Item 1.01. Entry into a Material Definitive Agreement.
On January 15, 2021, SkyWest Airlines, Inc. ("SkyWest Airlines"), a wholly-owned
subsidiary of SkyWest, Inc. (the "Company"), entered into a Payroll Support
Program Extension Agreement (the "PSP Extension Agreement") with the U.S.
Department of the Treasury ("Treasury") with respect to the grant program (the
"Second Payroll Support Program") under Subtitle A of Title IV of Division N of
the Consolidated Appropriations Act, 2021 ("2021 Appropriations Act"). The
Second Payroll Support Program and PSP Extension Agreement are structured in a
substantially similar manner to the Payroll Support Program Agreement among
SkyWest Airlines, the Company and Treasury dated as of April 23, 2020 with
respect to the grant program (the "Original Payroll Support Program") under the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), as described
in the Company's Current Report on Form 8-K filed on April 24, 2020.
Payroll Support Program Extension Agreement
Pursuant to the PSP Extension Agreement, SkyWest Airlines expects to receive
from Treasury approximately $233.1 million in the aggregate. The funding is
expected to be disbursed in multiple installments: 50% on the closing date,
which was received on January 15, 2021 (the "Closing Date"), and an additional
disbursement in February 2021 (each such date on which funds are disbursed, a
"Disbursement Date").
In connection with the receipt of financial assistance under the Second Payroll
Support Program, SkyWest Airlines is required to comply with the relevant
provisions of the 2021 Appropriations Act, many of which are substantially
similar to the requirements placed on SkyWest Airlines by the Original Payroll
Support Program under the CARES Act. The relevant provisions include the
requirement that the funding be used exclusively for the continuation of payment
of employee wages, salaries and benefits. Similar to the Original Payroll
Support Program, SkyWest Airlines and, in some cases, the Company will also be
subject to certain restrictions, including, but not limited to, limitations on
involuntary terminations, salary reductions and furloughs through March 31,
2021, restrictions on the payment of dividends and the repurchase of shares
through October 1, 2022, and certain limitations on executive compensation.
SkyWest Airlines is also required to recall employees involuntarily terminated
or furloughed after September 30, 2020 with pay from December 1, 2020 to March
31, 2021.
Promissory Note
As partial compensation to Treasury for the provision of financial assistance
under the PSP Extension Agreement, SkyWest Airlines issued, and the Company
guaranteed, a promissory note (the "Promissory Note") to Treasury on the Closing
Date. The Promissory Note provides for SkyWest Airlines' unconditional promise
to pay to Treasury the expected principal sum of up to approximately $39.9
million. On the Closing Date, the principal amount of the Promissory Note was
approximately $5.0 million, and such principal amount will be increased by an
amount equal to 30% of each additional disbursement of grants to SkyWest
Airlines under the PSP Extension Agreement on each Disbursement Date following
the Closing Date.
The Promissory Note will bear interest at a rate equal to 1.00% per annum until
the fifth anniversary of the Closing Date, and 2.00% plus an interest rate based
on the secured overnight financing rate per annum (but not less than 0.00%)
thereafter until the tenth anniversary of the Closing Date (the "Maturity
Date"). Accrued interest will be payable in arrears on the last business day of
each of March and September of each year, beginning with March 31, 2021. The
aggregate unpaid principal amount of the Promissory Note, all accrued and unpaid
interest and all other amounts payable under the Promissory Note will be due and
payable on the Maturity Date.
SkyWest Airlines may, at any time, make voluntary prepayments of amounts due
under the Promissory Note without penalty or premium. Within 30 days of a Change
of Control (as defined in the Promissory Note), SkyWest Airlines is required to
make mandatory prepayments of the aggregate principal amount outstanding and any
accrued interest or other amounts owing under the Promissory Note at such time.
The Promissory Note is SkyWest Airlines' senior unsecured obligation, and the
guarantee of the Promissory Note is the senior unsecured obligation of the
Company. The Promissory Note contains certain events of default, including
cross-default with respect to acceleration or failure to pay at maturity other
material indebtedness of SkyWest Airlines and the Company. Subject to certain
grace periods, upon the occurrence of an event of default, the outstanding
obligations under the Promissory Note may, and in certain circumstances will
automatically, be accelerated and become due and payable immediately.
Warrant Agreement and Warrants
In connection with the PSP Extension Agreement and as partial compensation to
Treasury for the provision of financial assistance under the PSP Extension
Agreement, the Company will issue warrants (each a "Warrant" and, collectively,
the "Warrants") to Treasury to purchase up to an expected aggregate of 98,815
shares (the "Warrant Shares") of the Company's common stock, no par value (the
"Common Stock"), at an exercise price of $40.41 per share (the "Exercise
Price"), which was the closing price of the Common Stock on The Nasdaq Stock
Market on December 24, 2020. The Warrants will be issued pursuant to the terms
of a Warrant Agreement entered into by the Company and Treasury on January 15,
2021 (the "Warrant Agreement"). The number of Warrant Shares to be issued is
subject to adjustment as a result of certain anti-dilution provisions contained
in the Warrants.
. . .
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.01 above under the captions "Promissory Note"
and "Treasury Loan Agreement Borrowing Extension" are incorporated herein by
reference to the extent responsive to Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities.
The information provided in Item 1.01 above under the caption "Warrant Agreement
and Warrants" is incorporated herein by reference to the extent responsive to
Item 3.02.
Item 8.01. Other Events.
On January 15, 2021, the Company issued a press release captioned "SkyWest to
Receive $233 million through a Payroll Support Program Extension Under 2021
Appropriations Act" A copy of the press release is attached hereto as Exhibit
99.1 and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Title of Document
99.1 Press Release, dated January 15, 2021.
104 Cover Page Interactive Data File - the cover page XBRL tags are
embedded within the Inline XBRL document.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Words such as
"forecasts," "expects," "intends," "believes," "anticipates," "estimates,"
"should," "likely" and similar expressions identify forward-looking statements.
Such statements include, but are not limited to, statements about the expected
timing and benefits of the 2021 Appropriations Act funding and other statements
that are not historical facts. All forward-looking statements included in this
Current Report on Form 8-K are made as of the date hereof and are based on
information available to the Company as of such date. The Company assumes no
obligation to update any forward-looking statements unless required by law.
Readers should note that many factors could affect the future operating and
financial results of the Company and the timing of certain events and could
cause actual results to vary materially from those expressed in forward-looking
statements set forth in this report. These factors include, but are not limited
to, uncertainties regarding the impact of the 2021 Appropriations Act funding on
the Company's business and operations, and the consequences of the continuing
COVID-19 outbreak to economic conditions, the travel industry and the Company's
major partners in general and the financial condition and operating results of
the Company in particular. Risk factors, cautionary statements and other
conditions which could cause the Company's actual results to differ materially
from management's current expectations are contained in the Company's filings
with the Securities and Exchange Commission, including its most recent Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K.
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