FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to___________________
Commission file number 1-13934
MIDWEST EXPRESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1828757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6744 South Howell Avenue
Oak Creek, Wisconsin 53154
(Address of principal executive offices)
(Zip Code)
414-570-4000
(Registrant's telephone number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
Common stock, $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
(Title of Class) (Names of exchange on
which registered)
Securities registered pursuant to
Section 12(g) of the Act: None
(Title of class)
Indicate by checkmark 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 by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates as of March
18, 1997: $235.8 million
As of March 18, 1997 there were 6,330,863 shares of Common Stock, $.01 par
value, of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders for the fiscal year
ended December 31, 1996 are incorporated by reference into Parts II and
IV. Portions of the definitive Proxy Statement for registrant's Annual
Meeting of Shareholders to be held on April 23, 1997 are incorporated by
reference in Part III.
<PAGE>
MIDWEST EXPRESS HOLDINGS, INC.
FORM 10-K
For the year ended December 31, 1996
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Management - Executive Officers of the Registrant 11
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the
Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12
Item 13. Certain Relationships and Related
Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 13
SIGNATURES 14
INDEPENDENT AUDITORS' REPORT 15
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 16
EXHIBIT INDEX 17
<PAGE>
PART I
Item 1. Business
Background
Midwest Express Holdings, Inc. was reincorporated under the laws of
the State of Wisconsin in 1996. Midwest Express Holdings, Inc. is a
holding company, and its principal subsidiary is Midwest Express Airlines,
Inc. ("Midwest Express").
Midwest Express operates a single-class, premium service passenger
jet airline that caters to business travelers and serves selected major
business destinations throughout the United States and Toronto, Canada,
from operations bases in Milwaukee and Omaha.
Midwest Express evolved out of Kimberly-Clark Corporation's
("Kimberly-Clark") desire to provide a convenient and cost-effective way
to meet Kimberly-Clark's internal transportation needs. Kimberly-Clark
began daily, nonstop aircraft shuttle service in October 1982 for its
employees traveling between Kimberly-Clark offices in two cities. Key
management personnel from Kimberly-Clark who successfully operated the
shuttle service became the senior management of Midwest Express.
Midwest Express began commercial operations in 1984 with two DC-9-10
aircraft, serving three destinations from Milwaukee's General Mitchell
International Airport. Milwaukee, as Midwest Express' original base of
operations, has been the main focus of its route structure. Midwest
Express established Omaha as its first base of operations outside
Milwaukee in May 1994.
Astral Aviation, Inc. ("Astral"), d/b/a Skyway Airlines ("Skyway"), a
wholly owned subsidiary of Midwest Express, began operations in early 1994
by taking over routes that Mesa Airlines, Inc. ("Mesa") had operated as a
commuter feed system under a code sharing agreement between Mesa and
Midwest Express that expired that year. Under the agreement, Mesa
operated the system beginning in 1989 as "Skyway Airlines" using Midwest
Express' airline code. As of December 31, 1996, Skyway offered service in
25 Midwestern cities.
On September 27, 1995, the stock of Midwest Express was transferred
to Midwest Express Holdings, Inc. in connection with the initial public
offering ("Offering") by Kimberly-Clark of 5,140,000 shares of common
stock of Midwest Express Holdings, Inc. Following the Offering, Kimberly-
Clark retained 1,288,571 shares of the outstanding common stock of the
Company which were subsequently sold in a secondary public offering
consummated on May 23, 1996. As used herein, unless the context otherwise
requires, the "Company" refers to Midwest Express Holdings, Inc. and its
respective predecessors, including Midwest Express Airlines, Inc. when
operated as a subsidiary of Kimberly-Clark.
Route Structure and Scheduling
Bases of Operations
Midwest Express currently has two bases of operations, Milwaukee and
Omaha. As of December 31, 1996, Midwest Express served 24 cities from
Milwaukee and was the only carrier providing nonstop service between
Milwaukee and most Midwest Express destinations. To increase utilization
of aircraft, Midwest Express provides seasonal service from Milwaukee to
four cities, Tampa, Ft. Myers, Ft. Lauderdale and Phoenix, which generally
begins in mid-December and operates through April. Although nine other
jet airline carriers serve Milwaukee's airport, these carriers (other than
American Trans Air) only provide nonstop flights between Milwaukee and
their respective operations' hubs.
From Omaha, Midwest Express provides nonstop service to cities that
include Los Angeles, San Diego (connecting service on weekdays),
Milwaukee, Newark, and Washington D.C. Passengers in Omaha can also
travel to most other cities in the Midwest Express route system via
connections through Milwaukee. Although 10 other jet airline carriers
serve Omaha's airport, these carriers (other than Southwest Airlines and
Airtran Airways) only provide nonstop flights between Omaha and their
respective hubs.
Integration of Skyway Operations
Midwest Express coordinates Skyway routes and schedules. The Company
primarily has sought to provide Skyway service to communities where there
is the opportunity to complement Midwest Express service by giving
passengers on short haul, low density routes to Milwaukee the ability to
connect to Midwest Express flights without switching carrier systems. To
enhance aircraft utilization, Skyway also seeks to identify short haul,
low density point-to-point routes where there is likely to be a consistent
demand for air service even though there is no Milwaukee connection. As
of December 31, 1996, Skyway offered flights in 25 cities, generally in
the northern Midwest of the United States, and Toronto, Canada.
Customer Service
Overall
Midwest Express has consistently emphasized, and been recognized by
the public for, its premium customer service which is a principal factor
that distinguishes Midwest Express from other airlines. In 1996, the
editors of Air Transport World honored Midwest Express with their
"Passenger Services Award," the first time a U.S. airline has earned the
award since 1978. Conde Nast Traveler magazine readers rated Midwest
Express "Top Domestic Airline" in 1995 and 1996. In 1995, the Zagat
Airline Survey of frequent travelers rated Midwest Express as the best
U.S. airline. It also ranked Midwest Express as the fourth best airline
in the world, with no other U.S. airline ranked in the top ten. The June
1995 issue of a leading consumer magazine reported Midwest Express as
"Best Airline" based on its 1994 survey of about 120,000 readers. In
1996, a leading consumer travel report awarded Midwest Express the
designation as the best U.S. airline for the fifth consecutive year.
Midwest Express has accomplished its unique level of customer service
through such tangible amenities as a more comfortable seating
configuration, quality cuisine and complimentary wine and champagne, as
well as such intangibles as the accommodating attitude of Midwest Express
employees. Although Skyway has less opportunity to provide premium
service due to the limited duration of its flights, it also focuses on
superior customer service within the regional airline industry.
Premium Seating
Each Midwest Express aircraft is configured with two leather-covered
seats on each side of the aisle that are larger than coach seats on most
other airlines (21 inches wide at the seat cushion compared to 17 to 18
inch wide standard coach seats). There are no middle seats. Midwest
Express has continued to be recognized by a leading consumer travel
report, most recently in June 1995, as having the most comfortable coach
seats in its periodic surveys of U.S. airlines. The number of seats in
each aircraft is also 15 - 20% fewer than the number of seats that major
airlines typically install in the same type of aircraft.
Dining Services
The high quality of Midwest Express cuisine has been recognized
repeatedly in customer surveys. Breakfast and dinner menus consist
typically of a choice of two entrees. Midwest Express offers
complimentary champagne on breakfast flights and complimentary wine on
other flights. Midwest Express spends about twice as much per revenue
passenger meal when compared to an industry average for major carriers.
Fare Pricing and Yield Management
Airlines generally offer a range of fares that are distinguished by
restrictions on use, such as the times of day and days of the week for
travel, length of stay and minimum advance booking period. Midwest
Express and Skyway generally offer the same range of fares that their
competitors offer, although there are exceptions in particular markets
where Midwest Express will discount certain categories of fares more than
its competition or will charge a premium in markets.
The number of seats an airline offers within each fare category is
also an important factor in pricing. Midwest Express monitors the
inventory and pricing of available seats with a computer-assisted yield
management system. The system enables Midwest Express' yield management
analysts to examine Midwest Express' and Skyway's historical demand and
increases the analysts' opportunity to establish the optimal allocation of
the number of seats made available for sale at various fares. The
analysts then monitor each flight to adjust seat allocations and actual
booking levels, with the objective of optimizing the number of passengers
and the fares paid on future flights to maximize revenues.
Marketing
Travel Agency Relationships
Midwest Express sells approximately 77% of its tickets through travel
agents. The Company maintains its own reservations center at its
headquarters for Midwest Express and Skyway flights. As with most travel
agencies, the Company's reservations center obtains airline information,
makes reservations and sells tickets through a computer reservation system
("CRS"). The Company has a contract to use the SABRE CRS until 2001.
Frequent Flyer Program
The Company operates a frequent flyer program under which mileage
credits are earned by flying on Midwest Express, Skyway or other
participating airlines (including Virgin Atlantic Airways and Swissair)
and by using the services of participating hotels (including Wyndham,
Hilton and Loews), car rental firms (including Hertz, Alamo, National and
Avis), MCI telecommunications and Elan MasterCard. Members can redeem
frequent flyer miles for travel on Midwest Express (20,000 miles for
member and 15,000 for companion), Skyway or other participating airlines.
In addition to free travel, miles can be redeemed for services of
participating hotels and car rental firms. The program is designed to
enhance customer loyalty and thereby retain and increase the business of
frequent travelers by offering incentives for their continued patronage.
The Company's Frequent Flyer program includes a Mutual Miles program
whereby members in Northwest Airlines' WorldPerks frequent flier program
and Midwest Express' Frequent Flyer members maintain their separate
accounts, but can choose to redeem award travel on either carrier or can
combine certain mileage from both programs to reach an award level. In
October 1995, the Company introduced the Midwest Express MasterCard in
conjunction with Elan Financial Services of Illinois ("Elan"). The
program allows Midwest Express to offer a co-branded credit card to its
Frequent Flyer members and other members of the public to induce them to
become Frequent Flyers. The Company generates income by selling Frequent
Flyer miles to Elan, which awards the miles to cardholders for charges on
their credit cards.
As of year end 1996 and 1995, the Company had approximately 828,000
and 713,000 members enrolled in its Frequent Flyer program, respectively.
The Company estimates that as of December 31, 1996 and 1995, the total
available awards under the Frequent Flyer program were 64,000 and 45,000,
respectively, after eliminating those accounts below the minimum award
level. Free travel awards redeemed were approximately 16,100 and 8,500
during 1996 and 1995. Free travel awards accounted for 3.2% of total
Company revenue passenger miles during 1996. Midwest Express does not
believe that usage of Frequent Flyer awards results in any significant
displacement of revenue passengers.
The Company accounts for its frequent flyer obligation on the accrual
basis using the incremental cost method. This method recognizes an
average incremental cost to provide roundtrip transportation to one
additional passenger. The incremental cost includes the cost of meals,
commissary, reservations and insurance. The incremental cost does not
include a contribution to overhead, aircraft cost or profit. The accrual
is based on estimated redemption percentages applied to actual mileage
recorded in members' accounts. For purposes of calculating the Frequent
Flyer accrual, the Company anticipates that approximately 63% of
outstanding awards will be redeemed. No liability is recorded for hotel
or car rental award certificates that are to be honored by other parties
because there is no cost to Midwest Express for such awards.
Related Businesses
Midwest Express also offers ancillary airline services directly to
customers, including freight services and aircraft charters. The freight
business consists of transporting freight, United States mail and counter-
to-counter packages on regular passenger flights. During 1996, Midwest
Express configured and placed into service a DC-9-10 jet aircraft
specifically for the purpose of providing charter services. The primary
customers of aircraft charter services are athletic teams, business groups
and tour operators.
Competition
The Company competes with other air carriers between all cities it
serves. Many of the Company's competitors have elaborate route structures
that transport passengers to hub airports for transfer to many
destinations, including those served by Midwest Express and Skyway. Some
competitors offer flights from cities served by Midwest Express to more
than one of their hub airports, permitting them to compete in markets by
offering multiple routings. For many markets that Midwest Express serves
from Milwaukee and Omaha, the competition does not provide nonstop
service, but that condition could change. In some markets, Skyway and
Midwest Express also compete against ground transportation.
The Company has the largest market share of passengers at Milwaukee.
In 1996, the Company carried 30.8% of passengers boarded in Milwaukee,
while Northwest Airlines, which has the second largest share, carried
22.5%. In Omaha, Midwest Express had 5.3% of the market based upon
passengers boarded in 1996, compared to 29.5% boarded by United Airlines
and 12.5% by Southwest Airlines, the carriers with the two largest market
shares.
In addition to traditional competition among domestic carriers, the
industry may be subject to new forms of competition in the future. The
development of video teleconferencing and other methods of electronic
communication may add a new dimension of competition to the industry as
businesses look for lower cost substitutes to air travel.
Employees
As of December 31, 1996, Midwest Express had 1,815 employees (337 of
whom were part-time and 34 of whom were intermittents) and Skyway had 265
employees (41 of whom were part-time). The categories of employees were
as indicated on the following table:
Employees as of December 31, 1996
Midwest Skyway
Express
Employee Categories
Flight Operations 258 141
Inflight 314 -
Passenger Services 553 67
Maintenance 268 44
Reservations & Marketing 264 -
Revenue Accounting & Finance 100 7
Administrative 58 6
----- -----
Total 1,815 265
===== =====
The Company makes extensive use of part-time employees to increase
operational flexibility. Given the size of Midwest Express' fleet and
flight schedules, the Company does not have continuous operations at many
locations. The use of part-time employees enables Midwest Express to
schedule employees when they are needed. Part-time employees are eligible
for the Company's benefits program, subject to certain restrictions and
co-pay requirements, because doing so enables the Company to attract
quality employees and reinforces the value the Company places on part-time
employees
Labor Relations
In July 1995, Skyway pilots elected the Air Line Pilots Association
("ALPA"), a labor union, to represent them for collective bargaining
purposes. Currently, the Company and ALPA have commenced negotiations and
are in the process of mediation by the National Mediation Board. No other
Company employees are represented by labor unions. The Company believes
management and its employees have had excellent relations.
Regulation
General
The Department of Transportation ("DOT") has the authority to
regulate economic issues affecting air service, including, among other
things, air carrier certification and fitness, insurance, deceptive and
unfair competitive practices, advertising, CRS's and other consumer
protection matters such as on-time performance, denied boarding and
baggage liability. It also is authorized to require reports from air
carriers and to inspect a carrier's books, records and property. The DOT
has authority to investigate and institute proceedings to enforce its
economic regulations and may in certain circumstances assess civil
penalties, revoke operating authority and seek criminal sanctions.
The Federal Aviation Administration ("FAA") regulates the Company's
aircraft maintenance and operations, including flight operations,
equipment, aircraft noise, ground facilities, dispatch, communications,
training, security, weather observation, flight and duty time, crew
qualifications, aircraft registration and other matters affecting air
safety. The FAA has the authority to suspend temporarily or revoke
permanently the authority of the Company or its licensed personnel for
failure to comply with regulations promulgated by the FAA and to assess
civil penalties for such failures.
The Company also is subject to regulations or oversight by federal
agencies other than the DOT and FAA. The antitrust laws are enforced by
the U.S. Department of Justice; labor relations are generally regulated by
the Railway Labor Act, which vests certain regulatory powers in the
National Mediation Board with respect to airlines and labor unions arising
under collective bargaining agreements; and the utilization of radio
facilities is regulated by the Federal Communications Commission. Also,
the Company is generally regulated by federal, state and local laws
relating to the protection of the environment and to the discharge of
materials into the environment. In addition, the Immigration and
Naturalization Service, the U.S. Customs Service, and the Animal and Plant
Health Inspection Service of the Department of Agriculture have
jurisdiction over inspection of the Company's aircraft, passengers and
cargo to ensure the Company's compliance with U.S. immigration, customs
and import laws.
During 1996, the White House Commission on Aviation Safety and
Security ("Commission") was formed to recommend aviation safety measures
for the airline industry. The Commission has issued a summary of draft
recommendations that include more detailed inspections of aging aircraft,
new airline fees for upgrading air traffic control and several security-
related items. The Company believes these recommendations, once
instituted, will result in increased operating costs, the effect of which
cannot be estimated at this time.
Noise Abatement
The federal Airport Noise and Capacity Act of 1990 ("ANCA") was
intended to convert the nation's commercial jet service to quieter Stage 3
operations by requiring phaseout of Stage 2 operations (as defined in Part
36 of the Federal Aviation Regulations) by December 31, 1999, subject to
certain exceptions. The FAA regulations that implement ANCA require
carriers to reduce the number of Stage 2 aircraft operated by one of two
methods. Midwest Express has chosen to comply with ANCA by operating a
fleet that is 65% Stage 3 by the end of 1996, 75% Stage 3 by the end of
1998, and 100% Stage 3 by the end of 1999. As of December 31, 1996,
Midwest Express operated 14 Stage 3 aircraft and eight Stage 2 aircraft.
ANCA also recognizes the right of airport operators with special
noise problems to implement local noise abatement procedures that do not
interfere unreasonably with the interstate and foreign commerce of the
national air transportation system. ANCA generally requires FAA approval
of local noise restrictions on Stage 3 aircraft and establishes a
regulatory notice and review process for local restrictions on Stage 2
aircraft first proposed after October 1990. As the result of litigation
and pressure from airport area residents, airport operators have taken
local actions over the years to reduce aircraft noise. These actions have
included regulations requiring aircraft to meet prescribed decibel limits
by designated dates, prohibition on operations during night time hours,
restrictions on frequency of aircraft operations, and various operational
procedures for noise abatement. While the Company has had sufficient
operational and scheduling flexibility to accommodate local noise
restrictions imposed to the present, its operations could be adversely
affected if locally-imposed regulations become more restrictive or
widespread.
Safety
In compliance with FAA regulations, the Company's aircraft are
subject to many different levels of maintenance or "checks" and
periodically go through complete overhauls. Maintenance efforts are
monitored by the FAA, with FAA representatives typically on-site.
Although both Midwest Express and Skyway are subject to FAA safety
regulations, the regulations that govern aircraft with 30 seats or fewer
were less stringent than the regulations applicable to aircraft with more
than 30 seats. In March 1997, Skyway completed its conversion to certain
FAA regulations that require smaller aircraft operations to conduct
business under more stringent rules previously applicable only to aircraft
with more than 30 seats.
Slots
The FAA's regulations currently permit the buying, selling, trading
and leasing of certain airline slots at Chicago's O'Hare, New York's La
Guardia and Kennedy International and Washington D.C.'s National airports.
A slot is an authorization to take off or land at the designated airport
within a specified time window. The FAA must be advised of all slot
transfers and can disapprove any such transfer.
The FAA's slot regulations require the use of each slot at least 80%
of the time, measured on a bi-monthly basis. Failure to do so without a
waiver of the FAA (which is granted only in exceptional cases) subjects
the slot to recall by the FAA. In addition, the slot regulations provide
that slots may be withdrawn by the FAA at any time without compensation to
meet the DOT's operational needs (such as providing slots for
international or essential air transportation). Midwest Express' ability
to increase its level of operations at certain domestic cities currently
served is affected by the number of slots available for takeoffs and
landings.
Aircraft Fuel
Because fuel costs constitute a significant portion of the Company's
operating costs (approximately 17% and 15% in 1996 and 1995,
respectively), significant changes in fuel costs would materially affect
the Company's operating results. Fuel prices continue to be susceptible
to political events and other factors that can affect the supply of fuel,
and the Company cannot predict near or long-term fuel prices. In the
event of a fuel supply shortage resulting from a disruption of oil imports
or otherwise, higher fuel prices or curtailment of scheduled service could
result. Changes in fuel prices may have a marginally greater impact on
the Company than on many of its competitors because of the composition of
the Company's fleet. See "Item 2. Properties-Fleet Equipment."
Item 2. Properties
Fleet Equipment
As of December 31, 1996, Midwest Express' fleet in service consisted
of 22 McDonnell Douglas jet aircraft; consisting of eight DC-9-10 series
aircraft, twelve DC-9-30 series aircraft and two MD-88 aircraft. Fourteen
aircraft meet Stage 3 noise requirements. None of the aircraft owned by
Midwest Express is subject to liens to secure obligations.
<TABLE>
MIDWEST EXPRESS AIRLINES AIRCRAFT
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Stage
Tail # Type # of Seats Owned/Leased Manufacture Type
601ME MD-88 112 Leased 08/22/89 3
701ME MD-88 112 Leased 09/21/89 3
202ME DC-9-30 84 Leased 06/26/75 3
203ME DC-9-30 84 Leased 07/07/75 3
204ME DC-9-30 84 Leased 07/25/75 3
206ME DC-9-30 84 Leased 05/07/79 3
207ME DC-9-30 84 Leased 07/06/79 3
209ME DC-9-30 84 Leased 06/18/76 3
502ME DC-9-30 84 Owned 06/10/80 3
602ME DC-9-30 84 Owned 07/21/80 3
302ME DC-9-30 84 Owned 11/08/67 2
501ME DC-9-30 84 Owned 12/15/67 2
401ME DC-9-30 84 Owned 01/02/68 2
301ME DC-9-30 84 Owned 01/11/68 2
500ME DC-9-10 60 Owned 06/05/65 3
300ME DC-9-10 60 Owned 01/22/66 3
600ME DC-9-10 60 Owned 02/06/66 3
800ME DC-9-10 60 Owned 02/16/66 2
700ME DC-9-10 60 Owned 07/14/66 3
400ME DC-9-10 60 Owned 07/29/66 2
900ME DC-9-10 60 Owned 08/18/66 2
080ME DC-9-10 60 Owned 10/30/66 2
</TABLE>
The two MD-88 aircraft leases expire in 1998. Six DC-9-30 operating
leases expire as follows: three in 2001 and three in 2006.
The Company has acquired four DC-9-30 aircraft that were not placed
into service by December 31, 1996. The Company has entered into ten-year
operating leases on two of these aircraft and intends to finance the other
two with operating leases. These aircraft will enter service during 1997.
Skyway acquired all new Beechcraft 1900D turboprop aircraft, starting
with its first delivery on January 11, 1994, through the delivery of its
fifteenth airplane on May 18, 1995. Skyway leases the aircraft from a
group of financial institutions with initial lease terms of five to 12
years, and expiration dates ranging from 2001 through 2008.
Facilities
The Company has secured long-term use of gates and hangar and
maintenance facilities at General Mitchell International Airport in
Milwaukee. The Company is a signatory to the airport master lease, which
expires in 2010, for 14 gates at the Milwaukee airport, including ticket
counter, baggage handling and operations space. In 1989, the Company
completed construction of its maintenance facility at the Milwaukee
airport with a lease of land from the airport that will allow the Company
to exercise a series of five-year options to extend the lease for 60
years.
In 11 of the other 24 cities Midwest Express served as of December
31, 1996, gates at the airport were leased directly from the airport
authority. For the other 13 cities, Midwest Express subleased gates from
other carriers. In Omaha, Midwest Express has exclusive rights to two
gates.
Skyway has secured long term leases of facilities at Milwaukee's
airport. Skyway owns an office and aircraft hangar facility at the
airport. The land on which this facility is located is leased until 2010.
Skyway leases one gate from the Milwaukee airport, under terms that extend
until 2010, and also utilizes one Midwest Express gate. Skyway can park
several aircraft in the ramp area serviced by these gates.
Item 3. Legal Proceedings
A Commissioner of the Equal Employment Opportunity Commission
("EEOC") filed charges against the Company on July 8, 1992, pursuant to
Title VII of the Civil Rights Act of 1964, as amended, that pertained to
the Company's practices since January 1, 1989. On October 20, 1994, the
Milwaukee office of the EEOC issued a decision finding that reasonable
cause existed to believe the Company violated Title VII by: (a) engaging
in recruitment practices which discriminate against Blacks (as such term
is defined in Title VII); (b) failing to hire Blacks for flight service
representative, aircraft groomer and aircraft mechanic positions; (c)
failing to hire and assign Blacks into entry-level supervisory and
management positions; and (d) failing to maintain proper records on its
employment process in accordance with Section 709 (c)(1) of Title VII and
the Uniform Guidelines Employee Selection Procedures.
Based on these charges and the EEOC's subsequent decision, the EEOC
proposed a conciliation agreement that would have involved costs to the
Company of approximately $1,500,000. The Company has denied the
allegations by the EEOC, has rejected the conciliation agreement and
intends to vigorously defend itself against the charges unless a
settlement can be reached that would make it economically impractical to
contest the charges. To date, the Company has not established any reserve
with respect to these charges.
In addition to the pending EEOC charges, the Company is a party to
routine litigation incidental to its business. Management believes that
none of this litigation is likely to have a material adverse effect on the
Company's consolidated financial position and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1996.
MANAGEMENT
Executive Officers of the Registrant
The executive officers of the Company as of March 1, 1997 together
with their ages, positions and business experiences are described below:
NAME AGE POSITION
Timothy E. Hoeksema 50 Chairman of the Board,
President and Chief Executive
Officer and Director
Brenda F. Skelton 41 Senior Vice President -
Marketing and Customer
Service and Director
Dennis J. Crabtree 56 Senior Vice President -
Operations
Robert S. Bahlman 38 Vice President, Chief
Financial Officer and
Treasurer
Carol Skornicka 55 Vice President, General
Counsel and Secretary
Rex J. Kessler 49 Vice President - Technical
Services
Carol J. Reimer 47 Vice President - Human
Resources
Dennis J. O'Reilly 41 Assistant Treasurer/Director
of Investor Relations
David C. Reeve 51 President and Chief Executive
Officer of Astral Aviation,
Inc.
Timothy E. Hoeksema has been a director, the Chairman of the Board,
President and Chief Executive Officer of the Company since 1983. Mr.
Hoeksema was appointed President - Transportation Sector of Kimberly-Clark
in 1988 and resigned from all positions with Kimberly-Clark as of August
1, 1995.
Brenda F. Skelton has served as the Senior Vice President-Marketing
and Customer Service of the Company since March 1995. Prior thereto, Ms.
Skelton served as Vice President of Marketing for the Company from
February 1993 to March 1995. Ms. Skelton also served as Director of
Marketing Programs for the Company from April 1987 to February 1993.
Dennis J. Crabtree has served as Senior Vice President-Operations of
the Company since September 1995 after joining the Company as Vice
President-Operations in May 1995. From July 1994 to May 1995, Mr.
Crabtree served as Vice President-Safety and Regulatory Compliance for
Continental Airlines, Inc. From January 1993 to July 1994, Mr. Crabtree
served as the President of Continental Express, Inc. From March 1989 to
January 1993, Mr. Crabtree served as the Staff Vice President-Safety and
Regulatory Compliance for Continental Airlines, Inc.
Robert S. Bahlman has served as the Vice President, Chief Financial
Officer and Treasurer of the Company since December 1996. Mr. Bahlman
served as the Controller for the Company from September 1995 to December
1996. Prior thereto, Mr. Bahlman also served as the Financial Manager of
the Company from July 1990 to August 1995.
Carol Skornicka has served as Vice President, General Counsel and
Secretary of the Company since May 1996. Ms. Skornicka formerly served
as Secretary of the Wisconsin Department of Industry, Labor and Human
Relations, a position she held from 1991 until joining the Company.
Rex J. Kessler has served as Vice President-Technical Services for
the Company since September 1995. Prior thereto, Mr. Kessler served as
Director-Maintenance of the Company from December 1987 to August 1995.
Carol J. Reimer has served as Vice President-Human Resources of the
Company since September 1995. Prior thereto, Ms. Reimer served as
Director-Human Resources for the Company from its commencement of
operations to August 1995 and as Director-Human Resources for K-C Aviation
Inc. from December 1982 to August 1995.
Dennis J. O'Reilly has served as the Assistant Treasurer of the
Company since February 1996. Prior thereto, Mr. O'Reilly served as
Business Analyst for the Company from November 1990 to January 1996.
David C. Reeve has served as President and Chief Executive Officer of
Astral Aviation Inc. since March 1997. Prior thereto, Mr. Reeve served as
Director of Flight Operations for DHL Airways from June 1991 to February
1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required in this Item is incorporated by
reference to discussions of the share repurchase program in Management's
Discussion and Analysis of Financial Condition and Results of Operations
on page 23 and to "Shareholder Information" on page 36 of the Company's
1996 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required in this Item is incorporated by
reference to page 18 of the Company's 1996 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required in this Item is incorporated by
reference to pages 19 through 23 of the Company's 1996 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required in this Item is incorporated by
reference to pages 24 through 36 of the Company's 1996 Annual Report to
Shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required in this Item is set forth under the
heading "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance," incorporated herein by reference, from pages 1-4
and pages 20-21, respectively, of the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on April 23, 1997 and "Executive
Officers of the Registrant" in Part I following Item 4.
Item 11. Executive Compensation
The information required in this Item is set forth under the
heading "Executive Compensation," incorporated herein by reference, from
pages 7-13 of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required in this Item is set forth under the
heading "Stock Ownership of Management and Others," incorporated herein by
reference, from pages 5-6 of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 23, 1997.
Item 13. Certain Relationships and Related Transactions
The information required in this Item is set forth under the
heading "Certain Transactions," incorporated herein by reference, from
pages 14-16 of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
The consolidated financial statements of the Company as of
December 31, 1996 and 1995 and for each of the three years in the period
ending December 31, 1996, together with the report thereon of Deloitte &
Touche LLP, dated January 31, 1997, appear on pages 25 through 35 of the
Company's Annual Report to Shareholders, and are incorporated herein by
reference.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not
applicable.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the fourth
quarter of 1996.
(c) Exhibits:
The Exhibits filed or incorporated by reference herewith are as
specified in the Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MIDWEST EXPRESS HOLDINGS, INC.
Registrant
March 26, 1997 By /s/ TIMOTHY E. HOEKSEMA
Timothy E. Hoeksema
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 26, 1997.
Signature Capacity
/s/ TIMOTHY E. HOEKSEMA Chairman of the Board of Directors,
Timothy E. Hoeksema President and Chief Executive Officer
(Principal Executive Officer)
/s/ BRENDA F. SKELTON Senior Vice President - Marketing and
Brenda F. Skelton Customer Service and Director
/s/ ROBERT S. BAHLMAN Vice President,
Robert S. Bahlman Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
/s/ JOHN F. BERGSTROM Director
John F. Bergstrom
/s/ OSCAR C. BOLDT Director
Oscar C. Boldt
/s/ ALBERT J. DIULIO, S.J. Director
Albert J. DiUlio, S.J.
/s/ JAMES G. GROSKLAUS Director
James G. Grosklaus
/s/ RICHARD H. SONNENTAG Director
Richard H. Sonnentag
/s/ FREDERICK P. STRATTON, JR. Director
Frederick P. Stratton, Jr.
/s/ DAVID H. TREITEL Director
David H. Treitel
/s/ JOHN W. WEEKLY Director
John W. Weekly
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Midwest Express Holdings, Inc.
Oak Creek, Wisconsin
We have audited the financial statements of Midwest Express Holdings, Inc.
as of December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, and have issued our report thereon dated
January 31, 1997; such financial statements and report are included in
your 1996 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of
Midwest Express Holdings, Inc., listed in Item 14. This financial
statement schedule is the responsibility of the Corporation's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 31, 1997
<PAGE>
<TABLE>
Schedule II
MIDWEST EXPRESS HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to Deductions End of
Year Expense from Reserve Year
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $307,000 $218,000 $(318,000) $207,000
Year ended December 31, 1995 $125,000 $317,000 $(135,000) $307,000
Year ended December 31, 1994 $ 94,000 $115,000 $ (84,000) $125,000
</TABLE>
<PAGE>
EXHIBIT INDEX
MIDWEST EXPRESS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Exhibit No. Description
( 3.1) Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form 8-B filed May 2, 1996 (File No. 1-
13934)).
( 3.2) Bylaws, as amended through December 4, 1996.
( 3.3) Articles of Amendment relating to Series A Junior
Participating Preferred Stock (incorporated by reference
to Exhibit 3.3 to the Company's Registration Statement on
Form 8-B filed May 2, 1996 (File No. 1-13934)).
( 4.1) Credit Agreement among Firstar Bank Milwaukee, N.A., M & I
Marshall & Ilsley Bank, Bank One, Milwaukee, N.A. and
Midwest Express Holdings, Inc., dated September 27, 1995
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 1-13934)).
( 4.2) Credit Agreement between Kimberly-Clark Corporation and
Midwest Express Holdings, Inc., dated September 27, 1995
(incorporated by reference to Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 1-13934)).
( 4.3) Rights Agreement, dated February 14, 1996, between the
Company and Firstar Trust Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A filed February 15, 1996 (File No. 1-
13934)).
( 4.4) Amendment to the Rights Agreement, dated April 19, 1996,
between the Company and Firstar Trust Company
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-B filed May 2, 1996 (File
No. 1-13934)).
(10.1) Lease Agreement between Milwaukee County and Midwest
Express, dated May 12, 1988 (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on
Form S-1 (File No. 33-95212) (the "S-1")).
(10.2) Airline Lease, as amended, between Milwaukee County and
Midwest Express, dated October 1, 1984 (incorporated by
reference to Exhibit 10.5 to the S-1).
(10.3) Omaha Airport Authority Agreement and Lease at Eppley
Airfield with Midwest Express between the Airport
Authority of the City of Omaha and Midwest Express
(incorporated by reference to Exhibit 10.6 to the S-1).
(10.4) Airline Lease, as amended, between Milwaukee County and
Astral, dated November 23, 1994 (incorporated by reference
to Exhibit 10.7 to the S-1).
(10.5) Lease Agreement between Milwaukee County and Phillip
Morris Incorporated, dated October 7, 1982, to which
Astral has succeeded as lessee (incorporated by reference
to Exhibit 10.8 to the
S-1).
(10.6) Building Lease between Chocolate Chip Limited Partnership
and Midwest Express, dated June 30, 1995 (incorporated by
reference to Exhibit 10.9 to the S-1).
(10.7) Tax Allocation and Separation Agreement among Kimberly-
Clark Corporation, K-C Nevada, Inc., Midwest Express
Holdings, Inc., Midwest Express Airlines, Inc., and Astral
Aviation, Inc., dated September 27, 1995 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995 (File No. 1-13934)).
(10.8) Guarantee Fee Agreement between Kimberly-Clark Corporation
and Midwest Express Holdings, Inc., dated September 27,
1995 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 1-13934)).
(10.9) Employee Matters Agreement between Kimberly-Clark
Corporation and Midwest Express Holdings, Inc., dated
September 27, 1995 (incorporated by reference to Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 (File No. 1-13934)).
(10.10) Stock Agreement between K-C Nevada, Inc. and Midwest
Express Holdings, Inc., dated September 27, 1995
(incorporated by reference to Exhibit No. 2 to the
Schedule 13D of Kimberly-Clark Corporation filed on
October 10, 1995 with respect to the common stock, $.01
par value, of the Company).
(10.11)* Midwest Express Holdings, Inc. 1995 Stock Option Plan, as
amended through December 3, 1996.
(10.12)* Midwest Express Holdings, Inc. 1995 Stock Plan for Outside
Directors, as amended through September 18, 1996.
(10.13)* Annual Incentive Compensation Plan, amended through
February 13, 1997.
(10.14)* Supplemental Benefits Plan (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 1-13934)).
(10.15)* Form of Key Executive Employment and Severance Agreement
between the Company and each of Timothy E. Hoeksema,
Brenda F. Skelton, Dennis J. Crabtree and Carol
Skornicka (incorporated by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-13934)).
(10.16)* Form of Key Executive Employment and Severance Agreement
between the Company and each of Robert S. Bahlman, Rex J.
Kessler, Carol J. Reimer, David C. Reeve and Dennis J.
O'Reilly (incorporated by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-13934)).
(13) The 1996 Annual Report to Shareholders (to the extent
incorporated by reference herein).
(23) Consent of Deloitte & Touche LLP, Independent Auditors.
(27) Financial Data Schedule.
__________________
* A management contract or compensatory plan or arrangement.
BY-LAWS
OF
MIDWEST EXPRESS HOLDINGS, INC.
(f/k/a ME WISCONSIN, INC.)
<PAGE>
Table of Contents
Page
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Certificates . . . . . . . . . . . . . . . . . . . . . . . 1
2. Record Ownership . . . . . . . . . . . . . . . . . . . . . 1
3. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Lost Certificates . . . . . . . . . . . . . . . . . . . . . 2
5. Transfer Agent; Registrar . . . . . . . . . . . . . . . . . 2
6. Record Date . . . . . . . . . . . . . . . . . . . . . . . . 2
MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 3
7. Annual . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. Special . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Notice of Meeting . . . . . . . . . . . . . . . . . . . . . 6
10. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11. Meeting Procedure . . . . . . . . . . . . . . . . . . . . . 7
12. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Corporation's Acceptance of Votes . . . . . . . . . . . . . 11
14. Inspectors of Election . . . . . . . . . . . . . . . . . . 12
15. Voting List . . . . . . . . . . . . . . . . . . . . . . . . 13
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 13
16. Resignation . . . . . . . . . . . . . . . . . . . . . . . . 13
17. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 13
18. Regular Meetings . . . . . . . . . . . . . . . . . . . . . 13
19. Special Meetings . . . . . . . . . . . . . . . . . . . . . 14
20. Telephonic Meetings . . . . . . . . . . . . . . . . . . . . 14
21. Director's Assent . . . . . . . . . . . . . . . . . . . . . 14
22. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 14
23. Action Without Meeting . . . . . . . . . . . . . . . . . . 15
24. Organization . . . . . . . . . . . . . . . . . . . . . . . 15
25. Compensation . . . . . . . . . . . . . . . . . . . . . . . 15
COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . 16
26. Standing and Other Committees . . . . . . . . . . . . . . 16
27. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . 16
28. Audit Committee . . . . . . . . . . . . . . . . . . . . . . 16
29. Compensation Committee . . . . . . . . . . . . . . . . . . 16
30. Executive Committee . . . . . . . . . . . . . . . . . . . . 17
31. Nominating Committee . . . . . . . . . . . . . . . . . . . 17
32. Alternates; Vacancies in Committees . . . . . . . . . . . . 17
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
33. Designation; Election; Qualification; Term . . . . . . . . 17
34. Duties . . . . . . . . . . . . . . . . . . . . . . . . . . 18
35. Resignation; Removal; Vacancies . . . . . . . . . . . . . . 18
36. Chief Executive Officer . . . . . . . . . . . . . . . . . . 18
37. Chairman of the Board, Vice Chairman of the Board and
President . . . . . . . . . . . . . . . . . . . . . . . . . 19
38. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . 19
39. Chief Financial Officer . . . . . . . . . . . . . . . . . . 19
40. Controller . . . . . . . . . . . . . . . . . . . . . . . . 20
41. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 20
42. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . 21
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
43. Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 22
44. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
45. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 22
46. Annual Report . . . . . . . . . . . . . . . . . . . . . . . 22
47. Consideration for Shares . . . . . . . . . . . . . . . . . 22
48. Stock Regulation . . . . . . . . . . . . . . . . . . . . . 23
49. Indemnification . . . . . . . . . . . . . . . . . . . . . . 23
50. Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 28
51. Inspection of Books . . . . . . . . . . . . . . . . . . . . 28
52. Transactions with the Corporation . . . . . . . . . . . . . 29
53. Ratification . . . . . . . . . . . . . . . . . . . . . . . 29
54. Voting of Stocks . . . . . . . . . . . . . . . . . . . . . 29
55. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 30
56. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 30
57. Dispensing with Notice . . . . . . . . . . . . . . . . . . 30
58. Amendments . . . . . . . . . . . . . . . . . . . . . . . . 30
59. Emergency Provisions . . . . . . . . . . . . . . . . . . . 30
60. Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
61. Foreign Stock Record . . . . . . . . . . . . . . . . . . . 31
62. Permitted Percentage . . . . . . . . . . . . . . . . . . . 31
63. Registration of Shares . . . . . . . . . . . . . . . . . . 31
64. Equity Offerings . . . . . . . . . . . . . . . . . . . . . 32
* This Table of Contents has not been adopted by the Board
of Directors as part of the By-Laws of the corporation, but
is provided solely for the convenience of the reader.
<PAGE>
BY-LAWS
OF
MIDWEST EXPRESS HOLDINGS, INC.
(f/k/a ME WISCONSIN, INC.)
Note: For convenience, the masculine has been used in these By-Laws with
the intention that it include the feminine as well.
CAPITAL STOCK
1. Certificates
Every shareholder shall be entitled to have a certificate in such
form as the Board shall from time to time approve, signed by the Chairman
of the Board, a Vice Chairman of the Board, the President or a Vice
President and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, certifying the number of shares owned by him. Any
of or all the signatures on the certificate and the corporate seal may be
facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at
the date of issue. While the corporation is authorized to issue more than
one class of stock or more than one series of any class, there shall be
set forth on the face or back of each certificate issued a statement that
the corporation will furnish without charge to each shareholder who so
requests in writing a summary of the designations, relative rights,
preferences and limitations applicable to each class of stock, the
variations in rights, preferences and limitations determined for each
series and the authority of the Board to determine variations for future
series.
2. Record Ownership
The name and address of the holder of each certificate, the number of
shares represented thereby, and the date of issuance thereof shall be
recorded in the corporation's books and records. The corporation shall be
entitled to treat the holder of record of any share of stock as the holder
in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any
other person, whether or not it shall have express or other notice
thereof, except as required by law. The corporation has not established,
and nothing in these By-Laws shall be deemed to establish, any procedure
by which a beneficial owner of the corporation's shares that are
registered in the name of a nominee is recognized by the corporation as
the shareholder under Section 180.0723 of the Wisconsin Business
Corporation Law ("WBCL").
3. Transfer
Transfer of stock shall be made on the books of the corporation only
by direction of the person named in the certificate or his attorney,
lawfully constituted in writing, and only upon the surrender for
cancellation of the certificate therefor and a written assignment of the
shares evidenced thereby.
4. Lost Certificates
Any person claiming a stock certificate in lieu of one lost or
destroyed shall give the corporation an affidavit as to his ownership of
the certificate and of the facts which go to prove its loss or
destruction. He shall also, if required by the Board, give the corporation
a bond or other indemnification, in such form as may be approved by the
Board, sufficient to indemnify the corporation against any claim that may
be made against it on account of the alleged loss of the certificate or
the issuance of a new certificate.
5. Transfer Agent; Registrar
The corporation shall maintain one or more transfer offices or
agencies, each in charge of a transfer agent designated by the Board,
where the shares of stock of the corporation shall be transferable. The
corporation shall also maintain one or more registry offices, each in
charge of a registrar designated by the Board, where such shares of stock
shall be registered. The same entity may be both transfer agent and
registrar.
6. Record Date
So that the corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders, or any adjournment
thereof, the Board may fix a record date which record date shall not
precede the date of any annual or special meeting of shareholders by more
than seventy days nor be less than ten days before the date of such
meeting (the "Meeting Record Date"), and only such shareholders as shall
be shareholders of record on the date so fixed shall be entitled to such
notice of and to vote at such meeting, as the case may be, notwithstanding
any transfer of any stock on the books of the corporation after any such
record date fixed as aforesaid. In the case of any Demand Special Meeting
(as defined in Section 8), (i) the Meeting Record Date shall be not later
than the 30th day after the Delivery Date (as defined in Section 8) and
(ii) if the Board fails to fix the Meeting Record Date within 30 days
after the Delivery Date, then the close of business on such 30th day shall
be the Meeting Record Date. Except as provided by the WBCL for a court-
ordered adjournment, a determination of shareholders entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of
the meeting, unless the Board fixes a new Meeting Record Date, which it
must do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. Subject to the procedures set forth
in Section 8(b) relating to the fixing of a Demand Record Date (as defined
therein), the Board may also fix a future date as the record date to
determine the shareholders entitled to take any other action. Such record
date may not be more than 70 days before the action requiring a
determination of shareholders. The record date for determining
shareholders entitled to a distribution (other than a distribution
involving a purchase, redemption or other acquisition of the corporation's
shares) or a share dividend is the date on which the Board authorizes the
distribution or share dividend, as the case may be, unless the Board fixes
a different record date.
MEETINGS OF SHAREHOLDERS
7. Annual
The annual meeting of shareholders ("Annual Meeting") for the
election of directors and the transaction of such other business as may
properly be brought before the meeting shall be held on the fourth
Wednesday in April in each year, or on such other day, which shall not be
a legal holiday, as shall be determined by the Board. The Annual Meeting
shall be held at such place and hour, within or without the State of
Wisconsin, as shall be determined by the Board. The day, place and hour
of each Annual Meeting shall be specified in the notice of the Annual
Meeting. The Annual Meeting may be adjourned by the chairman of the
meeting from time to time and place to place without notice other than
announcement at the meeting. At any adjourned Annual Meeting the
corporation may transact any business which might have been transacted at
the Annual Meeting as originally called. In accordance with the
provisions of applicable law, the Board acting by resolution may postpone
and reschedule any previously scheduled Annual Meeting.
8. Special
(a) A special meeting of the shareholders of the corporation (a
"Special Meeting") may be called only by (i) the Chairman of the Board,
(ii) the President or (iii) the Board and shall be called by the Chairman
of the Board or the President upon the demand, in accordance with this
Section 8, of the holders of record of shares representing at least 10% of
all the votes entitled to be cast on any issue proposed to be considered
at the Special Meeting.
(b) In order that the corporation may determine the
shareholders entitled to demand a Special Meeting, the Board may fix a
record date to determine the shareholders entitled to make such a demand
(the "Demand Record Date"). The Demand Record Date shall not precede the
date upon which the resolution fixing the Demand Record Date is adopted by
the Board and shall not be more than 10 days after the date upon which the
resolution fixing the Demand Record Date is adopted by the Board. Any
shareholder of record seeking to have shareholders demand a Special
Meeting shall, by sending written notice to the Secretary of the
corporation by hand or by certified or registered mail, return receipt
requested, request the Board to fix a Demand Record Date. The Board shall
promptly, but in all events within 10 days after the date on which a valid
request to fix a Demand Record Date is received, adopt a resolution fixing
the Demand Record Date and shall make a public announcement of such Demand
Record Date. If no Demand Record Date has been fixed by the Board within
10 days after the date on which such request is received by the Secretary,
then the Demand Record Date shall be the 10th day after the first day on
which a valid written request to set a Demand Record Date is received by
the Secretary. To be valid, such written request shall set forth the
purpose or purposes for which the Special Meeting is to be held, shall be
signed by one or more shareholders of record (or their duly authorized
proxies or other representatives), shall bear the date of signature of
each such shareholder (or proxy or other representative) and shall set
forth all information about each such shareholder and about the beneficial
owner or owners, if any, on whose behalf the request is made that would be
required to be set forth in a shareholder's notice described in Section
11(b) of these By-Laws.
(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares representing at
least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the Special Meeting must be delivered to the corporation.
To be valid, each written demand by a shareholder for a Special Meeting
shall set forth the specific purpose or purposes for which the Special
Meeting is to be held (which purpose or purposes shall be limited to the
purpose or purposes set forth in the written request to set a Demand
Record Date received by the corporation pursuant to subsection (b) of this
Section 8), shall be signed by one or more persons who as of the Demand
Record Date are shareholders of record (or their duly authorized proxies
or other representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative), and shall set forth the
name and address, as they appear in the corporation's books, of each
shareholder signing such demand and the class or series and number of
shares of the corporation that are owned of record and beneficially by
each such shareholder, shall be sent to the Secretary by hand or by
certified or registered mail, return receipt requested, and shall be
received by the Secretary within 70 days after the Demand Record Date.
(d) The corporation shall not be required to call a Special
Meeting upon shareholder demand unless, in addition to the documents
required by subsection (c) of this Section 8, the Secretary receives a
written agreement signed by each Soliciting Shareholder (as defined
herein), pursuant to which each Soliciting Shareholder, jointly and
severally, agrees to pay the corporation's costs of holding the Special
Meeting, including the costs of preparing and mailing proxy materials for
the corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is
adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as director at such meeting is
elected, then the Soliciting Shareholders shall not be required to pay
such costs. For purposes of this subsection (d), the following terms
shall have the meanings set forth below:
(i) "Affiliate" of any Person shall mean any Person that,
directly or indirectly through one or more intermediaries, controls,
is controlled by or is under common control with such first Person.
(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, partnership,
firm, corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group deemed to be a person
under Section 14(d)(2) of the Exchange Act.
(iv) "Proxy" shall have the meaning assigned to such term
in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-1 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to
any Special Meeting demanded by a shareholder or shareholders, any of
the following Persons:
(A) if the number of shareholders signing the demand
or demands for a meeting delivered to the corporation pursuant
to subsection (c) of this Section 8 is ten or fewer, then each
shareholder signing any such demand;
(B) if the number of shareholders signing the demand
or demands for a meeting delivered to the corporation pursuant
to subsection (c) of this Section 8 is more than ten, then each
Person who either (I) was a Participant in any Solicitation of
such demand or demands or (II) at the time of the delivery to
the corporation of the documents described in subsection (c) of
this Section 8, had engaged or intended to engage in any
Solicitation of Proxies for use at such Special Meeting (other
than a Solicitation of Proxies on behalf of the corporation); or
(C) any Affiliate of a Soliciting Shareholder, if a
majority of the directors then in office determine, reasonably
and in good faith, that such Affiliate should be required to
sign the written notice described in subsection (c) of this
Section 8 and/or the written agreement described in this
subsection (d) in order to prevent the purposes of this Section
8 from being evaded.
(e) Except as provided in the following sentence, any Special
Meeting shall be held at such hour and day as may be designated by
whichever of the Chairman of the Board, the President or the Board shall
have called such meeting. In the case of any Special Meeting called by
the Chairman of the Board or the President upon the demand of shareholders
(a "Demand Special Meeting"), such meeting shall be held at such hour and
day as may be designated by the Board; provided, however, that the date of
any Demand Special Meeting shall be not more than 70 days after the
Meeting Record Date; and provided further that in the event that the
directors then in office fail to designate an hour and date for a Demand
Special Meeting within 10 days after the date that valid written demands
for such meeting by the holders of record as of the Demand Record Date of
shares representing at least 10% of all the votes entitled to be cast on
any issue proposed to be considered at the Special Meeting are delivered
to the corporation (the "Delivery Date"), then such meeting shall be held
on the 100th day after the Delivery Date or, if such 100th day is not a
Business Day (as defined below), on the first preceding Business Day. In
fixing a meeting date for any Special Meeting, the Chairman of the Board,
the President or the Board may consider such factors as he or it deems
relevant within the good faith exercise of his or its business judgment,
including, without limitation, the nature of the action proposed to be
taken, the facts and circumstances surrounding any demand for such
meeting, and any plan of the Board to call an Annual Meeting or a Special
Meeting for the conduct of related business. Any Special Meeting may be
adjourned by the chairman of the meeting from time to time and place to
place without notice other than announcement at the meeting. At any
adjourned Special Meeting the corporation may transact any business which
might have been transacted at the Special Meeting as originally called.
In accordance with the provisions of applicable law, the Board acting by
resolution may postpone and reschedule any previously scheduled Special
Meeting; provided, however, that a Demand Special Meeting shall not be
postponed beyond the 100th day following the Delivery Date.
(f) The corporation may engage nationally or regionally
recognized independent inspectors of elections to act as an agent of the
corporation for the purpose of promptly performing a ministerial review of
the validity of any purported written demand or demands for a Special
Meeting received by the Secretary. For the purpose of permitting the
inspectors to perform such review, no purported demand shall be deemed to
have been delivered to the corporation until the earlier of (i) 5 Business
Days following receipt by the Secretary of such purported demand and (ii)
such date as the independent inspectors certify to the corporation that
the valid demands received by the Secretary represent at least 10% of all
the votes entitled to be cast on each issue proposed to be considered at
the Special Meeting. Nothing contained in this subsection shall in any
way be construed to suggest or imply that the Board or any shareholder
shall not be entitled to contest the validity of any demand, whether
during or after such 5 Business Day period, or to take any other action
(including, without limitation, the commencement, prosecution or defense
of any litigation with respect thereto).
(g) For purposes of these By-Laws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are obligated by law or executive
order to close.
9. Notice of Meeting
Written notice stating the place, day and hour of any Annual Meeting
or Special Meeting shall be delivered not less than 10 (unless a longer
period is required by the WBCL) nor more than 70 days before the date of
such meeting, either personally or by mail, by or at the direction of the
Secretary, to each shareholder of record entitled to vote at such meeting
and to other shareholders as may be required by the WBCL. In the event of
any Demand Special Meeting, such notice of meeting shall be sent not more
than 30 days after the Delivery Date. If mailed, notice pursuant to this
Section 9 shall be deemed to be effective when deposited in the United
States mail, addressed to each shareholder at his address as it appears on
the stock record books of the corporation, with postage thereon prepaid.
A notice of an Annual Meeting shall include a description of the purpose
or purposes for which the meeting is called. In the case of any Special
Meeting, (a) the notice of meeting shall describe any business that the
Board shall have theretofore determined to bring before the meeting and
(b) in the case of a Demand Special Meeting, the notice of meeting (i)
shall describe any business set forth in the statement or purpose of the
demands received by the corporation in accordance with Section 8 of these
By-Laws and (ii) shall contain all of the information required in the
notice received by the corporation in accordance with Section 11(c) of
these By-Laws. If an Annual Meeting or Special Meeting is adjourned to a
different date, time or place, then the corporation shall not be required
to give notice of the new date, time or place if the new date, time or
place is announced at the meeting before adjournment; provided, however,
that if a new Meeting Record Date for an adjourned meeting is or must be
fixed, then the corporation shall give notice of the adjourned meeting to
persons who are shareholders as of the new Meeting Record Date.
10. Quorum
Shares entitled to vote as a separate voting group may take action on
a matter at any Annual Meeting or Special Meeting only if a quorum of
those shares exists with respect to that matter. If the corporation has
only one class of stock then outstanding, then such class shall constitute
a separate voting group for purposes of this Section 10. Except as
otherwise provided in the Restated Articles of Incorporation, any By-Law
adopted under authority granted in the Restated Articles of Incorporation,
or the WBCL, a majority of the votes entitled to be cast on the matter
shall constitute a quorum of the voting group for action on that matter.
Once a share is represented for any purpose at any Annual Meeting or
Special Meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present
for purposes of determining whether a quorum exists for the remainder of
the meeting and for any adjournment of that meeting unless a new Meeting
Record Date is or must be set for the adjourned meeting. In the event of
lack of a quorum, the chairman of the meeting or a majority of the voting
power of the shares of capital stock present in person or represented by
proxy may adjourn the meeting from time to time without notice other than
announcement at the meeting, until a quorum shall be obtained. At any
such adjourned meeting at which there is a quorum, any business may be
transacted which might have been transacted at the meeting as originally
called. If a quorum exists, except in the case of the election of
directors, then action on a matter shall be approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing
the action, unless the Restated Articles of Incorporation, any By-Law
adopted under authority granted in the Restated Articles of Incorporation,
or the WBCL requires a greater number of affirmative votes. Unless
otherwise provided in the Restated Articles of Incorporation, directors
shall be elected by a plurality of the votes cast by the shares entitled
to vote in the election of directors at any Annual Meeting or Special
Meeting at which a quorum is present. For purposes of this Section 10,
"plurality" means that the individuals with the largest number of votes
are elected as directors up to the maximum number of directors to be
chosen at the Annual Meeting or Special Meeting.
11. Meeting Procedure
(a) Conduct of Meetings. The Chief Executive Officer, or in
his absence such other officer as may be designated by the Board, shall be
the chairman at shareholders' meetings. The Secretary of the corporation
shall be the secretary at shareholders' meetings, but in his absence the
chairman of the meeting may appoint a secretary for the meeting. The
opening and closing of the polls for matters upon which the shareholders
will vote at a meeting shall be announced at the meeting by the chairman
of the meeting. The Board may, to the extent not prohibited by law, adopt
by resolution such rules and regulations for the conduct of the meeting of
shareholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board, the
chairman of any meeting of shareholders shall have the right and authority
to prescribe such rules, regulations or procedures and to do all acts as,
in the judgment of the chairman, are appropriate for the proper conduct of
the meeting. Such rules, regulations or procedures, whether adopted by
the Board or prescribed by the chairman of the meeting, may to the extent
not prohibited by law include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting;
(ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or
participation in the meeting to shareholders of record of the corporation,
their duly authorized and constituted proxies (which shall be reasonable
in number) or such other persons as the chairman of the meeting shall
determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants.
(b) Annual Meetings. At an Annual Meeting, only such business
shall be conducted, and only nominations for the election of directors
shall be made, as shall have been properly brought before the meeting in
accordance with these By-Laws. To be properly brought before an Annual
Meeting, business or nominations must (i) be specified in the notice of
the meeting (or any supplement thereto) given by or at the direction of
the Board; (ii) otherwise properly be brought before the meeting by or at
the direction of the Board; or (iii) otherwise (A) properly be requested
to be brought before the meeting by a shareholder of record entitled to
vote in the election of directors generally and (B) constitute a proper
subject to be brought before such meeting. For nominations or other
business to be properly requested to be brought before an Annual Meeting
by a shareholder of record, any shareholder who intends to bring any
matter before an Annual Meeting and is entitled to vote on such matter
must deliver written notice of such shareholder's intent to bring the
matter before the Annual Meeting, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the corporation. Such
notice must be received by the Secretary not less than 75 nor more than
100 days prior to (x) April 23, 1997, in the case of the Annual Meeting
scheduled to be held on April 23, 1997 or (y) the first anniversary of the
immediately preceding Annual Meeting in the case of any other Annual
Meeting; provided, however, that in the event that the date for which the
Annual Meeting is called is advanced by more than 30 days or delayed by
more than 60 days from the date specified in clause (x) or (y), as the
case may be, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 100th day prior to the date
of such Annual Meeting and not later than the close of business on the
later of the 75th day prior to the date of such annual meeting or the 10th
day following the day on which public announcement of the date of such
meeting is first made. In no event shall the announcement of an
adjournment of an annual meeting of shareholders commence a new time
period for the giving of a shareholder notice as described above. For
purposes of this Section 11, "public announcement" shall mean the date
disclosure of the date of the meeting of shareholders is first made in a
press release reported by the Dow Jones New Service, Associated Press or
comparable national news service, or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14 or 15(d) of the Exchange Act.
A shareholder's notice to the Secretary required by this Section
11(b) shall set forth as to each matter the shareholder proposes to bring
before the Annual Meeting: (i) in the case of any proposed nomination for
election or re-election as a director, (A) the name, age, business and
residence addresses, and principal occupation or employment of each
nominee; (B) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the shareholder; (C) such other information regarding
each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (D) the written consent of each
nominee to serve as a director of the corporation if so elected; (ii) in
the case of any other business that such shareholder proposes to bring
before the Annual Meeting, (A) a brief description of the business to be
brought before the meeting and the reasons for conducting such business at
the meeting and (B) any material interest of the shareholder in such
business; (iii) the name and address of the shareholder intending to
propose such business; (iv) the number of shares of stock of the
corporation beneficially held, either personally or in concert with
others, by the shareholder, and (v) a representation that the shareholder
is a holder of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to make such
nomination or present such proposal. The corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. No business shall be
conducted at an Annual Meeting except in accordance with the procedures
set forth in this Section 11(b). The chairman of the Annual Meeting
shall, if the facts warrant, determine and declare to the Annual Meeting
that a nomination was not made or business was not properly brought before
the meeting in accordance with the provisions hereof and, if he should so
determine, he shall so declare to the Annual Meeting that any such
nomination shall be disregarded and/or any such business not properly
brought before the Annual Meeting shall not be transacted.
Notwithstanding anything in the fourth sentence of this Section
11(b) to the contrary, in the event that the number of directors to be
elected to the Board is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the
increased Board made by the corporation at least 85 days prior to the date
specified in clause (x) or (y), as the case may be, of such sentence, a
shareholder's notice required by this Section 11(b) with respect to any
nomination of a person for election to the Board shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be received by the Secretary of the corporation
not later than the close of business on the 10th day following the day on
which such public announcement is first made by the corporation.
(c) Special Meeting. At a Special Meeting, only such business
shall be conducted, and only nominations for the election of directors
shall be made, as shall have been described in the notice of meeting sent
to shareholders pursuant to Section 9 of these By-Laws. Nominations of
persons for election to the Board may be made at a Special Meeting at
which directors are to be elected pursuant to such notice of meeting (i)
by or at the direction of the Board or (ii) by any shareholder of the
corporation who (A) is a shareholder of record, (B) is entitled to vote in
the election of directors at the meeting and (C) complies with the notice
procedures set forth in this Section 11(c). Any shareholder desiring to
nominate persons for election to the Board at such a Special Meeting must
deliver written notice of such shareholder's proposed nomination, either
by personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation. Such notice must be received by the
Secretary not more than 90 days prior to such Special Meeting and not
later than the close of business on the later of (x) the 60th day prior to
such Special Meeting or (y) the 10th day following the day on which public
announcement is first made of the date of such Special Meeting and of the
nominees proposed by the Board to be elected at such meeting.
A shareholder's notice to the Secretary required by this Section
11(c) shall set forth (i) the name, age, business and residence addresses,
and principal occupation or employment of each nominee; (ii) a description
of all arrangements or understandings between the shareholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (iii) such other information regarding each nominee proposed
by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; (iv) the written consent of each nominee to serve as a
director of the corporation if so elected; (v) the name and address of the
shareholder intending to propose such business; (vi) the number of shares
of stock of the corporation beneficially held, either personally or in
concert with others, by the shareholder; and (vii) a representation that
the shareholder is a holder of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting
to make such nomination. The corporation may require any proposed nominee
to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve
as a director of the corporation. No business shall be conducted at a
Special Meeting except in accordance with the procedures set forth in this
Section 11(c). The chairman of the Special Meeting shall, if the facts
warrant, determine and declare to the Special Meeting that a nomination
was not made or business was not properly brought before the meeting in
accordance with the provisions hereof and, if he should so determine, he
shall so declare to the Special Meeting that any such nomination shall be
disregarded and/or any such business not properly brought before the
Special Meeting shall not be transacted.
12. Voting
Unless otherwise provided in the Restated Articles of Incorporation,
at each meeting of shareholders, each holder of shares entitled to vote at
such meeting shall, as to all matters in respect of which such shares have
voting rights, be entitled to one vote in person or by written proxy for
each share held of record by him. No vote upon any matter, except the
election of directors or the amendment of the Restated Articles of
Incorporation, is required to be by ballot unless demanded by the holders
of at least 10% of the voting power of the shares of capital stock
represented and entitled to vote at the meeting. All motions to introduce
a matter for a vote by shareholders at a meeting thereof, except for
nominations for election as directors recommended by the Nominating
Committee and approved by the Board, shall be seconded prior to a vote
thereon by shareholders.
Except as otherwise provided by the WBCL, a shareholder may authorize
another person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram or other means of
electronic transmission to the person who will be the holder of the proxy
or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the
proxy to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set forth
or be submitted with information from which it can be determined that the
telegram, cablegram or other transmission was authorized by the
shareholder. Any proxy shall be filed with the Secretary of the
corporation or other person authorized to tabulate votes before or at the
time of the meeting. No proxy shall be valid after 11 months from the
date of its execution unless otherwise provided in the proxy. Unless
otherwise provided in the appointment form, a proxy appointment may be
revoked at any time before it is voted by written notice filed with the
Secretary or other officer or agent of the corporation authorized to
tabulate votes. The presence of a shareholder who has filed his proxy
appointment shall not of itself constitute a revocation.
The date and time of the opening and closing of the polls for each
matter upon which the shareholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the
inspectors after the closing of the polls.
13. Corporation's Acceptance of Votes
(a) If the name signed on a vote, consent, waiver, or proxy
appointment corresponds to the name of a shareholder, the corporation, if
acting in good faith, is entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of its shareholder, the
corporation, if acting in good faith, is nevertheless entitled to accept
the vote, consent, waiver, or proxy appointment and give it effect as the
act of the shareholder if:
(i) the shareholder is an entity (as defined in the WBCL)
and the name signed purports to be that of an officer or agent of the
entity;
(ii) the name signed purports to be that of a personal
representative, administrator, executor, guardian, or conservator
representing the shareholder and, if the corporation requests,
evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, or proxy
appointment;
(iii) the name signed purports to be that of a receiver
or trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation has
been presented with respect to the vote, consent, waiver, and proxy
appointment;
(iv) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to the vote, consent, waiver, or proxy appointment; or
(v) two or more persons are the shareholder as cotenants
or fiduciaries and the name signed purports to be the name of at
least one of the coowners and the person signing appears to be acting
on behalf of all the coowners.
(c) The corporation is entitled to reject a vote, consent,
waiver, or proxy appointment if the secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
(d) The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, or proxy appointment in good faith and in
accordance with the standards of this section are not liable in damages to
the shareholder for the consequences of the acceptance or rejection.
(e) Corporate action based on the acceptance or rejection of a
vote, consent, waiver, or proxy appointment under this section is valid
unless a court of competent jurisdiction determines otherwise.
14. Inspectors of Election
The Chief Executive Officer shall, in advance of any meeting of
shareholders, appoint one or more inspectors to act at the meeting and
make a written report thereof. He may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of shareholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector
with strict impartiality and according to the best of his ability.
The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the number of shares
represented at a meeting and the validity of proxies and ballots, (iii)
count all votes and ballots, (iv) determine and retain for a reasonable
period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of
the number of shares represented at the meeting, and their count of all
votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of the duties of the
inspectors. The inspectors shall determine the validity of and count the
proxies and ballots in accordance with applicable law.
15. Voting List
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, before each meeting of shareholders,
a complete list of the shareholders entitled to vote at such meeting, or
any adjournment thereof, arranged in alphabetical order, with the address
of and the number of shares held by each. The list must be arranged by
voting group, if such exists, and within each voting group by class or
series of shares. The corporation shall make such shareholder list
available for inspection at the corporation's principal office or other
location permitted by the WBCL by any shareholder at any time prior to the
meeting during usual business hours for any proper purpose, beginning two
(2) business days after notice is given of the meeting for which the list
was prepared. A shareholder, or his agent or attorney, is entitled on
written demand to inspect and, subject to the requirements of the WBCL, to
copy the list during regular business hours and at the shareholder's
expense, during such period that it is available for inspection. Such
list also shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during
the meeting for purposes related to the meeting. The corporation shall
maintain the shareholder list in written form or in another form capable
of conversion into written form within a reasonable time. Notwithstanding
the foregoing, the corporation's failure or refusal to prepare or make
available the shareholder list shall not affect the validity of any action
taken at such shareholder meeting.
BOARD OF DIRECTORS
16. Resignation
A director may resign at any time by giving written notice to the
corporation, addressed to the Chief Executive Officer or the Secretary.
Such resignation shall take effect at the date of receipt of such notice
or at any later time specified therein. Acceptance of a resignation shall
not be necessary to make it effective unless otherwise stated in the
notice.
17. Annual Meeting
A meeting of the Board, to be known as the annual Board meeting,
shall be held without call or notice immediately after and at the same
general place as the annual meeting of the shareholders. The annual Board
meeting shall be held for the purpose of organizing the Board, electing
officers, and transacting any other business that may properly come before
the meeting.
18. Regular Meetings
Regular meetings of the Board may be held without call or notice at
such place and at such time as shall be fixed by the Board.
19. Special Meetings
Special meetings of the Board may be called by the Chief Executive
Officer, and shall be called by the Secretary upon the request in writing
of not less than two of the directors then in office. Special meetings of
the Board may be held at such place and at such time as shall be
designated in the call thereof. Notice of special meetings of the Board
shall either be mailed by the Chief Executive Officer or the Secretary to
each director at least three days before the meeting, or served upon, or
sent by electronic means by the Chief Executive Officer or the Secretary
to, each director at least one day before the meeting, but during an
emergency as defined in Section 22 hereof, notice may be given only to
such of the directors as it may be feasible to reach at the time and by
such means as may be feasible at the time, including publications or
private or public electronic means. Unless required by law, the notice
need not state the purposes of the meeting.
20. Telephonic Meetings
The Board, or any committee of the Board, may, in addition to
conducting meetings in which each director participates in person, and
notwithstanding any place set forth in the notice of the meeting or these
By-laws, conduct any regular or special meeting by the use of any
electronic means of communication, such as by conference telephone,
provided all participating directors may simultaneously hear each other
during the meeting. If a meeting will be conducted at which any directors
do not participate in person, all participating directors shall be
informed that a meeting is taking place at which official business may be
transacted.
21. Director's Assent
A director who is present at a meeting of the Board or a committee of
the Board when corporate action is taken is deemed to have assented to the
action taken unless: (1) the director objects at the beginning of the
meeting (or promptly upon the director's arrival) to holding the meeting
or transacting business at the meeting; (2) the director dissents or
abstains from the action taken and minutes of the meeting are prepared
that show the director's dissent or abstention from the action; (3) the
director dissents or abstains from an action taken, minutes of the meeting
are prepared that fail to show the director's dissent or abstention from
the action taken and the director delivers to the corporation a written
notice of that failure that complies with Section 180.0141 of the WBCL
promptly after receiving the minutes; or (4) the director delivers written
notice of his dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation immediately after
adjournment of the meeting. The right of dissent or abstention is not
available to a director who votes in favor of the action taken.
22. Quorum
Except during the existence of an emergency and except as otherwise
provided in these By-Laws or in the Restated Articles of Incorporation,
one-third of the total number of directors, as fixed pursuant to Section
(2) of Article Seven of the Restated Articles of Incorporation, shall
constitute a quorum for the transaction of business. During the existence
of an emergency, three directors shall constitute a quorum for the
transaction of business. To the extent required to constitute a quorum at
any meeting of the Board during an emergency, the officers of the
corporation who are present shall be deemed, in order of rank and within
the same rank in order of seniority, directors for such meeting. Subject
to the provisions of the Restated Articles of Incorporation, the action of
the majority of directors present at a meeting at which a quorum is
present shall be the act of the Board. In the event of lack of a quorum, a
majority of the directors present may adjourn the meeting from time to
time without notice other than announcement at the meeting until a quorum
shall be obtained. At any such adjourned meeting at which there is a
quorum, any business may be transacted which might have been transacted at
the meeting originally called.
An "emergency" for the purpose of these By-Laws shall mean a
catastrophic event that prevents a quorum of the corporation's directors
from being readily assembled.
23. Action Without Meeting
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if all members of the Board consent
thereto in writing and such written consent is filed with the minutes of
the proceedings of the Board.
24. Organization
The Chairman of the Board, or in his absence the Chief Executive
Officer, or in his absence a director chosen by the directors present,
shall act as chairman at meetings of the Board. The Secretary of the
corporation shall act as secretary at meetings of the Board but in his
absence the chairman of the meeting may appoint a secretary for the
meeting.
25. Compensation
The compensation of directors for services as directors and as
members of committees of the Board shall be as fixed by the Board from
time to time. The compensation, if any, of the directors need not be
uniform as between directors and the compensation, if any, of the members
of the committees of the Board need not be uniform either as between
members of a committee or as between committees. The Board shall provide
for reimbursing the directors for expenses incurred in attending meetings
of the Board or committees thereof.
Any director may also serve the corporation in any other capacity and
receive compensation, including fees and expenses, for such service.
COMMITTEES OF THE BOARD
26. Standing and Other Committees
The directors shall from time to time designate, by resolution passed
by a majority of the entire Board of Directors (as defined in Section (2)
of Article Seven of the Restated Articles of Incorporation), an Audit
Committee, a Compensation Committee, an Executive Committee and a
Nominating Committee, each of which shall have and may exercise the powers
of the Board in the direction of the business and affairs of the
corporation in respect to the matters and to the extent hereinafter set
forth, subject to the power of the Board to assign from time to time to
any such committees or to any other committees such powers in respect to
specific matters as the Board may deem desirable.
These four committees shall be the standing committees of the
corporation. The Board may, by resolution passed by a majority of the
entire Board of Directors, designate such other committees as it from time
to time may deem appropriate; no such committee shall consist of fewer
than two directors, and the powers of each such committee shall be limited
to those specified in the resolution designating the committee.
27. Procedure
Each committee shall fix its own rules of procedure and shall meet
where and as provided by such rules, but the presence of a majority shall
be necessary to constitute a quorum, unless otherwise provided by these
By-Laws. Each committee shall keep minutes of its meetings. Any action
required or permitted to be taken at any meeting of any committee may be
taken without a meeting if all the members consent thereto in writing and
such written consent is filed with the minutes of the proceedings of such
committee. All action by each committee shall be reported to the Board.
28. Audit Committee
The Audit Committee shall consist of three or more members. The Board
shall select the members of the Audit Committee from among the directors
who are not officers or employees of the corporation and shall designate
the Chairman of the Committee.
29. Compensation Committee
The Compensation Committee shall consist of three or more members.
The Board shall select the members of the Compensation Committee from
among the directors who are not, and have not been for at least one year
prior to selection, officers or employees of the corporation and shall
designate the Chairman of the Committee.
30. Executive Committee
The Executive Committee shall consist of three or more members
including, by virtue of his office, the Chief Executive Officer. The
Board shall select the other members of the Committee from among the
directors and shall designate the Chairman thereof.
31. Nominating Committee
The Nominating Committee shall consist of three or more members. The
Board shall select the members of the Nominating Committee from among the
directors who (except in the case of the Chairman of the Board) are not
officers or employees of the corporation.
32. Alternates; Vacancies in Committees
The Board may designate one or more directors as alternate members of
any committee. Alternate members shall serve, in the order in which the
Board shall determine, when one or more members of the committee shall be
absent or disqualified. Alternate members may attend committee meetings as
observers, without the right to vote when all members are present; when
fewer than all are present, only an alternate member serving in the place
of an absent or disqualified member shall have the right to vote. If no
alternate is available, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in place of any absent or disqualified member. All
members of all committees (including Chairmen) shall serve at the pleasure
of the Board.
OFFICERS
33. Designation; Election; Qualification; Term
Each year at the annual Board meeting the directors shall elect a
Chairman of the Board, a Chief Executive Officer and a Treasurer. From
time to time the Board may also elect or appoint a Vice Chairman of the
Board or Vice Chairmen of the Board, a President, such Executive, Senior
or other Vice Presidents as it may deem appropriate, a Chief Financial
Officer, and such other officers, including a Controller, Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers and Assistant
Controllers, as it may deem appropriate. The Chief Executive Officer may
appoint any officers of the corporation not required to be elected by the
Board, as he may deem appropriate. The Chairman of the Board, the Chief
Executive Officer, and any Vice Chairman of the Board must be directors;
no other officer need be a director. Any number of offices may be held by
the same person. The term of each officer, whenever elected or appointed,
shall be until the election or appointment (as the case may be) and
qualification of his successor or until his earlier resignation or
removal.
34. Duties
The officers shall have such powers and perform such duties as are
prescribed in these By-Laws, or, in the case of an officer whose powers
and duties are not so prescribed, as may be assigned by the Board or
delegated by or through the Chief Executive Officer.
35. Resignation; Removal; Vacancies
Any officer may resign at any time by giving notice to the
corporation addressed to the Chief Executive Officer or the Secretary.
Such resignation shall take effect at the date of the receipt of such
notice or at any later time specified therein. Acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
notice. Any officer may be removed by the Board at any time with or
without cause. Any appointed officer may be removed by the Chief Executive
Officer at any time with or without cause. A vacancy in any office may be
filled by the Board, and a vacancy in any appointed office may be filled
by the Chief Executive Officer, for the unexpired portion of the term.
36. Chief Executive Officer
The Chief Executive Officer of the corporation shall be elected by
the Board. Subject to the Board, he shall be in general and active charge,
control and supervision over the management and direction of the business,
property and affairs of the corporation. He shall keep the Board fully
informed, and shall freely consult it, concerning the business of the
corporation in his charge.
He shall, subject to these By-Laws, have authority to:
(i) appoint or approve the appointment of employees to
various posts and positions in the corporation bearing titles
designated or approved by him and to prescribe their authority and
duties, which may include the authority to appoint subordinates to
various other posts and positions; and
(ii) remove or approve the removal of employees so
appointed; and
(iii) sign, execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, notes, debentures, stock
certificates, contracts, including contracts of guaranty and
suretyship, leases, reports and other documents and instruments,
except where the signing or execution thereof by some other officer
or employee of the corporation shall be expressly authorized and
directed by law, or by the Board, or by these By-Laws. Unless
otherwise provided by law, or by these By-Laws, or by the Board, he
may authorize in a writing filed with the Secretary, any officer,
employee, or agent of the corporation to sign, execute and
acknowledge, on behalf of the corporation and in his place and stead,
any or all such documents and instruments.
He shall have such other authority and perform such other duties as
are incident to the office of Chief Executive Officer and as may be
prescribed from time to time by the Board and these By-Laws.
In the absence or disability of the Chief Executive Officer, or in
case of an unfilled vacancy in that office, until such time as the Board
shall elect his successor, his duties shall be performed and his powers
shall be exercised by other elected officers of the corporation who are
also directors (unless none are directors) in the order in which such
officers were listed in their respective elections.
37. Chairman of the Board, Vice Chairman of the Board and President
The Chairman of the Board, any Vice Chairman of the Board and the
President, each acting alone, shall have authority to sign, execute and
acknowledge on behalf of the corporation, all deeds, mortgages, bonds,
notes, debentures, stock certificates, contracts, including contracts of
guaranty and suretyship, leases, reports and other documents and
instruments, except where the signing or execution thereof by some other
officer or employee shall be expressly authorized and directed by law, or
by the Board, or by the Chief Executive Officer or by these By-Laws. Each
shall have such additional powers and perform such additional duties as
may be assigned to him by the Board or as may be delegated to him by the
Chief Executive Officer.
38. Vice Presidents
Each Vice President shall have such powers and perform such duties as
may be assigned to him by the Board or as may be delegated to him by the
Chief Executive Officer.
Each Executive Vice President shall have authority to sign, execute
and acknowledge on behalf of the corporation, all deeds, mortgages, bonds,
notes, debentures, contracts, including contracts of guaranty and
suretyship, leases, reports and other documents and instruments, except
where the signing or execution thereof by some other officer or employee
shall be expressly authorized and directed by law, or by the Board, or by
the Chief Executive Officer, or by these By-Laws.
39. Chief Financial Officer
The Chief Financial Officer shall:
(i) be the principal financial officer of the corporation
and have responsibility for all financial affairs of the corporation;
and
(ii) protect the cash, securities, receivables and other
financial resources of the corporation, have responsibility for
investment, receipt, custody and disbursement of such resources, and
establish policies for granting credit to customers; and
(iii) maintain the creditworthiness of the corporation;
and
(iv) negotiate and procure capital required by the
corporation, including long-term debt and equity, maintain adequate
sources for the corporation's short-term financing requirements and
maintain banking relationships; and
(v) administer the accounting policies of the corporation
and the internal controls with respect to its financial affairs; and
(vi) supervise the corporation's books of account, and have
access to all records, including the Secretary's records; and
(vii) in general, have such other powers and perform
such other duties as may be assigned from time to time by the Board
or by or through the Chief Executive Officer.
40. Controller
The Controller shall:
(i) be the principal accounting officer of the
corporation; and
(ii) have custody and charge of the corporation's books of
account, and have access to all records, including the Secretary's
and the Treasurer's records, for purpose of obtaining information
necessary to verify or complete the records of the Controller's
office; and
(iii) implement the policies for granting credit to
customers; and
(iv) implement the internal controls with respect to the
financial affairs of the corporation; and
(v) have the responsibility for processing vouchers for
payment by the Treasurer; and
(vi) in general, have such other powers and perform such
other duties as may be assigned from time to time by the Board or by
or through the Chief Executive Officer.
41. Secretary
The Secretary shall:
(i) attend and keep the minutes of all meetings of the
shareholders, the Board, and of such committees as the Board may
direct; and
(ii) have custody of the corporate seal and all corporate
records (including transfer books and stock ledgers), contracts,
papers, instruments, documents and books of the corporation except
those required to be kept by other officers under these By-Laws; and
(iii) sign on behalf of the corporation such documents
and instruments as require his signature when approved in accordance
with these By-Laws, and to such documents he shall affix the
corporate seal when necessary and may do so when he deems it
desirable; and
(iv) see that notices are given and records and reports are
properly kept and filed by the corporation as required by these
By-Laws or as required by law; and
(v) in general, have such other powers and perform such
other duties as are incident to the office of Secretary and as may be
assigned to him from time to time by the Board or by or through the
Chief Executive Officer.
42. Treasurer
The Treasurer shall:
(i) receive and sign receipts for all moneys paid to the
corporation and shall deposit the same in the name and to the credit
of the corporation in authorized banks or depositories; and
(ii) when necessary or desirable, endorse for collection on
behalf of the corporation all checks, drafts, notes and other
obligations payable to it; and
(iii) disburse the funds of the corporation only upon
vouchers duly processed and under such rules and regulations as the
Board may from time to time adopt; and
(iv) keep full and accurate accounts of the transactions of
his office in books belonging to the corporation; and
(v) render as the Board may direct an account of the
transactions of his office; and
(vi) in general, have such other powers and perform such
other duties as are incident to the office of Treasurer and as may be
assigned to him from time to time by the Board or by or through the
Chief Executive Officer.
MISCELLANEOUS
43. Offices
The registered office of the corporation in the State of Wisconsin
shall be located at 4915 South Howell Avenue, Milwaukee, Wisconsin 53207.
The corporation may have such other offices as the Board may from time to
time determine. The books of the corporation may be kept outside the State
of Wisconsin.
44. Seal
The corporation shall have a seal which shall be circular in form
with "ME WISCONSIN -- WISCONSIN" around the periphery and "1996 --
CORPORATE SEAL" within, but the use of such seal shall not be necessary to
evidence authority for any action on behalf of the corporation or to
evidence the authenticity of any signature on behalf of the corporation or
of any officer of the corporation.
45. Fiscal Year
The fiscal year of the corporation shall begin on January 1 of each
year.
46. Annual Report
At least fifteen days in advance of the annual meeting of
shareholders, but not later than three months after the close of the
fiscal year, the Board shall publish and submit to the shareholders a
consolidated balance sheet of the corporation and its consolidated
subsidiaries as of the end of the previous fiscal year and the related
consolidated income and cash flow statements of the corporation and its
consolidated subsidiaries for the previous fiscal year.
47. Consideration for Shares
The Board may authorize shares to be issued for consideration
consisting of any tangible or intangible property or benefit to the
corporation, including cash, promissory notes, services performed,
contracts for services to be performed or other securities of the
corporation. Before the corporation issues shares, the Board shall
determine that the consideration received or to be received for the shares
to be issued is adequate. In the absence of a resolution adopted by the
Board expressly determining that the consideration received or to be
received is adequate, Board approval of the issuance of the shares shall
be deemed to constitute such a determination. The determination of the
Board is conclusive insofar as the adequacy of consideration for the
issuance of shares relates to whether the shares are validly issued, fully
paid and nonassessable. The corporation may place in escrow shares issued
in whole or in part for a contract for future services or benefits, a
promissory note, or other property to be issued in the future, or make
other arrangements to restrict the transfer of the shares, and may credit
distributions in respect of the shares against their purchase price, until
the services are performed, the benefits or property are received or the
promissory note is paid. If the services are not performed, the benefits
or property are not received or the promissory note is not paid, the
corporation may cancel, in whole or in part, the shares escrowed or
restricted and the distributions credited.
48. Stock Regulation
The Board shall have the power and authority to make all such further
rules and regulations not inconsistent with the statutes of the State of
Wisconsin as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the corporation.
49. Indemnification
(a) Certain Definitions. All capitalized terms used in this
Section 49 and not otherwise hereinafter defined in this Section 49(a)
shall have the meaning set forth in Section 180.0850 of the Statute. The
following capitalized terms (including any plural forms thereof) used in
this Section 49 shall be defined as follows:
(i) "Affiliate" shall include, without limitation,
any Person (as defined in Section 8(d) of these By-Laws) (including
without limitation an employee benefit plan) that, directly or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Corporation.
(ii) "Authority" shall mean the entity selected by the
Director or Officer to determine his right to indemnification
pursuant to Section 49(d).
(iii) "Board" shall mean the entire then elected and
serving Board of Directors of the Corporation, including all members
thereof who are Parties to the subject Proceeding or any related
Proceeding.
(iv) "Breach of Duty" shall mean the Director or
Officer breached or failed to perform his duties to the Corporation
and his breach of or failure to perform those duties is determined,
in accordance with Section 49(d), to constitute misconduct under
Section 180.0851(2)(a) l, 2, 3 or 4 of the Statute.
(v) "Corporation," as used herein and as defined in
the Statute and incorporated by reference into the definitions of
certain other capitalized terms used herein, shall mean this
corporation, including, without limitation, any successor corporation
or entity to this corporation by way of merger, consolidation or
acquisition of all or substantially all of the capital stock or
assets of this corporation.
(vi) "Director or Officer" shall have the meaning set
forth in the Statute; provided, that, for purposes of this Section
49, it shall be conclusively presumed that any Director or Officer
serving as a director, officer, partner, trustee, member of any
governing or decision-making committee, employee or agent of an
Affiliate shall be so serving at the request of the Corporation.
(vii) "Disinterested Quorum" shall mean a quorum of the
Board who are not Parties to the subject Proceeding or any related
Proceeding.
(viii) "Party" shall have the meaning set forth in the
Statute; provided, that, for purposes of this Section 49, the term
"Party" shall also include any Director or Officer or employee of the
Corporation who is or was a witness in a Proceeding at a time when he
has not otherwise been formally named a Party thereto.
(ix) "Proceeding" shall have the meaning set forth in
the Statute; provided, that, in accordance with Section 180.0859 of
the Statute and for purposes of this Section 49, the term
"Proceeding" shall also include all Proceedings (i) brought under (in
whole or in part) the Securities Act of 1933, as amended, the
Exchange Act, their respective state counterparts, and/or any rule or
regulation promulgated under any of the foregoing; (ii) brought
before an Authority or otherwise to enforce rights hereunder; (iii)
any appeal from a Proceeding; and (iv) any Proceeding in which the
Director or Officer is a plaintiff or petitioner because he is a
Director or Officer; provided, however, that any such Proceeding
under this subsection (iv) must be authorized by a majority vote of a
Disinterested Quorum.
(x) "Statute" shall mean Sections 180.0850 through
180.0859, inclusive, of the Wisconsin Business Corporation Law,
Chapter 180 of the Wisconsin Statutes, as the same shall then be in
effect, including any amendments thereto, but, in the case of any
such amendment, only to the extent such amendment permits or requires
the Corporation to provide broader indemnification rights than the
Statute permitted or required the Corporation to provide prior to
such amendment.
(b) Mandatory Indemnification of Directors and Officers. To
the fullest extent permitted or required by the Statute, the Corporation
shall indemnify a Director or Officer against all Liabilities incurred by
or on behalf of such Director or Officer in connection with a Proceeding
in which the Director or Officer is a Party because he is a Director or
Officer.
(c) Procedural Requirements.
(i) A Director or Officer who seeks indemnification
under Section 49(b) shall make a written request therefor to the
Corporation. Subject to Section 49(c)(ii), within sixty days of the
Corporation's receipt of such request, the Corporation shall pay or
reimburse the Director or Officer for the entire amount of
Liabilities incurred by the Director or Officer in connection with
the subject Proceeding (net of any Expenses previously advanced
pursuant to Section 49(e)).
(ii) No indemnification shall be required to be paid
by the Corporation pursuant to Section 49(b) if, within such
sixty-day period, (A) a Disinterested Quorum, by a majority vote
thereof, determines that the Director or Officer requesting
indemnification engaged in misconduct constituting a Breach of Duty
or (B) a Disinterested Quorum cannot be obtained.
(iii) In either case of nonpayment pursuant to Section
49(c)(ii), the Board shall immediately authorize by resolution that
an Authority, as provided in Section 49(d), determine whether the
Director's or Officer's conduct constituted a Breach of Duty and,
therefore, whether indemnification should be denied hereunder.
(iv) (A) If the Board does not authorize an Authority
to determine the Director's or Officer's right to indemnification
hereunder within such sixty-day period and/or (B) if indemnification
of the requested amount of Liabilities is paid by the Corporation,
then it shall be conclusively presumed for all purposes that a
Disinterested Quorum has affirmatively determined that the Director
or Officer did not engage in misconduct constituting a Breach of Duty
and, in the case of subsection (A) above (but not subsection (B)),
indemnification by the Corporation of the requested amount of
Liabilities shall be paid to the Director or Officer immediately.
(d) Determination of Indemnification.
(i) If the Board authorizes an Authority to determine
a Director's or Officer's right to indemnification pursuant to
Section 49(c), then the Director or Officer requesting
indemnification shall have the absolute discretionary authority to
select one of the following as such Authority:
(A) An independent legal counsel; provided, that such
counsel shall be mutually selected by such Director or Officer
and by a majority vote of a Disinterested Quorum or, if a
Disinterested Quorum cannot be obtained, then by a majority vote
of the Board;
(B) A panel of three arbitrators selected from the
panels of arbitrators of the American Arbitration Association in
Wisconsin; provided, that (I) one arbitrator shall be selected
by such Director or Officer, the second arbitrator shall be
selected by a majority vote of a Disinterested Quorum or, if a
Disinterested Quorum cannot be obtained, then by a majority vote
of the Board, and the third arbitrator shall be selected by the
two previously selected arbitrators, and (II) in all other
respects (other than this Section 49), such panel shall be
governed by the American Arbitration Association's then existing
Commercial Arbitration Rules; or
(C) A court pursuant to and in accordance with
Section 180.0854 of the Statute.
(ii) In any such determination by the selected
Authority there shall exist a rebuttable presumption that the
Director's or Officer's conduct did not constitute a Breach of Duty
and that indemnification against the requested amount of Liabilities
is required. The burden of rebutting such a presumption by clear and
convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.
(iii) The Authority shall make its determination within
sixty days of being selected and shall submit a written opinion of
its conclusion simultaneously to both the Corporation and the
Director or Officer.
(iv) If the Authority determines that indemnification
is required hereunder, then the Corporation shall pay the entire
requested amount of Liabilities (net of any Expenses previously
advanced pursuant to Section 49(e)), including interest thereon at a
reasonable rate, as determined by the Authority, within ten days of
receipt of the Authority's opinion; provided, that, if it is
determined by the Authority that a Director or Officer is entitled to
indemnification against Liabilities' incurred in connection with some
claims, issues or matters, but not as to other claims, issues or
matters, involved in the subject Proceeding, the Corporation shall be
required to pay (as set forth above) only the amount of such
requested Liabilities as the Authority shall deem appropriate in
light of all of the circumstances of such Proceeding.
(v) The determination by the Authority that
indemnification is required hereunder shall be binding upon the
Corporation regardless of any prior determination that the Director
or Officer engaged in a Breach of Duty.
(vi) All Expenses incurred in the determination
process under this Section 49(d) by either the Corporation or the
Director or Officer, including, without limitation, all Expenses of
the selected Authority, shall be paid by the Corporation.
(e) Mandatory Allowance of Expenses.
(i) The Corporation shall pay or reimburse from time
to time or at any time, within ten days after the receipt of the
Director's or Officer's written request therefor, the reasonable
Expenses of the Director or Officer as such Expenses are incurred;
provided, the following conditions are satisfied:
(A) The Director or Officer furnishes to the
Corporation an executed written certificate affirming his good
faith belief that he has not engaged in misconduct that
constitutes a Breach of Duty; and
(B) The Director or Officer furnishes to the
Corporation an unsecured executed written agreement to repay any
advances made under this Section 49(e) if it is ultimately
determined by an Authority that he is not entitled to be
indemnified by the Corporation for such Expenses pursuant to
Section 49(d).
(ii) If the Director or Officer must repay any
previously advanced Expenses pursuant to this Section 49(e), then
such Director or Officer shall not be required to pay interest on
such amounts.
(f) Indemnification and Allowance of Expenses of Certain
Others.
(i) The Board may, in its sole and absolute
discretion as it deems appropriate, pursuant to a majority vote
thereof, indemnify a director or officer of an Affiliate (who is not
otherwise serving as a Director or Officer) against all Liabilities,
and shall advance the reasonable Expenses, incurred by such director
or officer in a Proceeding to the same extent hereunder as if such
director or officer incurred such Liabilities because he was a
Director or Officer, if such director or officer is a Party thereto
because he is or was a director or officer of the Affiliate.
(ii) The Corporation shall indemnify an employee who
is not a Director or Officer, to the extent he has been successful on
the merits or otherwise in defense of a Proceeding, for all
reasonable Expenses incurred in the Proceeding if the employee was a
Party because he was an employee of the Corporation.
(iii) The Board may, in its sole and absolute
discretion as it deems appropriate, pursuant to a majority vote
thereof, indemnify (to the extent not otherwise provided in Section
49(f)(ii) hereof) against Liabilities incurred by, and/or provide for
the allowance of reasonable Expenses of, an employee or authorized
agent of the Corporation acting within the scope of his duties as
such and who is not otherwise a Director or Officer.
(g) Insurance. The Corporation may purchase and maintain
insurance on behalf of a Director or Officer or any individual who is or
was an employee or authorized agent of the Corporation against any
Liability asserted against or incurred by such individual in his capacity
as such or arising from his status as such, regardless of whether the
Corporation is required or permitted to indemnify against any such
Liability under this Section 49.
(h) Notice to the Corporation. A Director, Officer or employee
shall promptly notify the Corporation in writing when he has actual
knowledge of a Proceeding that may result in a claim of indemnification
against Liabilities or allowance of Expenses hereunder, but the failure to
do so shall not relieve the Corporation of any liability to the Director,
Officer or employee hereunder unless the Corporation shall have been
irreparably prejudiced by such failure (as determined, in the case of
Directors or Officers only, by an Authority selected pursuant to Section
51(d)(i)).
(i) Severability. If any provision of this Section 49 shall be
deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Section 49 contravene public
policy, then this Section 49 shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and
effect, and any such provisions that are invalid or inoperative or that
contravene public policy shall be deemed, without further action or deed
by or on behalf of the Corporation, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and
enforceable; it being understood that it is the Corporation's intention to
provide the Directors and Officers with the broadest possible protection
against personal liability allowable under the Statute.
(j) Nonexclusivity of Section 49. The rights of a Director,
Officer or employee (or any other person) granted under this Section 49
shall not be deemed exclusive of any other rights to indemnification
against Liabilities or allowance of Expenses to which the Director,
Officer or employee (or such other person) may be entitled under any
written agreement, Board resolution, vote of shareholders of the
Corporation or otherwise, including, without limitation, under the
Statute. Nothing contained in this Section 49 shall be deemed to limit
the Corporation's obligations to indemnify against Liabilities or allow
Expenses to a Director, Officer or employee under the Statute.
(k) Contractual Nature of Section 49; Repeal or Limitation of
Rights. This Section 49 shall be deemed to be a contract between the
Corporation and each Director, Officer and employee of the Corporation,
and any repeal or other limitation of this Section 49 or any repeal or
limitation of the Statute or any other applicable law shall not limit any
rights of indemnification against Liabilities or allowance of Expenses
then existing or arising out of events, acts or omissions occurring prior
to such repeal or limitation, including, without limitation, the right to
indemnification against Liabilities or allowance of Expenses for
Proceedings commenced after such repeal or limitation to enforce this
Section 49 with regard to acts, omissions or events arising prior to such
repeal or limitation.
50. Reliance
Unless the director or officer has knowledge that makes reliance
unwarranted, a director or officer, in discharging his duties to the
corporation, may rely on information, opinions, reports or statements any
of which may be written or oral, formal or informal, including financial
statements, valuation reports and other financial data, if prepared or
presented by any of the following: (a) an officer or employee of the
corporation whom the director or officer believes in good faith to be
reliable and competent in the matters presented; (b) legal counsel, public
accountants or other persons as to matters that the director or officer
believes in good faith are within the person's professional or expert
competence; or (c) in the case of reliance by a director, a committee of
the Board of which the director is not a member if the director believes
in good faith that the committee merits confidence.
51. Inspection of Books
The directors shall determine from time to time whether, and, to what
extent and at what times and places and under what conditions and
regulations the accounts and other books and records of the corporation
(except such as may by statute be specifically open to inspection) or any
of them, shall be open to the inspection of the shareholders, and the
shareholders' rights in this respect are and shall be restricted and
limited accordingly.
52. Transactions with the Corporation
No transaction with the corporation in a which a director of the
corporation has a direct or indirect interest (a "conflict of interest
transaction") shall be voidable by the corporation solely because of the
director's interest in the transaction if any of the following is true:
(a) the material facts of the transaction and the director's
interest were disclosed or known to the Board or a committee of the Board
and the Board or committee authorized, approved or specifically ratified
the transaction in accordance with Section 180.0831(4) of the WBCL;
(b) the material facts of the transaction and the director's
interest were disclosed or known to the shareholders entitled to vote and
they authorized, approved or specifically ratified the transaction under
Section 180.0831(5) of the WBCL; or
(c) the transaction was fair to the corporation.
No other contract or transaction in which a director or officer has
an interest and which may, under law, be authorized, approved or ratified
by the Board, a committee thereof, or the shareholders shall be void or
voidable if authorized, approved or ratified by the body which under law
may authorize, approve or ratify such contract or transaction.
53. Ratification
Any transaction questioned in any shareholders' derivative suit on
the ground of lack of authority, defective or irregular execution, adverse
interest of director, officer or shareholder, nondisclosure,
miscomputation, or the application of improper principles or practices of
accounting may be ratified before or after judgment, by the Board or by
the shareholders in case less than a quorum of directors is qualified;
and, if so ratified, shall have the same force and effect as if the
questioned transaction had been originally duly authorized, and said
ratification shall be binding upon the corporation and its shareholders
and shall constitute a bar to any claim or execution of any judgment in
respect to such questioned transaction.
54. Voting of Stocks
Unless otherwise ordered by the Board, any one of the Chief Executive
Officer, the Chairman of the Board, the President, any Vice Chairman of
the Board, any Executive Vice President or any Senior Vice President shall
have full power and authority, on behalf of the corporation, to consent to
or approve of any action by, and to attend, act and vote at any meeting of
shareholders of, any company in which the corporation may hold shares of
stock, and in giving such consent or approval or at any such meeting shall
possess and may exercise any and all rights and powers incident to the
ownership of such shares and which as the holder thereof, the corporation
might possess and exercise if personally present, and may exercise such
power and authority through the execution of proxies or may delegate such
power and authority to any other officer, agent or employee of the
corporation.
55. Notice
Except as provided in Section 9 of these By-Laws, any notice which
the corporation is required to give under these By-Laws may be given
personally or it may be given in writing by depositing the notice in the
post office or letter box in a postpaid envelope directed to such address
as appears on the books of the corporation. Such notice shall be deemed to
be given at the time of mailing.
56. Waiver of Notice
Whenever any notice is required to be given, a waiver thereof in
writing signed by the person or persons entitled to the notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
57. Dispensing with Notice
No notice need be given to any person with whom communication is made
unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued under any such law.
58. Amendments
Subject to the provisions of the Restated Articles of Incorporation,
these By-Laws may be altered, amended or repealed by the shareholders or
by the Board.
59. Emergency Provisions
The following emergency provisions shall be operative to the extent
and under the circumstances set forth in Section 180.0207 of the WBCL:
The board of directors, either before or during any such emergency,
may provide, and from time to time modify, lines of succession in the
event that during such emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging
their duties.
The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the head office or designate
several alternative head offices or regional offices, or authorize the
officers so to do.
No officer, director or employee acting in anticipation of or during
an emergency in accordance with any emergency by-laws shall be liable for
action taken in good faith to further the ordinary business affairs of the
corporation during any such emergency.
To the extent not inconsistent with any emergency by-laws so adopted,
the by-laws of the corporation shall remain in effect during any emergency
and upon its termination the emergency by-laws shall cease to be
operative.
Unless otherwise provided in emergency by-laws, notice of any meeting
of the Board of Directors during such an emergency may be given only to
such of the directors as it may be feasible to reach at the time and by
such means as may be feasible at the time, including publication or radio.
60. Terms
Capitalized terms used in Sections 61 through 63 and not defined in
these By-Laws are used as defined in the corporation's Restated Articles
of Incorporation.
61. Foreign Stock Record
There shall be maintained a separate stock record, designated the
"Foreign Stock Record", for the registration of Alien Owned Shares. The
Beneficial Ownership by persons of Alien Owned Shares may be determined in
conformity with procedures prescribed by the Board.
62. Permitted Percentage
At no time shall ownership of shares representing more than the
Permitted Percentage be registered on the Foreign Stock Record.
63. Registration of Shares
If at any time there exist Alien Owned Shares that are not registered
on the Foreign Stock Record, the Beneficial Owner thereof may request, in
writing by notice to the Secretary of the corporation, that the
corporation register ownership of such shares on the Foreign Stock Record,
and the corporation shall promptly comply with such request, subject to
the limitation set forth in Section 62. The corporation shall also
maintain a record of requests to register Alien Owned Shares on the
Foreign Stock Record that the corporation cannot accommodate due to the
limitation set forth in Section 62. If at any time the corporation shall
find that, due to changes in ownership of Alien Owned Shares reflected on
the Foreign Stock Record, the combined voting power of Alien Owned Shares
no longer equals or exceeds the Permitted Percentage for any reason, then
any Alien Owned Shares with respect to which a request for registration on
the Foreign Stock Record was made but not accommodated due to the
limitation set forth in Section 62 shall be so registered subject to the
procedures and limitations set forth herein. The order in which Alien
Owned Shares shall be registered on the Foreign Stock Record shall be
chronological, based on the date the corporation received a written
request to so register such shares of Alien Owned Shares; provided, that
any person who is not a Citizen who purchases or otherwise acquires Alien
Owned Shares that are registered on the Foreign Stock Record may register
such shares in its own name within thirty days of such acquisition, in
which event such person will assume the position of the seller of such
shares in the chronological order of shares registered on the Foreign
Stock Record. If at any time the corporation shall find that the combined
voting power of Alien Owned Shares then registered on the Foreign Stock
Record exceeds the Permitted Percentage for any reason, then there shall
be removed from the Foreign Stock Record the registration of such number
of shares so registered as is sufficient to reduce the combined voting
power of the shares so registered to an amount not in excess of the
Permitted Percentage. The order in which such shares shall be removed
shall be reverse chronological order based upon the date the corporation
received a written request to so register such shares of Alien Owned
Shares.
64. Equity Offerings
For a period of ninety days following the consummation of any Equity
Offering (as defined below), the Foreign Stock Record shall be closed to
all shareholders seeking to register shares on the Foreign Stock Record
except for any purchaser of Alien Owned Shares in such Equity Offering but
if and only if such purchaser provides evidence satisfactory to the
corporation that the purchaser was the actual initial purchaser of shares
of Voting Stock of the corporation sold by the corporation or a
shareholder of the corporation in such Equity Offering. The term "Equity
Offering" means the offering of Voting Stock by the corporation or any
shareholder of the corporation (excluding any such offering where the
Offering consists solely of Voting Stock owned by shareholders of the
corporation) in either an underwritten public offering registered under
the Securities Act of 1933 or an offering pursuant to Rule 144A under the
Securities Act of 1933.
MIDWEST EXPRESS HOLDINGS, INC.
1995 STOCK OPTION PLAN
(as amended through December 3, 1996)
1. PURPOSE
This 1995 Stock Option Plan (the "Plan") of Midwest Express Holdings,
Inc. (the "Corporation") is intended to encourage those employees who
materially contribute to the success of the Corporation or of an
Affiliate, to acquire an ownership interest in the Corporation, thereby
increasing their motivation for and interest in the Corporation's or
Affiliate's long-term success.
2. EFFECTIVE DATE
The Plan is adopted effective as of September 21, 1995, subject to
approval by the stockholders of the Corporation at the Corporation's 1996
Annual Meeting of Stockholders.
3. DEFINITIONS
"Affiliate" means any company in which the Corporation owns directly
or indirectly 20% or more of the equity interest (collectively, the
"Affiliates").
"Board" means the Board of Directors of the Corporation.
A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(1) any "Person" (as such term is defined in section 3(a)(9) of
the Exchange Act, as modified and used in sections 13(d) and 14(d)
thereof), other than (A) the Corporation or any of its subsidiaries,
(B) a trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation or any of its subsidiaries,
(C) an underwriter temporarily holding securities pursuant to an
offering of such securities or (D) a corporation owned, directly or
indirectly, by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock in the Corporation
("Excluded Persons"), is or becomes the "Beneficial Owner" (as
defined in rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Corporation or its Affiliates after January 1, 1996
pursuant to express authorization by the Board that refers to this
exception) representing 25% or more of either the then outstanding
shares of Common Stock or the combined voting power of the
Corporation's then outstanding voting securities; or
(2) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on January 1, 1996, constituted the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Corporation, as such
terms are used in Rule 14a-11 of Regulation 14A under the Exchange
Act) whose appointment or election by the Board or nomination for
election by the Corporation'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 on January 1, 1996 or whose appointment,
election or nomination for election was previously so approved; or
(3) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
approve the issuance of voting securities of the Corporation in
connection with a merger or consolidation of the Corporation (or any
direct or indirect subsidiary of the Corporation) pursuant to
applicable stock exchange requirements, other than (i) a merger or
consolidation that would result in the voting securities of the
Corporation outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the combined
voting power of the voting securities of the Corporation or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Corporation (or
similar transaction) in which no Person (other than an Excluded
Person) is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Corporation (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Corporation or its Affiliates after January 1, 1996 pursuant
to express authorization by the Board that refers to this exception)
representing 25% or more of either the then outstanding shares of
Common Stock or the combined voting power of the Corporation's then
outstanding voting securities; or
(4) the stockholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or an
agreement for the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets (in one transaction or
a series of related transactions within any period of 24 consecutive
months), other than a sale or disposition by the Corporation of all
or substantially all of the Corporation's assets to an entity at
least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as
their ownership of the Corporation immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be
deemed to have occurred if there is consummated any transaction or series
of integrated transactions immediately following which the record holders
of the Common Stock immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate
ownership in an entity that owns all or substantially all of the assets of
the Corporation immediately following such transaction or series of
transactions.
"Code" means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
"Committee" means the Compensation Committee of the Board, provided
that if the requisite number of members of the Compensation Committee are
not Disinterested Persons, the Plan shall be administered by a committee,
all of whom are Disinterested Persons, appointed by the Board and
consisting of two or more directors with full authority to act in the
matter. From and after September 18, 1996, "Committee" means the
Compensation Committee of the Board, provided that if the requisite number
of members of the Compensation Committee are not Non-Employee Directors,
the Plan shall be administered by a committee, all of whom are Non-
Employee Directors, appointed by the Board and consisting of two or more
directors with full authority to act in the matter. The term "Committee"
shall mean the Compensation Committee or the committee appointed by the
Board, as the case may be.
"Common Stock" means the common stock, par value $0.01 per share, of
the Corporation and shall include both treasury shares and authorized but
unissued shares and shall also include any security of the Corporation
issued in substitution, in exchange for, or in lieu of the Common Stock.
"Disinterested Person" means a person who is so defined for purposes
of rule 16b-3 under the Exchange Act, or any successor provision, and who
is also defined as an "outside director" for purposes of section 162(m) of
the Code or any successor section.
"Exchange Act" means the Securities Exchange Act of 1934 and the
rules and regulations thereunder, as amended from time to time.
"Fair Market Value" means the mean between the high and low sales
price of the Common Stock, on the relevant date as reported on the
composite list used by the Wall Street Journal for reporting stock prices,
or if no such sale shall have been made on that day, on the last preceding
day on which there was such a sale, or if no such prior sale information
is available then as determined by the Committee.
"Incentive Stock Option" means an Option which is so defined for
purposes of section 422 of the Code or any successor section.
"Insider" has the meaning set forth in subsection 12(h) of this Plan.
"Non-Employee Director" means a person who is so defined for purposes
of Rule 16b-3 under the Exchange Act, or any successor provision, and who
is also defined as an "outside director" for purposes of Section 162(m) of
the Code, or any successor section.
"Nonqualified Stock Option" means any Option which is not an
Incentive Stock Option.
"Option" means a right to purchase a specified number of shares of
Common Stock at a fixed option price equal to no less than 100% of the
Fair Market Value of the Common Stock on the date the Option is granted.
"Option Agreement" means an agreement entered into between the
Corporation and a Participant setting forth the terms and conditions
applicable to the Option granted to the Participant.
"Option Price" has the meaning set forth in subsection 6(b) of this
Plan.
"Participant" means an employee who the Committee selects to
participate in and receive Options under this Plan (collectively, the
"Participants").
"Retirement" and "Retire" means the termination of employment on or
after the date the Participant is entitled to receive immediate payments
under a qualified retirement plan of the Corporation or an Affiliate;
provided, however, if the Participant is not eligible to participate under
a qualified retirement plan of the Corporation or its Affiliates then such
Participant shall be deemed to have retired if his termination of
employment is on or after the date such Participant has attained age 55.
"Total and Permanent Disability" means Totally and Permanently
Disabled as defined in the Midwest Express Airlines, Inc. Salaried
Employees Retirement Plan, provided the Committee shall make a
determination of Total and Permanent Disability for any Participant
hereunder.
4. ADMINISTRATION
The Plan and all Options granted pursuant thereto shall be
administered by the Committee. The Committee, in its absolute discretion,
shall have the power to interpret and construe the Plan and any Option
Agreements; provided, however, that no such action or determination may
increase the amount of compensation payable that would otherwise be due in
a manner that would result in the disallowance of a deduction to the
Corporation under section 162(m) of the Code or any successor section.
Any interpretation or construction of any provisions of this Plan or the
Option Agreements by the Committee shall be final and conclusive upon all
persons. No member of the Board or the Committee shall be liable for any
action or determination made in good faith.
Within 60 days following the close of each calendar year that the
Plan is in operation, the Committee shall make a report to the Board
specifying the employees who received Options under the Plan during the
prior year, the number of Options to the individual employees, and the
status of prior Options.
The Committee shall have the power to promulgate Committee Rules and
other guidelines in connection with the performance of its obligations,
powers and duties under the Plan, including its duty to administer and
construe the Plan and Option Agreements.
The Committee may authorize persons other than its members to carry
out its policies and directives subject to the limitations and guidelines
set by the Committee, except that: (a) the authority to grant Options,
the selection of employees for participation and decisions concerning the
timing, pricing and amount of an Option shall not be delegated by the
Committee; (b) the authority to administer Options with respect to persons
who are subject to section 16 of the Exchange Act shall not be delegated
by the Committee; (c) any delegation shall satisfy all applicable
requirements of rule 16b-3 of the Exchange Act, or any successor
provision; and (d) no such delegation shall result in the disallowance of
a deduction to the Corporation under section 162(m) or any successor
section. Any person to whom such authority is granted shall continue to
be eligible to receive Options under the Plan.
5. ELIGIBILITY
The Committee shall from time to time select the Plan Participants
from those employees whom the Committee determines either to be in a
position to contribute materially to the success of the Corporation or
Affiliate or to have in the past so contributed. Only employees
(including officers and directors who are employees) of the Corporation
and its Affiliates are eligible to participate in the Plan.
6. OPTION TERMS
The Committee shall determine and designate from time to time those
Participants to whom Options are to be granted and the number of shares of
Common Stock to be optioned to each. Such Options may be in the form of
Incentive Stock Options or the in the form of Nonqualified Stock Options.
After granting an Option to a Participant, the Committee shall cause to be
delivered to the Participant an Option Agreement evidencing the granting
of the Option. The Option Agreement shall be in such form as the
Committee shall from time to time approve. The terms and conditions of
all Options granted under the Plan need not be the same, but all Options
must meet the applicable terms and conditions specified in subsections
6(a) through 6(i).
(a) Period of Option. The period of each Option shall be (i) 10
years from the date it is granted for a Nonqualified Stock Option or such
other period as may be determined by the Committee subject to a maximum
period of 15 years and (ii) no more than 10 years from the date it is
granted for an Incentive Stock Option.
(b) Option Price. The Option price shall be determined by the
Committee, but shall not in any instance be less than the Fair Market
Value of the Common Stock at the time that the Option is granted (the
"Option Price").
(c) Limitations on Exercise. At any time during the period of the
Option, either (i) the Participant may purchase after the end of the first
year after the granting of the Option up to 30 percent of the shares
covered by the Option; after the end of the second year, an additional 30
percent; and after the end of the third year, the remaining 40 percent of
the total number of shares covered by the Option, or (ii) the Participant
may purchase the percentage of shares each year as otherwise determined by
the Committee at the time the Option is granted; provided, however, that
if the Participant's employment with the Corporation or an Affiliate is
terminated for any reason other than death, Retirement or Total and
Permanent Disability, the Option shall be exercisable only for three
months following such termination and only for the number of shares of
Common Stock which were exercisable on the date of such termination unless
otherwise provided by the Committee. In no event, however, may an Option
be exercised more than 15 years after the date of its grant, if it is a
Nonqualified Stock Option, or 10 years after the date of its grant, if it
is an Incentive Stock Option. Provided, however, that a termination of
employment with the Corporation or an Affiliate to accept immediate
reemployment with the Corporation or an Affiliate shall not be deemed to
be a termination of employment for purposes of the Plan.
(d) Exercise after Death, Retirement and Disability. If a
Participant dies or becomes Totally and Permanently Disabled, without
having exercised the Option in full, the remaining portion of such Option
may be exercised, without regard to the limitations in subsection 6(c),
within a period not to exceed (i) three years from the date of any such
event or (ii) the remaining period of the Option, whichever is earlier.
Upon a Participant's death, the Option may be exercised by the person or
persons to whom such Participant's rights under the Option shall pass by
will or by applicable law or, if no such person has such rights, by his
executor or administrator. If a Participant Retires without having
exercised the Option in full, the remaining portion of such Option may be
exercised, without regard to the limitations in subsection 6(c), within a
period not to exceed (i) five years from the date of such event or (ii)
the remaining period of the Option, whichever is earlier.
(e) Change in Control. In the event of a Change in Control, each
holder of an Option shall have the right at any time thereafter to
exercise the remaining portion of such Option, without regard to the
limitations in subsection 6(c), at any time during the remaining period of
the Option. As of the date of the approval of the Plan by the
stockholders of the Corporation, any outstanding Option previously granted
under the Plan shall be deemed amended to provide to the holder of such
Option the rights under this subsection in the event of a Change in
Control. The Committee may, in its sole and absolute discretion, amend,
modify or rescind the provisions of this subsection if it determines that
the operation of this subsection may prevent a transaction in which the
Corporation or any Affiliate is a party from being accounted for on a
pooling-of-interests basis.
(f) Non-transferability. During the Participant's lifetime, Options
shall be exercisable only by such Participant. Options shall not be
transferable other than by will or the laws of descent and distribution
upon the Participant's death. Notwithstanding anything in this subsection
6(f) to the contrary, the Committee may also grant to designated
Participants the right to transfer such Options, to the extent allowed
under rule 16b-3 of the Exchange Act, subject to terms and conditions of
the Option Agreement and to Committee Rules on the date such right is
granted.
(g) Exercise; Notice Thereof. Options shall be exercised by
delivering to the Corporation, at the office of the Treasurer, written
notice of the number of shares with respect to which Option rights are
being exercised and by paying in full the Option Price of the shares at
the time being acquired. Payment may be made (i) in cash, (ii) by a check
payable to the Corporation, (iii) in shares of Common Stock transferable
to the Corporation and having a Fair Market Value on the transfer date
equal to the amount payable to the Corporation, (iv) by delivery
(including by telecopy) to the Corporation or its designated agent of an
executed irrevocable option exercise form together with irrevocable
instructions to a broker-dealer to sell or margin a sufficient portion of
the shares at the time being acquired and deliver the sale or margin loan
proceeds directly to the Corporation to pay the exercise price, or (v)
through any combination of the foregoing. The date of exercise shall be
deemed to be the date the Corporation receives the written notice and
payment for the shares being purchased. A Participant shall have none of
the rights of a stockholder with respect to shares covered by such Option
until the Participant becomes the record holder of such shares.
(h) Purchase for Investment. It is contemplated that the
Corporation will register shares sold to Participants pursuant to the Plan
under the Securities Act of 1933. In the absence of an effective
registration, however, a Participant exercising an Option hereunder may be
required to give a representation that he/she is acquiring such shares as
an investment and not with a view to distribution thereof.
(i) Limitations on Incentive Stock Option Grants.
(i) An Incentive Stock Option shall be granted only to an
individual who, at the time the Option is granted, does not own stock
possessing more than 10 percent of the total combined voting power of
all classes of stock of the Corporation or Affiliates.
(ii) The aggregate Fair Market Value of all shares with respect
to which Incentive Stock Options are exercisable by a Participant for
the first time during any year shall not exceed $100,000. The
aggregate Fair Market Value of such shares shall be determined at the
time the Option is granted.
(j) Options for Nonresident Aliens. In the case of any Option
awarded to a Participant who is not a resident of the United States or who
is employed by an Affiliate other than an Affiliate that is incorporated,
or whose place of business is, in a State of the United States, the
Committee may (i) waive or alter the conditions set forth in subsections
6(a) through 6(i) to the extent that such action is necessary to conform
such Option to applicable foreign law, or (ii) take any action, either
before or after the award of such Option, which it deems advisable to
obtain approval of such Option by an appropriate governmental entity;
provided, however, that no action may be taken hereunder if such action
would (1) increase any benefits accruing to any Participants under the
Plan, (2) increase the number of securities which may be issued under the
Plan, (3) modify the requirements for eligibility to participate in the
Plan, (4) result in a failure to comply with applicable provisions of the
Securities Act of 1933, the Exchange Act or the Code or (5) result in the
disallowance of a deduction to the Corporation under section 162(m) of the
Code or any successor section.
7. SHARES SUBJECT TO THE PLAN
The number of shares of Common Stock available with respect to
Options granted under this Plan shall not exceed 250,000 in the aggregate,
subject to the adjustment provision set forth in section 9 hereof. The
shares of Common Stock subject to the Plan may consist in whole or in part
of authorized but unissued shares or of treasury shares, as the Board may
from time to time determine. Shares subject to Options which become
ineligible for purchase will be available for grant under the Plan to the
extent permitted by section 16 of the Exchange Act (or the rules and
regulations promulgated thereunder) and to the extent determined to be
appropriate by the Committee.
8. INDIVIDUAL LIMITS
The maximum number of shares of Common Stock covered by Options which
may be granted to any Participant within any 2 consecutive calendar year
period shall not exceed 75,000, in the aggregate. If an Option which had
been granted to a Participant is canceled, the shares of Common Stock
which had been subject to such canceled Option shall continue to be
counted against the maximum number of shares for which Options may be
granted to the Participant. In the event that the number of Options which
may be granted is adjusted as provided in the Plan, the above limits shall
automatically be adjusted in the same ratio.
9. CHANGES IN CAPITALIZATION
In the event there are any changes in the Common Stock or the
capitalization of the Corporation through a corporate transaction, such as
any merger, any acquisition through the issuance of capital stock of the
Corporation, any consolidation, any separation of the Corporation
(including a spin-off or other distribution of stock by the Corporation),
any reorganization of the Corporation (whether or not such reorganization
comes within the definition of such term in section 368 of the Code), or
any partial or complete liquidation by the Corporation, recapitalization,
stock dividend, stock split or other change in the corporate structure,
appropriate adjustments and changes shall be made by the Committee, to the
extent necessary to preserve the benefit to the Participant contemplated
hereby, to reflect such changes in (a) the aggregate number of shares
subject to the Plan, (b) the maximum number of shares for which Options
may be granted to any Participant, (c) the number of shares and Option
Price per share of all shares of Common Stock subject to outstanding
options, and (d) such other provisions of the Plan as may be necessary and
equitable to carry out the foregoing purposes, provided, however that no
such adjustment or change may be made to the extent that such adjustment
or change will result in the disallowance of a deduction to the
Corporation under section 162(m) of the Code or any successor section.
10. EFFECT ON OTHER PLANS
All benefits under the Plan shall constitute special compensation and
shall not affect the level of benefits provided to or received by any
Participant (or the Participant's estate or beneficiaries) as part of any
employee benefit plan of the Corporation or an Affiliate. The Plan shall
not be construed to affect in any way a Participant's rights and
obligations under any other plan maintained by the Corporation or an
Affiliate on behalf of employees.
11. TERM OF THE PLAN
No Option may be granted after September 27, 1999 under the Plan, but
Options theretofore granted shall continue in force beyond that date
pursuant to their terms.
12. GENERAL PROVISIONS
(a) No Right of Continued Employment. Neither the
establishment of the Plan nor the payment of any benefits hereunder
nor any action of the Corporation, its Affiliates, the Board of
Directors of the Corporation or its Affiliates, or the Committee
shall be held or construed to confer upon any person any legal right
to be continued in the employ of the Corporation or its Affiliates,
and the Corporation and its Affiliates expressly reserve the right to
discharge any Participant without liability to the Corporation, its
Affiliates, the Board of Directors of the Corporation or its
Affiliates, or the Committee, except as to any rights which may be
expressly conferred upon a Participant under the Plan.
(b) Binding Effect. Any decision made or action taken by the
Corporation, the Board or by the Committee arising out of or in
connection with the construction, administration, interpretation and
effect of the Plan shall be conclusive and binding upon all persons.
(c) Modification of Awards. Subject to the requirements of the
Plan, the Committee may modify or amend any Option or waive any
restrictions or conditions applicable to any Option or the exercise
thereof, and the terms and conditions applicable to any Options may
at any time be amended, modified or canceled by mutual agreement
between the Committee and the Participant or any other persons as may
then have an interest therein, so long as any amendment or
modification does not increase the number of shares of Common Stock
issuable under the Plan. Action may be taken under this section
12(c) notwithstanding expiration of the Plan under section 11.
Notwithstanding anything in this subsection 12(c) to the contrary,
the Committee may not take any action to the extent that such action
would result in the disallowance of a deduction to the Corporation
under section 162(m) of the Code or any successor section.
(d) Inalienability of Benefits and Interest. Except as
provided in subsection 6(f), no benefit payable or interest in the
Plan shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any
such attempted action shall be void and no such benefit or interest
shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements, or torts of any Participant or beneficiary.
(e) Law to Govern. All questions pertaining to the
construction, interpretation, regulation, validity and effect of the
provisions of the Plan shall be determined in accordance with the
internal laws of the state in which the Corporation is incorporated
at the time of the question.
(f) Purchase of Common Stock. The Corporation and its
Affiliates may purchase from time to time shares of Common Stock in
such amounts as they may determine for purposes of the Plan. The
Corporation and its Affiliates shall have no obligation to retain,
and shall have the unlimited right to sell or otherwise deal with for
their own account, any shares of Common Stock purchased pursuant to
this paragraph.
(g) Use of Proceeds. The proceeds received by the Corporation
from the sale of Common Stock pursuant to the exercise of Options
shall be used for general corporate purposes.
(h) Withholding. The Committee shall require the withholding
of all taxes as required by law. A Participant may elect to have any
portion of the federal, state or local income tax withholding
required with respect to an exercise of a Nonqualified Stock Option
satisfied by tendering to the Corporation shares of Common Stock,
which, in the absence of such an election, would have been issued to
such Participant in connection with such exercise. In the event that
the value of the shares of Common Stock tendered to satisfy the
withholding tax required with respect to an exercise exceeds the
amount of such tax, the excess of such market value over the amount
of such tax shall be returned to the Participant, to the extent
possible, in whole shares of Common Stock, and the remainder in cash.
The value of a share of Common Stock tendered pursuant to this
subsection 12(h) shall be the Fair Market Value of the Common Stock
on the date on which such shares are tendered to the Corporation. An
election pursuant to this subjection 12(h) shall be made in writing
and signed by the Participant. An election pursuant to this
subsection 12(h) is irrevocable. A Participant who exercises an
Option and who is required to report to the Securities and Exchange
Commission under section 16(a) of the Exchange Act (an "Insider") may
satisfy the income tax withholding due in respect of such exercise
pursuant to this subsection 12(h) only if the Insider also satisfies
an exemption under section 16(b) of the Exchange Act (or the rules or
regulations promulgated thereunder) for such withholding.
(i) Amendments. The Committee may at any time amend, suspend,
or discontinue the Plan or alter or amend any or all Options and
Option Agreements under the Plan to the extent (1) permitted by law,
(2) permitted by the rules of any stock exchange on which the Common
Stock or any other security of the Corporation is listed, (3)
permitted under applicable provisions of the Securities Act of 1933,
as amended, and the Exchange Act (including rule 16b-3) and (4) that
such action would not result in the disallowance of a deduction to
the Corporation under section 162(m) of the Code or any successor
section (including the rules and regulations promulgated thereunder);
provided,however, that if any of the foregoing requires the approval
by stockholders of any such amendment, suspension or discontinuance,
then the Committee may take such action subject to the approval of
the stockholders. Except as provided in subsections 6(j) and 12(c)
no such amendment, suspension, or termination of the Plan shall,
without the consent of the Participant, adversely alter or change any
of the rights or obligations under any Options or other rights
previously granted the Participant under the Plan.
<PAGE>
MIDWEST EXPRESS HOLDINGS, INC.
1995 STOCK PLAN
FOR OUTSIDE DIRECTORS
(as amended through September 18, 1996)
1. Establishment. MIDWEST EXPRESS HOLDINGS, INC. (the "Company") hereby
establishes a plan for the members of its Board of Directors who are
not officers or employees of (i) the Company, (ii) any of its
subsidiaries or (iii) any 10% or greater stockholder of the Company
("Outside Directors"), as described herein, which shall be known as
the MIDWEST EXPRESS HOLDINGS, INC. 1995 STOCK PLAN FOR OUTSIDE
DIRECTORS (the "Plan").
2. Purpose. The purpose of the Plan is to advance the Company's growth
and success, and to advance its interests by attracting and retaining
well-qualified Outside Directors upon whose judgment the Company is
largely dependent for the successful conduct of its operations and by
providing such individuals with incentives to put forth maximum
efforts for the long-term success of the Company's business.
3. Effective Date of the Plan. The effective date of the Plan (the
"Effective Date") is the date of its approval by the stockholders of
the Company.
4. Stock Subject to the Plan. Subject to adjustment in accordance with
the provisions of paragraph 10, the total number of shares of common
stock of the Company ("Common Stock"), available for awards during
the term of this Plan shall be 25,000 shares. Shares of Common Stock
to be delivered under the Plan shall be made available from presently
authorized but unissued Common Stock or authorized and issued shares
of Common Stock reacquired and held as treasury shares, or a
combination thereof. In no event shall the Company be required to
issue fractional shares of Common Stock under the Plan. Whenever
under the terms of the Plan a fractional share of Common Stock would
otherwise be required to be issued, there shall be paid in lieu
thereof one full share of Common Stock.
5. Administration.
(a) The Plan shall be administered by the Board Affairs and
Nominating Committee (the "Committee") of the Board of Directors
consisting of not less than three members of the Board of
Directors appointed from time to time by the Board of Directors.
(b) Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to the extent
provided by law.
(c) Neither the Committee nor any member thereof shall be liable for
any act, omission, interpretation, construction or determination
made in connection with the Plan in good faith, and the members
of the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss,
damage or expense (including attorneys' fees) arising therefrom
to the full extent permitted by law and under any directors' and
officers' liability insurance that may be in effect from time to
time.
(d) A majority of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by a
majority of the Committee without a meeting, shall be the acts
of the Committee.
6. Automatic Grants of Common Stock. Each Outside Director shall be
granted Common Stock as follows:
(a) Annual Meeting. Subject to paragraph 8, on the date of the
Company's first annual meeting of stockholders, and thereafter
on the date of each succeeding annual meeting of the
stockholders of the Company ("Grant Date"), an Outside Director,
if re-elected or retained as an Outside Director at such
meeting, shall be granted 300 shares of Common Stock as an
annual retainer fee (an "Annual Grant").
(b) Interim Election. Outside Directors elected between Grant Dates
shall be granted a proportionate share of the Annual Grant at
the time of their election.
7. Elective Grant.
(a) Share Election. Subject to paragraph 8, each Outside Director
may elect (a "Share Election") to receive all or any portion of
his committee and meeting fees earned in each calendar year for
services on the Board of Directors, exclusive of the annual
retainer fee (the "Other Fees"), in the form of Common Stock. A
Share Election, or a modification or revocation of a Share
Election by a subsequent Share Election, (i) must be in writing
and delivered to the Secretary of the Company, (ii) shall be
effective with respect to Other Fees earned commencing on the
date the Secretary of the Company receives the Share Election
and (iii) shall remain in effect unless modified or revoked by a
subsequent Share Election in accordance with the provisions
hereof.
(b) Transfer of Shares. Shares of Common Stock issuable to an
Outside Director with respect to a Share Election shall be
transferred to such Outside Director effective as of the last
business day of the month in which the Other Fees are earned.
The total number of shares of Common Stock to be so transferred
shall be determined by dividing the amount of Other Fees for the
applicable month by the fair market value of a share of Common
Stock on the last business day of such month. For purposes of
this Plan, "fair market value" shall mean the closing sale price
of a share of Common Stock on the New York Stock Exchange on the
date for determining fair market value (or if no sale took place
on such exchange on such date, then on the most recent preceding
date on which a sale took place).
8. Deferral Election.
(a) Deferral Election. Each Outside Director may elect (a "Deferral
Election") to defer receiving all or any portion of the shares
of Common Stock that would otherwise be transferred pursuant to
paragraph 6 or paragraph 7, or any of his or her Other Fees that
would otherwise be payable in cash. A Deferral Election, or a
modification or revocation of a Deferral Election by a
subsequent Deferral Elections must be in writing and delivered
to the Secretary of the Company and shall be effective (i) with
respect to Other Fees payable on or after the first day of the
month that is coincident with or following the date the election
is delivered and (ii) with respect to any Annual Grant payable
on or after the first day of the calendar year that is after the
date the election is delivered, except that (A) a Deferral
Election made at any time until the date 30 days after the
shareholders of the Company approve the Plan shall be effective
with respect to the Annual Grant and/or Other Fees payable at
any time on or after the date shareholders approve the Plan and
(B) any Director who becomes an Outside director subsequent to
January 1 of a calendar year may deliver a Deferral Election
during the 30-day period immediately following the date the
Director becomes an Outside Director that is effective with
respect to the Annual Grant and/or Other Fees payable at any
time on or after the date the Director becomes an Outside
Director. A Deferral Election once made shall remain in effect
unless modified or revoked by a subsequent Deferral Election in
accordance with the provisions hereof.
(b) Accounts. An Outside Director who makes a Deferral Election
with respect to a Share Election or an Annual Grant shall have
the number of deferred shares of Common Stock (including
fractions of a share) credited to a "Share Account" for the
Outside Director in the form of "Share Units." An Outside
Director who makes a Deferral Election with respect to Other
Fees that are not subject to a Share Election shall have the
amount of deferred Other Fees credited to a "Cash Account" for
the Outside Director. Collectively, the amounts deferred in an
Outside Director's Share Account and Cash Account shall
hereafter be referred to as the "Deferred Amounts."
(c) Cash Dividends and Share Accounts. Whenever cash dividends are
paid by the Company on outstanding Common Stock, on the payment
date therefor there shall be credited to the Outside Director's
Share Account a number of additional Share Units equal to (i)
the aggregate dividend that would be payable on outstanding
shares of Common Stock equal to the number of Share Units
credited to such Share Account on the record date for the
dividend, divided by (ii) the fair market value of a share of
Common Stock on the last trading business day immediately
preceding the date of payment of the dividend.
(d) Cash Accounts. At the election of an Outside Director, a
Director's Cash Account shall be (i) credited with interest at
an annual rate equal to the sum of the daily interest earned at
a rate equal to the yield from time to time on U.S. Treasury
obligations maturing in seven years as reported in The Wall
Street Journal (Midwest Edition) and compounded monthly, or such
other rate specified by the Committee, or (ii) credited or
debited with the annual investment returns relating to such
investment vehicle or vehicles as may be made available by the
Committee from time to time, if any, and selected by the Outside
Director, or such combination of (i) and (ii) as the Outside
Director designates by written notice to the Secretary of the
Company.
(e) Distributions. Subject to subsection (k), an Outside Director's
Deferred Amounts shall become payable as soon as practicable
following the earliest of (i) the date irrevocably selected by
the Outside Director in his or her Deferral Election, (ii) the
Outside Director's death or (iii) the Outside Director's total
and permanent disability, as determined by the Committee.
(f) Form of Payments. All payments from a Share Account shall be
made in shares of Common Stock by converting Share Units into
Common Stock on a one-for-one basis. All payments from a Cash
Account shall be made in cash.
(g) Manner of Payments. Subject to subsection (k), in his or her
Deferral Election, each Outside Director shall elect to receive
payment of his or her Deferred Amounts either in a lump sum or
in two to fifteen substantially equal annual installments. In
the event of an Outside Director's death, payment of the
remaining portion of the Director's Deferred Amounts will be
made to the director's beneficiary in a lump sum as soon as
practicable following the director's death.
(h) Hardship Distribution. Notwithstanding any Deferral Election,
in the event of severe financial hardship to an Outside Director
resulting from a sudden and unexpected illness, accident or
disability of the Outside Director or other similar
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Outside Director, all
as determined by the Committee, an Outside Director may withdraw
a portion of the Share Units in his or her Share Account and/or
cash in his or her Cash Account by providing written notice to
the Secretary of the Company. Withdrawals of amounts shall only
be permitted to the extent reasonably necessary to meet the
emergency need due to the severe financial hardship.
(i) Designation of Beneficiary. Each Outside Director or former
Outside Director entitled to payment of Deferred Amounts
hereunder from time to time may designate any beneficiary or
beneficiaries (who may be designated concurrently, contingently,
or successively) to whom any such Deferred Amounts are to be
paid in case of the Outside Director's death before receipt of
any or all of such Deferred Amounts. Any designation will
revoke all prior designations by the Outside Director or former
Outside Director, shall be in a form prescribed by the Company
and will be effective only when filed by the Outside Director or
former Outside Director, during his or her lifetime, in writing
with the Secretary of the Company. References in this Plan to a
director's "beneficiary" at any date shall include such persons
designated as concurrent beneficiaries on the director's
beneficiary designation form then in effect. In the absence of
any such designation, any balance remaining in an Outside
Director's or former Outside Director's Share Account and/or
Cash Account at the time of the director's death shall be paid
to such director's estate in a lump sum.
(j) No Account Transfers. An Outside Director may not transfer or
convert a Share Account to a Cash Account or vice versa.
(k) Changes With Respect to Distributions. With the consent of the
Company, an Outside Director may (i) postpone the date on which
Deferred Amounts are to become payable pursuant to subsection
(e)(i) or (ii) change the manner in which the Deferred Amounts
are to be paid pursuant to subsection (g), provided in each case
that any such change is made prior to the calendar year in which
such payments are to commence.
(l) No Assets. No stock, cash or other property will be deliverable
to an Outside Director in respect of the Outside Director's
Deferred Amounts until the date or dates identified pursuant to
this Section 8, and all Deferred Amounts shall be reflected in
one or more unfunded accounts established for the Outside
Director by the Company, payment of the Company's obligation
will be from general funds, and no special assets (stock, cash
or otherwise) have been or will be set aside as security for
this obligation.
(m) No Transfers. An Outside Director's rights to payments under
this Section 8 are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
garnishment by an Outside Director's creditors or the creditors
of his or her beneficiaries, whether by operation of law or
otherwise, and any attempted sale, transfer, assignment, pledge,
or encumbrance with respect to such payment shall be null and
void, and shall be without legal effect and shall not be
recognized by the Company.
(n) Unsecured Creditor. The right of an Outside Director to receive
payments under this Section 8 is that of a general, unsecured
creditor of the Company, and the obligation of the Company to
make payments constitutes a mere promise by the Company to pay
such benefits in the future. Further, the arrangements
contemplated by this Section 8 are intended to be unfunded for
tax purposes and for purposes of Title I of ERISA.
9. Termination of Service as Outside Director. In the event an Outside
Director ceases to serve on the Board of Directors, all rights to
receive Common Stock pursuant to paragraph 6 shall terminate
immediately.
10. Adjustment Provisions. In the event of any change in the shares of
the Common Stock by reason of a declaration of a stock dividend
(other than a stock dividend declared in lieu of an ordinary cash
dividend), spin-off, merger, consolidation, recapitalization, or
split-up, combination or exchange of shares, or otherwise, the
aggregate number of shares available under this Plan, the amount of
the Annual Grant and the number of Share Units credited to each
Outside Director's Share Account shall be appropriately adjusted by
the Committee, using the same standards and/or formulas as it uses in
making adjustments under the Midwest Express Holdings, Inc. 1995
Stock Option Plan, but any such adjustment to the amount of the
Annual Grant and/or the number of Share Units shall be only such as
is necessary to maintain the proportionate interest of the Outside
Director and preserve, without exceeding, the value reflected by the
Annual Grant and the Outside Director's Share Account.
11. Termination and Amendment of Plan. The Plan shall terminate on
September 27, 2005, unless sooner terminated as hereinafter provided.
The Board of Directors may at any time terminate the Plan. The Board
of Directors may amend the Plan as it shall deem advisable including
(without limiting the generality of the foregoing) any amendments
deemed by the Board of Directors to be necessary or advisable to
assure conformity of the Plan with any requirements of state and
federal laws or regulations now or hereafter in effect; provided,
however, that (a) the Board of Directors may amend the provisions of
paragraph 6 not more often than once in any six month period, (b) the
Board of Directors may not, without further approval by the
shareholders of the Company, make any modifications which, under Rule
16b-3, require such approval and (c) no amendment shall affect
adversely any of the rights of any Outside Director, without such
Outside Director's consent, under any election theretofore in effect
under the Plan.
12. Rights as a Stockholder. An Outside Director shall have no rights as
a stockholder with respect to Common Stock granted under this Plan
until the date of issuance of the stock certificate to him. Except
as provided in paragraph 10, no adjustment will be made for dividends
or other rights for which the record date is prior to the date such
Common Stock is issued. The shares of Common Stock granted to each
Outside Director prior to September 18, 1996 are not transferable by
the recipient for a period of six months after the Grant Date (or,
for a director elected between Grant Dates, the date of the
director's election), except in the event of the death or disability
of the recipient. All certificates evidencing shares granted to an
Outside Director shall bear an appropriate legend evidencing such
transfer restrictions.
13. Governing Law. The Plan, all awards hereunder, and all
determinations made and actions taken pursuant to the Plan shall be
governed by the internal laws of the state in which the Company is
incorporated, to the extent not otherwise governed by the Internal
Revenue Code or the laws of the United States.
14. Unfunded Plan. This Plan shall be unfunded. No person shall have
any rights greater than those of a general creditor of the Company.
15. Withholding. The Company shall have the right to deduct from all
amounts deferred pursuant to a Deferral Election and/or payments made
under the Plan any federal, state, or local income taxes or FICA
required to be withheld with respect to such compensation. Each
Outside Director shall be entitled to irrevocably elect to have the
Company withhold shares of Common Stock having an aggregate fair
market value, as of the last trading business day immediately
preceding the date such shares would otherwise be transferred
hereunder, equal to the amount required to be withheld.
16. Change of Control. Anything in this Plan to the contrary
notwithstanding, upon the occurrence of a Change of Control (as such
term is defined in the Midwest Express Holdings, Inc. 1995 Stock
Option Plan): (a) all Share Units credited to any Outside Director's
Share Account shall be converted into Common Stock and together with
all Deferred Amounts credited to a Cash Account shall be transferred
as soon as practicable in a lump sum to each Outside Director; and
(b) any Annual Grant and/or Other Fees earned in respect of the
calendar quarter in which the Change of Control occurs shall be paid
in cash as soon as practicable.
MIDWEST EXPRESS HOLDINGS, INC.
ANNUAL INCENTIVE PLAN
(as amended December 13, 1995)
1. PURPOSE
The purpose of this Annual Incentive Plan (the "Plan") of Midwest
Express Holdings, Inc. (the "Company") is to further unite the interests
of the stockholders of the Company and its key executives through:
(a) the annual establishment of Company objectives which are deemed
by the Company's Board to be in the best short- and long-range interests
of the Company, and
(b) the annual payment of Incentive Awards to each Participant in the
form of an award of cash and/or stock, provided his or her performance has
meaningfully contributed to the attainment of the Company's objectives.
2. EFFECTIVE DATE
The Plan is adopted effective as of the Closing Date.
3. DEFINITIONS
"Affiliate" means any company in which the Company directly or
indirectly owns 20% or more of the equity interest (collectively, the
"Affiliates").
"Award Percentage" means the percentage of the Target Award payable
for each Performance Level. The Award Percentage for each Performance
Level is established as follows: Some Progress Towards Objective: 33%;
Significant Progress Towards Objective: 67%; Achieved Objective: 100%; and
Significantly Exceeded Objective: 133%.
"Board" means the Board of Directors of the Company.
"CEO" means the Chief Executive Officer of the Company.
"Closing Date" means the closing date of the sale by Kimberly-Clark
Corporation and K-C Nevada, Inc., a Delaware corporation, of a majority of
the stock of the Company, which will own all of the stock of Midwest
Express Airlines, Inc. immediately prior to such sale, to underwriters in
an initial public offering.
"Committee" means the Compensation Committee of the Board.
"Control Measures" shall have the meaning set forth in section 8 of
this Plan.
"Incentive Award" means an award to a Participant payable based upon
the achievement of preestablished Objectives in cash and/or stock.
"Measurement Period" means the fiscal year of the Company.
"Objective Areas" means the general areas for which Objectives may be
established and shall include the Company objective area, Unit objective
area and Individual objective area.
"Objective(s)" shall have the meaning set forth in section 6 of this
Plan.
"Participant" shall have the meaning set forth in section 5 of this
Plan.
"Percentage Weighting" shall have the meaning set forth in section 8
of this Plan.
"Performance Levels" shall have the meaning set forth in section 6 of
this Plan.
"Target Award" shall mean the amount determined by multiplying the
market value applicable to a Participant's position for the Measurement
Period by the Target Award Percentage.
"Target Award Percentage" means a percentage designated by the
Committee in its sole discretion at the beginning of the Measurement
Period, which percentage need not be the same for each Participant.
4. ADMINISTRATION
The Plan shall be administered by the Committee, which in its
absolute discretion shall have the power to interpret and construe the
Plan, and to resolve all questions arising hereunder. Any action by the
Committee shall be final and conclusive as to all individuals affected
thereby.
The Committee may delegate to any officer or employee such
ministerial or administrative duties relating to the Plan as deemed
appropriate by the Committee. No member of the Committee or the CEO shall
be liable for any act done or omitted to be done by such person or by any
other person in connection with the Plan, except for such person's own
willful misconduct or as expressly provided by statute.
5. ELIGIBILITY
The Committee shall, in its sole discretion, determine for each
Measurement Period those officers and employees of the Company who shall
be eligible to participate in the Plan (the "Participants") for such
Measurement Period based upon such Participants' opportunity to have a
substantial impact on the Company's operating results. Nothing contained
in the Plan shall be construed as or be evidence of any contract of
employment with any Participant for a term of any length, or as a
limitation on the right of the Company to discharge any Participant with
or without cause.
6. OBJECTIVE AREAS AND PERFORMANCE LEVELS
Prior to the beginning of each Measurement Period, or as soon
thereafter as reasonably practicable, performance objectives (the
"Objective(s)") shall be established for each Participant in one or more
Objective Areas.
The Board shall establish the Objective(s) and any Control Measures
in the Company Objective Area. The CEO, or the Committee in the case of
officers of the Company, based on recommendations of the CEO, shall
establish the Objective(s) and any Control Measures for all other
Objective Areas, unless otherwise determined by the Committee.
For each Objective there may be established performance levels
("Performance Levels") which shall consist of successively better
standards or ranges taking into consideration actual progress in the
Measurement Period in accomplishing the Objective(s). These Performance
Levels shall be defined as "No Progress Towards Objective", "Some Progress
Towards Objective", "Significant Progress Towards Objective", "Achieved
Objective" and "Significantly Exceeded Objective." Performance below the
"Some Progress Towards Objective" level shall not result in the payment of
an award.
From time to time, it may be desirable to establish Objective(s) in
such a manner that specific Performance Levels cannot be defined. In such
cases, the specific Performance Levels will be determined pursuant to
section 9 of this Plan.
The Objective(s) in the Individual Objective Area for a Participant
may be defined to include specific target areas on which such Participant
should focus during the year.
The original definition of any and all Objectives, Objective Areas,
Performance Levels, Percentage Weightings and Control Measures shall not
be changed during the Measurement Period, except by the approval of the
person(s) who originally approved the same. When changes in the Company's
accounting or internal reporting policies have the effect of making the
financial results between two periods not fairly comparable for the
purpose of properly measuring performance where Objectives are stated in
financial terms, such results may be adjusted in such manner as shall be
deemed fair and appropriate by the person(s) who originally approved the
Objective.
7. OBJECTIVE AREA WEIGHTINGS
Coincident with the establishment of Objective Areas, Objectives and
Performance Levels, the CEO, or the Committee in the case of employees who
are officers of the Company, shall establish a percentage weighting
("Percentage Weighting") applicable to each Objective Area, or, where
applicable, to each Objective within an Objective Area. The total of all
Percentage Weightings in all Objective Areas for each Participant shall be
100 percent. The Percentage Weighting which is applied to any Objective
or Objective Area must be a multiple of 5 percent and not less than 10
percent.
8. CONTROL MEASURES
At the time the Objectives are established, there may also be
established certain conditions known as control measures ("Control
Measures") which are either personal as to one individual, or general as
to a group of individuals. Failure to fulfill a Control Measure may
partially or totally deprive the individual to whom the Control Measure
applies of the right to receive an award, notwithstanding the level of
performance attained on any or all Objectives, or in any or all Objective
Areas.
9. ASCERTAINMENT OF PERFORMANCE LEVELS
The Performance Level actually attained with respect to any Objective
or Control Measure stated in financial terms, and the payment with respect
thereto, shall be determined, upon the completion of audited results of
the Company and its subsidiaries, by the person(s) who originally approved
or defined such Objective or Control Measure.
When specific Performance Levels have not been defined in the Company
Objective Area under Section 6 of this Plan, the Board will determine the
Performance Level attained following the end of the Measurement Period.
The Performance Level attained with respect to any other Objective
Area or Control Measure shall be determined and approved by the person(s)
who originally approved or defined such Objective or Control Measure
following the end of the Measurement Period.
Notwithstanding the above, the Committee may, in its sole discretion,
authorize that such determination of the Performance Levels attained be
made prior to the end of the Measurement Period, and that the payment of
awards be made pursuant to section 12 of this Plan.
10. AMOUNT OF INCENTIVE AWARD
The amount of Incentive Award a Participant is eligible to receive
depends upon:
(a) the Percentage Weighting applicable to that Objective or
Objective Area,
(b) the Award Percentage which applies as a consequence of the
Performance Level attained in that area.
(c) the Target Award established for the Participant.
Performance in each Objective or Objective Area shall be valued by
multiplying (a) times (b) times (c).
Except as otherwise hereinafter provided, the total Incentive Award a
Participant is eligible to receive is the sum of the values attributable
to performance actually attained for each Objective or Objective Area, as
determined by the preceding paragraphs.
11. ADJUSTMENT OF INCENTIVE AWARD
Except as otherwise determined by the Committee, in its sole and
absolute discretion, the amount of any Incentive Award may be adjusted by
the CEO or the Committee in the case of employees who are officers of the
Company, in their sole discretion, to more accurately reflect an
individual Participant's performance during the Measurement Period.
The amount of the Incentive Award, in the event of transfers to, from
or between eligible positions, may be reviewed, and may be adjusted or
prorated, on such basis as shall be determined fair and appropriate by the
CEO or the Committee in the case of employees who are officers of the
Company.
Termination of employment for any reason other than death,
retirement, or total and permanent disability during the Measurement
Period shall result in a forfeiture of any Incentive Award attributable to
performance during the Measurement Period in which termination occurred.
A Participant's death, retirement or total and permanent disability during
the Measurement Period may result in the pro rata or other adjustment to
the amount of the Incentive Award on such basis as shall be determined
fair and appropriate by the CEO or the Committee in the case of employees
who are officers of the Company.
Notwithstanding any provision of this Plan, no Incentive Award shall
be paid to any Participant who, in any Measurement Period, has discharged
the principal accountabilities of his or her position in an unsatisfactory
manner.
12. PAYMENT OF INCENTIVE AWARDS
Incentive Awards shall be paid in one lump sum in the first quarter
following the Measurement Period for which the Objectives were
established. An Incentive Award shall be paid in cash or, in the
discretion of the Committee exercised at any time prior to payment of the
Incentive Award, in whole or in part by delivering shares of common stock
of the Company having a Fair Market Value (as hereinafter defined),
determined as of the last business day of the Measurement Period for which
Objectives were established, equal to the amount of the Incentive Award to
be paid in shares of such common stock. In the discretion of the
Committee, the form of payment may vary from Participant to Participant.
"Fair Market Value" means the mean between the high and low sales price of
such common stock, on the relevant date as reported on the composite list
used by the Wall Street Journal for reporting stock prices, or if no such
sale shall have been made on that day, on the last preceding day on which
there was such a sale, or if no such prior sale information is available
then as determined by the Committee. Notwithstanding the above, the
Committee may make payments at such earlier times as it may, in its sole
discretion, determine, and the Committee, or the CEO, in their sole
discretion, will make such determinations as to performance, and establish
procedures (including repayment of any overpayment which is determined
after the completion of the final audit), implementing such early payment.
The Company shall have the right to deduct from the payment any taxes
required by law to be withheld thereon. The Committee may at its
discretion establish rules and procedures providing for a Participant to
elect to defer payment of his/her Incentive Award to a future date or
dates.
13. MISCELLANEOUS PROVISIONS
(a) Except as provided in this Plan, no right of any Participant
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, attachment,
garnishment, execution, levy, bankruptcy, or any other disposition of any
kind, whether voluntary or involuntary, prior to actual payment of an
Incentive Award. No Participant or any other person shall have any
interest in any fund, or in any specific asset or assets of the Company,
by reason of an Incentive Award that has been made but has not been paid
or distributed.
(b) The Board may, at any time, amend this Plan, order the temporary
suspension of its application, or terminate it in its entirety, provided,
however, that no such action shall adversely affect the rights or
interests of Participants theretofore vested hereunder.
(c) The terms of the Plan shall be governed, construed,
administered, and regulated by the laws of the state of Wisconsin and
applicable federal law. In the event that any provision of the Plan shall
be determined to be illegal or invalid for any reason, the other
provisions shall continue in full force and effect as if such illegal
provision had never been included herein.
(d) The total number of shares of common stock of the Company
subject to issuance under the Plan may not exceed 75,000, subject to
adjustment as provided below. The shares of common stock of the Company
to be delivered under the Plan may consist, in whole or in part, of
authorized but unissued stock or treasury stock, not reserved for any
other purpose. In the event of any change in the shares of the Company's
common stock by reason of a declaration of a stock dividend (other than a
stock dividend declared in lieu of an ordinary cash dividend), spin-off,
merger, consolidation, recapitalization, or split-up, combination or
exchange of shares, or otherwise, the aggregate number of shares available
under this Plan shall be appropriately adjusted by the Committee, using
the same standards and/or formulas as it uses in making adjustments under
the Midwest Express Holdings, Inc. 1995 Stock Option Plan.
[page 18]
FIVE-YEAR FINANCIAL AND OPERATING DATA
<TABLE>
MIDWEST EXPRESS HOLDINGS, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total operating revenues . . . . . . .$ 304,746 $259,155 $203,592 $ 165,056 $ 133,946
Total operating expenses . . . . . . . 270,387 227,781 192,328 149,159 129,854
Operating income . . . . . . . . . . . 34,359 31,374 11,264 15,897 4,092
Net income . . . . . . . . . . . . . . 21,750 19,129 6,662 9,086 1,135
Net income per share (1) . . . . . . . 3.40 2.77 0.75
Not applicable
Balance Sheet Data:
Property and equipment, net . . . . . . 70,903 55,919 57,626 56,486 58,390
Total assets . . . . . . . . . . . . . 129,135 92,833 95,436 80,161 76,712
Intercompany receivable/
(payable) (2) . . . . . . . . . . . . 0 61 17,923 3,199 (18,148)
Long-term debt . . . . . . . . . . . . 0 0 0 0 0
Shareholders' equity . . . . . . . . .$ 40,341 $21,264 $37,840 $31,178 $ 22,092
Selected Operating and
Other Data(3):
Midwest Express Airlines:
Revenue passenger miles (000s) . 1,239,966 1,150,338 972,809 785,391 661,567
Available seat miles (000s) . . . 1,954,151 1,794,924 1,600,437 1,314,522 1,188,263
Passenger load factor (%) . . . . . 63.5% 64.1% 60.8% 59.7% 55.7%
Passenger yield (cents per RPM) . . 19.3 17.8 16.7 19.0 18.5
Cost per total ASM
(cents per mile) . . . . . . . . 12.0 11.0 10.8 11.1 10.7
Aircraft in service at year end . 22 19 19 16 14
Average aircraft utilization
(hours per day) . . . . . . . . . 9.2 9.0 8.6 8.3 8.8
Number of FTE employees
at year end . . . . . . . . . . . 1,624 1,411 1,334 1,082 998
Astral Aviation, d/b/a
Skyway Airlines (4):
Revenue passenger miles (000s) . . . 71,165 66,415 43,219
Available seat miles (000s) . . . . . 160,488 156,113 103,759
Passenger load factor (%) . . . . . . 44.3% 42.5% 41.7%
Passenger yield (cents per RPM) . . . 52.7 49.9 48.3
Cost per total ASM
(cents per mile) . . . . . . . . . 21.6 19.4 17.9 Not applicable
Aircraft in service at year end . . . 15 15 13
Average aircraft utilization
(hours per day) . . . . . . . . . . 7.8 7.9 7.9
Number of FTE employees at
year end . . . . . . . . . . . . . 245 217 177
Note: Balance Sheet data for 1996, 1995, 1994 and 1993 is audited; 1992 is unaudited.
(1) Net income per share data is presented on a pro forma basis for 1995 and 1994 results.
(2) Reflects amounts receivable from or payable to Kimberly-Clark in connection with the Company's participation in Kimberly-
Clark's cash management program prior to the Company's initial public offering.
(3) Revenue passenger miles, available seat miles, passenger load factor and passenger yield are for scheduled service
operations. The other statistics include charter operations.
(4) Because Astral began service in February 1994, results for 1994 reflect less than a full year of operations. Before
Astral commenced operations, Mesa Airlines, Inc. ("Mesa"), pursuant to a code sharing agreement with Midwest Express,
operated commuter routes similar to those that Astral now operates. Because Mesa is not affiliated with the Company,
information relating to Mesa's results of operations for these routes is not shown.
</TABLE>
<PAGE>
[pages 19-22]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 Overview
1996 operating income for Midwest Express Holdings, Inc. ("Company") was
$34.4 million, an increase of $3.0 million over 1995. Net income in 1996
increased by $2.6 million to $21.8 million. The favorable change in
financial results was primarily caused by improved industry conditions,
improved profitability from the Omaha base of operation of Midwest Express
Airlines, Inc. ("Midwest Express") and better results from the Company's
charter and credit card programs.
The airline industry experienced an improved pricing environment during
1996 due to several factors. First, from January through August the 10%
excise tax on passenger tickets was temporarily discontinued; this
enabled the industry to implement price increases that likely would not
have resulted had the tax been maintained. Second, there was limited
growth in domestic capacity in 1996 and demand for air travel continued
to increase. These factors created a strong demand/pricing environment
in 1996 within the industry and at the Company. Midwest Express' revenue
yield increased from 17.8 cents in 1995 to 19.3 cents in 1996, or 8.1%,
and revenue yield for Astral Aviation, Inc. ("Skyway") increased 5.6%.
Midwest Express' Omaha base of operations contributed approximately $3.0
million more in operating income during 1996 than in 1995. Improvements
in both revenue yield and load factor were attained. The Omaha operation
achieved a passenger load factor of 57.5% and a revenue yield of 14.9 cents
in 1996. This compares favorably to 1995, when the Omaha operation achieved
a load factor of 53.7% and revenue yield of 13.8 cents.
Midwest Express' credit card and charter programs also favorably impacted
financial results in 1996. The credit card program, which was implemented
in October 1995, generated $4.1 million more revenue in 1996 than in 1995.
In addition, Midwest Express dedicated one aircraft to charter programs
beginning in the second quarter, resulting in charter revenue increasing
$2.2 million in 1996.
Negatively impacting operating income was an 18.7% increase in operating
expenses. Significant increases occurred in labor, fuel and maintenance,
which are explained in the subsequent section.
The following table provides operating revenues and expenses for the
Company expressed as cents per total available seat mile ("ASM"),
including charter operations, and as a percentage of total operating
revenues for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
Per Per Per
Total Total Total
ASM % ASM % ASM %
<S> <C> <C> <C> <C> <C> <C>
Passenger service . . . . . . . .. 12.81 90.8% 12.03 92.0% 10.59 90.2%
Cargo . . . . . . . . . . . . . . . .52 3.7% .53 4.0% .51 4.4%
Other . . . . . . . . . . . . . . . .77 5.5% .52 4.0% .63 5.4%
Total operating revenues . . . . . . 14.10 100.0% 13.08 100.0% 11.73 100.0%
------ ------- ------- ------- ------- -------
Operating expenses:
Salaries, wages and
benefits . . . . . . . . . . . . 3.61 25.6% 3.18 24.3% 3.07 26.2%
Aircraft fuel and oil . . . . . . . 2.19 15.5% 1.78 13.6% 1.77 15.1%
Commissions . . . . . . . . . . . . 1.31 9.3% 1.26 9.6% 1.09 9.3%
Dining services . . . . . . . . . . 0.70 4.9% 0.75 5.7% 0.76 6.5%
Station rental/landing/
other fees . . . . . . . . . . . 1.00 7.1% 0.98 7.5% 0.97 8.3%
Aircraft maintenance
materials/repairs . . . . . . . . 0.99 7.0% 0.88 6.7% 0.80 6.9%
Depreciation and amortization . . . 0.35 2.5% 0.38 2.9% 0.40 3.4%
Aircraft rentals . . . . . . . . . 0.74 5.3% 0.75 5.8% 0.76 6.4%
Other . . . . . . . . . . . . . . . 1.62 11.5% 1.54 11.8% 1.46 12.4%
------- ------- ------- ------- ------- -------
Total operating expenses . . . . . . 12.51 88.7% 11.50 87.9% 11.08 94.5%
======= ======= ======= ======= ======= =======
Total ASMs (millions) . . . . . . . . 2,160.9 1,982.1 1,735.4
Note: Numbers in this table cannot be recalculated due to rounding.
</TABLE>
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating Revenues
The Company's operating revenues totalled $304.7 million in 1996, a $45.6
million, or 17.6%, increase over 1995. Passenger revenues accounted for
90.8% of total revenues and increased $38.4 million, or 16.1%, from 1995
to $276.8 million. The increase was attributable to a 7.8% increase in
passenger volume, as measured by revenue passenger miles, and a 7.7%
increase in revenue yield.
Midwest Express passenger revenue increased $34.0 million to $239.3
million, or 16.6%, from 1995. This increase was caused by a 6.0% increase
in origin and destination passengers and an 8.1% increase in revenue
yield. Midwest Express' capacity, as measured by scheduled service ASMs,
increased 8.9%. The increase in capacity is primarily due to the addition
of two aircraft to scheduled service during May and September 1996, partly
offset by flight cancellations caused by poor weather in the second
quarter. Load factor decreased from 64.1% in 1995 to 63.5% in 1996.
Revenue yield increased primarily because of an improved competitive
environment, most importantly the discontinuation of Continental Airlines
"Lite" product in the second quarter 1995. Revenue yield also increased
due to the temporary elimination of the 10% excise tax on tickets (January
through August 1996) and improved pricing throughout the industry. Yield
gains were broad-based, with almost every market realizing improvement.
Skyway passenger revenue increased by $4.4 million to $37.5 million, or
13.2%, in 1996. This increase was caused by a 4.9% increase in origin
and destination passengers, a 5.6% increase in revenue yield and a 4.9%
increase in average passenger trip length. The volume increase was
attributable to two aircraft that were placed in service in the second
quarter of 1995 and to an increase in load factor, from 42.5% in 1995 to
44.3% in 1996.
Mail and cargo revenue increased $.9 million, or 8.4%, in 1996. This
increase was due to the aircraft added to scheduled service in May and
September 1996.
Revenue from other services increased $6.3 million, or 61.6%, in 1996.
The Midwest Express MasterCard program, initiated in October 1995,
generated an additional $4.1 million in revenue during 1996. Charter
services revenue increased $2.2 million, reflecting the addition of a
dedicated charter aircraft again in the second quarter 1996 after not
having a dedicated charter aircraft since the second quarter 1995.
Revenue from other Frequent Flyer agreements increased $.3 million. The
revenue increase was partly offset by $1.1 million less revenue from
maintenance contract services, as the maintenance function was more fully
utilized to maintain Midwest Express aircraft in 1996 and completed fewer
services for other airlines.
Operating Expenses
1996 operating expenses increased $42.6 million, or 18.7%, from 1995,
primarily due to higher fuel prices, higher labor rates, Midwest Express'
profit sharing plans, added costs of being a public company, pre-operating
costs associated with recently acquired aircraft, and the service
expansions in May and September 1996. On a cost per total ASM basis,
Midwest Express' operating expenses increased 8.8%, from 11.00 cents in
1995 to 11.97 cents in 1996. Cost per total ASM at Skyway increased
11.4% from 19.38 cents to 21.59 cents.
Salaries, wages and benefits increased $15.1 million, or 23.9%, from 1995.
On a cost per total ASM basis, these costs increased from 3.18 cents
in 1995 to 3.61 cents, or 13.5%, in 1996. Approximately $5.5 million of
the labor cost change was due to increased labor rates. Most of this
change was due to an adjustment in pay scales for pilots and other
operations employees. Salaries, wages and benefits increased $5.2 million
because of accruals for Midwest Express' profit sharing plans that were
implemented on January 1, 1996. The profit sharing plans, which benefit
substantially all Midwest Express employees, were based entirely on
achieving certain levels of profitability and were paid in February 1997.
Benefit costs increased by $2.1 million at the Company in 1996, and
were 24.3% of salaries and wages in 1996 and 25.5% in 1995. The remainder
of the change in labor costs was primarily due to an increase in the
number of employees required due to expanded service and administrative
requirements.
Aircraft fuel and oil and associated taxes increased $12.1 million, or
34.3%, from 1995. Into-plane fuel prices increased 23.7% in 1996,
averaging 77.2 cents per gallon in 1996 and 62.4 cents in 1995. The
Company experienced continued high fuel costs in January 1997, averaging
83.6 cents per gallon. Fuel consumption increased 8.6% because Midwest
Express operated 5.9% more flight segments, primarily caused by the
service expansions in May and September 1996.
Commissions increased by $3.4 million, or 13.8%, due to increased
passenger revenue. Of the increase, $2.6 million related to increased
travel agency commissions and $.8 million to increased credit card fees.
Commissions as a percent of passenger revenue decreased from 10.4% in
1995 to 10.2% in 1996.
Dining services costs were almost identical in 1996 and 1995 despite
volume increases. Total dining services costs (including food, beverages,
linen, catering equipment and supplies) decreased from $11.45 per Midwest
Express passenger in 1995 to $10.95 in 1996. The decrease was primarily
due to a reduction in costs following the negotiation of a long-term
contract with the primary food caterer for Midwest Express. Reduced
pricing was effective January 1, 1996. The reduction in the cost per
passenger was offset by increased passenger volume.
Station rental, landing and other fees increased by $2.2 million, or
11.3%, in 1996. Airport costs at Midwest Express increased $2.1 million a
result of a 5.9% increase in flight segments.
Aircraft maintenance, materials and repairs increased by $4.0 million, or
22.8%, from 1995. Midwest Express maintenance costs increased by $2.9
million, or 19.6%, and Skyway maintenance costs increased $1.1 million, or
37.4%. The increased costs at Midwest Express were caused by 10.5% more
aircraft flight hours and an increase in aircraft component and
unscheduled engine repair costs. In addition, Midwest Express completed
major airframe maintenance (D-checks) on several aircraft sooner than
previously planned to facilitate aircraft maintenance and refurbishment
scheduling. Maintenance accruals were increased to reflect this change.
Increased costs at Skyway were caused by a 3.9% increase in flight hours,
the expiration of warranties on most aircraft and higher component repair
costs.
Depreciation and amortization increased by $.1 million in 1996, primarily
as a result of the depreciation associated with capital spending and the
decision to exercise purchase options on two leased jet aircraft in
October 1996, offset by two jet aircraft becoming fully depreciated during
the year.
Aircraft rental costs increased $1.1 million, or 7.4%, in 1996. The
increase is primarily attributable to the addition of more aircraft to the
fleet (Midwest Express leased three additional aircraft in 1996 and Skyway
added two aircraft in May 1995), offset by the decision to exercise
purchase options on two leased jet aircraft in October 1996.
Other operating expenses increased by $4.5 million, or 14.6%, from 1995.
Other operating expenses consist primarily of advertising and promotion,
property and liability insurance, property taxes, reservation fees,
administration and other items. Professional, legal and financial
services increased $1.4 million in 1996 due to the costs associated with
being a stand-alone public company for the full year; travel expenses
increased $.7 million because of more crew rooms required due to flight
schedule changes; charter costs increased $.4 million due to increased
charter volume; insurance costs increased $.4 million due to the increased
number of aircraft and passengers; reservation booking fees increased $.3
million due to higher passenger volumes; and corporate communications
costs increased $.3 million due to 1996 being the Company's first full
year as a public company. The increased costs were partly offset by a
decrease in advertising and promotional expenditures of $.5 million.
Other operating expenses on a cost per total ASM basis increased 5.2% from
1.54 cents in 1995 to 1.62 cents in 1996.
Interest Income/Interest Expense
Interest income in 1995 relates to an intercompany cash management program
the Company had with Kimberly-Clark Corporation ("Kimberly-Clark") prior
to the Company's initial public offering ("Offering") in September 1995.
Market rates of interest were earned on the amount of cash the Company had
advanced to Kimberly-Clark. Interest income in 1996 reflects interest
income on the Company's cash and cash equivalents.
Other Income and Expense
Other expenses in 1996 primarily reflected the costs of the secondary
public offering completed in the second quarter. Other expenses in 1995
include an employee stock grant of $.9 million and costs associated with
the Offering of $.7 million.
Provision for Income Taxes
Income tax expense in 1996 was $13.5 million, an increase of $1.1 million
from 1995. The effective tax rates for 1996 and 1995 were 38.3% and
39.3%, respectively. The higher tax rate in 1995 was generally
attributable to costs of the Offering that are not deductible for income
tax purposes. For purposes of calculating the Company's income tax
expense and effective tax rate for periods after the Offering, the Company
treats amounts payable to an affiliate of Kimberly-Clark under a tax
allocation and separation agreement entered into in connection with the
Offering as if payable to taxing authorities.
Net Income
Net income increased by $2.6 million, or 13.7%, in 1996. The net income
margin decreased to 7.1% in 1996 from 7.4% in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Operating Revenues
The Company's operating revenues totalled $259.2 million in 1995, a $55.6
million, or 27.3%, increase over 1994. Passenger revenues accounted for
92.0% of total revenues and increased $54.7 million, or 29.8%, from 1994
to $238.4 million. The increase was attributable to a 19.8% increase in
volume, as measured by revenue passenger miles, and an 8.4% increase in
revenue yield.
Midwest Express passenger revenue increased by $42.4 million, or 26.0%,
from 1994 to $205.3 million. This increase was caused by a 19.3% increase
in origin and destination passengers and a 6.6% increase in revenue yield.
The Omaha base of operations, which was initiated in May 1994, accounted
for $15.0 million of the increase in passenger revenues and 8.5% of the
increase in passengers. Midwest Express' capacity, as measured by ASMs,
increased 12.2%, primarily because of the full year of operations of the
three aircraft added in 1994 to initiate Omaha service. Load factor
increased from 60.8% in 1994 to 64.1% in 1995, and revenue yield increased
from 16.7 cents in 1994 to 17.8 cents in 1995. The improvements in load
factor and revenue yield were attributable to a reduction in competition
in several markets and improved industry conditions, most importantly, the
discontinuation of Continental Airlines ''Lite'' product.
Skyway passenger revenue increased in 1995 by $12.3 million, or 59.0%, to
$33.1 million. This operation began as a wholly owned subsidiary in
February 1994 and had an average of 9.8 aircraft in service during 1994.
In 1995, Skyway had an average of 14.3 aircraft in service, including two
aircraft acquired in the second quarter 1995. Skyway carried 43.3% more
passengers in 1995 and achieved a 3.4% increase in revenue yield. Load
factor increased from 41.7% in 1994 to 42.5% in 1995.
Mail and cargo revenue increased $1.6 million in 1995, or 17.6%. Of this
increase, $1.2 million was due to the Omaha operation.
Revenue from other services decreased $.7 million, or 6.1%, in 1995.
Other revenue activities include charter sales, airport handling and
contract maintenance sales to other airlines, transportation service
charges, Frequent Flyer programs and other items. Revenue decreased in
1995 because a corporate shuttle program, which generated $1.4 million in
1994, was discontinued in September 1994. In addition, charter sales
decreased due to the temporary discontinuation of a dedicated charter
aircraft in 1995, and ground handling services revenue decreased due to
the loss of a customer who suspended flight operations. Additional revenue
was realized from an increase in contract maintenance services, Frequent
Flyer programs, ticket exchange administrative fees and the Midwest
Express co-branded credit card program that was initiated in October 1995.
Operating Expenses
1995 operating expenses increased $35.5 million, or 18.4%, from 1994. Of
this increase, $22.8 million was due to 1995 being the first full year of
Skyway and Omaha operations. In addition, the higher costs were due to
increased passenger volumes from Midwest Express' Milwaukee operation. On
a cost per total ASM basis, Midwest Express operating expenses increased
2.1% to 11.00 cents in 1995 from 10.77 cents in 1994. Costs per total
ASM at Skyway increased 8.4% to 19.38 cents from 17.87 cents. The main
reason for the cost increase at Skyway was that aircraft were owned in
1994 prior to a sale/leaseback transaction in June 1994. Accordingly,
Skyway did not incur any rental costs on its aircraft during the first
half of 1994.
Salaries, wages and benefits increased $9.6 million, or 18.1%, from 1994.
On a cost per total ASM basis, these costs increased from 3.07 cents in
1994 to 3.18 cents in 1995, or 3.6%. Increases in salary and wage
rates accounted for $2.6 million of the change in the Company's labor
costs. Benefit costs increased by $2.4 million at the Company in 1995,
and were 25.5% of salaries and wages in 1995 and 24.5% in 1994. The
remainder of the change in labor costs was due to an increase in the
number of employees required due to increased passenger volume and
adminstrative requirements.
Aircraft fuel and oil and associated taxes and fueling charges increased
$4.5 million, or 14.7%, from 1994. Fuel consumption increased by 14.1%
because Midwest Express operated 12.8% more flight segments in 1995 over
1994 and Skyway operated 34.8% more flight segments. Into-plane fuel
prices increased .6% in 1995, averaging 62.0 cents per gallon in 1994
and 62.4 cents per gallon in 1995.
Commissions increased by $6.0 million, or 31.5%, because of increased
passenger revenue. Of this increase, $4.4 million related to increased
travel agency commissions and $1.6 million to increased credit card fees.
Commissions as a percentage of passenger revenue increased from 10.3% in
1994 to 10.4% in 1995.
Dining services costs increased $1.7 million, or 12.5%, due to increased
Midwest Express passenger volume. Total dining services costs (food,
beverages, linen, catering equipment and supplies) per Midwest Express
revenue passenger decreased from $12.15 in 1994 to $11.45 in 1995. This
decrease was partly due to increased passenger load factors, which reduced
the fixed component cost per passenger of dining services costs, and
increased passenger volume on lower-cost snack flights.
Station rental, landing and other fees increased by $2.5 million, or 15.0%
in 1995. Airport costs at Midwest Express increased $1.6 million, a
result of approximately $.4 million of higher costs at the new Denver
airport, $.4 million at the Toronto station where Midwest Express began
jet service in May 1995, and $.4 million at the Omaha station, which was
operated during all of 1995 and only eight months in 1994. At Skyway,
these costs increased $.9 million due to a 34.8% increase in flight
segments in 1995.
Aircraft maintenance materials and repairs increased by $3.4 million, or
24.5%, from 1994. Midwest Express maintenance costs increased by $2.5
million, or 21.5%, and Skyway maintenance costs increased $.9 million, or
41.7%. The increased costs were primarily the result of the increases in
aircraft operated and flight segments; Midwest Express had 12.8% more
scheduled service flights in 1995 and Skyway had 34.8% more flights. In
addition, Midwest Express increased certain accrual rates for future major
engine overhauls and incurred higher non-routine engine maintenance costs
in 1995. On a cost per total ASM basis, maintenance materials and repairs
increased 10.0%, from .80 cents in 1994 to .88 cents in 1995.
Depreciation and amortization increased by $.6 million in 1995, primarily
the result of the depreciation associated with aircraft hush kits
installed in 1994 and a full year's depreciation on the assets acquired in
1994 to support the start-up of the Omaha and Skyway operations.
Aircraft rental costs increased $1.8 million, or 13.9%, in 1995. Skyway
aircraft lease costs increased $3.0 million because of two additional
aircraft acquired in 1995 and the use of the other 13 aircraft for the
entire year. Skyway had an average of 9.8 aircraft in service in 1994
versus 14.3 in 1995. In addition, a sales/leaseback transaction was
executed in June 1994 following the phased-in acquisition of the first 12
Beechcraft aircraft. Accordingly, Skyway did not incur any rental costs
on its aircraft during the first half of 1994. Midwest Express' aircraft
rental costs decreased by $1.2 million in 1995 due to a reduction in the
lease cost for two MD-88 aircraft, which became effective in March 1995,
and a non-recurring cost in 1994 of $.9 million associated with leasing
turboprop aircraft to temporarily support the Skyway operation. These
cost reductions were partially offset by a full year of rental expense in
1995 for the three aircraft placed in service in the second quarter 1994
for the Omaha operation.
Other operating expenses increased by $5.3 million, or 20.9%, from 1994.
Other operating expenses consist primarily of advertising and promotion,
property and liability insurance, property taxes, reservation fees,
administration and other items. Reservation booking fees increased $.8
million in 1995 due to higher passenger volumes and booking fee rates;
insurance costs increased $.7 million due to the increased number of
aircraft and passengers and higher insurance rates; property taxes
increased $.6 million primarily due to the increase in the number of
Skyway aircraft; advertising costs increased $.5 million due to an
emphasis on increasing product awareness in Omaha; and telecommunications
costs increased $.3 million due to higher passenger volumes and
reservations. Other operating expenses on a cost per total ASM basis
increased 5.5% from 1.46 cents in 1994 to 1.54 cents in 1995.
Interest Income/Interest Expense
The net increase in interest income and expense of $2.1 million relates to
an intercompany cash management program the Company had with Kimberly-
Clark prior to the Offering. Market interest rates were earned on the
amount of cash the Company had advanced to Kimberly-Clark. Subsequent to
the Offering, the Company earned $.2 million in interest income and had no
interest expense.
Other Income and Expense
Two non-recurring items were incurred in the third quarter 1995: an
employee stock grant that cost $.9 million and costs associated with the
Offering, including legal fees, external audit fees and document printing
costs that totalled $.6 million.
Provision for Income Taxes
The provision for income taxes increased $8.2 million in 1995. The
effective tax rates in 1995 and 1994 were 39.3% and 38.5%, respectively.
The higher tax rate in 1995 was generally attributable to costs of the
Offering that are not deductible for income tax purposes.
Net Income
Net income increased by $12.5 million in 1995, or 187.1%. The net income
margin increased to 7.4% in 1995, versus 3.3% in 1994.
[page 23]
Liquidity and Capital Resources
The Company's cash and cash equivalents totalled $27.6 million at December
31, 1996, compared to $14.6 million at December 31, 1995. Net cash
provided by operating activities totalled $45.0 million during 1996. Net
cash used in investing activities totalled $112.5 million, primarily due
to aircraft acquisitions and related modifications in 1996 of $86.8
million that were financed by or intended to be financed by sale and
leaseback transactions and due to capital expenditures of $25.6 million.
Net cash provided by financing activities totalled $80.4 million,
primarily due to proceeds from sale and leaseback transactions of $83.9
million offset by the purchase of treasury stock totalling $2.8 million.
The Company had a working capital deficit of $5.8 million as of December
31, 1996, versus a $9.8 million deficit on December 31, 1995. The working
capital deficit is due to the Company's air traffic liability (advance
bookings, whereby passengers have purchased tickets for future flights),
accrued scheduled maintenance expense and accrued lease payments. Because
of these items, the Company expects to operate periodically with a working
capital deficit, which is not unusual for the industry.
The Company has no debt, other than its lease commitments. As of December
31, 1996, the Company's two credit facilities, a $35.0 million revolving
bank credit facility and a $20.0 million secondary revolving credit
facility with Kimberly-Clark, have not been used, except for letters of
credit totalling approximately $7.7 million that reduce the amount of
available credit. The letters of credit are used to secure certain
reserve amounts for stipulated airframe and engine maintenance performed
on Midwest Express' MD-88 and for various other purposes. The Company is
in the process of increasing its revolving bank credit facility by $20.0
million.
The Company expects to incur capital expenditures of approximately $13.2
million in 1997. The majority of the spending, $9.5 million, relates to
aircraft maintenance projects and includes several capitalized airframe
and engine overhauls, interior aircraft noise reduction kits and DC-9
capitalized spare parts. The Company also anticipates capital
expenditures in 1997 for ground equipment and airport modifications to
support planned growth, and computer equipment to automate and improve
processes throughout the organization. Future aircraft acquisition costs,
including noise hush kits and aircraft refurbishment, are not included in
the $13.2 million capital spending forecast for 1997, because it is
expected that these costs will be financed by operating leases.
Aircraft acquisitions and modifications financed by or intended to be
financed by sale and leaseback transactions totalled $86.8 million during
1996. During 1996, the Company secured operating lease financing on the
acquisition and related modifications of five DC-9-30 aircraft and
refinanced 15 19-seat aircraft under sale and leaseback transactions
totalling $83.9 million. During 1997, the Company intends to finalize
sale and leaseback transactions on two DC-9-30 aircraft acquired during
1996, in which case the Company will be reimbursed for approximately $9.0
million of related aircraft acquisition and modification costs incurred
during 1996.
Leases relating to three Midwest Express jet aircraft are guaranteed by
Kimberly-Clark. The Company pays Kimberly-Clark a guarantee fee equal to
1.25% annually of the outstanding lease commitments. Kimberly-Clark will
continue to guarantee the leases for the three jet aircraft until the
expiration of their initial lease terms. None of these jet aircraft
leases expires before 2001. Aircraft lease guarantee fees in 1997 will be
approximately $.1 million.
In December 1995, the Company announced a $5.0 million share repurchase
program to be executed from time to time in the open market or in
privately-negotiated transactions. During 1996, the Company repurchased
103,700 shares at a cost of $2.8 million.
The Company believes that existing cash and cash equivalents, cash flow
from operations, funds available from credit facilities and available
long-term financing for the acquisition of jet and turboprop aircraft will
be adequate to meet its current and anticipated working capital and
capital expenditures.
Pending Developments
New Aircraft - Four DC-9 aircraft acquired during 1996 will be placed
into service during 1997 after maintenance inspection and modification,
hush kit installation and complete interior refurbishment The first
aircraft will be used to initiate service between Milwaukee and Orlando on
March 10, 1997. The Company has not announced how it will utilize the
other aircraft. Midwest Express entered into operating leases on two of
the four aircraft in December 1996, and is currently evaluating financing
alternatives on the remaining two aircraft.
Labor Relations - In July 1995, Skyway pilots elected the Air Line Pilots
Association ("ALPA") as the labor union representing them for collective
bargaining purposes. Currently, the Company and ALPA have commenced
negotiations and are in the process of mediation by the National Mediation
Board.
Air Safety Commission - During 1996, the White House Commission on
Aviation Safety and Security ("Commission") was formed to recommend
aviation safety measures for the airline industry. The Commission has
issued a summary of draft recommendations that include more detailed
inspections of aging aircraft, new airline fees for upgrading air traffic
control and several security-related items. The Company believes these
recommendations, once instituted, will result in increased operating
costs, the effect of which can not be estimated at this time.
Sales Taxes - During 1996, the Wisconsin Department of Revenue asserted
that Wisconsin sales taxes should be paid in connection with Midwest
Express' purchase of meals from its food caterer. While Midwest Express
does not believe any such sales tax is payable, if the Department of
Revenue successfully asserts its position, then Midwest Express would be
liable for back taxes and associated interest in the amount of
approximately $.6 million, and Midwest Express would have to pay
approximately $.3 million in additional sales taxes annually in the
future.
Excise tax - On January 1, 1997, the 10% excise tax on passenger travel
expired. This tax will likely be reinstated some time in 1997. This same
excise tax was temporarily suspended from January to August 1996. The
Company is unable to estimate the impact that the suspended 10% excise tax
will have on industry fares or passenger travel demand.
<PAGE>
[page 24]
REPORT OF MANAGEMENT
To the Shareholders of Midwest Express Holdings, Inc.:
The management of Midwest Express Holdings, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial
statements and other information contained in this annual report. The
financial statements were prepared using generally accepted accounting
principles, applied on a consistent basis. The statements have been
audited by Deloitte & Touche LLP, independent auditors, whose report
appears on the next page.
The Company maintains a system of internal controls that is supported by
written policies and procedures and is monitored by management and the
internal audit function. Although all internal control systems have
inherent limitations, including the possibility of circumvention and
overriding controls, management believes the Company's internal control
system provides reasonable assurance as to the integrity and reliability
of the financial statements and that its assets are safeguarded against
unauthorized acquisition, use or disposition. Appropriate actions are
taken by management to correct deficiencies as they are identified.
The Audit Committee of the Board of Directors is composed entirely of
outside directors. The Committee meets periodically with the Company's
management and internal audit function and with its independent auditors
to review auditing, internal control and financial reporting matters.
Based on its assessment of internal control as of December 31, 1996,
management believes its system of internal control over the preparation of
financial statements and the safeguarding of assets is effective.
/s/ Timothy E. Hoeksema
Timothy E. Hoeksema
Chairman of the Board, President and Chief Executive Officer
/s/ Robert S. Bahlman
Robert S. Bahlman
Vice President, Chief Financial Officer and Treasurer
<PAGE>
[page 25]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Midwest Express Holdings,
Inc.:
We have audited the accompanying consolidated balance sheets of Midwest
Express Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Midwest Express
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 31, 1997
<PAGE>
[pages 26-35]
CONSOLIDATED STATEMENTS OF INCOME
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
Operating revenues:
Passenger service . . . . . 276,792 $238,422 $183,747
Cargo . . . . . . . . . . . 11,316 10,440 8,880
Other . . . . . . . . . . .
16,638 10,293 10,965
-------- -------- --------
Total operating revenues 304,746 259,155 203,592
-------- -------- --------
Operating expenses:
Salaries, wages and
benefits . . . . . . . . 78,015 62,964 53,319
Aircraft fuel and oil . . . 47,274 35,212 30,692
Commissions . . . . . . . . 28,310 24,878 18,923
Dining services . . . . . . 15,078 14,882 13,231
Station rental, landing
and other fees . . . . . 21,652 19,451 16,904
Aircraft maintenance
materials and repairs . . 21,316 17,356 13,945
Depreciation and
amortization . . . . . . 7,663 7,515 6,900
Aircraft rentals . . . . . 16,054 14,954 13,131
Other . . . . . . . . . . . 35,025 30,569 25,283
-------- -------- --------
Total operating
expenses . . . . . . . 270,387 227,781 192,328
-------- -------- --------
Operating income . . . . . 34,359 31,374 11,264
-------- -------- --------
Other income (expense):
Interest income . . . . . . 1,084 1,695 195
Interest expense . . . . . - (36) (631)
Other income (expense),
net. . . . . . . . . . . (211) (1,507) 10
-------- -------- ---------
Total other income
(expense) . . . . . . . 873 152 (426)
-------- -------- ---------
Income before income taxes . 35,232 31,526 10,838
Provision for income taxes. . 13,482 12,397 4,176
-------- -------- ---------
Net income . . . . . . . . . $ 21,750 $ 19,129 $ 6,662
======== ======== =========
Net income per share . . . . $ 3.40 $ 2.77(1) $ 0.75(1)
======== ======== =========
(1) Pro forma
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
MIDWEST EXPRESS HOLDINGS, INC.
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1996 1995
ASSETS
Current assets:
Cash and cash equivalents . . . . . . $27,589 $14,626
Accounts receivable:
Traffic, less allowance for
doubtful accounts of $207
in 1996 and $307 in 1995 . . . . 4,639 5,229
Other receivables . . . . . . . . . 592 485
------- -------
Total accounts receivable . . . . 5,231 5,714
Inventories . . . . . . . . . . . . . 3,122 2,726
Prepaid expenses:
Commissions . . . . . . . . . . . . 1,364 1,996
Other . . . . . . . . . . . . . . . 2,883 1,536
------- -------
Total prepaid expenses . . . . . 4,247 3,532
Aircraft and modifications
intended to be financed by
sale and leaseback transactions . . 9,046 1,235
Deferred income taxes . . . . . . . . 3,334 3,253
------- -------
Total current assets . . . . . . 52,569 31,086
------- -------
Property and equipment, net . . . . . . 70,903 55,919
Landing slots and leasehold rights,
less accumulated amortization of
$1,522 in 1996 and $1,194 in 1995 . . 5,228 5,556
Other assets . . . . . . . . . . . . . 435 272
------- -------
Total assets . . . . . . . . . . . . . $129,135 $92,833
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . $ 3,684 $ 3,687
Income taxes payable . . . . . . . . - 1,381
Air traffic liability . . . . . . . . 22,043 17,250
Accrued liabilities:
Scheduled maintenance expense . . . 5,961 4,253
Accrued profit sharing plans . . . . 5,345 134
Vacation pay . . . . . . . . . . . . 2,957 2,628
Frequent Flyer awards . . . . . . . . 2,869 2,064
Other . . . . . . . . . . . . . . . . 15,504 9,530
------- -------
Total current liabilities . . . . 58,363 40,927
======= =======
Deferred income taxes . . . . . . . . . 9,894 13,731
Noncurrent scheduled maintenance
expense . . . . . . . . . . . . . . . 7,771 10,483
Accrued pension and other
postretirement benefits . . . . . . . 6,138 3,748
Other noncurrent liabilities . . . . . 6,628 2,680
------- -------
Total liabilities . . . . . . . . . . . 88,794 71,569
======= =======
Shareholders' equity:
Preferred stock, without par value,
5,000,000 shares authorized,
no shares issued or outstanding . . - -
Common stock, $.01 par value,
25,000,000 shares authorized,
6,428,571 shares issued . . . . . . 64 64
Additional paid-in capital . . . . . 9,545 9,546
Treasury stock, 99,039 shares
at cost . . . . . . . . . . . . . . (2,672) -
Retained earnings . . . . . . . . . . 33,404 11,654
------- -------
Total shareholders' equity . . . 40,341 21,264
------- -------
Total liabilities and
shareholders' equity . . . . . . $129,135 $92,833
======= =======
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
Operating activities:
Net income . . . . . . . . . . $ 21,750 $ 19,129 $ 6,662
Items not involving the
use of cash:
Depreciation and
amortization . . . . . . 7,663 7,515 6,900
Deferred income taxes . . . (3,918) 2,177 1,116
Other . . . . . . . . . . . 3,245 2,212 2,195
Changes in operating assets
and liabilities:
Accounts receivable . . . . 483 1,427 1,016
Inventories . . . . . . . . (396) (633) 465
Prepaid expenses . . . . . (715) (428) (81)
Accounts payable . . . . . (3) (1,285) 598
Income taxes payable . . . (1,381) (1,679) (1,338)
Accrued liabilities . . . . 13,520 4,144 3,135
Air traffic liability . . . 4,793 3,433 1,155
-------- -------- --------
Net cash provided by
operating activities . . . . 45,041 36,012 21,823
-------- -------- --------
Investing activities:
Capital expenditures . . . . . (25,607) (7,980) (9,862)
Aircraft acquisitions and
modifications financed
by or intended to be
financed by sale and
leaseback transactions . . . (86,771) (16,558) (64,828)
Proceeds from sale of
property and equipment . . . 22 327 49
Other . . . . . . . . . . . . . (151) (284) (2,122)
-------- -------- --------
Net cash used in investing
activities . . . . . . . . . (112,507) (24,495) (76,763)
-------- -------- --------
Financing activities:
Proceeds from sale and
leaseback transactions . . . 83,895 15,323 66,109
Purchase of treasury
stock . . . . . . . . . . . (2,790) - -
Net decrease (increase)
in advances to Kimberly-
Clark . . . . . . . . . . . . - 19,988 (14,736)
Dividends to Kimberly-
Clark . . . . . . . . . . . . - (35,705) -
Other . . . . . . . . . . . . . (676) 3,503 3,567
--------- --------- ---------
Net cash provided by
(used in) financing
activities . . . . . . . . . 80,429 3,109 (54,940)
--------- --------- ---------
Net increase in cash and
cash equivalents . . . . . . . 12,963 14,626 -
Cash and cash equivalents,
beginning of year . . . . . . . 14,626 - -
--------- --------- --------
Cash and cash equivalents,
end of year . . . . . . . . . . $ 27,589 $ 14,626 $ -
========= ========= ========
Supplemental cash flow
information:
Cash paid for:
Income taxes - net
of refunds . . . . . . . $19,776* $ 11,899 $ 4,191
Supplemental schedule of
non-cash financing
activities:
Transfer of assets and
liabilities from
Kimberly-Clark:
Accrued pension and
other postretirement
benefits . . . . . . . . $ - $ 3,597 $ -
Deferred income taxes . . . - (1,471) -
-------- -------- --------
Increase in advances to
Kimberly-Clark-net . . . $ - $ 2,126 $ -
======== ======== ========
* Included in 1996 taxes paid is $9,243 paid to Kimberly-Clark in accordance
with the Tax Agreement.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<CAPTION>
Common Stock Additional Total
$.01 par No par Paid-in Treasury Retained Shareholders'
value value Capital Stock Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 . . . $ - $ 9,610 $ - $ - $ 21,568 $ 31,178
Net income . . . . . . . . . . - - - - 6,662 6,662
------- -------- --------- --------- --------- ---------
Balances at December 31, 1994 . . - 9,610 - - 28,230 37,840
Net income . . . . . . . . . . - - - - 19,129 19,129
Dividends to Kimberly-Clark . - - - - (35,705) (35,705)
Issuance and transfer of
common stock . . . . . . . . 64 (9,610) 9,546 - - -
Balances at December 31, 1995 . . 64 - 9,546 - 11,654 21,264
Net income . . . . . . . . . . - - - - 21,750 21,750
Purchase of 103,700 shares
of treasury stock . . . . . - - - (2,790) - (2,790)
Issuance of treasury stock
upon exercise of stock
options and related tax
benefit . . . . . . . . . . - - (5) 107 - 102
Other . . . . . . . . . . . . - - 4 11 - 15
------ ------- ------- --------- --------- --------
Balances at December 31, 1996 . $64 $- $ 9,545 $ (2,672) $ 33,404 $ 40,341
====== ======= ======= ========= ========= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MIDWEST EXPRESS HOLDINGS, INC.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Note 1. Business and Basis of Presentation
Organization
The accompanying Consolidated Financial Statements reflect the operations
of the following (collectively, the ''Company''): (a) for periods prior to
September 27, 1995, Midwest Express Airlines, Inc. (''Midwest Express''),
a subsidiary of Kimberly-Clark Corporation (''Kimberly-Clark''), and (b)
for the period on and after September 27, 1995, Midwest Express Holdings,
Inc.
On September 27, 1995, Kimberly-Clark and the Company entered into a Stock
Agreement providing for the transfer by Kimberly-Clark to the Company of
all the outstanding capital stock of Midwest Express in exchange for
6,428,571 shares of the Company's $.01 par value common stock.
On September 27, 1995, Kimberly-Clark completed, in an initial public
offering (''Offering''), the sale of 5,140,000 shares of such common stock
at a price of $18 per share. Following the Offering, Kimberly-Clark
retained 1,288,571 shares of the outstanding common stock of the Company,
which were subsequently sold in a secondary public offering consummated on
May 23, 1996. The Company did not receive any proceeds from either of the
offerings.
Basis of Presentation
The Consolidated Financial Statements include the accounts of Midwest
Express and its wholly owned subsidiary, Astral Aviation, Inc.
(''Astral''), which does business as Skyway Airlines. All significant
intercompany balances and transactions have been eliminated.
For all periods prior to September 27, 1995, the accompanying Consolidated
Financial Statements include the revenues and expenses directly related to
the Company's operations under Kimberly-Clark. Certain corporate, general
and administrative expenses of Kimberly-Clark and certain affiliates were
allocated to the Company on a basis which, in the opinion of management,
was reasonable (see Note 10). The financial information for the periods
prior to September 27, 1995, included herein may not necessarily be
indicative of the results of operations and cash flows had the Company
operated as a separate, stand-alone company during the entirety of the
periods presented.
Nature of Operations
Midwest Express is a U.S. air carrier providing scheduled passenger
service from Milwaukee to 24 cities as of December 31, 1996, as well as
charter, aircraft maintenance, air freight and other airline services.
Midwest Express established Omaha, Nebraska as its first base of
operations outside of Milwaukee in May 1994. Midwest Express provides
service between Omaha and six destinations. Astral provides regional
scheduled passenger service to cities primarily in the upper midwest.
Note 2. Accounting Policies
The accounting policies of the Company conform to generally accepted
accounting principles and to accounting practices generally followed in
the airline industry. Significant policies followed are described below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents. They are
carried at cost, which approximates market.
Inventories
Inventories consist primarily of expendable parts, supplies and fuel
stated at the lower of cost on the first-in, first-out (FIFO) method or
market and are expensed when used in operations.
Property and Equipment
Property and equipment is stated at cost and is depreciated on the
straight-line method applied to each unit of property for financial
reporting purposes and by use of accelerated methods for income tax
purposes. Aircraft are depreciated to estimated residual values, and any
gain or loss on disposal is reflected in income. The depreciable book
lives for the principal asset categories are as follows:
Asset Category Depreciable Life
---------------- ----------------
Flight equipment 10 years
Other equipment 5 to 8 years
Office furniture and equipment 5 to 20 years
Buildings 40 years
Building improvements Lesser of 20 years or remaining
life of building
Other Assets
Airport take-off and landing slots have an unlimited life, have
historically appreciated in value and are occasionally traded or sold
among airlines. The cost of airport slots is amortized on the straight-
line method over 20 years, consistent with industry practice. The cost of
airport leasehold rights is amortized on the straight-line method over the
term of the lease.
Revenue Recognition
Passenger and cargo revenues are recognized in the period when the service
is provided. Contract maintenance revenue is recognized when work is
completed and invoiced. The estimated liability for sold, but unused,
tickets is included in current liabilities as air traffic liability.
Maintenance and Repair Costs
Routine maintenance and repair costs for owned and leased aircraft are
charged to expense when incurred, except for major airframe and engine
maintenance. Depending on the particular aircraft, these latter costs are
either (1) accrued to expense on the basis of estimated future costs and
the estimated number of hours to be flown or the number of future take-
offs and landings or (2) capitalized when incurred and amortized on the
basis of estimated hours to be flown or the number of future take-offs and
landings over the period of time between overhauls. The actual
maintenance and repair costs to be incurred could differ from the
Company's estimates.
Frequent Flyer Program
The estimated incremental cost of providing future transportation in
conjunction with the Company's Frequent Flyer program is accrued based on
estimated redemption percentages applied to actual mileage recorded in
members' accounts. The ultimate cost, however, will depend on the actual
redemption of Frequent Flyer miles and may be greater than amounts accrued
at December 31, 1996.
Postretirement Health Care and Life Insurance Benefits
The costs of health care and life insurance benefit plans for retired
employees are accrued over the working lives of employees in accordance
with Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires that deferred income
taxes be determined under the asset and liability method. Deferred income
taxes have been recognized for the future tax consequences of temporary
differences by applying enacted statutory tax rates applicable to
differences between the financial reporting and the tax bases of assets
and liabilities.
Prior to the Offering, the Company was a member of the Kimberly-Clark
consolidated group and, as such, filed a consolidated federal income tax
return with Kimberly-Clark and its U.S. subsidiaries. The Company also
filed consolidated state tax returns with Kimberly-Clark and certain of
its subsidiaries, as well as separately in various states. Income tax
expense and deferred income tax assets and liabilities are reflected in
the Company's financial statements in accordance with SFAS No. 109.
Leases
Rental obligations under operating leases for aircraft, facilities and
equipment are charged to expense on the straight-line method over the term
of the lease.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the year. Future results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made in prior years' financial
statements to conform to the current year presentation.
Note 3. Pro Forma Condensed Income Statements
The following unaudited pro forma condensed income statements for the
years ended December 31, 1995 and 1994 give effect to estimated changes in
the Company's historical costs assuming the Offering had occurred at the
beginning of each year. The pro forma adjustments to reflect these
changes in costs include a lease guarantee fee charged by Kimberly-Clark
to continue to guarantee certain aircraft leases, estimated incremental
administrative and management expense to reflect costs of obtaining, on an
arm's length basis as an independent company, certain services that
Kimberly-Clark had provided in the past, increased costs due to a new
management structure, costs associated with being a publicly-owned
entity, and net changes in interest income and expense to reflect the
Company's financial position subsequent to the Offering. Pro forma net
income per common share was computed based on an assumed weighted average
6,428,571 shares of common stock outstanding.
Management believes the assumptions used in preparing the pro forma
adjustments provide a reasonable basis on which to present the pro forma
condensed income statements. These pro forma condensed income statements
are provided for informational purposes only, should not be construed to
be indicative of the Company's results of operations had the Offering been
consummated on the dates assumed, and are not intended to project the
Company's results of operations for any future periods (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1995 1994
Pro Forma Pro Forma
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Operating revenues . . . . . $259,155 $ - $259,155 $203,592 $ - $203,592
Operating expenses . . . . . 227,781 2,152 229,933 192,328 3,951 196,279
------- ------- ------- ------- ------- -------
Operating income . . . . . . 31,374 (2,152) 29,222 11,264 (3,951) 7,313
Interest income (expense),
net . . . . . . . . . . . . 1,659 (67) 1,592 (436) 839 403
Other (expense) income . . . (1,507) - (1507) 10 - 10
------- ------- ------- ------- ------- -------
Income before income taxes . 31,526 (2,219) 29,307 10,838 (3,112) 7,726
Provision for income taxes . 12,397 (865) 11,532 4,176 (1,245) 2,931
------- ------- ------- ------- ------- -------
Net income . . . . . . . . . $ 19,129 $ (1,354) $ 17,775 $ 6,662 $ (1,867) $ 4,795
======= ======= ======== ======= ======== ========
Net income per common
share . . . . . . . . . . . $ 2.77 $ 0.75
======= =======
</TABLE>
<PAGE>
Note 4. Property and Equipment
As of December 31, 1996 and 1995, property and equipment consisted of the
following (in thousands):
1996 1995
Flight equipment . . . . . . . . . . $ 105,180 $ 88,318
Other equipment . . . . . . . . . . . 7,410 6,828
Buildings and improvements . . . . . 7,758 7,491
Office furniture and equipment . . . 5,289 4,164
Construction in progress . . . . . . 5,155 1,029
-------- --------
130,792 107,830
Less accumulated depreciation . . . . (59,889) (51,911)
-------- --------
Property and equipment, net . . . . . $ 70,903 $ 55,919
======== ========
Note 5. Leases
The Company leases aircraft, terminal space, office space and warehouse
space. Future minimum lease payments required under operating leases
having initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1996 were as follows (in thousands):
Year ended December 31, Amount
1997 . . . . . . . . . . . . . . . . $20,690
1998 . . . . . . . . . . . . . . . . 17,252
1999 . . . . . . . . . . . . . . . . 16,230
2000 . . . . . . . . . . . . . . . . 16,378
2001 . . . . . . . . . . . . . . . . 13,663
2002 and thereafter . . . . . . . . . 74,981
--------
159,194
========
As of December 31, 1996, the Company had eight of its jet aircraft in
service under operating leases, three of which have been guaranteed by
Kimberly-Clark. These leases have expiration dates ranging from 1998
through 2006 and can generally be renewed at rates, based on fair market
value at the end of the lease term, for one to three years. Five of the
leases include purchase options at or near the end of the lease term at
fair market value, but generally not in excess of the defined lessor's
cost of the aircraft.
During 1996, the Company refinanced its turboprop fleet under operating
leases with initial lease terms of five to 12 years, and expiration dates
ranging from 2001 through 2008. These leases permit renewal for various
periods at rates approximating fair market value and purchase options, at
or near the end of the lease term at fair market value.
Rent expense for all operating leases, excluding landing fees, was
$24,356,000, $21,884,000 and $19,573,000 for 1996, 1995 and 1994,
respectively.
The above lease commitment schedule includes a lease for the Company's
corporate headquarters, which is owned by a limited partnership. The
Boldt Group, Inc. controls Boldt Development Corporation, a member of the
limited liability company that is the general partner to this limited
partnership. A member of the Company's Board of Directors is the Chairman
of the Board of The Boldt Group, Inc. The annual rent for the lease,
which expires in 2010, is $557,000 through March 2000, $625,000 through
March 2005, and $704,000 through March 2010. The lease requires the
Company to pay all expenses related to the building.
Note 6. Financing Agreements
At December 31, 1996, the Company had available two credit facilities, (1)
a $55,000,000 revolving credit facility with three banks and (2) a
$20,000,000 secondary revolving credit facility with Kimberly-Clark.
Borrowings under the Kimberly-Clark facility must be repaid prior to
repayments on the bank credit facility. The bank credit facility requires
an annual commitment fee of 12.5 basis points of the average unused
commitment with interest payable on the outstanding principal balance at
LIBOR plus 50 basis points. The Kimberly-Clark facility does not require
a commitment fee, and interest will be at a rate equal to the then current
rate of interest under the bank credit facility plus 100 basis points.
There were no outstanding borrowings under these agreements at December
31, 1996, except for letters of credit totalling approximately $7,700,000
that reduce the amount of available credit.
Note 7. Retirement and Benefit Plans
Defined Benefit Plans
Midwest Express has two defined benefit pension plans covering
substantially all of its employees. The benefits for these plans are
based primarily on years of service and employee compensation. It is
Midwest Express' policy to annually fund at least the minimum contribution
as required by the Employee Retirement Income Security Act of 1974.
The following table sets forth the funded status of the plans at December
31 (in thousands):
<TABLE>
<CAPTION>
Midwest Express Supplemental
Pension Plan Pension Plan
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Benefit obligation
Vested . . . . . . . . . . . . . . . . $ 6,243 $ 5,172 $ 204 $ 260
Nonvested . . . . . . . . . . . . . . . 1,119 561 - -
------- ------- ------- -------
Accumulated benefit obligation . . . . . $ 7,362 $ 5,733 $ 204 $ 260
======= ======= ======= =======
Projected benefit obligation . . . . . . $ 11,881 $ 10,652 $ 511 $ 495
Plan assets at fair value . . . . . . . . 7,449 5,775 - -
------- ------- ------- -------
Projected benefit obligation
less plan assets . . . . . . . . . . . 4,432 4,877 511 495
Unrecognized transition asset . . . . . . (131) (154) (23) (27)
Unrecognized net prior service cost . . . 33 35 (60) (64)
Unrecognized net loss . . . . . . . . . . (516) (2,538) (179) (232)
Adjustment required to recognize
minimum liability . . . . . . . . . . . - - - 88
------- ------- ------- -------
Accrued pension cost . . . . . . . . . . $ 3,818 $ 2,220 $ 249 $ 260
======= ======= ======= =======
</TABLE>
<PAGE>
The weighted average discount rate used to determine the projected benefit
obligation was 7.75% and 7.25% as of December 31, 1996 and 1995,
respectively. The calculation also assumed a 4.25% weighted average rate
of increase for future compensation levels for 1996 and 1995. The
expected long-term rate of return on plan assets used in 1996 and 1995 was
10%. The unrecognized net loss is amortized on a straight-line basis over
the average remaining service period of employees expected to receive a
plan benefit.
The net periodic pension cost of defined benefit pension plans since the
Offering included the following (in thousands):
Midwest Express Supplemental
Pension Plan Pension Plan
1996 1995 1996 1995
Service cost (benefits
earned during the
period) . . . . . . . . . . $ 1,488 $ 345 $ 19 $ 4
Interest cost on projected
benefit obligations . . . . 915 216 389 9
Actual return on plan
assets . . . . . . . . . . (1,424) (130) - -
Net amortization and
deferral . . . . . . . . . 868 28 21 5
------- ------- -------- -------
Net periodic pension
cost . . . . . . . . . . . $ 1,847 $ 459 $ 78 $ 18
======= ======= ======== =======
Prior to the Offering, substantially all Midwest Express employees
participated in the defined benefit pension plans of Kimberly-Clark. The
liabilities related to the Kimberly-Clark benefit plans were carried on
the books of Kimberly-Clark and were not allocated separately to
subsidiaries. The portion of pension costs attributable to these
employees and reflected as expense in the accompanying financial
statements was $953,000 and $918,000 in 1995 and 1994, respectively.
Postretirement Health Care and Life Insurance Benefits
Midwest Express allows retirees to participate in unfunded health care and
life insurance benefit plans. Benefits are based on years of service and
age at retirement. The plans are principally noncontributory for current
retirees, and are contributory for most future retirees.
The following table sets forth the status of the plans at December 31 (in
thousands):
1996 1995
Accumulated postretirement
benefit obligation (APBO) . . . $1,195 $1,051
Unrecognized net gain . . . . . . 350 231
------- -------
Accrued postretirement benefit
cost . . . . . . . . . . . . . $1,545 $1,282
======= =======
Midwest Express' APBO is unfunded. Net postretirement benefit cost since
the Offering includes the following components (in thousands):
1996 1995
Service cost (benefits attributed
to service during the period) . $ 180 $ 43
Interest on APBO . . . . . . . . 89 23
Net amortization and deferral . . (6) (1)
------- -------
Net postretirement benefit cost . $ 263 $ 65
======= =======
The assumed health care cost trend rate was approximately 10% declining
annually to a rate of 6% by the year 2004, and remaining level thereafter.
Increasing the rate by one percentage point would increase the APBO as of
December 31, 1996 by $46,000 and the net postretirement benefit cost for
1996 by $11,000. The weighted-average discount rates used in determining
the APBO for 1996 and 1995 were 7.75% and 7.25%, respectively.
Prior to the Offering, substantially all retired employees of Midwest
Express participated in unfunded health care and life insurance benefit
plans of Kimberly-Clark. The portion of postretirement health care and
life insurance benefits costs attributable to Midwest Express' employees
and reflected in the accompanying income statements was $200,000 and
$239,000 in 1995 and 1994, respectively.
Defined Contribution Plans
The Company has two voluntary defined contribution investment plans
covering substantially all employees. Under these plans, the Company
matches a portion of employee contributions. During 1995, the Company
made a one-time contribution of 55,500 shares of its common stock to the
Midwest Express investment plan for the benefit of Midwest Express
employees. Amounts expensed and reflected in the accompanying income
statements was $1,175,000, $1,958,000 and $767,000 in 1996, 1995 and 1994,
respectively.
Profit Sharing Plans
In 1996, the Company implemented two profit sharing plans, an employee
profit sharing plan for substantially all employees of Midwest Express and
an Annual Incentive Plan for management. Company contribtutions for both
plans currently are based entirely on achieving specified levels of
profitability and are payable annually. During 1996, the Company accrued
$5,345,000 under these plans.
Note 8. Shareholders' Equity
In 1996, the Board of Directors adopted a shareholders' rights plan and
made a dividend distribution of one Preferred Share Purchase Right
("Right") on each outstanding share of the Company's common stock. The
Rights are exercisable only if a person or entity acquires 15% or more of
the common stock or announces a tender offer for 15% or more of the common
stock of the Company. Each Right entitles shareholders to buy one one-
hundredth share of the Company's Series A Preferred Stock at an exercise
price of $100, subject to adjustment. Each Right will entitle its holder
to purchase, at the Right's then-current exercise price, Company common
stock valued at twice the exercise price. The Board of Directors is also
authorized to reduce the 15% thresholds referred to above to not less than
10%. The Rights expire in 2006.
Under the Company's 1995 Stock Option Plan, the Compensation Committee of
the Board of Directors may grant options, at its discretion, to purchase
shares of common stock to certain employees. An aggregate of 250,000
shares of common stock are reserved for issuance under the Plan. Under
the Plan, options granted have an exercise price equal to 100% of the fair
market value at the date of grant. Options under the grants become
exercisable 30% after the first year following grant, an additional 30%
after the second year and the remaining 40% after the third year and have
a maximum term of 10 years.
Transactions with respect to the Plan are summarized as follows:
Exercise
Price
Shares Per Share
Options outstanding at
January 1, 1995 . . . . . . . . - -
Granted . . . . . . . . . . . . . 130,000 $18.00
------- -------
Options outstanding at
December 31, 1995 . . . . . . . 130,000 18.00
Granted . . . . . . . . . . . . . 10,000 31.50
Exercised . . . . . . . . . . . . (4,500) 18.00
Forfeited . . . . . . . . . . . . (17,000) 18.00
. . . . . . . . . . . . . . . . . ------- -------
Options outstanding at
December 31, 1996 . . . . . . . 118,500 $18.00 - $31.50
======= ==============
Options exercisable at
December 31, 1996 . . . . . . . 31,500 $18.00
======= =======
Effective for 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" (SFAS 123). The Company has elected to continue to
follow the provisions of Accounting Principles Board No. 25 "Accounting
for Stock Issued to Employees" and its related interpretations;
accordingly, no compensation cost has been reflected in the financial
statements for its stock option plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
SFAS 123, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
1996 1995
Net Income
As reported . . . . . . . . . . $21,750 $19,129
Pro forma . . . . . . . . . . . $21,535 $19,077
Net Income per share
As reported . . . . . . . . . . $3.40 $2.77
Pro forma . . . . . . . . . . . $3.37 $2.76
For purposes of these disclosures, the fair value of each option granted
was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions: expected volatility
of 42.2%; risk-free interest rates of 5.34%; no dividend payments during
the expected term; forfeiture discount of 20%; and an expected life of 5
years.
Note 9. Income Taxes
The provision for income taxes for the years ended December 31, 1996, 1995
and 1994 consisted of the following (in thousands):
1996 1995 1994
Currently payable:
Federal . . . . . . . . . . . $ 14,780 $ 8,260 $2,460
State . . . . . . . . . . . . 2,620 1,960 600
------- ------- -------
17,400 10,220 3,060
------- ------- -------
Deferred (Credit):
Federal . . . . . . . . . . . (3,991) 2,077 1,095
State . . . . . . . . . . . . 73 100 21
------- ------- -------
(3,918)
2,177 1,116
Total provision for income
taxes . . . . . . . . . . . . $13,482 $12,397 $4,176
======== ======= =======
A reconciliation of income taxes at the U.S. federal statutory tax rate to
the effective tax rate follows:
1996 1995 1994
Tax at statutory U.S. tax
rates . . . . . . . . . . . . 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit . . . . . . . 3.8 4.2 3.7
Other, net . . . . . . . . . . (0.5) 0.1 (0.2)
------- ------- -------
Provision for income taxes . . 38.3% 39.3% 38.5%
======= ======= =======
Temporary differences that gave rise to the deferred tax assets and
liabilities comprise of the following (in thousands):
1996 1995
Current deferred income
tax assets attributable to:
Accrued liabilities . . . . . $ 1,115 $ 1,521
Maintenance expense
liability . . . . . . . . . 1,926 1,529
Other . . . . . . . . . . . . 293 203
------- -------
Net current deferred
tax assets . . . . . . . . . . $ 3,334 $ 3,253
======= =======
Noncurrent deferred income
tax assets (liabilities)
attributable to:
Excess of tax over book
depreciation . . . . . . . $(17,585) $(20,056)
Maintenance expense
liability . . . . . . . . . 3,011 4,061
Pension liability . . . . . . 2,186 979
Other . . . . . . . . . . . . 2,494 1,285
------- -------
Net noncurrent deferred
tax liabilities . . . . . . . . $(9,894) $(13,731)
. . . . . . . . . . . . . . . . . ======= =======
In connection with the Offering, the Company, Midwest Express, Astral and
Kimberly-Clark entered into a Tax Allocation and Separation Agreement
(''Tax Agreement''). Pursuant to the Tax Agreement, the Company is
treated for tax purposes as if it purchased all of Midwest Express' assets
at the time of the Offering, and as a result, the tax bases of Midwest
Express' assets were increased to the deemed purchase price of the assets.
The tax on the amount of the gain on the deemed asset purchase was paid by
Kimberly-Clark. This additional basis is expected to result in increased
income tax deductions and, accordingly, may reduce income taxes otherwise
payable by the Company. Pursuant to the Tax Agreement, the Company will
pay to Kimberly-Clark the amount of the tax benefit associated with this
additional basis (retaining 10% of the tax benefit), as realized on a
quarterly basis, calculated by comparing the Company's actual taxes to the
taxes that would have been owed had the increase in basis not occurred.
In the event of certain business combinations or other acquisitions
involving the Company, tax benefit amounts thereafter will not take into
account, under certain circumstances, income, losses, credits or
carryovers of businesses other than those historically conducted by
Midwest Express or the Company.
Except for the 10% benefit, the effect of the Tax Agreement is to put the
Company in the same financial position it would have been in had there
been no increase in the tax bases of Midwest Express' assets.
Note 10. Related Party Transactions
Prior to the Offering, Kimberly-Clark provided various administrative and
financial services to the Company, including management information
systems, employee benefits administration, legal, tax, treasury,
accounting and risk management services, and certain other corporate staff
and support services. Costs allocated to the Company for these services
were based on methods that management believes are reasonable, including
use of time estimates, headcount and transaction statistics and similar
activity-based data.
The costs allocated and other intercompany transactions between Kimberly-
Clark and affiliated companies and the Company were as follows for the
years ended December 31, 1995 and 1994 (in thousands):
1995 1994
Operating revenues . . . . . . . $ 4,106 $ 4,588
Operating expenses . . . . . . . (1,260) (1,860)
Interest expense . . . . . . . . - (945)
Interest income . . . . . . . . . 1,428 509
Prior to the Offering, the Company had participated in Kimberly-Clark's
cash management program, under which the Company's cash needs were funded
by Kimberly-Clark, and the Company's excess cash was advanced to Kimberly-
Clark. Under loan agreements between Kimberly-Clark and the Company, the
Company incurred interest expense on amounts it owed to Kimberly-Clark.
Note 11. Commitments and Contingencies
At December 31, 1996, the Company had purchase commitments approximating
$7,341,000 for capital expenditures.
The Equal Employment Opportunity Commission (''EEOC'') filed charges
against the Company on July 8, 1992, alleging employee discrimination.
The EEOC proposed a conciliation agreement that would have involved costs
to the Company of approximately $1,500,000. The Company has denied the
allegations by the EEOC and intends to vigorously defend itself against
the charges unless a settlement can be reached that would make it
economically impractical to contest the charges. The accompanying
financial statements do not reflect any liability with respect to these
charges.
In addition to the pending suit against the Company by the EEOC, the
Company is a party to routine litigation incidental to its business. In
the opinion of management, the final disposition of these matters will
have no material adverse effect on the consolidated financial statements.
[page 36]
<TABLE>
MIDWEST EXPRESS HOLDINGS, INC.
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended
1996 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . $66,608 $ 76,845 $ 83,123 $ 78,170
Operating expenses . . . . . . . . . . 62,192 66,250 69,792 72,153
Operating income . . . . . . . . . . . 4,416 10,595 13,331 6,017
Income before income taxes . . . . . . 4,672 10,697 13,568 6,295
Income taxes . . . . . . . . . . . . . 1,836 4,107 5,211 2,328
Net income . . . . . . . . . . . . . . 2,836 6,590 8,357 3,967
Net income per share . . . . . . . . . 0.44 1.03 1.31 0.62
<CAPTION>
Three Months Ended
1995 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . $ 58,541 $ 69,393 $ 67,846 $ 63,375
Operating expenses . . . . . . . . . . 55,880 56,580 56,749 58,572
Operating income . . . . . . . . . . . 2,661 12,813 11,097 4,803
Income before income taxes . . . . . . 2,994 13,376 10,046 5,110
Income taxes . . . . . . . . . . . . . 1,161 5,305 3,741 2,190
Net income . . . . . . . . . . . . . . 1,833 8,071 6,305 2,920
Net income per share . . . . . . . . . 0.21* 1.17* 0.93* 0.46
* Pro forma
</TABLE>
<PAGE>
Headquarters
Midwest Express Holdings, Inc.
6744 South Howell Avenue
Oak Creek, WI 53154-1402
(414) 570-4000
Transfer Agent and Registrar
Firstar Trust Company
Milwaukee, WI
Independent Auditors
Deloitte & Touche LLP
Milwaukee, WI
Annual Meeting
The Annual Meeting of Midwest Express Holdings, Inc. will be held at 10
a.m. on Wednesday, April 23, 1997, at The Grand Milwaukee Hotel, 4747
South Howell Avenue, Milwaukee. Shareholders of record on March 3, 1997,
will be mailed an official notice of the meeting.
Financial Reports
Form 10-K (without exhibits) and other reports filed with the Securities
and Exchange Commission are available without charge upon written request
from the Company's Investor Relations department at the headquarters
address.
Common Stock
Midwest Express Holdings, Inc. (symbol: MEH) common stock trades on the
New York Stock Exchange. As of December 31, 1996, there were 6,329,532
shares of common stock outstanding and 505 shareholders of record.
Following are high and low market prices since the Company's stock
commenced trading on September 22, 1995:
High Low
Fourth Quarter 1995 . . . . . . . . . . $30 3/4 $22 3/8
First Quarter 1996 . . . . . . . . . . $37 1/2 $25 1/2
Second Quarter 1996 . . . . . . . . . . $38 3/4 $29 1/8
Third Quarter 1996 . . . . . . . . . . $32 $24 1/2
Fourth Quarter 1996 . . . . . . . . . . $36 3/4 $29 3/8
The Company has not paid a dividend since its initial public offering.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 333-1554, 333-1552 and 333-18127 of Midwest Express Holdings, Inc. on
Forms S-8 of our reports dated January 31, 1997 appearing in and
incorporated by reference in the Annual Report on Form 10-K of Midwest
Express Holdings, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,589
<SECURITIES> 0
<RECEIVABLES> 4,639
<ALLOWANCES> 207
<INVENTORY> 3,122
<CURRENT-ASSETS> 52,569
<PP&E> 130,792
<DEPRECIATION> 59,889
<TOTAL-ASSETS> 129,135
<CURRENT-LIABILITIES> 58,363
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 40,277
<TOTAL-LIABILITY-AND-EQUITY> 129,135
<SALES> 0
<TOTAL-REVENUES> 304,746
<CGS> 0
<TOTAL-COSTS> 270,387
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 218
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,232
<INCOME-TAX> 13,482
<INCOME-CONTINUING> 21,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,750
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
</TABLE>
