UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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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.
On the Closing Date, the Company issued a Warrant to Treasury to purchase 12,288 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.
Treasury Loan Agreement Borrowing Extension
As previously disclosed, on September 29, 2020, SkyWest Airlines and the Company entered into a Loan and Guarantee Agreement with Treasury (the “Loan Agreement”), which provided for a secured term loan facility (the “Facility”) which permitted SkyWest Airlines to borrow up to $573 million. Subsequently, on October 28, 2020, SkyWest Airlines and the Company entered into an amendment to the Loan Agreement, which increased the Facility such that SkyWest Airlines is permitted to borrow up to $725 million.
On January 15, 2021, SkyWest Airlines and the Company entered into an additional amendment to the Loan Agreement with Treasury (the “Loan Amendment”) to provide that the deadline pursuant to which SkyWest Airlines may, at its discretion, borrow additional amounts under the Facility was extended from March 26, 2021 to May 28, 2021. The other terms of the Loan Agreement were not affected. As of December 31, 2020, SkyWest Airlines has borrowed a total of $60 million under the Facility.
The foregoing descriptions do not purport to be complete and are qualified in their entirety by reference to each of the PSP Extension Agreement, the Promissory Note, the Warrant Agreement, the Form of Warrant and the Loan Amendment, copies of which will be filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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.
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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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SKYWEST, INC. |
| Date: January 15, 2021 | By | /s/ Robert J. Simmons |
| Robert J. Simmons, Chief Financial Officer |