**Exhibit 10.4**

 

**MESABA AVIATION,INC.2003 INCENTIVE AWARD PLANAS ADOPTED NOVEMBER 19, 2003**

 

**SECTION 1DEFINED TERMS**

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In addition to the other definitions contained herein,the following definitions shall apply:

 

1.1           ***Award Agreement***.  The term “Award Agreement” means the documentthat evidences an Award and which sets forth the terms, conditions andlimitations relating to such Award.

 

1.2           ***Award***.  The term “Award” shall mean any award orbenefit granted in accordance with the terms of the Plan.  Awards under the Plan may be in the form ofStock Appreciation Rights, Performance Awards, Other Stock Based Awards or TaxOffset Payments.  The terms andconditions of the Award shall be set forth in an Award Agreement.

 

1.3           ***Board***.  The term “Board” shall mean the Board ofDirectors of the Company and any Committee appointed by the Board to administerthe Plan pursuant to Section 9.

 

1.4           ***Committee***.  The term “Committee” shall mean a committeedescribed in Section 9.

 

1.5           ***Company***.  The term “Company” shall mean Mesaba Aviation,Inc.

 

1.6           ***Director***.  The term “Director” shall mean a member ofthe Company’s Board.

 

1.7           ***Eligible******Individual***.  The term “Eligible Individual” shall mean (a)key employees of the Company, (b) officers of the Company, and (c) members ofthe Company’s Board.  All EligibleIndividuals must be natural persons who provide bona fide services to theCompany.  An Award may be granted to anEligible Individual prior to the date the Eligible Individual performs servicesfor the Company, provided that such Award shall not become vested prior to thedate the Eligible Individual first performs such services.

 

1.8           ***Fair******Market****Value***.  The term “Fair Market Value” of a share ofStock on a given date shall mean the closing price of the share of Stock asreported on the****Nasdaq Stock Market on such date,if the share of Stock is then quoted on the Nasdaq Stock Market or, if themarket is closed on that date, the closing price of the share of Stock on theprevious trading day.  If the Stock isnot listed on the Nasdaq Stock Market, Fair Market Value shall be determined ingood faith by the Board.

 

1.9           ***Other Stock Based Award****.*  The term “OtherStock Based Award” shall mean an Award, granted pursuant to Section 6, otherthan a SAR, that is valued in whole or in part by reference to, or is otherwisebased on Stock.

 

1.10         ***Performance Award***.  The term “Performance Award” shall mean anAward based upon the achievement of performance objectives, as contemplated bySection 5.

 

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1.11         ***Plan****.*  The term “Plan”shall mean this 2003 Incentive Award Plan.

 

1.12         ***Stock***.  The term “Stock” shall mean shares of commonstock, $.01 par value, of MAIR Holdings, Inc., a Minnesota corporation thatowns all of the outstanding common stock of the Company.

 

1.13         ***Stock Appreciation Right***.  The term “Stock Appreciation Right” or “SAR”shall mean the grant, pursuant to Section 4, of a right to receive a paymentfrom the Company in cash, equal to the excess of the Fair Market Value of oneor more shares of Stock over the grant price of such shares under the terms ofsuch Stock Appreciation Right.

 

**SECTION 2PURPOSE**

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The Plan has been established by the Company to (i)attract and retain Eligible Individuals; (ii) motivate Eligible Individuals, bymeans of appropriate incentives, to achieve long-range goals; (iii) provideincentive compensation opportunities that are competitive with those of othercomparable companies; and (iv) further align Eligible Individuals’ interestswith those of the Company through compensation based on the value of the Stock,thereby promoting the long-term financial interest of the Company.

 

**SECTION 3PARTICIPATION**

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Subject to the terms and conditions of the Plan, theBoard may determine and designate, from time to time, Eligible Individuals whowill be granted one or more Awards under the Plan.  In its sole discretion and withoutshareholder approval, the Board may grant to an Eligible Individual any Awardor Awards permitted under the provisions of the Plan.  Awards may be granted as alternatives to orreplacement of Awards outstanding under the Plan, or any other plan orarrangement of the Company.

 

**SECTION 4STOCK APPRECIATION RIGHTS**

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SARs will be granted at not less than the Fair MarketValue of the Stock on the date an award is granted, unless the Board hasdetermined, with the advice of counsel, that a grant at less than Fair MarketValue will not result in taxable income to Eligible Individuals in the year ofgrant.  An SAR shall become vested andmay be exercised at such times as may be specified in an Award Agreement, in wholeor in installments, which may be cumulative and shall expire at such time asthe Board shall determine at the time of grant; provided that no SAR shall beexercisable later than ten (10) years after the date granted.

 

SARs shall be exercised by the delivery of a writtennotice of exercise to the Company setting forth the number of shares of Stockwith respect to which the SAR is to be exercised.

 

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**SECTION 5PERFORMANCE AWARDS**

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The Committee shall have the right to designate Awardsas “Performance Awards.”  The grant orvesting of a Performance Award shall be subject to the achievement ofperformance objectives established by the Board based on one or more of thefollowing criteria, in each case applied to the Company or other business unit,as specified by the Board in an Award Agreement, and which the Board may use asan absolute measure, as a measure of improvement relative to prior performance,or as a measure of comparable performance relative to a peer group ofcompanies: sales, operating profits, operating profits before interest expensesand taxes, net earnings, earnings per share, return on equity, return onassets, return on invested capital, total shareholder return, cash flow, debtto equity ratio, market share, stock price, economic value added, market valueadded, or other similar measure of performance. The terms and conditions of a Performance Award shall be set forth in anAward Agreement entered into between the Company and the Eligible Individual.

 

**SECTION 6OTHER STOCK BASED AWARDS**

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The Board shall have complete discretion indetermining the terms, conditions and limitations pertaining to Other StockBased Awards, including, without limitation, phantom stock units, paymentsbased upon the achievement of specific business objectives, tenure, and othermeasurements of individual or business performance, and the conditions underwhich such Awards will vest or lapse.

 

Payment of Other Stock Based Awards may be in the formof cash or other Awards, or in such combinations thereof as the Board shalldetermine at the time of grant, and with such restrictions as it mayimpose.  Payment may be made in a lumpsum or in installments as prescribed by the Board.  The Board may also require or permit EligibleIndividuals to elect to defer the settlement of Awards in cash under such rulesand procedures as it may establish under the Plan.  The Board may also provide that deferredsettlements include the payment or crediting of interest on the deferred amounts.

 

**SECTION 7TAX OFFSET PAYMENTS**

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The Board may provide for a Tax Offset Payment to bemade by the Company to an Eligible Individual with respect to one or moreAwards granted under the Plan.  The TaxOffset Payment shall be in an amount specified by the Board, which shall notexceed the amount necessary to pay the federal, state, local and other taxespayable with respect to the applicable Award, assuming that the EligibleIndividual is taxed at the maximum tax rate applicable to such income.  The Tax Offset Payment shall be paid solelyin cash.  The terms and conditions of aTax Offset Payment Award shall be set forth in an Award Agreement entered intobetween the Company and the Eligible Individual.

 

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**SECTION 8OPERATION AND ADMINISTRATION**

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8.1           ***Effective Dat****e*.  The Plan shall beeffective as of November 17, 2003 (the “Effective Date”).  The Plan shall remain in effect untilterminated in writing by the Board, which the Board expressly reserves theright to do, subject to the provisions of Section 9.2  hereof.

 

8.2           ***Tax Withholding***.  Each Eligible Individual shall, no later thanthe date as of which the value of an Award first becomes includible in suchperson’s gross income for applicable tax purposes, pay, pursuant to sucharrangements as the Company may establish from time to time, any federal,state, local or other taxes of any kind required by law to be withheld withrespect to the Award.  The obligations ofthe Company under the Plan shall be conditional on such payment, and theCompany shall, to the extent permitted by law, have the right to deduct anysuch taxes from any payment of any kind otherwise due to the EligibleIndividual.

 

8.3           ***Payments***.  Awards may be settled in cash or by otherAwards, as specified in the Award Agreement. No Award may result in, or be paid by, the issuance of Stock or othersecurities.  Any Award settlement,including payment deferrals, may be subject to such conditions, restrictionsand contingencies as the Board shall determine. The Board may permit or require the deferral of any Award payment,subject to such rules and procedures as it may establish, which may includeprovisions for the payment or crediting of interest.

 

8.4           ***Transferability***.  Except as otherwise provided by the Board,Awards under the Plan may not be sold, pledged, assigned, hypothecated,transferred, or disposed of in any manner other than by beneficiarydesignation, will or by the laws of descent and distribution.  If the Board makes an Award transferable, theAward Agreement shall set forth such additional terms and conditions regardingtransferability as the Board deems appropriate.

 

8.5           ***Form and Time of Elections***.  Unless otherwise specified herein, eachelection required or permitted to be made by any Eligible Individual or otherperson entitled to benefits under the Plan, and any permitted modification, orrevocation thereof, shall be in writing delivered to the Company at such times,in such form, and subject to such restrictions and limitations, notinconsistent with the terms of the Plan, as the Board shall require.

 

8.6           ***Agreement With Company***.  Any Award under the Plan shall be subject tosuch terms and conditions, not inconsistent with the Plan, as the Board shall,in its sole discretion, prescribe.  Theterms and conditions of any Award shall be reflected in an Award Agreement.

 

8.7           ***Limitation of ImpliedRights.***

 

(a)                                  Neitheran Eligible Individual nor any other person shall, by reason of participationin the Plan, acquire any right in or title to any assets, funds or property ofthe Company or any of its affiliates whatsoever, including, without limitation,any specific funds, assets, or other property which the Company or anyaffiliate, in its sole discretion, may set aside in anticipation of a liabilityunder the Plan.  An Eligible Individualshall have only a contractual right to the amounts, if any, payable under thePlan,

 

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unsecured by any assetsof the Company or its affiliates, and nothing contained in the Plan shallconstitute a guarantee that the assets of the Company shall be sufficient topay any benefits to any Eligible Individual.

 

(b)                                 ThisPlan does not constitute a contract of employment, and selection as a EligibleIndividual will not give the Eligible Individual the right to be retained inthe employ of the Company, nor any right or claim to any future grants or toany benefit under the Plan, unless such right or claim has specifically accruedunder the terms of the Plan.

 

8.8           ***Termination for Cause***.  If the employment of an Eligible Individualis terminated by the Company for “cause,” then the Board shall have the rightto cancel any Awards granted to the Eligible Individual under the Plan and theEligible Individual shall forfeit any and all rights under the Plan.  The term “cause” shall mean (1) the EligibleIndividual’s violation of any provision of any non-competition agreement orconfidentiality agreement with the Company; (2) an illegal or negligent actionby the Eligible Individual that materially and adversely affects the Company;(3) the Eligible Individual’s failure or refusal to perform his or her duties(except when prevented by reason of illness or disability); or (4) convictionof the Eligible Individual of a felony involving moral turpitude or financialimpropriety.

 

8.9           ***Evidence***.  Evidence required of anyone under the Planmay be by certificate, affidavit, document or other information which theperson acting on it considers pertinent and reliable, and signed, made or presentedby the proper party or parties.

 

8.10         ***Awards to Section 16Reporting Persons***.  AnyAward granted to an Eligible Individual who is required to report his or herbeneficial ownership of Stock pursuant to Section 16(a) of the SecuritiesExchange Act of 1934 shall be structured to satisfy the requirements forexemption under Rule 16b-3(d)(3).  SARsgranted to such persons shall first become exercisable not less than six monthsafter the date of grant.

 

8.11         ***Claims Procedure*.**

 

(a)                                  ClaimsFiling.  If for any reason a claimfor benefits under this Plan is denied by the Board, the Board shall deliver tothe claimant a written explanation setting forth the specific reasons for thedenial, pertinent references to the Plan section on which the denial is based, suchother data as may be pertinent and information on the procedures to be followedby the claimant in obtaining a review of his or her claim, all written in amanner calculated to be understood by the claimant.  The Company’s explanation shall be deliveredto the claimant within 90 days of the date the claim is filed.  For this purpose, the claimant’s claim shallbe deemed filed when presented in writing to the Board.

 

(b)                                 ReviewRequest.  The claimant shall have 60days following his or her receipt of the denial of the claim to file with theBoard a written request for review of the denial.  For such review, the claimant or his or her 

 

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representative may submit pertinent documents andwritten issues and comments.

 

(c)                                  ReviewProcedure.  The Board shall decidethe issue on review and furnish the claimant with a copy within 60 days ofreceipt of the claimant’s request for review. The decision on review shall be in writing and shall include specificreasons for the decision written in a manner calculated to be understood by theclaimant, as well as specific reference to the pertinent Plan provisions onwhich the decision is based.  If a copyof the decision is not so furnished to the claimant within 60 days, the claimshall be deemed denied on review.

 

**SECTION 9AUTHORITY OF THE BOARD**

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9.1           ***Administration***.  The Plan shall be administered by Board orsuch Committee of one or more Directors as the Board shall designate toadminister the Plan.  The Board may administerthe Plan or exercise any or all of the administrative duties of the Committeeat any time when a Committee has been appointed by the Board.  All determinations made by the Board pursuantto the provisions of the Plan shall be final and binding on all persons,including the Company and Eligible Individuals.

 

9.2           ***Powers of Board***.  The Board shall have the following authoritywith respect to Awards under the Plan: to grant Awards; to adopt, alter andrepeal such administrative rules, guidelines and practices governing the Planas it shall deem advisable; to interpret the terms and provisions of the Planand any Award granted under the Plan; and to otherwise supervise theadministration of the Plan.  Inparticular, and without limiting its authority and powers, the Board shall havethe authority:

 

(a)                                  todetermine whether and to what extent any Award or combination of Awards will begranted hereunder;

 

(b)                                 toselect the Eligible Individuals to whom Awards will be granted;

 

(c)                                  todetermine the terms and conditions of any Award granted hereunder, including,but not limited to, any vesting or other restrictions based on such performanceobjectives and such other factors as the Board may establish, to determine theacceleration of any vesting restrictions under certain circumstances such as achange in control of the Company or any affiliate, and to determine whether theperformance objectives and other terms and conditions of the Award aresatisfied;

 

(d)                                 todetermine the treatment of Awards upon the Eligible Individual’s retirement,disability, death, termination for cause or other termination of employment orservice; and

 

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(e)                                  toamend the terms of any Award, prospectively or retroactively; provided,however, that no amendment shall impair the rights of the Eligible Individualwithout his or her written consent.

 

Determinations by the Board under the Plan relating tothe form, amount, and terms and conditions of Awards need not be uniform, andmay be made selectively among Eligible Individuals who receive Awards under thePlan, whether or not such Eligible Individuals are similarly situated.  The Board shall have the power to acceleratethe time at which an Award may first be exercised or the time during which anAward or any part thereof will vest in accordance with the Plan,notwithstanding any provisions in an Award Agreement stating the time at whichthe Award may first be exercised or the time during which the Award will vest.

 

9.3           ***Delegation by Board***.  Except to the extent prohibited by applicablelaw, the Board may allocate all or any portion of its responsibilities andpowers to any one or more of its members and may delegate all or any part ofits responsibilities and powers to any person or persons selected by it.  Any such allocation or delegation may berevoked by the Board at any time.

 

9.4           ***Information to beFurnished to Board***.  TheCompany shall furnish the Board with such data and information as it determinesmay be required for it to discharge its duties. The records of the Company as to an Eligible Individual’s employment,termination of employment, leave of absence, reemployment and compensationshall be conclusive on all persons unless determined to be incorrect.  Eligible Individuals and other personsentitled to benefits under the Plan must furnish the Board such evidence, dataor information as the Board considers desirable to carry out the terms of thePlan.

 

9.5           ***Non-Liability of Board***.  No member of the Board or any officer oremployee of the Company acting on behalf of the Board shall be personallyliable for any action, determination or interpretation taken or made withrespect to the Plan, and all members of the Board and all officers or employeesof the Company acting on their behalf shall, to the extent permitted by law, befully indemnified and protected by the Company with respect to any such action,determination or interpretation.

 

**SECTION 10AMENDMENT AND TERMINATION**

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The Board may, at any time, amend or terminate thePlan, provided that no amendment or termination may, in the absence of writtenconsent to the change by the affected Eligible Individual (or, if the EligibleIndividual is not then living, the affected beneficiary), adversely affect therights of any Eligible Individual or beneficiary under any Award granted underthe Plan prior to the date such amendment is adopted by the Board.  An amendment shall be subject to approval bythe Company’s shareholders only to the extent required by applicable laws,regulations or rules of a stock exchange or similar entity.

 

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**SECTION 11GENERAL PROVISIONS**

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11.1         ***Award Agreements***.  No Eligible Individual will have rights underan Award granted to such Eligible Individual unless and until an AwardAgreement has been duly executed on behalf of the Company and the EligibleIndividual.

 

11.2         ***No Limit on OtherCompensation Arrangements***. Nothing contained in the Plan shall prevent the Company from adopting orcontinuing in effect other or additional compensation arrangements, and sucharrangements may be either generally applicable or applicable only in specificcases.

 

11.3         ***Headings***.  The headings of the sections and subsectionsof this Plan are intended for the convenience of the parties only and shall inno way be held to explain, modify, construe, limit, amplify or aid in theinterpretation of the provisions hereof.

 

11.4         ***Beneficiaries****. *An EligibleIndividual may, from time to time, name any beneficiary or beneficiaries (whomay be named contingently or successively) to whom any benefit under the Planmay be paid or transferred in case of death. Each designation will revoke all prior designations, shall be in a formprescribed by the Board, and will be effective only when filed by the EligibleIndividual in writing with the Board during his or her lifetime.  In the absence of any such designation,benefits outstanding at the Eligible Individual’s death shall be paid ortransferred to his or her estate.  Thereshall be no third party beneficiaries of or to this Plan.  Any beneficiary of the Eligible Individualshall have only a claim to such benefits as may be determined to be payablehereunder, if any, and shall not, under any circumstances other than the rightto claim such benefits, be deemed a third party beneficiary of or to this Plan.

 

11.5         ***Governing Law***.  The Plan, and all agreements hereunder, shallbe construed in accordance with and governed by the laws of the State ofMinnesota, except to the extent preempted by federal law, without regard to theprinciples of comity or the conflicts of law provisions of any jurisdiction.

 

11.6         ***EmploymentRelationship. ***Nothing inthis Plan or any award made hereunder shall interfere with or limit in any waythe right of the Company to terminate any Eligible Individual’s employment (ifapplicable) at any time, with or without cause, nor confer upon any EligibleIndividual any right to continue in the employ of the Company.

 

11.7         ***Rights as a Shareholder.***  The holder of an Award under this Plan shallhave no rights as a shareholder of Shares of MAIR Holdings, Inc. by virtue ofsuch Award, including rights to vote or receive dividends.

 

11.8         ***No Trust***.  Nothing contained in this Plan and no actiontaken pursuant to this Plan shall create or be construed to create a trust ofany kind.  The Eligible Individuals’right to receive payments from the Company under this Plan shall be no greaterthan the right of any unsecured creditor of the Company.  Title to and beneficial ownership of anyassets which the Company may set aside or earmark to meet its contingentdeferred obligation hereunder, shall at all times remain in the name of theCompany, and the Eligible Individuals shall not under any circumstances acquireany property interest or rights in any specific assets of the Company.

 

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11.9         ***Severability. ***If any portion or provision ofthis Plan shall be deemed invalid or unenforceable, in whole or in part, thansuch provision or portion shall be deemed to be modified or restricted to theextent and in the manner necessary to render the same valid and enforceable, orshall be deemed excised from this Plan, as the case may require, and this Planshall be construed and enforced to the intent permitted by federal and Minnesotalaw, as if so modified or restricted, or as if such provision or portion hadnot been originally incorporated herein, as the case may be.

 

11.10       ***AdjustmentsUpon Changes in Capitalization***. The outstanding portion of any unexercised Award based on Stock shall beproportionately adjusted for any increase or decrease in the number of issuedshares of Stock resulting from a stock split, reverse stock split, stockdividend, combination or reclassification of Stock or any other increase ordecrease in the number of shares of Stock effected without receipt ofconsideration by MAIR Holdings, Inc. Such adjustment to Awards shall be made by the Board, whosedetermination in that respect shall be final, binding and conclusive.

 

**[END OF PLAN]**

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