SHALL NOT BECOME EXERCISABLE UNTIL SHAREHOLDER
APPROVAL AS REQUIRED BY SECTION 4(a) OF THE PLAN HAS BEEN OBTAINED.
4. TERMS AND CONDITIONS OF OPTIONS
(a) Approval by Shareholders. The Plan shall be submitted to
the shareholders of the Company for their approval at a meeting to be held
within twelve (12) months after the adoption of the Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the Shares of Common Stock present in person or by proxy and
voting at the meeting. If the shareholders decline to approve the Plan at such
meeting or if the Plan is not approved by the shareholders within twelve (12)
months after its adoption by the Board, the Plan and all Options and rights
granted hereunder shall automatically terminate to the same extent and with the
same effect as though the Plan had never been adopted.
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(b) Amendments to Plan. The approval of the shareholders of
the Company shall be required to (i) increase the aggregate number of shares of
Common Stock subject to the Plan; (ii) change the class of persons eligible to
receive Options; (iii) modify the period within which Options may be granted,
the exercise price or the terms upon which Options may be exercised, or (iv)
increase the material benefits accruing to participants under the Plan.
(Collectively, each of these changes in the Plan are referred to herein as
"Material Amendments.") The Board may suspend or terminate the Plan at any time.
(c) Individual Agreements. Options granted under the Plan
shall be evidenced by agreements in such form as the Board from time to time
approves, which agreements shall substantially comply with and be subject to the
terms of the Plan.
(d) Required Provisions. Each agreement shall state (i) the
total number of shares to which it pertains, (ii) the exercise price for the
shares covered by the option, (iii) the time at which the option becomes
exercisable, (iv) the scheduled expiration date of the option, (v) the vesting
period(s) for such options, and (vi) the timing and conditions of issuance of
any stock option exercise.
(e) No Fractional Shares. Options shall be granted and
exercisable only for whole shares; no fractional shares will be issuable upon
exercise of any Option granted under the Plan. Fractional Options shall be
rounded down to the nearest whole share number.
(f) Method of Exercising Options. Options shall be exercised
by written notice to the Company, addressed to the Company at its principal
place of business. Such notice shall state the election to exercise the option
and the number of shares with respect to which it is being exercised, and shall
be signed by the person exercising the option. Such notice shall be accompanied
by payment in full of the exercise price for the number of Shares being
purchased. Payment may be made in cash or by bank cashier's check or by
tendering duly endorsed certificates for shares of the Company's Common Stock
then owned by the optionholder. The Company shall deliver a certificate or
certificates representing the Option Shares to the purchaser as soon as
practicable after payment for those Shares has been received. If an Option is
exercised by any person other than the optionholder, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. All Shares that are purchased and paid for in full upon the exercise of
an Option shall be fully paid and non-assessable. The Board may determine that
payment upon the exercise of an Option may be made with Shares owned by the Key
Officer having a fair market value (as determined in Section 3(d)) on the
exercise date equivalent to the amount of payment, or any combination of cash
and such Shares equal to such amount.
(g) No Rights of a Shareholder. An optionholder shall have no
rights as a shareholder with respect to shares covered by an Option. No
adjustment will be made for
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cash dividends for which the record date is prior to the date a stock
certificate is issued upon exercise of an Option. Upon such exercise of an
Option, the holder of the Shares of Common Stock so received shall have all the
rights of a shareholder of the Company as of the date of issuance.
5. TERMINATION OF EMPLOYMENT; ASSIGNABILITY; DEATH
(a) Termination of Employment. If any Key Officer ceases to be
an Employee and if the Key Officer serves as a director then also ceases to be a
director of the Company, other than by reason of death, disability, termination
by the Company "Without Good Cause," (as such terms are defined in Section
7.2(iii) of their employment agreements) termination by the Employee for "Good
Reason," (as such terms are defined in Section 7.4(i) of their employment
agreements) or discharge for good cause, such holder (or his successors in the
case of the holder's death which results in the termination of employment) may,
within three (3) months after the date of termination, or, if the Key Officer is
a director, within three (3) months after removal or resignation as a director,
whichever is later, but in no event after the stated expiration date, purchase
some or all of the Shares with respect to which such optionholder was entitled
to exercise such Option on the date employment terminated, or on the date his
directorship ended, whichever is later.
(b) Assignability. No Option or the privileges conferred
thereby shall be assignable or transferable by a holder other than by will or
the laws of descent and distribution.
(c) Disability. If the Key Officer is removed as an Employee
due to disability, the Key Officer may exercise the Options, in whole or in
part, to the extent they were exercisable on the date when the Key Officer's
employment terminated, at any time prior to the expiration date of the Options
or within one (1) year of the date of removal, whichever is earlier.
(d) Discharge for Good Cause. If a Key Officer is removed as
an Employee of the Company for good cause, the Options shall terminate upon the
effective date of the removal. The Board shall have the right to determine
whether the Key Officer has been discharged for good cause for purposes of the
Plan and the date of such discharge.
(e) Termination Without Good Cause or For Good Reason. If the
Chief Executive Officer or Chief Financial Officer is terminated by the Company
"Without Good Cause" (as such terms are defined in Section 7.2(iii) of their
employment agreements) or if the Chief Executive Officer or Chief Financial
Officer terminates his employment for "Good Reason" (as such terms are defined
in Section 7.4(i) of their employment agreements) (referred to herein as the
"Terminated Officer"), all of the Options granted to the Terminated Officer
prior to his termination shall vest immediately upon termination and the
Terminated Officer shall have until the expiration term of the Options to
exercise them.
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(f) Death of Holder. If Key Officer dies while serving as an
Employee, an Option shall be exercisable until the stated expiration date
thereof by the person or persons ("successors") to whom the holder's rights pass
under will or by the laws of descent and distribution, but only to the extent
that the holder was entitled to exercise the Option at the date of death. An
Option may be exercised (and payment of the Option price made in full) by the
successors only after written notice to the Company, specifying the number of
shares to be purchased. Such notice shall comply with the provisions of Section
4(f).
6. CERTAIN ADJUSTMENTS
Except as limited by Section 422 of the Code, the aggregate
number of Shares subject to the Plan, the number of Shares covered by
outstanding Options, and the price per share stated in such Options shall be
proportionately adjusted for any increase or decrease in the number of
outstanding Shares of Common Stock of the Company resulting from a subdivision
or consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without receipt by the Company of consideration therefor in money,
services or property.
7. COMPLIANCE WITH LEGAL REQUIREMENTS
(a) For Investment Only. If, at the time of exercise of this
Option, there is not in effect as to the Option Shares being purchased a
registration statement under the Securities Act of 1933, as amended (or any
successor statute) (collectively the "1933 Act"), then the exercise of this
option shall be effective only upon receipt by the Company from the Key Officer
(or his legal representatives or heirs) of a written representation that the
Option Shares are being purchased for investment and not for distribution.
(b) Registration Statement Preparation. The Key Officer hereby
agrees to supply the Company with such information and to cooperate with the
Company, as the Company may reasonably request, in connection with the
preparation and filing of the registration statements and amendments thereto
under the Securities Act of 1933 and applicable state statutes and regulations
applicable to the Option Shares. The Company shall not be liable for failure to
issue any such Option Shares where such opinion of counsel cannot be obtained
within the period specified for the exercise of the Option, or where such
registration is required in the opinion of counsel. If shares of Common Stock of
the Company are, at the time of the exercise of this Option, listed upon a
securities exchange, the exercise of this Option shall be contingent upon
completion of the necessary steps to list the Option Shares being purchased upon
such securities exchange.
(c) Additional Restrictions on Option Exercise. Key Officer
may only exercise Options during the period commencing three (3) business days
following the release for publication of quarterly or annual financial
information regarding the Company and
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ending two weeks prior to the end of the then current fiscal quarter of the
Company (the "Release Period").
A "release for publication" shall be deemed to be satisfied if
the specified financial data appears:
(i) On a wire service;
(ii) A financial news service;
(iii) In a newspaper of general circulation; or
(iv) Is otherwise made publicly available.
Notwithstanding any provision to the contrary contained
herein, a Key Officer may exercise Options only so long as such exercise does
not violate the law or any rule or regulation adopted by the appropriate
governmental authority.
8. MISCELLANEOUS
(a) No Funding. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure any payment under the Plan.
(b) Nevada Law. The Plan and the Options shall be governed by
the laws of the State of Nevada.
(c) Modification of Grant, Vesting Date. Should April 1 in any
given year fall on a day on which trading in the Shares is closed, the action
which would have taken place on April 1 shall be delayed until the first day
after April 1 that trading in the Shares commences.
(d) Withholding of Taxes. The Company shall have the right to
deduct from any other compensation of the Key Officer any federal, state or
local income taxes (including FICA) required by law to be withheld with respect
to the granting or exercise of any Options.
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DATED as of the 1st day of June, 1998 and effective as of
March 13, 1998.
MESA AIR GROUP, INC.
By:
--------------------------------
Paul R. Madden
Chairman of the Board
ATTESTED BY:
By:----------------------------
Gary E. Risley
Secretary
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APPENDIX "B"
MESA AIR GROUP, INC.
OUTSIDE DIRECTORS' STOCK OPTION PLAN
1. PURPOSE OF THE PLAN; TYPE OF PLAN
(a) Attract and Retain Talented Outside Directors. The purpose
of the Mesa Air Group, Inc. Outside Directors' Stock Option Plan (the "Plan") is
to attract and retain independent directors ("Qualified Directors") who are and
will be responsible for the restructuring, growth and success of Mesa Air Group,
Inc., a Nevada corporation (the "Company"), and its subsidiaries by providing an
incentive-based form of compensation to the Qualified Directors and encouraging
such Qualified Directors to invest in shares of the Company's Common Stock to
increase the Qualified Directors' personal interest in the success of the
Company. The Plan is also intended to reduce the cash compensation necessary to
attract Qualified Directors.
(b) Designation of Stock Options as Non-Qualified Stock
Options. Stock options granted under the Plan (the "Options") shall not be
treated as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
(c) Exemption from Short-Swing Liability. Options granted to
Qualified Directors of the Company pursuant to this Plan shall be exempt from
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(d) Administration. This Plan may be administered by the Board
of Directors of the Company (the "Board") or by any person or persons chosen by
a majority of the Board.
2. STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
(a) Description of Stock and Maximum Shares Allocated. The
stock subject to the provisions of this Plan and issuable upon exercise of the
Options are shares of the Company's Common Stock, no par value, which may be
either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 6, the aggregate number
of shares of Common Stock covered by the Plan issuable upon exercise of all
Options shall be 150,000 shares, which shares shall be reserved for use upon the
exercise of the Options. (The shares available for Options and all other shares
of Common Stock of the Company shall be referred to as the "Shares.")
(b) Restoration of Unpurchased Shares. If an Option expires or
terminates for any reason prior to the exercise in full before the term of the
Plan expires, the
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Shares subject to, but not issued under, such Option shall again be available
for other Options hereafter granted.
3. FORMULA AND OPERATION OF THE PLAN
(a) Eligible Persons. Options will automatically be granted to
all present and future directors of the Company who are not employees of the
Company or of any subsidiary of the Company ("Qualified Directors").
(b) Date of Grants; Allocation. Each Qualified Director
serving on the Board of Directors as of April 1, 1998, shall receive (i) 3,000
options to purchase 3,000 shares of Common Stock, no par value, plus (ii) the
number of options to purchase Common Stock equivalent to a cash value of $13,000
as calculated pursuant to the Black-Scholes valuation method at a risk-free rate
of a ten-year zero coupon bond (collectively referred to herein as the "Formula
Amount") effective as of April 1, 1998. (For example, if the Black-Scholes
valuation method results in a value of $6.50 per option, each Qualified Director
would receive 2,000 options plus the fixed allocation of 3,000 options, or a
total of 5,000 options at the exercise price as set forth below in Section
3(c).) Each Qualified Director shall receive an additional Formula Amount on
each April 1st thereafter or if at any time there is an insufficient number of
options to make the full Formula Amount allocation, a pro-rata amount of the
remaining options available under the Plan shall be granted to each Qualified
Director.
Any Qualified Director who was not serving as a director as of
April 1, 1998, upon the first business day after being appointed as a director,
shall be granted a pro rata portion of the Formula Amount ("Pro Rata Options")
and Options shall be granted to such Qualified Director on each succeeding April
1 in the Formula Amount. The amount of Pro Rata Options to be granted to each
new Qualified Director shall be calculated by dividing the number of days prior
to April 1 by the number of days in the calendar year and multiplying the
quotient by the Formula Amount.
Any Qualified Director who is serving as the Chairman of the
Board of Directors shall receive an annual grant of the number of options equal
to a value of $10,000 calculated in accordance with the Black-Scholes method as
specified above (the "Chairman's Options") on each April 1st which shall be in
addition to any other options granted to him as a director pursuant to this
Section 3(b). (Each of the dates upon which Options are granted shall be
referred to herein as the "Grant Date.")
(c) Price. The Option price per Share shall not be less than
the fair market value of the Shares, as defined below, on the Grant Date.
(d) Fair Market Value. The fair market value of a Share on any
particular day shall be determined as follows:
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(i) If the Shares are listed or admitted to trading
on any security exchange, the fair market value shall be the average
sales price on such day on the New York Stock Exchange, or if the
Shares have not been listed or admitted to trading on the New York
Stock Exchange, on such other securities exchange on which such stock
is then listed or admitted to trading, or if no sale takes place on
such day on any such exchange, the average of the closing bid and asked
price on such day as officially quoted on any such exchange;
(ii) If the Shares are not then listed or admitted to
trading on any securities exchange, the fair market value shall be the
average sales price on such day or, if no sale takes place on such day,
the average of the reported closing bid and asked price on such date,
in the over-the-counter market as furnished by the National Association
of Securities Dealers Automated Quotation ("NASDAQ"), or if NASDAQ at
the time is not engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business and
selected by the Board; or
(iii) If the Shares are not then listed or admitted
to trading in the over-the-counter market, the fair market value shall
be the amount determined by the Board in a manner consistent with
Treasury Regulation Section 20-2031-2 promulgated under the Code or in
such other manner prescribed by the Secretary of the Treasury or the
Internal Revenue Service.
(e) Duration of Plan; Term of Option. The term of the Plan,
unless previously terminated by the Board, is ten (10) years commencing on the
date of adoption of the Plan by the Board. No Option shall be granted under the
Plan unless granted within ten (10) years of the adoption of the Plan by the
Board, but Options outstanding on that date shall not be terminated or otherwise
affected by virtue of the Plan's expiration. Except as otherwise indicated in
Section 5, all Options automatically expire ten (10) years from the date of
grant.
(f) Vesting of the Options. Options granted to the Qualified
Directors serving as of April 1, 1998 shall fully vest and become exercisable
immediately upon shareholder approval (as required by Section 4(a) of the Plan)
or, with respect to Options granted after shareholders approve the Plan,
immediately upon the Grant Date. Options granted to Qualified Directors who are
not serving as directors as of April 1, 1998, shall vest in full and become
exercisable six (6) months after the Grant Date.
(g) Additional Restrictions on Option Exercise. A Qualified
Director may only exercise Options during the period commencing three (3)
business days following the release for publication of quarterly or annual
financial information regarding the Company
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and ending two (2) weeks prior to the end of the then current fiscal quarter of
the Company (the "Release Period").
A "release for publication" shall be deemed to be satisfied if
the specified financial data appears:
(i) On a wire service;
(ii) A financial news service;
(iii) In a newspaper of general circulation; or
(iv) Is otherwise made publicly available.
Notwithstanding any provision to the contrary contained
herein, a Qualified Director may exercise Options only so long as such exercise
does not violate the law or any rule or regulation adopted by the appropriate
governmental authority.
4. TERMS AND CONDITIONS OF OPTIONS
(a) Approval by Shareholders. The Plan shall be submitted to
the shareholders of the Company for their approval at a meeting to be held
within twelve (12) months after the adoption of the Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the Shares of Common Stock present in person or by proxy and
voting at the meeting. If the shareholders decline to approve the Plan at such
meeting or if the Plan is not approved by the shareholders within twelve (12)
months after its adoption by the Board, the Plan and all Options and rights
granted hereunder shall automatically terminate to the same extent and with the
same effect as though the Plan had never been adopted.
(b) Amendments to Plan. Without the approval of the
shareholders of the Company, the Board shall not (i) increase the aggregate
number of shares of Common Stock subject to the Plan; (ii) change the class of
persons eligible to receive Options; (iii) modify the period within which
Options may be granted, the exercise price or the terms upon which Options may
be exercised, or (iv) increase the material benefits accruing to participants
under the Plan. An amendment to permit the assignment of options other than as
specified in Section 5(b) shall not be considered a Material Amendment.
(Collectively, each of these changes in the Plan are referred to herein as
"Material Amendments.") The Board may suspend or terminate the Plan at any time.
(c) Individual Agreements. Options granted under the Plan
shall be evidenced by agreements in such form as the Board from time to time
approves, which agreements shall substantially comply with and be subject to the
terms of the Plan.
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(d) No Fractional Shares. Options shall be granted and
exercisable only for whole shares; no fractional shares will be issuable upon
exercise of any Option granted under the Plan.
(e) Method of Exercising Options. Options shall be exercised
by written notice to the Company, addressed to the Company at its principal
place of business. Such notice shall state the election to exercise the option
and the number of shares with respect to which it is being exercised, and shall
be signed by the person exercising the option. Such notice shall be accompanied
by payment in full of the exercise price for the number of Shares being
purchased. Payment may be made in cash or by bank cashier's check or by
tendering duly endorsed certificates for shares of the Company's Common Stock
then owned by the optionholder. The Company shall deliver a certificate or
certificates representing the Option Shares to the purchaser as soon as
practicable after payment for those Shares has been received. If an Option is
exercised by any person other than the optionholder, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. All Shares that are purchased and paid for in full upon the exercise of
an Option shall be fully paid and non-assessable. The Board may determine that
payment upon the exercise of an Option may be made with Shares owned by the
Qualified Director having a fair market value on the exercise date equivalent to
the amount of payment, or any combination of cash and such Shares equal to such
amount.
(f) No Rights of a Shareholder. An Optionholder shall have no
rights as a shareholder with respect to shares covered by an Option. No
adjustment will be made for cash dividends for which the record date is prior to
the date a stock certificate is issued upon exercise of an Option. Upon such
exercise of an Option, the holder of the Shares of Common Stock so received
shall have all the rights of a shareholder of the Company as of the date of
issuance.
5. TERMINATION OF DIRECTORSHIP; ASSIGNABILITY; DEATH
(a) Termination of Directorship. If any Optionholder ceases to
be a Director of the Company other than by reason of death, disability or
discharge for cause, such holder (or its successors in the case of the holder's
death which results in the termination of directorship) may, within three months
after the date of termination, but in no event after the stated expiration date,
purchase some or all of the Shares with respect to which such Optionholder was
entitled to exercise such Option, on the date such directorship terminated;
provided, that if after directorship is terminated, the holder commits acts
detrimental to the Company's interests as determined by a two-thirds vote of the
members of the Board, then the Option shall thereafter be void for all purposes.
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(b) Assignability. No Option or the privileges conferred
thereby shall be assignable or transferable by a holder other than by will or
the laws of descent and distribution.
(c) Disability. If the Optionholder is removed as a director
due to disability, the Optionholder may exercise the Options, in whole or in
part, to the extent they were exercisable on the date when the Optionholder's
directorship terminated, at any time prior to the expiration date of the Options
or within one (1) year of the date of removal, whichever is earlier.
(d) Discharge for Cause. If an Optionholder is removed as a
director of the Company for cause, the Options shall terminate upon receipt by
the Optionholder of a notice of such removal or on the effective date of the
removal, whichever is earlier. The Board shall have the right to determine
whether the optionholder has been discharged for cause for purposes of the Plan
and the date of such discharge.
(e) Death of Holder. If Optionholder dies while serving as a
director, an Option shall be exercisable until the stated expiration date
thereof by the person or persons ("successors") to whom the holder's rights pass
under will or by the laws of descent and distribution, but only to the extent
that the holder was entitled to exercise the Option at the date of death. An
Option may be exercised (and payment of the option price made in full) by the
successors only after written notice to the Company, specifying the number of
shares to be purchased. Such notice shall comply with the provisions of Section
4(e).
6. CERTAIN ADJUSTMENTS
(a) Capital Adjustments. Except as limited by Section 422 of
the Code, the aggregate number of Shares subject to the Plan, the number of
Shares covered by outstanding Options, and the price per share stated in such
Options shall be proportionately adjusted for any increase or decrease in the
number of outstanding Shares of Common Stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment or the
payment of a stock dividend or any other increase or decrease in the number of
such shares effected without receipt by the Company of consideration therefor in
money, services or property.
(b) Mergers, Etc. Except as limited by the provisions of
Section 422 of the Code, if the Company is the surviving corporation in any
merger or consolidation, any Option granted under the Plan shall pertain to and
apply to the securities to which a holder of the number of Shares subject to the
Option would have been entitled. A dissolution or liquidation of the Company
shall cause every Option outstanding hereunder to terminate, unless specifically
provided otherwise by the Board. A merger or consolidation in which the Company
is not the surviving corporation shall also cause every Option outstanding
hereunder to terminate, unless specifically provided otherwise by the Board, but
each holder
B-6
<PAGE> 51
shall have the right immediately prior to a merger or consolidation in which the
Company is not the surviving corporation, to exercise such Option in whole or in
part without regard to any installment provisions contained in the Option
agreement.
7. COMPLIANCE WITH LEGAL REQUIREMENTS
(a) For Investment Only. If, at the time of exercise of this
Option, there is not in effect as to the Option Shares being purchased a
registration statement under the Securities Act of 1933, as amended (or any
successor statute) (collectively the "1933 Act"), then the exercise of this
option shall be effective only upon receipt by the Company from the Director (or
his legal representatives or heirs) of a written representation that the Option
Shares are being purchased for investment and not for distribution.
(b) Registration Statement Preparation. Each Qualified
Director hereby agrees to supply the Company with such information and to
cooperate with the Company, as the Company may reasonably request, in connection
with the preparation and filing of the registration statements and amendments
thereto under the Securities Act of 1933 and applicable state statutes and
regulations applicable to the Option Shares. The Company shall not be liable for
failure to issue any such Option Shares where such opinion of counsel cannot be
obtained within the period specified for the exercise of the Option, or where
such registration is required in the opinion of counsel. If shares of Common
Stock of the Company are, at the time of the exercise of this Option, listed
upon a securities exchange, the exercise of this Option shall be contingent upon
completion of the necessary steps to list the Option Shares being purchased upon
such securities exchange.
(c) Compliance with Law. No Shares shall be issued or
transferred upon the exercise of any Option unless and until the following
occurs:
(i) All legal requirements applicable to the issuance
or transfer of Shares have been complied with; and
(ii) All requirements of any national securities
exchange or association upon which the Shares are listed, traded or
quoted have been met, in each case to the satisfaction of the Board.
The Board shall have the right to condition the issuance of any Shares
made to any person hereunder on such person's undertaking in writing to
comply with such restrictions on his or her subsequent disposition of
such Shares as the Board shall deem necessary or advisable as a result
of any applicable law, regulation or official interpretation thereof,
and certificates representing such shares may contain a legend to
reflect any such restriction.
B-7
<PAGE> 52
8. MISCELLANEOUS
(a) No Funding. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure any payment under the Plan.
(b) Nevada Law. The Plan and the Options shall be governed by
the laws of the State of Nevada.
(c) Modification of Grant, Vesting Date. Should April 1 in any
given year fall on a day on which trading in the Shares is closed, the action
which would have taken place on April 1 shall be delayed until the first day
after April 1 that trading in the Shares commences.
DATED as of the 1st day of June, 1998 and effective as of
April 1, 1998.
MESA AIR GROUP, INC.
By:
--------------------------------
--------------------------------
--------------------------------
ATTESTED BY:
By:
---------------------
Gary E. Risley
Secretary
B-8
<PAGE> 53
APPENDIX "C"
MESA AIR GROUP, INC.
RESTATED AND AMENDED
EMPLOYEE STOCK OPTION PLAN
RECITALS:
A. On December 1, 1995, the Board of Directors of Mesa Air
Group, Inc. (the "Company") adopted an Employee Stock Option Plan to be
effective as of June 28, 1995 (the "Employee Plan").
B. On March 22, 1996, the Board of Directors of the Company
adopted the First Amendment to the Employee Plan and thereafter, on April 8,
1996, the Employee Plan, as amended, was approved by the shareholders of the
Company.
C. The Employee Plan, as amended, provides that amendments to
the Employee Plan may be adopted without the approval of shareholders so long as
the amendments are not Material Amendments as defined in Section 4(b) of the
Employee Plan, as amended.
D. The Company desires to further amend the Employee Plan, as
amended, to correct certain typographical and reference errors and to conform
the Employee Plan to the existing policy of the Company which restricts trading
in securities of the Company by certain employees and, in doing so to restate
the Plan as amended. The Employee Plan as amended and restated is hereinafter
referred to as the "Plan."
1. PURPOSE OF THE PLAN; TYPE OF PLAN
(a) Attract and Retain Key Employees. The purpose of the Plan
is to attract and retain key employees who are and will be responsible for the
growth and success of the Company and its subsidiaries. The term "subsidiary"
means any corporation other than the Company in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
Option, as defined below, each of the corporations other than the last
corporation in the unbroken chain owns shares possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. The term "Employee" includes individuals employed by
the Company or any of its subsidiaries.
(b) Incentive Stock Options. Some one or more of the options
granted under the Plan may be intended to qualify as an "incentive stock option"
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and any grant of such an option shall clearly specify that such option
is intended to so qualify. If no such specification is made, an option granted
hereunder shall be intended to not qualify as an "incentive stock option."
<PAGE> 54
(c) Exemption from Short-Swing Liability. Options granted to
Officers or Directors of the Company ("Insiders") pursuant to this Plan shall be
exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), pursuant to Regulation Section 240.16(b)-3 adopted under
the Exchange Act which was enacted on May 1, 1991.
(d) Formula Plan. This Plan may be administered by the Board
of Directors of the Company (the "Board") or by any person or persons chosen by
a majority of the Board. Grants or awards made pursuant to this Plan are to be
made pursuant to the formula set forth in Section 3 (the "Formula") which may be
adjusted for non-Insiders at the sole discretion of the Compensation Committee
upon the recommendation of the Chief Executive Officer. The Formula is intended
to qualify under Regulation 240.16b-3(c)(2)(ii) of the Exchange Act, thereby
alleviating the necessity for disinterested administration of the Plan required
by Regulation 240.16b-3(c)(2)(i).
2. STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN
(a) Description of Stock and Maximum Shares Allocated. The
stock subject to the provisions of this Plan and issuable upon exercise of the
Options are shares of the Company's Common Stock, no par value, which may be
either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 6, the aggregate number
of shares of Common Stock covered by the Plan issuable upon exercise of all
Options shall be 2,800,000 Shares, which shares shall be reserved for use upon
the exercise of the Options. The shares available for Options and all other
shares of Common Stock of the Company shall be referred to as the "Shares."
(b) Restoration of Unpurchased Shares. If an Option expires or
terminates for any reason prior to the exercise in full before the term of the
Plan expires, the Shares subject to, but not issued under, such Option shall
again be available for other Options hereafter granted.
3. FORMULA AND OPERATION OF THE PLAN
(a) Eligible Persons. Options shall automatically be granted
to the Insiders listed on Schedule "A" in the amounts provided in Section 3(b)
and on Schedule "B." Unless otherwise directed by the Chief Executive Officer,
Options shall be granted to the persons, other than Insiders, who fill each of
the positions listed on Schedule "C" attached hereto (all parties listed on
Schedule "C" shall be referred to herein as "Key Employees").
(b) Date of Grants; Allotment; Adjustment.
Options shall be granted to Insiders in the amounts
set forth in Schedule "B" on June 28, 1995 and on April 1 1996 and
1997; and, with respect to non-Insiders, on those same dates in amounts
determined by the Chief Executive
C-2
<PAGE> 55
Officer of the Company up to a maximum amount of 370,000 Options per
year. If an Insider is employed by the Company after June 28, 1995,
Insider shall, upon the first day of employment, be granted a pro rata
portion of the Options as set forth in the column labeled "April 1,
1996 and 1997" shown on Schedule "B" (collectively, the "Pro Rata
Options") and Options shall be granted to such Insider on each
succeeding April 1 in the amounts set forth in Schedule "B." The amount
of Pro Rata Options to be granted to each Insider shall be calculated
by dividing the number of days prior to April 1 by the number of days
in the calendar year and multiplying the quotient by the number of
Options listed in Schedule "B" to be allotted to that Insider. Options
granted to non-Insider Key Employees employed by the Company subsequent
to June 28, 1995, shall be pro-rated in a similar manner if granted for
the year in which employment commenced.
(c) Price. The Option price per Share shall not be less than
the fair market value of the Shares, as defined below, on the Grant Date.
(d) Fair Market Value.
(1) If the options granted are intended to qualify as
incentive stock options, the fair market value of a Share on any
particular day shall be determined as follows:
(a) If the Shares are listed or admitted to
trading on any securities exchange, the fair market value
shall be the average sales price on such day on the New York
Stock Exchange, or if the Shares have not been listed or
admitted to trading on the New York Stock Exchange, on such
other securities exchange on which such stock is then listed
or admitted to trading, or if no sale takes place on such day
on any such exchange, the average of the closing bid and asked
price on such day as officially quoted on any such exchange;
(b) If the Shares are not then listed or
admitted to trading on any securities exchange, the fair
market value shall be the average sales price on such day or,
if no sale takes place on such day, the average of the
reported closing bid and asked price on such date, in the
over-the-counter market as furnished by the National
Association of Securities Dealers Automated Quotation
("NASDAQ"), or if NASDAQ at the time is not engaged in the
business of reporting such prices, as furnished by any similar
firm then engaged in such business and selected by the Board;
or
(c) If the Shares are not then listed or
admitted to trading in the over-the-counter market, the fair
market value shall be the amount determined by the Board in a
manner consistent with Treasury Regulation
C-3
<PAGE> 56
Section 20-2031-2 promulgated under the Code or in such other manner
prescribed by the Secretary of the Treasury or the Internal Revenue
Service.
(2) If the Options granted are not intended to
qualify as incentive stock options, the fair market value of a Share on
any particular day shall be determined as follows:
(a) If the Shares are listed or admitted to
trading on any securities exchange, the fair market value
shall be the low sales price on such day on the New York Stock
Exchange, or if the Shares have not been listed or admitted to
trading on the New York Stock Exchange, on such other
securities exchange on which such stock is then listed or
admitted to trading, or if no sale takes place on such day on
any such exchange, the average of the closing bid and asked
price on such day as officially quoted on any such exchange;
(b) If the Shares are not then listed or
admitted to trading on any securities exchange, the fair
market value shall be the low sales price on such day or, if
no sale takes place on such day, the low closing bid price on
such date, in the over-the-counter market as furnished by the
National Association of Securities Dealers Automated Quotation
("NASDAQ"), or if NASDAQ at the time is not engaged in the
business of reporting such prices, as furnished by any similar
firm then engaged in such business and selected by the Board;
or
(c) If the Shares are not then listed or
admitted to trading in the over-the-counter market, the fair
market value shall be the amount determined by the Board in a
manner consistent with Treasury Regulation Section 20-2031-2
promulgated under the Code or in such other manner prescribed
by the Secretary of the Treasury or the Internal Revenue
Service.
(e) Duration of Plan. The term of the Plan, unless previously
terminated by the Board, is ten years or June 28, 2005. No Option shall be
granted under the Plan unless granted within ten years after the adoption of the
Plan by the Board, but Options outstanding on that date shall not be terminated
or otherwise affected by virtue of the Plan's expiration.
(f) Vesting of the Options and Pro Rata Options. One-third of
the total Options granted on a Grant Date shall vest on the first anniversary
date after the Grant Date; one-third of the total Options granted on a Grant
Date shall vest on the second anniversary date after the Grant Date; and the
remaining one-third of the total Options granted on a Grant Date shall vest on
the third anniversary date after the Grant Date. One-third of the total Pro Rata
Options shall vest on the first April 1 after their Grant Date (the "Initial
Vesting Date"); one-third of the total Pro Rata Options shall vest on the first
anniversary date after the Initial Vesting Date; and the remaining one-third of
the total Pro Rata Options shall vest on the second anniversary date after the
Initial Vesting Date. However, Pro Rata Options granted to
C-4
<PAGE> 57
Insiders on or after October 1 and prior to April 1 in any year shall not vest
until the second April 1 following the Grant Date at which time two-thirds of
the total Pro Rata Options shall vest and the remaining one-third of the total
Pro Rata Options shall vest on the first anniversary date thereafter.
NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY, OPTIONS
GRANTED TO THE KEY EMPLOYEES SHALL NOT BECOME EXERCISABLE UNTIL SHAREHOLDER
APPROVAL AS REQUIRED BY SECTION 4(a) OF THE PLAN HAS BEEN OBTAINED; AND OPTIONS
GRANTED TO INSIDERS SHALL NOT BECOME EXERCISABLE UNTIL (i) A MINIMUM OF SIX (6)
MONTHS HAS PASSED FROM THE DATE OF SHAREHOLDER APPROVAL, OR (ii) A MINIMUM OF
ONE (1) YEAR HAS PASSED FROM THE GRANT DATE, WHICHEVER OCCURS LATER.
4. TERMS AND CONDITIONS OF OPTIONS
(a) Approval by Shareholders. The Plan shall be submitted to
the shareholders of the Company for their approval at their regular meeting to
be held within twelve (12) months after the adoption of the Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the Shares of Common Stock present in person or by proxy and
voting at the meeting. If the shareholders decline to approve the Plan at such
meeting or if the Plan is not approved by the shareholders within twelve (12)
months after its adoption by the Board, the Plan and all Options and rights
granted hereunder shall automatically terminate to the same extent and with the
same effect as though the Plan had never been adopted.
(b) Amendments to Plan. The approval of the shareholders of
the Company shall be required to (i) increase the aggregate number of shares of
Common Stock subject to the Plan; (ii) change the class of persons eligible to
receive Options; (iii) modify the period within which Options may be granted,
the exercise price or the terms upon which Options may be exercised, or (iv)
increase the material benefits accruing to participants under the Plan.
(Collectively, each of these changes in the Plan are referred to herein as
"Material Amendments.") Notwithstanding any other terms contained herein to the
contrary, no Material Amendments shall be made to the Plan more than one time in
any given one year period. The Board, however, may suspend or terminate the Plan
at any time.
(c) Individual Agreements. Options granted under the Plan
shall be evidenced by agreements in such form as the Board from time to time
approves, which agreements shall substantially comply with and be subject to the
terms of the Plan.
(d) Required Provisions. Each agreement shall state (i) the
total number of shares to which it pertains, (ii) the exercise price for the
shares covered by the option, (iii) the time at which the option becomes
exercisable, (iv) the scheduled expiration date of the
C-5
<PAGE> 58
option, (v) the vesting period(s) for such options, and (vi) the timing and
conditions of issuance of any stock option exercise.
(e) No Fractional Shares. Options shall be granted and
exercisable only for whole shares; no fractional shares will be issuable upon
exercise of any Option granted under the Plan. Fractional Options shall be
rounded down to the nearest whole share number.
(f) Method of Exercising Options. Options shall be exercised
by written notice to the Company, addressed to the Company at its principal
place of business. Such notice shall state the election to exercise the option
and the number of shares with respect to which it is being exercised, and shall
be signed by the person exercising the option. Such notice shall be accompanied
by payment in full of the exercise price for the number of Shares being
purchased. Payment may be made in cash or by bank cashier's check or by
tendering duly endorsed certificates for shares of the Company's Common Stock
then owned by the optionholder. The Company shall deliver a certificate or
certificates representing the Option Shares to the purchaser as soon as
practicable after payment for those Shares has been received. If an Option is
exercised by any person other than the optionholder, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. All Shares that are purchased and paid for in full upon the exercise of
an Option shall be fully paid and non-assessable. The Board may determine that
payment upon the exercise of an Option may be made with Shares owned by the Key
Employee having a fair market value on the exercise date equivalent to the
amount of payment, or any combination of cash and such Shares equal to such
amount.
(g) No Rights of a Shareholder. An optionholder shall have no
rights as a shareholder with respect to shares covered by an Option. No
adjustment will be made for cash dividends for which the record date is prior to
the date a stock certificate is issued upon exercise of an Option. Upon such
exercise of an Option, the holder of the Shares of Common Stock so received
shall have all the rights of a shareholder of the Company as of the date of
issuance.
5. TERMINATION OF EMPLOYMENT; ASSIGNABILITY; DEATH
(a) Termination of Employment. If any optionholder ceases to
be an employee of the Company other than for Retirement (as such is defined in
Section 5(b)), death, disability or discharge for cause, such holder (or his
successors in the case of the holder's death after the termination of
employment) may, within three months after the date of termination, but in no
event after the stated expiration date, purchase some or all of the Shares with
respect to which such optionholder was entitled to exercise such Option on the
date employment terminated; provided, that if after employment is terminated,
the holder commits acts detrimental to the Company's interests, then the Option
shall thereafter be void for all purposes.
C-6
<PAGE> 59
(b) Retirement. If any optionholder (i) ceases to be an
employee of the Company other than by reason of death, disability or discharge
for cause; and (ii) has been continuously employed by the Company for five or
more years; and is (iii) over fifty-nine and one-half (59-1/2) years of age
(collectively referred to as "Retirement"), all of the options which have been
granted to such optionholder prior to Retirement shall vest thirty (30) days
after Retirement (the "Vested Options"). Such holder (or his successors in the
case of the holder's death after Retirement) may, within three months after the
date of Retirement or prior to the stated expiration date, whichever first
occurs, purchase some or all of the Shares which such optionholder was entitled
to exercise; provided, that (i) if the holder's employment is terminated for
dishonesty or other acts detrimental to the Company's interests or for the
holder's breach of any employment, confidentiality or other contract or
agreement with the Company, or (ii) if after employment is terminated, the
holder commits acts detrimental to the Company's interests, then the Option
shall thereafter be void for all purposes.
(c) Assignability. No Option or the privileges conferred
thereby shall be assignable or transferable by a holder other than by will or
the laws of descent and distribution.
(d) Disability. If the optionholder is removed as an employee
due to disability, the optionholder may exercise the Options, in whole or in
part, to the extent they were exercisable on the date when the optionholder's
employment terminated, at any time prior to the expiration date of the Options
or within one year of the date of removal, whichever is earlier.
(e) Discharge for Cause. If an optionholder is removed as an
employee of the Company for cause, the Options shall terminate upon receipt by
the optionholder of a notice of such removal or on the effective date of the
removal, whichever is earlier. The Board shall have the right to determine
whether the optionholder has been discharged for cause for purposes of the Plan
and the date of such discharge.
(f) Death of Holder. If optionholder dies while serving as an
employee, an Option shall be exercisable until the stated expiration date
thereof by the person or persons ("successors") to whom the holder's rights pass
under will or by the laws of descent and distribution, but only to the extent
that the holder was entitled to exercise the Option at the date of death. An
Option may be exercised (and payment of the option price made in full) by the
successors only after written notice to the Company, specifying the number of
shares to be purchased. Such notice shall comply with the provisions of Section
4(e).
6. CERTAIN ADJUSTMENTS
(a) Capital Adjustments. Except as limited by Section 422 of
the Code, the aggregate number of Shares subject to the Plan, the number of
Shares covered by outstanding Options, and the price per share stated in such
Options shall be proportionately adjusted for
C-7
<PAGE> 60
any increase or decrease in the number of outstanding Shares of Common Stock of
the Company resulting from a subdivision or consolidation of shares or any other
capital adjustment or the payment of a stock dividend or any other increase or
decrease in the number of such shares effected without receipt by the Company of
consideration therefor in money, services or property.
(b) Mergers, Etc. Except as limited by the provisions of
Section 422 of the Code, if the Company is the surviving corporation in any
merger or consolidation, any Option granted under the Plan shall pertain to and
apply to the securities to which a holder of the number of Shares subject to the
Option would have been entitled. A dissolution or liquidation of the Company
shall cause every Option outstanding hereunder to terminate, unless specifically
provided otherwise by the Board. A merger or consolidation in which the Company
is not the surviving corporation shall also cause every Option outstanding
hereunder to terminate, unless specifically provided otherwise by the Board, but
each holder shall have the right immediately prior to a merger or consolidation
in which the Company is not the surviving corporation, to exercise such Option
in whole or in part without regard to whether such Options have vested.
7. COMPLIANCE WITH LEGAL REQUIREMENTS
(a) For Investment Only. If, at the time of exercise of this
option, there is not in effect as to the Option Shares being purchased a
registration statement under the Securities Act of 1933, as amended (or any
successor statute) (collectively the "1933 Act"), then the exercise of this
option shall be effective only upon receipt by the Company from the Key Employee
(or his legal representatives or heirs) of a written representation that the
Option Shares are being purchased for investment and not for distribution.
(b) Registration Statement Preparation. The Key Employee
hereby agrees to supply the Company with such information and to cooperate with
the Company, as the Company may reasonably request, in connection with the
preparation and filing of the registration statements and amendments thereto
under the Securities Act of 1933 and applicable state statutes and regulations
applicable to the Option Shares. The Company shall not be liable for failure to
issue any such Option Shares where such opinion of counsel cannot be obtained
within the period specified for the exercise of the option, or where such
registration is required in the opinion of counsel. If shares of Common Stock of
the Company are, at the time of the exercise of this option, listed upon a
securities exchange, the exercise of this option shall be contingent upon
completion of the necessary steps to list the Option Shares being purchased upon
such securities exchange.
(c) Additional Restrictions on Option Exercise. Key Employee
may only exercise Options during the period commencing three days following the
release for publication of quarterly or annual financial information regarding
the Company and ending two weeks prior to the end of the then current fiscal
quarter of the Company (the "Release Period").
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<PAGE> 61
A "release for publication" shall be deemed to be satisfied if
the specified financial data appears:
(1) On a wire service;
(2) A financial news service;
(3) In a newspaper of general circulation; or
(4) Is otherwise made publicly available.
Notwithstanding any provision to the contrary contained
herein, a Key Employee may exercise Options only so long as such exercise does
not violate the law or any rule or regulation adopted by the appropriate
governmental authority.
8. MISCELLANEOUS
(a) No Funding. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure any payment under the Plan.
(b) New Mexico Law. The Plan and the Options shall be governed
by the laws of the State of New Mexico.
(c) Modification of Grant, Vesting Date. Should April 1 in any
given year fall on a day on which trading in the Shares is closed, the action
which would have taken place on April 1 shall be delayed until the first day
after April 1 that trading in the Shares commences.
(d) Withholding of Taxes. The Company shall have the right to
deduct from any other compensation of the Grantee any federal, state or local
income taxes (including FICA) required by law to be withheld with respect to the
granting or exercise of any Options.
DATED as of the 23rd day of April, 1996 and effective as of
June 28, 1995.
MESA AIR GROUP, INC.
By:
--------------------------------
W. Stephen Jackson
Chief Financial Officer
ATTESTED BY:
C-9
<PAGE> 62
By:
---------------------
Secretary
C-10
<PAGE> 63
SCHEDULE "A"
Larry L. Risley, Chief Executive Officer
J. Clark Stevens, Chief Operating Officer
W. Stephen Jackson, Chief Financial Officer
Gary E. Risley, Chief Legal Officer
<PAGE> 64
SCHEDULE "B"
<TABLE>
<CAPTION>
JUNE 28, 1995 APRIL 1, 1996 AND 1997
POSITION OPTION AMOUNTS OPTION AMOUNTS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MESA AIR GROUP, INC.:
Chief Executive Officer 300,000 150,000
Chief Operating Officer 160,000 80,000
Chief Financial Officer 100,000 50,000
Chief Legal Officer 100,000 50,000
</TABLE>
<PAGE> 65
SCHEDULE "C"
KEY EMPLOYEE POSITIONS
MESA AIR GROUP, INC.:
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Chief Legal Officer
Vice President Airline Operations
Vice President Safety
Vice President Maintenance
Vice President Planning/Pricing
Vice President Corporate Communications
Corporate Controller
Director, Information Systems
Tax Manager
Director, Corporate Accounting
Director, Revenue Accounting (Vacant)
Corporate Accountant
Special Projects Manager
Manager, Planning/Pricing
<PAGE> 66
(GREATER THAN) $150 MILLION DIVISION/SUBSIDIARY:
President
Vice President
Controller
$100 MILLION DIVISION/SUBSIDIARY:
President
Vice President
Controller
(LESS THAN) $100 MILLION DIVISION/SUBSIDIARY:
President
Vice President
Controller
<PAGE> 67
APPENDIX "C-1"
FIRST AMENDMENT TO RESTATED AND
AMENDED MESA AIR GROUP, INC.
EMPLOYEE STOCK OPTION PLAN
This FIRST AMENDMENT TO RESTATED AND AMENDED MESA AIR GROUP,
INC. EMPLOYEE STOCK OPTION PLAN (the "Amendment") is dated as of the effective
date set forth below, by Mesa Air Group, Inc. (the "Company").
RECITALS:
A. The Board of Directors of the Company adopted a Restated
and Amended Employee Stock Option Plan to be effective as of June 28, 1995 (the
"Employee Plan") and thereafter, on April 8, 1996, the Employee Plan was
approved by the shareholders of the Company.
B. The Company believes that the annual issuance of stock
options is an important factor in attracting, motivating and retaining qualified
key employees essential to the success of the Company.
C. As of April 1, 1998, there were approximately 345,000
options available for grant pursuant to the Employee Plan.
D. The Company desires to increase the aggregate number of
options available for issuance pursuant to the Employee Plan and to permit the
granting of options to future senior officers not listed in the allocation
table.
E. The Company desires to amend the Employee Plan to reflect
changes in the law under which the Employee Plan is governed.
F. The Company has entered into employment agreements with the
Chief Executive Officer and the Chief Financial Officer that necessitate
amending the Employee Plan.
G. The Company desires to change the law governing the
Employee Plan to reflect the change in the Company's domicile in 1996.
H. On June 1, 1998, the Board of Directors adopted this First
Amendment to the Employee Plan subject to approval by the shareholders of the
Company.
<PAGE> 68
THEREFORE, the Employee Plan is hereby amended as follows:
1. Section 1(d) Formula Plan is hereby deleted in its
entirety. The following language is substituted in its place:
Formula Plan. This Plan may be administered
by the Board of Directors of the Company (the "Board"), the
Compensation Committee or by any person or persons chosen by a
majority of the Board. Grants or awards made pursuant to this
Plan are to be made pursuant to the formula set forth in
Section 3 (the "Formula") which may be adjusted for
non-Insiders at the sole discretion of the Compensation
Committee upon the recommendation of the Chief Executive
Officer.
2. Section 2(a) Description of Stock and Maximum Shares
Allocated is hereby deleted in its entirety. The following language is
substituted in its place:
The stock subject to the provisions of this
Plan and issuable upon exercise of the Options are shares of
the Company's Common Stock, no par value, which may be either
unissued or treasury shares, as the Board may from time to
time determine. Subject to adjustment as provided in Section
6, the aggregate number of shares of Common Stock covered by
the Plan issuable upon exercise of all Options shall be four
million three hundred thousand (4,300,000) Shares, which
shares shall be reserved for use upon the exercise of the
Options. The shares available for Options and all other shares
of Common Stock of the Company shall be referred to as the
"Shares."
3. Section 3(a) Eligible Persons is hereby deleted in its
entirety. The following language is substituted in its place:
(a) Eligible Persons. Options shall
automatically be granted to the Insiders listed on Schedule
"A" in the amounts provided in Section 3(b) and on Schedule
"B." Unless otherwise directed by the Chief Executive Officer,
Options shall be granted to the persons, other than Insiders,
who fill each of the positions listed on Schedule "C" attached
hereto (all parties listed on Schedule "C" shall be referred
to herein as "Key Employees").
Notwithstanding Section 3(a) above, the
Compensation Committee, upon the recommendation of the Chief
Executive Officer, may grant Options to officers other than
those with positions listed on Schedule "A" or reduce the
annual allocation of options to officers listed in Schedule
"B" who are employed by the Company after August 1, 1998.
C-1-2
<PAGE> 69
4. Section 3(b) Date of Grants; Allotment; Adjustment is
hereby deleted in its entirety. The following language is substituted in its
place:
Options shall be granted to Insiders in the
amounts set forth in Schedule "B" on April 1, 1998, 1999 and
2000; and, with respect to non-Insiders, on those same dates
in amounts determined by the Chief Executive Officer of the
Company. If an Insider is employed by the Company after April
1, 1998, Insider shall, upon the first day of employment, be
granted a pro rata portion of the Options as set forth in the
column labeled "April 1, 1999 and 2000" shown on Schedule "B"
(collectively, the "Pro Rata Options") and Options shall be
granted to such Insider on each succeeding April 1 in the
amounts set forth in Schedule "B." The amount of Pro Rata
Options to be granted to each Insider shall be calculated by
dividing the number of days prior to April 1 by the number of
days in the calendar year and multiplying the quotient by the
number of Options listed in Schedule "B" to be allotted to
that Insider.
5. Section 4(b) Amendments to Plan is hereby deleted in its
entirety. The following language is substituted in its place:
(b) Amendments to Plan. The approval of the
shareholders of the Company shall be required to (i) increase
the aggregate number of shares of Common Stock subject to the
Plan; (ii) modify the period within which Options may be
granted, the exercise price or the terms upon which Options
may be exercised if such terms or changes would be materially
beneficial to the Optionholder; or (iii) increase the material
benefits accruing to participants under the Plan.
(Collectively, each of these changes in the Plan are referred
to herein as "Material Amendments.") The Board may suspend or
terminate the Plan at any time.
6. Section 5(a) Termination of Employment is hereby deleted in
its entirety. The following language is substituted in its place:
(a) Termination of Employment. If any
optionholder ceases to be an Employee of the Company other
than for Retirement (as such is defined in Section 5(b)),
death, disability, termination by the Company "Without Good
Cause" (with respect to Employees subject to employment
agreements with the Company), termination by the Employee for
"Good Reason" (with respect to Employees subject to employment
agreements with the Company) or discharge for cause, such
holder (or his successors in the case of the holder's death
after the termination of employment) may, within three (3)
months after the date of termination, but in no event after
the stated expiration date, purchase some or all of the Shares
with respect to which such
C-1-3
<PAGE> 70
optionholder was entitled to exercise such Option on the date
employment terminated.
7. Section 5(b) Retirement is hereby deleted in its entirety.
The following language is substituted in its place:
(b) Retirement. If any optionholder (i)
ceases to be an employee of the Company other than by reason
of death, disability or discharge for cause; and (ii) has been
continuously employed by the Company for five or more years;
and is (iii) over fifty-nine and one-half (59-1/2) years of
age (collectively referred to as "Retirement"), all of the
options which have been granted to such optionholder prior to
Retirement shall vest thirty (30) days after Retirement (the
"Vested Options"). Such holder (or his successors in the case
of the holder's death after Retirement) may, within three
months after the date of Retirement or prior to the stated
expiration date, whichever first occurs, purchase some or all
of the Shares which such optionholder was entitled to
exercise; provided, that if after employment is terminated,
the holder commits acts detrimental to the Company's
interests, then the Option shall thereafter be void for all
purposes.
8. Section 5 TERMINATION OF EMPLOYMENT; ASSIGNABILITY; DEATH
shall be amended to include the following language:
(g) Termination of Key Employee.
Notwithstanding any language contained in Section 5(a), upon
the termination of any Key Employee (with whom the Company has
entered into an Employment Agreement) for Good Reason by the
Key Employee or Without Cause by the Company, as those terms
are defined in such Employment Agreement, all Options granted
on or prior to the date of termination shall immediately vest
and any risk of forfeiture with respect thereto shall be
deemed to have lapsed.
9. Section 8(b) New Mexico Law is hereby deleted in its
entirety. The following language is substituted in its place:
(b) Nevada Law. The Plan and the Options
shall be governed by the laws of the State of Nevada.
C-1-4
<PAGE> 71
10. Schedule A is hereby deleted in its entirety. The
following language is substituted in its place:
Jonathan G. Ornstein, Chief Executive Officer
J. Clark Stevens, Chief Operating Officer
Blaine M. Jones, Chief Financial Officer
Gary E. Risley, Chief Legal Officer
11. Schedule B is hereby deleted in its entirety. The
following language is substituted in its place:
SCHEDULE "B"
<TABLE>
<CAPTION>
APRIL 1, 1998 APRIL 1, 1999 AND 2000
POSITION OPTION AMOUNTS OPTION AMOUNTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MESA AIR GROUP, INC.:
Chief Executive Officer 0 0
Chief Operating Officer 80,000 80,000
Chief Financial Officer 50,000 (1) 0
Chief Legal Officer 50,000 50,000
</TABLE>
- --------------------
(1) Granted to W. Stephen Jackson before his resignation.
DATED as of the 1st day of June, 1998 and effective as of
April 1, 1998, except with respect to Section 5(g) which shall not be effective
until August 1, 1998.
MESA AIR GROUP, INC.
By:
--------------------------------
Blaine M. Jones
Chief Financial Officer
ATTESTED BY:
By:
---------------------
Gary E. Risley
Secretary
C-1-5
<PAGE> 72
APPENDIX "D"
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is dated as of
September 10, 1997 and effective as of the 6th day of June, 1997, by and between
Mesa Air Group, Inc., a Nevada corporation (the "Company"), and the undersigned
officer or director of the Company (the "Indemnitee").
RECITALS:
A. The Company believes it is important to attract nationally recognized
independent directors and to retain the services of the directors and officers
responsible for its day-to-day operations. To attract and retain capable
directors and officers of the Company, the Company desires to enter into
indemnification agreements with its directors and officers.
B. Since the Company reincorporated in the State of Nevada, the Company
and the officers and directors of the Company need to enter into new
indemnification agreements to comply with Nevada law.
C. Indemnitee is a director or officer of the Company.
D. The Bylaws permit the Company to indemnify its directors and officers
and Indemnitee has agreed to serve as a director or officer of the Company in
part in reliance on the availability of such indemnification.
NOW, THEREFORE, in consideration of the service of Indemnitee as an
officer or director of the Company and other good and valuable consideration,
the Company and the undersigned hereby agree:
AGREEMENTS:
1. OBLIGATION TO INDEMNIFY. Subject to the limitations and conditions
set forth in this Agreement, the Company hereby agrees to indemnify Indemnitee
for, and hold Indemnitee harmless from and against, any loss, cost, or other
damages of whatever nature, including, but not limited to, judgments, penalties,
excise and similar taxes, fines, settlements, attorneys' fees, and reasonable
expenses and costs ("Damages") incurred by Indemnitee because Indemnitee was,
is, or is threatened to be made, a named defendant or respondent or is a witness
or participant in any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal of such an action, suit or proceeding, or any inquiry
or investigation which could lead to such an action, suit, or proceeding (any of
the foregoing being referred to herein as a "Proceeding") because (a) Indemnitee
is or was an officer or a director of the Company or, (b) Indemnitee
<PAGE> 73
serves or served the Company in any other official capacity or at the Company's
request, served another corporation in any official capacity; provided that, in
either case, Indemnitee is either wholly successful on the merits or otherwise
in defense of the Proceedings, or (x) Indemnitee conducted himself in good
faith; (y) reasonably believed (in the case of conduct in his official capacity
as an officer or director) that his conduct was in the best interests of the
Company and (in all other instances) that his conduct was at least not opposed
to the best interests of the Company; and (z) in the case of any criminal
proceeding, Indemnitee had no reasonable cause to believe his conduct was
unlawful.
Termination of any Proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or the equivalent thereof, shall not, of
itself, be determinative that the person did not meet the requisite standard of
conduct set forth above.
2. CONDITIONS AND LIMITATIONS. The Company's obligation to indemnify
Indemnitee, and hold Indemnitee harmless pursuant to Section 1 of this Agreement
is subject to the following conditions and limitations:
(a) Determination that Indemnitee meets the conditions for
indemnification specified in Section 1 hereof or elsewhere in this Agreement
must be made by (i) a majority vote of a quorum of the Board of Directors of the
Company who at the time of the vote are not named defendants or respondents in
the Proceeding ("Disinterested Quorum"); (ii) by written opinion of independent
legal counsel selected by the Disinterested Quorum if the Disinterested Quorum
so orders or if the Company cannot attain a Disinterested Quorum; or (iii) by
the shareholders.
(b) Indemnitee may not be indemnified for Damages resulting from or
incurred in connection with a Proceeding in which Indemnitee is found liable to
the Company or pays an amount to the Company to settle the Proceeding; provided,
however, that the Company may still indemnify the Indemnitee for reasonable
expenses actually incurred by the Indemnitee or pays a settlement to the Company
if the Indemnitee is fairly and reasonably entitled to the indemnity as the
court deems proper, as long as Indemnitee shall not have been found liable for
intentional misconduct, fraud or a knowing violation of the law which was
material to the cause of action. A person shall be found liable in respect of
any claim, issue or matter listed above only after the person shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom.
Authorization of indemnification and determination as to reasonableness
of expenses shall be made in the same manner as set forth in Section 2(a) above,
except if the determination that indemnification is permissible is made by
independent legal counsel, authorization of indemnification and determination as
to reasonableness of
D-2
<PAGE> 74
expenses shall be made in the manner specified in Section 2(a)(ii) of this
Section for the selection of such counsel.
(c) In no event shall the Company be required to indemnify Indemnitee
for Damages which it is prohibited from providing by federal or state law,
regulation, or judicially established public policy.
3. ADVANCEMENT OF EXPENSES. Not later that thirty (30) days after
written demand is presented to the Company, reasonable expenses incurred by
Indemnitee in connection with a Proceeding in which he is, or is threatened to
be, named as a defendant or respondent, witness or participant shall be paid by
the Company, or promptly reimbursed, in advance of a final disposition of the
Proceeding and without any of the determinations required by (2)(a) above, if
Indemnitee affirms in writing to the Company that (i) in good faith, he believes
he meets the standards of conduct and other conditions required to be satisfied
be entitled to indemnification; (ii) undertakes in writing to repay such amounts
if it is ultimately determined that he has not met such requirements and
conditions; and (iii) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this
Agreement.
The undertaking required by Section 3(ii) above shall be an unlimited
general obligation of the officer or director, but may not be secured and may be
accepted without reference to financial ability to make repayment. Determination
and authorizations of payments under this Section 3 shall be made in the manner
specified in Section 2(a).
4. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all rights of
recovery of Indemnitee. Indemnitee shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to bring
suit to enforce such rights.
5. INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING THIS AGREEMENT.
The Company shall indemnify Indemnitee against any and all expenses (including
attorneys' fees), and, if requested and confirmed in writing by Indemnitee, will
(within ten (10) business days of that request) advance those expenses to
Indemnitee which are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i) indemnification or
advance payment of expenses by the Company under this Agreement or any other
agreement or under applicable law or the Company's Articles of Incorporation or
Bylaws now or subsequently in effect relating to indemnification or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
D-3
<PAGE> 75
determined to be entitled to that indemnification, advance expense payment or
insurance recovery, as appropriate.
6. BURDEN OF PROOF. In any action for indemnification, the burden of
proving that indemnification is not required under this Agreement shall be on
the Company.
7. AMENDMENT AND WAIVER OF THIS AGREEMENT. Unless executed in writing by
both of the parties to this Agreement, no supplement, modification or amendment
of this Agreement will be binding nor shall any waiver of any of the provisions
of this Agreement be deemed or constitute a waiver of any provisions of this
Agreement (whether or not similar) nor will that waiver constitute a continuing
waiver.
8. NO DUPLICATION OF PAYMENTS. The Company will not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable under this Agreement.
9. SETTLEMENT OF CLAIMS. The Company will not be liable to indemnify
under this Agreement for any amounts paid in settlement of any action or claim
effected without the Company's written consent. The Company will not settle any
action or claim in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither the Company nor
Indemnitee will unreasonably withhold its consent to any proposed settlement.
The Company will not be liable to indemnify Indemnitee under this Agreement with
regard to any judicial award if the Company was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of that
Proceeding.
10. BINDING EFFECT. This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company), spouses, heirs and personal and legal
representatives. The Company will require and cause any successor to all or
substantially all of the business or assets of the Company, by written agreement
in form and substance satisfactory to Indemnitee, expressly to 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. This
Agreement shall cover any and all acts performed by Indemnitee while serving as
an officer or director of the Company regardless of whether Indemnitee's service
as a director or officer of the Company has been terminated.
D-4
<PAGE> 76
11. SEVERABILITY. If any of the provisions of this Agreement are held by
a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions of this Agreement will be severable and
will remain enforceable to the fullest extent permitted by law. Furthermore, to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of this Agreement containing any provision held
to be invalid, void or otherwise unenforceable) will be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
12. GOVERNING LAW. This Agreement will be governed by and construed and
enforced in accordance with the laws of the State of Nevada applicable to
contracts made and to be performed in the State of Nevada without giving effect
to the principles of conflicts of laws.
13. CUMULATIVE RIGHT. Nothing herein shall be deemed to diminish or
otherwise restrict the right of Indemnitee to indemnification under any
provision of the Articles of Incorporation or Bylaws of the Company or under
Nevada law.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties hereto. No representations, inducements, promises, or agreements,
oral or otherwise, which are not embodied in this Agreement shall be of any
force or effect. No amendment, modification, termination, or cancellation of
this Agreement shall be effective unless in writing signed by both parties
hereto. Notwithstanding any language contained herein to the contrary, if the
Shareholders of the Company fail to approve this Agreement at the next annual
shareholders meeting, any other agreement indemnifying Indemnitee shall be valid
and retroactively apply back to the date of this Agreement.
15. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee
acknowledge that in certain instances, federal law or public policy may override
applicable state law and prohibit the Company from indemnifying its directors
and officers under this Agreement or otherwise. The Company and the Indemnitee
acknowledge that the U.S. Securities and Exchange Commission ("SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company may be required to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify the Indemnitee.
D-5
<PAGE> 77
16. EFFECTIVE DATE. This Agreement will be of full force and effect
immediately upon its execution as of the date specified on page 1 of this
Agreement; provided however, that the Board of Directors of the Company intends
to submit this Agreement to the shareholders of the Company at the Company's
next annual meeting of shareholders for ratification and will recommend that the
shareholders ratify the Agreement. If the shareholders of the Company fail to
ratify this Agreement, the Company, in its sole discretion, may terminate the
Agreement as of a date not sooner than the date of the next annual meeting of
the Company's shareholders and the Agreement will be of no further force or
effect.
COMPANY:
MESA AIR GROUP, INC.
By:
--------------------------------
Chairman of the Board of
Directors
INDEMNITEE:
By:
--------------------------------
--------------------------------
D-6
<PAGE> 78
APPENDIX "E"
INDEMNIFICATION AGREEMENT
MESA AIRLINES, INC., a New Mexico corporation (the "Company"),
and ______________ (the "Indemnitee") agree:
1. Recitals.
A. It is essential to the Company's best interests to
attract and retain as directors and officers of the Company the most capable
persons available;
B. Indemnitee is a director or officer of the
Company;
C. Both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies in today's environment;
D. The Bylaws of the Company require the Company to
indemnify and advance expenses to its directors to the fullest extent permitted
by the New Mexico Business Corporation Act and Indemnitee has been serving and
continues to serve as a director or officer of the Company in part in reliance
on those Bylaws;
E. The Company recognizes and acknowledges
Indemnitee's need for substantial protection against personal liability in order
to enhance Indemnitee's continued service to the Company in an effective manner
and Indemnitee's reliance on the indemnification provisions of the Company's
Bylaws, and in part to provide Indemnitee with specific contractual assurance
that the protection promised by those Bylaws will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of the
Company's Articles of Incorporation or its Bylaws or any change in the
composition of the Company's Board of Directors or acquisition transaction
relating to the Company), and in order to induce Indemnitee to continue to
provide services to the Company as a director or officer, the Company wishes to
provide this Agreement for the indemnification of and the advancing of expenses
to Indemnitee to the fullest extent (whether partial or complete) as set forth
in this Indemnification Agreement (the "Agreement"), and, to the extent
insurance is maintained, for the continued coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies.
2. Consideration.
In consideration of the above-stated Recitals,
Indemnitee's continuing to serve the Company directly or, at its request, with
another enterprise, and other valuable consideration, the Company agrees to
provide Indemnification to Indemnitee as set forth in this Agreement.
<PAGE> 79
3. Definitions.
A. "Change in Control" will be deemed to have
occurred if (i) any "person" (as that term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Act")), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company's
then outstanding Voting Securities, or (ii) during any period of two consecutive
years, individuals who at the beginning of that period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors 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, cease for any reason to
constitute a majority of the Board of Directors, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, entity or person, other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately before
that merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the Company of the
surviving or successor entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or the surviving or
successor entity outstanding immediately after such merger or consolidation, or
the stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale, transfer or disposition by the Company (in
one transaction or a series of transactions) of all or substantially all of the
Company's assets.
B. "Expense" will include, but not be limited to,
attorneys' fees and all other costs, expenses and obligations paid or incurred
in connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, be a witness in or participate
in any Proceeding relating to any Indemnifiable Event.
C. "Indemnifiable Event" means any event or
occurrence that takes place either before or after the execution of this
Agreement, related to the fact that Indemnitee is or was a director or an
officer of the Company, or while a director or officer is or was serving at the
request of the Company as a director, officer, employee, trustee, agent or
fiduciary of another corporation, partnership, joint venture, employee benefit
plan, trust or other enterprise, or by reason of anything done or not done by
Indemnitee in any of those capacities.
D. "Potential Change in Control" will be deemed to
have occurred if (i) the Company enters into an agreement or arrangement, the
consummation
<PAGE> 80
of which would result in the occurrence of Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in that capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of those securities by 5% or more over the percentage owned by that person on
the date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
E. "Proceeding" means any threatened, pending or
completed action, suit or proceeding, or any inquiry, hearing or investigation,
whether conducted by the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any such action, suit or
proceeding, whether civil, criminal, administrative, investigative or other.
F. "Reviewing Party" means any appropriate person or
body consisting of a member or members of the Company's Board of Directors or
any other person or body appointed by the Board of Directors (including the
"Independent Counsel" referred to in Section 5) who is not a party to the
particular Proceeding with respect to which Indemnitee is seeking
Indemnification.
G. "Voting Securities" means any securities of the
Company which vote generally in the election of directors.
4. Agreement to Indemnify.
A. If Indemnitee was, is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Proceeding by reason of (or arising in part
out of) an Indemnifiable Event, the Company will indemnify Indemnitee to the
fullest extent permitted by law, as soon as practicable, but in any event no
later than thirty days after written demand is presented to the Company, against
any and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of that Proceeding and any federal, state, local or
foreign taxes imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement (including the creation of the
Trust). Notwithstanding anything in this Agreement to the contrary and except as
provided in Section 7, before a Change in Control Indemnitee will not be
entitled to indemnification pursuant to this Agreement in connection with any
Proceeding initiated by Indemnitee against the Company or any director or
officer of the Company unless the Company has joined in or consented to the
E-3
<PAGE> 81
initiation of that Proceeding. If so requested by Indemnitee, the Company will
advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance").
B. Notwithstanding the foregoing, (i) the obligations
of the Company under Section 4A will be subject to the condition that the
Reviewing Party will not have determined (in a written opinion, in any case in
which the Independent Counsel referred to in Section 5 of this Agreement is
involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance pursuant to Section 4A will be subject to the condition that, if, when
and to the extent that the Reviewing Party determines that Indemnitee would not
be permitted to be so indemnified under applicable law, the Company will be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all those amounts previously paid or advanced; provided, however,
that if Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law will
not be binding and Indemnitee will not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect to
that legal proceeding (as to which all rights of appeal from that proceeding
have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company
for Expense Advances will be unsecured and no interest will be charged on those
Expense Advances to be reimbursed. If there has not been a Change in Control,
the Reviewing Party will be selected by the Board of Directors, and if there has
been a Change in Control (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
before that Change in Control), the Reviewing Party will be the Independent
Counsel referred to in Section 5 of this Agreement. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee will have the right to commence litigation
in any court in the State of New Mexico having subject matter jurisdiction over
the matter, and in which venue is proper, seeking an initial determination by
the court or challenging any determination by the Reviewing Party or any aspect
of the determination of the Reviewing Party, and the Company hereby consents to
service of process and to appear in any such proceeding. Otherwise any
determination by the Reviewing Party will be conclusive and binding on the
Company and Indemnitee.
5. Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately before that Change in Control), then with respect to all matters
arising after that Change in Control concerning the rights of Indemnitee to
indemnity payments and Expense Advances under this Agreement or any other
agreement or under applicable law or the Company's Articles of Incorporation or
Bylaws now or hereafter in effect relating to
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indemnification for Indemnifiable Events, the Company will seek legal advice
only from Independent Counsel (the "Independent Counsel") selected by Indemnitee
and approved by the Company (which approval will not be unreasonably withheld),
and who has not otherwise performed services for the Company or Indemnitee
(other than in connection with these matters) within the last five years. The
Independent Counsel will 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. Independent Counsel, among
other things, will render its written opinion to the Company and Indemnitee as
to whether and to what extent Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
Independent Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
Independent Counsel pursuant to this Agreement.
6. Establishment of Trust. If a Potential Change in Control
exists or occurs, the Company will, upon written request by Indemnitee, create a
Trust for the benefit of Indemnitee and from time to time upon written request
of Indemnitee will fund such Trust in an amount sufficient to satisfy any and
all Expenses reasonably anticipated at the time of each such request to be
incurred in connection with investigating, preparing for and defending any
Proceeding relating to an Indemnifiable event, and any and all judgments, fines,
penalties and settlement amounts of any and all Proceedings relating to an
Indemnifiable Event from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in the
Trust pursuant to the foregoing funding obligation will be determined by the
Reviewing Party in any case in which the Independent Counsel referred to above
is involved. The terms of the Trust will provide that upon a Change in Control
(i) the Trust will not be revoked or the principal of the Trust invaded without
the written consent of Indemnitee, (ii) the Trustee will advance, within ten
business days of a request by Indemnitee, any and all Expenses to Indemnitee
(and Indemnitee agrees to reimburse the Trust under the circumstances under
which Indemnitee would be required to reimburse the Company under Section 4B of
this Agreement), (iii) the Trust will continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the Trustee will
promptly pay to Indemnitee all amounts for which Indemnitee will be entitled to
indemnification pursuant to this Agreement or otherwise, and (v) all unexpended
funds in such Trust will revert to the Company upon a final determination by the
Reviewing Party or a court of competent jurisdiction, as the case may be, that
Indemnitee has been fully indemnified under the terms of this Agreement. The
Trustee will be chosen by Indemnitee. Nothing in this Section 6 will relieve the
Company of any of its obligations under this Agreement. All income earned on the
assets held in the Trust will be reported as income by the Company for federal,
state, local and foreign tax purposes.
7. Indemnification for Expenses Incurred in Enforcing this
Agreement. The Company will indemnify Indemnitee against any and all expenses
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(including attorneys' fees), and, if requested and confirmed in writing by
Indemnitee, will (within ten business days of that request) advance those
expenses to Indemnitee which are incurred by Indemnitee in connection with any
claim asserted against or action brought by Indemnitee for (i) indemnification
or advance payment of Expenses by the Company under this Agreement or any other
agreement or under applicable law or the Company's Articles of Incorporation or
Bylaws now or subsequently in effect relating to indemnification for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to that indemnification,
advance expense payment or insurance recovery, as the case may be.
8. Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgment, fines, penalties and amounts paid in
settlement of a Proceeding but not, however, for all of the total amount
thereof, the Company will nevertheless indemnify Indemnitee for the portion of
those expenditures to which Indemnitee is entitled. Moreover, notwithstanding
any other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any or all Proceedings
relating in whole or in part to an Indemnifiable Event or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee will
be indemnified against all Expenses incurred in connection with those
Proceedings.
9. Defense to Indemnification, Burden of Proof and
Presumptions. It will 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 expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the Company)
that Indemnitee has not met the standards of conduct that make it permissible
under the New Mexico Business Corporation Act for the Company to indemnify
Indemnitee for the amount claimed. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified under this Agreement, the burden of proving the defense will be on
the Company. Neither the failure of the Company (including its Board of
Directors, Independent Counsel, or its stockholders) to have made a
determination before the commencement of the action by Indemnitee that
indemnification of the claimant is proper under the circumstances because he or
she has met the applicable standard of conduct set forth in the New Mexico
Business Corporation Act, nor an actual determination by the Company (including
its Board of Directors, Independent Counsel, or its stockholders) that
Indemnitee had not met that applicable standard of conduct, will be a defense to
the action or create a presumption that Indemnitee has not met the applicable
standard of conduct. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding, 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
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
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<PAGE> 84
10. Non-Exclusivity. The rights of Indemnitee under this
Agreement will be in addition to any other rights Indemnitee may have under the
Company's Articles of Incorporation or Bylaws or the New Mexico Business
Corporation Act or otherwise. If the New Mexico Business Corporation Act is
changed (whether by statute or judicial decision) to permit greater
indemnification by agreement than would be afforded currently under the
Company's Articles of Incorporation or Bylaws and this Agreement, it is the
intent of the parties to this Agreement that Indemnitee will enjoy under this
Agreement the greater benefits afforded by that change.
11. Liability Insurance. To the extent the Company maintains
an insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee will be covered by that policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
12. Period of Limitations. No legal action will be brought
and no cause of action will be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of that cause of action, or such longer period as may
be required by state law under the circumstances, and any claim or cause of
action of the Company or its affiliate will be extinguished and deemed released
unless asserted by the timely filing of a legal action within that period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action, that shorter period will govern.
13. Amendment of this Agreement. No supplement, modification
or amendment of this Agreement will be binding unless executed in writing by
both of the parties to this Agreement. No waiver of any of the provisions of
this Agreement will be deemed or will constitute a waiver of any provisions of
this Agreement (whether or not similar) nor will that waiver constitute a
continuing waiver.
14. Subrogation. If any payment is made under this
Agreement, the Company will be subrogated to the extent of that payment to all
the rights of recovery of Indemnitee, who will execute all papers required and
will do everything that may be necessary to secure those rights, including the
execution of any documents necessary to enable the Company effectively to bring
suit to enforce these rights.
15. No Duplication of Payments. The Company will not be
liable under this Agreement to make any payment in connection with any claim
made against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable under this Agreement.
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<PAGE> 85
16. Settlement of Claims. The Company will not be liable to
indemnify under this Agreement for any amounts paid in settlement of any action
or claim effected without the Company's written consent. The Company will not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither the
Company nor Indemnitee will unreasonably withhold its consent to any proposed
settlement. The Company will not be liable to indemnify Indemnitee under this
Agreement with regard to any judicial award if the Company was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of that action.
17. Binding Effect. This Agreement will be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, 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, spouses, heirs and personal and legal
representatives. The Company will 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 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. This Agreement will continue in effect regardless of
whether Indemnitee continues to serve as a director or officer of the Company or
of any other enterprise at the Company's request.
18. Severability. If any of the provisions of this
(including any provision within a single section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions of this Agreement will be severable and
will will remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that it is not
itself invalid, void or unenforceable) will be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
19. Governing Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of New Mexico
applicable to contracts made and to be performed in the State of New Mexico
without giving effect to the principles of conflicts of laws.
20. Effective Date. This Agreement will be of full force and
effect immediately upon its execution; provided however, that the Board of
Directors of the Company intends to place this Agreement before the shareholders
of the Company at the Company's next annual meeting of shareholders for
ratification and will recommend that the shareholders do ratify the Agreement.
If the shareholders of the Company fail to ratify this Agreement, the Company,
in its sole discretion, may terminate the Agreement
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<PAGE> 86
as of a date not sooner than the date of the next annual meeting of the
Company's shareholders and the Agreement will be of no further force or effect.
The effective date of this Agreement is _________________.
COMPANY:
MESA AIRLINES, INC.
By:
--------------------------------
Its:
----------------------------
INDEMNITEE:
-----------------------------------
-----------------------------------
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<PAGE> 87
PROXY
MESA AIR GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS, JULY 24, 1998
The undersigned hereby appoints Blaine M. Jones and Gary E. Risley as proxies
with full power of substitution to represent the undersigned and to vote all
shares of Common Stock of Mesa Air Group, Inc. (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
on July 24, 1998 or any adjournments thereof.
1. Election of nine Directors to serve until the next Annual Meeting of
Shareholders and until their successors are elected and shall duly
qualify.
<TABLE>
<CAPTION>
Withhold Withhold
For Against Authority For Against Authority
<S> <C> <C> <C> <C> <C> <C> <C>
Paul R. Madden ___________ ___________ ___________ Jack Braly ___________ ___________ ___________
James E. Swigart ___________ ___________ ___________ Herbert A. Denton ___________ ___________ ___________
Jonathan G. Ornstein ___________ ___________ ___________ Richard R. Fogleman ___________ ___________ ___________
J. Clark Stevens ___________ ___________ ___________ Larry L. Risley ___________ ___________ ___________
Daniel J. Altobello ___________ ___________ ___________ ___________ ___________ ___________
</TABLE>
2. PROPOSAL to approve the Key Officer Stock Option Plan.
FOR _____________ AGAINST _____________ ABSTAIN _____________
3. PROPOSAL to approve the Outside Directors' Stock Option Plan.
FOR _____________ AGAINST _____________ ABSTAIN _____________
4. PROPOSAL to approve amendment to 1996 Employee Stock Option Plan.
FOR _____________ AGAINST _____________ ABSTAIN _____________
5. PROPOSAL to ratify the Indemnification Agreements for the officers and
directors.
FOR _____________ AGAINST _____________ ABSTAIN _____________
6. PROPOSAL to ratify the selection of KPMG Peat Marwick LLP as
independent auditors for fiscal 1998.
FOR _____________ AGAINST _____________ ABSTAIN _____________
7. PROPOSAL BY SHAREHOLDER to recommend hiring an investment banker.
FOR _____________ AGAINST _____________ ABSTAIN _____________
<PAGE> 88
8. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any
adjournments thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE NOMINEES TO THE BOARD OF DIRECTORS AND FOR
THE ADOPTION OF PROPOSALS 2, 3, 4, 5 AND 6 BUT AGAINST THE ADOPTION OF
PROPOSAL 7.
MESA'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION
OF THE NOMINEES TO THE BOARD OF DIRECTORS, "FOR" PROPOSAL 2 TO APPROVE
THE COMPANY'S KEY OFFICER STOCK OPTION PLAN, "FOR" PROPOSAL 3 TO
APPROVE THE COMPANY'S OUTSIDE DIRECTORS' STOCK OPTION PLAN, "FOR"
PROPOSAL 4 TO AMEND THE COMPANY'S 1996 EMPLOYEE STOCK OPTION PLAN,
"FOR" PROPOSAL 5 TO RATIFY THE INDEMNIFICATION AGREEMENTS FOR THE
OFFICERS AND DIRECTORS, "FOR" PROPOSAL 6 TO RATIFY THE SELECTION OF
KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR FISCAL 1998 AND
"AGAINST" PROPOSAL 7 TO HIRE AN INVESTMENT BANKER.
Please sign exactly as name appears on the mailing label. When shares are held
by joint tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title as such.
Dated:____________________________________________
__________________________________________________
Signature
__________________________________________________
Signature, if held jointly
(If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in the partnership name by
an authorized person.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY BY
USING THE ENCLOSED ENVELOPE.
