UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
OR
{ }TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No: 0-17895
MESABA HOLDINGS, INC.
---------------------
Incorporated under the laws of Minnesota
41-1616499
(I.R.S. Employer ID No.)
7501 26th Avenue South
Minneapolis, MN 55450
(612) 726-5151
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 11, 1998
--------- ---------------------------------
Common Stock
par value $.01 per share 19,771,079
<PAGE>
PART I. FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in the Quarterly Report on Form 10-Q under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as oral statements that may be made by the Company or by officers,
directors or employees of the Company acting on the Company's behalf, that are
not historical fact constitute "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward looking statements
involve factors that could cause the actual results of the Company to differ
materially from historical results or from any results expressed or implied by
such forward-looking statements. The Company cautions the public not to place
undue reliance on forward-looking statements, which may be based on assumptions
and anticipated events that do not materialize. Factors which could cause the
Company's actual results to differ from forward-looking statements include
material changes in the relationship between the Company and Northwest Airlines;
reductions or interruptions in Northwest Airlines' air service; changes in
regulations affecting the Company, including DOT and FAA regulations; the
acquisition and phase-in of a new aircraft; downturns in economic activity;
seasonal factors; and labor relationships, including slow downs and or work
stoppages associated with the outcome of ongoing contract negotiations between
the Company and the Aircraft Mechanics Fraternal Association, the mechanics
union.
<PAGE>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
------
June 30, March 31,
1998 1998
---------- ----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 74,398 $ 66,554
Accounts receivable, net 15,700 13,610
Inventories 8,119 5,547
Prepaid expenses and deposits 2,853 3,788
Deferred tax asset 4,702 4,702
---------- ----------
Total current assets 105,772 94,201
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 28,554 22,449
Other property and equipment 18,351 16,865
Accumulated depreciation and amortization (17,934) (16,364)
---------- ----------
Net property and equipment 38,118 32,097
OTHER ASSETS AND DEFERRED COSTS 15,566 10,893
---------- ----------
TOTAL ASSETS $159,456 $137,191
========== ==========
The accompanying notes to interim consolidated financial statements are an
integral part of these balance sheets.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share information)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
June 30, March 31,
1998 1998
---------- ----------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term
obligations $ 419 $ 436
Accounts payable 21,399 18,093
Accrued liabilities
Payroll 7,819 9,362
Maintenance 9,073 6,877
Other 9,797 7,741
---------- ----------
Total current liabilities 48,507 42,509
LONG-TERM OBLIGATIONS, net of current
maturities 4,656 4,751
OTHER NONCURRENT LIABILITIES 14,724 14,385
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000
shares authorized, 19,657,375 and
19,397,523 shares issued and outstanding,
respectively 196 194
Paid-in capital 42,583 41,196
Warrants 16,500 7,900
Retained earnings 32,290 26,256
---------- ----------
Total shareholders' equity 91,569 75,546
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $159,456 $137,191
========== ==========
The accompanying notes to interim consolidated financial statements are an
integral part of these balance sheets.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share information)
Three Months Ended
June 30,
-------------------
1998 1997
---------- ----------
OPERATING REVENUES:
Passenger $ 79,764 $ 53,816
Other 705 608
---------- ----------
Total operating revenues 80,469 54,424
OPERATING EXPENSES:
Wages and benefits 19,227 14,029
Aircraft fuel costs 6,938 5,527
Aircraft maintenance costs 12,540 7,567
Aircraft rents 15,824 9,625
Landing fees 1,816 1,421
Insurance and taxes 2,043 1,322
Depreciation and amortization 1,974 1,153
Administrative and other costs 9,643 7,571
---------- ----------
Total operating expenses 70,005 48,215
Operating income 10,464 6,209
NONOPERATING INCOME (EXPENSE):
Interest expense (112) (125)
Other, net 850 497
---------- ----------
Other income, net 738 372
Income before income taxes 11,202 6,581
PROVISION FOR INCOME TAXES 4,369 2,607
---------- ----------
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 6,833 3,974
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 800 -
PRINCIPLE
---------- ----------
NET INCOME $ 6,033 $ 3,974
========== ==========
NET INCOME PER COMMON SHARE:
Basic earnings per common share $ 0.31 $ 0.21
========== ==========
Diluted earnings per common share $ 0.28 $ 0.20
========== ==========
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
June 30,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,033 $ 3,974
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,974 1,153
Amortization of deferred credits 339 (186)
Change in accounting method 1,311 -
Changes in current operating items:
Accounts receivable, net (2,090) 2,006
Inventories (1,224) (615)
Prepaid expenses and deposits 935 (104)
Accounts payable and accrued liabilities 6,014 2,803
---------- ----------
Net cash provided by operating activities 13,292 9,031
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,725) (2,501)
Capitalized pre-operating costs - (1,186)
---------- ----------
Net cash used for investing activities (6,725) (3,687)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,389 77
Repayment of long-term obligations (112) (106)
---------- ----------
Net cash provided by (used for) financing
activities 1,277 (29)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,844 5,315
CASH AND CASH EQUIVALENTS:
Beginning of period 66,554 49,126
---------- ----------
End of period $ 74,398 $ 54,441
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 112 $ 126
========== ==========
Income taxes $ 1,550 $ 1,590
========== ==========
Noncash investing activities included the following:
Rotable and spare parts inventory
acquired with integration funds $ 2,231 $ 2,879
========== ==========
The accompanying notes to interim consolidated financial statements are an
integral part of these statements.
<PAGE>
MESABA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Mesaba Holdings, Inc. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. The information
furnished in the consolidated financial statements includes normal recurring
adjustments and reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of such consolidated financial
statements. The Company's business is seasonal and, accordingly, interim
results are not indicative of results for a full year. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements for the year
ended March 31, 1998, and the notes thereto, included in the Company's
Annual Report or Form 10- K filed with the Securities and Exchange
Commission.
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). All significant
intercompany balances have been eliminated in consolidation.
In April 1998, the Company declared a three-for-two stock split of the
Company's common stock. The par value per share remained at $0.01. This
stock split has been retroactively reflected in these financial
statements.
2. AGREEMENTS WITH NORTHWEST
The Company operates a regional air carrier providing scheduled turbo-prop
passenger and air freight service as Mesaba Airlines/Northwest Airlink
under an Airline Services Agreement (the "Airlink Agreement") with
Northwest Airlines, Inc. ("Northwest") to 91 cities in the Upper Midwest
and Canada from Northwest's hub airports, Minneapolis/St. Paul and
Detroit. The Airlink Agreement provides for exclusive turbo-prop rights
to designated service areas and extends through June 30, 2007. Northwest
has the right to terminate the Airlink Agreement without cause upon 365
days written notice, such notice not to be given before July 1, 2000.
Mesaba also operates regional jet aircraft under a separate Regional Jet
Services Agreement (the "Jet Agreement"), under which Mesaba will operate
up to 36 Avro RJ85 ("RJ85") regional jets for Northwest. As of June 30,
1998, Mesaba had taken delivery of 14 RJ85 aircraft. The aircraft are
subleased from Northwest and are operated as Northwest Jet Airlink
currently from Minneapolis/St. Paul and Detroit hubs. Under the Airlink
and Jet Agreement, all Mesaba flights appear in Northwest's timetables and
Mesaba receives ticketing and certain check-in, baggage and freight
handling and other services from Northwest at certain airports. In
addition, Mesaba receives its computerized reservation services from
Northwest as well as performing all marketing schedules and yield
management and pricing services for Mesaba flights. Loss of Mesaba's
affiliation with Northwest or Northwest's failure to make timely
payments of amounts owed to Mesaba or to otherwise materially perform under
the Agreement's for any reason would have a material adverse effect on the
Company's operations and financial position. Under both the Airlink and Jet
Agreements, Northwest is not required to perform in the event of a material
labor disruption at Northwest.
<PAGE>
3. PER SHARE DATA
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires presentation of "Basic" and "Diluted" earnings per share amounts,
as defined. "Basic" earnings per share replaces primary earnings per share
under APB Opinion No. 15, and excludes the dilutive effects of options,
warrants and convertible securities, if any, from the calculation. Fully
diluted earnings per share has not changed significantly but has been named
"Dilutive" earnings per share. Statement No. 128 became effective for
fiscal years ending after December 15, 1997. All earnings per share prior
to 1998 have been restated to comply with this Statement.
The table below sets forth the computation of earnings per common share.
June 30,
-----------------------
1998 1997
---------- ----------
Net Income $ 6,033 $ 3,974
========== ==========
For Earnings Per Common Share - Basic:
Weighted average number of issued shares
outstanding 19,616 19,183
Effect of dilutive securities
Computed shares outstanding under the
Company's stock option plan
utilizing the treasury stock method 730 233
Computed shares outstanding under warrants
issued utilizing the treasury stock methods 1,409 376
---------- ----------
For earnings per Common Share - Diluted:
Weighted average common shares and common
share equivalents outstanding 21,755 19,792
========== ==========
Earnings Per Share - Basic $ 0.31 $ 0.21
========== ==========
Earnings Per Share - Diluted $ 0.28 $ 0.20
========== ==========
In April of 1998, the Company adopted AICPA Statement of Position (SOP)
98-5 "Reporting on the Costs of Start-Up Activities" which requires all
start-up costs to be charged to expense as incurred. The adoption of SOP
98-5 resulted in an $800 charge (net of tax) to operations, or $0.04 per
basic and $0.03 per diluted share for previously capitalized start-up costs
and was recorded as a cumulative effect of change in accounting principle.
4. AIRCRAFT ADDITIONS
In October 1997, Mesaba entered into an agreement with Saab Aircraft of
America, Inc. ("Saab") for the acquisition of 19 new Saab 340BPlus and
three used Saab 340A aircraft. All previous option agreements with Saab
were canceled. As of June 30, 1998, Mesaba has taken delivery of six Saab
340BPlus and three Saab 340A aircraft. The balance of the aircraft order
is expected to be phased into service over the next six months to replace
Mesaba's remaining fleet of nine deHavilland Dash 8 aircraft as well as
replace Mesaba's Saab 340B aircraft which are on short-term leases.
<PAGE>
In April 1998, Mesaba signed an amendment to the Jet Agreement providing
for the delivery of six additional RJ85 aircraft. Mesaba began taking
delivery of the aircraft at a rate of approximately one aircraft per month
in June 1998. As of June 30, 1998, Mesaba has taken delivery of two of
these additional aircraft. On June 2, 1998, Mesaba signed an agreement
with Northwest to fly 18 additional RJ85 aircraft. Mesaba will begin
taking delivery of these aircraft beginning in January 1999.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Related Information",
which requires a disclosure of business segments in the financial
statements of the Company. The Company expects to adopt SFAS No. 131 in
fiscal 1999 and is currently analyzing the potential impact of adoption.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 2.
RESULTS OF OPERATIONS FOR THE THREE MOMTHS ENDED JUNE 30, 1998 and 1997 (As
used herein, "unit cost" means operating cost per available seat mile.
Dollars and shares outstanding are expressed in thousands.)
EARNINGS SUMMARY. The Company reported net income of $6,033 or $0.28
diluted earnings per share for the three months ended June 30, 1998,
compared to $3,974 or $0.20 diluted earnings per share in the same period
of fiscal 1998. The results for the three months ended June 30, 1998
include a one-time non- recurring charge of $800 (net of tax) or $0.03 per
basic and diluted share for the cumulative effect of a change in accounting
principle. Weighted average common shares and common share equivalents
outstanding increased to 21,755 from 19,792.
OPERATING REVENUES. Total operating revenues increased 47.9% in the first
quarter of fiscal 1999 to $80,469 from $54,424 in the year earlier quarter,
and revenue passenger miles increased 83.4% to 266,768 from 145,485.
Passenger revenue per available seat mile ("RASM") decreased to $0.169 from
$0.204 in the previous year's first quarter. Mesaba's average load factor
was 56.4% in the current quarter compared to 55.1% during the same period a
year ago. The improvement in traffic and load factor are attributable to
the introduction of fourteen RJ85 aircraft and the expanded turboprop
activity at the Minneapolis/St. Paul airport as well as overall increases
in passenger travel within the industry.
Operating Costs Per Three months ended June 30,
Available Seat Mile (Unit Cost) 1998 1997
- --------------------------------- ------------ -------------
Wages and benefits 4.1 CENTS 5.3 CENTS
Aircraft fuel costs 1.5 2.1
Aircraft maintenance costs 2.7 2.9
Aircraft rents 3.3 3.7
Landing fees 0.4 0.5
Insurance and taxes 0.4 0.5
Depreciation and amortization 0.4 0.4
Administrative and other costs 2.0 2.9
------------ -------------
Total 14.8 CENTS 18.3 CENTS
Three months ended June 30,
Operating statistics 1998 1997
- ---------------------------------------------------------------------
Revenue passengers carried 1,040,000 622,921
Revenue passenger miles (000) 266,768 145,485
Available seat miles (000) 472,944 263,851
Passenger load factor 56.4% 55.1%
Passenger revenue per available seat mile $0.169 $0 .204
Departures 58,349 39,433
Aircraft in service 90 61
<PAGE>
OPERATING EXPENSES. Total operating expenses increased 45.2% to $70,005
from $48,215 in the prior year's first quarter. Mesaba's unit cost
decreased 19.1% to $0.148 from $0.183 as a result of a 79.2% increase in
available seat miles ("ASM") to 472,944 in the first quarter of fiscal
1999 from 263,851 in the year earlier quarter. The increase in ASMs was
accomplished by the acquisition of 11 RJ85 and 33 Saab 340 aircraft offset
by the retirement of 15 Dash 8 aircraft since June 30, 1997.
Wages and benefits increased 37.1% to $19,227 in the first quarter of
fiscal 1999 from $14,029 in the first quarter of fiscal 1998. However the
increased capacity generated by the additional jet and turboprop equipment
has caused these costs to be reduced on a unit cost basis. The majority
of the increase is a result of the higher cost of flight crews due to a
43.3% increase in block hours and the addition of flight crews to support
the introduction of the RJ85 as well as the continuing Saab fleet
transition program. Mesaba also experienced an increase in wage and
benefit costs paid to support personnel due to a 33.8% increase in
scheduled turboprop operations.
Fuel costs increased 25.5% to $6,938 in this year's first quarter compared
to $5,527 in last year's first quarter. The increase is attributable to
increased consumption due to 27.1% increase in turbo-prop block hours
flown. Provisions of the Airlink Agreement with Northwest provide Mesaba
with a fixed price per gallon for fuel. The actual cost of fuel,
including taxes and pumping fees, was 83.5 cents per gallon both in the
current quarter and a year ago. Unit cost however decreased 28.6% to 1.5
cents from 2.1 cents. Mesaba is not required to provide fuel for the jet
operation.
Direct maintenance expense, excluding wages and benefits, increased 65.7%
to $12,540 in the first quarter of fiscal 1999 from $7,567 in the first
quarter of fiscal 1998. This increase was primarily attributable to the
addition of 33 Saab 340 and 11 RJ85 aircraft to the fleet when compared to
a year ago. The additional maintenance costs for the Saab 340 and RJ85
aircraft were partially offset by lower maintenance costs related to the
phase-out of the Dash 8 fleet resulting from the return of 15 aircraft to
lessors. Unit cost however, decreased 6.9% to 2.7 cents from 2.9 cents.
Aircraft rents increased 64.4% to $15,824 in the first quarter of fiscal
1999 from $9,625 in the first quarter of fiscal 1998. This increase is
primarily attributable to the addition of 33 Saab 340 and 11 RJ85 aircraft
while retiring 15 Dash 8 aircraft to lessors. Mesaba has taken delivery
of 11 Saab 340 and four RJ85 aircraft during the current period. Due to
the additional capacity generated by the jet and larger turboprop
equipment, unit cost however, decreased 10.8% to 3.3 cents from 3.7 cents.
Total landing fees increased 27.8% to $1,816 in the first quarter of fiscal
1999 compared to $1,421 for the first quarter of fiscal 1998. The increase
is attributable to a 33.8% increase in turbo-prop departures and a 32.8%
increase in the average gross landing weight due to the mix of the aircraft
in the fleet and offset by a 3.7% decrease in the overall effective landing
fee rate. Unit cost however, decreased 20.0% to 0.4 cents from 0.5 cents.
Mesaba is not required to pay for landing fees for the jet aircraft.
Insurance and taxes increased 54.5% to $2,043 in the first quarter of
fiscal 1999 compared to $1,322 for the first quarter of fiscal 1998. This
is due primarily to an increase in passenger liability insurance associated
with increased passenger volume and increased hull values associated with
lower overall average fleet age when compared to one year ago offset by a
reduction in passenger liability insurance rates. Due to the additional
<PAGE>
capacity generated by the jet and larger turboprop equipment, unit cost
however decreased 20.0% to 0.4 cents from 0.5 cents.
Depreciation and amortization increased 71.2% to $1,974 in the first
quarter of fiscal 1999 compared to $1,153 in the first quarter of fiscal
1998. The higher level of depreciation and amortization resulted from the
acquisition of spare parts to support the Saab fleet, which were in part
funded by credits issued by the manufacturer. In July 1997 the Company
paid a contract rights fee in the form of a stock purchase warrant issued
to Northwest as a part of the new Airlink Agreement. These contract rights
are being amortized on a straight-line basis over the term of the Airlink
Agreement through June 2007. The Company also paid a contract right fees in
the form of stock purchase warrants issued to Northwest in connection with
amendments to the Jet Agreement which increased the number of aircraft to be
flown by Mesaba from 12 to 36. These contract rights are being amortized on
a straight-line basis over the remaining term of the Jet Agreement. Due to
the additional capacity generated by the jet and larger turboprop equipment,
unit cost remained unchanged.
Administrative and other costs increased 27.4% to $9,643 in the first
quarter of fiscal 1999 compared to $7,571 in the first quarter of fiscal
1998. This increase is primarily attributable to higher crew related
expenses, excluding wages and benefits, associated with increased flying
and increased airport and passenger related expenses due to an increase in
traffic and the number of cities served. Due to the additional capacity
generated by the jet and larger turboprop equipment, unit cost decreased
31.0% to 2.0 cents from 2.9 cents. Mesaba is generally not required to
provide airport and passenger related expenses for the jet operation.
OPERATING INCOME. Operating income totaled $10,464 in the current period,
an increase of 68.5% from $6,209 a year ago. Mesaba's operating margin
increased to 13.0% from 11.4% in the prior year's first quarter.
NONOPERATING INCOME. Nonoperating income increased to $738 in the current
quarter from $372 in the prior year's first quarter as a result of higher
levels of interest income.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% in
the first quarter of fiscal 1999 and 39.6% in the comparable quarter in
fiscal 1998. The lower effective tax rate is due to lower levels of
nondeductible expenses in the current period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $57,265 with a current ratio of
2.2 at June 30, 1998 compared to $51,692 and 2.2 at March 31, 1998. Cash
and cash equivalents increased by $7,844 to $74,398 at June 30, 1998. Net
cash flows provided by operating activities totaled $13,292 in the first
three months of fiscal 1999 compared to $9,031 in the first three months of
fiscal 1998. Net cash flows used for investing activities amounted to
$6,725 during the three months ended June 30, 1998 compared to $3,687 in the
same period last year. Net cash flows provided by financing activities
through June 30, 1998 totaled $1,277 compared to a use of $29 in the same
period last year.
Long-term obligations, net of current maturities, totaled $4,656 at June
30, 1998 compared to $4,751 at March 31, 1998. The ratio of long-term
debt to stockholders' equity was .05 at June 30, 1998 and .06 at March
31, 1998.
As of August 1, 1998, Mesaba's fleet consisted of 90 aircraft covered under
operating leases with remaining terms of two months to 17.5 years with
aggregate monthly lease payments of approximately $5.5 million. Operating
leases have been Mesaba's primary method of acquiring aircraft, and
management expects to continue relying on this method to meet most of its
future aircraft needs. Mesaba leases all of its Saab 340 aircraft, either
directly from aircraft leasing companies or through subleases with
Northwest under operating leases with terms up to 17.5 years. Mesaba has
negotiated a financing agreement with the airframe manufacturer whereby
operating lease financing for additional Saab 340 aircraft are committed
to the Company on competitive rates and terms. Mesaba leases its RJ85
aircraft from Northwest under operating leases with terms of up to 10
years. Mesaba currently plans to continue leasing the additional RJ85
aircraft under firm contract from Northwest.
The Company has historically relied upon cash reserves, internally
generated funds and borrowings to support its working capital requirements.
The Company has an unsecured agreement with a bank that provides for
borrowings of up to $15,000 under a revolving line of credit. No amounts
were outstanding under the credit agreement. Management believes that funds
from operations and existing credit lines will provide adequate resources
for meeting non-aircraft capital needs in fiscal 1999.
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 date conversion
program to be completed on a timely basis. The Company does not expect to
incur significant costs related to enhancements necessary to prepare its
systems for the Year 2000. The company is in the process of assessing
Year 2000 compliance by significant vendors. This assessment is incomplete
and the Company is working cooperatively with third parties having systems
upon which the Company must rely, including: Federal Aviation
Administration Air Traffic Control and Northwest Airlines reservation,
passenger check-in and ticketing systems. The Company can give no
assurances that the systems of other parties will be year 2000 compliant
on a timely basis. The Company's business, financial condition and/or
results of operations could be materially affected by the failure of its
systems or those operated by others.
<PAGE>
Northwest has informed Mesaba that certain of its labor unions may strike
on or after August 29, 1998. Such a strike would likely cause a complete
cessation of scheduled service by Northwest. Non-performance by Northwest
under the Airlink and Jet agreements for a prolonged period of time would
have a material adverse financial impact on Mesaba during the period of
non-performance and could affect future periods as well. Mesaba continues
to refine contingency plans to mitigate any economic loss associated with
non-performance by Northwest. Such plans include the possible suspension of
Mesaba's scheduled flights or the redeployment of some or all of Mesaba's
aircraft to high density markets that would be largely without service from
Minneapolis/St. Paul and Detroit as a result of a shutdown by Northwest.
The redeployment of aircraft will depend upon the potential duration of a
strike. To conserve cash, the Company does not anticipate operating any of
its flight schedule during a Northwest strike of limited duration. The
Company believes that it has adequate capital resources to implement its
contingency plan in the event of a suspension of operations by Northwest.
<PAGE>
Part II.
Item 5. OTHER INFORMATION
The National Mediation Board declared an impasse in contract negotiations
between Northwest Airlines and the Air Line Pilots Association, starting a
mandatory 30-day cooling off period. If scheduled contract talks are
unsuccessful, a strike against Northwest Airlines could occur after 11:01
p.m. CDT August 28, 1998.
The Company expects that a curtailment or suspension of operations by
Northwest Airlines would have a material adverse effect on the Company's
business. Most of Mesaba's passengers are booked on connecting flights with
Northwest Airlines. Northwest also provides Mesaba with computerized
reservation services and with ticketing, check-in, baggage and freight
handling services at certain airports. In the event of a strike by
Northwest labor, Northwest is not required to perform under the Airlink or
Jet agreements. Mesaba believes that it would not receive payments or
services from Northwest for the duration of a strike. Although Mesaba
continues to develop contingency plans to deal with a possible strike
against Northwest, Mesaba is likely to experience substantially reduced
revenues during any period in which Northwest Airlines does not conduct
normal flight operations. See Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources".
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed with this report:
4A. Common Stock Purchase Warrant dated April 1, 1998 issued to
Northwest Airlines, Inc.
4B. Common Stock Purchase Warrant dated June 2, 1998 issued to
Northwest Airlines, Inc.
10A. Amendment No. 1 to Regional Jet Services Agreement dated April
1, 1998 between Mesaba Holdings, Inc., Mesaba Aviation,
and Northwest Airlines, Inc. (certain provisions of
document have been omitted pursuant to a request for
confidential treatment under Rule 24b-2.)
10B. Amendment No. 2 to Regional Jet Services Agreement dated June 2,
1998 between Mesaba Holdings, Inc., Mesaba Aviation, Inc., and
Northwest Airlines, Inc. (certain provisions of this document
have been omitted pursuant to a request for confidential
treatment under Rule 24b-2.)
b) The Registrant did not file any reports on form 8-K during the quarter
ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESABA HOLDINGS, INC.
Date: August 14, 1998 BY: /s/ Robert H. Cooper
------------------------
Robert H. Cooper
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon R. Meyer
------------------------
Jon R. Meyer
Director of Accounting/Controller
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 74,398
<SECURITIES> 0
<RECEIVABLES> 15,700
<ALLOWANCES> 0
<INVENTORY> 8,119
<CURRENT-ASSETS> 105,772
<PP&E> 56,052
<DEPRECIATION> 17,934
<TOTAL-ASSETS> 159,456
<CURRENT-LIABILITIES> 48,507
<BONDS> 0
0
0
<COMMON> 196
<OTHER-SE> 91,373
<TOTAL-LIABILITY-AND-EQUITY> 159,456
<SALES> 80,469
<TOTAL-REVENUES> 80,469
<CGS> 70,005
<TOTAL-COSTS> 70,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 4,369
<INCOME-TAX> 6,833
<INCOME-CONTINUING> 6,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 800
<NET-INCOME> 6,033
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.28
</TABLE>
<PAGE>
WARRANT
To Purchase Common Stock
of
Mesaba Holdings, Inc.
This warrant, dated as of April 1, 1998, certifies that for value
received Northwest Airlines, Inc., a Minnesota corporation ("Northwest"),
or permitted assigns, is entitled to purchase from Mesaba Holdings, Inc., a
Minnesota corporation (the "Company"), 316,128 shares (subject to
adjustment as herein provided) of common stock of the Company (herein
referred to as the "Common Shares") at the price determined as provided
herein, and in all respects subject to the terms contained herein.
This Warrant has been issued to Northwest in consideration of an
amendment, dated April 1, 1998 to that certain Regional Jet Services
Agreement dated as of October 25, 1996 between Northwest, the Company and
Mesaba Aviation, Inc. (the "Jetlink Agreement").
This Warrant is subject to the following provisions, terms, and
conditions:
2. The exercise price is $31.875 per share, subject to adjustment as
hereinafter provided (the "Exercise Price").
3. This Warrant shall become exercisable in installments
cumulatively with respect to 1/6th of the Common Shares, as adjusted
(initially 52,688 shares), on each date on which an Additional Aircraft
enters scheduled passenger service under the Jetlink Agreement. As used
herein, Additional Aircraft means the thirteenth through eighteenth RJ 85
aircraft to enter service under the Jetlink Agreement. This Warrant will
expire at 5:00 p.m. Minneapolis time, on October 25, 2006, unless terminated
earlier pursuant to the terms hereof. Subject to the last sentence of this
Section 2, the rights represented by this Warrant may be exercised by
Northwest, in whole or in part, by written notice of exercise delivered to
the Company accompanied by the surrender of this Warrant (properly endorsed
if required) at the principal office of the Company together with payment by
check payable in Minneapolis Clearing House funds to the order of the
Company of the purchase price for such shares. The Company agrees that the
shares so purchased shall be deemed to be issued as of the close of business
on the date on which this Warrant shall have been surrendered and payment
made for such shares as aforesaid. Certificates for the Common Shares so
purchased shall be delivered to Northwest as soon as practicable after the
purchase rights represented by this Warrant shall have been so exercised.
This Warrant may not be exercised in part for the purchase of any number of
Common Shares less than 50,000, unless such number represents the total
number of Common Shares then remaining subject to purchase pursuant to this
Warrant.
4. The Company covenants and agrees that all Common Shares issued upon
the exercise of the purchase rights represented by this Warrant will, upon
issuance, be validly issued, fully paid,
<PAGE>
nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof. The Company further covenants and agrees that until the
expiration of this Warrant it will at all times have authorized and
reserved for the purpose of issue or transfer upon exercise of the purchase
rights evidenced by this Warrant a sufficient number of shares of its
common stock to provide for the exercise of the purchase rights represented
by this Warrant.
5. This Warrant shall not be transferable or assignable by Northwest
and may be exercised only by Northwest; provided, however, that Northwest
may transfer or assign this Warrant to any affiliate (as such term is
defined in Rule 405 promulgated under the Securities Act of 1933, as
amended) of Northwest and any successor corporation (or other entity)
resulting from its merger, consolidation, or other reorganization or the
sale of all or substantially all of its assets.
6. In case the Company shall declare a stock dividend or other
distribution upon its common stock payable in common stock of the Company,
then the total maximum number of Common Shares issuable upon the exercise
of this Warrant shall be increased by an amount equal to the number of
shares of common stock which would have been issued to Northwest as a
result of the issuance of such dividend or other distribution if,
immediately prior to the record date relating to such dividend or other
distribution, Northwest had exercised its purchase rights under this
Warrant with respect to the total number of Common Shares then remaining
subject to purchase. The Exercise Price in effect immediately prior to
such dividend or other distribution shall be proportionately reduced.
7. In case the Company shall at any time subdivide or split its
outstanding shares of common stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision or split
shall be proportionately reduced, and conversely, in case the outstanding
shares of common stock of the Company shall be combined into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased. Upon each adjustment of
the Exercise Price pursuant to this Section 6, Northwest shall thereafter
be entitled to purchase, at the then applicable Exercise Price, the number
of shares obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant
hereto immediately prior to such adjustment and dividing the product
thereof by the applicable Exercise Price resulting from such adjustment.
8. If any capital reorganization or reclassification of the capital
stock of the Company or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of shares
of common stock of the Company shall be entitled to receive stock,
securities or assets with respect to or in exchange for common stock, then,
as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby
Northwest shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified in this Warrant and in lieu of the
Common Shares of the Company immediately theretofore receivable upon the
exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
2
<PAGE>
outstanding shares of common stock of the Company equal to the number of
Common Shares immediately theretofore receivable upon the exercise of this
Warrant had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of Northwest to the end that
the provisions hereof (including without limitation provision for
adjustments of the then applicable Exercise Price and of the number of
shares or other kinds of securities or other property receivable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
receivable upon the exercise of this Warrant. The Company shall not effect
any such consolidation, merger or sale, unless, prior to the consummation
thereof, the surviving corporation (if other than the Company) resulting
from such consolidation or merger or the corporation purchasing such assets
shall assume by written instrument executed and mailed to Northwest at the
last address of Northwest appearing on the books of the Company, the
obligation to deliver to Northwest such shares of stock, securities or
assets as, in accordance with the foregoing provisions, Northwest may be
entitled to receive.
9. Upon any adjustment of the Exercise Price or the number of Common
Shares or other kinds of securities or other property receivable upon
exercise of this Warrant, then and in each case the Company shall give
written notice thereof, by first-class mail, postage prepaid, addressed to
Northwest at the address as shown on the books of the Company, which notice
shall state the then applicable Exercise Price resulting from such
adjustment, and the increase or decrease, if any, in the number of Common
Shares or other kinds of securities or other property receivable upon
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
10. In case any time:
(i) the Company shall pay or make any stock dividend or other
distribution payable in stock upon its common stock or make any
distribution (other than regular cash dividends) to the holders of its
common stock;
(ii) the Company shall offer for subscription pro rata to the
holders of its common stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Company, or consolidation
or merger of the corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, at least 21 days prior to the
applicable date specified below, the Company shall give written notice, by
first-class mail, postage prepaid, addressed to Northwest at the address as
shown on the books of the Company, of the date on which (aa) the books of
the Company shall close or a record shall be taken for such stock dividend,
3
<PAGE>
distribution or subscription rights, or (bb) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of common stock of record shall
participate in such dividend, distribution or subscription rights, or shall
be entitled to exchange their shares of common stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be. Failure to give such notice or any defect therein shall not
affect the legality or validity of any such proceeding or transaction and
shall not affect the right of the holder to participate in any said
dividend, distribution, subscription or exchange.
11. Any transfer of this Warrant permitted by Section 4 hereof may be
effected at the principal office of the Company by a duly authorized
officer or attorney of Northwest, upon surrender of this Warrant properly
endorsed. Northwest and each permitted transferee consents and agrees that
Northwest may be treated by the Company and all other persons dealing with
this Warrant as the absolute owner hereof for any purpose and as the person
entitled to exercise the rights represented by this Warrant, or to the
transfer hereof on the books of the Company, in the absence of any actual
written notice to the contrary.
12. This Warrant is exchangeable upon the surrender hereof by
Northwest at the principal office of the Company for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase
the number of Common Shares which may be subscribed for and purchased
hereunder.
13. Notwithstanding any other provisions set forth in this Warrant to
the contrary, the rights of Northwest granted in this Warrant shall
terminate (i) immediately upon the termination of the Jetlink Agreement, if
the Jetlink Agreement is terminated by Northwest or (ii) 30 days after
Northwest's receipt of notice from the Company of the Company's termination
of the Jetlink Agreement, if the Jetlink Agreement is terminated as the
result of such notice.
14. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer this 1st day of April, 1998.
MESABA HOLDINGS, INC.
By:
--------------------
Bryan K. Bedford
Its President and Chief
Executive Officer
4
<PAGE>
ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise the Warrant.)
TO: Mesaba Holdings, Inc.
The undersigned hereby irrevocably elects to exercise this Warrant to
the extent of ______________ Common Shares and requests that certificates
for such shares be issued, and any payment in lieu of fractional shares be
made, in the name of:
____________________________________________________________________________
(Print name, address and social security or other tax identification
number)
Dated:______________,____
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant.)
5
FORM OF ASSIGNMENT
(To be executed by the registered holder
if such holder desires to transfer the Warrant.)
FOR VALUE RECEIVED,
hereby sells, assigns and transfers unto
___________________________________________________________________________
(Print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint_________________________________
Attorney, to transfer the within Warrant on the books of the Company, with
full power of substitution.
Dated:______________,____
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant.)
6
<PAGE>
WARRANT
To Purchase Common Stock
of
Mesaba Holdings, Inc.
This warrant, dated as of June 2, 1998, certifies that for value
received Northwest Airlines, Inc., a Minnesota corporation
("Northwest"), or permitted assigns, is entitled to purchase from Mesaba
Holdings, Inc., a Minnesota corporation (the "Company"), 1,435,230
shares (subject to adjustment as herein provided) of common stock of the
Company (herein referred to as the "Common Shares") at the price
determined as provided herein, and in all respects subject to the terms
contained herein.
This Warrant has been issued to Northwest in consideration of an
amendment, dated June 2, 1998 to that certain Regional Jet Services
Agreement dated as of October 25, 1996 between Northwest, the Company and
Mesaba Aviation, Inc. (the "Jetlink Agreement").
This Warrant is subject to the following provisions, terms, and
conditions:
2. The exercise price is $21.25 per share, subject to adjustment
as hereinafter provided (the "Exercise Price").
3. This Warrant shall become exercisable in installments
cumulatively with respect to 1/18th of the Common Shares, as adjusted
(initially 79,735 shares), on each date on which an Additional Aircraft
enters scheduled passenger service under the Jetlink Agreement. As used
herein, Additional Aircraft means the nineteenth through thirty-sixth RJ
85 aircraft to enter service under the Jetlink Agreement. This Warrant
will expire at 5:00 p.m. Minneapolis time, on
October 25, 2006, unless terminated earlier pursuant to the terms
hereof. Subject to the last sentence of this Section 2, the rights
represented by this Warrant may be exercised by Northwest, in whole or
in part, by written notice of exercise delivered to the Company
accompanied by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company together with payment
by check payable in Minneapolis Clearing House funds to the order of the
Company of the purchase price for such shares. The Company agrees that
the shares so purchased shall be deemed to be issued as of the close of
business on the date on which this Warrant shall have been surrendered
and payment made for such shares as aforesaid. Certificates for the
Common Shares so purchased shall be delivered to Northwest as soon as
practicable after the purchase rights represented by this Warrant shall
have been so exercised. This Warrant may not be exercised in part for
the purchase of any number of Common Shares less than 50,000, unless
such number represents the total number of Common Shares then remaining
subject to purchase pursuant to this Warrant.
4. The Company covenants and agrees that all Common Shares issued
upon the exercise of the purchase rights represented by this Warrant
will, upon issuance, be validly issued, fully paid, nonassessable, and
free from all taxes, liens and charges with respect to the issue
<PAGE>
thereof. The Company further covenants and agrees that until the
expiration of this Warrant it will at all times have authorized and
reserved for the purpose of issue or transfer upon exercise of the
purchase rights evidenced by this Warrant a sufficient number of shares
of its common stock to provide for the exercise of the purchase rights
represented by this Warrant.
5. This Warrant shall not be transferable or assignable by
Northwest and may be exercised only by Northwest; provided, however,
that Northwest may transfer or assign this Warrant to any affiliate (as
such term is defined in Rule 405 promulgated under the Securities Act of
1933, as amended) of Northwest and any successor corporation (or other
entity) resulting from its merger, consolidation, or other
reorganization or the sale of all or substantially all of its assets.
6. In case the Company shall declare a stock dividend or other
distribution upon its common stock payable in common stock of the
Company, then the total maximum number of Common Shares issuable upon
the exercise of this Warrant shall be increased by an amount equal to
the number of shares of common stock which would have been issued to
Northwest as a result of the issuance of such dividend or other
distribution if, immediately prior to the record date relating to such
dividend or other distribution, Northwest had exercised its purchase
rights under this Warrant with respect to the total number of Common
Shares then remaining subject to purchase. The Exercise Price in effect
immediately prior to such dividend or other distribution shall be
proportionately reduced.
7. In case the Company shall at any time subdivide or split its
outstanding shares of common stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision or split
shall be proportionately reduced, and conversely, in case the
outstanding shares of common stock of the Company shall be combined into
a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall be proportionately increased. Upon each
adjustment of the Exercise Price pursuant to this Section 6, Northwest
shall thereafter be entitled to purchase, at the then applicable
Exercise Price, the number of shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the applicable Exercise
Price resulting from such adjustment.
8. If any capital reorganization or reclassification of the
capital stock of the Company or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way that
holders of shares of common stock of the Company shall be entitled to
receive stock, securities or assets with respect to or in exchange for
common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby Northwest shall thereafter have the
right to receive upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the Common Shares of the
Company immediately theretofore receivable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of common stock of the Company equal to the number of Common
Shares immediately theretofore receivable upon the exercise of this
Warrant had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision
2
<PAGE>
shall be made with respect to the rights and interests of Northwest to
the end that the provisions hereof (including without limitation
provision for adjustments of the then applicable Exercise Price and of
the number of shares or other kinds of securities or other property
receivable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter receivable upon the exercise of this
Warrant. The Company shall not effect any such consolidation, merger or
sale, unless, prior to the consummation thereof, the surviving
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to Northwest at the
last address of Northwest appearing on the books of the Company, the
obligation to deliver to Northwest such shares of stock, securities or
assets as, in accordance with the foregoing provisions, Northwest may be
entitled to receive.
9. Upon any adjustment of the Exercise Price or the number of
Common Shares or other kinds of securities or other property receivable
upon exercise of this Warrant, then and in each case the Company shall
give written notice thereof, by first-class mail, postage prepaid,
addressed to Northwest at the address as shown on the books of the
Company, which notice shall state the then applicable Exercise Price
resulting from such adjustment, and the increase or decrease, if any, in
the number of Common Shares or other kinds of securities or other
property receivable upon exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
10. In case any time:
(i) the Company shall pay or make any stock dividend or other
distribution payable in stock upon its common stock or make any
distribution (other than regular cash dividends) to the holders of
its common stock;
(ii) the Company shall offer for subscription pro rata to the
holders of its common stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Company, or
consolidation or merger of the corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, at least 21 days prior to the
applicable date specified below, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to Northwest at the
address as shown on the books of the Company, of the date on which (aa)
the books of the Company shall close or a record shall be taken for such
stock dividend, distribution or subscription rights, or (bb) such
3
<PAGE>
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of
common stock of record shall participate in such dividend, distribution
or subscription rights, or shall be entitled to exchange their shares of
common stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Failure to
give such notice or any defect therein shall not affect the legality or
validity of any such proceeding or transaction and shall not affect the
right of the holder to participate in any said dividend, distribution,
subscription or exchange.
11. Any transfer of this Warrant permitted by Section 4 hereof may
be effected at the principal office of the Company by a duly authorized
officer or attorney of Northwest, upon surrender of this Warrant
properly endorsed. Northwest and each permitted transferee consents and
agrees that Northwest may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Company, in
the absence of any actual written notice to the contrary.
12. This Warrant is exchangeable upon the surrender hereof by
Northwest at the principal office of the Company for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of Common Shares which may be subscribed for and
purchased hereunder.
13. Notwithstanding any other provisions set forth in this Warrant
to the contrary, the rights of Northwest granted in this Warrant shall
terminate (i) immediately upon the termination of the Jetlink Agreement,
if the Jetlink Agreement is terminated by Northwest or (ii) 30 days
after Northwest's receipt of notice from the Company of the Company's
termination of the Jetlink Agreement, if the Jetlink Agreement is
terminated as the result of such notice.
14. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer this 2nd day of June, 1998.
MESABA HOLDINGS, INC.
By /s/__________________
John S. Fredericksen
Vice President
Administration and General Counsel
4
<PAGE>
ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise the Warrant.)
TO: Mesaba Holdings, Inc.
The undersigned hereby irrevocably elects to exercise this Warrant
to the extent of ___________ Common Shares and requests that
certificates for such shares be issued, and any payment in lieu of
fractional shares be made, in the name of:
________________________________________________________________________
(Print name, address and social security or other tax identification
number)
Dated:________________,____
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant.)
5
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder
if such holder desires to transfer the Warrant.)
FOR VALUE RECEIVED,________________________________________________
hereby sells, assigns and transfers unto________________________________
__________________________________________________________________________
(Print name and address of transferee)
this Warrant, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint__________________________
Attorney, to transfer the within Warrant on the books of the Company,
with full power of substitution.
Dated:_______________,____
______________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant.)
6
<PAGE>
AMENDMENT NO. 1
TO
REGIONAL JET SERVICES AGREEMENT
AMENDMENT NO. 1 TO REGIONAL JET SERVICES AGREEMENT (this
"Amendment") dated as of April 1, 1998 by and among MESABA HOLDINGS,
INC., a Minnesota corporation ("Holdings"), MESABA AVIATION, INC., a
Minnesota corporation ("Mesaba"), and Northwest Airlines, Inc., a
Minnesota corporation ("Northwest"). All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided
such terms in the Regional Jet Services Agreement referred to below.
WITNESSETH:
WHEREAS, Holdings, Mesaba and Northwest have entered into the
Regional Jet Services Agreement dated as of the 25th day of October,
1996 (the "Agreement");
WHEREAS, Holdings, Mesaba and Northwest desire to amend the
Agreement in the manner set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Holdings, Mesaba and Northwest do hereby agree as follows:
1. AMENDMENT OF SECTION 2.01(b). Section 2.01(b) of
Agreement is amended to read in its entirety as follows:
"(b) SUBLEASE OF THE AIRCRAFT. Mesaba and Northwest agree to enter
into (or, as to Northwest, Northwest agrees to cause such Northwest
Affiliate as Northwest may designate to enter into) a sub-sublease,
sublease or lease with respect to each of the first eighteen (18) Avro
Regional Jet aircraft to be purchased pursuant to the Letter of Intent
when, if and as Northwest takes delivery of each such Avro Regional Jet
aircraft. Mesaba agrees to enter into a sub-sublease, sublease or lease
with Northwest (or such Northwest Affiliate as Northwest may designate)
with respect to the remaining eighteen (18) Avro Regional Jet aircraft
subject to the Letter of Intent when and as Northwest takes delivery of
each such Avro Regional jet aircraft if Northwest determines in its sole
discretion to use such aircraft for Jet Services pursuant to the
Agreement. Northwest shall have no obligation to lease or sublease the
remaining eighteen (18) Avro Regional Jet aircraft to Mesaba and nothing
in this Agreement shall prohibit or limit Northwest (or a Northwest
Affiliate) from using or leasing to other air carriers the remaining
eighteen (18) Avro Regional Jet aircraft."
2. AMENDMENT OF SECTION 9.04. Section 9.04 of the Agreement is
amended to read in its entirety as follows:
"Section 9.04 EARLY TERMINATION. Notwithstanding any other
provision of this Agreement, Northwest shall have the right to terminate
this Agreement and the Subleases as of the seventh anniversary of the
<PAGE>
effective date of the first lease if Northwest shall have given a
termination notice to Mesaba not less than one hundred eighty (180) days
nor more than three hundred sixty-five (365) days prior to such seventh
anniversary."
3. AMENDMENT TO EXHIBIT A. Section A of Exhibit A is hereby
amended to read in its entirety as follows:
"A. The Block Hours Payment Rate.
The Block Hours Payment Rate shall be determined based on the weighted
average of the scheduled daily block hour utilization for all Aircraft
("Utilization") in accordance with the following schedule:
UTILIZATION BLOCK HOURS PAYMENT RATE"
[Confidential material omitted and filed separately
with the Securities and Exchange Commission pursuant
to a request for confidential treatment.]
4. STOCK PURCHASE WARRANT. Holdings agrees to deliver to
Northwest concurrently with the execution of this Amendment an executed
stock purchase warrant in the form attached hereto as Exhibit A.
5. MISCELLANEOUS. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and delivered
shall be an original, but all of which shall together constitute one and
the same instrument. This Amendment and the rights and obligations of
the parties hereunder shall be construed in accordance with and governed
by the law of the State of Minnesota. From and after the date hereof,
all references in the Agreement to the Agreement shall be deemed to be
references to the Agreement as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of this date and year first set forth above.
MESABA HOLDINGS, INC.
By:/s/ Bryan K. Bedford
--------------------
Name: Bryan K. Bedford
Title: President and Chief
Executive Officer
MESABA AVIATION, INC.
By:/s/ Bryan K. Bedford
--------------------
Name: Bryan K. Bedford
Title: President and Chief
Executive Officer
NORTHWEST AIRLINES, INC.
By:/s/ John C. Kopchik
-------------------
Name: John C. Kopchik
Title: Vice President Market
Planning
<PAGE>
AMENDMENT NO. 2
TO
REGIONAL JET SERVICES AGREEMENT
AMENDMENT NO. 2 TO REGIONAL JET SERVICES AGREEMENT (this
"Amendment") dated as of June 2, 1998 by and among MESABA
HOLDINGS, INC., a Minnesota corporation ("Holdings"), MESABA
AVIATION, INC., a Minnesota corporation ("Mesaba"), and Northwest
Airlines, Inc., a Minnesota corporation ("Northwest"). All
capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Regional
Jet Services Agreement referred to below.
WITNESSETH:
WHEREAS, Holdings, Mesaba and Northwest have entered into
the Regional Jet Services Agreement dated as of the 25th day of
October, 1996 (as amended to date, the "Agreement");
WHEREAS, Holdings, Mesaba and Northwest desire to amend the
Agreement in the manner set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Holdings, Mesaba and Northwest do
hereby agree as follows:
1. AMENDMENT OF SECTION 2.01(b). Section 2.01(b) of the
Agreement is amended to read in its entirety as follows:
"(b) SUBLEASE OF THE AIRCRAFT. Mesaba and Northwest agree
to enter into (or, as to Northwest, Northwest agrees to cause
such Northwest Affiliate as Northwest may designate to enter
into) a sub-sublease, sublease or lease with respect to each of
the thirty-six (36) Avro Regional Jet aircraft to be purchased
pursuant to the Letter of Intent when, if and as Northwest takes
delivery of each such Avro Regional Jet aircraft."
2. BLOCK HOURS PAYMENT RATE ADJUSTMENT. The Block Hours
Payment Rates set forth in Exhibit A to the Agreement shall be
adjusted [*] to reflect [*] to the [*] through [*] Aircraft. The
parties shall execute an amendment reflecting the adjusted Block
Hour Payment Rates upon the mutual determination of [*].
3. STOCK PURCHASE WARRANT. Holdings agrees to deliver to
Northwest concurrently with the execution of this Amendment an
executed stock purchase warrant in the form attached hereto as
Exhibit A (the "Warrant").
* Confidential material omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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4. SHARE AUTHORIZATION. Holdings agrees that it shall submit
to its shareholders for their approval, and shall recommend that
the shareholders approve, a proposal (the "Proposal") to increase
the number of authorized shares of common stock of Holdings so
that there shall be a sufficient number of authorized shares of
common stock of Holdings to provide for the exercise of the
purchase rights set forth in the Warrant (taking into account all
other outstanding options, warrants and convertible securities of
Holdings). Northwest agrees that it shall vote all shares of
common stock of Holdings held by it for the Proposal. In the
event the shareholders of Holdings fail to approve the Proposal,
this Amendment shall cease to be effective, the Agreement shall
continue in the form it existed prior to this Amendment, and
Northwest shall return the Warrant to Holdings.
5. MISCELLANEOUS. This Amendment may be executed in any number
of counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Amendment and the
rights and obligations of the parties hereunder shall be
construed in accordance with and governed by the law of the State
of Minnesota. From and after the date hereof and so long as this
Amendment shall remain effective, all references in the Agreement
to the Agreement shall be deemed to be references to the
Agreement as amended hereby.
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IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of this date and year first set forth above.
MESABA HOLDINGS, INC.
By: /s/ Bryan K. Bedford
--------------------
Name: Bryan K. Bedford
Title: President and Chief
Executive Officer
MESABA AVIATION, INC.
By: /s/ Bryan K. Bedford
---------------------
Name: Bryan K. Bedford
Title: President and Chief
Executive Officer
NORTHWEST AIRLINES, INC.
By: /s/ J. Timothy Griffin
-----------------------
Name: J. Timothy Griffin
Title: Senior Vice President
Market Planning and Systems
