Document:

Exhibit 10.3

 

MESABA
HOLDINGS, INC.

2000 STOCK INCENTIVE PLAN

 

SECTION 1
DEFINED TERMS

 

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

 

1.1                                 Award Agreement.  The term “Award Agreement” means the document
that evidences an Award and which sets forth the terms, conditions, and
limitations relating to such Award.

 

1.2                                 Award.  The term “Award” shall mean any award or
benefit granted in accordance with the terms of the Plan.  Awards under the Plan may be in the form of (i) Stock
Options; (ii) Restricted Stock; (iii) Stock Appreciation Rights; (iv) Other
Stock Based Awards and/or (v) Tax Offset Payments.  The terms and conditions of the Award shall
be set forth in an Award Agreement.

 

1.3                                 Board.  The term “Board” shall mean the Board of
Directors of the Company.

 

1.4                                 Code.  The term “Code” shall mean the Internal
Revenue Code of 1986, as amended.  A
reference to any provision of the Code shall include reference to any successor
provision of the Code.

 

1.5                                 Committee.  The term “Committee” shall mean a committee
described in Section 11.

 

1.6                                 Company.  The term “Company” shall mean Mesaba Holdings, Inc.

 

1.7                                 Covered Shares. 
The term “Covered Shares” shall mean the number of shares of Stock that
an Eligible Individual may purchase pursuant to an Option.

 

1.8                                 Director.  The term “Director” shall mean a member of
the Company’s Board.

 

1.9                                 Eligible Individual. 
The term “Eligible Individual” shall mean (a) any common law
employee, prospective employee, or officer of the Company, (b) members of
the Company’s Board, (c) consultants and advisors to the Company, and (d) employees
of any Related Company or business partner of the Company.  All Eligible Individuals must be natural
persons who provide bona fide services to the Company or a Related
Company.  In addition, the services
provided to the Company or Related Company must not be in connection with an
offer or sale of securities in a capital raising transaction and must not
directly or indirectly promote or maintain a market for the Company’s
Stock.  An Award may be granted to an
Eligible Individual prior to the date the Eligible Individual performs services
for the Company or Related Company, provided that such Award shall not become
vested prior to the date the Eligible Individual first performs such services.

 

 

1.10                           Exchange Act.  The
term “Exchange Act” shall mean the Securities Act of 1934, as amended.

 

1.11                           Exercise Price.  The
term “Exercise Price” shall mean the exercise price of each Option granted
under Section 4 established by the Committee and determined by any
reasonable method established by the Committee at the time the Option is
granted.  Options granted pursuant to Section 4
of the Plan shall not have an Exercise Price of less than 100% of the Fair
Market Value of the Company’s Stock on the date the Option is granted.

 

1.12                           Fair Market  Value.  The term “Fair Market Value” of a share of
Stock on a given date shall mean the closing price of the share of Stock as
reported on the Nasdaq Stock Market on such date,
if the share of Stock is then quoted on the Nasdaq Stock Market or, if the
market is closed on that date, the closing price of the share of Stock on the
previous trading day.  If the Stock is
not listed on the Nasdaq Stock Market, Fair Market Value shall be determined in
good faith by the Board or Committee.

 

1.13                           Incentive Stock  Option.  The term “Incentive Stock Option” or “ISO”
shall mean an Option that is intended to satisfy the requirements of Section 422(b) of
the Code.

 

1.14                           Non-Employee Director.  The term “Non-Employee Director” shall mean a
“non-employee director” as defined in Rule 16b-3(b)(3)(i) of the
Exchange Act.

 

1.15                           Non-Qualified Stock Option.  The term “Non-Qualified
Stock Option” or “NSO” shall mean an Option that is not intended to satisfy the
requirements applicable to an “incentive stock option” described in Section 422(b) of
the Code.  NSO grants may be awarded to
any Eligible Individual.

 

1.16                           Option.  The term “Option” or “Stock Option” shall
mean an ISO or NSO granted pursuant to the Plan.  The grant of an Option entitles the Eligible
Individual to purchase shares of Stock at an Exercise Price established by the
Committee.

 

1.17                           Other Stock Based Award.  The term “Other
Stock Based Award” shall mean an Award, granted pursuant to Section 8,
other than on Option, Restricted Stock or SAR, that is paid with, valued in
whole or in part by reference to, or is otherwise based on Stock.

 

1.18                           Performance Award.  The term “Performance Award” shall mean an
award or grant of shares based upon the achievement of performance objectives,
as contemplated by Section 5.

 

1.19                           Plan.  The term “Plan” shall mean this 2000 Stock
Incentive Plan.

 

1.20                           Related Company.  The term “Related Company” shall mean any
corporation other than the Company and any partnership, joint venture or other
entity in which the Company owns, directly or indirectly, at least a 20%
beneficial ownership interest.  A Related
Company includes a subsidiary of the Company and an unbroken chain of corporations
beginning with the

 

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Company if each of
the corporations other than the last corporation in the unbroken chain owns 50%
or more of the voting stock in one of the other corporations in such chain.

 

1.21                           Stock.  The term “stock” shall mean shares of common
stock, $.01 par value, of the Company.

 

1.22                           Stock Appreciation Right.  The term “Stock Appreciation Right” or “SAR”
shall mean the grant, pursuant to Section 7, of a right to receive a
payment from the Company, in the form of Stock, cash or a combination of both,
equal to the excess of the Fair Market Value of one or more shares of Stock
over the exercise price of such shares under the terms of such Stock
Appreciation Right.

 

SECTION 2
PURPOSE

 

The Mesaba Holdings, Inc. 2000 Stock Incentive
Plan has been established by Mesaba Holdings, Inc. to (i) attract and
retain individuals eligible to participate in the Plan; (ii) motivate
Eligible Individuals, by means of appropriate incentives, to achieve long-range
goals; (iii) provide incentive compensation opportunities that are
competitive with those of other similar companies; and (iv) further
identify Eligible Individuals’ interests with those of the Company’s other
shareholders through compensation that is based on the Company’s common stock;
and thereby promote the long-term financial interest of the Company and any
Related Company, including the growth in value of the Company’s equity and
enhancement of long-term shareholder return.

 

SECTION 3
PARTICIPATION

 

Subject to the terms and conditions of the Plan, the
Committee may determine and designate, from time to time, Eligible Individuals
who will be granted one or more Awards under the Plan at the Exercise
Price.  In its sole discretion and
without shareholder approval, the Committee may grant to an Eligible Individual
any Award or Awards permitted under the provisions of the Plan. Awards may be
granted as alternatives to or replacement of Awards outstanding under the Plan,
or any other plan or arrangement of the Company or Related Company (including a
plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Related Company). 
Only employees are eligible to be granted Incentive Stock Options.

 

SECTION 4
STOCK OPTIONS

 

4.1                                 General.  The grant of an Option entitles the Eligible
Individual to purchase shares of Stock at an Exercise Price established by the
Committee.  Any Option awarded to
Eligible Individuals under this Section 4 may be either NSOs or ISOs, as
determined in the discretion of the Committee. 
To the extent that any Stock Option does not qualify as an ISO, it shall
constitute an NSO.

 

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4.2                                 Option Awards.  Subject to the following provisions, Options
awarded under the Plan shall be in such form and shall have such terms as the
Committee may determine and specify in an Award Agreement entered into between
the Eligible Individual and the Company.

 

(a)                                  Exercise of an Option. 
An Option shall be exercisable in accordance with such terms and conditions
and during such periods as may be established by the Committee.  In no event shall any fraction of a share of
Stock be issued upon the exercise of an Option. 
An Option must be exercised for at least 100 shares of Stock, or such
lesser number of shares of Stock if the remaining portion of an Option is for
fewer than 100 shares of Stock.

 

(b)                                 Exercise Price.  The Exercise Price of an Option
granted under this Section 4 shall be established by the Committee or
shall be determined by a method established by the Committee at the time the
Option is granted, except that the Exercise Price for an ISO shall not be less
than 100% of the Fair Market Value of the Company’s Stock on the date of grant.

 

(c)                                  Payment of Option Exercise Price.  The payment of the Exercise Price of an
Option granted under this Section 4 shall be subject to the following:

 

(1)                                  Subject
to the following provisions of this Subsection 4.2(c), the full Exercise
Price for shares of Stock purchased upon the exercise of any Option shall be paid
at the time of such exercise or such other time as approved by the Committee.

 

(2)                                  Payment
of the Exercise Price shall be made in such manner as the Committee may provide
in the Award, which may include cash (including cash equivalents), tendering of
shares of Stock acceptable to the Committee and either already owned by the
Eligible Individual or subject to Awards hereunder (so-called “cashless” or “immaculate”
exercise methods), and any other manner permitted by law and approved by the
Committee, or any combination of the foregoing. 
If the Company determines that a Stock Option may be exercised using
shares of Restricted Stock, then unless the Committee provides otherwise, the
shares received upon the exercise of a Stock Option which are paid for using
Restricted Stock shall be restricted in accordance with the original terms of
the Restricted Stock Award.  In the case
of any deferred payment arrangement, interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.

 

(3)                                  An
Eligible Individual may elect to pay the Exercise Price upon the exercise of an
Option by irrevocably authorizing a third party

 

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to sell shares of
Stock (or a sufficient portion of the shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire Exercise Price and any tax withholding resulting from such
exercise.

 

(d)                                 Settlement of Option. 
Shares of Stock delivered pursuant to the exercise of an Option shall be
subject to such conditions, restrictions and contingencies as the Committee, in
its discretion,  may establish in
addition to such conditions, restrictions, and contingencies set forth in the
Award Agreement.

 

(e)                                  Reload Options. The Committee may grant “reload” options,
pursuant to the terms and conditions established by the Committee and any
applicable requirements of Rule 16b-3 of the Exchange Act (“Rule 16b-3”)
or any other applicable law.  The
Eligible Individual would be granted a new Option when the payment of the
Exercise Price of a previously granted Option is made by the delivery of shares
of the Company’s Stock owned by the Eligible Individual pursuant to Section 4.2(c)(2) hereof
and/or when shares of the Company’s Stock are tendered or forfeited as payment
of the amount to be withheld under applicable income tax laws in connection
with the exercise of an Option.  The new
Option would be an Option to purchase the number of shares not exceeding the
sum of (i) the number of shares of the Company’s Stock provided as
consideration upon the exercise of the previously granted Option to which such “reload”
option relates and (ii) the number of shares of the Company’s Stock
tendered or forfeited as payment of the amount to be withheld under applicable
income tax laws in connection with the exercise of the Option to which such “reload”
option relates.  “Reload” options may be
granted with respect to Options granted under this Plan.  Such “reload” options shall have a per share
exercise price equal to the Fair Market Value as of the date of grant of the
new Option.

 

(f)                                    Vesting.  Eligible
Individuals shall vest in all Options in accordance with the terms and
conditions of the Award Agreement entered into by and between the Eligible
Individual and the Company.  The total
number of shares of Stock subject to an Option may, but need not, vest and
therefore become exercisable in periodic installments that may, but need not,
be equal.

 

(g)                                 Option Term.  The term
of each Option shall be fixed by the Committee. 
In the event that the Plan is terminated pursuant to terms and
conditions of Section 12, the Plan shall remain in effect as long as any
Awards under it are outstanding.

 

(h)                                 Termination of Employment. 
Following the termination of Eligible Individual’s employment with the
Company or a Related Company, the

 

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Option shall be
exercisable to the extent determined by the Committee and specified in the
Award Agreement.  The Committee may
provide different post-termination exercise provisions with respect to
termination of employment for different reasons.

 

(i)                                     Incentive Stock Options.  ISO
grants may only be awarded to employees of the Company, a “parent corporation,”
or a “subsidiary corporation” as those terms are defined in Sections 424(e) and
424(f) of the Code.  In order for an
employee to be eligible to receive an ISO grant, the employee must be employed
by the Company, parent corporation, or subsidiary corporation during the period
beginning on the date the Option is granted and ending on the day three months
prior to the date such Option is exercised.  Notwithstanding the provisions of Section 4.2,
no ISO shall (i) have an Exercise Price which is less than 100% of the
Fair Market Value of the Stock on the date of the ISO Award, (ii) be
exercisable more than ten (10) years after the ISO is awarded, or (iii) be
awarded more than ten (10) years after the Effective Date of this
Plan.  No ISO awarded to an employee who
owns more than 10% of the total combined voting power of all classes of Stock
of the Company, its “parent corporation” or any “subsidiary corporation” shall (i) have
an Exercise Price of less than 110% of the Fair Market Value of the Stock on
the date of the ISO Award or (ii) be exercisable more than five (5) years
after the date of the ISO Award. 
Notwithstanding Section 10.7, no ISO shall be transferable other
than by will and the laws of descent and distribution.  To the extent that the aggregate fair market
value (determined at the time of grant) of shares of Stock with respect to ISOs
are exercisable for the first time by the employee during any calendar year, in
combination with shares first exercisable under all other plans of the Company
and any Related Company, exceeds $100,000, such Options shall be treated as
NSOs.

 

(j)                                     Early Exercise.  The
Option may, but need not, include a provision whereby the Eligible Individual
may elect at any time prior to his or her termination of employment with the
Company to exercise the Option as to any part or all of the shares of Stock
subject to the Option prior to the full vesting of the Option.  Any unvested shares of Stock so purchased may
be subject to a repurchase option in favor of the Company or to any other
restrictions the Committee determines to be appropriate.

 

SECTION 5
PERFORMANCE AWARDS

 

The Committee shall have the right to designate Awards
as “Performance Awards.”  The grant or
vesting of a Performance Award shall be subject to the achievement of
performance objectives established by the Committee based on one or more of the
following criteria, in each case applied to the Company on a consolidated basis
or to a business unit, as specified by the Committee in an Award Agreement, and
which the Committee may use as an absolute measure, as a measure of improvement
relative to prior performance, or as a measure of comparable

 

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performance relative to a peer group of companies:  sales, operating profits, operating profits
before interest expenses and taxes, net earnings, earnings per share, return on
equity, return on assets, return on invested capital, total shareholder return,
cash flow, debt to equity ratio, market share, stock price, economic value
added, and market value added.  The terms
and conditions of a Performance Award shall be set forth in an Award Agreement
entered into between the Company and the Eligible Individual.

 

SECTION 6
RESTRICTED STOCK

 

Subject to the following provisions, the Committee may
grant Awards of Restricted Stock to an Eligible Individual in such form and on
such terms and conditions as the Committee may determine and specify in a
Restricted Stock Award Agreement entered into between the Company and the
Eligible Individual:

 

(a)                                  The
Restricted Stock Award shall specify the number of shares of Restricted Stock
to be awarded, the price, if any, to be paid by the Eligible Individual and the
date or dates on which, or the conditions upon the satisfaction of which, the
Restricted Stock will vest.  The grant
and/or the vesting of Restricted Stock may be conditioned upon the completion
of a specified period of service with the Company or a Related Company, upon
the attainment of specified performance objectives or upon such other criteria
as the Committee may determine.

 

(b)                                 Stock
certificates representing the Restricted Stock awarded to an Eligible
Individual shall be registered in the Eligible Individual’s name, but the
Committee may direct that such certificates be held by the Company or its
designee on behalf of the Eligible Individual. 
Except as may be permitted by the Committee, no share of Restricted
Stock may be sold, transferred, assigned, pledged or otherwise encumbered by an
Eligible Individual until such share has vested in accordance with the terms of
the Restricted Stock Award.  At the time
the Restricted Stock vests, a certificate for such vested shares shall be
delivered to the Eligible Individual (or his or her designated beneficiary in
the event of death), free from the restrictions imposed thereon except that any
restrictions under federal or state securities laws shall continue to apply.

 

(c)                                  The
Committee may provide that the Eligible Individual shall have the right to vote
or receive dividends on Restricted Stock. 
Unless the Committee provides otherwise, Stock received as a dividend
on, or in connection with a stock split of, Restricted Stock shall be subject
to the same restrictions as the Restricted Stock.

 

(d)                                 Except
as may be provided by the Committee, in the event of an Eligible Individual’s
termination of employment or relationship with the Company prior to all of his
or her Restricted Stock becoming vested, or in the event any conditions to the
vesting of Restricted Stock have not been satisfied

 

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prior to any
deadline for the satisfaction of such conditions as set forth in the Restricted
Stock Award, the shares of Restricted Stock which have not vested shall be
forfeited, and the Committee may provide that (i) any purchase price paid
by the Eligible Individual be returned to the Eligible Individual or (ii) a
cash payment equal to the Restricted Stock’s fair market value on the date of
forfeiture, if lower, be paid to the Eligible Individual.

 

(e)                                  The
Committee may waive, in whole or in part, any or all of the conditions to
receipt of, or restrictions with respect to, any or all of the Eligible
Individual’s Restricted Stock.

 

SECTION 7

STOCK APPRECIATION RIGHTS

 

SARs may be granted at a price determined by the
Committee, and may be granted in tandem with an Option or independently of any
Option.  If granted in tandem with an
Option, the exercise of the SAR or related Option will result in a forfeiture
of the right to exercise the related Option for an equivalent number of shares.

 

An SAR may be exercised at such times as may be
specified in an Award Agreement, in whole or in installments, which may be
cumulative and shall expire at such time as the Committee shall determine at
the time of grant; provided that no SAR shall be exercisable later than ten (10) years
after the date granted.  The Committee
may amend any SAR to accelerate the dates after which the SAR may be executed
in whole or in part.

 

SARs shall be exercised by the delivery of a written
notice of exercise to the Company setting forth the number of shares of Stock
with respect to which the SAR is to be exercised.

 

SECTION 8

OTHER STOCK BASED AWARDS

 

The Committee shall have complete discretion in
determining the number of shares of Stock subject to Other Stock Based Awards,
the consideration for such Awards and the terms, conditions and limitations
pertaining to same including, without limitation, restrictions based upon the
achievement of specific business objectives, tenure, and other measurements of
individual or business performance, and/or restrictions under applicable
federal or state securities laws, and conditions under which such Awards will
lapse.

 

Payment of Other Stock Based Awards may be in the form
of cash, shares, other Awards, or in such combinations thereof as the committee
shall determine at the time of grant, and with such restrictions as it may
impose.  Payment may be made in a lump
sum or in installments as prescribed by the Committee.  The Committee may also require or permit
Eligible Individuals to elect to defer the issuance of Stock or the settlement
of Awards in cash under such rules and procedures as it may establish
under the Plan.  The Committee may also
provide that deferred settlements include the payment or crediting of interest
on the deferred amounts or the payment of crediting of dividends equivalent to
deterred amounts denominated in Stock.

 

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The Committee may, at its sole discretion, direct the
Company to issue Stock subject to such restrictive legends and/or stock
transfer instructions as the Committee deems appropriate.

 

SECTION 9
TAX OFFSET PAYMENTS

 

The Committee may provide for a Tax Offset Payment to
be made by the Company to an Eligible Individual with respect to one or more
Awards granted under the Plan.  The Tax
Offset Payment shall be in an amount specified by the Committee, which shall
not exceed the amount necessary to pay the federal, state, local and other
taxes payable with respect to the applicable Award, assuming that the Eligible
Individual is taxed at the maximum tax rate applicable to such income.  The Tax Offset Payment shall be paid solely in
cash.  No Eligible Individual shall be
granted a Tax Offset Payment for any fiscal year with respect to more than the
number of shares of Stock covered by Awards granted to such Eligible Individual
in such fiscal year.  The terms and
conditions of a Tax Offset Payment Award shall be set forth in an Award
Agreement entered into between the Company and the Eligible Individual.

 

SECTION 10
OPERATION AND ADMINISTRATION

 

10.1                           General.  The operation and administration of this
Plan, including any Awards granted under this Plan, shall be subject to the
provisions of Section 10.

 

10.2                           Effective Date.  Subject to the approval of the shareholders
of the Company, the Plan shall be effective as of July 24, 2000 (the “Effective
Date”) provided, however, that to the extent that Awards are granted under the
Plan prior to its approval by the shareholders of the Company, the Awards shall
be subject to the approval of the Plan by the shareholders of the Company.  The term of the Plan shall be limited in
duration to ten (10) years from the earlier of (a) the Effective Date
or (b) the date the Plan is approved by the Company’s shareholders.

 

10.3                           Shares Subject to Plan.  The shares of Stock for which Awards may be
granted under this Plan shall be subject to the following:

 

(a)                                  Subject
to the following provisions of this Section 10.3, the maximum aggregate
number of shares of Stock that may be issued and sold under the Plan shall be
the sum of (i) 1,000,000 shares of Stock, (ii) any shares of Stock
available for future awards under the Company’s 1994 Stock Option Plan and 1996
Director Stock Option Plan, in each case on the date such plan terminates on
its own terms or by action of the Board and (iii) any shares of Stock
covered by options granted under the Company’s 1994 Stock Option Plan and 1996
Director Stock Option Plan which expire or are canceled without delivery of
shares of Stock.  The number of shares of
Stock so reserved for issuance shall be subject to adjustment pursuant to
Sections 10.3 (b) and 10.3(d).  The
shares of Stock may be authorized, but unissued, or reacquired Stock.

 

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(b)                                 On
September 1st of each year, commencing with year 2001, the aggregate
number of shares of Stock that may be awarded under the Plan shall
automatically increase by the lesser of (i) 300,000 shares of Stock, (ii) 1%
of the outstanding shares of Stock on such date, or (iii) a lesser amount
determined by the Committee.

 

(c)                                  To
the extent an Award terminates without having been exercised, or shares awarded
are forfeited, such shares shall again be available issue under the Plan.  Shares of Stock surrendered in payment of the
Exercise Price and shares of Stock which are withheld in order to satisfy federal,
state or local tax liability, shall not count against the maximum aggregate
number of shares authorized to be issued pursuant to this Plan, and shall again
be available for issuance pursuant to the terms of the Plan.

 

(d)                                 In
the event of any merger, reorganization, consolidation, sale of substantially
all assets, recapitalization, stock dividend, stock split, combination or
reverse stock split, spin-off, split-up, split-off, distribution of assets or
other change in corporate structure affecting the Stock, a substitution or
adjustment, as may be determined to be appropriate by the Committee or the
Board in its sole discretion, shall be made in the aggregate number of shares
reserved for issuance under the Plan.  The
Board or Committee may make such other adjustments to participants’ Awards as
it deems appropriate to prevent substantial dilution or enlargement of the
rights granted to, or available for, participants in the Plan.

 

(e)                                  No
Eligible Individual shall be granted Awards with respect to more than 400,000
shares of Stock in any fiscal year and up to an additional 750,000 shares of
Stock upon the initial hiring of such Eligible Individual (subject to
adjustment as provided in Section 10.3(d)).

 

10.4                           Securities Laws Restrictions.  Issuance of shares of Stock or other amounts
under the Plan shall be subject to the following:

 

(a)                                  If
at any time the Committee determines that the issuance of Stock under the Plan
is or may be unlawful under the laws of any applicable jurisdiction, the right
to exercise any Stock Option or receive any Restricted Stock shall be suspended
until the Committee determines that such issuance is lawful.  The Company shall have no obligation to
effect any registration of qualification of the Stock under federal or state
laws.

 

(b)                                 Any
person exercising a Stock Option or receiving Restricted Stock shall make such
representations (including representations to the effect that such person will
not dispose of the Stock so acquired in violation of federal and state
securities laws) and furnish such information as may, in the opinion of counsel
for the Company, be appropriate to permit the

 

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Company to issue
the Stock in compliance with applicable federal and state securities laws.  The Committee may refuse to permit the
exercise of a Stock Option or issuance of Restricted Stock until such
representations and information have been provided.

 

(c)                                  The
Company may place an appropriate legend evidencing any transfer restrictions on
all shares of Stock issued under the Plan and may issue stop transfer
instructions in respect thereof.

 

(d)                                 To
the extent that the Plan provides for issuance of stock certificates to reflect
the issuance of shares of Stock, the issuance may be effected on a non-certificated
basis, to the extent not prohibited by applicable law or the applicable rules of
any stock exchange.

 

10.5                           Tax Withholding.  Each Eligible Individual shall, no later than
the date as of which the value of an Award first becomes includible in such person’s
gross income for applicable tax purposes, pay, pursuant to such arrangements 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 with respect to the Award.  The obligations of the Company under the Plan
shall be conditional on such payment, and the Company (and, where applicable,
any Related Company), shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
Eligible Individual.

 

10.6                           Payments.  Awards may be settled in any of the methods
described in Section 4.2(c).  Any
Award settlement, including payment deferrals, may be subject to such
conditions, restrictions and contingencies as the Committee shall
determine.  The Committee may permit or
require the deferral of any Award payment, subject to such rules and
procedures as it may establish, which may include provisions for the payment or
crediting of interest, or dividend equivalents, including converting such
credits into deferred Stock equivalents. 
Each Related Company shall be liable for payment of cash due under the
Plan with respect to any Eligible Individual to the extent that such benefits
are attributable to the services rendered for that Related Company by the
Eligible Individual.  Any disputes
relating to liability of a Related Company for cash payments shall be resolved
by the Committee.

 

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

 

10.8                           Form and Time of Elections.  Unless otherwise specified herein, each
election required or permitted to be made by any Eligible Individual or other
person entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.

 

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10.9                           Agreement With Company.  Any Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. 
The terms and conditions of any Award shall be reflected in an Award
Agreement.  A copy of the Award Agreement
shall be provided to the Eligible Individual, and the Committee may, but need
not require, the Eligible Individual to sign the Award Agreement.

 

10.10                     Limitation of Implied Rights.

 

(a)                                  Neither
an Eligible Individual nor any other person shall, by reason of participation
in the Plan, acquire any right in or title to any assets, funds or property of
the Company or any Related Company whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company or any Related
Company, in its sole discretion, may set aside in anticipation of a liability
under the Plan.  An Eligible Individual
shall have only a contractual right to the Stock or amounts, if any, payable
under the Plan, unsecured by any assets of the Company or any Related Company,
and nothing contained in the Plan shall constitute a guarantee that the assets
of the Company or any Related Company shall be sufficient to pay any benefits
to any Eligible Individual.

 

(b)                                 This
Plan does not constitute a contract of employment, and selection as a Eligible
Individual will not give the Eligible Individual the right to be retained in
the employ of the Company or any Related Company, nor any right or claim to any
future grants or to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.  Except as otherwise provided in the Plan, no
Award under the Plan shall confer upon an Eligible Individual any rights of a
shareholder of the Company prior to the date on which the Eligible Individual
fulfills all conditions for receipt of such rights.

 

10.11                     Termination for Cause.  If the employment of an Eligible Individual
is terminated by the Company or a Related Company for “cause,” then the
Committee shall have the right to cancel any Options granted to the Eligible
Individual under the Plan.  The term “cause”
shall mean (1) the Eligible Individual’s violation of any provision of any
non-competition agreement or confidentiality agreement with the Company; (2) an
illegal or negligent action by the Eligible Individual that materially and
adversely affects the Company; (3) the Eligible Individual’s failure or refusal
to perform his/her duties (except when prevented by reason of illness or
disability); or (4) conviction of the Eligible Individual of a felony
involving moral turpitude.

 

10.12                     Evidence.  Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.

 

12

 

SECTION 11
COMMITTEE

 

11.1                           Administration.  The Plan shall be administered by the
Compensation Committee of the Board or such other committee of Directors as the
Board shall designate, which shall consist of not less than two Non-Employee
Directors.  The members of the Committee
shall be Non-Employee Directors and shall serve at the pleasure of the
Board.  To the extent that the Board
determines it to be desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the Plan
shall be administered by a Committee of two or more “outside directors” within
the meaning of Section 162(m) of the Code. 
To the extent that the Board determines it to be desirable to qualify
Awards as exempt under Rule 16b-3, the Award transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.  All determinations made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Eligible Individuals.  The Board may administer the Plan or exercise
any or all of the administration duties of the Committee at any time when a
Committee meeting the requirements of this Section has not been appointed,
and the Board may exempt Awards pursuant to Rule 16b-3(d)(1) of the
Exchange Act.

 

11.2                           Powers of Committee.  The Committee shall have the following
authority with respect to Awards under the Plan: to grant Awards; to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall deem advisable; to interpret the terms and provisions of
the Plan and any Award granted under the Plan; and to otherwise supervise the
administration of the Plan.  In
particular, and without limiting its authority and powers, the Committee shall
have the authority:

 

(a)                                  to
determine whether and to what extent any Award or combination of Awards will be
granted hereunder;

 

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

 

(c)                                  to
determine the number of shares of Stock to be covered by each Award granted
hereunder subject to the limitations contained herein;

 

(d)                                 to
determine the terms and conditions of any Award granted hereunder, including,
but not limited to, any vesting or other restrictions based on such performance
objectives and such other factors as the Committee may establish, to determine
the acceleration of any vesting restrictions under certain circumstances such
as a change in control of the Company, and to determine whether the performance
objectives and other terms and conditions of the Award are satisfied;

 

(e)                                  to
determine the treatment of Awards upon the Eligible Individual’s retirement,
disability, death, termination for cause or other termination of employment or
service;

 

13

 

(f)                                    to
determine that amounts equal to the amount of any dividends declared with
respect to the number of shares covered by an Award (i) will be paid to
the Eligible Individual currently or (ii) will be deferred and deemed to
be reinvested or (iii) will otherwise be credited to the Eligible
Individual or that the Eligible Individual has no rights with respect to such
dividends; and

 

(g)                                 to
amend the terms of any Award, prospectively or retroactively; provided,
however, that no amendment shall impair the rights of the Eligible Individual
without his or her written consent.

 

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

 

11.3                           Delegation by Committee.  Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities
and powers to any person or persons selected by it.  Any such allocation or delegation may be
revoked by the Committee at any time.

 

11.4                           Information to be Furnished to Committee.  The Company and any Related Company shall
furnish the Committee with such data and information as it determines may be
required for it to discharge its duties. 
The records of the Company and any Related Company as to an Eligible
Individual’s employment, termination of employment, leave of absence,
reemployment and compensation shall be conclusive on all persons unless
determined to be incorrect.  Eligible
Individuals and other persons entitled to benefits under the Plan must furnish
the Committee such evidence, data or information as the Committee considers
desirable to carry out the terms of the Plan.

 

11.5                           Non-Liability of Board and Committee.  No member of the Board or the Committee, nor
any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan, and all members of the
Board or the Committee and all officers or employees of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and protected
by the Company with respect to any such action, determination or
interpretation.

 

SECTION 12
AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate the
Plan, provided that no amendment or termination may, in the absence of written
consent to the change by the affected Eligible

 

14

 

Individual (or, if the Eligible Individual is not then living, the
affected beneficiary), adversely affect the rights of any Eligible Individual
or beneficiary under any Award granted under the Plan prior to the date such
amendment is adopted by the Board; provided that adjustments made pursuant to
Subsection 10.3(d) shall not be subject to the foregoing limitations
of this Section 12.  An amendment
shall be subject to approval by the Company’s shareholders only to the extent
required by applicable laws, regulations or rules of a stock exchange or
similar entity.

 

SECTION 13
GENERAL PROVISIONS

 

13.1                           Award Agreements.  No Eligible Individual will have rights under
an Award granted to such Eligible Individual unless and until an Award
Agreement has been duly executed on behalf of the Company and the Eligible
Individual.

 

13.2                           No Limit on Other Compensation Arrangements.  Nothing contained in the Plan shall prevent
the Company or any Related Company from adopting or continuing in effect other
or additional compensation arrangements, and such arrangements may be either
generally applicable or applicable only in specific cases.

 

13.3                           Headings.  The headings of the sections and subsections
of this Plan are intended for the convenience of the parties only and shall in
no way be held to explain, modify, construe, limit, amplify or aid in the
interpretation of the provisions hereof.

 

13.4                           Beneficiaries.  An Eligible Individual may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan may be paid or
transferred in case of death.  Each
designation will revoke all prior designations, shall be in a form prescribed
by the Committee, and will be effective only when filed by the Eligible
Individual in writing with the Committee during his or her lifetime.  In the absence of any such designation,
benefits outstanding at the Eligible Individual’s death shall be paid or
transferred to his or her estate.  There
shall be no third party beneficiaries of or to this Plan.  Any beneficiary of the Eligible Individual
shall have only a claim to such benefits as may be determined to be payable
hereunder, if any, and shall not, under any circumstances other than the right
to claim such benefits, be deemed a third party beneficiary of or to this Plan.

 

13.5                           Repurchase Option.  The terms of any repurchase option shall be
specified in the Award Agreement.

 

13.6                           Governing Law.  The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of
Minnesota, except to the extent preempted by federal law, without regard to the
principles of comity or the conflicts of law provisions of any jurisdiction.

 

[END
OF PLAN.]

 

15Exhibit 10.4

 

MESABA AVIATION,
INC.

2003 INCENTIVE AWARD PLAN

AS ADOPTED NOVEMBER 19, 2003

 

SECTION 1

DEFINED TERMS

 

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

 

1.1           Award Agreement.  The term “Award Agreement” means the document
that evidences an Award and which sets forth the terms, conditions and
limitations relating to such Award.

 

1.2           Award.  The term “Award” shall mean any award or
benefit granted in accordance with the terms of the Plan.  Awards under the Plan may be in the form of
Stock Appreciation Rights, Performance Awards, Other Stock Based Awards or Tax
Offset Payments.  The terms and
conditions of the Award shall be set forth in an Award Agreement.

 

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

 

1.4           Committee.  The term “Committee” shall mean a committee
described in Section 9.

 

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

 

1.6           Director.  The term “Director” shall mean a member of
the 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 of
the Company’s Board.  All Eligible
Individuals must be natural persons who provide bona fide services to the
Company.  An Award may be granted to an
Eligible Individual prior to the date the Eligible Individual performs services
for the Company, provided that such Award shall not become vested prior to the
date the Eligible Individual first performs such services.

 

1.8           Fair Market  Value.  The term “Fair Market Value” of a share of
Stock on a given date shall mean the closing price of the share of Stock as
reported on the Nasdaq Stock Market on such date,
if the share of Stock is then quoted on the Nasdaq Stock Market or, if the
market is closed on that date, the closing price of the share of Stock on the
previous trading day.  If the Stock is
not listed on the Nasdaq Stock Market, Fair Market Value shall be determined in
good faith by the Board.

 

1.9           Other Stock Based Award.  The term “Other
Stock Based Award” shall mean an Award, granted pursuant to Section 6, other
than a SAR, that is valued in whole or in part by reference to, or is otherwise
based on Stock.

 

1.10         Performance Award.  The term “Performance Award” shall mean an
Award based upon the achievement of performance objectives, as contemplated by
Section 5.

 

 

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

 

1.12         Stock.  The term “Stock” shall mean shares of common
stock, $.01 par value, of MAIR Holdings, Inc., a Minnesota corporation that
owns 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 payment
from the Company in cash, equal to the excess of the Fair Market Value of one
or more shares of Stock over the grant price of such shares under the terms of
such Stock Appreciation Right.

 

SECTION 2

PURPOSE

 

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

 

SECTION 3

PARTICIPATION

 

Subject to the terms and conditions of the Plan, the
Board may determine and designate, from time to time, Eligible Individuals who
will be granted one or more Awards under the Plan.  In its sole discretion and without
shareholder approval, the Board may grant to an Eligible Individual any Award
or Awards permitted under the provisions of the Plan.  Awards may be granted as alternatives to or
replacement of Awards outstanding under the Plan, or any other plan or
arrangement of the Company.

 

SECTION 4

STOCK APPRECIATION RIGHTS

 

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

 

SARs shall be exercised by the delivery of a written
notice of exercise to the Company setting forth the number of shares of Stock
with respect to which the SAR is to be exercised.

 

2

 

SECTION 5

PERFORMANCE AWARDS

 

The Committee shall have the right to designate Awards
as “Performance Awards.”  The grant or
vesting of a Performance Award shall be subject to the achievement of
performance objectives established by the Board based on one or more of the
following 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 as
an absolute measure, as a measure of improvement relative to prior performance,
or as a measure of comparable performance relative to a peer group of
companies: sales, operating profits, operating profits before interest expenses
and taxes, net earnings, earnings per share, return on equity, return on
assets, return on invested capital, total shareholder return, cash flow, debt
to equity ratio, market share, stock price, economic value added, market value
added, or other similar measure of performance. 
The terms and conditions of a Performance Award shall be set forth in an
Award Agreement entered into between the Company and the Eligible Individual.

 

SECTION 6

OTHER STOCK BASED AWARDS

 

The Board shall have complete discretion in
determining the terms, conditions and limitations pertaining to Other Stock
Based Awards, including, without limitation, phantom stock units, payments
based upon the achievement of specific business objectives, tenure, and other
measurements of individual or business performance, and the conditions under
which such Awards will vest or lapse.

 

Payment of Other Stock Based Awards may be in the form
of cash or other Awards, or in such combinations thereof as the Board shall
determine at the time of grant, and with such restrictions as it may
impose.  Payment may be made in a lump
sum or in installments as prescribed by the Board.  The Board may also require or permit Eligible
Individuals to elect to defer the settlement of Awards in cash under such rules
and procedures as it may establish under the Plan.  The Board may also provide that deferred
settlements include the payment or crediting of interest on the deferred amounts.

 

SECTION 7

TAX OFFSET PAYMENTS

 

The Board may provide for a Tax Offset Payment to be
made by the Company to an Eligible Individual with respect to one or more
Awards granted under the Plan.  The Tax
Offset Payment shall be in an amount specified by the Board, which shall not
exceed the amount necessary to pay the federal, state, local and other taxes
payable with respect to the applicable Award, assuming that the Eligible
Individual is taxed at the maximum tax rate applicable to such income.  The Tax Offset Payment shall be paid solely
in cash.  The terms and conditions of a
Tax Offset Payment Award shall be set forth in an Award Agreement entered into
between the Company and the Eligible Individual.

 

3

 

SECTION 8

OPERATION AND ADMINISTRATION

 

8.1           Effective Date.  The Plan shall be
effective as of November 17, 2003 (the “Effective Date”).  The Plan shall remain in effect until
terminated in writing by the Board, which the Board expressly reserves the
right to do, subject to the provisions of Section 9.2  hereof.

 

8.2           Tax Withholding.  Each Eligible Individual shall, no later than
the date as of which the value of an Award first becomes includible in such
person’s gross income for applicable tax purposes, pay, pursuant to such
arrangements 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 with
respect to the Award.  The obligations of
the Company under the Plan shall be conditional on such payment, and the
Company shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Eligible
Individual.

 

8.3           Payments.  Awards may be settled in cash or by other
Awards, as specified in the Award Agreement. 
No Award may result in, or be paid by, the issuance of Stock or other
securities.  Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions
and 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 include
provisions 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 beneficiary
designation, will or by the laws of descent and distribution.  If the Board makes an Award transferable, the
Award Agreement shall set forth such additional terms and conditions regarding
transferability as the Board deems appropriate.

 

8.5           Form and Time of Elections.  Unless otherwise specified herein, each
election required or permitted to be made by any Eligible Individual or other
person entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing delivered to the Company at such times,
in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Board shall require.

 

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

 

8.7           Limitation of Implied
Rights.

 

(a)                                  Neither
an Eligible Individual nor any other person shall, by reason of participation
in the Plan, acquire any right in or title to any assets, funds or property of
the Company or any of its affiliates whatsoever, including, without limitation,
any specific funds, assets, or other property which the Company or any
affiliate, in its sole discretion, may set aside in anticipation of a liability
under the Plan.  An Eligible Individual
shall have only a contractual right to the amounts, if any, payable under the
Plan,

 

4

 

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

 

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

 

8.8           Termination for Cause.  If the employment of an Eligible Individual
is terminated by the Company for “cause,” then the Board shall have the right
to cancel any Awards granted to the Eligible Individual under the Plan and the
Eligible Individual shall forfeit any and all rights under the Plan.  The term “cause” shall mean (1) the Eligible
Individual’s violation of any provision of any non-competition agreement or
confidentiality agreement with the Company; (2) an illegal or negligent action
by 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) conviction
of the Eligible Individual of a felony involving moral turpitude or financial
impropriety.

 

8.9           Evidence.  Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or presented
by the proper party or parties.

 

8.10         Awards to Section 16
Reporting Persons.  Any
Award granted to an Eligible Individual who is required to report his or her
beneficial ownership of Stock pursuant to Section 16(a) of the Securities
Exchange Act of 1934 shall be structured to satisfy the requirements for
exemption under Rule 16b-3(d)(3).  SARs
granted to such persons shall first become exercisable not less than six months
after the date of grant.

 

8.11         Claims Procedure.

 

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

 

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

 

5

 

representative may submit pertinent documents and
written issues and comments.

 

(c)                                  Review
Procedure.  The Board shall decide
the issue on review and furnish the claimant with a copy within 60 days of
receipt of the claimant’s request for review. 
The decision on review shall be in writing and shall include specific
reasons for the decision written in a manner calculated to be understood by the
claimant, as well as specific reference to the pertinent Plan provisions on
which the decision is based.  If a copy
of the decision is not so furnished to the claimant within 60 days, the claim
shall be deemed denied on review.

 

SECTION 9

AUTHORITY OF THE BOARD

 

9.1           Administration.  The Plan shall be administered by Board or
such Committee of one or more Directors as the Board shall designate to
administer the Plan.  The Board may administer
the Plan or exercise any or all of the administrative duties of the Committee
at any time when a Committee has been appointed by the Board.  All determinations made by the Board pursuant
to 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 authority
with respect to Awards under the Plan: to grant Awards; to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan
as it shall deem advisable; to interpret the terms and provisions of the Plan
and any Award granted under the Plan; and to otherwise supervise the
administration of the Plan.  In
particular, and without limiting its authority and powers, the Board shall have
the authority:

 

(a)                                  to
determine whether and to what extent any Award or combination of Awards will be
granted hereunder;

 

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

 

(c)                                  to
determine the terms and conditions of any Award granted hereunder, including,
but not limited to, any vesting or other restrictions based on such performance
objectives and such other factors as the Board may establish, to determine the
acceleration of any vesting restrictions under certain circumstances such as a
change in control of the Company or any affiliate, and to determine whether the
performance objectives and other terms and conditions of the Award are
satisfied;

 

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

 

6

 

(e)                                  to
amend the terms of any Award, prospectively or retroactively; provided,
however, that no amendment shall impair the rights of the Eligible Individual
without his or her written consent.

 

Determinations by the Board under the Plan relating to
the form, amount, and terms and conditions of Awards need not be uniform, and
may be made selectively among Eligible Individuals who receive Awards under the
Plan, whether or not such Eligible Individuals are similarly situated.  The Board shall have the power to accelerate
the time at which an Award may first be exercised or the time during which an
Award or any part thereof will vest in accordance with the Plan,
notwithstanding any provisions in an Award Agreement stating the time at which
the 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 applicable
law, the Board may allocate all or any portion of its responsibilities and
powers to any one or more of its members and may delegate all or any part of
its responsibilities and powers to any person or persons selected by it.  Any such allocation or delegation may be
revoked by the Board at any time.

 

9.4           Information to be
Furnished to Board.  The
Company shall furnish the Board with such data and information as it determines
may 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 compensation
shall be conclusive on all persons unless determined to be incorrect.  Eligible Individuals and other persons
entitled to benefits under the Plan must furnish the Board such evidence, data
or information as the Board considers desirable to carry out the terms of the
Plan.

 

9.5           Non-Liability of Board.  No member of the Board or any officer or
employee of the Company acting on behalf of the Board shall be personally
liable for any action, determination or interpretation taken or made with
respect to the Plan, and all members of the Board and all officers or employees
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such action,
determination or interpretation.

 

SECTION 10

AMENDMENT AND TERMINATION

 

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

 

7

 

SECTION 11

GENERAL PROVISIONS

 

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

 

11.2         No Limit on Other
Compensation Arrangements. 
Nothing contained in the Plan shall prevent the Company from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.

 

11.3         Headings.  The headings of the sections and subsections
of this Plan are intended for the convenience of the parties only and shall in
no way be held to explain, modify, construe, limit, amplify or aid in the
interpretation of the provisions hereof.

 

11.4         Beneficiaries.  An Eligible
Individual may, from time to time, name any beneficiary or beneficiaries (who
may be named contingently or successively) to whom any benefit under the Plan
may be paid or transferred in case of death. 
Each designation will revoke all prior designations, shall be in a form
prescribed by the Board, and will be effective only when filed by the Eligible
Individual 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 or
transferred to his or her estate.  There
shall be no third party beneficiaries of or to this Plan.  Any beneficiary of the Eligible Individual
shall have only a claim to such benefits as may be determined to be payable
hereunder, if any, and shall not, under any circumstances other than the right
to claim such benefits, be deemed a third party beneficiary of or to this Plan.

 

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

 

11.6         Employment
Relationship.  Nothing in
this Plan or any award made hereunder shall interfere with or limit in any way
the right of the Company to terminate any Eligible Individual’s employment (if
applicable) at any time, with or without cause, nor confer upon any Eligible
Individual any right to continue in the employ of the Company.

 

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

 

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

 

8

 

11.9         Severability.  If any portion or provision of
this Plan shall be deemed invalid or unenforceable, in whole or in part, than
such provision or portion shall be deemed to be modified or restricted to the
extent and in the manner necessary to render the same valid and enforceable, or
shall be deemed excised from this Plan, as the case may require, and this Plan
shall be construed and enforced to the intent permitted by federal and Minnesota
law, as if so modified or restricted, or as if such provision or portion had
not been originally incorporated herein, as the case may be.

 

11.10       Adjustments
Upon Changes in Capitalization. 
The outstanding portion of any unexercised Award based on Stock shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of Stock or any other increase or
decrease in the number of shares of Stock effected without receipt of
consideration by MAIR Holdings, Inc. 
Such adjustment to Awards shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.

 

[END OF PLAN]

 

9

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