Item 1.01. Entry into a Material Definitive Agreement.
On April 23, 2020, SkyWest Airlines, Inc. (“SkyWest Airlines”),
a wholly-owned subsidiary of SkyWest, Inc. (the “Company”), entered into a Payroll Support Program Agreement (the “PSP
Agreement”) with the U.S. Department of the Treasury (“Treasury”) with respect to the grant program (the “Payroll
Support Program”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
Payroll Support Program Agreement
Pursuant to the PSP Agreement, SkyWest Airlines expects to receive
from Treasury approximately $438.0 million in the aggregate. Of the $438.0 million, approximately $336.6 million will be a direct
grant and approximately $101.4 million will be in the form of a promissory note issued by SkyWest Airlines and guaranteed by the
Company (the “Promissory Note”). The funding is expected to be disbursed in four installments: 50% on the closing date,
which was received on April 23, 2020 (the “Closing Date”), and three additional disbursements from May to July 2020 (each,
a “Disbursement Date”).
In connection with the receipt of financial assistance under
the Payroll Support Program, SkyWest Airlines is required to comply with the relevant provisions of the CARES Act, including the
requirement that the funding be used exclusively for the continuation of payment of employee wages, salaries and benefits. SkyWest
Airlines and, in some cases, the Company will also be subject to certain restrictions, including, but not limited to, limitations
on involuntary terminations and furloughs through September 30, 2020, requirements to maintain certain levels of scheduled service,
restrictions on the payment of dividends and the repurchase of shares through September 30, 2021, and certain limitations on executive
compensation.
Promissory Note
As partial compensation to Treasury for the provision of financial
assistance under the PSP Agreement, SkyWest Airlines issued the Promissory Note to Treasury on the Closing Date. The Promissory
Note provides for SkyWest Airlines’ unconditional promise to pay to Treasury the principal sum of up to approximately $101.4
million. On the Closing Date, the principal amount of the Promissory Note was approximately $35.7 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 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
September 30, 2020. 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 Agreement and as partial compensation
to Treasury for the provision of financial assistance under the PSP Agreement, the Company will issue warrants (each a “Warrant”
and, collectively, the “Warrants”) to Treasury to purchase up to an aggregate of 357,317 shares (the “Warrant
Shares”) of the Company’s common stock, no par value (the “Common Stock”), at an exercise price of $28.38
per share (the “Exercise Price”), which was the closing price of the Common Stock on The Nasdaq Stock Market on April
9, 2020. The Warrants will be issued pursuant to the terms of a Warrant Agreement entered into by the Company and Treasury on April
23, 2020 (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.
On the Closing Date, the Company issued a Warrant to Treasury
to purchase 125,804 shares of Common Stock. On each Disbursement Date, the Company will issue to Treasury an additional Warrant
to purchase a number of shares of Common Stock determined by the quotient of (a) the product of the amount by which the principal
amount of the Promissory Note is increased on the closing date of such Warrant, multiplied by 0.1, divided by (b) the Exercise
Price.
The Warrants are freely transferable and do not have any voting
rights. The Warrant Agreement also provides for certain registration rights. The right to purchase Warrant Shares expires on the
fifth anniversary of the date of issuance of each Warrant. The Warrants will be exercisable either through net share settlement
or cash, at the Company’s option.
The Warrants are being issued pursuant to Section 4(a)(2) of
the Securities Act of 1933, as amended (the “Securities Act”). Any issuance of Common Stock upon exercise of the Warrants
will be exempt as an exchange by the Company exclusively with its security holders eligible for exemption under Section 3(a)(9)
of the Securities Act.
The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to each of the PSP
Agreement, the Promissory Note, the Warrant Agreement and the Form of Warrant, copies of which will be filed with the Company's
Quarterly Report on Form 10-Q for the quarter ending June 30, 2020.