SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-28428
AIRNET SYSTEMS, INC.
___________________________________________________________
(Exact name of registrant as specified in its charter)
Ohio 31-1458309
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3939 International Gateway, Columbus, Ohio 43219
_____________________________________________________
(Address of principal executive offices) (Zip Code)
(614) 237-9777
_____________________________________________________
(Registrant's telephone number, including area code)
NOT APPLICABLE
_____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Common Shares, $.01 Par Value,
Outstanding as of May 9, 1997 - 12,627,781
Index to Exhibits at page 16
Page 1 of 36 pages.
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AIRNET SYSTEMS, INC.
FORM 10-Q FOR FISCAL QUARTER ENDED MARCH 31, 1997
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1997 and
September 30, 1996................................................... 3
Condensed Consolidated Statements of Operations for the three months
and six months ended March 31, 1997 and 1996.......................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 1997 and 1996......................................... 5
Notes to Condensed Consolidated Financial Statements.................. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk........... 12
PART II: OTHER INFORMATION
Items 1 through 6............................................................ 13
Signatures................................................................... 15
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
--------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,631,963 $ 11,564,191
Accounts receivable:
Trade, less allowances 8,146,231 7,392,648
Shareholder, affiliates, and employees 245,598 260,220
Spare parts and supplies 5,411,100 5,195,917
Deposits and prepaids 4,529,047 3,039,249
------------ ------------
Total current assets 27,963,939 27,452,225
Net property and equipment 47,364,963 40,821,612
Other assets:
Intangibles, net of accumulated amortization 1,711,631 1,741,091
Other 3,046,900 48,103
Deferred tax asset 2,055,057 5,803,057
------------ ------------
Total assets $ 82,142,490 $ 75,866,088
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,592,194 $ 3,959,016
Salaries and related liabilities 1,984,806 1,264,338
Accrued expenses 113,367 553,359
Deferred taxes 208,995 208,995
------------ ------------
Total current liabilities 4,899,362 5,985,708
Notes payable -- 196,579
Deferred tax liability 3,397,062 3,397,062
Shareholders' equity:
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; and 12,623,581 and 12,463,788 shares
issued and outstanding at March 31, 1997
and September 30, 1996, respectively 126,236 124,638
Additional paid-in-capital 78,042,976 76,063,102
Retained earnings (4,323,146) (9,901,001)
------------ ------------
Total shareholders' equity 73,846,066 66,286,739
------------ ------------
Total liabilities and shareholders' equity $ 82,142,490 $ 75,866,088
============ ============
See notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Six months ended
March 31, March 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues
Air transportation $21,792,571 $18,980,317 $42,217,597 $37,126,585
Fixed base operations 442,125 227,774 808,557 478,942
----------- ----------- ----------- -----------
Total net revenues 22,234,696 19,208,091 43,026,154 37,605,527
Costs and expenses
Air transportation 14,703,648 13,341,771 29,086,847 26,188,305
Fixed base operations 282,927 180,838 592,279 390,153
Selling, general and administrative 2,094,821 3,445,043 4,010,782 6,592,924
----------- ----------- ----------- -----------
Total costs and expenses 17,081,396 16,967,652 33,689,908 33,171,382
----------- ----------- ----------- -----------
Income from operations 5,153,300 2,240,439 9,336,246 4,434,145
Interest expense 768 368,499 10,391 745,817
----------- ----------- ----------- -----------
Income before income taxes 5,152,532 1,871,940 9,325,855 3,688,328
Provision for income taxes (note 4) 2,060,000 4,066 3,748,000 1,347
----------- ----------- ----------- -----------
Net income $ 3,092,532 $ 1,867,874 $ 5,577,855 $ 3,686,981
=========== =========== =========== ===========
Net income per common share $ 0.25 $ 0.44
=========== ===========
Weighted average common shares outstanding 12,621,470 12,601,396
Pro forma information (note 5):
Historical income before income taxes $ 1,871,940 $ 3,688,328
Pro forma adjustments other than income taxes 1,596,691 3,083,831
----------- -----------
Pro forma income before income taxes 3,468,631 6,772,159
Pro forma tax provision on pro forma income 1,387,452 2,708,864
----------- -----------
Pro forma net income $ 2,081,179 $ 4,063,295
=========== ===========
Pro forma net income per common share $ 0.24 $ 0.48
=========== ===========
Weighted average common shares outstanding 8,507,312 8,507,312
</TABLE>
See notes to condensed consolidated financial statements
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<TABLE>
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
March 31,
-------------------------------
1997 1996
------ ------
<S> <C> <C>
Operating activities
Net income $ 5,577,855 $ 3,686,981
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,149,621 4,217,401
Amortization of intangibles 134,460 217,951
Deferred taxes 3,748,000 --
Provision for losses on accounts receivable 35,267 19,709
Deferred compensation -- 413,072
Gain on disposition of assets (155,394) (6,020)
Change in operating assets and liabilities:
Accounts receivable (773,928) (1,439,316)
Spare parts and supplies (215,183) (177,666)
Prepaid expenses (1,489,798) (1,142,488)
Accounts payable (1,571,142) 2,241,103
Accrued expenses (439,992) (146,646)
Salaries and related liabilities 720,468 121,923
Other, net (128,757) 8,272
------------ -----------
Net cash provided by operating activities 9,591,477 8,014,276
Investing activities
Acquisition of Float Control, Inc., net of cash acquired
(Note 3) (719,519) --
Purchases of property and equipment (13,194,871) (5,475,620)
Payments for covenants not to compete (105,000) --
Proceeds from sales of property and equipment 2,657,293 --
------------ -----------
Net cash used in investing activities (11,362,097) (5,475,620)
Financing activities
Proceeds from shareholder notes receivable -- 39,240
Repayment of borrowings under the revolving credit facility -- (850,000)
Repayment of long-term debt (196,579) (3,608,130)
Proceeds from the issuance of long-term debt -- 2,760,000
Proceeds from the issuance of Common Shares - net 34,971 --
Distributions to shareholders -- (1,165,495)
------------ -----------
Net cash used in financing activities (161,608) (2,824,385)
------------ -----------
Net decrease in cash (1,932,228) (285,729)
Cash and cash equivalents at beginning of period 11,564,191 317,803
------------ -----------
Cash and cash equivalents at end of period $ 9,631,963 $ 32,074
============ ===========
See notes to condensed consolidated financial statements
</TABLE>
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AIRNET SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
AirNet Systems, Inc. (the "Company") 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 other industries. The
Company also offers retail aviation fuel sales and related ground services for
customers in Columbus, Ohio.
The accompanying unaudited condensed consolidated financial statements include
the accounts of AirNet Systems, Inc. and its subsidiaries. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. These financial statements should be read in
conjunction with the fiscal year ended September 30, 1996 consolidated financial
statements of AirNet Systems, Inc. contained in the Annual Report on Form 10-K
(File No. 0-28428) for additional disclosures including a summary of the
Company's accounting policies, which have not changed.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of interim periods. Operating
results for the six months ended March 31, 1997 are not necessarily indicative
of the results to be expected for the year ending September 30, 1997.
The preparation of the condensed consolidated 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 thereto. Actual results could differ from
those estimates.
2. Initial Public Offering
On May 31, 1996, the Company completed its initial public offering (the
"Offering") which raised approximately $82.7 million, net of expenses. Proceeds
were used to repay outstanding debt, repurchase an outstanding warrant and make
distributions to former shareholders and to provide working capital to finance
future acquisitions and internal growth.
3. Acquisitions
Effective January 30, 1997, the Company acquired Express Convenience Center,
Inc. d/b/a ECC Worldwide Services ("ECC") in a business combination accounted
for as a pooling of interests. ECC's primary services included small package
delivery services within the United States and certain other countries. All of
the stock of ECC was exchanged for 145,953 Common Shares of the Company. The
financial statements of the Company have been restated to include ECC for all
periods presented. Revenues and net loss for ECC for the periods presented are
as follows:
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Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues $ 995,744 $ 1,040,390 $ 2,028,268 $ 2,096,596
Net loss (56,524) (8,296) (103,638) (6,305)
Effective October 24, 1997, the Company acquired Float Control, Inc. ("Float
Control") through the merger of a wholly-owned subsidiary of the Company into
Float Control. Float Control was owned by certain executive officers of the
Company and two other individuals and holds a 19% interest in The Check Exchange
System Co. (the "CHEXS Partnership"). The CHEXS Partnership operates a national
net settlement switch utilized by members of the National Clearinghouse
Association pursuant to which such member banks are able to settle transactions
with other members rather than maintaining individual accounts with each member.
Pursuant to the Plan and Agreement of Reorganization and the Plan and Agreement
of Merger, both effective September 30, 1996, the Company issued 157,293 Common
Shares and paid approximately $725,000. The acquisition was accounted for under
the purchase method of accounting.
4. Income Taxes
Prior to the Offering, the Company's income was taxed under the provisions of
Subchapter S of the Internal Revenue Code of 1986, which provides that in lieu
of corporate income taxes, the shareholders of the S Corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, provision
for federal and certain state income taxes has been included in net income for
the three months and six months ended March 31, 1996 only for the portion of
operations related to ECC operations.
Upon completion of the Offering, the Company ceased to qualify as an S
Corporation and was subject to corporate income taxes. The Company has recorded
tax expense of $2,060,000 and $3,748,000 related to its operations for the three
months and six months ended March 31, 1997, respectively. The income tax rate is
based on statutory federal and state rates, and an estimate of annual earnings
adjusted for the permanent differences between reported earnings and taxable
income.
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5. Pro Forma Information
The pro forma statement of operations for the three months and six months ended
March 31, 1996 presents the pro forma effects on the historical financial
information reflecting certain Offering related transactions as if they had
occurred on October 1, 1995. The following is a summary of such pro forma
adjustments:
<TABLE>
Three months Six months
ended ended
March 31, 1996 March 31, 1996
---------------- ----------------
<S> <C> <C>
The elimination of interest expense related to the
debt repaid $ 363,840 $ 736,167
The elimination of the Wright Agreement not to compete 343,840 727,378
The elimination of deferred compensation and employee
stock purchase agreement expense for certain key
employees 706,205 1,400,792
The reduction of compensation expense for executive
officers based on new employment agreements 182,806 219,494
---------- ----------
Total pro forma adjustments other than income taxes $1,596,691 $3,083,831
========== ==========
</TABLE>
The pro forma section of the statement of operations also includes an estimate
of taxes as if the Company were a C Corporation during the three months and six
months ended March 31, 1996.
Pro forma earnings per share for the three months and six months ended March 31,
1996 are based on the weighted average number of Common Shares outstanding
during the periods, including the effect of the 2,650,764 Common Shares subject
to certain warrants which were outstanding during the three months and six
months ended March 31, 1996. One of the warrants was subsequently purchased by
the Company and a second warrant was exercised in conjunction with the Offering.
6. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS"). FAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS which excludes dilution and is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the period. This statement also requires dual presentation of
basic EPS and diluted EPS on the face of the income statement for all periods
presented. FASB 128 is effective for periods ending after December 31, 1997. The
Company plans to adopt FAS 128 in the period ending December 31, 1997 and does
not expect the impact on EPS to be significant.
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<PAGE>
AIRNET SYSTEMS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-Q, including, but
not limited to, information regarding future economic performance and plans and
objectives of the Company's management are forward-looking statements which
involve risks and uncertainties. The following risks and uncertainties, in
addition to the other risks previously disclosed in the Company's filings with
the Securities and Exchange Commission and press releases, could cause actual
results to differ materially from those contemplated in any such forward looking
statement: potential regulatory changes by the Federal Aviation Administration,
the Federal Reserve or foreign governments, which could increase the level of
regulation of the Company's business; adverse weather conditions; technological
advances and other economic, competitive and governmental factors affecting the
Company's markets, prices and other facets of its operations.
Results of Operations
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Revenues were $43.0 million for the six months ended March 31, 1997, an increase
of $5.4 million, or 14.4%, over the same period of fiscal 1996. Revenues from
check delivery increased $4.3 million, or 14.1%. Of the increase in revenues
from check delivery, $1.3 million is attributable to price increases effective
January 1, 1997 and 1996, and approximately $1.4 million can be attributed to
the Midway Aviation acquisition, which was completed in September, 1996. The
balance is due to increased business activity and increases in total weight
shipped, despite a decrease in the number of flying days from 98 in the six
months ended March 31, 1996 to 95 for the same period in 1997. Small package
delivery revenues increased $0.8 million, or 11.7%, due primarily to increased
activity from both new and existing customers. These results and results from
comparable periods in fiscal 1996 include Express Convenience Center,
Inc.("ECC"), which was acquired in January, 1997 through a pooling of interests.
Revenues from fixed base operations increased $0.3 million, or 68.8%, due to an
increase in the retail sale of aviation parts.
Total costs and expenses were $33.7 million for the three months ended March 31,
1997, an increase of $0.5 million, or 1.6%, over the same period in fiscal 1996,
resulting in income from operations of $9.3 million for the six months ended
March 31, 1997 compared to $4.4 million for the same period of fiscal 1996. Air
transportation expenses were up $2.9 million, or 11.1%, while selling, general
and administrative expenses decreased $2.6 million, or 39.2%, for the six month
period.
Payroll costs associated with air transportation increased $0.4 million due to
the addition of air and ground personnel required to service a larger fleet of
aircraft and the increased volume of activity. A rise in fuel prices coupled
with increased flight hours contributed to a $0.9 million, or 23.5%, increase in
aircraft fuel expense, net of the effects of fuel rebates and surcharges. In the
six months ended March 31, 1996, the Company began to pass on the rise in fuel
prices to its customers through its fuel rebate/surcharge program. For the six
months ended March 31, 1997, the Company surcharged its customers $0.2 million,
compared to rebates totaling $0.1 million in the same period of 1996. The
increased fleet size, from 70 owned aircraft at March 31, 1996 to 89 at March
31, 1997, and increased flight hours resulted in a $0.4 million, or 12.8%,
increase in maintenance expense. The fleet growth resulted in increased
insurance costs, hangar rentals and landing fees of $0.2 million. In addition,
travel costs associated with the integration of the Midway and ECC acquisitions
increased $0.2 million.
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<PAGE>
Selling, general and administrative expenses decreased primarily due to the
restructuring of executive compensation plans (which resulted in a $0.2 million
decrease), the termination of stock purchase agreements (which resulted in a
$1.4 million decrease) and the termination of a covenant not to compete (which
resulted in a $0.7 million decrease). All were effective in conjunction with the
Company's initial public offering (the "Offering") in May 1996. The stock
purchase agreements were with certain executive officers and had been tied to
appreciation in the book value of the Common Shares of the Company. The covenant
not to compete required payments based on the Company's cash flow and debt to
equity ratio.
Interest costs decreased $0.7 million as a result of the repayment of all
outstanding debt in June 1996 with proceeds from the Offering.
The Company operated as an S Corporation under the Internal Revenue Code from
1988 until it elected to terminate its S Corporation status in conjunction with
the Offering. Under its Subchapter S election, shareholders of the Company were
taxed directly on the Company's income and, consequently, the Company was not
subject to federal and certain state income taxes at the corporate level for the
six months ended March 31, 1996, except for the portion of business that related
to the ECC acquisition, which was taxed as a C Corporation. The Company recorded
net deferred tax expense of $3.7 million for the six months ended March 31, 1997
related to the income tax expense on income for the period.
Pro forma information reflects the effects of certain Offering related
transactions on the statement of operations for the six months ended March 31,
1996 as if they occurred on October 1, 1995. See Note 5 to the Condensed
Consolidated Financial Statements included herein.
Adjusted pro forma net income per share was $0.33 for the six months ended March
31, 1996 with the assumption that the Common Shares issued in the Offering were
outstanding for the entire period.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Revenues were $22.2 million for the three months ended March 31, 1997, an
increase of $3.0 million, or 15.8%, over the same period of fiscal 1996.
Revenues from check delivery increased $2.4 million, or 15.3%. Of the increase
in revenues from check delivery, $0.8 million is attributable to price increases
effective January 1, 1997 and approximately $0.7 million can be attributed to
the Midway Aviation acquisition in September, 1996. The balance is due to
increased business activity and increases in total weight shipped, despite one
less flying day in the three months ended March 31, 1997 compared to the same
period in 1996. Small package delivery revenues increased $0.4 million, or
12.6%, due primarily to increased activity from both new and existing customers.
These results and results from comparable periods in fiscal 1996 include ECC.
Total costs and expenses were $17.1 million for the three months ended March 31,
1997, an increase of $0.1 million, or 0.7%, over the same period in fiscal 1996,
resulting in income from operations of $5.2 million for the three months ended
March 31, 1997 compared to $2.2 million for the same period of fiscal 1996. Air
transportation expenses were up $1.4 million, or 10.2%, while selling, general
and administrative expenses decreased $1.4 million, or 39.2%, for the three
month period.
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<PAGE>
Payroll costs associated with air transportation increased $0.2 million due to
the addition of air and ground personnel required to service a larger fleet of
aircraft and the increased volume of activity. In addition, a rise in fuel
prices coupled with increased flight hours contributed to a $0.5 million, or
26.2%, increase in aircraft fuel expense. The Company has continued to pass on a
portion of the rise in fuel prices to its customers through its fuel
rebate/surcharge program. The increased fleet size, from 70 owned aircraft at
March 31, 1996 compared to 89 at March 31, 1997, and increased flight hours also
resulted in a $0.2 million, or 12.1%, increase in maintenance expense. Aircraft
insurance also increased $0.1 million due to the increased size of the fleet.
Selling, general and administrative expenses decreased primarily due to the
restructuring of executive compensation (which resulted in a $0.1 million
decrease), termination of stock purchase agreements (which resulted in a $0.7
million decrease) and the termination of a covenant not to compete (which
resulted in a $0.3 million decrease). All were effective in conjunction with the
Company's Offering in May 1996.
Interest costs decreased $0.4 million as a result of the repayment of all
outstanding debt in June 1996 with proceeds from the Offering.
The Company operated as an S Corporation under the Internal Revenue Code from
1988 until it elected to terminate its S Corporation status in conjunction with
the Offering. Under its Subchapter S election, shareholders of the Company were
taxed directly on the Company's income and, consequently, the Company was not
subject to federal and certain state income taxes at the corporate level for the
three months ended March 31, 1996, except for the portion of business that
related to the ECC acquisition, which was taxed as a C Corporation. The Company
recorded net deferred tax expense of $2.1 million for the three months ended
March 31, 1997 related to the income tax expense on income for the period.
Pro forma information reflects the effects of certain Offering related
transactions on the statement of operations for the three months ended March 31,
1996 as if they occurred on October 1, 1995. See Note 5 to the Condensed
Consolidated Financial Statements included herein.
Adjusted pro forma net income per share was $0.17 for the three months ended
March 31, 1996 with the assumption that the Common Shares issued in the Offering
were outstanding for the entire period.
Liquidity and Capital Resources
CASH FLOW FROM OPERATING ACTIVITIES. Net cash flow from operating activities was
$9.6 million for the six months ended March 31, 1997, compared to $8.0 million
for the first six months of fiscal 1996. To support its expanding aircraft
fleet, the Company acquired spare parts inventory and a spare jet engine from a
former Learjet service center for approximately $0.7 million.
CURRENT CREDIT ARRANGEMENTS. The Company maintains a credit agreement with a
bank that provides a $50.0 million, five year, unsecured revolving credit
facility. The credit agreement limits the availability of funds to certain
specified percentages of accounts receivable, inventory and the wholesale value
of aircraft and equipment. In addition, the credit agreement requires the
maintenance of certain minimum net worth and cash flow levels, imposes certain
limitations on payments of dividends, restricts the amount of additional debt
and requires prior bank approval for certain acquisitions. There were no
borrowings under the credit agreement at March 31, 1997.
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<PAGE>
INVESTING ACTIVITIES. Capital expenditures totaled $13.2 million for the six
months ended March 31, 1997 compared to $5.5 million for the same period in
fiscal 1996. Approximately $8.5 million was incurred in connection with the
purchase of nine new aircraft and the remainder was incurred primarily for
flight equipment and delivery vehicles. The $8.5 million spent on aircraft was
offset by proceeds of $2.6 million received on the sale of three aircraft during
the six month period. The Company anticipates it will spend an additional $13.0
million on capital items through December 31, 1997, excluding any acquisitions
of new businesses. The Company anticipates it will continue to acquire aircraft
and flight equipment as necessary to maintain growth and continue offering
quality service to its customers. The Company is also currently considering an
expansion of its facilities. However, no definitive arrangements or agreements
have been reached.
On January 30, 1997, the Company closed the acquisition of ECC, a small package
air freight forwarder, in exchange for 145,953 Common Shares. The acquisition
has added over 1,800 new small package customers to the Company's air
transportation system. In addition, upon consummation of the acquisition, the
Company repaid the outstanding balance due on ECC's notes payable, totaling $0.2
million.
The Company anticipates that operating cash and capital expenditure requirements
will continue to be funded by cash flow from operations, cash on hand and bank
borrowings.
Seasonality and Variability in Quarterly Results
The Company's operations historically have been somewhat seasonal and somewhat
dependent on the number of banking holidays falling during the week. Because
financial institutions are currently 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 fiscal quarter ending December
31, 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 revenue and net income are adversely
affected. For example, the three months ended March 31, 1997 contained only 48
days of full operation for the Company, while the quarter ended March 31, 1996
contained 49 days. The Company's annual results fluctuate as well.
Operating results are also affected by the weather. The Company generally
experiences higher maintenance costs during its fiscal quarter ending March 31.
Winter weather 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 fiscal quarter ending December
31, but decreased cash flows in January and February.
Item 3. Qualitative and Quantitative Disclosures About Market Risk.
Not Applicable.
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<PAGE>
AIRNET SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Changes in Securities.
On January 30, 1997, the Company acquired Express Convenience Center,
Inc. through a merger of Express Convenience Center, Inc. into a
wholly-owned subsidiary of the Company. In connection with this
transaction, the Company issued 145,953 Common Shares to former
shareholders of Express Convenience Center, Inc. The Common Shares
issued were valued at $14.217 per share, or $2,075,000 in the
aggregate. The Common Shares issued to former Express Convenience
Center, Inc. shareholders were not registered under the Securities
Act of 1933 in reliance upon the exemption from registration provided
by Section 4(6) for sales to accredited investors.
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held on March 6, 1997. At the close of business on the
record date [January 17, 1997], 12,475,128 common shares were
outstanding and entitled to vote at the Annual Meeting. At the Annual
Meeting 10,324,773, or 82.5% of the outstanding common shares
entitled to vote, were represented in person or by proxy.
(b) Directors elected at the Annual Meeting:
Gerald G. Mercer
For: 10,286,573
Withheld: 38,200 Broker non-vote: -0-
Eric P. Roy
For: 10,286,673
Withheld: 38,100 Broker non-vote: -0-
Roger D. Blackwell
For: 10,286,673
Withheld: 38,100 Broker non-vote: -0-
Tony C. Canonie, Jr.
For: 10,286,673
Withheld: 38,100 Broker non-vote: -0-
Russell M. Gertmenian
For: 10,286,673
Withheld: 38,100 Broker non-vote: -0-
J. F. Keeler, Jr.
For: 10,286,673
Withheld: 38,100 Broker non-vote: -0-
(c) See Item 4(b) for voting results for directors.
(d) Not applicable.
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<PAGE>
Item 5. Other Information.
On May 14, 1997, the Board of Directors of the Company approved a
change in the fiscal year end of the Company from September 30 to
December 31. The Company filed a Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1996, which is the same period
as the transition period for purposes of Rule 13a-10 under the
Securities and Exchange Act of 1934, as amended. Accordingly, the
Company is not required to file a separate transition report. The
Company will file any audited financial statements required by Rule
13a-10(C) with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description
----------- ---------------
Exhibit 10 AirNet Systems, Inc. 1996 Incentive Stock Plan
(reflects amendments through March 31, 1997).
See pages 17 through 35.
Exhibit 27 Financial Data Schedule. See page 36.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
March 31, 1997.
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<PAGE>
AIRNET SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 1997 By: /s/ Eric P. Roy
________________________________
Eric P. Roy,
Executive Vice President
(Duly Authorized Officer)
(Principal Financial Officer)
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<PAGE>
AIRNET SYSTEMS, INC.
INDEX TO EXHIBITS
Exhibit No. Description Page
10 AirNet Systems, Inc. 1996 Incentive Stock Plan 17
(reflects amendments through March 31, 1997)
27 Financial Data Schedule 36
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AIRNET SYSTEMS, INC.
1996 INCENTIVE STOCK PLAN
(reflects amendments through March 31, 1997)
SECTION 1. Purposes. The purposes of the AirNet Systems, Inc. 1996
Incentive Stock Plan are to promote the interests of AirNet Systems, Inc. and
its stockholders by (a) attracting and retaining exceptional executive personnel
and other key employees of, and advisors and consultants to, and directors of
the Company and its Subsidiaries; (b) motivating such employees, advisors and
consultants and Eligible Directors by means of performance-related incentives to
achieve longer-range performance goals; and (c) providing all long-term
employees of the Company and its Subsidiaries with the opportunity to
participate in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
"Award" shall mean any Option, Restricted Stock Award or Performance Award
but shall not include any Director Option, any Right to Purchase or any Share
issued pursuant to Section 10 of this Plan.
"Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award which may, but need not, be executed
or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Cash Account" shall mean an account established for each Participant to
which amounts withheld through payroll deductions shall be credited to purchase
Shares under the provisions of Section 11.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan which shall satisfy the requirements contained in Section
1.162-27(c)(4) of the Final Regulations. The Committee shall be composed of not
less than the minimum number of persons from time to time required by Rule
l6b-3, each of whom shall be (a) a person from time to time permitted by the
rules promulgated under Section 16 of the Act in order for grants of Awards to
be exempt transactions under said Section 16; and (b) receiving remuneration in
no other capacity than as a director, except as permitted under Section
1.162-27(e)(3) of the Final Regulations.
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<PAGE>
"Company" shall mean AirNet Systems, Inc., together with any successor
thereto.
"Covered Employee" shall mean any individual who, on the last day of the
Company's taxable year, is
(a) the chief executive officer of the Company or is acting in such
capacity; or
(b) among the four highest compensated officers (other than the chief
executive officer).
For this purpose, whether an individual is the chief executive officer or one of
the four highest compensated officers of the Company shall be determined
pursuant to the executive compensation disclosure rules under the Exchange Act.
"Director Option" shall mean a Non-Qualified Stock Option granted to each
Eligible Director pursuant to Section 6(e) without any action by the Board or
the Committee.
"Eligible Director" shall mean, on any date, a person who is serving as a
member of the Board but shall not include a person who is an Employee of the
Company or a Subsidiary or a person who was a member of the Board on May 1,
1996.
"Employee" shall mean (a) an employee of the Company or of any Subsidiary;
and (b) except with respect to an Incentive Stock Option, a Right to Purchase
and the issuance of Shares under Section 10, an advisor or consultant to the
Company or to any Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the fair market value of the property or
other item being valued, as determined by the Committee in its sole discretion,
provided that the fair market value of Shares of Common Stock shall be
determined by reference to the most recent closing price quotation or, if none,
the average of the bid and asked prices, as reported as of the most recent
available date with respect to the sale of Common Stock on any quotation system
approved by the National Association of Securities Dealers then reporting sales
of Common Stock or on any national securities exchange on which the Common Stock
is then listed.
"Final Regulations" shall mean the final regulations promulgated by the
Internal Revenue Service under Section 162(m) of the Code.
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<PAGE>
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Offering" shall mean an opportunity provided by the Committee to purchase
Shares under the provisions of Section 10. Offerings may be consecutive or
concurrent, as determined by the Committee. The Committee shall designate the
maximum number of Shares that may be purchased under each Offering. Shares not
sold under one Offering may be offered again in any subsequent Offering.
"Offering Effective Date" shall mean the first business day of the month
designated by the Committee as the start of the Offering Period applicable to an
Offering.
"Offering Period" shall mean the duration of an Offering, as designated by
the Committee. The Offering Period for any Offering shall not exceed 12 months.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option but shall not include a Director Option.
"Participant" shall mean any Employee selected by the Committee to receive
an Award under the Plan. In addition, for purposes of Section 10, the term
"Participant" shall include any Employee who has satisfied the requirements of
such section to acquire Shares under the Plan.
"Performance Award" shall mean any right granted under Section 8 of the
Plan.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean the AirNet Systems, Inc. 1996 Incentive Stock Plan.
"Restricted Stock" shall mean any Share granted under Section 7 of the
Plan.
"Right to Purchase" shall mean an option to purchase Shares granted to a
Participant who elects to participate in an Offering under the provisions of
Section 10. A Right to Purchase granted for an Offering shall terminate
following the close of business on the Right to Purchase Date for that Offering
to the extent that such Right to Purchase is not exercised on such Right to
Purchase Date.
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<PAGE>
"Right to Purchase Date" shall mean the last business day of an Offering
Period to purchase Shares under the provisions of Section 10.
"Rule l6b-3" shall mean Rule l6b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean shares of Common Stock, without par value, of the
Company or such other securities of the Company as may be designated by the
Committee from time to time.
"Share Account" shall mean an account established for each Participant who
exercises a Right to Purchase under Section 10. A Participant's Share Account
will be credited with the number of Shares purchased on each Right to Purchase
Date and debited for the number of Shares withdrawn by the Participant after
such date.
"Subsidiary" shall mean any corporation which, on the date of
determination, qualified as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.
"Substitute Awards" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.
"Ten Percent Stockholder" shall mean any stockholder who, at the time an
Incentive Stock Option is granted to such stockholder, owns (within the meaning
of Section 425(d) of the Code) more than ten percent of the voting power of all
classes of stock of the Company or a subsidiary.
"Year of Service" shall mean each 12 consecutive month period, beginning on
an Employee's date of hire with the Company or a Subsidiary (and anniversaries
of such date), during which an Employee is employed by the Company or a
Subsidiary. For this purpose, all service with the Company or a Subsidiary prior
to the effective date of this Plan (as provided in Section 13) shall be
included. Further, periods of service with the Company or a Subsidiary which are
interrupted by a termination of employment (not including any authorized leave
of absence) of more than two months shall not be aggregated.
-4-
<PAGE>
SECTION 3. Administration.
(a) The Plan shall be administered by the Committee. Subject to the terms
of the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to an eligible Employee; (iii) determine the
number of Shares to be covered by, or with respect to which payments, rights or
other matters are to be calculated in connection with Awards; (iv) determine the
terms and conditions of any Award; (v) determine whether, to what extent and
under what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property or canceled, forfeited or
suspended; (vi) determine whether, to what extent and under what circumstances
cash, Shares, other securities, other Awards, other property and other amounts
payable with respect to an Award shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Notwithstanding anything else contained in the Plan
to the contrary, neither the Committee nor the Board shall have any discretion
regarding whether an Eligible Director shall receive a Director Option pursuant
to Section 6(e) or regarding the terms of any Director Option, including,
without limitation, the number of Shares subject to such Director Option, the
timing of the grant or the exercisability of such Director Option or the
exercise price per Share of such Director Option.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder and any Employee.
SECTION 4. Shares Available for the Plan.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(b),
the number of Shares available for issuance under the Plan shall be 1,150,000.
If, after the effective date of the Plan, any Shares covered by an Award or
Director Option granted under the Plan, or to which such an Award or
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<PAGE>
Director Option relates, or any Shares issued under Section 10, are forfeited,
or if an Award or Director Option otherwise terminates or is canceled without
the delivery of Shares, then the Shares which may be issued under this Plan, to
the extent of any such settlement, forfeiture, termination or cancellation,
shall again be, or shall become, Shares available for issuance, to the extent
permissible under Rule l6b-3. In the event that any Option, Director Option or
other Award granted hereunder is exercised through the delivery of Shares, the
number of Shares available under the Plan shall be increased by the number of
Shares surrendered, to the extent permissible under Rule l6b-3.
(b) ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
necessary in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall proportionately adjust any or all (as necessary) of (i) the
number of Shares or other securities of the Company (or number and kind of other
securities or property) which may be issued under this Plan; (ii) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards; (iii) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) and the purchase price per Share subject to purchase
under Section 10 hereof; and (iv) the grant or exercise price with respect to
any Award; provided, in each case, that with respect to Awards of Incentive
stock Options, no such adjustment shall be authorized to the extent that such
authority would cause the Plan to violate Section 422(b)(1) of the Code, as from
time to time amended. If, pursuant to the preceding sentence, an adjustment is
made to outstanding Options held by Participants, a corresponding adjustment
shall be made to outstanding Director Options and if, pursuant to the preceding
sentence, an adjustment is made to the number of Shares authorized for issuance
under the Plan, a corresponding adjustment shall be made to the number of Shares
subject to each Director Option thereafter granted pursuant to Section 6(e).
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<PAGE>
(c) SOURCES OF SHARES. Any Shares issued pursuant to the terms of this Plan
may consist, in whole or in part, of authorized and unissued Shares or of
Treasury Shares.
SECTION 5. Eligibility for Awards and Director Options. Any Employee,
including any officer or employee-director of the Company or any Subsidiary, who
is not a member of the Committee, shall be eligible to be designated a
Participant for purposes of receiving an Award under the Plan. Each Eligible
Director shall receive nondiscretionary Director Options in accordance with, and
only in accordance with, Section 6(e) hereof.
SECTION 6. Options and Director Options.
(a) GRANT. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom Options shall be
granted, the number of Shares to be covered by each Option, the option price
therefor and the conditions and limitations applicable to the exercise of the
Option. The Committee shall have the authority to grant Incentive Stock Options
or to grant Non-Qualified Stock Options or to grant both types of options. In
the case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to, and comply with, such rules as may be prescribed by Section
422 of the Code, as from time to time amended, and any regulations implementing
such statute, including, without limitation, the requirements of Code Section
422(d) which limit the aggregate Fair Market Value of Shares for which Incentive
Stock Options are exercisable for the first time to $100,000 per calendar year.
Each provision of the Plan and of each written option agreement relating to an
Option designated as an Incentive Stock Option shall be construed so that such
Option qualifies as an Incentive Stock Option, and any provision that cannot be
so construed shall be disregarded.
(b) EXERCISE PRICE. The Committee shall establish the exercise price at the
time each Option is granted, which price, except in the case of Options that are
substitute Awards, shall not be less than 100% of the per Share Fair Market
Value on the date of grant. Notwithstanding any provision contained herein, in
the case of an Incentive Stock Option, the exercise price at the time such
Incentive Stock Option is granted to any Employee who, at the time of such
grant, is a Ten Percent Stockholder, shall not be less than 110% of the per
Share Fair Market Value on the date of grant.
(c) EXERCISE. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement or thereafter; provided, in the case of an
Incentive Stock Option, a Participant may not exercise such Incentive Stock
Option after (i) the date which is ten years (five years in the case of a
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<PAGE>
Participant who is a Ten Percent Stockholder) after the date on which such
Incentive Stock Option is granted; or (ii) the date which is three months
(twelve months in the case of a Participant who becomes disabled, as defined in
Section 22(e)(3) of the Code, or who dies) after the date on which he ceases to
be an Employee of the Company or a Subsidiary. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any relating to the application of federal or state securities laws,
as it may deem necessary or advisable. The Committee shall have the right to
accelerate the exercisability of any Option or outstanding Option in its
discretion.
(d) PAYMENT. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is received by the
Company. Such payment may be made in cash, or its equivalent or, if and to the
extent permitted by the Committee, by exchanging Shares owned by the optionee
(which are not the subject of any pledge or other security interest) or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Shares so tendered to the
Company as of the date of such tender is at least equal to such option price.
(e) DIRECTOR OPTIONS. Notwithstanding anything else contained herein to the
contrary, each Eligible Director shall receive, on the first business day after
each annual meeting of stockholders of the Company, provided that the Eligible
Director is serving as a member of the Board on such date, a grant of a Director
Option to purchase 2,000 Shares at an exercise price per Share equal to the Fair
Market Value on the date of grant. A Director Option shall be exercisable until
the earlier to occur of the following two dates: (i) the tenth anniversary of
the date of grant of such Director Option; or (ii) three months (twelve months
in the case of an Eligible Director who becomes disabled, as defined in Section
22(e)(3) of the Code or who dies) after the date the Eligible Director ceases to
be a member of the Board, except that if the Eligible Director ceases to be a
member of the Board after having been convicted of, or pled guilty or nolo
contendere to, a felony, his Director Option shall be canceled on the date he
ceases to be a member of the Board. An Eligible Director may pay the exercise
price of a Director Option in the manner described in Section 6(d).
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<PAGE>
SECTION 7. Restricted Stock.
(a) GRANT. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom Shares of
Restricted Stock shall be granted, the number of Shares of Restricted Stock to
be granted to each Participant, the duration of the period during which, and the
conditions under which, the Restricted Stock will vest and no longer be subject
to forfeiture to the Company and the other terms and conditions of such Awards.
The Committee shall have the right to accelerate the vesting of any Restricted
Stock or outstanding Restricted Stock in its discretion.
(b) TRANSFER RESTRICTIONS. Until the lapse of applicable restrictions,
Shares of Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered except as provided in the Plan or the applicable Award
Agreements. Certificates issued in respect of Shares of Restricted Stock shall
be registered in the name of the Participant and deposited by such Participant,
together with a stock power endorsed in blank, with the Company. Upon the lapse
of the restrictions applicable to such Shares of Restricted Stock, the Company
shall deliver such certificates to the Participant or the Participant's legal
representative.
(c) PAYMENT OF DIVIDENDS. Dividends paid on any Shares of Restricted Stock
may be paid directly to the Participant, or may be reinvested in additional
Shares of Restricted Stock, as determined by the Committee in its sole
discretion.
SECTION 8. Performance Awards.
(a) GRANT. The Committee shall have sole and complete authority to
determine the Employees who shall receive a Performance Award denominated in
cash or Shares; (i) valued, as determined by the Committee, in accordance with
the achievement of such performance goals during such performance periods as the
Committee shall establish; and (ii) payable at such time and in such form as the
Committee shall determine.
(b) TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award.
(c) PAYMENT OF PERFORMANCE AWARDS. Performance Awards may be paid in a lump
sum or in installments following the close of the performance period or, in
accordance with procedures established by the Committee, on a deferred basis.
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<PAGE>
SECTION 9. Code Section 162(m) Limitations.
(a) GENERAL LIMITATIONS. Any Awards issued under this Plan to Covered
Employees must satisfy the requirements of this Section 9.
(b) REQUIREMENTS FOR ALL AWARDS. Any Award issued to a Covered Employee
shall constitute qualified performance-based compensation. For this purpose, an
Award shall constitute qualified performance-based compensation to the extent
that:
(i) it is granted by the Committee on account of the attainment of one
or more preestablished, objective performance goals established by the
Committee, in accordance with the provisions of Section 1.162-27(e)(2) of
the Final Regulations;
(ii) the material terms of the performance goal under which the Award
is issued are disclosed to and subsequently approved by the stockholders of
the Company, in accordance with the provisions of Section 1.162-27(e)(4) of
the Final Regulations; and
(iii) the Committee certifies, in writing, prior to the payment of any
compensation under the Award, that the performance goals and any other
material terms were in fact satisfied.
(c) SPECIAL RULES FOR OPTIONS. The grant of an Option to a Covered Employee
under this Plan shall satisfy the requirements of Section 9(b)(i) above to the
extent that the following requirements are satisfied:
(i) subject to the provisions of Section 4(b), no Covered Employee
shall receive Options for more than 50,000 Shares over any one-year period.
For this purpose, to the extent that any Option is canceled (as described
in Section 1.162-27(e)(2)(vi)(B) of the Final Regulations), such canceled
Option shall continue to be counted against the maximum number of Shares
for which Options may be granted to a Covered Employee under the Plan; and
(ii) under the terms of the Option, the amount of compensation that
the Covered Employee may receive is based solely on an increase in the
value of the Shares after the grant of the Option, unless the grant of such
Option is contingent upon the attainment of a performance goal that
otherwise satisfies the requirements of Section 9(b)(i) above.
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<PAGE>
SECTION 10. Stock Purchase Plan.
(a) ELIGIBILITY. Each Employee who has at least one Year of Service on an
Offering Effective Date shall be eligible to participate in the Offering which
is applicable to such Offering Effective Date. Nothing contained herein and no
rules and regulations prescribed by the Committee shall permit or deny
participation in any Offering contrary to the requirements of the Code
(including, without limitation, Sections 423(b)(3), 423(b)(4) and 423(b)(8)
thereof). Nothing contained herein and no rules and regulations prescribed by
the Committee shall permit any Participant to be granted a Right to Purchase:
(i) if, immediately after such Right to Purchase is granted, such
Participant would own, and/or hold outstanding options or rights to purchase,
shares of the Company or of any Subsidiary, possessing five percent (5%) or more
of the total combined voting power or value of all classes of shares of the
Company or such Subsidiary; or
(ii) which permits a Participant's rights to purchase Shares under all
employee stock purchase plans of the Company and of its Subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of Fair Market
Value of Shares (determined as of the date such Right to Purchase is granted)
for each calendar year in which such Right to Purchase is outstanding at any
time.
For purposes of clause (a)(i) above, the provisions of Section 424(d) of the
Code shall apply in determining the stock ownership of each Participant. For
purposes of clause (a)(ii) above, the provisions of Section 423(b)(8) of the
Code shall apply in determining whether a Participant's Rights to Purchase and
other rights are permitted to accrue at a rate in excess of the permitted rate.
(b) PURCHASE PRICE. The purchase price for a Share under each Offering
shall be determined by the Committee prior to the Offering Effective Date and
shall be stated as a percentage of the Fair Market Value of a Share on either
the Right to Purchase Date or the Offering Effective Date, whichever is the
lesser, but the purchase price shall not be less than the lesser of eighty-five
percent (85%) of the per share Fair Market Value of the Shares as of the
Offering Effective Date or eighty-five percent (85%) of the per share Fair
Market Value of the Shares as of the Right to Purchase Date for the Offering.
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<PAGE>
(c) PARTICIPATION IN OFFERINGS. Except as may be otherwise provided for
herein, each Employee who is eligible for and elects to participate in an
Offering shall be granted Rights to Purchase for as many Shares as he may elect
to purchase during that Offering, to be paid by payroll deductions during such
period. The Committee shall establish administrative rules and regulations
regarding the payroll deduction process for this Section 10, including, without
limitation, minimum and maximum permissible deductions; the timing for initial
elections, changes in elections and suspensions of elections during an Offering
Period; and the complete withdrawal by a Participant from an Offering. Amounts
withheld through payroll deductions under this paragraph shall be credited to
each Participant's Cash Account. Such amounts will be delivered to a custodian
for the Plan and held pending the purchase of Shares as described in paragraph
(e) of this Section 10. All amounts held in a Participant's Cash Account shall
bear interest at a rate as may be agreed upon by the Committee and the custodian
of the Plan. If a Participant withdraws entirely from an Offering (pursuant to
rules established by the Committee), his Cash Account balance will not be used
to purchase Shares on the Right to Purchase Date. Instead, the portion of the
Cash Account equal to the Participant's payroll deductions under the Plan during
the Offering Period will be refunded to the Participant without interest
(notwithstanding any provision contained herein). Such a Participant will not be
eligible to re-enroll in that Offering, but may resume participation on the
Offering Effective Date for the next Offering. In addition, the Committee may
impose such other restrictions on the right to withdraw from Offerings as it may
deem appropriate.
(d) GRANT OF RIGHTS TO PURCHASE. Rights to Purchase with respect to Shares
shall be granted to Participants who elect to participate in an Offering. Such
Rights to Purchase may be exercised on the Right to Purchase Date applicable to
the Offering. The number of Shares subject to Rights to Purchase on each Right
to Purchase Date shall not exceed the number of Shares authorized for issuance
during the applicable Offering.
(e) EXERCISE OF RIGHTS TO PURCHASE. Each Right to Purchase shall be
exercised on the applicable Right to Purchase Date. Each Participant
automatically and without any act on his part will be deemed to have exercised a
Right to Purchase on each Right to Purchase Date to purchase the number of whole
and fractional Shares which the amount in his Cash Account at that time is
sufficient to purchase at the applicable purchase price. Any remaining amount
credited to a Participant's Cash Account after such application shall remain in
such Participant's Cash Account for use in the next Offering unless withdrawn by
the Participant. The Company shall deliver to the custodian of the Plan as soon
as practicable after each Right to Purchase Date a certificate for the total
number of Shares purchased by all Participants on such Right to Purchase Date.
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The custodian shall allocate the proper number of Shares to the Share Account of
each Participant. If the aggregate Cash Account balances of all Participants on
any Right to Purchase Date exceeds the amount required to purchase all of the
Shares subject to Rights to Purchase on that Right to Purchase Date, then the
Shares subject to Rights to Purchase shall be allocated pro rata among the
Participants in the proportion that the number of Shares subject to Rights to
Purchase bears to the number of Shares that could have been purchased with such
aggregate amount available, if an unlimited number of Shares were available for
purchase. Any balances remaining in Participants' Cash Accounts due to over
subscription will remain in the Participants' Cash Accounts for use in the next
Offering unless withdrawn by the Participant.
(f) WITHDRAWALS FROM SHARE ACCOUNTS AND DIVIDEND REINVESTMENT. A
Participant may withdraw the Shares credited to his Share Account on a
first-in-first-out basis. The Committee shall establish rules and regulations
governing such withdrawals. All cash dividends paid, if any, with respect to the
Shares credited to a Participant's Share Account shall be added to the
Participant's Cash Account and thereby shall be applied to exercise Rights to
Purchase for Shares on the Right to Purchase Date next succeeding the date such
cash dividends are paid by the Company. An election to leave Shares with the
custodian shall constitute an election to apply the cash dividends with respect
to such Shares to the exercise of Rights to Purchase hereunder. Shares so
purchased shall be applied to the Shares credited to each Participant's Share
Account.
(g) TERMINATION OF EMPLOYMENT. If the employment of a Participant
terminates for any reason, including death, disability, retirement or other
cause, his participation in this Section 10 of the Plan shall automatically and
without any act on his part terminate as of the date of termination of his
employment. As soon as practicable following the Participant's termination of
employment, the Company shall refund to such Participant (or beneficiary, in the
case of the Participant's death) any amount in his Cash Account which
constitutes payroll deductions, without interest, and the custodian shall
deliver to such Participant a share certificate issued in his name for the
number of whole Shares credited to his Share Account through prior Offerings.
(h) EFFECT OF MERGER OR LIQUIDATION INVOLVING THE COMPANY. In the event the
Company merges with another corporation and the Company is not the surviving
entity, or in the event all or substantially all of the Company's assets or
stock is acquired by another corporation, the Committee may, in connection with
any such transaction, cancel each outstanding Right to Purchase and refund sums
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<PAGE>
previously collected from Participants under the canceled Rights to Purchase,
or, in its discretion, cause each Participant with outstanding Rights to
Purchase to have his or her Rights to Purchase exercised immediately prior to
such transaction and thereby the balance of his or her Cash Account applied to
the purchase of Shares at the purchase price in effect for that Offering, which
would be treated as ending with the effective date of such transaction. The
balances of the Cash Accounts not so applied shall be refunded to the
Participants. In the event of a merger in which the Company is the surviving
entity, each Participant shall be entitled to receive, for each Share as to
which such Participant's Rights to Purchase are exercised, the securities or
property that a holder of one Share was entitled to receive in connection with
the merger. To the extent that this paragraph is inconsistent with any other
provision in this Plan, this paragraph shall control.
SECTION 11. Amendment and Termination.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without stockholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act for which or with which the Board deems it necessary
or desirable to qualify or comply; and, provided further, that no amendment may
be made to Section 6(e) or any other provision of the Plan relating to Director
Options within six months of the last date on which any such provision was
amended, other than to comport with changes in the Code or the rules thereunder.
Notwithstanding anything to the contrary herein, the Committee may amend the
Plan, subject to any stockholder approval required under Rule l6b-3, in such
manner as may be necessary so as to have the Plan conform with local rules and
regulations in any jurisdiction outside the United States.
(b) AMENDMENTS TO AWARDS. Subject to the provisions of Section 9, the
Committee may waive any conditions or rights under, amend any terms of, or
alter, suspend, discontinue, cancel or terminate any Award therefore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any Participant or any holder or beneficiary of any Award
therefore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
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<PAGE>
(c) CANCELLATION OF AWARD. Any provision of this Plan (except Section 9) or
any Award Agreement to the contrary notwithstanding, the Committee may cause any
Award granted hereunder to be canceled in consideration of the granting to the
holder of an alternative Award having a Fair Market Value equal to the Fair
Market Value of such canceled Award.
SECTION 12. General Provisions.
(a) NONTRANSFERABILITY.
(i) Each Award, each Director Option and each Right to Purchase,
and each right under any Award, any Director Option or any Right to
Purchase, shall be exercisable during the Participant's or the
Eligible Director's lifetime only by the Participant or the Eligible
Director or, if permissible under applicable law, by the Participant's
or the Eligible Director's guardian or legal representative or a
transferee receiving such Award, Director Option or Right to Purchase
pursuant to a qualified domestic relations order ("QDRO"), as
determined by the Committee.
(ii) No Award, Director Option or Right to Purchase that
constitutes a "derivative security," for purposes of Section 16 of the
Exchange Act, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant or Eligible
Director otherwise than by will or by the laws of descent and
distribution or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Subsidiary; provided
that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(b) NO RIGHTS TO AWARDS. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(c) SHARE CERTIFICATES. All certificates for Shares or other securities of
the Company or any Subsidiary delivered under the Plan shall be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations and other requirements of the SEC, any
stock exchange or national securities association upon which such Shares or
other securities are then listed and any applicable federal or state laws; and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
-15-
<PAGE>
(d) WITHHOLDING. A Participant or Eligible Director may be required to pay
to the Company or any Subsidiary and the Company or any Subsidiary shall have
the right and is hereby authorized to withhold from any Award, Director Option
or Share otherwise issued under the Plan, from any payment due or transfer made
under any Award or any Director Option or otherwise under the Plan, or from any
compensation or other amount owing to a Participant or Eligible Director, the
amount of any applicable withholding taxes in respect of an Award, a Director
Option or a Share otherwise issued under the Plan, its exercise or any payment
or transfer under an Award, under a Director Option or otherwise under the Plan
and to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes. With respect to
Participants who are not subject to Section 16 of the Exchange Act, the
withholding may be in the form of cash, shares, other securities, other Awards
or other property as the Committee may allow. With respect to Participants and
Eligible Directors who are subject to Section 16 of the Exchange Act, the
withholding shall be in cash or in any other property permitted by Rule 16b-3 as
the Committee may allow. The Committee may provide for additional cash payments
to Participants or Eligible Directors to defray or offset any tax arising from
the grant, vesting, exercise or payments of any Award or Share otherwise issued
under this Plan.
(e) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto, including
but not limited to the effect on such Award of the death, retirement or other
termination of employment of a Participant and the effect, if any, of a change
in control of the Company.
(f) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Subsidiary from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, shares and other types of awards provided
for hereunder (subject to stockholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
(g) NO RIGHT TO EMPLOYMENT. Eligibility for participation in this Plan or
the grant of an Award shall not be construed as giving a Participant the right
to be retained in the employ of the Company or any Subsidiary. Further, the
Company or a Subsidiary may at any time dismiss a Participant from employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
-16-
<PAGE>
(h) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the Plan and/or
the applicable Award, no Participant or holder or beneficiary of any Award,
Director Option or Right to Purchase shall have any rights as a stockholder with
respect to any Shares to be distributed under the Plan until he or she has
become the holder of such Shares. Notwithstanding the foregoing, in connection
with each grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent the Participant shall not be entitled to the
rights of a stockholder in respect of such Restricted Stock.
(i) GOVERNING LAW. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Ohio.
(j) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(k) OTHER LAWS. The Committee may refuse to issue or transfer any Shares or
other consideration under the Plan if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the issuance of such Shares shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
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<PAGE>
(l) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Subsidiary and a Participant or any
other Person. To the extent that any Person acquires a right to receive payments
from the Company or any Subsidiary pursuant to the Plan, such rights shall be no
greater than the right of any unsecured general creditor of the Company or any
Subsidiary.
(m) RULE L6B-3 COMPLIANCE. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all
applicable terms and conditions of Rule 16b-3 and any successor provisions. To
the extent that any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
(n) HEADINGS. Headings are given to the sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(o) NO IMPACT ON BENEFITS. Plan Awards or Shares otherwise issued under
this Plan shall not be treated as compensation for purposes of calculating an
Employee's rights under any employee benefit plan.
(p) INDEMNIFICATION. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit or proceeding to which he may be made a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive and shall be independent of any other
rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or By-Laws, by contract, as a matter of
law, or otherwise.
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<PAGE>
SECTION 13. Term of the Plan.
(a) EFFECTIVE DATE. The Plan shall be effective as of May 1, 1996, the date
of its approval by the stockholders of the Company.
(b) EXPIRATION DATE. No Award or Right to Purchase shall be granted under
the Plan after May 1, 2006, the ten year anniversary of the effective date of
the Plan. Unless otherwise expressly provided for in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue or
terminate any such Award or to waive any conditions or rights under any such
Award shall, continue after May 1, 2006.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from AirNet
Systems, Inc.'s Quarterly Report on Form 10-Q for the six months ended March 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,631,963
<SECURITIES> 0
<RECEIVABLES> 8,468,824
<ALLOWANCES> 76,995
<INVENTORY> 5,411,100
<CURRENT-ASSETS> 27,963,939
<PP&E> 90,792,194
<DEPRECIATION> 43,427,231
<TOTAL-ASSETS> 82,124,490
<CURRENT-LIABILITIES> 4,899,362
<BONDS> 0
0
0
<COMMON> 126,236
<OTHER-SE> 73,719,830
<TOTAL-LIABILITY-AND-EQUITY> 82,124,490
<SALES> 808,557
<TOTAL-REVENUES> 43,026,154
<CGS> 592,279
<TOTAL-COSTS> 29,679,126
<OTHER-EXPENSES> 4,010,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,391
<INCOME-PRETAX> 9,325,855
<INCOME-TAX> 3,748,000
<INCOME-CONTINUING> 5,577,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,577,855
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
