<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-3092
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
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>
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."
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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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<PAGE>
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
12
<PAGE>
$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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<PAGE>
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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<PAGE>
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."
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<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
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<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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<PAGE>
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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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.
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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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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
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(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.
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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
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<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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<PAGE>
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.
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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>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
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 15, 1996, among the Company and
Messrs. Miller, Renusch, Roy, King, Rutter, Sumser and Wright
10.12 Indemnification Agreement dated as of May 15, 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. 2 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 24, 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 24, 1996
Gerald G. Mercer Officer)
Director, Executive Vice President,
/s/ ERIC P. ROY* Chief Operating Officer, Chief
- ------------------------------------ Financial Officer and Treasurer May 24, 1996
Eric P. Roy (Principal Financial and Accounting
Officer)
/s/ ADELE MERCER*
- ------------------------------------ Director May 24, 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
- --------- -------------------------------------------------------------------------------------
<S> <C> <C>
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 15, 1996, among the Company and Messrs.
Miller, Renusch, Roy, King, Rutter, Sumser and Wright
10.12 Indemnification Agreement dated as of May 15, 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>
Exhibit 10.11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of May 15, 1996, is entered into
by and among Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S. King,
Lincoln L. Rutter, Kendall W. Wright and William R. Sumser (collectively
referred to as the "Shareholders") and AirNet Systems, Inc. (formerly known as
New Creations, Inc.) (the "Company").
WHEREAS, 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");
WHEREAS, as an S Corporation, the Company has not paid federal income taxes
at the corporate level;
WHEREAS, in connection with its public offering (the "Public Offering") of
5,600,000 Common Shares, par value $0.01 per share, the Company will terminate
its S Corporation status; and
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each of Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S.
King, Lincoln L. Rutter, Kendall W. Wright and William R. Sumser hereby agrees,
jointly and severally, to indemnify and hold harmless the Company and its
successors and assigns against, and to reimburse the Company and its successors
and assigns for, any corporate level income taxes which might be imposed upon
the Company or its predecessor company with respect to any period ending on or
prior to the termination of the Company's S corporation status, and any interest
and penalty associated therewith, and any expense (including legal fees and
expenses) incurred in connection with any claim relating thereto, to which the
Company and its successors and assigns may become subject at any time.
This agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Ohio. This agreement may not be
amended or terminated without the consent of a majority of the independent
directors of the Company.
This agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date and year first above written.
---------------------------------------
Eric P. Roy
<PAGE>
---------------------------------------
Glenn M. Miller
---------------------------------------
Charles A. Renusch
---------------------------------------
Guy S. King
---------------------------------------
Lincoln L. Rutter
---------------------------------------
Kendall W. Wright
---------------------------------------
William R. Sumser
AIRNET SYSTEMS, INC.
---------------------------------------
By:
Its:
-2-
<PAGE>
Exhibit 10.12
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of May 15, 1996, is entered into
by and between Gerald G. Mercer (the "Shareholder") and AirNet Systems, Inc.
(formerly known as New Creations, Inc.) (the "Company").
WHEREAS, 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");
WHEREAS, as an S Corporation, the Company has not paid federal income taxes
at the corporate level;
WHEREAS, in connection with its public offering (the "Public Offering") of
5,600,000 Common Shares, par value $0.01 per share, the Company will terminate
its S Corporation status; and
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Gerald G. Mercer hereby agrees to indemnify and hold harmless the
Company and its successors and assigns against, and to reimburse the Company and
its successors and assigns for, any corporate level income taxes which might be
imposed upon the Company or its predecessor company with respect to any period
ending on or prior to the termination of the Company's S corporation status, and
any interest and penalty associated therewith, and any expense (including legal
fees and expenses) incurred in connection with any claim relating thereto, to
which the Company and its successors and assigns may become subject at any time.
In addition, Gerald G. Mercer hereby agrees to indemnify and hold harmless
the Company and its successors and assigns against, and to reimburse the Company
and its successors for, any losses, claims, damages or liabilities (or actions
in respect thereof) arising from the property formerly owned by Mr. Mercer
located at 6544 Highland Road, Pontiac, Michigan 48054.
This agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Ohio. This agreement may not be
amended or terminated without the consent of a majority of the independent
directors of the Company.
This agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date and year first above written.
-----------------------------------
Gerald G. Mercer
AIRNET SYSTEMS, INC.
-----------------------------------
By:
Its:
-2-
<PAGE>
DRAFT DATED
MAY 17, 1996
AIRNET SYSTEMS, INC.
__________________________________________
LOAN AGREEMENT
dated as of May __, 1996
__________________________________________
The Banks party hereto,
and
NBD BANK, as Agent
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ---
I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .
1.1 Certain Definitions . . . . . . . . . . . . . . . . . .
1.2 Other Definitions; Rules of
Construction . . . . . . . . . . . . . . . . . . . .
II. THE COMMITMENTS AND THE ADVANCES . . . . . . . . . . . . . .
2.1 Commitment of the Banks . . . . . . . . . . . . . . . .
2.2 Termination and Reduction of
Commitments. . . . . . . . . . . . . . . . . . . . . .
2.3 Fees. . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Disbursement of Advances. . . . . . . . . . . . . . . .
2.5 Conditions for First Disbursement . . . . . . . . . . .
2.6 Further Conditions for Disbursement . . . . . . . . . .
2.7 Subsequent Elections as to
Borrowings; Etc.. . . . . . . . . . . . . . . . . . .
2.8 Limitation of Requests and Elections. . . . . . . . . .
2.9 Minimum Amounts; Limitation on
Number of Loans. . . . . . . . . . . . . . . . . . .
2.10 Extension of Termination Dates. . . . . . . . . . . . .
III. PAYMENTS AND PREPAYMENTS OF ADVANCES . . . . . . . . . . . .
3.1 Principal Payments and Prepayments. . . . . . . . . . .
3.2 Interest Payments . . . . . . . . . . . . . . . . . . .
3.3 Letter of Credit Reimbursement
Payments . . . . . . . . . . . . . . . . . . . . . .
3.4 Payment Method. . . . . . . . . . . . . . . . . . . . .
3.5 No Setoff or Deduction. . . . . . . . . . . . . . . . .
3.6 Payment on Non-Business Day;
Payment Computations . . . . . . . . . . . . . . . .
3.7 Additional Costs. . . . . . . . . . . . . . . . . . . .
3.8 Illegality and Impossibility. . . . . . . . . . . . . .
3.9 Indemnification . . . . . . . . . . . . . . . . . . . .
-i-
<PAGE>
IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . .
4.1 Corporate Existence and Power . . . . . . . . . . . . .
4.2 Corporate Authority . . . . . . . . . . . . . . . . . .
4.3 Binding Effect. . . . . . . . . . . . . . . . . . . . .
4.4 Subsidiaries. . . . . . . . . . . . . . . . . . . . . .
4.5 Litigation. . . . . . . . . . . . . . . . . . . . . . .
4.6 Financial Condition . . . . . . . . . . . . . . . . . .
4.7 Use of Advances . . . . . . . . . . . . . . . . . . . .
4.8 Consents, Etc.. . . . . . . . . . . . . . . . . . . . .
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
4.10 Title to Properties; Acquisition. . . . . . . . . . . .
4.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . .
4.12 Environmental Matters . . . . . . . . . . . . . . . . .
4.13 No Defaults . . . . . . . . . . . . . . . . . . . . . .
4.14 No Burdensome Restriction . . . . . . . . . . . . . . .
4.15 Initial Public Offering . . . . . . . . . . . . . . . .
4.16 FAA Certifications. . . . . . . . . . . . . . . . . . .
4.17 Airworthiness Certificates. . . . . . . . . . . . . . .
V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 Affirmative Covenants . . . . . . . . . . . . . . . . .
(a) Preservation of Corporate
Existence, Etc.. . . . . . . . . . . . . . .
(b) Compliance with Laws, Etc.. . . . . . . . . . .
(c) Maintenance of Properties;
Insurance. . . . . . . . . . . . . . . . . .
(d) Reporting Requirements. . . . . . . . . . . . .
(e) Accounting; Access to
Records, Books, Etc. . . . . . . . . . . . .
(f) Further Assurances. . . . . . . . . . . . . . .
5.2 Negative Covenants . . . . . . . . . . . . . . . . . .
(a) Tangible Net Worth. . . . . . . . . . . . . . .
(b) Funded Debt to Ratio . . . . . . . . . . . . .
(c) Funded Debt to
Total Capitalization . . . . . . . . . . . .
(d) Cash Flow Coverage Ratio. . . . . . . . . . . .
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<PAGE>
(e) Liens . . . . . . . . . . . . . . . . . . . . .
(f) Merger; Etc.. . . . . . . . . . . . . . . . . .
(g) Disposition of Assets, Etc. . . . . . . . . . .
(h) Dividends and Other Restricted
Payments . . . . . . . . . . . . . . . . . .
(i) Investment Loans and Advances . . . . . . . . .
(j) Indebtedness. . . . . . . . . . . . . . . . . .
(k) Nature of Business. . . . . . . . . . . . . . .
(l) Transactions with Affiliates. . . . . . . . . .
(m) Additional Covenants. . . . . . . . . . . . . .
VI. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Events of Default . . . . . . . . . . . . . . . . . . .
6.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . .
VII. THE AGENT AND THE BANKS. . . . . . . . . . . . . . . . . . .
7.1 Appointment and Authorization . . . . . . . . . . . . .
7.2 Agent and Affiliates. . . . . . . . . . . . . . . . . .
7.3 Scope of Agent's Duties . . . . . . . . . . . . . . . .
7.4 Reliance by Agent . . . . . . . . . . . . . . . . . . .
7.5 Default . . . . . . . . . . . . . . . . . . . . . . . .
7.6 Liability of Agent. . . . . . . . . . . . . . . . . . .
7.7 Nonreliance on Agent and
Other Banks. . . . . . . . . . . . . . . . . . . . .
7.8 Indemnification . . . . . . . . . . . . . . . . . . . .
7.9 Successor Agent . . . . . . . . . . . . . . . . . . . .
7.10 Sharing of Payments . . . . . . . . . . . . . . . . . .
7.11 Withholding Tax Exemption . . . . . . . . . . . . . . .
VIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . .
8.1 Amendments, Etc.. . . . . . . . . . . . . . . . . . . .
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . .
8.3 No Waiver By conduct; Remedies
Cumulative . . . . . . . . . . . . . . . . . . . . .
8.4 Reliance on and Survival of
Various Provisions . . . . . . . . . . . . . . . . .
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8.5 Expenses; Indemnification . . . . . . . . . . . . . . .
8.6 Successors and Assigns. . . . . . . . . . . . . . . . .
8.7 Counterparts. . . . . . . . . . . . . . . . . . . . . .
8.8 Governing Law . . . . . . . . . . . . . . . . . . . . .
8.9 Table of Contents and Headings. . . . . . . . . . . . .
8.10 Construction of Certain Provisions. . . . . . . . . . .
8.11 Integration and Severability. . . . . . . . . . . . . .
8.12 Independence of Covenants . . . . . . . . . . . . . . .
8.13 Interest Rate Limitation. . . . . . . . . . . . . . . .
EXHIBITS
- --------
Exhibit A. . . . . . . . . Revolving Credit A Note
Exhibit B. . . . . . . . . Revolving Credit B Note
Exhibit C. . . . . . . . . Request for Advance
Exhibit D. . . . . . . . . Request for Conversion
Exhibit E. . . . . . . . . Assignment and Acceptance
SCHEDULES
- ----------
Schedule 2.10. . . . . . . Extension Request
Schedule 4.4 . . . . . . . Subsidiaries
Schedule 4.5 . . . . . . . Litigation
Schedule 4.6 . . . . . . . Contingent Liabilities
Schedule 4.12. . . . . . . Environmental Matters
Schedule 5.2(e). . . . . . Liens
Schedule 5.2(j). . . . . . Indebtedness
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THIS LOAN AGREEMENT, dated as of May ___, 1996 (this "Agreement"), is among
AIRNET SYSTEMS, INC., an Ohio corporation (the "Company"), the lenders party
hereto from time to time (collectively, the "Banks" and individually, a "Bank")
and NBD BANK, a Michigan banking corporation, as agent for the Banks (in such
capacity, the "Agent").
INTRODUCTION
The Company desires to obtain a revolving credit facility, including
letters of credit, in the aggregate principal amount of $20,000,000 for working
capital and general corporate purposes, and a revolving credit facility in
aggregate principal amount of $30,000,000 to pay off certain outstanding debt,
make acquisitions, and purchase aircraft and equipment, and the Banks are
willing to establish such credit facilities in favor of the Company on the terms
and conditions herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used herein the following terms shall have
the following respective meanings:
"ADVANCE" shall mean any Loan and any Letter of Credit Advance.
"AFFILIATE", when used with respect to any Person shall mean any other
Person which, directly or indirectly, controls or is controlled by or is under
common control with such Person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"APPLICABLE LENDING OFFICE" shall mean, with respect to any Advance made by
any Bank or with respect to such Bank's Commitment, the office of such Bank or
of any Affiliate of such Bank located at the address specified as the applicable
lending office for such Bank set forth next to the name of such Bank in the
signature pages hereof or any other office or Affiliate of such Bank or of any
Affiliate of such Bank hereafter selected and notified to the Company and the
Agent by such Bank.
"APPLICABLE MARGIN" shall mean the following margin based upon the Funded
Debt Ratio as adjusted on the first day of each fiscal quarter of the Company
based upon the Funded Debt Ratio as of the last day of the fiscal quarter
preceding the fiscal quarter most recently ended, PROVIDED, THAT, the Eurodollar
Rate shall not be adjusted pursuant to any change in the Applicable
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Margin for any outstanding Eurodollar Rate Loan until after the end of the
Eurodollar Interest Period for such Eurodollar Rate Loan.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Funded Debt Ratio Applicable Margin Applicable Margin Applicable Margin for
for Eurodollar Rate for Facility Fees Letter of Credit Fees
Loan Under Section 2.3(a) Under Section 2.3(b)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
less than 1.0 0.700% 0.200% 0.700%
- ------------------------------------------------------------------------------------------------
greater than or equal to 0.875% 0.225% 0.875%
1.0 but less than 2.0
- ------------------------------------------------------------------------------------------------
greater than or equal to 1.000% 0.250% 1.000%
2.0 but less than 2.5
- ------------------------------------------------------------------------------------------------
greater than or equal to 1.125% 0.375% 1.125%
2.5 but less than 3.0
- ------------------------------------------------------------------------------------------------
</TABLE>
"BORROWING" shall mean the aggregation of Advances, including each Letter
of Credit issuance, of the Banks to be made to the Company, or continuations and
conversions of any Loans, made pursuant to Article II on a single date and, in
the case of any Eurodollar Rate Loans, for a single Eurodollar Interest Period,
which Borrowings may be classified for purposes of this Agreement by reference
to the type of Loans or the type of Advance comprising the related Borrowing,
e.g., a "Eurodollar Rate Borrowing" is a Borrowing comprised of Eurodollar Rate
Loans and a "Letter of Credit Borrowing" is an Advance comprised of a single
Letter of Credit.
"BORROWING BASE A" shall mean an amount from time to time equal to 75% of
the quick liquidation value of aircraft and other equipment, in each case
acceptable to the Required Banks, owned by the Company. As used in this
definition, quick liquidation value shall mean the expected value if such
aircraft or equipment if sold "as is, where is" to a broker selected by the
Agent. Additionally, any aircraft or equipment (a) which is not in the
possession of the Company or is subject to any Lien, (b) that is located outside
the United States, or (c) that is otherwise unacceptable to the Agent shall not
be included in the calculation of Borrowing Base A. Borrowing Base A may be
reset from time to time at the option of the Agent or the Required Banks.
"BORROWING BASE B" shall mean an amount from time to time equal to the sum
of (a) 80% of the Company's "acceptable accounts receivable," plus (b) the
lesser of (i) 50% of the net book value of the Company's "acceptable aircraft
parts inventory" and (ii) $4,000,000. As used herein, "acceptable accounts
receivable" shall mean the open accounts receivable of the
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<PAGE>
Company except (i) those due from Affiliates, officers, directors or
shareholders of the Company, (ii) those which are over 90 days old from the date
of invoice, (iii) those which are subject to offset, (iv) those in respect of
which the amount is in dispute, (v) those which are payable by any Person as to
which 10% or more of the aggregate accounts receivable payable by such Person to
the Company do not otherwise constitute acceptable accounts receivable, provided
that up to $100,000 of such accounts receivable which would otherwise constitute
acceptable accounts receivable but for this clause (v) shall be included in
Borrowing Base B, (vi) those which are payable by any Person that is subject to
any bankruptcy, insolvency, liquidation, reorganization or similar proceeding or
otherwise that it is generally not paying its debts as they become due, and
(vii) those which are for any other reason at any time reasonably deemed by the
Lender to be unacceptable. As used herein, "acceptable aircraft parts
inventory" shall mean that inventory consisting of aircraft spare parts owned by
the Company, except such inventory (i) that is not in the possession of the
Company, (ii) that is held for lease or is the subject of any lease, and (iii)
that for any other reason is at any time reasonably deemed by the Agent to be
unacceptable.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other day
on which the Agent is not open to the public for carrying on substantially all
of its banking functions in Detroit, Michigan.
"CAPITAL LEASE" of any Person shall mean any lease which, in accordance
with generally accepted accounting principles, is or should be capitalized on
the books of such Person.
"CASH FLOW COVERAGE RATIO" shall mean, as of the last day of any fiscal
quarter of the Company and determined for the Company and its Subsidiaries on a
Consolidated basis, the ratio of (a) EBITDA plus the amount of rent paid under
operating leases, and minus the amount of capital expenditures which are not
financed by long term debt, in each case for the four consecutive fiscal quarter
period then ending, to (b) Interest Expense, plus the amount of rent paid under
operating leases, in each case as calculated for the four fiscal quarters then
ending, and plus the current portion of Funded Debt and, to the extent not
included in such current portion of Funded Debt, one-sixth of the principal
balance of the Revolving Credit A Loans, in each case as of the last day of such
fiscal quarter.
"CHANGE IN CONTROL" means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of voting stock of the
Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations thereunder.
"COMMITMENT" shall mean, with respect to each Bank, the commitment of each
such Bank to make Loans and to participate in Letter of Credit Advances made
through the Agent pursuant to Section 2.1, in amounts not exceeding in aggregate
principal amount outstanding at any time the respective commitment amounts for
each such Bank set forth next to the name of
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<PAGE>
each such Bank in the signature pages hereof, as such amounts may be reduced
from time to time pursuant to Section 2.2. The Commitment of each Bank to make
Revolving Credit A Advances under Section 2.1(a) is herein referred to as its
"REVOLVING CREDIT A COMMITMENT" and the Commitment of each Bank to make
Revolving Credit B Loans under Section 2.1(b) is herein referred to as its
"REVOLVING CREDIT B COMMITMENT".
"CONSOLIDATED" shall mean, when used with reference to any financial term
in this Agreement, the aggregate for two or more Persons of the amounts
signified by such term for all such Persons determined on a consolidated basis
in accordance with generally accepted accounting principles.
"CONTINGENT LIABILITIES" of any Person shall mean, as of any date, all
obligations of such Person or of others for which such Person is contingently
liable, as obligor, guarantor, surety, accommodation party, partner or in any
other capacity, or in respect of which obligations such Person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such Person in respect of any letters of credit, surety bonds or
similar obligations (including, without limitation, bankers acceptances) and all
obligations of such Person to advance funds to, or to purchase assets, property
or services from, any other Person for no purpose other than to maintain the
financial condition of such other Person.
"CONTRACTUAL OBLIGATION" shall mean as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT" shall mean any event or condition which might become an Event of
Default with notice or lapse of time or both.
"DOLLARS" and "$" shall mean the lawful money of the United States of
America.
"EBITDA" means, for any period, Net Income for such period plus all amounts
deducted in determining such Net Income on account of (a) Interest Expense, (b)
income taxes, and (c) depreciation and amortization expense.
"EFFECTIVE DATE" shall mean the effective date specified in the final
paragraph of this Agreement.
"ENVIRONMENTAL LAWS" at any date shall mean all provisions of law, statute,
ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders,
awards and standards promulgated by the government of the United States of
America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein, or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
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<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"ERISA AFFILIATE" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) which, together with such Person or any
Subsidiary of such Person, would be treated as a single employer under Section
414 of the Code and the regulations promulgated thereunder.
"EURODOLLAR BUSINESS DAY" shall mean, with respect to any Eurodollar Rate
Loan, a day which is both a Business Day and a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any Eurodollar
Rate Loan, the period commencing on the day such Eurodollar Rate Loan is made or
converted to a Eurodollar Rate Loan and ending on the day which is one, two,
three or six months thereafter, as the Company may elect under Section 2.4 or
2.7, and each subsequent period commencing on the last day of the immediately
preceding Eurodollar Interest Period and ending on the day which is one, two,
three or six months thereafter, as the Company may elect under Section 2.4 or
2.7, PROVIDED, HOWEVER, that (a) any Eurodollar Interest Period which commences
on the last Eurodollar Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Eurodollar Business Day of the appropriate
subsequent calendar month, (b) each Eurodollar Interest Period which would
otherwise end on a day which is not a Eurodollar Business Day shall end on the
next succeeding Eurodollar Business Day or, if such next succeeding Eurodollar
Business Day falls in the next succeeding calendar month, on the next preceding
Eurodollar Business Day, and (c) no Eurodollar Interest Period which would end
after Termination Date A with respect to any Revolving Credit A Loan or after
Termination Date B with respect to any Revolving Credit B Loan shall be
permitted.
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar Rate Loan and
the related Eurodollar Interest Period, the per annum rate that is equal to the
sum of:
(a) the Applicable Margin, plus
(b) the rate per annum obtained by dividing (i) the per annum rate of
interest at which deposits in Dollars for such Eurodollar Interest Period and in
an aggregate amount comparable to the amount of such Eurodollar Rate Loan to be
made by the Agent in its capacity as a Bank hereunder are offered to the Agent
by other prime banks in the London interbank market at approximately 11:00 a.m.
London time on the second Eurodollar Business Day prior to the first day of such
Eurodollar Interest Period by (ii) an amount equal to one minus the stated
maximum rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) that are specified on the first day of such Eurodollar Interest Period
by the Board of Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect
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<PAGE>
to eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System;
all as conclusively determined by the Agent, absent manifest error, such sum to
be rounded up, if necessary, to the nearest whole multiple of one one-hundredth
of one percent (1/100 of 1%).
"EURODOLLAR RATE LOAN" shall mean any Loan which bears interest at the
Eurodollar Rate.
"EVENT OF DEFAULT" shall mean any of the events or conditions described in
Section 6.1.
"FAA" shall mean, collectively, the United States Department of
Transportation and/or United States Federal Aviation Administration and/or the
Administrator of the United States Federal Aviation Administration and/or the
Secretary of Transportation or any Person, governmental department, bureau,
commission or agency succeeding to the functions of any of the foregoing.
"FEDERAL FUNDS RATE" shall mean the per annum rate that is equal to the
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published by the
Federal Reserve Bank of New York for such day, or, if such rate is not so
published for any day, the average of the quotations for such rates received by
the Agent from three federal funds brokers of recognized standing selected by
the Agent in its discretion;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), which Federal Funds Rate shall change simultaneously with any
change in such published or quoted rates.
"FIXED RATE LOAN" shall mean any Eurodollar Rate Loan or any Negotiated
Rate Loan.
"FLOATING RATE" shall mean the per annum rate equal to the sum of (a) the
Applicable Floating Rate Margin plus (b) the greater of (i) the Prime Rate in
effect from time to time , and (ii) the sum of one-half percent (1/2%) per annum
plus the Federal Funds Rate in effect from time to time; which Floating Rate
shall change simultaneously with any change in such Prime Rate or Federal Funds
Rate, as the case may be.
"FLOATING RATE LOAN" shall mean any Loan which bears interest at the
Floating Rate.
"FUNDED DEBT" as of any date, shall mean: (a) all debt for borrowed money
and similar monetary obligations evidenced by bonds, notes, debentures, Capital
Lease obligations or otherwise, including without limitation obligations in
respect of the deferred purchase price of properties or assets, in each case
whether direct or indirect; (b) all liabilities secured by any Lien
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<PAGE>
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; (c) all reimbursements
obligations under outstanding letters of credit in respect of drafts which (i)
may be presented or (ii) have been presented and have not yet been paid, and (d)
all Contingent Liabilities relating to any of the obligations of others similar
in character to those described in the foregoing clauses (a) through (c), all as
determined for the Company and its Subsidiaries on a Consolidated basis.
"FUNDED DEBT RATIO" shall mean, as of any date, the ratio of (a) Funded
Debt as of such date to (b) EBITDA, as calculated for the four consecutive
fiscal quarters of the Company most recently ended.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted
accounting principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 4.6.
"GUARANTIES" shall mean each guaranty executed by any Guarantor, as amended
or modified from time to time, which Guaranties shall be in form and substance
acceptable to the Agent.
"GUARANTORS" shall mean each present and future Subsidiary of the Company.
"HAZARDOUS MATERIALS" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, ET SEQ.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801, ET SEQ.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, ET SEQ.) and in the
regulations adopted and publications promulgated pursuant thereto, or any other
federal, state or local government law, ordinance, rule or regulation.
"INDEBTEDNESS" of any Person shall mean, as of any date, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person as lessee under any Capital Lease, (c) all obligations which are secured
by any Lien existing on any asset or property of such Person whether or not the
obligation secured thereby shall have been assumed by such Person (to the extent
of such Lien if such obligation is not assumed), (d) all obligations of such
Person for the unpaid purchase price for goods, property or services acquired by
such Person, except for trade accounts payable arising in the ordinary course
of business that are not past due, (e) all obligations of such Person to
purchase goods, property or services where payment therefor is required
regardless of whether delivery of such goods or property or the performance of
such services is ever made or tendered (generally referred to as "take or pay
contracts"), (f) all liabilities of such Person in respect of Unfunded Benefit
Liabilities under any Plan of such Person or of any ERISA Affiliate, (g) all
obligations of such Person in respect of any interest rate or currency swap,
rate cap or other similar transaction (valued in an amount equal to the highest
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<PAGE>
termination payment, if any, that would be payable by such Person upon
termination for any reason on the date of determination), and (h) all Contingent
Liabilities.
"INTEREST EXPENSE" means, for any period, total interest and related
expense (including, without limitation, that portion of any Capitalized Lease
obligation attributable to interest expense in conformity with Generally
Accepted Accounting Principles, amortization of debt discount, all capitalized
interest, the interest portion of any deferred payment obligations, all
commissions, discounts and other fees and charges owed with respect to letter of
credit and bankers acceptance financing, the net costs and net payments under
any interest rate hedging, cap or similar agreement or arrangement, prepayment
charges, agency fees, administrative fees, commitment fees and capitalized
transaction costs allocated to interest expense) paid, payable or accrued during
such period, without duplication for any period, with respect to all outstanding
Indebtedness of the Company or any of its Subsidiaries, all as determined for
the Company and its Subsidiaries on a Consolidated basis.
"INTEREST PAYMENT DATE" shall mean (a) with respect to any Fixed Rate Loan,
the last day of each Interest Period with respect to such Fixed Rate Loan and,
in the case of any Interest Period exceeding three months, those days that occur
during such Interest Period at intervals of three months after the first day of
such Interest Period, and (b) in all other cases, the last Business Day of each
March, June, September and December occurring after the date hereof, commencing
with the first such Business Day occurring after the date of this Agreement.
"INTEREST PERIOD" shall mean any Eurodollar Interest Period or Negotiated
Interest Period.
"LETTER OF CREDIT" shall mean a standby letter of credit having a stated
expiry date or a date upon which the draft must be reimbursed not later than
twelve months after the date of issuance and not later than the fifth Business
Day before the Termination Date B issued by the Agent on behalf of the Banks
for the account of the Company under an application and related documentation
acceptable to the Agent requiring, among other things, immediate reimbursement
by the Company to the Agent in respect of all drafts or other demand for payment
honored thereunder and all expenses paid or incurred by the Agent relative
thereto.
"LETTER OF CREDIT ADVANCE" shall mean any issuance of a Letter of Credit
under Section 2.4 made pursuant to Section 2.1(b) in which each Bank acquires a
pro rata risk participation pursuant to Section 2.4(d).
"LETTER OF CREDIT DOCUMENTS" shall have the meaning ascribed thereto in
Section 3.3(b).
"LIEN" shall mean any pledge, assignment, hypothecation, mortgage, security
interest, deposit arrangement, option, conditional sale or title retaining
contract, sale and leaseback transaction, financing statement filing, lessor's
or lessee's interest under any lease, subordination
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<PAGE>
of any claim or right, or any other type of lien, charge, encumbrance,
preferential arrangement or other claim or right.
"LOAN" shall mean any Revolving Credit A Loan and any Revolving Credit B
Loan. Any such Loan or portion thereof may also be denominated as a Floating
Rate Loan or a Eurodollar Rate Loan and such Loans are referred to herein as
"types" of Loans.
"LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Notes, the
Guarantors and all agreements, instruments and documents executed pursuant
thereto at any time.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
business, assets, operations, prospects or condition (financial or otherwise) of
the Company, or any Guarantor, (b) the ability of the Company to perform its
obligations under any Loan Document, or (c) the validity or enforceability of
any Loan Document or the rights or remedies of the Agent or the Banks under any
Loan Document.
"MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"NEGOTIATED RATE" shall mean, with respect to any Negotiated Rate Loan, the
rate per annum agreed upon between the Company and the Banks at the time such
Negotiated Rate Loan is made.
"NEGOTIATED INTEREST PERIOD" shall mean, with respect to any Negotiated
Rate Loan, the period commencing on the day such Negotiated Rate Loan is made or
converted to a negotiated Rate Loan and ending on the date agreed upon between
the Company and the Banks at the time such Negotiated Rate Loan is made, and
each subsequent period commencing on the last day of the immediately preceding
Negotiated Interest Period and ending on the date agreed upon between the
Company and the Banks at the time such Negotiated Rate Loan is elected to be
continued as a Negotiated Rate Loan by the Company under Section 2.4 or 2.7,
PROVIDED, HOWEVER, that no Negotiated Rate Interest Period which would end after
the Termination Date A with respect to any Revolving Credit A Loan or after
Termination Date B with respect to any Revolving Credit B Loan shall be
permitted.
"NEGOTIATED RATE LOAN" shall mean any Loan which bears interest at the
Negotiated Rate.
"NET INCOME" means, for any period, the Consolidated net income (or loss)
of the Company and its Subsidiaries for such period taken as a single accounting
period, determined in accordance with Generally Accepted Accounting Principles;
PROVIDED that in determining Consolidated Net Income there shall be excluded,
without duplication: (a) the income of any Person in which any Person other than
the Company has a joint interest or partnership interest, except to the extent
of the amount of dividends or other distributions actually paid to the Company
by such Person during such period, (b) the proceeds of any insurance policy, (c)
gains
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from the sale, exchange, transfer or other disposition of property or assets not
in the ordinary course of business of the Company and its Subsidiaries and
related tax effects in accordance with Generally Accepted Accounting Principles,
and (d) any other extraordinary or non-recurring gains of the Company or any of
its Subsidiaries, and related tax effects in accordance with Generally Accepted
Accounting Principles.
"NET WORTH" of any Person shall mean, as of any date, the amount of any
capital stock, paid in capital and similar equity accounts plus (or minus in the
case of a deficit) the capital surplus and retained earnings of such Person and
the amount of any foreign currency translation adjustment account shown as a
capital account of such Person.
"NOTE" shall mean any Revolving Credit A Note or any Revolving Credit B
Note.
"OVERDUE RATE" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Fixed Rate Loans, a rate
per annum that is equal to the sum of three percent (3%) per annum plus the per
annum rate in effect thereon until the end of the then current Fixed Interest
Period for such Loan and, thereafter, a rate per annum that is equal to the sum
of three percent (3%) per annum plus the Floating Rate, and (c) in respect of
other amounts payable by the Company hereunder (other than interest), a per
annum rate that is equal to the sum of three percent (3%) per annum plus the
Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean Liens permitted by Section 5.2(e) hereof.
"PERSON" shall include an individual, a corporation, an association, a
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a trade or business (whether or not
incorporated), a government (foreign or domestic) and any agency or political
subdivision thereof, or any other entity.
"PLAN" shall mean, with respect to any Person, any pension plan (including
a Multiemployer Plan) subject to Title IV of ERISA or to the minimum funding
standards of Section 412 of the Code which has been established or maintained by
such Person, any Subsidiary of such Person or any ERISA Affiliate, or by any
other Person if such Person, any Subsidiary of such Person or any ERISA
Affiliate could have liability with respect to such pension plan.
"PRIME RATE" shall mean the per annum rate announced by the Agent from time
to time as its "prime rate" (it being acknowledged that such announced rate may
not necessarily be the lowest rate charged by the Agent to any of its
customers); which Prime Rate shall change simultaneously with any change in such
announced rate.
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"PROHIBITED TRANSACTION" shall mean any transaction involving any Plan
which is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"REPORTABLE EVENT" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"REQUIRED BANKS" shall mean Banks holding not less than (i) 66-2/3% percent
of the aggregate principal amount of the Advances then outstanding or (ii) 66-
2/3% percent of the Commitments if no Advances are then outstanding.
"REQUIREMENT OF LAW" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property to which such Person or
any of its property is subject.
"REVOLVING CREDIT A LOAN" shall mean any borrowing under Section 2.4
evidenced by the Revolving Credit A Notes and made pursuant to Section 2.1(a).
"REVOLVING CREDIT A ADVANCES" shall mean the Revolving Credit A Loans and
the Letter of Credit Advances.
"REVOLVING CREDIT A NOTE" shall mean any promissory note of the Company
evidencing the Revolving Credit A Loans, in substantially the form annexed
hereto as Exhibit A, as amended or modified from time to time and together with
any promissory note or notes issued in exchange or replacement therefor.
"REVOLVING CREDIT B LOAN" shall mean any borrowing under Section 2.4
evidenced by the Revolving Credit B Notes and made pursuant to Section 2.1(b).
"REVOLVING CREDIT B NOTE" shall mean any promissory note of the Company
evidencing the Revolving Credit B Loans, in substantially the form annexed
hereto as Exhibit B, as amended or modified from time to time and together with
any promissory note or notes issued in exchange or replacement therefor.
"SUBSIDIARY" of any Person shall mean any other Person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such Person or by one
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or more of the other Subsidiaries of such Person or by any combination thereof.
Unless otherwise specified, reference to "Subsidiary" shall mean a Subsidiary of
the Company.
"TANGIBLE NET WORTH" of any Person shall mean, as of any date, (a) the Net
Worth of such Person, less (b) the net book value of all items of the following
character which are included in the assets of such Person to the extent they
exceed 10% of the total assets of such Person: (i) goodwill, including, without
limitation, the excess of cost over book value of any asset, (ii) organization
or experimental expenses, (iii) unamortized debt discount and expense, (iv)
patents, trademarks, trade names and copyrights, (v) treasury stock, (vi)
deferred taxes and deferred charges, (vii) franchises, licenses and permits, and
(viii) other assets which are deemed intangible assets under Generally Accepted
Accounting Principles.
"TERMINATION DATE A" shall mean the earlier to occur of (a) the date five
years after the Effective Date or such later date as Termination Date A may be
extended pursuant to Section 2.10 and (b) the date on which the Commitment shall
be terminated pursuant to Section 2.2 or 6.2.
"TERMINATION DATE B" shall mean the earlier to occur of (a) the date five
years after the Effective Date or such later date as Termination Date B may be
extended pursuant to Section 2.10 and (b) the date on which the Revolving Credit
B Commitments shall be terminated pursuant to Section 2.2 or 6.2.
"TOTAL CAPITALIZATION" shall mean the sum of the Consolidated Net Worth of
the Company and its Subsidiaries plus the Funded Debt.
"TOTAL LIABILITIES" of any Person shall mean, as of any date, all
obligations which, in accordance with Generally Accepted Accounting Principles,
are or should be classified as liabilities on a balance sheet of such Person and
all Contingent Liabilities of such Person.
"UNFUNDED BENEFIT LIABILITIES" shall mean, with respect to any Plan as of
any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
1.2 OTHER DEFINITIONS; RULES OF CONSTRUCTION. As used herein, the terms
"AGENT", "BANKS", "COMPANY" and "THIS AGREEMENT" shall have the respective
meanings ascribed thereto in the introductory paragraph of this Agreement. Such
terms, together with the other terms defined in Section 1.1, shall include both
the singular and the plural forms thereof and shall be construed accordingly.
All computations required hereunder and all financial terms used herein shall be
made or construed in accordance with Generally Accepted Accounting Principles
unless such principles are inconsistent with the express requirements of this
Agreement; PROVIDED that, if the Company notifies the Agent that the Company
wishes to amend any covenant in Article V to eliminate the effect of any change
in Generally Accepted Accounting Principles in the operation of such covenant
(or if the Agent notifies the Company that the Required Banks wish to amend
Article V for such purpose), then the Company's compliance with such covenant
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shall be determined on the basis of Generally Accepted Accounting Principles in
effect immediately before the relevant change in Generally Accepted Accounting
Principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Company and the Required
Banks. Use of the terms "HEREIN", "HEREOF", and "HEREUNDER" shall be deemed
references to this Agreement in its entirety and not to the Section or clause in
which such term appears. References to "SECTIONS" and "SUBSECTIONS" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided.
ARTICLE II
THE COMMITMENTS AND THE ADVANCES
2.1 COMMITMENT OF THE BANKS.
(a) REVOLVING CREDIT A. Each Bank agrees, for itself only, subject
to the terms and conditions of this Agreement, to make Revolving Credit A Loans
to the Company pursuant to Section 2.4 from time to time from and including the
Effective Date to but excluding the Termination Date A, not to exceed in
aggregate principal amount at any time outstanding the amount determined
pursuant to Section 2.1(c).
(b) REVOLVING CREDIT B LOANS AND LETTER OF CREDIT ADVANCES. Each
Bank agrees, for itself only, subject to the terms and conditions of this
Agreement, to make Revolving Credit B Loans to the Company pursuant to Section
2.4 and Section 3.3 and to participate in Letter of Credit Advances to Company
pursuant to Section 2.4, from time to time from and including the Effective Date
to but excluding the Termination Date B, not to exceed in aggregate principal
amount at any time outstanding the amount determined pursuant to Section 2.1(c).
(c) LIMITATION ON AMOUNT OF ADVANCES. Notwithstanding anything in
this Agreement to the contrary, (i) the aggregate principal amount of the
Revolving Credit A Loans made (A) by any Bank at any time outstanding shall not
exceed the amount of its respective Revolving Credit A Commitment as of the date
any such Advance is made and (B) by all Banks at any time outstanding shall not
exceed the amount of Borrowing Base A, (ii) the aggregate principal amount of
the Revolving Credit B Loans made and Letter of Credit Advances participated in
(A) by any Bank at any time shall not exceed the amount of its respective
Revolving Credit B Commitment as of the date any such Advance is made and (B) by
all Banks at any time shall not exceed the amount of Borrowing Base, B,
PROVIDED, HOWEVER, that the aggregate principal amount of Letter of Credit
Advances outstanding at any time shall not exceed $3,000,000.
2.2 TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Company shall have
the right to terminate or reduce the Commitments at any time and from time to
time at its option, PROVIDED that (i) the Company shall give notice of such
termination or reduction to the Agent (with sufficient executed copies for each
Bank) specifying the amount and effective date thereof, (ii) each partial
reduction of the Commitments shall be in a minimum amount of $2,000,000 and
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in an integral multiple of $2,000,000 and shall reduce the Commitments of all of
the Banks proportionately in accordance with the respective commitment amounts
for each such Bank set forth in the signature pages hereof next to name of each
such Bank, (iii) no such termination or reduction shall be permitted with
respect to any portion of the Commitments as to which a request for a Advance
pursuant to Section 2.4 is then pending and (iv) the Revolving Credit A
Commitments may not be terminated if any Revolving Credit A Advances are then
outstanding and may not be reduced below the principal amount of Revolving
Credit A Advances then outstanding and the Revolving Credit B Commitments may
not be terminated if any Revolving Credit B Loans are then outstanding and may
not be reduced below the principal amount of the Revolving Credit B Loans then
outstanding. The Commitments or any portion thereof terminated or reduced
pursuant to this Section 2.2, whether optional or mandatory, may not be
reinstated.
(b) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 3.3 and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 3.3.
As provided in Section 3.3, upon each payment made by the Agent in respect of
any draft or other demand for payment under any Letter of Credit, the amount of
any Letter of Credit Advance outstanding immediately prior to such payment shall
be automatically reduced by the amount of each Revolving Credit B Loan deemed
advanced in respect of the related reimbursement obligation of the Company.
2.3 FEES. (a) The Company agrees to pay to each Bank a facility fee on
the daily average amount of its respective Revolving Credit A Commitments and
Revolving Credit B Commitments, for the period from the Effective Date to but
excluding the relevant Termination Date at a rate equal to the Applicable
Margin. Accrued facility fees shall be payable quarterly in arrears on the last
Business Day of each March, June, September and December, commencing on the
first such Business Day occurring after the Effective Date, and on the
Termination Date A and Termination Date B.
(b) On or before the date of issuance of any Letter of Credit, the
Company agrees (i) to pay to the Banks a fee computed at the rate of the
Applicable Margin of the maximum amount available to be drawn from time to time
under such Letter of Credit for the period from and including the date of
issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit, and (ii) to pay an additional fee to the Agent for its
own account computed at the rate of 0.125% per annum of such maximum amount for
such period. Such fees are nonrefundable and the Company shall not be entitled
to any rebate of any portion thereof if such Letter of Credit does not remain
outstanding through its stated expiry date or for any other reason. The Company
further agrees to pay to the Agent, on demand, such other customary
administrative fees, charges and expenses of the Agent in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise
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payable pursuant to the application and related documentation under which such
Letter of Credit is issued.
(c) The Company agrees to pay to the Agent such fees in such amounts
as may from time to time be agreed upon by the Company and the Agent.
2.4 DISBURSEMENT OF ADVANCES. 0.0.0.0.1 The Company shall give the Agent
notice of its request for each Advance in substantially the form of Exhibit C
hereto not later than 10:00 a.m. Detroit time (i) three Eurodollar Business Days
prior to the date such Advance is requested to be made if such Advance is to be
made as a Eurodollar Rate Loan, (ii) five Business Days prior to the date any
Letter of Credit Advance is requested to be made, and (iii) one Business Day
prior to the date such Advance is requested to be made in all other cases, which
notice shall specify whether a Revolving Credit A Loan or Revolving Credit B
Loan is requested, whether a Eurodollar Rate Loan, a Negotiated Rate Loan or
Floating Rate Loan or a Letter of Credit Advance is requested and, in the case
of each requested Fixed Rate Loan, the Interest Period to be initially
applicable to such Loan and, in the case of each Letter of Credit Advance, such
information as may be necessary for the issuance thereof by the Agent. The
Agent, not later than the Business Day next succeeding the day such notice is
given, shall provide notice of such requested Advance to each Bank. Subject to
the terms and conditions of this Agreement, the proceeds of each such requested
Loan shall be made available to the Company by depositing the proceeds thereof
in immediately available funds, in an account maintained and designated by the
Company at the principal office of the Agent. Subject to the terms and
conditions of this Agreement, the Agent shall, on the date any Letter of Credit
Advance is requested to be made, issue the related Letter of Credit on behalf of
the Banks for the account of the Company. Notwithstanding anything herein to
the contrary, the Agent may decline to issue any requested Letter of Credit on
the basis that the beneficiary, the purpose of issuance or the terms or the
conditions of drawing are contrary to a policy of the Bank.
(b) Each Bank, on the date any Borrowing in the form of a Loan is
requested to be made, shall make its pro rata share of such Borrowing available
in immediately available, freely transferable, cleared funds for disbursement to
the Company pursuant to the terms and conditions of this Agreement at the
principal office of the Agent. Unless the Agent shall have received notice from
any Bank prior to the date such Borrowing is requested to be made under this
Section 2.4 that such Bank will not make available to the Agent such Bank's pro
rata portion of such Borrowing, the Agent may assume that such Bank has made
such portion available to the Agent on the date such Borrowing is requested to
be made in accordance with this Section 2.4. If and to the extent such Bank
shall not have so made such pro rata portion available to the Agent, the Agent
may (but shall not be obligated to) make such amount available to the Company,
and such Bank and the Company severally agree to pay to the Agent forthwith on
demand such amount together with interest thereon, for each day from the date
such amount is made available to the Company by the Agent until the date such
amount is repaid to the Agent, at the Federal Funds Rate in the case of any Bank
and at the interest rate applicable to such Advance in the case of the Company.
If such Bank shall pay such amount to the Agent together with interest, such
amount so paid shall constitute a Loan by such Bank as a part of such the
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related Borrowing for purposes of this Agreement. The failure of any Bank to
make its pro rata portion of any such Borrowing available to the Agent shall not
relieve any other Bank of its obligations to make available its pro rata portion
of such Borrowing on the date such Borrowing is requested to be made, but no
Bank shall be responsible for failure of any other Bank to make such pro rata
portion available to the Agent on the date of any such Borrowing.
(c) All Revolving Credit A Loans made under this Section 2.4 shall be
evidenced by the Revolving Credit A Notes and all Revolving Credit B Loans made
under the Section 2.4 shall be evidenced by the Revolving Credit B Notes, and
all such Loans shall be due and payable and bear interest as provided in Article
III. Each Bank is hereby authorized by the Company to record on the schedule
attached to the Notes, or in its books and records, the date, amount and type of
each Loan and the duration of the related Eurodollar Interest Period (if
applicable), the amount of each payment or prepayment of principal thereon, and
the other information provided for on such schedule, which schedule or books and
records, as the case may be, shall constitute prima facie evidence of the
information so recorded, PROVIDED, HOWEVER, that failure of any Bank to record,
or any error in recording, any such information shall not relieve the Company of
its obligation to repay the outstanding principal amount of the Loans, all
accrued interest thereon and other amounts payable with respect thereto in
accordance with the terms of the Notes and this Agreement. Subject to the terms
and conditions of this Agreement, the Company may borrow Revolving Credit Loans
under this Section 2.4 and under Section 3.3, prepay Revolving Credit Loans
pursuant to Section 3.1 and reborrow Revolving Credit Loans under this Section
2.4 and under Section 3.3.
(d) Nothing in this Agreement shall be construed to require or
authorize any Bank to issue any Letter of Credit, it being recognized that the
Agent has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Banks, and the Revolving Credit B Commitment of each Bank with
respect to Letter of Credit Advances is expressly conditioned upon the Agent's
performance of such obligations. Upon such issuance by the Agent, each Bank
shall automatically acquire a pro rata risk participation interest in such
Letter of Credit Advance based on the amount of its respective Revolving Credit
B Commitment. If the Agent shall honor a draft or other demand for payment
presented or made under any Letter of Credit, the Agent shall provide notice
thereof to each Bank on the date such draft or demand is honored unless the
Company shall have satisfied its reimbursement obligation under Section 3.3 by
payment to the Agent on such date. Each Bank, on such date, shall make its pro
rata share of the amount paid by the Agent available in immediately available
funds at the principal office of the Agent for the account of the Agent. If and
to the extent such Bank shall not have made such pro rata portion available to
the Agent, such Bank and the Company severally agree to pay to the Agent
forthwith on demand such amount together with interest thereon, for each day
from the date such amount was paid by the Agent until such amount is so made
available to the Agent at a per annum rate equal to the Federal Funds Rate. If
such Bank shall pay such amount to the Agent together with such interest, such
amount so paid shall constitute a Revolving Credit B Loan by such Bank as part
of the Revolving Credit B Borrowing disbursed in respect of the reimbursement
obligation of the Company under Section 3.3 for purposes of this Agreement. The
failure of any Bank to make its pro rata portion of any such amount paid by the
Agent available
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to the Agent shall not relieve any other Bank of its obligation to make
available its pro rata portion of such amount, but no Bank shall be responsible
for failure of any other Bank to make such pro rata portion available to the
Agent.
2.5 CONDITIONS FOR FIRST DISBURSEMENT. The obligation of the Banks to2.5
make the first Advance hereunder is subject to receipt by each Bank and the
Agent of the following documents and completion of the following matters, in
form and substance satisfactory to each Bank and the Agent:
(a) CHARTER DOCUMENTS. Certificates of recent date of the
appropriate authority or official of the Company's and each Guarantor's state of
incorporation (listing all charter documents on file in that office if such
listing is available) and certifying as to the good standing and corporate
existence of the Company and together with copies of such charter documents
certified as of a recent date by such authority or official;
(b) BY-LAWS AND CORPORATE AUTHORIZATIONS. Copies of the by-laws of
the Company and each Guarantor and together with all authorizing resolutions and
evidence of other corporate action taken by the Company and each Guarantor to
authorize the execution, delivery and performance by the Company Guarantor of
the Loan Documents and the consummation by the Company Guarantor of the
transactions contemplated hereby, certified as true and correct as of the
Effective Date by a duly authorized officer of the Company and each Guarantor;
(c) INCUMBENCY CERTIFICATE. Certificates of incumbency of the
Company and each Guarantor containing, and attesting to the genuineness of, the
signatures of those officers authorized to act on behalf of the Company and each
Guarantor in connection with the Loan Documents and the consummation by the
Company and each Guarantor of the transactions contemplated hereby, certified as
true and correct as of the Effective Date by a duly authorized officer of the
Company and each Guarantor;
(d) NOTES. The Notes duly executed on behalf of the Company for each
Bank;
(e) LEGAL OPINIONS. The favorable written opinion of counsel for the
Company and the Guarantors in the form and substance acceptable to the Agent;
(f) FEES. The fees required to be paid as of the Effective Date
under Section 2.3;
(g) INITIAL PUBLIC OFFERING. Evidence satisfactory to the Agent that
the Company has completed an initial public offering of equity and received
therefrom proceeds of at least $30,000,000, all on terms and conditions
satisfactory to the Agent;
(h) PAYMENT OF INDEBTEDNESS. Simultaneously with the first Advance
hereunder, the Company shall have paid in full all indebtedness and liabilities
outstanding
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pursuant to the Loan Agreement between the Company, formerly known as New
Creations, Inc., and NBD Bank, dated July 18, 1990, as amended, and any other
indebtedness required by the Agent;
(i) GUARANTIES. The Guaranties duly executed on behalf of each
Guarantor; and
(j) APPRAISALS. Appraisals, in form and substance and performed by
an independent third party appraiser, acceptable to the Agent.
2.6 FURTHER CONDITIONS FOR DISBURSEMENT. The obligation of the Banks to
make any Advance (including the first Advance), or any continuation or
conversion under Section 2.7 is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV hereof
shall be true and correct on and as of the date such Advance is made (both
before and after such Advance is made) as if such representations and warranties
were made on and as of such date;
(b) No Default or Event of Default shall exist or shall have occurred
and be continuing on the date such Advance is made (whether before or after such
Advance is made);
(c) In the case of any Letter of Credit Advance, the Company shall
have delivered to the Agent an application for the related Letter of Credit and
other related documentation requested by and acceptable to the Agent
appropriately completed and duly executed on behalf of the Company.
The Company shall be deemed to have made a representation and warranty to the
Banks at the time of the making of, and the continuation or conversion of, each
Advance to the effects set forth in clauses (a) and (b) of this Section 2.6.
For purposes of this Section 2.6 the representations and warranties contained in
Section 4.6 hereof shall be deemed made with respect to both the financial
statements referred to therein and the most recent financial statements
delivered pursuant to Section 5.1(d)(ii) and (iii).
2.7 SUBSEQUENT ELECTIONS AS TO LOANS. The Company may elect (a) to
continue a Fixed Rate Loan, or a portion thereof, as a Fixed Rate Loan or (b) to
convert a Fixed Rate Loan, or a portion thereof, to a Loan of another type or
(c) to convert a Floating Rate Loan, or a portion thereof, to a Fixed Rate Loan
in each case by giving notice thereof to the Agent in substantially the form of
Exhibit D hereto not later than 10:00 a.m. Detroit time four Eurodollar Business
Days prior to the date any such continuation of or conversion to a Fixed Rate
Loan is to be effective and not later than 10:00 a.m. Detroit time one Business
Day prior to the date such continuation or conversion is to be effective in all
other cases, PROVIDED that an outstanding Fixed Rate Loan may only be converted
on the last day of the then current Interest Period with respect to such Loan,
and PROVIDED, FURTHER, if a continuation of a Loan as, or a conversion of a Loan
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to, a Fixed Rate Loan is requested, such notice shall also specify the Interest
Period to be applicable thereto upon such continuation or conversion. The
Agent, not later than the Business Day next succeeding the day such notice is
given, shall provide notice of such election to the Banks. If the Company shall
not timely deliver such a notice with respect to any outstanding Fixed Rate
Loan, the Company shall be deemed to have elected to convert such Fixed Rate
Loan to a Floating Rate Loan on the last day of the then current Interest Period
with respect to such Loan.
2.8 LIMITATION OF REQUESTS AND ELECTIONS. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Loan pursuant to Section 2.4, or a request for a continuation of
a Eurodollar Rate Loan as a Eurodollar Rate Loan of the then existing type, or a
request for a conversion of a Floating Rate Loan to a Eurodollar Rate Loan
pursuant to Section 2.7, (a) in the case of any Eurodollar Rate Loan, deposits
in Dollars for periods comparable to the Eurodollar Interest Period elected by
the Company are not available to any Bank in the London interbank market, or (b)
the Eurodollar Rate will not adequately and fairly reflect the cost to any Bank
of making, funding or maintaining the related Eurodollar Rate Loan, or (c) by
reason of national or international financial, political or economic conditions
or by reason of any applicable law, treaty or other international agreement,
rule or regulation (whether domestic or foreign) now or hereafter in effect, or
the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by any
Bank with any guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for, or shall limit or impair the ability
of, (i) any Bank to make or fund the relevant Loan or to continue such Loan as a
Loan of the then existing type or to convert a Loan to such a Loan or (ii) the
Company to make or any Bank to receive any payment under this Agreement at the
place specified for payment hereunder or to freely convert any amount paid into
Dollars at market rates of exchange or to transfer any amount paid or so
converted to the address of its principal office specified in Section 8.2, then
the Company shall not be entitled, so long as such circumstances continue, to
request a Loan of the affected type pursuant to Section 2.4 or a continuation of
or conversion to a Loan of the affected type pursuant to Section 2.7. In the
event that such circumstances no longer exist, the Banks shall again consider
requests for Loans of the affected type pursuant to Section 2.4, and requests
for continuations of and conversions to Loans of the affected type pursuant to
Section 2.7.
2.9 MINIMUM AMOUNTS; LIMITATION ON NUMBER OF LOANS; ETC. Except for (a)
Advances which exhaust the entire remaining amount of the Commitments, and (b)
payments required pursuant to Section 3.1(c) or Section 3.8, each Advance and
each continuation or conversion pursuant to Section 2.7 and each prepayment
thereof shall be in a minimum amount of $100,000 in integral multiples of
$100,000 in case of each Fixed Rate Loan, in the minimum amount of $25,000 in
the case of Floating Rate Loans and in the minimum amount of $100,000 in the
case of Letter of Credit Advances.
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2.10 EXTENSION OF TERMINATION DATES. Termination Date A and Termination
Date B may be extended as set forth in this Section 2.10.
(a) Notwithstanding anything contained in this Agreement to the
contrary, not later than December 1 of each year, commencing December 1, 1997,
the Company may, by delivery of a duly completed extension request to the Agent
in the form of SCHEDULE 2.10 hereto (an "Extension Request"), irrevocably
request that each Bank extend Termination Date B or Termination Date A for a one
year period.
(b) (i) The Agent shall, promptly after receipt of any such Extension
Request pursuant to subsection (a) above, notify each Bank by providing them a
copy of such Extension Request.
(ii) Each Bank shall, on or before the first January 15 following
receipt of the Extension Request notify the Agent whether it consents to the
request of the Company set forth in such Extension Request, such consent to be
in the sole discretion of such Bank. If any Bank does not so notify the Agent
of its decision such Bank shall be deemed not to have consented to such request
of the Company.
(iii) The Agent shall promptly notify the Company which Banks
have consented to such request (a "Consenting Bank"). If the Agent does not so
notify the Company on or before the first January 31 following such Extension
Request, the Agent shall be deemed to have notified the Company that the Banks
have not consented to the Company's request.
(iv) Each Bank that elects not to extend the requested
Termination Date(s) or fails to so notify the Agent of such consent (a "Non-
Consenting Bank") hereby agrees that if any other Bank or financial institution
acceptable to the Company and the Agent offers to purchase such Non-Consenting
Bank's Commitment(s) for a purchase price equal to the sum of all amounts then
owing with respect to the Loans and all other amounts accrued for the account of
such Non-Consenting Bank and any amounts which may become owing as a result of
such purchase under Section 3.9, such Non-Consenting Bank will, promptly or upon
the existing Termination Date(s) for such Non-Consenting Bank, as elected by the
Company, assign, sell and transfer all of its right, title and obligations with
respect to the foregoing to such other Bank or financial institution pursuant to
and on the terms specified in the form of Assignment and Acceptance attached
hereto as EXHIBIT E.
(v) Notwithstanding anything herein to the contrary, the
Termination Date(s) will not be extended if the aggregate Commitments of each
Consenting Bank plus the additional Commitments of each Bank or other financial
institution replacing any Non-Consenting Bank pursuant to clause (iv) above and
agreeing to the Extension Request does not equal 100% of the then existing
aggregate Commitments. If the Termination Date(s) are extended hereunder, it
will not be extended for the Non-Consenting Banks, and each Non-Consenting
Bank's Commitment(s) shall remain in effect and not be terminated until the
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Termination Date(s) that is then in effect for it subject to the purchase of
such Non-Consenting Bank's Commitment pursuant to clause (iv) above.
ARTICLE III.
PAYMENTS AND PREPAYMENTS OF ADVANCES
3.1 PRINCIPAL PAYMENTS AND PREPAYMENTS.
(a) Unless earlier payment is required under this Agreement (i) the
Company shall pay to the Banks on the Termination Date A the entire outstanding
principal amount of the Revolving Credit A Advances, and (ii) the Company shall
pay the Banks on the Termination Date B the entire outstanding principal amount
of the Revolving Credit B Loans.
(b) The Company may at any time and from time to time prepay all or a
portion of the Loans, without premium or penalty, PROVIDED that (i) the Company
may not prepay any portion of any Loan as to which an election for a
continuation of or a conversion to a Fixed Rate Loan is pending pursuant to
Section 2.4, and (ii) unless earlier payment is required under this Agreement,
any Fixed Rate Loan may only be prepaid on the last day of the then current
Interest Period with respect to such Loan. Upon the giving of such notice, the
aggregate principal amount of such Loan or portion thereof so specified in such
notice, together with such accrued interest and other amounts, shall become due
and payable on the specified prepayment date.
(c) Anytime that the aggregate principal balance outstanding under
Revolving Credit A Note exceeds Borrowing Base A, the Company shall prepay
Revolving Credit A Note by an amount equal to such excess. Anytime the sum of
the aggregate principal balance outstanding under Revolving Credit B Note plus
the aggregate principal amount of all outstanding Letters of Credit exceeds
Borrowing Base B, the Company shall prepay Revolving Credit B Note by an amount
equal to such excess, and, if a deficiency still remains after Revolving Credit
B Note has been paid in full, the Company will provide cash collateral in a
manner and by written agreement satisfactory to the Agent to secure the
outstanding Letters of Credit in an amount equal to the remaining deficiency.
3.2 INTEREST PAYMENTS. The Company shall pay interest to the Banks on the
unpaid principal amount of each Loan, for the period commencing on the date such
Loan is made until such Loan is paid in full, on each Interest Payment Date and
at maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a Floating Rate Loan, the
Floating Rate.
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(b) During such periods that such Loan is a Eurodollar Rate Loan, the
Eurodollar Rate applicable to such Loan for each related Eurodollar Interest
Period.
(c) During such periods that such Loan is a Negotiated Rate Loan,
the Negotiated Rate applicable to such Loan for each related Negotiated Interest
Period.
Notwithstanding the foregoing paragraphs (a), (b) and (c), the Company shall pay
interest on demand by the Agent at the Overdue Rate on the outstanding principal
amount of any Loan and any other amount payable by the Company hereunder (other
than interest) at any time on or after an Event of Default if required in
writing by the Required Banks.
3.3 LETTER OF CREDIT REIMBURSEMENT PAYMENTS. (a) (i) The Company agrees
to pay to the Banks, on the day on which the Agent shall honor a draft or other
demand for payment presented or made under any Letter of Credit, an amount equal
to the amount paid by the Agent in respect of such draft or other demand under
such Letter of Credit and all expenses paid or incurred by the Agent relative
thereto. Unless the Company shall have made such payment to the Banks on such
day, upon each such payment by the Agent, the Agent shall be deemed to have
disbursed to the Company, and the Company shall be deemed to have elected to
satisfy its reimbursement obligation by, a Revolving Credit B Loan bearing
interest at the Floating Rate for the account of the Banks in an amount equal to
the amount so paid by the Agent in respect of such draft or other demand under
such Letter of Credit. Such Revolving Credit B Loan shall be disbursed
notwithstanding any failure to satisfy any conditions for disbursement of any
Loan set forth in Article II hereof and, to the extent of the Revolving Credit
B Loan so disbursed, the reimbursement obligation of the Company under this
Section 3.3 shall be deemed satisfied; PROVIDED, HOWEVER, that nothing in this
Section 3.3 shall be deemed to constitute a waiver of any Default or Event of
Default caused by the failure to the conditions for disbursement or otherwise.
(ii) If, for any reason (including without limitation as a
result of the occurrence of an Event of Default with respect to the Company
pursuant to Section 6.1(h)), Floating Rate Loans may not be made by the Banks as
described in Section 3.3(a)(i), then (A) the Company agrees that each
reimbursement amount not paid pursuant to the first sentence of Section
3.3(a)(i) shall bear interest, payable on demand by the Agent, at the interest
rate then applicable to Floating Rate Loans, and (B) effective on the date each
such Floating Rate Loan would otherwise have been made, each Bank severally
agrees that it shall unconditionally and irrevocably, without regard to the
occurrence of any Default or Event of Default, in lieu of deemed disbursement of
Loans, to the extent of such Bank's Revolving Credit B Commitment, purchase a
participating interest in each reimbursement amount. Each Bank will immediately
transfer to the Agent, in same day funds, the amount of its participation. Each
Bank shall share on a pro rata basis (calculated by reference to its Revolving
Credit B Commitment) in any interest which accrues thereon and in all repayments
thereof. If and to the extent that any Bank shall not have so made the amount
of such participating interest available to the Agent, such Bank and the Company
severally agree to pay to the Agent forthwith on demand such amount together
with interest thereon, for each day from the date of demand by the Agent until
the date
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such amount is paid to the Agent, at (x) in the case of the Company, the
interest rate then applicable to Floating Rate Loans and (y) in the case of such
Bank, the Federal Funds Rate.
(b) The reimbursement obligation of the Company under this Section
3.3 shall be absolute, unconditional and irrevocable and shall remain in full
force and effect until all obligations of the Company to the Banks hereunder
shall have been satisfied, and such obligations of the Company shall not be
affected, modified or impaired upon the happening of any event, including
without limitation, any of the following, whether or not with notice to, or the
consent of, the Company:
(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of Credit or to any
transaction related in any way to such Letter of Credit (the "Letter of Credit
Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other
right which the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Persons or entities for whom any such
beneficiary or any such transferee may be acting), the Agent or any Bank or any
other Person or entity, whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or therein or any unrelated
transactions;
(iv) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any Letter of
Credit against presentation of a documents which do not comply with the terms of
the Letter of Credit, including failure of any documents to bear any reference
or adequate reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part of the
Agent or any Bank or any party to any of the Letter of Credit Documents to
enforce, assert or exercise any right, power or remedy conferred upon the Agent,
any Bank or any such party under this Agreement or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the Agent, any Bank or
any such party;
(vii) Any other event or circumstance that would, in the absence
of this clause, result in the release or discharge by operation of law or
otherwise of the Company from the performance or observance of any obligation,
covenant or agreement contained in this Section 3.3.
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No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Agent or any Bank. Nothing in this Section 3.3 shall limit the
liability, if any, of the Banks to the Company pursuant to Section 8.5.
3.4 PAYMENT METHOD. (a) All payments to be made by the Company hereunder
will be made to the Agent for the account of the Banks in Dollars and in
immediately available, freely transferable, cleared funds not later than 1:00
p.m. at the principal office of the Agent specified in Section 8.2. Payments
received after 1:00 p.m. at the place for payment shall be deemed to be payments
made prior to 1:00 p.m. at the place for payment on the next succeeding Business
Day. The Company hereby authorizes the Agent to charge its account with the
Agent in order to cause timely payment of amounts due hereunder to be made
(subject to sufficient funds being available in such account for that purpose).
(b) At the time of making each such payment, the Company shall,
subject to the other terms and conditions of this Agreement, specify to the
Agent that Loan or other obligation of the Company hereunder to which such
payment is to be applied. In the event that the Company fails to so specify the
relevant obligation or if an Event of Default shall have occurred and be
continuing, the Agent may apply such payments as it may determine in its sole
discretion.
(c) On the day such payments are deemed received, the Agent shall
remit to the Banks their pro rata shares of such payments in immediately
available funds to the Banks at their respective address in the United States
specified for notices pursuant to Section 8.2. In the case of payments of
principal and interest on any Borrowing, such pro rata shares shall be
determined with respect to each such Bank by the ratio which the outstanding
principal balance of its Loan included in such Borrowing bears to the
outstanding principal balance of the Loans of all of the Banks included in such
Borrowing, and in the case of fees paid pursuant to Section 2.3 and other
amounts payable hereunder (other than the Agent's fees payable pursuant to
Section 2.3(d) and amounts payable to any Bank under Section 3.7), such pro rata
shares shall be determined with respect to each such Bank by the ratio which the
Commitment of such Bank bears to the Commitments of all the Banks.
3.5 NO SETOFF OR DEDUCTION. All payments of principal of and interest on
the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim, and, subject to the next succeeding
sentence, free and clear of, and without deduction or withholding for, or on
account of, any present or future taxes, levies, imposts, duties, fees,
assessments, or other charges of whatever nature, imposed by any governmental
authority, or by any department, agency or other political subdivision or taxing
authority. If any such taxes, levies, imposts, duties, fees, assessments or
other charges are imposed, the Company will pay such additional amounts as may
be necessary so that payment of principal of and interest on the Loans and other
amounts payable hereunder, after withholding or deduction for or on account
thereof, will not be less than any amount provided to be paid hereunder and, in
any such case, the Company will furnish to the Banks certified copies of all
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tax receipts evidencing the payment of such amounts within 45 days after the
date any such payment is due pursuant to applicable law.
3.6 PAYMENT ON NON-BUSINESS DAY; PAYMENT COMPUTATIONS. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement shall be
made on the basis of a year of 360 days for the actual number of days elapsed,
including the first day but excluding the last day of the relevant period.
3.7 ADDITIONAL COSTS. 0.0.0.0.1 In the event that any applicable law,
treaty or other international agreement, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently applicable to
any Bank or the Agent, or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by any Bank or the Agent with any guideline, request or
directive of any such authority (whether or not having the force of law), shall
(a) affect the basis of taxation of payments to any Bank or the Agent of any
amounts payable by the Company under this Agreement (other than taxes imposed on
the overall net income of any Bank or the Agent, by the jurisdiction, or by any
political subdivision or taxing authority of any such jurisdiction, in which any
Bank or the Agent, as the case may be, has its principal office), or (b) shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any Bank or the Agent, or (c) shall impose any other condition with
respect to this Agreement, or any of the Commitments, the Notes or the Loans or
any Letter of Credit, and the result of any of the foregoing is to increase the
cost to any Bank or the Agent, as the case may be, of making, funding or
maintaining any Fixed Rate Loan or any Letter of Credit or to reduce the amount
of any sum receivable by any Bank or the Agent, as the case may be, thereon,
then the Company shall pay to such Bank or the Agent, as the case may be, from
time to time, upon request by such Bank (with a copy of such request to be
provided to the Agent) or the Agent, additional amounts sufficient to
compensate such Bank or the Agent, as the case may be, for such increased cost
or reduced sum receivable to the extent, in the case of any Fixed Rate Loan,
such Bank or the Agent is not compensated therefor in the computation of the
interest rate applicable to such Fixed Rate Loan. A statement as to the amount
of such increased cost or reduced sum receivable, prepared in good faith and in
reasonable detail by such Bank or the Agent, as the case may be, and submitted
by such Bank or the Agent, as the case may be, to the Company, shall be
conclusive and binding for all purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now or
hereafter in effect and whether or not presently applicable to any Bank or the
Agent, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or
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administration thereof, or compliance by any Bank or the Agent with any
guideline, request or directive of any such authority (whether or not having the
force of law), including any risk-based capital guidelines, affects or would
affect the amount of capital required or expected to be maintained by such Bank
or the Agent (or any corporation controlling such Bank or the Agent) and such
Bank or the Agent, as the case may be, determines that the amount of such
capital is increased by or based upon the existence of such Bank's or the
Agent's obligations hereunder and such increase has the effect of reducing the
rate of return on such Bank's or the Agent's (or such controlling corporation's)
capital as a consequence of such obligations hereunder to a level below that
which such Bank or the Agent (or such controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy), then the Company shall pay to such Bank or the
Agent, as the case may be, from time to time, upon request by such Bank (with a
copy of such request to be provided to the Agent) or the Agent, additional
amounts sufficient to compensate such Bank or the Agent (or such controlling
corporation) for any increase in the amount of capital and reduced rate of
return which such Bank or the Agent reasonably determines to be allocable to the
existence of such Bank's or the Agent's obligations hereunder. A statement as
to the amount of such compensation, prepared in good faith and in reasonable
detail by such Bank or the Agent, as the case may be, and submitted by such Bank
or the Agent to the Company, shall be conclusive and binding for all purposes
absent manifest error in computation. Such Bank or the Agent may, at its
option, specify that such amounts be paid by way of an increase in the
commitment fees payable by the Company pursuant to Section 2.3(a).
3.8 ILLEGALITY AND IMPOSSIBILITY. In the event that any applicable law,
treaty or other international agreement, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently applicable to
any Bank, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Bank with any guideline, request or directive of such
authority (whether or not having the force of law), including without limitation
exchange controls, shall make it unlawful or impossible for any Bank to maintain
any Loan under this Agreement, (b) shall make it impracticable, unlawful or
impossible for, or shall in any way limit or impair ability of, the Company to
make or any Bank to receive any payment under this Agreement at the place
specified for payment hereunder, the Company shall upon receipt of notice
thereof from such Bank, repay in full the then outstanding principal amount of
each Loan so affected, together with all accrued interest thereon to the date of
payment and all amounts owing to such Bank under Section 3.8, (a) on the last
day of the then current Eurodollar Interest Period applicable to such Loan if
such Bank may lawfully continue to maintain such Loan to such day, or (b)
immediately if such Bank may not continue to maintain such Loan to such day.
3.9 INDEMNIFICATION. If the Company makes any payment of principal with
respect to any Fixed Rate Loan on any other date than the last day of the
Interest Period applicable thereto (whether pursuant to Section 3.1(c), Section
3.7, Section 6.2 or otherwise), or if the Company fails to borrow any Fixed Rate
Loan after notice has been given to the Banks in accordance with Section 2.4, or
if the Company fails to make any payment of principal or interest in respect of
a Fixed Rate Loan when due, the Company shall reimburse each Bank on demand
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for any resulting loss or expense incurred by each such Bank, including without
limitation any loss incurred in obtaining, liquidating or employing deposits
from third parties, whether or not such Bank shall have funded or committed to
fund such Loan. A statement as to the amount of such loss or expense, prepared
in good faith and in reasonable detail by such Bank and submitted by such Bank
to the Company, shall be conclusive and binding for all purposes absent manifest
error in computation. Calculation of all amounts payable to such Bank under
this Section 3.9 shall be made as though such Bank shall have actually funded or
committed to fund the relevant Fixed Rate Loan through the purchase of an
underlying deposit in an amount equal to the amount of such Loan in the relevant
market and having a maturity comparable to the related Interest Period;
PROVIDED, HOWEVER, that such Bank may fund any Fixed Rate Loan in any manner it
sees fit and the foregoing assumption shall be utilized only for the purpose of
calculation of amounts payable under this Section 3.9.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Banks and the Agent that:
4.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, and is duly qualified to do business, and is in good standing, in all
additional jurisdictions where such qualification is necessary under applicable
law, except where the failure to be so qualified would not have a Material
Adverse Effect. The Company and each Guarantor has all requisite corporate
power to own or lease the properties used in its business and to carry on its
business as now being conducted and as proposed to be conducted, and to execute
and deliver the Loan Documents to which it is a party and to engage in the
transactions contemplated by the Loan Documents.
4.2 CORPORATE AUTHORITY. The execution, delivery and performance by the
Company and each Guarantor of the Loan Documents have been duly authorized by
all necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction order or award of any
arbitrator, court or governmental authority, or of the terms of the Company's or
any Guarantor's charter or by-laws, or of any contract or undertaking to which
the Company or any Guarantor is a party or by which the Company or any Guarantor
or their respective property may be bound or affected or result in the
imposition of any Lien except for Permitted Liens.
4.3 BINDING EFFECT. Each Loan Document to which it is a party is the
legal, valid and binding obligation of the Company and each Guarantor
enforceable against the Company and each Guarantor in accordance with their
respective terms.
4.4 SUBSIDIARIES. SCHEDULE 4.4 hereto correctly sets forth the corporate
name, jurisdiction of incorporation and ownership of each Subsidiary of the
Company. Each such
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Subsidiary and each corporation becoming a Subsidiary of the Company after the
date hereof is and will be a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is and
will be duly qualified to do business in each additional jurisdiction where such
qualification is or may be necessary under applicable law, except where the
failure to be so qualified would not have a Material Adverse Effect. Each
Subsidiary of the Company has and will have all requisite corporate power to own
or lease the properties used in its business and to carry on its business as now
being conducted and as proposed to be conducted. All outstanding shares of
capital stock of each class of each Subsidiary of the Company have been and will
be validly issued and are and will be fully paid and nonassessable and, except
as otherwise indicated in SCHEDULE 4.4 hereto or disclosed in writing to the
Bank from time to time, are and will be owned, beneficially and of record, by
the Company or another Subsidiary of the Company free and clear of any Liens,
except for Permitted Liens.
4.5 LITIGATION. Except as set forth in SCHEDULE 4.5 hereto, there is no
action, suit or proceeding pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any of its Subsidiaries before or
by any court, governmental authority or arbitrator, which if adversely decided
might result, either individually or collectively, in any Material Adverse
Effect and, to the best of the Company's knowledge, there is no basis for any
such action, suit or proceeding.
4.6 FINANCIAL CONDITION. The Consolidated balance sheet of the Company
and its Subsidiaries and the Consolidated statements of income, and cash flow of
the Company and its Subsidiaries for the fiscal year ended September 30, 1995
and reported on by Ernst & Young LLP, independent certified public accountants,
and the interim Consolidated balance sheet and interim Consolidated statements
of income, and cash flow of the Company and its Subsidiaries, as of or for the
six month period ended on March 31, 1996, copies of which have been furnished to
the Banks, fairly present, and the financial statements of the Company and its
Subsidiaries delivered pursuant to Section 5.1(d) will fairly present, the
Consolidated financial position of the Company and its Subsidiaries as at the
respective dates thereof, and the Consolidated results of the operations of the
Company and its Subsidiaries for the respective periods indicated, all in
accordance with Generally Accepted Accounting Principles consistently applied
(subject, in the case of said interim statements, to year-end audit adjustments
and the absence of footnotes). There has been no Material Adverse Effect since
September 30, 1995. There is no material Contingent Liability of the Company or
any of its Subsidiaries that is not reflected in such financial statements or in
the notes thereto. All Contingent Liabilities of the Company and its
Subsidiaries as of the Effective Date are listed on Schedule 4.6 hereto.
4.7 USE OF LOANS. The Company will use the proceeds of the Revolving
Credit A Loans to pay off the indebtedness described in Section 2.5(h), to make
acquisitions and to purchase aircraft and other equipment and shall use the
proceeds of the Revolving Credit B Loans for working capital and other general
corporate purposes. Neither the Company nor any of its Subsidiaries extends or
maintains, in the ordinary course of business, credit for the purposes, whether
immediate, incidental, or ultimate, of buying or carrying margin stock (within
the
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meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan will be used for the purpose,
whether immediate, incidental, or ultimate, of buying or carrying any such
margin stock or maintaining or extending credit to others for such purpose.
After applying the proceeds of each Loan, such margin stock will not constitute
more than 25% of the value of the assets (either of the Company alone or of the
Company and its Subsidiaries on a Consolidated basis) that are subject to any
provisions of this Agreement that may cause the Advances to be deemed secured,
directly or indirectly, by margin stock.
4.8 CONSENTS, ETC. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental Person or entity, including without limitation any creditor,
lessor or stockholder of the Company or any of its Subsidiaries, is required on
the part of the Company in connection with the execution, delivery and
performance of the Loan Documents or the transactions contemplated hereby or as
a condition to the legality, validity or enforceability of the Loan Documents.
4.9 TAXES. The Company and its Subsidiaries have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes shown
thereto to be due, including interest and penalties, or have established
adequate financial reserves on their respective books and records for payment
thereof. Neither the Company nor any of its Subsidiaries knows of any actual or
proposed tax assessment or any basis therefor, and no extension of time for the
assessment of deficiencies in any federal or state tax has been granted by the
Company or any Subsidiary.
4.10 TITLE TO PROPERTIES. Except as otherwise disclosed in the latest year
end balance sheet delivered pursuant to Section 4.6 or 5.1(d) of this Agreement,
the Company or one or more of its Subsidiaries have good and marketable fee
simple title to all of the real property, and a valid and indefeasible ownership
interest in all of the other properties and assets reflected in said balance
sheet or subsequently acquired by the Company or any Subsidiary. All of such
properties and assets are free and clear of any Lien, except for Permitted
Liens.
4.11 ERISA. The Company, its Subsidiaries, their ERISA affiliates and
their respective Plans are in compliance in all material respects with those
provisions of ERISA and of the Code which are applicable with respect to any
Plan. No Prohibited Transaction and no Reportable Event has occurred with
respect to any such Plan. None of the Company, any of its Subsidiaries or any
of their ERISA Affiliates is an employer with respect to any Multiemployer Plan.
The Company, its Subsidiaries and their ERISA Affiliates have met the minimum
funding requirements under ERISA and the Code with respect to each of their
respective Plans, if any, and have not incurred any liability to the PBGC of any
Plan. The execution, delivery and performance of this Agreement the Notes does
not constitute a Prohibited Transaction. There is no material unfunded benefit
liability, determined in accordance with Section 4001(a)(18) of ERISA, with
respect to any Plan of the Company, its Subsidiaries or their ERISA Affiliates.
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4.12 ENVIRONMENTAL AND SAFETY MATTERS. The Company and each Subsidiary is
in substantial compliance with all material federal, state and local laws,
ordinances and regulations relating to safety and industrial hygiene or to the
environmental condition, including without limitation all Environmental Laws in
jurisdictions in which the Company or any Subsidiary owns or operates, or has
owned or operated, a facility or site, or arranges or has arranged for disposal
or treatment of hazardous substances, solid waste, or other wastes, accepts or
has accepted for transport any hazardous substances, solid wastes or other
wastes or holds or has held any interest in real property or otherwise. Except
as disclosed on SCHEDULE 4.12, no demand, claim, notice, suit, suit in equity,
action, administrative action, investigation or inquiry whether brought by any
governmental authority, private Person or entity or otherwise, arising under,
relating to or in connection with any Environmental laws is pending or
threatened against the Company or any of its Subsidiaries, any real property in
which the Company or any such Subsidiary holds or has held an interest or any
past or present operation of the Company or any Subsidiary. Neither the Company
nor any of its Subsidiaries (a) is the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic substances, radioactive materials, hazardous wastes or
related materials into the environment, (b) has received any notices of any
toxic substances, radioactive materials, hazardous waste or related materials
in, or upon any of its properties in violation of any Environmental Laws, or (c)
knows of any basis for such investigation, notice or violation, except as
disclosed on SCHEDULE 4.12 hereto, and as to such matters disclosed on such
Schedule, none will have a Material Adverse Effect. Except as disclosed on
SCHEDULE 4.12, to the best of the knowledge of the Company after due inquiry, no
release, threatened release or disposal of hazardous waste, solid waste or other
wastes is occurring or has occurred on, under or to any real property in which
the Company or any of its Subsidiaries holds any interest or performs any of its
operations, in violation of any Environmental Law.
4.13 NO DEFAULT. Neither the Company nor any Subsidiary is in default or
has received any written notice of default under or with respect to any of its
Contractual Obligations in any respect which could have a Material Adverse
Effect. No Default or Event of Default has occurred and is continuing.
4.14 NO BURDENSOME RESTRICTIONS. No Requirement of Law or Contractual
Obligation applicable to the Company or any Subsidiary could have a Material
Adverse Effect on the financial condition or business of the Company and its
Subsidiaries.
4.15 INITIAL PUBLIC OFFERING. The Company has completed an initial public
offering of equity and, 100% of the proceeds of such initial public offering,
net only of reasonable costs and expenses incurred in connection therewith and a
payment to Don Wright or a trust established by him for certain equity interests
in the Company in an amount not to exceed $29,900,000, which net amount is equal
to or greater than $30,000,000.
4.16 FAA CERTIFICATIONS. The Company is, and at all times will be a
"Citizen of the United States" as defined in Section 40102(a)(15) of 490 U.S.C.,
an air carrier as to which
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the provisions of Section 1110 of the United States Bankruptcy Code apply, and
an air carrier certificated under Sections 41102(a) and 44705 of 49 U.S.C.
4.17 AIRWORTHINESS CERTIFICATES. An airworthiness certificate has been
duly issued for each of the aircraft of the Company, all such airworthiness
certificates are in full force and effect, each aircraft is in such operating
condition, except for such repairs and maintenance in the ordinary course of
business, as may be required to permit each such aircraft to be utilized in
commercial charter operations and otherwise in material compliance with all
applicable laws and regulations.
ARTICLE V
COVENANTS
5.1 AFFIRMATIVE COVENANTS. The Company covenants and agrees that, until
the later of Termination Date A or Termination Date B and thereafter until
payment in full of the principal of and accrued interest on the Notes and the
payment and performance of all other obligations and liabilities of the Company
under the Loan Documents, unless the Required Banks shall otherwise consent in
writing, it shall, and shall cause each of its Subsidiaries to:
(a) PRESERVATION OF CORPORATE EXISTENCE, ETC. Do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
legal existence and its qualification as a foreign corporation in good standing
in each jurisdiction in which such qualifications is necessary under applicable
law, except where the failure to be so qualified would not have a Material
Adverse Effect and the rights, licenses, permits (including those required
under Environmental Laws and those required by the FAA), franchises, patents,
copyrights, trademarks and trade names material to the conduct of its
businesses; and defend all of the foregoing against all claims, actions,
demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code, FAA regulations and Environmental Laws), in effect
from time to time, except where the failure to so comply would not have a
Material Adverse Effect; and pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, revenues or property, before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might give rise to Liens upon such properties or
any portion thereof, except to the extent that payment of any of the foregoing
is then being contested in good faith by appropriate legal proceedings and with
respect to which adequate financial reserves have been established on the books
and records of the Company or such Subsidiary.
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(c) MAINTENANCE OF PROPERTIES; INSURANCE. Maintain, preserve and
protect all property that is material to the conduct of the business, as such
business exists from time to time, of the Company or any of its Subsidiaries and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times in accordance with customary and prudent business practices for similar
businesses; and maintain in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, with such deductibles and self insurance amounts as is usually carried
by companies engaged in similar businesses and of similar sizes and owning
similar properties similarly situated and maintain in full force and effect
public liability insurance, insurance against claims for Personal injury or
death or property damage occurring in connection with any of its activities or
any of any properties owned, occupied or controlled by it, in such amount as it
shall reasonably deem necessary, and maintain such other insurance as may be
required by law or as may be reasonably requested by the Required Banks for
purposes of assuring compliance with this Section 5.1(c).
(d) REPORTING REQUIREMENTS. Furnish to the Banks and the Agent the
following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Event of Default or any event or
condition which, with notice or lapse of time, or both, would constitute an
Event of Default, (B) the commencement of any material litigation against, by or
affecting the Company or any of its Subsidiaries, and any material developments
therein, (C) entering into any material contract or undertaking that is not
entered into in the ordinary course of business, (D) any formal investigation or
enforcement action by the FAA, or by (E) any development in the business or
affairs of the Company or any of its Subsidiaries which has resulted in or which
is likely in the reasonable judgment of the Company, to result in a Material
Adverse Effect, a statement of the chief financial officer or controller of the
Company setting forth details of such Event of Default or such event or
condition or such litigation and the action which the Company or such
Subsidiary, as the case may be, has taken and proposes to take with respect
thereto;
(ii) As soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters of each fiscal year of the
Company, the Consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the end of such quarter, and the related Consolidated and
consolidating statements of income for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief financial officer
or controller of the Company as having been prepared in accordance with
Generally Accepted Accounting Principles, together with a certificate of the
chief financial officer or controller of the Company stating (A)
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that no Event of Default or Default has occurred and is continuing or, if an
Event of Default or Default has occurred and is continuing, a statement setting
forth the details thereof and the action which the Company has taken and
proposes to take with respect thereto, (B) that a computation (which computation
shall accompany such certificate and shall be in reasonable detail) showing
compliance with Section 5.2(a), (b), (c) and (d) hereof is in conformity with
the terms of this Agreement, and (C) that there have been no substantive changes
in Schedule 4.12;
(iii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, a copy of the Consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year and the related Consolidated and consolidating statements of
income and the Consolidated statement of cash flow of the Company and its
Subsidiaries for such fiscal year, with a customary audit report of Ernst &
Young LLP, or other independent certified public accountants selected by the
Company and acceptable to the Required Banks, without qualifications
unacceptable to the Required Banks, together with a certificate of such
accountants stating that they have reviewed this Agreement and stating further
whether, in the course of their review of such financial statements, they have
become aware of any Event of Default or any Default, and together with a
computation by the Company (which computation shall accompany such certificate
and shall be in reasonable detail) showing compliance with Section 5.2 (a), (b),
(c) and (d) hereof is in conformity with the terms of this Agreement;
(iv) Promptly after the sending or filing thereof, copies of all
reports, proxy statements and financial statements which the Company or any of
its Subsidiaries sends to or files with any of their respective security holders
or any securities exchange or the Securities and Exchange Commission or any
successor agency thereof;
(v) Promptly and in any event within 10 calendar days after
receiving or becoming aware thereof (A) a copy of any notice of intent to
terminate any Plan of the Company, its Subsidiaries or any ERISA Affiliate filed
with the PBGC, (B) a statement of the chief financial officer or controller of
the Company setting forth the details of the occurrence of any Reportable Event
with respect to any such Plan, (C) a copy of any notice that the Company, any of
its Subsidiaries or any ERISA Affiliate may receive from the PBGC relating to
the intention of the PBGC to terminate any such Plan or to appoint a trustee to
administer any such Plan, or (D) a copy of any notice of failure to make a
required installment or other payment within the meaning of Section 412(n) of
the Code or Section 302(f) of ERISA with respect to any such Plan;
(vi) Promptly and in any event within ten days after receipt, a
copy of any management letter or comparable analysis prepared by the auditors
for the Company or any of its Subsidiaries;
(vii) as soon as available and in any event within 15 days
after the end of each month, a borrowing base certificate in form and detail
satisfactory to the Agent,
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calculating Borrowing Base A and Borrowing Base B and signed by the chief
financial officer or controller of the Company;
(viii) on or within 15 days of April 30, 1998 and on or within
15 days of each second year thereafter, current appraisals, in form satisfactory
to the Agent and performed by an independent third party appraiser acceptable to
the Agent, of all aircraft and equipment included in Borrowing Base B; and
(ix) Promptly, such other information respecting the business,
properties, operations or condition, financial or otherwise, of the Company or
any of it Subsidiaries as any Bank or the Agent may from time to time reasonably
request.
(e) ACCOUNTING; ACCESS TO RECORDS, BOOKS, ETC. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
Generally Accepted Accounting Principles and to comply with the requirements of
this Agreement and, at any reasonable time and from time to time, permit any
Bank or the Agent or any agents or representatives thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, the Company and its Subsidiaries, and to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with their respective
directors, officers, employees and independent auditors, and by this provision
the Company does hereby authorize such Persons to discuss such affairs, finances
and accounts with any Bank or the Agent.
(f) FURTHER ASSURANCES. Will execute and deliver, or cause to be
executed and delivered within 30 days after request therefor by the Required
Banks or the Agent, a Guaranty for each Subsidiary of the Company, whether now
existing or hereafter arising or formed, and all further instruments and
documents and take all further action that may be necessary or desirable, or
that the Agent may request, in order to give effect to, and to aid in the
exercise and enforcement of the rights and remedies of the Banks and the Agent
under, the Loan Documents. In addition, the Company agrees to deliver to the
Agent and the Banks from time to time upon the acquisition or creation of any
Subsidiary not listed in SCHEDULE 4.4 hereto supplements to SCHEDULE 4.4 such
that such Schedule, together with such supplements, shall at all times
accurately reflect the information provided for thereon.
5.2 NEGATIVE COVENANTS. Until the later of Termination Date A and
Termination Date B and thereafter until payment in full of the principal of and
accrued interest on the Notes and the payment and performance of all other
obligations and liabilities of the Company under the Loan Documents, the Company
agrees that, unless the Required Banks shall otherwise consent in writing it
shall not, and shall not permit any of its Subsidiaries to:
(a) TANGIBLE NET WORTH. Permit or suffer the Consolidated Tangible
Net Worth of the Company and its Subsidiaries at any time to be less than the
sum of (i) 85% of the Consolidated Tangible Net Worth of the Company and its
Subsidiaries as of the Effective Date, after giving effect to Section 2.5
hereof, including without limitation the completion of the
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initial public offering described at Section 2.5(g) (and the Company agrees to
deliver to the Agent a certificate and calculation in reasonable detail showing
the Tangible Net Worth of the Company and its Subsidiaries as of the Effective
Date after giving effect to such transactions on or prior to thirty (30) days
after the Effective Date), plus (b) 50% of the Consolidated net income of the
Company and its Subsidiaries, commencing with the fiscal year ending September
30, 1996, provided that, if such net income is negative in any fiscal year of
the Company, the amount added for such fiscal year shall be zero and such amount
shall not reduce the amount added pursuant to any other fiscal year.
(b) FUNDED DEBT RATIO. Permit or suffer the Funded Debt Ratio to
exceed 2.50 to 1.0 at any time.
(c) FUNDED DEBT TO TOTAL CAPITALIZATION. Permit or suffer the ratio
of Funded Debt to Total Capitalization to exceed 0.5 to 1.0 at any time
(d) CASH FLOW COVERAGE RATIO. Permit or suffer the Cash Flow
Coverage Ratio to be less than (i) 1.05 to 1.0 for any fiscal quarter commencing
September 30, 1996 through the fiscal quarter ending June 30, 1997, (ii) 1.1 to
1.0 for the fiscal quarter ending September 30, 1997, or (iii) 1.2 to 1.0 as of
the end of any fiscal quarter thereafter.
(e) LIENS. Create, incur or suffer to exist any Lien on any of the
assets, rights, revenues or property, real, Personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of the Company or any of
its Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being contested
in good faith by appropriate proceedings and as to which adequate financial
reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which do not secure obligations
for borrowed money and are not material in the aggregate and which would not
have a Material Adverse Effect and which constitute (A) pledges or deposits
under worker's compensation laws, unemployment insurance laws or similar
legislation, (B) good faith deposits in connection with bids, tenders, contracts
or leases to which the Company or any of its Subsidiaries is a party for a
purpose other than borrowing money or obtaining credit, including rent security
deposits, (C) Liens imposed by law, such as those of carriers, warehousemen and
mechanics, if payment of the obligation secured thereby is not yet due, (D)
Liens securing taxes, assessments or other governmental charges or levies not
yet subject to penalties for nonpayment, except to the extent such Liens arise
from nonpayment of any of such taxes or other assessments and governmental
charges if such payment is then being contested in good faith by appropriate
legal proceedings and with respect to which adequate financial reserves have
been established on the books and records of the Company, and (E) pledges or
deposits to secure public or statutory obligations of the Company or any of its
Subsidiaries, or surety, customs or appeal bonds to which the Company or any of
its Subsidiaries is a party;
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(iii) Liens affecting real property which constitute minor
survey exceptions or defects or irregularities in title, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of such real property, PROVIDED that
all of the foregoing, in the aggregate, do not at any time materially detract
from the value of said properties or materially impair their use in the
operation of the businesses of the Company or any of its Subsidiaries;
(iv) Each Lien existing on the Effective Date and described in
Schedule 5.2(e) hereof, but no extension or renewal thereof shall be permitted;
and
(v) Any Lien created to secure payment of a portion of the
purchase price of, or existing at the time of acquisition of, any tangible fixed
asset acquired by the Company or any of its Subsidiaries may be created or
suffered to exist upon such fixed asset if the outstanding principal amount of
the Indebtedness secured by such Lien does not at any time exceed the purchase
price paid by the Company or such Subsidiary for such fixed asset and the
aggregate principal amount of all Indebtedness secured by such Liens does not
exceed $250,000; PROVIDED that such Lien does not encumber any other asset at
any time owned by the Company or such Subsidiary, and PROVIDED, FURTHER, that
not more than one such Lien shall encumber such fixed asset at any one time.
(f) ACQUISITIONS; MERGER; ETC. Purchase or otherwise acquire,
whether in one or a series of transactions, all or a substantial portion of the
business, assets, rights, revenues or property, real, Personal, or mixed,
tangible or intangible, of any Person, or all or a substantial portion of the
capital stock of or other ownership interest in any other Person; nor merge or
consolidate or amalgamate with any other Person or take any other action having
a similar effect, nor enter into any joint venture or similar arrangement with
any other Person, PROVIDED, HOWEVER, that this Section 5.2(f) shall not prohibit
any of the foregoing transactions described in this Section 5.2(f) if each of
the following conditions is satisfied: (i) the Company shall be the surviving or
continuing corporation thereof, (ii) immediately after such merger or
acquisition or other transaction, no Default or Event of Default shall exist or
shall have occurred and be continuing and, prior to the consummation of such
merger or acquisition, the Company shall have provided to the Banks an opinion
of counsel and a certificate of the chief financial officer or controller of the
Company (attaching computations to demonstrate compliance with all financial
covenants hereunder after giving effect to such merger or acquisition and
attaching such pro forma financial statements as may be reasonably requested by
the Agent), each stating that such merger or acquisition or other transaction
complies with this Section 5.2(f) and that any other conditions under this
Agreement relating to such transaction have been satisfied, (iii) the board of
directors of the corporation with which the Company or its Subsidiaries is
involved in such transaction has approved the transaction, and (iv) if any such
merger, acquisition or other transaction involves consideration in excess of
$3,000,00, the Required Banks shall have approved in writing such merger,
acquisition or other transaction.
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(g) DISPOSITION OF ASSETS; ETC. Sell, lease, license, transfer,
assign or otherwise dispose of any its business, assets, rights, revenues or
property, real, Personal or mixed, tangible or intangible, whether in one or a
series of transactions, other than inventory sold in the ordinary course of
business upon customary credit terms and sales of scrap or obsolete material or
equipment, PROVIDED, HOWEVER that this Section 5.2(g) shall not prohibit any
such sale, lease, license, transfer, assignment or other disposition if the
aggregate book value (disregarding any write-downs of such book value other than
ordinary depreciation and amortization) of all of the business, assets, rights,
revenues and property disposed of after the date of this Agreement shall be less
than $2,500,000 in the aggregate for any calendar year and if, immediately after
such transaction, no Default or Event of Default shall exist or shall have
occurred and be continuing.
(h) DIVIDENDS AND OTHER RESTRICTED PAYMENTS. Make, pay, declare or
authorize any dividend, payment or other distribution in respect of any class of
its capital stock or any dividend, payment or distribution in connection with
the redemption, purchase, retirement or other acquisition, directly or
indirectly, of any shares of its capital stock other than such dividends,
payments or other distributions to the extent payable solely in shares of the
capital stock of the Company, if a Default or Event of Default shall exist or
shall have occurred and be continuing, or would be caused thereby. For purposes
of this Section 5.2(h), "capital stock" shall include capital stock and any
securities exchangeable for or convertible into capital stock and any warrants,
rights or other options to purchase or otherwise acquire capital stock or such
securities.
(i) LOANS AND ADVANCES. Make any loan or advance of any of its funds
or property or make any other extension of credit to any Person other than (i)
advances by the Company to any of its Subsidiaries, (ii) advances by any
Subsidiary of the Company to the Company or to another Subsidiary of the
Company, and (iii) extensions of trade credit made in the ordinary course of
business on customary credit terms and commission, travel and similar advances
made to officers and employees in the ordinary course of business.
(j) INDEBTEDNESS. Create, incur, assume or in any manner become
liable in respect of, or suffer to exist, any Indebtedness other than:
(i) The Advances;
(ii) The Indebtedness described in Schedule 5.2(j) hereto, but no
increase in the amount thereof or extension thereof shall be permitted;
(iii) Indebtedness in aggregate outstanding principal amount
not exceeding $250,000 which is secured by one or more liens permitted by
Section 5.2(e)(v) hereof;
(iv) Indebtedness of any Subsidiary of the Company owing to the
Company or to any other Subsidiary of the Company;
(v) Other Indebtedness of the Company or any of its Subsidiaries
owing to NBD Bank or its Affiliates.
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(k) NATURE OF BUSINESS. Make any substantial change in the nature of
its business from that engaged in on the date of this Agreement or engage in any
other businesses other than those in which it is engaged on the date of this
Agreement.
(l) TRANSACTIONS WITH AFFILIATES. Enter into, become a party to, or
become liable in respect of, any contract or undertaking with any Affiliate
except in the ordinary course of business and on terms not less favorable to the
Company or such Subsidiary than those which could be obtained if such contract
or undertaking were an arms length transaction with a Person other than an
Affiliate.
(m) ADDITIONAL COVENANTS. If at any time the Company or any
Subsidiary shall enter into or be a party to any instrument or agreement,
including all such instruments or agreements in existence as of the date hereof
and all such instruments or agreements entered into after the date hereof,
relating to or amending any terms or conditions applicable to any of its
Indebtedness which includes covenants, terms, conditions or defaults not
substantially provided for in this Agreement or more favorable to the lender or
lenders thereunder than those provided for in this Agreement, then the Company
shall promptly so advise the Agent and the Banks. Thereupon, if the Agent shall
request, upon notice to the Company, the Agent and the Banks shall enter into an
amendment to this Agreement or an additional agreement (as the Agent may
request), providing for substantially the same covenants, terms, conditions and
defaults as those provided for in such instrument or agreement to the extent
required and as may be selected by the Agent.
ARTICLE VI.
DEFAULT
6.1 EVENTS OF DEFAULT. The occurrence of any one of the following events
or conditions shall be deemed an "Event of Default" hereunder unless waived
pursuant to Section 8.1:
(a) NONPAYMENT. The Company shall fail to pay when due any principal
of or interest on the Notes or any fees or any other amount payable hereunder,
and such failure shall remain unremedied for 2 Business Days; or
(b) MISREPRESENTATION. Any representation or warranty made by the
Company in Article IV hereof or in any other certificate, report, financial
statement or other document furnished by or on behalf of the Company in
connection with this Agreement, shall prove to have been incorrect in any
material respect when made or deemed made; or
(c) CERTAIN COVENANTS. The Company shall fail to perform or observe
any term, covenant or agreement contained in Article V hereof, and any such
failure shall remain unremedied for 10 calendar days after notice thereof shall
have been given to the Company by the Agent; or
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(d) OTHER DEFAULTS. The Company or any Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in any Loan
Document, and any such failure shall remain unremedied for 15 calendar days
after notice thereof shall have been given to the Company by the Agent; or
(e) CROSS DEFAULT. The Company or any of its Subsidiaries shall fail
to pay any part of the principal of, the premium, if any, or the interest on, or
any other payment of money due under any of its Indebtedness (other than
Indebtedness hereunder), beyond any period of grace provided with respect
thereto, which individually or together with other such Indebtedness as to which
any such failure exists has an aggregate outstanding principal amount in excess
of $2,000,000; or if the Company or any of its Subsidiaries fails to perform or
observe any other term, covenant or agreement contained in any agreement,
document or instrument evidencing or securing any such Indebtedness having such
aggregate outstanding principal amount, or under which any such Indebtedness was
issued or created, beyond any period of grace, if any, provided with respect
thereto if the effect of such failure is to cause or permit the holders of such
Indebtedness (or trustee on behalf of such holders) to cause payment in respect
of such Indebtedness to become due prior to its due date; or
(f) JUDGMENTS. One or more Judgments or orders for the payment of
money in an aggregate amount of $2,000,000 shall be rendered against the Company
or any of its Subsidiaries, or any other judgment or order (whether or not for
the-payment of money) shall be rendered against or shall affect the Company or
any of its Subsidiaries which causes or could cause a Material Adverse Effect,
and either (i) such judgment or order shall have remained unsatisfied and the
Company or such Subsidiary shall not have taken action necessary to stay
enforcement thereof by reason of pending appeal or otherwise, prior to the
expiration of the applicable period of limitations for taking such action or, if
such action shall have been taken, a final order denying such stay shall have
been rendered, or (ii) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order; or
(g) ERISA. The occurrence of a Reportable Event that results in or
could result in liability of the Company, any Subsidiary of the Company or their
ERISA Affiliates to the PBGC or to any Plan and such Reportable Event is not
corrected within sixty (60) days after the occurrence thereof; or the occurrence
of any Reportable Event which could constitute grounds for termination of any
Plan of the Company, its Subsidiaries or their ERISA Affiliates by the PBGC or
for the appointment by the appropriate United States District Court of a trustee
to administer any such Plan and such Reportable Event is not corrected within
sixty (60) days after the occurrence thereof; or the filing by the Company, any
Subsidiary of the Company or any of their ERISA
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Affiliates of a notice of intent to terminate a Plan or the institution of other
proceedings to terminate a Plan; or the Company, any Subsidiary of the Company
or any of their ERISA Affiliates shall fail to pay when due any liability to the
PBGC or to a Plan; or the PBGC shall have instituted proceedings to terminate,
or to cause a trustee to be appointed to administer, any Plan of the Company,
its Subsidiaries or their ERISA Affiliates; or any Person engages in a
Prohibited Transaction with respect to any Plan which results in or could result
in liability of the Company, any Subsidiary of the Company, any of their ERISA
Affiliates, any Plan of the Company, its Subsidiaries or their ERISA Affiliates
or fiduciary of any such Plan; or failure by the Company, any Subsidiary of the
Company or any of their ERISA Affiliates to make a required installment or other
payment to any Plan within the meaning of Section 302(f) of ERISA or Section
412(n) of the Code that results in or could result in liability of the Company,
any Subsidiary of the Company or any of their ERISA Affiliates to the PBGC or
any Plan; or the withdrawal of the Company, any of its Subsidiaries or any of
their ERISA Affiliates from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a) (2) of ERISA; or the
Company, any of its Subsidiaries or any of their ERISA Affiliates becomes an
employer with respect to any Multiemployer Plan without the prior written
consent of the Required Banks; or
(h) INSOLVENCY, ETC. The Company or any of its Subsidiaries shall be
dissolved or liquidated (or any judgment, order or decree therefor shall be
entered), or shall generally not pay its debts as they become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors, or shall institute, or there
shall be instituted against the Company or any of its Subsidiaries, any
proceeding or case seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors or seeking the
entry of an order for relief, or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
assets, rights, revenues or property, and, if such proceeding is instituted
against the Company or such Subsidiary and is being contested by the Company or
such Subsidiary, as the case may be, in good faith by appropriate proceedings,
such proceeding shall remain undismissed or unstayed for a period of 60 days: or
the Company or such Subsidiary shall take any action (corporate or other) to
authorize or further any of the actions described above in this subsection;
(i) CHANGE IN CONTROL. Any Change in Control shall occur; or
(j) LOAN DOCUMENTS. Any material provision of any Loan Document
shall at any time for any reason cease to be valid and binding and enforceable
against any obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested by any Person, or any obligor, shall
deny that it has any or further liability or obligation thereunder, or any Loan
Document shall be terminated invalidated or set aside, or be declared
ineffective or inoperative or in any way cease to give or provide to the Banks
and the Agent the benefits purported to be created thereby; or
(k) LAWS AND REGULATIONS. Any material violation of the 49 U.S.C. or
any FAA regulation applicable to the Company or the Guarantor or to any aircraft
owned and/or operated by the Company or Guarantor or to any aircraft owned
and/or operated by the Company or the Guarantor is not cured within 30 days;
provided, however, that no Event of Default under this clause (k) shall be
deemed to exist if the Company and the Guarantors have commenced and diligently
pursued appropriate action to cure such violation and such default may be and is
cured within 30 days after such 30 day grace period; provided, further, that
among other material
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violations, any violation resulting in a formal investigation or an enforcement
action by the FAA shall be presumed material.
6.2 REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent may and, upon being directed to do so by the Required Banks,
shall by notice to the Company (i) terminate the Commitments or (ii) declare the
outstanding principal of, and accrued interest on, the Notes, all unpaid
reimbursement obligations in respect of drawings under Letters of Credit and all
other amounts owing under this Agreement to be immediately due and payable, or
(iii) demand immediate delivery of cash collateral, and the Company agrees to
deliver such cash collateral upon demand, in an amount equal to the maximum
amount that may be available to be drawn at any time prior to the stated expiry
of all outstanding Letters of Credit, or any one or more of the foregoing,
whereupon the Commitments shall terminate forthwith and all such amounts,
including such cash collateral, shall become immediately due and payable,
PROVIDED that in the case of any event or condition described in Section 6.1(h)
with respect to the Company, the Commitments shall automatically terminate
forthwith and all such amounts, including such cash collateral, shall
automatically become immediately due and payable without notice; in all cases
without demand, presentment, protest, diligence, notice of dishonor or other
formality, all of which are hereby expressly waived. Such cash collateral
delivered in respect of outstanding Letters of Credit shall be deposited in a
special cash collateral account to be held by the Agent as collateral security
for the payment and performance of the Company's obligations under this
Agreement to the Banks and the Agent.
(b) The Agent may and, upon being directed to do so by the Required
Banks, shall, in addition to the remedies provided in Section 6.2(a), exercise
and enforce any and all other rights and remedies available to it, whether
arising under the Loan Documents or under applicable law, in any manner deemed
appropriate by the Agent, including suit in equity, action at law, or other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in any Loan Document or
in aid of the exercise of any power granted in any Loan Document.
(c) Upon the occurrence and during the continuance of any Event of
Default, each Bank may at any time and from time to time, without notice to the
Company (any requirement for such notice being expressly waived by the Company
set off and apply against any and all of the obligations of the Company now or
hereafter existing under this Agreement, Whether owing to such Bank or any other
Bank or the Agent, any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Bank to or for the credit or the account of the Company and any property
of the Company from time to time in possession of such Bank, irrespective of
whether or not such Bank shall have made any demand hereunder and although such
obligations may be contingent and
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unmatured. The Company hereby grants to the Banks and the Agent a lien on and
security interest in all such deposits, indebtedness and property as collateral
security for the payment and performance of the obligations of the Company under
the Loan Documents. The rights of such Bank under this Section 6.2(c) are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which such Bank may have.
ARTICLE VII.
THE AGENT AND THE BANKS
7.1 APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under the Loan Documents as are delegated to the Agent by
the terms hereof or thereof, together with all such powers as are reasonably
incidental thereto. The provisions of this Article VII are solely for the
benefit of the Agent and the Banks, and the Company shall not have any rights as
a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent shall act solely as agent
of the Banks and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for the Company.
7.2 AGENT AND AFFILIATES. NBD Bank in its capacity as a Bank hereunder
shall have the same rights and powers hereunder as any other Bank and may
exercise or refrain from exercising the same as though it were not the Agent.
NBD Bank and its affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, and generally engage in any kind of
banking, trust, financial advisory or other business with the Company, or any of
its respective Subsidiaries as if it were not acting as Agent hereunder, and may
accept fees and other consideration therefor without having to account for the
same to the Banks.
7.3 SCOPE OF AGENT'S DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement, have a fiduciary relationship with any Bank, and no
implied covenants, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or shall otherwise exist against the Agent. As to
any matters not expressly provided for by the Loan Documents (including, without
limitation, collection and enforcement actioned under the Notes), the Agent
shall not be required to exercise any discretion or take any action, but the
Agent shall take such action or omit to take any action pursuant to the
reasonable written instructions of the Required Banks and may request
instructions from the Required Banks. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, pursuant to the written
instructions of the Required Banks (or all of the Banks, as the case may be, in
accordance with the requirements of this Agreement), which instructions and any
action or omission pursuant thereto shall be binding upon all of the Banks;
PROVIDED, HOWEVER, that the Agent shall not be required to act or omit to act
if, in the judgment of the Agent, such action or omission may expose the Agent
to Personal liability or is contrary to any Loan Document or applicable law.
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7.4 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any
certificate, notice, document or other communication (including any cable,
telegram, telex, facsimile transmission or oral communication) believed by it to
be genuine and correct and to have been sent or given by or on behalf of a
proper Person. The Agent may treat the payee of any Note as the holder thereof
unless and until the Agent receives written notice of the assignment thereof
pursuant to the terms of this Agreement signed by such payee and the Agent
receives the written agreement of the assignee that such assignee is bound
hereby to the same extent as if it had been an original party hereto. The Agent
may employ agents (including without limitation collateral agents) and may
consult with legal counsel (who may be counsel for the Company), independent
public accountants and other experts selected by it and shall not be liable to
the Banks, except as to money or property received by it or its authorized
agents, for the negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
7.5 DEFAULT. The Agent shall not be deemed to have knowledge of the
occurrence of any Default or Event of Default, unless the Agent has received
written notice from a Bank or the Company specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice, the Agent shall give written notice
thereto to the Banks.
7.6 LIABILITY OF AGENT. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to the Banks for any action taken
or not taken by it or them in connection herewith with the consent or at the
request of the Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any recital, statement, warranty or
representation contained in any Loan Document, or in any certificate, report,
financial statement or other document furnished in connection with this
Agreement, (ii) the performance or observance of any of the covenants or
agreements of the Company, (iii) the satisfaction of any condition specified in
Article II hereof, or (iv) the validity, effectiveness, legal enforceability,
value or genuineness of any Loan Documents or any collateral subject thereto or
any other instrument or document furnished in connection herewith.
7.7 NONRELIANCE ON AGENT AND OTHER BANKS. Each Bank acknowledges and
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Company and its Subsidiaries decision to
enter into this Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decision in taking or not taking action under this Agreement. The Agent shall
not be required to keep itself informed as to the performance or observance by
the Company of the Loan Documents or any other documents referred to or provided
for herein or to inspect the properties or books of the Company or any
Subsidiary and, except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
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Agent shall not have any duty or responsibility to provide any Bank with any
information concerning the affairs, financial condition or business of the
Company, or any of its Subsidiaries which may come into the possession of the
Agent or any of its Affiliates.
7.8 INDEMNIFICATION. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Company, but without limiting any obligation of the
Company to make such reimbursement), ratably according to the respective
principal amounts of the Advances then outstanding made by each of them (or if
no Advances are at the time outstanding, ratably according to the respective
amounts of their Commitments), from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or the transactions contemplated hereby or any
action taken or omitted by the Agent under this Agreement, PROVIDED, HOWEVER,
that no Bank shall be liable for any portion of such claims, damages, losses,
liabilities, costs or expenses resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any out-of-
pocket expenses (including without limitation fees and expenses of counsel)
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that the Agent
is not reimbursed for such expenses by the Company but without limiting the
obligation of the Company to make such reimbursement. Each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any amounts
owing to the Agent by the Banks pursuant to this Section. If the indemnity
furnished to the Agent under this Section shall, in the judgment of the Agent,
be insufficient or become impaired, the Agent may call for additional indemnity
from the Banks and cease, or not commence, to take any action until such
additional indemnity is furnished.
7.9 SUCCESSOR AGENT. The Agent may resign as such at any time upon ten
days' prior written notice to the Company and the Banks. In the event of any
such resignation, the Required Banks shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor, which shall be a
commercial bank organized under the laws of the United States or any State
thereof and having a combined capital and surplus of at least $500,000,000. If
a successor is not so appointed or does not accept such appointment before the
Agent's resignation becomes effective, the retiring Agent may appoint a
temporary successor to act until such appointment by the Required Banks is made
and accepted or if no such temporary successor is appointed as provided above by
the retiring Agent, the Required Banks shall thereafter perform all the duties
of the Agent hereunder until such appointment by the Required Banks is made and
accepted. Any successor to the Agent shall execute and deliver to the Company
and the Banks an instrument accepting such appointment and thereupon such
successor Agent, without further act, deed, conveyance or transfer shall become
vested with all of the properties, rights, interests, powers, authorities and
obligations of its predecessor hereunder with like effect as if originally named
as Agent hereunder. Upon request of such successor Agent, the Company and the
retiring Agent shall execute and deliver such instruments of conveyance,
assignment and further assurance
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and do such other things as may reasonably be required for more fully and
certainly vesting and confirming in such successor Agent all such properties,
rights, interests, powers, authorities and obligations. The provisions of this
Article VII shall thereafter remain effective for such retiring Agent with
respect to any actions taken or omitted to be taken by such Agent while acting
as the Agent hereunder.
7.10 SHARING OF PAYMENTS. The Banks agree among themselves that, in the
event that any Bank shall obtain payment in respect of any Advance or any other
obligation owing to the Banks under this Agreement through the exercise of a
right of set-off, banker's lien, counterclaim or otherwise in excess of its
ratable share of payments received by all of the Banks on account of the
Advances and other obligations (or if no Advances are outstanding, ratably
according to the respective amounts of the Commitments), such Bank shall
promptly purchase from the other Banks participation in such Advances and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all of the Banks share such payment in
accordance with such ratable shares. The Banks further agree among themselves
that if payment to a Bank obtained by such Bank through the exercise of a right
of set-off, banker's lien, counterclaim or otherwise as aforesaid shall be
rescinded or must otherwise be restored, each Bank which shall have shared the
benefit of such payment shall, by repurchase of participation theretofore sold,
return its share of that benefit to each Bank whose payment shall have been
rescinded or otherwise restored. The Company agrees that any Bank so purchasing
such a participation may, to the fullest extent permitted by law, exercise all
rights of payment, including set-off, banker's lien or counterclaim, with
respect to such participation as fully as if such Bank were a holder of such
Advance or other obligation in the amount of such participation. The Banks
further agree among themselves that, in the event that amounts received by the
Banks and the Agent hereunder are insufficient to pay all such obligations or
insufficient to pay all such obligations when due, the fees and other amounts
owing to the Agent in such capacity shall be paid therefrom before payment of
obligations owing to the Banks under this Agreement. Except as otherwise
expressly provided in this Agreement, if any Bank or the Agent shall fail to
remit to the Agent or any other Bank an amount payable by such Bank or the Agent
to the Agent or such other Bank pursuant to this Agreement on the date when such
amount is due, such payments shall be made together with interest thereon for
each date from the date such amount is due until the date such amount is paid to
the Agent or such other Bank at a rate per annum equal to the rate at which
borrowings are available to the payee in its overnight federal funds market. It
is further understood and agreed among the Banks and the Agent that if the Agent
shall engage in any other transactions with the Company and shall have the
benefit of any collateral or security therefor which does not expressly secure
the obligations arising under this Agreement except by virtue of a so-called
dragnet clause or comparable provision, the Agent shall be entitled to apply any
proceeds of such collateral or security first in respect of the obligations
arising in connection with such other transaction before application to the
obligations arising under this Agreement.
7.11 WITHHOLDING TAX EXEMPTION. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Bank, each Bank that is not incorporated under the laws of the United States
of America, or a state thereof, agrees that
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it will deliver to each of the Company and the Agent two duly completed copies
of United States Internal Revenue Service Form 1001 or 4224, certifying in
either case that such Bank is entitled to receive payments under this Agreement
and the Notes without deduction or withholding of any United States federal
income taxes. Each Bank which so delivers a Form 1001 or 4224 further undertakes
to deliver to each of the Company and the Agent two additional copies of such
form (or a successor form) on or before the date that such form expires
(currently, three successive calendar years for Form 1001 and one calendar year
for Form 4224) or becomes obsolete or after the occurrence of any event
requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Company or the Agent, in each case certifying that such Bank is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises the Company and the Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax. Each such Bank delivering such forms shall indemnify the Company and the
Agent, and hold harmless the Company and the Agent from, all losses and damages
suffered by the Company or the Agent for any inaccuracies in any such forms.
ARTICLE VIII.
MISCELLANEOUS
8.1 AMENDMENTS, ETC. 1. No amendment, modification, termination or
waiver of any provision of any Loan Document nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Company and Required Banks and, to the extent any rights or duties of the
Agent may be affected thereby, the Agent, PROVIDED, HOWEVER, that no such
amendment, modification, termination, waiver or consent shall, without the
consent of the Agent and all of the Banks, (i) authorize or permit the extension
of time for, or any reduction of the amount of, any payment of the principal of,
or interest on, the Notes or any Letter of Credit reimbursement obligation, or
any fees or other amount payable hereunder, or (ii) amend, extend or terminate
the respective Commitments of any Bank set forth on the signature pages hereof
or the definition of Required Banks.
(b) Any such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
(c) Notwithstanding anything herein to the contrary, no Bank that is
in default of any of its obligations to fund any amount due under this Agreement
shall be entitled to vote (whether to consent or to withhold its consent) with
respect to any amendment, modification, termination or waiver of any provision
of this Agreement or any departure therefrom or any direction from the Banks to
the Agent, and, for purposes of determining the
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Required Banks at any time when any Bank is in default under this Agreement, the
Commitments and Advances of such defaulting Banks shall be disregarded.
8.2 NOTICES. (a) Except as otherwise provided in Section 8.2(c) hereof,
all notices and other communications hereunder shall be in writing and shall be
delivered or sent to the Company at 3939 International Gateway, Columbus, Ohio
43219, Attention: Chief Financial Officer or Controller, Facsimile No. (614)
237-1915, Telephone No. (614) 237-9777, and to the Agent and the Banks at the
respective addresses for notices set forth on the signatures pages hereof, or to
such other address as may be designated by the Company, the Agent or any Bank by
notice to the other parties hereto. All notices and other communications shall
be deemed to have been given at the time of actual delivery thereof to such
address, or, unless sooner delivered, (i) if sent by certified or registered
mail, postage prepaid, to such address, on the third day after the date of
mailing, (ii) if sent by telex, upon receipt of the appropriate answerback, or
(iii) if sent by facsimile transmission, upon confirmation of receipt by
telephone at the number specified for confirmation, PROVIDED, HOWEVER, that
notices to the Agent shall not be effective until received.
(b) Notices by the Company to the Agent with respect to terminations
or reductions of the Commitments pursuant to Section 2.2, requests for Advances
pursuant to Section 2.4, requests for continuations or conversions of Loans
pursuant to Section 2.7 and notices of prepayment pursuant to Section 3.1 shall
be irrevocable and binding on the Company.
(c) Any notice to be given by the Company to the Agent pursuant to
Sections 2.4, 2.7 or 3.1 and any notice to be given by the Agent or any Bank
hereunder, may be given by telephone, and all such notices given by the Company
must be immediately confirmed in writing in the manner provided in Section
8.2(a). Any such notice given by telephone shall be deemed effective upon
receipt thereof by the party to whom such notice is to be given. The Company
shall indemnify and hold harmless the Banks and the Agent from any and all
losses, damages, liabilities and claims arising from their good faith reliance
on any such telephone notice.
8.3 NO WAIVER BY CONDUCT; REMEDIES CUMULATIVE. No course of dealing on
the part of the Agent or any Bank, nor any delay or failure on the part of the
Agent or any Bank in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice
the Agent's or such Bank's rights and remedies hereunder; nor shall any single
or partial exercise thereof preclude any further exercise thereof or the
exercise of any other right, power or privilege. No right or remedy conferred
upon or reserved to the Agent or any Bank under any Loan Document is intended to
be exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy granted thereunder or
now or hereafter existing under any applicable law. Every right and remedy
granted by any Loan Document or by applicable law to the Agent or any Bank may
be exercised from time to time and as often as may be deemed expedient by the
Agent or any Bank and, unless contrary to the express provisions of any Loan
Document, irrespective of the occurrence or continuance of any Default or Event
of Default.
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8.4 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS. All terms, covenants,
agreements, representations and warranties of the Company made herein or in any
other Loan Document or in any certificate, report, financial statement or other
document furnished by or on behalf of the Company in connection with this
Agreement shall be deemed to be material and to have been relied upon by the
Banks, notwithstanding any investigation heretofore or hereafter made by any
Bank or on such Bank's behalf, and those covenants and agreements of the Company
set forth in Section 3.7, 3.9 and 8.5 hereof shall survive the repayment in full
of the Advances and the termination of the Commitments.
8.5 EXPENSES; INDEMNIFICATION. (a) The Company agrees to pay, or
reimburse the Agent for the payment of, on demand, (i) the reasonable fees and
expenses of counsel to the Agent, including without limitation the fees and
expenses of Dickinson, Wright, Moon, Van Dusen & Freeman, in connection with the
preparation, execution, delivery and administration of the Loan Documents and in
connection with advising the Agent as to its rights and responsibilities with
respect thereto, and in connection with any amendments, waivers or consents in
connection therewith, and (ii) all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing or
recording of the Loan Documents (or the verification of filing, recording,
perfection or priority thereof) or the consummation of the transactions
contemplated hereby, and any and all liabilities with respect to or resulting
from any delay in paying or omitting to pay such taxes or fees, and (iii) all
reasonable costs and expenses of the Agent and the Banks (including reasonable
fees and expenses of counsel and whether incurred through negotiations, legal
proceedings or otherwise)) in connection with any Default or Event of Default or
the enforcement of, or the exercise or preservation of any rights under, the
Loan Documents or in connection with any refinancing or restructuring of the
credit arrangements provided under this Agreement and (iv) all reasonable costs
and expenses of the Agent and the Banks (including reasonable fees and expenses
of counsel) in connection with any action or proceeding relating to a court
order, injunction or other process or decree restraining or seeking to restrain
the Agent from paying any amount under, or otherwise relating in any way to, any
Letter of Credit and any and all costs and expenses which any of them may incur
relative to any payment under any Letter of Credit.
(b) The Company hereby indemnifies and agrees to hold harmless the
Banks and the Agent, and their respective officers, directors, employees and
agents, harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever which the Banks
or the Agent or any such Person may incur or which may be claimed against any of
them by reason of or in connection with any Letter of Credit, and neither any
Bank nor the Agent or any of their respective officers, directors, employees or
agents shall be liable or responsible for: (i) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) payment by the
Agent to the beneficiary under any Letter of Credit against presentation of
documents which do not comply with the terms of any Letter of Credit, including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption or
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delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
PROVIDED, HOWEVER, that the Company shall not be required to indemnify the Banks
and the Agent and such other Persons, and the Banks shall be liable to the
Company to the extent, but only to the extent, of any direct, as opposed to
consequential or incidental, damages suffered by the Company which were caused
by (A) the Agent's wrongful dishonor of any Letter of Credit after the
presentation to it by the beneficiary thereunder of a draft or other demand for
payment and other documentation strictly complying with the terms and conditions
of such Letter of Credit, or (B) the Agent's payment by the Agent to the
beneficiary under any Letter of Credit against presentation of documents which
do not comply with the terms of the Letter of Credit to the extent, but only to
the extent, that such payment constitutes gross negligence of wilful misconduct
of the Agent. It is understood that in making any payment under a Letter of
Credit the Agent will rely on documents presented to it under such Letter of
Credit as to any and all matters set forth therein without further investigation
and regardless of any notice or information to the contrary, and such reliance
and payment against documents presented under a Letter of Credit substantially
complying with the terms thereof shall not be deemed gross negligence or wilful
misconduct of the Agent in connection with such payment. It is further
acknowledged and agreed that the Company may have rights against the beneficiary
or others in connection with any Letter of Credit with respect to which the
Banks are alleged to be liable and it shall be a precondition of the assertion
of any liability of the Banks under this Section that the Company shall first
have exhausted all remedies in respect of the alleged loss against such
beneficiary and any other parties obligated or liable in connection with such
Letter of Credit and any related transactions.
(c) In consideration of the execution and delivery of this Agreement
by each Bank and the extension of the Commitments, the Company hereby
indemnifies, exonerates and holds the Agent, each Bank and each of their
respective officers, directors, employees and agents (collectively, the
"INDEMNIFIED PARTIES") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"INDEMNIFIED LIABILITIES"), incurred at any time by the Indemnified Parties or
any of them as a result of, or arising out of, or relating to:
(i) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Advance;
(ii) the entering into and performance of this Agreement and any
other agreement or instrument executed in connection herewith by any of the
Indemnified Parties (including any action brought by or on behalf of the Company
as the result of any determination by the Required Banks not to fund any
Advance);
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(iii) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Company or any of its Subsidiaries of
any portion of the stock or assets of any Person, whether or not the Agent or
such Bank is party thereto;
(iv) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by the Company or any of its
Subsidiaries of any Hazardous Material; or
(v) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releasing from, any real property
owned or operated by the Company or any of its Subsidiaries of any Hazardous
Material (including any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any Environmental Law), regardless of
whether caused by, or within the control of, the Company or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the activities of the Indemnified
Party on the property of the Company conducted subsequent to a foreclosure on
such property by the Banks or by reason of the relevant Indemnified Party's
gross negligence or willful misconduct or breach of this Agreement, and if and
to the extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Company shall be obligated to indemnify
the Indemnified Parties for all Indemnified Liabilities subject to and pursuant
to the foregoing provisions, regardless of whether the Company or any of its
Subsidiaries had knowledge of the facts and circumstances giving rise to such
Indemnified Liability.
8.6 SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, PROVIDED that the Company may not, without the prior consent of the
Banks, assign its rights or obligations under any Loan Document and the Banks
shall not be obligated to make any Advance hereunder to any entity other than
the Company.
(b) Any Bank may sell to any financial institution or institutions,
and such financial institution or institutions may further sell, a participation
interest (undivided or divided) in, the Advances and such Bank's rights and
benefits under the Loan Documents, and to the extent of that participation
interest such participant or participants shall have the same rights and
benefits against the Company under Section 3.7, 3.9 and 6.2(c) as it or they
would have had if such participant or participants were the Bank making the
Advances to the Company hereunder, PROVIDED, HOWEVER, that (i) such Bank's
obligations under this Agreement shall remain unmodified and fully effective and
enforceable against such Bank, (ii) such Bank shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) such
Bank shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Company, the Agent and the other Banks shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, and (v) such Bank shall
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not grant to its participant any rights to consent or withhold consent to any
action taken by such Bank or the Agent under this Agreement other than action
requiring the consent of all of the Banks hereunder.
(c) The Agent from time to time in its sole discretion may appoint
agents for the purpose of servicing and administering this Agreement and the
transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under the Loan Documents or otherwise. In
furtherance of such agency, the Agent may from time to time direct that the
Company provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. The Company hereby consents to
the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Agent in the same manner as would be required if dealing with the Agent
itself.
(d) Each Bank may, with the prior written consent of the Company
(which shall not be unreasonably withheld and may not be withheld if an Event of
Default has occurred and is continuing) and the Agent, assign to one or more
banks or other entities all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a uniform, and not
a varying, percentage of all rights and obligations, (ii) except in the case of
an assignment of all of a Bank's rights and obligations under this Agreement,
(A) the amount of the Commitment of the assigning Bank being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, and in integral multiples of $1,000,000 thereafter, or such lesser
amount as the Company and the Agent may consent to and (B) after giving effect
to each such assignment, the amount of the Commitment of the assigning Bank
shall in no event be less than $5,000,000, (iii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance in the form of EXHIBIT E
hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with any Note or Notes subject
to such assignment and a processing and recordation fee of $3,000, and (iv) any
Bank may without the consent of the Company or the Agent, and without paying any
fee, assign to any Affiliate of such Bank that is a bank or financial
institution all of its rights and obligations under this Agreement. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in such Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and (y) the Bank assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
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(e) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Company or the
performance or observance by the Company of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.6 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Agent, such
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Agreement are required to be performed by it as a Bank.
(f) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Advances owing to,
each Bank from time to time (the "REGISTER"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Company, the Agent and the Banks may treat each Person whose name is recorded in
the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Company or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee, together with any Note or Notes subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Company. Within five Business Days after its receipt of such
notice, the Company shall execute and deliver to the Agent in exchange for the
surrendered Note or Notes a new Note to the order of such assignee in an amount
equal to the Commitment assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Bank has retained a Commitment hereunder, a new Note to
the order of the assigning Bank in an amount equal to the Commitment retained by
it hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated
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the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of EXHIBIT E hereto.
(h) The Company shall not be liable for any costs or expenses of any
Bank in effectuating any participation or assignment under this Section 8.6.
(i) The Banks may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.6, disclose
to the assignee or participant or proposed assignee or participant any
information relating to the Company.
(j) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time create a security interest in, or assign, all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System; PROVIDED that such creation of a security interest or
assignment shall not release such Bank from its obligations under this
Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.8 GOVERNING LAW. This Agreement is a contract made under, and shall be
governed by and construed in accordance with, the law of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State. The Company
and the Banks further agree that any legal or equitable action or proceeding
with respect to the Loan Documents or the transactions contemplated hereby shall
be brought in any court of the State of Michigan, or in any court of the United
States of America sitting in Michigan, and the Company and the Banks hereby
submit to and accept generally and unconditionally the jurisdiction of those
courts with respect to its Person and property, and, in the case of the Company
irrevocably appoints its chief financial officer as its agent for service of
process and irrevocably consents to the service of process in connection with
any such action or proceeding by Personal delivery to such agent or to the
Company or by the mailing thereof by registered or certified mail, postage
prepaid to the Company or such Guarantor at its address for notices pursuant to
Section 8.2. Nothing in this paragraph shall affect the right of the Banks and
the Agent to serve process in any other manner permitted by law or limit the
right of the Banks or the Agent to bring any such action or proceeding against
the Company or property in the courts of any other jurisdiction. The Company
and the Banks hereby irrevocably waives any objection to the laying of venue of
any such action or proceeding in the above described courts.
8.9 TABLE OF CONTENTS AND HEADINGS. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
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8.10 CONSTRUCTION OF CERTAIN PROVISIONS. If any provision of this
Agreement refers to any action to be taken by any Person, or which such Person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person, whether or not expressly
specified in such provision.
8.11 INTEGRATION AND SEVERABILITY. The Loan Documents embody the entire
agreement and understanding between the Company, the Guarantors, the Agent and
the Banks, and supersede all prior agreements and understandings, relating to
the subject matter hereof. In case any one or more of the obligations of the
Company under the Loan Documents shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired thereby,
and such invalidity, illegality or unenforceability in one jurisdiction shall
not affect the validity, legality or enforceability of the obligations of the
Company under any Loan Document in any other jurisdiction.
8.12 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
such condition exists.
8.13 INTEREST RATE LIMITATION. Notwithstanding any provisions of any Loan
Document, in no event shall the amount of interest paid or agreed to be paid by
the Company exceed an amount computed at the highest rate of interest
permissible under applicable law. If, from any circumstances whatsoever,
fulfillment of any provision of any Loan Document at the time performance of
such provision shall be due, shall involve exceeding the interest rate
limitation validly prescribed by law which a court of competent jurisdiction may
deem applicable hereto, then, IPSO FACTO, the obligations to be fulfilled shall
be reduced to an amount computed at the highest rate of interest permissible
under applicable law, and if for any reason whatsoever any Bank shall ever
receive as interest an amount which would be deemed unlawful under such
applicable law such interest shall be automatically applied to the payment of
principal of the Advances outstanding hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the Company
if such principal and all other obligations of the Company to the Banks have
been paid in full.
8.14 WAIVER OF JURY TRIAL. THE BANKS, THE AGENT AND THE COMPANY, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENTS OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY OF THEM. NEITHER ANY BANK, THE AGENT, NOR THE
COMPANY SHALL SEEK TO CONSOLIDATE, BY
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COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY ANY PARTY HERETO EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY SUCH
PARTY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the ____ day of May, 1996, which shall be the
Effective Date of this Agreement, notwithstanding the day and year first above
written.
AIRNET SYSTEMS, INC.
By__________________________________
Its________________________________
Address for Notices: NBD BANK, as a Bank
and as Agent
611 Woodward Avenue By__________________________________
Detroit, Michigan 48226
Its_________________________________
Attention: Michigan Banking Division
Facsimile No.: (313) 225-2290
Telephone No.:(313) 225-2227
Commitment Amount: $50,000,000
(comprised of a Revolving
Credit A Commitment of
$20,000,000, and a Revolving
Credit B Commitment of
$30,000,000)
Percentage of
Total Commitments:100%
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SCHEDULE 2.10
FORM EXTENSION REQUEST
<PAGE>
EXHIBIT A
FORM REVOLVING CREDIT A NOTE
<PAGE>
EXHIBIT B REVOLVING CREDIT B NOTE
<PAGE>
EXHIBIT C
REQUEST FOR ADVANCE
<PAGE>
EXHIBIT D
REQUEST FOR CONTINUATION OR
CONVERSION OF LOAN
<PAGE>
EXHIBIT E
ASSIGMENT AND ACCEPTANCE