<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28428
AIRNET SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1458309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3939 International Gateway, Columbus, Ohio 43219
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(Address of principal executive offices) (Zip Code)
(614) 237-9777
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Common Shares, $.01 Par Value,
Outstanding as of November 5, 1998 - 11,370,987
<PAGE>
AIRNET SYSTEMS, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998
PART I: FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1998 and 1997. . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and 1997 . . . . . . . . . . . .5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . . 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk . . . . . . .13
PART II: OTHER INFORMATION
Items 1 through 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1998 1997
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $2,125
Accounts receivable:
Trade, less allowances 13,129 10,967
Shareholders, affiliates, and associates 56 86
Spare parts and supplies 9,596 6,053
Deposits and other prepaids 8,351 5,848
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Total current assets 31,132 25,079
Net property and equipment 75,320 67,578
Other assets:
Intangibles, net of accumulated amortization 9,019 5,426
Investment in partnerships and other 7,686 5,903
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Total assets $123,157 $103,986
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,456 $4,033
Salaries and related liabilities 1,188 1,606
Accrued expenses 1,483 1,311
Taxes payable - 2,386
Deferred taxes 2,070 229
Current portion of notes payable 24 24
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Total current liabilities 12,221 9,589
Notes payable, less current portion 24,488 9,706
Deferred taxes 6,275 4,431
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; 12,753,400 shares issued
at September 30, 1998 and December 31, 1997 127 127
Additional paid-in-capital 78,496 79,779
Retained earnings 12,913 5,787
Treasury shares, held at cost; 704,413 shares
at September 30, 1998 and 263,570 shares at
December 31, 1997 (11,363) (5,433)
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Total shareholders' equity 80,173 80,260
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Total liabilities and shareholders' equity $123,157 $103,986
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</TABLE>
3
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
NET REVENUES
Air transportation
Check delivery $24,311 $21,670 $70,097 $58,579
Small package delivery 5,006 4,251 13,316 11,877
Fixed base operations 327 326 911 1,088
--------- --------- ---------- ---------
Total net revenues 29,644 26,247 84,324 71,544
COSTS AND EXPENSES
Air transportation 21,478 18,416 60,406 48,096
Fixed base operations 243 284 616 860
Selling, general and administrative 3,399 1,525 8,340 5,605
--------- --------- ---------- ---------
Total costs and expenses 25,120 20,225 69,362 54,561
--------- --------- ---------- ---------
Income from operations 4,524 6,022 14,962 16,983
Acquisition termination charge - - 2,350 -
Interest expense 327 25 782 25
--------- --------- ---------- ---------
Income before income taxes 4,197 5,997 11,830 16,958
Provision for income taxes 1,678 2,399 4,704 6,763
--------- --------- ---------- ---------
Net income $2,519 $3,598 $7,126 $10,195
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Net income per common share $0.20 $0.29 $0.57 $0.81
Net income per common share - assuming dilution $0.20 $0.28 $0.56 $0.80
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(IN THOUSANDS) 1998 1997
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<S> <C> <C>
Operating activities
Net income $7,126 $10,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,490 6,598
Amortization of intangibles 610 246
Deferred taxes 3,685 4,158
Provision for losses on accounts receivable 105 42
Loss (gain) on disposition of assets 39 (88)
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (1,475) (3,519)
Spare parts and supplies (3,543) (1,155)
Prepaid expenses (963) (3,256)
Accounts payable 2,967 1,228
Accrued expenses (239) 1,172
Taxes payable (3,922) -
Salaries and related liabilities (420) (787)
Other, net (1,998) (288)
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Net cash provided by operating activities 9,462 14,546
Investing activities
Purchases of property and equipment (15,100) (15,452)
Payments for covenants not to compete (488) (105)
Acquisition of Mercury Business Services, Inc., net of cash acquired (1,761) -
Acquisition of Pacific Air Charter, Inc., net of cash acquired - (210)
Acquisition of Data Air Courier, Inc., net of cash acquired (34) (4,049)
Proceeds from sales of property and equipment 49 933
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Net cash used in investing activities (17,334) (18,883)
Financing activities
Exercise of stock options 1,837 1,757
Net borrowings under the revolving credit facility 14,800 5,000
Repayment of long-term debt (17) (1,560)
Purchase of treasury shares (10,873) (5,762)
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Net cash provided by (used in) financing activities 5,747 (565)
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Net decrease in cash (2,125) (4,902)
Cash and cash equivalents at beginning of period 2,125 9,631
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Cash and cash equivalents at end of period $0 $4,729
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</TABLE>
5
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AIRNET SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
AirNet Systems, Inc. and its subsidiaries (the "Company") operate a fully
integrated national air transportation network which provides delivery
service of 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 in Columbus, Ohio.
The accompanying unaudited condensed consolidated financial statements
include the accounts of AirNet Systems, Inc. and its subsidiaries. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the year ended
December 31, 1997 consolidated financial statements of AirNet Systems, Inc.
contained in the Annual Report on Form 10-K (File No. 0-28428) for additional
disclosures including a summary of the Company's accounting policies, which
have not changed.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results of interim
periods. Operating results for the three and nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the
year ending December 31, 1998.
The preparation of the condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes thereto. Actual results could
differ from those estimates.
2. ACQUISITION TERMINATION CHARGE
On June 17, 1998, the Company announced that it had terminated an agreement
to acquire Q International Courier, Inc. ("Quick"). The Company had incurred
$2,350,000 of costs in conjunction with the planned acquisition, all of which
were expensed upon the termination of the agreement.
<PAGE>
3. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1998 1997 1998 1997
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $2,519 3,598 $7,126 $10,195
Denominator:
Basic - weighted average shares outstanding 12,384 12,579 12,499 12,612
Diluted
Stock options - associates, officers, directors 55 217 151 123
Adjusted weighted average shares outstanding 12,439 12,796 12,650 12,735
Net income per share - basic $ .20 $ .29 $ .57 $ .81
Net income per share - assuming dilution $ .20 $ .28 $ .56 $ .80
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
The Company has historically capitalized costs related to start-up activities
associated with new business initiatives, such as the introduction of the
premium products line of business. Costs associated with these initiatives,
such as personnel costs, outside services and administrative support services
were capitalized as start-up costs. The Company completed its start-up phase
activities related to the premium products line of business and ceased
capitalizing related start-up costs as of June 30, 1998. The Company began
the amortization of those costs effective July 1, 1998. Capitalized start-up
costs, which totaled $4,686,000 at June 30, 1998 are being amortized over
five years under the straight line method. At September 30, 1998, the
unamortized balance, reflected in the other assets section of the balance
sheet, totaled $4,458,000.
In April 1998, AcSEC issued Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities". This SOP will require all companies to
write-off, as a cumulative effect of a change in accounting principle, any
previously capitalized start-up costs. This SOP will be effective for the
Company in the first quarter of 1999.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information". Statement No. 131, which will become effective for the
Company's 1998 year end reporting, 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.
7
<PAGE>
5. ACQUISITION OF MERCURY BUSINESS SERVICES, INC.
On August 11, 1998, the Company acquired all of the outstanding common stock
of Mercury Business Services, Inc. ("Mercury"), an express delivery
management service located in Boston. The Company accounted for the
acquisition under the purchase method of accounting. The purchase price of
the acquisition included $2,000,000 of cash and 117,647 AirNet Common Shares
and resulted in goodwill of $3,451,000, which will be amortized over 25
years, and covenants not compete totaling $300,000. The covenants not to
compete will be amortized over the three year term of the agreements. The
acquired assets and assumed liabilities have been recorded at their estimated
fair values as of August 11, 1998. The Company's condensed consolidated
financial statements for the three and nine months ended September 30, 1998
include the results of the operations of Mercury since the purchase date.
6. TREASURY STOCK
In August 1998, the Company implemented a stock repurchase program, with
authorization to purchase up to $12,000,000 of its Common Shares. During the
quarter ended September 30, 1998, the Company purchased 680,700 Common
Shares, at a total cost of $10,839,000.
In October 1998, subsequent to the close of the quarter, the Company's
authorization to purchase its Common Shares was increased to $20,000,000 by
the Company's Board of Directors. The Company bought an additional 678,000
Common Shares for an additional $9,161,000, completing its buyback program.
8
<PAGE>
AIRNET SYSTEMS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Certain matters discussed in this Form 10-Q, including, but not limited to,
information regarding future economic performance and plans and objectives of
the Company's management, are forward-looking statements which involve risks
and uncertainties. When used in this document, the words "anticipate",
"estimate", "expect", "may", "plan", "project" and similar expressions are
intended to be among statements that identify forward-looking statements.
Such statements involve risks and uncertainties such as the following, in
addition to other factors not listed, which could cause actual results to
differ materially from any such forward-looking statement: potential changes
by the Federal Aviation Administration ("FAA"), which could increase the
regulation of the Company's business or the Federal Reserve, which could
change the competitive environment of transporting canceled checks; adverse
weather conditions; technological advances and increases in the use of
electronic funds transfers; the effective detection and remediation of Y2K
issues by the company and its key third party vendors, including the FAA's
air traffic control system; the Company's ability to successfully complete
and integrate acquisition targets; as well as other economic, competitive and
domestic and foreign governmental factors affecting the Company's markets,
prices and other facets of its operations. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated. The
Company undertakes no responsibility to update for changes related to these
or any other factors that may hereafter occur.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues were $29.6 million for the three months ended September 30, 1998, an
increase of $3.4 million, or 12.9%, over the same period of 1997. Revenues
from check delivery increased $2.6 million, or 12.2%. Of the increase, $1.2
million is attributable to price increases effective January 1, 1998, $0.4
million is attributable to one additional flying day in the 1998 quarter and
$1.0 million can be attributed to the acquisition of Data Air Courier, Inc.
("Data Air"), a national transporter of canceled checks and small packages
through a ground delivery network and the commercial airlines, in July 1997.
Small package delivery revenue increased $0.8 million, or 17.8%. The
acquisition of Mercury Business Services, Inc., ("Mercury"), a Boston-based
express delivery management service, accounted for a $1.0 million increase in
the small package revenues. Revenues from LateNight and SameDay premium
services increased $1.0 million. These increases were offset by decreases in
Standard and Wholesale services of $1.1 million.
Total costs and expenses, were $25.1 million for the three months ended
September 30, 1998, an increase of $4.9 million, or 24.2%, over the same
period in 1997, resulting in income from operations of $4.5 million for the
three months ended September 30, 1998 compared to $6.0 million for the same
period of 1997. Air transportation expenses were up $3.1 million, or 16.7%.
Selling, general and administrative expenses increased $1.9 million, or
122.9%, for the three month period.
9
<PAGE>
The increase in air transportation costs was partly a result of the
acquisitions of Data Air, which was acquired mid third quarter of 1997, and
Mercury. In addition, the Company has experienced a shortage of pilots,
requiring the use of back-up charter operators at an increased costs of $0.6
million. Health insurance costs were up $0.4 million due to a historically
high level of insurance claims. The costs associated with shipping packages
on commercial airlines increased $0.5 million over the same quarter of 1997
due to the addition of Mercury. Mercury transports a significant portion of
its packages through third party integrators and other freight forwarders.
Ground courier costs increased $0.6 million due to the Data Air acquisition,
of which only two months of the 1997 quarter are reflected in the balances
due to the timing of the acquisition, and a general increase in the size of
the ground infrastructure required to handle the increased weekend bank
business and small package business. Fuel expense remained flat over the
1997 quarter. A decrease in fuel prices offset an increase in aircraft hours
flown. Aircraft maintenance costs increased $0.4 million due an increase in
the number of aircraft flown, from 111 at September 30, 1997 to 118 at
September 30, 1998, and the overall increase in flight hours.
Selling, general and administrative expense increased partly due to the fact
the Company capitalized $0.3 million of certain sales and marketing costs
associated with the start up of the premium services in the third quarter of
1997. In the third quarter of 1998, the Company began amortizing those costs
under the straight line method over five years, resulting in a $0.2 million
expense for the quarter.
Interest costs were $0.3 million for the quarter ended September 30, 1998.
The Company began borrowing on its line of credit in September 1997, after
being essentially debt free since its initial public offering in May 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues were $84.3 million for the nine months ended September 30, 1998, an
increase of $12.8 million, or 17.9%, over the same period of 1997. Revenues
from check delivery increased $11.5 million, or 19.7%. Of the increase, $3.2
million is attributable to price increases effective January 1, 1998, $0.4
million is due to one extra flying day in the 1998 period and $6.9 million
can be attributed to the acquisitions of Data Air and Pacific Air Charter,
Inc. ("PAC"). The balance is due to increased business activity and
increases in total weight shipped. Small package delivery revenue increased
$1.4 million, or 12.1%. The acquisition of Mercury accounted for a $1.0
million increase in the small package revenues. Revenues from LateNight and
SameDay premium services increased $3.1 million. These increases were offset
by decreases in Standard and Wholesale services of $2.8 million.
Total costs and expenses, prior to the acquisition termination charge and
interest expense, were $69.4 million for the nine months ended September 30,
1998, an increase of $14.8 million, or 27.1%, over the same period in 1997,
resulting in income from operations of $15.0 million for the nine months
ended September 30, 1998 compared to $17.0 million for the same period of
1997. Air transportation expenses were up $12.3 million, or 25.6%. Selling,
general and administrative expenses increased $2.7 million, or 48.8%, for the
nine month period. In addition, the Company incurred a $2.4 million charge in
connection with the write off of costs associated with the efforts to
acquire Quick in the second quarter of 1998. The agreement to acquire Quick
was terminated in June 1998.
10
<PAGE>
Air transportation costs increased primarily as a result of the acquisitions
of Data Air, PAC and Mercury 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 and other integrators and freight forwarders increased $3.0 million
over the same period of 1997 primarily due to the additions of Data Air and
Mercury. Ground courier costs increased $4.8 million and courier vehicle
costs were up $0.4 million due to the Data Air acquisition and the build up
of the infrastructure. Depreciation expense increased $0.9 million due to the
increased size of the Company's aircraft fleet, which grew from 98 aircraft
at January 1, 1997 to 118 aircraft at September 30, 1998, an increased fleet
of ground vehicles and improved management information and telecommunications
systems. Fuel expense increased $0.3 million, or 3.4%, due to increased
flying hours, offset by lower fuel prices. Maintenance expense increased
$0.6 million due to the increase in hours flown in the first nine months of
1998 compared to the same period of 1997.
Selling, general and administrative expense increased partly due to the
implementation of a sales commission plan for small package delivery services
and due to the addition of staff required to handle the administrative
functions and general costs associated with the Data Air and PAC acquisitions.
Interest costs were $0.8 million for the nine months ended September 30,
1998. The Company began borrowing on its line of credit in September 1997,
after being essentially debt free since its initial public offering in May
1996.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES. Net cash flow from operating
activities was $9.5 million for the nine months ended September 30, 1998,
compared to $14.5 million for the same period in 1997. The decrease is due
to $2.0 million of costs associated with start-up activities, the $2.7
million purchase of an aircraft held for resale, $2.4 million of acquisition
costs incurred in 1998 and the reduction of the deferred tax asset in 1997.
CURRENT CREDIT ARRANGEMENTS. The Company maintains a credit agreement with a
bank that provides a $50.0 million, five year, unsecured revolving credit
facility. The credit agreement limits the availability of funds to certain
specified percentages of accounts receivable, inventory and the wholesale
value of aircraft and equipment. In addition, the 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.
At September 30, 1998, the Company had borrowed $24.3 million under the
credit facility, which was a $14.8 million increase from the December 31,
1997 balance.
INVESTING ACTIVITIES. Capital expenditures totaled $15.1 million for the nine
months ended september 30, 1998, compared to $15.5 million for the same period
in 1997. Approximately $3.7 million was incurred in connection with the
purchase of 6 new aircraft, $9.3 million was incurred for aircraft inspections,
major engine overhauls and related flight equipment and the remainder was
incurred primarily for delivery vehicles and information systems related
equipment. The company anticipates it will have approximately $20.0 million in
total capital expenditures in 1998, excluding any acquisitions of new
businesses. The company anticipates it will continue to acquire aircraft and
flight equipment as necessary to maintain growth and continue offering quality
service to its customers.
On June 17, 1998, the company announced that it had terminated an agreement to
acquire quick. The company had incurred $2.4 million of acquisition related
costs in conjunction with the original merger plan, all of which were expensed
upon the termination of the agreement.
11
<PAGE>
On August 11, 1998, the company acquired all of the outstanding common stock of
Mercury Business Services, Inc. ("Mercury"), an express delivery management
service located in Boston. The Company accounted for the acquisition under the
purchase method of accounting. The purchase price of the acquisition included
$2 million of cash and 117,647 Airnet Common Shares.
The Company anticipates that operating cash and capital expenditure
requirements will continue to be funded by cash flow from operations, cash on
hand and bank borrowings.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
The Company's operations historically have been somewhat seasonal and
somewhat dependent on the number of banking holidays falling during the week.
Because financial institutions are currently the Company's principal
customers, the Company's air system is scheduled around the needs of
financial institution customers. When financial institutions are closed,
there is no need for the Company to operate a full system. The Company's
fiscal quarter ending December 31, is often the most impacted by bank
holidays (including Thanksgiving and Christmas) recognized by its primary
customers. When these holidays fall on Monday through Thursday, the
Company's revenue and net income are adversely affected. The Company's annual
results fluctuate as well.
Operating results are also affected by the weather. The Company generally
experiences higher maintenance costs during its fiscal quarter ending March
31. Winter weather requires additional costs for de-icing, hangar rental and
other aircraft services. The Company's cash flows are also influenced by the
budget cycles of its primary customers. Many financial institutions have
calendar year budget cycles and desire to pay for December services prior to
year end. This results in increased cash flows for the Company's fiscal
quarter ending December 31, but decreased cash flows in January and February.
YEAR 2000 ("Y2K") IMPACT ON INFORMATION SYSTEMS AND OPERATIONS
The Company relies heavily on its own information systems, as well as certain
third parties (including, among others, fuel suppliers, commercial airlines,
administrative support providers, vendors and suppliers) whose Y2K
non-compliance could have either a material or adverse effect on the
Company's business, financial conditions or results of operations, or involve
a safety risk to team members or customers.
The Company has completed an assessment and testing of its internal systems
(IT and non-IT systems) for Y2K compliance. No changes or improvements to
the systems were required as a result of the assessment and testing, which
cost the Company less than $0.1 million, paid from the operating cash flows
of the Company.
The Company is actively addressing the Y2K status of third parties that it
heavily relies on for operational and administrative purposes. The Company
has developed a plan to assess and track the Y2K readiness of its key
vendors. The plan includes: assessing vendor compliance status initially
through questionnaires, tracking vendor progress toward compliance,
developing contingency plans, including identifying alternate suppliers, and
follow-up to non-responses on questionnaires. The assessment phase of the
plan is approximately 80% complete as of September 30, 1998. A contingency
plan is expected to be in place by March 31, 1999.
12
<PAGE>
The Company has also performed a review of its aircraft to ensure operational
compliance with Y2K date-sensitive components. Based on representations from
manufacturers, the Company believes its aircraft and related components are
in compliance with such measures. However, the Company is aware that the FAA
has announced that it is currently encountering difficulties in modifying
certain of its operating systems for compliance with Y2K issues. The FAA has
indicated that most of the air traffic control systems at tier one and tier
two airports in the United States, which are the primary airports that the
Company flies in and out of, are currently Y2K compliant. The Company will
continue to monitor the FAA's progress in assessing and correcting Y2K issues
at the remaining airports to determine the need and extent of a contingency
plan for air operations, which would likely include rerouting aircraft from
non-Y2K compliant airports through compliant airports. If the FAA is not
able to detect and correct remaining Y2K problems in the appropriate time
frame, it could result in a material adverse affect on the Company's ability
to schedule and execute aircraft arrivals and departures from affected
airports.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not
Applicable.
13
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AIRNET SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
On August 11, 1998, the Company acquired Mercury Business Services,
Inc. ("Mercury"). In connection with this transaction, the Company
issued 117,647 Common Shares to the former shareholders of Mercury.
The Common Shares issued were valued at $15.50 per share, or
$1,823,529 in the aggregate. The Common Share issued to the former
Mercury shareholders were not registered under the Securities Act of
1933 in reliance upon the exemption from registration provided by
Section 4(6) for sales to accredited investors.
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held on August 19, 1998. At the close of business on
the record date July 3, 1998, 12,594,170 Common Shares were
outstanding and entitled to vote at the Annual Meeting. At the Annual
Meeting, 11,224,837 or 89.1% of the outstanding Common Shares entitled
to vote, were represented in person or by proxy.
(b) Directors elected at the Annual Meeting:
<TABLE>
<S> <C> <C> <C>
Gerald G. Mercer
For: 11,202,330
Withheld: 22,507 Broker non-vote: -0-
Eric P. Roy
For: 11,202,340
Withheld: 22,497 Broker non-vote: -0-
Roger D. Blackwell
For: 11,202,740
Withheld: 22,097 Broker non-vote: -0-
Tony C. Canonie, Jr.
For: 11,202,740
Withheld: 22,097 Broker non-vote: -0-
Russell M. Gertmenian
For: 11,202,740
Withheld: 22,097 Broker non-vote: -0-
J. F. Keeler, Jr.
For: 11,202,740
Withheld: 22,097 Broker non-vote: -0-
</TABLE>
14
<PAGE>
(c) See Item 4(b) for voting results for directors.
Proposal to amend and restate the AirNet Systems, Inc. 1996 Incentive Stock
Plan:
<TABLE>
<S> <C> <C> <C>
For: 9,630,318 Abstain: 607,016
Against: 987,503 Broker Non-vote: 0
</TABLE>
(d) Not applicable.
Item 5. Other Information.
Based upon the past practices of the Company, the Company intends to
hold its 1999 Annual Meeting of shareholders on or about Wednesday,
May 12, 1999. Shareholders of the company 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 mist be delivered to or mailed and
received at the principal executive offices of the Company not less
than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the 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 Company's
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 Securities Exchange Act
of 1934. Pursuant to rule 14a-8, proposals by shareholders intended
to be presented at the 1999 Annual Meeting of Shareholders must be in
the form specified in that rule and received by the Secretary of the
Company no later than December 8, 1998.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS:
Exhibit No. Description
----------- ---------------------------------------------------------
Exhibit 10 Airnet Systems, Inc. Amended and Restated 1996 Incentive
Stock Plan (reflect amendments through November 9, 1998)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the three months ended
September 30, 1998.
16
<PAGE>
AIRNET SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 11, 1998 By: /s/ Eric P. Roy
-------------------------
Eric P. Roy,
Executive Vice President
(Duly Authorized Officer)
(Principal Financial Officer)
17
<PAGE>
AIRNET SYSTEMS, INC.
INDEX TO EXHIBITS
Exhibit No. Description
10 AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock
Plan (reflects amendments through November 9, 1998)
27 Financial Data Schedule. Filed herewith.
18
<PAGE>
EXHIBIT 10
AIRNET SYSTEMS, INC.
AMENDED AND RESTATED
1996 INCENTIVE STOCK PLAN
(REFLECTS AMENDMENTS THROUGH NOVEMBER 9, 1998)
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 l6b-3, each of whom shall be (a) a person from time to time
permitted by the rules promulgated under Section 16 of the
<PAGE>
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.
"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
2
<PAGE>
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.
3
<PAGE>
"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.
"Right to Purchase Date" shall mean the last business day of an Offering
Period to purchase Shares under the provisions of Section 10.
"Rule l6b-3" shall mean Rule l6b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the staff thereof.
"Shares" shall mean 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
4
<PAGE>
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.
SECTION 4. SHARES AVAILABLE FOR THE PLAN.
(a) SHARES AVAILABLE. Subject to adjustment as provided in
Section 4(b), the number of Shares available for issuance under the Plan
shall be 1,650,000. If any Shares covered by an Award or Director Option
granted under the Plan, or to
5
<PAGE>
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 l6b-3.
In the event that any Option, Director Option or other Award granted
hereunder is exercised through the delivery of Shares, the number of Shares
available under the Plan shall be increased by the number of Shares
surrendered, to the extent permissible under Rule l6b-3.
(b) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company,
issuance of warrants or other rights to purchase Shares or other securities
of the Company, or other similar corporate transaction or event affects the
Shares such that an adjustment is necessary in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan, then the Committee shall proportionately adjust any
or all (as necessary) of (i) the number of Shares or other securities of the
Company (or number and kind of other securities or property) which may be
issued under 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.
6
<PAGE>
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.
(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
7
<PAGE>
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. On March 7, 1997, each individual then
serving as an Eligible Director was granted an immediately exercisable
Director Option to purchase 2,000 Shares at an exercise price per Share equal
to the Fair Market Value on the date of grant. Notwithstanding anything else
contained herein to the contrary, each individual 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 granted on
or after the Effective Date shall be granted at an exercise price per Share
equal to the Fair Market Value on the date of grant. 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
8
<PAGE>
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 Person and the
Company is not the survivor in the merger, or in the event all or
substantially all of the Company's assets or stock is acquired by another
Person, each Director Option shall immediately vest and become exercisable.
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.
9
<PAGE>
(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.
(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 200,000 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
10
<PAGE>
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 participation in any Offering contrary to the requirements of the
Code (including, without limitation, Sections 423(b)(3), 423(b)(4) and
423(b)(8) thereof). Nothing contained herein and no rules and regulations
prescribed by the Committee shall permit any Participant to be granted a
Right to Purchase:
(i) if, immediately after such Right to Purchase is granted, such
Participant would own, and/or hold outstanding options or rights to purchase,
shares of the Company or of any Subsidiary, possessing five percent (5%) or
more of the total combined voting power or value of all classes of shares of
the Company or such Subsidiary; or
(ii) which permits a Participant's rights to purchase Shares under
all employee stock purchase plans of the Company and of its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of
Fair Market Value of Shares (determined as of the date such Right to Purchase
is granted) for each calendar year in which such Right to Purchase is
outstanding at any time.
For purposes of clause (a)(i) above, the provisions of Section 424(d) of the
Code shall apply in determining the stock ownership of each Participant. For
purposes of clause (a)(ii) above, the provisions of Section 423(b)(8) of the
Code shall apply in determining whether a Participant's Rights to Purchase
and other rights are permitted to accrue at a rate in excess of the permitted
rate.
11
<PAGE>
(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 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.
12
<PAGE>
(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
13
<PAGE>
(or beneficiary, in the case of the Participant's death) any amount in his
Cash Account which constitutes payroll deductions, without interest, and the
custodian shall deliver to such Participant a share certificate issued in his
name for the number of whole Shares credited to his Share Account through
prior Offerings.
(h) EFFECT OF MERGER OR LIQUIDATION INVOLVING THE COMPANY. In the
event the Company merges with another 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 l6b-3, in such manner as may be
necessary so as to have the Plan conform with local rules and regulations in
any jurisdiction outside the United States.
(b) AMENDMENTS TO AWARDS. Subject to the provisions of Section 9,
the Committee may waive any conditions or rights under, amend any terms of,
or alter, suspend, discontinue, cancel
14
<PAGE>
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 Subsidiary; provided
that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(b) NO RIGHTS TO AWARDS. No Employee, Participant or other Person
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants or holders or
beneficiaries of Awards. The terms
15
<PAGE>
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 compensa-
16
<PAGE>
tion 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.
(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
17
<PAGE>
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
18
<PAGE>
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.
(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.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AIRNET
SYSTEMS, INC.'S QUARTERLY REPORT ON FORM 10Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,437
<ALLOWANCES> 252
<INVENTORY> 9,596
<CURRENT-ASSETS> 31,132
<PP&E> 129,560
<DEPRECIATION> 54,240
<TOTAL-ASSETS> 123,157
<CURRENT-LIABILITIES> 12,221
<BONDS> 0
0
0
<COMMON> 127
<OTHER-SE> 80,046
<TOTAL-LIABILITY-AND-EQUITY> 123,157
<SALES> 911
<TOTAL-REVENUES> 84,324
<CGS> 616
<TOTAL-COSTS> 60,406
<OTHER-EXPENSES> 10,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782
<INCOME-PRETAX> 11,830
<INCOME-TAX> 4,704
<INCOME-CONTINUING> 7,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,126
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.56
</TABLE>
