Exhibit 10
MIDWEST AIR GROUP,
INC.
ANNUAL AND LONG-TERM
INCENTIVE PLAN
ARTICLE 1.
PURPOSE AND
DURATION
Section 1.1. Purpose . The purpose of
the Midwest Air Group, Inc. Annual and Long-Term Incentive Plan is
to motivate key employees of the Company and its Affiliates who
have the prime responsibility for the operations of the Company and
its Affiliates to achieve performance objectives, measured on an
annual and long-term basis, that are aligned with the
Company’s strategic goals and which are intended to result in
increased value to the shareholders of the Company.
The Plan replaces and supersedes the
Midwest Air Group, Inc. Long-Term Performance Plan and the Midwest
Air Group Annual Incentive Plan.
Section 1.2. Duration . The Plan is effective
January 1, 2006, and will remain in effect until terminated
pursuant to Article 10.
ARTICLE
2.
DEFINITIONS AND CONSTRUCTION
Section
2.1. Definitions
. Wherever used in the Plan, the following terms shall have
the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a)
“Administrator” means, with
respect to executive officers of the Company, the Committee, and
with respect to all other key employees, the Chief Executive
Officer of the Company.
(b)
“Affiliate” has the meaning
ascribed to such term in Rule 12b-2 promulgated under the Exchange
Act, or any successor rule or regulation thereto.
(c)
“Annual Incentive Award”
means an Incentive Award with a Performance Period of no more than
one fiscal year of the Company or an Affiliate, as
applicable.
(d)
“Base Salary” of a
Participant means the annual rate of base pay in effect for such
Participant as of the last day of the Performance Period (or such
other date as the Administrator may specify by action taken at the
time of grant of an Incentive Award).
(e)
“Board” means the Board of
Directors of the Company.
(f)
“Cause” means: (1) if
the Participant is subject to an employment agreement that contains
a definition of “cause”, such definition, or (2)
otherwise, any of the following as determined by the Administrator:
(A) violation of the provisions of any employment agreement,
non-competition agreement, confidentiality agreement, or similar
agreement with the Company or an Affiliate, or the Company’s
or an Affiliate’s code of ethics, as then in effect, (B)
conduct rising to the level of gross negligence or willful
misconduct in the course of employment with the Company or an
Affiliate, (C) commission of an act of dishonesty or disloyalty
involving the Company or an Affiliate, (D) violation of any
federal, state or local law in connection with the
Participant’s employment, or (E) breach of any fiduciary duty
to the Company or an Affiliate.
(g)
“Change of
Control” means the earliest to occur of the
following:
(1)
any “Person” (as such term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as modified and used
in Sections 13(d) and 14(d) thereof), other than (A) the Company or
any of its subsidiaries, (B) a trustee or other fiduciary holding
securities under any employee benefit plan of the Company 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 shareholders of the Company
in substantially the same proportions as their ownership of stock
in the Company (“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 Company
(not including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its affiliates
after January 1, 2005, pursuant to express authorization by the
Board that refers to this exception) representing more than 50% of
the then outstanding shares of Stock or 35% or more of the combined
voting power of the Company’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 during any 12-month period: individuals who, on
January 1, 2005, constituted the Board and any new director whose
appointment or election by the Board or nomination for election by
the Company’s shareholders was approved by a vote of at least
a majority of the directors then still in office who either were
directors on January 1, 2005, or whose appointment, election or
nomination for election was previously so approved; or
(3)
consummation of a merger or consolidation
of the Company with any other corporation or the issuance of voting
securities of the Company in connection with a merger or
consolidation of the Company (or any direct or indirect subsidiary
of the Company) pursuant to applicable stock exchange requirements,
other than (i) a merger or consolidation that would result in the
voting securities of the Company 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 Company 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
Company (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 Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates after January
1, 2005, 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 Company’s then outstanding voting securities;
or
(4)
consummation of the sale or
disposition by the Company of all or substantially all of the
Company’s assets (in one transaction or a series of related
transactions during any 12-month period), other than a sale or
disposition by the Company of all or substantially all of the
Company’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
Company immediately prior to such sale. For purposes hereof,
a “sale or disposition by the Company of all or substantially
all of the Company’s assets” will not be deemed to have
occurred if the sale involves assets having a total gross fair
market value of less than forty percent (40%) of the total gross
fair market value of all assets of the Company immediately prior to
the acquisition. For this purpose, “gross fair market
value” means the value of the assets without regard to any
liabilities associated with such assets.
Notwithstanding the foregoing, no
“Change of 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 Company immediately following such transaction or
series of transactions.
In addition, the definition of
“Change of Control” shall be interpreted in accordance
with the meaning of a change of control under Code Section 409A,
which is incorporated herein by reference. The Administrator
must certify in writing that a Change of Control has
occurred.
(h)
“Code” means the Internal
Revenue Code of 1986, as amended. Any reference to a
particular provision of the Code shall be deemed to include any
successor provision thereto.
(i)
“Company” means Midwest Air
Group, Inc., a Wisconsin corporation, and any successor thereto as
provided in Article 13.
(j)
“Committee” means the
Compensation Committee of the Board, which shall consist of not
less than two (2) members of the Board each of whom is a
“non-employee director” as defined in Securities and
Exchange Commission Rule 16b-3(b)(3), or as such term may be
defined in any successor regulation under Section 16 of the
Securities Exchange Act of 1934, as amended. In addition,
each member of the Committee shall be an outside director within
the meaning of Code Section 162(m).
(k)
“Exchange Act” means the
Securities Exchange Act of 1934, as amended. Any reference to
a particular provision of the Exchange Act shall be deemed to
include any successor provision thereto.
(l)
“Excluded Items” means
any gains or losses from the sale of assets outside the ordinary
course of business, any gains or losses from discontinued
operations, any extraordinary gains or losses, the effects of
accounting changes, any unusual, nonrecurring, transition, one-time
or similar items or charges, and any other items that the
Administrator determines.
(m)
“Inimical Conduct” means any
act or omission that is inimical to the best interests of the
Company or any Affiliate, as determined by the Administrator in its
sole discretion, including but not limited to: (1) violation of any
employment, noncompete, confidentiality or other agreement in
effect with the Company or any Affiliate, (2) taking any steps or
doing anything which would damage or negatively reflect on the
reputation of the Company or an Affiliate, or (3) failure to comply
with applicable laws relating to trade secrets, confidential
information or unfair competition.
(n)
“Long Term Incentive Award”
means an Incentive Award with a Performance Period of more than one
fiscal year of the Company or an Affiliate, as
applicable.
(o)
“Participant” means a key
employee of the Company or an Affiliate who has been approved for
participation in the Plan.
(p)
“Incentive Award” means an
opportunity granted to a Participant to receive a payment of cash
based in whole or part on the extent to which one or more
Performance Goals for one or more Performance Measures are achieved
for the Performance Period, subject to the conditions described in
the Plan and that the Administrator otherwise imposes.
(q)
“Performance Measures” means
the following categories (in all cases after taking into account
any Excluded Items, as applicable), including in each case any
measure based on such category:
(1)
Basic earnings per common share for the
Company on a consolidated basis.
(2)
Diluted earnings per common share for the
Company on a consolidated basis.
(3)
Shareholder value added.
(4)
Net sales.
(5)
Cost of sales.
(6)
Gross profit.
(7)
Selling, general and administrative
expenses.
(8)
Operating income.
(9)
Income before interest and/or the
provision for income taxes.
(10)
Net income.
(11)
Accounts receivables.
(12)
Inventories.
(13)
Return on equity.
(14)
Return on assets.
(15)
Return on capital.
(16)
Economic value added, or other measure of
profitability that considers the cost of capital
employed.
(17)
Net cash provided by operating
activities.
(18)
Net increase (decrease) in cash and cash
equivalents.
(19)
Customer satisfaction.
(20)
Market share.
(21)
Cost per available seat mile.
(22)
Total revenue per available seat
mile.
(23)
Earnings before interest, taxes,
depreciation and aircraft rent.
The Performance Measures described in
items (3) through (23) may be measured (A) for the Company on a
consolidated basis, (B) for any one or more Affiliates or divisions
of the Company and/or (C) for any other business unit or units of
the Company or an Affiliate as defined by the Administrator at the
time of selection.
In addition, for any Incentive Award, the
Committee may prescribe subjective Performance Measures or
Performance Measures based on the Participant’s most recent
employment evaluation as a condition to receiving all or any
portion of an award payment.
(r)
“Performance Goal” means the
level(s) of performance for a Performance Measure that must be
attained in order for a payment to be made under an award, and/or
for the amount of payment to be determined based on the Performance
Scale.
(s)
“Performance Period”
means:
(1)
for an Annual Incentive Award, a period
of one
