<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1996
REGISTRATION NO. 333-3092
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
AIRNET SYSTEMS, INC.
Exact name of Registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
OHIO 4500 31-1458309
(State or other (Primary Standard (I.R.S. Employer Identification
jurisdiction of Industrial Number)
incorporation or Classification Code
organization) Number)
</TABLE>
3939 INTERNATIONAL GATEWAY, COLUMBUS, OHIO 43219
(614) 237-9777
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
ERIC P. ROY
AIRNET SYSTEMS, INC.
3939 INTERNATIONAL GATEWAY
COLUMBUS, OHIO 43219
(614) 237-9777
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
RONALD A. ROBINS, JR. STEVEN R. FINLEY
VORYS, SATER, SEYMOUR AND GIBSON, DUNN & CRUTCHER LLP
PEASE
52 EAST GAY STREET 200 PARK AVENUE
COLUMBUS, OHIO 43215 NEW YORK, NEW YORK 10166
(614) 464-6400 (212) 351-4000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b)
OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY THE ITEMS OF PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1
ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
------------------------------------------------------ ------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus.......................
2. Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back Cover Pages
Prospectus...........................................
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges............................
4. Use of Proceeds....................................... Use of Proceeds; Prior S Corporation Status
5. Determination of Offering Price....................... Outside Front Cover Page; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Principal Shareholders
8. Plan of Distribution.................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered............ Description of Capital Stock
10. Interests of Named Experts and Counsel................ Legal Matters; Experts
11. Information with Respect to the Registrant............ Prospectus Summary; Risk Factors; Prior S Corporation
Status; Offering Related Transactions; Use of
Proceeds; Dividend Policy; Financial Statements;
Selected Financial Data; Selected Unaudited Condensed
Pro Forma Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Shareholders; Certain Relationships and Related Party
Transactions; Description of Certain Indebtedness
12. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities.......................
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 7, 1996
5,600,000 SHARES
AIRNET SYSTEMS
COMMON SHARES
The 5,600,000 common shares, par value $.01 per share (the "Common Shares"),
offered hereby are being offered by AirNet Systems, Inc. (the "Company"). Prior
to the Offering, there has been no public market for the Common Shares. It is
currently estimated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for the factors to be considered
in determining the initial public offering price.
Application has been made for listing the Common Shares for quotation on The
Nasdaq National Market under the symbol "ANSY."
Any investment in the Common Shares offered hereby involves a high degree of
risk. For a discussion of certain risks of an investment in the Common Shares
offered hereby, see "Risk Factors" on pages 8 to 11.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions* Company+
<S> <C> <C> <C>
Per Share........................ $ $ $
Total++.......................... $ $ $
</TABLE>
- ------------
* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
+ Before deducting expenses of the Offering payable by the Company estimated
to be $900,000.
++ The Company has granted the Underwriters a 30-day option to purchase up to
840,000 additional Common Shares on the same terms per share solely to cover
over-allotments, if any. If such option is exercised in full, the total
price to public will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to Company will be
$ . See "Underwriting."
-------------------
The Common Shares are being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., on or about
, 1996, against payment therefor in New York funds. The Underwriters
include:
DILLON, READ & CO. INC. THE ROBINSON-HUMPHREY
COMPANY, INC.
The date of this Prospectus is , 1996
<PAGE>
The following legend (in red ink) will run sideways down the front cover of the
Prospectus: Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The inside front cover of the Prospectus will contain gate-fold pictures as
follows:
1. A top-view picture of a Learjet in flight under the logo "AirNet Systems."
2. Under the heading "THE AIRNET SYSTEMS NETWORK" is the following caption:
"The Company operates a fully integrated national air transportation network
that operates between 85 cities in more than 40 states and delivers 13,000
time-critical shipments in three distinct route systems each working day."
Below such heading are three maps entitled "BASIC PROGRAM," PREMIUM PROGRAM" and
"CITY PROGRAM," respectively, which show the United States and have points
connected by lines reflecting the Company's flights.
Under the "BASIC PROGRAM" map is the following caption: "The `Basic' program
has a 9:30 PM-10:00 PM hub time in Columbus, Ohio and serves 3,900 zip codes
for delivery between 12:01 AM and 2:00 AM."
Under the "PREMIUM PROGRAM" map is the following caption: "The `Premium' program
has an 11:00 PM-11:30 PM hub time in Columbus, Ohio and Charlotte, North
Carolina and serves 5,400 zip codes for delivery by 3:00 AM."
Under the "CITY PROGRAM" map is the following caption: "The `City' program has a
4:00 AM-5:30 AM hub time in Columbus, Ohio and serves 8,500 zip codes for
delivery by approximately 8:00 AM."
3. Under the heading "THE AIRNET SYSTEMS DELIVERY PROCESS" are six photographs
as follows: (i) a photograph of a U.S. Check-Registered Trademark- delivery
truck and driver with the following caption: "U.S. CHECK-Registered
Trademark-: A typical shipment of canceled bank checks is presorted as to
final destination by bank personnel and then picked up from the bank customer
by a Company courier."; (ii) a photograph of a bar-code scanner and a bundle
of checks with the following caption: "The shipment is transported to the
local airport where it is scanned via bar-code technology into the Company's
proprietary ComCheck-SM- tracking system. The shipment is then loaded into
the Company's aircraft."; (iii) a photograph of a Learjet on the tarmac with
the following caption: "The Company's fast and reliable fleet of 23 Learjet
and 58 light twin engine aircraft transport shipments over 85,000 miles per
night, primarily Monday through Thursday."; (iv) a photograph of the Company's
sorting operations with the following caption: "Upon arrival at the Company's
Columbus, Ohio hub or one of its mini-hubs, the shipment is off-loaded,
sorted by destination and re-loaded onto the Company's aircraft."; (v) a
photograph of a U.S. Check-Registered Trademark- delivery truck being
off-loaded with the following caption: "At the destination city, the
shipment is off-loaded for the final time and delivered to the receiving
bank or Federal Reserve branch. There the shipment is once again
bar-code scanned and promptly downloaded into the Company's ComCheck-SM-
computer system and made available on-line to customers -- allowing banks to
manage their cash position and maximize float revenue."; and (vi) a
photograph of a TIMEEXPRESS-Registered Trademark- delivery truck and driver
with the following caption: "TIMEEXPRESS-Registered Trademark-: The Company's
TIMEEXPRESS-Registered Trademark- delivery services utilize the same
transportation network as the U.S. Check-Registered Trademark- bank delivery
system. The Company's proprietary OnTime-SM- corporate tracking software
supplies scheduling, pricing and delivery information to customers."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL
STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION PRESENTED IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND
HAS BEEN ADJUSTED TO REFLECT (I) THE REINCORPORATION OF THE COMPANY IN OHIO
AND THE CORRESPONDING 422.57:1 SPLIT OF THE COMMON SHARES PRIOR TO THE
OFFERING MADE HEREBY (THE "OFFERING"); (II) AN INCREASE IN THE AUTHORIZED
NUMBER OF COMMON SHARES TO 40,000,000; AND (III) THE CANCELLATION OF AN
OUTSTANDING WARRANT TO PURCHASE 2,483,537 COMMON SHARES AND THE EXERCISE OF AN
OUTSTANDING WARRANT TO PURCHASE 167,227 COMMON SHARES. REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" REFER COLLECTIVELY TO AIRNET SYSTEMS, INC. AND ITS
PREDECESSOR ENTITIES.
THE COMPANY
AirNet Systems, Inc. operates a fully integrated national air
transportation network that operates between 85 cities in more than 40 states
and delivers over 13,000 time-critical shipments each working day. The
Company's U.S. Check-Registered Trademark- division, which generates
approximately 86% of the Company's revenues, is the leading transporter of
canceled checks and related information for the U.S. banking industry, meeting
more than 1,100 daily deadlines. The Company's TIMEXPRESS-Registered
Trademark- division, which generates approximately 12% of the Company's
revenues, provides specialized, high-priority delivery service for customers
requiring a reliable late pick-up and early delivery service combined with
prompt, on-line delivery information. The Company's People Dedicated to
Quality ("PDQ") division offers retail aviation fuel sales and related ground
services for customers in Columbus, Ohio.
The Company currently operates a fleet of 81 aircraft (23 Learjet and 58
light twin engine aircraft), which fly approximately 85,000 miles per night,
primarily Monday through Thursday. The Company also provides ground pick-up
and delivery services throughout the nation, utilizing a fleet of 87
Company-owned ground vehicles as well as a ground transportation network of
over 350 independent contractors. The Company uses its own air transportation
network as well as commercial airlines, when appropriate, to provide same-day
and same-night delivery services for itself, as well as for certain major
overnight document and parcel delivery companies.
Later pick-ups and earlier deliveries than those offered by other national
carriers are the differentiating characteristics of the Company's
time-critical delivery network. In addition, the Company offers other value-
added services to its customers, such as on-line delivery information. The
Company consistently has achieved on-time performance levels exceeding 95%. In
order to maintain this performance, the Company utilizes a number of
proprietary customer service and management information systems to track,
sort, dispatch and control the flow of checks and small packages throughout
the Company's delivery system. Delivery times and certain shipment information
are available on-line and on the Internet. For example, ComCheck-SM-, a unique
proprietary software system, provides bank customers access to delivery time,
shipment information and retrieval of historical proof-of-delivery
information, critical data that enable banks to manage their cash position and
maximize float revenue. OnTime-SM- and Ship-Link-SM-, Company-developed
software programs, provide scheduling and pricing information, as well as
on-line delivery and shipper acknowledgment data for small package customers.
The Company also has developed several internal software programs to enhance
dispatch monitoring, cost control and customer service functions.
The Company believes that the market for reliable, time-critical
deliveries is growing as a result of a number of global trends, including: (i)
corporations requiring just-in-time inventory parts; (ii) medical laboratories
requiring same-day deliveries; (iii) consolidating ground-based small package
couriers requiring a national air delivery network; and (iv) global air
freight forwarders requiring a domestic connection for their international
networks that can deliver on a same-day/same-night or pre-8:00 a.m. basis. As
the Company's banking customers typically require services four nights per
week, there exists substantial available flight time and aircraft for the
Company to pursue these business opportunities. The Company believes its
flexible and reliable air transportation network and its demonstrated
expertise in providing time-critical deliveries position the Company to
provide such additional services at premium prices.
3
<PAGE>
BUSINESS STRATEGY
The principal components of the Company's operating and growth strategy
are as follows:
FOCUS ON UNIQUE AIRCRAFT TYPE AND ROUTE STRUCTURE. The Company's fast and
reliable fleet of 23 Learjets and 58 light twin engine aircraft is positioned
around a highly efficient and flexible national route structure designed to
facilitate late pick-up and early delivery times, minimize delays and simplify
flight scheduling. The Company's hub-and-spoke system, with a primary hub in
Columbus and several mini-hubs across the nation, enables the Company to match
the varying load capacities of its aircraft with the shipment weight and
volume of each destination city and to consolidate shipments at its mini-hubs
and primary hub.
ATTRACT, RETAIN AND MOTIVATE THE HIGHEST QUALITY PERSONNEL
AVAILABLE. Central to the Company's high service-oriented culture is a
commitment to hiring, retaining and motivating exceptionally talented
associates who are focused on a set of core values designed by the Company to
provide a working environment where integrity, accountability, open
communication, team management and responsibility and quality performance are
explicitly stated goals. The Company believes that its current compensation
and benefits packages, proposed stock ownership incentives and corporate
culture will continue to provide a competitive advantage in attracting and
motivating its associates.
EXPAND U.S. CHECK-REGISTERED TRADEMARK- POSITION IN THE BANKING
INDUSTRY. The Company intends to strengthen its leadership position in the
transportation of canceled bank checks by adding routes and aircraft to its
air transportation network to facilitate even more late pick-up and early
delivery times covering a greater number of cities. These capabilities,
combined with the Company's value-added services (such as ComCheck-SM-) not
currently offered by competing canceled bank check delivery companies, should
enable the Company to expand its position in this market.
GROW TIMEXPRESS-Registered Trademark- PACKAGE DELIVERY SERVICE. The
Company believes that its TIMEXPRESS-Registered Trademark- service offers a
more flexible pick-up and delivery schedule for small packages than those
offered by other national carriers, and appeals to customers with
time-sensitive delivery requirements. To date, growth in the Company's
TIMEXPRESS-Registered Trademark-business has been constrained by limited load
capacity on existing U.S. Check-Registered Trademark- routes. The Company
intends to purchase aircraft to provide additional capacity for the delivery
of canceled bank checks and small packages. The Company believes significant
opportunities exist for expanding its small package delivery business by more
aggressively marketing the TIMEXPRESS-Registered Trademark- brand-name and by
contracting to deliver for some of the national overnight package delivery
companies whose infrastructures cannot be easily modified to meet
same-day/same-night or pre-8:00 a.m. delivery deadlines.
PURSUE STRATEGIC ACQUISITION OPPORTUNITIES. The fragmented nature of the
air and ground package delivery industry, outside of the major national
carriers, provides the Company with opportunities for strategic acquisitions.
The Company believes it is well-positioned to consolidate regional air freight
operators and ground couriers by acquiring high-quality candidates. The
Company believes it has a demonstrated expertise in evaluating acquisition
opportunities based on the potential for revenue growth and profitability, as
well as a proven track record for efficiently integrating such acquisitions.
HISTORY AND OFFERING RELATED TRANSACTIONS
The Company was founded in 1974 and began transporting canceled checks on
a point-to-point basis out of Pontiac, Michigan. In 1980, the Company
established its primary hub in Columbus, Ohio to serve as the central point
for its nationwide air distribution system. In 1984, the Company formed
TIMEXPRESS-Registered Trademark- and began to deliver small package freight on
a national scale. In 1988, the Company entered into a non-competition
agreement (the "Wright Agreement") with Wright International Express, Inc.
("WIE") and its sole shareholder Donald W. Wright, Sr., and acquired certain
key assets of WIE. WIE was the Company's primary private sector competitor in
the canceled check transportation business. In 1989, the Company completed the
acquisition of Air Continental, Inc., the other principal private sector
competitor engaged in the interstate transportation of canceled checks. Today,
the Company's only significant competitor in the transportation of canceled
checks is the Interdistrict Transportation System (the "ITS") operated by the
Federal Reserve System (the "Federal Reserve").
4
<PAGE>
As part of the Wright Agreement, as amended, the Company agreed to pay a
percentage of the Company's cash flow on an on-going basis to Donald Wright
and granted him a warrant to purchase 2,483,537 Common Shares (the "Donald
Wright Warrant") and a warrant to Jeffrey Wright, Donald Wright's son, to
purchase 167,227 Common Shares (the "Jeffrey Wright Warrant" and, collectively
with the Donald Wright Warrant, the "Wright Warrants"), which warrants are
exercisable upon the closing of the Offering. The Company has agreed to
repurchase the Donald Wright Warrant upon the closing of the Offering for
$29.9 million, or the equivalent of $12.04 per Common Share underlying such
warrant, and will cancel the Donald Wright Warrant upon its repurchase. Gerald
G. Mercer, the Company's Chairman and Chief Executive Officer, has agreed to
purchase the Jeffrey Wright Warrant upon the closing of the Offering for $2.0
million, or the equivalent of $12.04 per Common Share underlying such warrant,
and will exercise the Jeffrey Wright Warrant immediately following such
purchase. Upon the repurchase by the Company of the Donald Wright Warrant, the
Wright Agreement will be terminated in its entirety, and no further payments
will be made. In connection with the repurchase and cancellation of the Donald
Wright Warrant, the Company expects to receive a tax benefit asset of
approximately $7.0 million. The benefit from this asset will be realized as
cash savings by offsetting income taxes otherwise payable on future taxable
income. The tax benefit will have no effect on the Company's income statement
currently or for any future period; however, the tax benefit will be reflected
as additional paid-in capital on the Company's balance sheet.
In connection with offering related transactions, the Company will incur
non-recurring, non-cash expenses in the quarter in which the Company completes
the Offering totaling approximately $19.8 million (assuming an initial public
offering price of $13.00 per share). Approximately $15.0 million of such $19.8
million results from the termination of certain Stock Purchase Agreements
between the Company and seven executive officers, pursuant to which the
executive officers purchased an aggregate of 1,484,908 Common Shares. In
addition, if the initial public offering price is less than $12.95 per share,
the Company will incur an additional non-recurring expense in the fiscal
quarter in which the Company completes the Offering in connection with the
repurchase and cancellation of the Donald Wright Warrant and the purchase of
the Jeffrey Wright Warrant equal to the difference between $12.95 and the
initial public offering price multiplied by 2,650,764, the number of Common
Shares underlying the Wright Warrants.
The Company's principal executive offices are located at 3939
International Gateway, Columbus, Ohio 43219 and its telephone number is (614)
237-9777.
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered....................... 5,600,000
Common Shares to be outstanding after the
Offering................................... 11,477,835(1)
Use of proceeds............................. To repay certain indebtedness incurred in
connection with the payment of undistributed S
Corporation earnings to the Company's existing
shareholders, to repurchase and cancel the
Donald Wright Warrant and to repay certain
bank indebtedness. See "Use of Proceeds,"
"Certain Relationships and Related Party
Transactions" and "Prior S Corporation
Status."
Proposed Nasdaq National Market symbol...... ANSY
</TABLE>
--------------------------
(1) Does not include 1,150,000 Common Shares reserved for issuance under the
Company's Incentive Stock Plan. See "Management -- Incentive Stock Plan."
RISK FACTORS
Any investment in the Common Shares offered hereby involves a high degree
of risk. For a discussion of certain risks of an investment in the Common
Shares offered hereby, see "Risk Factors" on pages 8 through 11.
5
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
-------------------------------------------- ---------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
--------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $ 58,590 $ 63,446 $ 67,462 $ 67,462 $ 32,452 $ 35,509 $ 35,509
Air transportation expenses........ 43,437 44,570 46,111 46,111 22,652 24,604 24,604
Fixed based operations............. 1,150 1,081 956 956 446 390 390
Selling, general, administrative
(2)............................... 3,927 3,788 3,405 3,405 1,656 2,238 2,238
Executive compensation (3)......... 2,985 4,883 6,587 3,000 2,997 3,120 1,500
Wright Agreement expenses (4)...... 1,339 1,813 2,328 -- 1,207 728 --
--------- --------- --------- ----------- --------- --------- -----------
Income from operations............. 5,752 7,311 8,075 13,990 3,494 4,429 6,777
Interest expense................... 1,123 1,093 1,452 308 611 736 180
--------- --------- --------- ----------- --------- --------- -----------
Net income......................... $ 4,629 $ 6,218 $ 6,623 $ 2,883 $ 3,693
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PRO FORMA DATA:
Income before taxes................ 13,682 6,597
Taxes on income.................... 5,472 2,639
----------- -----------
Net income......................... $ 8,210 $ 3,958
----------- -----------
----------- -----------
Net income per common share........ $ 0.72 $ 0.34
----------- -----------
----------- -----------
Pro forma weighted average common
shares outstanding (in thousands)
(5)............................... 11,478 11,478
OTHER OPERATING DATA:
Number of aircraft (end of
period)........................... 70 73 78 78 74 81 81
On-time performance (6)............ 97.6% 96.4% 97.7% 97.7 % 97.0% 94.9% 94.9 %
EBITDA (7)......................... $ 11,614 $ 13,644 $ 15,429 $ 21,344 $ 6,971 $ 8,585 $ 10,933
Cash flows provided by (used in):
Operating activities............. 10,810 14,722 15,310 14,008 6,524 8,025 6,763
Investing activities............. (8,248) (12,814) (14,223) (14,223 ) (6,230) (5,437) (5,437 )
Financing activities............. (2,551) (2,000) (1,107) (783 ) (549) (2,824) (2,540 )
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(8) AS ADJUSTED(9)
--------- --------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 656 $ 940 $ 7,169
Net property and equipment.......................................... 34,082 34,082 34,082
Total assets........................................................ 52,651 57,339 57,339
Total debt.......................................................... 17,531 40,531 3,639
Shareholders' equity................................................ 23,036 6,264 43,156
</TABLE>
--------------------------------
(1) Adjusted to reflect the following pro forma adjustments as if the
transactions had been completed as of the beginning of the periods
indicated: (i) the reduction of compensation expense payable to the
Company's executive officers; (ii) the reduction of costs in connection
with the termination of the Stock Purchase Agreements and the Deferred
Compensation Agreements; (iii) the elimination of non-competition payments
and the elimination of amortization expense associated with the Wright
covenant not to compete asset, both of which are related to the
termination of the Wright Agreement; (iv) the reduction in interest
expense related to the repayment of existing debt from the proceeds of the
Offering; and (v) the recording of federal and state income taxes as if
the Company had been a C Corporation during each such period. See
"Selected Unaudited Condensed Pro Forma Financial Data," "Certain
Relationships and Related Party Transactions," "Prior S Corporation
Status," "Offering Related Transactions" and Note 12 of the Notes to the
Company's Financial Statements.
The Income Statement Data do not reflect significant non-recurring charges
totaling approximately $19.8 million that will be incurred at the time of
the Offering. These charges include non-cash expenses of approximately
$15.0 million (assuming an initial public offering price of $13.00 per
share) in connection with the termination of the Stock Purchase Agreements
and $2.6 million relating to the write-off of the covenant not to compete
asset in connection with the termination of the Wright Agreement. The
$15.0 million expense will result in a corresponding increase in
additional paid-in capital but no change in total shareholders' equity. In
addition, the Company will record a deferred tax expense of $2.1 million
as a result of the termination of the Company's S Corporation status. In
addition, if the
6
<PAGE>
initial public offering price is less than $12.95 per share, the Company
will incur an additional non-recurring expense in the fiscal quarter in
which the Company completes the Offering in connection with the repurchase
and cancellation of the Donald Wright Warrant and the purchase of the
Jeffrey Wright Warrant equal to the difference between $12.95 and the
initial public offering price multiplied by 2,650,764. See "Offering
Related Transactions" and "Prior S Corporation Status."
(2) Excludes executive compensation and expenses related to the Wright
Agreement, which expenses appear separately in this presentation.
(3) Except for the pro forma periods, includes executive compensation and
expenses associated with the Stock Purchase Agreements and the Deferred
Compensation Agreements. See "Certain Relationships and Related Party
Transactions -- Stock Purchase Agreements" and "-- Deferred Compensation
Agreements." Data for pro forma periods ended September 30, 1995 and March
31, 1996 assume the Company's revised compensation arrangements and the
payment of 100% of the potential bonuses under such arrangements. See
"Management -- Compensation of Executive Officers."
(4) Includes annual non-competition payments and amortization expenses in
connection with the Wright Agreement and the associated Wright covenant
not to compete asset.
(5) The pro forma weighted average common shares outstanding is based on the
weighted average common shares outstanding, using the treasury stock
method, for the applicable period, as adjusted for the 5,600,000 Common
Shares to be issued by the Company in the Offering, the net proceeds of
which will be used to repay debt, to repurchase and cancel the Donald
Wright Warrant and to fund planned distributions to existing shareholders.
(6) On-time performance is defined as the annualized percentage of times that
the Company's U.S. Check-Registered Trademark- division meets its
customers' delivery requirements.
(7) "EBITDA" is defined as net income before interest expense, taxes on
income, depreciation and amortization. EBITDA should not be construed as
an alternative to income from operations or cash flows from operating
activities (each as determined in accordance with generally accepted
accounting principles).
(8) Adjusted to reflect the following pro forma transactions as if they had
occurred on March 31, 1996: (i) distributions of the AAA Notes to existing
shareholders from the AAA account in the amount of $23.0 million; (ii) the
recognition of a net deferred tax liability of $2.1 million resulting from
the termination of the Company's S Corporation status; (iii) the
termination of the Stock Purchase Agreements and the Deferred Compensation
Agreements and the elimination of a $3.7 million liability associated
therewith; (iv) the repayment of notes receivable from existing
shareholders of $0.3 million; and (v) the termination of the Wright
Agreement, the write-off of the covenant not to compete asset of $2.6
million and the recording of a related tax benefit asset of $7.0 million.
See "Selected Unaudited Condensed Pro Forma Financial Data," "Certain
Relationships and Related Party Transactions," "Prior S Corporation
Status," "Offering Related Transactions" and Note 12 of the Notes to the
Company's Financial Statements.
(9) Adjusted to reflect the Offering (assuming an initial public offering
price of $13.00 per share) and the use of the net proceeds therefrom after
deducting estimated underwriting discounts and expenses payable by the
Company in connection with the Offering. See "Use of Proceeds."
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RISK FACTORS
ANY INVESTMENT IN THE COMMON SHARES BEING OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS IN EVALUATING ANY INVESTMENT IN THE COMMON SHARES.
COMPETITION
The market for scheduled air and ground delivery service is highly
competitive. The Company's U.S. Check-Registered Trademark-division competes
primarily against the Federal Reserve's ITS, which has significantly greater
financial and other resources than the Company. The Federal Reserve is regulated
by the Monetary Control Act of 1980 (the "Monetary Control Act"), which in
general requires that the Federal Reserve price its services on a cost basis
plus a set percentage private market adjustment. Failure by the Federal Reserve
to comply with the Monetary Control Act could have an adverse competitive impact
on the Company. In addition, there can be no assurance that the Monetary Control
Act will not be amended, modified or repealed, or that new legislation affecting
the Company's business will not be enacted. Although the entrance of such major
participants in the next-day and second-day air delivery market as United Parcel
Service ("UPS") and Federal Express Corporation ("FedEx") into the business of
same-day and early morning delivery has not had a material adverse effect on the
Company's business to date, there can be no assurance that these competitors
will not have such an effect in the future. See "Business -- Competition."
INTEREST RATE FLUCTUATIONS
The value of the Company's canceled check transportation services to its
banking customers is directly related to the federal funds rate, which is
determined by the Federal Reserve and represents the rate of interest that banks
can earn on timely delivered shipments of canceled checks. If the federal funds
rate were to drop to historically low levels, the resulting diminution in the
value of the Company's services to its banking customers could adversely affect
the Company's business. See "Industry Overview -- How Banks Clear and Settle
Canceled Bank Checks."
BANKING INDUSTRY CONSOLIDATION
The banking industry, including commercial banks, savings banks and Federal
Reserve banks, represents the Company's largest category of customers,
accounting for approximately 86% of the Company's revenues in fiscal 1995. The
prevalent trend in the banking industry over the past several years has been
consolidation. The number of banks in the U.S. has decreased by approximately
25% since 1987, as banks have acquired and merged with each other. As the number
of banks decreases, the Company may become increasingly dependent on certain of
its customers. Although such consolidation has not had a material adverse impact
on the Company's business to date, there can be no assurance that the
consolidation trend will not have an adverse effect on the Company's business in
the future.
TECHNOLOGY
Some analysts have predicted that the increased use of electronic funds
transfers will lead to a "checkless society," which could adversely affect
demand for the Company's delivery services to the financial services industry.
In addition, some banking industry analysts have predicted the development of
various forms of imaging technology that could reduce or eliminate the need for
prompt delivery of canceled checks. Similarly, technological advances in the
nature of "electronic mail" and "telefax" have affected the demand for on-call
delivery services by small package delivery customers. While none of these
technological advances has had any significant adverse impact on the Company's
business to date, there can be no assurance that these or similar technologies,
or other regulatory or technological changes in the check clearance and national
payments systems, will not have an adverse effect on the Company's business in
the future.
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
One of the Company's business strategies is to increase its revenues,
earnings and market share through the acquisition of companies that will
complement its existing operations or provide it with an entry into markets it
does not currently serve. Growth through acquisition involves substantial risks,
including the risk of improper valuation of the acquired business and the risk
of inadequate integration. There can be no assurance that suitable acquisition
candidates will be available, that the Company will be able to acquire or
profitably manage such additional
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companies or that future acquisitions will produce returns that justify the
investment. In addition, the Company may compete for acquisition and expansion
opportunities with companies that have significantly greater resources than the
Company. See "Business -- Business Strategy."
The Company currently intends to finance future acquisitions by using Common
Shares for all or a portion of the consideration to be paid, which may result in
substantial dilution to the purchasers of the Common Shares offered hereby. In
the event that the Common Shares do not maintain a sufficient valuation, or
potential acquisition candidates are unwilling to accept the Common Shares as
part of the consideration for the sale of their businesses, the Company may be
required to utilize more of its cash resources, if available, in order to pursue
its acquisition strategy. If the Company does not have sufficient cash
resources, its growth could be limited and its existing operations could be
impaired unless it is able to obtain additional capital through subsequent debt
or equity financings. There can be no assurance that the Company will be able to
obtain such financing or that, if available, such financing will be on terms
acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
INDEPENDENT OWNER/OPERATORS
From time to time, federal and state authorities, including the Internal
Revenue Service, have sought to assert, and at times have successfully asserted,
that independent owner/operators in the transportation industry are employees
rather than independent contractors, thus requiring the payment of payroll and
related taxes. The Company believes that the independent contractors utilized by
the Company are not employees under existing interpretations of federal and
state laws. However, there can be no assurance that federal and/or state
authorities will not challenge this position, or that laws or regulations,
including tax laws, or interpretations thereof, will not change. If these
independent contractors should be deemed to be employees of the Company, the
Company would be required to pay for and administer added benefits to them. As a
result, the Company's operating costs would increase. Additionally, the Company
could be liable for additional taxes, penalties and interest for prior periods
and additional taxes for future periods, which could have a material adverse
effect on the Company's business. See "Business -- Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and on its senior management, particularly Gerald G. Mercer,
the Company's President and Chief Executive Officer, and Eric P. Roy, the
Company's Executive Vice President, Chief Financial Officer and Chief Operating
Officer. If the executive officers of the Company become unable or decide not to
continue in their present positions, or if a material number of such senior
management fail to continue with the Company and the Company is unable to
attract and retain other skilled associates, the Company's business could be
adversely affected. The Company does not have an employment agreement with any
of its executive officers. See "Management."
DEPENDENCE ON KEY SUPPLIER
The Company currently utilizes the services of Garrett Aviation exclusively
for major period inspections and core overhauls of its 30-series Learjets. This
reliance upon a sole supplier involves several risks, including a risk of the
unavailability of these services and a reduced control of pricing and completion
times for such services. Failure to receive such services from Garrett Aviation
or an alternate supplier on a timely basis or a substantial increase in the
price of such services could have an adverse effect on the Company's business.
See "Business -- Operations -- Flight Operations -- Aircraft Maintenance."
PERMITS AND LICENSING; REGULATION
The Company's delivery operations are subject to various federal, state and
local regulations that in many instances require permits and licenses. Failure
by the Company to maintain required permits or licenses, or to comply with
applicable regulations, could result in substantial fines or possible revocation
of the Company's authority to conduct certain of its operations. Furthermore,
acquisitions by the Company could be impeded by delays in obtaining approvals
for the transfer of permits or licenses, or failure to obtain such approvals.
See "Business -- Regulation."
The Company's flight operations are regulated by the Federal Aviation
Administration (the "FAA") under Part 135 of the Federal Aviation Regulations.
Among other things, these regulations govern permissible flight and
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duty time for aviation flight crews. The FAA is currently contemplating certain
changes in flight and duty time guidelines, which, if adopted, could increase
the Company's operating costs. These changes, if adopted, could also require the
Company and other operators regulated by the FAA to hire additional flight crew
personnel. No changes of this nature have been adopted at this time. In
addition, Congress, from time to time, has considered various means, including
excise taxes, to raise revenues directly from the airline industry to pay for
air traffic control facilities and personnel. If such an excise tax or other
charge were implemented, the Company's operating costs could increase.
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS
The Company intends to use a portion of the net proceeds of the Offering to
repay the AAA Notes (as defined below) in an aggregate principal amount
estimated to be $23.0 million at the time of the Offering to the Company's
existing shareholders. The principal amount of the AAA Notes will be
approximately equal to the accumulated earnings of the Company on which taxes
either have been paid or are payable by the existing shareholders. See "Prior S
Corporation Status." In addition, the Offering will provide the existing
shareholders with liquidity through the creation of a public market. See "Shares
Eligible for Future Sale."
The Company is obligated to repurchase the Donald Wright Warrant upon the
closing of the Offering for $29.9 million, or the equivalent of $12.04 per
Common Share underlying such warrant, and will use a portion of the net proceeds
of the Offering for such repurchase. Upon such repurchase, Donald W. Wright, Sr.
will no longer own any equity interest in the Company, and the Wright Agreement
will be terminated. See "Certain Relationships and Related Party Transactions --
Wright Agreement" and "-- Wright Warrants."
SIGNIFICANT VOTING CONTROL OF DIRECTORS AND EXECUTIVE OFFICERS
Gerald G. Mercer, the Company's Chairman, President and Chief Executive
Officer, will beneficially own approximately 38.3% of the outstanding Common
Shares upon the closing of the Offering (or 35.7% if the Underwriters'
over-allotment option is exercised in full). The other directors and executive
officers as a group will beneficially own an additional 12.9% of the outstanding
Common Shares upon the closing of the Offering (or 12.1% if the Underwriters'
over-allotment option is exercised in full). Accordingly, Mr. Mercer will have
significant voting power with respect to, and in conjunction with the other
directors and executive officers may be able to control, the election of the
Board of Directors of the Company and, in general, the determination of the
outcome of the various matters submitted to the shareholders for approval.
Although there are no formal shareholder arrangements with respect to voting for
the election of directors or other matters, there can be no assurance that Mr.
Mercer and the other directors and executive officers will not vote their Common
Shares in the same manner with respect to such elections or matters submitted to
shareholders for approval. See "Principal Shareholders" and "Description of
Capital Stock."
DILUTION
Purchasers of the Common Shares offered hereby will experience an immediate
and substantial dilution of $9.29 in the net tangible book value per share of
their investment (assuming an initial public offering price of $13.00 per
share). In the event the Company issues additional Common Shares in the future,
including Common Shares that may be issued in connection with future
acquisitions, purchasers of Common Shares in this Offering may experience
further dilution in the net tangible book value per share of the Common Shares.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE IMPACT ON MARKET PRICE
Sales of a substantial number of Common Shares in the public market
following the Offering, or the perception that such sales could occur, could
have an adverse effect on the price of the Common Shares and may make it more
difficult for the Company to sell Common Shares in the future at times and for
prices that it deems appropriate. The Company and all of the directors and
executive officers of the Company have agreed, subject to certain exceptions,
not to offer, sell, contract to sell, transfer or otherwise encumber or dispose
of, directly or indirectly, any Common Shares, or securities convertible into or
exchangeable for Common Shares, for a period of 180 days from the date of this
Prospectus without the prior written consent of Dillon, Read & Co. Inc. Dillon,
Read & Co. Inc., in its sole discretion, and at any time without prior notice,
may release all or any portion of the Common Shares subject to the
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lock-up agreements described herein. When such lock-up restrictions lapse, the
Common Shares may be sold in the public market or otherwise disposed of in
compliance with the Securities Act of 1933, as amended (the "Securities Act").
See "Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR PUBLIC MARKET; DETERMINATION OF INITIAL OFFERING PRICE, VOLATILITY OF
COMMON SHARES PRICE
Prior to the Offering, there has been no public market for the Common
Shares. Although the Company has made application for listing the Common Shares
for quotation on The Nasdaq National Market, there can be no assurance that an
active trading market will develop or be sustained. The initial public offering
price of the Common Shares will be determined by negotiations among the Company
and the Managing Underwriters (as defined herein) and may not be indicative of
the market price of the Common Shares after completion of the Offering. The
price of the Common Shares in the future may be volatile. A variety of events,
including quarter-to-quarter variations in operating results, news
announcements, trading volume, general market trends and other factors, could
result in wide fluctuations in the price of the Common Shares. For a discussion
of the factors to be considered in determining the initial public offering
price, see "Underwriting."
POTENTIAL ANTI-TAKEOVER EFFECT AND POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF
CERTAIN CHARTER AND CODE OF REGULATIONS PROVISIONS AND THE OHIO GENERAL
CORPORATION LAW
Certain provisions of the Company's Articles of Incorporation and Code of
Regulations and of the Ohio Revised Code (the "Ohio GCL"), together or
separately, could discourage potential acquisition proposals, delay or prevent a
change in control of the Company and limit the price that certain investors
might be willing to pay in the future for the Common Shares. Among other things,
these provisions (i) require certain supermajority votes; and (ii) establish
certain advance notice procedures for nomination of candidates for election as
directors and for shareholder proposals to be considered at shareholders'
meetings.
Pursuant to the Company's Articles of Incorporation, upon the closing of the
Offering, the Board of Directors of the Company will have authority to issue up
to 10,000,000 preferred shares without further shareholder approval. Such
preferred shares could have dividend, liquidation, conversion, voting and other
rights and privileges that are superior or senior to the Common Shares. Issuance
of preferred shares could result in the dilution of the voting power of the
Common Shares, adversely affect holders of the Common Shares in the event of
liquidation of the Company or delay, defer or prevent a change in control of the
Company.
In addition, Section 1701.831 of the Ohio GCL contains provisions that
require shareholder approval of any proposed "control share acquisition" of any
Ohio corporation at any of three ownership thresholds: 20%, 33 1/3% and 50%; and
Chapter 1704 of the Ohio GCL contains provisions that restrict certain business
combinations and other transactions between an Ohio corporation and interested
shareholders. See "Description of Capital Stock -- Potential Anti-Takeover
Effects of Articles of Incorporation, Code of Regulations and the Ohio General
Corporation Law."
PRIOR S CORPORATION STATUS
In July 1988, the Company elected to be treated as an S Corporation under
subchapter S of the Internal Revenue Code of 1986, as amended (the "Code") for
federal income tax purposes and comparable state tax laws. As a result of the S
Corporation election, the Company's shareholders have been taxed directly on the
Company's income, whether or not such income was distributed, and the Company
has not been subject to federal income tax at the corporate level.
Since July 1988, the Company has made periodic distributions to its
shareholders. The balance of taxed or taxable accumulated earnings which have
not been distributed is reflected in an "accumulated adjustments account" (the
"AAA account"). In connection with the Offering, the Company's S Corporation
status will terminate and the Company will make a distribution of promissory
notes (the "AAA Notes") in an aggregate principal amount estimated to be $23
million at the time of the Offering to its existing shareholders from the AAA
account. The aggregate principal amount of the AAA Notes will be approximately
equal to the undistributed earnings in the AAA account on which the shareholders
either have paid or will be required to pay income taxes. A portion of the
proceeds of the Offering will be used to repay the AAA Notes. See "Use of
Proceeds."
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OFFERING RELATED TRANSACTIONS
In addition to the termination of the Company's S Corporation status and the
distribution of the AAA Notes described above, the following transactions will
occur in connection with the Offering:
TERMINATION OF STOCK PURCHASE AGREEMENTS WITH EXISTING SHAREHOLDERS
On April 1, 1994, the Company entered into Stock Purchase Agreements with
seven executive officers, pursuant to which these executive officers purchased
an aggregate of 1,484,908 Common Shares for an aggregate purchase price of
approximately $364,000, which was paid by the delivery of promissory notes. Upon
the closing of the Offering, the Stock Purchase Agreements will be terminated,
and the promissory notes will be paid. See "Certain Relationships and Related
Party Transactions -- Stock Purchase Agreements."
The Stock Purchase Agreements have resulted in expenses of $2.3 million and
$1.3 million for the year ended September 30, 1995, and the six months ended
March 31, 1996, respectively, which expenses will cease upon the termination of
the Stock Purchase Agreements in connection with the Offering. The Company's pro
forma income statements have been adjusted accordingly. The anticipated
repayment by the seven executive officers of the Stock Purchase Agreement notes
in the remaining aggregate principal amount of $284,000 will result in a
decrease in notes receivable and a corresponding increase in cash, as reflected
in the Company's pro forma balance sheet at March 31, 1996. In addition, the
distribution of the AAA Notes will eliminate the $1.7 million liability relating
to the Stock Purchase Agreements. The elimination of this liability has been
reflected in the Company's pro forma balance sheet at March 31, 1996. See
"Selected Unaudited Condensed Pro Forma Financial Data" and Note 12 of the Notes
to the Company's Financial Statements.
In addition, as a result of the termination of the Stock Purchase
Agreements, the Company will incur a non-recurring, non-cash expense estimated
to be $15.0 million (assuming an initial public offering price of $13.00 per
share) in the fiscal quarter in which the Offering is closed. This expense will
result in a corresponding increase in additional paid-in capital, but no change
in total shareholders' equity. This expense is not tax deductible and represents
the portion of the distribution of the AAA Notes to the seven executive officers
not previously recorded as compensation expense plus the difference between the
net offering price and the net book value of the 1,484,908 shares on the date
the Stock Purchase Agreements are terminated. This accounting treatment is
required since the stock purchase plan is being accounted for in a manner
similar to a variable stock option plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
TERMINATION OF DEFERRED COMPENSATION AGREEMENTS WITH EXISTING SHAREHOLDERS
Between 1986 and 1991, the Company entered into Deferred Compensation
Agreements with seven executive officers, pursuant to which the Company is
obligated to pay these executive officers deferred compensation equal in each
case to a percentage of the increase in the Company's net book value. In
connection with the Offering and the distribution of the AAA Notes, the seven
executive officers have agreed to forego their remaining deferred compensation
payments in the aggregate amount of $2.0 million and to terminate the Deferred
Compensation Agreements upon the closing of the Offering. See "Certain
Relationships and Related Party Transactions -- Deferred Compensation
Agreements."
The Deferred Compensation Agreements have resulted in expenses of $0.3
million and $0.1 million for the year ended September 30, 1995, and the six
months ended March 31, 1996, respectively, which expenses will cease upon
termination of the Deferred Compensation Agreements in connection with the
Offering. The Company's pro forma income statements have been adjusted
accordingly. The elimination of the liability associated with the Deferred
Compensation Agreements will result in an increase of $2.0 million in
shareholders' equity on the Company's pro forma balance sheet at March 31, 1996.
See "Selected Unaudited Condensed Pro Forma Financial Data" and Note 12 of the
Notes to the Company's Financial Statements.
REDUCTION IN EXECUTIVE OFFICER COMPENSATION
Following the closing of the Offering, the Company expects to restructure
the compensation arrangements with its executive officers. See "Management --
Compensation of Executive Officers." The reduction of compensation expense for
executive officers will result in an adjustment to the Company's pro forma
income statement of
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$1.0 million and $0.2 million for the year ended September 30, 1995, and the six
months ended March 31, 1996, respectively. See "Selected Unaudited Condensed Pro
Forma Financial Data" and Note 12 of the Notes to the Company's Financial
Statements.
TERMINATION OF THE WRIGHT AGREEMENT
In 1988, in consideration for the agreement of WIE and Donald W. Wright, Sr.
not to compete with the Company, the Company entered into the Wright Agreement,
which, as amended, provides for annual payments, tied to the cash flows and debt
to equity ratio of the Company, to Donald Wright and certain designees. Upon the
repurchase by the Company of the Donald Wright Warrant, the Wright Agreement
will be terminated in its entirety, and no further payments will be made. See
"Certain Relationships and Related Party Transactions -- Wright Agreement."
The termination of the Wright Agreement will result in an adjustment to the
Company's pro forma income statement of $2.1 million and $0.6 million for the
year ended September 30, 1995, and the six months ended March 31, 1996,
respectively. Elimination of amortization expense in connection with the
write-off of the covenant not to compete asset related to the Wright Agreement
will result in an additional adjustment to the Company's pro forma income
statement of $0.3 million and $0.1 million for the year ended September 30,
1995, and the six months ended March 31, 1996, respectively. In addition, the
write-off of the covenant not to compete asset will result in a decrease of $2.6
million in shareholders' equity on the Company's pro forma balance sheet at
March 31, 1996, and a corresponding non-cash expense in the fiscal quarter in
which the Offering is closed. See "Selected Unaudited Condensed Pro Forma
Financial Data" and Note 12 of the Notes to the Company's Financial Statements.
PURCHASE OF WRIGHT WARRANTS
In further consideration for the agreement by WIE and Donald Wright not to
compete with the Company, the Company issued the Wright Warrants to Donald
Wright and Jeffrey Wright. The Wright Warrants entitle the Wright Trust (as
defined below), as assignee of Donald Wright, and Jeffrey Wright to purchase an
aggregate of 2,650,764 Common Shares for an aggregate exercise price of $3,200
at any time on or after the closing of the Offering. The Company has agreed to
repurchase the Donald Wright Warrant upon the closing of the Offering for $29.9
million, or the equivalent of $12.04 per Common Share underlying such warrant,
and will cancel the Donald Wright Warrant upon its repurchase. Gerald G. Mercer
has agreed to purchase the Jeffrey Wright Warrant upon the closing of the
Offering for $2.0 million, or the equivalent of $12.04 per Common Share
underlying such warrant, and will exercise the Jeffrey Wright Warrant
immediately following such purchase. See "Certain Relationships and Related
Party Transactions -- Wright Warrants."
In connection with the repurchase and cancellation of the Donald Wright
Warrant and the corresponding tax treatment, the Company will realize a related
tax benefit asset estimated to be $7.0 million. The benefit from this asset will
be realized as cash savings by offsetting income taxes otherwise payable on
future taxable income. The tax benefit will have no effect on the Company's
income statement currently or for any future period; however, the tax benefit
will be reflected as additional paid-in capital on the Company's balance sheet.
See "Selected Unaudited Condensed Pro Forma Financial Data" and Note 12 of the
Notes to the Company's Financial Statements.
NON-RECURRING EXPENSES
In connection with the termination of the Stock Purchase Agreements, the
Company will incur a non-recurring, non-cash expense estimated to be $15.0
million (assuming an initial public offering price of $13.00 per share) in the
fiscal quarter in which the Offering is closed. In connection with the
termination of the Wright Agreement, the Company will expense $2.6 million as a
result of the write-off of the covenant not to compete asset. In connection with
the termination of the Company's S Corporation status, the Company will incur a
deferred income tax expense of $2.1 million. In addition, if the initial public
offering price is less than $12.95 per share, the Company will incur an
additional non-recurring expense in the fiscal quarter in which the Company
completes the Offering in connection with the repurchase and cancellation of the
Donald Wright Warrant and the purchase of the Jeffrey Wright Warrant equal to
the difference between $12.95 and the initial public offering price multiplied
by 2,650,764.
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NEW CREDIT AGREEMENT
Simultaneously with the closing of the Offering, the Company will enter into
a $50.0 million, five-year, unsecured revolving credit agreement (the "New
Credit Agreement"). The Company has received a commitment from NBD Bank, the
agent and sole lender under the Existing Credit Agreement (as defined below), to
act as agent and underwriter under the New Credit Agreement. The closing of the
Offering will be conditioned upon the concurrent closing of the New Credit
Agreement. See "Description of Certain Indebtedness -- New Credit Agreement."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,600,000 Common Shares
offered hereby (assuming an initial public offering price of $13.00 per share)
after deducting estimated underwriting discounts and expenses payable by the
Company in connection with the Offering are estimated to be $66.8 million
(approximately $77.0 million if the Underwriters' over-allotment option is
exercised in full). Of the net proceeds to be received by the Company, (i)
approximately $23.0 million will be used to repay the outstanding principal
amount of the AAA Notes, (ii) $29.9 million will be used to repurchase and
cancel the Donald Wright Warrant and (iii) approximately $13.9 million will be
used to repay outstanding indebtedness under the Existing Credit Agreement which
bore interest at the weighted average rate of 7.4% on March 31, 1996, and
matures at various dates between December 31, 1996 and May 1, 2000. See "Prior S
Corporation Status," "Certain Relationships and Related Party Transactions --
Wright Warrants" and "Description of Certain Indebtedness -- Existing Credit
Agreement."
The repayment of the AAA Notes described above is being made in connection
with the Company's distribution from its AAA account to its existing
shareholders of an amount approximately equal to the undistributed earnings in
the AAA account on which the shareholders either have paid or will be required
to pay income taxes up to the time of the termination of the Company's S
Corporation status. See "Prior S Corporation Status."
Following the closing of the Offering and of the $50.0 million New Credit
Agreement, the Company anticipates that it will have approximately $3.6 million
drawn down and approximately $28.2 million in additional funds available under
such New Credit Agreement, which funds may be used for general corporate
purposes, including to finance acquisitions of additional aircraft, as well as
acquisitions of companies that will complement the Company's existing operations
or provide it with an entry into new markets. Although, from time to time, the
Company has had discussions with various companies regarding possible
acquisition, the Company currently does not have any definitive plans,
arrangements or understandings, whether written or oral, with any company
regarding an acquisition. See "Description of Certain Indebtedness -- New Credit
Agreement" and "Business -- Business Strategy."
DIVIDEND POLICY
The Company anticipates that, after payment of the S Corporation
distributions to existing shareholders and the termination of the Company's S
Corporation status in connection with the Offering, any future earnings will be
retained to finance the Company's operations and for the growth and development
of its business. See "Prior S Corporation Status." Accordingly, the Company does
not currently anticipate paying cash dividends on its Common Shares in the
foreseeable future. The payment of any future dividends will be subject to the
discretion of the Board of Directors of the Company and will depend on the
Company's results of operations, financial position and capital requirements,
general business conditions, restrictions imposed by financing arrangements, if
any, legal restrictions on the payment of dividends, and other factors the Board
of Directors deems relevant. The Company's New Credit Agreement effectively will
prohibit the Company from paying cash dividends on its Common Shares in excess
of 50% of Net Income (as defined therein). See "Description of Certain
Indebtedness -- New Credit Agreement."
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CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of March 31, 1996 on an actual basis, pro forma
as of such date to reflect the transactions set forth in note (1) hereto and pro
forma as adjusted as of such date to reflect the transactions set forth in note
(1) hereto and the sale of the 5,600,000 Common Shares offered hereby (assuming
an initial public offering price of $13.00 per share) and the application of the
net proceeds therefrom, after deducting estimated underwriting discounts and
expenses payable by the Company in connection with the Offering. See "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements of the Company, including the Notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
--------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt............................... $ 6,229 $ 6,229 $ --
--------- ------------- ------------
--------- ------------- ------------
Long-term debt, less current portion (2)........................ $ 11,302 $ 34,302 $ 3,639
Shareholders' equity:
Preferred Shares, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding................. -- -- --
Common Shares, $.01 par value; 40,000,000 shares authorized;
5,710,608 shares issued and outstanding (actual); 5,877,835
shares issued and outstanding (pro forma); 11,477,835 shares
issued and outstanding (as adjusted) (3)..................... 57 59 115
Additional paid-in capital.................................... 350 21,205 58,041
Retained earnings (deficit)................................... 22,913 (15,000) (15,000)
Notes receivable from shareholders............................ (284) -- --
--------- ------------- ------------
Total shareholders' equity.................................. 23,036 6,264 43,156
--------- ------------- ------------
Total capitalization........................................ $ 34,338 $ 40,566 $ 46,795
--------- ------------- ------------
--------- ------------- ------------
</TABLE>
- ------------------------
(1) Assumes the following transactions occurred as of March 31, 1996: (i)
distributions to existing shareholders from the AAA account in the amount of
$23.0 million in AAA Notes; (ii) the recognition of a net deferred tax
liability of $2.1 million resulting from the termination of the Company's S
Corporation status; (iii) the termination of the Stock Purchase Agreements
and the Deferred Compensation Agreements and the elimination of $3.7 million
of liability associated therewith; (iv) the repayment of notes receivable
from existing shareholders of $0.3 million; (v) the termination of the
Wright Agreement, the write-off of the covenant not to compete asset of $2.6
million and the recording of a related tax benefit asset of $7.0 million;
(vi) the reclassification of the remaining undistributed earnings of the
Company prior to becoming a C Corporation from retained earnings to
additional paid-in capital; and (vii) the recording of the $15.0 million
non-cash expense, with the corresponding increase to additional paid-in
capital, resulting from the termination of the Stock Purchase Agreements.
See "Selected Unaudited Condensed Pro Forma Financial Data," "Certain
Relationships and Related Party Transactions," "Prior S Corporation Status,"
"Offering Related Transactions" and Note 12 of the Notes to the Company's
Financial Statements.
(2) See Note 4 of Notes to Financial Statements for a description of the
Company's long-term debt.
(3) Excludes 1,150,000 Common Shares reserved for issuance under the Company's
Incentive Stock Plan. See "Management -- Incentive Stock Plan."
15
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996, was $19.8
million, or $3.47 per Common Share outstanding. Net tangible book value per
Common Share represents total tangible assets of the Company less total
liabilities, divided by the number of Common Shares outstanding. After giving
effect to the adjustments described under "Offering Related Transactions," the
pro forma net tangible book value as of March 31, 1996 would have been
approximately $5.7 million, or $0.96 per share. After giving further effect to
the Offering (assuming an initial public offering price of $13.00 per share) and
the application of the net proceeds to the Company therefrom after deducting
estimated underwriting discounts and expenses payable by the Company in
connection with the Offering; the pro forma net tangible book value of the
Company at March 31, 1996, would have been $42.6 million or $3.71 per share,
representing an immediate increase in net tangible book value of $2.75 per share
to existing shareholders and an immediate dilution of $9.29 per share to new
investors in the Common Shares offered hereby. See "Prior S Corporation Status"
and "Use of Proceeds." The following table illustrates the resulting dilution
with respect to the Common Shares offered hereby:
<TABLE>
<CAPTION>
Assumed public offering price per share..................... $ 13.00
<S> <C> <C>
Net tangible book value per share as of March 31, 1996...... $ 3.47
Adjustment in net tangible book value per share attributable
to Offering Related Transactions (1)....................... (2.51)
---------
Pro forma net tangible book value per share................. 0.96
---------
Increase in net tangible book value per share attributable
to the Offering............................................ 2.75
Pro forma net tangible book value per share after the
Offering................................................... 3.71
---------
Dilution per share to new investors......................... $ 9.29
---------
---------
</TABLE>
- ------------------------
(1) See "Offering Related Transactions."
The following table summarizes, on a pro forma basis as of March 31, 1996,
the number of Common Shares purchased from the Company, the aggregate net
consideration paid and the average price per share paid by the existing
shareholders and by new investors purchasing Common Shares in the Offering
without giving effect to estimated underwriting discounts and expenses of the
Offering, and assuming an initial public offering price of $13.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 5,877,835 51.2% $ 364,583 0.5% $ 0.06
New investors.................... 5,600,000 48.8 72,800,000 99.5 13.00
------------ ----- ------------- -----
Total........................ 11,477,835 100.0% $ 73,164,583 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the years
in the five-year period ended September 30, 1995, have been derived from the
Financial Statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors. The selected financial data set forth below for the
Company as of and for the six months ended March 31, 1995 and 1996 have been
derived from unaudited financial statements of the Company that have been
prepared on the same basis as the audited Financial Statements and include all
adjustments, consisting of normal recurring accruals, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented. Operating results for the six-month period
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 1996. The selected financial
data presented below should be read in conjunction with the more detailed
information contained in the Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Air transportation:
Check delivery...................... $ 46,924 $ 49,000 $ 49,358 $ 54,047 $ 58,264 $ 27,960 $ 30,570
Small package delivery.............. 6,975 7,719 7,967 8,241 8,192 3,973 4,460
Fixed base operations................. 1,274 1,335 1,265 1,158 1,006 519 479
--------- --------- --------- --------- --------- --------- ---------
55,173 58,054 58,590 63,446 67,462 32,452 35,509
Costs and expenses:
Air transportation:
Wages and benefits.................. 6,160 6,890 7,594 8,186 9,195 4,557 4,876
Aircraft fuel....................... 7,699 7,331 7,151 6,958 7,445 3,599 3,875
Aircraft maintenance................ 5,361 5,134 5,427 5,721 6,034 3,075 3,291
Aircraft leases..................... 4,058 4,766 4,405 3,260 1,043 634 379
Ground couriers and outside
services........................... 8,396 8,031 7,950 8,347 8,611 4,138 4,551
Depreciation and amortization....... 4,496 5,120 5,862 6,333 7,354 3,477 4,156
Other............................... 4,014 4,534 5,048 5,765 6,429 3,172 3,476
Fixed base operations................. 1,270 1,217 1,150 1,081 956 446 390
Selling, general, administrative:
Executive compensation.............. 2,257 2,530 2,738 3,285 3,952 1,835 1,719
Other executive compensation (1).... 463 814 247 1,598 2,635 1,162 1,401
Wright Agreement expenses (1)(2).... 963 1,240 1,339 1,813 2,328 1,207 728
Other............................... 2,247 3,446 3,927 3,788 3,405 1,656 2,238
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses................ 47,384 51,053 52,838 56,135 59,387 28,958 31,080
--------- --------- --------- --------- --------- --------- ---------
Income from operations.................. 7,789 7,001 5,752 7,311 8,075 3,494 4,429
Interest expense........................ 1,857 1,240 1,123 1,093 1,452 611 736
--------- --------- --------- --------- --------- --------- ---------
Net income (3).......................... $ 5,932 $ 5,761 $ 4,629 $ 6,218 $ 6,623 $ 2,883 $ 3,693
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER OPERATING DATA:
Number of aircraft (end of period)...... 66 68 70 73 78 74 81
On-time performance (4)................. 98.2% 97.5% 97.6% 96.4% 97.7% 97.0% 94.9%
EBITDA (5).............................. $ 12,285 $ 12,121 $ 11,614 $ 13,644 $ 15,429 $ 6,971 $ 8,585
Cash flows provided by (used in):
Operating activities................ 11,865 9,709 10,810 14,722 15,310 6,524 8,025
Investing activities................ (6,375) (5,456) (8,248) (12,814) (14,223) (6,230) (5,437)
Financing activities................ (5,276) (4,128) (2,551) (2,000) (1,107) (549) (2,824)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 2,055 $ 5,348 $ 6,216 $ 3,390 $ 1,062 $ 656
Net property and equipment....................... 17,159 17,395 19,438 25,570 32,834 34,082
Total assets..................................... 33,038 33,637 35,829 42,141 49,037 52,651
Total debt....................................... 15,017 13,850 13,169 16,250 19,228 17,531
Shareholders' equity............................. 11,235 14,036 16,794 17,931 20,469 23,036
</TABLE>
- --------------------------
(1) Certain expenses of the Company, such as executive compensation, expenses
associated with the Stock Purchase Agreements and the Deferred Compensation
Agreements and payments made in connection with the Wright Agreement vary
based on the Company's income and/or cash flows for the relevant periods.
See "Certain Relationships and Related Party Transactions."
(2) Includes annual non-competition payments and amortization expenses in
connection with the Wright Agreement and the associated Wright covenant not
to compete asset. See "Certain Relationships and Related Party Transactions
-- Wright Agreement."
(3) Reflects the Company as an S Corporation during the periods presented.
Accordingly, the Selected Financial Data do not contain a provision for
income taxes. See "Prior S Corporation Status."
(4) On-time performance is defined as the annualized percentage of times that
the Company's U.S. Check-Registered Trademark- division met its customers'
delivery requirements.
(5) "EBITDA" is defined as net income before interest expense, taxes on income,
depreciation and amortization. EBITDA should not be construed as an
alternative to income from operations or cash flows from operating
activities (each as determined in accordance with generally accepted
accounting principles).
18
<PAGE>
SELECTED UNAUDITED CONDENSED PRO FORMA FINANCIAL DATA
The selected unaudited condensed pro forma financial data have been derived
from the historical financial statements of the Company. The unaudited pro forma
income statement data for the fiscal year ended September 30, 1995 and the six
months ended March 31, 1996, give effect to (i) the Company's C Corporation
election and (ii) the transactions described under "Offering Related
Transactions" as if such transactions had occurred at the beginning of each such
period. The unaudited condensed pro forma balance sheet data give effect to such
transactions and to the Offering and the use of the net proceeds therefrom after
deducting estimated underwriting discounts and expenses payable by the Company
as if such transactions had occurred on March 31, 1996. See "Prior S Corporation
Status," "Offering Related Transactions" and "Use of Proceeds."
THE SELECTED UNAUDITED CONDENSED PRO FORMA FINANCIAL DATA AND ACCOMPANYING
NOTES SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS OF THE COMPANY
AND THE NOTES THERETO APPEARING ELSEWHERE HEREIN. THE UNAUDITED PRO FORMA
FINANCIAL DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT PURPORT
TO REPRESENT WHAT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS
ACTUALLY WOULD HAVE BEEN HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN COMPLETED
AS OF THE DATE OR AT THE BEGINNING OF THE PERIODS INDICATED, OR TO PROJECT THE
COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS AT ANY FUTURE DATE OR FOR
ANY FUTURE PERIOD.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995 SIX MONTHS ENDED MARCH 31, 1996
--------------------------------------- ---------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Revenues:
Air transportation:
Check delivery.................. $ 58,264 $ 58,264 $ 30,570 $ 30,570
Small package delivery.......... 8,192 8,192 4,460 4,460
Fixed base operations............. 1,006 1,006 479 479
----------- ----------- ----------- -----------
67,462 67,462 35,509 35,509
Costs and expenses:
Air transportation:
Wages and benefits.............. 9,195 9,195 4,876 4,876
Aircraft fuel................... 7,445 7,445 3,875 3,875
Aircraft maintenance............ 6,034 6,034 3,291 3,291
Aircraft leases................. 1,043 1,043 379 379
Ground couriers and outside
services....................... 8,611 8,611 4,551 4,551
Depreciation and amortization... 7,354 7,354 4,156 4,156
Other........................... 6,429 6,429 3,476 3,476
Fixed base operations............. 956 956 390 390
Selling, general, administrative:
Executive compensation.......... 3,952 $ (952)(2) 3,000 1,719 $ (219)(2) 1,500
Other executive compensation.... 2,635 (2,635)(3) -- 1,401 (1,401)(3) --
Wright Agreement expenses....... 2,328 (2,328)(4) -- 728 (728)(4) --
Other........................... 3,405 3,405 2,238 2,238
----------- ------------- ----------- ----------- ------------- -----------
Total costs and expenses............ 59,387 (5,915) 53,472 31,080 (2,348) 28,732
----------- ------------- ----------- ----------- ------------- -----------
Income from operations.............. 8,075 5,915 13,990 4,429 2,348 6,777
Interest expense.................... 1,452 (1,144)(5) 308 736 (556)(5) 180
----------- ------------- ----------- ----------- ------------- -----------
Income before income taxes.......... $ 6,623 $ 7,059 13,682 $ 3,693 $ 2,904 6,597
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Pro forma income taxes (6).......... 5,472 2,639
----------- -----------
Pro forma net income................ $ 8,210 $ 3,958
----------- -----------
----------- -----------
Pro forma net income per common
share.............................. $ 0.72 $ 0.34
----------- -----------
----------- -----------
Pro forma weighted average common
shares outstanding (in thousands)
(7)................................ 11,478 11,478
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------------------------
PRO FORMA OFFERING PRO FORMA AS
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Current assets............................ $ 15,317 $ 284(8) $ 15,601 $ 66,794(9) $ 15,601
(66,794)(9)
Property, plant and equipment, net........ 34,082 -- 34,082 -- 34,082
Intangibles, net.......................... 3,200 (2,596)(10) 604 -- 604
Other assets.............................. 52 7,000 (10 7,052 -- 7,052
----------- --------------- ----------- ------------- ------------
Total assets.............................. $ 52,651 $ 4,688 $ 57,339 $ -- $ 57,339
----------- --------------- ----------- ------------- ------------
----------- --------------- ----------- ------------- ------------
Liabilities and equity:
Other current liabilities................. $ 8,432 $ -- $ 8,432 $ -- $ 8,432
Current portion of long-term debt......... 6,229 -- 6,229 (6,229)(9) --
----------- --------------- ----------- ------------- ------------
Total current liabilities................. 14,661 -- 14,661 (6,229) 8,432
----------- --------------- ----------- ------------- ------------
Notes payable............................. 11,302 23,000 (11 34,302 (30,663)(9) 3,639
Deferred compensation..................... 3,652 (3,652)(12) -- -- --
Deferred taxes............................ -- 2,112 (13 2,112 -- 2,112
Shareholders' equity...................... 23,036 (16,772)(14) 6,264 36,892(9) 43,156
----------- --------------- ----------- ------------- ------------
Total liabilities and equity.............. $ 52,651 $ 4,688 $ 57,339 $ -- $ 57,339
----------- --------------- ----------- ------------- ------------
----------- --------------- ----------- ------------- ------------
</TABLE>
- ------------------------
(1) The unaudited pro forma income statement data do not reflect significant
non-recurring expenses which will be incurred at the time of the Offering.
These expenses include non-cash expenses, with a corresponding increase in
additional paid-in capital, of approximately $15.0 million (assuming an
initial public offering price of $13.00 per share) in connection with the
termination of the Stock Purchase Agreements and $2.6 million relating to
the write-off of the covenant not to compete asset in connection with the
termination of the Wright Agreement. In addition, the Company will record a
net deferred tax expense of $2.1 million as a result of the termination of
the Company's S Corporation status. See "Offering Related Transactions" and
"Prior S Corporation Status."
(2) Adjustments reflect the reduction in compensation to the Company's
executive officers under revised compensation arrangements and the payment
of 100% of potential bonuses under such arrangements.
(3) Adjustments reflect the reduction in costs in connection with the
termination of the Stock Purchase Agreements and the Deferred Compensation
Agreements. See "Certain Relationships and Related Party Transactions."
(4) Adjustments reflect the reduction in costs in connection with the
elimination of non-competition payments and the elimination of amortization
expense associated with the Wright covenant not to compete asset in
connection with the termination of the Wright Agreement. See "Offering
Related Transactions -- Termination of the Wright Agreement."
(5) Adjustments reflect the reduction in interest expense related to the
repayment of existing debt from the proceeds of the Offering. See "Use of
Proceeds."
(6) Adjustments reflect the recording of federal and state income taxes at an
effective rate of 40% as if the Company had been a C Corporation during each
such period. See "Prior S Corporation Status."
(7) The pro forma weighted average common shares outstanding is based on the
weighted average common shares outstanding, using the treasury stock method,
for the applicable period, as adjusted for the 5,600,000 Common Shares to be
issued in the Offering, the net proceeds of which will be used to repay
debt, to repurchase and cancel the Donald Wright Warrant and to fund planned
distributions to existing shareholders.
20
<PAGE>
(8) Adjustments reflect the repayment of notes receivable from existing
shareholders. See "Offering Related Transactions -- Termination of Stock
Purchase Agreements with Existing Shareholders."
(9) Adjustments reflect the Offering (assuming an initial offering price of
$13.00 per share) and the use of the net proceeds therefrom after deducting
estimated underwriting discounts and expenses payable by the Company in
connection with the Offering. See "Use of Proceeds."
(10) Adjustments reflect the termination of the Wright Agreement, the write-off
of the covenant not to compete asset of $2.6 million and the recording of a
related tax benefit asset of $7.0 million. See "Offering Related
Transactions -- Termination of the Wright Agreement."
(11) Adjustments reflect the distribution of the AAA Notes to the existing
shareholders. See "Prior S Corporation Status."
(12) Adjustments reflect the termination of the Deferred Compensation Agreements
and Stock Purchase Agreements and the elimination of the associated
liabilities. See "Offering Related Transactions -- Termination of Stock
Purchase Agreements with Existing Shareholders" and "-- Termination of
Deferred Compensation Agreements with Existing Shareholders."
(13) Adjustments reflect the recognition of a net deferred tax liability
resulting from the termination of the Company's S Corporation status. See
"Prior S Corporation Status."
(14) Reflects adjustments to shareholders' equity as follows (dollars in
thousands):
<TABLE>
<S> <C>
Repayment of notes receivable..................................... $ 284
Write-off of covenant not to compete asset........................ (2,596)
Recording of tax benefit asset related to exercise of Wright
Warrants......................................................... 7,000
AAA account distributions......................................... (23,000)
Elimination of liabilities related to Deferred Compensation
Agreements and Stock Purchase Agreements......................... 3,652
Recognition of net deferred tax liability......................... (2,112)
---------
$ (16,772)
---------
---------
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION IS
BASED UPON AND SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL
STATEMENTS AND NOTES THERETO, THE SELECTED FINANCIAL DATA AND OTHER FINANCIAL
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
GENERAL
The Company derives its revenues primarily from fees charged for air and
ground delivery services. Check and small package delivery services account for
approximately 98% of the Company's revenues. Costs of the delivery services
consist primarily of the fuel, maintenance, wages and benefits related to the
operation of the Company's fleet of aircraft, salaries and related benefits paid
to the Company's drivers, fees paid to independent contractors and operating and
maintenance expenses related to the Company's delivery vehicles. See "Business
- -- Services -- Aircraft Fleet" and "Business -- Services -- Vehicles." The
remaining revenues are generated by the Company's fixed base operation and are
related to the sale of aviation fuels, maintenance and other services provided
at the Company's Columbus, Ohio facility.
IMPACT ON OPERATIONS
The Financial Statements have been or will be affected by several factors,
including: (i) the corporate strategic decision to acquire, rather than to
lease, aircraft; (ii) S Corporation distributions; (iii) a change in Federal
Reserve bank regulations affecting the ability of commercial banks to compete
with Federal Reserve banks; (iv) the incurrence of non-recurring, non-cash
expenses in the quarter in which the Offering occurs; (v) development of a fuel
rebate/surcharge program for the Company's customers; (vi) taxes on income in
connection with the termination of the Company's S Corporation status; (vii) the
tax benefit associated with the exercise of the Donald Wright Warrant; and
(viii) the growth of the National Clearinghouse Association (the "NCHA").
CORPORATE STRATEGIC DECISION TO ACQUIRE AIRCRAFT. In fiscal 1993, the
Company made a strategic decision to replace leased aircraft, particularly jet
aircraft, with purchased aircraft. The Company was able to pursue this strategy
as a result of the Company's strong financial condition and its ability to take
on additional debt to fund such acquisitions. As aircraft leases expired, the
Company began purchasing replacement aircraft. Since October 1, 1992, the
Company has acquired 11 Learjets, nine of which replaced leased aircraft. The
resulting savings in lease expense have been in excess of $4.0 million, offset
somewhat by increased interest expense due to increased debt and increased
depreciation expense. In fiscal 1994, the Company decided also to begin
replacing some of its leased light twin engine aircraft with larger twin engine
aircraft with increased payload capacities, and the Company has since acquired
nine Piper Chieftains.
S CORPORATION DISTRIBUTIONS. Since the Company elected S Corporation status
in July 1988, it has made distributions to its shareholders for the purpose of
funding their income tax payments on the income generated by the Company, which
income is taxable to the shareholders whether or not distributed. In fiscal
1994, the Company began making S Corporation distributions in an amount in
excess of the amount necessary to pay applicable income taxes. These additional
distributions were made from cash generated from operations and totaled $3.1
million through the end of fiscal 1995. The Company distributed an additional
$0.5 million during the six months ended March 31, 1996. In addition, in
connection with the Offering and the conversion to a C Corporation, the Company
will distribute the AAA Notes in an aggregate principal amount estimated to be
$23.0 million, which should approximate the value of the Company's AAA account
at the time of the Offering. See "Prior S Corporation Status."
MODIFICATION OF FEDERAL RESERVE BANK REGULATIONS. In January 1994, the
banking industry determined that the Federal Reserve banks had an unfair
advantage in the marketplace for check clearing services. Prior to such
determination, Federal Reserve banks were allowed to present checks to the
Federal Reserve for payment in immediately available funds without having to pay
a presentment fee. Commercial banks are often required to pay a presentment fee
to other commercial banks in exchange for the right to draw immediately against
deposits of such banks. The Federal Reserve responded by initiating a regulatory
policy called "Same-Day Settlement," which mandates that if a bank is presented
with a check drawn on its deposits, such bank must pay the presenting bank in
immediately available funds, without charging any additional fees, provided that
the check is presented by 8:00 a.m.
22
<PAGE>
Same-Day Settlement has allowed commercial banks to compete more favorably with
the Federal Reserve banks and, correspondingly, has increased demand for the
Company's delivery services, as the Company can deliver to most locations in the
U.S. prior to the 8:00 a.m. deadline.
NON-RECURRING EXPENSES. The Company will incur significant non-recurring
expenses immediately following the Offering. These expenses will include
non-cash expenses of approximately $15.0 million (assuming an initial public
offering price of $13.00 per share) in connection with the termination of the
Stock Purchase Agreements and $2.6 million relating to the write-off of the
covenant not to compete asset in connection with the termination of the Wright
Agreement. In addition, the Company will record a deferred tax expense of $2.1
million as a result of the termination of the Company's S Corporation status.
The $15.0 million expense will result in a corresponding increase in additional
paid-in capital, but no change in total shareholders' equity. In addition, if
the initial public offering price is less than $12.95 per share, the Company
will incur an additional non-recurring expense in the fiscal quarter in which
the Company completes the Offering in connection with the repurchase and
cancellation of the Donald Wright Warrant and the purchase of the Jeffrey Wright
Warrant equal to the difference between $12.95 and the initial public offering
price multiplied by 2,650,764, the number of Common Shares underlying the Wright
Warrants.
The Company does not expect these non-recurring expenses to have a
significant impact on the Company's operations and cash flows, although they
will have a material, negative impact on the Company's reported earnings for the
fiscal quarter in which they are incurred and for the 1996 fiscal year. See
"Offering Related Transactions -- Non-Recurring Expenses," "Certain
Relationships and Related Party Transactions -- Stock Purchase Agreements" and
"-- Wright Warrants."
DEVELOPMENT OF A FUEL REBATE/SURCHARGE PROGRAM. In January 1990, as jet
fuel prices rose dramatically, the Company developed a fuel rebate/surcharge
program. Pursuant to this program, as the OPIS-CMH (Oil Price Information
Service -- Columbus, Ohio Station) price of jet fuel exceeds $.75 per gallon,
the Company's customers are surcharged. In turn, as the OPIS-CMH price falls
below $.68 per gallon, the Company's customers receive a rebate.
TAXES ON INCOME. In July 1988, the Company elected to be treated as an S
Corporation under Subchapter S of the Code and comparable provisions of certain
state tax laws, and since then has paid no federal income tax. For reporting
purposes, the Company records a charge for state taxes for those states which do
not recognize Subchapter S status. Prior to the closing of the Offering, the
Company will terminate its S Corporation status and thereafter will be
responsible for federal and state income taxes. See "Selected Unaudited
Condensed Pro Forma Financial Data."
TAX BENEFIT FROM THE EXERCISE OF THE DONALD WRIGHT WARRANT. The Company
expects to receive a tax benefit asset from the repurchase and cancellation of
the Donald Wright Warrant of approximately $7.0 million. See "Offering Related
Transactions -- Purchase of Wright Warrants" and "Certain Relationships and
Related Party Transactions -- Wright Warrants." This tax benefit will be
recorded on the Company's balance sheet and may be used to offset taxes payable
on future income of the Company. The tax benefit will have no effect on the
Company's income statement currently or for any future period, but will
positively affect cash flows. See "Selected Unaudited Condensed Pro Forma
Financial Data" and Note 12 of the Notes to the Company's Financial Statements.
NATIONAL CLEARINGHOUSE ASSOCIATION. Established by a joint venture owned in
part by the Company's existing shareholders and approved by the Federal Reserve
in 1991, the NCHA is a consortium of over 60 bank holding companies that have
joined together to reduce check-clearing costs by means of a multi-bank, private
net settlement arrangement. See "Industry Overview -- How Banks Clear and Settle
Canceled Bank Checks -- The National Clearinghouse Association" and "Certain
Relationships and Related Party Transactions -- Float Control, Inc./CHEXS
Partnership." The volume of checks cleared through the NCHA has grown steadily
each month since 1991, and this continued growth has resulted in increased
volume and revenues for the Company, which is the principal transporter of
canceled checks for the NCHA and its member bank holding companies.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items in the
Company's income statements as a percentage of revenues for the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Air transportation:
Check delivery............................................ 84.2% 85.2% 86.4% 86.2% 86.1%
Small package delivery.................................... 13.6 13.0 12.1 12.2 12.6
Fixed base operations....................................... 2.2 1.8 1.5 1.6 1.3
----- ----- ----- ----- -----
Total revenues................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Air transportation:
Wages and benefits........................................ 13.0% 12.9% 13.6% 14.0% 13.7%
Aircraft fuel............................................. 12.2 11.0 11.0 11.1 10.9
Aircraft maintenance...................................... 9.3 9.0 8.9 9.5 9.3
Aircraft leases........................................... 7.5 5.1 1.5 2.0 1.1
Ground couriers and outside services...................... 13.6 13.2 12.8 12.8 12.8
Depreciation and amortization............................. 10.0 10.1 10.9 10.7 11.7
Other..................................................... 8.6 9.1 9.5 9.8 9.8
Fixed base operations....................................... 1.9 1.7 1.4 1.4 1.1
Selling, general, administrative:
Executive compensation.................................... 4.7 5.2 5.9 5.6 4.8
Other executive compensation.............................. 0.4 2.5 3.9 3.6 3.9
Wright Agreement expenses................................. 2.3 2.9 3.5 3.7 2.1
Other..................................................... 6.7 5.8 5.1 5.1 6.3
----- ----- ----- ----- -----
Total costs and expenses...................................... 90.2 88.5 88.0 89.3 87.5
----- ----- ----- ----- -----
Income from operations........................................ 9.8 11.5 12.0 10.7 12.5
Interest expense.............................................. 1.9 1.7 2.2 1.9 2.1
----- ----- ----- ----- -----
Net income.................................................... 7.9% 9.8% 9.8% 8.8% 10.4%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
REVENUES. Revenues for the six months ended March 31, 1996 were $35.5
million, an increase of $3.0 million, or 9.4% compared to $32.5 million for the
six months ended March 31, 1995. Of this increase, $0.7 million was due to two
additional days of operations during the six months ended March 31, 1996, $1.1
million was due to price increases and $1.2 million was due to a higher level of
business activity. Revenues from check delivery for the six months ended March
31, 1996, were $30.6 million, an increase of $2.6 million or 9.3%, compared to
$28.0 million for the six months ended March 31, 1995. Revenues from small
package delivery for the six months ended March 31, 1996 were $4.5 million, an
increase of $0.5 million or 12.3%, compared to $4.0 million for the six months
ended March 31, 1995. Revenues from fixed base operations for the six months
ended March 31, 1996 were comparable to revenues of $0.5 million for the six
months ended March 31, 1995.
WAGES AND BENEFITS. Wages and benefits expense for the six months ended
March 31, 1996 was $4.9 million, an increase of $0.3 million or 7.0%, compared
to $4.6 million for the six months ended March 31, 1995. The increase was due
primarily to normal pay rate increases, as well as increased health insurance
costs. The increase was also due to the Company increasing its 401(k) matching
contribution from 25% to 50% of contributions on a maximum of 6% of an
associate's pay.
AIRCRAFT FUEL. Aircraft fuel expense for the six months ended March 31,
1996 was $3.9 million, an increase of $0.3 million or 7.7%, compared to $3.6
million for the six months ended March 31, 1995. The increase was due
24
<PAGE>
primarily to increased fuel prices and to two additional days of operations
during the six months ended March 31, 1996 compared to the six months ended
March 31, 1995. The increase also reflects increased flight hours of Piper
Chieftains which have greater fuel consumption but larger payloads than
previously used aircraft, as well as increased Learjet flight hours.
AIRCRAFT MAINTENANCE. Aircraft maintenance expense for the six months ended
March 31, 1996 was $3.3 million, an increase of $0.2 million or 7.0%, compared
to $3.1 million for the six months ended March 31, 1995. The increase was
primarily due to higher parts prices and more aircraft being maintained.
AIRCRAFT LEASES. Aircraft leases expense for the six months ended March 31,
1996 was $0.4 million, a decrease of $0.2 million or 40.3%, compared to $0.6
million for the six months ended March 31, 1995. The decrease was primarily due
to the Company's leasing fewer Learjets and fewer light twin engine aircraft
during the six months ended March 31, 1996 compared to the six months ended
March 31, 1995, reflecting the Company's decision to acquire rather than lease
aircraft.
GROUND COURIERS AND OUTSIDE SERVICES. Ground couriers and outside services
expense includes the cost of independent contractors as well as Company
associates. Ground couriers and outside services expense for the six months
ended March 31, 1996 was $4.6 million, an increase of $0.5 million or 10.0%,
compared to $4.1 million for the six months ended March 31, 1995. Of such
increase, $0.1 million was due to two additional days of operations during the
six months ended March 31, 1996 compared to the six months ended March 31, 1995.
The remainder of the increase was due to the addition of new Company couriers,
price increases from independent contractors and the need for additional
services because of increased business activity.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the six months ended March 31, 1996 was $4.2 million, an increase of $0.7
million or 19.5% compared to $3.5 million for the six months ended March 31,
1995. $0.6 million of the increase was due to the increase in depreciation
expense of flight equipment for the six months ended March 31, 1996 compared to
the six months ended March 31, 1995 attributable to the Company's decision to
acquire rather than lease aircraft.
OTHER. Other expenses for the six months ended March 31, 1996 were $3.5
million, an increase of $0.3 million or 9.6%, compared to $3.2 million for the
six months ended March 31, 1995. This increase was primarily due to an increase
in insurance expense as a result of an adjustment to the Company's insurance
premium due to the increased value of the Company's fleet. The increase in other
expenses was also due to an increase in commercial freight expense, an increase
in landing fees, and an increase in office and hanger rental expense due to a
June 1995 expansion of the Company's facilities and a July 1995 rent increase.
EXECUTIVE COMPENSATION. Executive compensation expense for the six months
ended March 31, 1996 was $1.7 million, a decrease of $0.1 million or 6.3%,
compared to $1.8 million for the six months ended March 31, 1995. The decrease
was due to a decrease in performance-based bonuses in the 1996 period.
OTHER EXECUTIVE COMPENSATION. Other executive compensation expense includes
the appreciation in the book value of the Common Shares acquired by certain
executive officers pursuant to the Stock Purchase Agreements. Other executive
compensation expense for the six months ended March 31, 1996 was $1.4 million,
an increase of $0.2 million or 20.6%, compared to $1.2 million for the six
months ended March 31, 1995. See "Certain Relationships and Related Party
Transactions -- Stock Purchase Agreements."
OTHER SELLING, GENERAL AND ADMINISTRATIVE. Other selling, general and
administrative expenses for the six months ended March 31, 1996 were $2.2
million, an increase of $0.5 million or 35.1% compared to $1.7 million for the
six months ended March 31, 1995. This increase was due to an increase in general
insurance, property and real estate taxes and state taxes. Also included in
other selling, general and administrative expenses for the six months ended
March 31, 1996 was $0.1 million for the settlement of a wrongful termination
lawsuit.
INTEREST EXPENSE. Interest expense for the six months ended March 31, 1996
was $0.7 million, an increase of $0.1 million or 20.4%, compared to $0.6 million
for the six months ended March 31, 1995. The increase was due to increased
borrowings which were used primarily for capital expenditures.
25
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues were $67.5 million for fiscal 1995, an increase of $4.1
million or 6.3%, compared to $63.4 million for fiscal 1994. Revenues from check
delivery were $58.3 million for fiscal 1995, an increase of $4.3 million or
7.8%, compared to $54.0 million for fiscal 1994. This increase was due to the
increased level of business activity, at least part of which can be attributed
to the implementation of Same-Day Settlement in January 1994. The increase in
revenues from check delivery was also due in part to the increase in the
Company's shipping volume as a result of increased participation in the NCHA
throughout 1994 and 1995. Of the overall increase in revenues for fiscal 1995
compared to fiscal 1994, approximately $2.0 million was due to rate increases
implemented by the Company on January 1, 1995 and 1994.
Revenues from small package delivery were $8.2 million for fiscal 1995
compared to $8.2 million for fiscal 1994. A 4.7% increase in revenues from new
business and increased business from existing customers was offset by a $0.4
million loss of business from the U.S. Postal Service.
Revenues from fixed based operations were $1.0 million for fiscal 1995, a
decrease of $0.2 million or 13.1%, compared to $1.2 million for fiscal 1994.
This decrease was due to a $0.3 million decrease in revenues generated from
retail maintenance as a result of the Company's decision to reduce retail work
due to the maintenance demands of its own growing fleet of aircraft. This
decrease was partially offset by a $0.1 million increase in revenues from retail
fuel sales.
WAGES AND BENEFITS. Wages and benefits expense was $9.2 million for fiscal
1995, an increase of $1.0 million or 12.3%, compared to $8.2 million for fiscal
1994. Of the increase, $0.6 million was due to increased costs of benefits. The
Company increased its discretionary contribution to the Company's 401(k) plan by
$0.2 million, and group health insurance costs increased by $0.4 million. The
Company is self-insured for health care benefits and such claims were greater in
fiscal 1995 than in fiscal 1994.
AIRCRAFT FUEL. Aircraft fuel expense was $7.4 million for fiscal 1995, an
increase of $0.4 million or 7.0%, compared to $7.0 million for fiscal 1994. This
increase was due, in part, to an increase in hours flown. The increase in
aircraft fuel expense was also due, in part, to minor increases in aviation fuel
prices during fiscal 1995. Fuel rebates were $0.4 million for fiscal 1995, an
increase of $0.1 million or 61.6%, compared to $0.3 million for fiscal 1994.
AIRCRAFT MAINTENANCE. Aircraft maintenance expense was $6.0 million for
fiscal 1995, an increase of $0.3 million or 5.5%, compared to $5.7 million for
fiscal 1994. The increase was due, in part, to higher parts costs and use of
outsourced maintenance facilities for more routine maintenance in fiscal 1995
compared to fiscal 1994. Outsourcing maintenance work was necessary because
rotating the Company's fleet to one of the Company's maintenance facilities
became increasingly difficult as flight hours increased in fiscal 1995.
AIRCRAFT LEASES. Aircraft leases expense was $1.0 million for fiscal 1995,
a decrease of $2.3 million or 68.0%, compared to $3.3 million for fiscal 1994.
This decrease was due to the Company's continued strategy of acquiring rather
than leasing aircraft. During the last month of fiscal 1994 and the first month
of fiscal 1995, the Company acquired three Learjets that it had previously
leased. By the end of fiscal 1995, the Company leased only one Learjet and 12
light twin engine aircraft.
GROUND COURIERS AND OUTSIDE SERVICES. Ground couriers and outside services
expense was $8.6 million for fiscal 1995, an increase of $0.3 million or 3.2%,
compared to $8.3 million for fiscal 1994. This increase was due to a $0.4
million increase in the cost of ground agents due to the additional agents
needed to handle increased volume in shipments, partially offset by a $0.1
million decrease in the cost of independent contractors due to the loss of the
U.S. Postal Service business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$7.4 million for fiscal 1995, an increase of $1.1 million or 16.1%, compared to
$6.3 million for fiscal 1994. Almost all of this increase was due to an increase
in depreciation of flight equipment as a result of the Company's strategy to
acquire rather lease aircraft.
OTHER. Other expenses were $6.4 million for fiscal 1995, an increase of
$0.6 million or 11.5%, compared to $5.8 million for fiscal 1994. This increase
was due to an increase in insurance expense in fiscal 1995 compared to
26
<PAGE>
fiscal 1994, partially due to an increase in aircraft insurance of $0.4 million
due to a rate increase and a year-end adjustment for increased fleet value, and
partially due to an increase in workers' compensation insurance of $0.2 million
due to a rate increase and an increase in payroll.
FIXED BASE OPERATIONS. Fixed based operations expense was $1.0 million for
fiscal 1995, a decrease of $0.1 million or 11.6%, compared to $1.1 million for
fiscal 1994. This decrease was due to a decrease in the cost of retail
maintenance and a non-cash charge taken in fiscal 1995 to write down the value
of the Company's Norwalk, Ohio facility.
EXECUTIVE COMPENSATION. Executive compensation expense was $4.0 million for
fiscal 1995, an increase of $0.7 million or 20.3%, compared to $3.3 million for
fiscal 1994. The increase was primarily due to a $0.6 million increase in
performance-based bonuses in fiscal 1995 compared to fiscal 1994.
OTHER EXECUTIVE COMPENSATION. Other executive compensation expense was $2.6
million for fiscal 1995, an increase of $1.0 million or 64.9%, compared to $1.6
million for fiscal 1994. Other executive compensation includes the appreciation
in the book value of the Common Shares acquired by certain executive officers
pursuant to the Stock Purchase Agreements, which were executed in April 1994.
The increase in fiscal 1995 expense resulted from such appreciation for a full
fiscal year compared to the fiscal 1994 expense which relates only to a six
month period. See "Certain Relationships and Related Party Transactions -- Stock
Purchase Agreements."
WRIGHT AGREEMENT. Wright Agreement expense was $2.3 million for fiscal
1995, an increase of $0.5 million or 28.4%, compared to $1.8 million for fiscal
1994. The increase was due to additional payments made pursuant to the Wright
Agreement in fiscal 1995 based on the financial performance of the Company. See
"Certain Relationships and Related Party Transactions -- Wright Agreement."
OTHER SELLING, GENERAL AND ADMINISTRATIVE. Other selling, general and
administrative expenses were $3.4 million for fiscal 1995, a decrease of $0.4
million or 10.1%, compared to $3.8 million for fiscal 1994. The decrease was
primarily due to a $0.3 million decrease in the loss on disposal of assets and a
$0.1 million decrease in professional fees in fiscal 1995 compared to fiscal
1994, partially offset by computer-related expenses associated with the
development and implementation of handheld bar code scanners.
INTEREST EXPENSE. Interest expense was $1.5 million for fiscal 1995, an
increase of $0.4 million or 32.9%, compared to $1.1 million for fiscal 1994.
This increase was primarily due to the Company's increased capital expenditures,
including the acquisition of additional aircraft during the 13 months beginning
September 1994 which increased debt by $5.3 million. The increase in interest
expense was partially offset by a decrease in aircraft lease expense. During
fiscal 1995, the Company also amended the Existing Credit Agreement to allow the
Company to borrow funds at variable Eurodollar rates tied to the Company's debt
to equity ratio.
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Total revenues were $63.4 million for fiscal 1994, an increase of
$4.8 million or 8.3%, compared to $58.6 million for fiscal 1993. Revenues from
check delivery were $54.0 million for fiscal 1994, an increase of $4.6 million
or 9.5%, compared to $49.4 million for fiscal 1993. Of the increase, $2.3
million was due to rate increases implemented by the Company on January 1, 1994
and 1993, and $0.5 million was due to the return of several customers in the
Southeast who had used a competitor for part of fiscal 1993. Increased
participation in the NCHA also led to increased volume and revenues in fiscal
1994.
Revenues from small package delivery were $8.2 million for fiscal 1994, an
increase of $0.2 million or 3.4%, compared to $8.0 million for fiscal 1993. This
increase was due to an increase in business activity and a rate increase,
partially offset by a $0.6 million decrease in revenues from the U.S. Postal
Service during fiscal 1994. Although the loss of the Postal Service had a
significant impact on revenues, the impact on net income was small because it
was low margin business.
Revenues from fixed based operations were $1.2 million for fiscal 1994, a
decrease of $0.1 million or 8.5%, compared to $1.3 million for fiscal 1993. This
decrease was due to diminished retail maintenance revenues as a result of the
Company's decision to reduce retail activities due to the maintenance demands of
its growing fleet of aircraft.
27
<PAGE>
WAGES AND BENEFITS. Wages and benefits expense was $8.2 million for fiscal
1994, an increase of $0.6 million or 7.8%, compared to $7.6 million for fiscal
1993. This increase was due to increased wages in fiscal 1994 due to the
addition of 18 associates as package handlers, partially offset by a reduction
in the administrative staff by six associates.
AIRCRAFT FUEL. Aircraft fuel expense was $7.0 million for fiscal 1994, a
decrease of $0.2 million or 2.7%, compared to $7.2 million for fiscal 1993. The
decrease was due to lower fuel prices in fiscal 1994. Fuel rebates were $0.3
million for fiscal 1994, an increase of $0.1 million or 26.4%, compared to $0.2
million for fiscal 1993.
AIRCRAFT MAINTENANCE. Aircraft maintenance expense was $5.7 million for
fiscal 1994, an increase of $0.3 million or 5.4%, compared to $5.4 million in
fiscal 1993. This increase was due to the addition of aircraft to the Company's
fleet.
AIRCRAFT LEASES. Aircraft leases expense was $3.3 million for fiscal 1994,
a decrease of $1.1 million or 26.0%, compared to $4.4 million for fiscal 1993.
This decrease was due to the Company's strategic decision to purchase rather
than lease aircraft. In fiscal 1994, the Company acquired four Learjets and four
Piper Chieftains, all of which replaced leased aircraft.
GROUND COURIERS AND OUTSIDE SERVICES. Ground couriers and outside services
expense was $8.3 million for fiscal 1994, an increase of $0.4 million or 5.0%,
compared to $7.9 million for fiscal 1993. This increase was due to a $0.7
million increase in ground agent expenses for fiscal 1994 compared to fiscal
1993 due to the additional agents needed to handle increased volume in
shipments, partially offset by a decrease of $0.3 million due to a decrease in
other outside services as a result of the loss of the U.S. Postal Service
business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$6.3 million for fiscal 1994, an increase of $0.4 million or 8.0%, compared to
$5.9 million for fiscal 1993. The increase was due to the acquisition of new
aircraft during fiscal 1994 at a total cost of $6.9 million.
OTHER. Other expenses were $5.8 million for fiscal 1994, an increase of
$0.8 million or 14.2%, compared to $5.0 million for fiscal 1993. Of this
increase, $0.2 million was due to an increase in insurance expense, partially
due to an increase in automobile insurance expense.
FIXED BASE OPERATIONS. Fixed base operations expense was $1.1 million for
fiscal 1994, a decrease of $0.1 million or 6.0%, compared to $1.2 million for
fiscal 1993. The decrease was due to a reduction in retail maintenance activity
for fiscal 1994.
EXECUTIVE COMPENSATION. Executive compensation expense was $3.3 million for
fiscal 1994, an increase of $0.6 million or 20.0%, compared to $2.7 million for
fiscal 1993. This increase was due in part to increases in executive salaries
and performance-based bonuses in fiscal 1994.
OTHER EXECUTIVE COMPENSATION. Other executive compensation expense was $1.6
million for fiscal 1994, an increase of $1.4 million or 547.0%, compared to $0.2
million for fiscal 1993. Of this increase, $0.5 million was attributable to the
Deferred Compensation Agreements, with the remainder due to the appreciation in
the value of the Common Shares acquired by certain executive officers pursuant
to the Stock Purchase Agreements, which were executed in April 1994. Other
executive compensation expense for fiscal 1993 was related solely to the
Deferred Compensation Agreements. See "Certain Relationships and Related Party
Transactions -- Deferred Compensation Agreements" and "-- Stock Purchase
Agreements."
WRIGHT AGREEMENT. Wright Agreement expense was $1.8 million for fiscal
1994, an increase of $0.5 million or 35.4%, compared to $1.3 million for fiscal
1993. The increase was due to additional payments made pursuant to the Wright
Agreement in fiscal 1994 based on the financial performance of the Company. See
"Certain Relationships and Related Party Transactions -- Wright Agreement."
OTHER SELLING, GENERAL AND ADMINISTRATIVE. Other selling, general and
administrative expenses were $3.8 million for fiscal 1994, a decrease of $0.1
million or 3.5%, compared to $3.9 million for fiscal 1993. There were no
significant changes in any one expense account for fiscal 1994 compared to
fiscal 1993.
28
<PAGE>
INTEREST EXPENSE. Interest expense was $1.1 million for fiscal 1994 and
$1.1 million for fiscal 1993. Although the Company's debt was higher in fiscal
1994 compared to fiscal 1993 due to additional financing for capital
acquisitions, interest rates were more favorable, and the Company, because of
its improving financial condition, was able to borrow funds at lower Eurodollar
rates as compared to its previous prime based borrowings.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's principal sources of liquidity are internally
generated funds and credit arrangements. The Company plans to repay a
significant portion of its existing bank debt with proceeds from the Offering
and has received a commitment from NBD Bank to provide a new credit facility
upon the closing of the Offering. See "Use of Proceeds" and "Description of
Certain Indebtedness -- New Credit Agreement." The Company believes that the new
credit facility will allow it to expand through the acquisition of additional
aircraft and other capital equipment and through the possible acquisition of
other companies. See "Business -- Business Strategy."
EXISTING CREDIT AGREEMENT. The Company is party to various credit
arrangements with NBD Bank, its primary lender. The Company currently has an
$8.0 million revolving credit loan which matures June 30, 1997. Outstanding
borrowings under the revolving credit loan were $6.7 million as of March 31,
1996. In addition, the Company had term notes totaling $10.8 million as of March
31, 1996, with maturities ranging between December 31, 1996 and May 1, 2000. The
Company's weighted average interest rate at March 31, 1996 was 7.4%.
NEW CREDIT AGREEMENT. Simultaneously with the closing of the Offering, the
Company will enter into the New Credit Agreement to replace the Existing Credit
Agreement. The New Credit Agreement will provide the Company with a $50.0
million, five year, unsecured revolving credit facility and will provide the
Company with significantly more favorable terms and conditions than the Existing
Credit Agreement. The New Credit Agreement will contain financial covenants
which contain different baselines or measure financial ratios different from
those in the Existing Credit Agreement, including minimum Tangible Net Worth
(85% of post-Offering Tangible Net Worth plus 50% of annual Net Income), a
Funded Debt to EBITDA ratio (not to exceed 2.5:1.0), a Funded Debt to Total
Capitalization ratio (not to exceed 0.5:1.0) and a Cash Flow Coverage ratio (not
to be less than 1.05:1.0 through June 29, 1997 or less than 1.1:1.0 through
September 29, 1997 or less than 1.2:1.0 thereafter) (capitalized terms, in each
case, as defined therein). The Company believes that the New Credit Agreement
will provide it with additional financial and operating flexibility.
Specifically, the New Credit Agreement will increase the Company's availability,
permit the Company to borrow more easily at Eurodollar-based rates and will
facilitate acquisitions. Availability under the New Credit Agreement will be
limited to certain specified percentages of accounts receivable, parts inventory
and the wholesale value of the Company's aircraft and equipment. Under the New
Credit Agreement, the Company would have had an additional $14.3 million of
availability at March 31, 1996, and the Company estimates that total
availability under the New Credit Agreement will be approximately $31.8 million
upon the closing of the Offering, of which approximately $3.6 million will have
been drawn down.
The Company expects that the net proceeds from the Offering, together with
existing financing arrangements, will be sufficient to fund the Company's
operations for at least the next 18 months.
CAPITAL EXPENDITURES. Capital expenditures totaled $5.4 million in the six
months ended March 31, 1996, $14.5 million in fiscal 1995, $12.9 million in
fiscal 1994 and $8.4 million in fiscal 1993. The Company anticipates capital
expenditures will total approximately $12.1 million in fiscal 1996. Expenditures
were for flight equipment, delivery vehicles, facility improvements and data
processing equipment. The Company anticipates that it will continue to acquire
flight equipment as necessary to maintain growth and continue offering quality
service to its customers. The Company also expects to continue developing
management information systems as they relate to its package delivery business
as well as electronic initiatives within the nation's payment mechanism.
S CORPORATION DISTRIBUTIONS. The Company elected S Corporation status in
July 1988 and has made distributions to its shareholders for the purpose of
paying taxes on income generated by the Company which is taxable to the
shareholders. In addition, the Company began in 1994 to make distributions in
excess of those necessary to pay taxes. These additional distributions totaled
$3.1 million through the end of fiscal 1995. At or prior to the closing of the
Offering, the Company will terminate its S Corporation status. Prior to
termination of its S Corporation status, the Company will distribute the AAA
Notes in an aggregate principal amount estimated to be $23.0 million, which will
approximate the balance of the Company's AAA account. See "Prior S Corporation
Status."
29
<PAGE>
CASH FLOWS FROM OPERATING ACTIVITIES. Cash flows from operating activities
were $8.0 million, $15.3 million and $14.7 million for the six months ended
March 31, 1996 and fiscal years 1995 and 1994, respectively.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company's operations historically have been somewhat seasonal and
somewhat dependent on the number of bank holidays falling during the week.
Because financial institutions are the Company's principal customers, the
Company's air system is scheduled around the needs of financial institution
customers. When financial institutions are closed, there is no need for the
Company to operate a full system. The Company's first quarter is often the most
impacted by bank holidays (including Thanksgiving and Christmas) recognized by
its primary customers. When these holidays fall on Monday through Thursday, the
Company's revenues and net income are adversely affected. The Company's annual
results fluctuate as well. There can be a difference of two or three days of
system operation from one year to the next. For example, the Company operated a
full system on 197 days in fiscal 1995, 199 days in fiscal 1994 and 198 days in
fiscal 1993.
Operating results are also affected by the weather. The Company generally
experiences higher maintenance costs during its second quarter. Winter weather
also requires additional costs for de-icing, hangar rental and other aircraft
services. The Company's cash flows are also influenced by the budget cycles of
its primary customers. Many financial institutions have calendar year budget
cycles and desire to pay for December services prior to year end. This results
in increased cash flows for the Company's first quarter but decreased cash flows
in January and February.
INFLATION
Historically, inflation has not been a significant factor to the Company.
Although the value of the Company's service to its primary customers is enhanced
by higher interest rates, the volume of business has not changed historically
with fluctuating interest rates. The Company has attempted to minimize the
effects of inflation on its operating results through rate increases and cost
controls, including development of a fuel rebate/surcharge program. Pursuant to
this program, as the OPIS-CMH price of jet fuel exceeds $.75 per gallon, the
Company's customers are surcharged.
ENVIRONMENTAL MATTERS
The Company feels that compliance with environmental matters has not had,
and is not expected to have, a material effect on operations. Although the
Company believes that it is in compliance with all applicable noise level
regulations and is working proactively with various local governments to
minimize noise issues, future noise pollution regulations could require the
replacement of several of the Company's aircraft.
30
<PAGE>
INDUSTRY OVERVIEW
The expedited delivery and distribution industry in the U.S. is a highly
fragmented business, composed of thousands of companies providing largely
two-day, next-day and same-day pick-up and delivery services. The Air Courier
Conference Association estimates that the annual revenues of the air delivery
industry total at least $35 billion. The Company believes that the industry can
be divided into the following market segments: (i) highly specialized,
time-critical deliveries, including delivery of canceled bank checks; (ii) air
courier document and parcel delivery; (iii) air freight forwarding; and (iv)
corporate transportation and logistics support. While the Company participates
primarily in one niche of the highly specialized, time-critical deliveries
market segment (transportation of canceled bank checks), it believes that its
highly flexible, nationwide air transportation network can be utilized for
expedited delivery and distribution of goods within any of the above-mentioned
industry segments.
HIGHLY SPECIALIZED, TIME-CRITICAL DELIVERIES. There are a number of special
transportation services required by individuals, hospitals, scientific
laboratories and industries, such as medical samples and canceled bank checks,
which require time-critical and reliable service to avoid the costly
consequences of late or missed deliveries. Data for most of this industry
segment, with the exception of the transportation of canceled bank checks, are
not available, due to the highly specialized nature of the products that are
delivered. The growth in the need for overnight deliveries of canceled bank
checks can be measured by the growth in the number of bank checks actually
written annually on a nationwide basis and the aggregate dollar value of these
checks. Federal Reserve statistics from 1985 through 1995, profiled below, show
a compound annual growth rate in the number of checks written of 2.3% over the
period to 61.6 billion checks in 1995. Similarly, the dollar value of checks
written grew at a compound annual rate of 3.2% over the same period, reaching
$42.2 trillion in 1995. Additionally, The Tower Group, an independent research
firm, has projected that the number of checks written should total 70 billion by
the year 2000.
The following tables set forth the number of checks written and the
aggregate dollar value of such checks from 1985 through 1995:
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
VOLUME OF CHECKS WRITTEN (IN BILLIONS)
<C> <C>
1985 48.9
1986 50.1
1987 51.6
1988 53.2
1989 54.3
1990 56.8
1991 58.0
1992 58.9
1993 60.2
1994 61.0
1995 61.6
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLAR VALUE OF CHECKS WRITTEN (IN
TRILLIONS)
<S> <C>
1985 $ 30.8
1986 $ 31.8
1987 $ 32.8
1988 $ 34.1
1989 $ 35.1
1990 $ 36.0
1991 $ 37.4
1992 $ 38.5
1993 $ 39.6
1994 $ 40.9
1995 $ 42.2
</TABLE>
Other than the Company, the only national provider of air transportation
services to the U.S. banking industry for canceled checks is the Federal
Reserve's ITS. Within Federal Reserve districts, the transportation of canceled
checks is handled mostly by ground vehicles operated by regional or local banks,
or the ITS. Between Federal Reserve districts, there are numerous regional
carriers who contract with banks and groups of banks to provide such services.
Some of these providers may include regional air courier and document delivery
companies, but none of them commands a significant share of the national market
or is capable of providing national service. In addition, many banks require a
wide variety of pick-ups, deliveries and available endpoints, as well as
superior on-time performance and management information systems to enable them
to manage float and make appropriate draw down decisions, which few of these
other delivery companies currently can provide. See "-- How Banks Clear and
Settle Canceled Bank Checks."
31
<PAGE>
AIR COURIER DOCUMENT AND PARCEL DELIVERY MARKET. Comprised mostly of
same-day and next-day pick-up and delivery services, this market is dominated by
several large companies with national hub-and-spoke delivery systems which
provide service based upon established pick-up and delivery schedules rather
than those requested by the customer. These carriers include FedEx, UPS, the
U.S. Postal Service, Airborne Express and DHL, among others. In addition to
these carriers, there are several multi-regional companies that focus on
same-day and early next-day deliveries custom tailored to the customers'
requested pick-up and delivery times. Numerous other firms operate only on a
regional basis, and provide similar services. Finally, there are hundreds of
small, closely-held owner-operator businesses which operate in only one location
with little or no national market share.
AIR FREIGHT FORWARDING MARKET. Traditionally dominated by the large
domestic and international passenger airline companies, who utilize excess cargo
space in their fleet of passenger aircraft to shuttle freight internationally
and domestically, the air freight forwarding market has expanded significantly
to include participants focused solely on international delivery, who then
subcontract for local delivery. This market has grown with the globalization of
world markets, as corporations increasingly source raw materials from multiple
origins throughout the world, contract for or perform manufacturing and assembly
operations in many different countries and distribute their products worldwide.
International freight companies have increasingly been seeking flexible air
distribution networks operating domestically that can connect with their
cross-Pacific and cross-Atlantic delivery routes and meet the custom-tailored
needs of their customers on a same-day or next-day basis.
CORPORATE TRANSPORTATION AND LOGISTICS SUPPORT MARKET. Corporations that
have complex sourcing and distribution systems are seeking to minimize inventory
carrying costs and reduce expenses associated with the movements of raw
materials. The increasingly time-sensitive nature of product delivery schedules
due to shorter product life cycles and "just-in-time" inventory management has
led to growth in this market segment. Many companies are concluding that they
perform transportation logistics functions less effectively than third party
providers. As a result, companies have looked to outsource these functions to
reduce costs while enhancing cost-efficiency and reliability of the logistics
function.
HOW BANKS CLEAR AND SETTLE CANCELED BANK CHECKS
Banks attempt to clear checks expeditiously in order to convert their
non-earning assets into interest-bearing assets. A check deposit cannot begin to
earn interest until the physical item has been routed from the bank where it was
first deposited to the bank on which the funds were drawn. The elapsed time
between the deposit of the check and the delivery of the check to a Federal
Reserve bank or the bank on which it was drawn results in "float." Banks desire
to minimize float in order to maximize the availability of funds and the
corresponding ability to earn income on those funds.
In 1995, approximately 61.6 billion checks were written in the U.S. Of that
number, approximately 25% were "transit" checks, or checks presented in one
Federal Reserve district for payment, while drawn "out-of-district." Banks use
sophisticated, computerized check-sorting equipment to sort checks at a rate in
excess of 80,000 items per hour, per machine. The individual average dollar
value of all checks written is approximately $700, while the average transit
check is approximately $1,300 because of the higher level of corporate trade
payment involved. Many large commercial banks daily clear gross transit checks
valued at more than $500 million, which equates to daily interest income value
of up to $75,000 (assuming a federal funds rate of 5.5%). The expedited sorting
and delivery of canceled bank checks allows banks and their customers to share
in this value.
THE NATIONAL CLEARINGHOUSE ASSOCIATION
The NCHA is a consortium of over 60 bank holding companies that have joined
together to reduce check-clearing costs by means of a multi-bank, private net
settlement arrangement located at The Huntington National Bank. The NCHA was
developed by the CHEXS Partnership (as defined below). The CHEXS Partnership is
owned by affiliates of The Huntington National Bank and Littlewood Shain and
Company, and by Float Control, Inc. Float Control, Inc. is a corporation owned
by the executive officers of the Company, Donald W. Wright, Sr. and Jeffrey
Wright. See "Certain Relationships and Related Party Transactions -- Float
Control, Inc./CHEXS Partnership."
The bank members of the NCHA benefit from their affiliation with the NCHA by
receiving a quick, convenient and efficient settlement at a single location of
"out-of-district" checks deposited at their banks. Currently, the NCHA clears
approximately 3.5 to 4.0 million checks each working day.
32
<PAGE>
BUSINESS
OVERVIEW
The Company operates a fully integrated national air transportation network
that operates between 85 cities in more than 40 states and delivers over 13,000
time-critical shipments each working day. The Company's U.S. Check-Registered
Trademark- division, which generates approximately 86% of the Company's
revenues, is the leading transporter of canceled checks and related information
for the U.S. banking industry, meeting more than 1,100 daily deadlines. The
Company's TIMEXPRESS-Registered Trademark- division, which generates
approximately 12% of the Company's revenues, provides specialized, high-priority
delivery service for customers requiring a reliable late pick-up and early
delivery service combined with prompt, on-line delivery information. The
Company's PDQ division offers retail aviation fuel sales and related ground
services for customers in Columbus, Ohio.
The Company currently operates a fleet of 81 aircraft (23 Learjet and 58
light twin engine aircraft), which fly approximately 85,000 miles per night,
primarily Monday through Thursday. The Company also provides ground pick-up and
delivery services throughout the nation, utilizing a fleet of 87 Company-owned
ground vehicles as well as a ground transportation network of over 350
independent contractors. The Company uses its own air transportation network as
well as commercial airlines, when appropriate, to provide same-day and
same-night delivery services for itself, as well as for certain major overnight
document and parcel delivery companies.
Later pick-ups and earlier deliveries than those offered by other national
carries are the differentiating characteristics of the Company's time-critical
delivery network. In addition, the Company offers other value-added services to
its customers, such as on-line delivery information. The Company consistently
has achieved on-time performance levels exceeding 95%. In order to maintain this
performance, the Company utilizes a number of proprietary customer service and
management information systems to track, sort, dispatch and control the flow of
checks and small packages throughout the Company's delivery system. Delivery
times and certain shipment information are available on-line and on the
Internet. For example, ComCheck-SM-, a unique proprietary software system,
provides bank customers access to delivery time, shipment information and
retrieval of historical proof of delivery information, critical data that enable
banks to manage their cash position and maximize float revenue. OnTime-SM- and
Ship-Link-SM-, Company developed software programs, provide scheduling and
pricing information, as well as on-line delivery and shipper acknowledgment data
for small package customers. The Company also has developed several internal
software programs to enhance dispatch monitoring, cost control and customer
service functions.
The Company believes that the market for reliable, time-critical deliveries
is growing as a result of a number of global trends, including: (i) corporations
requiring just-in-time inventory parts, to lower production costs; (ii) medical
laboratories requiring same-day deliveries; (iii) consolidating ground-based
small package couriers requiring a national air delivery network; and (iv)
global air freight forwarders requiring a domestic connection for their
international networks that can deliver on a same-day/same-night or pre-8:00
a.m. basis. As the Company's banking customers typically require services four
nights per week, there exists substantial available flight time and aircraft for
the Company to pursue these business opportunities by flying during the day and
on weekends when the Company's aircraft are not otherwise servicing the
Company's banking customers. The Company believes that its flexible and reliable
air transportation network and its demonstrated expertise in providing
time-critical deliveries position the Company to provide such additional
services at premium prices.
BUSINESS STRATEGY
The principal components of the Company's operating and growth strategy are
to (i) focus on unique aircraft type and route structure; (ii) attract, retain
and motivate the highest quality personnel available; (iii) expand its U.S.
Check-Registered Trademark- position in the banking industry; (iv) grow its
TIMEXPRESS-Registered Trademark- package delivery service; and (v) pursue
strategic acquisition opportunities. These strategies are discussed in more
detail below:
FOCUS ON UNIQUE AIRCRAFT TYPE AND ROUTE STRUCTURE. The Company's fast and
reliable fleet of 23 Learjets and 58 light twin engine aircraft is positioned
around a highly efficient and flexible national route structure designed to
facilitate late pick-up and early delivery times, minimize delays and simplify
flight scheduling. The Company's hub-and-spoke system, with a primary hub in
Columbus and several mini-hubs across the nation, enables the Company to match
the varying load capacities of its aircraft with the shipment weight and volume
of each destination city and
33
<PAGE>
to consolidate shipments at its mini-hubs and primary hub. The Company's hubs
are located primarily in less congested regional airports. These locations, in
conjunction with the Company's off-peak departure and arrival times, provide
easy take-offs and landings, convenient loading and unloading, fast refueling
and maintenance, as well as lower cost distribution center space. The Company's
four strategically located maintenance bases help minimize aircraft down time.
The Company's focus on Learjets and light twin engine aircraft has also enabled
it to develop an in-house expertise in purchasing, flying, maintaining and
operating its fleet at high profitability levels.
ATTRACT, RETAIN AND MOTIVATE THE HIGHEST QUALITY PERSONNEL AVAILABLE. As a
service organization, the Company recognizes the importance of hiring, retaining
and motivating the highest quality personnel available who are focused on a set
of core values designed by the Company to provide a working environment where
integrity, accountability, open communication, team management and
responsibility and quality performance are explicitly stated goals. The Company
regularly holds team-building sessions, continuing education for its associates
and on-the-job training programs for associates. The Company provides its
associates with competitive compensation and benefits packages. In connection
with the Offering, the Company intends to offer stock options to a significant
number of the Company's associates and to encourage stock ownership by
associates thereafter. The Company believes that its current compensation and
benefits package, proposed stock ownership incentives and corporate culture will
give the Company a significant competitive advantage.
EXPAND U.S. CHECK-REGISTERED TRADEMARK- POSITION IN THE BANKING
INDUSTRY. The Company intends to strengthen its leadership position in the
transportation of canceled bank checks by adding routes and aircraft to its air
transportation network to facilitate even more late pick-up and early delivery
times covering a greater number of cities. These capabilities, combined with the
Company's value-added services (such as ComCheck-SM-) not currently offered by
competing canceled bank check delivery companies, should enable the Company to
expand its position in this market.
GROW TIMEXPRESS-Registered Trademark- PACKAGE DELIVERY SERVICE. The Company
delivers packages on a same-day/same-night and pre-8:00 a.m. basis for
TIMEXPRESS-Registered Trademark- and certain other national and regional
overnight document and package delivery companies via the U.S. Check-Registered
Trademark- air transportation system and the commercial airline system when
necessary. The Company believes that its TIMEXPRESS-Registered Trademark-
service offers a more flexible pick-up and delivery schedule for small packages
than those offered by other national carriers, and appeals to customers with
time-sensitive delivery requirements. To date, growth in the Company's
TIMEXPRESS-Registered Trademark- business has been constrained by limited load
capacity on existing U.S. Check-Registered Trademark- routes which typically
operate at night four days a week. The Company intends to purchase aircraft to
provide additional capacity for the delivery of canceled bank checks and small
packages. The Company believes significant opportunities exist for expanding its
small package delivery business by more aggressively marketing the
TIMEXPRESS-Registered Trademark- brand-name and by contracting to deliver for
some of the national overnight package delivery companies whose infrastructures
cannot be easily modified to meet same-day/same-night or pre-8:00 a.m. delivery
deadlines.
PURSUE STRATEGIC ACQUISITION OPPORTUNITIES. The fragmented nature of the
air and ground package delivery industry, outside of the major national
carriers, provides the Company with opportunities for strategic acquisitions.
The Company believes that it is well-positioned to consolidate regional air
freight operators and ground couriers by acquiring high-quality candidates. The
Company would like to expand its delivery network through the acquisition of
other air delivery companies and additional aircraft serving new routes. In
addition, by acquiring companies in markets where the Company already has a
presence, management expects to recognize substantial operating advantages by
consolidating overlapping delivery routes. The Company believes it has a
demonstrated expertise in evaluating acquisition opportunities based on the
potential for revenue growth and profitability, as well as a proven track record
for efficiently integrating such acquisitions.
34
<PAGE>
AIRCRAFT FLEET
The Company operates a fleet of 81 aircraft, of which 70 are owned and the
remainder are leased from unrelated third party lessors. The Company's fleet was
comprised of the following aircraft at May 1, 1996:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM
PAYLOAD(1) RANGE(2) SPEED(3)
AIRCRAFT TYPE NUMBER (LBS.) (N. MILES) (KNOTS)
- ---------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Learjets, Model 35............................ 8 4,200 2,000 440
Learjets, Model 35A........................... 9 4,200 2,000 440
Learjets, Model 25............................ 6 3,500 1,000 440
Piper Navajo Chieftain........................ 9 1,500 800 175
Piper Aerostar................................ 14 1,000 900 190
Beech Baron................................... 25 1,000 700 180
Cessna 310.................................... 10 900 600 170
</TABLE>
- ------------------------
(1) Maximum payload in pounds for a one-hour flight plus required fuel reserves.
(2) Maximum range in nautical miles, assuming zero wind, full fuel and full
payload.
(3) Maximum speed in knots, assuming full payload.
The Learjet is among the most reliable, fastest and most fuel-efficient
small jet aircraft available in the world. The 30-series Learjets allow the
Company to carry up to 4,200 pounds of cargo in certain lane segments. The
30-series also allows for non-stop lane segments of up to 2,000 miles within the
Company's network. These Learjets also meet all Stage 3 noise requirements
currently being implemented across the country. The Learjet 25 is a smaller
aircraft with slightly smaller payload and range capabilities. The Company
intends to phase-out these aircraft and replace them with the more efficient
Lear 35 or other Stage 3 aircraft.
The Company's Learjet fleet provides it with nationwide connectivity. Long
lane segments from all corners of the nation converge on the Company's hub in
Columbus, as well as "mini-hubs" located in Atlanta, Chicago, Charlotte, Dallas,
Denver, Des Moines and New York. Smaller, light twin engine aircraft typically
provide service to the various "spoke" cities in the Company's network, which
include virtually all of the nation's large metropolitan areas.
The Company acquires and operates pre-owned aircraft, typically between 15
and 20 years old. These aircraft are reasonably priced and are relatively
modern, as they have undergone no significant design changes in the last 20
years. Further, when appropriately maintained (the Company performs its own
major airframe inspections and overhauls on its aircraft fleet), these aircraft
show little or no evidence of erosion in either performance or safety.
OPERATIONS
The Company provides to its customers complete transportation and
informational services for national distribution of canceled bank checks and
small packages. Operations include over 13,000 nightly deliveries in over 40
states, flying over 85,000 miles per night. The Company's ground and air
infrastructure includes the following key elements:
GROUND OPERATIONS
The first major component of the Company's ground operations involves the
pick-up of shipments for delivery, as well as bar code scanning for data entry
into the Company's ComCheck-SM- and OnTime-SM- management information systems.
Upon delivery to the originating airport, the Company's ground crews load
shipments into U.S. Check-Registered Trademark- aircraft for delivery. The
Company's ground personnel are trained in proper freight handling techniques,
and wear safety belts when appropriate to minimize the risk of injury. At the
Company's hub in Columbus, aircraft fueling operations include trained fuelers
and ground support equipment including six fuel trucks and approximately 86,500
gallons of fuel storage capacity. The Company provides training for ground
support personnel on an ongoing basis, including emergency procedures. The
Company's main sort facility is also in Columbus, with approximately 80
associates loading and unloading aircraft and fine sorting shipments to their
final destination. These processes are all controlled by the Company's central
dispatch, which is also located in Columbus.
35
<PAGE>
VEHICLES. The Company operates a fleet of 87 ground transportation
vehicles, all of which are owned by the Company. The Company utilizes a
computerized system for monitoring vehicle maintenance and conducts in-house
training sessions throughout the year to maximize safety. Vehicles range in size
from passenger cars to full-size vans, depending on the market being serviced.
In some situations, Company drivers may utilize their own vehicles, in which
case they are reimbursed for direct vehicle expenses. In addition, where
appropriate, the Company utilizes over 350 independent contractors to further
augment its ground delivery network.
DRIVERS. The Company employs 206 full and part-time drivers, which
constitute approximately 33% of its workforce. The ground courier industry has
typically experienced a high turnover rate, which the Company has mitigated over
time by offering health insurance and other benefits to its drivers.
INDEPENDENT CONTRACTORS. In certain situations where management has deemed
cost-effective and appropriate, the Company has utilized the services of
independent contractors. From time to time, federal and state authorities have
sought to assert that independent owner/operators in the transportation industry
are employees, rather than independent contractors. The Company believes that
independent contractors utilized by the Company are not employees under existing
interpretations of federal and state laws. In order to avoid such issues, the
Company will continue to attempt to assure that its arrangements with
independent contractors are structured so that they will not be deemed to be
employees.
FUELING. The Company's PDQ division provides aircraft fueling and parking
for certain of its customers at its facility in Columbus. This division accounts
for approximately 1% of the Company's annual revenues.
FLIGHT OPERATIONS
The Company's flight operations are headquartered in Columbus. The Company
hires and trains its pilots, requiring each to attend a Company-run, two-week
training program. This flight school includes training on the Company's flight
simulator prior to any actual flight time. Additionally, new pilots typically
apprentice as co-pilots in order to gain familiarity with the U.S.
Check-Registered Trademark- route system and the unique demands of night flying.
Periodic simulator training and ongoing cockpit resource management training
provide the Company's pilots with updated techniques and safety methods. The
Company believes it has the highest level of training provided by any operator
of similar aircraft in the nation.
AIRCRAFT MAINTENANCE. Aircraft maintenance is also headquartered in
Columbus. This facility operates 24 hours a day, 365 days a year. The Company
employs 72 experienced aircraft and avionics technicians in four separate
locations across the country (Columbus, Denver, Hartford and Minneapolis),
performing all levels of maintenance from 100-hour inspections on its light twin
engine aircraft to 7,200-hour/12-year inspections on its fleet of Learjets.
These technicians also perform several types of periodic engine inspections and
overhauls. In conjunction with Learjet, Company personnel have developed revised
and enhanced inspection programs for its Learjet fleet, which the Company
believes has provided a superior inspection process at reduced cost. Avionics
trouble-shooting and repair, done internally by the Company since 1989, provide
for maximum efficiency and minimum aircraft downtime for its entire fleet. The
Company currently utilizes the services of Garrett Aviation exclusively for
major period inspections and core overhauls of its 30-series Learjets.
DISPATCH. The Company's central dispatch function ties together all
components of the air operation. Departure and arrival times are continuously
updated, and weather conditions throughout the nation are constantly monitored.
Company dispatchers remain in constant contact with pilots, outbased hub
managers, fuelers and maintenance and ground delivery personnel to ensure that
no gaps exist in the Company's delivery process.
ROUTE SCHEDULING. The scheduling of aircraft within the Company's route
system is determined by the concentration of the Company's bank customers in
particular metropolitan areas. Currently the Company operates between 85 cities
each working day. Revisions, additions and deletions of routes occur when the
Company adds new customers or determines that load factors necessitate
additional aircraft on a particular lane segment.
36
<PAGE>
DELIVERY SERVICES
The Company provides complete transportation and informational services for
its customers in the U.S. banking industry, serviced by its U.S.
Check-Registered Trademark- division, as well as its small package delivery
customers, serviced by its TIMEXPRESS-Registered Trademark- division. Although
the services are provided by one air transportation system, providing
significant economies of scale, each customer base receives customized service
to meet its particular delivery needs.
CANCELED BANK CHECK DELIVERY SERVICES. A typical shipment of canceled bank
checks is picked up from the sending bank by a Company courier. Shipments are
pre-sorted by bank personnel and bundled as to final destination using
Company-supplied, color-coded bags. The shipment is then transported to the
local airport where it enters the Company's air transportation system and is
scanned via bar code technology, which reads information pertaining to the
shipper, receiver, airbill number and applicable deadline. This data is then
promptly downloaded into the Company's ComCheck-SM- computer system, where it is
available to the Company's customer service representatives ("CSRs").
Upon arrival at the Company's Columbus hub or one of the Company's
mini-hubs, the shipment is off-loaded, sorted by destination and reloaded onto
the Company's aircraft. At the destination city, the shipment is off-loaded for
the final time and delivered by Company courier to the receiving bank or Federal
Reserve branch. When delivered, the shipment is once again scanned and promptly
downloaded into the Company's computer system. Delivery information for all
shipments is then available on-line to the Company's customer base as well as
the CSRs. The Company's customer service department is available to handle any
inquiries, discrepancies or supply requests, as well as provide proof of
delivery documentation, all of which are value-added features of the Company's
service.
The Company provides delivery service for three sets of banking industry
deadlines. The U.S. Check-Registered Trademark- "Basic" program, which has a
9:30 p.m. -- 10:00 p.m. hub time in Columbus, provides delivery service between
12:01 a.m. and 2:00 a.m. to approximately the northeastern third of the nation.
The "Premium" program, which has an 11:00 p.m. -- 11:30 p.m. hub time in
Columbus and Charlotte, provides delivery service at approximately 3:00 a.m. to
the eastern half of the nation. Finally, the U.S. Check-Registered Trademark-
"City" program, which has a 4:00 a.m. -- 5:30 a.m. hub time in Columbus,
provides delivery service at approximately 8:00 a.m. to all cities served by the
U.S. Check-Registered Trademark-network. The Company prices these services based
on the tier of service and by the pound on a customer by customer basis.
SMALL PACKAGE DELIVERY SERVICES. The Company's TIMEXPRESS-Registered
Trademark- delivery service utilizes the same transportation network as the U.S.
Check-Registered Trademark- bank delivery system, which enables
TIMEXPRESS-Registered Trademark- to offer to its customers late pick-up and
early delivery times. A typical TIMEXPRESS-Registered Trademark- shipment is
either picked up by a Company courier or delivered to the airport by the
customer, at which point shipment information, including shipper, receiver and
airbill number, is entered into the TIMEXPRESS-Registered Trademark- OnTime-SM-
computer system. The shipment then enters the Company's air transportation
network. Upon arrival at its destination city (having gone through sorting and
transportation procedures similar to the Company's bank shipments), the shipment
is off-loaded and delivered to its destination by Company personnel or
independent contractors. Upon delivery, the shipment information is again noted
with consignee information and promptly entered into the OnTime-SM- system,
which again provides on-line and Internet access for TIMEXPRESS-Registered
Trademark- customers.
The Company also provides airport-to-airport service for certain of its
customers, including UPS, FedEx and other consolidating freight forwarders. This
service does not typically require the same level of information reporting, but
fills a significant need for these TIMEXPRESS-Registered Trademark- customers
whose infrastructures cannot be easily modified to meet same-day, same-night or
pre-8:00 a.m. delivery deadlines.
CUSTOMERS
The highly specialized needs of the Company's customer base combined with
the Company's performance level over the years have resulted in a high level of
customer retention for both U.S. Check-Registered Trademark- and
TIMEXPRESS-Registered Trademark-. This customer retention level, in turn,
creates a level of stability in the Company's revenue base that allows for
product development and continued dedication of resources to providing the
highest possible level of service to customers in the U.S. banking industry and
other small package delivery customers.
U.S. BANKING INDUSTRY. The banking industry, including commercial banks,
savings banks and Federal Reserve banks, represents the Company's largest
category of customers and in 1995 accounted for approximately 86% of the
37
<PAGE>
Company's revenues. This customer list represents 92 of the nation's 100 largest
bank holding companies. The Company provides daily service (four nights per
week) for its entire customer base, and has contracts with many of its large
customers. The Company's time-critical canceled check delivery service enables
the Company's banking customers to offer competitive services, products and
pricing. No single customer accounted for more than 10% of the U.S.
Check-Registered Trademark- division's fiscal 1995 revenues.
SMALL PACKAGE DELIVERY CUSTOMERS. The Company's TIMEXPRESS-Registered
Trademark- small package delivery system accounted for approximately 12% of the
Company's revenues in 1995. Customers for this service include industrial and
service corporations, medical companies, UPS, FedEx and consolidating freight
forwarders. Similar to the Company's banking industry customers, its small
package delivery customers tend to be nightly shippers, with a high level of
retention. No single customer accounted for more than 10% of the
TIMEXPRESS-Registered Trademark- division's fiscal 1995 revenues.
OTHER CUSTOMERS. The remainder of the Company's billing base is provided
from fuel sales at the Company's facility at Columbus. No single customer
accounted for more than 10% of the Company's other fiscal 1995 revenues.
CUSTOMER SERVICE
The Company's customer service department helps to provide many of the
Company's value-added features. In addition to providing prompt, courteous
replies to all customer inquiries utilizing a common tone of service, the CSRs
help provide proof of delivery documentation when required, assist with ordering
supplies and provide prompt shipment tracking information when requested. The
Company's management information systems assist in the customer service function
in many ways, including: (i) shipment and delivery information is available
on-line, via the utilization of bar code technology, to both banking and small
package customers through ComCheck-SM- and OnTime-SM-, respectively; (ii)
current and historical (dating back as far as 45 days) proof-of-delivery
documentation can be requested and provided on-line through the ComCheck-SM- and
OnTime-SM- systems; (iii) supplies can be ordered on-line through ComCheck-SM-
and OnTime-SM-, providing a user-friendly environment for the Company's
customers; (iv) OnTime-SM- performance data is reviewed constantly by
management, graphed and reported quarterly for trend monitoring purposes, so
that any fluctuations in customer service can be addressed immediately; (v) the
Company's dispatch function includes the ability to relay all relevant shipper
information on-line throughout the organization, assuring a smooth dissemination
of information regarding special pick-ups and deliveries; and (vi) internal
management reports include load factor analysis and capacity reporting, so the
Company can modify the network as appropriate to provide additional lift where
demanded by customers. All relevant information referred to above is available
on-line to the Company's CSRs who are then empowered to keep the Company's
customer base fully informed on a prompt basis.
MARKETING
The Company has typically marketed directly to its bank customer base, with
little need for national advertising. Banking industry sales efforts have
included assisting in the design of customized clearing systems for bank
customers which match the appropriate aircraft with the bank's needs for more
processing time or specific deadlines sought by the sending bank. Marketing
efforts in this area have included promotion of the NCHA. The success of the
NCHA has had a complementary effect on the Company, as more checks are now
transported through the private sector.
The Company has been an exhibitor at numerous industry trade shows such as
the Bank Administration Institute ("BAI") Float Management Conference, the BAI
Check Processing Conference and the Air Courier Conference of America. This
process has enabled the Company to maintain close contact with its customer
base.
Small package delivery services have also typically been directly marketed
to companies requiring this unique, specialized service, as well as to
consolidating freight forwarders and national integrated carriers such as FedEx
and UPS. This approach has enabled the Company to direct volume to lane segments
with space available. The Company feels opportunities for expansion exist in
this area, and it will aggressively develop this level of service through an
expanded sales force and more aggressive promotion of the TIMEXPRESS-Registered
Trademark- brand name.
HUMAN RESOURCES
The Company believes it has achieved a significant competitive advantage
within its industry through its major commitment to human resources. All levels
of the Company's management strive to operate within the spirit
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of the Company's core values, which are: (i) Honesty, Integrity, Trust and
Respect -- the Company believes its customers expect these qualities and the
Company strives to deliver them; (ii) Accountability -- the Company believes its
associates are accountable to the customer in the marketplace, to peers in the
workplace and, ultimately, to God; (iii) Open and Free Communication -- the
Company strives to communicate from the bottom to the top, from the top down,
and with the marketplace; by providing a medium for involvement, creativity and
encouragement for all its people and the customer; (iv) Team Management Style
with Shared Responsibilities -- the Company strives to delegate the
decision-making process as far down as possible, encouraging involvement and
shared responsibilities; and (v) Quality Performance -- the Company's goal is
simple: to be the best, by focused teamwork with self-policing,
quality-controlled systems and hiring and educating the best personnel
available, and then motivating and compensating them appropriately.
Additionally, representatives of the Company's human resources team
periodically travel throughout the country to the Company's outbase facilities
to help ensure compliance with the Company's core values and other personnel
policies. All Company personnel are part of a Company-wide drug-testing program.
Management believes this program, which goes beyond the requirements of the
Company's regulators, helps to ensure the highest possible performance levels.
The Company also conducts random drug and alcohol testing in compliance with
Federal Aviation Administration regulations. Management training and
professional development seminars are periodically held for, and attended by,
all levels of Company personnel. The Company also aggressively compensates for
performance, with excellent performance recognized and rewarded through
incentive-based compensation.
ASSOCIATES
The chart below summarizes the three-year history of the Company's
workforce. The Company's associates are not represented by any unions or covered
by any collective bargaining agreements. The Company has experienced no work
stoppages and believes that its relationship with associates is good.
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------
DEPARTMENT 1994 1995 1996
- -------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Management/Administration..................................... 103 117 111
Flight........................................................ 118 123 124
Maintenance................................................... 70 71 72
Driver/Courier/Ramp/Sort...................................... 233 292 314
-- -- --
Total..................................................... 524 603 621
-- -- --
-- -- --
</TABLE>
PROPERTIES AND FACILITIES
The Company operates ground courier facilities at 40 locations. The land and
building used for the Company's headquarters, located in Columbus, Ohio, are
leased from Gerald G. Mercer under a lease agreement which expires on February
29, 2000. Mr. Mercer owns the building and leases the land from The Port
Authority of Columbus under a 25-year lease which expires on December 31, 2009,
subject to a 20-year renewal option. The building currently has 80,000 square
feet, of which the Company leases approximately 73,000 square feet. The
Company's headquarters is currently used for operations, aircraft maintenance,
vehicle maintenance, general and administrative functions, and training. In
addition, several facilities also contain or are primarily used for storage and
warehouse space. See "Certain Relationships and Related Party Transactions --
Lease of Company Headquarters."
The Company operates at numerous locations throughout the country. The
mini-hub locations generally include an office and/or a section of the lessor's
hangar or ramp that is allocated to the Company.
The Company's facilities rental expense for the fiscal year ended September
30, 1995, and six months ended March 31, 1996, was approximately $1.5 million
and $0.8 million, respectively. For additional information concerning the
Company's leases, see the Company's Financial Statements included elsewhere
herein.
COMPETITION
The air and ground courier industry is highly competitive. The Company's
primary competitor is the Federal Reserve's ITS. The actions of the Federal
Reserve are regulated by the Monetary Control Act, which, in summary, requires
the Federal Reserve to price its services at actual cost plus a private sector
adjustment factor of 7%. The
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<PAGE>
Company believes that the purpose of the Monetary Control Act is to curtail the
possibility of predatory pricing by the Federal Reserve when it competes with
the private sector. No assurance beyond the remedies of law can be given that
the Federal Reserve will comply with the Monetary Control Act.
In the private sector, there are a large number of smaller, regional
carriers that transport canceled checks, none with a significant interstate
market share. The two largest private sector air carriers, FedEx and UPS, both
carry canceled checks where the deadlines being pursued fit into their existing
system, but this has not represented a significant market share of this industry
segment to date. The Company provides customized service for its customer base,
often with later pick-ups and earlier deliveries than the large, national
carriers. Both FedEx and UPS utilize the Company's transportation network for
certain situations where they require customized service. No assurance can be
provided that FedEx, UPS or any other large national carrier will not attempt to
compete more directly with the Company in the future.
The Company competes with commercial airlines and numerous other carriers in
its small package transportation business. The Company's market share in this
industry is less than 1%. The Company believes that this market represents a
significant expansion opportunity. The Company also has a minor presence in the
same-day or next-flight-out industry. The Company believes that there are a
number of competitors in this industry, including FedEx and UPS. To the extent
the Company elects to increase its presence in the same-day industry, it will
compete against these companies. The Company will emphasize its information
technology, competitive pricing and historically high on-time performance levels
to compete in this market.
REGULATION
The Company is regulated under Part 135 of the Federal Aviation Regulations
by the Federal Aviation Administration. In connection with the operation of
Company vehicles and aircraft, the Company is subject to regulation by the U.S.
Department of Transportation with respect to the handling of hazardous
materials. The Company holds nationwide general commodities authority from the
Interstate Commerce Commission to operate as a common carrier on an interstate
basis within the contiguous 48 states. The Company's delivery operations are
subject to various state and local regulations, and, in many instances, require
permits and licenses from state authorities.
The Company believes that it has all permits, approvals and licenses
required to conduct its operations and that it is in compliance with applicable
regulatory requirements relating to its operations. Failure of the Company to
comply with the applicable regulations could result in substantial fines or
possible revocation of one or more of the Company's operating permits.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Company other than
routine litigation incidental to the Company's business. In the opinion of the
Company's management, such proceedings should not, individually or in the
aggregate, have a material adverse effect on the Company's results of operations
or financial condition.
TRADEMARKS
The Company utilizes various service marks, trademarks and tradenames in
connection with its services. While the Company considers its service marks,
trademarks and tradenames to be important in the conduct of its business, the
business of the Company is not dependent on any individual service mark,
trademark or tradename.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of May 6, 1996,
regarding each of the Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- --------------------------------------------------------------
<S> <C> <C>
Gerald G. Mercer 48 Chairman of the Board, President and Chief Executive Officer
Eric P. Roy 41 Director, Executive Vice President, Treasurer, Chief Operating
Officer and Chief Financial Officer
Glenn M. Miller 49 Vice President, Operations
Charles A. Renusch 54 Vice President, Sales
Guy S. King 43 Vice President, Sales
Lincoln L. Rutter 39 Vice President, Sales
Kendall W. Wright 48 Vice President, Sales
William R. Sumser 40 Vice President, Finance, Controller and Secretary
Donald D. Strench 39 Vice President, Corporate Development
Adele Mercer 41 Director
Tony C. Canonie, Jr. 49 Director nominee
Russell M. Gertmenian 48 Director nominee
J.F. Keeler, Jr. 55 Director nominee
</TABLE>
Upon the closing of the Offering, the Company anticipates that Ms. Mercer
will resign as a director and the size of the Board of Directors will be
increased to seven. The Company has reached an agreement with Messrs. Canonie,
Gertmenian and Keeler to join the Board of Directors upon the closing of the
Offering. Mr. Gertmenian, a partner with Vorys, Sater, Seymour and Pease, has
served as the Company's principal outside counsel since 1988. Messrs. Canonie
and Keeler have no other affiliation with the Company. It is anticipated that
Messrs. Canonie, Gertmenian and Keeler will be appointed to serve, at least
initially, as members of the Compensation and Audit Committees of the Board of
Directors, which committees will be created upon the closing of the Offering.
Additionally, as soon as practicable following the closing of the Offering,
the Company intends to appoint two additional independent directors who have no
other affiliation with the Company.
GERALD G. MERCER has served as Chairman of the Board, President and Chief
Executive Officer of the Company since founding the Company in 1974. Mr. Mercer
led the negotiations for the successful acquisitions of WIE and Air Continental,
Inc. in 1988 and 1989, respectively. He served as President of the Michigan
Association of Aviation Businesses in 1986, and has been a member of the Young
Presidents' Organization since 1986. Mr. Mercer has been a guest speaker at
several major universities throughout the country.
ERIC P. ROY has been a Director of the Company since 1994 and has served as
Chief Financial Officer of the Company since 1986. Mr. Roy was named Executive
Vice President and Chief Operating Officer in 1991. Prior to 1986, Mr. Roy
served as Controller, Treasurer and President of Air Freight Services, Inc., a
controlled group of 12 aviation-related companies. Mr. Roy assisted in
negotiating and arranged financing for the acquisitions of WIE and Air
Continental, Inc.
GLENN M. MILLER has served as Vice President, Operations for the Company
since 1975. Mr. Miller successfully coordinated all operational details involved
in the acquisitions of WIE and Air Continental, Inc.
CHARLES A. RENUSCH has served as Vice President, Sales (Northeast Region)
for the Company since 1980. Prior to joining the Company, Mr. Renusch was
responsible for Bank Float and Transportation for the National Bank of
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<PAGE>
Detroit, N.A. Mr. Renusch designed the net settlement process utilized by the
Check Express System, which currently settles over four million transactions per
business day. See "Certain Relationships and Related Party Transactions -- Float
Control, Inc./CHEXS Partnership."
GUY S. KING has served as Vice President, Sales (TIMEXPRESS-Registered
Trademark-) for the Company since 1989. Prior to 1989, Mr. King served the
Company in numerous functions dating back to 1976, including dispatch and pilot,
before eventually founding the Company's TIMEXPRESS-Registered Trademark- small
package transportation department in 1984. Mr. King has served on the Board of
Directors of the Air Courier Conference of America since 1993.
LINCOLN L. RUTTER has served as Vice President, Sales (West Region) for the
Company since 1988. Prior to joining the Company, he served as Vice President of
Sales of WIE, as well as Float Manager for Colorado National Bank of Denver.
KENDALL W. WRIGHT has served as Vice President, Sales (Southeast Region) for
the Company since 1988. Prior to joining the Company, he served as Vice
President of Sales for WIE.
WILLIAM R. SUMSER has served the Company as Vice President and Secretary
since March 1996, as Controller since 1988 and as Assistant Vice President from
1988 through March 1996. Mr. Sumser has a total of 18 years of financial
experience, and is responsible for the Company's daily cash management,
financial reporting and purchasing functions.
DONALD D. STRENCH has served as Vice President, Corporate Development for
the Company since April 1996. Prior to joining the Company, Mr. Strench served
in various financial positions for American Airlines, Inc. between September
1986 and March 1996, including Vice President, Corporate Development.
ADELE MERCER has been a director of the Company since 1994. Ms. Mercer is
the wife of Mr. Mercer.
TONY C. CANONIE, JR. has been nominated and has agreed to serve as a
Director of the Company commencing upon the closing of the Offering. Since 1990,
Mr. Canonie has served as Chief Executive Officer of Canonie Ventures Inc., a
venture capital and advisory services firm specializing in the waste industry.
From 1989 to 1990, Mr. Canonie served as Chief Executive Officer of Grace
Environmental Inc., a subsidiary of W.R. Grace & Co.
RUSSELL M. GERTMENIAN has been nominated and has agreed to serve as a
Director of the Company commencing upon the closing of the Offering. Mr.
Gertmenian has been a partner of Vorys, Sater, Seymour and Pease since 1979 and
currently serves as a member of such firm's Executive Committee. Mr. Gertmenian
is a director of Liqui-Box Corporation, a manufacturer of flexible plastic
packaging systems.
J.F. KEELER, JR. has been nominated and has agreed to serve as a Director of
the Company commencing upon the closing of the Offering. Mr. Keeler is
President, Chief Executive Officer and Chairman of the Board of The Fishel
Company, a national utilities construction firm, which he first joined in 1967.
Mr. Keeler is a director of Bank One, N.A. and serves on the Board of Directors
of the Columbus Chamber of Commerce.
Directors of the Company are elected annually. Officers of the Company are
elected annually and serve at the discretion of the Board of Directors.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are officers or associates of the Company will receive no
additional compensation for their services as members of the Board of Directors
or as members of Board committees. Directors who are not officers or associates
of the Company will be paid a quarterly fee of $1,500, as well as additional
fees of $1,000 for each meeting of the Board or of a Board committee attended by
such Director. The Company's Directors are reimbursed for their out-of-pocket
expenses incurred in connection with their service as directors, including
travel expenses. In addition, pursuant to the Incentive Stock Plan, each
Director will receive an annual option to purchase 2,000 Common Shares.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding cash and
non-cash compensation paid by the Company during the fiscal year ended September
30, 1995, to the Company's Chief Executive Officer, and to each of the Company's
four other most highly compensated executive officers whose salary and bonus
exceeded $100,000
42
<PAGE>
(collectively, the "Named Executive Officers"), during such year. The Company
did not grant any stock options or restricted stock awards to any of the Named
Executive Officers during the 1995 fiscal year, and the dollar value of
perquisite and other personal benefits, if any, received by each of the Named
Executive Officers in fiscal year 1995 was less than established reporting
thresholds.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- --------------------------------------------------------------------- ---------- ------------ -----------------
<S> <C> <C> <C>
Gerald G. Mercer .................................................... $ 826,376 $ 1,161,333 $ 6,022
Chairman of the Board, President and Chief Executive Officer
Eric P. Roy ......................................................... 129,332 167,646 59,363
Executive Vice President, Chief Financial Officer and Chief
Operating Officer
Glenn M. Miller ..................................................... 129,332 235,681 146,787
Vice President, Operations
Charles A. Renusch .................................................. 129,332 201,232 147,173
Vice President, Sales
Guy S. King ......................................................... 129,332 144,857 31,380
Vice President, Sales
</TABLE>
- ------------------------
(1) "All Other Compensation" for the Named Executive Officers consists of
amounts contributed by the Company to the accounts of the Named Executive
Officers under the Savings Plan (as defined below) and, except with respect
to Mr. Mercer, amounts paid pursuant to the Deferred Compensation
Agreements. See "-- Section 401(k) Savings Plan" and "Certain Relationships
and Related Party Transactions -- Deferred Compensation Agreements."
Following the closing of the Offering, the Company expects to restructure
the compensation arrangements with its executive officers. The Company expects
that (i) the annual base salaries for Messrs. Mercer, Roy, Miller, Renusch and
King will be approximately $400,000, $275,000, $200,000, $200,000 and $200,000,
respectively, and (ii) such officers will receive bonus compensation based upon
the achievement of certain performance objectives. It is currently contemplated
that such bonus compensation will not exceed 60% of annual base salaries. The
Company expects that annual base salaries for the four other executive officers
will be approximately $200,000 plus similar performance-based bonuses. The
Company believes that any bonuses will be in line with comparable companies, and
any arrangements will be subject to final Compensation Committee approval. The
final terms of any such restructured arrangements could differ from those
described above.
Other than the Incentive Stock Plan (described below), which was adopted by
the Board of Directors and approved by the shareholders of the Company on May 1,
1996, and the Stock Purchase Agreements with seven executive officers, which
will be terminated upon the closing of the Offering, the Company has no stock
option or stock purchase plans. Except for the automatic grants to non-associate
Directors, no grants have been made or approved under the Incentive Stock Plan.
See "-- Incentive Stock Plans" and "Certain Relationships and Related Party
Transactions -- Stock Purchase Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has never had a Compensation Committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers of the Company were made by the Company's
Chief Executive Officer. The Board of Directors will establish a Compensation
Committee upon the closing of the Offering.
43
<PAGE>
INCENTIVE STOCK PLAN
The purpose of the AirNet Systems, Inc. 1996 Incentive Stock Plan (the
"Incentive Stock Plan") is to attract and retain key personnel, including
consultants and advisors to and directors of the Company, and to enhance their
interest in the Company's continued success and to allow all associates an
opportunity to have an ownership interest in the Company.
The Incentive Stock Plan provides for the grant of incentive and
nonqualified stock options, restricted stock and performance shares
(individually, an "Award" or, collectively, "Awards"). In addition, the
Incentive Stock Plan provides for the purchase of Common Shares through payroll
deduction by all associates of the Company who have satisfied certain
eligibility requirements. No Award under the Incentive Stock Plan may be granted
after May 1, 2006. The maximum number of Common Shares available to be issued
under the Incentive Stock Plan is 1,150,000. The maximum number of Common Shares
for which certain individuals (the Chief Executive Officer and the four other
highest paid officers) may receive options (incentive and non-qualified) is
limited to 50,000 Common Shares over a one-year period. The Common Shares to be
delivered under the Incentive Stock Plan will be made available from the
authorized but unissued Common Shares or from Common Shares held in treasury.
The Incentive Stock Plan contains customary provisions with respect to
adjustments for stock splits and similar transactions and the rights of
participants upon mergers and other business combinations.
The Incentive Stock Plan will be administered by the Compensation Committee
of the Board of Directors (the "Committee"), on which only non-associate
directors who are "disinterested" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), may serve. The
Committee has the discretion to select from among eligible associates those to
whom Awards will be granted and determine the terms and conditions applicable to
each Award. With respect to all non-executive officers (I.E., associates who are
not subject to the provisions of Section 16 of the Exchange Act), the Company's
Chief Executive Officer may make recommendations to the Committee. The Committee
also has the sole and complete authority to interpret the provisions of the
Incentive Stock Plan. The Committee's decisions will be binding on the Company
and the participants in the Incentive Stock Plan. Key associates of, and
consultants and advisors to, the Company and any future subsidiaries who can
make substantial contributions to the successful performance of the Company are
eligible to be granted Awards under the Incentive Stock Plan. It is anticipated
that the Committee's determinations of which eligible individuals will be
granted Awards and the terms thereof will be based on each individual's present
and potential contribution to the success of the Company and its subsidiaries.
The approximate number of persons initially eligible to receive Awards under the
Incentive Stock Plan has not yet been determined. Further, the Incentive Stock
Plan provides that associates will be given the opportunity to purchase
additional Common Shares through a payroll deduction program. The Incentive
Stock Plan also provides that, on an annual basis and without any further action
by the Committee or the Board, the Company will grant director options, as
described below, to each non-associate director of the Board.
STOCK OPTIONS. The Committee may grant non-qualified stock options to
associates, advisors and consultants but may grant incentive options only to
associates. The Committee has discretion to fix the exercise price of such
options, which, in the case of an incentive stock option, may not be less than
the fair market value of the Common Shares at the date of grant. In the case of
an incentive stock option granted to a 10% shareholder of the Company, the
exercise price may not be less than 110% of the fair market value of the Common
Shares at the date of grant. The Committee also has broad discretion as to the
terms and conditions under which options will be exercisable. Incentive stock
options will expire not later than ten years after the date on which they are
granted (or five years in the case of an incentive stock option granted to a 10%
shareholder of the Company). The exercise price of the options may be satisfied
in cash or, in the discretion of the Committee, by exchanging Common Shares
owned by the optionee, or by a combination of the preceding.
DIRECTOR OPTIONS. Under the Incentive Stock Plan, each director who is not
an associate of the Company or of a subsidiary, and who was not a director of
the Company on May 1, 1996, will receive, on the first business day after each
annual meeting of shareholders, provided that the director continues to serve on
the Board on such date, a grant of a non-qualified stock option to purchase
2,000 Common Shares at an exercise price equal to the fair market value of the
Common Shares on the date of grant. A director option will be exercisable until
the earlier of (i) the tenth anniversary of the date of grant and (ii) three
months (one year in the case of a director who becomes disabled
44
<PAGE>
or dies) after the date the director ceases to be a director, provided, however,
that if a director ceases to be a director after having been convicted of, or
pled guilty to, a felony, the director option will be canceled on the date the
director ceases to be a director. The exercise price of the director options may
be satisfied in cash or, in the discretion of the Committee, by exchanging
Common Shares owned by the director, or by a combination of cash and Common
Shares.
RESTRICTED STOCK AWARDS. An award of restricted stock is an Award of Common
Shares that is subject to such restrictions as the Committee deems appropriate,
including forfeiture conditions and restrictions on transfer for a period
specified by the Committee. Awards of restricted stock may be granted under the
Incentive Stock Plan for or without consideration. Restrictions on restricted
stock may lapse in installments based on factors selected by the Committee. The
Committee, in its sole discretion, may waive or accelerate the lapsing of
restrictions in whole or in part. Prior to the expiration of the restricted
period, except as otherwise provided by the Committee, a participant who has
been granted restricted stock will, from the date of grant, have the rights of a
shareholder of the Company in respect of such Common Shares, including the right
to vote such Common Shares and to receive dividends and other distributions
thereon, subject to the restrictions set forth in the Incentive Stock Plan and
in the instrument evidencing such Award. The shares of restricted stock will be
held by the Company, or by an escrow agent designated by the Company, during the
restricted period and may not be sold, assigned, transferred, pledged or
otherwise encumbered until the restrictions have lapsed. The Committee has
authority to determine the duration of the restricted period and the conditions
under which restricted stock may be forfeited, as well as the other terms and
conditions of such awards.
PERFORMANCE SHARE AWARDS. A performance share award is an Award of a number
of units that represent the right to receive a specified number of Common Shares
or cash, or both, upon satisfaction of certain specified performance goals,
subject to such terms and conditions as the Committee determines. Performance
Awards will be earned to the extent such performance goals established by the
Committee are achieved over a period of time specified by the Committee. The
Committee has discretion to determine the value of each performance Award, to
adjust the performance goals as it deems equitable to reflect events affecting
the Company or changes in law or accounting principles or other factors, and to
determine the extent to which performance Awards that are earned may be paid in
the form of cash, Common Shares or a combination of both.
STOCK PURCHASE PLAN. Periodically, all associates of the Company who have
at least one year of service with the Company will be given the opportunity to
purchase Common Shares under the Incentive Stock Plan through a payroll
deduction program. Pursuant to this program, associates will be able to purchase
Common Shares at a price equal to between 85% and 100% of fair market value.
Certain restrictions contained in Section 423 of the Code apply to this payroll
deduction program, including a limitation on the maximum value of Common Shares
that may be purchased by an individual associate in any calendar year. Upon
purchase of Common Shares through payroll deduction, the Company will issue
share certificates to the participating associates.
The Committee has broad discretion as to the specific terms and conditions
of each Award and any rules applicable thereto, including the effect, if any, of
a change in control of the Company. The terms of each Award are to be evidenced
by a written instrument delivered to the participant. The Common Shares issued
under the Incentive Stock Plan are subject to applicable tax withholding by the
Company which, to the extent permitted by Rule 16b-3 under the Exchange Act, may
be satisfied by the withholding of Common Shares issuable under the Incentive
Stock Plan. Any Awards granted under the Incentive Stock Plan may not be
assigned or transferred except by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order.
The Incentive Stock Plan may be amended or terminated at any time by the
Board of Directors; provided, however, that no such amendment or termination may
adversely affect an optionee's or grantee's rights under any Award theretofore
granted under the Incentive Stock Plan, except with the consent of such optionee
or grantee, and except that no amendment may be made without shareholder
approval if the Committee determines that such approval is necessary to comply
with any tax or regulatory requirement, including any approval that is required
as a prerequisite for exemptive relief from Section 16 of the Exchange Act, for
which or with which the Committee determines that it is desirable to qualify or
comply.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE INCENTIVE STOCK PLAN
STOCK OPTIONS. When an optionee exercises a non-qualified stock option, the
difference between the option price and any higher fair market value of the
Common Shares, generally on the date of exercise, will be ordinary income to the
optionee and generally will be allowed as a deduction for federal income tax
purposes to the Company. Any gain or loss realized by an optionee on disposition
of the Common Shares acquired upon exercise of a non-qualified stock option
generally will be capital gain or loss to such optionee, long-term or short-term
depending on the holding period, and will not result in any additional tax
consequences to the Company. The optionee's basis in the Common Shares for
determining gain or loss on the disposition will be the fair market value of
such Common Shares determined generally at the time of exercise.
When an optionee exercises an incentive stock option while employed by the
Company or a subsidiary or within three months (one year for death or
disability) after termination of employment, no ordinary income will be
recognized by the optionee at that time, but the excess (if any) of the fair
market value of the Common Shares acquired upon such exercise over the option
exercise price will be an adjustment to taxable income for purposes of the
federal alternative minimum tax applicable to individuals. If the Common Shares
acquired upon exercise of the incentive stock option are not disposed of prior
to the expiration of one year after the date of acquisition and two years after
the date of grant of the option, the excess (if any) of the sales proceeds over
the aggregate option exercise price of such Common Shares will be long-term
capital gain, but the employer will not be entitled to any tax deduction with
respect to such gain. Generally, if the Common Shares are disposed of prior to
the expiration of such periods (a "disqualifying disposition"), the excess of
the fair market value of such Common Shares at the time of exercise over the
aggregate option price (but not more than the gain on the disposition if the
disposition is a transaction on which a loss, if realized, would be recognized)
will be ordinary income at the time of such disqualifying disposition (and the
Company will generally be entitled to a federal income tax deduction in like
amount). Any gain realized by the optionee as a result of a disqualifying
disposition that exceeds the amount treated as ordinary income will be capital
in nature, long-term or short-term depending on the holding period. If an
incentive stock option is exercised more than three months (one year after death
or disability) after termination of employment, the tax consequences are the
same as described above for non-qualified options.
RESTRICTED STOCK. In the absence of an election by a participant pursuant
to Section 83(b) of the Code, the grant of restricted Common Shares will not
result in taxable income to the participant or a deduction for the Company in
the year of grant. The value of such restricted Common Shares will be taxable to
the participant in the year in which the restrictions lapse. Alternatively, a
participant may elect to treat as income in the year of grant the fair market
value of the restricted Common Shares on the date of grant pursuant to Section
83(b) of the Code, by making the election within 30 days after the date of such
grant. If such an election were made, such participant would not be allowed to
deduct at a later date the amount included as taxable income if he or she should
forfeit the restricted Common Shares to the Company. The Company will generally
be entitled to a federal income tax deduction equal to the amount of ordinary
income recognized by the participant in the year such income is recognized.
Prior to the lapse of restrictions, dividends paid on the Common Shares subject
to such restrictions will be taxable to the participant as additional
compensation in the year received free of restrictions, and the Company will be
allowed a corresponding federal income tax deduction.
STOCK PURCHASE PLAN. Common Shares purchased pursuant to the stock purchase
plan at 100% of fair market value will be taxed as if such Common Shares had
been acquired on the open market. Therefore, any gain or loss realized by an
associate on disposition of the Common Shares acquired pursuant to the stock
purchase plan generally will be capital gain or loss to such associate,
long-term or short-term depending on the holding period, and will not result in
any additional tax consequences to the Company. If an associate purchases Common
Shares pursuant to the stock purchase plan at less than 100% of fair market
value, then such associate shall treat as ordinary income in the year in which
such associate disposes of such Common Shares (or the year closing with such
associate's death) an amount equal to the lesser of (i) the excess of the fair
market value at the time of such disposition or death over the amount paid for
the Common Shares or (ii) the excess of the fair market value of the Common
Shares at the time the Common Shares were purchased over the amount paid for the
Common Shares.
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SPECIAL RULES. Special rules apply to a participant who is subject to
Section 16 of the Exchange Act. Certain additional special rules apply if the
exercise price for a stock option is paid in Common Shares previously owned by
the optionee rather than in cash and if the Award is held, following the death
of a participant, by the executors of the participant's estate.
SECTION 401(k) SAVINGS PLAN
The Company maintains a defined contribution savings plan which is intended
to qualify under Section 401(k) of the Code (the "Savings Plan"). Under the
terms of the Savings Plan, all associates who have worked a minimum of six
months for the Company may contribute up to 15% of their annual earnings to the
Savings Plan. The Company may elect, in its discretion, to make a matching
contribution to the Savings Plan. Currently, the Company's annual matching
contributions under the Savings Plan do not exceed 3% of total compensation. In
addition, the Company makes profit-sharing contributions on behalf of eligible
associates.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
LEASE OF COMPANY HEADQUARTERS
The Company leases approximately 73,000 square feet of office, warehouse and
hangar space in Columbus, Ohio (including the Company's headquarters) pursuant
to a lease agreement dated June 29, 1988 with Mr. Mercer. Pursuant to the lease
agreement, the Company pays base rent of $10.28 per square foot plus operating
expenses which were approximately an additional $2.41 per square foot for fiscal
1995. The lease expires on February 29, 2000. The Company paid rent of
approximately $592,000, $622,650 and $707,305 in fiscal years 1993, 1994 and
1995, respectively, to Mr. Mercer. The Company believes that the terms of this
lease are no less favorable to the Company than those reasonably available from
unrelated third parties for comparable space.
WRIGHT AGREEMENT
In consideration for the agreement of WIE and Donald W. Wright, Sr. not to
compete with the Company, the Company entered into the Wright Agreement, which,
as amended, provides for annual payments to Donald Wright. Such annual payments
are tied to the cash flow and debt to equity ratio of the Company and are
subject to certain minimum payment amounts. Pursuant to the Wright Agreement, as
amended, such payments are guaranteed through 2018 to Donald Wright during his
lifetime in the form of an annuity and upon his death are to be made to Donald
Wright's designees. The Company's expenses for payments made to Donald Wright in
connection with the Wright Agreement totaled approximately $1.1 million, $1.6
million, $2.1 million and $0.6 million in fiscal years 1993, 1994 and 1995 and
the six months ended March 31, 1996, respectively.
Upon the repurchase of the Donald Wright Warrant by the Company, the Wright
Agreement will be terminated in its entirety, and no further payments will be
made.
WRIGHT WARRANTS
Pursuant to the Wright Agreement, and in further consideration for Donald
Wright's agreement not to compete with the Company, the Company issued four
warrants to purchase in the aggregate 35% of the Company's then outstanding
shares of common stock in the event of an initial public offering of the
Company's capital stock. Two of such warrants have since been canceled. The
remaining warrants, as amended, entitle Donald Wright to purchase 2,483,537
Common Shares (approximately 29.7% of the Common Shares on a fully diluted basis
at the time of exercise) for $3,000 and Jeffrey Wright, Donald Wright's son, to
purchase 167,227 Common Shares (2.0% of the Common Shares on a fully diluted
basis) for $200. On February 26, 1996, Donald Wright transferred the Donald
Wright Warrant to the Donald W. Wright, Sr. Family Irrevocable Trust dated
December 9, 1994 (the "Wright Trust").
As amended, the Wright Warrants permit the Wright Trust (as assignee of
Donald Wright) and Jeffrey Wright to exercise the Wright Warrants at any time on
or after the closing of an initial public offering of the Company's capital
stock, provided that such closing occurs prior to July 31, 2018. In addition,
the Wright Warrants entitle the Wright Trust and Jeffrey Wright to certain
piggyback registration rights in connection with an offering of capital stock by
the Company. The Wright Trust and Jeffrey Wright have waived such registration
rights in connection with the Offering. The Company has agreed to repurchase the
Donald Wright Warrant upon the closing of the Offering for $29.9 million, or the
equivalent of $12.04 per Common Share underlying such warrant, and will cancel
the
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Donald Wright Warrant upon its repurchase. Gerald G. Mercer has agreed to
purchase the Jeffrey Wright Warrant upon the closing of the Offering for $2.0
million, or the equivalent of $12.04 per Common Share underlying such warrant,
and will exercise the Jeffrey Wright Warrant immediately following such
purchase.
Upon cancellation or exercise, as the case may be, the Wright Warrants shall
be terminated in their entirety, including any ongoing registration rights which
might otherwise continue.
In connection with the repurchase and cancellation of the Donald Wright
Warrant and the corresponding tax treatment, the Company expects to realize a
related tax benefit estimated to be $7.0 million. This tax benefit will be
recorded on the Company's balance sheet and may be used against future income of
the Company for tax purposes. The tax benefit will have no effect on the
Company's income statement currently or for any future period. See "Selected
Unaudited Condensed Pro Forma Financial Data" and Note 12 of the Notes to the
Company's Financial Statements.
If the initial public offering price is less than $12.95 per share, the
Company will incur a non-recurring expense in the fiscal quarter in which the
Company completes the Offering in connection with the repurchase and
cancellation of the Donald Wright Warrant and the purchase of the Jeffrey Wright
Warrant equal to the difference between $12.95 and the initial public offering
price multiplied by 2,650,764. See "Offering Related Transactions --
Non-Recurring Expenses."
STOCK PURCHASE AGREEMENTS
On April 1, 1994, the Company entered into Stock Purchase Agreements with
seven executive officers, including each of the Named Executive Officers other
than Mr. Mercer, pursuant to which the executive officers purchased an aggregate
of 1,484,908 Common Shares for an aggregate purchase price of approximately
$364,000, which was paid by the delivery of promissory notes from the executive
officers. Pursuant to the terms of the Stock Purchase Agreements, the executive
officers cannot sell their respective Common Shares to any party other than the
Company. In the event of certain triggering events, such as termination, death
or disability, the Company is obligated to purchase the Common Shares held by a
particular executive officer at a price ranging from the net book value of the
Common Shares held, if less than the original amount paid, to the appreciation
in the book value of the Company from the date the Common Shares were issued to
the date of such triggering event. The Stock Purchase Agreements provide that in
the event the Company sells all or substantially all of its assets, or if a
majority of its voting stock is sold or otherwise disposed of by its
shareholders, prior to such a triggering event, the executive officer will
receive the fair market value of his Common Shares. As amended, the Stock
Purchase Agreements provide that upon the initial public offering of the Common
Shares, the redemption provisions will become inapplicable, and the executive
officers will be able to sell their Common Shares without limitation, subject to
the restrictions imposed by the Securities Act and by the Underwriters. See
"Shares Eligible for Future Sale."
Upon the closing of the Offering, the Stock Purchase Agreements will be
terminated, and the promissory notes will be fully paid.
In connection with the termination of the Stock Purchase Agreements, the
Company will incur a non-recurring, non-cash expense of approximately $15.0
million (assuming an initial public offering price of $13.00 per share) in the
quarter in which the Offering is closed. This expense will result in a
corresponding increase in additional paid-in capital, but will have no effect on
total shareholders' equity. See "Offering Related Transactions -- Non-Recurring
Expenses" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEFERRED COMPENSATION AGREEMENTS
Between 1986 and 1991, the Company entered into Deferred Compensation
Agreements with seven executive officers, including all of the Named Executive
Officers other than Mr. Mercer. Pursuant to the Deferred Compensation
Agreements, the Company is obligated to pay these executive officers a certain
percentage of the increase in the Company's net book value. The accrual of
benefits under the Deferred Compensation Agreements was frozen as of March 31,
1994, in connection with the execution of the Stock Purchase Agreements.
Distributions since such date have been based on the net book value of the
Company as of March 31, 1994. The Company paid deferred compensation to the
seven executive officers of approximately $247,000, $546,000 and $308,000 for
the 1993, 1994 and 1995 fiscal years, respectively.
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In connection with the Offering and the distribution from the AAA account of
the AAA Notes, the seven executive officers have agreed to forego their
remaining deferred compensation payments in the aggregate amount of $3.7
million. The Deferred Compensation Agreements will be terminated upon the
closing of the Offering.
FLOAT CONTROL, INC./CHEXS PARTNERSHIP
Float Control, Inc. is a company, owned by certain executive officers of the
Company, Donald W. Wright, Sr. and Jeffrey Wright, which owns a 19% interest in
Check Exchange System Co. (the "CHEXS Partnership"). The other participants in
the CHEXS Partnership are affiliates of The Huntington National Bank and
Littlewood, Shain and Company. The CHEXS Partnership operates a national net
settlement switch utilized by members of the NCHA, which the CHEXS Partnership
helped to found. The national net settlement switch operates as a clearinghouse
for NCHA member banks, pursuant to which such banks are able to settle
transactions with other NCHA members by utilizing the switch rather than having
to maintain a separate account with each such member. Canceled bank checks which
are settled through the NCHA typically are routed through the Company's air
transportation system. From time to time, the Company has made loans to Float
Control, Inc. Since October 1, 1992, the largest aggregate balance owed by Float
Control, Inc. to the Company was approximately $95,000. As of March 31, 1996,
less than $1,000 was outstanding, all of which will be repaid prior to the
closing of the Offering. In addition, in fiscal 1993, the Company paid Charles
A. Renusch, an executive officer and existing shareholder of the Company,
$200,000 for his efforts on behalf of Float Control, Inc. to establish the
national net settlement switch. See "Industry Overview -- How Banks Clear and
Settle Canceled Bank Checks -- National Clearinghouse Association."
COMPANY GUARANTY OF PERSONAL DEBT
The Company is currently guaranteeing a five-year bank loan from NBD Bank to
Mr. Mercer, the Company's Chairman, President and Chief Executive Officer, and
his wife Adele Mercer, a director, which loan is collateralized by the Company's
facilities in Columbus, which Mr. Mercer owns and leases to the Company. The
loan bears interest at the prime rate set by NBD Bank plus 0.5%, matures on
December 31, 1998 and had outstanding balances of $850,000 and $800,000 at
September 30, 1995 and March 31, 1996, respectively. NBD Bank has agreed to
terminate the Company's guaranty at or prior to the closing of the Offering.
INDEMNIFICATION AGREEMENTS
The Company's existing shareholders have agreed to indemnify the Company for
any corporate level federal income taxes which might be imposed upon the Company
for any period prior to the termination of the Company's S Corporation status.
As an S Corporation, the Company has not been subject to federal income taxes at
the corporate level, and the Company has no reason to believe that any such
corporate level federal taxes will be imposed for any such period. See "Prior S
Corporation Status."
In addition, Mr. Mercer has agreed to indemnify the Company with respect to
certain environmental liabilities with respect to underground storage tanks on a
Michigan property formerly owned by Mr. Mercer and leased to the Company. The
Company ceased its operations at this property in 1988, at which time Mr. Mercer
sold the property to an unaffiliated third party. The aggregate amount of any
such liabilities is estimated by the Company to be less than $100,000.
DWARF LEASING
Since January 1992, the Company has leased four light twin engine aircraft
from Dwarf Leasing, Inc., a corporation owned by Glenn M. Miller, Eric P. Roy,
Guy S. King, Kendall W. Wright and William R. Sumser, who are executive officers
of the Company. Total lease expenses were $129,600, $129,600, $99,000 and
$21,000 for the fiscal years ended September 30, 1993, 1994 and 1995 and for the
six months ended March 31, 1996, respectively. In fiscal 1995, the Company
purchased two of such aircraft and, in February 1996, purchased the remaining
aircraft. The total purchase price of such aircraft was $455,000. The Company
believes that the terms of such leases and such purchases were no less favorable
than those reasonably available from unaffiliated third parties.
PEDIA PALS, INC.
Pedia Pals, Inc. is a company which is engaged in the development of
children-friendly medical devices for use in pediatrics and which is owned, in
part, by certain of the Company's executive officers. Since fiscal 1993, the
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Company has loaned Pedia Pals, Inc. an aggregate of $233,000 for general working
capital purposes, which amount bears interest at the prime rate set by NBD Bank
and which amount will be repaid in full prior to the closing of the Offering.
LOANS TO CERTAIN EXECUTIVE OFFICERS
The Company has provided Mr. Mercer a revolving credit facility to cover
personal items paid on behalf of Mr. Mercer by the Company, including charges
for fuel, maintenance and insurance for personal aircraft. This facility is
represented by a note from Mr. Mercer to the Company which bears interest equal
to the Company's cost of funds. Since the beginning of fiscal 1993, the highest
balance outstanding with respect to this note was $1,038,000, and the balance as
of March 31, 1996 was $1,038,000. Mr. Mercer will repay this note in full upon
the closing of the Offering.
In addition, the Company is currently paying for certain renovations of the
Columbus, Ohio facility, which is owned by Mr. Mercer and leased to the Company.
The total amount of such renovations is estimated to be $1.1 million. Mr. Mercer
will reimburse the Company for such expenditures, plus interest at a floating
rate approximately equal to the Company's borrowing costs, upon the closing of
the Offering. Following such renovations, the Company's lease payments to Mr.
Mercer will be increased to reflect the expansion of and improvements to the
Company's facility. See "-- Lease of Company Headquarters."
The Company loaned Glenn M. Miller $150,000 on December 11, 1995 in
connection with Mr. Miller's purchase of a piece of property for private use.
The loan to Mr. Miller is unsecured, matures on December 31, 1997 and bears
interest at the prime rate, as determined by NBD Bank. Mr. Miller repaid $75,000
of such loan on December 29, 1995 and intends to repay the balance upon the
closing of the Offering.
NCI PARTNERS
NCI Partners is a partnership of all of the Company's executive officers
except Mr. Mercer and Mr. Strench. The partnership was formed pursuant to a
succession plan to assure that the Company would continue under current
management in the event of the deaths of Mr. Mercer and his wife, Adele Mercer.
Therefore, on December 7, 1992, the partnership acquired life insurance policies
on Mr. Mercer and his wife in the aggregate amount of $40.0 million, with the
partnership as the sole beneficiary. Proceeds from the life insurance policies
would be used to acquire the Common Shares owned by Mr. Mercer from the Mercers'
estate. Premiums for these life insurance policies in the aggregate amount of
approximately $65,000 per year have been paid by the Company and subsequently
reimbursed by NCI Partners. At or prior to the closing of the Offering, NCI
Partners will reimburse the Company for all such premiums, NCI Partners will be
dissolved and the policies will be canceled.
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PRINCIPAL SHAREHOLDERS
The table below sets forth the number and percentage of outstanding Common
Shares beneficially owned by (i) each director and executive officer of the
Company; (ii) all directors and executive officers of the Company as a group;
and (iii) each person known by the Company to own beneficially more than five
percent of any class of the Company's voting securities, in each case, as of May
1, 1996, and as adjusted to reflect the sale of Common Shares being offered
hereby (assuming that the Underwriters' over-allotment option is not exercised).
The Company believes that each individual or entity named has sole investment
and voting power with respect to Common Shares indicated as beneficially owned
by such individual or entity, except as otherwise noted. The address of each of
the executive officers and directors is c/o AirNet Systems, Inc., 3939
International Gateway, Columbus, Ohio 43219.
At May 1, 1996, there were eight holders of record of Common Shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
---------------------- ----------------------
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gerald G. Mercer (1)................................................ 4,392,927 74.7% 4,392,927 38.3%
Glenn M. Miller..................................................... 543,425 9.3 543,425 4.7
Charles A. Renusch.................................................. 380,313 6.5 380,313 3.3
Eric P. Roy......................................................... 226,920 3.9 226,920 2.0
Guy S. King......................................................... 105,642 1.8 105,642 *
Lincoln L. Rutter................................................... 85,781 1.5 85,781 *
Kendall W. Wright................................................... 85,781 1.5 85,781 *
William R. Sumser................................................... 57,046 * 57,046 *
Donald D. Strench................................................... -- -- -- --
Adele Mercer........................................................ -- -- -- --
All executive officers and directors as a group (10 persons)........ 5,877,835 100.0 5,877,835 51.2
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes 167,227 Common Shares subject to the Jeffrey Wright Warrant which
Mr. Mercer has agreed to purchase upon the closing of the Offering. See
"Certain Relationships and Related Party Transactions -- Wright Warrants."
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 40,000,000 Common
Shares, par value $.01 per share, and 10,000,000 preferred shares, par value
$.01 per share. As of May 1, 1996, 5,710,608 Common Shares were issued and
outstanding and 2,650,764 Common Shares were reserved for issuance pursuant to
the Wright Warrants. In addition, 1,150,000 authorized Common Shares have been
reserved for issuance under the Company's Incentive Stock Plan. There are no
preferred shares issued and outstanding.
COMMON SHARES
Holders of Common Shares are entitled to one vote for each Common Share held
of record on all matters presented to a vote of shareholders, including the
election of directors. Holders of Common Shares have no cumulative voting rights
and no preemptive rights to purchase or subscribe for any stock or other
securities. There are no conversion rights or redemption or sinking fund
provisions with respect to the Common Shares. Subject to preferences that may be
applicable to any outstanding preferred shares and subject to the applicable
debt instruments of the Company, holders of Common Shares are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the affairs of the Company, holders of Common
Shares are entitled to share pro rata in distribution of the assets of the
Company remaining after payment or provision for payment of liabilities and the
liquidation payments to holders of outstanding preferred shares. All outstanding
Common Shares are, and the Common Shares offered hereby when issued and paid for
will be, fully paid and nonassessable.
Application has been made for listing the Common Shares for quotation on The
Nasdaq National Market.
PREFERRED SHARES
The Company's Board of Directors has the authority to issue up to 10,000,000
preferred shares in one or more series and to fix, by resolution, the
designations, preferences and relative, participating, optional or other rights,
if any, but currently not the voting rights, and the qualifications, limitations
or restrictions thereof, if any, including the number of shares in such series
(which the Board may increase or decrease as permitted by Ohio law), liquidation
preferences, dividend rates, conversion rights and redemption provisions of the
shares constituting any series, without any further vote or action by the
Company's shareholders. Any series of preferred shares so issued could have
priority over the Common Shares with respect to dividend or liquidation rights
or both. In addition, the issuance of preferred shares, or the issuance of
rights to purchase such shares, could have the effect of delaying, deferring or
preventing a change of control of the Company or an unsolicited acquisition
proposal.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is First Chicago/NBD
Corporation.
ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, CODE OF REGULATIONS AND THE
OHIO GENERAL CORPORATION LAW
Certain provisions of the Articles of Incorporation and Code of Regulations
of the Company and of the Ohio GCL summarized in the following paragraphs may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by shareholders.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT
Section 1701.54 of the Ohio GCL requires that an action by written consent
of the shareholders in lieu of a meeting be unanimous, except that, pursuant to
Section 1701.11, the code of regulations may be amended by an action by written
consent of holders of shares entitling them to exercise two-thirds of the voting
power of the corporation or, if the articles of incorporation or code of
regulations otherwise provide, such greater or lesser amount, but not less than
a majority. The Company's Code of Regulations provides that, upon the closing of
the Offering, no action to amend the Code of Regulations may be taken by a
written consent of shareholders without a meeting. This provision may have the
effect of delaying, deferring or preventing a tender offer or takeover attempt
that a shareholder might consider in its best interest.
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SUPERMAJORITY VOTING PROVISIONS
The Code of Regulations provides that the provisions relating to the
elimination of shareholder action by written consent to amend the Code of
Regulations, removal of directors only for cause, indemnification of directors
and supermajority voting may not be repealed or amended in any respect, and no
other provision may be adopted, amended or repealed which would have the effect
of modifying or permitting the circumvention of such provisions, without the
vote of the holders of not less than 66 2/3% of the total voting power of the
Company.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The Code of Regulations provides that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual or special meeting of shareholders, must provide
timely notice thereof in writing. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be received no later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. The Code of
Regulations also specifies certain requirements for a shareholder's notice to be
in proper written form. These provisions may preclude some shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting; provided that
nothing in such provisions shall prevent any shareholder from submitting a
shareholder proposal in compliance with Rule 14a-8 of the Exchange Act.
CONTROL SHARE ACQUISITION STATUTE
Section 1701.831 of the Ohio GCL (the "Control Share Acquisition Statute")
requires shareholder approval of any proposed "control share acquisition" of an
Ohio corporation. A "control share acquisition" is the acquisition, directly or
indirectly, by any person (including any individual, partnership, corporation,
limited liability company, society, association or two or more persons who have
a joint or common interest) of shares of a corporation that, when added to all
other shares of the corporation that may be voted, directly or indirectly, by
the acquiring person, would entitle such person to exercise or direct the
exercise of 20% or more (but less than 33 1/3%) of the voting power of the
corporation in the election of directors or 33 1/3% or more (but less than a
majority) of such voting power or a majority or more of such voting power. Under
the Control Share Acquisition Statute, the control share acquisition must be
approved in advance by the holders of a majority of the outstanding voting
shares represented at a meeting at which a quorum is present and by the holders
of a majority of the portion of the outstanding voting shares represented at
such a meeting excluding the voting shares owned by the acquiring shareholder
and certain "interested shares," including shares owned by officers elected or
appointed by the directors of the corporation and by directors of the
corporation who are also associates of the corporation.
The purpose of the Control Share Acquisition Statute is to give shareholders
of Ohio corporations a reasonable opportunity to express their views on a
proposed shift in control, thereby reducing the coercion inherent in an
unfriendly takeover. The provisions of the Control Share Acquisition Statute
grant to the shareholders of the Company the assurance that they will have
adequate time to evaluate the proposal of the acquiring person, that they will
be permitted to vote on the issue of authorizing the acquiring person's purchase
program to go forward in the same manner and with the same proxy information
that would be available to them if a proposed merger of the Company were before
them and, most importantly, that the interests of all shareholders will be taken
into account in connection with such vote and the probability will be increased
that they will be treated equally regarding the price to be offered for their
Common Shares if the implementation of the proposal is approved.
The Control Share Acquisition Statute applies not only to traditional tender
offers but also to open market purchases, privately negotiated transactions and
original issuances by an Ohio corporation, whether friendly or unfriendly. The
procedural requirements of the Control Share Acquisition Statute could render
approval of any control share acquisition difficult in that a majority of the
voting power of the Company, excluding "interested shares," must be represented
at the meeting and must be voted in favor of the acquisition. It is recognized
that any corporate defense against persons seeking to acquire control may have
the effect of discouraging or preventing offers
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which some shareholders might find financially attractive. On the other hand,
the need on the part of the acquiring person to convince the shareholders of the
Company of the value and validity of his offer may cause such offer to be more
financially attractive in order to gain shareholder approval.
MERGER MORATORIUM STATUTE
Chapter 1704 of the Ohio GCL (the "Merger Moratorium Statute") generally
prohibits a wide range of business combinations and other transactions
(including mergers, consolidations, asset sales, loans, disproportionate
distributions of property and disproportionate issuances or transfers of shares
or rights to acquire shares) between an Ohio corporation and a person that owns,
alone or with other related parties, shares representing at least 10% of the
voting power of such corporation (an "Interested Shareholder") for a period of
three years after such person becomes an Interested Shareholder, unless, prior
to the date that the Interested Shareholder became such, the directors approve
either the transaction or the acquisition of the corporation's shares that
resulted in the person becoming an Interested Shareholder. Following the
three-year moratorium period, the corporation may engage in covered transactions
with an Interested Shareholder only if, among other things, (i) the transaction
receives the approval of the holders of 2/3 of all the voting shares and the
approval of the holders of a majority of the voting shares held by persons other
than an Interested Shareholder or (ii) the remaining shareholders receive an
amount for their shares equal to the higher of the highest amount paid in the
past by the Interested Shareholder for the corporation's shares or the amount
that would be due the shareholders if the corporation were to dissolve. The
Merger Moratorium Statute is designed to prevent many of the self-dealing
activities that often accompany highly-leveraged acquisitions by prohibiting an
Interested Shareholder from using the corporation or its assets or shares for
his special benefit. The Merger Moratorium Statute will encourage potential
tender offerors to negotiate with the Board of Directors of the Company to
ensure that the shareholders of the Company receive fair and equitable
consideration for their shares. However, the Merger Moratorium Statute presents
potential pitfalls for unwary shareholders. Close attention to the impact of
common corporate actions, such as the grant of associate stock options and loans
to Interested Shareholders in the ordinary course of business, is necessary to
determine whether such actions are encompassed by the Merger Moratorium Statute.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary sets forth the material terms of the New Credit
Agreement which will be filed as an exhibit to the Registration Statement of
which this Prospectus is a part. Capitalized terms used but not defined herein
have the meanings set forth in the New Credit Agreement.
NEW CREDIT AGREEMENT
The Company has received a commitment from NBD Bank, as agent, to underwrite
the New Credit Agreement. NBD Bank is the sole lender under the Existing Credit
Agreement. Under the New Credit Agreement, NBD Bank and the other lenders will
provide up to $50.0 million in a five year, unsecured revolving credit facility.
The New Credit Agreement will be initially funded concurrently with, and is
conditioned upon, the closing of the Offering. At that time, the total
indebtedness outstanding under the Existing Credit Agreement which is not repaid
from the net proceeds of the Offering (currently anticipated to be approximately
$3.6 million) will be repaid from funds borrowed under the New Credit Agreement.
AMOUNT OF ADDITIONAL CREDIT AVAILABLE. The New Credit Agreement provides
for two tranches of revolving credit borrowings. Pursuant to Tranche A, the
Company may borrow up to $20.0 million against 80% of eligible accounts
receivable and 50% of eligible inventory, provided that inventory advances may
not exceed $4.0 million. Pursuant to Tranche B, the Company may borrow up to
$30.0 million against 75% of the quick retail value of its aircraft and eligible
machinery and equipment. Based on such borrowing base limitations, and after
application of the net proceeds from the Offering and funds borrowed under the
New Credit Agreement to repay all outstanding indebtedness under the Existing
Credit Agreement, the Company expects to have approximately $31.8 million of
financing available under the New Credit Agreement. The New Credit Agreement
also includes a standby and commercial letter of credit subfacility of up to
$3.0 million.
INTEREST. The New Credit Agreement will bear interest, at the Company's
option at (a) a fixed rate to be agreed upon by the Company and the lenders or
(b) a floating rate initially equal to (i) the higher of 0.5% per annum over the
Federal Funds Rate or NBD Bank's Prime rate or (ii) LIBOR plus a margin of
between 0.7% per annum and 1.125% per annum depending upon the Company's Funded
Debt to EBITDA ratio.
GUARANTEES. The New Credit Agreement will be guaranteed by any future
subsidiaries of the Company.
COVENANTS. The New Credit Agreement will include certain negative
covenants, including covenants which impose limitations on the ability of the
Company to, among other things: (i) sell all or substantially all of the assets
of the Company; (ii) merge or consolidate; (iii) incur indebtedness outside of
the New Credit Agreement; and (iv) make acquisitions for consideration in excess
of $3.0 million without consent. In addition, the New Credit Agreement will
contain financial covenants which contain different baselines or measure
financial ratios different from those in the Existing Credit Agreement,
including minimum Tangible Net Worth (85% of post-Offering Tangible Net Worth
plus 50% of annual Net Income), a Funded Debt to EBITDA ratio (not to exceed
2.5:1.0), a Funded Debt to Total Capitalization ratio (not to exceed 0.5:1.0)
and a Cash Flow Coverage ratio (not to be less than 1.05:1.0 through June 29,
1997 or less than 1.1:1.0 through September 29, 1997 or less than 1.2:1.0
thereafter) (capitalized terms, in each case, as defined therein).
FEES. Upon the closing of the New Credit Agreement, the Company will be
required to pay underwriting and other fees totaling $125,000 plus the
reasonable fees of NBD Bank's counsel, in addition to the $125,000 in fees paid
at the time the commitment to enter into the New Credit Agreement was accepted.
The New Credit Agreement will also provide for a $10,000 annual agency fee and a
facility fee of between 0.2% per annum and 0.375% per annum based on the
Company's Funded Debt to EBITDA ratio.
Because the terms, conditions and covenants of the New Credit Agreement are
subject to the negotiation, execution and delivery of definitive documentation,
certain of the actual terms, conditions and covenants may differ from those
described above.
55
<PAGE>
EXISTING CREDIT AGREEMENT
At the time of the initial funding under the New Credit Agreement, the total
indebtedness outstanding under the Existing Credit Agreement which is not repaid
from the net proceeds of the Offering (currently anticipated to be $3.6 million)
will be rolled over into the New Credit Agreement. For a description of the
terms of the Existing Credit Agreement, see Note 4 to the Company's Financial
Statements.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,477,835 Common
Shares outstanding (12,317,835 Common Shares if the Underwriters exercise their
over-allotment option in full). Of those Common Shares, the 5,600,000 Common
Shares (6,440,000 Common Shares if the Underwriters exercise their over-
allotment option in full) sold in the Offering will be freely transferable
without restriction under the Securities Act, except for any such shares which
may be acquired by an affiliate of the Company (as that term is defined in Rule
144 under the Securities Act).
The remaining 5,877,835 outstanding Common Shares held by current
shareholders constitute either "restricted securities," within the meaning of
Rule 144, or securities held by affiliates and will only be eligible for sale in
the open market after the Offering subject to the contractual lockup provisions
and applicable requirements of Rule 144 described below.
In general, under Rule 144, as currently in effect, if a period of at least
two years has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, then the holder of such restricted securities
(including an affiliate) is entitled to sell a number of Common Shares within
any three-month period that does not exceed the greater of (i) one percent of
the then outstanding Common Shares or (ii) the average weekly reported volume of
trading of the Common Shares during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates also must sell Common
Shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the two-year
holding period. Under Rule 144(k), if a period of at least three years has
elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for at least three months prior
to the sale would be entitled to sell the Common Shares immediately without
regard to the volume limitations and other conditions described above.
Sales of a significant number of Common Shares could have an adverse impact
on the market price of the Common Shares. The Company and all of the Company's
executive officers and directors have agreed not to offer, sell, contract to
sell, pledge, grant any option for the sale of, or otherwise dispose or cause
the disposition of, any Common Shares or securities convertible into or
exchangeable or exercisable for such shares, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Dillon, Read & Co.
Inc., except that the Company may award options and Common Shares pursuant to
the Incentive Stock Plan and may issue Common Shares in connection with a
transaction registered on Form S-4.
On the effective date of the Registration Statement of which this Prospectus
forms a part, the Company expects to file a registration statement on Form S-8
under the Securities Act covering 1,150,000 Common Shares reserved for issuance
under the Company's Incentive Stock Plan. Upon the filing of such registration
statement, Common Shares issued upon exercise of options or other awards granted
under the Incentive Stock Plan generally will be available for sale in the open
market by non-affiliates of the Company.
56
<PAGE>
UNDERWRITING
The names of the Underwriters of the Common Shares offered hereby and the
aggregate number of Common Shares which each has severally agreed to purchase
from the Company, subject to the terms and conditions specified in the
Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Dillon, Read & Co. Inc.....................................................
The Robinson-Humphrey Company, Inc.........................................
--------
Total.................................................................. 5,600,000
--------
--------
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc. and The
Robinson-Humphrey Company, Inc.
The Underwriters are committed to purchase all of the Common Shares, if any
are so purchased. The Underwriting Agreement contains certain provisions
whereby, if any Underwriter defaults in its obligation to purchase such Common
Shares, and the aggregate obligations of the Underwriters so defaulting do not
exceed ten percent of the Common Shares offered hereby, some or all of the
remaining Underwriters must assume such obligations.
The Underwriters propose to offer the Common Shares directly to the public
initially at the offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
concessions not in excess of $ per share to certain other dealers. The offering
of the Common Shares is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the Common Shares. After the public
offering of the Common Shares, the public offering price and the concessions may
be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option for 30 days from the
date of this Prospectus to purchase up to 840,000 additional Common Shares at
the initial public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriters may exercise such option
only to cover over-allotments of the Common Shares offered hereby. To the extent
the Underwriters exercise this option, each Underwriter will be obligated,
subject to certain conditions, to purchase the number of additional Common
Shares proportionate to such Underwriter's initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.
The Company and all of the directors and executive officers of the Company
have agreed, subject to certain exceptions, that they will not offer, sell,
contract to sell, transfer or otherwise encumber or dispose of any Common
Shares, or securities convertible into or exchangeable for, Common Shares for a
period of 180 days from the date of this Prospectus, without the prior consent
of Dillon, Read & Co. Inc., except the Company may issue options and Common
Shares pursuant to the Incentive Stock Plan and may issue Common Shares in
connection with a transaction registered on Form S-4.
Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
will be determined by negotiation between the Company and the Managing
Underwriters. Factors considered in determining the public offering price were
prevailing market conditions, the state of the Company's development, recent
financial results of the Company, the future prospects of the Company and its
industry, market valuations of securities of companies engaged in activities
deemed by the Managing Underwriters to be similar to those of the Company and
other factors deemed relevant.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
57
<PAGE>
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for the
Company by Vorys, Sater, Seymour and Pease, Columbus, Ohio, and for the
Underwriters by Gibson, Dunn & Crutcher LLP, New York, New York. Russell M.
Gertmenian, a partner in Vorys, Sater, Seymour and Pease, has agreed to serve as
a director of the Company upon the closing of the Offering.
EXPERTS
The financial statements of AirNet Systems, Inc. at September 30, 1994 and
1995, and for each of the three years in the period ended September 30, 1995,
included in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company, after the Offering of Common Shares described herein, will be
subject to the informational requirements of the Exchange Act, and in accordance
therewith, will be required to file periodic reports and other information with
the Commission. Such information can be inspected without charge after the
Offering at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its
Regional Offices located at Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor,
New York, New York 10048, and copies of such materials may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed fees.
The Company has filed with the Commission a Registration Statement on Form
S-1 (herein, together with all amendments thereto, the "Registration Statement")
under the Securities Act with respect to the Common Shares offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information contained in the Registration Statement and the exhibits and
financial statements thereto, to which reference is hereby made. The
Registration Statement, including the exhibits thereto, may be inspected and
copies thereof can be obtained as described in the preceding paragraph with
respect to periodic reports and other information filed by the Company under the
Exchange Act.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements, which have been certified by the
Company's independent auditors.
58
<PAGE>
AIRNET SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Balance Sheets as of September 30, 1994 and 1995 and March 31, 1996 (Unaudited)............................ F-3
Statements of Income for the fiscal years ended September 30, 1993, 1994 and 1995 and for the six months
ended March 31, 1995 and 1996 (Unaudited)................................................................. F-4
Statements of Shareholders' Equity for the fiscal years ended September 30, 1993, 1994 and 1995 and for the
six months ended March 31, 1996 (Unaudited)............................................................... F-5
Statements of Cash Flows for the fiscal years ended September 30, 1993, 1994 and 1995 and for the six
months ended March 31, 1995 and 1996 (Unaudited).......................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
AirNet Systems, Inc.
We have audited the accompanying balance sheets of AirNet Systems, Inc. (the
Company), formerly New Creations, Inc., as of September 30, 1994 and 1995, and
the related statements of income, shareholders' equity, and cash flows for the
each of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AirNet Systems, Inc. at
September 30, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Columbus, Ohio
November 27, 1995,
except for Notes 11 and 12
as to which the date is May 1, 1996
F-2
<PAGE>
AIRNET SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA
---------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996
---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 12)
<S> <C> <C> <C> <C>
Current assets:
Cash......................................... $ 257,419 $ 238,394 $ 2,928
Accounts receivable:
Trade, less allowances of $40,000 and
$2,000 in 1994 and 1995, respectively..... 6,402,564 6,057,987 6,496,228
Shareholders, affiliates and employees..... 415,540 303,490 1,313,028
Spare parts and supplies..................... 3,491,092 3,932,956 4,110,622
Prepaid expenses............................. 1,494,069 2,195,115 3,394,530
---------- ---------- ----------
Total current assets........................... 12,060,684 12,727,942 15,317,336
Net property and equipment (NOTE 2):........... 25,569,896 32,833,612 34,081,906
Other assets:
Intangibles, net of accumulated amortization
of $2,969,000 and $3,404,000 in 1994 and
1995, respectively (NOTE 3)................. 3,854,178 3,418,276 3,200,325
Other accounts receivable.................... 550,000 -- --
Deposits..................................... 106,160 57,060 51,860
---------- ---------- ----------
Total assets................................... $42,140,918 $49,036,890 $52,651,427
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $3,280,653 $3,937,894 $6,290,892
Accrued expenses............................. 376,624 556,778 409,932
Salaries and related liabilities............. 1,339,409 1,605,619 1,731,252
Current portion of notes payable (NOTE 4).... 3,674,286 5,565,706 6,229,186
---------- ---------- ----------
Total current liabilities...................... 8,670,972 11,665,997 14,661,262
Notes payable, less current portion (NOTE 4)... 12,575,952 13,662,633 11,301,802
Deferred compensation (NOTES 7 AND 8).......... 2,963,392 3,238,856 3,651,928
Shareholders' equity (NOTE 11):
Preferred stock, $.01 par value; 10,000,000
shares authorized; and no shares issued and
outstanding................................. -- -- --
Common stock, $.01 par value; 40,000,000
shares authorized, 5,710,608 shares issued
and outstanding in 1994 and 1995; 5,877,835
pro forma................................... 57,106 57,106 57,106 $ 58,778
Additional paid-in capital................... 349,534 349,534 349,534 21,205,641
Retained earnings (deficit).................. 17,888,345 20,385,860 22,913,651 (15,000,000)
Notes receivable from shareholders (NOTE
8).......................................... (364,383) (323,096) (283,856) --
---------- ---------- ---------- -----------
Total shareholders' equity..................... 17,930,602 20,469,404 23,036,435 $ 6,264,419
---------- ---------- ----------
-----------
-----------
Total liabilities and shareholders' equity..... $42,140,918 $49,036,890 $52,651,427
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
AIRNET SYSTEMS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air transportation (net of excise taxes of
$1,776,000, $1,841,000 and $1,810,000 for
the year ended 1993, 1994 and 1995,
respectively):
Check delivery.......................... $ 49,357,903 $ 54,046,381 $ 58,263,706 $ 27,960,098 $ 30,569,670
Small package delivery.................. 7,967,447 8,241,332 8,191,723 3,972,980 4,460,319
Fixed base operations..................... 1,265,347 1,158,044 1,006,529 519,317 478,942
------------- ------------- ------------- ------------- -------------
58,590,697 63,445,757 67,461,958 32,452,395 35,508,931
Costs and expenses:
Air transportation:
Wages and benefits...................... 7,593,967 8,185,759 9,195,208 4,557,172 4,875,987
Aircraft fuel........................... 7,150,558 6,958,282 7,444,878 3,598,983 3,875,170
Aircraft maintenance.................... 5,426,981 5,720,763 6,033,739 3,075,195 3,291,213
Aircraft leases......................... 4,405,303 3,260,273 1,042,653 634,204 378,377
Ground couriers and other outside
services............................... 7,949,977 8,346,805 8,611,022 4,137,743 4,550,751
Depreciation and amortization........... 5,862,239 6,332,667 7,353,753 3,476,468 4,155,918
Other................................... 5,048,025 5,765,303 6,429,319 3,171,947 3,475,923
Fixed base operations..................... 1,150,199 1,081,502 955,792 446,078 390,153
Selling, general and administrative
expenses:
Executive compensation.................. 2,738,214 3,284,619 3,952,388 1,834,996 1,719,494
Executive compensation related to
employee stock purchase agreements and
deferred compensation plan (NOTES 7 AND
8)..................................... 247,003 1,598,176 2,635,157 1,162,056 1,400,792
Non-competition agreement with Wright
(NOTE 3)............................... 1,339,323 1,813,114 2,327,726 1,207,375 727,378
Other................................... 3,927,039 3,787,703 3,404,796 1,655,998 2,238,322
------------- ------------- ------------- ------------- -------------
Total costs and expenses.................. 52,838,828 56,134,966 59,386,431 28,958,215 31,079,478
------------- ------------- ------------- ------------- -------------
Income from operations...................... 5,751,869 7,310,791 8,075,527 3,494,180 4,429,453
Interest expense............................ 1,122,923 1,092,990 1,452,066 611,371 736,167
------------- ------------- ------------- ------------- -------------
Net income.................................. $ 4,628,946 $ 6,217,801 $ 6,623,461 $ 2,882,809 $ 3,693,286
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Unaudited pro forma information (NOTE 12):
Historical income before income taxes..... $ 6,623,461 $ 3,693,286
Pro forma adjustments other than income
taxes.................................... 7,059,535 2,904,094
------------- -------------
Pro forma income before income taxes...... 13,682,996 6,597,380
Pro forma taxes on income................. 5,473,198 2,638,952
------------- -------------
Pro forma net income...................... $ 8,209,798 $ 3,958,428
------------- -------------
------------- -------------
Pro forma net income per common share..... $ .72 $ .34
------------- -------------
------------- -------------
Weighted average common shares
outstanding.............................. 11,477,835 11,477,835
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
AIRNET SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK NOTES
---------------------- ADDITIONAL RECEIVABLE
NUMBER OF PAID-IN RETAINED FROM
SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDERS TOTAL
----------- --------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1992.............. 422,570 $ 4,226 $ -- $ 14,031,304 $ -- $ 14,035,530
Year ended September 30, 1993 --
Net income.......................... -- -- -- 4,628,946 -- 4,628,946
Shareholder distributions --
including stock dividend........... 3,803,130 38,031 -- (1,908,782) -- (1,870,751)
----------- --------- ----------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1993........... 4,225,700 42,257 -- 16,751,468 -- 16,793,725
Year ended September 30, 1994 --
Net income.......................... -- -- -- 6,217,801 -- 6,217,801
Issued stock (NOTE 8)............... 1,484,908 14,849 349,534 -- (364,383) --
Shareholders distributions.......... -- -- -- (5,080,924) -- (5,080,924)
----------- --------- ----------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1994........... 5,710,608 57,106 349,534 17,888,345 (364,383) 17,930,602
Year ended September 30, 1995 --
Net income.......................... -- -- -- 6,623,461 -- 6,623,461
Repayment of notes (NOTE 8)......... -- -- -- -- 41,287 41,287
Shareholders distributions.......... -- -- -- (4,125,946) -- (4,125,946)
----------- --------- ----------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1995........... 5,710,608 57,106 349,534 20,385,860 (323,096) 20,469,404
Six months ended March 31, 1996
(Unaudited) --
Net income.......................... -- -- -- 3,693,286 -- 3,693,286
Repayment of notes (NOTE 8)......... -- -- -- -- 39,240 39,240
Shareholders distributions.......... -- -- -- (1,165,495) -- (1,165,495)
----------- --------- ----------- ------------- ------------- -------------
BALANCE, MARCH 31, 1996 (UNAUDITED)... 5,710,608 $ 57,106 $ 349,534 $ 22,913,651 $ (283,856) $ 23,036,435
----------- --------- ----------- ------------- ------------- -------------
----------- --------- ----------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
AIRNET SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 SIX MONTHS ENDED MARCH 31,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................ $ 4,628,946 $ 6,217,801 $ 6,623,461 $ 2,882,809 $ 3,693,286
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 5,925,728 6,394,898 7,435,602 3,507,934 4,194,933
Amortization of intangibles............. 435,545 435,902 435,902 217,951 217,951
Provision for (losses) recoveries on
accounts receivable.................... 17,823 (63,436) (38,384) (30,000) (18,000)
Deferred compensation................... 163,304 1,009,826 275,465 (32,382) 413,072
Loss (gain) on disposition of assets.... 280,350 287,468 73,472 (31,308) (6,020)
Changes in operating assets and
liabilities:
Accounts receivable................... (174,232) (760,059) 495,011 (175,959) (1,429,779)
Spare parts and supplies.............. (374,794) 151,609 (441,864) (69,800) (177,666)
Prepaid expenses...................... (237,935) (118,210) (701,046) (714,082) (1,199,415)
Accounts payable...................... (228,379) 989,483 657,241 699,698 2,352,998
Accrued expenses...................... (50,438) (25,339) 180,154 61,933 1,174,474
Salaries and related liabilities...... 230,728 119,825 266,210 163,834 (1,195,687)
Other, net............................ 193,093 81,950 49,100 43,500 5,200
------------- -------------- -------------- ------------- -------------
Net cash provided by operating
activities............................... 10,809,739 14,721,718 15,310,324 6,524,128 8,025,347
INVESTING ACTIVITIES
Purchases of property and equipment....... (8,378,145) (12,926,629) (14,543,850) (6,230,228) (5,437,207)
Proceeds from sale of equipment........... 129,729 112,193 321,059 -- --
------------- -------------- -------------- ------------- -------------
Net cash used in investing activities..... (8,248,416) (12,814,436) (14,222,791) (6,230,228) (5,437,207)
FINANCING ACTIVITIES
Proceeds from shareholder notes
receivable............................... -- -- 41,287 41,287 39,240
Net (repayment) borrowings under revolving
credit facilities........................ (3,000,000) 875,000 1,350,000 475,000 (850,000)
Repayment of long-term debt............... (220,740) (2,280,021) (10,311,899) (6,836,187) (3,595,351)
Proceeds from issuance of long-term
debt..................................... 2,540,000 4,486,000 11,940,000 6,540,000 2,748,000
Distributions to shareholders............. (1,870,751) (5,080,924) (4,125,946) (768,716) (1,165,495)
------------- -------------- -------------- ------------- -------------
Net cash used in financing activities..... (2,551,491) (1,999,945) (1,106,558) (548,616) (2,823,606)
------------- -------------- -------------- ------------- -------------
Net (decrease) increase in cash........... 9,832 (92,663) (19,025) (254,716) (235,466)
Cash at beginning of period............... 340,250 350,082 257,419 257,419 238,394
------------- -------------- -------------- ------------- -------------
Cash at end of period..................... $ 350,082 $ 257,419 $ 238,394 $ 2,703 $ 2,928
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
1. SIGNIFICANT ACCOUNTING POLICIES
AirNet Systems, Inc. (the Company), formerly New Creations, Inc., operates a
fully integrated national air transportation network which provides delivery
service for time-critical shipments for customers in the U.S. banking industry
and in other industries. The Company also offers retail aviation fuel sales and
related ground services for customers in Columbus, Ohio.
BASIS OF PRESENTATION
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue on air transportation services is recognized when the packages are
delivered to their destination. Revenue on fixed based operations is recognized
when the maintenance services are complete or fuel is delivered.
ACCOUNTS RECEIVABLE
For fiscal 1995, approximately 89% and 84% of the Company's revenues and
related receivables, respectively, were generated from customers within the
banking industry. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risks of specific customers, historical trends and other
information.
SPARE PARTS AND SUPPLIES
Spare parts and supplies are valued at the lower of cost (weighted average
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Engines, overhauls and major
inspections, which have been capitalized and included in flight equipment, are
depreciated and amortized on the basis of hours flown. Airframes, other flight
equipment and other property and equipment (primarily furniture and equipment,
leasehold improvements and vehicles) are depreciated using the straight-line
method over the estimated useful lives of the assets, as summarized below:
<TABLE>
<S> <C>
Airframes............................................................. 7 years
Other flight equipment................................................ 2 - 3 years
Other property and equipment.......................................... 3 - 7 years
</TABLE>
Leasehold improvements are amortized over the lease terms or the estimated
useful lives of the assets, whichever is less.
PREPAID EXPENSES
The Company prepays certain engine repair and overhaul services. Such
prepaid balances were $391,994 and $1,026,571 at September 30, 1994 and 1995,
respectively, and are included with prepaid expenses on the balance sheet.
INCOME TAXES
The Company operates as an S Corporation under the Internal Revenue Code
and, consequently, is not subject to federal and certain state income taxes. The
shareholders generally include the Company's income in their own income for tax
purposes. Where the Company remains liable for certain state and local income
taxes, provision has been made for such taxes.
F-7
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective October 1, 1993, the Company elected to adopt Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The adoption of SFAS No. 109
did not have a material impact on the Company's financial condition or results
of operations.
INTANGIBLES
Intangibles include non-competition agreements with former competitors. The
balances are being amortized on the straight-line method over periods ranging
from ten to eighteen years.
STOCK OPTION PLANS
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for its stock option arrangements
and intends to continue to do so.
STATEMENT OF CASH FLOWS
Cash paid for interest was $1,144,252, $1,078,470 and $1,264,522 for the
years ended September 30, 1993, 1994 and 1995, respectively. With respect to
non-cash activities, the Company converted a $550,000 note receivable under a
land contract to property during the year ended September 30, 1995.
INTERIM FINANCIAL REPORTING
In the opinion of management, the unaudited information as of March 31, 1996
and for the six months ended March 31, 1995 and 1996 includes all adjustments
(consisting of normal recurring adjustments) the Company considers necessary for
a fair presentation of such financial statements in accordance with generally
accepted accounting principles. Operating results for the six months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
the year ending September 30, 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Flight equipment.......................................................... $ 48,944,182 $ 62,021,356
Other property and equipment.............................................. 3,765,637 5,060,676
------------- -------------
52,709,819 67,082,032
Less accumulated depreciation............................................. 27,139,923 34,248,420
------------- -------------
$ 25,569,896 $ 32,833,612
------------- -------------
------------- -------------
</TABLE>
3. BUSINESS ACQUISITION
In 1988, the Company acquired certain of the assets of Wright International
Express, Inc. (WIE), an air freight transportation company, and entered into a
covenant not to compete with WIE and its principal shareholder (Donald Wright).
The original acquisition agreement (Wright Agreement) provided for annual
payments to Donald Wright as consideration for his agreement not to compete with
the Company. Subsequently, the Wright Agreement has been amended and now
provides for annual contingent payments based on the lesser of a percentage of
net income, as defined in the original acquisition agreement, or $900,000. The
amended agreement also provides for additional payments based on the Company's
cash flow and debt to equity ratio. Payments under the amended agreement are
guaranteed through 2018 to Donald Wright during his lifetime or upon death to
such person as
F-8
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
3. BUSINESS ACQUISITION (CONTINUED)
designated by Donald Wright prior to his death and are being expensed in the
periods incurred. Such expenses to Donald Wright totaled approximately
$1,086,000, $1,559,000 and $2,074,000 in 1993, 1994 and 1995, respectively, and
$1,081,000 and $601,000 for the six months ended March 31, 1995 and 1996,
respectively.
In the event of a third party offer to acquire the Company, Donald Wright
has the option of making the acquisition on the same terms. If Donald Wright
does not exercise the option and the sale is consummated, Donald Wright is
entitled to receive 32% of the sale proceeds and the payments described above
will terminate.
The Company has also issued warrants to Wright for the purchase of up to
29.7025% of the outstanding shares of its common stock for $3,000 (the Donald
Wright Warrant) and to Wright's son, to purchase 2% of the Company's then
outstanding shares of common stock for $200 (the Jeffrey Wright Warrant). The
Donald and Jeffrey Wright Warrants are exercisable only in the event of an
initial public offering by the Company at any time prior to July 31, 2018. In
addition, the warrants entitle Donald Wright and Jeffrey Wright to certain
piggyback registration rights in connection with an offering of capital stock by
the Company.
4. NOTES PAYABLE
The Company had borrowings from a bank as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Term notes................................................................ $ 10,075,238 $ 11,703,339
Revolving credit facility................................................. 6,175,000 7,525,000
------------- -------------
16,250,238 19,228,339
Current portion of notes payable.......................................... 3,674,286 5,565,706
------------- -------------
$ 12,575,952 $ 13,662,633
------------- -------------
------------- -------------
</TABLE>
Borrowings under the revolving credit facility are limited to the lesser of
$8,000,000, less outstanding letters of credit or the sum of (1) 80% of eligible
accounts receivable, (2) the lesser of 50% of eligible aircraft parts inventory
or $2,000,000 and (3) $2,000,000. Repayment is due on or before June 30, 1997.
The maximum amount available under the revolving credit facility at September
30, 1995 was $475,000. The interest rate on each of the individual borrowings
under the revolving credit facility is, at the Company's election, either the
prime rate (8.75% at September 30, 1995) or the Eurodollar rate plus 1.75%
(7.375% at September 30, 1995). At September 30, 1995, borrowings under the
revolving credit facility bearing interest at the prime rate totaled $1,525,000,
while borrowings bearing interest at the Eurodollar rate totaled $6,000,000. The
revolving credit facility is secured by all of the Company's assets.
The Company's revolving credit facility requires the maintenance of certain
minimum working capital and net worth levels and restricts the amount of
additional debt and capital expenditures.
F-9
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
4. NOTES PAYABLE (CONTINUED)
Term notes consist of the following (secured by aircraft):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Due $126,190 monthly to November 1997, plus interest at 7.55%............. $ 4,795,238 $ 3,280,952
Due $480,000 quarterly to December 1996, plus interest at the Eurodollar
rate plus 1.75% (7.63% at September 30, 1995)............................ -- 2,880,000
Due $64,285 monthly to July 1998, plus interest at the Eurodollar rate
plus 1.75% (7.63% at September 30, 1995)................................. -- 2,185,720
Due $23,333 monthly to May 2000, plus interest at 8.13%................... -- 1,306,667
Due $25,000 monthly to July 1999, plus interest at 7.54%.................. -- 1,150,000
Due $25,000 monthly to August 1998, plus interest at 8.3%................. -- 900,000
Term notes, repaid during 1995............................................ 5,280,000 --
------------- -------------
Total term notes...................................................... $ 10,075,238 $ 11,703,339
------------- -------------
------------- -------------
</TABLE>
The aggregate annual maturities of long-term debt for the five years
following September 30, 1995 are summarized as follows: 1996 -- $5,565,706; 1997
- -- $11,170,706; 1998 -- $1,775,261; 1999 -- $530,000; and 2000 -- $186,666. The
carrying amounts of long-term debt reported on the balance sheet approximate
fair value.
5. LEASE OBLIGATIONS
The Company leases certain flight equipment under noncancelable operating
leases expiring through 1997. Total rental expense under flight equipment
operating leases was approximately $4,405,303, $3,260,273 and $1,042,653 for the
years ended September 30, 1993, 1994 and 1995, respectively.
The Company leases one facility from its majority shareholder through 2000.
Total rental expense incurred under the facility lease from this shareholder was
$592,000, $622,650 and $707,305 for the years ended September 30, 1993, 1994 and
1995, respectively.
At September 30, 1995, future minimum payments by year and in the aggregate
under noncancelable operating leases with initial or remaining terms exceeding
one year are as follows: 1996 -- $1,030,200; 1997 -- $772,600; 1998 -- $750,600;
1999 -- $750,600; and 2000 -- $312,750.
6. RELATED PARTY TRANSACTIONS
The Company has guaranteed a five year bank loan to its majority shareholder
which is collateralized by the Company's facilities. The loan bears interest at
prime plus .5% and had a balance outstanding of $850,000 at September 30, 1995.
7. DEFERRED COMPENSATION PLANS
The Company has entered into deferred compensation agreements with certain
key employees. Under the terms of the agreements, the Company is obligated to
pay the employees a certain percentage, ranging from one to ten percent and
totaling 27%, of the Company's net book value. Concurrent with the stock
purchase agreements described in Note 8, the accrual of benefits under the
agreements was curtailed as of March 31, 1994. Distributions are based on the
Company's March 31, 1994 net book value and are payable in ten equal annual
installments which began in December 1994. The Company recognized compensation
expense related to the agreements of approximately $247,000, $546,000 and
$308,000 for the years ended September 30, 1993, 1994 and 1995, respectively,
and $149,000 and $103,000 for the six months ended March 31, 1995 and 1996,
respectively.
F-10
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
8. SHAREHOLDERS' EQUITY
On April 1, 1994, the Company entered into stock purchase agreements with
certain key executives whereby the executives purchased 1,484,908 shares of the
Company's common stock. The Company accepted notes receivable from the
executives as payment for the shares sold. The notes receivable are collectible
in ten equal annual installments through 2005 and bear interest at 5%. Under the
terms of the agreements, the executives may not transfer or sell their
respective shares to any party other than the Company. Upon the separation of
any of these executives from the Company, the Company is obligated to purchase
the shares held by the respective executive at a price ranging from the net book
value of the shares held, if less than the original amount paid, to the
appreciation in the book value of the stock from the date the shares were issued
to the date of the respective executive's separation from the Company.
Distribution of the repurchase price to the respective executive can be paid in
equal annual installments over periods ranging from three to ten years and is
governed by the nature of the executive's separation from the Company.
Based on the nature of this restricted stock plan, the Company is accounting
for it in a manner similar to a variable stock option plan. Accordingly,
compensation expense has been recognized each accounting period for the increase
in the repurchase price of the shares. This expense was $1,052,000 and
$2,327,000 for the years ended September 30, 1994 and 1995, respectively, and
$1,013,000 and $1,298,000 for the six months ended March 31, 1995 and 1996,
respectively.
9. RETIREMENT PLAN
The Company has a 401(k) retirement savings plan. All associates who have
worked a minimum of six months may contribute up to 15% of their annual earnings
to the plan. The Company's contributions, which are determined at the discretion
of the Company, were approximately $151,000, $210,000 and $355,000 for the years
ended September 30, 1993, 1994 and 1995, respectively.
10. CONTINGENCIES
The Company is subject to claims and lawsuits in the ordinary course of its
business. In the opinion of management, the outcome of these actions, which are
not clearly determinable at the present time, are either adequately covered by
insurance, or if not insured, will not, in the aggregate, have a material
adverse impact upon the Company's financial position or the results of future
operations.
11. SUBSEQUENT EVENTS (UNAUDITED)
On May 1, 1996, the Company reincorporated through a merger with an Ohio
corporation. The authorized capital stock of the Company consists of 40,000,000
common shares, $.01 par value, and 10,000,000 preferred shares, $.01 par value.
The outstanding shares of the existing company were converted into common shares
of the new company on a 422.57 for one basis. The Company's name was changed
from New Creations, Inc. to AirNet Systems, Inc. These changes have been
reflected in the accompanying financial statements.
The Company filed a registration statement with the Securities and Exchange
Commission for the sale of 5,600,000 of its authorized and unissued common
shares.
The Company adopted an Incentive Stock Plan on May 1, 1996 (Incentive Stock
Plan). The purpose of the Incentive Stock Plan is to attract and retain key
personnel, including consultants and advisors to the Company, to enhance their
interest in the Company's continued success and to allow associates an
opportunity to have an ownership in the Company through stock options, stock
awards and a stock purchase plan. The maximum number of common shares available
to be issued under the Incentive Stock Plan will be 1,150,000 and no award under
the Incentive Stock Plan may be granted after May 1, 2006.
In connection with the planned public offering, the Company will terminate
its status as an S Corporation and, accordingly, will record an additional net
deferred tax liability of $2,112,000 as a result of this change in tax status.
F-11
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
11. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
With the election to terminate its S Corporation status, the Company
anticipates paying distributions of approximately $23,000,000 to the
shareholders of the Company for undistributed earnings associated with the
Company's S Corporation status. The Company anticipates using proceeds from the
anticipated sale of shares to repurchase and cancel the Donald Wright Warrant
and repay debt to be incurred to make the planned distribution, with remaining
proceeds to pay down existing debt.
Simultaneous with the closing of the public offering, the Company will enter
into a new credit agreement to replace the existing agreement. The new agreement
will provide the Company with a $50,000,000, five year, unsecured revolving
credit facility. It will bear interest, at the Company's option of (a) an agreed
upon fixed rate or (b) a floating rate initially equal to (i) the higher of .5%
per annum over the Federal Funds rate or the banks prime rate or (ii) LIBOR plus
a margin. The new agreement will limit the availability of funds to certain
specified percentages of accounts receivable, inventory and the wholesale value
of aircraft and equipment.
In addition, the following actions are anticipated in connection with the
public offering:
- Upon the closing date of the public offering the Company plans to
repurchase and cancel the Donald Wright Warrant (equivalent to 2,483,537
shares) for $29,901,785 with a charge to additional paid-in capital and
the majority shareholder of the Company intends to acquire the Jeffrey
Wright Warrant (equivalent to 167,227 shares) for $2,013,413 and convert
that warrant for the number of shares indicated. In connection with the
repurchase of the Donald Wright Warrant, the Company expects to receive a
tax benefit of approximately $7,000,000.
- The Company will terminate the Wright Agreement and write-off the
unamortized asset relating to a covenant not to compete of approximately
$2,596,000.
- The Company will terminate all of the stock purchase agreements with
certain key executives and the notes related to these agreements will be
fully paid. In connection with the stock purchase agreements, the Company
will incur a non-recurring and non-cash charge of approximately
$15,000,000 at the time the public offering is consummated. Additional
paid-in capital will be increased by the same amount and shareholders'
equity will be unchanged. The pro forma income statement described in Note
12 has not been adjusted to reflect this non-recurring charge.
- The distribution of the undistributed earnings to shareholders of the
Company will eliminate a $1,654,000 liability relating to the stock
purchase agreements.
- The Company will terminate all of the deferred compensation agreements
with certain key executives which were curtailed on March 31, 1994. The
key executives will forego their remaining deferred compensation payments
in the aggregate amount of $1,998,000.
- The existing shareholders will repay outstanding notes receivable totaling
$284,000.
- The Company's guaranty of the five-year bank loan to the majority
shareholder will be terminated at or prior to the consummation of the
public offering.
F-12
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
12. PRO FORMA INFORMATION (UNAUDITED)
PRO FORMA BALANCE SHEET INFORMATION
The pro forma balance sheet at March 31, 1996 reflects the following
transactions as if they had occurred at that date:
a.) In connection with termination of the S Corporation election:
(i) The anticipated S Corporation distributions in the amount of
$23,000,000.
(ii) The recognition of additional net deferred tax liability of
$2,112,000.
(iii) Reclassification of remaining undistributed earnings of the S
Corporation from retained earnings to additional paid-in capital.
b.) The termination of the Wright Agreement, including the exercise of
the Jeffrey Wright warrant for $200, the write-off of the covenant not to
compete asset of $2,596,000, and the recording of a related tax benefit of
$7,000,000 to be realized by the Company.
c.) The elimination of the deferred compensation agreements liability of
$1,998,000 and the liability relating to the stock purchase agreements of
$1,654,000.
d.) The recognition of a non-recurring and non-cash expense relating to
the termination of the stock purchase agreements, with a corresponding
increase to additional paid-in capital, of approximately $15,000,000.
e.) The anticipated repayment of the notes receivable from shareholders
of $284,000.
PRO FORMA STATEMENTS OF INCOME ADJUSTMENTS
The pro forma statements of income information presents the pro forma
effects on the historical financial information reflecting certain transactions
as if they occurred on October 1, 1994 and 1995. The following adjustments have
been reflected in the pro forma statements of income information:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
1995 1996
-------------- ---------------
<C> <S> <C> <C>
1. The elimination of interest expense relating to the debt to be repaid...... $ 1,144,000 $ 556,000
2. The elimination of payments under the Wright Agreement..................... 2,074,000 601,000
3. The elimination of amortization expense relating to the covenant not to
compete asset write-off.................................................... 254,000 127,000
4. The elimination of deferred compensation expense for certain key
employees.................................................................. 308,000 103,000
5. A reduction of compensation expense for executive officers based on new
employment agreements...................................................... 952,000 219,000
6. The elimination of employee stock purchase agreement expense for certain
key employees.............................................................. 2,327,000 1,298,000
-------------- ---------------
Total.................................................................. $ 7,059,000 $ 2,904,000
-------------- ---------------
-------------- ---------------
</TABLE>
Prior to the closing of the public offering, the Company will terminate its
status as an S Corporation. The pro forma adjustments reflect increased
provisions for income taxes at an effective rate of 40%.
F-13
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 AND
UNAUDITED FOR THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996)
12. PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
PRO FORMA NET INCOME PER SHARE
Pro forma net income per common share is based on the weighted average
number of shares of common stock outstanding during the period (using the
treasury stock method), plus the estimated number of shares required to fund the
repurchase and cancellation of the Donald Wright Warrant, the planned
distribution to shareholders and the estimated number of shares to be issued to
repay $13,900,000 of existing debt.
Supplemental pro forma income before taxes and net income considering only
the repayment of existing debt would have been $7,768,000 and $4,661,000,
respectively, for the year ended September 30, 1995, and $4,250,000 and
$2,550,000, respectively, for the six months ended March 31, 1996. Supplemental
pro forma income per share would have been $.66 for the year ended September 30,
1995 and $.36 for the six months ended March 31, 1995, based on the weighted
average number of shares of common stock outstanding during the period, plus the
estimated number of shares to be issued to repay $13,900,000 of existing debt.
F-14
<PAGE>
The following appears on the inside back cover of the Prospectus:
Beside the heading "THE AIRNET SYSTEMS TEAM" is the following caption: "As a
service organization, the Company strives to hire, retain and motivate the
highest quality personnel available who are focused on a set of core values
designed by the Company to provide a productive working environment. The Company
believes its current compensation and benefits packages, proposed stock
ownership incentives and corporate culture provide a competitive advantage in
attracting, retaining and motivating its associates."
Under the heading are the following four photographs: (i) a photograph of
several associates in the Company's training room with the following caption:
"ASSOCIATES: The Company regularly holds team-building sessions, continuing
education and on-the-job training for its associates."; (ii) a photograph of a
pilot at the controls of the Company's flight simulator with the following
caption: "PILOTS: The Company hires and trains its own pilots, requiring each
to attend an extensive Company-run pilot training program."; (iii) a
photograph of a customer service representative at a computer terminal with
the following caption: "CUSTOMER SERVICE REPRESENTATIVES: Unique proprietary
ComCheck-SM-, ShipLink-SM-, and OnTime-SM- software systems and skilled
customer service representatives provide customers with access to delivery
time, shipment information, as well as pricing and scheduling data."; and
(iv) a photograph of a maintenance technician working inspecting a Learjet
with the following caption: "MAINTENANCE TECHNICIANS: Seventy experienced
aircraft and avionics technicians in four separate locations perform all
levels of aircraft maintenance. Avionics trouble-shooting and repair provide
for maximum efficiency and minimum aircraft downtime for the Company's entire
aircraft fleet."
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation in connection with the offering other
than those contained in this Prospectus in connection with the offer contained
herein, and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy Common Shares in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Prior S Corporation Status................ 11
Offering Related Transactions............. 12
Use of Proceeds........................... 14
Dividend Policy........................... 14
Capitalization............................ 15
Dilution.................................. 16
Selected Financial Data................... 17
Selected Unaudited Condensed Pro Forma
Financial Data........................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Industry Overview......................... 31
Business.................................. 33
Management................................ 41
Certain Relationships and Related Party
Transactions............................. 47
Principal Shareholders.................... 51
Description of Capital Stock.............. 52
Description of Certain Indebtedness....... 55
Shares Eligible for Future Sale........... 56
Underwriting.............................. 57
Legal Matters............................. 58
Experts................................... 58
Additional Information.................... 58
Index to Financial Statements............. F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
AIRNET SYSTEMS
------------
5,600,000 SHARES
COMMON SHARES
PROSPECTUS
, 1996
------------------
DILLON, READ & CO. INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee and The Nasdaq National Market listing fee) fees and
expenses payable by the Company in connection with the distribution of the
Common Shares:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $ 31,090
National Association of Securities Dealers, Inc. filing fee........... 9,516
Nasdaq National Market listing fee.................................... 48,295
Printing and engraving costs.......................................... 125,000
Legal fees and expenses............................................... 250,000
Accountants' fees and expenses........................................ 400,000
Blue sky qualification fees and expenses.............................. 15,000
Transfer agent fees................................................... 5,000
Miscellaneous......................................................... 16,099
--------
Total............................................................. $900,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:
(E) (1) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee, member, manager, or agent of the corporation, or is or
was serving at the request of the corporation as a director, trustee,
officer, associate, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust or other enterprise, against expenses, including
attorney's fees, judgments, fines, and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, if he had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, member, manager, or agent of the corporation,
or is or was serving at the request of the corporation as a director,
trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any of the
following:
(a) Any claim, issue, or matter as to which such person is adjudged
to be liable for negligence or misconduct in the performance of his duty
to the corporation unless, and only to the extent that, the court of
common pleas or the court in which such action or suit was brought
determines, upon
II-1
<PAGE>
application, that, despite the adjudication of liability, but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense
of any action, suit, or proceeding referred to in division (E)(1) or (2) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the action suit or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as
authorized in the specific case, upon a determination that indemnification
of the director, trustee, officer, employee, member, manager, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in division (E)(1) or (2) of this section. Such
determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or
threatened by the action, suit, or proceeding referred to in division
(E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel
other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the
corporation or any person to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such action,
suit or proceeding referred to in division (E)(1) or (2) of this section
was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the corporation under
division (E)(2) of this section, and, within ten days after receipt of such
notification, such person shall have the right to petition the court of
common pleas or the court in which such action or suit was brought to review
the reasonableness of such determination.
(5) (a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or
(2) of this section, the articles or the regulations of a corporation state,
by specific reference to this division, that the provisions of this division
do not apply to the corporation and unless the only liability asserted
against a director in an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section is pursuant to section 1701.95 of the Revised
Code, expenses, including attorney's fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by the corporation
as they are incurred, in advance of the final disposition of the action,
suit, or proceeding, upon receipt of an undertaking by or on behalf of the
director in which he agrees to both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any
action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, may be paid by the corporation as they are incurred, in advance
of the final disposition of the
II-2
<PAGE>
action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, member, manager, or agent to repay
such amount, if it ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under the articles, the regulations, any agreement,
a vote of shareholders or disinterested directors, or otherwise, both as to
action in their official capacities and as to action in another capacity
while holding their offices or positions, and shall continue as to a person
who has ceased to be a director, trustee, officer, employee, member,
manager, or agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit,
or self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has a
financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and (7)
of this section. Divisions (E)(1) and (2) of this section do not create any
obligation to repay or return payments made by the corporation pursuant to
division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entity, or is or
was serving at the request of such constituent entity as a director,
trustee, officer, employee, member, manager, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust, or other
enterprise, shall stand in the same position under this section with respect
to the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
Section 5.01 of the Registrant's Code of Regulations governs indemnification
by Registrant and provides as follows:
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action threatened or
instituted by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director,
trustee, officer, employee, member, manager or agent of another corporation
(domestic or foreign, nonprofit or for profit), limited liability company,
partnership, joint venture, trust or other enterprise, against expenses
(including, without limitation, attorneys' fees, filing fees, court
reporters' fees and transcript costs), judgments, fines and amounts paid in
settlement if actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. A person claiming
indemnification under this Section 5.01 shall be presumed, in respect of any
act or omission giving rise to such claim for indemnification, to have acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to any criminal
matter, to have had no reasonable cause to believe his conduct was unlawful,
and the termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
II-3
<PAGE>
Reference is also made to Section 10 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying directors and officers of the Company
against certain liabilities.
In addition, the Registrant intends to purchase insurance coverage which
will insure directors and officers against certain liabilities which might be
incurred by them in such capacity.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 1, 1994, the Company entered into Stock Purchase Agreements with
seven executive officers, including each of the Named Executive Officers other
than Mr. Mercer, pursuant to which the executive officers purchased an aggregate
of 1,484,908 Common Shares for an aggregate purchase price of approximately
$364,000, which was paid in the form of notes from the executive officers.
Pursuant to the terms of the Stock Purchase Agreements, the executive officers
cannot sell their respective Common Shares to any party other than the Company.
In the event of certain triggering events, such as termination, death or
disability, the Company is obligated to purchase the Common Shares held by a
particular executive officer at a price ranging from the net book value of the
Common Shares held, if less than the original amount paid, to the appreciation
in the book value of the Company from the date the Common Shares were issued to
the date of such triggering event. The Stock Purchase Agreements provide that,
in the event the Company sells all or substantially all of its assets, or if a
majority of its voting stock is sold or otherwise disposed of by its
shareholders, prior to such a triggering event, the executive officer will
receive the fair market value of his Common Shares. As amended, the Stock
Purchase Agreements provide that, upon the initial public offering of the
Company's Common Shares, the redemption provisions will become inapplicable, and
the executive officers will be able to sell their Common Shares without
limitation, subject to the restrictions imposed by the Securities Act and by the
Underwriters.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Amended Articles of the Company (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on May 3, 1996)
3.2 Code of Regulations of the Company (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on May 3, 1996)
4.1 Form of Stock Certificate for Common Shares of the Company (incorporated by
reference to the Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 3, 1996)
4.2+ Covenant Not to Compete and Asset Purchase Agreement dated as of July 1, 1988
among WIE, Donald W. Wright, Sr. and the Company, as amended through March 15,
1996
4.3+ Amendment and Waiver to Covenant Not to Compete and Asset Purchase Agreement
dated as of March 28, 1996 among WIE, Donald W. Wright, Sr., the Wright Trust
and the Company
4.4+ Warrant for the Purchase of Shares of Common Stock -- No. 1 (canceled)
4.5+ Warrant for the Purchase of Shares of Common Stock -- No. 2 (canceled)
4.6+ Form of Warrant for the Purchase of Shares of Common Stock -- No. 5 (replacing
No. 1)
4.7+ Form of Warrant for the Purchase of Shares of Common Stock -- No. 6 (replacing
No. 2)
4.8+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Glenn M. Miller
4.9+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Charles A. Renusch
4.10+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Eric P. Roy
4.11+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Guy S. King
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
4.12+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Lincoln L. Rutter
4.13+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and Kendall W. Wright
4.14+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company
and William R. Sumser
4.15 Form of Amendment to Employee Stock Purchase Agreement dated as of May 2, 1996
between the Company and each of Messrs. Miller, Renusch, Roy, King, Rutter,
Wright and Sumser (each separate amendment is substantially identical in all
respects)
5.1+ Opinion of Vorys, Sater, Seymour and Pease as to the legality of the Common
Shares being offered
10.1+ Loan Agreement dated as of July 15, 1990 between the Company and NBD Bank, as
amended
10.2+ Deferred Compensation Agreement dated as of December 18, 1986 between the
Company and Glenn M. Miller, as amended
10.3+ Deferred Compensation Agreement dated as of December 19, 1986 between the
Company and Charles A. Renusch, as amended
10.4+ Deferred Compensation Agreement dated as of February 10, 1989 between the
Company and Eric P. Roy, as amended
10.5+ Deferred Compensation Agreement dated as of February 10, 1989 between the
Company and Guy S. King, as amended
10.6+ Deferred Compensation Agreement dated as of October 17, 1990 between the Company
and Lincoln L. Rutter, as amended
10.7+ Deferred Compensation Agreement dated as of July 18, 1991 between the Company
and William R. Sumser, as amended
10.8+ Deferred Compensation Agreement dated as of October 1, 1991 between the Company
and Kendall W. Wright, as amended
10.9 Form of Amendment to Deferred Compensation Agreement dated as of May 2, 1996
between the Company and each of Messrs. Miller, Renusch, Roy, King, Rutter,
Sumser and Wright (each separate amendment is substantially identical in all
respects)
10.10 Incentive Stock Plan
10.11* Indemnification Agreement dated as of May , 1996, among the Company and Messrs.
Miller, Renusch, Roy, King, Rutter, Sumser and Wright
10.12* Indemnification Agreement dated as of May , 1996, among Mr. Mercer and the
Company
10.13+ Lease Agreement dated June 29, 1988 between Mr. Mercer and the Company, as
amended
10.14* Form of Loan Agreement dated as of May , 1996 among the Company, the banks
listed therein and NBD Bank, as agent
11.1 Statement re: Computation of Pro Forma Per Common Share Earnings
23.1 Consent of Ernst & Young LLP
23.2+ Consent of Vorys, Sater, Seymour and Pease (included in Exhibit 5.1)
23.3 Consent of Tony C. Canonie, Jr., director nominee
23.4+ Consent of Russell M. Gertmenian, director nominee
23.5 Consent of J.F. Keeler, Jr., director nominee
24.1+ Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed
II-5
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES:
None.
ITEM 17. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(2) The undersigned hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus, State of Ohio, on May 5, 1996.
AIRNET SYSTEMS, INC.
By: /s/ GERALD G. MERCER
-----------------------------------
Gerald G. Mercer
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------- --------------
Chairman of the Board of Directors,
/s/ GERALD G. MERCER President and Chief Executive
- ------------------------------------ Officer (Principal Executive May 5, 1996
Gerald G. Mercer Officer)
Director, Executive Vice President,
/s/ ERIC P. ROY* Chief Operating Officer, Chief
- ------------------------------------ Financial Officer and Treasurer May 5, 1996
Eric P. Roy (Principal Financial and Accounting
Officer)
/s/ ADELE MERCER*
- ------------------------------------ Director May 5, 1996
Adele Mercer
*By: /s/ GERALD G.
MERCER
- ------------------------------------
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
3.1 Amended Articles of the Company (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange Commission
on May 3, 1996)
3.2 Code of Regulations of the Company (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and Exchange Commission
on May 3, 1996)
4.1 Form of Stock Certificate for Common Shares of the Company (incorporated by reference
to the Company's Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on May 3, 1996)
4.2+ Covenant Not to Compete and Asset Purchase Agreement dated as of July 1, 1988 among
WIE, Donald W. Wright, Sr. and the Company, as amended through March 15, 1996
4.3+ Amendment and Waiver to Covenant Not to Compete and Asset Purchase Agreement dated as
of March 28, 1996 among WIE, Donald W. Wright, Sr., the Wright Trust and the Company
4.4+ Warrant for the Purchase of Shares of Common Stock -- No. 1 (canceled)
4.5+ Warrant for the Purchase of Shares of Common Stock -- No. 2 (canceled)
4.6+ Form of Warrant for the Purchase of Shares of Common Stock -- No. 5 (replacing No. 1)
4.7+ Form of Warrant for the Purchase of Shares of Common Stock -- No. 6 (replacing No. 2)
4.8+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Glenn M. Miller
4.9+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Charles A. Renusch
4.10+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Eric P. Roy
4.11+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Guy S. King
4.12+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Lincoln L. Rutter
4.13+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
Kendall W. Wright
4.14+ Employee Stock Purchase Agreement dated as of April 1, 1994 between the Company and
William R. Sumser
4.15 Form of Amendment to Employee Stock Purchase Agreement dated as of May 2, 1996
between the Company and each of Messrs. Miller, Renusch, Roy, King, Rutter, Wright
and Sumser (each separate amendment is substantially identical in all respects)
5.1+ Opinion of Vorys, Sater, Seymour and Pease as to the legality of the Common Shares
being offered
10.1+ Loan Agreement dated as of July 15, 1990 between the Company and NBD Bank, as amended
10.2+ Deferred Compensation Agreement dated as of December 18, 1986 between the Company and
Glenn M. Miller, as amended
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------
10.3+ Deferred Compensation Agreement dated as of December 19, 1986 between the Company and
Charles A. Renusch, as amended
<S> <C> <C>
10.4+ Deferred Compensation Agreement dated as of February 10, 1989 between the Company and
Eric P. Roy, as amended
10.5+ Deferred Compensation Agreement dated as of February 10, 1989 between the Company and
Guy S. King, as amended
10.6+ Deferred Compensation Agreement dated as of October 17, 1990 between the Company and
Lincoln L. Rutter, as amended
10.7+ Deferred Compensation Agreement dated as of July 18, 1991 between the Company and
William R. Sumser, as amended
10.8+ Deferred Compensation Agreement dated as of October 1, 1991 between the Company and
Kendall W. Wright, as amended
10.9 Form of Amendment to Deferred Compensation Agreement dated as of May 2, 1996 between
the Company and each of Messrs. Miller, Renusch, Roy, King, Rutter, Sumser and
Wright (each separate amendment is substantially identical in all respects)
10.10 Incentive Stock Plan
10.11* Indemnification Agreement dated as of May , 1996, among the Company and Messrs.
Miller, Renusch, Roy, King, Rutter, Sumser and Wright
10.12* Indemnification Agreement dated as of May , 1996 among Mr. Mercer and the Company
10.13+ Lease Agreement dated June 29, 1988 between Mr. Mercer and the Company, as amended
10.14* Form of Loan Agreement dated as of May , 1996 among the Company, the banks listed
therein and NBD Bank, as agent
11.1 Statement re: Computation of Pro Forma Per Common Share Earnings
23.1 Consent of Ernst & Young LLP
23.2+ Consent of Vorys, Sater, Seymour and Pease (included in Exhibit 5.1)
23.3 Consent of Tony C. Canonie, Jr., director nominee
23.4+ Consent of Russell M. Gertmenian, director nominee
23.5 Consent of J.F. Keeler, Jr., director nominee
24.1+ Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed
<PAGE>
AIRNET SYSTEMS, INC.
COMMON SHARES
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
May , 1996
1
<PAGE>
UNDERWRITING AGREEMENT
May , 1996
Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
as Managing Underwriters
Dear Sirs:
AirNet Systems, Inc., an Ohio corporation (the "Company"), proposes to
issue and sell to the underwriters named in Schedule A (the "Underwriters") an
aggregate of 5,600,000 (the "Firm Shares") common shares, par value $.01 per
share (the "Common Shares"), of the Company. In addition, solely for the
purpose of covering overallotments, the Company proposes to issue and sell, at
the Underwriters' option, up to 840,000 additional Common Shares (the
"Additional Shares"). The Additional Shares and the Firm Shares are
collectively referred to as the "Shares." The Shares are described in the
Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"), with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1, including a prospectus,
relating to the Shares. The Company has furnished to you, for use by the
Underwriters and by dealers, copies of one or more preliminary prospectuses
(collectively, the "Preliminary Prospectus") relating to the Shares. Except
where the context otherwise requires, the registration statement as in effect at
the time of execution of this Agreement or, if the registration statement is not
yet effective, as amended when it becomes effective, including all documents
filed as a part thereof, and including any registration statement filed pursuant
to Rule 462(b) under the Act increasing the size of the offering registered
under the Act and any information contained in a prospectus subsequently filed
with the Commission pursuant
1
<PAGE>
to Rule 424(b) under the Act and deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Act, is herein
called the "Registration Statement," and the prospectus in the form filed by the
Company with the Commission pursuant to Rule 424(b) under the Act or, if no such
filing is required, in the form of final prospectus included in the Registration
Statement at the time it became effective, is herein called the "Prospectus."
The Company and the Underwriters agree as follows:
1. SALE AND PURCHASE. On the basis of the representations and
warranties and the other terms and conditions herein set forth, the Company
agrees to sell to the respective Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company the respective
number of Firm Shares (subject to such adjustment as you may determine to avoid
fractional shares) which bears the same proportion to the number of Firm Shares
to be sold by the Company as the number of Firm Shares set forth opposite the
name of such Underwriter on Schedule A bears to the total number of Firm Shares
to be sold by the Company, in each case at a purchase price of $____ per Share.
You may release the Firm Shares for public sale promptly after this Agreement
becomes effective. You may from time to time increase or decrease the public
offering price after the initial public offering to such extent as you may
determine.
In addition, on the basis of the representations and warranties and
the other terms and conditions herein set forth, the Company hereby grants to
the several Underwriters an option to purchase, and the Underwriters shall have
the right to purchase, severally and not jointly, from the Company all or a
portion of the Additional Shares as may be necessary to cover overallotments
made in connection with the offering of the Firm Shares, at the same purchase
price per share to be paid by the several Underwriters to the Company for the
Firm Shares. This option may be exercised in whole or in part from time to time
on or before the thirtieth day following the date hereof, by written notice to
the Company. Any such notice shall set forth the aggregate number of Additional
Shares as to which the option is being exercised, and the date and time when the
Additional Shares are to be delivered (any such date and time being herein
referred to as an "additional time of
2
<PAGE>
purchase"); PROVIDED, HOWEVER, that no additional time of purchase shall occur
earlier than the time of purchase (as defined below) nor earlier than the second
business day after the date on which the option shall have been exercised nor
later than the eighth business day after the date on which the option shall have
been exercised. The number of Additional Shares to be sold to each Underwriter
at an additional time of purchase shall be the number which bears the same
proportion to the aggregate number of Additional Shares being purchased at such
additional time of purchase as the number of Firm Shares set forth opposite the
name of such Underwriter on Schedule A bears to the total number of Firm Shares
(subject, in each case, to such adjustment as you may determine to eliminate
fractional shares).
2. PAYMENT AND DELIVERY. Payment of the purchase price for the Firm
Shares shall be made to the Company by certified or official bank check, in New
York Clearing House funds, at the office of Dillon, Read & Co. Inc. in New York
City, against delivery of the certificates for the Firm Shares to you for the
respective accounts of the Underwriters. Such payment and delivery shall be
made at 9:30 A.M., New York City time, on ____________, 1996 (unless another
time shall be agreed to by you and the Company or unless postponed in accordance
with the provisions of Section 8). The time at which such payment and delivery
are actually made is called the "time of purchase." Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify on the second business day preceding the time
of purchase. For the purpose of expediting the checking of the certificates for
the Firm Shares by you, the Company agrees to make such certificates available
to you
- --------------------------
* As used herein, "Business day" shall mean a day on which the New York Stock
Exchange is open for trading
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for such purpose at least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall
be delivered to you in definitive form in such names and in such denominations
as you shall specify on the second business day preceding the additional time of
purchase. For the purpose of expediting the checking of the certificates for
the Additional Shares by you, the Company agrees to make such certificates
available to you for such purpose at least one full business day preceding the
additional time of purchase.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Underwriters that:
(a) Each Preliminary Prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; when the Registration Statement becomes or became
effective and at all times subsequent thereto up to the time of purchase
and the additional time of purchase, the Registration Statement and the
Prospectus, and any supplements or amendments thereto, complied and will
comply in all material respects with the provisions of the Act; and the
Registration Statement at all such times did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus at all such times did not and will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the Company makes no representation or
warranty with respect to any statement contained in the Registration
Statement or the Prospectus in reliance upon and in conformity with
information concerning the Underwriters and furnished in writing by or on
behalf of any Underwriter through you to the Company expressly for use in
the Registration Statement or the Prospectus and set forth in the last
paragraph of the cover page of the Prospectus,
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in the last paragraph of page 2 of the Prospectus (the stabilization
paragraph) and in the section of the Registration Statement and the
Prospectus entitled "Underwriting."
(b) As of the date of this Agreement, the Company has an authorized
capitalization as set forth under the column entitled "March 31, 1996
Actual" in the section of the Registration Statement and the Prospectus
entitled "Capitalization" and, as of the time of purchase, the
capitalization of the Company will be in all material respects as set forth
under the column entitled "March 31, 1996 Pro Forma As Adjusted" in the
section of the Registration Statement and the Prospectus entitled
"Capitalization"; all of the issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully
paid and nonassessable and are free of statutory and contractual preemptive
rights.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Ohio with
full corporate power and authority to (i) own its properties and conduct
its business as described in the Registration Statement and the Prospectus
and (ii) execute and deliver this Agreement and to issue, sell and deliver
the Shares as herein contemplated.
(d) The Company has no subsidiaries.
(e) The Company is duly qualified or licensed by and is in good
standing in each jurisdiction in which it owns or leases property or
conducts its business and in each other jurisdiction in which the failure,
individually or in the aggregate, to be so qualified or licensed could
have, or could reasonably be expected to have, a material adverse effect on
the properties, assets, operations, business or condition (financial or
other) of the Company; the Company is in compliance in all material
respects with the laws, orders, rules, regulations and directives issued or
administered by each such jurisdiction.
(f) The Company is not in breach of, or in default under (nor has any
event occurred which with notice, lapse of time or both would constitute a
breach of, or default under), its Articles of Incorporation or Code of
Regulations, or in the performance or observance of any obligation,
agreement, covenant or condition contained in any agreement for borrowed
money or any material license, indenture, lease, mortgage, deed of trust,
supply agreement or other material agreement or instrument to which the
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Company is a party or by which it may be bound or affected, except as
described in the Registration Statement or the Prospectus or except as,
singly or in the aggregate, would not have, and would not reasonably be
expected to have, a material adverse effect on the properties, assets,
operations, business or condition (financial or other) of the Company. The
execution, delivery and performance of this Agreement, the issuance of the
Shares and the consummation of the transactions contemplated hereby will
not conflict with, or result in any breach of or constitute a default under
(nor constitute any event which with notice, lapse of time or both would
constitute a breach of, or default under), the Articles of Incorporation or
Code of Regulations of the Company or under any provision of any license,
indenture, lease, mortgage, deed of trust, bank loan or credit agreement,
material supply agreement or other agreement or instrument to which the
Company is a party or by which it or its properties may be bound or
affected, or under any federal, state, local or foreign law, regulation or
rule or any decree, judgment or order applicable to the Company, except as
described in the Registration Statement or the Prospectus.
(g) The Shares, when issued and delivered to and paid for by the
Underwriters as contemplated hereby, will be duly authorized and validly
issued and fully paid and nonassessable, free and clear of any pledge,
lien, encumbrance, security interest, preemptive right or other similar
claim.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) The capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the certificates for the
Shares are in due and proper form and the holders of the Shares after
making payment therefor will not be subject to personal liability by reason
of being such holders.
(j) No approval, authorization, consent or order of or filing with
any federal, state, local or foreign governmental or regulatory commission,
board, body, authority or agency is required in connection with the
issuance and sale of the Shares as contemplated hereby, other than
registration of the Shares under the Act, clearance of the offering of the
Shares with the National Association of Securities Dealers, Inc. (the
"NASD") and any necessary qualification under the securities or blue sky
laws of the various jurisdictions in which the Shares are being offered by
the Underwriters.
(k) Each person who has the right, contractual or otherwise, to cause
the Company to register pursuant to the Act any securities of the Company
in consequence of the issue and sale of the Shares to the Underwriters
hereunder duly waived such right and each person who has the right,
contractual or otherwise, to cause the Company to issue to it any
securities of the Company in consequence of the issue and sale of the
Shares to the Underwriters hereunder has duly waived such right.
(l) To the Company's knowledge, Ernst & Young LLP, whose reports on
the financial statements of the Company are included in the Registration
Statement and the Prospectus, are independent public accountants with
respect to the Company as required by the Act and the applicable published
rules and regulations thereunder.
(m) All legal or governmental proceedings, contracts or documents of
a character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement have
been so described or filed as required.
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<PAGE>
(n) Except as described in the Registration Statement or the
Prospectus, there is no action, suit or proceeding pending or, to the
Company's knowledge, threatened against the Company or any of its
properties, at law or in equity, or before or by any federal, state, local
or foreign governmental or regulatory commission, board, body, authority or
agency that could result, or could reasonably be expected to result, in a
judgment, decree or order having a material adverse effect on the
properties, assets, operations, business or condition (financial or other)
of the Company.
(o) The audited and unaudited financial statements included in the
Registration Statement and the Prospectus present fairly, in all material
respects, the financial condition of the Company as of the dates indicated
and the results of operations and cash flows of the Company for the periods
specified (subject, in the case of such unaudited financial statements,
including any pro forma financial statements, to the qualifications and
assumptions set forth therein or in the notes thereto); such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as disclosed therein.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as may
be otherwise stated in the Registration Statement or the Prospectus, there
has not been: (i) any material adverse change in the properties, assets,
operations, business, business prospects or condition (financial or other),
present or prospective, of the Company; (ii) any transaction, that is
material to the Company, contemplated or entered into by the Company; or
(iii) any obligation, contingent or otherwise, directly or indirectly
incurred by the Company that is material to the Company.
(q) The Company has obtained the agreement of the shareholders listed
on Schedule B not to sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any Common
Shares, or securities convertible into or exchangeable for Common Shares or
warrants or other rights to purchase Common Shares for a period of 180 days
from the date of the Prospectus without the prior written consent of
Dillon, Read & Co. Inc.
(r) The Company has not violated any foreign, federal, state or local
law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), nor any federal or state law relating
to discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act or the rules and regulations
promulgated thereunder, which in each case might, or might reasonably be
expected to, result in any material adverse effect on the properties,
assets, operations, business or condition (financial or other) of the
Company.
(s) The Company has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits"),
including without limitation under any applicable Environmental Laws, as
7
<PAGE>
are necessary to own, lease and operate its respective properties and to
conduct its business in the manner described in the Registration Statement
and the Prospectus, with such qualifications as may be set forth in the
Registration Statement and the Prospectus, and except to the extent that
the failure to have such permits, singly or in the aggregate, would not,
and would not reasonably be expected to, have a material adverse effect on
the properties, assets, operations, business or condition (financial or
other) of the Company; the Company has fulfilled and performed all of its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such permit, and except to the extent that the
failure to fulfill or perform such obligations, singly or in the aggregate,
would not, and would not reasonably be expected to, have a material adverse
effect on the properties, assets, operations, business or condition
(financial or other) of the Company; and, except as described in the
Prospectus, none of such permits contains any restriction that is
materially burdensome to the Company.
(t) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company, in the course of which it
identifies and evaluates associated costs and liabilities (including
without limitation any capital or operating expenditure required for
clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis
of such review, the Company has made all disclosures required to be made by
any applicable Environmental Laws. Also on the basis of such review, the
Company reasonably has concluded that, except as described in the
Registration Statement and the Prospectus, such associated costs and
liabilities, singly or in the aggregate, would not have, and would not
reasonably be expected to have, a material adverse effect on the
properties, assets, operations, business or condition (financial or other)
of the Company.
(u) Neither the Company nor, to the Company's knowledge, any employee
of the Company has made any payment of funds of the Company prohibited by
law, and no funds of the Company have been set aside to be used for any
payment prohibited by law.
(v) The Company has filed all federal or state income or franchise
tax returns required to be filed and has paid all taxes shown thereon as
due, and there is no material tax deficiency which has been or to the
Company's knowledge might be asserted against the Company; all material tax
liabilities are adequately provided for on the books of the Company.
(w) The Company has not incurred any liability for any finder's fees
or similar payments in connection with the transactions herein
contemplated.
(x) The Company has good title to all properties and assets owned or
leased by it, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects (except such as are
described or referred to in the Prospectus and the financial statements and
the notes thereto contained therein or such as do not interfere with the
use made and proposed to be made of such property by the Company).
(y) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, or subject to regulation
under such Act.
(z) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the business in which it is
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<PAGE>
engaged; the Company is in compliance in all material respects with the
requirements of all such insurance policies; the Company has not been
refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have, and would not reasonably be expected to
have, a material adverse effect on the properties, assets, operations,
business or condition (financial or other) of the Company.
4. CERTAIN COVENANTS OF THE COMPANY. The Company hereby agrees:
(a) to furnish such information as reasonably may be required and
otherwise to cooperate in qualifying the Shares for offering and sale under
the securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect as long as required for the
distribution of the Shares, provided that the Company in no event shall be
required to qualify as a foreign corporation or to consent to the service
of process under the laws of any such state (except service of process with
respect to the offering and sale of the Shares); promptly to advise you of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; and to
use its best efforts to obtain the withdrawal of any order of suspension at
the earliest practicable moment;
(b) to make available to you in New York City, as soon as practicable
after the Registration Statement becomes effective, and thereafter from
time to time to furnish to the Underwriters, as many copies of the
Prospectus (or of the Prospectus as amended or supplemented if the Company
shall have made any amendment or supplement thereto after the effective
date of the Registration Statement) as the Underwriters reasonably may
request for the purposes contemplated by the Act;
(c) to advise you promptly and if requested by you to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment thereto becomes effective and
(ii) when the Prospectus is filed with the Commission pursuant to
Rule 424(b) under the Act, if required under the Act (which the Company
agrees to file in a timely manner under such Rule);
(d) to advise you promptly, confirming such advice in writing, of any
request by the Commission for amendments or supplements to the Registration
Statement or the Prospectus or for
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<PAGE>
additional information with respect thereto, or of notice of institution of
proceedings for or the entry of a stop order suspending the effectiveness
of the Registration Statement and, if the Commission should enter a stop
order suspending the effectiveness of the Registration Statement, to use
its best efforts to obtain the lifting or removal of such order as soon as
possible; to advise you promptly of any proposal to amend or supplement the
Registration Statement or the Prospectus and to file no such amendment or
supplement to which you shall object in writing;
(e) to furnish to you and, upon request to each of the other
Underwriters, for a period of three years from the date of this Agreement
(i) copies of all reports or other communications that the Company shall
send to its shareholders or from time to time shall publish or publicly
disseminate and (ii) copies of all annual, quarterly and current reports
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other
similar form as may be designated by the Commission, and any other document
filed by the Company pursuant to Section 12, 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
(f) to advise the Underwriters promptly of the happening of any event
known to the Company within the time during which a prospectus relating to
the Shares is required to be delivered under the Act that, in the
reasonable judgment of the Company, would require the making of any change
in the Prospectus then being used, so that the Prospectus, as then
supplemented, would not include an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they are made, not misleading
and, during such time, promptly to prepare and furnish, at the Company's
expense, to the Underwriters such amendments or supplements to such
Prospectus as may be necessary to reflect any such change in such
quantities as reasonably requested by the Underwriters, and to furnish to
you a copy of such proposed amendment or supplement before filing any such
amendment or supplement with the Commission;
(g) to make generally available to its security holders, and to
deliver to you, an earnings statement of the Company (which need not be
audited and which will satisfy the provisions of Section 11(a) of the Act
including, at the option of the Company, Rule 158) covering a period of 12
months beginning after the effective date of the Registration Statement but
ending not later than 15 months after the date of the Registration
Statement, as soon as is reasonably practicable after the termination of
such 12-month period;
(h) to furnish to you two signed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto (including all exhibits thereto) and sufficient conformed copies of
the foregoing (other than exhibits) for distribution of a copy to each of
the other Underwriters;
(i) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not
later than two business days prior thereto, a copy of the latest available
unaudited interim financial statements, if any, of the Company that have
been read by the Company's independent auditors as stated in their letter
to be furnished pursuant to Section 6(b);
(j) to apply the net proceeds from the sale of the Shares sold by the
Company in the manner set forth under the caption "Use of Proceeds" in the
Registration Statement and the Prospectus;
(k) to use its best efforts to cause the Shares to be included in The
Nasdaq National Market;
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<PAGE>
(l) whether or not the transactions contemplated in this Agreement
are consummated or this Agreement otherwise becomes effective or is
terminated, to pay all expenses, fees and taxes (other than (x) any
transfer taxes and (y) fees and disbursements of your counsel except as set
forth under Section 5 and clauses (iii) and (iv) below) in connection with
(i) the preparation and filing of the Registration Statement, each
Preliminary Prospectus, the Prospectus and any amendment or supplement
thereto, and the printing and furnishing of copies of each thereof to you
and to dealers (including costs of mailing and shipment), (ii) the
issuance, sale and delivery of the Shares, (iii) the word processing or
printing of this Agreement and any dealer agreements, and the reproduction
or printing and furnishing of copies of each thereof to you and to dealers
(including costs of mailing and shipment), (iv) the qualification of the
Shares for offering and sale under state laws as aforesaid (including legal
fees and filing fees and other disbursements of your counsel) and the
printing and furnishing of copies of any blue sky surveys to you and to
dealers, (v) any listing of the Shares on any securities exchange or
qualification of the Shares for inclusion in The Nasdaq National Market and
any registration thereof under the Exchange Act, (vi) any filing for review
of the public offering of the Shares by the NASD and (viii) the performance
of the Company's other obligations hereunder;
(m) not to sell, contract to sell, grant any option to sell, transfer
or otherwise dispose of, directly or indirectly, any Common Shares or
securities convertible into or exchangeable for Common Shares or warrants
or other rights to purchase Common Shares (other than pursuant to employee
stock option plans existing on, or upon conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, and other than Common Shares registered on Form S-4 issued in
connection with an acquisition) or permit the registration under the Act of
any Common Shares, except for the registration of the Shares and the sales
to you pursuant to this Agreement for a period commencing on the date
hereof and continuing for 180 days after the date of the Prospectus,
without the prior written consent of Dillon, Read & Co. Inc.; and
(n) to refrain from investing the proceeds from the sale of the
Shares in a manner that would cause the Company to become an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
5. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Firm Shares or
the Additional Shares are not delivered for any reason, other than the failure
of the Underwriters to purchase the Firm Shares or the Additional Shares as
provided herein (unless such failure is permitted under the provisions of
Section 6), the Company will reimburse the Underwriters for all of their out-of-
pocket expenses, including the fees and disbursements of their counsel.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters hereunder are
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subject to the accuracy of the representations and warranties on the part of the
Company on the date hereof and at the time of purchase (and the several
obligations of the Underwriters at any additional time of purchase are subject
to the accuracy of the representations and warranties on the part of the Company
on the date hereof and at the time of purchase and at such additional time of
purchase, as the case may be), the performance by the Company of its obligations
hereunder and to the following conditions:
(a) The Company shall furnish to you at the time of purchase and at
such additional time of purchase, as the case may be, an opinion of Vorys,
Sater, Seymour and Pease, counsel for the Company, addressed to you as
Representatives of the Underwriters and dated the time of purchase or such
additional time of purchase, as the case may be, with reproduced copies for
each of the other Underwriters and in form reasonably satisfactory to
Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, stating that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Ohio, with full corporate power and authority (A) to own its properties and
conduct its business as described in the Registration Statement and the
Prospectus and (B) to execute and deliver this Agreement and to issue, sell
and deliver the Shares as herein contemplated;
(ii) to such counsel's knowledge, the Company does not own any
interest in any corporation, joint venture or partnership;
(iii) the Company is duly qualified or licensed to do business
by, and is in good standing as a foreign corporation in, each of the
jurisdictions listed on Schedule C;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) (a) the Shares, when delivered to and paid for by the
Underwriters in accordance with the terms hereof, will be duly authorized,
validly issued, fully paid and nonassessable, and will be free of any
pledge, lien, encumbrance, preemptive right or similar claim; and (b) the
certificates for the Shares are in due and proper form and the holders of
the Shares will not be subject to personal liability by reason of being
such holders;
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<PAGE>
(vi) (a) the Company has authorized capital stock as set forth
under the heading "Capitalization" in the Registration Statement and the
Prospectus, and (b) the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid,
nonassessable and free of statutory preemptive rights;
(vii) the capital stock of the Company, including the Shares,
conforms in all material respects as to legal matters to the description
thereof contained in the Registration Statement and the Prospectus under
the caption "Description of Capital Stock";
(viii) the Registration Statement and the Prospectus (except as
to the financial statements and schedules contained therein as to which
such counsel need express no opinion) comply as to form in all material
respects with the requirements of the Act;
(ix) the Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order proceedings with
respect thereto are pending or threatened under the Act;
(x) no approval, authorization, consent or order of or filing
with any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency is required in connection with
the issuance or sale of the Shares as contemplated hereby other than
registration of the Shares under the Act and the Exchange Act (except such
counsel need express no opinion as to any necessary qualification under the
state securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters);
(xi) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not conflict with, or
result in any breach of, or constitute a default under (nor constitute any
event which with notice, lapse of time or both would constitute a breach of
or
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<PAGE>
default under), the Articles of Incorporation or Code of Regulations of the
Company, or any provision of any license, indenture, lease, mortgage, deed
of trust, bank loan or credit agreement or other agreement or instrument to
which the Company is a party or by which the Company or its properties are
bound or affected that is an exhibit to the Registration Statement or is
otherwise known to such counsel, or under any federal, state, local or
foreign law, regulation or rule or any decree, judgment or order known to
such counsel to be applicable to the Company;
(xii) to such counsel's knowledge, the Company is not in
breach of or in default under (nor has any event occurred which with
notice, lapse of time or both would constitute a breach of or default
under) any license, indenture, lease, mortgage, deed of trust, bank loan or
credit agreement or any other agreement or instrument to which the Company
is a party or by which the Company or its properties are bound or affected
that is an exhibit to the Registration Statement or is otherwise known to
such counsel or under any law, regulation or rule or any decree, judgment
or order known to such counsel to be applicable to the Company, except as
described in the Registration Statement and the Prospectus and except for
such matters, individually or in the aggregate, as would not reasonably be
expected to have a material adverse effect on the properties, assets,
operations, business or condition (financial or other) of the Company;
(xiii) to such counsel's knowledge, the Company has such
permits, licenses, franchises and authorizations of governmental or
regulatory authorities as are necessary to own, lease and operate its air
transportation network in the manner described in the Prospectus; and,
except as described in the Prospectus, to such counsel's knowledge such
permits contain no restrictions that are materially burdensome to the
Company;
(xiv) to such counsel's knowledge, all contracts or documents
of a character required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
have been so described or filed;
(xv) except as described in the Registration Statement and
the Prospectus, there are no actions, suits or proceedings of which such
counsel has knowledge pending or threatened against the Company or
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<PAGE>
any of its properties, at law or in equity, or before or by any federal,
state, local or foreign governmental or regulatory commission, board, body,
authority or agency that individually or in the aggregate are reasonably
likely to result in a judgment, decree or order having a material adverse
effect on the properties, assets, operations, business, business prospects
or condition (financial or other) of the Company;
(xvi) to such counsel's knowledge, each person who has the
contractual right to cause the Company to register pursuant to the Act any
securities of the Company in consequence of the issue and sale of the
Shares to the Underwriters hereunder duly has waived such right;
(xvii) the statements in the Registration Statement and the
Prospectus under the captions "Business - Regulation," "Description of
Capital Stock" and "Shares Eligible For Future Sale," insofar as they are
descriptions of laws, regulations and rules, of legal and governmental
proceedings or of contracts, agreements, leases and other legal documents,
or refer to statements of law or legal conclusions, have been reviewed by
such counsel and are accurate in all material respects;
(xviii) the Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended; and
(xix) the sales of securities by the Company described in
Item 15 of the Registration Statement were exempt from the registration
requirements of the Act.
In addition, such counsel shall state that, although such counsel has
not undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for, the
accuracy or completeness of the statements in the Registration Statement,
such counsel has participated in the preparation of the Registration
Statement and the Prospectus, including review and discussion of the
contents thereof, and on the basis of the foregoing nothing has come to the
attention of
15
<PAGE>
such counsel that causes them to believe that the Registration Statement or
any amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus or
any supplement thereto at the date of such Prospectus or such supplement,
and at all times up to and including the time of purchase contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no opinion with respect
to the financial statements and schedules and other financial data included
in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, such counsel may rely upon
(A) an opinion or opinions, each dated the time of purchase or the
additional time of purchase, as the case may be, of other counsel of good
standing, whom they believe to be reliable, retained by them or the
Company, as to laws of any jurisdiction other than the United States or the
State of Ohio, provided that (1) each such local counsel is reasonably
acceptable to you and (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is delivered to you
and is, in form and substance, reasonably satisfactory to you and your
counsel, and (B) as to matters of fact, to the extent such counsel deems
proper, certificates of responsible officers of the Company and public
officials.
(b) You shall have received from Ernst & Young LLP letters dated,
respectively, the date of this Agreement and the time of purchase and
additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in form
and substance satisfactory to you.
(c) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, opinions from Gibson, Dunn
& Crutcher LLP in form and substance satisfactory to you.
(d) No amendment or supplement to the Registration Statement or the
Prospectus shall be filed prior to the time
16
<PAGE>
the Registration Statement becomes effective to which you shall have
objected in writing.
(e) The Registration Statement shall become effective at or before
5:00 P.M., New York City time, on the date of this Agreement and, if
Rule 430A under the Act is used, the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b) under the Act at or before 5:00
P.M., New York City time, on the second full business day after the date of
this Agreement; PROVIDED, HOWEVER, that the Company and you and any group
of Underwriters, including you, who have agreed hereunder to purchase in
the aggregate at least 50% of the Firm Shares from time to time may agree
in writing or by telephone, confirmed in writing, on a later date.
(f) Prior to the time of purchase or the additional time of purchase,
as the case may be: (i) no stop order with respect to the effectiveness of
the Registration Statement shall have been issued under the Act or
proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications
thereof, if any, shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and (iii) the Prospectus and
all amendments or supplements thereto, or modifications thereof, if any,
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, there has
not been: (i) any material and adverse change, or any event involving a
prospective material and adverse change, in the properties, assets,
operations, business, business prospects or condition (financial or other)
of the Company other than as described
17
<PAGE>
in the Registration Statement and the Prospectus; (ii) any transaction that
is material to the Company contemplated or entered into by the Company,
other than as described in the Registration Statement and the Prospectus;
or (iii) any obligation, contingent or otherwise, directly or indirectly,
incurred by the Company that is material to the Company, other than as
described in the Registration Statement and the Prospectus.
(h) The Company, at the time of purchase or additional time of
purchase, as the case may be, will deliver to you a certificate of two of
its executive officers to the effect that the representations and
warranties of the Company as set forth in this Agreement are true and
correct as of each such date and the conditions set forth in Section 6(f)
and Section 6(g) have been met.
(i) You shall have received a signed letter, dated the date of this
Agreement, from each of the shareholders listed in Schedule B to the effect
that such persons shall not sell, contract to sell, grant any option to
sell, transfer or otherwise dispose of, directly or indirectly, any Common
Shares or securities convertible into or exchangeable for Common Shares or
warrants or other rights to purchase Common Shares for a period of 180 days
from the date of the Prospectus without the prior written consent of
Dillon, Read & Co. Inc.; provided that no such consent shall be necessary
in the event that such person transfers such Common Shares or warrants or
other rights to purchase Common Shares by gift, bequest or similar transfer
to a donee or transferee which agrees in writing to be bound by the terms
of this Agreement.
(j) The Company shall have furnished to you such other documents and
certificates as to the accuracy and completeness of any statement in the
Registration Statement or the Prospectus as of the time of purchase and the
additional time of purchase, as the case may be, as you reasonably may
request.
(k) The Company shall have performed such of its obligations under
this Agreement as are to be performed by the terms hereof at or before the
time of purchase and at or before the additional time of purchase, as the
case may be.
(l) The Shares shall have been approved for quotation through The
Nasdaq National Market.
18
<PAGE>
(m) The Company shall have entered into the New Credit Agreement (as
defined in the Prospectus).
7. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective (i) if Rule 430A under the
Act is not used, when you shall have received notification of the effectiveness
of the Registration Statement, or (ii) if Rule 430A under the Act is used, when
the parties hereto have executed and delivered this Agreement.
(b) The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange shall have been suspended or minimum prices shall have
been established on the New York Stock Exchange or if a general banking
moratorium shall have been declared either by the United States or New York
State authorities, or if the United States shall have declared war in accordance
with its constitutional processes or there shall have occurred any material
outbreak or escalation of hostilities or other national or international
calamity or crisis of such magnitude in its effect on, or any material adverse
change in, any financial market which, in each case, in your judgment or in the
judgment of such group of Underwriters, makes it impracticable to market the
Shares. If you or any group of Underwriters elect to terminate this Agreement
as provided in this Section 7(b), the Company and each other Underwriter shall
be notified promptly by letter or telegram.
(c) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares
19
<PAGE>
which all Underwriters so defaulting shall have agreed but failed to take up and
pay for does not exceed 10% of the total number of Firm Shares, the non-
defaulting Underwriters shall take up and pay for (in addition to the aggregate
principal amount of Firm Shares they are obligated to purchase pursuant to
Section 1) the number of Firm Shares agreed to be purchased by all such
defaulting Underwriters as hereinafter provided. Such Shares shall be taken up
and paid for by such non-defaulting Underwriter or Underwriters in such amount
or amounts as you may designate with the consent of each Underwriter so
designated or, in the event no such designation is made, such Shares shall be
taken up and paid for by all non-defaulting Underwriters pro rata in proportion
to the aggregate number of Firm Shares set opposite the names of such non-
defaulting Underwriters in Schedule A.
(d) If any Underwriter shall default in its obligation to take up and
pay for the Firm Shares to be purchased by it hereunder and if the number of
Firm Shares which all Underwriters so defaulting shall have agreed but failed to
take up and pay for exceeds 10% of the total number of Firm Shares, and
arrangements satisfactory to you and the Company are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company.
(e) Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted underwriters selected by you with the
approval of the Company or selected by the Company with your approval pursuant
to Section 7(d)). If a new Underwriter or Underwriters are substituted for a
defaulting Underwriter or Underwriters in accordance with Section 7(d), the
Company or you shall have the right to postpone the time of purchase for a
period not exceeding five business days in order that any necessary change in
the Registration Statement and the Prospectus and other documents may be
effected. The term Underwriter as used in this Agreement shall refer to and
include any Underwriter substituted under this Section 7 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
20
<PAGE>
(f) If the purchase of the Shares by the Underwriters, as
contemplated by this Agreement, is not consummated for any reason permitted
under this Agreement or if such purchase is not consummated because the Company
shall be unable to comply with any of the terms of this Agreement, the Company
shall not be under any obligation or liability under this Agreement (except to
the extent provided in Sections 4(l), 5 and 9), and the Underwriters shall be
under no obligation or liability to the Company under this Agreement (except to
the extent provided in Section 8).
8. INDEMNITY BY THE COMPANY AND THE UNDERWRITERS.
(a) The Company agrees to indemnify, defend and hold harmless each
Underwriter, each person that controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and each Underwriter's
agents, employees, officers and directors and the agents, employees, officers
and directors of any such controlling person (collectively, the "Underwriter
indemnified parties") from and against any and all losses, claims, damages,
judgments, liabilities and expenses (including the normal and customary fees and
expenses of counsel and other reasonable expenses in connection with
investigating, defending or settling any such action or claim) which, jointly or
severally, any Underwriter indemnified party actually may incur as they are
incurred (and regardless of whether such Underwriter indemnified party is a
party to the litigation, if any) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement relating to the Shares or the Prospectus or any
Preliminary Prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, judgments, liabilities or expenses arise out of, or are
based upon, any such untrue statement or omission or alleged untrue statement or
omission based upon and in
21
<PAGE>
conformity with information with respect to any Underwriter furnished in writing
by any Underwriter through you to the Company expressly for use therein with
reference to such Underwriter. This indemnity agreement will be in addition to
any liability the Company otherwise may have.
(b) If any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
Underwriter indemnified party, with respect to which indemnity may be sought
against the Company pursuant to this Section 8, such Underwriter indemnified
party shall promptly notify the Company in writing, and the Company shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the Underwriter indemnified party and payment of all fees and expenses;
PROVIDED that the omission so to notify the Company shall not relieve it from
any liability that it may have to any Underwriter indemnified party. An
Underwriter indemnified party shall have the right to employ separate counsel,
which in the case of clause (iii) of this sentence shall be reasonably
satisfactory to the Company, in any such action or proceeding and to assume the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter indemnified party unless (i) the employment of such
counsel has been authorized in writing by the Company, (ii) the Company has
failed promptly to assume the defense and employ counsel reasonably satisfactory
to the Underwriter indemnified party or (iii) the named parties to any such
action or proceeding (including any impleaded parties) include both the
Underwriter indemnified party and the Company and such Underwriter indemnified
party shall have reasonably concluded that there may be one or more legal
defenses available to it that are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of such Underwriter indemnified
party), in any of which events such normal and customary fees and expenses shall
be borne by the Company and reimbursed as they are incurred. It is understood,
however, that the Company shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel that may be required in the reasonable opinion of such counsel
to the Underwriter
22
<PAGE>
indemnified party) at any time for all such Underwriter indemnified parties,
which firm shall be designated in writing by Dillon, Read & Co. Inc., and that
all such fees and expenses shall be reimbursed as they are incurred. The
Company shall not be liable for any settlement of any such action effected
without the written consent of the Company (which consent shall not be
unreasonably withheld or delayed), but if settled with the written consent of
the Company, or if there is a final judgment with respect thereto, the Company
agrees to indemnify and hold harmless each Underwriter indemnified party from
and against any loss or liability by reason of such settlement or judgment.
(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, its officers who sign the Registration Statement,
and any person that controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act (collectively, the "Company indemnified
parties") to the same extent as the foregoing indemnity from the Company to the
Underwriter indemnified parties, but only with respect to information concerning
such Underwriter furnished in writing by or on behalf of such Underwriter
through you to the Company expressly for use with respect to such Underwriter in
the Registration Statement, any Preliminary Prospectus or the Prospectus. In
case any action shall be brought against any Company indemnified party based on
the Registration Statement, any Preliminary Prospectus or the Prospectus and in
respect of which indemnity may be sought against any Underwriter pursuant to
this Section 8(c), such Underwriter shall have the rights and duties given to
the Company by Section 8(b) (except that if the Company shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, PROVIDED that
the fees and expenses of such separate counsel shall be at the expense of such
Underwriter), and the Company indemnified parties shall have the rights and
duties given to the Underwriter indemnified parties by Section 8(b).
23
<PAGE>
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless any Underwriter indemnified
party or any Company indemnified party, then the party required to indemnify
such indemnified party under this Section 8, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, judgments,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the Underwriters on the other hand in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, judgments, liabilities and expenses referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any claim or action.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation (even if the Underwriters
were treated as one entity for such purpose) that does not
24
<PAGE>
take account of the equitable considerations referred to in this Section 8(d).
Notwithstanding the provisions of this Section 8(d), no Underwriter indemnified
party shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by such Underwriter
indemnified party and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter indemnified party
otherwise has been required to pay by reason of such untrue statement or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and are not joint.
The statements in the last paragraph of the cover page of the
Prospectus, in the last paragraph of page 2 of the Prospectus (the stabilization
paragraph) and in the section of the Registration Statement and the Prospectus
entitled "Underwriting" in the Prospectus (to the extent such statements relate
to an Underwriter) constitute the only information furnished to the Company in
writing by such Underwriter expressly for use in the Registration Statement, any
Preliminary Prospectus or the Prospectus.
(e) The indemnity and contribution agreements contained in this
Section 8 and the representations, warranties and covenants of the Company
contained in this Agreement shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter indemnified party or
by or on behalf of any Company indemnified party, and shall survive any
termination of this Agreement or the issuance and delivery of the Shares.
Subject to the provisions of Section 8(b) and Section 8(c), the Company and each
Underwriter agree promptly to notify the other of the commencement of any
litigation or proceeding against it in connection with the issuance and
25
<PAGE>
sale of the Shares or in connection with the Registration Statement or the
Prospectus.
11. NOTICES. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
Dillon, Read & Co. Inc., 535 Madison Avenue, New York, New York 10022,
Attention: Syndicate Department; and if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the Company
at 3939 International Gateway, Columbus, Ohio 43219, Attention: Eric P. Roy.
12. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. THE SECTION HEADINGS IN THIS AGREEMENT HAVE
BEEN INSERTED AS A MATTER OF CONVENIENCE OF REFERENCE AND ARE NOT A PART OF THIS
AGREEMENT.
13. PARTIES AT INTEREST. The Agreement herein set forth has been and
is made solely for the benefit of the Underwriters, the Company, the Underwriter
indemnified parties and the Company indemnified parties, and their respective
successors, assigns, executors and administrators. No other person,
partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
14. COUNTERPARTS. This Agreement may be signed by the parties in
counterparts which together shall constitute one and the same agreement among
the parties.
26
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
such purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.
Very truly yours,
AIRNET SYSTEMS, INC.
By: __________________________
Name:
Title:
Accepted and agreed to as of
the date first above written,
on behalf of themselves,
The Robinson-Humphrey Company, Inc.
and the other several
Underwriters named in
Schedule A
DILLON, READ & CO. INC., as
Managing Underwriter
By: __________________________
Name:
Title:
27
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
Dillon, Read & Co. Inc. . . . . . . . . . . .
The Robinson-Humphrey Company, Inc.. . . . .
________
Total
28
<PAGE>
SCHEDULE B
SHAREHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
29
<PAGE>
SCHEDULE C
JURISDICTIONS IN WHICH THE COMPANY IS QUALIFIED
AS A FOREIGN CORPORATION
30
<PAGE>
EXHIBIT 4.15
AMENDMENT
TO
EMPLOYEE STOCK PURCHASE AGREEMENT
THIS AMENDMENT to Employee Stock Purchase Agreement is made and entered
into as of the 2nd day of May, 1996, by and among AIRNET SYSTEMS, INC., an Ohio
corporation (as successor by merger to NEW CREATIONS, INC., a Michigan
corporation ("New Creations") (the "Corporation")), and [EMPLOYEE] (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Corporation and the Employee are parties to an Employee Stock
Purchase Agreement dated as of April 1, 1994 (the "Original Agreement");
WHEREAS, pursuant to the Original Agreement, the Employee purchased [NUMBER
OF] shares of Common Stock of New Creations;
WHEREAS, pursuant to the merger between the Corporation and New Creations,
the Employee is the holder of [NUMBER OF] common shares, par value $.01 per
share (the "Common Shares") of the Corporation;
WHEREAS, it was the intention of the parties hereto that the initial public
offering of the Common Shares of the Corporation registered pursuant to the
Securities Act of 1933, as amended (an "IPO"), constitute a sale prior to a
Triggering Event pursuant to Article II, Section 5 of the Original Agreement and
that the redemption provisions in such Article II would cease upon an IPO; and
WHEREAS, the parties hereto desire to terminate the Original Agreement upon
the consummation of an IPO;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Article II, Section 5 of the Original Agreement shall be amended to
read in its entirety as follows:
<PAGE>
"5. SALE PRIOR TO A TRIGGERING EVENT
The Corporation agrees that in the event (i) all or substantially all
of its assets are sold, exchanged or otherwise disposed of; (ii) the
Company registers the initial public offering of any of its Common
Stock pursuant to the Securities Act of 1933, as amended; or (iii) a
majority of its voting stock is sold, exchanged or otherwise disposed
of by its stockholders, prior to a Triggering Event, then the
provisions of Article II, Section 3 will no longer be in effect.
Instead, the Employee shall, in the case of clauses (i) or (iii),
receive the fair market value of his shares as determined by such sale
or exchange or, in the case of clause (ii), be entitled to his shares,
free and clear of any restriction set forth in this Agreement."
2. In addition to, and not in limitation of, the foregoing, on the later
to occur of (a) the closing date of an IPO and (b) the repayment in full of the
Note, the Original Agreement shall be terminated in its entirety.
3. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Original Agreement.
IN WITNESS WHEREOF, the parties have executed or caused this Amendment to
be executed by their respective duly authorized officer or trustee in multiple
copies, each of which shall be considered an original, on the date first set
forth above.
CORPORATION: AIRNET SYSTEMS, INC., an Ohio corporation,
as successor by merger to NEW CREATIONS, INC., a
Michigan corporation
By:
------------------------------
Gerald G. Mercer
President
EMPLOYEE: [EMPLOYEE]
-------------------------
2
<PAGE>
EXHIBIT 10.9
AMENDMENT AND WAIVER
TO
DEFERRED COMPENSATION AGREEMENT
THIS AMENDMENT AND WAIVER to Deferred Compensation Agreement is made and
entered into as of the 2nd day of May, 1996, by and among AIRNET SYSTEMS, INC.,
an Ohio corporation (the "Corporation") (as successor by merger to NEW
CREATIONS, INC., a Michigan corporation), and [EMPLOYEE] (the "Employee").
W I T N E S S E T H :
WHEREAS, the Corporation and the Employee are parties to a Deferred
Compensation Agreement dated as of [DATE] (as amended prior to the date hereof,
the "Original Agreement");
WHEREAS, pursuant to the Original Agreement, the Employee received the
right to certain deferred compensation payments; and
WHEREAS, the parties hereto desire to terminate the Original Agreement upon
the consummation of an initial public offering of the Common Shares of the
Corporation registered pursuant to the Securities Act of 1933, as amended (an
"IPO"), so long as the closing date of such IPO occurs on or before December 31,
1996;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. On the closing date of an IPO, the Original Agreement shall be
terminated in its entirety, and the Employee agrees to waive any deferred
compensation or other payments that would be owing to the Employee pursuant to
the Original Agreement as of or after such date.
2. Notwithstanding anything to the contrary herein, if the closing date
of an IPO has not occurred prior to December 31, 1996, this Amendment and Waiver
shall be of no further force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Amendment and
Waiver to be executed by their respective duly authorized officer or trustee in
multiple copies, each of which shall be considered an original, on the date
first set forth above.
CORPORATION: AIRNET SYSTEMS, INC., an Ohio corporation,
as successor by merger to NEW CREATIONS, INC., a
Michigan corporation
By:
------------------------------
Gerald G. Mercer
President
EMPLOYEE: [EMPLOYEE]
-------------------------------
2
<PAGE>
EXHIBIT 10.10
AIRNET SYSTEMS, INC.
1996 INCENTIVE STOCK PLAN
SECTION 1. PURPOSES. The purposes of the AirNet Systems, Inc. 1996
Incentive Stock Plan are to promote the interests of AirNet Systems, Inc. and
its stockholders by (a) attracting and retaining exceptional executive personnel
and other key employees of, and advisors and consultants to, and directors of
the Company and its Subsidiaries; (b) motivating such employees, advisors and
consultants and Eligible Directors by means of performance-related incentives to
achieve longer-range performance goals; and (c) providing all long-term
employees of the Company and its Subsidiaries with the opportunity to
participate in the long-term growth and financial success of the Company.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
"Award" shall mean any Option, Restricted Stock Award or Performance Award
but shall not include any Director Option, any Right to Purchase or any Share
issued pursuant to Section 10 of this Plan.
"Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award which may, but need not, be executed
or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Cash Account" shall mean an account established for each Participant to
which amounts withheld through payroll deductions shall be credited to purchase
Shares under the provisions of Section 11.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan which shall satisfy the requirements contained in Section
1.162-27(c)(4) of the Final Regulations. The Committee shall be composed of not
less than the minimum number of persons from time to time required by Rule
16b-3, each of whom shall be (a) a person from time to time permitted by the
rules promulgated under Section 16 of the Act in order for grants of Awards to
be exempt transactions under said Section 16; and (b) receiving remuneration in
no other capacity
<PAGE>
than as a director, except as permitted under Section 1.162-27(e)(3) of the
Final Regulations.
"Company" shall mean AirNet Systems, Inc., together with any successor
thereto.
"Covered Employee" shall mean any individual who, on the last day of the
Company's taxable year, is
(a) the chief executive officer of the Company or is acting in such
capacity; or
(b) among the four highest compensated officers (other than the chief
executive officer).
For this purpose, whether an individual is the chief executive officer or one of
the four highest compensated officers of the Company shall be determined
pursuant to the executive compensation disclosure rules under the Exchange Act.
"Director Option" shall mean a Non-Qualified Stock Option granted to each
Eligible Director pursuant to Section 6(e) without any action by the Board or
the Committee.
"Eligible Director" shall mean, on any date, a person who is serving as a
member of the Board but shall not include a person who is an Employee of the
Company or a Subsidiary or a person who was a member of the Board on May 1,
1996.
"Employee" shall mean (a) an employee of the Company or of any Subsidiary;
and (b) except with respect to an Incentive Stock Option, a Right to Purchase
and the issuance of Shares under Section 10, an advisor or consultant to the
Company or to any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the fair market value of the property or
other item being valued, as determined by the Committee in its sole discretion,
provided that the fair market value of Shares of Common Stock shall be
determined by reference to the most recent closing price quotation or, if none,
the average of the bid and asked prices, as reported as of the most recent
available date with respect to the sale of Common Stock an any quotation system
approved by the National Association of Securities Dealers then reporting sales
of Common Stock or on any national securities exchange on which the Common Stock
is then listed.
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"Final Regulations" shall mean the final regulations promulgated by the
Internal Revenue Service under Section 162(m) of the Code.
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Offering" shall mean an opportunity provided by the Committee to purchase
Shares under the provisions of Section 11. Offerings may be consecutive or
concurrent, as determined by the Committee. The Committee shall designate the
maximum number of Shares that may be purchased under each offering. Shares not
sold under one Offering may be offered again in any subsequent Offering.
"Offering Effective Date" shall mean the first business day of the month
designated by the Committee as the start of the Offering Period applicable to an
Offering.
"Offering Period" shall mean the duration of an Offering, as designated by
the Committee. The Offering Period for any Offering shall not exceed 12 months.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option but shall not include a Director Option.
"Participant" shall mean any Employee selected by the Committee to receive
an Award under the Plan. In addition, for purposes of Sections 10 and 11, the
term "Participant" shall include any Employee who has satisfied the requirements
Of such sections to acquire Shares under the Plan.
"Performance Award" shall mean any right granted under Section 8 of the
Plan.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean the AirNet Systems, Inc. 1996 Incentive Stock Plan.
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"Restricted Stock" shall mean any Share granted under Section 7 of the
Plan.
"Right to Purchase" shall mean an option to purchase Shares granted to a
Participant who elects to participate in an Offering under the provisions of
Section 11. A Right to Purchase granted for an Offering shall terminate
following the close of business on the Right to Purchase Date for that Offering
to the extent that such Right to Purchase is not exercised on such Right to
Purchase Date.
"Right to Purchase Date" shall mean the last business day of an Offering
Period to purchase Shares under the provisions of Section 11.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean shares of Common Stock, without par value, of the
Company or such other securities of the Company as may be designated by the
Committee from time to time.
"Share Account" shall mean an account established for each Participant who
exercises a Right to Purchase under Section 11. A Participant's Share Account
will be credited with the number of Shares purchased on each Right to Purchase
Date and debited for the number of Shares withdrawn by the Participant after
such date.
"Subsidiary" shall mean any corporation which, on the date of
determination, qualified as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.
"Substitute Awards" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.
"Ten Percent Stockholder" shall mean any stockholder who, at the time an
Incentive Stock Option is granted to such stockholder, owns [within the meaning
of Section 425(d) of the Code] more than ten percent of the voting power of all
classes of stock of the Company or a subsidiary.
"Year of Service" shall mean each 12 consecutive month period, beginning on
an Employee's date of hire with the Company
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or a Subsidiary (and anniversaries of such date), during which an Employee is
employed by the Company or a Subsidiary. For this purpose, all service with the
Company or a Subsidiary prior to the effective date of this Plan (as provided in
Section 14) shall be included. Further, periods of service with the Company or
a Subsidiary which are interrupted by a termination of employment (not including
any authorized leave of absence) of more than two months shall not be
aggregated.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the
terms of the Plan and applicable law, and in addition to other express powers
and authorizations conferred on the Committee by the Plan, the Committee shall
have full power and authority to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to an eligible Employee; (iii) determine
the number of Shares to be covered by, or with respect to which payments, rights
or other matters are to be calculated in connection with Awards; (iv) determine
the terms and conditions of any Award; (v) determine whether, to what extent
and under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property or canceled, forfeited or
suspended; (vi) determine whether, to what extent and under what circumstances
cash, Shares, other securities, other Awards, other property and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Notwithstanding anything else contained in the Plan
to the contrary, neither the Committee nor the Board shall have any discretion
regarding whether an Eligible Director shall receive a Director Option pursuant
to Section 6(e) or regarding the terms of any Director Option, including,
without limitation, the number of Shares subject to such Director Option, the
timing of the grant or the exercisability of such Director Option or the
exercise price per Share of such Director Option.
(b) Unless otherwise expressly provided in the Plan, all designations
determinations, interpretation and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any subsidiary, any Participant, any
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holder or beneficiary of any Award, any stockholder and any Employee.
SECTION 4. SHARES AVAILABLE FOR THE PLAN.
(a) SHARES AVAILABLE. Subject to adjustment as provided in
Section 4(b), the number of Shares available for issuance under the Plan shall
be 1,150,000. If, after the effective date of the Plan, any Shares covered by
an Award or Director Option granted under the Plan, or to which such an Award or
Director Option relates, or any Shares issued under either Section 10 or 11, are
forfeited, or if an Award or Director Option otherwise terminates or is canceled
without the delivery of Shares, then the Shares which may be issued under this
Plan, to the extent of any such settlement, forfeiture, termination or
cancellation, shall again be, or shall become, Shares available for issuance, to
the extent permissible under Rule 16b-3. In the event that any Option, Director
Option or other Award granted hereunder is exercised through the delivery of
Shares, the number of Shares available under the Plan shall be increased by the
number of Shares surrendered, to the extent permissible under Rule 16b-3.
(b) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
necessary in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall proportionately adjust any or all (as necessary) of (i) the
number of Shares or other securities of the Company (or number and kind of other
securities or property) which may be issued under this Plan; (ii) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards; (iii) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) and the purchase price per Share subject to purchase
under Section 11 hereof; and (iv) the grant or exercise price with respect to
any Award; provided, in each case, that with respect to Awards of Incentive
Stock Options, no such adjustment shall be authorized to the extent that such
authority would cause the Plan to violate Section 422(b)(1) of the Code, as
from time to time amended. If, pursuant to the preceding sentence, an
adjustment is made to outstanding Options held by Participants, a corresponding
adjustment shall be made to
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outstanding Director Options and if, pursuant to the preceding sentence, an
adjustment is made to the number of Shares authorized for issuance under the
Plan, a corresponding adjustment shall be made to the number of Shares subject
to each Director Option thereafter granted pursuant to Section 6(e).
(c) SOURCES OF SHARES. Any Shares issued pursuant to the terms of
this Plan may consist, in whole or in part, of authorized and unissued Shares or
of Treasury Shares.
SECTION 5. ELIGIBILITY FOR AWARDS AND DIRECTOR OPTIONS. Any Employee,
including any officer or employee-director of the Company or any Subsidiary who
is not a member of the Committee, shall be eligible to be designated a
Participant for purposes of receiving an Award under the Plan. Each Eligible
Director shall receive nondiscretionary Director Options in accordance with, and
only in accordance with, Section 6(e) hereof.
SECTION 6. OPTIONS AND DIRECTOR OPTIONS.
(a) GRANT. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Employees to whom
Options shall be granted, the number of Shares to be covered by each Option, the
option price therefor and the conditions and limitations applicable to the
exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options or to grant Non-Qualified Stock Options or to grant both
types of options. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to, and comply with, such rules as
may be prescribed by Section 422 of the Code, as from time to time amended, and
any regulations implementing such statute, including, without limitation, the
requirements of Code Section 422(d) which limit the aggregate Fair Market Value
of Shares for which Incentive Stock Options are exercisable for the first time
to $100,000 per calendar year. Each provision of the Plan and of each written
option agreement relating to an Option designated as an Incentive Stock Option
shall be construed so that such Option qualifies as an Incentive Stock Option,
and any provision that cannot be so construed shall be disregarded.
(b) EXERCISE PRICE. The Committee shall establish the exercise price
at the time each Option is granted, which price, except in the case of Options
that are substitute Awards, shall not be less than 100% of the per Share Fair
Market Value on the date of grant. Notwithstanding any provision contained
herein, in the case of an Incentive Stock Option, the exercise price at the time
such Incentive Stock Option is granted to any Employee who, at the time of such
grant, is a Ten Percent Stockholder,
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shall not be less than 110% of the per Share Fair Market Value on the date of
grant.
(c) EXERCISE. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter; provided,
in the case of an Incentive Stock Option, a Participant may not exercise such
Incentive Stock Option after (i) the date which is ten years (five years in the
case of a Participant who is a Ten Percent Stockholder) after the date on which
such Incentive Stock Option is granted; or (ii) the date which is three months
(twelve months in the case of a Participant who becomes disabled, as defined in
Section 22 (e) (3) of the Code, or who dies) after the date on which he ceases
to be an Employee of the Company or a Subsidiary. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any relating to the application of federal or state securities laws,
as it may deem necessary or advisable. The Committee shall have the right to
accelerate the exercisability of any Option or outstanding Option in its
discretion.
(d) PAYMENT. No Shares shall be delivered pursuant to any exercise
of an Option until payment in full of the option price therefor is received by
the Company. Such payment may be made in cash, or its equivalent or, if and to
the extent permitted by the Committee, by exchanging Shares owned by the
optionee (which are not the subject of any pledge or other security interest) or
by a combination of the foregoing, provided that the combined value of all cash
and cash equivalents and the Fair Market Value of any such Shares so tendered to
the Company as of the date of such tender is at least equal to such option
price.
(e) DIRECTOR OPTIONS. Notwithstanding anything else contained herein to
the contrary,A each Eligible Director shall receive, on the first business day
after each annual meeting of stockholders of the Company, provided that the
Eligible Director is serving as a member of the Board on such date, a grant of a
Director Option to purchase 2,000 Shares at an exercise price per Share equal to
the Fair Market Value on the date of grant. A Director Option shall be
exercisable until the earlier to occur of the following two dates: (i) the tenth
anniversary of the date of grant of such Director Option; or (ii) three months
[twelve months in the case of an Eligible Director who becomes disabled, as
defined in Section 22(e)(3) of the Code or who dies] after the date the Eligible
Director ceases to be a member of the Board, except that if the Eligible
Director ceases to be a member of the Board after having been convicted of, or
pled guilty or nolo contendere to, a felony, his Director Option shall be
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canceled on the date he ceases to be a member of the Board. An Eligible
Director may pay the exercise price of a Director Option in the manner described
in Section 6(d).
SECTION 7. RESTRICTED STOCK.
(a) GRANT. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Employees to whom Shares
of Restricted Stock shall be granted, the number of Shares of Restricted Stock
to be granted to each Participant, the duration of the period during which, and
the conditions under which, the Restricted Stock will vest and no longer be
subject to forfeiture to the Company and the other terms and conditions of such
Awards. The Committee shall have the right to accelerate the vesting of any
Restricted Stock or outstanding Restricted Stock in its discretion.
(b) TRANSFER RESTRICTIONS. Until the lapse of applicable
restrictions, Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered except as provided in the Plan or the
applicable Award Agreements. Certificates issued in respect of Shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in blank,
with the Company. Upon the lapse of the restrictions applicable to such Shares
of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) PAYMENT OF DIVIDENDS. Dividends paid on any Shares of Restricted
Stock may be paid directly to the Participant, or may be reinvested in
additional Shares of Restricted Stock, as determined by the Committee in its
sole discretion.
SECTION 8. PERFORMANCE AWARDS.
(a) GRANT. The Committee shall have sole and complete authority to
determine the Employees who shall receive a Performance Award denominated in
cash or Shares; (i) valued, as determined by the Committee, in accordance with
the achievement of such performance goals during such performance periods as the
Committee shall establish; and (ii) payable at such time and in such form as the
Committee shall determine.
(b) TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
period, the
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amount of any Performance Award and the amount and kind of any payment or
transfer to be made pursuant to any Performance Award.
(c) PAYMENT OF PERFORMANCE AWARDS. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period or,
in accordance with procedures established by the Committee, on a deferred basis.
SECTION 9. CODE SECTION 162(m) LIMITATIONS.
(a) GENERAL LIMITATIONS. Any Awards issued under this Plan to Covered
Employees must satisfy the requirements of this Section 9.
(b) REQUIREMENTS FOR ALL AWARDS. Any Award issued to a Covered
Employee shall constitute qualified performance-based compensation. For this
purpose, an Award shall constitute qualified performance-based compensation to
the extent that;
(i) it is granted by the Committee on account of the
attainment of one or more preestablished, objective performance
goals established by the Committee, in accordance with the provisions
of Section 1.162-27(e)(2) of the Final Regulations;
(ii) the material terms of the performance goal under which the
Award is issued are disclosed to and subsequently approved by the
stockholders of the Company, in accordance with the provisions of
Section 1.162-27(e)(4) of the Final Regulations; and
(iii) the Committee certifies, in writing, prior to the payment
of any compensation under the Award, that the performance goals and
any other material terms were in fact satisfied.
(c) SPECIAL RULES FOR OPTIONS. The grant of an Option to a Covered
Employee under this Plan shall satisfy the requirements of Section 9(b) (i)
above to the extent that the following requirements are satisfied:
(i) subject to the provisions of Section 4(b), no Covered
Employee shall receive Options for more than 50,000 Shares over any
one-year period. For this purpose, to the extent that any Option is
canceled (as described in Section 1.162-27(e)(2)(vi)(B) of the Final
Regulations), such canceled Option shall continue to be counted
against the maximum number of Shares for which Options may be granted
to a Covered Employee under the Plan; and
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(ii) under the terms of the Option, the amount of compensation
that the Covered Employee may receive is based solely on an increase
in the value of the Shares after the grant of the Option, unless the
grant of such Option is contingent upon the attainment of a
performance goal that otherwise satisfies the requirements of Section
9(b)(i) above.
SECTION 10. STOCK PURCHASE PLAN.
(a) ELIGIBILITY. Each Employee who has at least one Year of Service
on an Offering Effective Date shall be eligible to participate in the Offering
which is applicable to such Offering Effective Date. Nothing contained herein
and no rules and regulations prescribed by the Committee shall permit or deny
participation in any Offering contrary to the requirements of the Code
(including, without limitation, Sections 423(b)(3), 423 (b) (4) and 423 (b) (8)
thereof). Nothing contained herein and no rules and regulations prescribed by
the Committee shall permit any Participant to be granted a Right to Purchase:
(i) if, immediately after such Right to Purchase is granted,
such Participant would own, and/or hold outstanding options or rights
to purchase, shares of the Company or of any Subsidiary, possessing
five percent (5%) or more of the total combined voting power or value
of all classes of shares of the Company or such subsidiary; or
(ii) which permits a Participant's rights to purchase Shares
under all employee stock purchase plans of the Company and of its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000.00) of Fair Market Value of Shares (determined as of
the date such right is granted) for each calendar year in which such
right is outstanding at any time.
For purposes of clause (a)(i) above, the provisions of Section 424(d) of the
Code shall apply in determining the stock ownership of each Participant. For
purposes of clause (a)(ii) above, the provisions of Section 423(b)(8) of the
Code shall apply in determining whether a Participant's Rights to Purchase and
other rights are permitted to accrue at a rate in excess of the permitted rate.
(b) PURCHASE PRICE. The purchase price for a Share under each
Offering shall be determined by the Committee prior to the Offering Effective
Date and shall be stated as a percentage of the Fair Market Value of a Share on
either the Right to Purchase Date or the Offering Effective Date, whichever is
the lesser, but the purchase price shall not be less than the lesser of eighty-
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five percent (85%) of the per share Fair Market Value of the Shares as of the
Offering Effective Date or eighty-five percent (85%) of the per share Fair
Market Value of the Shares as of the Right to Purchase Date for the Offering.
(c) PARTICIPATION IN OFFERINGS. Except as may be otherwise provided
for herein, each Employee who is eligible for and elects to participate in an
offering shall be granted Rights to Purchase for as many full Shares as he may
elect to purchase during that Offering, to be paid by payroll deductions during
such period. The Committee shall establish administrative rules and regulations
regarding the payroll deduction process for this Section 11, including, without
limitation, minimum and maximum permissible deductions; the timing for initial
elections, changes in elections and suspensions of elections during an Offering
Period and the complete withdrawal by a Participant from an offering. Amounts
withheld through payroll deductions under this paragraph shall be credited to
each Participant's Cash Account. Such amounts will be delivered to a custodian
for the Plan and held pending the purchase of Shares as described in paragraph
(e) of this Section 11. All amounts held in a Participant's Cash Account shall
bear interest at a rate as may be agreed upon by the Committee and the custodian
of the Plan. If a Participant withdraws entirely from an Offering (pursuant to
rules established by the Committee), his Cash Account balance will not be used
to purchase Shares on the Right to Purchase Date. Instead, the portion of the
Cash Account equal to the Participant's payroll deductions under the Plan during
the Offering Period will be refunded to the Participant without interest
(notwithstanding any provision contained herein). Such a Participant will not
be eligible to re-enroll in that Offering, but may resume participation on the
Offering Effective Date for the next Offering. In addition, the Committee may
impose such other restrictions on the right to withdraw from Offerings as it may
deem appropriate,
(d) GRANT OF RIGHTS TO PURCHASE. Rights to Purchase with respect to
Shares shall be granted to Participants who elect to participate in an Offering.
Such Rights to Purchase may be exercised on the Right to Purchase Date
applicable to the Offering. The number of Shares subject to Rights to Purchase
on each Right to Purchase Date shall not exceed the number of Shares authorized
for issuance during the applicable Offering.
(e) EXERCISE OF RIGHTS TO PURCHASE. Each Right to Purchase shall be
exercised on the applicable Right to Purchase Date. Each Participant
automatically and without any act on his part will be deemed to have exercised a
Right to Purchase on each Right to Purchase Date to the extent that the amount
in his Cash Account on such Right to Purchase Date is sufficient to purchase
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whole Shares. Fractional Shares will not be issued under the Plan. Any
remaining amount credited to a Participant's Cash Account which is not
sufficient to purchase a whole Share shall remain in such Participant's Cash
Account for use in the next offering unless withdrawn by the Participant. The
Company shall deliver to the custodian of the Plan as soon as practicable after
each Right to Purchase Date a certificate for the total number of whole Shares
purchased by all Participants on such Right to Purchase Date. The custodian
shall allocate the proper number of Shares to the Share Account of each
Participant. if the aggregate Cash Account balances of all Participants on any
Right to Purchase Date exceeds the amount required to purchase all of the Shares
subject to Rights to Purchase on that Right to Purchase Date, then the Shares
subject to Rights to Purchase shall be allocated pro rata among the Participants
in the proportion that the number of Shares subject to Rights to Purchase bears
to the number of Shares that could have been purchased with such aggregate
amount. available, if an unlimited number of Shares were available for purchase.
Any balances remaining in Participants' Cash Accounts due to over subscription
will remain in the Participants' Cash Accounts for use in the next Offering
unless withdrawn by the Participant.
(f) WITHDRAWALS FROM SHARE ACCOUNTS AND DIVIDEND REINVESTMENT. A
Participant may withdraw the Shares credited to his Share Account on a first-in-
first-out basis. The Committee shall establish rules and regulations governing
such withdrawals. All cash dividends paid, if any, with respect to the Shares
credited to a Participant's Share Account shall be added to the Participant's
Cash Account and thereby shall be applied to exercise Rights to Purchase for
whole Shares on the Right to Purchase Date next succeeding the date such cash
dividends are paid by the Company. An election to leave Shares with the
custodian shall constitute an election to apply the cash dividends with respect
to such Shares to the exercise of Rights to Purchase hereunder. Shares so
purchased shall be applied to the Shares credited to each Participant's Share
Account.
(g) TERMINATION OF EMPLOYMENT. If the employment of a Participant
terminates for any reason, including death, disability, retirement or other
cause, his participation in this Section 11 of the Plan shall automatically and
without any act on his part terminate as of the date of termination of his
employment. As soon as practicable following the Participant's termination of
employment, the Company shall refund to such Participant (or beneficiary, in the
case of the Participant's death) any amount in his Cash Account which
constitutes payroll deductions, without interest, and the custodian shall
deliver to such Participant a share certificate issued in his name for the
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number of whole Shares credited to his Share Account through prior offerings.
SECTION 11. AMENDMENT AND TERMINATION.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration suspension, discontinuation or termination
shall be made without stockholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act for which or with which the Board deems it necessary
or desirable to qualify or comply; and, provided further, that no amendment may
be made to Section 6(e) or any other provision of the Plan relating to Director
Options within six months of the last date on which any such provision was
amended, other than to comport with changes in the Code or the rules thereunder.
Notwithstanding anything to the contrary herein, the Committee may amend the
Plan, subject to any, Stockholder approval required under Rule 16b-3, in such
manner as may be necessary so as to have the Plan conform with local rules and
regulations in any jurisdiction outside the United States.
(b) AMENDMENTS TO AWARDS. Subject to the provisions of Section 9,
the Committee -may waive any conditions or rights under, amend any terms of, or
alter, suspend, discontinue, cancel or terminate any Award therefore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration suspension,, discontinuance, cancellation or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
therefore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(c) CANCELLATION OF AWARD. Any provision of this Plan (except
Section 9) or any Award Agreement to the contrary notwithstanding, the Committee
may cause any Award granted hereunder to be canceled in consideration of the
granting to the holder of an alternative Award having a Fair Market Value equal
to the Fair Market Value of such canceled Award.
SECTION 12. General Provisions.
(a) NONTRANSFERABILITY.
(i) Each Award, each Director Option and each Right to
Purchase, and each right under any Award, any Director option or any
Right to Purchase, shall be exercisable during the Participant's or
the Eligible
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Director's lifetime only by the Participant or the Eligible Director
or, if permissible under applicable law, by the Participant's or the
Eligible Director's guardian or legal representative or a transferee
receiving such Award, Director Option or Right to Purchase pursuant to
a qualified domestic relations order ("QDRO"), as determined by the
Committee.
(ii) No Award, Director Option or Right to Purchase that
constitutes a "derivative security," for purposes of Section 16 of the
Exchange Act, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant or Eligible
Director otherwise than by will or by the laws of descent and
distribution or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Subsidiary; provided
that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(b) NO RIGHTS TO AWARDS. No Employee, Participant or other Person
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(c) SHARE CERTIFICATES. All certificates for Shares or @other
securities of the Company or any Subsidiary delivered under the Plan shall be
subject to such stop transfer orders arid other restrictions as the Committee
may deem advisable under the Plan or the rules, regulations and other
requirements of the SEC, any stock exchange or national securities association
upon which such Shares or other securities are then listed and any applicable
federal or state laws; and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(d) WITHHOLDING. A Participant or Eligible Director may be required
to pay to the Company or any Subsidiary and the Company or any Subsidiary shall
have the right and is hereby authorized to withhold from any Award, Director
Option or Share otherwise issued under the Plan, from any payment due or
transfer made under any Award or any Director Option or otherwise under the
Plan, or from any compensation or other amount owing to a Participant or
Eligible Director, the amount of any applicable withholding taxes in respect of
an Award, a Director Option or a
-15-
<PAGE>
Share otherwise issued under the Plan, its exercise or any payment or transfer
under an Award, under a Director Option or otherwise under the Plan and to take
such other action as may be necessary in the opinion of the Company to satisfy
all obligations for the payment of such taxes. With respect to Participants who
are not subject to Section 16 of the Exchange Act, the withholding may be in the
form of cash, shares, other securities, other Awards or other property as the
Committee may allow. with respect to Participants and Eligible Directors who are
subject to Section 16 of the Exchange Act, the withholding shall be in cash or
in any other property permitted by Rule 16b-3 as the Committee may allow. The
Committee may provide for additional cash payments to Participants or Eligible
Directors to defray or offset any tax arising from the grant, vesting, exercise
or payments of any Award or Share otherwise issued under this Plan.
(e) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an
Award Agreement which shall be delivered to the Participant and shall specify
the terms and conditions of the Award and any rules applicable thereto,
including but not limited to the effect on such Award of the death, retirement
or other termination of employment of a Participant and the effect, if any, of a
change in control of the Company.
(f) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Subsidiary from adopting or
continuing in effect other compensation arrangements, which may, but need not,
provide for the grant of options, restricted stock, shares and other types of
awards provided for hereunder (subject to stockholder approval if such approval
is required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(g) NO RIGHT TO EMPLOYMENT. Eligibility for participation in this
Plan or the grant of an Award shall not be construed as giving a Participant the
right to be retained in the employ of the Company or any Subsidiary. Further,
the Company or a Subsidiary may at any time dismiss a Participant from
employment, free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(h) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the Plan
and/or the applicable Award, no Participant or holder or beneficiary of any
Award, Director Option, Right to Purchase or Share issued under Section 10 shall
have any rights as a stockholder with respect to any Shares to be distributed
under the Plan until he or she has become the holder of such Shares.
Notwithstanding the foregoing, in connection
-16-
<PAGE>
with each grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent the Participant shall not be entitled to the
rights of a stockholder in respect of such Restricted Stock.
(i) GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan and any Award Agreement shall
be determined in accordance with the laws of the State of Ohio.
(j) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or as to any Person or Award, or would disqualify the Plan or any Award under
any law deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to the applicable laws, or if it cannot be construed
or deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect,
(k) OTHER LAWS. The Committee may refuse to issue or transfer any
Shares or other consideration under the Plan if, acting in its sole discretion,
it determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the issuance of such Shares shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
(l) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Subsidiary and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Subsidiary pursuant to the Plan, such rights
shall be no greater than the right of any unsecured general creditor of the
Company or any Subsidiary
(m) RULE 16b-3 COMPLIANCE. With respect to persons subject to
Section 16 of the Exchange Act, transactions under
-17-
<PAGE>
this Plan are intended to comply with all applicable terms and conditions of
Rule 16b-3 and any successor provisions. To the extent that any provision of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
(n) HEADINGS. Headings are given to the sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(o) NO IMPACT ON BENEFITS. Plan Awards or Shares otherwise issued
under this Plan shall not be treated as compensation for purposes of calculating
an Employee's rights under any employee benefit plan.
(p) INDEMNIFICATION. Each person who is or shall have been a member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from ant loss, cost, liability or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-laws, by
contract, as a matter of law, or otherwise.
SECTION 13. TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall be effective as of May 1, 1996,
the date of its approval by the stockholders of the Company.
(b) EXPIRATION DATE. No Award or Right to Purchase shall be granted
under the Plan after May 1, 2006, the ten year anniversary of the effective date
of the Plan. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue or
terminate any such Award or to waive any
-18-
<PAGE>
conditions or rights under any such Award shall, continue after May 1, 2006.
-19-
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PRO FORMA PER COMMON SHARE EARNINGS
AIRNET SYSTEMS, INC.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1995 1996
-----------------------------------
<S> <C> <C>
PRO FORMA AS ADJUSTED
Average shares outstanding 5,877,835 5,877,835
Effect of the repurchase and cancellation of D. Wright
Warrant 2,506,962 2,506,962
Effect of the retirement of debt outstanding
subsequent to the balance sheet date 1,164,721 1,164,721
Effect of planned distributions to shareholders
subsequent to the balance sheet date 1,928,317 1,928,317
-----------------------------------
Total 11,477,835 11,477,835
-----------------------------------
-----------------------------------
Net income $ 8,210,000 $ 3,958,000
-----------------------------------
-----------------------------------
Per share amount $ .72 $ .34
-----------------------------------
-----------------------------------
SUPPLEMENTAL PRO FORMA
Average shares outstanding 5,877,835 5,877,835
Effect of the retirement of debt outstanding
subsequent to the balance sheet date 1,164,721 1,164,721
-----------------------------------
Total 7,042,556 7,042,556
-----------------------------------
-----------------------------------
Net income $ 4,661,000 $ 2,550,000
-----------------------------------
-----------------------------------
Per share amount $ .66 $ .36
-----------------------------------
-----------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated November 27, 1995 (except
for Notes 11 and 12 as to which the date is May 1, 1996) in Amendment No. 1 to
the Registration Statement (Form S-1, No. 333-3092) and related Prospectus of
AirNet Systems, Inc. for the registration of 5,600,000 shares of its common
stock.
ERNST & YOUNG LLP
Columbus, Ohio
May 6, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF TONY C. CANONIE, JR.
In reference to the Registration Statement on Form S-1 and the related
Prospectus of AirNet Systems, Inc. (File No. 333-3092), I hereby consent to the
references to me under the caption "MANAGEMENT - Executive Officers and
Directors" of such Registration Statement and confirm that I have agreed to join
the Board of Directors of AirNet Systems, Inc. upon the consummation of the
offering contemplated by such Registration Statement.
Columbus, Ohio /s/ TONY C. CANONIE, JR.
May 2, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF J. F. KEELER, JR.
In reference to the Registration Statement on Form S-1 and the related
Prospectus of AirNet Systems, Inc. (File No. 333-3092), I hereby consent to the
references to me under the caption "MANAGEMENT - Executive Officers and
Directors" of such Registration Statement and confirm that I have agreed to join
the Board of Directors of AirNet Systems, Inc. upon the consummation of the
offering contemplated by such Registration Statement.
Columbus, Ohio /s/ J. F. KEELER, JR.
May 2, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from AirNet
Systems, Inc. Amendment No. 1 to Form S-1 for the six month period ended March
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,928
<SECURITIES> 0
<RECEIVABLES> 7,829,552
<ALLOWANCES> 20,296
<INVENTORY> 4,110,622
<CURRENT-ASSETS> 15,317,336
<PP&E> 71,920,901
<DEPRECIATION> 37,838,995
<TOTAL-ASSETS> 52,651,427
<CURRENT-LIABILITIES> 14,661,262
<BONDS> 11,301,802
0
0
<COMMON> 57,106
<OTHER-SE> 22,979,329
<TOTAL-LIABILITY-AND-EQUITY> 52,651,427
<SALES> 478,942
<TOTAL-REVENUES> 35,508,931
<CGS> 390,153
<TOTAL-COSTS> 24,993,492
<OTHER-EXPENSES> 6,085,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 736,167
<INCOME-PRETAX> 3,693,286
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,693,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,693,286
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
