<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1998
REGISTRATION NO. 333-XXXXX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
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 jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</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
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:
RONALD A. ROBINS, JR. KENNETH E. ADELSBERG
Vorys, Sater, Seymour and Pease LLP Winthrop, Stimson, Putnam & Roberts
52 East Gay Street, P.O. Box 1008 One Battery Park Plaza
Columbus, Ohio 43216-1008 New York, New York 10004-1490
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
AS THE REGISTRANT SHALL DETERMINE.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares, $.01 par
value........................ 3,141,356 shares $1,088.70(1) $13,702,378.20(1) $4,042.20
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2).
------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AIRNET SYSTEMS, INC.
3939 INTERNATIONAL GATEWAY
COLUMBUS, OHIO 43219
[JUNE ,] 1998
------------------------
Dear Fellow Shareholders:
The Annual Meeting of the Shareholders (the "Annual Meeting") of AirNet
Systems, Inc., an Ohio corporation ("AirNet"), will be held at 10:00 a.m., local
time, on Tuesday, July 14, 1998, at the Concourse Hotel, 4300 International
Gateway, Columbus, Ohio. The enclosed Notice of Annual Meeting and Proxy
Statement/Prospectus contain detailed information about the business to be
conducted at the Annual Meeting. In light of the proposed Merger described
below, this is an important Annual Meeting for AirNet, and we strongly encourage
you to exercise your right to vote.
As you may have read in the newspaper recently, AirNet has entered into an
Agreement and Plan of Merger (the "Agreement") with Q International Courier,
Inc. ("Quick") and with the stockholders of Quick (the "Quick Stockholders").
Under the Agreement, Quick will become wholly-owned by AirNet (the "Merger");
the Quick Stockholders will receive an aggregate of 3,141,356 Common Shares of
AirNet, which will enable them to exercise, as a group, approximately [20]% of
the voting power of AirNet; and the holders of options to purchase capital stock
of Quick will receive options to purchase an aggregate of 249,591 Common Shares
of AirNet.
AirNet's management and its Board of Directors believe that the Merger will
benefit our shareholders and strengthen AirNet (see "THE MERGER--Reasons for the
Merger" in the Proxy Statement/ Prospectus).
SBC Warburg Dillon Read Inc., AirNet's financial advisor, has rendered an
opinion to the Board of Directors to the effect that, as of the date of its
opinion, the consideration to be paid by AirNet with respect to the Merger is
fair, from a financial point of view, to AirNet.
The acquisition by the Quick Stockholders, as a group, of one-fifth or more
but less than one-third of the voting power of AirNet (Proposal No. 1) must be
approved by the AirNet shareholders in accordance with the provisions of Section
1701.831 of the Ohio General Corporation Law. The consummation of the Merger is
conditioned on, among other things, the approval at the Annual Meeting of
Proposal No. 1 described in the enclosed Proxy Statement/Prospectus.
Your Board of Directors believes that the Merger is in the best interests of
AirNet and its shareholders and that it will further AirNet's long-term
objective of maximizing shareholder value. The Board has unanimously approved
the Merger and recommends that you vote FOR Proposal No. 1 in order that the
Merger may be consummated.
In addition to approving Proposal No. 1, which is a condition precedent to
the Merger, you will be asked to consider and vote upon the election of six
directors (Proposal No. 2) and upon the approval of the amendment and
restatement of AirNet's 1996 Incentive Stock Plan (Proposal No. 3). Your Board
of Directors recommends that you vote FOR the six nominees named in the enclosed
Proxy Statement/ Prospectus and FOR the approval of the amended and restated
1996 Incentive Stock Plan.
The enclosed Notice of Annual Meeting and Proxy Statement/Prospectus contain
detailed information about the Merger and the matters to be voted upon at the
Annual Meeting. Please give this material your careful attention.
On behalf of the Board of Directors and management, we cordially invite you
to attend the Annual Meeting. Whether or not you plan to attend the Annual
Meeting, the prompt return of your proxy in the enclosed return envelope will
save AirNet additional expenses of solicitation and will help ensure that as
many shares as possible are represented.
Sincerely,
Gerald G. Mercer
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
[LOGO]
[LOGO]
AIRNET SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, JULY 14, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of AirNet Systems, Inc., an Ohio corporation ("AirNet"), will be held
on Tuesday, July 14, 1998, at the Concourse Hotel, 4300 International Gateway,
Columbus, Ohio, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon the acquisition of one-fifth or more but less
than one-third of the voting power of AirNet by the stockholders of Q
International Courier, Inc., a New York corporation ("Quick"), in
connection with a merger involving Quick, Q Acquisition Company and
AirNet.
2. To elect six directors, each for a term to expire at the 1999 Annual
Meeting.
3. To amend and restate AirNet's 1996 Incentive Stock Plan in the form
attached hereto as Appendix IV.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
The close of business on June 11, 1998, has been fixed by the Board of
Directors of AirNet as the record date for determining the shareholders entitled
to notice of, and to vote at, the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you may insure your representation by
completing, signing, dating and promptly returning the enclosed proxy card. A
return envelope, which requires no postage if mailed in the United States, has
been provided for your use. If you attend the Annual Meeting and inform the
Secretary of AirNet in writing that you wish to vote your shares in person, your
proxy will not be used.
By Order of the Board of Directors
William R. Sumser,
SECRETARY
AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
June , 1998
<PAGE>
AIRNET SYSTEMS, INC.
3939 INTERNATIONAL GATEWAY
COLUMBUS, OHIO 43219
<TABLE>
<S> <C>
PROXY STATEMENT PROSPECTUS
FOR FOR
ANNUAL MEETING OF SHAREHOLDERS 3,141,356 COMMON SHARES, $.01 PAR VALUE
TUESDAY, JULY 14, 1998
</TABLE>
This Proxy Statement/Prospectus is furnished to the shareholders of AirNet
Systems, Inc., an Ohio corporation ("AirNet"), in connection with the
solicitation on behalf of the Board of Directors of AirNet of proxies for use at
the Annual Meeting of Shareholders (the "Annual Meeting") to be held on Tuesday,
July 14, 1998, at the Concourse Hotel, 4300 International Gateway, Columbus,
Ohio, at 10:00 a.m., local time, and at any adjournment(s) thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
This Proxy Statement/Prospectus also constitutes the prospectus of AirNet
relating to 3,141,356 Common Shares, $.01 par value ("AirNet Common Shares"), to
be issued by AirNet in accordance with the terms of the Agreement and Plan of
Merger, dated as of April 14, 1998 (the "Agreement"), described in this Proxy
Statement/Prospectus and attached hereto as Appendix I, by and among AirNet, Q
Acquisition Company, a wholly-owned subsidiary of AirNet ("Merger Subsidiary"),
Q International Courier, Inc., a New York corporation ("Quick"), and the
stockholders of Quick (the "Quick Stockholders").
This Proxy Statement/Prospectus and the accompanying proxies are first being
mailed on or about June , 1998, to all shareholders of AirNet and to all Quick
Stockholders. Only holders of record of AirNet Common Shares at the close of
business on June 11, 1998 (the "Record Date"), will be entitled to vote at the
Annual Meeting.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE AIRNET COMMON
SHARES OFFERED HEREBY, SEE "RISK FACTORS" ON PAGE .
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 PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
AirNet is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by AirNet can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at
Citicorp Center, 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains a World Wide Web site on the Internet at http:/
/www.sec.gov that contains reports and other information regarding registrants
that file electronically with the Commission. In addition, material filed by
AirNet can be inspected at the offices of the New York Stock Exchange ("NYSE"),
20 West Broad Street, New York, New York 10005.
AirNet has filed with the Commission a registration statement on Form S-4
(herein, together with any amendments, supplements and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities to be issued pursuant to the
Agreement. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
Quick is not subject to the informational requirements of the Exchange Act.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
GLOSSARY OF DEFINED TERMS................................................................................. v
SUMMARY................................................................................................... 1
Annual Meeting of Shareholders of AirNet................................................................ 1
Parties to the Merger................................................................................... 1
Terms of the Proposed Merger............................................................................ 2
Recommendation of the AirNet Board of Directors......................................................... 3
Reasons for the Merger.................................................................................. 3
Opinion of AirNet's Financial Advisor................................................................... 4
Vote Required........................................................................................... 4
Regulatory Matters...................................................................................... 5
Dissenters' Rights...................................................................................... 5
Certain Federal Income Tax Consequences................................................................. 5
Market Prices........................................................................................... 5
Historical and Unaudited Pro Forma Comparative Per Share Data........................................... 6
SELECTED FINANCIAL DATA................................................................................... 8
Selected Financial Data for AirNet...................................................................... 8
Selected Financial Data for Quick....................................................................... 9
Unaudited Pro Forma Combined Selected Financial Data.................................................... 10
RISK FACTORS.............................................................................................. 12
THE MERGER................................................................................................ 12
Background of the Merger................................................................................ 12
Reasons for the Merger.................................................................................. 13
Opinion of AirNet's Financial Advisor................................................................... 14
Resale Considerations With Respect to the AirNet Common Shares.......................................... 17
Federal Income Tax Consequences......................................................................... 18
Antitrust Considerations................................................................................ 18
Accounting Treatment.................................................................................... 18
THE AGREEMENT............................................................................................. 18
Terms of the Agreement.................................................................................. 18
Representations and Warranties.......................................................................... 18
Covenants............................................................................................... 19
Additional Agreements................................................................................... 20
Conditions.............................................................................................. 20
Waivers and Amendments.................................................................................. 22
Termination............................................................................................. 22
Termination Fee......................................................................................... 22
Indemnification; Escrow................................................................................. 22
Expenses................................................................................................ 23
THE AIRNET ANNUAL MEETING................................................................................. 23
General................................................................................................. 23
Matters to be Considered at the Annual Meeting.......................................................... 23
Voting at the Meeting; Record Date...................................................................... 23
PROPOSAL TO APPROVE ACQUISITION OF ONE-FIFTH OR MORE BUT LESS THAN ONE-THIRD OF THE VOTING POWER OF
AIRNET.................................................................................................. 24
Effect of Approval of Acquisition....................................................................... 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Recommendation and Vote................................................................................. 25
ELECTION OF DIRECTORS..................................................................................... 25
Nominees Standing for Election to the Board of Directors................................................ 25
Additional Director..................................................................................... 26
Nomination Procedure.................................................................................... 27
Recommendation and Vote................................................................................. 27
Executive Officers of AirNet............................................................................ 28
Beneficial Ownership of AirNet Common Shares............................................................ 29
Committees and Meetings of the Board.................................................................... 30
Compensation of Directors............................................................................... 31
EXECUTIVE COMPENSATION.................................................................................... 31
Summary of Cash and Certain Other Compensation.......................................................... 31
Section 401(k) Savings Plan............................................................................. 33
Grants of Options....................................................................................... 33
Option Exercises and Holdings........................................................................... 34
Certain Relationships and Related Party Transactions.................................................... 34
Performance Graph....................................................................................... 35
Report of the Compensation Committee on Executive Compensation.......................................... 36
PROPOSAL TO AMEND AND RESTATE THE AIRNET SYSTEMS, INC. 1996 INCENTIVE STOCK PLAN.......................... 38
Description of Amendments............................................................................... 39
Operation of the Incentive Stock Plan................................................................... 39
AirNet Common Shares Available Under the Incentive Stock Plan........................................... 39
Administration of the Incentive Stock Plan.............................................................. 39
Eligibility............................................................................................. 39
Duration................................................................................................ 40
Terms of Awards......................................................................................... 41
Amendments and Termination.............................................................................. 42
Federal Income Tax Matters.............................................................................. 42
Recommendation and Vote................................................................................. 45
DESCRIPTION OF CAPITAL STOCK OF AIRNET.................................................................... 46
General................................................................................................. 46
AirNet Common Shares.................................................................................... 46
Preferred Shares........................................................................................ 46
Transfer Agent and Registrar............................................................................ 46
Anti-takeover Effects of Amended Articles, Code of Regulations and the Ohio General Corporation Law..... 46
COMPARISON OF CAPITAL STOCK OF AIRNET AND QUICK........................................................... 49
Mergers and Consolidations.............................................................................. 49
Other Corporate Transactions............................................................................ 49
Anti-takeover Effects of Amended Articles, Code of Regulations and the Ohio General Corporation Law..... 49
Special Meetings........................................................................................ 50
Class Voting............................................................................................ 50
Removal of Directors and Filling of Vacancies........................................................... 50
Amendment of the Amended Articles and Code of Regulations............................................... 50
Appraisal Rights........................................................................................ 51
Dividends............................................................................................... 51
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Repurchases............................................................................................. 51
Director and Officer Liability and Indemnification...................................................... 51
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............................................. 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AIRNET........... 61
General................................................................................................. 61
Results of Operations................................................................................... 63
Liquidity and Capital Resources......................................................................... 66
Seasonality and Variability in Quarterly Results........................................................ 67
Selected Quarterly Data................................................................................. 68
Inflation............................................................................................... 68
Recent Accounting Pronouncements........................................................................ 68
Year 2000 Impact on Information Systems................................................................. 69
Forward-Looking Statements.............................................................................. 69
BUSINESS OF AIRNET........................................................................................ 71
Overview of AirNet's Business........................................................................... 71
Business Strategy....................................................................................... 72
Ground Operations....................................................................................... 73
Flight Operations....................................................................................... 73
Aircraft Fleet.......................................................................................... 74
Delivery Services....................................................................................... 74
Customers............................................................................................... 75
Human Resources......................................................................................... 75
Associates.............................................................................................. 76
Competition............................................................................................. 76
Regulation.............................................................................................. 76
Environmental Matters................................................................................... 77
Properties.............................................................................................. 77
Legal Proceedings....................................................................................... 77
Summary of AirNet Recent Developments................................................................... 77
MARKET FOR AIRNET COMMON SHARES AND RELATED SHAREHOLDER MATTERS........................................... 77
SELECTED INFORMATION ABOUT QUICK.......................................................................... 78
General................................................................................................. 78
Products and Services................................................................................... 79
Competition............................................................................................. 81
Capital Stock of Quick.................................................................................. 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF QUICK............ 83
Results of Operations................................................................................... 83
Liquidity and Capital Resources......................................................................... 85
Year 2000 Impact on Information Systems................................................................. 85
DISSENTERS' RIGHTS........................................................................................ 85
LEGAL MATTERS............................................................................................. 85
EXPERTS................................................................................................... 85
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................................................... 85
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
INDEPENDENT AUDITORS...................................................................................... 86
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING............................................................. 86
OTHER BUSINESS............................................................................................ 87
ANNUAL REPORT............................................................................................. 87
</TABLE>
<TABLE>
<S> <C> <C>
Appendix I Agreement and Plan of Merger............................................ I-1
Appendix II Opinion of Financial Advisor............................................ II-1
Appendix III Acquiring Person Statement.............................................. III-1
Appendix IV AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan..... IV-1
</TABLE>
iv
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
1997 fiscal year.................................................................................... 30
AAA distributions................................................................................... 62
Acquisition......................................................................................... 2
Agreement........................................................................................... Cover page
AirNet.............................................................................................. Cover page
AirNet Common Shares................................................................................ Cover page
Airport Facility Purchase Agreement................................................................. 20
Amendments.......................................................................................... 38
Annual Meeting...................................................................................... Cover page
Antitrust Division.................................................................................. 5
Awards.............................................................................................. 38
CHEXS Partnership................................................................................... 34
Code................................................................................................ 5
Commission.......................................................................................... Inside front
cover
Committee........................................................................................... 36
Comparison Companies................................................................................ 16
Control Share Acquisition Statute................................................................... 47
CSRs................................................................................................ 75
Data Air............................................................................................ 62
DLJ................................................................................................. 12
EBIT................................................................................................ 15
EBITDA.............................................................................................. 16
ECC................................................................................................. 9
Effective Time...................................................................................... 2
EPS................................................................................................. 16
Escrow Account...................................................................................... 23
Escrow Agent........................................................................................ 23
Escrow Shares....................................................................................... 2
Exchange Act........................................................................................ Inside front
cover
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
F
FAA................................................................................................. 69
FASB................................................................................................ 68
FedEx............................................................................................... 70
fiscal 1996......................................................................................... 63
fiscal 1997......................................................................................... 63
Float Control....................................................................................... 34
FTC................................................................................................. 5
GCL................................................................................................. 2
General Escrow Shares............................................................................... 2
Genesis............................................................................................. 83
Herndon Lease Amendment............................................................................. 19
HSR Act............................................................................................. 5
Incentive Stock Plan................................................................................ 38
Interested Shareholder.............................................................................. 48
Interested Shares................................................................................... 4
ISOs................................................................................................ 38
ITS................................................................................................. 70
Litigation Reform Act............................................................................... 69
Losses.............................................................................................. 22
LTM................................................................................................. 16
Merger.............................................................................................. 2
Merger Consideration................................................................................ 2
Merger Moratorium Statute........................................................................... 48
Merger Subsidiary................................................................................... Cover page
Midway.............................................................................................. 61
Mitzman Agreement................................................................................... 28
Monetary Control Act................................................................................ 70
Named Executive Officers............................................................................ 31
NCHA................................................................................................ 34
NFO................................................................................................. 79
Non-Employee Directors.............................................................................. 31
NQSOs............................................................................................... 38
NYSE................................................................................................ Inside front
cover
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
O
Offering............................................................................................ 7
Opinion............................................................................................. 4
P/E ratios.......................................................................................... 16
PAC................................................................................................. 62
Port Authority...................................................................................... 34
Proposed Merger..................................................................................... 16
Proposed Merger Price............................................................................... 16
Quick............................................................................................... Cover page
Quick Common Share Options.......................................................................... 82
Quick Common Shares................................................................................. 2
Quick Stockholders.................................................................................. Cover page
QuickMail........................................................................................... 80
Record Date......................................................................................... Cover page
Registration Statement.............................................................................. Inside front
cover
Savings Plan........................................................................................ 33
Securities Act...................................................................................... Inside front
cover
SMI................................................................................................. 84
Specific Contingencies.............................................................................. 2
Specific Escrow Shares.............................................................................. 2
Sterling............................................................................................ 83
UPS................................................................................................. 70
Warburg Dillon Read................................................................................. 4
WIE................................................................................................. 62
</TABLE>
vii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS AND THE APPENDICES. SHAREHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR ENTIRETY.
ANNUAL MEETING OF SHAREHOLDERS OF AIRNET
DATE, TIME AND PLACE OF ANNUAL MEETING
The Annual Meeting of Shareholders of AirNet will be held on Tuesday, July
14, 1998, at the Concourse Hotel, 4300 International Gateway, Columbus, Ohio, at
10:00 a.m., local time.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of AirNet Common Shares at the close of business on
the Record Date, June 11, 1998, will be entitled to notice of and to vote at the
Annual Meeting. On the Record Date, there were [12,577,913] AirNet Common Shares
outstanding, each of which will be entitled to one vote on each matter properly
submitted for vote to AirNet's shareholders at the Annual Meeting. See "THE
AIRNET ANNUAL MEETING--Voting at the Meeting; Record Date."
PURPOSE OF ANNUAL MEETING OF SHAREHOLDERS OF AIRNET
The purpose of the Annual Meeting will be to consider and vote on proposals
to: (1) approve the acquisition of one-fifth or more but less than one-third of
the voting power of AirNet by the Quick Stockholders, as a group, (2) elect
directors, (3) approve the amendment and restatement of AirNet's 1996 Incentive
Stock Plan and (4) transact such other business as may properly come before the
Annual Meeting.
PARTIES TO THE MERGER
AIRNET
AirNet ExpressSM, AirNet's integrated national air transportation network,
operates between 100 cities in more than 40 states and delivers over 18,000
time-critical shipments each working day. AirNet's check delivery services,
which generates approximately 84% of AirNet's revenues, is the leading
transporter of canceled checks and related information for the U.S. banking
industry, meeting more that 2,200 daily deadlines. AirNet's small package
service, which generates approximately 15% of AirNet's revenues, provides
specialized, high priority delivery service for customers requiring late
pick-ups and early deliveries combined with prompt, on-line delivery
information. AirNet's fixed base operations, which accounts for approximately 1%
of AirNet's revenues, also offers retail aviation fuel sales and related ground
services for customers in Columbus, Ohio.
AirNet operated a fleet of 115 aircraft (29 Learjets and 86 light twin
engine aircraft) as of March 31, 1998, which fly approximately 105,000 miles per
night, primarily Monday through Thursday. AirNet also provides ground pick-up
and delivery services throughout the nation, seven days per week, utilizing a
fleet of approximately 250 company-owned ground vehicles as well as a ground
transportation network of over 300 independent contractors. AirNet uses its air
and ground transportation network to support its banking industry customers, as
well as its SameNight, LateNight and BusinessDay small package customers. AirNet
also utilizes commercial airlines to provide SameDay delivery service for
certain of its banking and small package customers. Later pick-ups and earlier
deliveries than those offered by other national carriers are the differentiating
characteristics of AirNet's time-critical delivery network. AirNet has
consistently achieved on-time performance levels exceeding 97%. In order to
maintain this performance, AirNet 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 AirNet's delivery system.
Delivery times and certain shipment information are available on-line and
through the Internet.
<PAGE>
AirNet believes that the market for reliable, time-critical deliveries is
growing as a result of a number of global trends, including: (i) global business
strategies aimed at serving customers' time-critical needs for the dissemination
of printed and graphic information; (ii) medical laboratories requiring same-day
deliveries; and (iii) corporations requiring just-in-time inventory parts in
order to lower production costs. AirNet believes that its flexible and reliable
air transportation network and its demonstrated expertise in providing
time-critical deliveries to the banking industry for over 24 years position
AirNet to provide such additional services at premium prices.
AirNet was incorporated under the laws of the State of Ohio on February 15,
1996. The principal executive offices of AirNet are located at 3939
International Gateway, Columbus, Ohio 43219, telephone (614) 237-9777.
QUICK
Quick (together with its subsidiaries) is a domestic and international
specialty courier transportation company. Quick combines an understanding of
domestic and international transportation complexities, a network of worldwide
independent agents and a proprietary information system, to provide customized
courier transportation services. Quick believes that its lack of restrictive
operational parameters, such as pre-determined pick up and delivery times and
dates, is an important factor in differentiating Quick in the specialty
transportation industry. Although Quick also provides traditional on-demand
delivery services, Quick's focus has been the resolution of unique logistics,
transportation and delivery issues and providing superior customer service.
Quick was incorporated under the laws of the State of New York on January
19, 1981. The principal executive offices of Quick are located at 909 Third
Avenue, New York, New York 10022-4731, telephone (212) 754-0430.
TERMS OF THE PROPOSED MERGER
Pursuant to the terms of the Agreement, Merger Subsidiary will be merged
with and into Quick, whereupon Quick will be the surviving corporation and a
wholly-owned subsidiary of AirNet (the "Merger"). The outstanding shares of
common stock, $1.00 par value, of Quick (the "Quick Common Shares") will be
converted into an aggregate of 3,141,356 AirNet Common Shares (the "Merger
Consideration"), less (i) 314,136 AirNet Common Shares to indemnify AirNet with
respect to general contingencies (the "General Escrow Shares") and (ii) 46,091
AirNet Common Shares to indemnify AirNet with respect to certain contingencies
relating to potential litigation, taxes and fines ("Specific Contingencies")
(the "Specific Escrow Shares" and, together with the General Escrow Shares, the
"Escrow Shares"). As a result of the Merger, the Quick Stockholders, as a group,
will receive 3,141,356 Common Shares of AirNet (less any Escrow Shares that may
be forfeited by the Quick Stockholders pursuant to the terms of the Agreement)
which will enable them to exercise approximately [20]% of the voting power of
AirNet. In addition, outstanding options to purchase capital stock of Quick will
be converted into options to purchase an aggregate of 249,591 AirNet Common
Shares, which is the number of AirNet Common Shares the holders of such Quick
options would have been entitled to receive pursuant to the if they had
exercised the options in full prior to the Effective Time. A copy of the
Agreement is attached hereto as Appendix I and is incorporated herein by
reference. See "THE AGREEMENT--Terms of the Agreement" and "--Indemnification;
Escrow."
The consummation of the Merger is conditioned on, among other things, the
approval by AirNet's shareholders at the Annual Meeting of the acquisition by
the Quick Stockholders of one-fifth or more but less than one-third of the
voting power of AirNet (the "Acquisition") in accordance with Section 1701.831
of the Ohio General Corporation Law (the "GCL").
The time the Merger becomes effective is referred to herein as the
"Effective Time."
2
<PAGE>
RECOMMENDATION OF THE AIRNET BOARD OF DIRECTORS
The Board of Directors of AirNet has unanimously approved the Agreement and
the issuance of the AirNet Common Shares in connection with the Merger, believes
that the terms of the Merger are fair to, and in the best interests of, AirNet
and its shareholders and recommends that the shareholders vote FOR the approval
of the Acquisition. See "THE MERGER--Background of the Merger" and "--Reasons
for the Merger."
REASONS FOR THE MERGER
AIRNET
AirNet's management and the Board of Directors believe that the Merger will
benefit AirNet's shareholders and strengthen AirNet by accelerating AirNet's
strategic plan of developing its document and small package business. The
acquisition of Quick will provide AirNet with 3,000 active customers including
many Fortune 500 clients, an experienced sales force and a network of over 5,000
ground service agents. A substantial part of Quick's business involves
international, next flight out, mail and distribution services, which are areas
yet to be developed by AirNet. This acquisition allows AirNet to establish a
solid foundation from which to grow this business. In addition, the sales force
will be able to market the advantages of AirNet's unique multiple reflex air
system to existing Quick customers and potential new customers of AirNet.
Once the Merger is completed, AirNet believes additional value will be
created through marketing, operating and scale synergies. AirNet and Quick, as a
combined entity, will implement a coordinated marketing and sales approach to
best serve the customer base. The ability to cross market the services of each
company to the combined customer base should generate additional revenue
opportunities. Also, Quick's air and ground transportation costs paid to third
party providers may be reduced to the extent shipments can be redirected to fill
AirNet's air and ground excess capacity. Further, value should be created since
the likelihood of being able to reduce the cost per shipment by consolidating
two or more next flight out shipments into one will increase as a result of the
Merger. Additional economic benefit will be derived from the combined purchasing
power of AirNet and Quick with respect to a wide range of areas in the business.
AirNet believes the structure of the transaction is the preferable method in
which to accomplish the acquisition of Quick in order to achieve the benefits
described above. The current management of Quick includes the principal
stockholders of Quick who will become shareholders of AirNet following the
Merger. AirNet believes that the Merger will clearly align Quick management with
the goals of maximizing the benefit for all AirNet shareholders.
Of course, as in any business transaction, there can be no assurance that
AirNet's expectations will be fulfilled.
QUICK
The Board of Directors of Quick believes that the terms of the Merger are
fair to, and in the best interest of, Quick and the Quick Stockholders.
Accordingly, the Board of Directors of Quick approved the Agreement and the
Acquisition contemplated thereby, and recommended the approval and adoption of
the Agreement by the Quick Stockholders.
In reaching its conclusion to enter into the Agreement and to recommend that
the Quick Stockholders vote for the approval and adoption of the Agreement, the
Board of Directors of Quick considered a number of factors, including, but not
limited to, (i) the competitive environment of the courier industry generally
and of priority courier providers specifically, (ii) the terms of the Agreement,
(iii) the terms of other recent business combination transactions involving
courier companies, (iv) the financial condition, performance, management and
future prospects of each of Quick and AirNet, (v) the potential for growth,
3
<PAGE>
stability and enhanced services as a result of an association with AirNet, (vi)
the comparative marketability of the AirNet Common Shares and (vii) the
potential tax treatment of the Merger.
The Board of Directors of Quick also considered certain potential
disadvantages or negative factors relating to the Merger, including, but not
limited to, (i) the loss of a significant degree of control by Quick's
stockholders and management that would result from becoming a closely-held
subsidiary of a public company, (ii) the risk that the Merger would not be
consummated, (iii) the risk that the benefits sought by the consummation of the
Merger would not be achieved, and (iv) the relative liquidity of the AirNet
Common Shares.
The Board of Directors of Quick believes the Merger will provide an
attractive opportunity to strengthen Quick's competitive position in the courier
industry, enhance its profile among customers and achieve operational, financial
and strategic goals. The Board of Directors also believes that an association
with AirNet will increase Quick's potential for growth and stability. In
addition, the Board of Directors believes the terms and structure of the Merger,
including, but not limited to, the pooling-of-interests accounting treatment, to
be favorable to Quick and the Quick Stockholders.
OPINION OF AIRNET'S FINANCIAL ADVISOR
As part of its deliberations, the AirNet Board considered the oral and
written analyses and advice of SBC Warburg Dillon Read Inc. ("Warburg Dillon
Read"), its financial advisor, regarding the Merger. On Monday, April 13, 1998,
Warburg Dillon Read advised AirNet that based on the terms of the Merger as
presented to Warburg Dillon Read and subject to the receipt of the executed
Agreement substantially in the form and containing the terms presented at such
meeting, upon AirNet's request, Warburg Dillon Read was prepared to render an
opinion (the "Opinion") as to the fairness to AirNet from a financial point of
view of the consideration to be paid by AirNet pursuant to the Merger. The
engagement letter between AirNet and Warburg Dillon Read does not require
Warburg Dillon Read to render an opinion as to the fairness of the Merger to
AirNet's shareholders. On Wednesday, April 22, 1998, AirNet requested that
Warburg Dillon Read render its opinion in writing and on April 24, 1998
(effective April 13, 1998), Warburg Dillon Read delivered its written opinion to
the AirNet Board of Directors to the effect that, and based upon and subject to
the assumptions, limitations and qualifications set forth therein, as of the
date thereof, the aggregate consideration to be paid by AirNet pursuant to the
Agreement, without reference to the consideration to be paid to any specific
shareholder, is fair to AirNet, from a financial point of view.
The full text of the written Opinion, which sets forth the assumptions made,
procedures followed, matters considered and scope of the review by Warburg
Dillon Read in rendering its Opinion, is attached hereto as Appendix II and
should be read in its entirety. See "THE MERGER--Opinion of AirNet's Financial
Advisor" for information regarding, among other things, the selection of Warburg
Dillon Read and its compensation in connection with the Merger.
VOTE REQUIRED
The consummation of the Merger is conditioned on, among other things, the
approval of the Acquisition at the Annual Meeting. The shareholders of AirNet
must approve the Acquisition because, immediately thereafter, the Quick
Stockholders will exercise in excess of one-fifth of the voting power of AirNet.
The GCL provides that any "control share acquisition" of AirNet must be
submitted to AirNet's shareholders. The GCL defines a control share acquisition
to include an acquisition of AirNet's shares which would give the acquiring
person voting power falling within one of the following three categories: (a)
one-fifth or more but less than one-third of the voting power, (b) one-third or
more but less than a majority of the voting power and (c) a majority or more of
the voting power. For the Acquisition to be approved, the affirmative vote of
the holders of a majority of the voting power of AirNet represented at a meeting
at which a quorum is present and the affirmative vote of the holders of a
majority of the portion of such voting power excluding "Interested Shares" is
required. "Interested Shares" are defined by the GCL
4
<PAGE>
to include shares held by the Acquiring Person (i.e., the Quick Stockholders),
shares held by an officer of AirNet elected or appointed by the Board of
Directors, shares held by associates of AirNet who are also directors and
certain shares purchased after a control share acquisition is announced. As
indicated elsewhere in this Proxy Statement/Prospectus, executive officers and
associate directors of AirNet as a group own approximately 41.6% of the
outstanding AirNet Common Shares. Gerald G. Mercer, the Chairman and Chief
Executive Officer of AirNet, has agreed pursuant to the Agreement to vote his
AirNet Common Shares for the Acquisition. The Quick Stockholders do not
currently own any AirNet Common Shares. See "PROPOSAL TO APPROVE ACQUISITION OF
ONE-FIFTH OR MORE BUT LESS THAN ONE-THIRD OF THE VOTING POWER OF
AIRNET--Recommendation and Vote."
REGULATORY MATTERS
The Merger is subject to the applicable provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act").
AirNet and Quick filed the information and material required under the HSR
Act with the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") on April 10, 1998. On
April 22, 1998, AirNet and Quick received notice of early termination of the
waiting period provision of the HSR Act. No further approval by the Antitrust
Division or the FTC is required in order to consummate the Merger. See "THE
MERGER--Antitrust Considerations."
DISSENTERS' RIGHTS
Shareholders of AirNet have no dissenters' rights with respect to the Merger
or any matter to be considered at the Annual Meeting.
Pursuant to the Agreement, the Quick Stockholders have waived any
dissenters' rights they might otherwise have with respect to the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No gain or loss will be recognized by AirNet or AirNet's shareholders for
federal income tax purposes as a result of the Merger. With respect to the Quick
Stockholders, the consummation of the Merger is intended to constitute a
tax-free reorganization pursuant to Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). Each Quick Stockholder is urged to consult his
or her own tax advisor as to the specific tax consequences to him or her of the
Merger. See "THE MERGER--Federal Income Tax Consequences."
MARKET PRICES
The AirNet Common Shares are traded on the NYSE under the symbol ANS. Quick
is a privately held company whose capital stock is not actively traded. The
following table sets forth the high and low sales prices on the NYSE of the
AirNet Common Shares on February 9, 1998, the last day of trading prior to the
joint public announcement by AirNet and Quick of the proposed Merger.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Sales prices on February 9, 1998 for AirNet Common Shares............... $ 24.063 $ 23.500
</TABLE>
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE AIRNET COMMON
SHARES WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE AIRNET COMMON
SHARES WILL ACTUALLY BE ISSUED. SHAREHOLDERS ARE ENCOURAGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THEIR AIRNET COMMON SHARES.
5
<PAGE>
HISTORICAL AND UNAUDITED PRO FORMA COMPARATIVE PER SHARE DATA
The following tables present the selected comparative per share data for the
AirNet Common Shares on a historical and unaudited pro forma combined basis and
for the Quick Common Shares on a historical and unaudited pro forma equivalent
basis giving effect to the Merger using the pooling-of-interests method of
accounting. The unaudited pro forma combined net book value per share data is
based on an assumed exchange ratio of 249.5913 AirNet Common Shares for each
Quick Common Share and assumes the Effective Time of the Merger had occurred on
December 31, 1997 and March 31, 1998. The following tables should be read in
conjunction with the historical consolidated financial statements of AirNet and
of Quick and the unaudited pro forma condensed combined financial information
giving effect to the Merger presented elsewhere herein.
NET BOOK VALUE PER COMMON SHARE:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
AirNet--historical (1).............................................. $ 6.43 $ 6.71
Quick--historical (2)............................................... 986.89 1,088.70
Quick--unaudited pro forma equivalent (3)........................... 3.95 4.36
AirNet and Quick--unaudited pro forma combined (4).................. 5.72 6.22
</TABLE>
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1996 1998 1997
------------ ------------- ------------- ------------- ----------- -----------
(8) (8) (8)
<S> <C> <C> <C> <C> <C> <C>
BASIC
AirNet--pro forma historical(5).......... $ 1.05 $ (0.34) $ 1.43 $ 0.20 $ 0.23 $ 0.25
Quick--historical(6)..................... 176.92 74.60 (31.50) 15.20 97.34 21.60
Quick--unaudited pro forma
equivalent(3).......................... 0.71 0.30 (0.13) 0.06 0.39 0.09
AirNet and Quick--unaudited pro forma
combined(7)............................ 0.96 (0.19) 0.92 0.17 0.23 0.21
ASSUMING DILUTION
AirNet--pro forma historical(5).......... $ 1.04 $ (0.34) $ 1.43 $ 0.20 $ 0.22 $ 0.24
Quick--historical(6)..................... 167.16 74.60 (31.50) 15.20 90.76 21.60
Quick--unaudited pro forma
equivalent(3).......................... 0.67 0.30 (0.13) 0.06 0.36 0.09
AirNet and Quick--unaudited pro forma
combined(7)............................ 0.94 (0.19) 0.92 0.17 0.22 0.21
</TABLE>
- ------------------------
(1) Based on 12,489,830 and 12,571,813 AirNet Common Shares outstanding as of
December 31, 1997 and March 31, 1998, respectively.
(2) Based on 12,277 Quick Common Shares outstanding as of December 31, 1997 and
March 31, 1998.
(3) The unaudited pro forma equivalent per share data for Quick represents the
pro forma per share data for Quick Common Shares multiplied by the assumed
exchange ratio of 249.5913 AirNet Common Shares for each Quick Common Share.
6
<PAGE>
(4) Represents the unaudited pro forma combined net book value of AirNet and
Quick, divided by the sum of the number of AirNet Common Shares outstanding
at December 31, 1997 and March 31, 1998, plus the 3,141,356 AirNet Common
Shares expected to be issued in the Merger.
(5) September 30, 1996 and 1995 balances include unaudited pro forma adjustments
related to AirNet's initial public offering (the "Offering"). Such
adjustments reflect restructured executive compensation plans, the
elimination of a deferred compensation plan, the reduction of interest
expense and the termination of a covenant not to compete and corresponding
payments as if the Offering occurred on October 1, 1994. All such changes
were effective with the consummation of the Offering on May 31, 1996. The
weighted average number of AirNet Common Shares outstanding for the years
ended December 31, 1997 and September 30, 1996 and 1995 were 12,577,487,
8,055,490 and 5,856,561, respectively, and for the three months ended
December 31, 1996 and March 31, 1998 and 1997 were 12,580,048, 12,529,327
and 12,621,470, respectively. Assuming dilution of outstanding stock options
and warrants, the weighted average number of AirNet Common Shares
outstanding for the years ended December 31, 1997 and September 30, 1996 and
1995 were 12,706,308, 8,491,232 and 5,856,561, respectively, and for the
three months ended December 31, 1996 and March 31, 1998 and 1997 were
12,580,048, 12,781,600 and 12,637,110, respectively.
(6) The weighted average number of Quick Common Shares outstanding for the years
ended December 31, 1997 and September 30, 1996 and 1995 were 10,745, 10,000
and 10,000, respectively, and for the three months ended December 31, 1996
and March 31, 1998 and 1997 was 10,000, 12,277 and 10,000, respectively.
Assuming dilution for outstanding stock options, the weighted average number
of Quick Common Shares outstanding for the years ended December 31, 1997 and
September 30, 1996 and 1995 were 11,372, 10,000 and 10,000, respectively,
and for the three months ended December 31, 1996 and March 31, 1998 and 1997
were 10,000, 13,166 and 10,000, respectively.
(7) Amounts reflect the net income per common share on a pro forma combined
basis. Such amounts are determined by dividing the pro forma combined net
income by the sum of the average number of AirNet Common Shares outstanding
during the applicable period plus the 3,141,356 AirNet Common Shares to be
issued in the Merger and the dilutive effect of the options to purchase
249,591 AirNet Common Shares to be issued in connection with the Merger.
(8) During 1997, AirNet changed its fiscal year end from September 30 to
December 31. As a result, the three months ended December 31, 1996 has been
treated as a transition period. During 1997, Quick also changed its fiscal
year end from June 30 to December 31. As a result, Quick's data for the
years ended June 30, 1996 and 1995 have been combined with AirNet's data for
the years ended September 30, 1996 and 1995, respectively.
7
<PAGE>
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR AIRNET
The selected financial data presented below as of and for the year ended
December 31, 1997, each of the fiscal years in the four-year period ended
September 30, 1996, and the three months ended December 31, 1996, have been
derived from the Consolidated Financial Statements of AirNet, which have been
audited by Ernst & Young LLP. The selected financial data set forth below for
AirNet as of and for the three months ended March 31, 1998 and 1997, have been
derived from unaudited financial statements of AirNet that have been prepared on
the same basis as the audited Consolidated Financial Statements and include all
adjustments, consisting of normal recurring accruals, that AirNet considers
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
AIRNET SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEARS ENDED SEPTEMBER 30, ENDED THREE MONTHS THREE MONTHS
DECEMBER 31, ------------------------------------------ DECEMBER 31, ENDED MARCH ENDED MARCH
1997 1996 1995 1994 1993 1996 31, 1998 31, 1997
------------- --------- --------- --------- --------- ------------- ------------- -------------
(RESTATED FOR ECC POOLING) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues
Check delivery............ $ 80,707 $ 65,025 $ 58,264 $ 54,046 $ 49,358 $ 16,811 $ 22,370 $ 18,080
Small package delivery.... 15,660 13,864 12,424 12,489 11,754 3,614 3,913 3,713
Fixed base operations..... 1,395 1,063 1,007 1,158 1,265 366 288 442
------------- --------- --------- --------- --------- ------------- ------------- -------------
Total net revenues.......... 97,762 79,952 71,695 67,693 62,377 20,791 26,571 22,235
Costs and expenses
Air transportation........ 66,032 53,797 49,246 47,747 46,154 14,383 19,215 14,704
Fixed base operations..... 1,101 1,033 956 1,082 1,150 309 175 283
Selling, general and
administrative.......... 8,550 11,875 13,418 11,626 9,238 1,916 2,271 2,095
------------- --------- --------- --------- --------- ------------- ------------- -------------
Total costs and expenses.... 75,683 66,705 63,620 60,455 56,542 16,608 21,661 17,082
------------- --------- --------- --------- --------- ------------- ------------- -------------
Income from operations...... 22,079 13,247 8,075 7,238 5,835 4,183 4,910 5,153
Interest expense............ 109 1,072 1,469 1,106 1,131 10 196 --
Offering-related,
non-recurring expenses
(1)....................... -- 13,704 -- -- -- -- -- --
------------- --------- --------- --------- --------- ------------- ------------- -------------
Income (loss) before income
taxes..................... 21,970 (1,529) 6,606 6,132 4,704 4,173 4,714 5,153
Income tax expense
(benefit), net (2)........ 8,767 4,200 (13) (48) 27 1,688 1,860 2,060
------------- --------- --------- --------- --------- ------------- ------------- -------------
Net income (loss)........... $ 13,203 ($ 5,729) $ 6,619 $ 6,180 $ 4,677 $ 2,485 $ 2,854 $ 3,093
------------- --------- --------- --------- --------- ------------- ------------- -------------
------------- --------- --------- --------- --------- ------------- ------------- -------------
Net income per share........ $ 1.05 $ 0.20 $ 0.23 $ 0.25
Net income per share--
assuming dilution......... $ 1.04 $ 0.20 $ 0.22 $ 0.24
Pro forma information--
unaudited (3)
Net income (loss) before
taxes................... ($ 1,529) $ 6,606
Pro forma adjustments,
other than income
taxes................... 4,429 7,367
Pro forma income taxes.... 5,618 5,589
--------- ---------
Pro forma net income
(loss).................... ($ 2,718) $ 8,384
--------- ---------
--------- ---------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEARS ENDED SEPTEMBER 30, ENDED THREE MONTHS THREE MONTHS
DECEMBER 31, ------------------------------------------ DECEMBER 31, ENDED MARCH ENDED MARCH
1997 1996 1995 1994 1993 1996 31, 1998 31, 1997
------------- --------- --------- --------- --------- ------------- ------------- -------------
(RESTATED FOR ECC POOLING) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma net income (loss)
per share--basic and
assuming dilution......... ($ 0.34) $ 1.43
Adjusted pro forma
information--unaudited
Pro forma net income
(loss).................. ($ 2,718) $ 8,384
Effects of eliminating
Offering-related, non-
recurring expense, net
of tax (1).............. 12,681 --
--------- ---------
Adjusted pro forma net
income.................... $ 9,963 $ 8,384
--------- ---------
--------- ---------
Adjusted pro forma net
income per share (4)...... $ 0.80 $ 0.67
BALANCE SHEET DATA
Total assets................ $ 103,986 $ 75,866 $ 49,929 $ 43,024 $ 36,822 $ 79,495 $ 107,477 $ 82,142
Total debt.................. 9,729 197 19,431 16,426 13,289 111 8,724 --
Shareholders' equity........ 80,260 66,287 20,875 18,341 17,242 70,719 84,297 73,846
</TABLE>
- ----------------------------------
(1) Represents non-cash, non-recurring expenses incurred as a result of the
Offering, effective May 31, 1996. (See Note 2 to the Consolidated Financial
Statements of AirNet which are included herein.)
(2) Prior to AirNet's Offering, it operated as an S Corporation under the Code
for tax purposes and, consequently, was not subject to federal and certain
state income taxes, except for the portion of income (loss) related to the
operations of Express Convenience Center, Inc. ("ECC").
(3) Includes pro forma adjustments related to the Offering. Such adjustments
reflect restructured executive compensation plans, the elimination of a
deferred compensation plan, the reduction of interest expense and the
termination of a covenant not to compete and corresponding payments as if
the events occurred at the beginning of the period. All such changes were
effective with the consummation of the Offering on May 31, 1996. (See Note
14 to the Consolidated Financial Statements of AirNet which are included
herein.)
(4) Assumes AirNet Common Shares issued in the Offering were outstanding for the
entire period.
(5) AirNet capitalizes costs related to the start-up activities associated with
new business initiatives, such as introduction of the premium products line
of business. Costs associated with these initiatives, such as personnel
costs, outside services and administrative support services, are capitalized
as start-up costs. During the three months ended March 31, 1998, AirNet
capitalized $0.9 million of such costs, for a total of $3.4 million of
start-up costs recorded on its balance sheet, included in other assets, at
March 31, 1998. The start-up phase for the premium products is expected to
be completed in the second quarter of 1998.
In April 1998, AcSEC issued Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities." This Statement of Position will require all
companies to write off, as a cumulative effect of a change in accounting
principle, any previously capitalized start-up costs. This Statement of
Position will be effective for AirNet in the first quarter of 1999.
SELECTED FINANCIAL DATA FOR QUICK
The selected financial data presented below as of and for the year ended
December 31, 1997, each of the fiscal years in the four-year period ended June
30, 1996, and the six months ended December 31, 1996, have been derived from the
Consolidated Financial Statements of Quick, which have been audited by Ernst &
Young LLP for the years ended December 31, 1997 and June 30, 1996 and 1995. The
selected financial data set forth below for Quick as of and for the three months
ended March 31, 1998 and 1997, have been derived from unaudited financial
statements of Quick that have been prepared on the same basis as the audited
Consolidated Financial Statements and include all adjustments, consisting of
normal recurring accruals, that Quick considers necessary for a fair
presentation of the financial position and results of operations for the periods
presented.
9
<PAGE>
QUICK SELECTED FINANCIAL DATA
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED YEARS ENDED JUNE 30, ENDED ENDED ENDED
DECEMBER 31, ---------------------------------------------- DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1994 1993 1996 1998 1997
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS
DATA
Net sales............... $ 67,277 $ 41,748 $ 30,184 $ 29,501 $ 24,013 $ 24,628 $ 21,985 $ 12,702
Cost of operations...... 49,275 31,320 22,411 20,808 16,513 18,580 16,031 9,207
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
Gross profit............ 18,002 10,428 7,773 8,693 7,500 6,048 5,954 3,495
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
Expenses:
Selling............... 5,788 3,562 2,702 2,592 2,342 2,225 1,727 1,262
General &
administrative...... 9,411 5,745 5,235 4,957 4,489 3,477 2,621 1,899
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
15,199 9,307 7,937 7,549 6,831 5,702 4,348 3,161
Income (loss) from
operations............ 2,803 1,121 (164) 1,144 669 346 1,606 334
Interest expense, net... 512 292 116 126 115 160 171 83
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
Income (loss) before
income taxes.......... 2,291 829 (280) 1,018 554 186 1,435 251
Provision for income
taxes (2)............. 390 83 35 120 79 20 240 35
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
Net income (loss)....... $ 1,901 $ 746 $ (315) $ 898 $ 475 $ 166 $ 1,195 $ 216
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
------------ --------- --------- ----------- ----------- ------------ ------------- -------------
BALANCE SHEET DATA
Total assets............ $ 32,664 $ 14,085 $ 10,036 $ 9,577 $ 7,385 $ 15,470 $ 33,083 $ 13,638
Total debt.............. 10,946 6,806 4,224 3,101 2,522 5,962 9,628 3,765
Shareholders' equity.... 12,116 3,513 2,733 3,048 2,417 3,670 13,366 3,861
</TABLE>
- ------------------------
(1) During 1997, Quick changed its fiscal year end from June 30 to December 31.
As a result, the six months ended December 31, 1996 has been treated as a
transition period.
(2) Reflects Quick as an S Corporation during the periods presented.
Accordingly, no provision for federal and certain state income taxes has
been recorded. In connection with the Merger, Quick will terminate its S
Corporation status and a deferred tax liability will be recognized.
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table summarizes certain unaudited pro forma combined selected
financial data for AirNet and Quick, giving effect to the Merger as a
pooling-of-interests for accounting and financial reporting purposes. Such
unaudited pro forma data assumes the Merger had been effective at the beginning
of the years ended December 31, 1997, September 30, 1996 and 1995 and the three
months ended December 31, 1996 and March 31, 1998 and 1997 and that 3,141,356
AirNet Common Shares were issued in connection with the Merger. This unaudited
pro forma selected financial data is derived from and should be read in
conjunction with the historical consolidated financial statements of AirNet and
Quick, including the respective footnotes to those statements and the unaudited
pro forma condensed combined financial information giving effect to the Merger
included elsewhere herein. THE FOLLOWING UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL DATA IS NOT NECESSARILY INDICATIVE OF RESULTS OF THE OPERATIONS OR
COMBINED FINANCIAL POSITION THAT WOULD HAVE RESULTED HAD THE MERGER BEEN
CONSUMMATED AT THE BEGINNING OF THE PERIODS PRESENTED, NOR IS IT NECESSARILY
INDICATIVE OF THE RESULTS OF OPERATIONS OF FUTURE PERIODS OR THE FUTURE COMBINED
FINANCIAL POSITION.
10
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS THREE MONTHS THREE MONTHS
------------------------------------------ ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1996 1998 1997
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA (1)
Net revenues
Check delivery..................... $ 80,707 $ 65,025 $ 58,264 $ 16,811 $ 22,370 $ 18,080
Small package delivery............. 82,937 55,612 42,608 16,690 25,898 16,415
Fixed base operations.............. 1,395 1,063 1,007 366 288 442
------------ ------------- ------------- ------------- ------------- -------------
Total net revenues................... 165,039 121,700 101,879 33,867 48,556 34,937
Costs and expenses
Air and ground transportation...... 115,307 85,117 71,657 24,283 35,246 23,911
Fixed base operations.............. 1,101 1,033 956 309 175 283
Selling, general and
administrative................... 22,644 20,823 20,954 4,701 6,619 5,153
------------ ------------- ------------- ------------- ------------- -------------
Total costs and expenses............. 139,052 106,973 93,567 29,293 42,040 29,347
------------ ------------- ------------- ------------- ------------- -------------
Income from operations............... 25,987 14,727 8,312 4,574 6,516 5,590
Interest expense..................... 621 1,364 1,585 98 367 83
Offering-related, non-recurring
expenses (2)....................... -- 13,704 -- -- -- --
------------ ------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes
(3)................................ 25,366 (341) 6,727 4,476 6,149 5,507
Provision for income taxes........... 10,309 4,791 192 1,850 2,549 2,222
------------ ------------- ------------- ------------- ------------- -------------
Net income (loss).................... $ 15,057 $ (5,132) $ 6,535 $ 2,626 $ 3,600 $ 3,285
------------ ------------- ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- ------------- -------------
Net income per common share.......... $ 0.96 $ 0.17 $ 0.23 $ 0.21
Net income per common share--assuming
dilution........................... $ 0.94 $ 0.17 $ 0.22 $ 0.21
Pro forma information (4)
Net income (loss) before taxes..... $ (341) $ 6,727
Pro forma adjustments, other than
income taxes..................... 4,429 7,367
Pro forma income taxes............. 6,209 5,794
------------- -------------
Pro forma net income (loss).......... $ (2,121) $ 8,300
------------- -------------
------------- -------------
Pro forma net income (loss) per
common share--basic and assuming
dilution........................... $ (0.19) $ 0.92
Adjusted pro forma information (5)
Pro forma net income (loss)........ $ (2,121) $ 8,300
Effects of eliminating offering-
related, non-recurring expense,
net of tax....................... 12,681 --
------------- -------------
Adjusted pro forma net income........ $ 10,560 $ 8,300
------------- -------------
------------- -------------
Adjusted pro forma net income per
share--basic and assuming
dilution........................... $ 0.68 $ 0.53
BALANCE SHEET DATA
Total assets......................... $ 136,650 $ 89,951 $ 59,965 $ 94,965 $ 140,560 $ 95,780
Total debt........................... 20,675 7,002 23,655 6,073 18,352 3,765
Shareholders' equity................. 92,376 69,800 23,608 74,389 95,583 77,707
</TABLE>
- ------------------------
(1) The unaudited pro forma combined statements of operations data give effect
to the following adjustments as if the Merger had been completed as of the
beginning of the periods indicated: (i) the
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<PAGE>
reduction of executive compensation costs for Quick as a result of
employment agreements executed in connection with the Merger; and (ii) the
recording of federal and state income taxes as if Quick's operations had
been taxed as a C Corporation and the effects of the above pro forma
adjustments at an assumed effective tax rate of 40%.
The pro forma weighted average shares outstanding have been increased to
include the 3,141,356 AirNet Common Shares expected to be issued in the
Merger. The diluted pro forma weighted average shares outstanding also
include the dilutive effects of the options to purchase 249,591 AirNet
Common Shares to be issued in connection with the Merger.
(2) Represents non-cash, non-recurring expenses incurred by AirNet as a result
of the Offering, effective May 31, 1996.
(3) Prior to AirNet's Offering, it operated as an S Corporation under the Code
for tax purposes and, consequently, was not subject to federal and certain
state income taxes.
(4) Includes pro forma adjustments related to the Offering, in addition to the
pro forma adjustments noted in Note (1), above. Such adjustments reflect
restructured executive compensation plans, the elimination of a deferred
compensation plan, the reduction of interest expense and the termination of
a covenant not to compete and corresponding payments as if the Offering
occurred on October 1, 1994. All such changes were effective with the
consummation of the Offering on May 31, 1996.
(5) Excludes the effects of $13,704,000 of non-cash, non-recurring expenses
incurred as a result of AirNet's Offering, effective May 31, 1996. Adjusted
pro forma net income per share data assumes the AirNet Common Shares issued
in the Offering were outstanding for the entire period presented.
RISK FACTORS
ANY INVESTMENT IN THE AIRNET COMMON SHARES BEING OFFERED TO THE QUICK
STOCKHOLDERS HEREBY INVOLVES A HIGH DEGREE OF RISK. THE QUICK STOCKHOLDERS
SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
AIRNET--FORWARD-LOOKING STATEMENTS" IN EVALUATING THEIR INVESTMENT IN THE AIRNET
COMMON SHARES.
THE MERGER
BACKGROUND OF THE MERGER
Consistent with AirNet's strategy of pursuing strategic acquisitions,
representatives of AirNet contacted Quick regarding a possible business
combination in November 1997. On December 24, 1997, Quick and AirNet signed
reciprocal confidentiality agreements. Within the next several weeks after the
initial meeting, the principals of Quick and members of AirNet's senior
management held several business and due diligence meetings to determine whether
there was a basis for agreement. On January 20, 1998, Quick retained Donaldson
Lufkin & Jenrette Securities Corporation ("DLJ") to provide Quick with financial
advisory and investment banking services with respect to a possible business
combination, and on February 4, 1998, AirNet retained Warburg Dillon Read to
assist AirNet in its negotiations.
On February 9, 1998, the parties executed a letter of intent. On February
10, 1998, AirNet publicly announced its intention to enter into a transaction
with Quick. Thereafter, the parties proceeded to negotiate a definitive merger
agreement. Such negotiations culminated with the execution of the Agreement on
April 15, 1998.
The consideration to be paid by AirNet in the Merger was determined by
arms-length negotiation among Quick, the Quick Stockholders and AirNet, after
consultation by AirNet with Warburg Dillon Read and by Quick with DLJ.
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<PAGE>
REASONS FOR THE MERGER
AIRNET
AirNet's management and the Board of Directors believe that the Merger will
benefit AirNet's shareholders and strengthen AirNet by accelerating AirNet's
strategic plan of developing its document and small package business. The
acquisition of Quick will provide AirNet with 3,000 active customers including
many Fortune 500 clients, an experienced sales force and a network of over 5,000
ground service agents. A substantial part of Quick's business involves
international, next flight out, mail and distribution services, which are areas
yet to be developed by AirNet. This acquisition allows AirNet to establish a
solid foundation from which to grow this business. In addition, the sales force
will be able to market the advantages of AirNet's unique multiple reflex air
system to existing Quick customers and potential new customers of AirNet.
Once the Merger is completed, AirNet believes additional value will be
created through marketing, operating and scale synergies. AirNet and Quick, as a
combined entity, will implement a coordinated marketing and sales approach to
best serve the customer base. The ability to cross market the services of each
company to the combined customer base should generate additional revenue
opportunities. Also, Quick's air and ground transportation costs paid to third
party providers may be reduced to the extent shipments can be redirected to fill
AirNet's air and ground excess capacity. Further, value should be created since
the likelihood of being able to reduce the cost per shipment by consolidating
two or more next flight out shipments into one will increase as a result of the
Merger. Additional economic benefit will be derived from the combined purchasing
power of AirNet and Quick with respect to a wide range of areas in the business.
AirNet believes the structure of the transaction is the preferable method in
which to accomplish the acquisition of Quick in order to achieve the benefits
described above. The current management of Quick includes the principal
stockholders of Quick who will become shareholders of AirNet following the
Merger. AirNet believes that the Merger will clearly align Quick management with
the goals of maximizing the benefit for all AirNet shareholders.
Of course, as in any business transaction, there can be no assurance that
AirNet's expectations will be fulfilled.
QUICK
The Board of Directors of Quick believes that the terms of the Merger are
fair to, and in the best interest of, Quick and the Quick Stockholders.
Accordingly, the Board of Directors of Quick approved the Agreement and the
Acquisition contemplated thereby, and recommended the approval and adoption of
the Agreement by the Quick Stockholders.
In reaching its conclusion to enter into the Agreement and to recommend that
the Quick Stockholders vote for the approval and adoption of the Agreement, the
Board of Directors of Quick considered a number of factors, including, but not
limited, (i) the competitive environment of the courier industry generally and
of priority courier providers specifically, (ii) the terms of the Agreement,
(iii) the terms of other recent business combination transactions involving
courier companies, (iv) the financial condition, performance, management and
future prospects of each of Quick and AirNet, (v) the potential for growth,
stability and enhanced services as a result of an association with AirNet, (vi)
the comparative marketability of the AirNet Common Shares and (vii) the
potential tax treatment of the Merger.
The Board of Directors of Quick also considered certain potential
disadvantages or negative factors relating to the Merger, including, but not
limited to, (i) the loss of a significant degree of control by Quick's
stockholders and management that would result from becoming a closely-held
subsidiary of a public company, (ii) the risk that the Merger would not be
consummated, (iii) the risk that the benefits
13
<PAGE>
sought by the consummation of the Merger would not be achieved, and (iv) the
relative liquidity of the AirNet Common Shares.
The Board of Directors of Quick believes the Merger will provide an
attractive opportunity to strengthen Quick's competitive position in the courier
industry, enhance its profile among customers and achieve operational, financial
and strategic goals. The Board of Directors also believes that an association
with AirNet will increase Quick's potential for growth and stability. In
addition, the Board of Directors believes the terms and structure of the Merger,
including, but not limited to, the pooling-of-interests accounting treatment, to
be favorable to Quick and the Quick Stockholders.
OPINION OF AIRNET'S FINANCIAL ADVISOR
AirNet's Board of Directors retained Warburg Dillon Read to act as its
financial advisor in connection with the Merger. As part of its deliberations,
the AirNet Board considered the oral and written analyses and advice of Warburg
Dillon Read regarding the Merger. See the full text of the written Opinion of
Warburg Dillon Read set out in Appendix II.
On Monday, April 13, 1998, Warburg Dillon Read advised AirNet that based on
the terms of the Merger as presented to Warburg Dillon Read and subject to the
receipt of the executed Agreement substantially in the form and containing the
terms presented at such meeting, upon AirNet's request, Warburg Dillon Read was
prepared to render an Opinion as to the fairness to AirNet from a financial
point of view of the consideration to be paid by AirNet pursuant to the Merger.
The engagement letter between AirNet and Warburg Dillon Read does not
requireWarburg Dillon Read to render an opinion as to the fairness of the Merger
to AirNet's shareholders. On Wednesday, April 22, 1998, AirNet requested that
Warburg Dillon Read render its Opinion in writing.
Warburg Dillon Read delivered its written opinion on April 24, 1998
(effective April 13, 1998) to the AirNet Board of Directors to the effect that,
and based upon and subject to the assumptions, limitations and qualifications
set forth therein, as of the date thereof, the aggregate consideration to be
paid by AirNet pursuant to the Agreement, without reference to the consideration
to be paid to any specific shareholder, is fair to AirNet, from a financial
point of view.
Shareholders are encouraged to read the full text of the Warburg Dillon Read
Opinion in its entirety for information with respect to the procedures followed,
assumptions made, matters considered and limitations on the review undertaken by
Warburg Dillon Read in arriving at its Opinion. The Warburg Dillon Read Opinion
does not address the fairness of the Merger to any specific shareholders of
AirNet or to the shareholders of Quick, nor does it constitute a recommendation
regarding whether or not it is advisable for such shareholders to vote in favor
of the Merger. The summary of the Warburg Dillon Read Opinion set forth in this
Proxy Statement/Prospectus is qualified in its entirety by reference to the full
text of such Opinion.
Warburg Dillon Read has consented to the use of Appendix II, containing its
opinion dated April 24, 1998 and incorporated elsewhere in this Proxy
Statement/Prospectus, and to the references to Warburg Dillon Read under the
headings "SUMMARY" and "THE MERGER" in this Proxy Statement/ Prospectus. In
giving such consent, Warburg Dillon Read does not admit that it comes within the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission promulgated thereunder, nor
does Warburg Dillon Read admit that it is an expert with respect to any part of
the Registration Statement in which this Proxy Statement/Prospectus is included,
within the meaning of the term "experts" as used in the Securities Act or the
rules and regulations of the Commission promulgated thereunder.
In arriving at its Opinion, Warburg Dillon Read, among other things: (i)
reviewed the Agreement; (ii) reviewed certain publicly available business and
financial information relating to AirNet; (iii) reviewed the reported price and
trading activity for the AirNet Common Shares; (iv) reviewed certain internal
non-
14
<PAGE>
public financial information and other data provided to Warburg Dillon Read by
each of AirNet and Quick relating to the business and prospects of AirNet and
Quick, respectively, including financial projections prepared by the management
of AirNet and Quick, respectively; (v) conducted discussions with members of the
senior management of AirNet and Quick; (vi) reviewed publicly available
financial and securities market data pertaining to certain publicly held
companies in lines of business which Warburg Dillon Read believed to be
generally comparable to Quick; and (vii) conducted such other financial studies,
analyses and investigations, and considered such other information as Warburg
Dillon Read deemed necessary and appropriate but none of which was individually
material. The Warburg Dillon Read Opinion was necessarily based on economic,
monetary, market and other conditions in effect on, and the information made
available to it as of, April 13, 1998.
In connection with its review, with AirNet's consent, Warburg Dillon Read
did not assume any responsibility for independent verification of any of the
information reviewed by it for purposes of the Opinion and, with AirNet's
consent, relied upon its being complete and accurate in all material respects.
Warburg Dillon Read was not requested to and did not make an independent
evaluation or appraisal of any assets or liabilities (contingent or otherwise)
of AirNet or Quick, nor was Warburg Dillon Read furnished with any such
evaluation or appraisal.
With respect to the financial estimates provided to or otherwise reviewed by
or discussed with it, Warburg Dillon Read assumed, with AirNet's consent, that
all of the information, including the financial forecasts, estimates, pro forma
effects and projections, provided to Warburg Dillon Read by the management of
AirNet and Quick, were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of each
corporation as to the future performance of their respective corporations.
In arriving at the Opinion, Warburg Dillon Read did not assign any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments based upon its experience in rendering such opinions and
on economic, monetary, market and other conditions then present as to the
significance and relevance of each analysis and factor. Accordingly, Warburg
Dillon Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and other factors considered by it, without
considering all factors and analyses, could create a misleading or incomplete
view of the valuation process underlying the Opinion.
With AirNet's consent, Warburg Dillon Read made numerous assumptions with
respect to historical and projected financial performance, industry performance,
general business and economic conditions and other matters discussed herein,
many of which are beyond Quick's, AirNet's and Warburg Dillon Read's control.
Any assumed estimates contained in Warburg Dillon Read's analyses are not
necessarily indicative of actual values, which may be significantly more or less
favorable than as set forth herein. Such estimates relating to the value of a
business or securities do not purport to be appraisals or necessarily reflect
the prices at which companies or securities may actually be sold or bought.
In connection with rendering its opinion, Warburg Dillon Read employed a
variety of valuation methods. The following discussion constitutes a summary of
the material analyses considered by Warburg Dillon Read, assuming the terms of
the Agreement as presented on April 23, 1998 (the "Proposed Merger"):
CONTRIBUTION ANALYSIS
Warburg Dillon Read calculated the contribution of Quick to AirNet with
respect to budgeted 1997 and projected 1998 (based on estimates by AirNet and
Quick) net income available to common shareholders, earnings before interest and
taxes ("EBIT"), and revenues, as well as assets and book value of common equity
at September 30, 1997. These calculations yielded amounts reflecting Quick's
contribution ranging from 4% to 47% of the total pro forma combined amount, with
an average contribution of 24%.
15
<PAGE>
Based on the terms of the Merger, Quick Stockholders will own approximately 20%
of the AirNet Common Shares outstanding on a pro forma basis.
ANALYSIS OF SELECTED PUBLIC COMPANIES
Using publicly available information, Warburg Dillon Read compared, based
upon market trading values at the time, multiples of certain financial criteria
of Quick to certain other companies in the overnight package delivery and
freight forwarding business that in the judgment of Warburg Dillon Read were
deemed generally comparable to Quick for purposes of this analysis. The group of
companies used in the comparison consisted of Air Express International CP.;
Aramex International Ltd.; Consolidated Delivery & Logistics Inc.; Corporate
Express Inc.; Circle International Group Inc.; Fritz Companies Inc.; US
Freightways Corp.; Dynamex Inc.; Eagle USA Airfreight Inc.; Expeditors
International of Washington Inc.; and Mark VII Industries Inc. (collectively,
the "Comparison Companies").
Warburg Dillon Read analyzed the unlevered market value (equity market value
plus debt, minus cash) of the Comparison Companies as multiples of revenues,
EBIT, and earnings before interest, taxes, depreciation and amortization
("EBITDA") for the budgeted 1997 period, the equity market value of the
Comparison Companies as multiples of latest twelve months ("LTM") net income,
and the stock price of the Comparison Companies as multiples ("P/E ratios") of
First Call, Inc., estimated LTM earnings per share ("EPS") and estimated 1998
EPS, and compared these figures to similar multiples based on 1997 budgeted
financial data for Quick and management estimates for 1998 for Quick at the
proposed Merger price prior to the public announcement ("Proposed Merger
Price").
An analysis of the unlevered market value to LTM revenues yielded ranges of
0.2x to 1.7x with a mean of 0.7x for the Comparison Companies, which compares
with an implied ratio of 1.1x for Quick at the Proposed Merger Price. An
analysis of the unlevered market value to LTM EBITDA yielded ranges of 6.0x to
17.7x with a mean of 12.0x for the Comparison Companies, which compares with an
implied ratio of 12.0x for Quick at the Proposed Merger Price. An analysis of
the unlevered market value to LTM EBIT yielded ranges of 10.4x to 21.2x with a
mean of 15.8x for the Comparison Companies, which compares with an implied ratio
of 13.8x for Quick at the Proposed Merger Price. An analysis of the equity
market value to LTM net income yielded ranges of 14.9x to 31.1x with a mean of
21.0x for the Comparison Companies, which compares with an implied ratio of
21.1x for Quick at the Proposed Merger Price. An analysis of 1998 estimated P/E
ratios yielded ranges of 11.6x to 26.1x with a mean of 18.7x for the Comparison
Companies, which compares with an implied 1998 estimated P/E ratio of 17.7x for
Quick at the Proposed Merger Price.
No company transaction or business used in the analysis described under
"Analysis of Selected Public Companies" above is identical to AirNet, Quick or
the combined company. Accordingly, an analysis of the results thereof
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the transaction or the public trading or other values of the company or
companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not itself a meaningful method of using
such generally comparable acquisition or company data.
DISCOUNTED CASH FLOW ANALYSIS
Warburg Dillon Read performed a discounted cash flow evaluation of Quick
based upon projections supplied by the management of AirNet and Quick. Utilizing
these projections, Warburg Dillon Read discounted to present value, under
varying assumed discount rates, estimated future unlevered cash flows. Such
analysis indicated that assuming terminal value multiples ranging from 10.0x to
14.0x EBIT and discount rates ranging from 12% to 18%, the net present value of
Quick's unlevered future after-tax cash flows ranged from $72.4 million to
$119.4 million.
16
<PAGE>
PRO FORMA MERGER ANALYSIS
Warburg Dillon Read also analyzed certain pro forma financial effects of the
Merger on AirNet. This analysis was based upon certain assumptions made by
Warburg Dillon Read with AirNet's consent and AirNet projections and Quick
projections for the fiscal years 1997 and 1998 prepared by the management of
AirNet and Quick, respectively. No revenue enhancements or operating cost
savings were assumed in these projections.
Based upon such assumptions, Warburg Dillon Read's pro forma analysis of the
financial effects of the Merger indicated that these effects (before the impact
of one-time transaction related costs) were neutral to AirNet's net income per
share for the forecasted period ended December 31, 1997 and accretive to
AirNet's net income per share for the years in the forecasted period ending
December 31, 1998.
PRIOR RELATIONSHIP OF AIRNET WITH WARBURG DILLON READ
Warburg Dillon Read is an internationally recognized investment banking firm
which, as part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The Board selected Warburg Dillon Read on the
basis of the firm's expertise and reputation.
Warburg Dillon Read has performed and continues to perform investment
banking services for AirNet. Warburg Dillon Read is familiar with AirNet, having
served as lead underwriter in AirNet's Offering on May 30, 1996 and as a general
financial advisor to AirNet in various other acquisition assignments. For such
services, Warburg Dillon Read has received customary fees. Pursuant to the terms
of an engagement letter, dated February 4, 1998, Warburg Dillon Read received a
fee of $500,000 for services rendered in connection with providing the Opinion.
In addition, Warburg Dillon Read will receive additional fees upon the closing
of the Merger equal to 1.25% of the aggregate amount of consideration paid in
the Merger, less the $500,000. AirNet has also agreed to indemnify Warburg
Dillon Read and its officers, directors, employees, agents and controlling
persons against certain liabilities arising in connection with its engagement.
In addition, in the ordinary course of business, Warburg Dillon Read trades
securities of AirNet for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
RESALE CONSIDERATIONS WITH RESPECT TO THE AIRNET COMMON SHARES
The AirNet Common Shares that will be issued if the Merger is consummated
have been registered under the Securities Act and listed on the NYSE and will be
freely transferable, except for AirNet Common Shares received by persons,
including directors and executive officers of Quick, who may be deemed to be
"affiliates" of Quick under Rule 145 promulgated under the Securities Act and by
persons, including Robert J. Mitzman, who may become affiliates of AirNet.
Affiliates of Quick may not sell their AirNet Common Shares acquired pursuant to
the Merger, except pursuant to an effective registration statement under the
Securities Act covering such AirNet Common Shares or in compliance with Rule 145
or another applicable exemption from the registration requirements of the
Securities Act. Affiliates of AirNet may not sell their AirNet Common Shares
(whether acquired pursuant to the Merger or otherwise), except pursuant to an
effective registration statement under the Securities Act or in compliance with
Rule 144 or another applicable exemption from the registration requirements of
the Securities Act. Persons who may be deemed to be affiliates of an entity
generally include individuals or entities that control, are controlled by, or
under common control with, the entity and may include certain officers and
directors of the entity as well as any shareholders who own more than 10% of the
entity's capital stock.
17
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material federal income tax
consequences of the Merger. The discussion is based on the Code, judicial
decisions and administrative regulations, rulings and practices, all of which
are subject to change. The following does not address any state, local or
foreign income and other tax consequences of the Merger.
Neither AirNet nor the holders of AirNet Common Shares will recognize any
gain or loss for federal income tax purposes as a result of the Merger. With
respect to the Quick Stockholders, the consummation of the Merger is intended to
constitute a tax-free reorganization pursuant to Section 368(a) of the Code.
HOWEVER, EACH QUICK STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
ANTITRUST CONSIDERATIONS
Transactions such as the Merger are reviewed by the Antitrust Division or
the FTC to determine whether they comply with applicable antitrust laws. Under
the provisions of the HSR Act, the Merger cannot be consummated until such time
as the requirements of the HSR Act have been satisfied. Certain information was
filed with the Antitrust Division and the FTC under the HSR Act by AirNet and
Quick on April 10, 1998. The respective waiting periods under the HSR Act expire
twenty days after substantial compliance by AirNet and Quick with the request
unless such waiting periods are earlier terminated by the FTC or unless the
parties agree to extend such waiting periods. On April 22, 1998, AirNet and
Quick received notice of early termination of the waiting periods under the HSR
Act. No further approval by the Antitrust Division or the FTC is required in
order to consummate the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by AirNet under the "pooling-of-interests"
method of accounting under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting Principles Board of the American Institute of
Certified Public Accountants, as amended by Statements of the Financial
Accounting Standards Board, and the rules and regulations of the Commission.
THE AGREEMENT
THIS SECTION OF THE PROXY STATEMENT/PROSPECTUS DESCRIBES THE MATERIAL
ASPECTS OF THE AGREEMENT. THE FOLLOWING DESCRIPTION, HOWEVER, DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT
ITSELF WHICH IS ATTACHED HERETO AS APPENDIX I AND IS INCORPORATED HEREIN BY
REFERENCE. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL HAVE
THE MEANINGS ASCRIBED THERETO IN THE AGREEMENT.
TERMS OF THE AGREEMENT
Pursuant to the Agreement, Merger Subsidiary shall be merged with and into
Quick, the separate corporate existence of Merger Subsidiary will cease and
Quick will be the surviving corporation and a wholly-owned subsidiary of AirNet.
In connection with the Merger, the Quick Stockholders, as a group, will receive
the Merger Consideration less the Escrow Shares, in exchange for all of the
issued and outstanding Quick Common Shares.
REPRESENTATIONS AND WARRANTIES
The Agreement includes various customary representations and warranties of
the parties for transactions of this type. These include, among other things,
representations and warranties by Quick as to (i) the organization and foreign
qualification to do business of Quick and its subsidiaries; (ii) the
authorization of
18
<PAGE>
the execution, delivery and performance by Quick of the Agreement and its valid
and binding nature; (iii) the non-contravention of the transactions contemplated
by the Agreement with the organizational documents of Quick, provisions of
applicable law or agreements; (iv) the capitalization of Quick; (v) the accuracy
of the financial statements of Quick and other information provided to AirNet;
(vi) the absence of certain changes and the conduct of the business of Quick
since December 31, 1997; (vii) the absence of undisclosed liabilities; (viii)
the absence of pending or threatened litigation; (ix) proper payment of taxes;
(x) ERISA plans and liability; (xi) trademarks, patents, copyrights and other
intellectual property rights; (xii) material contracts; (xiii) compliance with
applicable law; (xiv) finders' fees; (xv) the financial projections provided by
Quick to AirNet; (xvi) environmental compliance; (xvii) the absence of
intercompany arrangements; and (xviii) the absence of any action which would
change the intended tax or accounting treatment of the Merger.
With certain limited exceptions, the representations and warranties by
AirNet and Merger Subsidiary mirror the representations and warranties by Quick
listed in (i), (ii), (iii), (iv), (vi), (xi), (xiii), (xiv), (xvi) and (xviii)
above. In addition, AirNet and Merger Subsidiary made representations and
warranties as to AirNet's public financial statements and documents filed with
the Commission.
The representations and warranties of each of the parties contain customary,
limited carve-outs for materiality, knowledge and previously disclosed
information.
COVENANTS
Pursuant to the Agreement, Quick and the Quick Stockholders, on the one
hand, and AirNet and Merger Subsidiary, on the other, have made various
covenants customary for transactions of this type. These include, on the part of
Quick, covenants regarding: (i) conduct of its business and that of its
subsidiaries from the date of the Agreement through the Effective Time; (ii)
access to information and confidentiality; (iii) solicitation or negotiation of
competing offers; and (iv) notice of certain events; and, on the part of the
Quick Stockholders, covenants regarding: (a) the voting of all shares of capital
stock of Quick for the Merger and the waiver of all dissenters' rights; (b)
transfer of their shares of capital stock, or the voting rights with respect
thereto, in order to satisfy the requirements for "pooling-of-interests"
accounting treatment; and (c) the issuance of notes reflecting moneys borrowed
by several of the Quick Stockholders from Quick. Such notes shall be repaid in
full by no later than December 31, 1998, unless the Effective Time occurs after
August 31, 1998 in which event the repayment date shall be extended. In
addition, Quick agreed to amend the lease, dated September 5, 1997, between a
subsidiary of Quick and Glenn and Rita L. Smoak, relating to the property
located at 847 Station Street, Herndon, Virginia, and providing for early
termination of such lease on terms satisfactory to AirNet (the "Herndon Lease
Amendment").
With certain limited exceptions, the covenants of AirNet and Merger
Subsidiary mirror the covenants by Quick listed in (ii), (iii) and (iv) above.
In addition, AirNet and Merger Subsidiary covenant and agree (a) to take all
necessary action to call a meeting of the AirNet shareholders for the purpose of
soliciting shareholder approval of the Acquisition and to list the AirNet Common
Shares to be issued in the Merger on the NYSE and (b) to assume on behalf of
Robert J. Mitzman, or release him from, certain guaranties made by Mr. Mitzman
with respect to obligations of Quick.
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In addition, the parties have made certain joint covenants with respect to
(i) using their reasonable efforts to consummate the transaction contemplated by
the Agreement; (ii) cooperating in connection with the preparation of this Proxy
Statement/Prospectus and obtaining all requisite consents, approvals or waivers;
(iii) public announcements; (iv) execution of documents after the Effective
Time; (v) responsibility for preparing and filing various pre- and
post-Effective Time tax returns; and (vi) the qualification of the Merger as a
tax-free reorganization within the meaning of Section 368(a) of the Code. With
respect to tax obligations, because Quick is an S corporation for federal tax
purposes, the parties have agreed that Quick may make a distribution to the
Quick Stockholders of an as yet undetermined amount to reimburse the Quick
Stockholders for their aggregate liability for taxes attributable to the taxable
income of Quick and its subsidiaries from January 1, 1998 through the Effective
Time.
ADDITIONAL AGREEMENTS
AirNet and Merger Subsidiary have agreed, from and after the Effective Time,
to indemnify and hold harmless the present and former officers and directors of
Quick in respect of acts or omissions occurring prior to the Effective Time
solely in their role as officers and directors to the extent currently provided
under Quick's certificate of incorporation and by-laws; PROVIDED, that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law, and, PROVIDED, FURTHER, that such indemnification shall
not apply to claims made by or on behalf of any stockholder or former
stockholder of Quick.
As soon as practicable after the Effective Time and subject to their
fiduciary duties to the AirNet shareholders, the Board of Directors of AirNet
has agreed to use its reasonable efforts to cause the shareholders of AirNet to
elect Robert J. Mitzman to the Board of Directors of AirNet. For so long as
Robert J. Mitzman beneficially owns 49% of the issued and outstanding AirNet
Common Shares he actually receives, directly or indirectly, as his portion of
the Merger Consideration, the Board of Directors of AirNet shall continue to use
its reasonable efforts to cause the shareholders of AirNet to elect Mr. Mitzman
as a director of AirNet.
With a view to making available to the Quick Stockholders the benefits of
Rules 144 and 145 promulgated under the Securities Act, and any other similar
rules and regulations of the Commission which may at any time permit the Quick
Stockholders to sell or distribute without registration the AirNet Common Shares
received as Merger Consideration, AirNet has agreed to file with the Commission
in a timely manner all reports and other documents required to be filed by
AirNet under the Exchange Act.
AirNet has also agreed to negotiate in good faith with Robert J. Mitzman for
the purchase of Quick's facility, which is owned by Mr. Mitzman and located at
175-28 148th Avenue, Jamaica, New York, for the fair market value thereof, as
determined by Cushman & Wakefield, independent third party appraisers. Such
purchase shall be made pursuant to a purchase agreement (the "Airport Facility
Purchase Agreement") which shall be negotiated in good faith between Mr. Mitzman
and AirNet and shall contain standard indemnifications (including, but not
limited to, with respect to environmental matters).
At the Effective Time, each of the employee benefit plans and arrangements
of Quick will remain in effect. With respect to each of the continuing employee
benefits plans and arrangements, AirNet has agreed that, by no later than three
years after the Effective Time, AirNet will terminate such employee benefit plan
or arrangement of Quick and will, in lieu thereof, provide, or cause to be
provided, to employees of Quick the same or substantially similar employee
benefit plans and programs as those provided to employees of AirNet with
comparable status and seniority as of the time of such termination.
CONDITIONS
The respective obligations of AirNet, Merger Subsidiary, Quick and the Quick
Stockholders to consummate the Merger are conditioned upon, among other things:
(i) all necessary approvals of the transactions contemplated by the Agreement by
AirNet's shareholders and the Quick Stockholders having
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been obtained; (ii) the expiration or termination of the applicable waiting
period under the HSR Act (which occurred on April 22, 1998); (iii) the
Registration Statement having been declared effective; (iv) the AirNet Common
Shares to be issued to the Quick Stockholders having been approved for listing
on the NYSE, subject to official notice of issuance; (v) the absence of any
applicable law or regulation or judgment, injunction, order or decree
prohibiting the consummation of the Merger; and (vi) the receipt of all material
required authorizations, consents, waivers, orders or approvals and the making
of all material required filings, notices and declarations.
The obligations of AirNet and Merger Subsidiary to consummate the Merger are
further conditioned upon, among other things: (i) the material accuracy of the
representations and warranties of Quick and the Quick Stockholders and the
material performance by them of their respective agreements and covenants
required by the Agreement, along with receipt by AirNet of a certificate signed
by the Chief Executive Officer and principal financial officer of Quick to such
effect; (ii) the absence of any material adverse change in the business, results
of operations or condition (financial or otherwise) of Quick and a certificate
of the Chief Executive Officer and principal financial officer of Quick to such
effect; (iii) the absence of any order by a court, arbitrator or governmental
body, agency or official and of any statute, rule or regulation materially
restraining or prohibiting the consummation of the Merger or the effective
operation of Quick after the Effective Time; (iv) AirNet's receipt of executed
employment agreements, in full force and effect as of the Effective Time, from
Robert J. Mitzman, Dominique Brown and Glenn Smoak; (v) AirNet's receipt of an
executed Herndon Lease Amendment; (vi) AirNet's receipt of a letter from its
independent public accountants, Ernst & Young LLP (Columbus), regarding their
concurrence with AirNet's conclusion as to the appropriateness of
pooling-of-interests accounting treatment for the Merger; (vii) AirNet's receipt
of a fairness opinion from Warburg Dillon Read to the effect that the Merger is
fair to AirNet; (viii) AirNet's receipt of evidence reasonably satisfactory to
it of the termination of several agreements between or among Quick and several
of the Quick Stockholders; and (ix) AirNet's receipt of such documents relating
to the existence of Quick and its subsidiaries and the authority of Quick to
enter into and perform its obligations under the Agreement as AirNet reasonably
requests. In addition to the foregoing conditions, the obligations of AirNet and
Merger Subsidiary are conditioned upon Quick's income from operations, as
calculated jointly by AirNet and Quick and excluding certain transaction-related
costs and expenses of Quick, for the period beginning on January 1, 1998 and
ending as of (x) the end of the month immediately preceding the Effective Time
(if the Effective Time occurs on or after the 26th day of a month) or (y) the
end of the month next preceding the Effective Time (if the Effective Time occurs
before the 26th day of a month) exceeding 85% of the projected income from
operations through the end of the relevant month, as previously disclosed to
AirNet.
The obligations of Quick and the Quick Stockholders to consummate the Merger
are further conditioned upon, among other things: (i) the material accuracy of
the representations and warranties of AirNet and Merger Subsidiary and the
material performance by them of their respective agreements and covenants
required by the Agreement, along with receipt by Quick of a certificate signed
by the Chief Executive Officer and Chief Financial Officer of AirNet to such
effect; (ii) the absence of any material adverse change in the business, results
of operations or condition (financial or otherwise) of AirNet and a certificate
of the Chief Executive Officer and Chief Financial Officer of AirNet to such
effect; (iii) the absence of any order by a court, arbitrator or governmental
body, agency or official and of any statute, rule or regulation materially
restraining or prohibiting the consummation of the Merger or the effective
operation of the business of AirNet after the Effective Time; (iv) the receipt
by the Quick Stockholders of employment agreements for Robert J. Mitzman,
Dominique Brown and Glenn Smoak executed by AirNet or Quick and in full force
and effect as of the Effective Time; (v) Quick's receipt of a letter from its
independent public accountants, Ernst & Young LLP (New York), regarding their
concurrence with Quick's conclusion as to the appropriateness of
pooling-of-interests accounting treatment for the Merger; (vi) the receipt by
the Quick Stockholders of an executed Registration Rights Agreement; (vii) the
receipt by Robert J. Mitzman of an executed Airport Facility Purchase Agreement;
and (viii) Quick's receipt of such documents relating to the existence of AirNet
and Merger Subsidiary and the authority of AirNet and
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Merger Subsidiary to enter into and perform their respective obligations under
the Agreement as Quick reasonably requests.
WAIVERS AND AMENDMENTS
The conditions to consummation of the Merger may be waived at any time by
the party or parties for whose benefit they were created; PROVIDED that, after
adoption of the Agreement by the Quick Stockholders, no such waiver is permitted
if it would materially adversely affect the Quick Stockholders and PROVIDED
FURTHER that, after approval of the Acquisition by the AirNet shareholders, no
such waiver is permitted if it would materially adversely affect the AirNet
shareholders. Except in certain limited circumstances, the Agreement may be
amended at any time by written agreement of the parties.
TERMINATION
The Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time (notwithstanding any approval of the Agreement by
the Quick Stockholders or of the Acquisition by the AirNet shareholders) (i) by
mutual written consent of AirNet and Quick; (ii) by AirNet or Quick, if the
Merger has not been consummated by September 30, 1998; (iii) by Quick, if the
approval of the AirNet shareholders shall not have been obtained or if prior to
the Effective Time, the directors of AirNet withdraw, modify or change their
approval of the Agreement in a manner which adversely impacts the consummation
of the Merger; (iv) by AirNet, if, prior to the Effective Time, the directors of
Quick withdraw, modify or change their approval of the Agreement in a manner
which adversely impacts the consummation of the Merger; (v) by AirNet or Quick,
in the event of any law or regulation prohibiting the Merger or of any final and
nonappealable judgment, injunction, order or decree enjoining AirNet or Quick
from consummating the Merger; and (vi) by AirNet or Quick, upon a breach of any
representation, warranty, covenant or agreement on the part of the other party,
or if any representation or warranty of the other party becomes untrue, in each
case such that the breach or the condition causing such breach would be
incapable of being cured by September 30, 1998. In the event of termination, the
Agreement shall become void except that certain provisions relating to
confidentiality and expenses shall survive such termination.
TERMINATION FEE
Under certain circumstances, AirNet has agreed to pay Quick $1,600,000 if
Quick terminates the Agreement because the shareholders of AirNet failed to
approve the Merger or the directors of AirNet have, prior to the Effective Time,
withdrawn, modified or changed their approval of the Agreement as a result of
AirNet's having consummated or agreed in writing to consummate a transaction
involving the sale of all or a significant portion of the assets or equity
securities of AirNet.
INDEMNIFICATION; ESCROW
The Agreement provides that, subject to certain time limitations (generally
until the filing of AirNet's Form 10-K for the fiscal year ending December 31,
1998 but, for the Specific Contingencies, until the second anniversary of the
Effective Time, each Quick Stockholder, on the one hand, and AirNet and Merger
Subsidiary, on the other, have agreed to indemnify against and hold the other
party harmless from any and all damage, loss, liability and expense (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses) incurred or suffered by such other party arising
out of any representation, warranty, covenant or agreement contained in the
Agreement (net of any insurance proceeds and tax benefits, "Losses") but only if
the aggregate of (a) all such Losses for which AirNet and Merger Subsidiary are
to be indemnified exceeds $200,000 or (b) all such Losses for which the Quick
Stockholders are to be indemnified exceeds $1,000,000 and then, in each case,
only for such excess and only for claims equal to or greater than $25,000.
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The Escrow Shares shall be deposited in an account (the "Escrow Account")
with Bank One Trust Company, N.A., as escrow agent (the "Escrow Agent"). AirNet
shall be entitled to recover any general Losses which may be suffered by AirNet
for which AirNet is entitled to indemnity pursuant to the Agreement, in the case
of the General Escrow Shares, or to recover any Losses arising out of the
Specific Contingencies, in the case of the Specific Escrow Shares. The liability
of the Quick Stockholders at and after the Effective Time is limited to the
Escrow Shares. If the Effective Time does not occur, no Quick Stockholder shall
have any liability under the Merger Agreement, and Quick's aggregate liability
to AirNet and other indemnitees shall be limited to $1,600,000.
At and after the Effective Time, the liability of AirNet is payable only in
additional AirNet Common Shares and is limited to 10% of the Merger
Consideration. If the Effective Time does not occur, AirNet's aggregate
liability to Quick and other indemnitees shall be limited to $1,600,000.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Agreement shall be borne by the party incurring them.
THE AIRNET ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is furnished to AirNet's shareholders in
connection with the solicitation on behalf of the Board of Directors of AirNet
of proxies for use at the Annual Meeting to be held on Tuesday, July 14, 1998,
at the Concourse Hotel, 4300 International Gateway, Columbus, Ohio, at 10:00
a.m., local time, and at any adjournment(s) thereof. This Proxy
Statement/Prospectus and the accompanying form of proxy were first mailed to
AirNet shareholders on or about June , 1998.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, shareholders will be asked to: (1) approve the
acquisition of one-fifth or more but less than one-third of the voting power of
AirNet by the Quick Stockholders, as a group; (2) elect directors; (3) approve
the amendment and restatement of AirNet's 1996 Incentive Stock Plan; and (4)
transact such other business as may properly come before the Annual Meeting.
The Board of Directors has unanimously approved the Merger and recommends a
vote FOR the Acquisition, a vote FOR the election of the directors named herein
and a vote FOR the proposed amendment and restatement of AirNet's 1996 Incentive
Stock Plan.
VOTING AT THE MEETING; RECORD DATE
Only holders of record of AirNet Common Shares at the close of business on
the Record Date will be entitled to vote at the Annual Meeting. As of the Record
Date, there were [12,577,913] AirNet Common Shares outstanding. Each AirNet
Common Share entitles the holder to one vote. A quorum for the Annual Meeting is
a majority of the AirNet Common Shares outstanding. There is no cumulative
voting. Other than the AirNet Common Shares, there are no voting securities of
AirNet outstanding.
AirNet Common Shares represented by signed proxies that are returned to
AirNet will be counted toward the quorum in all matters even though they are
marked as "Abstain," "Against" or "Withhold Authority" on one or more or all
matters or they are not marked at all. Broker/dealers, who hold their customers'
AirNet Common Shares in street name, may, under the applicable rules of the
exchange and other self-regulatory organizations of which the broker/dealers are
members, sign and submit proxies for such AirNet Common Shares and may vote such
AirNet Common Shares on routine matters, which, under such rules, typically
include the election of directors, but broker/dealers may not vote such AirNet
Common Shares on other matters, which typically include significant corporate
transactions such as
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mergers and acquisitions, amendments to the charter documents of AirNet and the
approval of stock compensation plans, without specific instructions from the
customer who owns such AirNet Common Shares. Proxies signed and submitted by
broker/dealers which have not been voted on certain matters as described in the
previous sentence are referred to as broker non-votes. Such proxies count toward
the establishment of a quorum. THE EFFECT OF AN ABSTENTION OR BROKER NON-VOTE ON
EACH OF THE MATTERS TO BE VOTED ON AT THE ANNUAL MEETING IS THE SAME AS A "NO"
VOTE.
If the accompanying proxy card is properly signed and returned to AirNet
prior to the Annual Meeting and not revoked, it will be voted in accordance with
the instructions contained therein. If no instructions are given, the persons
designated as proxies in the accompanying proxy card will vote FOR the election
as directors of those persons named below and FOR all other proposals set forth
herein.
The Board of Directors is not currently aware of any matters other than
those referred to herein which will come before the Annual Meeting. If any other
matter should be presented at the Annual Meeting for action, the persons named
in the accompanying proxy card will vote the proxy in their own discretion.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by delivering written notice of revocation to the Secretary of
AirNet, by submitting a subsequently dated proxy or by attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not, in
itself, constitute revocation of the proxy.
The expense of preparing, printing and mailing proxy materials to the AirNet
shareholders will be borne by AirNet. In addition, proxies may be solicited
personally or by telephone by officers or associates of AirNet, none of whom
will receive additional compensation therefor. AirNet has engaged Corporate
Investor Communications, Inc. to assist in the solicitation of proxies from
AirNet shareholders at a fee of not more than $5,000 plus reimbursement of
reasonable out-of-pocket expenses. AirNet will also reimburse brokerage houses
and other nominees for their reasonable expenses in forwarding proxy materials
to beneficial owners of the AirNet Common Shares.
PROPOSAL NO. 1
PROPOSAL TO APPROVE ACQUISITION OF ONE-FIFTH OR MORE
BUT LESS THAN ONE-THIRD OF THE VOTING POWER OF AIRNET
The Quick Stockholders, according to the acquiring person statement provided
by them to AirNet pursuant to Section 1701.831 of the GCL, do not currently own
any AirNet Common Shares. As described above (see "THE AGREEMENT"), at the
Effective Time of the Merger, they will receive the Merger Consideration less
the Escrow Shares. As a result, immediately following the Merger, the Quick
Stockholders, as a group, would be able to exercise approximately [20]% of the
voting power of AirNet.
Section 1701.831 of the GCL defines a "control share acquisition" to include
an acquisition of AirNet's shares which would give the acquiring person voting
power falling within one of the following three categories: (a) one-fifth or
more but less than one-third of the voting power, (b) one-third or more but less
than a majority of the voting power, and (c) a majority or more of the voting
power. The Acquisition constitutes such a "control share acquisition." Pursuant
to the GCL, approval of any "control share acquisition" of AirNet must be
submitted to the AirNet shareholders. The Quick Stockholders have delivered to
AirNet the acquiring person statement required by the GCL, a copy of which is
attached hereto as Appendix III and made a part hereof. At the Annual Meeting,
shareholders of AirNet will be asked to consider a proposal to allow the Quick
Stockholders, as a group, to complete a "control share acquisition" with respect
to AirNet's shares.
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EFFECT OF APPROVAL OF ACQUISITION
Although no vote of the shareholders of AirNet is required to approve the
Merger under the GCL, the Merger cannot be consummated unless the Acquisition is
approved.
RECOMMENDATION AND VOTE
For the Acquisition to be approved, the affirmative vote of the holders of a
majority of the voting power of AirNet represented at the Annual Meeting AND the
affirmative vote of the holders of a majority of the portion of such voting
power excluding "Interested Shares" is required. "Interested Shares" are defined
by the GCL to include (i) shares held by the Acquiring Person (I.E., the Quick
Stockholders, as a group), (ii) shares held by an officer of AirNet elected or
appointed by the AirNet Board of Directors, (iii) shares held by associates of
AirNet who are also directors and (iv) shares purchased after a control share
acquisition is announced if the aggregate consideration paid by the person
acquiring such shares exceeds $250,000 or the number of shares acquired exceeds
one-half of one percent of the voting power of AirNet. As indicated elsewhere in
this Proxy Statement/Prospectus, officers and associate directors as a group own
approximately 41.6% of the outstanding AirNet Common Shares, and the Quick
Stockholders do not currently own any outstanding AirNet Common Shares.
THE AIRNET BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION
OF THE PROPOSED CONTROL SHARE ACQUISITION OF ONE-FIFTH OR MORE BUT LESS THAN
ONE-THIRD OF THE VOTING POWER OF AIRNET.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
Pursuant to the Code of Regulations of AirNet, the Board of Directors has
set the authorized number of directors at six. Each director holds office for a
term expiring at the next Annual Meeting. The Board of Directors proposes that
the six nominees described below be elected as directors, each for a new term to
expire at the 1999 Annual Meeting and until his successor is duly elected and
qualified, or until his earlier death, resignation or removal. The Board of
Directors has no reason to believe that any of the nominees will not serve if
elected, but if any of them should become unavailable to serve as a director,
and if the Board designates a substitute nominee, the persons named in the
accompanying proxy card will vote for the substitute nominee designated by the
Board of Directors.
The following information, as of March 31, 1998, with respect to the
principal occupation or employment, other affiliations and business experience
of each director during the last five years has been furnished to AirNet by each
director. Except where indicated, each director has had the same principal
occupation for the last five years.
NOMINEES STANDING FOR ELECTION TO THE BOARD OF DIRECTORS
GERALD G. MERCER
Mr. Mercer, 50, has served as Chairman of the Board, President and Chief
Executive Officer of AirNet since founding AirNet in 1974. He won Ohio's
"Entrepreneur of the Year" Award in 1996 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
Mr. Roy, 42, has been a Director of AirNet since 1994 and has served as
Chief Financial Officer of AirNet since 1986. Mr. Roy was named Executive Vice
President and Treasurer in 1991. Mr. Roy is a member of the Audit Committee.
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ROGER D. BLACKWELL
Dr. Blackwell, 57, has been a Director of AirNet since December 1996. Dr.
Blackwell has been a Professor of Marketing at The Ohio State University for
more than five years and is also President and Chief Executive Officer of Roger
D. Blackwell Associates, Inc., a marketing consulting firm in Columbus, Ohio.
Dr. Blackwell is also a director of Intimate Brands, Inc., Worthington Foods,
Inc., Checkpoint Systems, Inc., Abercrombie & Fitch Co., Max & Erma's
Restaurants, Inc. and The Flex-Funds. Mr. Blackwell is a member of the
Compensation Committee.
TONY C. CANONIE, JR.
Mr. Canonie, 51, has been a Director of AirNet since June 1996. 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.
He was an 18 year member and former Chapter Chairman of the Young Presidents'
Organization and is a member of the Chief Executives Organization and World
Presidents' Organization. Mr. Canonie is a member of the Compensation Committee.
RUSSELL M. GERTMENIAN
Mr. Gertmenian, 50, has been a Director of AirNet since June 1996. Mr.
Gertmenian has been a partner of Vorys, Sater, Seymour and Pease LLP 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. Mr. Gertmenian is a member of the Audit Committee.
J.F. KEELER, JR.
Mr. Keeler, 57, has been a Director of AirNet since June 1996. 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 Metatec Corporation and serves on
the Board of Directors of the Columbus Chamber of Commerce. Mr. Keeler is a
member of the Audit and Compensation Committees.
ADDITIONAL DIRECTOR
AirNet has agreed, as soon as practicable after the Effective Time of the
Merger, to take such action as may be necessary to elect Robert J. Mitzman to
the Board of Directors. Pursuant to the authority granted in the Code of
Regulations, promptly after the Effective Time of the Merger, AirNet's Board of
Directors will increase the authorized number of directors to seven and appoint
Mr. Mitzman to fill the vacancy created by that increase. For so long as Mr.
Mitzman owns at least 49% of the AirNet Common Shares he receives, directly or
indirectly, as his portion of the Merger Consideration, the AirNet Board of
Directors will continue to use reasonable efforts to cause him to be elected to
the Board of Directors.
ROBERT J. MITZMAN
Robert J. Mitzman, 42, has served as Chairman of the Board and President of
Quick since its incorporation in 1981. Mr. Mitzman recently appeared on the CNN
program "Business Unusual" and was the subject of a feature article in THE
WASHINGTON POST. In addition, he has recently been honored as one of the top 100
entrepreneurs in the United States by SUCCESS magazine. He is also a member of
both the Air Courier Conference of America and the New York Chapter of the Young
President's Organization.
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NOMINATION PROCEDURE
The AirNet Code of Regulations provides that shareholder nominations for
election to the AirNet Board of Directors must be in writing and must be
personally delivered or mailed to the Secretary of AirNet not less than 60 nor
more than 90 days prior to any meeting of shareholders called for the election
of directors; provided, however, that if less than 70 days' notice or public
disclosure of the date of the meeting is given or made, such nomination must be
received at the principal executive offices of AirNet not later than close of
business on the tenth day following the day on which the notice of the date of
the meeting was mailed or public disclosure was made thereof. Such notification
must contain the following information: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholder is a recordholder of
shares of AirNet entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee or any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission had the nominee been nominated, or
intended to be nominated, by the Board of Directors of AirNet; and (e) the
consent of each nominee to serve as a director of AirNet if so elected. The
chairman of the Annual Meeting may refuse to acknowledge the nomination of any
person not made in compliance with the AirNet Code of Regulations.
RECOMMENDATION AND VOTE
Under Ohio law and AirNet's Code of Regulations, the six nominees for
election to the Board of Directors receiving the greatest number of votes will
be elected.
AirNet Common Shares represented by the accompanying proxy card will be
voted FOR the election of the nominees named in "Nominees Standing for Election
to the Board of Directors" unless authority to vote for one or more nominees is
withheld. Shareholders may withhold authority to vote for the entire slate as
nominated or, by writing the name of one or more nominees in the space provided
in the proxy card, withhold the authority to vote for such nominee or nominees.
AirNet Common Shares as to which the authority to vote is withheld will be
counted for quorum purposes but will not be counted toward the election of
directors, or toward the election of the individual nominees specified on the
form of proxy.
THE AIRNET BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF ITS NOMINEES FOR DIRECTORS, WHICH IS DESIGNATED AS PROPOSAL NO. 2 ON
THE ENCLOSED PROXY CARD.
27
<PAGE>
EXECUTIVE OFFICERS OF AIRNET
The following table sets forth, as of March 31, 1998, certain information
concerning the executive officers of AirNet. The executive officers are elected
annually and serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------------------------------
<S> <C> <C>
Gerald G. Mercer 50 Chairman of the Board, President and Chief Executive Officer
Eric P. Roy 42 Director, Executive Vice President, Treasurer and Chief
Financial Officer
Donald D. Strench 41 Vice President, Corporate Development
Glenn M. Miller 51 Vice President, Operations
Guy S. King 45 Vice President, Sales
Kendall W. Wright 50 Vice President, Sales
William R. Sumser 42 Vice President, Finance, Controller and Secretary
Jeffrey B. Harris 38 Vice President, Sales
</TABLE>
Gerald G. Mercer has served as Chairman of the Board, President and Chief
Executive Officer of AirNet since founding AirNet in 1974. He won Ohio's
"Entrepreneur of the Year" Award in 1996 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 AirNet since 1994 and has served as Chief
Financial Officer of AirNet since 1986. Mr. Roy was named Executive Vice
President and Treasurer in 1991.
Donald D. Strench has served AirNet as Vice President, Corporate Development
since April 1996. Prior to joining AirNet, Mr. Strench served in various
financial positions for American Airlines, Inc. between September 1986 and March
1996, including Vice President, Corporate Development (American Eagle).
Glenn M. Miller has served as Vice President, Operations for AirNet since
1975.
Guy S. King has served as Vice President, Sales for AirNet since 1989. Prior
to 1989, Mr. King served AirNet in numerous functions dating back to 1976,
including dispatch and pilot, before eventually founding AirNet's small package
delivery division in 1984. Mr. King has served on the Board of Directors of the
Air Courier Conference of America since 1993.
Kendall W. Wright has served as Vice President, Sales for AirNet since 1988.
William R. Sumser has served AirNet as Vice President and Secretary since
March 1996, as Controller since 1988 and as Assistant Vice President from 1988
through March 1996. Mr. Sumser is responsible for AirNet's daily cash
management, financial reporting and purchasing functions.
Jeffrey B. Harris has served AirNet as Vice President, Sales since October
1997. Prior to joining AirNet in June 1996 as the West Coast Manager for Banking
Sales, Mr. Harris served as Vice President and Senior Transit Product Manager
for Mellon Bank from 1994 to 1996 and as Vice President for Nations Bank from
1992 to 1994.
Pursuant to an Employment Agreement, dated April 14, 1998 (the "Mitzman
Agreement"), between AirNet and Robert J. Mitzman, as of the Effective Time of
the Merger, Mr. Mitzman will become Executive Vice President of AirNet, in
charge of sales and marketing, and President of Quick. The Mitzman Agreement has
a term of five years and provides for an annual base salary of $285,000 and
participation in the various bonus and benefit plans available to similarly
situated executive officers. If Mr. Mitzman's employment is terminated by AirNet
without "cause" (as defined in the Mitzman Agreement) or by Mr. Mitzman for
"good reason" (also as defined), he will be entitled to receive all
28
<PAGE>
unpaid amounts of his base salary, bonus and benefits under the benefit plans in
which he participated and have his base salary and benefits under benefit plans
continued at the rate then in effect for one year thereafter. Upon termination
of employment by reason of death or disability, Mr. Mitzman or his beneficiary
will be entitled to receive all unpaid amounts of base salary, bonus and
benefits under the benefit plans in which he participated. Upon termination of
employment for any other reason, Mr. Mitzman or his beneficiary will be entitled
to receive all unpaid amounts of base salary and benefits under benefit plans in
which he participated.
BENEFICIAL OWNERSHIP OF AIRNET COMMON SHARES
The following table sets forth the number and percentage of outstanding
AirNet Common Shares beneficially owned by (i) each director of AirNet; (ii)
each executive officer of AirNet included in the Summary Compensation Table;
(iii) all directors and executive officers of AirNet as a group; and (iv) each
person known by AirNet to own beneficially more than five percent of any class
of AirNet's voting securities, in each case, as of June 11, 1998 (except as
otherwise noted). AirNet believes that each individual or entity named has sole
investment and voting power with respect to the AirNet 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, 3939
International Gateway, Columbus, Ohio 43219.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (1)
<TABLE>
<CAPTION>
AIRNET
COMMON SHARES
WHICH CAN BE
ACQUIRED UPON
AIRNET EXERCISE OF
NAME OF COMMON SHARES OPTIONS PERCENT OF CLASS (2)
BENEFICIAL OWNER OR PRESENTLY EXERCISABLE --------------------
NUMBER OF PERSONS IN GROUP HELD WITHIN 60 DAYS TOTAL PRE-MERGER POST-MERGER
- ---------------------------------------- ------------- -------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Gerald G. Mercer (3)(4)................. 4,349,041 60,000 4,409,041 34.9% 27.9%
Eric P. Roy (3)(5)...................... 189,975 32,000 221,975 1.8% 1.4%
Donald D. Strench (3)................... 3,269 18,000 21,269 (6) (6)
Glenn M. Miller (3)..................... 360,434 23,000 383,434 3.0% 2.4%
Guy S. King (3)......................... 91,087 23,000 114,087 (6) (6)
William R. Sumser (3)................... 61,816 23,000 84,816 (6) (6)
Kendall W. Wright (3)(7)................ 27,381 -- 27,381 (6) (6)
Roger D. Blackwell...................... 7,700 2,000 9,700 (6) (6)
Tony C. Canonie, Jr..................... 10,000 2,000 12,000 (6) (6)
Russell M. Gertmenian (8)............... 5,000 2,000 7,000 (6) (6)
J.F. Keeler, Jr. (9).................... 10,185 2,000 12,185 (6) (6)
All directors and executive officers as
a group (12 persons).................. 5,115,888 193,000 5,308,888 41.6% 33.4%
Wellington Management Company LLP
(10).................................. 728,400 -- 728,400 5.8% 4.6%
75 State Street
Boston, MA 02109
AMVESCAP PLC (11)....................... 738,500 -- 738,500 5.9% 4.7%
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the beneficial owner has sole voting and
dispositive power as to all AirNet Common Shares reflected in the table.
29
<PAGE>
(2) The percent of class on a pre-Merger basis is based upon the sum of (i)
12,577,913 AirNet Common Shares outstanding on June 11, 1998, and (ii) the
number of AirNet Common Shares as to which the named person has the right
to acquire beneficial ownership upon the exercise of options exercisable
within 60 days of June 11, 1998; and the percent of class on a post-Merger
basis is based on that number of AirNet Common Shares plus the Merger
Consideration.
(3) Individual named in the Summary Compensation Table.
(4) Of such 4,349,041 AirNet Common Shares, 1,010,000 AirNet Common Shares are
held of record by Mr. Mercer's wife, and 524,992 AirNet Common Shares are
held in the Gerald G. Mercer 5/30/96 Grantor Annuity Trust, of which Mr.
Mercer is the sole trustee. Mr. Mercer possesses sole voting and
dispositive power with respect to the AirNet Common Shares held in the
trust.
(5) Of such 189,975 AirNet Common Shares, 1,000 AirNet Common Shares are held
of record by each of Mr. Roy's two minor children, 80,000 AirNet Common
Shares are held in the Revocable Trust Created by Eric P. Roy and 80,000
AirNet Common Shares are held in the Revocable Trust Created by Carol P.
Roy, Mr. Roy's wife. Mr. Roy and his wife are co-trustees of each of the
trusts and share voting and dispositive power with respect to the AirNet
Common Shares held in such trusts.
(6) Represents ownership of less than 1% of the outstanding AirNet Common
Shares.
(7) Of such 27,381 AirNet Common Shares, 4,829 AirNet Common Shares are held by
Mr. Wright's wife.
(8) Of such 5,000 AirNet Common Shares, 2,100 AirNet Common Shares are held of
record by Mr. Gertmenian's wife.
(9) Of such 10,185 AirNet Common Shares, 7,500 AirNet Common Shares are held by
the J.F. Keeler, Jr. Limited Partnership, of which Mr. Keeler is the sole
general partner. Mr. Keeler possesses sole voting and investment power with
respect to the AirNet Common Shares held by the limited partnership.
(10) Based on information contained in filings with the Commission (the latest
of which is dated January 12, 1998), Wellington Management Corporation LLP
is deemed to have beneficial ownership of 728,400 AirNet Common Shares as
of December 31, 1997. The filing also indicates that the reporting person
is deemed to have shared voting power over 422,400 of such AirNet Common
Shares and shared dispositive power over 728,400 AirNet Common Shares.
(11) Based on information contained in filings with the Commission (the latest
of which is dated February 9, 1998), AMVESCAP PLC is deemed to have
beneficial ownership of 738,500 AirNet Common Shares as of December 31,
1997, all of which AirNet Common Shares it is deemed to share voting and
investment power with AVZ, Inc., AIM Management Group, Inc., AMVESCAP
Group Services, Inc., INVESCO, Inc., INVESCO North America Holdings, Inc.,
INVESCO Capital Management, Inc., INVESCO Funds Group, Inc., INVESCO
Management and Research, Inc., and INVESCO Realty Advisors, Inc. Those
filings with the Commission also indicate that the reporting persons
disclaim beneficial ownership of such AirNet Common Shares.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors held five regularly scheduled or special meetings
during the fiscal year ended December 31, 1997 (the "1997 fiscal year"). The
Board of Directors has two standing committees: the Audit Committee and the
Compensation Committee. Each current member of the Board attended at least 75%
of the aggregate of the total number of meetings of the Board of Directors and
of the committees on which he served during the 1997 fiscal year.
AUDIT COMMITTEE. The Audit Committee reviews and approves the scope and
results of any outside audit of AirNet and the fees therefor and makes
recommendations to the Board of Directors or
30
<PAGE>
management concerning auditing and accounting matters and the selection of
outside auditors. The Audit Committee held two regularly scheduled or special
meetings during the 1997 fiscal year.
COMPENSATION COMMITTEE. The Compensation Committee reviews, considers and
acts upon matters of salary and other compensation and benefits of all executive
officers and certain other associates of AirNet, as well as acts upon all
matters concerning, and exercises such authority as is delegated to it under the
provisions of, any benefit, retirement or pension plan maintained by AirNet for
the benefit of such executive officers or other associates. The Compensation
Committee held nine regularly scheduled or special meetings during the 1997
fiscal year.
COMPENSATION OF DIRECTORS
Directors who are officers or associates of AirNet receive no additional
compensation for their services as members of the Board of Directors or as
members of Board committees. In 1997, directors who were not officers or
associates of AirNet ("Non-Employee Directors") were 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. In 1998, each Non-Employee Director will be paid a
quarterly fee of $3,500, as well as additional fees of $1,500 for each meeting
of the Board attended. In addition, in 1998, all members of a committee of the
Board, other than the chairman of such committee, will receive a fee of $1,000
for attending a committee meeting; while the chairman will receive a fee of
$2,000. AirNet's directors are reimbursed for out-of-pocket expenses incurred in
connection with their service as directors, including travel expenses.
In addition, pursuant to AirNet's 1996 Incentive Stock Plan, each
Non-Employee Director received an option in 1997 to purchase 2,000 AirNet Common
Shares. If the proposal to amend and restate the 1996 Incentive Stock Plan is
approved (see "PROPOSAL TO AMEND AND RESTATE THE AIRNET SYSTEMS, INC. 1996
INCENTIVE STOCK PLAN"), each Non-Employee Director who is then serving on the
Board will automatically be granted an option to purchase 20,000 AirNet Common
Shares effective on the date of the Annual Meeting and any individual who
thereafter becomes a Non-Employee Director will automatically be granted an
option to purchase 20,000 AirNet Common Shares effective on the date on which he
is appointed or elected to the Board of Directors. In each case, the option will
vest in five equal annual installments beginning on the date of grant, with such
vesting being accelerated upon the occurrence of certain events. The exercise
price of each option granted to a Non-Employee Director is equal to the fair
market value of the AirNet Common Shares on the date of grant. Each option
granted to a Non-Employee Director has a ten-year term.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended December 31, 1997,
September 30, 1996 and 1995 and the three months ended December 31, 1996,
compensation awarded or paid to, or earned by, AirNet's Chief Executive Officer
during 1997 and the six other most highly compensated executive officers of
AirNet (the "Named Executive Officers").
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------ OPTIONS/ SARS ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS (1) COMPENSATION
- ------------------------------------ ------------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Gerald G. Mercer 12 mos 12/31/97 $ 410,776 -- 20,000 $ 4,750(2)
Chairman of the Board, 12 mos 9/30/96 706,667 $ 593,424 40,000 4,499
President and Chief 12 mos 9/30/95 826,376 1,161,333 -- 6,022
Executive Officer 3 mos 12/31/96 100,000 -- -- --
Eric P. Roy 12 mos 12/31/97 282,408 -- 12,000 4,750(2)
Executive Vice President, 12 mos 9/30/96 181,333 157,630 20,000 56,615
Treasurer and Chief 12 mos 9/30/95 129,332 167,646 -- 59,363
Financial Officer 3 mos 12/31/96 68,750 -- -- --
Donald D. Strench (3) 12 mos 12/31/97 197,885 80,000 8,000 4,750(2)
Vice President, 12 mos 9/30/96 78,750 43,750 10,000 --
Corporate Development 12 mos 9/30/95 -- -- -- --
3 mos 12/31/96 43,750 8,750 -- --
Glenn M. Miller 12 mos 12/31/97 205,385 -- 8,000 4,750(2)
Vice President, 12 mos 9/30/96 156,333 168,823 15,000 145,107
Operations 12 mos 9/30/95 129,332 235,681 -- 146,787
3 mos 12/31/96 50,000 -- -- --
Guy S. King 12 mos 12/31/97 205,385 -- 8,000 4,750(2)
Vice President, Sales 12 mos 9/30/96 156,333 133,114 15,000 27,895
12 mos 9/30/95 129,332 144,857 -- 31,380
3 mos 12/31/96 50,000 -- -- --
William R. Sumser 12 mos 12/31/97 205,385 -- 8,000 4,750(2)
Vice President, Finance, 12 mos 9/30/96 120,000 86,738 15,000 10,719
Controller and Secretary 12 mos 9/30/95 75,962 72,232 -- 13,385
3 mos 12/31/96 50,000 -- -- --
Kendall W. Wright 12 mos 12/31/97 205,385 -- 8,000 4,750(2)
Vice President, Sales 12 mos 9/30/96 156,333 135,474 15,000 24,421
12 mos 9/30/95 129,332 148,918 -- 26,763
3 mos 12/31/96 50,000 -- -- 142
</TABLE>
- ------------------------
(1) These numbers represent options for AirNet Common Shares granted pursuant to
AirNet's 1996 Incentive Stock Plan. See the table under "OPTION GRANTS
BETWEEN OCTOBER 1, 1996 AND DECEMBER 31, 1997" for more detailed information
on such options.
(2) "All Other Compensation" for the Named Executive Officers consists of
amounts contributed by AirNet to the accounts of the Named Executive
Officers under the Savings Plan (as defined below). See "--Section 401(k)
Savings Plan."
(3) Mr. Strench joined AirNet in April, 1996.
32
<PAGE>
SECTION 401(K) SAVINGS PLAN
AirNet 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
AirNet may contribute up to 15% of their annual earnings to the Savings Plan.
AirNet may elect, in its discretion, to make a matching contribution to the
Savings Plan. Currently, AirNet's annual matching contributions under the
Savings Plan do not exceed 3% of total compensation. In addition, AirNet may
elect, in its discretion, to make profit-sharing contributions on behalf of
eligible associates.
GRANTS OF OPTIONS
The following table sets forth information concerning individual grants of
options made from October 1, 1996 through December 31, 1997 to each of the Named
Executive Officers. AirNet has never granted stock appreciation rights.
OPTION GRANTS BETWEEN OCTOBER 1, 1996 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (2)
OPTIONS TO ASSOCIATES IN PRICE ----------------------
NAME GRANTED (1) PERIOD ($/SHARE) EXPIRATION DATE 5% 10%
- -------------------------------- ----------- ---------------- ----------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerald G. Mercer................ 13,400 4.7% $ 14.25 April 10, 2007 $ 120,087 $ 304,325
6,600 2.3 15.68 April 10, 2007 49,710 140,453
Eric P. Roy..................... 12,000 4.3 14.25 April 10, 2007 107,541 272,530
Donald D. Strench............... 8,000 2.8 14.25 April 10, 2007 71,694 181,687
Glenn M. Miller................. 8,000 2.8 14.25 April 10, 2007 71,694 181,687
Guy S. King..................... 8,000 2.8 14.25 April 10, 2007 71,694 181,687
William R. Sumser............... 8,000 2.8 14.25 April 10, 2007 71,694 181,687
Kendall W. Wright............... 8,000 2.8 14.25 April 10, 2007 71,694 181,687
</TABLE>
- ------------------------
(1) These options were granted under the AirNet's 1996 Incentive Stock Plan. All
of such options are fully vested. At the discretion of the Compensation
Committee, such options may have stock-for-stock exercise and tax
withholding features, which allow the holders, in lieu of paying cash for
the exercise price and any tax withholding, to have AirNet commensurably
reduce the number of AirNet Common Shares to which the holders would
otherwise be entitled upon exercise of such options.
(2) The amounts reflected in this table represent certain assumed rates of
appreciation only. Actual realized values, if any, on option exercises will
be dependent on the actual appreciation of the AirNet Common Shares over the
term of the options. There can be no assurances that the Potential
Realizable Values reflected in this table will be achieved.
33
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to options exercised
between October 1, 1996 and December 31, 1997 and unexercised options held as of
December 31, 1997 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES BETWEEN OCTOBER 1, 1996 AND
DECEMBER 31, 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-
THE-MONEY
NUMBER OF NUMBER OF SECURITIES OPTIONS AT
SECURITIES UNDERLYING OPTIONS AT FISCAL FISCAL YEAR
UNDERLYING YEAR END END (1)
OPTIONS VALUE ------------------------------ -----------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------------------- ----------- ---------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Gerald G. Mercer............................ -- -- 60,000 -- $ 406,427
Eric P. Roy................................. -- -- 32,000 -- 227,000
Donald D. Strench........................... -- -- 18,000 -- 128,000
Glenn M. Miller............................. -- -- 23,000 -- 163,000
Guy S. King................................. -- -- 23,000 -- 163,000
William R. Sumser........................... -- -- 23,000 -- 163,000
Kendall W. Wright........................... 23,000 $ 140,000 -- -- --
<CAPTION>
NAME UNEXERCISABLE
- -------------------------------------------- -----------------
<S> <C>
Gerald G. Mercer............................ --
Eric P. Roy................................. --
Donald D. Strench........................... --
Glenn M. Miller............................. --
Guy S. King................................. --
William R. Sumser........................... --
Kendall W. Wright........................... --
</TABLE>
- ------------------------
(1) "Value of Unexercised In-the-Money Options at Fiscal Year End" is based upon
the fair market value of AirNet Common Shares on December 31, 1997 ($21.50)
less the exercise price of in-the-money options at December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PURCHASE OF AIRNET HEADQUARTERS
In October 1997, AirNet purchased its corporate and operational headquarters
at 3939 International Gateway in Columbus, Ohio for $4.1 million from Mr.
Mercer, which represented fair market value as determined by an independent
appraisal performed by Kohr Royer Griffith, Inc. In addition to the building,
AirNet assumed Mr. Mercer's 25-year land lease with The Port Authority of
Columbus ("Port Authority"), which expires on December 31, 2009. The complex has
80,000 square feet, of which AirNet utilizes approximately 73,000 square feet.
The remainder is subleased to unrelated third parties. AirNet's headquarters is
currently used for operations, aircraft maintenance, vehicle maintenance,
general and administrative functions, and training. Prior to the purchase,
AirNet leased the facility from Mr. Mercer and paid a base rent of $75,000 per
month and made payments, on behalf of Mr. Mercer, to the Port Authority of
approximately $9,500 per month for use of the land upon which the facility is
located. AirNet paid rent of approximately $864,000 for the year ended December
31, 1997 and approximately $254,000 for the three months ended December 31, 1996
to Mr. Mercer. AirNet believes that the terms of the sublease were no less
favorable to AirNet than those reasonably available from unrelated third parties
for comparable space.
FLOAT CONTROL, INC./CHEXS PARTNERSHIP
On October 24, 1996, AirNet acquired Float Control, Inc. ("Float Control"),
which was a company owned by certain executive officers of AirNet and other
individuals and which owned an interest in The Check Exchange System Company
(the "CHEXS Partnership"), in a merger transaction. As the result of such merger
transaction, AirNet currently owns 19% of the CHEXS Partnership; Littlewood,
Shain and Company, an unaffiliated third party, owns 15%; and affiliates of The
Huntington National Bank own the remaining interests. The CHEXS Partnership
operates a national net settlement switch utilized by members of the National
Clearing House Association (the "NCHA"), which the CHEXS Partnership
34
<PAGE>
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 AirNet's air
transportation system.
Pursuant to the merger transaction, Messrs. Mercer, Roy, Miller, King,
Wright and Sumser, all of whom are executive officers of AirNet, received AirNet
Common Shares having a fair market value at the time of the merger transaction
of $1,424,994, $74,089, $176,690, $42,743, $42,743 and $19,949, respectively, in
exchange for their shares of Float Control. In determining the value of the
shares of Float Control, AirNet utilized an evaluation of the value of the CHEXS
Partnership prepared by an unaffiliated third party evaluation firm. AirNet
believes that the terms of the merger transaction were fair to AirNet and were
no less favorable to AirNet than those reasonably available from unrelated third
parties.
PERFORMANCE GRAPH
The following line graph compares the percentage change in AirNet's
cumulative total shareholder return (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and (B) the difference between the price of AirNet Common Shares
at the end and the beginning of the measurement period; by (ii) the price of
AirNet Common Shares at the beginning of the measurement period) against the
cumulative return of the Russell 2000 and of the NYSE Combined Transportation
Index ("NYSE Transportation") for the period from May 30, 1996 to December 31,
1997. The AirNet Common Shares became registered under Section 12 of the
Exchange Act on May 30, 1996. The comparison assumes $100 was invested on May
30, 1996 in AirNet Common Shares and in each of the foregoing indices and
assumes reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AIRNET SYSTEMS VS. RUSSELL 2000 VS. NYSE
TRANSPORTATION
<S> <C> <C> <C>
Indexed Price Performance 5/30/96 - 12/31/97
ANS Russell 2000 NYSE Transportation
May-96 100.00 100.00 100.00
Jun-96 114.29 96.19 98.76
Sep-96 101.79 96.13 98.19
Dec-97 105.36 100.63 105.50
Mar-97 114.29 95.07 107.33
Jun-97 116.96 110.00 124.19
Sep-97 172.32 125.94 137.70
Dec-97 153.57 121.28 139.63
</TABLE>
35
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN AIRNET'S PREVIOUS
FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT INCORPORATE
FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT/PROSPECTUS, IN WHOLE OR IN PART,
THIS REPORT AND THE GRAPH SET FORTH ABOVE UNDER "--PERFORMANCE GRAPH" SHALL NOT
BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
The Compensation Committee of the Board of Directors of AirNet (the
"Committee") is comprised of three outside directors, none of whom is or was
formerly an officer of AirNet. During the 1997 fiscal year, none of AirNet's
executive officers served on the board of any entity of which a Committee member
was an executive officer or on the compensation committee of any entity of which
any director of AirNet was an executive officer. The Committee has retained
outside legal counsel.
ROLE OF THE COMPENSATION COMMITTEE
Prior to AirNet's Offering, which was consummated on June 5, 1996, AirNet
had no Compensation Committee, and decisions concerning compensation of
executive officers of AirNet were made by AirNet's Chief Executive Officer.
Following the Offering, the Committee undertook the oversight responsibility for
AirNet's executive compensation program.
In general, AirNet's compensation program for executive officers consists of
three main elements: a base salary, a discretionary bonus and periodic grants of
stock options. The Committee believes that it is important to pay competitive
salaries but also to make a high proportion of the executive officers' total
compensation at risk in order to cause the executive officers to focus on both
the short-term and the long-term interests of AirNet's shareholders. Therefore,
the bonus (which permits individual performance to be recognized on an annual
basis, and which is based, in part, on an evaluation of the contribution made by
the executive officer to company performance) and stock option grants (which
directly tie the executive officer's long-term remuneration to stock price
appreciation realized by AirNet's shareholders) are important components of the
overall compensation package.
In March 1998, the Committee retained Plante & Moran to perform a
comprehensive review of AirNet's compensation policy. The Committee has received
Plante & Moran's report and will consider Plante & Moran's recommendations with
respect to compensation for the 1998 fiscal year. However, the Committee has not
taken any actions with respect to such report.
BASE SALARY
Base salary is reviewed annually and may be adjusted on individual
performance, business unit performance and industry analysis and comparisons. To
date, the Committee has not utilized compensation consultants, but it may do so
in future years to assist the Committee with respect to industry analysis and
comparisons. With respect to the 1997 fiscal year, no specific weight was
assigned to any of the factors mentioned above in determining 1997 base salaries
for the Chief Executive Officer and the other executive officers.
Prior to AirNet's Offering, AirNet had elected to be treated as an S
Corporation under subchapter S of the Code for federal tax purposes and
comparable state tax laws. As a result of the S Corporation election, AirNet's
pre-existing shareholders were taxed directly on AirNet's income, whether or not
such income was distributed, and AirNet was not subject to federal income tax at
the corporate level. As a result of the S Corporation status, AirNet's executive
officers, and particularly Mr. Mercer, received significant cash distributions
in addition to sizable salaries and bonuses, as reflected in the Summary
Compensation Table for the 1995 fiscal year.
In connection with AirNet's Offering, which occurred with only four months
remaining in AirNet's 1996 fiscal year, AirNet's compensation arrangements with
its executive officers were restructured to reduce the amount of cash
compensation, particularly with respect to Mr. Mercer. In addition, AirNet's
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S Corporation status terminated in connection with the Offering, and the income
distributions to the pre-existing shareholders therefore also ceased. Mr.
Mercer, as AirNet's Chief Executive Officer, recommended the base salaries for
the executive officers for the remainder of the 1996 fiscal year, including a
reduction of more than 50% for himself, at the time of the Offering, and the
Committee accepted Mr. Mercer's recommendation
BONUS PLAN
As described above, at the time of the Offering, AirNet's compensation
arrangements with its executive officers were restructured. At such time, it was
determined that bonuses payable with respect to the 1996 fiscal year would not
exceed 60% of annual base salaries based on the four months remaining in
AirNet's 1996 fiscal year upon the completion of the Offering.
Based upon the considerations set forth below, none of which was assigned
specific weight, the Committee determined to award bonuses to the Chief
Executive Officer and each of the other executive officers, other than Mr.
Strench, equal to the full 60% of annualized base salary for the remaining four
months in the 1996 fiscal year. Mr. Strench joined AirNet in April 1996, shortly
before the Offering, and therefore did not participate in the significant
pre-offering compensation package. For that reason and because of his
performance since joining AirNet, the Committee awarded Mr. Strench a bonus
equal to the full 60% of his base salary for the entire period of his employment
during the 1996 fiscal year.
In awarding the full 60% bonuses, the Committee was persuaded by the
following factors: (i) AirNet successfully completed its Offering at $14 per
share, the top end of the range, and the underwriters exercised their
over-allotment option in full, thereby providing an additional $11.8 million in
capital to AirNet; (ii) simultaneously with the Offering, AirNet was able to
negotiate a new $50.0 million, unsecured credit facility with NBD Bank with a
LIBOR funding option; (iii) AirNet's stock price has remained steady following
the Offering; and (iv) the Committee believes that AirNet has developed and, to
date, is successfully implementing a growth strategy which includes making
acquisitions and developing AirNet's small package division.
STOCK OPTIONS
The purpose of AirNet's 1996 Incentive Stock Plan is to attract and retain
key personnel and directors of AirNet and to enhance their interest in AirNet's
continued success. The maximum number of AirNet Common Shares with respect to
which awards may be granted under the 1996 Incentive Stock Plan is 1,150,000,
and the maximum number which any of the Named Executive Officers may receive is
50,000. The Board is proposing that the AirNet shareholders approve the
amendment and restatement of the 1996 Stock Incentive Plan which would increase
the number of AirNet Common Shares available thereunder to 2,050,000.
During 1997, AirNet granted stock options to each of its officers, the
details of which are provided in "EXECUTIVE COMPENSATION--Grant of Options."
These grants were based upon subjective analyses of each such key employee's
function, salary, length of service, performance and value to AirNet, as well as
the recommendations of AirNet's Chief Executive Officer, with no specific
weighting given to any of such factors. With respect to Mr. Mercer and the other
executive officers who were employed by AirNet prior to the Offering and who,
for the most part, took significant reductions in the cash portion of their
compensation package as a result of the restructuring in connection with the
Offering, the Committee believed that it was important to keep such executives
incentivized to continue their performance on behalf of AirNet and its
shareholders.
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SECTION 162(m) COMPLIANCE
Section 162(m) of the Code places certain restrictions on the amount of
compensation in excess of $1,000,000 which may be deducted for each executive
officer. AirNet intends to satisfy the requirements of Section 162(m) should the
need arise.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF AIRNET:
TONY C. CANONIE, JR., CHAIRMAN
ROGER D. BLACKWELL
J.F. KEELER, JR.
PROPOSAL NO. 3
PROPOSAL TO AMEND AND RESTATE THE
AIRNET SYSTEMS, INC. 1996 INCENTIVE STOCK PLAN
The AirNet Systems, Inc. 1996 Incentive Stock Plan (the "Incentive Stock
Plan") was established for the purpose of attracting and retaining key
personnel, including consultants and advisors to and directors of AirNet, and to
enhance their interest in AirNet's continued success and to allow all AirNet
associates an opportunity to have an ownership interest in AirNet.
The Incentive Stock Plan provides for the grant of incentive stock options
("ISOs") and non-qualified stock options ("NQSOs"), restricted stock and
performance shares (individually, an "Award" or, collectively, "Awards"). In
addition, the Incentive Stock Plan provides for the purchase of AirNet Common
Shares through payroll deduction by all associates of AirNet who have satisfied
certain eligibility requirements.
The number of AirNet Common Shares currently authorized for issuance under
the Incentive Stock Plan is 1,150,000, subject to adjustment to reflect certain
corporate events, including stock splits and similar transactions. As of June
11, 1998 (the Record Date for the Annual Meeting), options covering an aggregate
of 223,025 AirNet Common Shares had been exercised; options covering an
aggregate of 543,625 AirNet Common Shares were outstanding; 250,000 AirNet
Common Shares have been reserved for the Associate Stock Purchase Program under
the Incentive Stock Plan; and a total of 87,150 AirNet Common Shares were
available for future grants of Awards. As discussed in "SUMMARY--Terms of the
Proposed Merger," pursuant to the terms of the Agreement, the outstanding
options to purchase Class A Common Stock of Quick will be converted into options
to purchase an aggregate of 249,591 AirNet Common Shares. The number of AirNet
Common Shares available for the grant of new Awards under the Incentive Stock
Plan is not sufficient to enable AirNet to make the Awards to the former option
holders of Quick contemplated by the Agreement or the Awards which AirNet
expects to make over the next several years. The Board also believes that AirNet
should have the flexibility to grant Awards to meet competitive conditions and
the particular circumstances of the key personnel who may be eligible to receive
Awards. For these reasons, the Board is recommending the amendment of the
Incentive Stock Plan to make additional 900,000 AirNet Common Shares available
thereunder. The Board is also recommending certain amendments to the provisions
of the Incentive Stock Plan addressing the automatic grant of options to
Non-Employee Directors.
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DESCRIPTION OF AMENDMENTS
On May 13, 1998, the Board of Directors of AirNet adopted, effective upon
shareholder approval at the Annual Meeting, the following amendments to the
Incentive Stock Plan (the "Amendments"):
1. The Incentive Stock Plan has been amended, subject to shareholder
approval, to increase the number of AirNet Common Shares which may be
issued thereunder from 1,150,000 to 2,050,000 AirNet Common Shares.
2. The Incentive Stock Plan has been amended, subject to shareholder
approval, to replace the annual grant to Non-Employee Directors of an
option covering 2,000 AirNet Common Shares with a one-time grant of an
option covering 20,000 AirNet Common Shares. Such option will vest in
five equal annual installments beginning on the date of grant, with such
vesting being accelerated upon the occurrence of certain events described
in the Incentive Stock Plan.
The Amendments are discussed in greater detail below.
OPERATION OF THE INCENTIVE STOCK PLAN
There follows a summary of the Incentive Stock Plan, as proposed to be
amended and restated. This summary is qualified in its entirety by reference to
the copy of the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock
Plan attached hereto as Appendix IV.
AIRNET COMMON SHARES AVAILABLE UNDER THE INCENTIVE STOCK PLAN
If the Amendments are approved, the aggregate number of AirNet Common Shares
for which Awards may be made under the Incentive Stock Plan will increase from
1,150,000 to 2,050,000 AirNet Common Shares. The AirNet Common Shares covered by
the Incentive Stock Plan will be made available from the authorized but unissued
AirNet Common Shares or from AirNet Common Shares held in treasury. If there is
a forfeiture, termination or cancellation of any Award without the issuance of
AirNet Common Shares, the AirNet Common Shares subject to such Award will be
available for future grants. 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.
ADMINISTRATION OF THE INCENTIVE STOCK PLAN
The Incentive Stock Plan is administered by the Compensation Committee of
the AirNet Board of Directors (the "Committee"). 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), AirNet'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 AirNet and participants in
the Incentive Stock Plan.
ELIGIBILITY
Key associates of, and consultants and advisors to, AirNet and its
subsidiaries who can make substantial contributions to the successful
performance of AirNet and its subsidiaries are eligible to be granted Awards
under the Incentive Stock Plan. As described in "EXECUTIVE COMPENSATION-Report
of the Compensation Committee on Executive Compensation," the grant of options
under the Incentive Stock Plan is a significant element of AirNet's executive
compensation program. The following table sets forth the number and average
exercise price of options granted under the Incentive Stock Plan to: (i) each of
the Named Executive Officers; (ii) all current executive officers of AirNet as a
group; (iii) each of the directors of AirNet; (iv) all current directors of
AirNet who are not executive officers of AirNet as a group; and (v) all
associates of AirNet and its subsidiaries, including all current officers of
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AirNet and its subsidiaries who are not executive officers of AirNet, as a
group. No other Awards have been made under the Incentive Stock Plan. No options
have been granted to associates of any of the directors or executive officers
and, other than the persons identified in the following table, no person has
received 5% or more of the options granted under the Incentive Stock Plan.
<TABLE>
<CAPTION>
OPTIONS GRANTED UNDER INCENTIVE
STOCK PLAN
--------------------------------
AVERAGE EXERCISE
NAME OR GROUP NUMBER PRICE
- -------------------------------------------------------------------------------- --------- ---------------------
<S> <C> <C>
Gerald G. Mercer................................................................ 60,000 $ 14.73
Eric P. Roy..................................................................... 32,000 14.41
Donald D. Strench............................................................... 18,000 14.39
Glenn M. Miller................................................................. 23,000 14.41
Guy S. King..................................................................... 23,000 14.41
Kendall W. Wright............................................................... 23,000 14.41
William R. Sumser............................................................... 23,000 14.41
Jeffrey B. Harris............................................................... 15,000 14.42
All current executive officers of AirNet as a group............................. 217,000 14.50
Roger D. Blackwell.............................................................. 2,000 14.75
Tony C. Canonie, Jr............................................................. 2,000 14.75
Russell M. Gertmenian........................................................... 2,000 14.75
J. F. Keller, Jr................................................................ 2,000 14.75
All current directors of AirNet who are not executive officers of AirNet as a
group......................................................................... 8,000 14.75
All associates of AirNet and its subsidiaries (including all current officers of
AirNet and its subsidiaries who are not executive officers of AirNet) as a
group......................................................................... 587,850 14.15
</TABLE>
- ------------------------
It is estimated that approximately 820 associates of AirNet and its
subsidiaries are currently eligible to participate in the Incentive Stock Plan
(including the Named Executive Officers). However, no determination has been
made as to the individual identity of the persons to whom future Awards may be
granted or the number of AirNet Common Shares which may be allocated to any
specific person or persons, other than with respect to the NQSOs which are to be
automatically granted to the Non-Employee Directors (i.e., Messrs. Blackwell,
Canonie, Gertmenian and Keeler) under the circumstances described in "--Terms of
Awards--Director Options" and options to purchase an aggregate of 249,591 AirNet
Common Shares which are to be granted to the former holders of options to
purchase Class A Common Stock of Quick pursuant to the terms of the Agreement as
described in "SUMMARY--Terms of the Proposed Merger." It is anticipated that the
Committee's determination of which eligible associates will be granted Awards in
the future and terms thereof will be based on each individual's present and
potential contribution to the success of AirNet and its subsidiaries.
The maximum number of AirNet Common Shares for which certain individuals
(the Chief Executive Officer and the four other highest paid officers) may
receive options (ISOs and NQSOs) is limited to 50,000 AirNet Common Shares over
a one-year period.
DURATION
No Award under the Incentive Stock Plan may be granted after May 1, 2006.
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TERMS OF AWARDS
OPTIONS
The Committee may grant NQSOs to associates, advisors and consultants but
may grant ISOs only to associates. The Committee has discretion to fix the
exercise price of such options, which, in the case of an ISO, may not be less
than the fair market value of the AirNet Common Shares on the date of grant. The
fair market value of the AirNet Common Shares on June , 1998 was $ . In
the case of an ISO granted to a 10% shareholder of AirNet, the exercise price
may not be less than 110% of the fair market value of the AirNet Common Shares
on the date of grant. The Committee also has broad discretion as to the terms
and conditions under which such options will be exercisable. ISOs expire not
later than ten years after the date on which they are granted (or five years in
the case of an ISO 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 AirNet Common Shares owned by the option holder, or by
a combination of cash and AirNet Common Shares.
DIRECTOR OPTIONS
Each Non-Employee Director currently receives an annual grant of an NQSO to
purchase 2,000 AirNet Common Shares at an exercise price equal to the fair
market value of the AirNet Common Shares on the date of grant. If the proposal
to amend and restate the Incentive Stock Plan is approved, each Non-Employee
Director who is then serving on the Board will automatically be granted an NQSO
to purchase 20,000 AirNet Common Shares effective on the date of the Annual
Meeting and any individual who thereafter becomes a Non-Employee Director will
automatically be granted an option to purchase 20,000 Common Shares effective on
the date he is appointed or elected to the Board. In each case, the NQSO will
vest in five equal annual installments beginning on the date of grant, with such
vesting being accelerated if AirNet merges with another entity and is not the
surviving entity, or in the event all or substantially all of AirNet's assets or
stock is acquired by another entity. A director NQSO 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 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 NQSO will be canceled on the date the director ceases
to be a director. The exercise price of the director NQSOs may be satisfied in
cash or, in the discretion of the Committee, by exchanging AirNet Common Shares
owned by the director, or by a combination of cash and AirNet Common Shares.
RESTRICTED STOCK AWARDS
An award of restricted stock is an award of AirNet 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 AirNet Common Shares, including the right to vote such AirNet
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 AirNet, or
by an escrow agent designated by AirNet, 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.
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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 AirNet Common Shares or cash, or
both, upon satisfaction of certain specified performance goals, subject to such
terms and conditions as the Committee determines. Performance share 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 share award, to adjust the
performance goals as it deems equitable to reflect events affecting AirNet or
changes in law or accounting principles or other factors, and to determine the
extent to which performance share awards that are earned may be paid in the form
of cash, AirNet Common Shares or a combination of both.
ASSOCIATE STOCK PURCHASE PROGRAM
All associates of AirNet who have at least one year of service with AirNet
are given the opportunity to purchase AirNet Common Shares under the Incentive
Stock Plan through the Associate Stock Purchase Program. Pursuant to this
payroll deduction program, associates are able to purchase AirNet Common Shares
during four quarterly offering periods each year at a price equal to the lesser
of 85% of fair market value on the first business day of each offering period
and 85% of fair market value on the last business day of each offering period.
Certain restrictions contained in Section 423 of the Code apply to this payroll
deduction program, including a limitation on the maximum value of AirNet Common
Shares that may be purchased by an individual associate in any calendar year.
Upon purchase of AirNet Common Shares through payroll deduction, AirNet will
issue share certificates to the participating associates. As of June 11, 1998
(the Record Date for the Annual Meeting), 10,464 of the 250,000 AirNet Common
Shares reserved for issuance under the Associate Stock Purchase Program had been
purchased.
GENERAL
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 AirNet. The terms of each Award are to be evidenced by a
written instrument delivered to the participant. The AirNet Common Shares issued
under the Incentive Stock Plan are subject to applicable tax withholding by
AirNet which, to the extent permitted under Rule 16b-3 under the Exchange Act,
may be satisfied by the withholding of AirNet 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.
AMENDMENTS AND TERMINATION
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 a grantee's or an option holder's rights under any Award
previously granted under the Incentive Stock Plan, except with the consent of
such grantee or option holder. In addition, 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.
FEDERAL INCOME TAX MATTERS
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences in respect of ISOs,
NQSOs, restricted stock and performance share awards made under the Incentive
Stock Plan and participation in the Associate Stock Purchase Program are as
described below. The following discussion is not intended to be a complete
statement of applicable law and is based upon federal income tax laws as in
effect on the date hereof.
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ISOS
An option holder who is granted an ISO does not recognize taxable income
either on the date of grant or on the date of exercise. However, upon the
exercise of the ISO, the difference between the fair market value of the AirNet
Common Shares received and the exercise price is a tax preference item
potentially subject to the alternative minimum tax. However, on the later sale
or other disposition of the AirNet Common Shares, generally only the difference
between the fair market value of the AirNet Common Shares on the exercise date
and the amount realized on the sale or disposition is includable in alternative
minimum taxable income.
Upon disposition of AirNet Common Shares acquired upon the exercise of an
ISO, capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the option holder disposes of the AirNet Common
Shares within two years of the date of grant or within one year from the date of
the issuance of the AirNet Common Shares to the option holder (a "Disqualifying
Disposition"), then the option holder will recognize ordinary income, as opposed
to capital gain, at the time of the disposition. In general, the amount of
ordinary income recognized will be equal to the lesser of (i) the amount of gain
realized on the disposition, or (ii) the difference between the fair market
value of the AirNet Common Shares received on the date of exercise and the
exercise price. Any remaining gain or loss is treated as a short-term, mid-term
or long-term capital gain or loss, depending upon the period of time the AirNet
Common Shares have been held.
AirNet is not entitled to a tax deduction upon either the exercise of an ISO
or the disposition of AirNet Common Shares acquired pursuant to such exercise,
except to the extent that the option holder recognizes ordinary income in a
Disqualifying Disposition. Ordinary income from a Disqualifying Disposition will
constitute compensation but will not be subject to tax withholding, nor will it
be considered wages for payroll tax purposes.
If the holder of an ISO pays the exercise price, in whole or in part, with
already-owned AirNet Common Shares, the exchange should not affect the ISO tax
treatment of the exercise. Upon such exchange, and except for Disqualifying
Dispositions, no gain or loss is recognized by the option holder upon delivering
already-owned AirNet Common Shares for payment of the exercise price. The AirNet
Common Shares received by the option holder, equal in number to the
already-owned AirNet Common Shares exchanged therefor, will have the same basis
and holding period for capital gain purposes as the already-owned AirNet Common
Shares. The option holder, however, will not be able to use the prior holding
period for the purpose of satisfying the ISO statutory holding period
requirements. AirNet Common Shares received by the option holder in excess of
the number of already-owned Common Shares will have a basis of zero and a
holding period which commences as of the date the AirNet Common Shares are
issued to the option holder upon exercise of the ISO. If the exercise of an ISO
is effected using AirNet Common Shares previously acquired through the exercise
of an ISO, the exchange of the already-owned AirNet Common Shares will be
considered a disposition of such Common Shares for the purpose of determining
whether a Disqualifying Disposition has occurred.
NQSOS
An option holder receiving an NQSO does not recognize taxable income on the
date of grant of the NQSO, provided the NQSO does not have a readily
ascertainable fair market value at the time it is granted. In general, the
option holder must recognize ordinary income at the time of exercise of the NQSO
in the amount of the difference between the fair market value of the AirNet
Common Shares on the date of exercise and the exercise price. The ordinary
income recognized will constitute compensation for which tax withholding
generally will be required. The amount of ordinary income recognized by an
option holder will be deductible by AirNet in the year that the option holder
recognizes the income if AirNet complies with the applicable withholding
requirements.
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If the sale of the AirNet Common Shares could subject the option holder to
liability under Section 16(b) of the Exchange Act, the option holder generally
will recognize ordinary income only on the date that the option holder is no
longer subject to such liability in an amount equal to the fair market value of
the AirNet Common Shares on such date less the exercise price. Nevertheless, the
option holder may elect under Section 83(b) of the Code within 30 days of the
date of exercise to recognize ordinary income as of the date of exercise,
without regard to the restriction of Section 16(b).
AirNet Common Shares acquired upon exercise of an NQSO will have a tax basis
equal to their fair market value on the exercise date or other relevant date on
which ordinary income is recognized, and the holding period for the AirNet
Common Shares generally will begin on the date of exercise or such other
relevant date. Upon subsequent disposition of the AirNet Common Shares, the
option holder will recognize long-term capital gain or loss if the option holder
has held the AirNet Common Shares for more than 18 months prior to disposition,
mid-term capital gain or loss if the option holder has held the AirNet Common
Shares for at least one year but less than 18 months, or short-term capital gain
or loss if the option holder has held the AirNet Common Shares for one year or
less.
If the holder of an NQSO pays the exercise price, in whole or in part, with
already-owned AirNet Common Shares, the option holder will recognize ordinary
income in the amount by which the fair market value of the AirNet Common Shares
received exceeds the exercise price. The option holder will not recognize gain
or loss upon delivering such already-owned AirNet Common Shares to AirNet.
AirNet Common Shares received by an option holder, equal in number to the
already-owned AirNet Common Shares exchanged therefor, will have the same basis
and holding period as such already-owned AirNet Common Shares. AirNet Common
Shares received by an option holder in excess of the number of such
already-owned AirNet Common Shares will have a basis equal to the fair market
value of such additional AirNet Common Shares as of the date ordinary income is
recognized. The holding period for such additional AirNet Common Shares will
commence as of the date of exercise or such other relevant date.
RESTRICTED STOCK AWARD
An associate who is granted a restricted stock award will not be taxed upon
the acquisition of such AirNet Common Shares so long as the interest in such
AirNet Common Shares is subject to a substantial risk of forfeiture. Upon lapse
or release of the restrictions, the associate will be taxed at ordinary income
tax rates on an amount equal to either the current fair market value of the
AirNet Common Shares (in the case of lapse or termination) or the sale price (in
the case of a sale), less any consideration paid for the AirNet Common Shares.
AirNet will be entitled to a corresponding deduction. The basis of restricted
stock held after lapse or termination of restrictions will be equal to its fair
market value on the date of lapse or termination of restrictions, and upon
subsequent disposition, any further gain or loss will be a long-term, mid-term
or short-term capital gain or loss, depending upon the length of time the AirNet
Common Shares are held.
An associate who is granted a restricted stock award may elect, within 30
days of such grant, under Section 83(b) of the Code to be taxed at ordinary
income tax rates on the full fair market value of the restricted stock at the
time of issuance (less any consideration paid). The basis of the AirNet Common
Shares so acquired will be equal to the fair market value at such time. If the
election is made, no tax will be payable upon the subsequent lapse or
termination of the restrictions, and any gain or loss upon disposition will be a
capital gain or loss.
PERFORMANCE SHARE AWARDS
The grant of a performance share award will not result in income for the
grantee or in a deduction for AirNet. Upon the receipt of AirNet Common Shares
or cash under a performance share award, the grantee will recognize ordinary
income and AirNet will be entitled to a deduction measured by the fair
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market value of the AirNet Common Shares plus any cash received. Income tax
withholding will be required.
ASSOCIATE STOCK PURCHASE PROGRAM
The Associate Stock Purchase Program is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Code. Generally,
participants will recognize taxable income only on the disposition of AirNet
Common Shares purchased under the Program. Any participant who disposes of
AirNet Common Shares purchased under the Program will recognize ordinary income
in the year of such disposition in an amount equal to the lesser of (i) the
excess of the fair market value of the AirNet Common Shares at disposition over
the purchase price of the AirNet Common Shares; or (ii) the excess of the fair
market value of the AirNet Common Shares at the time the right to purchase was
granted over the purchase price. Any remaining gain will be taxed as a capital
gain in the year of disposition. If, however, the sales price is less than the
purchase price paid by the participant, the participant will recognize a capital
loss. If the participant has held the AirNet Common Shares acquired upon
exercise of the right to purchase less than one year, the capital gain or loss
will be short-term; if the participant has held such AirNet Common Shares for at
least one year but less than 18 months, the capital gain or loss will be
mid-term; and if the participant has held such AirNet Common Shares for at least
18 months, the capital gain or loss will be long-term. Generally, in the event
of a disposition of AirNet Common Shares by a participant, the amount of
ordinary income attributable to the participant because of such disposition is
deductible by AirNet as an employer business deduction in the year of
disposition.
OTHER MATTERS
The Incentive Stock Plan is intended to comply with Section 162(m) of the
Code with respect to options granted thereunder. Section 162(m) of the Code
prohibits a publicly-held corporation, such as AirNet, from claiming a deduction
on its federal income tax return for compensation in excess of $1 million paid
for a given fiscal year to the chief executive officer (or person acting in that
capacity) at the close of the corporation's fiscal year and the four most highly
compensated officers of the corporation, other than the chief executive officer,
at the end of the corporation's fiscal year. The $1 million compensation
deduction limitation does not apply to performance-based compensation. The
Internal Revenue Service has issued regulations under Section 162(m) setting
forth a number of provisions which compensatory plans must contain for the
compensation paid thereunder to qualify as "performance-based" for purposes of
Section 162(m). AirNet is seeking shareholder approval of the Incentive Stock
Plan as amended and restated in a good faith effort to qualify compensation
received thereunder, in respect of options, as "performance-based" for purposes
of Section 162(m).
RECOMMENDATION AND VOTE
The Board of Directors of AirNet unanimously recommends that the
shareholders vote for the proposal to approve the amendment and restatement of
the Incentive Stock Plan. Unless otherwise directed, the persons named in the
enclosed proxy will vote the AirNet Common Shares represented by all proxies
received prior to the Annual Meeting, and not properly revoked, in favor of the
proposal to approve the amendment and restatement of the Incentive Stock Plan.
Shareholder approval of the proposed amendment and restatement of the
Incentive Stock Plan will require the affirmative vote of the holders of a
majority of the AirNet Common Shares, present in person or by proxy, and
entitled to vote on the proposal.
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DESCRIPTION OF CAPITAL STOCK OF AIRNET
GENERAL
The authorized capital stock of AirNet consists of 40,000,000 AirNet Common
Shares and 10,000,000 preferred shares, par value $.01 per share. As of June 11,
1998, 12,753,400 AirNet Common Shares were issued and 12,577,913 were
outstanding. In addition, 326,686 authorized AirNet Common Shares have been
reserved and remain available for issuance under AirNet's 1996 Incentive Stock
Plan. There are no preferred shares issued and outstanding.
AIRNET COMMON SHARES
Holders of AirNet Common Shares are entitled to one vote for each AirNet
Common Share held of record on all matters presented to a vote of shareholders,
including the election of directors. Holders of AirNet 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 AirNet Common Shares. Subject to
preferences that may be applicable to any outstanding preferred shares and
subject to the applicable debt instruments of AirNet, holders of AirNet Common
Shares are entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the affairs of AirNet, holders of AirNet Common
Shares are entitled to share pro rata in the distribution of the assets of
AirNet remaining after payment or provision for payment of liabilities and the
liquidation payments to holders of outstanding preferred shares. All outstanding
AirNet Common Shares are, and the AirNet Common Shares offered hereby when
issued in accordance with the terms of Agreement will be, fully paid and
nonassessable.
The AirNet Common Shares are listed on the NYSE.
PREFERRED SHARES
AirNet'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 AirNet's
shareholders. Any series of preferred shares so issued could have priority over
the AirNet 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 AirNet or an unsolicited acquisition proposal.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the AirNet Common Shares is First
Chicago Trust Company of New York.
ANTI-TAKEOVER EFFECTS OF AMENDED ARTICLES, CODE OF REGULATIONS AND THE OHIO
GENERAL CORPORATION LAW
Certain provisions of the Amended Articles and Code of Regulations of AirNet
and of the 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 the shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.
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NO SHAREHOLDER ACTION BY WRITTEN CONSENT
Section 1701.54 of the 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 AirNet Code of Regulations provides that 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 the shareholder's
best interest.
SUPERMAJORITY VOTING PROVISIONS
The AirNet 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
AirNet.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The AirNet 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 AirNet 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 tenth 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 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% (but less than a majority)
of such voting power or a majority or more of such voting powers. 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 employees of the corporation.
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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 AirNet 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 AirNet 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 AirNet
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 AirNet, excluding "interested shares" 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 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 AirNet of the value and validity of such acquiring person's offer may cause
such offer to be more financially attractive in order to gain shareholder
approval.
MERGER MORATORIUM STATUTE
Chapter 1704 of the 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
the Interested Shareholder's special benefit. The Merger Moratorium Statute will
encourage potential tender offerors to negotiate with the Board of Directors of
AirNet to ensure that the shareholders of AirNet 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 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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COMPARISON OF CAPITAL STOCK OF AIRNET AND QUICK
Quick is a closely-held corporation with five stockholders, including Robert
J. Mitzman, Dominique Brown and Glenn R. Smoak. See "SELECTED INFORMATION ABOUT
QUICK-Capital Stock of Quick." Such persons' rights as stockholders have been
governed primarily by discussions and agreements among these five individuals.
Following the Merger, the Quick Stockholders will hold AirNet Common Shares,
which are shares of an Ohio corporation which is a public company, and their
rights will be governed by Ohio law and AirNet's Amended Articles and Code of
Regulations. Accordingly, the material difference between the present rights of
the Quick Stockholders and their rights as holders of AirNet Common Shares is
that following the Merger, they will be shareholders in a public company
governed by Ohio law and AirNet's Amended Articles and Code of Regulations
rather than such discussions and agreements. Set forth below is a summary of the
material provisions of Ohio law and the Amended Articles and Code of Regulations
of AirNet which will govern the rights of the Quick Stockholders as shareholders
of AirNet after the Merger.
MERGERS AND CONSOLIDATIONS
Under the GCL, an agreement of merger or consolidation must be approved by
the directors of each constituent corporation and adopted by shareholders of
each constituent Ohio corporation (other than the surviving corporation in the
case of a merger) holding at least two-thirds of the corporation's voting power,
unless a different proportion (but not less than a majority of the voting power)
is specified in the articles. AirNet's Amended Articles require the approval of
a majority of the voting power of AirNet instead of two-thirds. In the case of a
merger, the agreement must also be adopted by the shareholders of the surviving
corporation by similar vote, if one or more of the following conditions exist:
(a) the articles or regulations of the surviving corporation then in effect
require that the agreement be adopted by the shareholders or by the holders of a
particular class of shares of that corporation; (b) the agreement conflicts with
the articles or regulations of the surviving corporation then in effect, or
changes the articles or regulations, or authorizes any action that, if it were
being made or authorized apart from the merger, would otherwise require adoption
by the shareholders or by the holders of a particular class of shares of that
corporation; (c) the merger involves the issuance or transfer by the surviving
corporation to the shareholders of the other constituent corporation or
corporations of such number of shares of the surviving corporation as will
entitle the holders of the shares immediately after the consummation of the
merger to exercise one-sixth or more of the voting power of that corporation in
the election of directors; or (d) the agreement of merger makes such change in
the directors of the surviving corporation as would otherwise require action by
the shareholders or by the holders of a particular class of shares of that
corporation.
OTHER CORPORATE TRANSACTIONS
Subject to certain exceptions, under the GCL, unless the articles specify a
different proportion but not less than a majority of the voting power, the
approval of two-thirds of the voting power of a corporation is required for (i)
the consummation of combinations and majority share acquisitions involving the
transfer or issuance of such number of shares as would entitle the holders
thereof to exercise at least one-sixth of the voting power of an Ohio
corporation in the election of directors immediately after the consummation of
such transaction, (ii) the disposition of all or substantially all of the
corporation's assets other than in the regular course of business and (iii)
voluntary dissolutions. The AirNet Amended Articles require the approval of a
majority of the voting power rather than two-thirds.
ANTI-TAKEOVER EFFECTS OF AMENDED ARTICLES, CODE OF REGULATIONS AND THE OHIO
GENERAL CORPORATION LAW
See "DESCRIPTION OF CAPITAL STOCK OF AIRNET--Anti-takeover Effects of
Amended Articles, Code of Regulations and the Ohio General Corporation Law."
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SPECIAL MEETINGS
Under the GCL, persons who may call a special meeting of shareholders
include the chairman of the board; the president, or, in case of the president's
absence, death or disability, the vice-president authorized to exercise the
authority of the president in the absence of the latter; the directors by action
at a meeting or a majority of the directors acting without a meeting; persons
holding 25% or more of the voting power of all shares entitled to vote, unless
the articles or regulations specify a smaller or larger portion, but not more
than 50%; or such other officers or persons as the articles or regulations may
authorize. The AirNet Code of Regulations authorizes the Chairman of the Board,
the President (or, in the event of his absence, death or disability, the Vice
President authorized to exercise the authority of the President in the absence
of the latter), the Secretary or the Board of Directors to call a special
meeting of shareholders. In addition, the AirNet Code of Regulations authorizes
a special meeting of shareholders to be called by persons holding at least fifty
percent (50%) of all shares outstanding and entitled to vote thereat.
CLASS VOTING
Under the GCL, holders of a particular class of shares are entitled to vote
as a separate class if the rights of such class are affected by mergers,
consolidations or amendments to the articles.
REMOVAL OF DIRECTORS AND FILLING OF VACANCIES
Under the AirNet Code of Regulations, a director or directors may be removed
from office, only for cause and only by the vote of the holders of at least a
majority of the voting power of AirNet which entitles them to elect directors in
place of those to be removed. Vacancies in the Board of Directors of AirNet and
any newly-created directorships resulting from any increase in the number of the
directors may be filled by the directors, acting by the vote of a majority of
the directors then in office, even if less than a quorum. A director elected to
the Board to fill a vacancy would hold office for the unexpired portion of the
term of the director whose place has been filled. A director elected by the
Board to fill a newly-created directorship resulting from an increase in the
number of directors would hold office until the next election of the class for
which the director was elected.
AMENDMENT OF THE AMENDED ARTICLES AND CODE OF REGULATIONS
Under the GCL, an amendment to the articles must be adopted by the
affirmative vote of the holders of shares entitling them to exercise two-thirds
of the voting power of the corporation on the proposal, or such different
proportion (but not less than a majority of the voting power) as is provided in
the articles. The AirNet Amended Articles reduce the vote required to amend any
provision of the Amended Articles to a majority.
Under the GCL, an amendment to the regulations may be adopted by the
shareholders at a meeting held for that purpose, by the affirmative vote of the
holders of shares entitling them to exercise a majority of the voting power on
the proposal or without a meeting with the written consent of the holders of
shares entitling them to exercise two-thirds of the voting power on the
proposal, unless the articles or regulations require a greater or lesser
proportion but not less than a majority of the voting power. The AirNet 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 AirNet. Other amendments
of the AirNet Code of Regulations require the affirmative vote of the holders of
a majority of the voting power on such proposal.
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APPRAISAL RIGHTS
Under the GCL, dissenting shareholders are entitled to appraisal rights in
connection with the lease, sale, exchange, transfer or other disposition of all
or substantially all of the assets of a corporation and in connection with
amendments to its articles which change the rights of shareholders in a
substantially prejudicial manner. In addition, shareholders of an Ohio
corporation being merged into a new corporation are also generally entitled to
appraisal rights. Shareholders of an acquiring corporation are entitled to
appraisal rights in a merger, combination or majority share acquisition in which
such shareholders are entitled to voting rights.
DIVIDENDS
An Ohio corporation may pay dividends out of surplus, however created, in
cash, property or shares. An Ohio corporation must notify its shareholders if a
dividend is paid out of capital surplus
REPURCHASES
Under the GCL, a corporation may repurchase its own shares if authorized to
do so by its articles or under certain other circumstances but may not do so if
immediately thereafter its assets would be less than its liabilities plus its
stated capital, if any, or if the corporation is insolvent or would be rendered
insolvent by such a purchase or redemption. Article FIFTH of the Amended
Articles permits AirNet to repurchase shares to the extent permitted by law.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Under Section 1701.13(E) of the Ohio Revised Code, directors, officers,
employees and agents of Ohio corporations have an absolute right to
indemnification for expenses (including attorneys' fees) actually and reasonably
incurred by them to the extent they are successful in defense of any action,
suit or proceeding, including derivative actions, brought against them, or in
defense of any claim, issue or matter asserted in such proceeding. A director or
officer is entitled to such indemnification if his success is "on the merits or
otherwise," thus mandating indemnification if the indemnitee is successful on
the merits or if he is successful, for example, in asserting a procedural
defense, such as a claim that the action is barred by the applicable statute of
limitations or if he is released pursuant to a negotiated settlement without
making payment or providing other consideration. Directors (but not officers,
employees or agents) are entitled to mandatory payment of expenses by the
corporation as they are incurred, in advance of the final disposition of the
action, suit or proceeding, provided the director agrees to cooperate with the
corporation concerning the matter and to repay the amount advanced if it is
proved by clear and convincing evidence that his act or failure to act was done
with deliberate intent to cause injury to the corporation or with reckless
disregard for the corporation's best interests.
The GCL permits a corporation to indemnify directors, officers, employees or
agents of the corporation in circumstances where indemnification is not mandated
by the statute if certain statutory standards are satisfied. A corporation may
grant indemnification in actions other than actions brought by, or derivatively
in the right of, the corporation if the indemnitee has 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, had no reasonable cause to believe his conduct was unlawful. Such
indemnification is permitted against expenses (including attorneys' fees) as
well as judgments, fines and amounts paid in settlement actually and reasonably
incurred by the indemnitee.
An Ohio corporation may also provide indemnification in actions brought by,
or derivatively in the right of, the corporation for attorneys' fees and
expenses actually and reasonably incurred in connection with the defense or
settlement of an action if the officer, director, employee or agent acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation. Ohio law does not expressly authorize
indemnification against judgments, fines and amounts paid in
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settlement in such actions. The corporation may not indemnify a director,
officer, employee or agent in such actions for attorneys' fees and expenses if
the director, officer, employee or agent is adjudged to be liable to the
corporation for negligence or misconduct in the performance of his duties to the
corporation, unless and only to the extent that a court determines that, despite
the adjudication of liability, such person is fairly and reasonably entitled to
indemnity.
The GCL grants express power to an Ohio corporation to purchase and maintain
insurance or furnish similar protection, including but not limited to trust
funds, letters of credit and self-insurance, for director, officer, employee or
agent liability. Such insurance may be purchased for, or other protection
provided to, any director, officer, employee or agent, regardless of whether
that individual is otherwise eligible for indemnification by the corporation.
The AirNet Code of Regulations provides for indemnification consistent with
Section 1701.13(E) of the Ohio Revised Code. The Code of Regulations provides
that AirNet must indemnify officers and directors against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any pending, threatened or completed action (whether criminal,
civil, administrative or investigative) by reason of the fact that such
individual is or was a director, officer, manager or agent of AirNet or is or
was serving at the request of AirNet as a director, trustee, officer, employee,
member, manager or agent of another corporation or other entity so long as such
individual acted in good faith and in a manner he reasonably believed was in, or
not opposed to, the best interests of AirNet and, with respect to any criminal
matter, he had no reasonable cause to believe his conduct was unlawful. The Code
of Regulations forbids AirNet from indemnifying an officer or director if such
person is adjudged to be liable for acting with reckless disregard to the best
interests of AirNet or misconduct (other than negligence) in the performance of
his duty to AirNet unless and only to the extent a court, in view of all the
circumstances, concludes that such person is fairly and reasonably entitled to
such indemnity as the court deems proper. The AirNet Code of Regulations creates
a presumption that a director or officer has acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of
AirNet, and with respect to any criminal matter, to have had no reasonable cause
to believe his conduct was unlawful. Because of this presumption, AirNet
believes that a director or officer will not have the initial burden of showing
that he acted in good faith or in a manner he reasonably believed to be in, or
not opposed to, the best interests of AirNet. In addition, the Code of
Regulations requires AirNet to advance expenses on behalf of officers and
directors if they agree in writing to repay such amounts if they are not
successful in the litigation.
The AirNet Code of Regulations states that the indemnification provided
thereby is not exclusive of any other rights to which any person seeking
indemnification may be entitled. Additionally, the Code of Regulations provides
that AirNet may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of AirNet, or who is or was
serving another entity at the request of AirNet, against any liability asserted
against him and incurred by him in such capacity, or arising out of his status
as such, whether or not AirNet would have the obligation or power to indemnify
him under the Code of Regulations. The Code of Regulations also authorizes
AirNet to purchase and maintain trust funds, letters of credit or self-insurance
on behalf of any person who is or was a director, officer, employee or agent of
AirNet or who is serving or has served another entity at the request of AirNet.
Ohio has codified the directors' common law duty of care and, in part, their
common law duty of loyalty. Section 1701.59(B) of the Ohio Revised Code provides
in pertinent part: "A director shall perform his duties as a director, including
his duties as a member of any committee of the directors upon which he may
serve, in good faith, in a manner he reasonably believes to be in or not opposed
to the best interests of the corporation, and with the care that an ordinarily
prudent person in a like position would use under similar circumstances."
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to
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the corporation or with reckless disregard for the best interests of the
corporation. This higher standard of proof must be met in any action brought
against a director for breach of his duties, including any action involving or
affecting (i) a change or potential change in control of the corporation; (ii) a
termination or potential termination of a director's service to the corporation
as a director; or (iii) a director's service in any other position or
relationship with the corporation. The higher standard of proof, however, does
not affect the liability of directors for unlawful loans, dividends or
distributions under Section 1701.95 of the Ohio Revised Code. There is no
comparable provision limiting the liability of officers, employees or agents of
Ohio corporations.
Ohio law provides specific statutory authority for directors, when
determining what they reasonably believe to be in the best interests of the
corporation, to consider, in addition to the interests of the corporation's
shareholders, other factors such as the interests of the corporation's
employees, suppliers, creditors and customers; the economy of the state and
nation; community and societal considerations; the long-term and the short-term
interests of the corporation and its shareholders; and the possibility that
these interests may be best served by the continued independence of the
corporation.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
are presented to show the impact of the Merger on AirNet's historical financial
position and results of operations. The Merger is reflected in the unaudited pro
forma condensed combined financial information under the pooling-of-interest
method of accounting. See "THE MERGER--Accounting Treatment".
The unaudited pro forma condensed combined balance sheet assumes that the
Merger was consummated on March 31, 1998, and the unaudited pro forma condensed
combined statements of operations assume the Merger was consummated as of the
beginning of each of the periods presented. In each instance, it was assumed
3,141,356 AirNet Common Shares were issued in connection with the Merger.
The pro forma information should be read in conjunction with the historical
consolidated financial statements of AirNet and Quick, including the respective
footnotes to those statements, and the financial data regarding AirNet and Quick
included herein. THE FOLLOWING PRO FORMA INFORMATION IS NOT NECESSARILY
INDICATIVE OF RESULTS OF THE OPERATIONS OR COMBINED FINANCIAL POSITION THAT
WOULD HAVE RESULTED HAD THE MERGER BEEN CONSUMMATED AT THE BEGINNING OF THE
PERIODS PRESENTED, NOR IS IT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS
OF FUTURE PERIODS OR THE FUTURE COMBINED FINANCIAL POSITION.
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AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AIRNET QUICK ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent...................................... $ 726 $ 303 $ $ 1,029
Marketable securities......................................... -- 287 287
Accounts receivable:
Trade, less allowances...................................... 11,496 15,052 26,548
Shareholders, affiliates and associates..................... 161 1,263 1,424
Spare parts and supplies...................................... 6,731 -- 6,731
Deposits and prepaids......................................... 6,236 1,760 7,996
---------- ---------- ----------- -----------
Total current assets............................................ 25,350 18,665 44,015
Net property and equipment...................................... 69,899 3,026 72,925
Other assets:
Intangibles, net of accumulated amortization.................. 5,463 11,317 16,780
Investment in partnerships and other.......................... 6,765 75 6,840
---------- ---------- ----------- -----------
Total assets.................................................... $ 107,477 $ 33,083 $ $ 140,560
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................. $ 4,288 $ 3,200 $ $ 7,488
Salaries and related liabilities.............................. 1,496 -- 1,496
Accrued expenses.............................................. 588 6,152 6,740
Taxes payable................................................. 3,424 -- 3,424
Deferred taxes................................................ 229 570 799
Due to shareholder............................................ -- 296 296
Current portion of capital leases............................. -- 306 306
Current portion of notes payable.............................. 24 7,025 7,049
---------- ---------- ----------- -----------
Total current liabilities....................................... 10,049 17,549 27,598
Notes payable, less current portion............................. 8,700 -- 8,700
Capital leases, net of current portion.......................... -- 773 773
Due to shareholder, net of current portion...................... -- 1,228 1,228
Deferred compensation........................................... -- 167 167
Deferred tax liability.......................................... 4,431 -- 2,080(2) 6,511
Shareholders' equity
Common Shares, $0.01 par value; 12,753,400 shares issued;
15,894,756 pro forma........................................ 127 12 20(5) 159
Additional paid-in capital.................................... 79,281 6,507 (2,100) 83,688
Retained earnings............................................. 8,641 6,722 15,363
Unrealized gain on marketable securities...................... -- 125 125
Treasury shares: 181,587 shares held at cost.................. (3,752) -- (3,752)
---------- ---------- ----------- -----------
Total shareholders' equity...................................... 84,297 13,366 (2,080) 95,583
---------- ---------- ----------- -----------
Total liabilities and shareholders' equity...................... $ 107,477 $ 33,083 $ 0 $ 140,560
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
54
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AIRNET QUICK ADJUSTMENTS COMBINED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery................................................ $ 80,707 $ -- $ $ 80,707
Small package delivery........................................ 15,660 67,277 82,937
Fixed base operations......................................... 1,395 -- 1,395
---------- ---------- ----------- -----------
Total net revenues.............................................. 97,762 67,277 165,039
Costs and expenses
Air and ground transportation................................. 66,032 49,275 115,307
Fixed base operations......................................... 1,101 -- 1,101
Selling, general and administrative........................... 8,550 15,199 (1,105)(1) 22,644
---------- ---------- ----------- -----------
Total costs and expenses........................................ 75,683 64,474 (1,105) 139,052
---------- ---------- ----------- -----------
Income from operations.......................................... 22,079 2,803 1,105 25,987
Interest expense................................................ 109 512 621
---------- ---------- ----------- -----------
Income before income taxes...................................... 21,970 2,291 1,105 25,366
Provision for income taxes...................................... 8,767 390 1,152(2) 10,309
---------- ---------- ----------- -----------
Net income...................................................... $ 13,203 $ 1,901 $ (47) $ 15,057
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income per share............................................ $ 1.05 $ 0.71 $ 0.96
Net income per share--assuming dilution......................... $ 1.04 $ 0.67 $ 0.94
Weighted average common shares outstanding:
Basic......................................................... 12,577 2,682 15,719
Assuming dilution............................................. 12,706 2,838 15,976
</TABLE>
55
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AIRNET YEAR
ENDED QUICK YEAR
SEPTEMBER 30, ENDED JUNE PRO FORMA PRO FORMA
1996 30, 1996 ADJUSTMENTS COMBINED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery............................................ $ 65,025 $ -- $ $ 65,025
Small package delivery.................................... 13,864 41,748 55,612
Fixed base operations..................................... 1,063 -- 1,063
------------- ----------- ----------- -----------
Total net revenues.......................................... 79,952 41,748 121,700
Costs and expenses
Air and ground transportation............................. 53,797 31,320 85,117
Fixed base operations..................................... 1,033 -- 1,033
Selling, general and administrative....................... 11,875 9,307 (359)(1) 20,823
------------- ----------- ----------- -----------
Total costs and expenses.................................... 66,705 40,627 (359) 106,973
------------- ----------- ----------- -----------
Income from operations...................................... 13,247 1,121 359 14,727
Interest expense............................................ 1,072 292 1,364
Offering-related, non-recurring expenses.................... 13,704 -- 13,704
------------- ----------- ----------- -----------
Income (loss) before income taxes........................... (1,529) 829 359 (341)
Provision for income taxes.................................. 4,200 83 508(2) 4,791
------------- ----------- ----------- -----------
Net income (loss)........................................... $ (5,729) $ 746 $ (149) $ (5,132)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Pro forma information (3)
Net income (loss) before taxes............................ $ (1,529) $ 829 $ 359 $ (341)
Pro forma adjustments, other than income taxes............ 4,429 -- -- 4,429
Pro forma income taxes.................................... 5,618 83 508 6,209
------------- ----------- ----------- -----------
Pro forma net income (loss)................................. $ (2,718) $ 746 $ (149) $ (2,121)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Pro forma net income (loss) per share--basic and assuming
dilution.................................................. $ (0.34) $ 0.30 $ (0.19)
Weighted average common shares outstanding:
Basic..................................................... 8,055 2,496 11,196
Assuming dilution......................................... 8,491 2,496 11,632
Adjusted pro forma information (4)
Pro forma net income (loss)............................... $ (2,718) $ 746 $ (149) $ (2,121)
Effects of eliminating offering-related, non-recurring
expense, net of tax..................................... 12,681 -- 12,681
------------- ----------- ----------- -----------
Adjusted pro forma net income............................... $ 9,963 $ 746 $ (149) $ 10,560
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Adjusted pro forma net income per
share--basic and assuming dilution........................ $ 0.80 $ 0.30 $ 0.68
Adjusted pro forma weighted average common shares--basic and
assuming dilution......................................... 12,464 2,496 15,605
</TABLE>
56
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AIRNET YEAR
ENDED QUICK YEAR
SEPTEMBER 30, ENDED JUNE PRO FORMA PRO FORMA
1995 30, 1995 ADJUSTMENTS COMBINED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery............................................ $ 58,264 $ -- $ $ 58,264
Small package delivery.................................... 12,424 30,184 42,608
Fixed base operations..................................... 1,007 -- 1,007
------------- ----------- ----------- -----------
Total net revenues.......................................... 71,695 30,184 101,879
Costs and expenses
Air and ground transportation............................. 49,246 22,411 71,657
Fixed base operations..................................... 956 -- 956
Selling, general and administrative....................... 13,418 7,937 (401)(1) 20,954
------------- ----------- ----------- -----------
Total costs and expenses.................................... 63,620 30,348 (401) 93,567
------------- ----------- ----------- -----------
Income (loss) from operations............................... 8,075 (164) 401 8,312
Interest expense............................................ 1,469 116 1,585
------------- ----------- ----------- -----------
Income (loss) before income taxes........................... 6,606 (280) 401 6,727
Provision (benefit) for income taxes........................ (13) 35 170(2) 192
------------- ----------- ----------- -----------
Net income (loss)........................................... $ 6,619 $ (315) $ 231 $ 6,535
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Pro forma information(3)
Net income (loss) before taxes............................ $ 6,606 $ (280) $ 401 $ 6,727
Pro forma adjustments, other than income taxes............ 7,367 -- 7,367
Pro forma income taxes.................................... 5,589 35 170 5,794
------------- ----------- ----------- -----------
Pro forma net income (loss)................................. $ 8,384 $ (315) $ 231 $ 8,300
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Pro forma net income (loss) per share--basic and assuming
dilution.................................................. $ 1.43 $ (0.13) $ 0.92
Weighted average common shares outstanding:
Basic..................................................... 5,857 2,496 8,998
Assuming dilution......................................... 5,857 2,496 8,998
Adjusted pro forma information(4)
Pro forma net income (loss)............................... $ 8,384 $ (315) $ 231 $ 8,300
Effects of eliminating Offering-related, non-recurring
expense, net of tax..................................... -- -- -- --
------------- ----------- ----------- -----------
Adjusted pro forma net income (loss)........................ $ 8,384 $ (315) $ 231 $ 8,300
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Adjusted pro forma net income (loss) per share--basic and
assuming dilution(4)...................................... $ 0.67 $ (0.13) $ 0.53
Adjusted pro forma weighted average common
shares--basic and assuming dilution....................... 12,464 2,496 15,605
</TABLE>
57
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AIRNET QUICK ADJUSTMENTS COMBINED
--------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery.................................................. $ 16,811 $ -- $ $ 16,811
Small package delivery.......................................... 3,614 13,076 16,690
Fixed base operations........................................... 366 -- 366
--------- --------- ----- -----------
Total net revenues................................................ 20,791 13,076 33,867
Costs and expenses
Air and ground transportation................................... 14,383 9,900 24,283
Fixed base operations........................................... 309 -- 309
Selling, general and administrative............................. 1,916 2,918 (133)(1) 4,701
--------- --------- ----- -----------
Total costs and expenses.......................................... 16,608 12,818 (133) 29,293
--------- --------- ----- -----------
Income from operations............................................ 4,183 258 133 4,574
Interest expense.................................................. 10 88 98
--------- --------- ----- -----------
Income before income taxes........................................ 4,173 170 133 4,476
Provision for income taxes........................................ 1,688 18 144(2) 1,850
--------- --------- ----- -----------
Net income........................................................ $ 2,485 $ 152 $ (11) $ 2,626
--------- --------- ----- -----------
--------- --------- ----- -----------
Net income per common share....................................... $ 0.20 $ 0.06 $ 0.17
Net income per share--assuming dilution........................... $ 0.20 $ 0.06 $ 0.17
Weighted average common shares outstanding:
Basic........................................................... 12,580 2,496 15,721
Assuming dilution............................................... 12,580 2,496 15,721
</TABLE>
58
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AIRNET QUICK ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery.................................................. $ 22,370 $ -- $ $ 22,370
Small package delivery.......................................... 3,913 21,985 25,898
Fixed base operations........................................... 288 -- 288
--------- --------- ----------- -----------
Total net revenues................................................ 26,571 21,985 48,556
Costs and expenses
Air and ground transportation................................... 19,215 16,031 35,246
Fixed base operations........................................... 175 -- 175
Selling, general and administrative............................. 2,271 4,348 6,619
--------- --------- ----------- -----------
Total costs and expenses.......................................... 21,661 20,379 42,040
--------- --------- ----------- -----------
Income from operations............................................ 4,910 1,606 6,516
Interest expense.................................................. 196 171 367
--------- --------- ----------- -----------
Income before income taxes........................................ 4,714 1,435 6,149
Provision for income taxes........................................ 1,860 240 449(2) 2,549
--------- --------- ----------- -----------
Net income........................................................ $ 2,854 $ 1,195 $ (449) $ 3,600
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Net income per share.............................................. $ 0.23 $ 0.39 $ 0.23
Net income per share--assuming dilution........................... $ 0.22 $ 0.36 $ 0.22
Weighted average common shares outstanding:
Basic........................................................... 12,529 3,064 15,670
Assuming dilution............................................... 12,782 3,286 16,108
</TABLE>
59
<PAGE>
AIRNET SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AIRNET QUICK ADJUSTMENTS COMBINED
--------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Net revenues
Check delivery.................................................. $ 18,080 $ -- $ $ 18,080
Small package delivery.......................................... 3,713 12,702 16,415
Fixed base operations........................................... 442 -- 442
--------- --------- ----- -----------
Total net revenues................................................ 22,235 12,702 34,937
Costs and expenses
Air and ground transportation................................... 14,704 9,207 23,911
Fixed base operations........................................... 283 -- 283
Selling, general and administrative............................. 2,095 3,161 (103)(1) 5,153
--------- --------- ----- -----------
Total costs and expenses.......................................... 17,082 12,368 (103) 29,347
--------- --------- ----- -----------
Income from operations............................................ 5,153 334 103 5,590
Interest expense.................................................. -- 83 83
--------- --------- ----- -----------
Income before income taxes........................................ 5,153 251 103 5,507
Provision for income taxes........................................ 2,060 35 127(2) 2,222
--------- --------- ----- -----------
Net income........................................................ $ 3,093 $ 216 $ (24) $ 3,285
--------- --------- ----- -----------
--------- --------- ----- -----------
Net income per share.............................................. $ 0.25 $ 0.09 $ 0.21
Net income per share--assuming dilution........................... $ 0.24 $ 0.09 $ 0.21
Weighted average common shares outstanding:
Basic........................................................... 12,622 2,496 15,763
Assuming dilution............................................... 12,637 2,496 15,778
</TABLE>
60
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(1) Represents the effects of employment agreements dated April 14, 1998 by and
between AirNet or Quick and each of Robert J. Mitzman, Dominique Brown and
Glenn R. Smoak as if the agreements were in effect at the beginning of the
periods presented.
(2) Currently, Quick operates as an S Corporation under the Code. The pro forma
adjustments reflect the recording of federal and certain state income taxes
as if Quick were a C Corporation for the periods presented and include the
tax effects of the above pro forma adjustments. In addition, Quick will
record a net deferred tax expense of $2,080,000 as a result of the
termination of Quick's S Corporation status.
(3) September 30, 1996 and 1995 balances include pro forma adjustments related
to AirNet's Offering, in addition to the pro forma adjustments noted in
Notes (1) and (2), above. Such adjustments reflect restructured executive
compensation plans, the elimination of a deferred compensation plan, the
reduction of interest expense and the termination of a covenant not to
compete and corresponding payments as if the Offering occurred on October 1,
1994. All such changes were effective with the consummation of the Offering
on May 31, 1996.
(4) Excludes the effects of $13,704,000 of non-cash, non-recurring expenses
incurred as a result of AirNet's Offering, effective May 31, 1996. Adjusted
pro forma net income per share data assumes the AirNet Common Shares issued
in the Offering were outstanding for the entire period presented.
(5) Reflects the 3,141,356 AirNet Common Shares expected to be issued in the
Merger, net of the conversion of Quick Common Shares to AirNet Common
Shares.
(6) During 1997, AirNet changed its fiscal year end from September 30 to
December 31. As a result, the three months ended December 31, 1996 has been
treated as a transition period. During 1997, Quick also changed its fiscal
year end from June 30 to December 31. As a result, Quick's data for the
years ended June 30, 1996 and 1995 have been combined with AirNet's data for
the years ended September 30, 1996 and 1995, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AIRNET
GENERAL
AirNet's Consolidated Financial Statements have been and will be affected by
several factors, including the following.
ACQUISITIONS
AirNet has completed five acquisitions since September, 1996 as follows:
(i) MIDWAY AVIATION, INC. All of the outstanding shares of common stock of
Midway Aviation, Inc. ("Midway"), a regional air carrier of canceled checks,
were acquired for $3.1 million cash. The results of Midway's operations are
included in the financial data since its purchase date, September 26, 1996.
(ii) FLOAT CONTROL, INC. All of the outstanding shares of common stock of
Float Control were acquired for 0.2 million of AirNet Common Shares and
approximately $0.7 million cash. Float Control holds a 19% interest in the CHEXS
Partnership, an industry leader in payment initiatives. The results of Float
Control's operations are included in the financial data since its purchase date,
October 24, 1996.
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<PAGE>
(iii) EXPRESS CONVENIENCE CENTER, INC. All of the outstanding shares of
common stock of ECC, a national small package forwarder, were acquired for 0.1
million of AirNet Common Shares on January 30, 1997. The transaction was treated
as a pooling-of-interests. Consequently, all financial data has been restated to
reflect the operations of ECC.
(iv) PACIFIC AIR CHARTER, INC. All of the outstanding shares of common stock
of Pacific Air Charter, Inc. ("PAC"), a regional airline in the business of
transporting canceled checks, were acquired for $0.4 million cash. The results
of PAC's operations are included in the financial data since its purchase date,
June 6, 1997.
(v) DATA AIR COURIER, INC. All of the outstanding shares of common stock of
Data Air Courier, Inc. ("Data Air"), a national transporter of canceled checks
and small packages through a ground delivery network and commercial airlines,
were acquired for $4.0 million cash. The results of Data Air's operations are
included in the financial data since its purchase date, July 31, 1997.
INITIAL PUBLIC OFFERING
On June 5, 1996, AirNet completed the Offering, raising net proceeds of
approximately $82.7 million. Proceeds were used to repay outstanding debt,
repurchase an outstanding warrant, make distributions to former shareholders and
to provide working capital to finance future acquisitions and internal growth.
Pursuant to the terms of the Offering, AirNet issued 6,440,000 AirNet Common
Shares at $14.00 per share.
WIE WARRANT AND COVENANT NOT TO COMPETE
In 1988, AirNet purchased certain assets of Wright International Express,
Inc. ("WIE"). In connection with the purchase agreement, AirNet entered into a
non-compete agreement that required annual payments to the former WIE
shareholders. Upon the closing of the Offering, the non-compete agreement was
terminated, resulting in a non-cash, non-recurring expense of $2.6 million. Also
in consideration for the purchase of WIE, AirNet issued a warrant to a former
WIE shareholder which was exercisable upon the closing of an initial public
offering. Upon closing of the Offering, AirNet purchased the WIE warrant for
$29.9 million and canceled the warrant, resulting in a reduction in
shareholders' equity. AirNet received a tax benefit from the repurchase and
cancellation of the WIE warrant of approximately $7.0 million. The tax benefit
from this asset was realized as cash savings through the offset of subsequent
tax liabilities. The tax benefit had no effect on AirNet's statements of
operations.
CHANGE IN S CORP STATUS AND DISTRIBUTIONS
Prior to the Offering, AirNet operated as an S Corporation under Subchapter
S of the Code and comparable provisions of certain state tax laws, and
historically paid no federal income tax. While an S Corporation, AirNet made
distributions to its shareholders for the purpose of funding their income tax
payments on the income generated by AirNet, which income is taxable to the
shareholders whether or not distributed. In addition, in connection with the
Offering and the conversion to a C Corporation status, AirNet made distributions
of the accumulated adjustments accounts ("AAA distributions") totaling $21.0
million, which approximated the value of AirNet's AAA account at the time of the
Offering. AirNet has been responsible for federal and state income taxes from
the date of the termination of its S Corporation status in connection with the
Offering.
NON-CASH, NON-RECURRING EXPENSES
AirNet incurred significant non-cash, non-recurring expenses in conjunction
with the Offering. These expenses included (i) $14.8 million of compensation
expense related to the portion of AAA distributions to certain executive
officers not previously recorded as expense in connection with the termination
of AirNet's S Corporation status, plus the difference between the net offering
price and the net book value
62
<PAGE>
per share held by the executives under certain stock purchase agreements, which
predated the Offering; and (ii) $2.6 million related to the write-off of the WIE
covenant not to compete. These expenses were offset with a $1.7 million
elimination of a deferred compensation liability associated with certain stock
purchase agreements and a $2.0 million elimination of a liability related to
deferred compensation agreements with certain executive officers.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED
SEPTEMBER 30, 1996
During 1997, AirNet changed its fiscal year end from September 30 to
December 31.
Revenues were a record $97.8 million in the twelve months ended December 31,
1997 ("fiscal 1997"), an increase of $17.8 million, or 22.3%, over the twelve
months ended September 30, 1996 ("fiscal 1996"). Net revenues from check
delivery increased $15.7 million, or 24.1%. Of the increase in revenues from
check delivery, $2.9 million can be attributed to price increases effective
January 1, 1997 and 1996 and approximately $8.7 million can be attributed to the
Midway, PAC and Data Air acquisitions. The balance of the increase can be
attributed to the introduction of a weekend delivery program in April, 1997 and
increased business activity from both new and existing customers, offset by a
decrease in the number of flying days from 200 in fiscal 1996 to 199 in fiscal
1997. Net revenues from small package delivery increased $1.8 million, or 13.0%,
from fiscal 1996 to fiscal 1997 due to increased activity from both new and
existing customers.
Total costs and expenses were $75.7 million in fiscal 1997, an increase of
$9.0 million, or 13.5%, over fiscal 1996 levels, resulting in income from
operations of $22.1 million in fiscal 1997 compared to $13.2 million in fiscal
1996. Air transportation expenses were up $12.2 million, or 22.7%, while
selling, general and administrative expenses decreased $3.3 million, or 28.0%,
for the fiscal year.
Air transportation costs increased due, in part, to the addition of air and
ground personnel required to service a larger fleet of aircraft and the
increased volume of activity. Fuel expense increased $2.0 million, or 24.4%,
over the period primarily due to a 24% increase in flight hours. Maintenance
expense also increased $1.0 million, or 14.3%, due to the increased flight hours
and the increased size of the fleet, from 94 aircraft at September 30, 1996 to
113 at December 31, 1997. AirNet's costs for shipping packages on commercial
airlines increased $3.0 million due to the addition of Data Air check delivery
shipments and an increase in SameDay small package shipments, of which a
significant portion are moved during daytime hours when AirNet's aircraft do not
fly.
Selling, general and administrative expenses decreased primarily due to the
restructuring of executive compensation plans (which resulted in a $1.8 million
decrease), the termination of stock purchase agreements (which resulted in a
$2.1 million decrease) and the termination of a covenant not to compete (which
resulted in a $0.9 million decrease). All were effective in conjunction with the
Offering in May 1996. The stock purchase agreements were with certain executive
officers and had been tied to the appreciation in the book value of the AirNet
Common Shares. The covenant not to compete required payments based on AirNet's
cash flow and debt-to-equity ratio. These decreases were offset by an increase
in wages related to the hiring of additional personnel, general insurance
increases and increases in the amounts paid for legal, accounting and consulting
services.
Interest costs decreased $1.0 million as a result of the repayment of
outstanding debt in June 1996 with proceeds from the Offering. Borrowings did
not resume on AirNet's credit facility until September 1997.
During fiscal 1996, AirNet incurred $13.7 million of non-cash, non-recurring
expenses in connection with its Offering. These expenses included (i) $14.8
million of compensation expense related to the portion of AAA distributions to
certain executive officers not previously recorded as expense in connection with
the termination of AirNet's S Corporation status, plus the difference between
the net offering price and
63
<PAGE>
the net book value per share held by the executives under certain stock purchase
agreements which predated the Offering and (ii) $2.6 million related to the
write-off of a covenant not to compete with former WIE shareholders. These
expenses were offset with a $1.7 million elimination of a deferred compensation
liability associated with the stock purchase agreements and a $2.0 million
elimination of a liability related to deferred compensation agreements with
certain executive officers.
AirNet recorded tax expense of $8.8 million for fiscal 1997 on income for
the period. AirNet operated as an S Corporation under the Code from 1988 until
it elected to terminate its S Corporation status in conjunction with the
Offering. Under its Subchapter S election, AirNet was not subject to federal and
certain state income taxes at the corporate level for the fiscal 1996 period
prior to the Offering, except for the portion of business that related to the
ECC acquisition, which was taxed as a C Corporation. AirNet recorded net
deferred tax expense of $1.8 million for fiscal 1996.
The fiscal 1996 pro forma information reflects the effects of certain
Offering-related transactions on the statements of operations as if they
occurred at the beginning of the periods presented. See Note (3) to the AirNet
Selected Financial Data table.
TWELVE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO TWELVE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues were a then-record $80.0 million in fiscal 1996, an increase of
$8.3 million, or 11.5%, over fiscal 1995. Of the increase, $2.0 million is
attributable to price increases effective January 1, 1996 and 1995. Revenues
from check delivery increased $6.8 million, or 11.6%, primarily due to increased
business activity and increases in total weight shipped, while small package
delivery revenues increased $1.4 million, or 11.6%, due primarily to increased
activity from both new and existing customers.
Total costs and expenses were $66.7 million in fiscal 1996, an increase of
$3.1 million, or 4.8%, over 1995 levels, resulting in income from operations of
$13.2 million in fiscal 1996 compared to $8.1 million in fiscal 1995. Air
transportation expenses were up $4.6 million, or 9.2%, while selling, general
and administrative expenses decreased $1.5 million, or 11.5%, for the year.
Air transportation costs increased due, in part, to the addition of air and
ground personnel required to service a larger fleet of aircraft and the
increased volume of activity. In addition, depreciation expense increased $1.1
million, or 15.1%, due to the increased size of AirNet's fleet, which grew from
78 aircraft at September 30, 1995 to 94 at September 30, 1996. The increase in
depreciation expense was offset by a reduction in lease expense as a result of
AirNet's strategy to acquire rather than lease aircraft. A rise in fuel prices
coupled with increased flight hours contributed to a $0.7 million, or 9.8%,
increase in aircraft fuel expense.
Selling, general and administrative expenses decreased primarily due to the
restructuring of executive compensation plans (which resulted in a $0.5 million
decrease), the termination of stock purchase agreements (which resulted in a
$0.5 million decrease) and the termination of a covenant not to compete (which
resulted in a $1.4 million decrease). All were effective in conjunction with the
Offering in May 1996. These decreases were offset by an increase in consulting
fees incurred with the reconstruction of executive compensation and employee
stock option plans and increased wages related to the hiring of additional
personnel.
Interest costs decreased $0.4 million as a result of the repayment of all
outstanding debt in June 1996 with proceeds from the Offering.
AirNet incurred $13.7 million of non-cash, non-recurring expenses in
connection with its Offering. These expenses included (i) $14.8 million of
compensation expense related to the portion of AAA distributions to certain
executive officers not previously recorded as expense in connection with the
termination of AirNet's S Corporation status, plus the difference between the
net offering price and the net book value per share held by the executives under
certain stock purchase agreements, which predated the Offering and (ii) $2.6
million related to the write-off of a covenant not to compete with former WIE
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<PAGE>
shareholders. These expenses were offset with a $1.7 million elimination of a
deferred compensation liability associated with the stock purchase agreements
and a $2.0 million elimination of a liability related to deferred compensation
agreements with certain executive officers.
AirNet operated as an S Corporation under the Code from 1988 until it
elected to terminate its S Corporation status on May 30, 1996. In connection
with the termination of the S Corporation status, AirNet recorded a net tax
liability of $2.4 million as a result of the cumulative effect of deferred
income taxes attributable to its change in status. In addition, AirNet recorded
net deferred tax expense of $1.8 million for fiscal 1996 related to the income
tax expense on operating income since May 30, 1996, offset by the favorable tax
effect of the write-off of the covenant not to compete with former WIE
shareholders.
Pro forma information reflects the effects of certain Offering-related
transactions on the statements of operations as if they occurred at the
beginning of the periods presented. See Note (3) to the AirNet Selected
Financial Data table.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1995
Revenues were a record $20.8 million in the three months ended December 31,
1996, an increase of $2.4 million, or 13.0%, over the three months ended
December 31, 1995. Of the increase, $0.6 million is attributable to price
increases effective January 1, 1996. Revenues from check delivery increased $1.9
million, or 12.9%, primarily due to increased business activity and increases in
total weight shipped, while small package delivery revenues increased $0.4
million, or 10.9%, due primarily to increased activity from both new and
existing customers.
Total costs and expenses were $16.6 million in the three months ended
December 31, 1996, an increase of $0.4 million, or 2.5%, over same 1995 period,
resulting in income from operations of $4.2 million in the 1996 period, compared
to $2.2 million in the 1995 period. Air transportation expenses were up $1.5
million, or 12.0%, while selling, general and administrative expenses decreased
$1.2 million, or 39.1%, for the comparable periods. Air transportation costs
increased due, in part, 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 $0.4
million, or 20.7%, increase in aircraft fuel expense. Selling, general and
administrative expenses decreased primarily due to the restructuring of
executive compensation plans and the 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 $0.4 million decrease). All were effective
in conjunction with the 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.
AirNet operated as an S Corporation under the Code from 1988 until it
elected to terminate its S Corporation status in conjunction with the Offering.
Under its Subchapter S election, AirNet was not subject to federal and certain
state income taxes at the corporate level for fiscal 1996, except for the
portion of business that related to the ECC acquisition, which was taxed as a C
Corporation, and the period subsequent to the Offering in May 1996. AirNet
recorded tax expense of $1.7 million for the three months ended December 31,
1996.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues were $26.6 million for the three months ended March 31, 1998, an
increase of $4.3 million, or 19.5%, over the same period of 1997. Revenues from
check delivery increased $4.3 million, or 23.7%. Of the increase, $1.1 million
is attributable to price increases effective January 1, 1998 and $3.1 million
can be attributed to the acquisitions of Data Air, a national transporter of
canceled checks and small packages through a ground delivery network and the
commercial airlines, in July 1997, and PAC, a regional airline in the business
of transporting canceled checks, in June 1997. The balance is due to increased
business
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activity and increases in total weight shipped. Small package delivery revenue
increased $0.2 million, or 5.4%. This increase is primarily attributable to the
Data Air acquisition, offset by the loss of certain wholesale customers. These
increases in air transportation revenues were offset by a $0.2 million decrease
in revenues generated by AirNet's retail fuel sales and maintenance division.
Total costs and expenses were $21.7 million for the three months ended March
31, 1998, an increase of $4.6 million, or 26.8%, over the same period in 1997,
resulting in income from operations of $4.9 million for the three months ended
March 31, 1998, compared to $5.2 million for the same period of 1997. Air
transportation expenses were up $4.5 million, or 30.7%. Selling, general and
administrative expenses increased $0.2 million, or 8.4%, for the three month
period.
Air transportation costs increased primarily as a result of the acquisition
of Data Air and AirNet's emphasis on building its operational infrastructure in
anticipation of growth in the small package delivery area. The costs associated
with shipping packages on commercial airlines increased $1.5 million over the
same quarter of 1997 due to the addition of Data Air check delivery shipments
and an increase in SameDay small package shipments, of which a significant
portion are moved during daytime hours when AirNet's aircraft do not fly. Ground
courier costs increased $1.7 million and courier vehicle costs were up $0.3
million due to the Data Air acquisition and the build up of the infrastructure.
Depreciation expense increased $0.5 million, or 24.8%, due to the increased size
of AirNet's aircraft fleet, which grew from 99 aircraft at March 31, 1997 to 115
owned aircraft at March 31, 1998, and an increased fleet of ground vehicles.
Fuel expense increased $0.1 million, or 4.1%, due to increased flying hours,
offset by lower fuel prices. Despite the increase in the size of the aircraft
fleet and the increased flight hours, maintenance expense was down due to
unusually good flying weather experienced in the first quarter.
Interest costs were $0.2 million for the quarter ended March 31, 1998.
AirNet began borrowing on its line of credit in September 1997, after being
essentially debt free since its Offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES
Net cash flow from operating activities was $22.0 million for the year ended
December 31, 1997 and $3.3 million for the three months ended March 31, 1998,
compared to $18.3 million for the year ended September 30, 1996 and $4.2 million
for the three months ended March 31, 1997.
CURRENT CREDIT ARRANGEMENTS
AirNet 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. As of March 31, 1998, AirNet had drawn $8.5
million on the credit facility, a $1.0 million decrease from its balance at
December 31, 1997.
INVESTING ACTIVITIES
Capital expenditures totaled $30.1 million for the year ended December 31,
1997 and $4.8 million for the three months ended March 31, 1998 compared to
$14.3 million for the year ended September 30, 1996 and $4.4 million for the
three months ended March 31, 1997. Of the $30.1 million and $4.8 million,
approximately $11.8 million and $0.5 million, respectively, were incurred in
connection with the purchase of 25 new aircraft, ten of which were previously
leased by AirNet. The remainder was incurred primarily for flight equipment and
delivery vehicles. AirNet anticipates it will spend approximately $20.0 million
on capital items in 1998, excluding any acquisitions of new businesses. AirNet
anticipates it will continue to
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acquire aircraft and flight equipment as necessary to maintain growth and
continue offering quality service to its customers.
In October 1997, AirNet purchased its current headquarters in Columbus, Ohio
from Gerald G. Mercer, AirNet's President and Chief Executive Officer, for $4.1
million in cash, which represented fair market value as determined by an
independent appraisal. AirNet is currently in discussions with the Port
Authority to construct a new headquarters facility at the Columbus International
Airport. Upon the completion of the new facility, AirNet intends to sell its
current headquarters to the Port Authority in exchange for credits to be applied
to a land lease for the new facility. No definitive agreements have been
reached. AirNet leases additional space at 4700 East Fifth Avenue, also located
on Columbus International Airport grounds. Upon completion of AirNet's new
headquarters, this lease is expected to be terminated and AirNet is expected to
purchase the 4700 East Fifth Avenue facility from the Port Authority.
During 1997, AirNet completed three acquisitions of companies for an
aggregate $4.4 million in cash and 0.1 million AirNet Common Shares. See Note 3
to the Consolidated Financial Statements included herein. On April 14, 1998,
AirNet signed a definitive agreement to acquire Quick, an international
overnight delivery company, for approximately 3.4 million AirNet Common Shares.
This transaction is expected to be accounted for as a pooling-of-interests and
is subject to certain consents, opinions and approvals, including approval of
both companies' shareholders.
In August, 1997, AirNet implemented a stock repurchase program. During 1997,
AirNet repurchased 0.3 million of the 0.6 million AirNet Common Shares that were
authorized for repurchase, for an aggregate of $5.8 million. The AirNet Common
Shares were purchased at what management believes were reasonable prices. The
repurchase program was implemented primarily to provide AirNet Common Shares to
fund currently outstanding stock options and the Associate Stock Purchase
Program, without dilution. In March 1998, AirNet terminated the repurchase
program in anticipation of signing a definitive agreement to acquire Quick.
AirNet 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
AirNet'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 AirNet's principal customers, AirNet's air
system is scheduled around the needs of financial institution customers. When
financial institutions are closed, there is no need for AirNet to operate a full
system. AirNet's fiscal quarter ending December 31 is often the most impacted by
bank holidays (including Thanksgiving and Christmas). When these holidays fall
on Monday through Thursday, AirNet's revenues and net income are adversely
affected. AirNet's annual results fluctuate as well.
Operating results are also affected by the weather. AirNet 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.
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SELECTED QUARTERLY DATA
The following is a summary of the unaudited quarterly results of operations,
restated for the ECC pooling, for the quarterly periods ended (in thousands,
except per share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
1998
Net revenues................................................... $ 26,571 -- -- --
Income from operations......................................... 4,910 -- -- --
Net income..................................................... 2,854 -- -- --
Net income per share........................................... $ .23 -- -- --
Net income per share--assuming dilution........................ .22 -- -- --
1997
Net revenues................................................... $ 22,235 $ 23,062 $ 26,247 $ 26,218
Income from operations......................................... 5,153 5,808 6,022 5,096
Net income..................................................... 3,093 3,504 3,598 3,008
Net income per share........................................... $ .25 $ .28 $ .29 $ .24
Net income per share--assuming dilution........................ .24 .28 .28 .24
1996
Net revenues................................................... $ 19,208 $ 20,992 $ 21,355 $ 20,791
Income from operations......................................... 2,240 3,798 5,017 4,183
Historical net income (loss)................................... 1,868 (12,239) 2,823 2,485
Pro forma net income (loss).................................... 2,081 (9,780) 2,823 2,485
Pro forma net income (loss) per share--basic and assuming
dilution..................................................... $ .36 $ (1.22) $ .23 $ .20
Adjusted pro forma net income(1)............................... 2,081 2,901 2,823 2,485
Adjusted pro forma net income per share(2) --basic and assuming
dilution..................................................... .17 .23 .23 .20
</TABLE>
- ------------------------
(1) Excludes the effects of the Offering-related non-cash, non-recurring
expenses.
(2) Assumes all AirNet Common Shares issued during the Offering were outstanding
for the entire period.
INFLATION
Historically, inflation has not been a significant factor to AirNet.
Although the value of AirNet's service to its primary customers is enhanced by
higher interest rates, the volume of business has not changed historically with
fluctuating interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income", and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information". Both
Statements are effective for AirNet in 1998. Statement No. 130 requires separate
reporting of certain items affecting shareholders' equity outside of those
included in arriving at net income. These items are already disclosed by AirNet.
Statement No. 131 establishes requirements for reporting information about
operating segments in annual and interim statements. This statement may require
a change in AirNet's financial reporting; however, the extent of this change, if
any, has not been determined.
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AirNet capitalizes costs related to the start-up activities associated with
new business initiatives, such as introduction of the premium products line of
business. Costs associated with these initiatives, such as personnel costs,
outside services and administrative support services, are capitalized as
start-up costs. During the three months ended March 31, 1998, AirNet capitalized
$0.9 million of such costs, for a total of $3.4 million of start-up costs
recorded on its balance sheet, included in other assets, at March 31, 1998. The
start-up phase for the premium products is expected to be completed in the
second quarter of 1998.
In April 1998, AcSEC issued Statement of Position No. 98-5, "Reporting on
the Costs of Start-Up Activities." This Statement of Position will require all
companies to write off, as a cumulative effect of a change in accounting
principle, any previously capitalized start-up costs. This Statement of Position
will be effective for AirNet in the first quarter of 1999.
YEAR 2000 IMPACT ON INFORMATION SYSTEMS
A small portion of AirNet's computer programs was written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process certain transactions, send invoices or
engage in similar normal business activities.
AirNet has completed an assessment of its computer systems and will have to
modify or replace small portions of its software so that all of its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The project is expected to be completed by December 31, 1998.
However, the completion date is dependent on the availability and receipt of
certain software from a vendor in early 1998 and the satisfactory integration of
such software into AirNet's systems. Management does not expect costs related to
the year 2000 modifications and replacements to be material to AirNet's overall
operations.
AirNet has also performed a review of its aircraft to ensure operational
compliance with year 2000 date-sensitive components. AirNet believes its
aircraft and related components are in compliance with such measures. However,
AirNet is aware that the Federal Aviation Administration ("FAA") has announced
that it is currently encountering difficulties in modifying its operating
systems for compliance with year 2000 issues. If the FAA is not able to correct
its year 2000 problems in the appropriate time frame, it could result in a
material adverse affect on AirNet's ability to schedule and execute aircraft
arrivals and departures.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Litigation Reform
Act") provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information so long as these statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying factors that could cause actual results to differ
materially from those discussed in the statement. AirNet desires to take
advantage of the "safe harbor" provisions of the Litigation Reform Act. Certain
information, particularly information regarding future economic performance and
finances and plans and objectives of management, contained, or incorporated by
reference, in this Proxy Statement/ Prospectus is forward-looking. When used in
this Proxy Statement/Prospectus, the words "anticipate", "estimate", "expect",
"may", "plan", "project" and similar expressions are intended to be among
statements that identify forward-looking statements. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated. AirNet
undertakes no responsibility to update for changes related to these or any other
factors that may hereafter occur. The following factors, in addition to other
possible factors not listed,
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could affect AirNet's actual results and cause such results to differ materially
from those expressed in forward-looking statements:
COMPETITION
The market for scheduled air and ground delivery service is highly
competitive. AirNet's bank services division competes primarily against the
Federal Reserve's Interdistrict Transportation System ("ITS"), which has
significantly greater financial and other resources than AirNet. 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 AirNet. In addition, there can be no assurance that the
Monetary Control Act will not be amended, modified or repealed, or that new
legislation affecting AirNet's business will not be enacted. Although major
participants in the next-day and second-day air delivery market (such as United
Parcel Service ("UPS") and Federal Express Corporation ("FedEx")) have also
entered the business of same-day and early morning delivery, they have not had a
material adverse effect on AirNet's business to date; however, there can be no
assurance that these competitors will not have such an effect 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 the
demand for AirNet's check 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 have had a significant adverse impact on AirNet's
business to date, there can be no assurances that these or similar technologies,
or other regulatory or technological changes in the check clearance and national
payment systems, will not have an adverse affect on AirNet's business in the
future.
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
One of AirNet'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 assurances that the suitable
acquisition candidates will be available, that AirNet will be able to acquire or
profitably manage such additional companies or that future acquisitions will
produce returns that justify the investment. In addition, AirNet may compete for
acquisitions and expansion opportunities with companies that have significantly
greater resources than AirNet.
AirNet may finance future acquisitions by using AirNet Common Shares for all
or a portion of the consideration to be paid, which may result in substantial
dilution to the current holders of the AirNet Common Shares. In the event the
AirNet Common Shares do not maintain a sufficient valuation, or potential
acquisition candidates are unwilling to accept the AirNet Common Shares as part
of the consideration for the sale of their businesses, AirNet may be required to
utilize more of its cash resources, if available, in order to pursue its
acquisition strategy. If AirNet does not have sufficient cash resources through
working capital or its current credit facility, its growth potential could be
limited and its existing operations could be impaired unless its is able to
obtain additional capital through future debt or equity financing. There can be
no assurance that AirNet will be able to obtain such financing or that, if
available, such financing will be on terms acceptable to AirNet.
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DEPENDENCE ON KEY PERSONNEL
AirNet's operations are dependent on the continued efforts of its executive
officers and on its senior management, particularly Gerald G. Mercer, AirNet's
President and Chief Executive Officer, and Eric P. Roy, AirNet's Executive Vice
President, Treasurer and Chief Financial Officer. If the executive officers of
AirNet become unable or decide not to continue in their present positions, or if
a material number of such senior management fail to continue with AirNet and
AirNet is unable to attract and retain other skilled associates, AirNet's
business could be adversely affected. AirNet does not currently have an
employment agreement with any of its executive officers. As discussed in "THE
AGREEMENT--Conditions," Robert J. Mitzman, Dominique Brown and Glenn R. Smoak
will enter into employment agreements with AirNet or Quick as of the Effective
Time of the Merger.
PERMITS AND LICENSING; REGULATION
AirNet's delivery operations are subject to various federal, state and local
regulations that in many instances require permits and licenses. Failure by
AirNet to maintain required permits or licenses, or to comply with the
applicable regulations, could result in substantial fines or possible revocation
of AirNet's authority to conduct certain of its operations. Furthermore,
acquisitions by AirNet could be impeded by delays in obtaining approvals for the
transfer of permits or licenses, or failure to obtain such approvals.
AirNet's flight operations are regulated by the FAA under Part 135 of the
Federal Aviation Regulations. Among other things, these regulations govern
permissible flight and duty time for aviation flight crews. The FAA is currently
contemplating certain changes in flight and duty time guidelines, which, if
adopted, could increase AirNet's operating costs. These changes, if adopted,
could also require AirNet and other operators regulated by the FAA to hire
additional flight crew personnel. 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. There can be no assurances that Congress will not change the current
federal excise tax rate or enact new excise taxes, which could adversely affect
AirNet's business.
BUSINESS OF AIRNET
OVERVIEW OF AIRNET'S BUSINESS
AirNet ExpressSM, the integrated national air transportation network of
AirNet, operates between 100 cities in more than 40 states and delivers over
18,000 time-critical shipments each working day. AirNet's check delivery
service, which generates approximately 84% of AirNet's revenues, is the leading
transporter of canceled checks and related information for the U.S. banking
industry, meeting more that 2,200 daily deadlines. AirNet's small package
service, which generates approximately 15% of AirNet's revenues, provides
specialized, high priority delivery service for customers requiring late
pick-ups and early deliveries combined with prompt, on-line delivery
information. AirNet's fixed base operations, which accounts for approximately 1%
of AirNet's revenues, also offers retail aviation fuel sales and related ground
services for customers in Columbus, Ohio.
During 1997, AirNet acquired Data Air and PAC. Both companies were in the
business of transporting cancelled checks. In addition, ECC was acquired to
provide an expanded customer base in the small package market.
AirNet operated a fleet of 115 aircraft (29 Learjets and 86 light twin
engine aircraft) as of March 31, 1998, which fly approximately 105,000 miles per
operating night, primarily Monday through Thursday. AirNet also provides ground
pick-up and delivery services throughout the nation seven days per week,
utilizing a fleet of approximately 250 company-owned ground vehicles as well as
a ground transportation network of over 300 independent contractors. AirNet uses
its air and ground network to support its
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banking industry customers, as well as its LateNight, BusinessDay and SameNight
small package customers. AirNet also utilizes commercial airlines to provide
SameDay delivery service for certain of its banking and small package customers.
Later pick-ups and earlier deliveries than those offered by other national
carriers are the differentiating characteristics of AirNet's time-critical
delivery network. AirNet has consistently achieved on-time performance levels
exceeding 97%. In order to maintain this performance, AirNet 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
AirNet's delivery system. Delivery times and certain shipment information are
available on-line and through the Internet.
AirNet believes that the market for reliable, time-critical deliveries is
growing as a result of a number of global trends, including: (i) global business
strategies aimed at serving customers' time critical needs for the dissemination
of printed and graphic information; (ii) medical laboratories requiring same-day
deliveries; and (iii) corporations requiring just-in-time inventory parts to
lower production costs. AirNet believes that its flexible and reliable air
transportation network and its demonstrated expertise in providing time-critical
deliveries to the banking industry for over 24 years position AirNet to provide
such additional services at premium prices.
AirNet was incorporated under the laws of the State of Ohio on February 15,
1996. AirNet's principal executive offices are located at 3939 International
Gateway, Columbus, Ohio 43219 and its telephone number is (614) 237-9777.
BUSINESS STRATEGY
The principal components of AirNet's operating and growth strategy are as
follows:
GROW AIRNET'S SMALL PACKAGE DELIVERY SERVICE
AirNet delivers packages on a same-day/same-night basis for its small
package customers, utilizing its air transportation system and the commercial
airline system. Through its LateNight and BusinessDay premium products, which
were introduced in 1997, AirNet believes that it offers a more flexible pick-up
and delivery schedule than those offered by other national and regional carriers
and appeals to customers with time-sensitive delivery requirements. AirNet
expanded its small package sales force throughout 1997 and intends to utilize an
aggressive marketing strategy for premium products to the legal community,
financial printers, the entertainment industry and other potential customers
requiring these specialized services. AirNet also believes its air and ground
delivery network provides a solid foundation from which to consolidate the
operations of other high-quality ground couriers and regional air freight
operators in the business of providing time-critical shipment needs. The
fragmented nature of the air and ground package delivery industry, outside of
the major national carriers, provides such opportunities. In addition to
expanding both the air and ground route structures, AirNet is also focused on
aligning with companies that have demonstrated a level of expertise in the sales
and marketing aspects of the industry. During 1997, AirNet completed three
acquisitions, representing approximately $11.7 million in 1997 sales.
FOCUS ON UNIQUE AIRCRAFT TYPE AND ROUTE STRUCTURE
AirNet's fast and reliable fleet of 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. AirNet's hub-and-spoke system, with a primary hub in Columbus and
several mini-hubs across the nation, enables AirNet 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 hubs. The hubs are located
primarily in less congested regional airports. These locations, in conjunction
with AirNet's off-peak departure and arrival times, provide easy take-offs and
landings, convenient loading and unloading, and fast refueling and maintenance.
Six strategically located maintenance bases help minimize aircraft down
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time. AirNet'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.
ATTRACT, RETAIN AND MOTIVATE THE HIGHEST QUALITY PERSONNEL AVAILABLE
As a service organization, AirNet recognizes the importance of hiring,
retaining and motivating the highest quality personnel available who are focused
on a set of core values designed by AirNet to provide a working environment
where accountability, integrity, quality performance, open communication, team
management and responsibility are explicitly stated goals. AirNet provides its
associates with competitive compensation and benefits packages, including a
company-wide stock option program. AirNet believes that its compensation and
benefit package and corporate culture will give it a significant competitive
advantage in attracting and motivating its associates.
EXPAND ITS BANK SERVICES WITHIN THE BANKING INDUSTRY
AirNet intends to strengthen its leadership position in the transportation
of canceled bank checks by adding additional weekend ground routes to its
current structure. The additional routes will utilize AirNet's ground operations
infrastructure while allowing AirNet to present a seamless canceled check
transportation structure to its banking customers.
GROUND OPERATIONS
Shipments are typically picked up by AirNet couriers and delivered to the
originating airport where shipments are loaded into aircraft by AirNet ground
crews. Upon arrival at the main hub in Columbus, Ohio, packages are off-loaded,
fine sorted by destination and reloaded onto the aircraft. During the thirty to
forty minute sort period, the aircraft are refueled by AirNet ground support
personnel. Fueling operations include trained fuelers and ground support
equipment, including six fuel trucks and approximately 86,500 gallons of fuel
storage capacity.
AirNet operates a fleet of approximately 250 ground transportation vehicles,
all of which are owned by AirNet. AirNet 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 served. In addition, where
appropriate, AirNet utilizes over 300 independent contractors to further augment
its ground delivery network.
FLIGHT OPERATIONS
AirNet's flight operations are headquartered in Columbus. AirNet hires
licensed pilots meeting certain experience requirements. All new pilots attend a
company-run, two-week training program. This flight school includes training on
AirNet's flight simulator prior to any actual flight time. Additionally, new
pilots typically apprentice as co-pilots in order to gain a familiarity with
AirNet's route system and the unique demands of night flying.
AirNet's central dispatch system ties together all components of the air
operation. Departure and arrival times are continuously updated, and weather
conditions throughout the nation are constantly monitored. AirNet dispatchers
remain in constant contact with pilots, outbased hub managers, fuelers,
maintenance and ground delivery personnel to ensure that no gaps exist in
AirNet's delivery process. AirNet also utilizes commercial airlines primarily to
transport shipments during the day when its aircraft typically do not operate.
Operations personnel utilize FLIGHTTRAX, a computerized flight tracking system
that allows them to track the status of every commercial flight in the country
and schedule ground pick-up and delivery personnel appropriately.
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AIRCRAFT FLEET
AirNet owns and operates a fleet of 115 aircraft. AirNet's fleet was
comprised of the following aircraft at March 31, 1998:
<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 35/35A.......................... 25 4,200 2,000 440
Learjets, Model 25.............................. 4 3,500 1,000 440
Piper Navajo Chieftain.......................... 16 1,500 800 175
Piper Aerostar.................................. 13 1,000 900 190
Beech Baron..................................... 41 1,000 700 180
Cessna 310...................................... 16 900 600 170
</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 Learjet 35 meets all Stage Three
noise requirements currently being implemented across the country. The Learjet
25 is a smaller aircraft with slightly smaller payload and range capabilities.
AirNet intends to either equip these aircraft with approved hush kits, allowing
them to continue operations in most airports or phase-out the Learjet 25's from
scheduled operations and replace them with the more efficient Learjet 35 or
other Stage Three aircraft.
AirNet's Learjet fleet provides it with nationwide connectivity. Long lane
segments from all corners of the nation converge on AirNet'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 provide service to the
various "spoke" cities in AirNet's network, which include virtually all of the
nation's large metropolitan areas.
AirNet 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 (AirNet performs its own major inspections and
overhauls on its aircraft fleet), these aircraft show little or no evidence of
erosion in performance.
Aircraft maintenance is also headquartered in Columbus. This facility
operates 24 hours a day, 365 days a year. AirNet employs over 70 experienced
aircraft and avionics technicians in six separate locations across the country
(Columbus, Dallas, Denver, Hartford, Minneapolis and San Diego), 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. AirNet has
an in-house engine shop where certain of the piston engines can be overhauled
on-site, thereby reducing aircraft downtime and controlling costs. Avionics
trouble-shooting and repair, done internally by AirNet since 1989, provide for
maximum efficiency and minimum aircraft downtime for its entire fleet.
DELIVERY SERVICES
A typical shipment is picked up from the sending bank or a small package
customer by an AirNet courier. Canceled check shipments are pre-sorted by bank
personnel and bundled as to final destination using AirNet-supplied, color-coded
bags. The shipment is then transported to the local airport where it enters
AirNet'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 downloaded
74
<PAGE>
into AirNet's ComCheck or AirNet Connect computer systems, where it is available
to AirNet's customer satisfaction representatives ("CSRs").
Upon arrival at AirNet's Columbus hub or one of its mini-hubs, the shipment
is off-loaded, sorted by destination and reloaded onto AirNet's aircraft. At the
destination city, the shipment is off-loaded for the final time and delivered by
AirNet courier to the receiver. When delivered, the shipment is once again
scanned and downloaded into AirNet's computer system. Delivery information for
all shipments is then available on-line to the customers and all AirNet CSRs.
AirNet'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 AirNet's service.
AirNet provides delivery service for three sets of banking deadlines. Basic
deadlines, which have a 9:30 p.m. - 10:00 p.m. hub time in Columbus, provide
delivery service between 12:01 a.m. and 2:00 a.m. to approximately the
northeastern third of the nation. Premium deadlines, which have an 11:00 p.m. -
11:30 p.m. hub time in Columbus and Charlotte, provide delivery service at
approximately 3:00 a.m. to the eastern half of the nation. Finally, City
deadlines, which have a 4:00 a.m. - 5:30 a.m. hub time in Columbus, provide
delivery service at approximately 8:00 a.m. to all cities served by the network.
AirNet prices these services based on the tier of service and by the pound on a
customer by customer basis.
AirNet's SameDay service provides canceled check delivery services to
banking customers meeting daytime banking deadlines and to other small package
customers requiring "next-flight-out" timing. These shipments are typically
picked up by AirNet couriers and transported via commercial airlines to
destination cities, where AirNet couriers accept the packages and deliver them
to the destinations.
CUSTOMERS
The highly specialized needs of AirNet's customer base combined with
AirNet's performance level over the years have resulted in a high level of
customer retention. This customer retention level, in turn, creates a level of
stability in AirNet's revenue base that allows for product development and
continued dedication of resources to providing the highest possible level of
service to customers. The U.S. banking industry, including commercial banks,
savings banks and Federal Reserve banks, represents AirNet's largest category of
customers and in the first quarter of 1998 accounted for approximately 84% of
AirNet's revenues. This customer list represents all 100 of the nation's largest
bank holding companies. AirNet's time-critical canceled check delivery service
enables AirNet's banking customers to offer competitive products and pricing.
Small package delivery customers, which accounted for 15% of AirNet's revenues
for the first quarter of 1998, include industrial and service corporations,
medical companies, national integrated carriers and consolidating freight
forwarders. Although AirNet maintains a base of small package delivery customers
who ship nightly, it is also expanding its services to retail customers who tend
to ship less frequently. No single customer accounted for more than 10% of
AirNet's fiscal 1997 revenues.
HUMAN RESOURCES
AirNet believes it has achieved a significant competitive advantage within
its industry through its major commitment to human resources. All levels of
AirNet's management strive to operate within the spirit of AirNet's core values,
which are: (i) Accountability; (ii) Honesty, Integrity, Trust and Respect; (iii)
Quality Performance; (iv) Open and Free Communication; (v) Team Management Style
with Shared Responsibilities; and (vi) Remember to Enjoy Life - It's a Gift!
All AirNet personnel are part of a company-wide drug-testing program.
Management believes this program, which goes beyond the requirements of AirNet's
regulators, helps to ensure the highest possible performance levels. The
management training and professional development seminars are periodically held
for, and attended by, all levels of AirNet personnel. AirNet also aggressively
compensates for performance, with excellent performance recognized and rewarded
through incentive-based compensation.
75
<PAGE>
ASSOCIATES
The chart below summarizes AirNet's workforce at March 31, 1998, 1997 and
1996. AirNet's associates are not represented by any union or covered by any
collective bargaining agreement. AirNet has experienced no work stoppages and
believes that its relationship with associates is good.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
DEPARTMENT 1998 1997 1996
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Management/Administration............................................ 209 157 111
Flight............................................................... 177 161 124
Maintenance.......................................................... 76 67 72
Driver/Courier/Ramp/Sort............................................. 811 418 314
--------- --------- ---------
Total.............................................................. 1,273 803 621
</TABLE>
COMPETITION
The air and ground courier industry is highly competitive. AirNet'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. AirNet 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 couriers, 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
market to date. AirNet provides customized service for its customer base, often
with later pick-ups and earlier deliveries than the large, national couriers.
Both FedEx and UPS utilize AirNet's transportation network for certain
situations where they require customized service.
AirNet competes with commercial airlines and numerous other carriers in its
small package transportation business. AirNet's market share in this industry is
less than 1%. AirNet believes that this market represents a significant
expansion opportunity. AirNet also has a minor presence in the same-day or next-
flight-out industry. AirNet believes that there are a number of competitors in
this industry. To the extent AirNet elects to increase its presence in the
same-day industry, it will compete against these companies. AirNet will
emphasize its information technology, competitive pricing and historically high
on-time performance levels to compete in this market.
REGULATION
AirNet is regulated under Part 135 of the Federal Aviation Regulations by
the FAA. In connection with the operation of Company vehicles and aircraft,
AirNet is subject to regulation by the U. S. Department of Transportation with
respect to the handling of hazardous materials. AirNet 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. AirNet's
delivery operations are subject to various state and local regulations, and in
many instances, require permits and licenses from state authorities.
AirNet 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 AirNet to comply with the
applicable regulations could result in substantial fines or possible revocation
of one or more of AirNet's operating permits.
76
<PAGE>
ENVIRONMENTAL MATTERS
AirNet believes that compliance with environmental matters has not had, and
is not expected to have, a material effect on operations. Although AirNet
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 AirNet's aircraft.
PROPERTIES
AirNet owns its corporate and operational headquarters at 3939 International
Gateway in Columbus, Ohio. The complex has 80,000 square feet, of which AirNet
utilizes approximately 73,000 square feet. The remainder is subleased to
unrelated third parties. AirNet's headquarters is currently used for operations,
aircraft maintenance, vehicle maintenance, general and administrative functions,
and training. AirNet is currently in discussions with the Port Authority to
construct a new headquarters facility at the Columbus International Airport.
Upon the completion of the new facility, AirNet intends to sell its current
headquarters to the Port Authority in exchange for credits to be applied to a
land lease for the new facility. No definitive agreements have been reached.
AirNet leases additional space at 4700 East Fifth Avenue, also located on
Columbus International Airport grounds. The space is used for administrative
support personnel. Upon completion of AirNet's new headquarters, this lease is
expected to be terminated and AirNet is expected to purchase the 4700 East Fifth
Avenue facility from the Port Authority. AirNet operates at approximately 50
additional locations throughout the country. The locations, which are leased
from unrelated third parties, generally include office space and/or a section of
the lessor's hangar or ramp.
For additional information concerning AirNet's leases, see AirNet's
Consolidated Financial Statements, included herein.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving AirNet other than routine
litigation incidental to AirNet's business. In the opinion of AirNet's
management, such proceedings should not, individually or in the aggregate, have
a material adverse effect on AirNet's results of operations or financial
condition.
SUMMARY OF AIRNET RECENT DEVELOPMENTS
In April 1998, AirNet signed a letter of intent to purchase Mercury Business
Services, an overnight delivery company specializing in the legal industry, for
approximately $4.5 million in AirNet Common Shares. The transaction is subject
to the signing of a definitive agreement and certain consents and approvals.
MARKET FOR AIRNET COMMON SHARES
AND RELATED SHAREHOLDER MATTERS
Effective June 3, 1997, the AirNet Common Shares began trading on the NYSE
under the symbol "ANS". Prior to June 3, 1997, the AirNet Common Shares of
AirNet were traded on The Nasdaq National
77
<PAGE>
Market under the symbol "ANSY". The table below sets forth the high and low
reported prices of the AirNet Common Shares for the periods indicated.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
March 31........................... $ 29.50 $ 20.81 $ 16.75 $ 13.75 -- --
June 30 (1)........................ -- -- 18.00 14.25 $ 16.00 $ 14.50
September 30....................... -- -- 27.06 16.25 16.00 10.75
December 31........................ -- -- 26.12 19.25 16.00 12.25
</TABLE>
- ------------------------
(1) The 1996 period represents the period from May 31, 1996 (the date of the
Offering) through June 30, 1996.
AirNet has not paid any dividends on the AirNet Common Shares and does not
intend to pay any such dividends in the foreseeable future. AirNet anticipates
using future earnings to finance operations and future growth and development of
AirNet. Certain restrictive covenants in AirNet's revolving credit facility
impose limitations on the payment of dividends by AirNet. Such covenants
prohibit AirNet from paying cash dividends on the AirNet Common Shares in excess
of 50% of net income.
On June 11, 1998, there were approximately 2,200 holders of AirNet Common
Shares, based upon the number of holders of record and the number of individual
participants in certain security position listings.
SELECTED INFORMATION ABOUT QUICK
GENERAL
Quick (together with its subsidiaries) is a domestic and international
specialty courier transportation company. Quick combines an understanding of
domestic and international transportation complexities, a network of worldwide
independent agents and a proprietary information system, to provide customized
courier transportation services. Quick believes that its lack of restrictive
operational parameters, such as pre-determined pick up and delivery times and
dates, is an important factor in differentiating Quick in the specialty
transportation industry. Although Quick also provides traditional on-demand
delivery services, Quick's focus has been the resolution of unique logistics,
transportation and delivery issues and providing superior customer service.
Quick was founded in 1981 and is headquartered in New York, New York. Quick
maintains a 30,000 square foot operational center at the John F. Kennedy
International Airport. Quick also maintains nine other offices in the United
States with locations in each of New York City, Boston, Washington, D.C.,
Chicago, Orlando, Dallas, Minneapolis, Phoenix and Los Angeles. Quick employs
approximately 400 associates. Quick's active client base of approximately 3,000
clients includes Fortune 500 companies, investment banks, entertainment
companies, legal partnerships, medical concerns and commercial banks.
Quick provides its services internationally, primarily through its
independent delivery agents and third party commercial air carriers. In the
United States, approximately 20 local sales representatives and five regional
sales representatives target local businesses, while Quick's seasoned national
marketing executives focus on larger accounts and businesses with multi-city and
multi-national requirements. Quick's sales force includes product specialists
that seek new applications of Quick's primary services in an effort to provide
superior logistics solutions. Quick's proprietary software and management
information systems provide real-time tracking of domestic and international
shipments, as well as the capability to coordinate and track multiple
distributions of time critical deliveries. In addition, these systems allow
Quick to customize the complex logistics, delivery and reporting demands of its
clients.
Quick's growth strategy also includes the acquisition of entities to enhance
Quick's core capabilities. Quick has acquired and integrated four businesses
since 1995, including, in 1996, the acquisition of an
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<PAGE>
international mail and logistics company and, in 1997, a domestic same-day
courier service. Quick's other initiatives have included the expansion of
Quick's sales force, development of new product lines, the cross-selling of
existing product lines, investment in management information systems, and the
conducting of strategic marketing and public relations campaigns.
PRODUCTS AND SERVICES
Quick offers a portfolio of products and services, including domestic and
international courier, international mail distribution and logistics services.
Quick's ability to structure appropriate logistics solutions based upon broad
service offerings, combined with an understanding of complex international
markets, and a utilization of proprietary information systems, allows Quick to
act as a one-stop source for its clients' delivery and logistics requirements.
DOMESTIC AND INTERNATIONAL COURIER SERVICES
Domestic and international courier services combine an understanding of
domestic and international transportation complexities, a network of worldwide
independent agents and a proprietary information system, to provide customized
and unique courier services. By utilizing third party carriers and independent
ground agents and maintaining a 24 hour, seven day per week operational
infrastructure, Quick is generally unencumbered by typical restraints on
operational parameters, such as pick up and delivery deadlines and holiday
restrictions. Quick believes this flexibility has enabled it to offer clients
unique solutions to difficult transportation requirements.
DOMESTIC COURIER SERVICES
Domestic courier services accounted for approximately 49% of Quick's total
revenue in the three months ended March 31, 1998. Within its domestic service
offerings, Quick provides the delivery and service options described below:
SAME-DAY/NEXT FLIGHT OUT ("NFO") SERVICE uses commercial airlines to
transport parcels. This service is offered on demand, 24 hours a day and is
targeted at a variety of industries that have time-sensitive delivery needs.
MIDNIGHT SPECIAL SERVICE offers clients the flexibility of having packages
picked up on-demand until midnight with guaranteed delivery to certain
destinations by 9 a.m. the next business day. This service utilizes routing on
chartered flights.
DOMESTIC POUCH service offers pre-scheduled overnight delivery. This product
is designed to offer clients later pick-up and earlier delivery times in
comparison to the services offered by major air express companies.
DOMESTIC PRIORITY FREIGHT offers on-demand, non-consolidated freight
delivery for larger shipments. Transit times vary depending upon the level of
service desired and final destination. Quick offers customized crating and
packaging materials needed to ensure safe delivery for specialized shipments.
CHARTER SERVICE is available on specially chartered flights for both
domestic and international shipments. It is designed for clients requiring
special delivery and handling accommodations for high volume shipments.
SPECIAL HAND CARRY SERVICE utilizes individuals to personally escort
packages door-to-door from pick-up to final destination. Special Hand Carry
Service is Quick's premier on-demand priority service for clients requiring the
greatest in speed, reliability and service.
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<PAGE>
INTERNATIONAL COURIER SERVICE
International courier services accounted for approximately 17.5% of Quick's
total revenue in the three months ended March 31, 1998. Within its international
service offerings, Quick provides the delivery and service options described
below:
INTERNATIONAL SPECIAL SERVICE utilizes NFO service on commercial airlines
for the shipment of parcels internationally. This service is offered on-demand
24 hours a day, seven days a week.
INTERNATIONAL PRIORITY SERVICE uses NFO delivery for all shipments. This
service is not as flexible as the International Special Service because it is
not available during off peak hours and on weekends. It is contingent upon
pre-determined routing which increases the shipment's transit time.
INTERNATIONAL QUICK AIR SERVICE provides for the international shipment of
parcels using alternative routing and is designed to offer clients efficient
international delivery service at lower prices. The majority of packages shipped
using this service are pre-scheduled and transit times typically exceed
International Priority Service and International Special Service.
INTERNATIONAL PRIORITY FREIGHT SERVICE offers NFO, on-demand,
non-consolidated delivery. Quick will customize crates and any packaging
materials needed to ensure safe delivery.
SPECIAL HAND CARRY SERVICE is also provided on an international basis. A
Quick agent or employee is selected to accomplish each delivery based upon the
appropriate language, cultural and operational experience necessary to
facilitate the delivery process.
INTERNATIONAL MAIL DISTRIBUTION
Quick's mail delivery service ("QuickMail") offers an alternative to
traditional mail distribution and delivery. QuickMail combines an understanding
of international mail distribution complexities, a network of worldwide
independent agents and mail distribution wholesalers, relationships with foreign
postal services and a proprietary information system, to provide customized and
unique mail distribution services. It accommodates high volume distribution for
clients requiring more efficient transit times and reliability than those
generally offered by traditional postal services.
QuickMail utilizes numerous mail distribution options, depending on the
volume, commodity and frequency of the material being distributed. Quick has
established multiple routing and postal options to lessen the adverse effect of
events that might otherwise inhibit mail delivery into a particular country or
region. These options include hand delivery, direct injection into the postal
system of the destination country, and injection into a foreign postal system
for remail to the destination country. One of the key attributes of QuickMail is
that it offers automated reporting and tracking capabilities that are available
at any time after a job order is initiated in the Quick system. Quick's growing
volume of international mail often enables it to negotiate favorable fees with
foreign post offices, mail wholesalers and international agents.
QuickMail services accounted for approximately 26.5% of Quick's total
revenue in the three months ended March 31, 1998. Within its QuickMail
offerings, Quick provides the delivery and service options described below.
QUICKMAIL PRIORITY is a first class distribution service designed to route
parcels in the fastest, most reliable manner using a combination of direct
entry, hand delivery and remail, as appropriate given the particular delivery
requirements.
QUICKMAIL PRINTED MATTER is a cost effective distribution service for
non-urgent deliveries. QuickMail Printed Matter uses less rapid delivery
methods, but offers clients reliable and more economical delivery service.
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<PAGE>
QUICKMAIL PUBLICATION is a distribution service for heavyweight publishing
material such as magazines, catalogs and journals. Routings are customized
depending upon the frequency of the material, individual piece weight and total
volume of shipment.
QUICKMAIL PARCEL is a distribution service for heavyweight dutiable and
non-dutiable material and items. Routings are tailored to distribute the
material with speed and accountability.
LOGISTICS SERVICES
In an effort to customize delivery solutions for its clients, Quick has
developed logistics services that are offered in conjunction with domestic,
international, and QuickMail services. Logistics services include field support,
fulfillment, pick and pack, and "STAT" services. These services reduce the
clients' involvement in the preparation of the materials for delivery. These
services are ideal for clients who require warehousing, inventory management and
special logistical support functions. The Logistics services offered by Quick
are described below:
FIELD SUPPORT SERVICES provide secure regional warehousing and same-day, NFO
or 9 a.m. delivery of time-sensitive products. Critical and regularly used
inventory can be safely stored in facilities throughout the world. Logistics
response services are available 24 hours a day, 365 days per year. This service
enables Quick's clients to maintain time-sensitive inventories at regional
facilities. All warehoused items are tracked using Quick's proprietary real-time
inventory system.
PICK AND PACK SERVICE is designed for clients who require frequent
deliveries with special handling and packaging instructions. Customer items are
pulled from inventory, packaged and shipped as per special customer
instructions.
FULFILLMENT SERVICE offers list management, labeling, collating, stuffing
and shipping of clients' direct mail, catalogues, or billing statements. For
example, Quick distributes time-sensitive financial information to 2,000 banks
worldwide for one of its clients. Quick manages this entire process from
computerized list maintenance, to coordinating the timing with the printer,
purchasing the envelopes, and calculating maximum efficiency for the mailings.
In addition, Quick offers this service in conjunction with QuickMail for cost
and transit time savings for international mailings.
STAT SERVICE provides highly specialized transportation services for
biomedical materials for medical transplants and research. Quick regularly
consults with a council of board certified medical specialists concerning proper
packaging, transportation and delivery of biomedical materials, taking into
account medical restrictions and all applicable governmental regulations.
COMPETITION
Quick operates in a highly competitive environment. Quick believes that the
principal competitive factors in the markets in which it competes are
reliability, quality, breadth of service and price. Price competition for basic
delivery services is particularly intense. Quick's principal competitors in both
the international and domestic delivery industry generally include
privately-held companies that operate in only one locality and local affiliates
of large, nationally-known transportation companies, with no one competitor
dominating the market.
Although Quick believes that its pricing is competitive, Quick also seeks to
differentiate itself in its industry by offering, through a single source, a
unique and broad selection of products and services. In both the domestic and
international markets, Quick believes that it competes on the basis of its
ability to reliably and consistently provide a wide array of delivery services,
ranging from basic delivery services to complex international delivery services,
on a customized basis for its clients. Quick believes that this provides it with
an important advantage in the highly fragmented delivery and logistics service
industry. However, Quick has numerous national, regional and international
competitors in its existing and proposed markets, many of which have
substantially greater financial and other resources than Quick.
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<PAGE>
CAPITAL STOCK OF QUICK
There is no established public trading market for any class of common equity
of Quick.
The authorized capital stock of Quick consists of 20,000 Quick Common Shares
and 3,000 shares of Class A Common Stock, par value $1.00 per share. As of the
Effective Time of the Merger, there will be 12,586 Quick Common Shares issued
and outstanding, and outstanding options to purchase 1,000 shares of Class A
Common Stock, which will be converted into options to purchase an aggregate of
249,591 AirNet Common Shares upon consummation of the Merger.
Quick has five holders of Quick Common Shares, two of whom hold options to
purchase additional Quick Common Shares, and nine holders of options to purchase
shares of Class A Common Stock. Since its inception, Quick has not paid any
dividends on the shares of any of Quick's capital stock.
The following table furnishes certain information as to the shares of Quick
capital stock beneficially owned by each of the current directors of Quick, by
the executive officers of Quick whose total salary and bonus for Quick's 1997
fiscal year exceeded $100,000 and by all directors and executive officers of
Quick as a group. No other person beneficially owns more than 5% of the
outstanding shares of Quick capital stock.
<TABLE>
<CAPTION>
AIRNET
COMMON SHARES,
OR OPTIONS TO
PERCENTAGE QUICK CLASS A COMMON PURCHASE AIRNET
NAME OF BENEFICIAL OWNER QUICK OWNERSHIP STOCK WHICH CAN BE PERCENTAGE OWNERSHIP COMMON SHARES,
OR NUMBER OF PERSONS IN COMMON SHARES OF QUICK COMMON ACQUIRED UPON EXERCISE OF OF QUICK CLASS A TO BE RECEIVED
GROUP (1) PRESENTLY HELD SHARES OPTIONS COMMON STOCK IN MERGER (2)
- ------------------------- -------------- ----------------- ------------------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert J. Mitzman,....... 8,284.7 67.49% 0 0 2,067,789
President and Director
Dominique Brown,......... 1,623.6(3) 13.22% 0 0 405,236
Executive Vice
President, Secretary,
Treasurer and Director
Karl Daigle,............. 852.7(3) 6.94% 0 0 212,827
Director
Glenn Smoak,............. 1,166.0 9.50% 0 0 291,023
Director
All directors and 11,927.0 97.15% 0 0 2,976,875
executive officers as a
group (4 persons)......
<CAPTION>
POST-MERGER
NAME OF BENEFICIAL OWNER PERCENTAGE
OR NUMBER OF PERSONS IN OWNERSHIP OF
GROUP (1) AIRNET (2)
- ------------------------- -------------
<S> <C>
Robert J. Mitzman,....... 13.2%
President and Director
Dominique Brown,......... 2.6%
Executive Vice
President, Secretary,
Treasurer and Director
Karl Daigle,............. 1.4%
Director
Glenn Smoak,............. 1.9%
Director
All directors and 19.1%
executive officers as a
group (4 persons)......
</TABLE>
- ------------------------------
(1) The beneficial owner has sole voting and investment power with respect to
all of the Quick capital stock reflected in the table.
(2) Assumes that (a) the Merger has been consummated with an assumed exchange
ratio of 249.5913 AirNet Common Shares for each Quick Common Share,
resulting in the issuance of an aggregate of 3,141,356 AirNet Common Shares
and (b) the granting by AirNet of options to purchase an aggregate of
249,591 Common Shares to the holders of options to purchase shares of Quick
Class A Common Stock.
(3) Ms. Brown and Mr. Daigle hold options (the "Quick Common Share Options") to
purchase 254 and 55 additional Quick Common Shares, respectively. Assuming
that the Quick Common Share Options are exercised prior to the consummation
of the Merger, Ms. Brown would receive an additional 63,396 AirNet Common
Shares and Mr. Daigle would receive an additional 13,728 AirNet Common
Shares in the Merger. Ms. Brown and Mr. Daigle have granted options to Tomas
Miguens to purchase 254 and 55 of their respective Quick Common Shares.
82
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF QUICK
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
Revenues were $22.0 million in the three months ended March 31, 1998, an
increase of $9.3 million, or 73.1%, over the three months ended March 31, 1997.
The increase in revenues is primarily attributable to volume increases from
Quick's existing client base and the acquisitions of Genesis Worldwide Courier
("Genesis") and Sterling Courier Systems, Inc. ("Sterling"), which accounted for
$2.3 million and $5.1 million in revenues, respectively, during such period.
These acquisitions occurred in August and September of 1997. In the first three
months of 1998 as compared to the same period in 1997, net revenues from
international priority shipments increased approximately $0.7 million to $3.8
million; domestic priority shipments increased $5.9 million to $10.8 million;
and international mail shipments increased $1.6 million to $5.8 million.
Cost of operations for the three months ended March 31, 1998 increased $6.8
million, or 74.1%, to $16.0 million from $9.2 million for the three months ended
March 31, 1997. This increase was primarily the result of the increased revenues
in the three months ended March 31, 1998, including the acquisitions of Sterling
and Genesis, which accounted for $4.8 million of the increase. As a percent of
revenues, such costs increased to 72.9% for the three months ended March 31,
1998 as compared to 72.5% for the previous year's period.
Selling, general and administrative expenses for the three months ended
March 31, 1998 increased $1.2 million, or 37.6%, to $4.3 million as compared to
the same period in 1997. The increase primarily resulted from costs associated
with the operations of Genesis of $0.3 million and Sterling of $0.7 million and
additional corporate management and support staff of $0.2 million, and
depreciation and amortization.
Net interest expense for the twelve months ended December 31, 1997 increased
$0.2 million, or 75.3%, to $0.5 million from $0.3 million for the twelve months
ended June 30, 1996. The increase resulted primarily from higher average
borrowings.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED JUNE
30, 1996
During 1997, Quick changed its year end from June 30 to December 31.
Revenues were $67.3 million for the twelve months ended December 31, 1997,
an increase of $25.5 million, or 61.2%, over the twelve months ended June 30,
1996. The increase in revenues is primarily attributable to volume increases
from Quick's existing client base. The increase in revenues is also attributable
to the Genesis and Sterling acquisitions, which accounted for $3.6 million and
$6.1 million in revenues, respectively. For the twelve months ended December 31,
1997, as compared to the twelve months ended June 30, 1996, net revenues from
international priority shipments increased $5.4 million to $14.8 million;
domestic priority shipments increased $9.9 million to $28.4 million; and
international mail shipments increased $8.9 million to $20.9 million.
Cost of operations for the twelve months ended December 31, 1997 increased
$18.0 million, or 57.3%, to $49.3 million from $31.3 million for the twelve
months ended June 30, 1996. This increase was partially attributable to an
increase in transportation costs of $10.7 million and an increase in labor costs
of $1.8 million, which were the result of an increase in business activity. In
addition, the acquisitions of Genesis and Sterling increased costs by $0.9
million and $4.6 million, respectively. As a percent of revenues, cost of
operations decreased to 73.2% for the twelve months ended December 31, 1997 as
compared to 75% for the previous period. This decrease and the corresponding
increase in gross profit margin resulted from higher profitability associated
with Genesis and higher overall margins.
83
<PAGE>
Selling, general and administrative expenses for the twelve months ended
December 31, 1997 increased $5.9 million, or 63.4%, to $15.2 million from $9.3
million for the twelve months ended June 30, 1996. The increase primarily
resulted from costs associated with the operations of Genesis of $0.5 million
and Sterling of $0.9 million, increases in officer compensation expense of $0.6
million, additional corporate management and support staff of $1.1 million,
increased depreciation and amortization of $0.3 million and increased sales
commission expense of $1.3 million resulting from increased revenues.
Net interest expense for the twelve months ended December 31, 1997 increased
$0.2 million, or 75.3%, to $0.5 million from $0.3 million for the twelve months
ended June 30, 1996. The increase resulted primarily from higher average
borrowings.
TWELVE MONTHS ENDED JUNE 30, 1996 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
1995
Revenues were $41.7 million for the twelve months ended June 30, 1996, an
increase of $11.6 million, or 38.3%, over the twelve months ended June 30, 1995.
For the twelve months ended June 30, 1996, as compared with the twelve months
ended June 30, 1995, net revenues from international priority shipments
increased $1.0 million to $9.5 million; domestic priority shipments increased
$3.9 million to $18.5 million; and international mail shipments increased $6.4
million to $12.1 million. Of the $6.4 million increase in international mail,
$5.7 million was attributable to the acquisition of Specialty Mailing, Inc.
("SMI") in October 1995. $1.0 million of the increase in domestic revenue was
attributable to a new contract with a bio-medical concern.
Cost of operations for the twelve months ended June 30, 1996 increased $8.9
million, or 39.8%, to $31.3 million from $22.4 million for the twelve months
ended June 30, 1995. This increase was primarily the result of the increased
revenues in fiscal 1996 and the acquisition of SMI, which accounted for $4.9
million of such increase. As a percent of sales, cost of operations increased to
75.0% for the twelve months ended June 30, 1996 as compared to 74.2% for the
previous period. This increase and the corresponding decrease in gross profit
margin resulted from lower than expected profitability associated with SMI.
Selling, general and administrative expenses for the twelve months ended
June 30, 1996 increased $1.4 million, or 17.3%, to $9.3 million from $7.9
million for the twelve months ended June 30, 1995. Such increase is primarily
related to the costs associated with the operations of SMI, which accounted for
$0.8 million of the increase, and increased commission expense resulting from
increased revenues.
Net interest expense for the fiscal year ended June 30, 1996 increased $0.2
million, or 151.7%, to $0.3 million from $0.1 million for the fiscal year ended
June 30, 1995. The increase resulted primarily from higher average borrowings.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995
Revenues were $24.6 million for the six months ended December 31, 1996, an
increase of $5.2 million, or 27.0%, over the six months ended December 31, 1995.
For the six months ended December 31, 1996, as compared with the same six month
period in 1995, net revenues from international priority shipments increased
approximately $0.7 million to $4.9 million; domestic priority shipments
decreased $0.7 million to $8.5 million; and international mail shipments
increased $3.4 million to $8.4 million. Of the $3.4 million increase in
international mail, $2.7 million is attributable to the acquisition of SMI in
October 1995.
Cost of operations for the six months ended December 31, 1996 increased $3.9
million, or 26.0%, to $18.6 million from $14.7 million for the six months ended
December 31, 1995. This increase was primarily the result of the increase in
sales for the six month period ended December 31, 1996, as discussed above.
During such period, transportation costs increased $3.4 million and labor costs
increased $0.5 million. As a percent of sales, cost of operations decreased to
75.7% for the six month period ended December 31, 1996 from 75.9% for the
previous year's period. The increase in gross profit margin resulted from higher
international priority revenue which offset the lower gross profit margins
associated with SMI.
84
<PAGE>
Selling, general and administrative expenses for the six months ended
December 31, 1996 increased $1.6 million, or 38.0%, to $5.7 million from $4.1
million for the six months ended December 31, 1995. The increase primarily
related to officer compensation expense of $0.2 million, the addition of
corporate management and support staff of $0.5 million, increased commission
expense of $0.2 million resulting from increased revenues and increased
depreciation and amortization expense.
Net interest expense for the six months ended December 31, 1996 increased
$0.1 million, or 25.0%, to $0.2 million from $0.1 million for the six months
ended December 31, 1995. The increase resulted primarily from higher average
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES
Net cash flow from operating activities was $3.0 million for the twelve
months ended December 31, 1997, compared to $1.2 million for the twelve months
ended June 30, 1996. Net cash flows from operating activities for the three
months ended March 31, 1998 were $1.4 million.
CURRENT CREDIT ARRANGEMENTS
In September 1997, Quick entered into a revolving credit agreement with a
bank under which Quick may borrow up to 85% of eligible accounts receivable (as
defined therein), up to a maximum $10 million in borrowings. The credit facility
is secured by substantially all of the assets of Quick and expires on September
30, 2000. The credit agreement requires the maintenance of certain minimum net
worth and cash flow levels, imposes certain limitations on payments of dividends
and requires prior bank approval for certain acquisitions. In addition, Quick
has an additional $4 million line of credit subject to similar terms. As of
March 31, 1998, Quick had drawn $7.0 million under the revolving credit
agreement.
INVESTING ACTIVITIES
During the twelve months ended December 31, 1997 and the twelve months ended
June 30, 1996, Quick spent approximately $1.0 million and $0.4 million,
respectively, on purchases of property and equipment. In addition, Quick also
entered into equipment finance leases for $0.5 million and $0.7 million in 1997
and 1996, respectively. These expenditures related primarily to improvements in
technology to support Quick's infrastructure.
During the three months ended March 31, 1998, Quick spent approximately $0.2
million on capital expenditures.
During the twelve months ended December 31, 1997, Quick completed three
acquisitions for aggregate consideration of approximately $9.0 million,
consisting of approximately $0.6 million in cash, the issuance of 2,277 Quick
Common Shares and notes payable totaling $3.8 million.
YEAR 2000 IMPACT ON INFORMATION SYSTEMS
Quick believes that it does not have any significant Year 2000 issues. Quick
continuously monitors such issues, relative to both its internal and customer
needs. Quick is aware that this issue could have significant implications if not
properly evaluated.
DISSENTERS' RIGHTS
Shareholders of AirNet have no dissenters' rights with respect to the
Merger, the Acquisition or any other matter to be considered at the Annual
Meeting.
The Quick Stockholders have waived their dissenters' rights with respect to
the Merger.
85
<PAGE>
LEGAL MATTERS
The validity of the AirNet Common Shares offered hereby will be passed upon
for AirNet by Vorys, Sater, Seymour and Pease LLP, Columbus, Ohio. Russell M.
Gertmenian, a partner in Vorys, Sater, Seymour and Pease LLP, is a director of
AirNet and beneficially owns 5,000 AirNet Common Shares and holds an option to
purchase 2,000 AirNet Common Shares. As of May 8, 1998, members of Vorys, Sater
Seymour and Pease LLP and attorneys employed thereby, together with members of
their immediate families, beneficially owned an aggregate of approximately
10,950 AirNet Common Shares.
EXPERTS
The consolidated financial statements of AirNet at December 31, 1997 and
1996, and for the years ended December 31, 1997 and September 30, 1996 and 1995,
and the three months ended December 31, 1996, and the consolidated financial
statements of Quick at December 31, 1997 and 1996 and for the years ended
December 31, 1997 and June 30, 1996 and 1995, and the six months ended December
31, 1996, included in this Proxy Statement/Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and transactions in the AirNet Common Shares by executive
officers, directors and persons who own more than 10% of the AirNet Common
Shares are required to be reported to the Commission pursuant to Section 16 of
the Exchange Act. Based solely on a review of the copies of reports furnished to
AirNet and representations of certain executive officers and directors, AirNet
believes that during the fiscal year ended December 31, 1997, its officers,
directors and greater than 10% beneficial owners complied with such filing
requirements.
INDEPENDENT AUDITORS
AirNet engaged Ernst & Young LLP as its independent auditors to audit its
consolidated financial statements for the 1997 fiscal year. Ernst & Young LLP, a
certified public accounting firm, has served as AirNet's independent auditors
since 1989. AirNet's Audit Committee will make its selection of AirNet's
independent auditors for the 1998 fiscal year at its next meeting, which will be
held after the Annual Meeting.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting to respond to appropriate questions and to make such statements
as he may desire.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
AirNet shareholders seeking to bring business before the 1999 Annual Meeting
of Shareholders, or to nominate candidates for election as directors at such
Annual 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 AirNet 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 1999 Annual
Meeting is given or made to the shareholders, notice by the shareholder to be
timely must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the 1999 Annual Meeting
was mailed or such public disclosure was made. The AirNet Code of Regulations
specify certain requirements for a shareholder's notice to be in proper written
form. The foregoing requirements will not, however, prevent any shareholder from
submitting a shareholder proposal in compliance with Rule 14a-8 of the Exchange
Act. Pursuant to Rule 14a-8, proposals by shareholders intended to be presented
at the 1999 Annual Meeting of Shareholders must be in the form
86
<PAGE>
specified in that Rule and received by the Secretary of AirNet no later than
, 1999, to be included in AirNet's proxy, notice of meeting and
proxy statement relating to such meeting and should be mailed to AirNet Systems,
Inc., 3939 International Gateway, Columbus, Ohio 43219, Attention: Secretary.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be presented
for action at the 1998 Annual Meeting. If any other matter requiring a vote of
the shareholders properly comes before the Annual Meeting, the persons
authorized under management proxies will vote and act according to their best
judgments in light of the conditions then prevailing.
ANNUAL REPORT
On March 30, 1998, AirNet's 1997 Annual Report to Shareholders containing
audited financial statements for the fiscal year ended December 31, 1997 was
mailed to all shareholders of record on March 9, 1998. A copy of such Annual
Report to Shareholders is being mailed herewith to all persons who were
shareholders of record on the Record Date but were not shareholders on March 9,
1998.
The form of proxy and the Proxy Statement/Prospectus have been approved by
the Board of Directors of AirNet and are being mailed and delivered to
shareholders by its authority.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AIRNET SYSTEMS, INC.--YEARS ENDED DECEMBER 31, 1997,
SEPTEMBER 30, 1996 AND 1995 AND THREE MONTHS ENDED DECEMBER 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997 (UNAUDITED):
Report of Independent Auditors.................................................................. F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 and March 31, 1998 (unaudited)........ F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and September 30,
1996 and 1995 and for the three months ended December 31, 1996 and for the three months ended
March 31, 1998 and 1997 (unaudited)........................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and September 30,
1996 and 1995 and for the three months ended December 31, 1996 and for the three months ended
March 31, 1998 and 1997 (unaudited)........................................................... F-5
Consolidated Statements of Equity for the years ended September 30, 1995 and 1996, three months
ended December 31, 1996 and year ended December 31, 1997 and three months ended March 31, 1998
(unaudited)................................................................................... F-6
Notes to Consolidated Financial Statements...................................................... F-7 to F-20
CONSOLIDATED FINANCIAL STATEMENTS OF Q INTERNATIONAL COURIER, INC.--YEAR ENDED DECEMBER 31,
1997, SIX MONTHS ENDED DECEMBER 31, 1996, YEARS ENDED JUNE 30, 1996 AND 1995 AND THREE MONTHS
ENDED MARCH 31, 1998 AND 1997 (UNAUDITED):
Report of Independent Auditors.................................................................. F-21
Consolidated Balance Sheets at December 31, 1997 and 1996 and March 31, 1998 (unaudited)........ F-22
Consolidated Statements of Operations for the year ended December 31, 1997, six months ended
December 31, 1996, years ended June 30, 1996 and 1995 and three months ended March 31, 1998
and 1997 (unaudited).......................................................................... F-23
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1998
(unaudited), year ended December 31, 1997, six months ended December 31, 1996 and years ended
June 30, 1996 and 1995........................................................................ F-24
Consolidated Statements of Cash Flows for the year ended December 31, 1997, six months ended
December 31, 1996 and years ended June 30, 1996 and 1995 and three months ended March 31, 1998
and 1997 (unaudited).......................................................................... F-25 and F-26
Notes to Consolidated Financial Statements...................................................... F-27 to F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
AirNet Systems, Inc.
We have audited the accompanying consolidated balance sheets of AirNet
Systems, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1997, September 30, 1996 and 1995 and for the three months
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AirNet Systems, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997, September 30, 1996 and 1995 and for the three months
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Columbus, Ohio
February 18, 1998
F-2
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1997 1996 1998
------------- ------------- -------------
(RESTATED FOR (UNAUDITED)
ECC POOLING)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 2,125,137 $ 9,631,663 $ 725,996
Accounts receivable:
Trade, less allowances of $123,000 and $23,000
at December 31, 1997 and 1996,
respectively................................ 10,966,790 6,440,545 11,496,087
Shareholders, affiliates, and associates...... 85,714 207,571 160,475
Spare parts and supplies........................ 6,053,488 5,012,284 6,731,307
Deposits and prepaids........................... 5,847,774 3,737,008 6,235,909
------------- ------------- -------------
Total current assets.............................. 25,078,903 25,029,071 25,349,774
Net property and equipment........................ 67,578,533 45,658,488 69,898,876
Other assets:
Intangibles, net of accumulated amortization of
$1,671,000 and $1,334,000 at December 31, 1997
and 1996, respectively........................ 5,425,938 1,673,861 5,463,081
Investment in partnerships and other............ 5,902,664 3,018,621 6,764,836
Deferred tax asset.............................. -- 4,115,057 --
------------- ------------- -------------
Total assets...................................... $ 103,986,038 $ 79,495,098 $ 107,476,567
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 4,033,036 $ 2,938,730 $ 4,287,984
Salaries and related liabilities................ 1,606,006 1,677,563 1,495,749
Accrued expenses................................ 1,311,366 443,453 588,358
Taxes payable................................... 2,386,256 -- 3,423,979
Deferred taxes.................................. 229,288 208,995 229,288
Current portion of notes payable................ 23,923 -- 23,923
------------- ------------- -------------
Total current liabilities......................... 9,589,875 5,268,741 10,049,281
Notes payable, less current portion............... 9,705,645 110,787 8,699,894
Deferred tax liability............................ 4,430,538 3,397,062 4,430,538
Shareholders' equity:
Preferred shares, $.01 par value; 10,000,000
shares authorized; and no shares issued and
outstanding................................... -- -- --
Common shares, $.01 par value; 40,000,000 shares
authorized; and 12,753,400, 12,621,081 and
12,753,400 shares issued at December 31, 1997
and 1996 and March 31, 1998, respectively..... 127,534 126,211 127,534
Additional paid-in capital...................... 79,778,803 78,008,030 79,281,468
Retained earnings............................... 5,787,017 (7,415,733) 8,640,572
Treasury shares; 263,570 shares held at cost at
December 31, 1997 and 181,587 at March 31,
1998.......................................... (5,433,374) -- (3,752,720)
------------- ------------- -------------
Total shareholders' equity........................ 80,259,980 70,718,508 84,296,854
Total liabilities and shareholders' equity........ $ 103,986,038 $ 79,495,098 $ 107,476,567
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------- THREE MONTHS THREE MONTHS
SEPTEMBER SEPTEMBER ENDED ENDED MARCH 31,
DECEMBER 31, 30, 30, DECEMBER 31, ------------------------
1997 1996 1995 1996 1998 1997
------------ ------------ ------------ ------------ ----------- -----------
(RESTATED FOR ECC POOLING) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES
Air transportation, net of excise tax of
$2,113,000, $716,000 and $1,810,000 for
the years ended December 31, 1997,
September 30, 1996 and 1995 and $407,000
for the three months ended December 31,
1996:
Check delivery........................... $80,707,349 $65,024,522 $58,263,706 $16,811,390 $22,369,802 $18,079,852
Small package delivery................... 15,660,080 13,863,772 12,424,306 3,613,636 3,913,251 3,712,718
Fixed base operations...................... 1,394,827 1,063,583 1,006,529 366,432 287,916 442,125
------------ ------------ ------------ ------------ ----------- -----------
Total net revenues........................... 97,762,256 79,951,877 71,694,541 20,791,458 26,570,969 22,234,695
COSTS AND EXPENSES
Air transportation.........................
Wages and benefits....................... 11,252,976 9,862,436 9,195,208 2,551,549 2,956,613 2,741,401
Aircraft fuel............................ 10,176,283 8,177,970 7,444,878 2,310,809 2,575,583 2,474,253
Aircraft maintenance..................... 7,489,323 6,551,792 6,033,739 1,810,075 1,688,364 1,902,116
Ground couriers and other outside
services............................... 14,817,610 12,369,737 11,399,012 3,192,743 5,065,305 3,334,892
Depreciation and amortization............ 8,363,196 8,510,214 7,391,127 2,274,088 2,321,569 1,859,910
Other.................................... 13,933,358 8,324,198 7,782,042 2,243,936 4,607,274 2,391,074
Fixed base operations...................... 1,100,741 1,033,068 955,792 309,352 175,485 282,927
Selling, general and administrative........ 8,550,125 11,875,089 13,418,129 1,915,960 2,271,286 2,094,822
------------ ------------ ------------ ------------ ----------- -----------
Total costs and expenses..................... 75,683,612 66,704,504 63,619,927 16,608,512 21,661,479 17,081,395
------------ ------------ ------------ ------------ ----------- -----------
Income from operations....................... 22,078,644 13,247,373 8,074,614 4,182,946 4,909,490 5,153,300
Interest expense............................. 108,894 1,072,390 1,468,964 9,623 195,935 768
Offering-related non-recurring expenses...... -- 13,704,398 -- -- -- --
------------ ------------ ------------ ------------ ----------- -----------
Income (loss) before income taxes............ 21,969,750 (1,529,415 ) 6,605,650 4,173,323 4,713,555 5,152,532
Provision for (benefit from) income taxes.... 8,767,000 1,764,000 (13,150 ) 1,688,000 1,860,000 2,060,000
Tax provision due to change in tax status.... -- 2,435,771 -- -- -- --
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
Net income (loss)............................ $13,202,750 $(5,729,186 ) $ 6,618,800 $ 2,485,323 $ 2,853,555 $ 3,092,532
------------ ------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ------------ ----------- -----------
Net income per common share.................. $ 1.05 $ 0.20 $ 0.23 $ 0.25
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income per share--assuming dilution...... $ 1.04 $ 0.20 $ 0.22 $ 0.24
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Pro forma information:
Historical income (loss) before income
taxes.................................... $(1,529,415 ) $ 6,605,650
Pro forma adjustments other than income
taxes.................................... 4,429,470 7,367,337
------------ ------------
Pro forma income before taxes.............. 2,900,055 13,972,987
Pro forma taxes on income.................. 5,618,437 5,589,195
------------ ------------
Pro forma net income (loss)................ $(2,718,382 ) $ 8,383,792
------------ ------------
------------ ------------
Pro forma net income (loss) per common
share--basic and assuming dilution....... $ (0.34 ) $ 1.43
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS THREE MONTHS
------------------------------------------ ENDED ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, ----------------------
1997 1996 1995 1996 1998 1997
------------ ------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(RESTATED FOR ECC POOLING) (UNAUDITED)
Operating activities
Net income (loss)..................... $13,202,750 $(5,729,186) $ 6,618,800 $2,485,323 $2,853,555 $3,092,532
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Offering related non-recurring, non-
cash expenses..................... -- 13,704,398 -- -- -- --
Depreciation........................ 8,431,420 8,584,888 7,475,979 2,289,798 2,350,451 2,301,896
Amortization of intangibles......... 352,902 351,327 435,902 67,230 112,615 67,230
Deferred taxes...................... 5,168,826 4,202,002 -- 1,688,000 -- 2,060,000
Provision for losses on accounts
receivable........................ 83,656 12,170 12,100 9,000 45,000 10,961
Deferred compensation............... -- 445,147 275,464 -- -- --
Loss (gain) on disposition of
assets............................ 615,979 81,931 73,472 (187,685) 36,570 12,791
Cash provided by (used in) operating
assets and liabilities:
Accounts receivable................. (2,588,765) (419,331) 428,617 996,052 (649,058) (1,754,674)
Spare parts and supplies............ (1,004,911) (892,318) (441,864) 183,633 (677,819) (398,816)
Prepaid expenses.................... (2,004,152) (679,264) (749,713) (697,759) (388,135) (792,039)
Accounts payable.................... (149,394) (698,536) 650,877 (1,224,659) 254,948 (346,481)
Accrued expenses.................... 857,276 (254,819) 180,554 (109,906) (723,008) (330,086)
Taxes payable....................... 2,386,256 -- -- -- 1,037,723 --
Salaries and related liabilities.... (546,168) (409,126) 258,789 413,225 (110,257) 307,243
Other, net.......................... (2,829,822) 22,801 45,538 (100,478) (862,172) (28,279)
------------ ------------- ------------- ------------ ---------- ----------
Net cash provided by operating
activities.......................... 21,975,853 18,322,084 15,264,515 5,811,774 3,280,413 4,202,278
Investing activities
Acquisition of Pacific Air Charter,
Inc., net of cash acquired.......... (240,323) -- -- -- -- --
Acquisition of Data Air Courier, Inc.,
net of cash acquired................ (4,122,922) -- -- -- (30,483) --
Acquisition of Midway Aviation, Inc.,
net of cash acquired................ (52,576) (2,810,416) -- -- -- --
Acquisition of Float Control, Inc.,
net of cash acquired................ -- -- -- (719,519) -- --
Purchases of property and equipment... (30,061,866) (14,341,182) (14,587,658) (9,168,991) (4,781,564) (4,448,484)
Payments for covenants not to
compete............................. (105,000) -- -- -- (119,275) (105,000)
Proceeds from sales of property and
equipment........................... 592,223 -- 321,059 2,230,000 74,200 427,293
------------ ------------- ------------- ------------ ---------- ----------
Net cash used in investing
activities.......................... (33,990,464) (17,151,598) (14,266,599) (7,658,510) (4,857,122) (4,126,191)
Financing activities
Proceeds from the issuance of Common
Shares--net......................... -- 82,697,107 -- -- -- --
Exercise of stock options............. 2,100,710 -- -- -- 1,183,319 35,000
Purchase of Donald Wright Warrant..... -- (29,901,785) -- -- -- --
Proceeds from shareholder notes
receivable.......................... -- 323,096 41,287 -- -- --
Net borrowings (repayments) under the
revolving credit facility........... 9,500,000 -- 1,350,000 -- (1,000,000) --
Repayment of long-term debt........... (1,560,205) (21,994,710) (10,328,874) (85,792) (5,751) (110,787)
Proceeds from the issuance of
long-term debt...................... 229,568 2,760,000 11,983,775 -- -- --
Purchase of treasury stock............ (5,761,988) -- -- -- -- --
Distributions to shareholders......... -- (23,807,806) (4,125,946) -- -- --
------------ ------------- ------------- ------------ ---------- ----------
Net cash provided by (used in)
financing activities................ 4,508,085 10,075,902 (1,079,758) (85,792) 177,568 (75,787)
------------ ------------- ------------- ------------ ---------- ----------
Net increase (decrease) in cash....... (7,506,526) 11,246,388 (81,842) (1,932,528) (1,399,141) 300
Cash and cash equivalents at beginning
of period........................... 9,631,663 317,803 399,645 11,564,191 2,125,137 9,631,663
------------ ------------- ------------- ------------ ---------- ----------
Cash and cash equivalents at end of
period.............................. $2,125,137 $11,564,191 $ 317,803 $9,631,663 $ 725,996 $9,631,963
------------ ------------- ------------- ------------ ---------- ----------
------------ ------------- ------------- ------------ ---------- ----------
</TABLE>
F-5
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON SHARES NOTES
-------------------- ADDITIONAL RECEIVABLE
NUMBER OF PAID-IN RETAINED TREASURY FROM
SHARES AMOUNT CAPITAL EARNINGS SHARES SHAREHOLDERS TOTAL
---------- -------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 1, 1994--restated for
ECC Pooling........................... 5,856,561 $ 58,566 $ 482,709 $ 18,164,186 $ -- $(364,383) $ 18,341,078
Net income.............................. -- -- -- 6,618,800 -- -- 6,618,800
Repayment of notes...................... -- -- -- -- -- 41,287 41,287
Shareholder distributions............... -- -- -- (4,125,946) -- -- (4,125,946)
---------- -------- ----------- ------------ ----------- ------------ ------------
Balance September 30, 1995.............. 5,856,561 58,566 482,709 20,657,040 -- (323,096) 20,875,219
Net loss................................ -- -- -- (5,729,186) -- -- (5,729,186)
Repayment of notes...................... -- -- -- -- -- 323,096 323,096
Shareholder distributions............... -- -- -- (2,807,806) -- -- (2,807,806)
Issuance of Common Shares, net of
Offering-related expenses............. 6,440,000 64,400 82,632,507 -- -- -- 82,696,907
AAA distributions related to S Corp
shareholders.......................... -- -- -- (21,000,000) -- -- (21,000,000)
Purchase of Donald Wright Warrant....... -- -- (29,901,785) -- -- -- (29,901,785)
Exercise of Jeffrey Wright Warrant...... 167,227 1,672 (1,472) -- -- -- 200
Reclassification of undistributed S Corp
retained earnings..................... -- -- 1,021,104 (1,021,104) -- -- --
Tax benefit related to cancellation of
Donald Wright Warrant................. -- -- 7,000,000 -- -- -- 7,000,000
Compensation expense related to stock
purchase agreements................... -- -- 14,830,039 -- -- -- 14,830,039
---------- -------- ----------- ------------ ----------- ------------ ------------
Balance September 30, 1996.............. 12,463,788 124,638 76,063,102 (9,901,056) -- -- 66,286,684
Net income.............................. -- -- -- 2,485,323 -- -- 2,485,323
Issuance of Common Shares--acquisition
of Float Control...................... 157,293 1,573 1,944,928 -- -- -- 1,946,501
---------- -------- ----------- ------------ ----------- ------------ ------------
Balance December 31, 1996............... 12,621,081 126,211 78,008,030 (7,415,733) -- -- 70,718,508
Net income.............................. -- -- -- 13,202,750 -- -- 13,202,750
ECC cash for fractional shares.......... -- -- (29) -- -- -- (29)
Exercise stock options.................. 128,525 1,285 1,821,536 -- -- -- 1,822,821
Exercise stock options with treasury
shares................................ -- -- (103,483) -- 328,614 -- 225,131
Issue shares for Associate Stock
Purchase Program...................... 3,794 38 52,749 -- -- -- 52,787
Purchase treasury shares................ -- -- -- -- (5,761,988) -- (5,761,988)
---------- -------- ----------- ------------ ----------- ------------ ------------
Balance December 31, 1997............... 12,753,400 127,534 79,778,803 5,787,017 (5,433,374) -- 80,259,980
Net income (unaudited).................. -- -- -- 2,853,555 -- -- 2,853,555
Exercise stock options with treasury
shares................................ -- -- (500,843) -- 1,608,637 -- 1,107,794
Issue common shares for Associate Stock
Purchase Program...................... -- -- 3,508 -- 72,017 -- 75,525
---------- -------- ----------- ------------ ----------- ------------ ------------
Balance March 31, 1998 (unaudited)...... 12,753,400 $127,534 $79,281,468 $ 8,640,572 $(3,752,720) -- $ 84,296,854
---------- -------- ----------- ------------ ----------- ------------ ------------
---------- -------- ----------- ------------ ----------- ------------ ------------
</TABLE>
F-6
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
AirNet Systems, Inc. and its subsidiaries (the "Company") operate 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 requiring late night pickup with early morning delivery of small
packages. The Company also offers retail aviation fuel sales and related ground
services for customers at its Columbus, Ohio facility.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. 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 preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated 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
picked up for delivery to their destination. Revenue on fixed based operations
is recognized when the maintenance services are complete or fuel is delivered.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments which are
unrestricted as to withdrawal or use, and which have an original maturity of
three months or less. Cash equivalents are stated at cost, which approximates
market value.
ACCOUNTS RECEIVABLE
For 1997, approximately 83% and 63% 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. Engine, 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,
F-7
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
leasehold improvements and vehicles) are depreciated using the straight-line
method over estimated useful lives of the assets, as summarized below:
<TABLE>
<CAPTION>
<S> <C>
Airframes...................................................................... 15 years
Buildings...................................................................... 30 years
Other flight equipment......................................................... 2 - 5 years
Other property and equipment................................................... 3 - 10 years
</TABLE>
During 1997, the Company made certain changes in its estimated useful lives
and the salvage values of its aircraft. The changes increased 1997 net income by
$1,050,000, or $.08 per share. These changes were made to better reflect how the
aircraft are expected to be used over time and the continued industry trend of
increased market values associated with the types and models of aircraft the
Company owns and operates.
PREPAID EXPENSES
The Company prepays certain engine repair and overhaul services under
manufacturer service plans. Such prepaid balances were $2,299,477 and $1,543,832
at December 31, 1997 and 1996, respectively, and are included with prepaid
expenses on the balance sheet.
START-UP COSTS
The Company capitalizes costs related to the start-up activities associated
with new business initiatives, such as introduction of new services. Costs
associated with these initiatives, such as personnel costs, outside services and
administrative support services are capitalized as start-up costs. Upon
completion of the start-up phase, these costs will be amortized over sixty
months. At December 31, 1997, the Company had $2,522,338 of start-up costs
recorded on its balance sheet included in other assets.
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. Upon completion of
the Company's initial public offering ("the "Offering") in May 1996, the Company
ceased to qualify as an S Corporation and was subject to corporate income taxes.
Under the liability method of accounting for income taxes, deferred tax
liabilities and assets are determined based on the differences between the
financial reporting and tax bases of assets and liabilities using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
INTANGIBLES
Intangibles include non-competition agreements with former competitors and
goodwill generated through the acquisition of companies. The balances are being
amortized on the straight-line method over periods ranging from one to 25 years.
The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable,
F-8
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as determined based on the undiscounted cash flows of the entity acquired over
the remaining amortization period, the Company's carrying value of the goodwill
will be reduced by the estimated shortfall of cash flows.
STATEMENT OF CASH FLOWS
Cash paid for interest was $108,894, $1,239,871 and $1,264,522 for the years
ended December 31, 1997, September 30, 1996 and 1995, respectively. No interest
was paid in the three months ended December 31, 1996. Cash paid for taxes was
$1,311,785 for the year ended December 31, 1997 and $236,681 for the three
months ended December 31, 1996.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, The Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income", and Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information". Both
Statements are effective for the Company in 1998. Statement No. 130 requires
separate reporting of certain items affecting shareholders' equity outside of
those included in arriving at net income. These items are already disclosed by
the Company. Statement No. 131 establishes requirements for reporting
information about operating segments in annual and interim statements. This
statement may require a change in the Company's financial reporting; however,
the extent of this change, if any, has not been determined.
2. INITIAL PUBLIC OFFERING
On May 29, 1996, the registration statement related to the Company's initial
public offering was declared effective by the SEC and its stock began trading on
May 31, 1996. Pursuant to the terms of the Offering, the Company issued
6,440,000 shares of common stock, including 840,000 shares issued through the
underwriters' full exercise of their over-allotment option on June 11, 1996, at
$14.00 per share. Net proceeds of the offering totaled $83,848,800 before
deducting expenses of $1,151,893. The following is a summary of transactions
related to the Company's public offering:
AAA DISTRIBUTIONS
Prior to the Offering, the Company made $21,000,000 in distributions to the
S Corporation shareholders for the undistributed earnings associated with the
Company's S Corporation status (referred to as "AAA distributions"). These
distributions were made through the Company's issuance of promissory notes to
such shareholders. The notes were subsequently repaid with the Offering
proceeds.
TERMINATION OF STOCK PURCHASE AGREEMENTS
On April 1, 1994, the Company entered into stock purchase agreements with
seven executive officers, in which these officers purchased an aggregate of
1,484,908 shares of common stock for an aggregate purchase price of $364,000,
paid through the delivery of promissory notes. Upon completion of the Offering,
the stock purchase agreements were terminated and the seven officers repaid the
balances due on the notes totaling $283,856. The transaction resulted in a
decrease in notes receivable from shareholders and a corresponding increase in
cash for the year ended September 30, 1996.
F-9
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INITIAL PUBLIC OFFERING (CONTINUED)
In addition, as a result of the termination of the stock purchase
agreements, the Company incurred a non-recurring, non-cash charge of
$14,830,039, which increased paid-in capital. The charge is not tax deductible
and represents a portion of the $21,000,000 of AAA distributions 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 of common stock held by the officers at the termination date of
the agreements. This distribution of undistributed earnings to the former S
Corporation shareholders also eliminated a $1,654,328 deferred compensation
liability related to the stock purchase agreements and resulted in a
non-recurring, non-cash reduction of expense in the statement of operations for
the year ended September 30, 1996.
TERMINATION OF DEFERRED COMPENSATION AGREEMENTS
Prior to the Offering, the Company entered into deferred compensation
agreements with certain executive officers, pursuant to which the Company was
obligated to pay these officers deferred compensation equal to a percentage of
the increase on the Company's net book value. Upon completion of the Offering,
the officers agreed to terminate the agreements and forgive the remaining
balances totaling $2,029,675 due to them. This transaction resulted in a
decrease of the deferred compensation liability and a non-recurring, non-cash
reduction of expense in the statement of operations for the year ended September
30, 1996.
TERMINATION OF THE WRIGHT AGREEMENT AND PURCHASE OF WARRANTS
In 1988, the Company purchased certain assets of Wright International
Express, Inc. ("WIE"). In consideration for the agreement of WIE and for Donald
Wright not to compete with the Company, the Company entered into the Wright
Agreement. The Wright Agreement, as amended, required annual payments tied to
the cash flows and the debt to equity ratio of the Company, to Donald Wright and
certain designees. In addition, the Company issued a warrant to Donald Wright to
purchase 2,483,537 shares of common stock and a warrant to Jeffrey Wright
(Donald Wright's son) to purchase 167,227 shares of common stock. Both warrants
were exercisable upon the closing of a public offering. Upon the closing of the
Offering, the Company purchased the Donald Wright Warrant for $29,901,785 and
canceled the warrant. Gerald G. Mercer, the Company's Chairman and Chief
Executive Officer purchased the Jeffrey Wright Warrant for $2,013,413 and
exercised it subsequent to the completion of the Offering.
In connection with the repurchase and cancellation of the Donald Wright
Warrant and the corresponding tax treatment, the Company has recognized a
related tax benefit estimated to be approximately $7,000,000. The benefit was
realized as cash savings by offsetting subsequent tax liabilities. The tax
benefit will have no effect on the Company's current or future statements of
operations. The benefit has been reflected as additional paid-in capital on the
balance sheet.
Upon cancellation of the Donald Wright Warrant, the Wright Agreement was
also terminated in its entirety and no further payments will be made. In
addition, the remaining net book value of a covenant not to compete totaling
$2,558,362, which was recorded at the inception of the Wright Agreement, was
also written off, resulting in a non-recurring, non-cash expense for the year
ended September 30, 1996.
F-10
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INITIAL PUBLIC OFFERING (CONTINUED)
STATEMENT OF OPERATIONS IMPACT OF OFFERING TRANSACTIONS
The following is a summary of the Offering-related transactions and their
effect on the statement of operations for the year ended September 30, 1996:
<TABLE>
<CAPTION>
INCREASE/(DECREASE)
TO INCOME
------------------
<S> <C>
Compensation expense related to the stock purchase agreements................................. $ (14,830,039)
Write-off of Wright Agreement covenant not to compete......................................... (2,558,362)
Elimination of deferred compensation liability related to the stock purchase agreements....... 1,654,328
Elimination of the liability for the deferred compensation agreements......................... 2,029,675
------------------
$ (13,704,398)
------------------
------------------
</TABLE>
3. ACQUISITIONS
Effective July 31, 1997, the Company acquired all of the outstanding common
shares of Data Air Courier, Inc. ("Data Air"), whose primary business involves
the nationwide transportation of canceled checks between clearing banks through
the use of company-owned ground vehicles, independent agents and commercial
airlines. The Company accounted for the acquisition under the purchase method of
accounting. The purchase price of the acquisition totaled approximately
$4,120,000 and resulted in goodwill of approximately $3,684,000, which will be
amortized over 25 years. The Company also entered into a five-year covenant not
to compete for $50,000. The acquired assets and assumed liabilities, including
goodwill, have been recorded at their estimated fair values as of July 31, 1997.
The Company's consolidated financial statements include the results of
operations of Data Air since the purchase date. The following are pro forma
results of operations for AirNet and Data Air as though they were combined as of
the beginning of the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------
DECEMBER 31, SEPTEMBER 30, THREE MONTHS ENDED
1997 1996 DECEMBER 31, 1996
-------------- ------------- -------------------
<S> <C> <C> <C>
Net revenues................................................. $ 106,787,351 $ 95,381,318 $ 24,534,388
Net income (loss)............................................ 12,878,577 (4,778,345) 2,442,171
Net income per share......................................... $ 1.02 -- $ .19
Net income per share--assuming dilution...................... $ 1.01 -- $ .19
Pro forma net income (loss)--unaudited....................... -- $ (1,767,541) --
Pro forma net income (loss) per share--basic and assuming
dilution--unaudited........................................ -- $ (.22) --
</TABLE>
Effective June 6, 1997, the Company acquired all of the outstanding shares
of Pacific Air Charter, Inc. ("PAC") for approximately $450,000 in cash. PAC
operates a fleet of eight aircraft, primarily transporting canceled checks
between clearing banks along the West Coast. The Company accounted for the
acquisition under the purchase method of accounting. The purchase resulted in
goodwill of approximately $171,445, which will be amortized over 25 years. The
Company also entered into a five year covenant not to compete for $40,000. The
acquired assets and assumed liabilities, including goodwill, have been recorded
at their
F-11
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
estimated fair values as of June 6, 1997. The results of PAC's operations since
the effective date of the purchase have been included in the Company's
accompanying financial statements.
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 include 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
Company also entered into three covenant not to compete agreements for a total
of $205,000, which will be amortized over three- and five-year periods. The
financial statements of the Company have been restated to include ECC for all
periods presented.
Effective October 24, 1996, the Company acquired Float Control, Inc. for
157,293 Common Shares and approximately $720,000 in cash. Float Control was
previously partially owned by certain executive officers of the Company, among
others, and owns a 19% interest in the Check Exchange System Co., an industry
leader in payment initiatives. Float Control accounts for its investment in the
Check Exchange System under the equity method of accounting. At December 31,
1997, Float Control's recorded investment in the Check Exchange System was
$2,940,000.
Effective September 26, 1996, the Company acquired all of the outstanding
shares of common stock of Midway Aviation, Inc. ("Midway"), a regional air
courier located in Dallas, Texas. The Company accounted for the acquisition
under the purchase method of accounting. The purchase price of the acquisition
totaled approximately $3,100,000 in cash and resulted in goodwill of $1,201,080,
which will be amortized over 25 years, and covenants not to compete totaling
$84,000, which will be amortized over the terms of the agreements ranging from
one to five years. The acquired assets and assumed liabilities, including
goodwill, have been recorded at their estimated fair values as of the purchase
date. The Company's consolidated financial statements include the results of
operations of Midway since the purchase date.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Flight equipment.............................................. $ 100,141,574 $ 82,014,487
Other property and equipment.................................. 14,812,777 6,817,332
-------------- -------------
114,954,351 88,831,819
Less accumulated depreciation................................. 47,375,818 43,173,331
-------------- -------------
$ 67,578,533 $ 45,658,488
-------------- -------------
-------------- -------------
</TABLE>
F-12
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
The Company had borrowings as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
Term notes.......................................................... $ 229,568 $ 110,787
Revolving credit facility........................................... 9,500,000 --
------------ ----------
9,729,568 110,787
Current portion of notes payable.................................... 23,923 --
------------ ----------
$ 9,705,645 $ 110,787
------------ ----------
------------ ----------
</TABLE>
Simultaneously with the closing of the Offering, the Company entered into a
new credit agreement to replace the existing agreement. The new credit agreement
provides the Company with a $50,000,000 unsecured revolving credit facility. The
agreement has a five-year term and is scheduled to expire on June 5, 2001. The
agreement may be extended in one-year increments at any point through June 5,
2001. The agreement bears interest at the Company's option of a fixed rate
determined by the Eurodollar rate, a negotiated rate or a floating rate. The
floating rate is based on the sum of (a) a margin plus (b) the greater of (i)
the prime rate and (ii) the sum of .5% plus the federal funds rate in effect
from time to time. The new 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 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 of acquisitions with consideration of more than $3,000,000.
In conjunction with purchase of the Company's facility in October, 1997, the
Company incurred a $263,297 note payable. The terms of the note require monthly
principal and interest payments of $4,167 through 2005 and the note is
collateralized by the facility.
6. 1996 INCENTIVE STOCK PLAN
In May 1996, the Company adopted the AirNet Systems, Inc. 1996 Incentive
Stock Plan (the "Plan"). The Plan provides for the issuance of incentive and
non-qualified stock options, restricted stock and performance shares and a stock
purchase plan (collectively "Awards"). The Plan also provides for each outside
director to receive 2,000 stock options annually if certain requirements are
met. The maximum number of newly issued shares available for issuance under the
Plan is 1,150,000 through 2006. The Plan is administered by the Compensation
Committee of the Board of Directors, which determines the terms and conditions
applicable to the Awards. The exercise price of each option equals the market
price of the Company's stock on the date of grant and an option's maximum term
is ten years. Option vesting periods range from no vesting to three years of
full-time service with the Company.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its associate stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock Based Compensation", requires use of
option valuation models that were not developed for use in valuing associate
stock options. Under APB 25, because the exercise price of the Company's
associate stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-13
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. 1996 INCENTIVE STOCK PLAN (CONTINUED)
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its associate stock options under the fair value method of that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 1997 and 1996: risk free interest rates of 6.5%, volatility
factors of the expected market price of the Company's common shares of 59.1% and
a weighted average expected life of the options of 7.88 years. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
associate stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its associate stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------
DECEMBER 31, SEPTEMBER 30, THREE MONTHS ENDED
1997 1996 DECEMBER 31, 1996
------------- ------------- -------------------
<S> <C> <C> <C>
Net income (loss), adjusted for FAS 123....................... $ 11,586,756 $(8,711,077) $ 2,466,746
Net income (loss) per share, adjusted for FAS 123:
Basic....................................................... $ .92 $ (1.08) $ .20
Assuming dilution........................................... $ .91 $ (1.08) $ .20
</TABLE>
A summary of the Company's stock option activity and related information
follows (in thousands, except per share price data):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------ THREE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1996 DECEMBER 31, 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 523 $ 14.18 -- $ -- -- $ --
Granted.................................. 282 14.40 530 14.18 527 14.18
Exercised................................ 145 14.17 -- -- -- --
Canceled................................. 9 14.12 3 14.00 4 14.00
--- ------ --- ------ --- ------
Outstanding at end of period............. 651 14.28 527 14.18 523 14.18
Options exercisable at end
of period.............................. 587 14.28 500 14.19 495 14.19
Weighted average fair value
of options granted during
the period............................. -- $ 9.96 -- $ 9.81 -- $ 0.00
</TABLE>
F-14
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. 1996 INCENTIVE STOCK PLAN (CONTINUED)
options outstanding as of December 31, 1997 ranged from $14 to $17 per
share. The weighted average remaining contractual life of those options is 7.88
years.
7. LEASE OBLIGATIONS
The Company leased certain aircraft under noncancellable operating leases
which expired in 1997. Total rental expense under the flight equipment operating
leases was $104,184, $772,900 and $1,042,653, for the years ended December 31,
1997, September 30, 1996 and 1995, respectively and $75,841 for the three months
ended December 31, 1996.
The Company also leases facility space at various locations throughout the
United States. The Company incurred lease expense of $1,149,391, $859,709 and
$784,283 for the years ended December 31, 1997, September 30, 1996 and 1995,
respectively and $227,694 for the three months ended December 31, 1996. As of
December 31, 1997, future minimum lease payments by year and in the aggregate
under noncancellable operating leases with initial or remaining terms exceeding
one year are as follows: 1998-- $129,455; 1999--$105,697; and 2000--$23,493.
8. RELATED PARTY TRANSACTIONS
In October 1997, the Company purchased its corporate and operational
headquarters for $4.1 million from its President and majority shareholder, which
represented fair market value as determined by an independent appraisal. In
addition to the building, the Company assumed the shareholder's land lease with
The Port Authority of Columbus which expires on December 31, 2009 and contains a
20-year renewal option. Total rent expense incurred under the facility lease
prior to the Company's purchase from this shareholder was $864,336, $887,053 and
$707,305 for the years ended December 31, 1997 and September 30, 1996 and 1995,
respectively, and $253,584 for the three months ended December 31, 1996. The
Company believes the terms of this lease and purchase were no less favorable
than those reasonably available from unaffiliated third parties.
During fiscal 1996, the Company made improvements to its corporate and
operational headquarters, which was leased from its majority shareholder. The
Company paid approximately $775,000 for the improvements. The balance was
repaid, in full, by the majority shareholder in fiscal 1996.
The Company historically leased certain aircraft from Dwarf Leasing, Inc., a
corporation owned by certain executive officers of the Company. Total lease
expenses were $20,800 and $99,000 for the years ended September 30, 1996 and
1995. In fiscal 1995 and 1996, the Company purchased these aircraft for $250,000
and $205,000, respectively. The Company believes the terms of such leases and
purchases were no less favorable than those reasonably available from
unaffiliated third parties.
9. RETIREMENT PLAN
The Company has a 401(k) retirement savings plan. All associates who have
completed a minimum of six months of service may contribute up to 15% of their
eligible annual earnings to the plan. The Company may elect, at its discretion,
to make matching and profit-sharing contributions. The Company's contribution
expense related to the plan totaled approximately $379,000, $393,000, and
$355,000 for the years ended December 31, 1997, September 30, 1996 and 1995,
respectively and $79,000 for the three months ended December 31, 1996.
F-15
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1996 1995 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current:
Federal........................ $3,058,448 $ -- $ -- $ --
State and local................ 539,726 -- -- --
------------ ------------- ------------- -------------
3,598,174 -- -- --
Deferred:
Federal........................ 4,393,502 1,524,000 (13,150) 1,441,694
State and local................ 775,324 240,000 -- 246,306
------------ ------------- ------------- -------------
5,168,826 1,764,000 (13,150) 1,688,000
------------ ------------- ------------- -------------
$8,767,000 $ 1,764,000 $ (13,150) $ 1,688,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Long-term deferred tax assets:
Tax benefit of net operating loss carry forwards................ $ -- $ 4,115,057
------------ ------------
Long-term deferred tax liabilities:
Property and equipment.......................................... $ 4,280,231 $ 3,397,062
Other........................................................... 150,307 --
------------ ------------
Total long-term deferred tax liabilities.......................... $ 4,430,538 $ 3,397,062
------------ ------------
------------ ------------
Current deferred tax assets:
Health insurance reserves....................................... $ 72,000 $ 72,000
Other........................................................... 49,147 44,005
------------ ------------
Total current assets.............................................. 121,147 116,005
Current deferred tax liabilities:
Prepaid expenses................................................ 350,435 233,000
Trade receivables............................................... -- 92,000
------------ ------------
Total current liabilities......................................... 350,435 325,000
------------ ------------
Net current deferred tax liabilities.............................. $ 229,288 $ 208,995
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The provision for income taxes consist of federal and state deferred taxes.
Differences arising between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income (loss)
before income taxes are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1996 1995 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Tax expenses (benefit) at federal statutory rate on
pretax income (loss)............................... $7,469,715 $ (499,000) $ 2,245,921 $ 1,418,930
Add (deduct):
Nondeductible Offering-related expenses............ -- 3,790,000 -- --
S Corporation status benefits...................... -- (1,925,000) (2,251,977) --
State taxes, net of Federal benefit................ 1,260,859 240,000 -- 246,306
Other.............................................. 36,426 158,000 (7,094) 22,764
------------ ------------- ------------- -------------
Total Taxes.......................................... $8,767,000 $ 1,764,000 $ (13,150) $ 1,688,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
Upon the completion of the Offering, the Company ceased to qualify as an S
Corporation and was subject to corporate income taxes. The Company recorded
current tax expense of $1,764,000 related to its operations from May 30, 1996 to
September 30, 1996, which includes the deductibility of the $2,558,362 write-off
of the Wright Agreement covenant not to compete. In addition, the Company
recorded an additional net tax liability of approximately $2,436,000 resulting
from the cumulative effect of deferred income taxes attributable to its change
in tax status (from S Corporation to C Corporation).
11. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement No. 128 replaced the previously reported primary
and fully diluted net income per share with basic and diluted net income per
share. Unlike primary net income per share, basic net income per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
net income per share is very similar to the previously reported fully diluted
net income per share. All net income per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement
F-17
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME PER SHARE (CONTINUED)
No. 128 requirements. The following table sets forth the computation of basic
and diluted net income per share:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 30 SEPTEMBER 30, DECEMBER 31, --------------------------
1997 1996 1995 1996 1998 1997
------------ ------------ ------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net income...................... $13,202,750 -- -- $2,485,323 $ 2,853,555 $ 3,092,532
Pro forma net income (loss)--
unaudited..................... -- $(2,718,382) $ 8,383,792 -- -- --
Denominator:
Basic--weighted average shares
outstanding................... 12,577,487 8,055,490 5,856,561 12,580,048 12,529,327 12,621,470
Diluted.........................
Stock options--associates,
officers and directors........ 128,821 -- -- -- 252,273 15,640
Convertible warrants............ -- 435,742 -- -- -- --
Adjusted weighted average shares
outstanding................... 12,706,308 8,491,232 5,856,561 12,580,048 12,781,600 12,637,110
Net income per share.............. $ 1.05 -- -- $ .20 $ .23 $ .25
Net income per share--assuming
dilution........................ $ 1.04 -- -- $ .20 $ .22 $ .24
Pro forma net income (loss) per
share--basic and assuming
dilution--unaudited............. -- $ (.34) $ 1.43 -- -- --
</TABLE>
12. 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.
F-18
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. THREE MONTHS ENDED DECEMBER 31, 1995 DATA (UNAUDITED)
Effective May 14, 1997, the Company elected to change its year end from
September 30 to December 31. Therefore, the three months ended December 31, 1996
has been treated as a transition period. The following is a summary of the
financial results for the three months ended December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Net revenues....................................................................................... $ 18,397,436
Operating income................................................................................... 2,193,706
Net income......................................................................................... 1,819,107
Pro forma net income............................................................................... 1,982,117
Pro forma net income per share (basic and assuming dilution)....................................... $ .34
Weighted average shares outstanding................................................................ 5,856,561
</TABLE>
14. PRO FORMA INFORMATION (UNAUDITED)
PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The pro forma statements of operations information presents the pro forma
effects on the historical financial information reflecting certain transactions
as if they had occurred as of the beginning of the periods presented. The
following adjustments have been reflected in the pro forma statements of
operations:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
The elimination of interest expense related to the debt repaid........................ $ 1,038,710 $ 1,452,066
The elimination of payments under the Wright Agreement................................ 750,527 2,074,004
The elimination of amortization expense related to the covenant not to compete asset
write-off........................................................................... 169,148 253,722
The elimination of deferred compensation expense for certain officers................. 135,041 307,695
A reduction of compensation expense for executive officers based on new employment
agreements.......................................................................... 346,699 952,387
The elimination of employee stock purchase agreement expense for certain officers..... 1,989,345 2,327,463
------------ ------------
Total pro forma adjustments other than income taxes................................... $ 4,429,470 $ 7,367,337
------------ ------------
------------ ------------
</TABLE>
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share amounts are based on the weighted
average number of shares of common stock outstanding during the periods,
including effect of the 2,483,537 and 167,227 shares related to the Donald
Wright and Jeffrey Wright Warrants, respectively.
Supplemental pro forma net income (loss) per share would have been ($0.25)
and $.85 for the years ended September 30, 1996 and 1995, respectively, based on
the weighted average number of shares of common stock outstanding during the
periods, plus the number of shares used to repay debt.
F-19
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS
Effective February 10, 1998, the Company entered into a letter of intent to
acquire Q International Courier, Inc., an international overnight delivery
company, for approximately 3,391,000 common shares. The transaction is subject
to satisfactory execution of a definitive agreement and certain consents,
opinions and approvals, including approval of both companies' shareholders.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders
Q International Courier, Inc.
We have audited the consolidated balance sheets of Q International Courier,
Inc. and its subsidiaries (the "Company") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997, the six months ended December 31,
1996 and the years ended June 30, 1996 and 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Q International Courier, Inc. and its subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1997, the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 16, 1998
F-21
<PAGE>
Q INTERNATIONAL COURIER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------- MARCH 31,
1997 1996 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 1,142 $ 237 $ 303
Marketable securities................................... 332 341 287
Accounts receivable, net of allowance for doubtful
accounts of $281 in 1997, $321 in 1996 and $311 in
1998.................................................. 14,773 8,361 15,052
Due from affiliate...................................... -- 2,377 --
Due from stockholders................................... 601 529 1,263
Prepaid expenses and other current assets............... 1,394 871 1,760
------------ ------------ ------------
Total current assets...................................... 18,242 12,716 18,665
Property and equipment, net of accumulated depreciation
and amortization........................................ 2,902 1,900 3,026
Intangible assets, net of accumulated amortization........ 11,445 778 11,317
Other assets.............................................. 75 76 75
------------ ------------ ------------
Total assets.............................................. $ 32,664 $ 15,470 $ 33,083
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 5,950 $ 5,100 $ 7,025
Current portion of capital lease obligations............ 301 191 306
Accounts payable........................................ 2,470 1,177 3,200
Accrued expenses........................................ 6,578 4,441 6,152
Notes payable to stockholder............................ 2,541 -- 296
Deferred income taxes................................... 450 220 570
------------ ------------ ------------
Total current liabilities................................. 18,290 11,129 17,549
Capital lease obligations, net of current portion......... 850 671 773
Notes payable to stockholder............................ 1,304 -- 1,228
Deferred compensation..................................... 104 -- 167
Commitments and contingencies
Stockholders' equity:.....................................
Common stock--$1 par value; 20,000 shares authorized,
12,277, 12,277 and 10,000 shares issued and
outstanding at March 31, 1998 and December 31, 1997
and 1996, respectively................................ 12 10 12
Class A common stock--$1 par value; 3,000 shares
authorized, no shares issued and outstanding at March
31, 1998 and December 31, 1997 and 1996............... -- -- --
Additional paid-in capital.............................. 6,507 9 6,507
Retained earnings....................................... 5,527 3,626 6,722
Unrealized gain on marketable securities................ 70 25 125
------------ ------------ ------------
Total stockholders' equity................................ 12,116 3,670 13,366
------------ ------------ ------------
Total liabilities and stockholders' equity................ $ 32,664 $ 15,470 $ 33,083
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
Q INTERNATIONAL COURIER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1997 1996 1996 1995 1998 1997
------------ ------------ ----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $ 67,277 $ 24,628 $ 41,748 $ 30,184 $ 21,985 $ 12,702
Cost of operations........... 49,275 18,580 31,320 22,411 16,031 9,207
------------ ------------ ----------- ----------- ------------- -------------
Gross profit................. 18,002 6,048 10,428 7,773 5,954 3,495
------------ ------------ ----------- ----------- ------------- -------------
Expenses:
Selling.................... 5,788 2,225 3,562 2,702 1,727 1,262
General and
administrative........... 9,411 3,477 5,745 5,235 2,621 1,899
------------ ------------ ----------- ----------- ------------- -------------
Total expenses............... 15,199 5,702 9,307 7,937 4,348 3,161
------------ ------------ ----------- ----------- ------------- -------------
Income (loss) from
operations................. 2,803 346 1,121 (164) 1,606 334
Interest expense, net........ 512 160 292 116 171 83
------------ ------------ ----------- ----------- ------------- -------------
Income (loss) before
provision for income
taxes...................... 2,291 186 829 (280) 1,435 251
Provision for income taxes... 390 20 83 35 240 35
------------ ------------ ----------- ----------- ------------- -------------
Net income (loss)............ $ 1,901 $ 166 $ 746 $ (315) $ 1,195 $ 216
------------ ------------ ----------- ----------- ------------- -------------
------------ ------------ ----------- ----------- ------------- -------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
Q INTERNATIONAL COURIER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
SHARES ADDITIONAL RETAINED COMPREHENSIVE STOCKHOLDERS'
ISSUED AMOUNT PAID-IN CAPITAL EARNINGS INCOME (LOSS)* EQUITY
--------- ----------- --------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 10,000 $ 10 $ 9 $ 3,029 $ -- $ 3,048
Net loss.......................... -- -- -- (315) -- (315)
--------- --- ------ ----------- ----- ------------
Balance, June 30, 1995.............. 10,000 10 9 2,714 -- 2,733
Net income.......................... -- -- -- 746 -- 746
Adjustment to unrealized gains
(losses) on marketable
securities........................ -- -- -- -- 34 34
--------- --- ------ ----------- ----- ------------
Balance, June 30, 1996.............. 10,000 10 9 3,460 34 3,513
Net income.......................... -- -- -- 166 -- 166
Adjustment to unrealized gains
(losses) on marketable
securities........................ -- -- -- -- (9) (9)
--------- --- ------ ----------- ----- ------------
Balance, December 31, 1996.......... 10,000 10 9 3,626 25 3,670
Net income.......................... -- -- -- 1,901 -- 1,901
Issuance of common stock for
acquisitions...................... 2,277 2 6,498 -- -- 6,500
Adjustment to unrealized gains
(losses) on marketable
securities........................ -- -- -- -- 45 45
--------- --- ------ ----------- ----- ------------
Balance, December 31, 1997.......... 12,777 12 6,507 5,527 70 12,116
Net income.......................... -- -- -- 1,195 -- 1,195
Adjustments to unrealized gains
(losses) on marketable
securities........................ -- -- -- -- 55 55
--------- --- ------ ----------- ----- ------------
Balance, March 31, 1998
(Unaudited)....................... 12,277 $ 12 $ 6,507 $ 6,722 $ 125 $ 13,366
--------- --- ------ ----------- ----- ------------
--------- --- ------ ----------- ----- ------------
</TABLE>
- ------------------------
*Represents unrealized gains (losses) on available-for-sale securities.
See accompanying notes.
F-24
<PAGE>
Q INTERNATIONAL COURIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1997 1996 1996 1995 1998 1997
------------ ------------ ----------- -------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)................. $ 1,901 $ 166 $ 746 $ (315) $ 1,195 $ 216
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and
amortization................ 1,030 363 567 382 337 186
Accretion of interest
expense..................... 31 -- -- -- 29 --
Deferred income taxes......... 116 (130) 57 23 120 35
Provision for doubtful
accounts.................... -- 45 90 205 30 11
Deferred compensation......... 104 -- -- -- 63 --
Changes in operating assets
and liabilities:
Accounts receivable......... (1,200) (340) (616) (139) (309) 244
Prepaid expenses and other
current assets............ (183) (396) (81) (196) (366) 163
Other assets................ 6 (24) (22) -- -- --
Accounts payable and accrued
expenses.................. 1,145 2,383 449 (372) 304 139
------------ ------------ ----------- ------- ------------- -------------
Net cash provided by (used in)
operating activities............ 2,950 2,067 1,190 (412) 1,403 994
------------ ------------ ----------- ------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of businesses, net of
cash acquired................... (645) (181) (669) -- (4) --
Repayment of note receivable...... -- -- -- 200
Sale (purchase) of marketable
securities, net................. 54 -- (164) (12) 100 1
Purchase of property and
equipment, net.................. (972) (243) (369) (588) (329) (220)
Due from stockholders............. (72) (263) (172) 52 (662) (39)
Due (from) to affiliate, net...... 400 (949) (1,154) (238) -- 1,934
Property and equipment deposit,
net............................. (174) (95) 165 (165) -- --
------------ ------------ ----------- ------- ------------- -------------
Net cash used in investing
activities...................... (1,409) (1,731) (2,363) (751) (895) 1,676
------------ ------------ ----------- ------- ------------- -------------
</TABLE>
F-25
<PAGE>
Q INTERNATIONAL COURIER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1997 1996 1996 1995 1998 1997
------------ ------------ ----------- -------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from bank loans.......... $ 15,594 $ 5,450 $ 10,350 $ 5,800 $ 4,250 $ 1,750
Principal payments on bank
loans........................... (16,000) (6,250) (8,350) (4,900) (3,175) (3,900)
Principal payments on notes
payable to stockholders......... -- -- -- -- (2,350) --
Principal payments on capital
lease obligations............... (230) (85) (123) (93) (72) (47)
------------ ------------ ----------- ------- ------------- -------------
Net cash provided by (used in)
financing activities............ (636) (885) 1,877 807 (1,347) (2,197)
------------ ------------ ----------- ------- ------------- -------------
Net change in cash and cash
equivalents..................... 905 (549) 704 (356) (839) 473
Cash and cash equivalents at
beginning of period............. 237 786 82 438 1,142 237
------------ ------------ ----------- ------- ------------- -------------
Cash and cash equivalents at end
of period....................... $ 1,142 $ 237 $ 786 $ 82 $ 303 $ 710
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the year for
interest........................ $ 499 $ 160 $ 288 $ 122 $ 258 $ 83
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
Cash paid during the year for
income taxes.................... $ 51 $ 23 $ 9 $ 16 $ 64 $ 5
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
Fixed asset additions financed
under capital leases............ $ 519 $ 41 $ 705 $ 316 $ -- $ --
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
Accrued purchase of intangible
assets.......................... $ -- $ -- $ 181 $ -- $ -- $ --
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
Issuance of common stock for
acquisitions.................... $ 6,500 $ -- $ -- $ -- $ -- $ --
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
Debt incurred for acquisitions.... $ 3,814 $ -- $ -- $ -- $ -- $ --
------------ ------------ ----------- ------- ------------- -------------
------------ ------------ ----------- ------- ------------- -------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Q
International Courier, Inc. and, in 1997 and 1998, its wholly-owned
subsidiaries, Sterling Courier, Inc. ("Sterling"), Straightline Courier, Inc.
and QuickStat, Inc. (collectively referred to as the "Company"). All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
The Company is a domestic and international courier. The Company's customer
base is composed of various customers within several industries, and such
customers are primarily located throughout the United States.
Prior to 1997, the Company had two affiliates, Genesis Worldwide Courier
("Genesis") and Quick International Courier of Illinois, Inc. ("Illinois"),
which were related by common ownership of three individuals. Genesis was owned
50% by another individual and Illinois was owned 20% by another individual.
Effective February 1997, Illinois was merged into the Company and has been
accounted for in a manner similar to that of a pooling of interest. Accordingly,
the operations of Illinois have been included in the Company's results of
operations as if the acquisition occurred at the beginning of the year, and for
all prior years presented.
Effective August 31, 1997, the 50% stockholder of Genesis sold his interest
to two of the three remaining Genesis stockholders and Genesis was merged into
the Company. In connection with the merger of Genesis the Company issued 1,111
shares of the Company's common stock valued at $2,000,000. The acquisition of
Genesis has been accounted for by the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets based on their
estimated fair values at the date of acquisition. The operating results have
been included in the Company's results of operations from the date of
acquisition.
In September 1997, the Company, through Sterling, acquired all of the
outstanding stock of Sterling Courier Systems, Inc., for $8,970,000, consisting
of $656,000 in cash, 1,166 shares of the Company's common stock, valued at
$4,500,000 and notes totaling $3,814,000 (including $300,000 for a noncompete
agreement) payable to Sterling Courier System's former stockholder. Included in
the notes is a $2,000,000 noninterest bearing note that has been discounted at
7.5% to $1,664,000, and is payable on September 30, 2002. The discount is being
accreted into interest expense over the life of the note. The remaining note
bore interest at 7.0% and was fully repaid on January 2, 1998. In addition, the
Company entered into an employment agreement and operating lease with the former
stockholder. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
based on their estimated fair values at the date of acquisition. The operating
results of the acquisition have been included in the Company's results of
operations from the date of acquisition.
In October 1995, the Company acquired certain assets of Specialty Mailing,
Inc. ("SMI") for 10% of all sales, as defined, originated by certain former
employees of SMI for the year ended September 30, 1996. The acquisition was
accounted for by the purchase method of accounting and, accordingly, the
purchase price of $850,000 has been allocated to the assets based on their
estimated fair values at the date of acquisition. The operating results of the
acquisition were included in the Company's results of operations from the date
of acquisition.
F-27
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly-liquid investments purchased with a
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable equity securities are classified as available for sale and are
carried at fair value as determined by quoted market prices, which exceeded cost
by $125,000 at March 31, 1998, $70,000 at December 31, 1997 and $25,000 at
December 31, 1996. The cost of securities sold is based on the average cost
method.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is provided for by the straight-line
method generally over five years, the estimated useful lives of the respective
assets. Leasehold improvements are amortized over the shorter of the lease term
or the estimated useful lives of the respective assets. For the year ended
December 31, 1997 and the six months ended December 31, 1996 the Company wrote
off $51,000 and $3,000, respectively, of fully depreciated assets.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over periods
ranging from 7 to 25 years.
REVENUE AND EXPENSE RECOGNITION
Revenue is recorded when services have been delivered. Cost of operations
include those costs that are directly associated with the movement of packages.
All other operating expenses are considered selling or general and
administrative expenses.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense for the year ended December 31, 1997, the six months ended December 31,
1996, and the years ended June 30, 1996 and 1995 was approximately $192,000,
$58,000, $79,000, and $70,000, respectively.
INCOME TAXES
For income tax purposes, the stockholders of Q International Courier, Inc.
and all of its subsidiaries excluding Sterling, which is a "C" Corporation, have
elected to be treated as "S" corporations under the relevant sections of the
Internal Revenue Code and applicable state tax laws. Accordingly, except for
Sterling, there is no provision for federal taxes on these entities as earnings
are taxed directly to the stockholders and except for Sterling, state income
taxes are provided for at reduced rates. The Company is also subject to certain
state and local corporation income taxes.
F-28
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 31, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights.
The Company has elected to continue using existing accounting rules
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations with pro forma
disclosure of what net income would have been had the Company adopted the new
fair value method.
ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED INFORMATION
The unaudited financial statements at March 31, 1998 and for the three
months ended March 31, 1998 and 1997 reflect adjustments, all of which are of a
normal recurring nature, which are, in the opinion of management, necessary to a
fair presentation. The results of the interim periods are not necessarily
indicative of full year results.
3. STOCKHOLDERS' EQUITY
During 1997, the Company authorized 3,000 shares of Class A common stock.
The holders of Class A common stock have identical rights and preferences to the
holders of common stock, except that the Class A common stock has no voting
rights. In addition, the holders of the Class A common stock have the right to
require the Company to purchase all held Class A common stock at a purchase
price equal to four times earnings before interest, taxes, depreciation and
amortization, as defined. The Company also has the right upon the occurrence of
acquisition, or an initial public offering ("IPO"), as defined, to require any
holder of Class A common stock to sell such shares to the Company at a price
equal to the acquisition price per share, as defined or in the case of an IPO,
the IPO price as defined.
F-29
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Machinery, equipment and computer hardware........................ $ 3,235,000 $ 2,124,000
Leasehold improvements............................................ 502,000 441,000
Furniture and fixtures............................................ 952,000 617,000
Computer software................................................. 1,106,000 808,000
Service vehicles and automobiles.................................. 159,000 193,000
------------ ------------
5,954,000 4,183,000
Less accumulated depreciation and amortization.................... 3,052,000 2,283,000
------------ ------------
$ 2,902,000 $ 1,900,000
------------ ------------
------------ ------------
</TABLE>
5. INTANGIBLES
Intangible assets, arising primarily from the allocation of the purchase
price of Sterling Courier Systems, Inc., Genesis and other acquisitions,
included the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
------------- ----------
<S> <C> <C>
Non compete agreement.............................................. $ 470,000 $ 170,000
Customer contracts, rights and lists............................... 297,000 297,000
Cost in excess of fair value of assets acquired.................... 10,960,000 383,000
------------- ----------
11,727,000 850,000
Less accumulated amortization...................................... 282,000 72,000
------------- ----------
$ 11,445,000 $ 778,000
------------- ----------
------------- ----------
</TABLE>
6. NOTE PAYABLE TO BANK
As of December 31, 1996, the Company had a working capital line of credit
agreement with a bank whereby it could borrow up to 75% of eligible accounts
receivable, as defined, to a maximum of $8,000,000. Borrowings pursuant to this
agreement bore interest at the bank's alternate base rate, as defined, or at
such other rate as agreed to between the bank and the Company at the time of
each advance.
In September 1997, the Company entered into a revolving credit agreement
with a bank, replacing its existing working capital line of credit, whereby it
may borrow up to 85% of eligible accounts receivable, as defined, to a maximum
of $10,000,000. Borrowings pursuant to this agreement, bear interest at the
LIBOR rate, as defined, or at such rate as agreed to between the bank and the
Company at the time of each advance. The revolving credit agreement expires on
September 30, 2000. In addition, the Company also has available an additional
$4,000,000 line of credit subject to similar terms. No amounts were outstanding
under the line of credit as of March 31, 1998 and December 31, 1997.
F-30
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
6. NOTE PAYABLE TO BANK (CONTINUED)
Substantially all of the assets of the Company are pledged as collateral for
the above obligation. In addition, the new revolving credit agreement also
provides for, among other things, the maintenance of certain covenants, as
defined, including (i) maximum funded debt to earnings before interest, taxes,
depreciation and amortization; (ii) minimum cash flow ratio and (iii) minimum
tangible net worth. The loan is also guaranteed by a stockholder.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE THREE
SIX MONTHS MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1997 1996 1996 1996 1998 1997
------------ ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current............................ $ 274,000 $ 150,000 $ 26,000 $ 12,000 $ 120,000 $ --
Deferred........................... 116,000 (130,000) 57,000 23,000 120,000 35,000
------------ ------------ ----------- ----------- ---------- -----------
$ 390,000 $ 20,000 $ 83,000 $ 35,000 $ 240,000 $ 35,000
------------ ------------ ----------- ----------- ---------- -----------
------------ ------------ ----------- ----------- ---------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax liability arises substantially from the difference between the cash method
of accounting used for tax purposes and the accrual basis used for financial
statement purposes.
8. DEFERRED COMPENSATION
On July 31, 1997, the Company entered into deferred compensation agreements
with two of its stockholders. Pursuant to the Agreements, the two stockholders
are entitled to approximately $250,000 per year plus annual interest of 8%. All
outstanding amounts are payable on July 31, 2002. Upon the occurrence of certain
events, as defined, the stockholders have a right, to convert their deferred
compensation into 309 shares of the Company's common stock adjusted for certain
events, as defined.
9. RELATED PARTY TRANSACTIONS
Prior to August 31, 1997, the Company provided management services to
Genesis. The Company recognized a management fee from Genesis of $1,218,000,
$807,000, $1,406,000 and $546,000 respectively, for the period from January 1,
1997 to August 31, 1997, the six months ended December 31, 1996 and the years
ended June 30, 1996 and 1995. Such amounts are included as reductions in cost of
operations and general and administrative expenses in the accompanying financial
statements.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases its office and operations facilities and other equipment
under noncancellable operating leases which expire at various dates through June
2003. Certain of the leases are subject to
F-31
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
escalation for the Company's pro rata share of increases in real estate taxes
and operating expenses. For the year ended December 31, 1997, the six months
ended December 31, 1996 and the years ended June 30, 1996 and 1995 rent expense
charged to operations amounted to $1,221,000, $507,000, $746,000 and $528,000,
respectively. Rent expense for the three months ended March 31, 1998 and 1997
was $180,000 and $113,000, respectively.
The Company acquired certain property and equipment under capital leases
having a book value and related accumulated amortization (included in
depreciation expense) at December 31, 1997 of $1,582,000 and $511,000,
respectively ($1,063,000 and $251,000, respectively, at December 31, 1996). The
capital lease obligations are collateralized by the underlying assets, and are
payable in varying monthly installments through August 2002, with interest rates
ranging from 8.7% to 10.7% per year.
Annual future minimum rental commitments under noncancellable operating
leases and capital lease obligations are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL LEASE
LEASES OBLIGATIONS
------------ -------------
<S> <C> <C>
Year ending December 31:
1998........................................................... $ 1,048,000 $ 393,000
1999........................................................... 805,000 393,000
2000........................................................... 596,000 335,000
2001........................................................... 405,000 166,000
2002........................................................... 396,000 70,000
2003........................................................... 168,000 --
------------ -------------
$ 3,418,000 1,357,000
------------
------------
Less amount representing interest................................ 206,000
-------------
Present value of minimum lease payments.......................... $ 1,151,000
-------------
-------------
</TABLE>
Included in the operating lease commitment schedule above are leases with
two stockholders of the Company. These leases are for the Company's headquarters
location and Sterling's operations facility. The lease on the Company's
headquarters provides for monthly payments of $18,000 through June 2003. The
lease on Sterling's operations facility provides for monthly payments of $15,000
through April 2003. The Company is also responsible for direct payments of all
building operating expenses. At December 31, 1997, the Company is contingently
liable for $409,000 as a guarantor of a mortgage owed by a stockholder of the
Company. For the year ended December 31, 1997, the six months ended December 31,
1996 and the years ended June 30, 1996 and 1995, rent expense on these locations
amounted to $274,000, $108,000, $120,000 and $120,000, respectively, and $99,000
and $54,000 for the three months ended March 31, 1998 and 1997, respectively.
The Company has a foreign exchange facility with its bank whereby it may
commit to purchase foreign currencies in order to hedge its foreign currencies
risk. At December 31, 1997, L200,000 and Canadian $200,000 were outstanding. The
aggregate amount of gains and losses resulting from these and other foreign
currency transactions was not material.
F-32
<PAGE>
Q INTERNATIONAL COURIER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED)
11. PENSION PLAN
In March 1996, the Company established a defined contribution plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. All full time
employees who have completed one year of service, as defined, are eligible to
participate in the Plan. Participants may contribute up to 15% of their salary.
The Company matches 25% of participant contributions up to $1,500. For the year
ended December 31, 1997, the six months ended December 31, 1996 and the year
ended June 30, 1996, pension expense amounted to $109,000, $44,000 and $45,000,
respectively.
12. OPTION PLAN
The Company has authorized the grant of nonqualified stock options to
employees of the Company for up to 3,000 shares of the Company's Class A common
stock.
In 1997, the Company granted stock options to purchase 1,000 shares of Class
A common stock at an exercise price of $1,620 per share. All issued options are
outstanding at December 31, 1997. The options outstanding under the Plan vest
immediately and expire ten years after the date of grant.
Pro forma information regarding net income has been determined as if the
Company had accounted for its employee stock options under the fair value
method. The fair value of the options was estimated at the date of grant using a
minimum value method with a risk free interest rate of 5.97%, a 0% dividend
yield and an average life of five years. The effect of applying the fair value
method to the Company's options would be to decrease net income for the year
ended December 31, 1997 by approximately $372,000.
13. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the stockholders of the Company entered
into a letter of intent with AirNet Systems, Inc. ("AirNet") to sell all of the
Company's outstanding common stock on a fully diluted basis in exchange for
shares of AirNet common stock. It is anticipated that the transaction will be
accounted for as a pooling-of-interest.
14. YEAR 2000 COSTS (UNAUDITED)
The Company believes that they do not have any significant Year 2000 issues.
The Company continuously monitors such issues, relative to both their internal
and customer needs. The Company is aware that this issue could have significant
implications if not properly evaluated.
F-33
<PAGE>
APPENDIX I
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER
dated as of
April 14, 1998
among
Q INTERNATIONAL COURIER, INC.
(the "Company")
ROBERT J. MITZMAN
(the "Primary Stockholder")
The other stockholders of the Company
listed on the signature pages hereof
(the "Other Stockholders")
AIRNET SYSTEMS, INC.
("AirNet")
and
Q ACQUISITION COMPANY
("Merger Subsidiary")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger; Effective Time............................................................ 1
1.02. Closing............................................................................... 1
1.03. Effect of the Merger.................................................................. 2
1.04. Conversion of Securities.............................................................. 2
1.05. Escrows............................................................................... 2
1.06. Surrender............................................................................. 2
1.07. Treatment of Stock Options............................................................ 3
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. Governing Documents................................................................... 4
2.02. Directors and Officers................................................................ 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
SECTION 3.01. Corporate Existence and Power......................................................... 4
3.02. Organizational Documents.............................................................. 4
3.03. Corporate Authorization............................................................... 4
3.04. Governmental Authorization............................................................ 4
3.05. Non-Contravention..................................................................... 5
3.06. Capitalization........................................................................ 5
3.07. Subsidiaries.......................................................................... 5
3.08. Financial Statements.................................................................. 6
3.09. Information Supplied.................................................................. 6
3.10. Absence of Certain Changes............................................................ 7
3.11. No Undisclosed Liabilities............................................................ 8
3.12. Litigation............................................................................ 8
3.13. Taxes................................................................................. 8
3.14. ERISA................................................................................. 9
3.15. Trademarks, Patents and Copyrights.................................................... 10
3.16. Material Contracts.................................................................... 10
3.17. Compliance with Laws.................................................................. 11
3.18. Finders' Fees......................................................................... 11
3.19. Pooling; Tax Treatment................................................................ 12
3.20. Other Information..................................................................... 12
3.21. Environmental Compliance.............................................................. 12
3.22. Intercompany Arrangements............................................................. 13
3.23. Satisfaction of Certain Conditions.................................................... 13
3.24. Representations....................................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF AIRNET AND MERGER SUBSIDIARY
SECTION 4.01. Corporate Existence and Power......................................................... 14
4.02. Organizational Documents.............................................................. 14
4.03. Corporate Authorization............................................................... 14
4.04. Governmental Authorization............................................................ 14
4.05. Non-Contravention..................................................................... 14
4.06. Capitalization........................................................................ 15
4.07. SEC Filings; AirNet Disclosure Documents; Financial Statements........................ 15
4.08. Information Supplied.................................................................. 16
4.09. Pooling; Tax Treatment................................................................ 16
4.10. Finders' Fees......................................................................... 16
4.11. Compliance with Laws.................................................................. 16
4.12. Environmental Compliance.............................................................. 16
4.13. Trademarks, Patents and Copyrights.................................................... 17
4.14. Absence of Certain Changes............................................................ 18
4.15. Satisfaction of Certain Conditions.................................................... 18
4.16. Representations....................................................................... 18
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. Conduct of the Business of the Company................................................ 18
5.02. Access to Information; Confidentiality................................................ 20
5.03. Other Offers.......................................................................... 20
5.04. Notices of Certain Events............................................................. 20
5.05. Stockholder Actions................................................................... 20
5.06. Termination of Dulles Airport Lease................................................... 21
ARTICLE VI
COVENANTS OF AIRNET AND MERGER SUBSIDIARY
SECTION 6.01. Access to Information; Confidentiality................................................ 21
6.02. Obligations of Merger Subsidiary...................................................... 22
6.03. Other Offers.......................................................................... 22
6.04. Notices of Certain Events............................................................. 22
6.05. Registration Statement; Stockholder Meeting; Proxy Material........................... 22
6.06. Listing of Shares..................................................................... 23
6.07. Director and Officer Indemnification.................................................. 23
6.08. Board of Directors.................................................................... 23
6.09. Rules 144 and 145..................................................................... 23
6.10. Purchase of Airport Facility.......................................................... 23
6.11. Release of Guarantees................................................................. 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE VII
COVENANTS OF AIRNET,
THE COMPANY AND THE STOCKHOLDERS
SECTION 7.01. Reasonable Efforts.................................................................... 24
7.02. Certain Filings....................................................................... 24
7.03. Public Announcements.................................................................. 24
7.04. Further Assurances.................................................................... 24
7.05. Tax Matters........................................................................... 24
7.06. Tax Treatment......................................................................... 25
7.07. Employee Benefits..................................................................... 25
7.08. Postal Office Litigation.............................................................. 26
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to the Obligations of Each Party........................................... 26
8.02. Conditions to the Obligations of AirNet and Merger Subsidiary......................... 27
8.03. Conditions to the Obligations of the Company.......................................... 28
ARTICLE IX
TERMINATION
SECTION 9.01. Termination........................................................................... 29
9.02. Effect of Termination................................................................. 30
ARTICLE X
SURVIVAL; INDEMNIFICATION
SECTION 10.01. Survival.............................................................................. 30
10.02. Indemnification....................................................................... 30
10.03. Procedures............................................................................ 31
10.04. Exclusive Remedy...................................................................... 31
10.05. Certain Limitations................................................................... 32
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Notices............................................................................... 32
11.02. Amendments; No Waivers................................................................ 33
11.03. Expenses; Taxes....................................................................... 33
11.04. Headings.............................................................................. 33
11.05. Severability.......................................................................... 33
11.06. Entire Agreement; Company Disclosure Schedule......................................... 34
11.07. Successors and Assigns................................................................ 34
11.08. Governing Law......................................................................... 34
11.09. Counterparts; Effectiveness........................................................... 34
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
4
401(k) Plan Participants.................................................................................. 26
Adjusted Option........................................................................................... 3
Affiliate................................................................................................. 5
AirNet.................................................................................................... 1
AirNet 1997 Form 10-K..................................................................................... 15
AirNet 401(k) Plan........................................................................................ 26
AirNet Acquisition Proposal............................................................................... 22
AirNet Common Shares...................................................................................... 2
AirNet Disclosure Documents............................................................................... 15
AirNet Indemnitee......................................................................................... 30
AirNet Intellectual Property Rights....................................................................... 17
AirNet Material Adverse Effect............................................................................ 18
AirNet Preferred Shares................................................................................... 15
AirNet Proxy Statement.................................................................................... 22
AirNet Representatives.................................................................................... 20
AirNet Securities......................................................................................... 15
AirNet Shareholder Consent................................................................................ 14
AirNet Shareholder Meeting................................................................................ 22
Airport Facility Purchase Agreement....................................................................... 23
Applicable Corporate Statutes............................................................................. 1
Balance Sheet............................................................................................. 6
Balance Sheet Date........................................................................................ 6
Benefit Arrangements...................................................................................... 10
CERCLA.................................................................................................... 13
Code...................................................................................................... 1
Company................................................................................................... 1
Company 401(k) Plan....................................................................................... 25
Company Acquisition Proposal.............................................................................. 20
Company Disclosure Schedule............................................................................... 2
Company Indemnitees....................................................................................... 31
Company Material Adverse Effect........................................................................... 7
Company Representatives................................................................................... 21
Company Securities........................................................................................ 5
Company Subsidiary Securities............................................................................. 6
DLJ....................................................................................................... 11
Effective Time............................................................................................ 1
Employee Plans............................................................................................ 9
ERISA..................................................................................................... 9
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ERISA Affiliate........................................................................................... 9
Escrow Account............................................................................................ 2
Escrow Agent.............................................................................................. 2
Escrow Shares............................................................................................. 2
Exchange Act.............................................................................................. 4
Final S Corporation Tax Distribution...................................................................... 25
Financial Projections..................................................................................... 12
General Contingencies..................................................................................... 30
General Escrow Shares..................................................................................... 2
Hazardous Substance....................................................................................... 12
HSR Act................................................................................................... 4
Indemnified Party......................................................................................... 31
Indemnifying Party........................................................................................ 31
Intellectual Property Rights.............................................................................. 10
Lease Amendment........................................................................................... 21
Loss...................................................................................................... 30
Merger.................................................................................................... 1
Merger Consideration...................................................................................... 2
Merger Subsidiary......................................................................................... 1
Multiemployer Plan........................................................................................ 9
New York Law.............................................................................................. 1
NYSE...................................................................................................... 2
Ohio Law.................................................................................................. 1
Other Stockholders........................................................................................ 1
Pension Plans............................................................................................. 9
Preliminary S Corporation Tax Distribution................................................................ 25
Primary Stockholder....................................................................................... 1
Registration Statement.................................................................................... 22
Release................................................................................................... 12
SBCWDR.................................................................................................... 16
Securities Act............................................................................................ 4
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Specific Contingencies.................................................................................... 30
Specific Escrow Shares.................................................................................... 2
Stockholder Loan.......................................................................................... 21
Stockholders.............................................................................................. 1
Straddle Periods.......................................................................................... 25
Subsidiary................................................................................................ 5, 14
Surviving Corporation..................................................................................... 1
Tax Returns............................................................................................... 8
Taxes..................................................................................................... 8
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 14, 1998, among Q
INTERNATIONAL COURIER, INC., a New York corporation (the "Company"), ROBERT J.
MITZMAN (the "Primary Stockholder"), the OTHER STOCKHOLDERS of the Company as
listed on the signature pages hereof (together with any stockholder of the
Company who subsequently becomes party to this Agreement through joinder, the
"Other Stockholders", and, together with the Primary Stockholder, the
"Stockholders"), AIRNET SYSTEMS, INC., an Ohio corporation ("AirNet"), and Q
ACQUISITION COMPANY, an Ohio corporation and a direct, wholly-owned subsidiary
of AirNet ("Merger Subsidiary").
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Ohio (the "Ohio
Law") and the Business Corporation Law of the State of New York (the "New York
Law" and, collectively with the Ohio Law, the "Applicable Corporate Statutes"),
the Company and AirNet have agreed to effectuate a business combination
transaction pursuant to which Merger Subsidiary will merge with and into the
Company (the "Merger"); and
WHEREAS, the respective Boards of Directors of the Company, AirNet and
Merger Subsidiary have determined that the Merger is fair to and in the best
interests of their respective companies and shareholders and have approved and
adopted this Agreement and have approved the Merger and the other transactions
contemplated hereby and recommended approval and adoption of this Agreement and
approval of the Merger by their respective shareholders; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER; EFFECTIVE TIME. (a) Upon the terms and subject
to the conditions set forth in this Agreement and in accordance with the
Applicable Corporate Statutes, at the Effective Time (as defined herein), Merger
Subsidiary shall be merged with and into the Company, in accordance with New
York Law and Ohio Law, whereupon the separate existence of Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger set forth in Article VIII, the
Company and Merger Subsidiary will file a certificate of merger with the
Secretary of State of the State of New York and the Secretary of State of the
State of Ohio, in such forms as required by and executed in accordance with the
provisions of, and shall make all other filings or recordings required by the
Applicable Corporate Statutes in connection with the Merger. The Merger shall
become effective at such time as the certificate of merger is duly filed with
the Secretary of State of the State of New York and with the Secretary of State
of the State of Ohio or at such later time as is specified in the certificate of
merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under Ohio Law and New York Law.
SECTION 1.02. CLOSING. Unless this Agreement shall have been terminated
and abandoned pursuant to Section 9.01 and subject to the satisfaction or, to
the extent permitted hereunder, waiver of the conditions set forth in Article
VIII, the consummation of the Merger will take place as promptly as practicable
(and in any event within five business days) after satisfaction or waiver of the
conditions set forth in Article VIII, at the offices of Vorys, Sater, Seymour
and Pease LLP, 52 East Gay Street, Columbus, Ohio, unless another date or place
is agreed to in writing by the Company and AirNet.
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SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Ohio Law and New
York Law. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, except as otherwise provided herein, all of the property,
rights, privileges, powers and franchises of the Company and Merger Subsidiary
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Merger Subsidiary shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.04. CONVERSION OF SECURITIES. (a) At the Effective Time, by
virtue of the Merger and without any action on the part of the Company or any of
the Stockholders, all issued and outstanding shares of capital stock of the
Company immediately prior to the Effective Time shall be converted into an
aggregate of 3,141,356 common shares, $.01 par value, of AirNet (the "AirNet
Common Shares") (the "Merger Consideration"), less (i) 314,136 AirNet Common
Shares to indemnify Buyer with respect to general contingencies (the "General
Escrow Shares") and (ii) 46,091 AirNet Common Shares to indemnify Buyer with
respect to the specific contingencies set forth on Schedule 1.04 of the the
disclosure schedule (the "Company Disclosure Schedule") previously delivered to
AirNet by the Company (the "Specific Escrow Shares" and, together with the
General Escrow Shares, the "Escrow Shares"). The holders of such certificates
previously evidencing shares of capital stock of the Company outstanding prior
to the Effective Time shall cease to have any rights with respect to such shares
of capital stock except as otherwise provided herein or by applicable law. The
allocation of the Merger Consideration among the outstanding shares of capital
stock of the Company shall be determined according to the percentages set forth
on Annex A attached hereto.
(b) Each share of capital stock held by the Company as treasury stock
immediately prior to the Effective Time shall automatically be cancelled and
extinguished without any conversion thereof, and no payment shall be made with
respect thereto.
(c) Each share of capital stock of Merger Subsidiary issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and non-assessable share of common stock, $1.00 par value, of the
Surviving Corporation with the same rights, powers and privileges as the shares
so converted and shall constitute the only outstanding shares of capital stock
of the Surviving Corporation.
(d) No fractional shares of AirNet Common Shares shall be issued in the
Merger, but in lieu thereof each Stockholder otherwise entitled to a fractional
AirNet Common Share will be entitled to receive from AirNet in accordance with
the provisions of this Section 1.04(d), a cash payment in lieu of such
fractional AirNet Common Share equal to the fair market value of such fractional
AirNet Common Share based on the closing price of the AirNet Common Shares on
the New York Stock Exchange, Inc. ("NYSE") on the last trading day immediately
prior to the Closing Date.
SECTION 1.05. ESCROWS. The parties agree that the General Escrow Shares
and the Specific Escrow Shares shall be deposited in an account (the "Escrow
Account") with Banc One Corporation, as escrow agent (the "Escrow Agent"), to be
held and administered in accordance with the terms and conditions of an Escrow
Agreement substantially in the form attached hereto as Exhibit 1.05, against
which Escrow Account AirNet shall be entitled to recover any general Losses
which may be suffered by AirNet for which AirNet is entitled to indemnity
pursuant to Section 11.02(a), in the case of the General Escrow Shares, or to
recover any Losses arising out of the specific contingencies set forth on
Schedule 1.04, in the case of the Specific Escrow Shares.
SECTION 1.06. SURRENDER. (a) At the Effective Time, each holder of shares
of capital stock of the Company outstanding immediately prior to the Effective
Time shall be entitled to receive the percentage of the Merger Consideration set
forth opposite such holder's name on Annex A attached hereto, less the
corresponding percentage of the Escrow Shares, upon surrender to AirNet of all
certificates which formerly represented all outstanding shares of capital stock
of the Company held by such holder; PROVIDED,
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that in no event shall the holders of shares of capital stock of the Company
outstanding immediately prior to the Effective Time be entitled to receive in
the aggregate more than 100% of the Merger Consideration.
(b) After the Effective Time, the stock transfer books of the Company shall
be closed, and there shall be no further registration of transfers of shares of
capital stock of the Company on the records of the Company. If, after the
Effective Time, certificates representing shares of capital stock of the Company
are presented to the Surviving Corporation, they shall be cancelled and
exchanged for the Merger Consideration (less the corresponding Escrow Shares)
provided for, and in accordance with the procedures set forth, in this Article
I.
(c) No dividends or other distributions declared or made after the Effective
Time which have a record date after the Effective Time shall be paid to the
holder of any unsurrendered certificates representing shares of capital stock of
the Company with respect to the AirNet Common Shares such holder is entitled to
receive until such certificates shall have been surrendered to the Surviving
Corporation.
SECTION 1.07. TREATMENT OF STOCK OPTIONS. (a) As soon as practicable
following the date of this Agreement, the directors of the Company shall adopt
such resolutions or take such other actions as may be required to effect the
following: adjust the terms of all Company Stock Options, whether vested or
unvested, as necessary to provide that, at the Effective Time, each Company
Stock Option outstanding immediately prior to the Effective Time shall be
amended and converted into an option to acquire, on substantially the same terms
and conditions as were applicable under the Company Stock Option (including,
without limitation, substantially the same vesting and termination provisions,
subject to the terms and conditions of this Agreement), the number of AirNet
Common Shares (rounded to the nearest whole share) determined by multiplying
249,591 by a fraction the numerator of which shall be the number of shares of
the Company's capital stock subject to such Company Stock Option and the
denominator of which shall be the total number of shares of the Company's
capital stock subject to all Company Stock Options, at a price per AirNet Common
Share equal to (A) the aggregate exercise price for the shares of capital stock
of the Company otherwise purchasable pursuant to such Company Stock Option
divided by (B) the aggregate number of AirNet Common Shares deemed purchasable
pursuant to such Company Stock Option (each, as so adjusted, an "Adjusted
Option"); PROVIDED that such exercise price shall be rounded up to the nearest
whole cent.
(b) Prior to the Effective Time, AirNet, if necessary, shall amend its
existing option plans or, if necessary, adopt an option plan, in either case, to
provide for the issuance of the Adjusted Options at the Effective Time and by
virtue of the Merger, and without the need of any further corporate action,
AirNet shall assume all obligations of the Company with respect to the Company
Stock Options outstanding at the Effective Time.
(c) As soon as practicable after the Effective Time, AirNet shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights with respect to Adjusted Options and, in exchange for the
executed agreements reflecting the Company Stock Options, agreements evidencing
the grants of such Adjusted Options.
(d) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to AirNet, together with the consideration therefor and any
required United States Federal withholding tax information and payment.
(e) Except as otherwise contemplated by this Section 1.07 and except to the
extent required under the respective terms of the Company Stock Options, all
restrictions or limitations on transfer and vesting with respect to Company
Stock Options, to the extent that such restrictions or limitations shall not
have already lapsed, shall remain in full force and effect with respect to the
Adjusted Options after giving effect to the Merger and the assumption by AirNet
as set forth above.
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ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.01. GOVERNING DOCUMENTS. At the Effective Time of the Merger,
the Certificate of Incorporation and the Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, except that the name
of the Surviving Corporation shall be changed to "Quick International Courier,
Inc."
SECTION 2.02. DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
the Surviving Corporation at the Effective Time shall be the officers set forth
on Schedule 2.02.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to AirNet and Merger Subsidiary that:
SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York, and has all requisite corporate powers and all governmental
licenses, authorizations, consents and approvals required to own, lease and
operate its properties and to carry on its business as now conducted by the
Company. The Company is duly qualified or licensed to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the character
of the property owned or leased by it or the nature of its activities makes such
qualification or licensing necessary.
SECTION 3.02. ORGANIZATIONAL DOCUMENTS. The Company has heretofore
delivered to AirNet true and complete copies of the Certificate of Incorporation
and Bylaws of the Company, in each case as currently in effect. The Company is
not in violation of any provision of its Certificate of Incorporation or Bylaws.
SECTION 3.03. CORPORATE AUTHORIZATION. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the corporate powers of the
Company and have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and binding agreement of the Company and the
Stockholders.
(b) The Directors of the Company, at a meeting duly called and held, have
unanimously (i) determined that this Agreement and the transactions contemplated
hereby are fair to and in the best interests of the Stockholders and (ii)
approved and adopted this Agreement and the transactions contemplated hereby.
SECTION 3.04. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company and the Stockholders of this Agreement and the
consummation of the transactions contemplated by the Agreement by the Company
require no consent, approval, authorization or permit of, or filing with or
notification to any governmental or regulatory authority, except for (i) the
filing of certificates of merger and/or other appropriate merger documents in
accordance with New York Law and Ohio Law; (ii) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"); (iii)
compliance with any applicable provisions of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), state securities or "blue sky" laws and state takeover laws; and (iv)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the "Exchange Act").
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SECTION 3.05. NON-CONTRAVENTION. Except as set forth on Schedule 3.05 of
Company Disclosure Schedule, the execution, delivery and performance by the
Company and the Stockholders of this Agreement and the consummation by the
Company and the Stockholders of the transactions contemplated hereby do not and
will not (i) contravene or conflict with the Certificate of Incorporation or
Bylaws or equivalent organizational documents of Company; (ii) assuming
compliance with the matters referred to in Section 3.04, contravene or conflict
with or constitute a violation of any provision of any law, rule, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company,
any Subsidiary of the Company or any Stockholder; (iii) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of the Company or any Subsidiary of the Company or to a
loss of any benefit to which the Company or any Subsidiary of the Company is
entitled under any provision of any material agreement, contract or other
instrument binding upon the Company or any Subsidiary of the Company or any
license, franchise, permit or other similar authorization held by the Company or
any Subsidiary of the Company; or (iv) result in the creation or imposition of
any Lien on any asset of the Company or any Subsidiary of the Company.
"Subsidiary" means with respect to the Company any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by the Company; PROVIDED, that for
purposes hereof the term Subsidiary shall also include all Affiliates of the
Company which are now Subsidiaries and all predecessors of the Subsidiaries. For
purposes of this Agreement, "Affiliate" shall have the meaning set forth in Rule
405 of Regulation C under the Securities Act.
SECTION 3.06. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000 shares of common stock, par value $1.00 per share, and 3,000
shares of Class A common stock, par value $1.00 per share. As of the date hereof
there are outstanding 12,277 shares of common stock, and at the Effective Time
there will be outstanding 12,586 shares of the Company's common stock. As of the
date here there are, and as of the Effective Time there will be, Company Stock
Options to purchase 1,000 shares of Class A common stock, par value $1.00 per
share, of the Company outstanding. All outstanding shares of capital stock of
the Company have been, and at the Effective Time will be, duly authorized and
validly issued and are, and at the Effective Time will be, fully paid and,
except as set forth on Schedule 3.06 of the Company Disclosure Schedule,
nonassessable. Except as set forth in this Section or in Schedule 3.06 of the
Company Disclosure Schedule, there are, and at the Effective Time will be,
outstanding: (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, and (iii) no
options or other rights to acquire from the Company, and no obligation of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Company Securities"). Except as set forth on Schedule 3.06 of the Company
Disclosure Schedule, there are, and at the Effective Time will be, no
outstanding obligations of the Company or any Subsidiary of the Company, to
repurchase, redeem or otherwise acquire any Company Securities or make any
material investment in any other Person. Except as set forth on Schedule 3.06 of
the Company Disclosure Schedule, the Company has, and at the Effective Time will
have, no Subsidiaries or Affiliates (other than any executive officer, director
or stockholder of the Company). No Stockholder or other holder of any Company
Securities will, as of the Effective Time, be entitled to any preemptive rights,
registration rights or similar rights in connection with the transactions
contemplated hereby, except as expressly set forth in the Registration Rights
Agreement.
SECTION 3.07. SUBSIDIARIES. (a) Each Subsidiary of the Company is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary.
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(b) All of the outstanding shares of capital stock of, or other ownership
interests in, each Subsidiary of the Company, is owned by the Company, directly
or indirectly, free and clear of any Lien and free of any other limitation or
restriction (including, without limitation, any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests). There are no outstanding (i) securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities or ownership interests in any Subsidiary, and (ii) options or
other rights to acquire from the Company or any Subsidiary, and no other
obligation of the Company or any Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for, any capital stock, voting securities or ownership interests
in, any Subsidiary (the items in clauses (i) and (ii) being referred to
collectively as the "Company Subsidiary Securities"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any outstanding Company Subsidiary Securities.
SECTION 3.08. FINANCIAL STATEMENTS. The audited consolidated balance sheet
of the Company and its Subsidiaries as of December 31, 1997 (the "Balance
Sheet"), the audited combined balance sheet of the Company and its Subsidiaries
as of December 31, 1996, the audited consolidated income statement and statement
of cash flows of the Company and its Subidiaries for the twelve months ended
December 31, 1997, and the audited combined income statements and statements of
cash flows of the Company and its Subsidiaries for the six months ended December
31, 1996 and the twelve months ended June 30, 1996 and 1995, respectively, which
have previously been provided to AirNet, fairly present in all material
respects, in conformity with generally accepted accounting principles applied on
a consistent basis (except as may be indicated in the notes thereto), the
financial position of the Company and its Subsidiaries as of the dates thereof
and their results of operations and changes in financial position for the
periods then ended. For purposes of this Agreement, "Balance Sheet Date" means
December 31, 1997.
SECTION 3.09. INFORMATION SUPPLIED. The information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
AirNet Proxy Statement (as defined herein) or any amendment or supplement
thereto will not, at the time the AirNet Proxy Statement is first mailed to the
shareholders of AirNet and at the time such shareholders vote on the issuance of
AirNet Common Shares in connection with this Agreement, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, (ii) the Registration Statement (as
defined herein) or any amendment or supplement thereto will not, at the time the
Registration Statement or any amendment or supplement thereto becomes effective
under the 1933 Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any AirNet
Disclosure Document (as defined herein) (other than the AirNet Proxy Statement,
the Registration Statement and any amendments or supplements to either) will
not, at the time of effectiveness of such AirNet Disclosure Document and at the
time of any distribution thereof, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
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SECTION 3.10. ABSENCE OF CERTAIN CHANGES. (a) Since the Balance Sheet
Date, except as contemplated by this Agreement and except as otherwise disclosed
on Schedule 3.10 of the Company Disclosure Schedule, the Company and its
Subsidiaries have conducted their business only in the ordinary course
consistent with past practice and there has not been:
(i) any event, occurrence or development which has had or reasonably
could be expected to have, when aggregated with all positive developments
and disregarding factors affecting the economy or the courier industry
generally, a material adverse effect on the Company and its Subsidiaries,
taken as a whole (a "Company Material Adverse Effect");
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of any of the
Company or any Subsidiary of the Company, or any repurchase, redemption or
other acquisition by the Company or any Subsidiary of the Company of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company;
(iii) any amendment of any material term of any outstanding security of
the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money, other than the
endorsement of checks in the ordinary course of business;
(v) any creation or assumption by the Company or any Subsidiary of any
Lien on any asset in excess of $25,000 other than in the ordinary course of
business consistent with past practices;
(vi) other than loans, advances or capital contributions to or
investments in the Company or any Subsidiary or otherwise in the ordinary
course of business consistent with past practices and other than loans to
Stockholders, any making of any loan, advance or capital contribution to or
investment in any Person;
(vii) other than transactions and commitments in the ordinary course of
business consistent with past practice and those contemplated by this
Agreement, any transaction or legally binding commitment made, or any
contract or agreement entered into, by the Company or any of its
Subsidiaries relating to their respective assets or business (including the
acquisition or disposition of assets in excess of $25,000) or any
relinquishment by the Company or any of its Subsidiaries of any contract or
other right, in either case, material to the Company and its Subsidiaries,
taken as a whole;
(viii) any change in any method of accounting or accounting practice by
the Company or any Subsidiary of the Company, except for any such change
required by reason of a concurrent change in generally accepted accounting
principles; or
(ix) any (A) grant of any severance or termination pay to any director,
officer, employee or agent of the Company or any Subsidiary of the Company
in excess of $25,000, (B) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer, employee or agent of the
Company or any Subsidiary of the Company, (C) increase in benefits payable
under any existing severance or termination pay policies or employment
agreements or (D) increase in compensation, bonus or other benefits payable
to directors, officers, employees or agents of the Company or its
Subsidiaries, other than in the ordinary course of business consistent with
past practice or, in the case of employment agreements, as contemplated by
Section 8.02(d).
(b) Since the Balance Sheet Date, none of the officers or other key
employees of the Company or any Subsidiary has indicated to the Company that he
or she intends to resign or retire as a result of the transactions contemplated
by this Agreement or otherwise within one year after the Effective Time.
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(c) Set forth on Schedule 3.10(c) of the Company Disclosure Schedule is a
true and complete list as of the date hereof of the top ten customers of the
Company's services. Since the Balance Sheet Date, none of such customers has
ceased using, or materially diminished its use of, the Company's services nor
have any of such customers indicated to the Company that it intends to cease
using, or materially diminish its use of, the Company's services as a result of
the transactions contemplated by this Agreement or otherwise within one year
after the Effective Time.
SECTION 3.11. NO UNDISCLOSED LIABILITIES. As of the Balance Sheet Date,
there were no liabilities of the Company or any Subsidiary due or to become due,
which, in accordance with generally accepted accounting principles, should have
been reflected or shown in the Balance Sheet, that were not so reflected or
shown therein. Except as set forth on Schedule 3.11 to the Company Disclosure
Schedule, there have been no liabilities incurred by the Company, except for
liabilities (a) incurred in the ordinary course of business consistent with past
practices that would not, individually or in the aggregate, have a Company
Material Adverse Effect and (b) incurred outside the ordinary course of business
that do not exceed $25,000 individually or $100,000 in the aggregate.
SECTION 3.12. LITIGATION. Except as set forth on Schedule 3.12 of the
Company Disclosure Schedule, as of the date hereof, there is no claim, action,
suit, investigation or proceeding pending against or, to the knowledge of the
Company, threatened against the Company or any Subsidiary or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which, individually or in the aggregate, would reasonably be
likely to result in an uninsured liability in excess of $25,000 or impair the
ability of the Company to consummate the Merger and the transactions
contemplated by this Agreement.
SECTION 3.13. TAXES. Except as set forth on Schedule 3.13 of the Company
Disclosure Schedule, the Company and each of its Subsidiaries have timely filed
all returns, statements, reports and forms (the "Tax Returns") with respect to
all federal, state, local and foreign income, gross income, gross receipts,
gains, premium, sales, use, AD VALOREM, transfer, franchise, profits,
withholding, payroll, employment, excise, severance, stamp, occupation, license,
lease, environmental, customs, duties, property, windfall profits and all other
taxes (including any interest, penalties or additions to tax with respect
thereto, individually, a "Tax" and, collectively, "Taxes") required to be filed
with the appropriate tax authority through the date hereof, and shall timely
file all such Tax Returns required to be filed on or before the Effective Time.
To the knowledge of the Company, such Tax Returns are and will be true, correct
and complete in all material respects. The Company and its Subsidiaries have
paid and discharged all Taxes due from them, other than such Taxes that are
adequately reserved as shown on the Balance Sheet or that have accrued, or will
accrue, in the ordinary course of business from the Balance Sheet Date through
the Effective Time. Neither the Internal Revenue Service nor any other taxing
agency or authority, domestic or foreign, has asserted, is now asserting or, to
the knowledge of the Company, is threatening to assert against the Company or
any Subsidiary of the Company any deficiency or claim for additional Taxes in
excess of $25,000. There are no unexpired waivers by the Company or any of its
Subsidiaries of any statute of limitations with respect to Taxes. The accruals
and reserves for Taxes reflected in the Balance Sheet are adequate for the
periods covered. The Company and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities or are
properly holding for such payment all Taxes required by law to be withheld or
collected. There are no Liens for Taxes upon the assets of the Company or any of
its Subsidiaries, other than Liens for current Taxes not yet due and payable.
Neither the Company nor any of its Subsidiaries has agreed to make, or is
required to make, any adjustment under Section 481(a) of the Code. Sterling,
Inc. is not a party to any agreement, contract, arrangement or plan that has
resulted, or could result, individually or in the aggregate, in the payment of
"excess parachute payments" within the meaning of Section 280G of the Code. The
Company, and each of its Subsidiaries, other than Sterling, Inc., is, and at all
times during its existence has been, an S corporation and/or a qualified
subchapter S subsidiary within the meaning of Section 1361(a)(1) or Section
1361(b)(3)(B) of the Code (or the corresponding provisions of preceding law) and
is not subject to the tax imposed on certain
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built-in gains under Section 1374 of the Code. Sterling, Inc. has never been a
member of an affiliated group of corporations, within the meaning of Section
1504 of the Code, other than as a common parent corporation.
SECTION 3.14. ERISA. (a) Schedule 3.14(a) of the Company Disclosure
Schedule includes a list identifying each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
which (i) is subject to any provision of ERISA and (ii) is maintained,
administered or contributed to by the Company, any of its Subsidiaries or any
ERISA Affiliate and covers any employee or former employee of the Company, any
of its Subsidiaries or any of their respective ERISA Affiliates or under which
the Company, any of its Subsidiaries or any of their respective ERISA Affiliates
has any liability. Copies of such plans (and, if applicable, related trust
agreements) and all amendments thereto and written interpretations thereof have
been furnished to AirNet together with (x) the three most recent annual reports
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan and (y) the most recent actuarial valuation report prepared
in connection with any such plan. Such plans are referred to collectively herein
as the "Employee Plans". For purposes of this Section, "ERISA Affiliate" of any
Person means any other Person which, together with such Person, would be treated
as a single employer under Section 414 of the Code. The only Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA (the "Pension Plans") are identified
as such in the list referred to above. The Company has provided AirNet with
complete age, salary, service and related data as of December 31, 1997 for
employees and former employees of the Company, any of its Subsidiaries and any
ERISA Affiliate covered under the Pension Plans.
(b) No Employee Plan constitutes a "multiemployer plan", as defined in
Section 3(37) of ERISA (a "Multiemployer Plan"), and no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code. None of the Employee Plans is subject to Title IV of ERISA or Section 412
of the Code. To the Company's knowledge, nothing done or omitted to be done and
no transaction or holding of any asset under or in connection with any Employee
Plan has or will make the Company or any of its Subsidiaries or any officer or
director of the Company or any of its Subsidiaries subject to any liability
under Title I of ERISA or liable for any tax pursuant to Section 4975 of the
Code in excess of $25,000.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the IRS
applicable to all period from the inception of such Employee Plan, and each
trust forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code. The Company has furnished to AirNet copies of the most recent Internal
Revenue Service determination letters with respect to each such Plan. Each
Employee Plan has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such Plan. Without limiting the generality of the preceding
sentence, each Employee Plan which is a "group health plan," as defined in
Section 5000(b)(1) of the Code, has been administered in compliance with the
provisions of Section 4980B of the Code and Part 6 of Title I of ERISA.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company, any of its Subsidiaries or any
Affiliate that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) of the Code.
(e) Schedule 3.14(e) of the Company Disclosure Schedule sets forth a list
of each employment, severance or other similar contract, arrangement or policy
and each plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not an
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Employee Plan, (ii) is entered into, maintained or contributed to, as the case
may be, by the Company, its Subsidiaries or any of their respective Affiliates
and (iii) covers any employee or former employee of the Company, its
Subsidiaries or any of their respective Affiliates. Such contracts, plans and
arrangements as are described above, copies or descriptions of all of which have
been furnished previously to AirNet are referred to collectively herein as the
"Benefit Arrangements." Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations that are applicable to such
Benefit Arrangement.
(f) Neither the Company nor any of its Subsidiaries maintains or
contributes to any Employee Plan or Benefit Arrangement which provides or has
any liability to provide retirement health or medical benefits to any employee
or former employee of the Company or any of its Subsidiaries. No condition
exists that would prevent the Company, any of its Subsidiaries or any of their
respective Affiliates from amending or terminating any Employee Plan or Benefit
Arrangement providing health or medical benefits, including post-retirement
health and medical benefits, in respect of any active employee or former
employee of the Company, or its Subsidiaries other than limitations imposed
under the terms of a collective bargaining agreement.
(g) Except as set forth on Schedule 3.14(g) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to or
subject to any union contract or any employment contract or arrangement
providing for annual future compensation of $50,000 or more with any officer,
consultant, director or employee. There are no labor unions voluntarily
recognized or certified to represent any bargaining unit of employees at the
Company or any of its Subsidiaries. No work stoppage, labor strike or slowdown
against the Company or any of its Subsidiaries is pending or, to the knowledge
of the Company, threatened. Neither the Company nor any of its Subsidiaries is
involved in or, to the knowledge of the Company, threatened with any labor
dispute or grievance. To the knowledge of the Company, there is no organizing
effort or representation question at issue with respect to any employee of the
Company or any of its Subsidiaries. No collective bargaining agreement to which
the Company or any of its Subsidiaries is or may be a party is currently under
negotiation or renegotiation and no existing collective bargaining agreement is
due for expiration, renewal or renegotiation within the one year period after
the date hereof.
SECTION 3.15. TRADEMARKS, PATENTS AND COPYRIGHTS. (a) Schedule 3.15(a) of
the Company Disclosure Schedule sets forth a true and complete list, as of the
date hereof, of (i) all patents, patent rights, trademarks, trademark rights,
trade names, registered copyrights, service marks, material trade secrets,
applications for trademarks and for service marks, material know-how and other
material proprietary rights and information used or held for use in connection
with the business of the Company or its Subsidiaries as currently conducted
(collectively, "Intellectual Property Rights") and (ii) all licenses,
commitments and other agreements to which the Company or any Subsidiary of the
Company is a party providing for the license of any Intellectual Property Rights
to or from any other Person.
(b) Except as set forth on Schedule 3.15(b) of the Company Disclosure
Schedule, the Company and its Subsidiaries own or possess adequate licenses or
other rights to use all of the Intellectual Property Rights; to the knowledge of
the Company there are no Intellectual Property Rights necessary for use in
connection with the business of the Company or its Subsidiaries as currently
conducted which are not owned or possessed by the Company or its Subsidiaries;
and the Company is not aware of any assertion or claim challenging the validity
of any of the Intellectual Property Rights; and the conduct of the business of
the Company and its Subsidiaries as currently conducted or as heretofore
conducted by the Company or any of the Subsidiaries of the Company, to the
knowledge of the Company, does not conflict in any material way with any patent,
patent right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party. To the knowledge of the Company,
there are no material infringements of any proprietary rights owned by or
licensed by or to the Company or any of the Subsidiaries of the Company.
SECTION 3.16. MATERIAL CONTRACTS. (a) Except for agreements, contracts,
plans, leases, arrangements or commitments (in each case, oral or written) set
forth on Schedule 3.16(a) of the Company
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Disclosure Schedule, as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to or subject to:
(a) any lease providing for annual rental payments of $25,000 or more;
(b) any contract for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by the
Company or any Subsidiary of $25,000 or more;
(c) any sales, distribution or other similar agreement providing for the
sale by the Company or any Subsidiary of materials, supplies, goods,
services, equipment or other assets that provides for annual payments to the
Company or any Subsidiary of $50,000 or more;
(d) any partnership, joint venture or other similar contract arrangement
or agreement;
(e) any contract relating to indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed
or secured by any asset), except contracts relating to indebtedness incurred
in the ordinary course of business in an amount not exceeding $25,000;
(f) any license agreement, franchise agreement or agreement in respect
of similar rights granted to or held by the Company or any of its
Subsidiaries requiring annual payments by, or providing annual revenues to,
the Company of $25,000 or more;
(g) any agency, dealer, sales representative or other similar agreement
requiring annual payments by, or providing annual revenues to, the Company
of $25,000 or more;
(h) any contract or legally binding commitment that substantially limits
the ability of the Company or any of its Subsidiaries to compete in any line
of business or with any Person or in any area or which would so restrict the
Company or any of its Subsidiaries after the Effective Time; or
(i) any other contract or legally binding commitment not made in the
ordinary course of business that involves annual expenditures by, or
revenues to, to the Company or any of its Subsidiaries in excess of $25,000.
(b) Each agreement, contract, lease, arrangement and commitment disclosed on
Schedule 3.16(b) of the Company Disclosure Schedule or required to be disclosed
pursuant to this Section is a valid and binding agreement of the Company or its
Subsidiaries and, to the knowledge of the Company, is in full force and effect,
and neither the Company and its Subsidiaries nor, to the knowledge of the
Company, any other party thereto is in default in any material respect under the
terms of any such agreement, contract, plan, lease arrangement or commitment.
SECTION 3.17. COMPLIANCE WITH LAWS. The Company and each of its
Subsidiaries and Affiliates is in compliance with the applicable provisions of
all laws, rules, statutes, ordinances or regulations that are applicable to the
Company or such Subsidiary or Affiliate, including, but not limited to the False
Claims Act, the Lanham Act, the Private Express Statutes and the rules and
regulations of the United Stated Postal Service. Neither the Company nor any
Subsidiary or Affiliate of the Company has received any written communication
since December 31, 1992, from a governmental body, agency, official or authority
that alleges that the Company or any Subsidiary or Affiliate of the Company is
not in compliance with any law, statute, ordinance or regulation, other than
communications from the United States Postal Service which are described in
reasonable detail on Schedule 3.17 of the Company Disclosure Schedule.
SECTION 3.18. FINDERS' FEES. No investment banker, broker, finder or other
intermediary (other than Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ")) has been retained by, or authorized to act on behalf of, any
Stockholder, the Company or any of its Subsidiaries and entitled to any fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement. The Company has previously furnished to AirNet a complete and
correct copy of all agreements between DLJ and the Company (or any Stockholder)
pursuant to which such firm would be entitled to any payment relating to the
Merger or the transactions contemplated by this Agreement.
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SECTION 3.19. POOLING; TAX TREATMENT. (a) The Company intends that the
Merger be accounted for under the "pooling of interests" method under the
requirements of Opinion No. 16 (Business Combinations) of the Accounting
Principles Board of the American Institute of Certified Public Accountants (APB
No. 16), as amended by Statements of the Financial Accounting Standards Board,
and the related interpretations of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board, and the rules and
regulations of the SEC.
(b) Neither the Company nor any of its Subsidiaries has knowingly taken or
agreed to take any action that would prevent the Merger from qualifying (i) for
"pooling of interests" accounting treatment as described in (a) above or (ii) as
a reorganization within the meaning of Section 368(a) of the Code.
SECTION 3.20. OTHER INFORMATION. (a) The statements contained in the
documents and certificates furnished or to be furnished by the Company, any
Subsidiary or the Stockholders in connection with satisfying the conditions to
closing set forth in this Agreement, when considered in their entirety, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
(b) To the Company's knowledge, the financial projections relating to the
Company and its Subsidiaries for the twelve months ended December 31, 1998,
which were delivered to AirNet on January 13, 1998, and which are included in
Schedule 3.20(b)(i) of the Company Disclosure Schedule (the "Financial
Projections"), when they were delivered, constituted the Company's best estimate
of the information purported to be shown therein, and, since such date, with
respect only to the projected revenues and income from operations in such
Financial Projections (and disregarding factors affecting the economy or the
courier industry generally), except as set forth on Schedule 3.20(b)(ii),
nothing has come to the attention of the Company to cause the Company to believe
that such projections are incorrect or misleading in any material respect.
Notwithstanding the foregoing, the Company makes no representation or warranty
that the financial results set forth in the Financial Projections will be
achieved by the Company, and AirNet acknowledges and agrees that actual results
may differ and could differ materially from the information set forth in the
Financial Projections.
SECTION 3.21. ENVIRONMENTAL COMPLIANCE. Except as set forth on Schedule
3.21 of the Company Disclosure Schedule:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed, no penalty has
been assessed and no investigation or review is pending, or to the knowledge of
the Company, threatened by any governmental or other entity, (i) with respect to
any alleged material violation of any law, ordinance, rule, regulation or order
of any governmental entity in connection with the conduct by the Company or its
Subsidiaries of their respective businesses and relating to a Hazardous
Substance (as hereinafter defined) or (ii) with respect to any alleged failure
by the Company or any of it Subsidiaries to have any permit, certificate,
license, approval, registration or authorization required in connection with the
conduct of the business of the Company or its Subsidiaries relating to a
Hazardous Substance or (iii) with respect to any generation, treatment, storage,
recycling, transportation, disposal or release (including a release as defined
in 42 USC Section 9601) ("Release") by the Company or any of its Subsidiaries of
any toxic, caustic or otherwise hazardous substance, including petroleum, its
derivatives, by-products and other hydrocarbons ("Hazardous Substance") used in
connection with the business of the Company or its Subsidiaries.
(b)(i)Neither the Company nor any of its Subsidiaries has, other than as a
generator, handled any Hazardous Substance, on any property now or previously
owned or leased by the Company or any of its Subsidiaries; (ii) no asbestos is
present at any property now or previously owned or leased by the Company or any
of its Subsidiaries; (iii) there are no underground storage tanks currently in
use or, to the knowledge of the Company, abandoned by the Company or any of its
Subsidiaries, at any property now or previously owned or leased by the Company
or any of its Subsidiaries which have been used to store or have contained a
Hazardous Substance, (iv) there has been no Release of a Hazardous Substance
with respect
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to which the Company or any of its Subsidiaries may reasonably be required to
perform investigation or remediation, other than routine spills and leaks which
are addressed in the ordinary course of business, at, on or under any property
now or previously owned or leased by the Company or any of its Subsidiaries and
(v) no Hazardous Substance is present in a reportable or threshold planning
quantity, where such a quantity has been established by statute, ordinance,
rule, regulation or order, at, on or under any property now or previously owned
by the Company or any of its Subsidiaries; PROVIDED, that with respect to any
property previously owned or leased by the Company or any of its Subsidiaries,
the representations and warranties contained in this Section 3.21(b) shall apply
only to the extent that the Company or any of its Subsidiaries would be
responsible or liable, by contract or by law existing as of the date hereof, for
the environmental condition of any such property.
(c) To the knowledge of the Company, neither the Company nor any of its
Subsidiaries has transported or arranged for the transportation (directly or
indirectly) of any Hazardous Substance to any location which is listed or
proposed for listing on the nationwide priorities list established under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA") or on any similar state list.
(d) To the knowledge of the Company, no oral or written notification of a
Release of a Hazardous Substance has been filed by or on behalf of the Company
or any of its Subsidiaries, and no property now or previously owned or leased by
the Company or any of its Subsidiaries is listed, or to the knowledge of the
Company, proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA.
(e) There are no environmental Liens on any asset of the Company or any of
its Subsidiaries and no government actions have been taken or, to the knowledge
of the Company, are in process which could subject any of such assets to such
Liens.
(f) Except to the extent set forth on Schedule 3.21(f) of the Company
Disclosure Schedule, there have been no material environmental investigations,
studies, audits, tests, reviews or other analyses conducted by or which are in
the possession of the Company in relation to any property or facility now or
previously owned or leased by the Company or any of its Subsidiaries. The
parties acknowledge and agree that the delivery of any such environmental
investigation, study, audit, test, review or analysis shall not relieve the
Company or the Shareholders of their obligations hereunder with respect to the
representations and warranties of the Company pursuant to this Section 3.21.
(g) Anything in this Agreement to the contrary notwithstanding, Section 3.21
shall constitute the exclusive representation of the Company with respect to
environmental matters.
SECTION 3.22. INTERCOMPANY ARRANGEMENTS. Except as set forth on Schedule
3.22 of the Company Disclosure Schedule, neither the Company nor any Subsidiary
owns any note, bond, debenture or other indebtedness, or is otherwise a
creditor, of a Stockholder or any Affiliate of the Company. Except as set forth
in Schedule 3.22 of the Company Disclosure Schedule, since the Balance Sheet
Date there has not been any payment by the Company or any Subsidiary to any
Stockholder or any Affiliate of the Company, charge by any Stockholder or any of
Affiliate of the Company to the Company or any Subsidiary or other transaction
between the Company or any Subsidiary and any Stockholder or any Affiliate of
the Company.
SECTION 3.23. SATISFACTION OF CERTAIN CONDITIONS. As of the date hereof,
the Company knows of no reason why the opinion referred to in Section 8.03(h)
hereof cannot be given at the time provided in such sections.
SECTION 3.24. REPRESENTATIONS. The representations and warranties of the
Company contained in this Agreement, disregarding (other than with respect to
Section 3.10(a)(i) hereof) all qualifications and exceptions contained therein
relating to materiality or Company Material Adverse Effect, are true and correct
with only such exceptions as would not in the aggregate reasonably be expected
to have a Company Material Adverse Effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF AIRNET AND MERGER SUBSIDIARY
AirNet and Merger Subsidiary, jointly and severally, represent and warrant
to the Company and the Stockholders that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each of AirNet and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio, and has all requisite corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to own, lease and operate its properties and to carry on its
business as now conducted. Each of AirNet and Merger Subsidiary is duly
qualified or licensed to do business as a foreign corporation, and is in good
standing, in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification or
licensing necessary. Since the date of its incorporation, Merger Subsidiary has
not engaged in any activities other than in connection with or as contemplated
by this Agreement.
SECTION 4.02. ORGANIZATIONAL DOCUMENTS. AirNet has heretofore delivered to
the Company true and complete copies of the articles of incorporation and code
of regulations of AirNet and Merger Subsidiary, in each case as currently in
effect. Neither AirNet nor Merger Subsidiary is in violation of any provision of
its articles of incorporation or code of regulations.
SECTION 4.03. CORPORATE AUTHORIZATION. The execution, delivery and
performance by AirNet and Merger Subsidiary of this Agreement and the
consummation by AirNet and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of each of AirNet and Merger Subsidiary
and have been duly authorized, including, but not limited to, for purposes of
Chapter 1704 of Ohio Law, by all necessary corporate action (other than the
required approval by AirNet's shareholders of the matters set forth in Sections
8.01(b) (the "AirNet Shareholder Consent")). This Agreement constitutes a valid
and binding agreement of AirNet and Merger Subsidiary.
SECTION 4.04. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by AirNet and Merger Subsidiary of this Agreement and the
consummation by AirNet and Merger Subsidiary of the transactions contemplated by
the Agreement require no consent, approval, authorization or permit of, or
filing with or notification to any governmental or regulatory authority, except
for (i) the filing of a certificate of merger and/or other appropriate merger
documents in accordance with New York Law and Ohio Law, (ii) compliance with any
applicable requirements of the HSR Act; (iii) compliance with any applicable
requirements of the Securities Act, state securities or "blue sky" laws and
state takeover laws; and (iv) compliance with any applicable requirements of the
Exchange Act.
SECTION 4.05. NON-CONTRAVENTION. The execution, delivery and performance
by AirNet and Merger Subsidiary of this Agreement and the consummation by AirNet
and Merger Subsidiary of the transactions contemplated hereby, assuming receipt
of the AirNet Shareholder Consent, do not and will not (i) contravene or
conflict with the articles of incorporation or code of regulations of AirNet or
Merger Subsidiary; (ii) assuming compliance with the matters referred to in
Section 4.04, contravene or conflict with or constitute a violation of any
provision of law, rule, regulation, judgment, injunction, order or decree
binding upon AirNet, any Subsidiary of AirNet or Merger Subsidiary; (iii)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of AirNet, any
Subsidiary of AirNet or Merger Subsidiary or to a loss of any benefit to which
AirNet, any Subsidiary of AirNet or Merger Subsidiary is entitled under any
material agreement, contract or other instrument binding upon AirNet, any
Subsidiary of AirNet or Merger Subsidiary; or (iv) result in the creation or
imposition of any Lien on any asset of AirNet, any Subsidiary of AirNet or
Merger Subsidiary. "Subsidiary," with respect to AirNet, means any corporation
or other entity of which securities or other
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ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are directly or
indirectly owned by AirNet.
SECTION 4.06. CAPITALIZATION. (a) As of the date hereof, the authorized
capital stock of AirNet consists of 40,000,000 AirNet Common Shares and
10,000,000 preferred shares, $.01 par value (the "AirNet Preferred Shares"). As
of December 31, 1997, there were outstanding 12,489,830 AirNet Common Shares,
263,570 AirNet Common Shares held in treasury, employee stock options to
purchase an aggregate of 651,095 AirNet Common Shares (of which options to
purchase an aggregate of 587,145 shares were exercisable) and no AirNet
Preferred Shares outstanding. All of the outstanding AirNet Common Shares have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section and except for changes since December 31,
1997, resulting from the exercise of employee stock options outstanding on such
date, there are outstanding: (i) no shares of capital stock or other voting
securities of AirNet, (ii) no securities of AirNet convertible into or
exchangeable for shares of capital stock or voting securities of AirNet, and
(iii) no options or other rights to acquire from AirNet, and no obligation of
AirNet to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of AirNet (the items
in clauses (i), (ii) and (iii) being referred to collectively as the "AirNet
Securities"). There are no outstanding obligations of AirNet or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any AirNet Securities
or, except as contemplated hereby, to register any AirNet Securities for sale
pursuant to the Securities Act.
(b) The authorized capital stock of Merger Subsidiary consists of 100 common
shares, without par value. As of the date hereof, there are outstanding 100
common shares. All of the outstanding common shares of Merger Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in this Section, there are outstanding (i) no shares of
capital stock or other voting securities of Merger Subsidiary, (ii) no
securities of Merger Subsidiary convertible into or exchangeable for shares of
capital stock or voting securities of Merger Subsidiary, and (iii) no options or
other rights to acquire from Merger Subsidiary, and no obligation of Merger
Subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Merger Subsidiary.
(c) The Merger Consideration, when issued in accordance with this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable.
SECTION 4.07. SEC FILINGS; AIRNET DISCLOSURE DOCUMENTS; FINANCIAL
STATEMENTS. (a) AirNet has filed all forms, reports and documents required to
be filed by it with the SEC since May 31, 1996, and has heretofore made
available to the Company and the Stockholders, in the form filed with the SEC
(excluding any exhibits thereto, unless otherwise specifically requested by the
Company or the Stockholders), (i) its Annual Report on Form 10-K for the fiscal
year ended September 30, 1996; (ii) its Annual Report on Form 10-K for the
twelve months ended December 31, 1997 (the "AirNet 1997 Form 10-K"); (iii) its
Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 1996,
and March 31, June 30 and September 30, 1997; (iv) all proxy statements relating
to meetings of AirNet's shareholders (whether annual or special) held since May
31, 1996; and (v) all other reports, statements, schedules and registration
statements filed with the SEC since May 31, 1996 (the forms, reports and other
documents referred to in clauses (i) through (v), together with the Registration
Statement and AirNet Proxy Statement, being referred to herein, collectively, as
the "AirNet Disclosure Documents"). The AirNet Disclosure Documents and any
other forms, reports or other documents filed by AirNet with the SEC after the
date of this Agreement but prior to the Effective Time, (x) were prepared, or
will be prepared, in accordance with the Securities Act or the Exchange Act, as
the case may be, and complied, or will comply, in all material respects with the
rules and regulations thereunder and (y) did not at the time they were filed, or
will not at the time they are filed, with the SEC contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this
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representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished to AirNet by the
Company or any Stockholder.
(b) Each of the consolidated financial statements (including any notes
thereto) contained in the AirNet 1997 Form 10-K was prepared in accordance with
generally accepted accounting principles and fairly presents, in all material
respects, the consolidated financial position, results of operations and cash
flows of AirNet and its consolidated Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein.
SECTION 4.08. INFORMATION SUPPLIED. The information supplied or to be
supplied by AirNet for inclusion or incorporation by reference in the Company
Proxy Statement or any amendment or supplement thereto will not, at the time the
Company Proxy Statement is first mailed to the Stockholders and at the time such
Stockholders vote on the approval and adoption of this Agreement, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
SECTION 4.09. POOLING; TAX TREATMENT. (a) AirNet intends that the Merger
be accounted for under the "pooling of interests" method under the requirements
of Opinion No. 16 (Business Combinations) of the Accounting Principles Board of
the American Institute of Certified Public Accountants (APB No. 16), as amended
by Statements of the Financial Accounting Standards Board, and the related
interpretations of the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, and the rules and regulations of the SEC.
(b) Neither AirNet nor any of its Subsidiaries has knowingly taken or agreed
to take any action that would prevent the Merger from qualifying (i) for
"pooling of interests" accounting treatment as described in (a) above or (ii) as
a reorganization within the meaning of Section 368(a) of the Code; PROVIDED,
that in connection with the foregoing, AirNet has rescinded its 1997 Stock
Repurchase Program prior to the date hereof.
SECTION 4.10. FINDERS' FEES. No investment banker, broker, finder or other
intermediary (other than SBC Warburg Dillon Read Inc. ("SBCWDR")) has been
retained by, or authorized to act on behalf of, AirNet and entitled to any fee
or commission in connection with the Merger or the transactions contemplated by
this Agreement.
SECTION 4.11. COMPLIANCE WITH LAWS. To the knowledge of AirNet, except to
the extent disclosed in the AirNet 1997 Form 10-K, AirNet and each of its
Subsidiaries and Affiliates is in compliance with the applicable provisions of
all laws, rules, statutes, ordinances or regulations that are applicable to
AirNet or such Subsidiary or Affiliate. Neither AirNet nor any Subsidiary or
Affiliate of the Company has received any written communication since December
31, 1992, from a governmental body, agency, official or authority that alleges
that the Company or any Subsidiary or Affiliate of the Company is not in
compliance with any law, statute, ordinance or regulation.
SECTION 4.12. ENVIRONMENTAL COMPLIANCE. To the knowledge of AirNet, except
to the extent disclosed in the AirNet 1997 Form 10-K:
(a) No written notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity, (i) with respect to any alleged material violation
of any law, ordinance, rule, regulation or order of any governmental entity in
connection with the conduct by AirNet or its Subsidiaries of their respective
businesses and relating to a Hazardous Substance or (ii) with respect to any
alleged failure by AirNet or any of it Subsidiaries to have any permit,
certificate, license, approval, registration or authorization required in
connection with the conduct of the business of AirNet or its Subsidiaries
relating to a Hazardous Substance or (iii) with respect to any generation,
treatment, storage, recycling, transportation, disposal or Release by AirNet or
any of its Subsidiaries of any Hazardous Substance used in connection with the
business of AirNet or its Subsidiaries.
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(b) (i)Neither AirNet nor any of its Subsidiaries has, other than as a
generator, handled any Hazardous Substance, on any property now or previously
owned or leased by AirNet or any of its Subsidiaries; (ii) no asbestos is
present at any property now or previously owned or leased by AirNet or any of
its Subsidiaries; (iii) there are no underground storage tanks currently in use
or abandoned by AirNet or any of its Subsidiaries, at any property now or
previously owned or leased by AirNet or any of its Subsidiaries which have been
used to store or have contained a Hazardous Substance, (iv) there has been no
Release of a Hazardous Substance with respect to which AirNet or any of its
Subsidiaries may reasonably be required to perform investigation or remediation,
other than routine spills and leaks which are addressed in the ordinary course
of business, at, on or under any property now or previously owned or leased by
AirNet or any of its Subsidiaries and (v) no Hazardous Substance is present in a
reportable or threshold planning quantity, where such a quantity has been
established by statute, ordinance, rule, regulation or order, at, on or under
any property now or previously owned by AirNet or any of its Subsidiaries;
PROVIDED, that with respect to any property previously owned or leased by AirNet
or any of its Subsidiaries, the representations and warranties contained in this
Section 4.12(b) shall apply only to the extent that AirNet or any of its
Subsidiaries would be responsible or liable, by contract or by law existing as
of the date hereof, for the environmental condition of any such property.
(c) Neither AirNet nor any of its Subsidiaries has transported or arranged
for the transportation (directly or indirectly) of any Hazardous Substance to
any location which is listed or proposed for listing on the nationwide
priorities list established under CERCLA or on any similar state list.
(d) No oral or written notification of a Release of a Hazardous Substance
has been filed by or on behalf of the Company or any of its Subsidiaries, and no
property now or previously owned or leased by AirNet or any of its Subsidiaries
is listed, or proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA.
(e) There are no environmental Liens on any asset of AirNet or any of its
Subsidiaries and no government actions have been taken or are in process which
could subject any of such assets to such Liens.
(f) Except to the extent previously provided to the Company, there have been
no material environmental investigations, studies, audits, tests, reviews or
other analyses conducted by or which are in the possession of AirNet in relation
to any property or facility now or previously owned or leased by AirNet or any
of its Subsidiaries.
(g) Anything in this Agreement to the contrary notwithstanding, Section 4.12
shall constitute the exclusive representation of AirNet with respect to
environmental matters.
SECTION 4.13. TRADEMARKS, PATENTS AND COPYRIGHTS. To the knowledge of
AirNet, except to the extent disclosed in the AirNet 1997 Form 10-K:
(a) AirNet has previously provided the Company a true and complete list, as
of the date hereof, of (i) all Intellectual Property Rights of AirNet and its
Subsidiaries (the "AirNet Intellectual Property Rights") and (ii) all licenses,
commitments and other agreements to which AirNet or any Subsidiary of AirNet is
a party providing for the license of any AirNet Intellectual Property Rights to
or from any other Person.
(b) AirNet and its Subsidiaries own or possess adequate licenses or other
rights to use all of their respective AirNet Intellectual Property Rights; there
are no AirNet Intellectual Property Rights necessary for use in connection with
the business of AirNet or its Subsidiaries as currently conducted which are not
owned or possessed by AirNet or its Subsidiaries; and AirNet is not aware of any
assertion or claim challenging the validity of any of the AirNet Intellectual
Property Rights; and the conduct of the business of AirNet or its Subsidiaries
as currently conducted or as heretofore conducted by AirNet or any of the
Subsidiaries of AirNet does not conflict in any material way with any patent,
patent right, license, trademark, trademark right, trade name, trade name right,
service mark or copyright of any third party.
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There are no material infringements of any proprietary rights owned by or
licensed by or to AirNet or any of the Subsidiaries of AirNet.
SECTION 4.14. ABSENCE OF CERTAIN CHANGES. Except (i) as disclosed in the
AirNet 1997 Form 10-K and (ii) as disclosed in any publicly available reports
filed by AirNet with the SEC pursuant to the provisions of applicable securities
laws since the filing of the AirNet Form 10-K and furnished or made available to
the Company on or before the date hereof, there has been no event, occurrence or
development which has had, or reasonably could be expected to have, when
aggregated with all positive developments, a material adverse effect on AirNet
and its Subsidiaries, taken as a whole (an "AirNet Material Adverse Effect").
SECTION 4.15. SATISFACTION OF CERTAIN CONDITIONS. As of the date hereof,
AirNet knows of no reason why the opinions referred to in Section 8.02(h) hereof
and in Section 8.02(i) hereof cannot be given at the time provided in such
sections.
SECTION 4.16. REPRESENTATIONS. The representations and warranties of
AirNet contained in this Agreement, disregarding (other than with respect to
Section 4.14 hereof) all qualifications and exceptions contained therein
relating to materiality or AirNet Material Adverse Effect, are true and correct
with only such exceptions as would not in the aggregate reasonably be expected
to have an AirNet Material Adverse Effect.
ARTICLE V
COVENANTS OF THE COMPANY
The Company and, solely to the extent set forth in Sections 5.03 and 5.05,
each Stockholder, severally and not jointly, agrees that:
SECTION 5.01. CONDUCT OF THE BUSINESS OF THE COMPANY. From the date hereof
until the Effective Time unless AirNet shall otherwise have consented in
writing, which consent shall not be unreasonably withheld or delayed, the
Company shall, and shall cause its Subsidiaries to, conduct their business in
the ordinary course consistent with past practice and shall use their reasonable
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, except as contemplated or required by this
Agreement or set forth on Schedule 5.01 of the Company Disclosure Schedule, the
Company shall not, and shall cause its Subsidiaries not to, directly or
indirectly, do, or agree to do, any of the following without the prior written
consent of AirNet, which shall not be unreasonably delayed or withheld:
(a) adopt or propose any change in its certificate of incorporation or
bylaws or equivalent organizational documents;
(b) merge or consolidate with any other Person or acquire the business
or assets of any other Person for a purchase price in excess of $100,000;
(c) lease, license or otherwise dispose of any assets or property
(excluding inventory, cash and cash equivalents) in excess of $25,000 except
(i) pursuant to existing contracts or commitments or (ii) in the ordinary
course consistent with past practice in an aggregate amount not to exceed
$100,000;
(d) except to the extent contemplated by this Agreement, declare, set
aside, make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to any of their capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of their capital stock;
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(f) increase the compensation payable or to become payable to the
Company's or any of its Subsidiaries' executive officers, directors or
employees, except for increases in the ordinary course of business
consistent with past practice, or grant any severance or termination pay to,
or enter into any employment or severance agreement with any director or
executive officer, or establish, adopt, enter into or amend in any material
respect or take action to accelerate any rights or benefits under any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, executive officer or
employee;
(g) pay compensation to Robert Mitzman, Karl Daigle, Glenn Smoak and
Dominique Brown in excess of an annualized rate of $720,000 in the
aggregate;
(h) create or assume any Lien on any asset having a value in excess of
$25,000 other than in the ordinary course consistent with past practices;
(i) issue, deliver or sell, or authorize or propose to issue, deliver or
sell, any Company Securities, any Company Subsidiary Securities or any
securities convertible into or exchangeable for, or any rights, warrants or
options to acquire, any Company Securities or Company Subsidiary Securities
other than pursuant to the exercise of a Company Stock Option;
(j) incur or assume any indebtedness in excess of $25,000 from any third
party for borrowed money or guarantee any such indebtedness (other than the
endorsement of checks in the ordinary course of business);
(k) make any loans, advances or capital contributions to, or investments
in, any other Person except for (i) loans, advances or capital contributions
to or investments in Subsidiaries of the Company, (ii) loans or advances to
employees in the ordinary course of business consistent with past practice
and in an aggregate amount not to exceed $25,000, (iii) loans to
Stockholders to the extent permitted by Section 5.05(d) or (iv) investments
in securities consistent with past practices;
(l) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution of the Company or any
Subsidiary of the Company, or any plan of division or share exchange
involving the Company or any of its Subsidiaries;
(m) change any method of accounting or any accounting principle or
practice used by the Company or any Subsidiary of the Company, except for
any such change required by reason of a change in generally accepted
accounting principles or Regulation S-X;
(n) terminate the Company's status as an S corporation within the
meaning of Section 1361(a)(1) of the Code at any time prior to the Effective
Time;
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(o) legally bind the Company or any Subsidiary to do any of the
foregoing; or
(p) take or agree or commit to take any action to willfully make any
representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
SECTION 5.02. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof until the Effective Time, the Company shall afford AirNet, its officers,
directors, employees, counsel, financial advisors, auditors and other authorized
representatives (the "AirNet Representatives") reasonable access to the offices,
properties, books and records of the Company and its Subsidiaries, will furnish
to AirNet and the AirNet Representatives such financial and operating data and
other information as such Persons may reasonably request and will instruct the
Company's and its Subsidiaries' employees, counsel and financial advisors to
cooperate with AirNet in its investigation of the business of the Company;
PROVIDED that no investigation pursuant to this Section shall affect any
representation or warranty given by the Company and the Stockholders to AirNet
and Merger Subsidiary hereunder.
(b) All information obtained by AirNet pursuant to this Section shall be
kept confidential in accordance with the confidentiality agreement dated as of
December 24, 1997, between AirNet and the Company.
SECTION 5.03. OTHER OFFERS. From the date hereof until the later of the
termination of this Agreement and the Effective Time, none of the Company, any
Subsidiary or Affiliate of the Company, the Stockholders or any officer,
director, employee or other agent of the Company or any of its Subsidiaries
will, directly or indirectly, (i) take any action to solicit, initiate or
encourage any inquiries or the making or implementation of any proposal or offer
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any equity securities of, the Company or any Subsidiary of the Company (a
"Company Acquisition Proposal"), other than the transactions contemplated by
this Agreement, or (ii) engage in negotiations with, or disclose any nonpublic
information relating to the Company or any Subsidiary of the Company or afford
access to the properties, books or records of the Company or any Subsidiary of
the Company to, any Person that the Company believes may be considering making,
or has made, a Company Acquisition Proposal. The Company will promptly notify
AirNet upon receipt of any Company Acquisition Proposal or any indication that
any Person is considering making a Company Acquisition Proposal or any request
for nonpublic information relating to the Company or any Subsidiary of the
Company or for access to the properties, books or records of the Company or any
Subsidiary of the Company by any Person that may be considering making, or has
made, a Company Acquisition Proposal and will keep AirNet fully informed of the
status and details of any such Company Acquisition Proposal, indication or
request.
SECTION 5.04. NOTICES OF CERTAIN EVENTS. The Company shall promptly notify
AirNet:
(a) of any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) of any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(c) upon learning of (x) any representation or warranty contained in
this Agreement becoming untrue or inaccurate in any material respect or (y)
any covenant, condition or agreement contained in this Agreement failing to
be complied with or satisfied in all material respects when such compliance
or satisfaction is due;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section
shall not limit or otherwise affect the remedies available hereunder to AirNet.
SECTION 5.05. STOCKHOLDER ACTIONS. (a) Each Stockholder has voted all
shares of voting capital stock of the Company held or controlled by such
Stockholder in favor of the approval and adoption of this
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Agreement and the Merger and has waived any and all rights now or hereafter
available to such Stockholder under New York Law to demand appraisal with
respect to any shares of capital stock of the Company in connection with this
Agreement, the Merger or the other transactions contemplated by this Agreement.
(b) From the date of this Agreement until the Effective Time, each
Stockholder shall not sell any shares of capital stock of the Company or
otherwise transfer any voting rights with respect thereto and shall not, other
than as a director of the Company, make, or in any way participate, directly or
indirectly, in any "solicitation" of proxies (as such terms are used in the
proxy rules under the Exchange Act) or seek to advise or influence any person or
entity to vote against approval and adoption of this Agreement, the Merger or
the other transactions contemplated by this Agreement.
(c) Following the Effective Time, each Stockholder agrees not to make any
sale, transfer or other disposition of any AirNet Common Shares unless (i) such
sale, transfer or other disposition has been registered under the Securities
Act, (ii) such sale, transfer or other disposition is made in conformity with
the provisions of Section 4(1) of or Rules 144 or 145 under the Securities Act
(as such rule may be amended from time to time), or (iii) in the opinion of
counsel in form and substance reasonably satisfactory to AirNet, or under a
"no-action" letter obtained by such Stockholder from the staff of the SEC, such
sale, transfer or other disposition will not violate or is otherwise exempt from
registration under the Securities Act; PROVIDED, that in no event will such
Stockholder sell, transfer or otherwise dispose of any shares of capital stock
of the Company or any AirNet Common Shares (whether or not acquired by such
Stockholder in the Merger) during the period commencing 30 days prior to the
Effective Time and ending at such time as AirNet publishes financial results
covering at least 30 days of combined operations of AirNet and the Surviving
Corporation after the Merger.
(d) Each Stockholder who has borrowed money from the Company and/or who
borrows money from the Company between the date hereof and the Effective Time
(each, a "Stockholder Loan") agrees that such Stockholder Loan shall (i) be
reflected in a full recourse note executed by such Stockholder, (ii) bear
interest at the minimum prescribed rate under the regulations of the IRS
necessary to avoid imputed interest and (iii) be due and payable in full on
December 31, 1998; PROVIDED, that if the Effective Time occurs after August 31,
1998 but on or prior to November 30, 1998, such Stockholder Loans shall be due
and payable in full on March 31, 1999, and if the Effective Time occurs after
November 30, 1998, such Stockholder Loans shall be due and payable in full three
months after the Effective Time.
SECTION 5.06. TERMINATION OF DULLES AIRPORT LEASE. The Company shall
negotiate with, and obtain from, Glenn Smoak an amendment to the Lease dated as
of September 5, 1997, between a Subsidiary of the Company and Glenn and Rita L.
Smoak relating to the property located at 847 Station Street, Herndon, Virginia,
and providing for early termination of such lease on terms which are at no cost
to AirNet, the Company or their respective Subsidiaries to AirNet (the "Lease
Amendment").
ARTICLE VI
COVENANTS OF AIRNET AND MERGER SUBSIDIARY
AirNet and Merger Subsidiary, jointly and severally, and, solely for
purposes of Section 6.05(c), Gerald G. Mercer, agree that:
SECTION 6.01. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof until the Effective Time, AirNet shall afford the Company, its officers,
directors, employees, counsel, financial advisors, auditors and other authorized
representatives (the "Company Representatives") reasonable access to the
offices, properties, books and records of AirNet, its Subsidiaries and Merger
Subsidiary, will furnish to the Company and the Company Representatives such
financial and operating data and other information as such Persons may
reasonably request and will instruct AirNet's and its Subsidiaries' employees,
counsel and financial advisors to cooperate with the Company in its
investigation of the business of AirNet and its
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Subsidiaries; PROVIDED that no investigation pursuant to this Section shall
affect any representation or warranty given by AirNet and Merger Subsidiary to
the Company and the Stockholders hereunder.
(b) All information obtained by the Company pursuant to this Section shall
be kept confidential in accordance with the confidentiality agreement dated as
of December 24, 1997, between AirNet and the Company.
SECTION 6.02. OBLIGATIONS OF MERGER SUBSIDIARY. AirNet will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 6.03. OTHER OFFERS. From the date hereof until the later of the
termination of this Agreement and the Effective Time, none of AirNet, any
Subsidiary of AirNet or Affiliate of AirNet or any officer, director, employee
or other agent of AirNet or any of its Subsidiaries will, subject to the
fiduciary duties of AirNet's Board of Directors, directly or indirectly, (i)
take any action to solicit, initiate or encourage any inquiries or the making or
implementation of any proposal or offer with respect to a transaction involving
the sale of all or a significant portion of the assets or equity securities of
AirNet (an "AirNet Acquisition Proposal"), other than the transactions
contemplated by this Agreement, or (ii) engage in negotiations with, or disclose
any nonpublic information relating to AirNet or afford access to the properties,
books or records of AirNet to, any Person that AirNet believes may be
considering making, or has made, an AirNet Acquisition Proposal. AirNet will
promptly notify the Company upon receipt of any AirNet Acquisition Proposal or
any indication that any Person is considering making an AirNet Acquisition
Proposal or any request for nonpublic information relating to AirNet or for
access to the properties, books or records of AirNet by any Person that may be
considering making, or has made, an AirNet Acquisition Proposal and will keep
the Company fully informed of the status and details of any such AirNet
Acquisition Proposal, indication or request.
SECTION 6.04. NOTICES OF CERTAIN EVENTS. AirNet shall promptly notify the
Company:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(c) upon learning of (x) any representation or warranty contained in
this Agreement becoming untrue or inaccurate in any material respect or (y)
any covenant, condition or agreement contained in this Agreement failing to
be complied with or satisfied in all material respects when such compliance
or satisfaction is due; and
(d) any failure of AirNet, any Subsidiary of AirNet or Merger Subsidiary
to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section
shall not limit or otherwise affect the remedies available hereunder to the
Company.
SECTION 6.05. REGISTRATION STATEMENT; STOCKHOLDER MEETING; PROXY
MATERIAL. (a) As promptly as practicable after the execution of this Agreement,
AirNet shall prepare and file a registration statement on Form S-4 covering the
AirNet Common Shares and the Adjusted Options to be issued to the Stockholders
in the Merger (the "Registration Statement"), which will include a proxy
statement for a meeting of the AirNet shareholders (the "AirNet Proxy
Statement"). The Company will cooperate with AirNet in preparing and filing the
Registration Statement.
(b) As promptly as practicable after the Registration Statement becomes
effective under all applicable securities laws, AirNet shall cause a meeting of
its shareholders (the "AirNet Shareholder Meeting") to be duly called and held
for the purpose of soliciting the AirNet Shareholder Consent, including, but not
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limited to, for purposes of Section 1701.831 of the Ohio Law. The AirNet Proxy
Statement shall include the unanimous recommendation of the Board of Directors
of AirNet in favor of the approval and adoption of this Agreement and the Merger
and the transactions contemplated hereby. AirNet will (i) mail to its
shareholders the AirNet Proxy Statement and all other proxy materials for such
meeting, (ii) will use its reasonable efforts to obtain the necessary approvals
by its shareholders and (iii) will otherwise comply with all legal requirements
applicable to such meeting.
(c) Gerald G. Mercer agrees to vote all shares of voting capital stock of
AirNet then held or controlled by him at the AirNet Stockholder Meeting in favor
of the approval and adoption of this Agreement and the Merger.
SECTION 6.06. LISTING OF SHARES. AirNet shall make application to the NYSE
or such other exchanges as shall be agreed for the listing of the AirNet Common
Shares to be issued in connection with the Merger. AirNet shall use its
reasonable efforts to cause such AirNet Common Shares to be listed on NYSE,
subject to official notice of issuance.
SECTION 6.07. DIRECTOR AND OFFICER INDEMNIFICATION. From and after the
Effective Time, AirNet will cause the Surviving Corporation to indemnify and
hold harmless the present and former officers and directors of the Company in
respect of acts or omissions occurring prior to the Effective Time solely in
their role as officers or directors to the extent provided under the Company's
certificate of incorporation and by-laws, or equivalent organizational
documents, in effect on the date hereof; PROVIDED, that such indemnification
shall be subject to any limitation imposed from time to time under applicable
law, and, PROVIDED, FURTHER, that such indemnification shall not apply to claims
made by or on behalf of any stockholder or former stockholder of the Company.
SECTION 6.08. BOARD OF DIRECTORS. (a) As soon as practicable after the
Effective Time and subject to their fiduciary duties to the AirNet shareholders,
the Board of Directors of AirNet shall use its reasonable efforts to cause the
shareholders of AirNet to elect Robert Mitzman to the Board of Directors of
AirNet. For so long as Robert Mitzman beneficially owns 49% of the issued and
outstanding AirNet Common Shares he actually receives, directly or indirectly,
as his portion of the Merger Consideration, the Board of Directors of AirNet
shall continue to use its reasonable efforts to cause the shareholders of AirNet
to elect Mr. Mitzman as a director of AirNet.
SECTION 6.09. RULES 144 AND 145. With a view to making available to the
Stockholders the benefits of Rules 144 and 145 promulgated under the Securities
Act, and any other similar rules and regulations of the SEC which may at any
time permit the Stockholders to sell or distribute without registration the
AirNet Common Shares received as Merger Consideration hereunder, AirNet agrees
to file with the SEC in a timely manner all reports and other documents required
to be filed by it under the Exchange Act.
SECTION 6.10. PURCHASE OF AIRPORT FACILITY. AirNet agrees to negotiate in
good faith with the Primary Shareholder for the purchase of the Company's
facility located at 175-28 148th Avenue, Jamaica, New York for the fair market
value thereof, as determined by Cushman & Wakefield. Such purchase shall be made
pursuant to a purchase agreement (the "Airport Facility Purchase Agreement")
which shall be negotiated in good faith between the Primary Seller and Buyer and
shall contain standard indemnifications (including, but not limited to, with
respect to environmental matters).
SECTION 6.11. RELEASE OF GUARANTEES. On or prior to, but effective as of,
the Effective Date, AirNet shall assume, and agrees to use its reasonable
efforts to obtain the unconditional release and discharge of the Primary
Stockholder's obligations to guarantee the obligations of the Company pursuant
to, the personal guaranties of the Primary Stockholder set forth on Schedule
3.22 of the Company Disclosure Schedule (the "Personal Guaranties"). To the
extent that AirNet is unable to obtain the release of the Primary Stockholder
from all liability pursuant to the Personal Guaranties, AirNet shall defend,
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indemnify and hold harmless the Primary Stockholder with respect to any such
liability he may incur pursuant to such Personal Guaranties.
ARTICLE VII
COVENANTS OF AIRNET, THE
COMPANY AND THE STOCKHOLDERS
The parties hereto agree that:
SECTION 7.01. REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, each party will use its reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as possible.
SECTION 7.02. CERTAIN FILINGS. The Company and AirNet shall cooperate with
one another (a) in connection with the preparation of the Registration Statement
and the AirNet Proxy Statement (including, but not limited to, the preparation
of any financial statements or pro forma financial statements required to be
included therein), and (b) in determining whether any action by or in respect
of, or filing with, any governmental body, agency or official, or authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any contracts, in connection with the consummation of
the transactions contemplated by this Agreement and (c) in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Registration Statement
or the AirNet Proxy Statement and seeking to timely obtain any such actions,
consents, approvals or waivers. AirNet and the Company will each use its
reasonable efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after the Registration Statement
is filed with the SEC.
SECTION 7.03. PUBLIC ANNOUNCEMENTS. AirNet and the Company will consult
with each other before issuing any press release or otherwise making any public
statement with respect to this Agreement or any transaction contemplated herein
and, except as may be required by applicable law, the rules and regulations of
the SEC or any listing agreement with any national securities exchange, AirNet
will not issue any such press release or make any such public statement prior to
such consultation, and the Company will not issue any such press release or make
any such public statement without the prior written consent of AirNet, which
shall not be unreasonably withheld or delayed.
SECTION 7.04. FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 7.05. TAX MATTERS. (a) The Stockholders shall be solely
responsible for preparing all Tax Returns with respect to the income, business,
assets, operations, activities, status or other matters of the Company or any of
its Subsidiaries for all taxable periods ending at or before the Effective Time.
The Stockholders shall submit a copy of such Tax Returns to AirNet for its
review and approval (which shall not be unreasonably withheld or delayed) at
least 15 days prior to their due date. Upon such approval, AirNet and the
Stockholders shall cause such Tax Returns to be filed on a timely basis. The
Stockholders shall be solely responsible for and shall pay on a timely basis all
Taxes due thereon, except to the extent that such Taxes payable by the Company
or any of its Subsidiaries are reflected as reserves on the Balance Sheet.
Without limiting the generality of the foregoing, the Stockholders shall be
solely responsible for and shall
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pay on a timely basis all applicable Taxes arising from consummation of the
transactions contemplated by this Agreement.
(b) AirNet shall be solely responsible for preparing and filing on a timely
basis all Tax Returns with respect to the income, business, assets, operations,
activities, status or other matters of the Company or any of its Subsidiaries
for all taxable periods beginning after the Effective Time. AirNet shall be
solely responsible for and shall pay on a timely basis all Taxes due thereon.
(c) The Stockholders and AirNet shall jointly prepare all Tax Returns with
respect to the income, business, assets, operations, activities, status or other
matters of the Company or any of its Subsidiaries for all taxable periods
beginning before and ending after the Effective Time ("Straddle Periods"). The
Stockholders and AirNet shall allocate any liability for Taxes relating to
Straddle Periods on the basis of an interim closing of the books as of the
Effective Time; PROVIDED, HOWEVER, that the Stockholders shall not be
responsible for such Taxes payable by the Company or any Subsidiary to the
extent that such Taxes are reflected as reserves on the Balance Sheet.
(d) The Stockholders and AirNet agree to furnish to each other, upon written
request, as promptly as practicable, such information and reasonable assistance
relating to the Company or any of its Subsidiaries as is necessary for the
filing of any Tax Return required to be filed after the Effective Time. The
Stockholders and AirNet also agree to cooperate with each other in the conduct
of any audit or other proceeding involving one or more of the Company, any of
its Subsidiaries or any successor corporation. In any such case, each party
shall use its reasonable efforts to cause its financial advisors, auditors and
other authorized representatives to cooperate therewith.
(e) Notwithstanding anything herein to the contrary, the parties agree that
immediately prior to the Effective Time, the Company shall distribute to the
Stockholders an amount equal to the Preliminary S Corporation Tax Distribution
(as defined below). No later than five days prior to the Effective Time, the
Company shall deliver to AirNet a certificate specifying a good faith estimate
of the Stockholders' aggregate liability for Taxes attributable to the estimated
taxable income of the Company and its Subsidiaries for the period commencing on
January 1, 1998 and ending at the Effective Time (the "Preliminary S Corporation
Tax Distribution"). As soon as practicable after the Effective Time, but in no
event less than five days prior to the due date (without extensions) of the
Stockholders' Tax Returns in respect of the period described in the previous
sentence, AirNet and the Stockholders shall agree on the Stockholders' aggregate
liability for Taxes attributable to the taxable income of the Company and its
Subsidiaries for such period (the "Final S Corporation Tax Distribution"). In
calculating the Final S Corporation Tax Distribution, AirNet and the
Stockholders shall take into account any previously suspended losses of the
Stockholders (relative to their interest in the Company and its Subsidiaries)
that are available to reduce the Stockholders' liability for Taxes. The Company
shall pay to the Stockholders, or the Stockholders shall pay to the Company, as
appropriate, any difference between the Preliminary S Corporation Tax
Distribution and the Final S Corporation Tax Distribution. In the event that the
Final S Corporation Tax Distribution would change as a result of a
redetermination by a taxing authority, or otherwise, AirNet, the Company and the
Stockholders shall make appropriate adjustments to the Final S Corporation Tax
Distribution in a prompt and reasonable manner.
SECTION 7.06. TAX TREATMENT. None of the Stockholders, the Company, AirNet
or Merger Subsidiary has taken, or will take, any action or omit to take any
action which causes the Merger to fail to qualify as a reorganization under
Section 368(a) of the Code or which otherwise jeopardizes the status of the
Merger as a tax-free reorganization within the meaning of Section 368(a) of the
Code.
SECTION 7.07. EMPLOYEE BENEFITS. (a) At the Effective Time, each of the
Employee Plans (except any Employee Plan which is subject to the provisions of
Section 401(k) of the Code) and Benefit Arrangements of the Company shall remain
in effect and shall be assumed by the Surviving Corporation. Any Employee Plan
which is subject to the provisions of Section 401(k) of the Code (a "Company
401(k) Plan") shall be terminated by the Company prior to the Effective Time.
With respect to each of the
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Employee Plans and Benefit Arrangements of the Company other than a Company
401(k) Plan, AirNet agrees that, by no later than three years after the
Effective Time, AirNet shall terminate such Employee Plans and Benefit
Arrangements of the Company and shall, in lieu thereof, provide, or shall cause
the Surviving Corporation to provide, employees of the Surviving Corporation,
with the same or substantially similar employee benefit plans and programs,
including but not limited to employee benefit plans, within the meaning of
Section 3(3) of ERISA, as those provided to employees of AirNet with comparable
status and seniority as of the time of such termination.
(b) Notwithstanding the foregoing, as soon as practicable after the
Effective Time, AirNet shall, or shall cause the Surviving Corporation to,
establish or designate, and maintain, a defined contribution plan (the "AirNet
401(k) Plan") to provide benefits to the employees of the Surviving Corporation
who are participants in a Company 401(k) Plan as of the date of its termination
in accordance with Section7.07(a) ("401(k) Plan Participants"). The AirNet
401(k) Plan shall be qualified under Section401(a) and 401(k) of the Code and
shall provide the 401(k) Plan Participants full credit for service with the
Company, its Subsidiaries and their Affiliates for purposes of eligibility to
participate and vesting. The AirNet 401(k) Plan shall also accept rollover
contributions and rollovers of any outstanding account loan balances of the
401(k) Plan Participants from a Company 401(k) Plan.
SECTION 7.08. POSTAL OFFICE LITIGATION. The parties hereto agree to
cooperate in good faith to resolve the specific contingency set forth as item
number one on Schedule 1.04 within six months after the Effective Time in the
manner most advantageous to the Surviving Corporation and AirNet, including, but
not limited to, the recovery of attorneys' fees by the Surviving Corporation in
connection with the litigation by the United States Postal Service against the
Company.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective
obligations of the Company, the Stockholders, AirNet and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by this Agreement and by applicable law:
(a) this Agreement and the Merger and the transactions contemplated
thereby shall have been approved by the Stockholders in accordance with New
York Law;
(b) this Agreement and the Merger and the transactions contemplated
thereby, including the issuance of the AirNet Common Shares to the
Stockholders, shall have been approved by the shareholders of AirNet in
accordance with Ohio Law, including, but not limited to, Section 1701.831 of
Ohio Law, and the rules and regulations of the NYSE;
(c) the applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated;
(d) the Registration Statement shall have been declared effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the SEC;
(e) the AirNet Common Shares to be issued to the Stockholders in the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance;
(f) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
and
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(g) other than the filing of certificates of merger and/or other merger
documents in accordance with New York Law and Ohio Law, all authorizations,
consents, waivers, orders or approvals required to be obtained, and all
filings, notices or declarations required to be made, by the Company, AirNet
and Merger Subsidiary prior to the consummation of the Merger shall have
been obtained from, and made with, all required governmental or regulatory
authorities except for such authorizations, consents, waivers, orders,
approvals, filings, notices or declarations the failure of which to obtain
or make would not, at or after the Effective Time, individually or in the
aggregate, have a Company Material Adverse Effect or an AirNet Material
Adverse Effect.
SECTION 8.02. CONDITIONS TO THE OBLIGATIONS OF AIRNET AND MERGER
SUBSIDIARY. The obligations of AirNet and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
this Agreement and by applicable law:
(a) the Company and the Stockholders shall have performed in all
material respects their respective agreements and covenants required by this
Agreement to be performed by them at or prior to the Effective Time; the
representations and warranties of the Company and the Stockholders contained
in this Agreement and in any certificate or other writing delivered under
Article VIII hereof by the Company or Stockholder pursuant hereto,
disregarding (other than with respect to Section 3.10(a)(i) and (vii)
hereof) any qualifications contained therein regarding materiality or
Company Material Adverse Effect, shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such time,
and AirNet shall have received a certificate signed by the Chief Executive
Officer and principal financial officer of the Company to the foregoing
effect;
(b) since the Balance Sheet Date, there shall have been no change,
occurrence or circumstance in the business, results of operations or
condition (financial or otherwise) of the Company having or reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect, and AirNet shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of the Company to such effect;
(c) the Company's income from operations as calculated jointly by AirNet
and the Company for the period beginning on January 1, 1998 and ending as of
(i) the end of the month immediately preceding the Effective Time (if the
Effective Time occurs on or after the 26th day of a month) or (ii) the end
of the month next preceding the Effective Time (if the Effective Time occurs
before the 26th day of a month) shall exceed 85% of the projected income
from operations through the end of the relevant month, as set forth on
Schedule 8.02(c) of the Company Disclosure Schedule; PROVIDED, that the
following costs and expenses of the Company shall not be taken into account
in determining income from operations at the end of the relevant month as
set forth on Schedule 8.02(c): the fees and expenses of DLJ pursuant to the
letter agreement set forth on item number 68 on Schedule 3.16(a) of the
Company Disclosure Schedule, the legal fees and expenses of Winthrop,
Stimson, Putnam & Roberts and the accounting fees and expenses of Ernst &
Young (New York), in each case incurred on behalf of the Company in
connection with this Agreement and the transactions contemplated hereby;
(d) no court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or
regulation, materially restraining or prohibiting the consummation of the
Merger or the effective operation of the business of the Company after the
Effective Time;
(e) AirNet shall have received executed Employment Agreements from
Robert Mitzman, Dominique Brown and Glenn Smoak, in the forms attached
hereto as Annex B-1, Annex B-2 and Annex B-3, respectively, and such
agreements shall continue to be in full force and effect as of the Effective
Time;
(f) AirNet shall have received a Lease Amendment executed by Glenn Smoak
and Rita L. Smoak and the Subsidiary of the Company party thereto in the
form attached hereto as Annex C, and
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such amendment shall continue to be in full force and effect without
subsequent amendment as of the Effective Time;
(g) AirNet shall have received all documents it may reasonably request
relating to the existence of the Company and its Subsidiaries and the
authority of the Company to enter into, deliver and perform this Agreement,
all in form and substance reasonably satisfactory to AirNet;
(h) AirNet shall have received a letter, dated as of the Effective Time,
from Ernst & Young LLP (Columbus) regarding its concurrence with AirNet's
conclusion as to the appropriateness of pooling of interests accounting
treatment for the Merger under Accounting Principles Board Opinion No. 16;
(i) AirNet shall have received a fairness opinion of its financial
advisor, SBCWDR, in form and substance reasonably satisfactory to AirNet,
and dated as of the Effective Time, to the effect that the Merger is fair
from a financial point of view to the Company as of such date;
(j) This Agreement shall have been signed by each holder of outstanding
shares of the Company's capital stock as of the Effective Time, either on
the signature pages hereof or in a separate joinder agreement in form and
substance reasonably satisfactory to AirNet; and
(k) The following agreements and instruments shall have been terminated
or cancelled, as the case may be, and AirNet shall have received evidence of
such termination or cancellation in form and substance reasonably
satisfactory to AirNet: (i) the Amended and Restated Shareholders' Agreement
dated as of September 5, 1997, by and among the Company, Robert J. Mitzman,
Dominique Brown, Karl R. Daigle and Glenn Smoak; (ii) the Non-Negotiable
9.0% Convertible Debenture dated as of July 31, 1997 in the principal amount
of $822,500 issued to Tomas Miguens from Dominique Brown; (iii) the
Non-Negotiable 9.0% Convertible Debenture dated as of July 31, 1997 in the
principal amount of $177,500 issued to Tomas Miguens from Karl Daigle; (iv)
the Agreement dated as of July 31, 1997 between the Company and Dominique
Brown referred to as item 6. on Schedule 3.14(e) of the Company Disclosure
Schedule; (v) the Agreement dated as of July 31, 1997 between the Company
and Karl Daigle referred to as item 7. on Schedule 3.14(e) of the Company
Disclosure Schedule; and (vi) the letter agreement dated as of September 5,
1997 between the Company and Glenn Smoak referred to as item 19. on Schedule
3.14(e) of the Company Disclosure Schedule.
SECTION 8.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by this Agreement and by
applicable law:
(a) AirNet, Merger Subsidiary and Mr. Mercer shall have performed in all
material respects their respective agreements and covenants required by this
Agreement to be performed by them at or prior to the Effective Time; the
representations and warranties of AirNet and Merger Subsidiary contained in
this Agreement and in any certificate or other writing delivered by AirNet
or Merger Subsidiary pursuant hereto, disregarding (except with respect to
Section 4.14) any qualifications contained therein with respect to
materiality or AirNet Material Adverse Effect, shall be true and correct in
all material respects at and as of the Effective Time as if made at and as
of such time, and the Company shall have received a certificate signed by
the Chief Executive Officer and Chief Financial Officer of AirNet to the
foregoing effect;
(b) since December 31, 1997, there shall have been no change, occurrence
or circumstance in the business, results of operations or condition
(financial or otherwise) of AirNet having or reasonably likely to have,
individually or in the aggregate, an AirNet Material Adverse Effect, and the
Company shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of AirNet to such effect;
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(c) no court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or
regulation, materially restraining or prohibiting the consummation of the
Merger or the effective operation of the business of AirNet after the
Effective Time;
(d) the Stockholders shall have received a Registration Rights Agreement
in the form attached hereto as Annex D executed by AirNet;
(e) the Stockholders shall have received Employment Agreements for
Robert Mitzman, Dominique Brown and Glenn Smoak, in the forms attached
hereto as Annex B-1, Annex B-2 and Annex B-3, respectively, executed by
AirNet, and such agreements shall continue to be in full force and effect as
of the Effective Time;
(f) the Primary Stockholder shall have received the Airport Facility
Purchase Agreement executed by AirNet;
(g) the Company shall have received all documents it may reasonably
request relating to the existence of AirNet and Merger Subsidiary and the
authority of AirNet and Merger Subsidiary to enter into, deliver and perform
this Agreement, all in form and substance reasonably satisfactory to the
Company; and
(h) the Company shall have received a letter, dated as of the Effective
Time, from Ernst & Young LLP (New York) regarding its concurrence with the
Company's conclusion as to the appropriateness of pooling of interests
accounting treatment for the Merger under Accounting Principles Board
Opinion No. 1.
ARTICLE IX
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the Stockholders or the shareholders of AirNet):
(a) by mutual written consent of the Company and AirNet;
(b) by the Company or AirNet if the Merger has not been consummated by
September 30, 1998; PROVIDED, HOWEVER, that the right to terminate this
Agreement pursuant to this Section 9.01(b) shall not be available to any
party whose willful failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be consummated by such
time;
(c) by the Company, if the approval of the shareholders of AirNet
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote at the AirNet Shareholder Meeting or any
adjournment;
(d) by AirNet, if prior to Effective Time, the Directors of the Company
shall have withdrawn, modified or changed their approval of this Agreement
in a manner which adversely impacts the consummation of the Merger;
(e) by the Company, if prior to the Effective Time, the Directors of
AirNet shall have withdrawn, modified or changed their approval or
recommendation of this Agreement in a manner which adversely impacts the
consummation of the Merger;
(f) by AirNet, upon a breach of any representation, warranty, covenant
or agreement of the Company or the Stockholders, or if any representation or
warranty of the Company shall become untrue, the effect of which is a
Company Material Adverse Effect, in either case such that the breach or the
condition causing such breach would be incapable of being cured by September
30, 1998 (or as otherwise extended);
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(f) by the Company, upon a breach of any representation, warranty,
covenant or agreement of AirNet and Merger Subsidiary, or if any
representation or warranty of AirNet and Merger Subsidiary shall become
untrue, the effect of which is an AirNet Material Adverse Effect, in either
case such that the breach or the condition causing such breach would be
incapable of being cured by September 30, 1998 (or as otherwise extended);
or
(g) by the Company or AirNet if there shall be any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining AirNet or the Company
from consummating the Merger is entered and such judgment, injunction, order
or decree shall become final and nonappealable.
SECTION 9.02. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in Sections 5.02, 6.01 and 11.03 shall survive the termination hereof;
PROVIDED, HOWEVER, that nothing herein shall relieve any party from liability
for the willful breach in any material respect of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
ARTICLE X
SURVIVAL; INDEMNIFICATION
SECTION 10.01. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered under Article VIII hereof (the "General
Contingencies") shall survive the Effective Time through the period ending upon
the filing of AirNet's Form 10-K (including the operations of the Company) for
the fiscal year ended December 31, 1998. In addition to, and not in limitation
of, the foregoing, the specific contingencies set forth on Schedule 1.04 (the
"Specific Contingencies") shall survive the Effective Time until the later of
(i) the second anniversary of the Effective Time or (ii) expiration of the
applicable statutory period of limitations (giving effect to any waiver,
mitigation or extension thereof), unless sooner released by AirNet in writing.
Notwithstanding the preceding two sentences, any General Contingencies in
respect of which indemnity may be sought under Section 10.02 shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the specific inaccuracy or breach thereof giving rise to such right
to indemnity shall have been given to the party against whom such indemnity may
be sought prior to such time.
SECTION 10.02. INDEMNIFICATION. (a) Each of the Stockholders hereby,
severally but not jointly, indemnifies AirNet and, effective as of the Effective
Time, without duplication, the Company and their respective Affiliates (each an
"AirNet Indemnitee" against and agree to hold it harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any action, suit or proceeding) (collectively, "Loss") incurred
or suffered by any AirNet Indemnitee arising out of the General Contingencies
made or to be performed by the Company or the Stockholders pursuant to this
Agreement or arising out of the Specific Contingencies; PROVIDED that (i) the
Stockholders shall not be liable under this Section 10.02(a) unless the
aggregate amount of Losses with respect to all matters referred to in this
Section 10.02(a) (determined without regard to any materiality qualification
(other than with respect to Section 3.10(a)(i) and (vii) hereof and the
bring-down certificate described in Section 8.02(a) with respect thereto)
contained in any representations, warranty or covenant giving rise to the claim
for indemnity hereunder) exceeds $200,000 (after which point the Stockholders
will be liable under this Section 10.02(a) only for further such Losses); (ii)
any claim for Losses under this Section 10.02(a) shall be in an aggregate amount
equal to or greater than $25,000; and (iii) at and after the Effective Time, the
Stockholders' liability under this Section 10.02(a) shall be limited to the
Escrow Shares.
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(b) AirNet and Merger Subsidiary hereby, jointly and severally, indemnify
the Stockholders and, prior to the Effective Time, the Company (the Stockholders
and the Company being hereinafter referred to as the "Company Indemnitees")
against and agrees to hold them harmless from any and all Losses incurred or
suffered by the Stockholders arising out of any General Contingencies made or to
be performed by AirNet or Merger Subsidiary pursuant to this Agreement, PROVIDED
that (i) AirNet shall not be liable under this Section 10.02(b) unless the
aggregate amount of the Stockholders' Losses exceeds $1,000,000 (after which
point AirNet will be liable under this Section 10.02(b) only for further such
Losses); (ii) all Losses shall be payable by AirNet in additional AirNet Common
Shares having a fair market value (based on the closing price of the AirNet
Common Shares on the New York Stock Exchange) on the date of payment equal to
the amount of such Losses; (iii) any claim for Losses under this Section
10.02(b) shall be in an aggregate amount equal to or greater than $25,000; and
(iv) at and after the Effective Time, AirNet's maximum liability under this
Section 10.02(b) shall not exceed 10% of the Merger Consideration.
SECTION 10.03. PROCEDURES. (a) The party seeking indemnification under
Section 10.02 (the "Indemnified Party") agrees to give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the Losses
for which indemnity may be sought under such Section. Subject to the rights or
duties to any insurer or other third party having liability therefor, the
Indemnifying Party shall have the right within 10 days after receipt of such
notice to assume the control of the defense, compromise or settlement of any
such action, suit or proceeding, including, at its own expense, employment of
counsel on behalf of the Indemnified Party (who shall be reasonably satisfactory
to the Indemnified Party) and at any time thereafter to exercise on behalf of
the Indemnified Party any rights which may reasonably mitigate any of the
foregoing; PROVIDED, that if the Indemnifying Party shall have exercised its
right to assume such control, the Indemnified Party (i) may, in its sole
discretion and at its sole expense, employ counsel to represent it (in addition
to counsel employed by the Indemnifying Party) in any such matter, and in such
event counsel selected by the Indemnifying Party shall be required to cooperate
with such counsel of the Indemnified Party in such defense, compromise or
settlement for the purpose of informing and sharing information with such
Indemnified Party and (ii) will, at its own expense, make available to the
Indemnified Party those employees of the Indemnifying Party or any Affiliate of
the Indemnifying Party whose assistance, testimony or presence is necessary to
assist the Indemnified Party in evaluation and defending any such action, suit
or proceeding; PROVIDED, FURTHER, that in no event shall the Indemnifying Party,
without the written consent of the Indemnified Party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action, suit or proceeding (whether or not the Indemnified
Party is an actual or potential party to such action, suit or proceeding) unless
such settlement, compromise or judgment (x) includes the unconditional release
by the parties asserting such action, suit or proceeding of the Indemnified
Party from all liability arising out of such action, suit or proceeding and (ii)
does not include an admission of fault, culpability or a failure to act, by or
on behalf of any Indemnified Party.
(b) The Indemnified Party shall cooperate fully in all aspects of any matter
for which indemnity is sought pursuant to this Article X with respect to an
action brought by a third party, including, in such case, by providing
reasonable access to employees and officers (as witnesses or otherwise) and
other information.
SECTION 10.04. EXCLUSIVE REMEDY. AirNet, on behalf of itself and the
AirNet Indemnitees, and the Stockholders each hereby acknowledges and agrees
that the sole and exclusive remedy with respect to any and all claims relating
to, or arising out of, the Merger, this Agreement or the transactions
contemplated hereby shall be pursuant to the indemnification provisions
contained in this Article X.
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SECTION 10.05. CERTAIN LIMITATIONS. The liability of the Indemnifying
Party to the Indemnified Party, as applicable, for claims under this Agreement
shall be limited by the following:
(a) The amount of Losses otherwise recoverable under this Article X
shall be reduced to the extent to which any Federal, state, local or foreign
tax liabilities of the Indemnified Party is decreased by reason of any Loss
in respect of which such Indemnified Party shall be entitled to indemnity
under this Agreement.
(b) No Losses shall be recoverable by an Indemnified Party with respect
to any matter which is covered by insurance or another source of
indemnification, to the extent proceeds of such insurance or other third
party indemnitor are paid net of any costs incurred in connection with the
collection thereof, the Indemnified Party hereby agreeing to seek all
reasonable remedies against all applicable insurers or indeminitors prior to
recovering any amounts hereunder.
(c) No Stockholder shall have any liability hereunder if the Effective
Time shall not have occurred. If the Effective Time shall not have occurred,
the maximum aggregate amount recoverable hereunder by all AirNet Indemnitees
from the Company is $1,600,000, and the maximum aggregate amount recoverable
hereunder by all Company Indemnitees from AirNet is $1,600,000.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy, telex or similar
writing) and shall be given,
if to AirNet or Merger Subsidiary, to:
AirNet Systems, Inc.
3939 International Gateway
Columbus, OH 43219
Attn.: Eric P. Roy, Executive Vice President,
and Chief Financial Officer
Telecopy: (614) 237-1915
with a copy to:
Ronald A. Robins, Jr.
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, OH 43215
Telecopy: (614) 464-6350
if to the Company or the Stockholders, to:
Q International Courier, Inc.
909 Third Avenue - 5th Floor
New York, NY 10022-4731
Attn.: Robert Mitzman, President
Telecopy: (212) 317-1041
with a copy to:
Kenneth E. Adelsberg
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
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New York, NY 10004-1490
Telecopy: (212) 858-1500
or such other address or telecopy number as such party may hereafter specify for
the purpose of notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 11.01
and the appropriate confirmation is received or (ii) if given by any other
means, when delivered at the address specified in this Section.
SECTION 11.02. AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, AirNet, Merger Subsidiary and the holders of a majority of the
outstanding shares of the Company's capital stock or in the case of a waiver, by
the party against whom the waiver is to be effective; PROVIDED that no such
amendment or waiver shall, without the further approval of such Stockholders,
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of the Company except to the extent
provided herein, (ii) any term of the articles of incorporation of the Surviving
Corporation or (iii) any of the terms or conditions of this Agreement if such
alteration or change would materially adversely affect the holders of any shares
of capital stock of the Company and PROVIDED, FURTHER, that after the adoption
of this Agreement by the shareholders of AirNet, no such amendment or waiver
shall, without the further approval of such shareholders, alter or change (i)
the amount or kind of consideration to be received in exchange for any shares of
capital stock of the Company except to the extent provided herein, (ii) any term
of the articles of incorporation of the Surviving Corporation or (iii) any of
the terms or conditions of this Agreement if such alteration or change would
materially adversely affect the holders of any shares of capital stock of
AirNet.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.03. EXPENSES; TAXES. (a) All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost or
expense. Notwithstanding the foregoing, all applicable sales, use or transfer
taxes, if any, and all capital gains or income taxes of any of the Stockholders
or the Company, in each case that may be due and payable as a result of the
Merger or the transactions contemplated by this Agreement, whether levied on the
Company, any of the Stockholders, AirNet or Merger Subsidiary, shall be borne by
the Person who is statutorily responsible therefor.
(b) AirNet agrees to pay the Company in immediately available funds by wire
transfer an amount equal to $1,600,000 promptly, but in no event later than two
business days, after the termination of this Agreement by the Company pursuant
to Section 9.01(c)(i) or Section 9.01(e) as a result of AirNet having
consummated, or agreed in writing to consummate, an AirNet Acquisition Proposal;
PROVIDED, HOWEVER, that AirNet shall not be obligated to pay such amount if,
immediately prior to the time such amount would otherwise be payable, (i) the
condition set forth in Section 8.02(a) would not have been satisfied, (ii) this
Agreement shall have been terminated pursuant to Section 9.01(a) or (iii) this
Agreement was terminated by AirNet pursuant to Section 9.01(b). Notwithstanding
anything to the contrary herein, the amount payable pursuant to this Section
11.03(b) shall constitute the Company's and the Stockholders' exclusive remedy
for any breach by AirNet of Section 6.03.
SECTION 11.04. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of
33
<PAGE>
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 11.06. ENTIRE AGREEMENT; COMPANY DISCLOSURE SCHEDULE. (a) This
Agreement (together with the exhibits and annexes, the Company Disclosure
Schedule and the other documents delivered pursuant hereto) and the
confidentiality agreement between the Company and AirNet constitute the entire
agreement of the parties and supersede all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
(b) Notwithstanding anything to the contrary contained herein or in the
Company Disclosure Schedule, any information disclosed in one schedule of the
Company Disclosure Schedule shall be deemed to be disclosed for purposes of all
schedules of the Company Disclosure Schedule. Certain information set forth in
the Company Disclosure Schedule may be included solely for informational
purposes and may not be required to be disclosed pursuant to this Agreement. the
disclosure of any information in the Company Disclosure Schedule shall not be
deemed to constitute an acknowledgement that such information is required to be
disclosed in connection with the representations and warranties made by the
Company in this Agreement or that it is material, nor shall such informaton be
deemed to establish a standard for materiality for purposes hereof.
SECTION 11.07. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, PROVIDED that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the written consent of the other parties; PROVIDED, FURTHER, that AirNet
or Merger Subsidiary may assign their respective rights, but not their
obligations, under this Agreement to a wholly-owned Subsidiary of AirNet.
SECTION 11.08. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Ohio.
SECTION 11.09. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
[signature page to follow]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
<TABLE>
<S> <C> <C>
THE COMPANY:
Q INTERNATIONAL COURIER, INC.
By: /s/ ROBERT MITZMAN
-----------------------------------------
Robert Mitzman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SHAREHOLDERS:
/s/ ROBERT J. MITZMAN
-----------------------------------------
Robert J. Mitzman
/s/ DOMINIQUE BROWN
-----------------------------------------
Dominique Brown
/s/ GLENN SMOAK
-----------------------------------------
Glenn Smoak
/s/ KARL DAIGLE
-----------------------------------------
Karl Daigle
/s/ ED MCNALLY
-----------------------------------------
Ed McNally
-----------------------------------------
Tomas Miguens
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
AIRNET:
AIRNET SYSTEMS, INC.
By: /s/ GERALD G. MERCER
-----------------------------------------
Gerald G. Mercer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MERGER SUBSIDIARY:
Q ACQUISITION CORPORATION, AN OHIO CORPORATION
By: /s/ GERALD G. MERCER
-----------------------------------------
Gerald G. Mercer
PRESIDENT
</TABLE>
Acknowledged & Agreed:
/s/ GERALD G. MERCER
- -------------------------------
Gerald G. Mercer
PRESIDENT
36
<PAGE>
List of Annexes and Exhibit to
Agreement and Plan of Merger,
dated as of April 14, 1998,
among Q International Courier, Inc.,
the stockholders of Q International
Courier, Inc., Airnet Systems, Inc.
and Q Acquisition Company
<TABLE>
<S> <C>
Annex
- ---------
A........ Allocation of Merger Consideration*
B-1...... Employment Agreement between AirNet Systems, Inc. and Robert J. Mitzman
B-2...... Employment Agreement between Q International Courier, Inc. and Dominique Brown*
B-3...... Employment Agreement between Q International Courier, Inc. and Glenn R. Smoak*
C........ Herndon Lease Amendment*
D........ Form of Registration Rights Agreement
Exhibit
- ---------
1.05..... Form of Escrow Agreement
</TABLE>
- ------------------------
* These Annexes are not being filed herewith. AirNet Systems, Inc. agrees to
furnish supplementally a copy of any omitted Annex to the Securities and
Exchange Commission upon request.
37
<PAGE>
ANNEX B-1
[EXECUTION COPY]
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated April 14, 1998, by and between AIRNET SYSTEMS, INC.,
an Ohio corporation (including for purposes of this Agreement its subsidiaries
and affiliates, including, but not limited to, the Surviving Corporation, the
"Company") and ROBERT J. MITZMAN (the "Employee").
W I T N E S S E T H
WHEREAS, the Company, Q Acquisition Company, an Ohio corporation and a
direct, wholly-owned subsidiary of the Company (the "Merger Subsidiary"), and Q
International Courier, Inc., a New York Corporation ("Quick"), have entered into
an Agreement and Plan of Merger dated as of April 14, 1998 (the "Merger
Agreement"), pursuant to which the Merger Subsidiary will merge with and into
Quick as of the Effective Time;
WHEREAS, the Employee is a stockholder and an employee of Quick and has
considerable knowledge of Quick's business, clients and operations;
WHEREAS, the Company desires to employ the Employee to perform certain
management functions for the Company at and after the Effective Time;
WHEREAS, the Company and the Employee desire to enter into an employment
agreement to establish the rights and obligations of the Employee and the
Company in such employment relationship; and
WHEREAS, the Company and the Employee have agreed to enter into this
Agreement as a condition to the execution and consummation of the Merger
Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the Company and the Employee hereby mutually agree as follows:
1. EMPLOYMENT AND DUTIES. Effective as of the Effective Time, the Company
agrees to employ the Employee, and the Employee agrees to accept employment with
the Company, upon the terms and conditions hereinafter set forth. The Employee
shall serve as (i) an Executive Vice President of the Company, in charge of
sales and marketing, and (ii) President of the Surviving Corporation. In such
capacities, the Employee shall report directly to the Chief Executive Officer of
the Company and shall be responsible for the duties and responsibilities
relating to the marketing and sales of the Company's services and products, as
the Chief Executive Officer and/or the Board of Directors of the Company shall
reasonably determine. In addition, the Employee shall perform such other duties
related to the business of the Company and consistent with his title and salary
as may from time to time be reasonably requested of him by the Company's Board
of Directors. The Employee shall devote substantially all of his skills, time
and attention solely and exclusively to said positions and in furtherance of the
business and interests of the Company.
2. TERM OF EMPLOYMENT. This Agreement shall be effective upon execution by
both parties. The term of employment shall begin as of the Effective Time and
shall continue through the five-year period ending on the day before the fifth
anniversary date of the Effective Time, subject, however, to prior termination,
as herein provided (the "Term of Employment"). Notwithstanding anything in this
Agreement to the contrary, this Agreement shall terminate without liability by
either party hereunder in the event that the Merger Agreement is terminated
prior to the Effective Time pursuant to the terms thereof.
3. COMPENSATION. Commencing at the Effective Date and extending through
the Term of Employment, the Employee shall receive an annual base salary of Two
Hundred Eighty-Five Thousand Dollars ($285,000) (the "Base Salary"). The
Employee shall also be entitled to participate, on a reasonably commensurate
basis, in any bonus plan currently existing or hereinafter established by the
Compensation Committee of the Board of Directors of the Company (or any
comparable committee of the Board of Directors), applicable to similarly
situated executive officers of the Company (the "Bonus"). The Company
<PAGE>
shall pay the Base Salary to the Employee in equal installments in accordance
with the Company's regular payroll practices. The Company shall pay the Bonus,
if any, to the Employee according to the policies established by the
Compensation Committee of the Board of Directors of the Company and applicable
to other executive officers of the Company.
4. FRINGE BENEFITS. The Company shall further provide the Employee with
all health and life insurance coverages, sick leave and disability programs,
tax-qualified retirement plans, paid holidays and vacations, perquisites, and
such other fringe benefits of employment as the Company may provide from time to
time to similarly situated executive officers of the Company.
5. REIMBURSEMENT. The Company shall reimburse the Employee for all
reasonable expenses incurred by the Employee in performing services hereunder,
including all reasonable expenses of travel and living expenses while away from
home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.
6. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT OTHER THAN BY EMPLOYEE. The Employee's
employment hereunder may be terminated by the Company without any breach of this
Agreement only under the following circumstances:
(1) DEATH OR DISABILITY. The Employee's employment hereunder shall
terminate upon his death, and may be terminated by the Company in the event of
his Disability. For purposes of this Agreement, "Disability" means the inability
of the Employee due to illness, accident, or otherwise, to perform the essential
duties required by this Agreement for a period of at least one hundred twenty
(120) days, as determined by an independent physician selected by the Company
and reasonably acceptable to the Employee (or his legal representative),
provided that the Employee does not return to work on a full-time basis within
thirty (30) days after Notice of Termination is given by the Company pursuant to
the provisions of Paragraphs 6(c) and 6(d)(2). For purposes of the foregoing,
the Employee's return to work for periods of less than thirty (30) days shall
not be deemed to interrupt a period of one hundred twenty (120) days.
(2) CAUSE. The Company may terminate the Employees employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment hereunder only upon:
(A) The Employee's substantial neglect to perform the essential
duties required by this Agreement up to the reasonable expectations of
the Board of Directors of the Company for thirty (30) days after
reasonable notice of such neglect has been delivered to the Employee.
(B) Material breach by the Employee of his obligations under this
Agreement or any act or omission by the Employee constituting gross
negligence with respect to the Company and the continuation of said
material violation, act or omission for a period of thirty (30) days
after the delivery of written notice thereof from the Company.
(C) Indictment of the Employee of a felony or of a misdemeanor
involving dishonesty or fraud, as determined in good faith by the Board
of Directors of the Company.
(D) Indictment of the Employee of any crime involving moral
turpitude, as determined in good faith by the Board of Directors of the
Company.
(E) Commission by the Employee of an act of fraud or bad faith toward
the Company.
(F) Misappropriation by the Employee of any material amount of funds,
property or rights of the Company.
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<PAGE>
(b) TERMINATION OF EMPLOYMENT BY EMPLOYEE. The Employee may terminate his
employment at any time with one hundred eighty (180) days written notice.
However, the Employee shall be deemed to have terminated his employment for
"Good Reason" only if he terminates his employment by giving Notice of
Termination pursuant to Paragraphs 6(c) and 6(d)(3) within sixty (60) days after
the Employee has actual notice of the occurrence of any of the following events
(provided the Company does not cure such event on a retroactive basis to the
extent possible within thirty (30) days following its receipt of the Employee's
Notice of Termination):
(1) The Employee's title, position, authority or responsibilities
(including reporting responsibilities and authority) are changed in a
materially adverse manner.
(2) The Employee's base salary is materially reduced for any reason
other than in connection with the termination of his employment.
(3) For any reason other than in connection with the termination of the
Employee's employment, the Company materially reduces any fringe benefit
provided to the Employee under Paragraph 4 herein below the level of such
fringe benefit provided generally to other similarly situated executive
officers of the Company, unless the Company agrees to fully compensate the
Employee for any such material reduction.
(4) A change in the Employee's principal place of employment without the
Employee's prior consent to outside the five boroughs of the City of New
York.
(5) The Company otherwise materially breaches, or is unable to perform
its obligations under this Agreement.
(c) NOTICE OF TERMINATION. Any termination of the Employee's employment by
the Company hereunder, or by the Employee other than termination upon the
Employee's death, shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, a "Notice of Termination" means a
notice that shall indicate the specific termination provision relied upon in
this Agreement, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the specified provision or provisions.
(d) DATE OF TERMINATION. "Date of Termination" means:
(1) If the Employee's employment is terminated by his death, the date of
his death.
(2) If the Employee's employment is terminated by the Company as a
result of Disability pursuant to Paragraph 6(a)(1), the date that is thirty
(30) days after Notice of Termination is given; PROVIDED the Employee shall
not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period.
(3) If the Employee terminates his employment for Good Reason pursuant
to Paragraph 6(b), the date that is one hundred eighty (180) days after
Notice of Termination is given (provided that the Company does not cure such
event during the one hundred eighty (180) day period); PROVIDED, in the sole
discretion of the Company, such date may be any earlier date after Notice of
Termination is given.
(4) If the Employee terminates his employment other than for Good
Reason, the date that is one hundred eighty (180) days after Notice of
Termination is given; PROVIDED, in the sole discretion of the Company, such
date may be any earlier date after Notice of Termination is given.
(5) If the Employee's employment is terminated by the Company either for
Cause pursuant to Paragraph 6(a)(2) or other than for Cause, the date on
which the Notice of Termination is given.
7. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY.
(a) DEATH. If the Employee's employment is terminated by his death, the
Employee's beneficiary, as designated by the Employee in writing with the
Company prior to his death, shall be entitled to the
3
<PAGE>
following payments and benefits: (i) any Base Salary that is accrued but unpaid,
any Bonus that is accrued but unpaid, any vacation that is accrued but unused,
and any business expenses that are not reimbursed --all, as of the Date of
Termination; and (ii) any benefit following termination of employment which may
be provided under the fringe benefit plans, policies and programs described in
Paragraph 4. In the absence of beneficiary designation by the Employee, or, if
the Employee's designated beneficiary does not survive the Employee, benefits
described in this Paragraph 7(a) shall be paid to the Employee's estate.
(b) DISABILITY.
(1) During any period that the Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Employee shall continue to receive his Base Salary at
the rate then in effect for such period until his employment is terminated
pursuant to Paragraph 6(a)(1); PROVIDED, HOWEVER, that payments of Base Salary
so made to the Employee shall be reduced by the sum of the amounts, if any, that
were payable to the Employee at or before the time of any such salary payment
under any disability benefit plan or plans of the Company and that were not
previously applied to reduce any payment of Base Salary; and
(2) Upon his termination of employment because of Disability (as described
in Paragraph 6(a)(1)), the Employee shall be entitled to the payments and
benefits described in Paragraph 7(a) as if the Employee had died on his Date of
Termination. In the event of the Employee's death prior to the time that all
payments described in Paragraph 7(a) have been completed, such payments and
benefits shall be paid to the Employee's beneficiary as designated pursuant to
Paragraph 7(a), or, in the absence of a beneficiary designation or the
designated beneficiary does not survive the Employee, to the Employee's estate.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EMPLOYEE FOR
GOOD REASON. In the event the Company terminates the Employee's employment
without Cause or the Employee terminates his employment for Good Reason before
the expiration of the Term of Employment, including any extension thereof, the
Employee shall be entitled to the following payments and benefits:
(1) Those described in Paragraph 7(a) as if the Employee had died on his
Date of Termination;
(2) Employee's Base Salary then in effect from and after the Date of
Termination through the date one (1) year after the Date of Termination (the
"Severance Period"), less all applicable payroll deductions, including
deductions for federal, state, local and Social Security taxes. The payments set
forth in this Paragraph 7(c)(2) shall be paid in accordance with the provisions
of Paragraph 3 and shall be deemed to include all accrued vacation pay and all
accrued sick days, such that the Company shall have no further obligation to
provide sick pay or vacation pay to the Employee; and
(3) During the Severance Period, payment of any benefit of employment which
may be provided under the fringe benefit plans, policies and programs described
in Paragraph 4 (other than vacation pay) on the same basis as if the Employee
were still employed by the Company.
(d) TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON OR TERMINATION BY
COMPANY FOR CAUSE. In the event that the Employee terminates his employment
other than for Good Reason or the Company terminates his employment for Cause,
the Employee shall not be entitled to any compensation except as set forth
below:
(1) Any Base Salary or bonus that is accrued but unpaid, any vacation that
is accrued but unused, and any business expenses that are not reimbursed--all,
as of the Date of Termination; and
(2) Any other rights and benefits (if any) provided under plans and programs
of the Company (excluding any bonus plan or program), determined in accordance
with the applicable terms and provisions of such plans and programs.
8. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any incentive, fringe
benefit, deferred compensation, or other plan or
4
<PAGE>
program provided by the Company and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any other agreements with the Company. Amounts that are vested
benefits or that the Employee is otherwise entitled to receive under any plan or
program of the Company at or after the Date of Termination, shall be payable in
accordance with such plan or program.
9. NON-SOLICITATION OF CUSTOMERS AND EMPLOYEES AND COVENANT NOT TO COMPETE.
(A) Except with the prior written consent of the Company, during the Term of
Employment and for a period of three (3) years immediately following the
termination of the Employee's employment with the Company under this Agreement,
the Employee shall not, directly or indirectly for the benefit of the Employee
or others, either as principal, agent, manager, consultant, partner, owner (in
the case of any publicly traded company, of more than 10% of the outstanding
voting stock of such company), employee, distributor, dealer, representative,
joint venturer, creditor or otherwise, engage in any work involving any of the
following: (i) any activity in the expedited delivery and distribution industry
which competes with any service or product of the Company at the Date of
Termination; (ii) the promotion, solicitation or attempt to solicit, license or
sell, in any geographic area where the Company or its successor in interest
conducts business, of any service or product in competition with the services or
products of the Company at the Date of Termination; (iii) the solicitation,
attempt to solicit, management, maintenance, sale or license of any service or
product in competition with the services or products of the Company at the Date
of Termination to any business which was a customer of the Company during the
one year period immediately preceding the cessation of the Employee's employment
with the Company; and (iv) the disclosure to any person of the names of any of
the customers of the Company or any other information pertaining to them unless
such information can be obtained from public sources. For the purposes of this
Agreement, the term "customer" means all current customers of the Company as of
the Date of Termination and any person who has been a customer within one year
of the Date of Termination.
(B) NON-SOLICITATION OF EMPLOYEES. During the Term of Employment and for a
period of three (3) years immediately following the termination of the
Employee's employment with the Company under this Agreement, the Employee shall
not, either directly or indirectly, do any of the following: (i) solicit to hire
or hire any current or past employee of the Company; (ii) solicit to hire or
hire or employ in any fashion any consultant or other person used by the
Company; or (iii) participate as a shareholder (in the case of any publicly
traded company, owning more than 10% of the outstanding voting stock of such
company), partner, joint venturer, officer, director, employee, agent,
solicitor, distributor, dealer or representative, or have any direct or indirect
financial interest (including without limitation the interest of a creditor)
with any person who solicits to hire or hires any current or past employee of
the Company and who engages in any activity in the expedited delivery and
distribution industry which competes with any service or product of the Company
at the Date of Termination.
(C) The Employee acknowledges that the business of the Company is
international in scope and this international scope is the reason for the
geographic scope and/or duration of the restrictions on competition and
solicitation provided in this Paragraph 9. Satisfaction of the three (3) year
periods described in this Paragraph 9 shall be suspended during the time of any
activity of the Employee prohibited by this Paragraph 9. In the event a court
grants injunctive relief to the Company for a failure of the Employee to comply
with the provisions contained in Paragraph 9 hereof, the noncompetition period
shall commence anew with the date such relief is granted.
The restrictions provided in this Paragraph 9 may be enforced by the
Company, by an action at law, or in equity, including but not limited to, an
action for injunction and/or an action for damages. The provisions of this
Paragraph 9 constitute an essential element of this Agreement and the Merger
Agreement, without which the Agreement and Merger Agreement would not have been
affected by the Company. The provisions of this Paragraph 9 shall survive the
termination of any other obligations of the Employee under this Agreement for a
period necessary to enforce its provisions. If the scope of any
5
<PAGE>
restriction contained in this Paragraph 9 is too broad to permit enforcement of
such restriction to its fullest extent, then such restriction shall be enforced
to the maximum extent permitted by law and the Employee hereby consents and
agrees that such scope may be judicially modified in any proceeding brought to
enforce such restriction.
10. PROPRIETARY RIGHTS AND PROTECTION OF COMPANY'S BUSINESS.
(A) PROPRIETARY AND CONFIDENTIAL INFORMATION. As used throughout this
Agreement, the term "Proprietary Information" means any information acquired by
the Employee during or as a result of past, present or future employment by the
Company, including information conceived, discovered or developed by the
Employee, which is not in the public domain and which relates to the business or
contemplated businesses of the Company, whether such information is patentable
or unpatentable, copyrightable or uncopyrightable, which falls into two general
categories. The first category is information which may have intrinsic value and
may be considered to be an asset of the Company (the "Class I Proprietary
Information") and the second category is information relating to matters of a
business nature (the "Class II Proprietary Information"). By way of example,
Class I Proprietary Information would include: inventions, information of a
technical nature such as trade secrets, "know-how," innovations, discoveries,
formulae, research projects, software, source codes, object codes, software
architecture, flow charts, software documentation, decision tables, test data,
conversion programs, technical writings and confidential information of other
parties which are provided to the Company by any agreement under which the
Company has obligations to protect the confidentiality of same. Class II
Proprietary Information would include matters of a business nature such as
customer lists, customer and supplier and marketing representative contracts,
customer and supplier and marketing representatives requirements and
preferences, costs, prices or license fees or maintenance fees or other
financial information such as sales, profits, expenses, financial projections,
financial goals, local, state and federal tax returns, litigation and
compensation, personnel data, business plans and market research. The Employee
acknowledges that he will have access to and become familiar with this
Proprietary Information and that such Proprietary Information is very valuable
to the Company. The Employee agrees not to disclose any of the Proprietary
Information directly or indirectly to any person nor use it in any way, either
during the Term of Employment or any time thereafter. Except as required in the
course of his employment pursuant to this Agreement. All the Proprietary
Information shall remain the exclusive property of the Company; and any
Proprietary Information in the possession of the Employee at the end of the Term
of Employment shall be returned to the Company. Notwithstanding the foregoing,
information shall not be deemed to be Proprietary Information if it: (i) is or
becomes known through no fault of the Employee to a third party; (ii) is learned
by the Employee following his termination of employment; (iii) is or hereafter
becomes a part of the public domain other than through any breach of this
Agreement by the Employee or (iv) is owned directly by the Employee.
The restricted period during which the restrictions of this Paragraph 10
shall bind the Employee shall vary depending upon whether the information is
Class I Proprietary Information or Class II Proprietary Information. The
Employee shall have a perpetual obligation to keep Class I Proprietary
Information confidential, or, in the case of information of other parties, for
so long as the Company has an obligation to keep such information confidential,
and acknowledges that the ownership of Class I Proprietary Information inures
solely to the Company. The Employee shall have an obligation for three (3) years
after the termination of employment to keep Class II Proprietary Information
confidential.
11. ASSIGNMENT AND SURVIVORSHIP OF BENEFITS. Neither party shall have the
right to assign its rights or obligations under this Agreement to any third
party without the prior written consent of the other party hereto, which shall
not be unreasonably delayed or withheld.
12. NOTICES. Any notices given to either party to this Agreement shall be
in writing, and shall be deemed to have been given when delivered personally or
sent by certified mail, postage prepaid, return
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receipt requested, when the return receipt is signed, duly addressed to the
party concerned, at the address indicated below or to such changed address as
such party may subsequently give notice of:
If to the Company:
AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
Attn: Eric P. Roy, Executive Vice President
and Chief Financial Officer
If to the Employee:
Robert J. Mitzman
Quick International Courier, Inc.
909 Third Avenue--5th Floor
New York, New York 10022-4731
13. TAXES. Anything in this Agreement to the contrary notwithstanding, all
payments required to be made hereunder by the Company to the Employee shall be
subject to withholding of such amounts as the Company may reasonably determine
that it should withhold pursuant to any applicable law or regulations. In lieu
of withholding such amounts, in whole or in part, however, the Company may, in
its sole discretion, accept other provision for payment of taxes, provided that
it is satisfied that all requirements of the law affecting its responsibilities
to withhold such taxes have been satisfied.
14. GOVERNING LAW/CAPTIONS/SEVERANCE. This Agreement shall be construed in
accordance with, and pursuant to, the laws of the State of Ohio. The captions of
this Agreement shall not be part of the provisions hereof, and shall have no
force or effect. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. Except as otherwise specifically provided in this Paragraph
14, the failure of either party to insist in any instance on the strict
performance of any provision of this Agreement or to exercise any right
hereunder shall not constitute a waiver of such provision or right in any other
instance.
15. ENTIRE AGREEMENT/AMENDMENT. This instrument contains the entire
agreement of the parties, relating to the subject matter hereof, and the parties
have made no agreement, representations, or warranties relating to the subject
matter hereof, that are not set forth herein. This Agreement may be amended at
any time by written agreement of both parties, but it shall not be amended by
oral agreement.
16. DEFINITIONS. Capitalized terms used herein without definition shall
have the meanings ascribed thereto in the Merger Agreement.
[signature page to follow]
7
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
<TABLE>
<S> <C> <C>
AIRNET SYSTEMS, INC.
By:
-----------------------------------------
Gerald G. Mercer
CHIEF EXECUTIVE OFFICER
EMPLOYEE:
-----------------------------------------
Robert J. Mitzman
</TABLE>
8
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ANNEX D
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of ,
1998, by and among ROBERT J. MITZMAN, DOMINIQUE BROWN, KARL DAIGLE, GLENN SMOAK,
TOMAS MIGUENS and ED MCNALLY (the "Stockholders") and AIRNET SYSTEMS, INC., an
Ohio corporation ("AirNet").
WHEREAS, the parties hereto have entered into an Agreement and Plan of
Merger dated as of April 14, 1998 (the "Merger Agreement"), by and among Q
International Courier, Inc., a New York corporation, the Stockholders, AirNet
and Q Acquisition Company, an Ohio corporation and a direct, wholly-owned
subsidiary of AirNet; and
WHEREAS, pursuant to the Merger Agreement, AirNet has agreed to enter into
this Agreement as a condition to the performance of AirNet and the Stockholders
thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the following terms
have the meanings indicated below or in the referenced sections of this
Agreement:
"Affiliate Securities": Common Shares beneficially owned by any executive
officer, director of other affiliate of AirNet, other than any Stockholder.
"Common Shares": AirNet's common shares, $.01 par value per share, as the
same may be constituted from time to time.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
"Person": An individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a government entity or any department, agency,
or political subdivision thereof.
"Piggyback Registration": As defined in SECTION 3(A) hereof.
"Registrable Securities": Any Common Shares acquired by a Stockholder
pursuant to the Merger Agreement, together with any additional Common Shares
that a Stockholder may acquire on account of such Common Shares, including
without limitation, as the result of any dividend or other distribution of
Common Shares, any split-up of such Common Shares, or in accordance with a
recapitalization, merger, consolidation or other reorganization with respect to
any such Common Shares; PROVIDED, that a Registrable Security ceases to be a
Registrable Security when (i) it is registered under the Securities Act and
disposed of in accordance with the registration statement covering it; (ii) it
is sold or transferred in accordance with the requirements of Rule 144 (or
similar provisions then in effect) promulgated by the SEC under the Securities
Act ("Rule 144"); or (iii) it becomes eligible to be sold or transferred in
accordance subsection (k) of Rule 144(k).
"Registration Expenses": As defined in SECTION 5 hereof.
"SEC": The United States Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended, and the rules and
regulations thereunder.
"Underwritten registration" or "underwritten offering": A registration in
which securities of AirNet are sold pursuant to a firm commitment underwriting.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a holder
of Registrable Securities whenever that Person owns, directly or beneficially,
or has the right to acquire Registrable Securities, disregarding any legal
restrictions upon the exercise of that right.
<PAGE>
(b) MAJORITY OF REGISTRABLE SECURITIES. As used in this Agreement, the
term "majority of the Registrable Securities" means 51% or more of the
Registrable Securities being registered unless the context indicates that it is
51% or more of the Registrable Securities then issued and outstanding.
SECTION 3. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Subject to SECTION 3(G), whenever AirNet proposes
to register any of its securities under the Securities Act (except for the
registration of securities to be offered pursuant to an employee benefit plan on
Form S-8, pursuant to a registration made on Form S-4 or any successor forms
then in effect) and the registration form to be used may be used for the
registration of the Registrable Securities (a "Piggyback Registration"), it will
so notify in writing all holders of Registrable Securities not later than 30
days prior to the anticipated filing date. Subject to the provisions of SECTIONS
3(C), 3(D) and 3(G), AirNet will include in the Piggyback Registration all
Registrable Securities, on a pro rata basis based upon the total number of
outstanding Common Shares on a fully diluted basis, with respect to which AirNet
has received written requests for inclusion within five business days after the
applicable holder's receipt of AirNet's notice. The holders of Registrable
Securities may withdraw all or any part of the Registrable Securities from a
Piggyback Registration at any time before ten business days prior to the
effective date of the Piggyback Registration. AirNet, the holders of Registrable
Securities and any Person who hereafter becomes entitled to register its
securities in a registration initiated by AirNet must sell their securities on
the same terms and conditions.
(b) PIGGYBACK EXPENSES. AirNet shall pay to, or on behalf of, the holders
of the Registrable Securities included in a Piggyback Registration all
Registration Expenses of those holders (except to the extent prohibited by
applicable state securities laws).
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of AirNet and the managing
underwriter gives AirNet its written opinion that the total number or dollar
amount of securities requested to be included in the registration exceeds the
number or dollar amount of securities that can reasonably be sold, AirNet will
include the securities in the registration in the following order of priority:
first, all securities AirNet proposes to sell; second, up to the full number or
dollar amount of Registrable Securities and Affiliate Securities requested to be
included in the registration (allocated on a pro rata basis, based upon the
total number of outstanding Common Shares on a fully diluted basis, among the
holders of Registrable Securities and the holders of Affiliate Securities); and
third, any other securities (provided they are of the same class as the
securities sold by AirNet) requested to be included, allocated among the holders
of the securities in such proportions as AirNet and those holders may agree. In
the event that the managing underwriter advises AirNet that an underwriters'
over-allotment option is necessary or advisable, the preceding priority shall
apply to the determination of which securities are to be included in the primary
portion of such registration as well as such over-allotment option.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of AirNet's securities
who hereafter obtain registration rights from AirNet, and the managing
underwriter gives AirNet its written opinion that the dollar amount or number of
securities requested to be included in the registration exceeds the dollar
amount or number of securities that can be sold, AirNet will include in the
registration: (1) to the extent of 50% of the number or dollar amount of
securities other than Registrable Securities or Affiliate Securities that in the
underwriter's opinion can be sold, the securities requested to be included in
the registration, allocated among the holders of those securities in such
proportions as AirNet and those holders may agree; and (2) to the extent of the
balance, the Registrable Securities and Affiliate Securities requested to be
included, allocated pro rata among the holders of Registrable Securities and
Affiliate Securities on a pro rata basis, based upon the total number of
outstanding Common Shares on a fully diluted basis. If, after including all of
the Registrable Securities and Affiliate Securities that are sought to be
registered, the underwriters determine that there are additional securities that
can be sold, then securities other than Registrable Securities or Affiliate
Securities may be added to the registration. In the event that the managing
underwriter advises
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<PAGE>
AirNet that an underwriters' over-allotment option is necessary or advisable,
the preceding priority shall apply to the determination of which securities are
to be included in the primary portion of such registration as well as such
over-allotment option.
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an
underwritten offering, AirNet will select the investment banker(s) and
manager(s) that will administer the offering and shall enter into a customary
underwriting agreement with the investment banker(s) and manager(s).
(f) OTHER REGISTRATIONS. AirNet agrees that after filing a registration
statement with respect to Registrable Securities pursuant to this SECTION 3 that
has not been withdrawn or abandoned, AirNet will not register any of its equity
securities or securities convertible or exchangeable into or exercisable for its
equity securities under the Securities Act, whether on its own behalf or at the
request of any holder of those securities until at least 90 days have elapsed
from the effective date of the previous registration. This 90 day hiatus does
not apply to registrations of securities to be issued in connection with
employee benefit plans or to permit exercise or conversions of previously issued
options, warrants, or other convertible securities.
(g) LIMIT ON PIGGYBACK REGISTRATIONS. Notwithstanding anything to the
contrary contained herein, the holders of Registrable Securities shall be
entitled to participate in no more than two Piggyback Registrations hereunder;
PROVIDED, that (i) any Piggyback Registration which has been withdrawn or
abandoned by AirNet or (ii) any Piggyback Registration in which the Stockholders
are not permitted to include the full number of Registrable Securities requested
by such Stockholders to be included therein pursuant to the terms of this
Section 3 shall not count as a Piggyback Registration for purposes of such
limitation.
SECTION 4. RESTRICTIONS ON PUBLIC SALE BY SECURITIES HOLDERS. Each holder
of Registrable Securities whose securities are included in a registration
statement agrees not to make any public sale or distribution of equity
securities of AirNet (except as part of the underwritten registration or
pursuant to registration on Form S-8 or any successor form), including a sale
pursuant to Rule 144, during the seven days prior to and the 90 days after the
effective date of any underwritten Piggyback Registration unless the managing
underwriters agree otherwise.
SECTION 5. REGISTRATION EXPENSES.
(a) All Registration Expenses incident to AirNet's performance of or
compliance with this Agreement shall be paid as provided in this Agreement. The
term "Registration Expenses" includes without limitation all registration filing
fees, professional fees and other expenses of compliance with federal, state and
other securities laws (including fees and disbursements of counsel for the
underwriters in connection with state or other securities law qualifications and
registrations); printing expenses, messenger, telephone and delivery expenses;
reasonable fees and disbursements of counsel for AirNet and for one counsel for
the sellers of the Registrable Securities (subject to the provisions of SECTION
5(B)); reasonable fees and disbursements of all independent certified public
accountants (including the expenses of any audit or "comfort" letters required
by or incident to performance of the obligations contemplated by this
Agreement); certain fees and expenses of the underwriters (excluding discounts
and commissions); fees and expenses of any special experts retained by AirNet at
the request of the managing underwriters in connection with the registration;
fees and expenses of other Persons retained by AirNet in connection with the
registration; and the fees and expenses incurred in connection with the listing
of the securities to be registered on each securities exchange on which similar
securities issued by AirNet are then listed.
(b) In connection with each registration for which AirNet is required to pay
the Registration Expenses of the holders of Registrable Securities, AirNet will
promptly reimburse those holders for the reasonable fees and disbursements of
one law firm, selected by the holders of a majority of the Registrable
Securities, to serve as counsel to all the holders.
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<PAGE>
(c) Each holder of securities included in any underwritten Piggyback
Registration will pay any underwriting discounts and commissions allocable to
the holder's securities so included.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. In the event of any registration of
Registrable Securities under the Securities Act pursuant to this Agreement, to
the fullest extent permitted by law, AirNet agrees to indemnify each holder of
Registrable Securities, its officers and directors, and each Person who controls
the holder (within the meaning of the Securities Act and the Exchange Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or allegedly untrue statement of material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act, any prospectus or preliminary prospectus contained
therein or any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except to the extent the untrue statement or omission resulted from information
that the holder furnished in writing to AirNet expressly for use therein or the
holder's failure to deliver information required to be included therein or by
the holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto which fully correct any
untrue statements or omissions in any registration statement or prospectus
previously delivered to any purchaser by such holder after AirNet has furnished
the holder with a sufficient number of copies of the relevant documents. In
connection with a firm or best efforts underwritten offering, to the extent
customarily required by the managing underwriter, AirNet will indemnify the
underwriters, their officers and directors and each Person who controls the
underwriters (within the meaning of the Securities Act and the Exchange Act), to
the extent customary in such agreements.
(b) INDEMNIFICATION BY HOLDERS OF SECURITIES. In connection with any
registration statement, each participating holder of Registrable Securities will
furnish to AirNet in writing such information and affidavits as AirNet
reasonably requests for use in connection with any registration statement or
prospectus and each holder agrees to indemnify, to the extent permitted by law,
AirNet, its directors and officers, and each Person who controls AirNet (within
the meaning of the Securities Act and the Exchange Act) against any losses,
claims, damages, liabilities, and expenses resulting from any untrue or
allegedly untrue statement of a material fact or any omission or alleged
omission of a material fact concerning such holder required to be stated in the
registration statement or prospectus or any amendment thereof or supplement
thereto necessary to make the statements therein not misleading, but only to the
extent that the untrue statement or omission is contained in or omitted from any
information or affidavit concerning such holder the holder furnished in writing,
or resulting from the holder's failure to deliver information required to be
included therein or, if so required by applicable law, to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto to
any purchaser after AirNet has furnished the holder with a sufficient number of
copies of the relevant documents.
(c) INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification
under this Agreement will (i) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification and (ii) unless in the
indemnified party's reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party does not assume
the defense, the indemnifying party will not be liable for any settlement made
without its consent (but that consent may not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or will enter into any
settlement that does not include as an unconditional term the claimant's or
plaintiff's release of the indemnified party from all liability concerning the
claim or litigation. An indemnifying party who is not entitled to or elects not
to assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel (and local counsel) for all parties
indemnified by the indemnifying party with respect to the claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between the indemnified party and any
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<PAGE>
other indemnified party with respect to the claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of additional
counsel.
(d) CONTRIBUTION. If the indemnification provided for in Section 6(a) or
(b) is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each indemnifying
party thereunder shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the (i) relative benefit and (ii)
relative fault of AirNet and the participating holders of Registrable Securities
in connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefit of AirNet and the participating
holders of Registrable Securities shall be determined by reference to the
proportion of total proceeds from the offering to which such person is entitled.
The relative fault of AirNet and the participating holders of Registrable
Securities shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by AirNet or
by the participating holders of Registrable Securities and the parties' relative
intent and knowledge.
The parties hereto agree that it would not be just and equitable if
contribution pursuant this Section 6(d) were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding anything herein to the contrary, no participating holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the net proceeds of the offering (before deducting expenses,
if any) received by such participating holder exceeds the amount of any damages
that such participating holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled contribution from any person who
was not guilty of such fraudulent misrepresentation.
SECTION 7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration without (a) agreeing to sell
securities on the basis provided in underwriting arrangements approved by AirNet
(which underwriting arrangements shall not be contrary to this Agreement) and
(b) completing and executing all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required by the
underwriting arrangements.
SECTION 8. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may be amended or modified only by a written
agreement executed by AirNet and the holders of a majority of the Registrable
Securities then issued and outstanding.
(b) ATTORNEYS' FEES. In any legal action or proceeding brought to enforce
any provision of this Agreement, the prevailing party shall be entitled to
recover all reasonable expenses, charges, court costs and attorneys' fees in
addition to any other available remedy at law or in equity.
(c) BENEFIT OF PARTIES; ASSIGNMENT. All of the terms and provisions of
this Agreement shall be binding on and inure to the benefit of the parties and
their respective successors and assigns, including without limitation all
subsequent holders of securities entitled to the benefits of this Agreement who
agree in writing to become bound by the terms of this Agreement; PROVIDED,
HOWEVER, AirNet may not transfer or assign its rights or obligations under this
Agreement; and, without the prior written consent of AirNet (which shall not be
unreasonably withheld or delayed), no Stockholder may assign his or her rights
or obligations under this Agreement.
(d) CAPTIONS. The captions of the sections and subsections of this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any provision of this Agreement.
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<PAGE>
(e) COOPERATION. The parties agree that after execution of this Agreement
they will from time to time, upon the request of any other party and without
further consideration, execute, acknowledge and deliver in proper form any
further instruments and take such other action as any other party may reasonably
require to carry out effectively the intent of this Agreement.
(f) COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
(g) ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter of this Agreement. There are no
promises, covenants or undertakings other than those expressly set forth or
provided for in this Agreement.
(h) GOVERNING LAW. The internal law of the State of Ohio will govern the
interpretation, construction, and enforcement of this Agreement and all
transactions and agreements contemplated hereby, notwithstanding any state's
choice of law rules to the contrary.
(i) NO INCONSISTENT AGREEMENTS. AirNet will not enter into any agreement
with respect to its securities that shall grant to any Person registration
rights that in any way conflict with the rights provided under this Agreement
unless, and only to the extent that, the Stockholders are granted rights equal
to those granted to such other Person.
(j) NOTICES. All notices, requests, demands, or other communications that
are required or may be given pursuant to the terms of this Agreement shall be in
writing and delivery shall be deemed sufficient in all respects and to have been
duly given on the date of service if delivered personally to the party to whom
notice is to be given, or on the third day after mailing if mailed by first
class mail--return receipt requested, postage prepaid, and properly addressed to
the addresses set forth in the Merger Agreement or to such other address(es) as
the respective parties hereto shall from time to time designate to the other(s)
in writing.
(k) SPECIFIC PERFORMANCE. Each of the parties agrees that damages for a
breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity the parties and
their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.
(l) VALIDITY OF PROVISIONS. Should any part of this Agreement for any
reason be declared by any court of competent jurisdiction to be invalid, that
decision shall not affect the validity of the remaining portion, which shall
continue in full force and effect as if this Agreement had been executed with
the invalid portion eliminated, it being the intent of the parties that they
would have executed the remaining portion of the Agreement without including any
part or portion that may for any reason be declared invalid.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first written above.
<TABLE>
<S> <C> <C>
AIRNET SYSTEMS, INC.
By:
-----------------------------------------
Gerald G. Mercer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<TABLE>
<S> <C>
SHAREHOLDERS:
---------------------------------------------
Robert J. Mitzman
---------------------------------------------
Dominique Brown
---------------------------------------------
Glenn Smoak
---------------------------------------------
Karl Daigle
---------------------------------------------
Ed McNally
---------------------------------------------
Tomas Miguens
</TABLE>
7
<PAGE>
EXHIBIT 1.05
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of , 1998, among the Persons whose names
and addresses are set forth on SCHEDULE A hereto (the "STOCKHOLDERS"), AirNet
Systems, Inc., an Ohio corporation ("AIRNET"), and Banc One Trust Company, NA,
as Escrow Agent (the "ESCROW AGENT").
R E C I T A L S
WHEREAS, the Stockholders, AirNet, Q International Courier, Inc., a New York
corporation (the "COMPANY"), and Q Acquisition Company, an Ohio corporation and
wholly-owned subsidiary of AirNet ("MERGER SUBSIDIARY"), are parties to a Merger
Agreement, dated as of April 14, 1998 (the "MERGER AGREEMENT"), pursuant to
which Merger Subsidiary shall be merged with and into the Company.
WHEREAS, Section 10.02 of the Merger Agreement provides for the
indemnification of AirNet Indemnitees (as defined in the Merger Agreement) from
certain Losses (as defined in the Merger Agreement) that may be incurred by any
of them;
WHEREAS, the Merger Agreement further provides that 314,136 common shares,
$.01 par value, of AirNet (the "AIRNET COMMON SHARES"), shall be deposited into
escrow in order to indemnify the AirNet Indemnitees against General
Contingencies pursuant to Section 10.02 of the Merger Agreement (the "GENERAL
ESCROW SHARES"); and
WHEREAS, the Merger Agreement further provides that 46,091 AirNet Common
Shares shall be deposited into escrow in order to indemnify the AirNet
Indemnitees against Specific Contingencies pursuant to Section 10.02 of the
Merger Agreement (the "SPECIFIC ESCROW SHARES" and, together with the General
Escrow Shares, the "ESCROW SHARES").
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
l. APPOINTMENT OF ESCROW AGENT; DEPOSIT OF ESCROW SHARES. The Stockholders
and AirNet hereby appoint the Escrow Agent as the escrow agent under this
Agreement, and the Escrow Agent accepts such appointment according to the terms
and conditions set forth herein. On the date hereof, AirNet and/or the
Stockholders have deposited with the Escrow Agent, and the Escrow Agent hereby
acknowledges receipt of, the General Escrow Shares and the Specific Escrow
Shares. The Escrow Agent shall hold and distribute the Escrow Shares in
accordance with the terms and conditions of this Agreement.
2. DISTRIBUTIONS FROM ESCROW. The Escrow Agent shall hold the Escrow
Shares in escrow in accordance with this Agreement and shall make distributions
of Escrow Shares only as follows or as provided in Sections 3 and 4 below:
(a) Escrow Shares shall be distributed to AirNet in such amounts as are
authorized to be distributed to AirNet pursuant to Section 3 below.
(b) Upon the filing of AirNet's Annual Report on Form 10-K (the "AIRNET 1998
FORM 10-K") for the fiscal year ended December 31, 1998 (which is anticipated to
occur on or about March 31, 1999), the Escrow Agent shall distribute to each
Stockholder that number of General Escrow Shares equal to the product of (i)
such Stockholder's Stockholder Percentage as set forth on Schedule A hereto and
(ii) the entire balance of the General Escrow Shares then remaining in escrow
less the aggregate of the then existing General Claim Reserves (as defined
below) for General Open Claims (as defined below) and the amount of any claim
not constituting a General Open Claim which is described in a written notice of
a claim from AirNet in accordance with Section 3(a) and actually received by the
Escrow Agent prior to the filing of the AirNet 1998 Form 10-K.
(c) Within two banking days of the Escrow Agent's having been given a joint
written direction with respect to a General Open Claim pursuant to Section 3(d),
(i) the Escrow Agent shall distribute to AirNet
<PAGE>
that number of General Escrow Shares set forth in joint written direction for
such General Open Claim and (ii) to the extent authorized in Section 3 below,
the Escrow Agent shall distribute to each Stockholder that number of General
Escrow Share equal to the product of (X) such Stockholder's Stockholder
Percentage and (Y) and the balance of the General Claim Reserve established in
respect of such General Open Claim, the amount of which shall be set forth in
the joint written direction.
(d) At least five business days prior to the six month anniversary of the
Effective Time (as defined in the Merger Agreement) and following resolution of
the Specific Contingency set forth as item number one on Schedule 1.04 to the
Company Disclosure Schedule in accordance with the provisions of Section 7.08 of
the Merger Agreement, AirNet and the Stockholder Representative shall give the
Escrow Agent a joint written instruction directing the Escrow Agent to
distribute the number of Specific Escrow Shares set forth in such joint written
instruction to AirNet and/or the Stockholders, depending on the resolution of
such Specific Contingency in accordance with such Section 7.08. Within two
banking days of the Escrow Agent's having been given the foregoing joint written
direction, the Escrow Agent shall distribute to AirNet that number of Specific
Escrow Shares set forth in such joint written instruction and/or to each
Stockholder that number of Specific Escrow Shares equal to the product of (i)
such Stockholder's Stockholder Percentage as set forth on Schedule A hereto and
(ii) the total number of Specific Escrow Shares to be delivered to the
Stockholders pursuant to such joint written instruction.
(e) On the second anniversary of the Effective Time (as defined in the
Merger Agreement), the Escrow Agent shall distribute to each Stockholder that
number of Specific Escrow Shares equal to the product of (i) such Stockholder's
Stockholder Percentage as set forth on Schedule A hereto and (ii) the entire
balance of the Specific Escrow Shares then remaining in escrow less the
aggregate of the then existing Specific Claim Reserves (as defined below) for
Specific Open Claims (as defined below).
(f) Within two banking days of the Escrow Agent's having been given a joint
written direction with respect to a Specific Open Claim pursuant to Section
4(d), (i) the Escrow Agent shall distribute to AirNet that number of Specific
Escrow Shares set forth in joint written direction for such Specific Open Claim
and (ii) to the extent authorized in Section 3 below, the Escrow Agent shall
distribute to each Stockholder that number of Specific Escrow Share equal to the
product of (X) such Stockholder's Stockholder Percentage and (Y) and the balance
of the Specific Claim Reserve established in respect of such Specific Open
Claim, the amount of which shall be set forth in the joint written direction.
(g) Any distribution required to be made hereunder by the Escrow Agent from
the Escrow Shares shall be delivered (i) in accordance with written instructions
given to the Escrow Agent by the party entitled under this Agreement to receive
such distribution (with a copy to the other parties) or (ii) after the filing of
the AirNet 1998 Form 10-K (in respect of the General Escrow Shares) and after
the second anniversary of the Effective Time (in respect of the Specific Escrow
Shares), in accordance with the terms of an order, judgment or decree ordering
the payment of all or any portion of the Escrow Shares, which order, judgment or
decree represents a final adjudication of the rights of the Stockholders and
AirNet with respect to the payment of all or a portion of an Open Claim by a
court of competent jurisdiction, and that the time for appeal from such order,
judgment or decree has expired without an appeal having been perfected.
3. AIRNET GENERAL CONTINGENCY CLAIMS. The procedure for distributions from
the Escrow Shares with respect to General Contingencies shall be as follows:
(a) From time to time prior to the filing of the AirNet 1998 Form 10-K, if
AirNet determines that AirNet or any other AirNet Indemnitee is entitled to
indemnification for Losses with respect to General Contingencies under Section
11.02(a) of the Merger Agreement, AirNet may request a distribution from the
General Escrow Shares on deposit by giving written notice of AirNet's claim to
the Escrow Agent and to the Stockholder Representative (as defined below),
certifying in reasonable detail in such notice the nature of the claim, the
amount thereof if then ascertainable and, if not then ascertainable, a good
faith
2
<PAGE>
estimate of the estimated amount thereof, and the provision(s) in the Merger
Agreement on which the claim relating to such General Contingency is based.
(b) If, within thirty (30) calendar days after actual receipt by the Escrow
Agent of the written notice of a claim from the AirNet in accordance with
Section 3(a), the Escrow Agent has not actually received written objection to
such claim from the Stockholder Representative, the claim stated in such notice
shall be conclusively deemed to be approved by the Stockholders and the Escrow
Agent shall promptly thereafter distribute to AirNet from the General Escrow
Shares on deposit a number of General Escrow Shares equal to the dollar amount
of such claim divided by the Market Price up to the full number of General
Escrow Shares on deposit.
(c) If within said thirty (30) calendar days the Escrow Agent shall have
actually received from the Stockholder Representative a written objection to the
claim by AirNet pursuant to Section 3(a) (a copy of which objection shall in
each case be sent to the AirNet by the Stockholder Representative in accordance
with the provisions of Section 12 below), then such claim shall be deemed to be
a "GENERAL OPEN CLAIM" and the Escrow Agent shall reserve within the General
Escrow Shares on deposit a number of General Escrow Shares equal to the amount
of the General Open Claim divided by the Market Price (which number of General
Escrow Shares for each General Open Claim is referred to herein as a "GENERAL
CLAIM RESERVE").
(d) The number of General Escrow Shares constituting the General Claim
Reserve for each General Open Claim shall be distributed by the Escrow Agent
from the General Escrow Shares on deposit to AirNet only in accordance with a
joint written instruction by AirNet and the Stockholder Representative following
resolution of the General Open Claim in accordance with Section 3(e) below, and
any portion of the General Claim Reserve for such General Open Claim not so
required to be distributed to AirNet shall be distributed by the Escrow Agent to
the Stockholders in accordance with Section 3(b) above and such General Reserve
shall be reduced to zero; PROVIDED, that if such General Open Claim is resolved
prior to the filing of the AirNet 1998 Form 10-K, the remaining portion of such
General Claim Reserve shall not be distributed to the Stockholders pursuant
hereto but rather shall continue to constitute a part of the Escrow Shares for
General Contingencies, and shall continue to be available for additional claims
by AirNet pursuant to the terms hereof.
(e) If the Stockholder Representative shall raise an objection to a claim by
AirNet relating to General Contingencies within the 30-day period referred to in
Section 3(b) above, the Stockholder Representative and AirNet shall negotiate in
good faith for a further 15-day period to determine jointly the appropriate
amount, if any, of such General Open Claim. If the Stockholder Representative
and AirNet have not made such joint determination during such 15-day period,
then, to extent such General Open Claim remains in dispute, such General Open
Claim shall be submitted to, and settled by, binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA RULES"). The determination of the arbitrator selected in accordance
with the AAA Rules shall be final and conclusive and, within five business days
following resolution of the General Open Claim pursuant to arbitration, AirNet
and the Stockholder Representative shall submit a joint written instruction to
the Escrow Agent as to the disposition of the General Open Claim that is
consistent with the determination of the arbitrator with respect thereto. The
costs, fees and expenses of the arbitration shall be borne by AirNet and the
Stockholders in reverse proportion to the arbitration decision.
4. AIRNET SPECIFIC CONTINGENCY CLAIMS. The procedure for distributions
from the Escrow Deposit with respect to Specific Contingencies shall be as
follows:
(a) From time to time prior to the second anniversary of the Effective Time,
if AirNet determines that AirNet or any other AirNet Indemnitee is entitled to
indemnification for Losses with respect to a Specific Contingency under Section
11.02(a) of the Merger Agreement, AirNet may request a distribution from the
Specific Escrow Shares on deposit by giving written notice of AirNet's claim to
the Escrow Agent
3
<PAGE>
and to the Stockholder Representative, certifying in reasonable detail in such
notice the nature of the claim, the amount thereof and the Specific Contingency
for which indemnity is being sought.
(b) If, within thirty (30) calendar days after actual receipt by the Escrow
Agent of the written notice of a claim from the AirNet in accordance with
Section 4(a), the Escrow Agent has not actually received written objection to
such claim from the Stockholder Representative, the claim stated in such notice
shall be conclusively deemed to be approved by the Stockholders and the Escrow
Agent shall promptly thereafter distribute to AirNet from the Specific Escrow
Shares on deposit a number of Specific Escrow Shares equal to the dollar amount
of such claim divided by the Market Price up to the full number of Specific
Escrow Shares in the Escrow Deposit.
(c) If within said thirty (30) calendar days the Escrow Agent shall have
actually received from the Stockholder Representative a written objection to the
claim by AirNet pursuant to Section 4(a) (a copy of which objection shall in
each case be sent to the AirNet by the Stockholder Representative in accordance
with the provisions of Section 12 below), then such claim shall be deemed to be
a "SPECIFIC OPEN CLAIM" and the Escrow Agent shall reserve within the Specific
Escrow Shares on deposit a number of Specific Escrow Shares equal to the amount
of the Specific Open Claim divided by the Market Price (which number of Specific
Escrow Shares for each Specific Open Claim is referred to herein as a "SPECIFIC
CLAIM RESERVE").
(d) The number of Specific Escrow Shares constituting the Specific Claim
Reserve for each Specific Open Claim shall be distributed by the Escrow Agent
from the Specific Escrow Shares on deposit to AirNet only in accordance with a
joint written instruction by AirNet and the Stockholder Representative following
resolution of the Specific Open Claim in accordance with Section 4(e) below, and
any portion of the Specific Claim Reserve for such Specific Open Claim not so
required to be distributed to AirNet shall be distributed by the Escrow Agent to
the Stockholders in accordance with Section 4(b) above.
(e) If the Stockholder Representative shall raise an objection to a claim by
AirNet relating to a Specific Contingency within the 30-day period referred to
in Section 4(b) above, the Stockholder Representative and AirNet shall negotiate
in good faith for a further 15-day period to determine jointly the appropriate
amount, if any, of such Specific Open Claim. If the Stockholder Representative
and AirNet have not made such joint determination during such 15-day period,
then, to extent such Specific Open Claim remains in dispute, such Specific Open
Claim shall be submitted to, and settled by, binding arbitration in accordance
the AAA Rules. The determination of the arbitrator selected in accordance with
the AAA Rules shall be final and conclusive and, within five business days
following resolution of the Specific Open Claim pursuant to arbitration, AirNet
and the Stockholder Representative shall submit a joint written instruction to
the Escrow Agent as to the disposition of the Specific Open Claim that is
consistent with the determination of the arbitrator with respect thereto. The
costs, fees and expenses of the arbitration shall be borne by AirNet and the
Stockholders in reverse proportion to the arbitration decision.
5. CONDITIONS TO ESCROW. The Escrow Agent agrees to hold the Escrow Shares
and to perform in accordance with the terms and provisions of this Agreement.
The Stockholders and AirNet agree that the Escrow Agent does not assume any
responsibility for the failure of the Stockholders or the AirNet to perform in
accordance with the Merger Agreement or this Agreement. The acceptance by the
Escrow Agent of its responsibilities hereunder is subject to the following terms
and conditions, which the parties hereto agree shall govern and control with
respect to the Escrow Agent's rights, duties, liabilities and immunities:
(a) The Escrow Agent may conclusively rely, and shall be protected in acting
or refraining from acting upon, any written notice, certification, request,
waiver, consent, receipt or other paper or document furnished to it, not only as
to its due execution and validity and effectiveness of its provisions but also
as to the truth and accuracy of any information therein contained which the
Escrow Agent reasonably believes to be genuine and to have been signed and
presented by the proper party or parties. Should it be necessary for the Escrow
Agent to act upon any instructions, directions, documents or instruments issued
or signed
4
<PAGE>
by or on behalf of any corporation, fiduciary, or individual acting on behalf of
another party hereto, it shall not be necessary for the Escrow Agent to inquire
into such corporation's, fiduciary's or individual's authority, capacity,
existence or identity. The Escrow Agent is also relieved from the necessity of
satisfying itself as to the authority of the persons executing this Agreement in
a representative capacity. It is understood that any references herein to joint
instructions or joint written instructions or words of similar import include
any instructions signed in counterpart.
(b) The Escrow Agent shall not be liable for any error of judgment or for
any act done or step taken or omitted by it in good faith, or for any mistake of
fact or law, or for anything which it may do or refrain from doing in connection
herewith, except for its own gross negligence or willful misconduct.
(c) The Escrow Agent may consult with, and obtain advice from, legal counsel
including in-house counsel in the event of any question as to any of the
provisions hereof or the duties hereunder, and it shall incur no liability and
shall be fully protected in acting in good faith in accordance with the opinion
and instructions of such counsel. The reasonable costs of such counsel's
services shall be paid to the Escrow Agent in accordance with Section 8 below.
(d) The Escrow Agent shall have no duties except those which are expressly
set forth herein and it shall not be bound by (i) the Merger Agreement or any
agreement of the other parties hereto (whether or not it has any knowledge
thereof) or by any notice of a claim, or demand with respect thereto, or (ii)
any waiver, modification, amendment, termination or rescission of this Agreement
unless the Escrow Agent agrees thereto in writing.
(e) The Escrow Agent may resign and be discharged from its duties and
obligations hereunder by giving notice in writing of such resignation specifying
a date (no earlier than 30 days following the date of such notice) when such
resignation will take effect, provided, however, that until a successor escrow
agent is appointed by the Stockholder Representative and by AirNet and such
successor accepts such appointment, the Escrow Agent shall continue to hold the
Escrow Shares and otherwise comply with the terms of this Agreement; PROVIDED
FURTHER that the parties to this Escrow Agreement agree to use their reasonable
efforts to mutually agree on a successor escrow agent within 30 days after the
giving of Escrow Agent's notice and if no such successor escrow agent shall be
appointed within 30 days of the Escrow Agent providing its notice, the Escrow
Agent may, at the expense of the AirNet and the Stockholders, (i) appoint a
successor escrow agent which shall be a national or state-chartered banking,
trust or savings association, (ii) petition any court of competent jurisdiction
for the appointment of a successor escrow agent or (iii) may deposit the Escrow
Shares with the Clerk of the United States District Court for the Southern
District of Ohio, or with the office of the clerk of registry of any other court
of competent jurisdiction, at which time the Escrow Agent's duties hereunder
shall terminate. Any successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers and duties of the
predecessor escrow agent as if originally named as escrow agent. The resigning
Escrow Agent shall thereupon be discharged from any further obligations under
this Escrow Agreement.
(f) Upon delivery of all of the Escrow Shares pursuant to the terms of
Sections 2, 3 and 4 above or to a successor escrow agent, the Escrow Agent shall
thereafter be discharged from any further obligations hereunder. The Escrow
Agent is hereby authorized, in any and all events, to comply with and obey any
and all final judgments, orders and decrees (not subject to appeal) of any court
of competent jurisdiction which may be filed, entered or issued, and, if it
shall so comply or obey, it shall not be liable to any other person by reason of
such compliance or obedience.
(g) The Escrow Agent shall not have any responsibility or liability for the
completeness, correctness or accuracy of any transactions between the AirNet, on
the one hand, and Stockholders, on the other hand.
(h) In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions with respect to the Escrow
Shares which, in its sole opinion, are in conflict with either
5
<PAGE>
other instructions received by it or any provision of this Agreement, it shall
without liability of any kind, be entitled to hold the Escrow Shares pending the
resolution of such uncertainty to the Escrow Agent's sole satisfaction, by final
judgment of a court or courts of competent jurisdiction or otherwise, or the
Escrow Agent, at its option, may, in final satisfaction of its duties hereunder,
deposit the Escrow Deposit with the Clerk of the United States District Court
for the Southern District of Ohio or with the office of the clerk of registry of
any other court of competent jurisdiction.
6. INDEMNIFICATION. AirNet hereby agrees to indemnify the Escrow Agent,
its directors, officers, agents and employees and any person who "controls" the
Escrow Agent within the meaning of Section 15 of the Securities Act of 1933
(collectively, the "INDEMNIFIED PARTIES") for and to hold them harmless against
any loss, liability or expense (including, without limitation, all expenses
reasonably incurred in its investigation and defense and costs and expenses
reasonably incurred in enforcing this right of indemnification) incurred without
gross negligence or willful misconduct on the part of the. Indemnified Parties
arising out of or in connection with this Agreement. The provisions of this
Section 6 shall survive the termination of this Agreement.
7. BANKING DAYS. If any date on which the Escrow Agent is required to make
a delivery pursuant to the provisions hereof is not a banking day, then the
Escrow Agent shall make such investment or delivery on the next succeeding
banking day.
6
<PAGE>
8. ESCROW COSTS; NO RIGHT OF SET-OFF. The Escrow Agent shall be entitled
to be paid a fee for its services pursuant to the attached FEE SCHEDULE and to
be reimbursed for its reasonable costs and expenses hereunder (including
reasonable counsel fees), which fees, costs and expenses shall be paid by AirNet
from time to time as such fees, costs and expenses are earned. Nothing in this
Section 8 limits the Escrow Agent's rights against AirNet for the payment of
amounts due the Escrow Agent under Section 6 above or the Escrow Agent's fees,
costs and expenses hereunder.
The Escrow Agent acknowledges and agrees that it is holding the Escrow
Shares in its capacity as escrow agent and that it has no right to apply amounts
constituting the value of the Escrow Shares against any obligations of (a) the
other parties to this Agreement that do not arise under this Agreement or (b)
the Company.
9. DEFINED TERMS. As used in this Agreement, the following terms have the
respective meanings set forth below:
MARKET PRICE: shall mean the closing price of the AirNet Common Shares on
the New York Stock Exchange (or another exchange or quotation system on which
the AirNet Common Shares are listed or included, if such AirNet Common Shares
are not then listed on the New York Stock Exchange) as reported in THE WALL
STREET JOURNAL as of the date which is two business days prior to the date of
determination.
PERSON: shall mean an individual, partnership, joint-stock company, limited
liability company, corporation, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Stockholder Percentage: shall mean, with respect to any Stockholder, the
percentage set forth opposite such Stockholder's name on SCHEDULE A.
10. STOCKHOLDER REPRESENTATIVE. The parties to this Agreement hereby
acknowledge and agree that all instructions, directions or other communications
given by or on behalf of the Stockholders shall be made pursuant to a writing
signed by Robert Mitzman, as the representative of the Stockholders (the
"STOCKHOLDER REPRESENTATIVE"), and shall be binding upon each Selling
Stockholder. The parties further acknowledge and agree that the Escrow Agent may
rely upon such instructions, directions or other communications made by the
Stockholder Representative as if made by each Stockholder. The powers conferred
upon the Stockholder Representative hereunder are coupled with an interest and
are irrevocable.
11. STATUS OF THE STOCKHOLDERS AS STOCKHOLDERS OF AIRNET. (a) The Escrow
Shares shall be deemed to be beneficially owned by each Stockholder in
accordance with such Stockholder's Stockholder Percentage and the Stockholders
shall be entitled to vote such Escrow Shares and receive dividends and other
distributions with respect to such Escrow Shares, in each case, unless and until
such Escrow Shares are distributed to AirNet pursuant to the terms of this
Agreement; PROVIDED, that, notwithstanding the foregoing, no Stockholder may
sell, distribute, transfer, hypothecate, pledge or otherwise dispose of any
Escrow Shares unless and until such
Escrow Shares are actually distributed to such Stockholder by the Escrow
Agent pursuant to the terms hereof. For purposes of the foregoing sentence, each
distribution of Escrow Shares to AirNet pursuant to the terms of this Agreement
shall be deemed to be made by the Stockholders pro rata in accordance with such
Stockholder's Stockholder Percentage.
12. NOTICES.
(a) All communications under this Agreement shall be in writing and shall be
delivered by hand or mailed by overnight courier or by registered mail or
certified mail, postage prepaid:
(i) if to AirNet, 3939 International Gateway, Columbus, Ohio 43219,
marked to the attention of Eric P. Roy, or at such other address as AirNet
may have furnished the Stockholder Representative in
7
<PAGE>
writing; with a copy of Vorys, Sater Seymour and Pease LLP, 52 East Gay
Street, Columbus, Ohio 43215, marked to the attention of Ronald A. Robins,
Jr.;
(ii) if to the Stockholders, care of the Stockholder Representative, Q
International Courier, Inc., 909 Third Avenue, 5th Floor, New York, New York
10022-4731, or at such other address as the Stockholder Representative may
have furnished to AirNet in writing; with a copy to Winthrop, Stimson,
Putnam & Roberts, One Battery Park Plaza, marked for the attention of
Kenneth E. Adelsberg;
(iii) if to the Escrow Agent, care of Corporate Trust Account
Administration, 235 West Schrock Road, OH1-0380, Westerville, Ohio 43081,
with a copy to Bank One Trust Company, AN, 100 East Broad Street, 071-0181,
Columbus, Ohio 43215, marked to the attention of Michael Dockman.
(b) Any notice so addressed shall be deemed to be given: if delivered by
hand, on the date of such delivery; if mailed by courier, on the first business
day following the date of such mailing; and if mailed by registered or certified
mail, on the third business day after the date of such mailing.
13. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties hereto with respect to the transactions contemplated hereby and may
be amended, modified, supplemented or altered only by a writing duly executed by
the Escrow Agent, AirNet and the Stockholder Representative, and any prior
agreements or understandings, whether oral or written, are entirely superseded
hereby; PROVIDED, HOWEVER, that no amendment, modification, supplement or
alteration of this Agreement shall affect the Stockholder Percentage of any
Stockholder without the express written consent of the Stockholder affected
thereby.
14. ASSIGNS AND ASSIGNMENT. This Agreement shall extend to, shall inure to
the benefit of and shall be binding upon all of the parties hereto and upon all
of their respective successors and permitted assigns.
15. NO OTHER THIRD PARTY BENEFICIARIES. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person other than the parties hereto,
any rights or remedies under or by reason of this Agreement.
16. NO WAIVER. No failure or delay by an party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, and no
single or partial exercise thereof shall preclude any right of further exercise
or the exercise of any other right, power or privilege.
17. SEVERABILITY. If any covenant, agreement, provision or term of this
Agreement is held to be invalid for any reason whatsoever, then such covenant,
agreement, provision or term will be deemed severable from the remaining
covenants, agreements, provisions and terms of this Agreement and will in no way
affect the validity or enforceability of any other provision of this Agreement.
18. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the domestic laws of the State of Ohio, without giving effect to
any choice of law or conflict provision or rule (whether of the State of Ohio or
any other jurisdiction) that would cause the laws of any jurisdiction other than
the State of Ohio to be applied.
19. COUNTERPARTS. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall together constitute one and the same
agreement.
[signature page to follow]
8
<PAGE>
In Witness Whereof, the parties hereto have executed this Escrow Agreement
on the date first written above.
STOCKHOLDERS:
------------------------------
Robert J. Mitzman
------------------------------
Dominique Brown
------------------------------
Glenn Smoak
------------------------------
Karl Daigle
------------------------------
Ed Mcnally
------------------------------
Tomas Miguens
<TABLE>
<S> <C> <C>
AIRNET:
AIRNET SYSTEMS, INC.
By: /s/
------------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C> <C>
ESCROW AGENT
BANC ONE TRUST COMPANY, NA, as Escrow Agent
By: /s/
------------------------------------------
Name:
Title:
</TABLE>
9
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
STOCKHOLDER
NAME AND ADDRESS STOCKHOLDER PERCENTAGE
- ------------------------------------------------------------------------------------------- -----------------------------
<S> <C>
</TABLE>
10
<PAGE>
APPENDIX II
[SBC WARBURG DILLON READ INC. LETTERHEAD]
April 24, 1998
The Board of Directors
AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
Gentlemen:
We understand that AirNet Systems, Inc. (the "Company") entered into a
definitive Agreement and Plan of Merger (the "Agreement") dated April 14, 1998,
whereby Q International Courier, Inc. ("Quick") will become a wholly-owned
subsidiary of the Company (the "Transaction"). Pursuant to the terms of the
Agreement all of the issued and outstanding shares of the capital stock of Quick
will be converted, in the aggregate, into 3,141,356 shares of Common Stock, par
value of $0.01, of the Company (the "Consideration"). No Company Common Stock
will be issued to holders of fractional shares of Quick Common Stock. The terms
and conditions of the Transaction are more fully set forth in the Agreement.
You have requested our opinion as to whether, as of the date hereof, the
aggregate Consideration to be paid by the Company in the Transaction, without
reference to any specific shareholder of Quick capital stock, is fair, from a
financial point of view, to the Company.
SBC Warburg Dillon Read Inc. ("SBCWDR") and its predecessors have acted as
financial advisors to the Board of Directors of the Company in connection with
the Transaction and will receive a fee upon the consummation thereof. In the
past, SBCWDR and its predecessors have provided investment banking services to
the Company and received customary compensation for the rendering of such
services. In the ordinary course of business, SBCWDR, its successors and
affiliates, may have traded securities of the Company for their own accounts
and, accordingly, may at any time hold a long or short position in such
securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion
as to the material terms of the Agreement or the form of the Transaction. In
rendering this opinion, we have assumed, with your consent, that Quick and the
Company will comply with all the material terms of the Agreement.
In arriving at our opinion we have, among other things: (i) reviewed the
Agreement; (ii) reviewed certain publicly available business and financial
information relating to the Company; (iii) reviewed the reported price and
trading activity for the Common Stock of the Company; (iv) reviewed certain
internal non-public financial information and other data provided to us by each
of the Company and Quick relating to the business and prospects of the Company
and Quick, respectively, including financial projections prepared by the
management of the Company and Quick, respectively; (v) conducted discussions
with members of the senior management of the Company and Quick; (vi) reviewed
publicly available financial and securities market data pertaining to certain
publicly held companies in lines of business which we
<PAGE>
AirNet Systems, Inc.
April 24, 1998
Page 2
believed to be generally comparable to Quick; and (vii) conducted such other
financial studies, analyses and investigations, and considered such other
information as we deemed necessary and appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied upon
its being complete and accurate in all material respects. We have not been
requested to and have not made an independent evaluation or appraisal of any
assets or liabilities (contingent or otherwise) of Quick, nor have we been
furnished with any such evaluation or appraisal. Further, we have assumed, with
your consent, that all of the information, including the financial forecasts,
estimates, pro forma effects and projections, provided to us by management of
the Company and Quick were reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of each company as
to the future performance of their respective companies. With your consent, we
have assumed that the Transaction will be treated as a pooling of interests for
accounting purposes. In addition, our opinion necessarily is based on economic,
monetary, market and other conditions as in effect on, and made available to us
as of the date hereof.
Based upon and subject to the foregoing, it is our opinion that the
aggregate Consideration to be paid by the Company in the Transaction, without
reference to any specific shareholder of Quick capital stock, is fair, from a
financial point of view, to the Company.
Very truly yours,
SBC WARBURG DILLON READ INC.
/s/ Sharyar Aziz
--------------------------------------
Sharyar Aziz
MANAGING DIRECTOR
/s/ Aaron C. Hill
--------------------------------------
Aaron C. Hill
EXECUTIVE DIRECTOR
<PAGE>
APPENDIX III
ACQUIRING PERSON STATEMENT
Pursuant to Section 1701.831 of
the Ohio Revised Code
AIRNET SYSTEMS, INC.
(Name of Issuing Public Corporation)
This Acquiring Person Statement is being delivered to AirNet Systems, Inc.,
an Ohio corporation ("AirNet"), pursuant to Section 1701.831 of the Ohio Revised
Code by Robert J. Mitzman, Dominique Brown, Glenn Smoak, Karl Daigle, Ed McNally
and Tomas Miguens (collectively, the "Quick Stockholders") and relates to the
transactions contemplated by the Agreement and Plan of Merger, dated as of April
14, 1998, among Q International Courier, Inc., the Quick Stockholders, AirNet
and Q Acquisition Company (the "Merger Agreement").
ITEM 1. IDENTITY OF THE ACQUIRING PERSONS.
The acquiring persons are the Quick Stockholders.
ITEM 2. DELIVERY OF ACQUIRING PERSON STATEMENT.
This Acquiring Person Statement is given pursuant to Section 1701.831 of the
Ohio Revised Code.
ITEM 3. OWNERSHIP OF SHARES BY ACQUIRING PERSONS.
None of the Quick Stockholders owns, directly or indirectly, any shares of
AirNet.
ITEM 4. RANGE OF VOTING POWER.
The Quick Stockholders propose to acquire one-fifth or more but less than
one-third of AirNet's voting power, as described in subparagraph (a) of
paragraph (Z)(1) of Section 1701.01 of the Ohio Revised Code.
ITEM 5. TERMS OF THE PROPOSED CONTROL SHARE ACQUISITION.
The proposed control share acquisition is to be made pursuant to the terms
of the Merger Agreement, which is incorporated herein by reference.
ITEM 6. REPRESENTATION OF LEGALITY; FINANCIAL CAPACITY.
The Quick Stockholders hereby represent that the proposed control share
acquisition, if consummated, will not be contrary to law. The information set
forth in the Merger Agreement and in the Proxy
III-1
<PAGE>
Statement/Prospectus included in AirNet's Registration Statement on Form S-4,
filed with the Securities and Exchange Commission on May 20, 1998, is
incorporated herein by reference.
--------------------------------------
Robert J. Mitzman
--------------------------------------
Dominique Brown
--------------------------------------
Glenn Smoak
--------------------------------------
Karl Daigle
--------------------------------------
Ed McNally
--------------------------------------
Tomas Miguens
III-2
<PAGE>
APPENDIX IV
AIRNET SYSTEMS, INC.
AMENDED AND RESTATED
1996 INCENTIVE STOCK PLAN
SECTION 1. PURPOSES. The purposes of the Amended and Restated AirNet
Systems, Inc. 1996 Incentive Stock Plan are to promote the interests of AirNet
Systems, Inc. and its shareholders 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 10.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan which shall satisfy the requirements contained in Section
1.162-27(c)(4) of the Final Regulations. The Committee shall be composed of not
less than the minimum number of persons from time to time required by Rule
16b-3, each of whom shall be (a) a person from time to time permitted by the
rules promulgated under Section 16 of the Exchange 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.
"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.
"Effective Date" shall mean the date on which the Plan is approved by the
shareholders of the Company.
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"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 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 Shares on any quotation system approved by the National
Association of Securities Dealers then reporting sales of Shares or on any
national securities exchange on which the Shares are then listed.
"Final Regulations" shall mean the final regulations promulgated by the
Internal Revenue Service under Section 162(m) of the Code.
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Offering" shall mean an opportunity provided by the Committee to purchase
Shares under the provisions of Section 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. Amended and Restated 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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"Right to Purchase Date" shall mean the last business day of an Offering
Period to purchase Shares under the provisions of Section 10.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC
under the Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean the Common Shares, $0.01 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 424(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 Shareholder" shall mean any shareholder who, at the time an
Incentive Stock Option is granted to such shareholder, owns (within the meaning
of Section 424(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 May 1, 1996 shall be included. Further, periods of service with the Company
or a Subsidiary which are interrupted by a termination of employment (not
including any authorized leave of absence) of more than two months shall not be
aggregated.
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the terms of
the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to an eligible Employee; (iii) determine the
number of Shares to be covered by, or with respect to which payments, rights or
other matters are to be calculated in connection with Awards; (iv) determine the
terms and conditions of any Award or Director Option; (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 or Director Option 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.
(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 or Director Option 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 or Director Option, any shareholder and any
Employee.
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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 2,050,000.
If any Shares covered by an Award or Director Option granted under the Plan, or
to which such an Award or Director Option relates, or any Shares issued under
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 16b-3. In the event that any
Option, Director Option or other Award granted hereunder is exercised through
the delivery of Shares, the number of Shares available under the Plan shall be
increased by the number of Shares surrendered, to the extent permissible under
Rule 16b-3.
(b) ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, Shares, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Shares or other securities of the Company, issuance of warrants or other rights
to purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an adjustment is
necessary in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall proportionately adjust any or all (as necessary) of (i) the
number of Shares or other securities of the Company (or number and kind of other
securities or property) which may be issued under the 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).
(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
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.
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(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 Shareholder, shall not be less than 110% of the per
Share Fair Market Value on the date of grant.
(c) EXERCISE. Each Option shall be exercisable at such times and subject
to such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award Agreement or thereafter; provided, in the case
of an Incentive Stock Option, a Participant may not exercise such Incentive
Stock Option after (i) the date which is ten years (five years in the case of a
Participant who is a Ten Percent Shareholder) 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 person who is an Eligible Director on the Effective Date
shall be granted a Director Option to purchase 20,000 Shares effective on the
Effective Date. Any individual who is a newly-elected or appointed Eligible
Director after the Effective Date shall be granted a Director Option to purchase
20,000 Shares effective on the date of his appointment or election to the Board.
Each Director Option shall vest and become exercisable as follows: (i) with
respect to 20% of the Shares covered thereby on the grant date; and (ii) with
respect to an additional 20% of the Shares covered thereby on each of the first,
second, third and fourth anniversaries of such grant date. Once vested and
exercisable, a Director Option shall remain 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). In the event the
Company merges with another entity 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 entity, each Director Option shall immediately vest and
become exercisable.
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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.
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 shareholders 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.
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(c) SPECIAL RULES FOR OPTIONS. The grant of an Option to a Covered
Employee under the 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.
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 partici-
pation 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.
(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
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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.
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.
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(h) EFFECT OF MERGER OR LIQUIDATION INVOLVING THE COMPANY. In the event
the Company merges with another entity 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 entity, the Committee may, in connection with any
such transaction, cancel each outstanding Right to Purchase and refund sums
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 shareholder 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. Notwithstanding anything to the contrary
herein, the Committee may amend the Plan, subject to any shareholder approval
required under Rule 16b-3, in such manner as may be necessary so as to have the
Plan conform with local rules and regulations in any jurisdiction outside the
United States.
(b) AMENDMENTS TO AWARDS. Subject to the provisions of Section 9, the
Committee may waive any conditions or rights under, amend any terms of, or
alter, suspend, discontinue, cancel or terminate any Award theretofore 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
theretofore granted shall not to that extent be effective without the consent of
the affected Participant, holder or beneficiary.
(c) CANCELLATION OF AWARD. Any provision of this Plan (except Section 9)
or any Award Agreement to the contrary notwithstanding, the Committee may cause
any Award granted hereunder to be canceled in consideration of the granting to
the holder of an alternative Award having a Fair Market Value equal to the Fair
Market Value of such canceled Award.
SECTION 12. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY.
(i) Each Award, each Director Option and each Right to Purchase, and
each right under any Award, any Director Option or any Right to Purchase,
shall be exercisable during the Participant's or the Eligible 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
Subsidi-ary; provided that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
IV-9
<PAGE>
(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.
(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 shareholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
(g) NO RIGHT TO EMPLOYMENT. Eligibility for participation in this Plan or
the grant of an Award shall not be construed as giving a Participant the right
to be retained in the employ of the Company or any Subsidiary. Further, the
Company or a Subsidiary may at any time dismiss a Participant from employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(h) NO RIGHTS AS SHAREHOLDER. 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 shareholder 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 shareholder in respect of such Restricted Stock.
IV-10
<PAGE>
(i) GOVERNING LAW. The validity, construction and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Ohio.
(j) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(k) OTHER LAWS. The Committee may refuse to issue or transfer any Shares
or other consideration under the Plan if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the issuance of such Shares shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
(l) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Subsidiary and a Participant or any
other Person. To the extent that any Person acquires a right to receive payments
from the Company or any Subsidiary pursuant to the Plan, such rights shall be no
greater than the right of any unsecured general creditor of the Company or any
Subsidiary.
(m) RULE 16B-3 COMPLIANCE. With respect to persons subject to Section 16
of the Exchange Act, transactions under 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 Articles of Incorporation or Regulations, by contract, as a matter of
law, or otherwise.
SECTION 13. TERM OF THE PLAN.
IV-11
<PAGE>
(a) EFFECTIVE DATE. The AirNet Systems, Inc. 1996 Stock Incentive Plan was
effective as of May 1, 1996. The amendment and restatement of such Plan shall be
effective as of the date of its approval by the shareholders of the Company.
(b) EXPIRATION DATE. No Award or Right to Purchase shall be granted under
the Plan after May 1, 2006. 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.
IV-12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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.
II-1
<PAGE>
(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 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
II-2
<PAGE>
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 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.
In addition, the Registrant currently provides insurance coverage to its
directors and officers against certain liabilities which might be incurred by
them in such capacity.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger dated as of April 14, 1998, among Quick, the Quick Stockholders, AirNet
and Merger Subsidiary (incorporated by reference to Appendix I to the Proxy Statement/Prospectus in
Part I of this Registration Statement)
3(a)(i) Amended Articles of AirNet (incorporated by reference to Exhibit 2.1 to AirNet's Registration Statement
on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the "Form 8-A"))
3(a)(ii) Certificate of Amendment to the Amended Articles of AirNet as filed with the Ohio Secretary of State on
May 28, 1996 (incorporated by reference to Exhibit 4(b) to AirNet's Registration Statement on Form
S-8 (Registration No. 333-08189) filed on July 16, 1996 (the "Form S-8"))
3(a)(iii) Amended Articles of AirNet as amended through May 28, 1996 (for SEC reporting compliance purposes
only--not filed with the Ohio Secretary of State) (incorporated by reference to Exhibit 4(c) to
AirNet's Form S-8)
3(b) Code of Regulations of AirNet (incorporated by reference to Exhibit 2.2 to AirNet's Form 8-A)
5 Opinion of Vorys, Sater, Seymour and Pease LLP regarding legality
10.1 AirNet Systems, Inc. 1996 Incentive Stock Plan (reflects amendments through March 31, 1997)
(incorporated herein by reference to Exhibit 10 to AirNet's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997 (File No. 0-28428))
10.2 Indemnification Agreement, dated as of May 15, 1996, among AirNet and Messrs. Miller, Renusch, Roy,
King, Rutter, Sumser and Wright (incorporated by reference to Exhibit 10.12 to AirNet's Amendment No.
2 to Form S-1 Registration Statement (Registration No. 333-3092) filed on May 24, 1996 ("Amendment
No. 2"))
10.3 Indemnification Agreement, dated as of May 15, 1996, between Mr. Mercer and AirNet (incorporated by
reference to Exhibit 10.11 to AirNet's Amendment No. 2)
10.4 Employment Agreement, dated April 14, 1998, between AirNet Systems, Inc. and Robert J. Mitzman
21 Subsidiaries of AirNet (incorporated by reference to Exhibit 21.1 of AirNet's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (File No. 0-28428))
23.1 Consent of Ernst & Young LLP--Columbus, Ohio, Independent Auditors
23.2 Consent of Independent Auditors
23.3 Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibit No. 5)
23.4 Consent of SBC Warburg Dillon Read Inc. (included in the section captioned "THE MERGER--Opinion of
AirNet's Financial Advisor" in the Proxy Statement/Prospectus in Part I of this Registration
Statement)
23.5 Consent of Robert J. Mitzman, director nominee
24 Powers of Attorney (included on signature page)
99 Form of AirNet Proxy
</TABLE>
II-4
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not required or
the information required to be set forth therein is included in the
Consolidated Financial Statements of AirNet or the Notes thereto.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 145, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
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) 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 foregoing provisions, 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.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus, State of Ohio, on May 18, 1998.
<TABLE>
<S> <C> <C>
AIRNET SYSTEMS, INC.
By: /s/ GERALD G. MERCER
-----------------------------------------
Gerald G. Mercer
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and officers of AirNet Systems, Inc. (the
"Company"), and each of us, do hereby constitute and appoint Gerald G. Mercer
and Eric P. Roy, or either of them, our true and lawful attorneys and agents,
each with full power of substitution, to do any and all acts and things in our
name and on our behalf in our capacities as directors and officers of AirNet and
to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys or agents, or any of them, may deem
necessary or advisable to enable AirNet to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with the filing of this Registration
Statement on Form S-4, including specifically but without limitation, power and
authority to sign for us or any of us in our names in the capacities indicated
below for AirNet, any and all amendments (including post-effective amendments)
to such Registration Statement; and we do hereby ratify and confirm all that
said attorneys and agents, or their substitute or substitutes, or any of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ GERALD G. MERCER President and CEO
- ------------------------------ (Principal Executive May 18, 1998
Gerald G. Mercer Officer)
Director, Executive Vice
/s/ ERIC P. ROY President, CFO and
- ------------------------------ Treasurer May 18, 1998
Eric P. Roy (Principal Financial and
Accounting Officer)
/s/ ROGER D. BLACKWELL
- ------------------------------ Director May 18, 1998
Roger D. Blackwell
/s/ TONY C. CANONIE, JR.
- ------------------------------ Director May 18, 1998
Tony C. Canonie, Jr.
/s/ RUSSELL M. GERTMENIAN
- ------------------------------ Director May 18, 1998
Russell M. Gertmenian
/s/ J. F. KEELER, JR.
- ------------------------------ Director May 18, 1998
J. F. Keeler, Jr.
II-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
AIRNET SYSTEMS, INC.
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------ ----------- ------------------------------ ---------- -----------
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------ ----------- --------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful
accounts...................... $ 23,149 $ 83,656 $ 16,064 $ 0(1) $ 122,869
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful
accounts...................... 2,000 35,502 -- 23,332(1) 14,170
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts...................... 40,384 12,100 -- 50,484(1) 2,000
Three months ended December 31,
1996:
Deducted from asset accounts:
Allowance for doubtful
accounts...................... 14,170 8,979 -- -- 23,149
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Merger, dated as of April 14, 1998, among Q International Courier, Inc. ("Quick")
the stockholders of Quick, AirNet Systems, Inc. ("AirNet") and Q Acquisition Company (incorporated by
reference to Appendix I to the Proxy Statement/ Prospectus in Part I of this Registration Statement)
3(a)(i) Amended Articles of AirNet (incorporated by reference to Exhibit 2.1 to AirNet's Registration Statement
on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the "Form 8-A"))
3(a)(ii) Certificate of Amendment to the Amended Articles of AirNet as filed with the Ohio Secretary of State on
May 28, 1996 (incorporated by reference to Exhibit 4(b) to AirNet's Registration Statement on Form
S-8 (Registration No. 333-08189) filed on July 16, 1996 (the "Form S-8"))
3(a)(iii) Amended Articles of AirNet as amended through May 28, 1996 (for SEC reporting compliance purposes
only--not filed with the Ohio Secretary of State) (incorporated by reference to Exhibit 4(c) to
AirNet's Form S-8)
3(b) Code of Regulations of AirNet (incorporated by reference to Exhibit 2.2 to AirNet's Form 8-A)
5 Opinion of Vorys, Sater, Seymour and Pease LLP regarding legality
10.1 AirNet Systems, Inc. 1996 Incentive Stock Plan (reflects amendments through March 31, 1997)
(incorporated herein by reference to Exhibit 10 to AirNet's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997 (File No. 0-28428))
10.2 Indemnification Agreement, dated as of May 15, 1996, among AirNet and Messrs. Miller, Renusch, Roy,
King, Rutter, Sumser and Wright (incorporated by reference to Exhibit 10.12 to AirNet's Amendment No.
2 to Form S-1 Registration Statement (Registration No. 333-3092) filed on May 24, 1996 ("Amendment
No. 2"))
10.3 Indemnification Agreement, dated as of May 15, 1996, between Mr. Mercer and AirNet (incorporated by
reference to Exhibit 10.11 to AirNet's Amendment No. 2)
10.4 Employment Agreement, dated April 14, 1998, between AirNet Systems, Inc. and Robert J. Mitzman
21 Subsidiaries of AirNet (incorporated by reference to Exhibit 21.1 of AirNet's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (File No. 0-28428))
23.1 Consent of Ernst & Young LLP--Columbus, Ohio, Independent Auditors
23.2 Consent of Independent Auditors
23.3 Consent of Vorys, Sater, Seymour and Pease LLP (included in Exhibit No. 5)
23.4 Consent of SBC Warburg Dillon Read Inc. (included in the section captioned "THE MERGER--Opinion of
AirNet's Financial Advisor" in the Proxy Statement/Prospectus in Part I of this Registration
Statement)
23.5 Consent of Robert J. Mitzman, director nominee
24 Powers of Attorney (included on signature page)
99 Form of AirNet Proxy
</TABLE>
II-8
<PAGE>
EXHIBIT 5
[Letterhead of Vorys, Sater, Seymour and Pease LLP]
(614) 464-6400
May 20, 1998
AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
Ladies and Gentlemen:
We have acted as counsel to AirNet Systems, Inc. (the "Company") in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), on Form S-4 (the "Registration Statement") of the issuance of
3,141,356 Common Shares, $.01 par value (the "Common Shares"), of AirNet in
connection with acquisition of Q International Courier, Inc. ("Quick"). The
AirNet Common Shares are to be issued pursuant to an Agreement and Plan of
Merger, dated as of April 14, 1998, among Quick, the Quick Stockholders
listed on the signature pages thereof, AirNet and Q Acquisition Company, an
Ohio corporation and wholly-owned subsidiary of AirNet ("Merger Subsidiary")
(the "Agreement").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K of the General Rules and Regulations promulgated
under the Act (the "Rules and Regulations").
In connection with the preparation of this opinion, we have examined and
are familiar with each of the following:
1. The Amended Articles and Code of Regulations of AirNet, each as
currently in effect, and AirNet's corporate minute book.
2. The Registration Statement on Form S-4 filed with the Securities
and Exchange Commission through the EDGAR system under the Act on the date
hereof.
3. The Agreement.
4. The resolutions adopted by the Board of Directors of AirNet
relating to the issuance of the Common Shares and approving the Agreement.
5. Such other records, documents or instruments as in our judgment are
necessary or appropriate to enable us to render the opinions herein.
<PAGE>
AirNet Systems, Inc.
May 20, 1998
Page 2
In our examinations and in rendering the opinions set forth below, we have
assumed, without independent investigation or examination, (a) the genuineness
of all signatures, the authenticity and completeness of all documents submitted
to us as copies and the authenticity of such originals of such latter documents;
(b) that the final, executed copy of each document submitted to us in draft form
will not differ in any material respect from the draft form of such document
submitted to us; (c) that, with respect to documents executed by parties other
than AirNet, such parties had the power, corporate or otherwise, to enter into
and perform all obligations thereunder and that such documents were duly
authorized by all requisite action, corporate or otherwise, of such parties,
that such documents were duly executed and delivered by such parties and that
such documents are the valid and binding agreements of such parties; and (d)
that the Agreement has been duly authorized, executed and delivered by the
parties thereto, other than AirNet and Merger Subsidiary, and constitutes valid
and binding obligations of the parties thereto, other than AirNet and Merger
Subsidiary, enforceable against such parties in accordance with its terms. As
to the facts material to our opinions expressed herein which were not
independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of AirNet
and others.
Based upon and subject to the foregoing, and the further qualifications
and limitations set forth below, as of the date hereof, we are of the opinion
that the AirNet Common Shares are duly authorized and, when issued in
accordance with the terms and conditions of the Agreement, the AirNet Common
Shares will be validly issued, fully paid and nonassessable.
We are members of the Bar of the State of Ohio and do not purport to be
experts in the laws of any jurisdiction other than the laws of the State of Ohio
and the United States of America.
We hereby consent to the use of our name in the Registration Statement
under the caption "LEGAL MATTERS" and to the filing of this opinion
as Exhibit 5 to the Registration Statement. In giving this consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Act or the Rules and Regulations.
Very truly yours,
VORYS, SATER, SEYMOUR and PEASE LLP
<PAGE>
EXHIBIT 10.4
ANNEX B-1
[EXECUTION COPY]
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated April 14, 1998, by and between AIRNET SYSTEMS, INC.,
an Ohio corporation (including for purposes of this Agreement its subsidiaries
and affiliates, including, but not limited to, the Surviving Corporation, the
"Company") and ROBERT J. MITZMAN (the "Employee").
W I T N E S S E T H
WHEREAS, the Company, Q Acquisition Company, an Ohio corporation and a
direct, wholly-owned subsidiary of the Company (the "Merger Subsidiary"), and Q
International Courier, Inc., a New York Corporation ("Quick"), have entered into
an Agreement and Plan of Merger dated as of April 14, 1998 (the "Merger
Agreement"), pursuant to which the Merger Subsidiary will merge with and into
Quick as of the Effective Time;
WHEREAS, the Employee is a stockholder and an employee of Quick and has
considerable knowledge of Quick's business, clients and operations;
WHEREAS, the Company desires to employ the Employee to perform certain
management functions for the Company at and after the Effective Time;
WHEREAS, the Company and the Employee desire to enter into an employment
agreement to establish the rights and obligations of the Employee and the
Company in such employment relationship; and
WHEREAS, the Company and the Employee have agreed to enter into this
Agreement as a condition to the execution and consummation of the Merger
Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the Company and the Employee hereby mutually agree as follows:
1. EMPLOYMENT AND DUTIES. Effective as of the Effective Time, the Company
agrees to employ the Employee, and the Employee agrees to accept employment with
the Company, upon the terms and conditions hereinafter set forth. The Employee
shall serve as (i) an Executive Vice President of the Company, in charge of
sales and marketing, and (ii) President of the Surviving Corporation. In such
capacities, the Employee shall report directly to the Chief Executive Officer of
the Company and shall be responsible for the duties and responsibilities
relating to the marketing and sales of the Company's services and products, as
the Chief Executive Officer and/or the Board of Directors of the Company shall
reasonably determine. In addition, the Employee shall perform such other duties
related to the business of the Company and consistent with his title and salary
as may from time to time be reasonably requested of him by the Company's Board
of Directors. The Employee shall devote substantially all of his skills, time
and attention solely and exclusively to said positions and in furtherance of the
business and interests of the Company.
2. TERM OF EMPLOYMENT. This Agreement shall be effective upon execution by
both parties. The term of employment shall begin as of the Effective Time and
shall continue through the five-year period ending on the day before the fifth
anniversary date of the Effective Time, subject, however, to prior termination,
as herein provided (the "Term of Employment"). Notwithstanding anything in this
Agreement to the contrary, this Agreement shall terminate without liability by
either party hereunder in the event that the Merger Agreement is terminated
prior to the Effective Time pursuant to the terms thereof.
3. COMPENSATION. Commencing at the Effective Date and extending through
the Term of Employment, the Employee shall receive an annual base salary of Two
Hundred Eighty-Five Thousand Dollars ($285,000) (the "Base Salary"). The
Employee shall also be entitled to participate, on a reasonably commensurate
basis, in any bonus plan currently existing or hereinafter established by the
Compensation Committee of the Board of Directors of the Company (or any
comparable committee of the Board of
<PAGE>
Directors), applicable to similarly situated executive officers of the Company
(the "Bonus"). The Company shall pay the Base Salary to the Employee in equal
installments in accordance with the Company's regular payroll practices. The
Company shall pay the Bonus, if any, to the Employee according to the policies
established by the Compensation Committee of the Board of Directors of the
Company and applicable to other executive officers of the Company.
4. FRINGE BENEFITS. The Company shall further provide the Employee with
all health and life insurance coverages, sick leave and disability programs,
tax-qualified retirement plans, paid holidays and vacations, perquisites, and
such other fringe benefits of employment as the Company may provide from time to
time to similarly situated executive officers of the Company.
5. REIMBURSEMENT. The Company shall reimburse the Employee for all
reasonable expenses incurred by the Employee in performing services hereunder,
including all reasonable expenses of travel and living expenses while away from
home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance with
the policies and procedures established by the Company.
6. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT OTHER THAN BY EMPLOYEE. The Employee's
employment hereunder may be terminated by the Company without any breach of this
Agreement only under the following circumstances:
(1) DEATH OR DISABILITY. The Employee's employment hereunder shall
terminate upon his death, and may be terminated by the Company in the event
of his Disability. For purposes of this Agreement, "Disability" means the
inability of the Employee due to illness, accident, or otherwise, to perform
the essential duties required by this Agreement for a period of at least one
hundred twenty (120) days, as determined by an independent physician
selected by the Company and reasonably acceptable to the Employee (or his
legal representative), provided that the Employee does not return to work on
a full-time basis within thirty (30) days after Notice of Termination is
given by the Company pursuant to the provisions of Paragraphs 6(c) and
6(d)(2). For purposes of the foregoing, the Employee's return to work for
periods of less than thirty (30) days shall not be deemed to interrupt a
period of one hundred twenty (120) days.
(2) CAUSE. The Company may terminate the Employees employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment hereunder only upon:
(A) The Employee's substantial neglect to perform the essential
duties required by this Agreement up to the reasonable expectations of
the Board of Directors of the Company for thirty (30) days after
reasonable notice of such neglect has been delivered to the Employee.
(B) Material breach by the Employee of his obligations under this
Agreement or any act or omission by the Employee constituting gross
negligence with respect to the Company and the continuation of said
material violation, act or omission for a period of thirty (30) days
after the delivery of written notice thereof from the Company.
(C) Indictment of the Employee of a felony or of a misdemeanor
involving dishonesty or fraud, as determined in good faith by the Board
of Directors of the Company.
(D) Indictment of the Employee of any crime involving moral
turpitude, as determined in good faith by the Board of Directors of the
Company.
(E) Commission by the Employee of an act of fraud or bad faith toward
the Company.
(F) Misappropriation by the Employee of any material amount of funds,
property or rights of the Company.
2
<PAGE>
(b) TERMINATION OF EMPLOYMENT BY EMPLOYEE. The Employee may terminate his
employment at any time with one hundred eighty (180) days written notice.
However, the Employee shall be deemed to have terminated his employment for
"Good Reason" only if he terminates his employment by giving Notice of
Termination pursuant to Paragraphs 6(c) and 6(d)(3) within sixty (60) days after
the Employee has actual notice of the occurrence of any of the following events
(provided the Company does not cure such event on a retroactive basis to the
extent possible within thirty (30) days following its receipt of the Employee's
Notice of Termination):
(1) The Employee's title, position, authority or responsibilities
(including reporting responsibilities and authority) are changed in a
materially adverse manner.
(2) The Employee's base salary is materially reduced for any reason
other than in connection with the termination of his employment.
(3) For any reason other than in connection with the termination of the
Employee's employment, the Company materially reduces any fringe benefit
provided to the Employee under Paragraph 4 herein below the level of such
fringe benefit provided generally to other similarly situated executive
officers of the Company, unless the Company agrees to fully compensate the
Employee for any such material reduction.
(4) A change in the Employee's principal place of employment without the
Employee's prior consent to outside the five boroughs of the City of New
York.
(5) The Company otherwise materially breaches, or is unable to perform
its obligations under this Agreement.
(c) NOTICE OF TERMINATION. Any termination of the Employee's employment by
the Company hereunder, or by the Employee other than termination upon the
Employee's death, shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, a "Notice of Termination" means a
notice that shall indicate the specific termination provision relied upon in
this Agreement, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the specified provision or provisions.
(d) DATE OF TERMINATION. "Date of Termination" means:
(1) If the Employee's employment is terminated by his death, the date of
his death.
(2) If the Employee's employment is terminated by the Company as a
result of Disability pursuant to Paragraph 6(a)(1), the date that is thirty
(30) days after Notice of Termination is given; PROVIDED the Employee shall
not have returned to the performance of his duties on a full-time basis
during such thirty (30) day period.
(3) If the Employee terminates his employment for Good Reason pursuant
to Paragraph 6(b), the date that is one hundred eighty (180) days after
Notice of Termination is given (provided that the Company does not cure such
event during the one hundred eighty (180) day period); PROVIDED, in the sole
discretion of the Company, such date may be any earlier date after Notice of
Termination is given.
(4) If the Employee terminates his employment other than for Good
Reason, the date that is one hundred eighty (180) days after Notice of
Termination is given; PROVIDED, in the sole discretion of the Company, such
date may be any earlier date after Notice of Termination is given.
(5) If the Employee's employment is terminated by the Company either for
Cause pursuant to Paragraph 6(a)(2) or other than for Cause, the date on
which the Notice of Termination is given.
7. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY.
(a) DEATH. If the Employee's employment is terminated by his death, the
Employee's beneficiary, as designated by the Employee in writing with the
Company prior to his death, shall be entitled to the
3
<PAGE>
following payments and benefits: (i) any Base Salary that is accrued but unpaid,
any Bonus that is accrued but unpaid, any vacation that is accrued but unused,
and any business expenses that are not reimbursed-- all, as of the Date of
Termination; and (ii) any benefit following termination of employment which may
be provided under the fringe benefit plans, policies and programs described in
Paragraph 4. In the absence of beneficiary designation by the Employee, or, if
the Employee's designated beneficiary does not survive the Employee, benefits
described in this Paragraph 7(a) shall be paid to the Employee's estate.
(b) DISABILITY.
(1) During any period that the Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Employee shall continue to receive his Base
Salary at the rate then in effect for such period until his employment is
terminated pursuant to Paragraph 6(a)(1); PROVIDED, HOWEVER, that payments
of Base Salary so made to the Employee shall be reduced by the sum of the
amounts, if any, that were payable to the Employee at or before the time of
any such salary payment under any disability benefit plan or plans of the
Company and that were not previously applied to reduce any payment of Base
Salary; and
(2) Upon his termination of employment because of Disability (as
described in Paragraph 6(a)(1)), the Employee shall be entitled to the
payments and benefits described in Paragraph 7(a) as if the Employee had
died on his Date of Termination. In the event of the Employee's death prior
to the time that all payments described in Paragraph 7(a) have been
completed, such payments and benefits shall be paid to the Employee's
beneficiary as designated pursuant to Paragraph 7(a), or, in the absence of
a beneficiary designation or the designated beneficiary does not survive the
Employee, to the Employee's estate.
(c) TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EMPLOYEE FOR
GOOD REASON. In the event the Company terminates the Employee's employment
without Cause or the Employee terminates his employment for Good Reason before
the expiration of the Term of Employment, including any extension thereof, the
Employee shall be entitled to the following payments and benefits:
(1) Those described in Paragraph 7(a) as if the Employee had died on his
Date of Termination;
(2) Employee's Base Salary then in effect from and after the Date of
Termination through the date one (1) year after the Date of Termination (the
"Severance Period"), less all applicable payroll deductions, including
deductions for federal, state, local and Social Security taxes. The payments
set forth in this Paragraph 7(c)(2) shall be paid in accordance with the
provisions of Paragraph 3 and shall be deemed to include all accrued
vacation pay and all accrued sick days, such that the Company shall have no
further obligation to provide sick pay or vacation pay to the Employee; and
(3) During the Severance Period, payment of any benefit of employment
which may be provided under the fringe benefit plans, policies and programs
described in Paragraph 4 (other than vacation pay) on the same basis as if
the Employee were still employed by the Company.
(d) TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON OR TERMINATION BY
COMPANY FOR CAUSE. In the event that the Employee terminates his employment
other than for Good Reason or the Company terminates his employment for Cause,
the Employee shall not be entitled to any compensation except as set forth
below:
(1) Any Base Salary or bonus that is accrued but unpaid, any vacation
that is accrued but unused, and any business expenses that are not
reimbursed--all, as of the Date of Termination; and
(2) Any other rights and benefits (if any) provided under plans and
programs of the Company (excluding any bonus plan or program), determined in
accordance with the applicable terms and provisions of such plans and
programs.
4
<PAGE>
8. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any incentive, fringe
benefit, deferred compensation, or other plan or program provided by the Company
and for which the Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as the Employee may have under any other agreements
with the Company. Amounts that are vested benefits or that the Employee is
otherwise entitled to receive under any plan or program of the Company at or
after the Date of Termination, shall be payable in accordance with such plan or
program.
9. NON-SOLICITATION OF CUSTOMERS AND EMPLOYEES AND COVENANT NOT TO COMPETE.
(A) Except with the prior written consent of the Company, during the Term of
Employment and for a period of three (3) years immediately following the
termination of the Employee's employment with the Company under this Agreement,
the Employee shall not, directly or indirectly for the benefit of the Employee
or others, either as principal, agent, manager, consultant, partner, owner (in
the case of any publicly traded company, of more than 10% of the outstanding
voting stock of such company), employee, distributor, dealer, representative,
joint venturer, creditor or otherwise, engage in any work involving any of the
following: (i) any activity in the expedited delivery and distribution industry
which competes with any service or product of the Company at the Date of
Termination; (ii) the promotion, solicitation or attempt to solicit, license or
sell, in any geographic area where the Company or its successor in interest
conducts business, of any service or product in competition with the services or
products of the Company at the Date of Termination; (iii) the solicitation,
attempt to solicit, management, maintenance, sale or license of any service or
product in competition with the services or products of the Company at the Date
of Termination to any business which was a customer of the Company during the
one year period immediately preceding the cessation of the Employee's employment
with the Company; and (iv) the disclosure to any person of the names of any of
the customers of the Company or any other information pertaining to them unless
such information can be obtained from public sources. For the purposes of this
Agreement, the term "customer" means all current customers of the Company as of
the Date of Termination and any person who has been a customer within one year
of the Date of Termination.
(B) NON-SOLICITATION OF EMPLOYEES. During the Term of Employment and for a
period of three (3) years immediately following the termination of the
Employee's employment with the Company under this Agreement, the Employee shall
not, either directly or indirectly, do any of the following: (i) solicit to hire
or hire any current or past employee of the Company; (ii) solicit to hire or
hire or employ in any fashion any consultant or other person used by the
Company; or (iii) participate as a shareholder (in the case of any publicly
traded company, owning more than 10% of the outstanding voting stock of such
company), partner, joint venturer, officer, director, employee, agent,
solicitor, distributor, dealer or representative, or have any direct or indirect
financial interest (including without limitation the interest of a creditor)
with any person who solicits to hire or hires any current or past employee of
the Company and who engages in any activity in the expedited delivery and
distribution industry which competes with any service or product of the Company
at the Date of Termination.
(C) The Employee acknowledges that the business of the Company is
international in scope and this international scope is the reason for the
geographic scope and/or duration of the restrictions on competition and
solicitation provided in this Paragraph 9. Satisfaction of the three (3) year
periods described in this Paragraph 9 shall be suspended during the time of any
activity of the Employee prohibited by this Paragraph 9. In the event a court
grants injunctive relief to the Company for a failure of the Employee to comply
with the provisions contained in Paragraph 9 hereof, the noncompetition period
shall commence anew with the date such relief is granted.
The restrictions provided in this Paragraph 9 may be enforced by the
Company, by an action at law, or in equity, including but not limited to, an
action for injunction and/or an action for damages. The provisions of this
Paragraph 9 constitute an essential element of this Agreement and the Merger
Agreement, without which the Agreement and Merger Agreement would not have been
affected by the
5
<PAGE>
Company. The provisions of this Paragraph 9 shall survive the termination of any
other obligations of the Employee under this Agreement for a period necessary to
enforce its provisions. If the scope of any restriction contained in this
Paragraph 9 is too broad to permit enforcement of such restriction to its
fullest extent, then such restriction shall be enforced to the maximum extent
permitted by law and the Employee hereby consents and agrees that such scope may
be judicially modified in any proceeding brought to enforce such restriction.
10. PROPRIETARY RIGHTS AND PROTECTION OF COMPANY'S BUSINESS.
(A) PROPRIETARY AND CONFIDENTIAL INFORMATION. As used throughout this
Agreement, the term "Proprietary Information" means any information acquired by
the Employee during or as a result of past, present or future employment by the
Company, including information conceived, discovered or developed by the
Employee, which is not in the public domain and which relates to the business or
contemplated businesses of the Company, whether such information is patentable
or unpatentable, copyrightable or uncopyrightable, which falls into two general
categories. The first category is information which may have intrinsic value and
may be considered to be an asset of the Company (the "Class I Proprietary
Information") and the second category is information relating to matters of a
business nature (the "Class II Proprietary Information"). By way of example,
Class I Proprietary Information would include: inventions, information of a
technical nature such as trade secrets, "know-how," innovations, discoveries,
formulae, research projects, software, source codes, object codes, software
architecture, flow charts, software documentation, decision tables, test data,
conversion programs, technical writings and confidential information of other
parties which are provided to the Company by any agreement under which the
Company has obligations to protect the confidentiality of same. Class II
Proprietary Information would include matters of a business nature such as
customer lists, customer and supplier and marketing representative contracts,
customer and supplier and marketing representatives requirements and
preferences, costs, prices or license fees or maintenance fees or other
financial information such as sales, profits, expenses, financial projections,
financial goals, local, state and federal tax returns, litigation and
compensation, personnel data, business plans and market research. The Employee
acknowledges that he will have access to and become familiar with this
Proprietary Information and that such Proprietary Information is very valuable
to the Company. The Employee agrees not to disclose any of the Proprietary
Information directly or indirectly to any person nor use it in any way, either
during the Term of Employment or any time thereafter. Except as required in the
course of his employment pursuant to this Agreement. All the Proprietary
Information shall remain the exclusive property of the Company; and any
Proprietary Information in the possession of the Employee at the end of the Term
of Employment shall be returned to the Company. Notwithstanding the foregoing,
information shall not be deemed to be Proprietary Information if it: (i) is or
becomes known through no fault of the Employee to a third party; (ii) is learned
by the Employee following his termination of employment; (iii) is or hereafter
becomes a part of the public domain other than through any breach of this
Agreement by the Employee or (iv) is owned directly by the Employee.
The restricted period during which the restrictions of this Paragraph 10
shall bind the Employee shall vary depending upon whether the information is
Class I Proprietary Information or Class II Proprietary Information. The
Employee shall have a perpetual obligation to keep Class I Proprietary
Information confidential, or, in the case of information of other parties, for
so long as the Company has an obligation to keep such information confidential,
and acknowledges that the ownership of Class I Proprietary Information inures
solely to the Company. The Employee shall have an obligation for three (3) years
after the termination of employment to keep Class II Proprietary Information
confidential.
11. ASSIGNMENT AND SURVIVORSHIP OF BENEFITS. Neither party shall have the
right to assign its rights or obligations under this Agreement to any third
party without the prior written consent of the other party hereto, which shall
not be unreasonably delayed or withheld.
6
<PAGE>
12. NOTICES. Any notices given to either party to this Agreement shall be
in writing, and shall be deemed to have been given when delivered personally or
sent by certified mail, postage prepaid, return receipt requested, when the
return receipt is signed, duly addressed to the party concerned, at the address
indicated below or to such changed address as such party may subsequently give
notice of:
If to the Company:
AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
Attn: Eric P. Roy, Executive Vice President
and Chief Financial Officer
If to the Employee:
Robert J. Mitzman
Quick International Courier, Inc.
909 Third Avenue--5th Floor
New York, New York 10022-4731
13. TAXES. Anything in this Agreement to the contrary notwithstanding, all
payments required to be made hereunder by the Company to the Employee shall be
subject to withholding of such amounts as the Company may reasonably determine
that it should withhold pursuant to any applicable law or regulations. In lieu
of withholding such amounts, in whole or in part, however, the Company may, in
its sole discretion, accept other provision for payment of taxes, provided that
it is satisfied that all requirements of the law affecting its responsibilities
to withhold such taxes have been satisfied.
14. GOVERNING LAW/CAPTIONS/SEVERANCE. This Agreement shall be construed in
accordance with, and pursuant to, the laws of the State of Ohio. The captions of
this Agreement shall not be part of the provisions hereof, and shall have no
force or effect. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. Except as otherwise specifically provided in this Paragraph
14, the failure of either party to insist in any instance on the strict
performance of any provision of this Agreement or to exercise any right
hereunder shall not constitute a waiver of such provision or right in any other
instance.
15. ENTIRE AGREEMENT/AMENDMENT. This instrument contains the entire
agreement of the parties, relating to the subject matter hereof, and the parties
have made no agreement, representations, or warranties relating to the subject
matter hereof, that are not set forth herein. This Agreement may be amended at
any time by written agreement of both parties, but it shall not be amended by
oral agreement.
16. DEFINITIONS. Capitalized terms used herein without definition shall
have the meanings ascribed thereto in the Merger Agreement.
[signature page to follow]
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
<TABLE>
<S> <C> <C>
AIRNET SYSTEMS, INC.
By: /s/ GERALD G. MERCER
-----------------------------------------
Gerald G. Mercer
CHIEF EXECUTIVE OFFICER
EMPLOYEE:
/s/ ROBERT J. MITZMAN
-----------------------------------------
Robert J. Mitzman
</TABLE>
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report related to AirNet Systems, Inc., dated February 18, 1998,
included in the Proxy Statement of AirNet Systems, Inc. that is made a part of
the Registration Statement (Form S-4 No. 333-XXXXX) and Prospectus of AirNet
Systems, Inc. for the registration of 3,141,356 of its common shares.
/s/ Ernst & Young LLP
Columbus, Ohio
May 15, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated March 16, 1998, with respect to the financial
statements of Q International Courier, Inc. included in the Registration
Statement (Form S-4) and related Prospectus of AirNet Systems, Inc. for the
registration of 3,141,356 of its common shares.
/s/ Ernst & Young LLP
New York, New York
May 15, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF ROBERT J. MITZMAN
In reference to the Registration Statement on Form S-4 and the related
Proxy Statement/Prospectus of AirNet Systems, Inc. and pursuant to Rule 438
of Regulation C as promulgated under the Securities Act of 1933, as amended,
I hereby consent to the references to me under the captions "THE AGREEMENT -
Additional Agreements" and "ELECTION OF DIRECTORS - Additional Director" of
such Registration Statement and confirm that I have agreed to join the Board
of Directors of AirNet Systems, Inc. upon the consummation of the
transactions contemplated by the Agreement and Plan of Merger, dated as of
April 14, 1998, among Q International Courier, Inc., the stockholders of Q
International Courier, Inc., AirNet Systems, Inc. and Q Acquisition Company,
described in such Registration Statement.
May 20, 1998
/s/ ROBERT J. MITZMAN
<PAGE>
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
AIRNET SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of AirNet Systems, Inc., an Ohio
corporation (the "Company"), hereby constitutes and appoints Gerald G. Mercer
and Eric P. Roy, and each of them, the Proxy or Proxies of the undersigned, with
full power of substitution, to attend the Annual Meeting of Shareholders of the
Company (the "Annual Meeting") to be held on July 14, 1998, at the Concourse
Hotel, 4300 International Gateway, Columbus, Ohio, at 10:00 a.m., local time,
and any adjournment(s) thereof, and to vote all of the common shares of the
Company which the undersigned is entitled to vote at such Annual Meeting or at
any adjournment(s) thereof:
1. TO APPROVE THE ACQUISITION OF ONE-FIFTH OR MORE BUT LESS THAN
ONE-THIRD OF THE VOTING POWER OF THE COMPANY BY THE STOCKHOLDERS OF Q
INTERNATIONAL COURIER, INC.
/ / FOR / / AGAINST / / ABSTAIN
2. TO ELECT AS DIRECTORS OF THE COMPANY ALL OF THE NOMINEES LISTED BELOW
TO SERVE FOR TERMS OF ONE YEAR EACH (EXCEPT AS MARKED TO THE CONTRARY BELOW.)*
/ / FOR / / WITHHOLD AUTHORITY / / FOR ALL EXCEPT
Gerald G. Mercer Tony C. Canonie, Jr.
Eric P. Roy Russell M. Gertmenian
Roger D. Blackwell J.F. Keeler, Jr.
*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
"FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:
---------------------------------------------------------------
3. TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE AIRNET SYSTEMS, INC.
1996 INCENTIVE STOCK PLAN.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS (NONE KNOWN AT THE TIME OF SOLICITATION OF THIS PROXY) AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(s) THEREOF.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY IN THE BOX BELOW.
--------------------
- ----------------------------------------------------------- DATE
- -------------------------------------------------------------------------------
SHAREHOLDER SIGN ABOVE -- CO-HOLDER (IF ANY) SIGN ABOVE
- -------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
AIRNET SYSTEMS, INC.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 2 AS DIRECTORS OF THE COMPANY
AND FOR PROPOSALS NO. 1 AND 3.
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY
CARD WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO
CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY CARD WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 2 AS DIRECTORS OF THE
COMPANY AND FOR PROPOSALS NO. 1 AND 3. IF ANY OTHER MATTERS ARE PROPERLY
BROUGHT BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(S) THEREOF OR IF A NOMINEE
FOR ELECTION AS A DIRECTOR NAMED IN THE PROXY STATEMENT/PROSPECTUS IS UNABLE TO
SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE COMMON SHARES REPRESENTED BY THIS
PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH MATTERS OR FOR
SUCH SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND.
ALL PROXIES PREVIOUSLY GIVEN OR EXECUTED BY THE ABOVE SIGNED ARE HEREBY
REVOKED. The above signed acknowledges receipt of the accompanying Notice of
Annual Meeting of Shareholders and Proxy Statement/Prospectus for the July 14,
1998 meeting and the Annual Report to Shareholders for the fiscal year ended
December 31, 1997.
Please sign exactly as your name appears hereon. When common shares are
registered in two names, both shareholders should sign. When signing as
executor, administrator, trustee, guardian, attorney or agent, please give full
title as such. If shareholder is a corporation, please sign in full corporate
name by President or other authorized officer. If shareholder is a partnership
or other entity, please sign in entity name by an authorized person. (Please
note any change of address on this proxy card.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AIRNET SYSTEMS, INC.
PLEASE ACT PROMPTLY -- SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
-2-
