<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-13025
AirNet Systems, Inc.
(Exact name of registrant as specified in its charter)
An Ohio Corporation
I.R.S. Employer Identification No. 31-1458309
3939 International Gateway
Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)
614-237-9777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
AirNet Systems, Inc. common shares, $.01 par value, are registered on the
New York Stock Exchange
Based on a closing sales price of $5.875 per share on March 3, 2000, the
aggregate market value of the voting stock held by non-affiliates of AirNet
Systems, Inc., was approximately $45,162,218. As of that date, 11,393,362 common
shares of AirNet Systems, Inc., were issued and outstanding.
We have no securities registered under Section 12(g) of the Act. We are and for
the past 90 days have been subject to certain filing requirements under Sections
13 and 15(d) of the Securities Exchange Act of 1934 and have filed all required
reports during the preceding 12 months.
We are not aware of any delinquent filers for which disclosure must be made
pursuant to Item 405 of Regulation S-K.
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 12, 2000, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1 - BUSINESS
Overview of AirNet's business
AirNet ExpressSM, the integrated national air transportation network of AirNet
Systems, Inc., operates between 100 cities and 40 states and delivers over
20,000 time-critical shipments each working day. AirNet's check delivery
service, which generates approximately 77% of AirNet's revenues, is the leading
transporter of canceled checks and related information for the U.S. banking
industry, meeting more than 2,200 daily deadlines. AirNet's Express service,
which generates approximately 22% 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 account for approximately 1% of AirNet's revenues, offer
retail aviation fuel sales and related ground services for customers in
Columbus, Ohio.
AirNet currently operates a fleet of 119 aircraft (31 Learjets and 88 light twin
engine aircraft), which fly approximately 110,000 miles per operating night,
primarily Monday through Thursday. AirNet also provides ground pick-up and
delivery services throughout the nation seven days per week, using a combination
of company personnel and a network of over 300 independent contractors. AirNet
uses its air and ground network to support its banking industry customers, as
well as its Express delivery customers. AirNet also uses commercial airlines to
provide SameDay delivery service for some 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. In order to maintain this performance, AirNet
uses 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 selected shipment
information are available on-line and through the Internet.
AirNet intends to capitalize on time-critical segments, such as medical,
radioactive pharmaceutical and just-in-time inventories, in which its airline
offers customers competitive advantages in their industries. The company's
airline affords unique delivery capabilities to a limited number of shippers and
it intends to broaden those capabilities and markets. AirNet believes that its
flexible and reliable air network and its demonstrated expertise in providing
time-critical deliveries to the banking industry for over 25 years position
AirNet to provide these services.
AirNet Systems, Inc. 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. AirNet's website address is www.airnet.com.
Business strategy
The principal components of AirNet's operating and growth strategy are as
follows:
Increase yields on aircraft
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, Ohio
and several mini-hubs across the nation, allows 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.
AirNet intends to leverage the use of its aircraft by attracting high volume
Express customers who benefit from the airline's multiple late night departures
and early morning arrivals.
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Focus on service for the radioactive pharmaceutical industry
In 1999, AirNet received an exemption certificate from the Department of
Transportation (DOT 7060 Exemption) that allows its aircraft to transport
increased volumes of certain radioactive materials. As one of only three
carriers in the United States holding such an exemption, AirNet intends to
aggressively market its services to producers of radioactive pharmaceuticals.
These products have short half-lives, whereby the product's effectiveness and
dosage potential are reduced exponentially over time. AirNet believes this 7060
Exemption, coupled with its multiple reflex hub system, gives its radioactive
pharmaceutical customers a significant time and cost savings advantage over
using other carriers.
Regionalize/Localize ground operations
AirNet is currently developing plans and procedures to shift a significant
portion of the ground operations management to a regional and local basis from
the current centralized management. AirNet believes that a more localized
approach to the selection, dispatching and management of ground couriers will
improve the ground system's efficiencies and help to minimize, and in some
instances reduce, costs associated with the ground delivery system.
Flight operations
AirNet's flight operations are headquartered in Columbus, Ohio. AirNet utilizes
an extensive screening process to evaluate potential pilots prior to hiring.
These pilots meet stringent company qualifications, as well as all required
Federal Aviation Administration requirements. All new pilots must satisfactorily
complete a five-week training program conducted by AirNet's flight training
staff prior to assignment of pilot duties. This training program includes one
week of flight simulator training prior to any actual flight time in an
aircraft, as well as intensive ground instruction. 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 the
delivery process. AirNet also uses commercial airlines, primarily to transport
shipments during the daytime and weekend hours 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 AirNet and
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 119 aircraft. AirNet's fleet was comprised
of the following aircraft at December 31, 1999:
<TABLE>
<CAPTION>
Maximum Maximum Maximum
Payload (1) Range (2) Speed (3)
Aircraft Type Number (lbs.) (n. miles) (knots)
------------- ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Learjets, Model 35/35A 27 4,200 2,000 440
Learjets, Model 25 4 3,500 1,000 440
Piper Navajo Chieftain 17 1,500 800 175
Piper Aerostar 12 1,000 900 190
Beech Baron 43 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 fastest, most reliable and most fuel efficient small
jet aircraft available in the world. Although not currently required by
regulations, 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 modify its
Learjet 25 aircraft with approved hush kits, allowing them to operate more
quietly in respect to the noise-sensitive communities surrounding most airports
or phase them out of scheduled operations and replace them with the more
efficient Learjet 35 or other Stage Three compliant 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 20 and 25
years old. These aircraft are reasonably priced and are relatively modern, as
they have undergone no significant design changes in the last 25 years. Further,
when appropriately maintained 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 75 experienced aircraft and
avionics technicians in eight separate locations across the country (Columbus,
Dallas, Denver, Hartford, Minneapolis, New Orleans, Philadelphia 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 some of the piston engines are
overhauled on-site, thereby reducing aircraft downtime and controlling costs.
Avionics trouble-shooting and repair, performed internally by AirNet since 1989,
also provide for maximum efficiency and minimum aircraft downtime for its entire
fleet.
Ground support 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,
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Ohio, packages are off-loaded, fine sorted by destination and reloaded onto the
aircraft. During the thirty to forty minute sort period, the aircraft is
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. Outbased fueling of
aircraft is typically performed by contracted fixed base operators at the local
airports.
Delivery services
A typical shipment is picked up from the sending bank or an Express 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. Express
shipments are packaged in either AirNet-provided packaging or the customers'
packaging. 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 into AirNet's ComCheck or
AirNet Connect computer systems, where it is available to AirNet's customer
service 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 company aircraft. At the
destination city, the shipment is off-loaded for the final time and delivered by
company 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 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 and
customized express deadlines designed around customer needs. 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 operates a fleet of approximately 250 ground transportation vehicles, all
of which it owns. Vehicles range in size from passenger cars to full-sized vans.
AirNet also rents lightweight trucks for certain weekend ground routes. In
addition, AirNet uses a network of over 300 vendors and independent contractors
to further augment its ground delivery network. Dispatching functions related to
ground delivery services have historically been centralized out of the Columbus,
Ohio hub. However, in 1999, AirNet began dispatching for some of the larger
metropolitan areas out of the local offices. Based on the improved efficiencies
obtained, AirNet intends to continue this migration to more localized
dispatching in the future.
AirNet's SameDay service provides canceled check delivery services to banking
customers meeting daytime banking deadlines and to other Express 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 in the check delivery area. 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 1999 accounted for approximately 77% of its
revenues. This customer list represents over 50 of the nation's largest bank
holding companies. AirNet's time-critical canceled check delivery service allows
its banking customers
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to offer competitive products and pricing. Express delivery customers, which
accounted for 22% of AirNet's 1999 revenues, include industrial and service
corporations, entertainment companies, medical companies, national integrated
carriers and consolidating freight forwarders. Although AirNet maintains a base
of Express delivery customers who ship nightly and have a high level of
retention, it is also expanding its services to retail customers who tend to
ship less frequently. Bank of America represented 10.4% of total net revenues.
No other single customer accounted for more than 10% of AirNet's fiscal 1999
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, and (vi) Remember to Enjoy Life It is a Gift!
All AirNet personnel are part of the 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 company personnel. AirNet also aggressively
compensates for performance, with excellent performance recognized and rewarded
through a company-wide incentive-based compensation program.
Associates
The chart below summarizes AirNet's workforce at December 31, 1999, 1998 and
1997. 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.
As of December 31,
Department 1999 1998 1997
---------- ----------- ----------
Management/Administration 335 249 206
Flight 160 164 179
Maintenance 77 73 73
Driver/Courier/Ramp/Sort 713 724 765
---------- ----------- ----------
Total 1,285 1,210 1,223
Competition
The air and ground courier industry is highly competitive. AirNet's primary
competitor in the transportation of cancelled checks is the Federal Reserve's
Check Relay Network. The actions of the Federal Reserve are regulated by the
Monetary Control Act, which 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, Federal Express Corporation
("FedEx") and United Parcel Service ("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.
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AirNet competes with commercial airlines and numerous other carriers in its
Express delivery business. AirNet estimates its market share in this industry at
less than 1%. AirNet believes that this market represents a significant
expansion opportunity for ultra time-critical shipments requiring later pick-ups
or earlier deliveries than are typically provided by major integrators and
freight forwarders. AirNet believes that it is in an excellent position to
leverage the use of its unique air network system, its proprietary information
technology and its historically high on-time performance level to compete in
this market.
Regulation
AirNet is regulated under Part 135 of the Federal Aviation Regulations by the
Federal Aviation Administration. Additionally, AirNet obtained a 7060 exemption
from the U.S. Department of Transportation which allows transportation of
increased volumes of certain radioactive materials on AirNet's airline. 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. AirNet's failure to comply with the
applicable regulations could result in substantial fines or possible revocation
of one or more of AirNet's operating permits.
Environmental matters
AirNet believes that compliance with applicable laws and regulations governing
environmental matters has not had, and is not expected to have, a material
effect on AirNet's capital expenditures, operations or competitive position.
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.
ITEM 2 - PROPERTIES
AirNet owns its corporate and operational headquarters at 3939 International
Gateway in Columbus, Ohio. The building sits on land owned by the Port Authority
of Columbus. AirNet has a 25-year land lease with the Port Authority, which
expires on December 31, 2009 and contains a 20 year renewal option. The complex
has 80,000 square feet, of which AirNet utilizes approximately 70,000 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 leases additional space at 4700 East Fifth Avenue, also located on Port
Authority land. The space is used for administrative support personnel. AirNet
operates at approximately 40 additional locations throughout the country. These
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 Note 7 to AirNet's
Consolidated Financial Statements included in Item 8, Financial Statements and
Supplementary Data.
ITEM 3 - LEGAL PROCEEDINGS
On January 29, 1999, AirNet agreed to settle a lawsuit filed by Q International
Courier, Inc. and its shareholders (collectively, "Quick") in connection with
the termination of the agreement to acquire Quick. Quick had filed an action on
August 28, 1998 in the United States District Court for the Southern District of
New York (Case No. 98 CIV. 6129) alleging misappropriation of trade secrets and
confidential information and breach of the acquisition agreement between the
parties. Quick sought injunctive relief, monetary relief and punitive damages.
AirNet filed motions to dismiss all of the claims which were pending when the
parties settled the action. Under the terms of the settlement,
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neither AirNet nor Quick admitted any wrongdoing or liability regarding the
claims. AirNet recorded a $3.2 million charge as of December 31, 1998 for
settlement costs and related litigation fees incurred.
There are no other pending legal proceedings involving AirNet other than routine
litigation incidental to its business. In the opinion of AirNet's management,
these proceedings should not, individually or in the aggregate, have a material
adverse effect on AirNet's results of operations or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
Executive officers of the registrant
The following table identifies the executive officers of AirNet as of March 3,
2000. The executive officers serve at the pleasure of the Board of Directors.
Name Age Positions
- ---- --- ---------
Gerald G. Mercer 52 Chairman of the Board and Chief Executive
Officer
Joel E. Biggerstaff 43 President and Chief Operating Officer
William R. Sumser 44 Chief Financial Officer, Treasurer,
Vice President, Finance and Secretary
Jeffery B. Harris 40 Vice President, Bank Sales
Guy S. King 47 Vice President, Express Sales
Craig A. Leach 43 Vice President, Information Systems
Wynn D. Peterson 36 Vice President, Corporate Development
Kendall W. Wright 52 Vice President, Bank Sales
Gerald G. Mercer has served as Chairman of the Board and Chief Executive Officer
of AirNet since founding the company in 1974. He was President of AirNet from
1974 to 1999. He won Ohio's "Entrepreneur of the Year" Award in 1996 and has
been a member of the Young Presidents' Organization since 1986. Effective April
1, 2000, Mr. Mercer will transfer his CEO responsibilities to Mr. Biggerstaff,
but will remain as Chairman of the Board.
Joel E. Biggerstaff has served as AirNet's President and Chief Operating Officer
since August 1999. He will replace Mr. Mercer as Chief Executive Officer,
effective April 1, 2000. Prior to joining AirNet, Mr. Biggerstaff served as
President of the Southern Region of Corporate Express Delivery Systems, a
national expedited distribution service, from February 1998 through July 1999.
From September 1996 through February 1998, Mr. Biggerstaff provided
transportation consulting services and prior to September 1996, he held various
positions within Ryder System, Inc., including Regional Vice President and
General Manager.
William R. Sumser has served AirNet as the Chief Financial Officer since January
1, 2000, as Treasurer since March 1999, as the Vice President, Finance and
Secretary since March 1996. He also served as Controller from 1988 through 1999.
Jeffery B. Harris has served AirNet as Vice President, Bank Sales since October,
1997. Prior to joining AirNet in June 1996 as the Relationship Manager for
Banking Sales, Mr. Harris served as Vice President and Senior Transit Product
Manager for Mellon Bank, N.A. from 1994 to 1996.
Guy S. King has served as Vice President, Express Sales for AirNet since 1989.
Prior to 1989, Mr. King served AirNet in numerous functions dating back to 1976,
including dispatcher and pilot, before eventually founding AirNet's Express
delivery division in 1984. Mr. King has served on the Board of Directors of the
Air Courier Conference of America since 1993.
Craig A. Leach was named Vice President of Information Systems effective January
2000. Mr. Leach established AirNet's Information Systems Department in 1985 and
was named Director of Information Systems in 1996.
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Wynn D. Peterson, CFA, has served as Vice President of Corporate Development
since February 2000. He joined AirNet in 1997 as Manager of Corporate
Development. Prior to joining AirNet, Mr. Peterson served as a Portfolio Manager
for Deseret Mutual from 1993 to 1997.
Kendall W. Wright has served as Vice President, Bank Sales for AirNet since
1988.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common shares of AirNet Systems, Inc. trade on the New York Stock Exchange
under the symbol "ANS". The table below sets forth the high and low sales prices
of the common shares reported for the periods indicated.
1999 1998
Quarter ended High Low High Low
------------- ---- --- ---- ---
March 31 $14.38 $6.63 $29.38 $20.81
June 30 14.00 7.50 29.19 16.00
September 30 13.88 9.00 17.81 14.12
December 31 9.56 4.63 16.31 11.69
AirNet has not paid any dividends on its 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.
Restrictive covenants in AirNet's revolving credit facility impose limitations
on the payment of dividends. These covenants prohibit AirNet from paying cash
dividends on its common shares in excess of 50% of net income.
On March 3, 2000, there were approximately 2,000 holders of AirNet common
shares, based upon the number of holders of record and the number of individual
participants in certain security position listings.
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ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Statement of Operations Data Years Ended Years Ended Ended
(in thousands, except per share data) December 31, September 30, December 31,
------------------------------ --------------------- -----------
1999 1998 1997 1996 1995 1996
Net Revenues
<S> <C> <C> <C> <C> <C> <C>
Check delivery $98,951 $93,206 $80,707 $65,025 $58,264 $16,811
Express delivery 28,714 19,109 15,660 13,864 12,424 3,614
Fixed base and other operations 1,033 1,366 1,395 1,063 1,007 366
- -----------------------------------------------------------------------------------------------------------------------------------
Total net revenues 128,698 113,681 97,762 79,952 71,695 20,791
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Air transportation 97,315 82,793 66,031 53,797 49,246 14,383
Fixed base operations 1,089 853 1,101 1,033 956 309
Selling, general, and administrative 17,237 13,782 8,551 11,875 13,418 1,916
- -----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 115,641 97,428 75,683 66,705 63,620 16,608
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 13,057 16,253 22,079 13,247 8,075 4,183
Acquisition termination charge (Note 1) - 5,570 - - - -
Interest expense 2,477 1,336 109 1,072 1,469 10
Offering-related, non-recurring expenses (Note 2) - - - 13,704 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 10,580 9,347 21,970 (1,529) 6,606 4,173
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit), net (Note 3) 4,308 3,711 8,767 4,200 (13) 1,688
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting change 6,272 5,636 13,203 (5,729) 6,619 2,485
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change, net of tax (Note 4) (2,488) - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $3,784 $5,636 $13,203 ($5,729) $6,619 $2,485
- -----------------------------------------------------------------------------------------------------------------------------------
Income per common share
Income before cumulative effect of accounting change $0.55 $0.46 $1.05
Cumulative effect of accounting change, net of tax (0.22) - -
Net income $0.33 $0.46 $1.05
Income per common share - assuming dilution
Income before cumulative effect of accounting change $0.55 $0.46 $1.04
Cumulative effect of accounting change, net of tax (0.22) - -
Net income $0.33 $0.46 $1.04
Pro forma information - unaudited (Note 5)
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
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 (Note 2) 12,681 -
Adjusted pro forma net income $9,963 $8,384
Adjusted pro forma net income per share (Note 6) $0.80 $0.67
Balance Sheet Data
(in thousands)
Total assets $127,477 $127,129 $103,986 $75,866 $49,929 $79,495
Total debt 33,948 35,506 9,730 197 19,431 111
Shareholders' equity 73,751 69,674 80,260 66,287 20,875 70,719
</TABLE>
Note 1 Represents costs incurred as a result of the termination of a planned
acquistion of Q International Courier, Inc. ("Quick"). The agreement was
terminated in June, 1998, resulting in a $2.4 million charge related to
costs incurred during merger negotiations and a $3.2 million charge
related to the settlement of a lawsuit filed by Quick.
Note 2 Represents non-cash, non-recurring expenses incurred as a result of
the Company's initial public offering (the "Offering"), effective May
31, 1996.
Note 3 Prior to the Company's Offering, it operated as an S corporation under
the Internal Revenue 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.
Note 4 See Note 2 to AirNet's Consolidated Financial Statements included in
Item 8, Financial Statements and Supplementary Data for pro forma
disclosure relating to prior periods presented.
Note 5 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.
Note 6 Assumes shares issued in the Offering were outstanding for the entire
period.
10
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
General
AirNet's consolidated financial statements have been and will be affected by the
following factors:
Acquisitions
On August 11, 1998, AirNet acquired all of the outstanding common stock of
Mercury Business Services, Inc., an Express delivery management service located
in Boston, Massachusetts, for 117,647 AirNet common shares and approximately
$2.0 million cash.
AirNet completed three acquisitions in 1997. On January 30, 1997, all of the
outstanding shares of Express Convenience Center, Inc., a national small package
forwarder, were acquired for 145,953 AirNet common shares. The transaction was
accounted for as a pooling-of-interests. Consequently, all financial data has
been restated to reflect the operations of ECC. On June 6, 1997, AirNet acquired
all of the outstanding shares of Pacific Air Charter, Inc., a regional airline
in the business of transporting canceled checks, for $0.4 million cash. On July
31, 1997, AirNet acquired all of the outstanding shares of Data Air Courier,
Inc., a national transporter of canceled checks and small packages through a
ground delivery network and commercial airlines, for approximately $4.0 million
cash.
The results of operations of Mercury, PAC and Data Air have been included in the
financial data since the respective dates of the acquisitions.
Acquisition Termination Charge
On June 17, 1998, AirNet announced that it had terminated an agreement to
acquire Q International Courier, Inc. ("Quick"). AirNet incurred $2.4 million of
costs in conjunction with this termination, all of which were expensed upon the
termination of the agreement. Subsequent to the termination of the agreement,
AirNet agreed to settle a lawsuit filed by Quick in connection with the
termination of the acquisition. Settlement and litigation costs related to the
suit totaled approximately $3.2 million and were fully expensed as of December
31, 1998.
Start-Up Costs
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up
Activities, which requires that costs related to start-up activities be expensed
as incurred. Prior to 1999, AirNet capitalized start-up costs associated with
its premium products line of business. Effective July 1, 1998, the company
ceased capitalizing these costs and began amortizing the previously capitalized
costs over five years. The company adopted the provisions of the SOP in its
financial statements as of January 1, 1999.
Results of Operations
Year ended December 31, 1999 compared to year ended December 31, 1998
Total net revenues were $128.7 million for the twelve months ended December 31,
1999, an increase of $15.1 million, or 13.2%, over the twelve months ended
December 31, 1998. Net revenues from check delivery increased $5.7 million, or
6.2%. This increase was comprised of $1.9 million related to price increases in
1999 and $1.6 million related to operating a full year of the Federal Reserve
weekend program, which was introduced in the fourth quarter of 1998. In
addition, net revenues increased due to one additional flying day in 1999
compared to 1998, and increased business activity from both new and existing
customers.
11
<PAGE>
Net revenues from Express delivery increased $9.6 million, or 50.3%, from 1998
to 1999. Of this increase, $4.2 million was due to a whole year of Mercury
operations versus a partial year in 1998, as Mercury was acquired in August
1998. $5.3 million of the increase in Express revenue was due to growth in
premium product shipments requiring specialized AirNet line-haul service,
SameDay commercial airline service or hazardous material handling. These
increases were offset by lower revenue from wholesale customers (freight
forwarders) and customers requiring less time-critical standard service as
AirNet continued its sales emphasis on premium services.
Total costs and expenses were $115.6 million in 1999, an increase of $18.2
million, or 18.7%, over 1998. This resulted in income from operations of $13.1
million in 1999, compared to $16.3 million in 1998. Air transportation expenses
rose $14.5 million, or 17.5%.
In addition to the effects of capitalizing $0.8 million of start-up costs
related to the Express business in the first half of 1998 and expensing such
costs as incurred in 1999, air transportation costs increased to support growth
in the Express delivery area and the addition of Federal Reserve shipments to
the weekend program. Wages and benefits were up $2.5 million and ground courier
costs were up $3.0 million due to additional personnel to support the increased
weekend operations and Express business growth. Aircraft fuel costs were up
11.3%, or $1.1 million, compared to 1998 as jet and piston fuel prices rose
significantly during 1999. Outside services were up $0.3 million due to
outsourced routes related to pilot shortages. Depreciation expense was up $1.3
million, or 12.8%, primarily due to aircraft overhauls, engine additions and
inspections in late 1998 and 1999. Other expense increased $5.2 million
primarily due to a $1.5 million increase in workers' compensation costs, $2.9
million increase in commercial freight expense related to a full year of Mercury
operations and significant increases in bank and Express shipments shipped via
the commercial airlines.
Selling, general and administrative expenses increased by $3.5 million, or
25.1%, compared to 1998. $0.9 million of this increase was a result of expensing
start-up costs as incurred in 1999 compared to capitalizing start-up costs in
the first half of 1998. Increased expenses of $2.5 million in the administrative
payroll areas were a result of the addition of personnel to support growth in
AirNet's Express service, a full year of Mercury operations, and the hiring of a
new president. Commission expense increased in conjunction with Express revenue
growth. Additionally, bad debt expense increased $0.4 million due to a dispute
with one customer. $0.9 million of the selling, general and administrative
increase was related to the use of outside consultants. These increases were
offset by decreases in officer severance packages and the one-time cost of a
consulting study related to the call center in 1998.
In 1998, AirNet incurred a $5.6 million charge in connection with the write-off
of costs associated with the efforts to acquire Quick and the settlement of a
related lawsuit. The impact of the one-time $5.6 million charge decreased fully
diluted net income per share by $0.27 in 1998. Settlement of the litigation and
write-off of the acquisition costs were recorded as of December 31, 1998
resulting in no impact to the 1999 financial results.
Interest costs were $2.5 million in fiscal 1999, compared to $1.3 million in
1998. AirNet increased the average outstanding balance on its revolving credit
facility in 1999 primarily as the result of the $20 million stock buyback
program executed in the second half of 1998.
AirNet recorded tax expense of $4.3 million for fiscal 1999 compared to $3.7
million for fiscal 1998.
Year ended December 31, 1998 compared to year ended December 31, 1997
Net revenues were $113.7 million for the twelve months ended December 31, 1998,
an increase of $15.9 million, or 16.3%, over the twelve months ended December
31, 1997. Net revenues from check delivery increased $12.5 million, or 15.5%.
This included $4.4 million which can be attributed to price increases effective
January 1, 1998 and approximately $6.9 million from the Data Air and PAC
acquisitions being in place for a full year. 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 during 1998.
AirNet operated its full air system 199 days in both 1998 and 1997.
12
<PAGE>
Net revenues from Express delivery increased $3.4 million, or 22.0%, from fiscal
1997 to fiscal 1998. Approximately $2.8 million of the increase was due to the
addition of Mercury in 1998. An increase of $4.0 million in premium product
shipments requiring LateNight or SameDay service was offset by a $3.2 million
decrease in the services provided to wholesale customers (freight forwarders)
and customers requiring less time-critical standard services. This decrease
resulted from AirNet's strategic decision to decrease its wholesale and standard
service business in late 1997 and early 1998 and emphasize the LateNight and
SameDay services.
Total costs and expenses, prior to the acquisition termination charge, were
$97.4 million in fiscal 1998, an increase of $21.7 million, or 28.7%, over
fiscal 1997. This resulted in income from operations of $16.3 million in fiscal
1998, compared to $22.1 million in fiscal 1997. Air transportation expenses rose
$16.8 million, or 25.4%, while selling, general and administrative expenses
increased $5.2 million, or 61.2%, for the fiscal year.
Air transportation costs increased primarily as a result of the acquisitions and
infrastructure costs in anticipation of growth in the Express delivery area. The
greatest effect of the infrastructure buildup occurred in ground courier
operations where overall wages increased $4.9 million, of which approximately
$2.1 million can be attributed to the full year of Data Air operations, compared
to five months in 1997. Healthcare costs were up $1.5 million over 1997 levels
due to the addition of covered personnel and an anomaly of claims experienced in
the third and fourth quarter. The costs associated with shipping packages on the
commercial airlines increased $4.7 million due to the addition of Mercury, the
full year of Data Air operations and the increase in the volume of SameDay
shipments experienced in the Express service business. Aircraft maintenance and
fuel expenses remained flat over 1997 levels, despite an 11.3% increase in
flight hours, due to the unusually good flying weather experienced in 1998 and
lower fuel prices. Depreciation increased $1.7 million, or 20.8%, primarily due
to the increase in aircraft, from 113 at December 31, 1997 to 119 at December
31, 1998, additional vehicles acquired through the Data Air acquisition and the
purchase of AirNet's main operational facility in October, 1997. AirNet also
experienced a pilot shortage, which impacted its operations in the last half of
1998, requiring it to charter routes with third party operators. The impact of
the pilot shortage was approximately $0.5 million for fiscal 1998.
In the selling, general and administrative area, payroll and related expenses
increased $1.0 million primarily due to the addition of personnel in fiscal
1998. A commission plan was established in the first quarter for Express
delivery sales, resulting in $0.5 million of increased expense over the prior
year. AirNet incurred a $0.3 million loss related to the Check Exchange System,
Co. and $0.5 million for the defense and ultimate settlement of two lawsuits
related to issues surrounding the acquisition of Float Control, Inc. and a
non-related covenant not to compete dispute. AirNet also incurred costs
associated with the separation package for an officer who announced his
resignation in December, 1998. In addition, AirNet utilized outside consultants,
especially in the second half of 1998, to assist in the improvement of its
Express delivery call center. AirNet also began amortizing start-up costs
associated with the Express delivery initiative in the third quarter of 1998.
Total amortization for start-up costs in 1998 was $0.5 million.
In addition, AirNet incurred a $5.6 million charge in connection with the
write-off of costs associated with the efforts to acquire Quick and the
settlement of a related lawsuit. The impact of the one-time $5.6 million charge
decreased fully diluted net income per share by $0.27 in 1998.
Interest costs were $1.3 million in fiscal 1998, compared to $0.1 million in
1997. AirNet began borrowing on its line of credit in late 1997 and utilized a
portion of such borrowings to fund the repurchase of $20.0 million of common
shares in the second half of 1998.
AirNet recorded tax expense of $3.7 million for fiscal 1998 on income for the
period compared to $8.8 million for fiscal 1997.
13
<PAGE>
Liquidity and Capital Resources
Cash flow from operating activities
Net cash flow from operating activities was $19.5 million for the year ended
December 31, 1999, compared to $12.0 million for the year ended December 31,
1998.
Current credit arrangements
AirNet maintains a credit agreement with a bank that provides a $50.0 million,
three-year, unsecured revolving credit facility. The credit agreement limits the
availability of funds to specified percentages of accounts receivable, inventory
and the wholesale value of aircraft and equipment. In addition, the credit
agreement requires the maintenance of minimum net worth and cash flow levels,
imposes limits on payments of dividends to 50% of net income and restricts the
amount of additional debt.
Investing activities
Capital expenditures totaled $17.6 million for the year ended December 31, 1999
compared to $18.7 million for fiscal 1998. Approximately $2.3 million was
incurred in connection with the purchase of a new aircraft and approximately
$15.0 million was incurred for flight related equipment, engines and
inspections. The remainder was incurred primarily for delivery vehicles,
furniture and fixtures, and computer equipment and related software. AirNet
anticipates it will spend approximately $20.0 million on capital items in 2000
and will continue to acquire aircraft and flight equipment as necessary to
maintain growth and continue offering quality service to its customers.
The company announced a stock repurchase program in February 2000 for up to $3.0
million of its common shares. Management and the Board of Directors believe that
AirNet's common shares represent an excellent value and an appropriate
investment. Purchases of these common shares will be made over time in the open
market or through privately negotiated transactions.
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 dependent on
the number of banking holidays falling during the week. Because financial
institutions are currently the company's principal customers, AirNet's air
system is scheduled primarily 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 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 in response to the number
of banking holidays.
Operating results are also affected by the weather. AirNet generally experiences
higher maintenance costs during its first quarter ending March 31. Winter
weather requires additional costs for de-icing, hangar rental and other aircraft
services.
14
<PAGE>
Selected Quarterly Data
The following is a summary of the unaudited quarterly results of operations for
the quarterly periods ended (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarters Ended,
---------------------------------------------------------
March June September December
31 30 30 31
------------ ------------ ------------- ---------------
1999
<S> <C> <C> <C> <C>
Net revenues $30,522 $31,766 $33,538 $32,872
Income from operations 3,510 4,298 2,265 2,984
Income before cumulative effect of
accounting change 1,714 - - -
Cumulative effect of accounting
change, net of tax (2,488) - - -
------------ ------------ ------------- ---------------
Net income (loss) ($774) $2,184 $993 $1,381
Income per share
Income before cumulative effect of
accounting change $.15 $.19 $.09 $.12
Cumulative effect of accounting
change, net of tax (.22) - - -
------------ ------------ ------------- ---------------
Net income (loss) (.07) .19 .09 .12
Income per share - assuming dilution
Income before cumulative effect of
accounting change .15 .19 .09 .12
Cumulative effect of accounting
change, net of tax (.22) - - -
------------ ------------ ------------- ---------------
Net income (loss) ($.07) $.19 $.09 $.12
1998
Net revenues $26,571 $28,108 $29,644 $29,357
Income from operations 4,910 5,528 4,524 1,291
------------ ------------ ------------- ---------------
Net income (loss) $2,854 $1,753 $2,519 ($1,490)
Income per share
Net income (loss) $.23 $.14 $.20 ($.13)
Income per share - assuming dilution
Net income (loss) $.22 $.14 $.20 ($.13)
</TABLE>
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. AirNet has attempted to minimize the effects of
inflation on its operating results through rate increases and cost controls.
Fuel Surcharge/Rebate Program
AirNet maintains a fuel surcharge/rebate program for its check delivery
customers. Under this program, as the OPIS-CMH (Ohio Price Information Service -
Columbus, Ohio Station) price of jet fuel exceeds $0.75 per gallon, customers
are surcharged. In turn, if the OPIS-CMH price falls below $0.60 per gallon, the
same customers receive a rebate. Due to the recent increases in fuel prices,
AirNet has implemented a 2% temporary fuel surcharge to its Express customers,
effective February 6, 2000. The company intends to rescind the surcharge when
fuel prices return to lower, more stabilized levels.
15
<PAGE>
Year 2000 Impact on Information Systems and Operations
In prior years, AirNet discussed the nature and progress of its plans to become
Year 2000 ready. In 1999, the company completed the remediation and testing of
its systems. As a result of those planning and implementation efforts, the
company experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The company is not aware of
any material problems resulting from Year 2000 issues, either with its services,
its internal systems, or the products and services of third parties. The company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the Year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
Forward-Looking Statements
Certain matters discussed in this Form 10-K, including, but not limited to,
information regarding future economic performance and plans and objectives of
AirNet'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. These 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 forward-looking statement: potential changes by the FAA, which could
increase the regulation of AirNet's business, or the Federal Reserve, which
could change the competitive environment of transporting canceled checks;
adverse weather conditions; the ability to attract and retain qualified pilots;
technological advances and increases in the use of electronic funds transfers;
AirNet's ability to successfully complete and integrate acquisition targets; as
well as other economic, competitive and domestic and foreign governmental
factors affecting AirNet'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. 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 those factors listed above and other possible factors
not listed, could affect AirNet's actual results and cause such results to
differ materially from those expressed in forward-looking statements:
Competition
The market for express air and ground delivery service is highly competitive.
AirNet's bank services division competes primarily against the Federal Reserve
Bank's Check Relay Network, which has significantly greater financial and other
resources than AirNet. The Federal Reserve is regulated by the Monetary Control
Act of 1980, which in general requires that the Federal Reserve price its
services on a cost basis plus a set percentage private sector market adjustment
factor. 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 UPS and FedEx) have also entered the business of SameDay 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 a material adverse 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 financial services 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 express delivery customers.
While none of these technological advances have had a significant adverse impact
16
<PAGE>
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
AirNet intends to continue to evaluate potential acquisitions, primarily in the
check delivery and express delivery areas. 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 the company.
AirNet may finance future acquisitions by using common shares for all or a
portion of the consideration to be paid, which may result in substantial
dilution to the current holders of the common shares. In the event the common
shares do not maintain a sufficient valuation, or potential acquisition
candidates are unwilling to accept the common shares as part of the
consideration for the sale of their businesses, 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 it is able to
obtain additional capital through future debt or equity financing. There can be
no assurance that AirNet will be able to obtain additional financing or that, if
available, this financing will be on terms acceptable to the company.
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 the company'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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
AirNet is exposed to certain market risks from transactions that are entered
into during the normal course of business. AirNet's primary market risk exposure
relates to interest rate risk. At December 31, 1999, the company had a balance
of $33.9 million on its revolving credit facility. This facility bears interest
at the company's option of a fixed rate determined by the Eurodollar rate, a
negotiated rate or a floating rate. Assuming borrowings at December 31, 1999, a
one hundred basis point change in interest rates would impact net interest
expense by approximately $339,000 per year. In 1999, the company entered into
two interest rate swap agreements with a bank as a hedge against the interest
rate risk associated with borrowings. The swap agreements each have a notional
amount of $5.0 million and effectively locked in a portion of the company's
variable rate revolving credit liability at fixed rates of 6.3% and 6.5% plus a
margin based on the company's funded debt ratio. These swap agreements contain a
three year term.
17
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1999 and 1998, and the related consolidated statements
of operations, shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AirNet Systems,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Columbus, Ohio
February 18, 2000
18
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except per share data
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,667 $ 1,142
Accounts receivable:
Trade, less allowances of $598 and $290 at 14,919 13,077
December 31, 1999 and 1998, respectively
Shareholders, affiliates, and associates 154 163
Inventory and spare parts 10,426 9,386
Taxes refundable 2,382 4,199
Deferred taxes 934 1,969
Deposits and prepaids 1,733 2,748
--------- ---------
Total current assets 32,215 32,684
Net property and equipment 84,733 78,817
Other assets:
Goodwill, net of accumulated amortization of $715 and $371
at December 31, 1999 and 1998, respectively 7,920 8,237
Other intangibles, net of accumulated amortization of $2,264
and $1,918 at December 31, 1999 and 1998, respectively 375 678
Investment in partnership and other 2,234 2,490
Start-up costs -- 4,223
--------- ---------
Total assets $ 127,477 $ 127,129
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,203 $ 5,930
Salaries and related liabilities 2,792 1,284
Accrued expenses 1,206 3,889
Deferred taxes 196 2,282
Current portion of notes payable 29 26
--------- ---------
Total current liabilities 9,426 13,411
Notes payable, less current portion 33,919 35,480
Deferred tax liability 10,381 8,564
Shareholders' equity:
Preferred shares, $.01 par value; 10,000 shares
authorized; and no shares issued and outstanding -- --
Common shares, $.01 par value; 40,000 shares authorized;
and 12,753 shares issued at December 31, 1999 and 1998 128 128
Additional paid-in-capital 78,182 78,455
Retained earnings 15,207 11,423
Treasury shares, 1,343 and 1,375 shares held at cost
at December 31, 1999 and 1998, respectively
(19,766) (20,332)
--------- ---------
Total shareholders' equity 73,751 69,674
--------- ---------
Total liabilities and shareholders' equity $ 127,477 $ 127,129
========= =========
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET REVENUES
Air transportation, net of excise tax of $3,592, $3,106, and
$2,113 for the years ended December 31, 1999, 1998, and 1997:
Check delivery $ 98,951 $ 93,206 $ 80,707
Express delivery 28,714 19,109 15,660
Fixed base and other operations 1,033 1,366 1,395
--------- --------- ---------
Total net revenues 128,698 113,681 97,762
--------- --------- ---------
COSTS AND EXPENSES
Air transportation
Wages and benefits 16,389 13,871 11,253
Aircraft fuel 11,307 10,160 10,176
Aircraft maintenance 7,625 7,407 7,489
Ground couriers and outside services 25,438 21,301 14,817
Depreciation 11,391 10,101 8,363
Other 25,165 19,953 13,933
Fixed base operations 1,089 853 1,101
Selling, general and administrative 17,237 13,782 8,551
--------- --------- ---------
Total costs and expenses 115,641 97,428 75,683
--------- --------- ---------
Income from operations 13,057 16,253 22,079
Acquisition termination charge -- 5,570 --
Interest expense 2,477 1,336 109
--------- --------- ---------
Income before income taxes 10,580 9,347 21,970
Provision for income taxes 4,308 3,711 8,767
--------- --------- ---------
Income before cumulative effect of accounting change 6,272 5,636 13,203
Cumulative effect of accounting change, net of tax (2,488) -- --
--------- --------- ---------
Net income $ 3,784 $ 5,636 $ 13,203
--------- --------- ---------
Income per common share
Income before cumulative effect of accounting change $ 0.55 $ 0.46 $ 1.05
Cumulative effect of accounting change, net of tax
(0.22) -- --
--------- --------- ---------
Net income $ 0.33 $ 0.46 $ 1.05
--------- --------- ---------
Income per common share - assuming dilution
Income before cumulative effect of accounting change $ 0.55 $ 0.46 $ 1.04
Cumulative effect of accounting change, net of tax (0.22) -- --
--------- --------- ---------
Net income $ 0.33 $ 0.46 $ 1.04
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income $ 3,784 $ 5,636 $ 13,203
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change 2,488 -- --
Depreciation 11,525 10,209 8,431
Amortization of intangibles 789 1,067 353
Deferred taxes 766 4,218 5,169
Provision for losses on accounts receivable 504 150 84
Loss on disposition of assets 102 55 616
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (2,338) (1,574) (2,589)
Inventory and spare parts (1,040) (3,333) (1,005)
Prepaid expenses 1,015 112 (2,004)
Start-up costs -- (2,165) (2,522)
Accounts payable (727) 1,448 (149)
Salaries and related liabilities 1,508 (324) (546)
Accrued expenses (2,684) 2,168 857
Taxes payable 3,553 (6,423) 2,386
Other, net 257 742 (308)
-------- -------- --------
Net cash provided by operating activities 19,502 11,986 21,976
Investing activities
Acquisition of Mercury Business Services, Inc., net of cash acquired -- (1,827) --
Acquisition of Pacific Air Charter, Inc., net of cash acquired -- -- (240)
Acquisition of Data Air Courier, Inc., net of cash acquired -- (34) (4,123)
Acquisition of Midway Aviation, Inc., net of cash acquired -- -- (53)
Purchases of property and equipment (17,639) (18,706) (30,062)
Payments for covenants not to compete (170) (540) (105)
Proceeds from sales of property and equipment 96 415 592
-------- -------- --------
Net cash used in investing activities (17,713) (20,692) (33,991)
Financing activities
Proceeds from 1996 Incentive Stock Plan Programs 293 1,947 2,100
Net borrowings (repayments) under the revolving credit facility (1,500) 25,800 9,500
Repayment of long-term debt (57) (24) (1,560)
Proceeds from the issuance of long-term debt -- -- 230
Purchase of treasury stock -- (20,000) (5,762)
-------- -------- --------
Net cash provided by (used in) financing activities (1,264) 7,723 4,508
-------- -------- --------
Net increase (decrease) in cash 525 (983) (7,507)
Cash and cash equivalents at beginning of year 1,142 2,125 9,632
-------- -------- --------
Cash and cash equivalents at end of year $ 1,667 $ 1,142 $ 2,125
======== ======== ========
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
In thousands
<TABLE>
<CAPTION>
Common Shares
------------------- Additional
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Shares Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 12,621 $ 126 $ 78,009 ($ 7,416) $ -- $ 70,719
Net income -- -- -- 13,203 -- 13,203
Exercise stock options 128 1 1,821 -- -- 1,822
Exercise stock options with treasury shares -- -- (104) -- 329 225
Issuance of Common Shares - Associate Stock
Purchase Program 4 1 52 -- -- 53
Purchase treasury shares -- -- -- -- (5,762) (5,762)
-------- -------- -------- -------- -------- --------
Balance December 31, 1997 12,753 128 79,778 5,787 (5,433) 80,260
Net income -- -- -- 5,636 -- 5,636
Exercise stock options with treasury shares -- -- (685) -- 2,184 1,499
Issuance of treasury shares - Associate Stock
Purchase Program -- -- (34) -- 315 281
Issuance of treasury shares- acquisition of Mercury -- -- (604) -- 2,427 1,823
Issuance of treasury shares - associate stock bonus -- -- -- -- 175 175
Purchase treasury shares -- -- -- -- (20,000) (20,000)
-------- -------- -------- -------- -------- --------
Balance December 31, 1998 12,753 128 78,455 11,423 (20,332) 69,674
Net income -- -- -- 3,784 -- 3,784
Issuance of treasury shares - Associate Stock
Purchase Program -- -- (273) -- 566 293
-------- -------- -------- -------- -------- --------
Balance December 31, 1999 12,753 $ 128 $ 78,182 $ 15,207 ($19,766) $ 73,751
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
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 the express delivery of 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.
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.
Certain 1997 and 1998 balances have been reclassified to conform with the 1999
presentation.
Revenue Recognition
Revenue on air transportation services is recognized when the packages are
delivered to their destination. Revenue on fixed based operations is recognized
when the maintenance services are complete or fuel is delivered.
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 1999, approximately 77% and 66% 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.
Inventory and Spare Parts
Inventory and spare parts are valued at the lower of cost (weighted average
method) or market. At December 31, 1999, the balance included a Learjet, valued
at $3,891,000, held for resale.
Property and Equipment
Property and equipment are stated at cost. Engines, overhauls and major
inspections, which have been capitalized and included in flight equipment, are
depreciated and amortized on the basis of hours flown. Airframes, other flight
equipment and other property and equipment (primarily furniture and equipment,
leasehold improvements and vehicles) are depreciated using the straight-line
method over the estimated useful lives of the assets, as summarized below:
Airframes 15 years
Buildings 30 years
Other flight equipment 2 - 5 years
Other property and equipment 3 - 10 years
23
<PAGE>
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.
The company prepays certain engine repair and overhaul services under
manufacturer service plans. Such prepaid balances, which are capitalized at the
time the maintenance is performed, are included as other property and equipment
and were $2,991,000 and $2,398,000 at December 31, 1999 and 1998, respectively.
Investment in Subsidiary
AirNet wholly owns Float Control, Inc., which holds a 19% interest in the Check
Exchange System Co. ("CHEXS"). Float Control accounts for its investment in
CHEXS under the equity method of accounting. At December 31, 1999 and 1998,
Float Control's recorded investment in CHEXS was $2,065,000 and $2,337,000,
respectively.
Income Taxes
The company accounts for income taxes under the liability method pursuant to
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the liability method, 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.
Goodwill
Goodwill is amortized on a straight-line basis over 25 years. The company's
policy is to periodically review its goodwill and other long-lived assets based
upon the evaluation of such factors as the occurrence of a significant adverse
event of change in the environment in which the business operates or if the
expected future cash flows (undiscounted and without interest) would become less
than the carrying amount of the asset. An impairment loss would be recorded in
the period such determination is made based on the fair value of the related
businesses.
Financial Instruments
The company uses interest rate swaps for the purpose of hedging its exposure to
fluctuations in interest rates. The swaps meet the requirements designation and
correlation for use of the accrual method of accounting. Differentials in the
swapped amounts are recorded as adjustments of the underlying periodic cash
flows that are being hedged. The fair values of the Company's financial
instruments approximate their carrying values at December 31, 1999 and 1998.
Intangibles
Intangibles include non-competition agreements, which are being amortized on the
straight-line method over periods ranging from one to 15 years.
Segment Reporting
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes annual and interim
reporting and disclosure standards for an enterprise's operating segments. SFAS
131 became effective for fiscal years beginning after December 15, 1997. The
Company has historically not segregated costs between its bank and Express
operations. Management has evaluated the standard and determined that, due to
24
<PAGE>
accounting system limitations, it is impracticable to report segment
information. The Company is modifying its accounting systems and will begin
reporting segment information in the first quarter of fiscal year 2000.
Effect of New Accounting Standards
The FASB issued SFAS No. 133, Accounting for Derivative Financial Instruments
and Hedging Activities, in June 1998 and SFAS No. 137, Accounting for Derivative
Financial Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, in June 1999, which are effective for the Company
beginning in the first quarter of 2001. The statements require that all
derivatives be recorded in the balance sheet as either assets or liabilities and
be measured at fair value. The accounting for changes in fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. The Company has not determined what impact these statements will
have on its consolidated financial statements.
Supplemental Cash Flow Data
Cash paid for interest was $2,411,000, $1,236,000 and $109,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Cash paid for taxes was
$559,000, $6,078,000 and $1,312,000 for the year ended December 31, 1999, 1998
and 1997.
2. Write Off of Start-up Costs
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up
Activities, which requires that costs related to start-up activities be expensed
as incurred. Prior to 1999, the company capitalized start-up costs associated
with its premium products line of business. Effective July 1, 1998, the company
ceased capitalizing such costs and began amortizing the previously capitalized
costs over five years. The company adopted the provisions of the SOP in its
financial statements as of January 1, 1999, which resulted in the write-off of
unamortized start-up costs at that time. Had the company accounted for start-up
costs under SOP 98-5 for all years presented, its net income and net income per
share would have been the following:
1999 1998 1997
----------- ------------- ------------
Proforma net income $6,272,000 $4,632,000 $11,715,000
-per share (assuming dilution) $0.55 $0.37 $0.92
3. Acquisitions
Effective 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 $1,827,000 in cash (net of cash acquired) and approximately 118,000
AirNet common shares and resulted in goodwill of $3,544,000, which is being
amortized over 25 years, and covenants not to compete totaling $300,000. The
covenants not to compete are amortized over the terms of the agreements, which
range from two to three years. The acquired assets and assumed liabilities have
been recorded at their estimated fair values as of August 11, 1998. The
company's consolidated financial statements include the results of operations of
Mercury since the purchase date. The pro forma results of operations for this
acquisition would not have been significantly different than those presented for
AirNet.
Effective July 31, 1997, the company acquired all of the outstanding common
stock of Data Air Courier, Inc. ("Data Air"), whose primary business involved
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
$4,157,000 and resulted in goodwill of approximately $3,718,000, which is being
25
<PAGE>
amortized over 25 years. The company also entered into several covenants not to
compete totaling $170,000, which are being amortized over their respective
terms, which range from one to five years. 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 pro
forma results of operations for AirNet and Data Air as though they were combined
as of the beginning of the period ended December 31, 1997 are presented as
follows: Net revenues of $106,787,000, net income of $12,879,000, net income per
share of $1.02 and net income per share assuming dilution of $1.01.
Effective June 6, 1997, the company acquired all of the outstanding common stock
of Pacific Air Charter, Inc. ("PAC") for approximately $240,000 in cash, net of
cash acquired. PAC operated 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 $171,000, which is being
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 estimated fair values as of June 6, 1997.
The company's consolidated financial statements include the results of
operations of PAC since the purchase date. The pro forma results of operations
for this acquisition would not have been significantly different than those
presented for AirNet.
Effective January 30, 1997, the company acquired Express Convenience Center,
Inc. d/b/a ECC Worldwide Services ("ECC") in a business combination accounted
for as a pooling-of-interests. ECC's primary services included small package
delivery services within the United States and certain other countries. All of
the stock of ECC was exchanged for approximately 146,000 AirNet common shares.
The company also entered into three covenant not-to-compete agreements for a
total of $205,000, which are being amortized over three- and five-year periods.
4. Property and Equipment
Property and equipment consisted of the following at December 31:
1999 1998
------------ ------------
Flight equipment $130,432,000 $114,494,000
Other property and equipment 20,803,000 20,279,000
------------ ------------
151,235,000 134,773,000
Less accumulated depreciation 66,502,000 55,956,000
============ ============
Net property and equipment $ 84,733,000 $ 78,817,000
============ ============
5. Notes Payable
The company had borrowings as follows at December 31:
1999 1998
----------- -----------
Term notes $ 148,000 $ 206,000
Revolving credit facility 33,800,000 35,300,000
----------- -----------
33,948,000 35,506,000
Current portion of notes payable 29,000 26,000
=========== ===========
Long-term portion of notes payable $33,919,000 $35,480,000
=========== ===========
The company's 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 August 1, 2003. The agreement may be extended in one-year
increments at any point through August 1, 2003. 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, plus a margin based on the company's funded
debt ratio. The floating rate is based on the sum of (a) a margin plus (b) the
26
<PAGE>
greater of (i) the prime rate and (ii) the sum of .5% plus the federal funds
rate in effect from time to time. 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 and restricts the amount of
additional debt.
In September 1999, the company entered into two interest rate swap agreements
with a bank as a hedge against the interest rate risk associated with
borrowings. The swap agreements each have a notional amount of $5,000,000 and
effectively lock in a portion of the company's variable rate revolving credit
liability at fixed rates of 6.3% and 6.5% plus a margin based on the company's
funded debt ratio. These swap agreements are in effect for a period of three
years. The differential to be paid or received is accrued as interest rates
change and is recognized as an adjustment to the interest expense in the
statements of operations. The company does not use derivative financial
instruments for speculative purposes.
In conjunction with purchase of the company's operations facility in October,
1997, the company issued a $263,000 note. The terms of the note require monthly
principal and interest payments of $4,000 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 was last amended on August 19, 1999. 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 the grant of stock options to outside
directors. The maximum number of common shares available for issuance under the
Plan is 1,650,000 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 a common share on the date of grant. An option's maximum term is ten
years (five years for ISO's granted to 10% shareholders). Option vesting periods
range from vesting upon grant to vesting over four years.
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. 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.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 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 the
Black-Scholes option pricing model with the following weighted average
assumptions for the years ended December 31:
1999 1998 1997
------- ------ ------
Risk free interest rate 6.5% 6.5% 6.5%
Volatility factor of expected market price
of the company's common shares 50.0% 54.5% 59.1%
Weighted average expected life
of options (years) 6.88 7.55 7.88
27
<PAGE>
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 for the years ended December 31:
1999 1998 1997
---------- ---------- -----------
Net income, adjusted for FAS 123 $2,647,000 $4,668,000 $11,587,000
---------- ---------- -----------
Net income per share, adjusted
for FAS 123:
Basic $.23 $.38 $ .92
Assuming dilution .23 .38 .91
A summary of the company's stock option activity and related information follows
(in thousands, except price per share data) for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
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 789 $16.14 651 $14.28 523 $14.18
Granted 422 9.62 288 19.32 282 14.40
Exercised - - (106) 14.11 (145) 14.17
Canceled 12.04 (44) 14.12 14.12
(53) (9)
======= ======= =======
Outstanding at end of period 1,158 13.95 789 16.14 651 14.28
======= ======= =======
Options exercisable at end of
period 662 14.82 532 14.99 587 14.28
Weighted average fair value of
options granted during the
period - $7.33 - $12.59 - $9.96
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------- -----------------------------
Weighted-Averag a ge
Remaining Weighted-Aver Weighted-Avera
Range of Exercise Number of Contractual Exercise geNumber of Exercise
Prices Options Life (Years) Price Options Price
-------------------- -------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Less than $10.00 385,240 9.4 $9.61 72,430 $9.58
$10.01-$15.00 465,025 6.2 14.15 452,225 14.20
$15.01-$20.00 206,200 8.4 17.33 75,400 17.08
$20.01-$25.00 102,000 8.4 22.64 62,100 22.69
============== ==============
1,158,465 7.9 $13.95 662,155 $14.82
============== ==============
</TABLE>
28
<PAGE>
7. Lease Obligations
The company leases facility space at various locations throughout the United
States. The company incurred lease expense of $1,560,000, $1,092,000, and
$1,149,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999, future minimum lease payments by year and in the
aggregate under non-cancelable operating leases with initial or remaining terms
exceeding one year are as follows:
2000 - $89,000; 2001 - $56,000.
8. Related Party Transactions
In October 1997, the company purchased its corporate and operational
headquarters for $4,100,000 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 $864,000 for the year
ended December 31, 1997. The company believes the terms of this lease and
purchase 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 $529,000, $457,000, and $379,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
10. Income Taxes
Income taxes are summarized as follows for the years ended December 31:
1999 1998 1997
--------------- -------------- --------------
Current:
Federal $1,594,000 $1,299,000 $ 3,058,000
State and local 63,000 230,000 540,000
--------------- -------------- --------------
1,657,000 1,529,000 3,598,000
Deferred:
Federal 759,000 1,855,000 4,394,000
State and local 157,000 327,000 775,000
--------------- -------------- --------------
916,000 2,182,000 5,169,000
=============== ============== ==============
$2,573,000 $3,711,000 $8,767,000
=============== ============== ==============
29
<PAGE>
Significant components of the company's deferred tax liabilities and assets are
as follows at December 31:
1999 1998
------------ ------------
Long-term deferred tax asset:
Alternative minimum tax credits $ 3,406,000 $ 2,047,000
Long-term deferred tax liabilities:
Property and equipment (11,840,000) (8,698,000)
Intangible assets (1,947,000) (1,913,000)
============ ============
Net long-term deferred tax liabilities ($10,381,000) ($ 8,564,000)
============ ============
Current deferred tax assets:
Health insurance reserves $ 168,000 $ 82,000
Workers compensation reserves 265,000 -
Allowance for bad debt reserves 236,000 116,000
Operating loss carryforwards - 1,662,000
Other 265,000 109,000
------------ ------------
Total current assets 934,000 1,969,000
Current deferred tax liabilities:
Prepaid expenses (172,000) (362,000)
Start-up costs - (1,689,000)
Other (24,000) (231,000)
------------ ------------
Total current liabilities (196,000) (2,282,000)
------------ ------------
Net current deferred tax assets (liabilities) $ 738,000 ($ 313,000)
============ ============
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 before
income taxes are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tax expense at federal statutory
rate on pretax income $ 3,597,000 $ 3,178,000 $ 7,470,000
Add (deduct):
State taxes, net of Federal benefit 566,000 410,000 1,136,000
Tax benefit on cumulative effect of
accounting change (1,735,000) -- --
Non-deductible permanent differences 145,000 122,000 125,000
Other -- 1,000 36,000
----------- ----------- -----------
Total taxes $ 2,573,000 $ 3,711,000 $ 8,767,000
=========== =========== ===========
</TABLE>
The company has net operating losses for tax purposes of $3,817,000 and $338,000
which expire in 2011 and 2013, respectively.
30
<PAGE>
11. Net Income Per Share
The following table sets forth the computation of basic and diluted net income
per share for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Income before the cumulative effect of
accounting change $6,272,000 $5,636,000 $13,203,000
Cumulative effect of accounting
change, net of tax (2,488,000) -- --
-------------- ----------- -----------
Net Income $3,784,000 $5,636,000 $13,203,000
Denominator:
Basic - weighted average shares
outstanding 11,397,000 12,228,000 12,577,000
Diluted
Stock options - associates, officers -- 152,000 129,000
and directors
-------------- ----------- -----------
Adjusted weighted average shares
outstanding 11,397,000 12,380,000 12,706,000
Net income per share - basic:
Income before the cumulative effect of
accounting change $.55 $.46 $1.05
Cumulative effect of accounting
change, net of tax (.22) -- --
-------------- ----------- -----------
Net income .33 .46 1.05
Net income per share - assuming dilution:
Income before the cumulative effect of
accounting change .55 .46 1.04
Cumulative effect of accounting
change, net of tax (.22) -- --
-------------- ----------- -----------
Net income $.33 $.46 $1.04
</TABLE>
For the years ended December 31, 1999 and 1998, 1,212,000 and 102,000 stock
options, respectively, were excluded from the diluted weighted average shares
outstanding calculation, as their exercise prices exceeded the average fair
market value of the underlying common shares for the year.
12. 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
$2,370,000 of costs in conjunction with the planned acquisition, all of which
were expensed upon the termination of the agreement. In 1999, the company agreed
to settle a lawsuit filed by Quick in connection with the termination of the
planned acquisition. Settlement and litigation costs related to the suit totaled
approximately $3,200,000 and were expensed as of December 31, 1998.
13. Litigation and 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
31
<PAGE>
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.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for in this Item 10 is incorporated herein by reference
to AirNet's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 12, 2000, under the caption "ELECTION OF
DIRECTORS". In addition, information concerning AirNet's executive officers is
included in the portion of Part I of this Annual Report on Form 10-K entitled
"Executive officers of the registrant".
ITEM 11 - EXECUTIVE COMPENSATION
The information called for in this Item 11 is incorporate herein by reference to
AirNet's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 12, 2000 under the caption "ELECTION OF DIRECTORS
- - Compensation of Directors" and "EXECUTIVE COMPENSATION". Neither the report on
executive compensation nor the performance graph included in AirNet's definitive
Proxy Statement shall be deemed to be incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for in this Item 12 is incorporated herein by reference
to AirNet's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 12, 2000, under the caption "BENEFICIAL OWNERSHIP
OF COMMON SHARES".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for in this Item 13 is incorporated herein by reference
to AirNet's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 12, 2000, under the caption "TRANSACTIONS WITH
MANAGMENT".
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. The following consolidated financial statements are included in Item 8:
Report of independent auditors
Consolidated balance sheets as of December 31, 1999 and 1998.
Consolidated statements of income for the years ended December
31, 1999, 1998 and 1997
Consolidated statements of changes in shareholders' equity for
the years ended December 31, 1999, 1998 and 1997
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997
Notes to consolidated financial statements
32
<PAGE>
2. Schedule II - Valuation and Qualifying Accounts is being filed herewith.
<TABLE>
<CAPTION>
------------------------------ ----------- --------------------- -------------- -----------
COL A COL B COL C COL D COL E
---------------------
Additions
------------------------------ ----------- --------------------- -------------- -----------
Charged Charged
Balance at to Costs to Balance at
Start of and Other End of
Description Period Expenses Accounts Deductions Period
------------------------------ ----------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Year end December 31, 1999:
Deducted from asset
accounts; Allowance for
doubtful accounts $289,784 $504,379 $0 $196,087(1) $598,076
------------------------------ ----------- ----------- --------- -------------- -----------
Year end December 31, 1998:
Deducted from asset
accounts; Allowance for
doubtful accounts 122,869 150,215 25,000 8,300 (1) 289,784
------------------------------ ----------- ----------- --------- -------------- -----------
Year end December 31, 1997:
Deducted from asset
accounts; Allowance for
doubtful accounts 23,149 83,656 16,064 0 (1) 122,869
------------------------------ ----------- ----------- --------- -------------- -----------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
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 or notes thereto.
3. Exhibits
The following exhibits are included or incorporated by reference in this
Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
3.1 Amended Articles of AirNet Systems, Incorporated herein by reference
Inc. to Exhibit 2.1 to AirNet Systems,
Inc.'s Registration Statement on
Form 8-A (File No. 0-28428) filed
on May 3, 1996 (the "Form 8-A")
3.2 Certificate of Amendment to the Incorporated herein by reference
Amended Articles of AirNet Systems, to Exhibit 4(b) to AirNet Systems,
Inc. as filed with the Ohio Secretary Inc.'s Registration Statement on
of State on May 28, 1996. Form S-8 (Registration No.
333-08189) filed on July 16, 1996
(the "1996 Form S-8")
3.3 Amended Articles of AirNet Systems, Incorporated herein by reference
Inc. (as amended through May 28, to Exhibit 4.3 to AirNet Systems,
1996) (for SEC reporting compliance Inc.'s 1996 Form S-8
purposes only - not filed with the
Ohio Secretary of State)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
3.4 Code of Regulations of AirNet Incorporated herein by reference
Systems, Inc. to Exhibit 2.2 to AirNet Systems,
Inc.'s Form 8-A
4.1 Loan Agreement among AirNet Systems, Incorporated herein by reference
Inc., the Lenders party thereto and to Exhibit 4 to AirNet Systems,
NBD Bank, as agent, dated August 1, Inc.'s December 31, 1998 Form
1998. 10-K. (File No. 1-13025)
4.2 First Amendment to Credit Agreement, Filed herewith
the Lenders party thereto and NBD Bank
as agent, dated as of September 30,
1998.
4.3 Second Amendment to Credit Agreement, Filed herewith
the Lenders party thereto and Bank
One, Michigan, as agent, dated as of
December 31, 1999.
4.4 Subordination Agreement among Bank Filed herewith
One, Michigan, as agent, and the
Senior Lenders, AirNet Management,
Inc., and AirNet Systems, Inc., dated
as of December 31, 1999
4.5 Subsidiary Guaranty by AirNet Filed herewith
Management, Inc. dated as of December
31, 1999
10.1* AirNet Systems, Inc. Amended and Filed herewith
Restated 1996 Incentive Stock Plan
(reflects amendments through August
18, 1999)
10.3* Agreement, dated as of January 1, Incorporated herein by reference
1999, between AirNet Systems, Inc. to Exhibit 10.3 to AirNet Systems,
and Eric P. Roy Inc.'s December 31, 1998 Form
10-K. (File No. 1-13025)
10.4 Indemnification Agreement dated as of Incorporated herein by reference
May 15, 1996, among AirNet and to Exhibit 10.14 to AirNet's
Messrs. Miller, Renusch, Roy, King, Amendment No. 2 to Form S-1
Rutter, Sumser and Wright Registration Statement
(Registration No. 333-3092) filed
on May 24, 1996 ("Amendment No. 2")
10.5 Indemnification Agreement dated as of Incorporated herein by reference
May 15, 1996 between Mr. Mercer and to Exhibit 10.11 to AirNet's
AirNet Systems, Inc. Amendment No. 2
10.6* Confidential Agreement between AirNet Filed herewith
Systems, Inc. and Joel E. Biggerstaff
10.7 AirNet Systems, Inc. Director Filed herewith
Deferred Compensation Plan dated May
27, 1998
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
21 Subsidiaries of AirNet Systems, Inc. Filed herewith
23 Consent of Ernst & Young LLP Filed herewith
24 Powers of Attorney Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
* Denotes a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14 of Form 10-K.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1999.
(c) Exhibits are listed in Item 14(a)(3) above.
(d) Financial statement schedules are included in Item 14(a)(1) above.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AIRNET SYSTEMS, INC.
Dated: March 21, 2000 By: /s/ Gerald G. Mercer
---------------------------------------
Gerald G. Mercer, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald G. Mercer Chairman of the Board, March 21, 2000
- --------------------------------- Chief Executive Officer
Gerald G. Mercer and Director (Principal
Executive Officer)
*Joel E. Biggerstaff President and Chief March 21, 2000
- --------------------------------- Operating Officer
Joel E. Biggerstaff
*William R. Sumser Chief Financial Officer, March 21, 2000
- --------------------------------- Treasurer, Vice President,
William R. Sumser Finance and Secretary
*Roger D. Blackwell Director March 21, 2000
- ---------------------------------
Roger D. Blackwell
*Tony C. Canonie, Jr. Director March 21, 2000
- ---------------------------------
Tony C. Canonie, Jr.
*Russell M. Gertmenian Director March 21, 2000
- ---------------------------------
Russell M. Gertmenian
*J. F. Keeler, Jr. Director March 21, 2000
- ---------------------------------
J. F. Keeler, Jr.
*David P. Lauer Director March 21, 2000
- ---------------------------------
David P. Lauer
*James E. Riddle Director March 21, 2000
- ---------------------------------
James E. Riddle
*By /s/ Gerald G. Mercer
- ---------------------------------
Gerald G. Mercer
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
3.1 Amended Articles of AirNet Systems, Incorporated herein by reference
Inc. to Exhibit 2.1 to AirNet Systems,
Inc.'s Registration statement on
Form 8-A (File No. 0-28428) filed
on May 3, 1996 (the "Form 8-A")
3.2 Certificate of Amendment to the Incorporated herein by reference
Amended Article of AirNet System, to Exhibit 4(b) to AirNet Systems,
Inc. as filed with the Ohio Secretary Inc.'s Registration Statement on
of State on May 28, 1996 Form S-8 (Registration No.
333-08189) filed on July 16, 1996
(the "1996 Form S-8")
3.3 Amended Article of AirNet Systems, Incorporated herein by reference
Inc. (as amended through May 28, to Exhibit 4.3 to AirNet Systems,
1996) (for SEC reporting compliance Inc.'s 1996 form S-8
purposes only - not filed with the
Ohio Secretary of State)
3.4 Code of Regulations of AirNet Incorporated herein by reference
Systems, Inc. to Exhibit 2.2 to AirNet Systems,
Inc.'s Form 8-A
4.1 Loan Agreement among AirNet Systems, Incorporated herein by reference
Inc., the Lenders party thereto and to Exhibit 4 to AirNet Systems,
NBD Bank, as agent, dated August 1, Inc.'s December 31, 1998 Form
1998. 10-K. (File No. 1-13025)
4.2 First Amendment to Credit Agreement, Filed herewith
the Lenders party thereto and NBD Bank
as agent, dated as of September 30,
1998.
4.3 Second Amendment to Credit Agreement, Filed herewith
the Lenders party thereto and Bank
One, Michigan, as agent, dated as of
December 31, 1999.
4.4 Subordination Agreement among Bank Filed herewith
One, Michigan, as agent, and the
Senior Lenders, AirNet Management,
Inc., and AirNet Systems, Inc., dated
as of December 31, 1999
4.5 Subsidiary Guaranty by AirNet Filed herewith
Management, Inc. dated as of December
31, 1999
10.1* AirNet Systems, Inc. Amended and Filed herewith
Restated 1996 Incentive Stock Plan
(reflects amendments through August
18, 1999)
10.3* Agreement, dated as of January 1, Incorporated herein by reference
1999, between AirNet Systems, Inc. to Exhibit 10.3 to AirNet Systems,
and Eric P. Roy Inc.'s December 31, 1998 Form
10-K. (File No. 1-13025)
10.4 Indemnification Agreement dated as of Incorporated herein by reference
May 15, 1996, among AirNet and to Exhibit 10.14 to AirNet's
Messrs. Miller, Renusch, Roy, King, Amendment No. 2 to Form S-1
Rutter, Sumser and Wright Registration Statement
(Registration No. 333-3092) filed
on May 24, 1996 ("Amendment No. 2")
10.5 Indemnification Agreement dated as of Incorporated herein by reference
May 15, 1996 between Mr. Mercer and to Exhibit 10.11 to AirNet's
AirNet Systems, Inc. Amendment No. 2
10.6* Confidential Agreement between AirNet Filed herewith
Systems, Inc. and Joel E. Biggerstaff
10.7 AirNet Systems, Inc. Director Filed herewith
Deferred Compensation Plan dated May
27, 1998
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C>
21 Subsidiaries of AirNet Systems, Inc. Filed herewith
23 Consent of Ernst & Young LLP Filed herewith
24 Powers of Attorney Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
* Denotes a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14 of Form 10-K.
2
<PAGE>
EXHIBIT 4.2
Execution Copy
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of September
30, 1998 (this "Amendment"), is among AIRNET SYSTEMS, INC., an Ohio corporation
(the "Company"), the lenders set forth on the signature pages hereof
(collectively, the "Lenders") and NBD BANK, a Michigan banking corporation, as
agent for the Lenders (in such capacity, the "Agent").
RECITALS
The Company, the Agent and the Lenders are parties to a Credit
Agreement, dated as of August 1, 1998 (the "Credit Agreement"). The Company
desires to amend the Credit Agreement, and the Agent and the Lenders are willing
to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements
herein contained, the parties agree as follows:
ARTICLE 1.
AMENDMENTS
Upon fulfillment of the conditions set forth in Article 3 hereof,
the Credit Agreement shall be amended as follows:
The following new definition is hereby added to Section 1.1 in appropriate
alphabetical order:
"Significant Subsidiary" shall mean any one or more Subsidiaries
which, if considered in the aggregate as a single Subsidiary would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X under the
Exchange Act, provided that no Subsidiary which is not by itself a Significant
Subsidiary shall be included in any Significant Subsidiary if all Subsidiaries
which are not by themselves Significant Subsidiaries or Guarantors would not
constitute a Significant Subsidiary.
Reference in the definition of "Guarantors" contained in Section 1.1 and in the
third line of Section 5.1(f) to "Subsidiary" shall be deleted and "Significant
Subsidiary" shall be substituted in each place thereof.
Section 5.2(a) is amended by deleting reference therein to "$70,000,000" and
substituting "$65,000,000" in place thereof.
ARTICLE 2.
GUARANTIES
The Company has requested that the Lenders defer the requirement under the
Credit Agreement of all of the Significant Subsidiaries of the Company executing
and delivering a Guaranty to the Agent and the Lenders together with
resolutions, legal opinions and corporate documents in connection with such
Guaranty. In accordance with such request, the Lenders and the Company agree
that any Significant Subsidiaries of the Company, if any, existing as of the
date of this Amendment, will not be required to deliver a Guaranty and the
resolutions, legal opinions and corporate documents required by the Agent in
connection therewith until December 31, 1998.
ARTICLE 3.
REPRESENTATIONS
The Company represents and warrants to the Agent and the Lenders
that:
1
<PAGE>
3.1 The execution, delivery and performance of this Amendment are within
its powers, has been duly authorized and is not in contravention with any law,
of the terms of its Articles of Incorporation or By-laws, or any undertaking to
which it is a party or by which it is bound.
3.2 This Amendment is the legal, valid and binding obligations of the
Company enforceable against it in accordance with the terms hereof.
3.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
3.4 No Event of Default or Default exists or has occurred and is
continuing on the date hereof.
ARTICLE 4.
MISCELLANEOUS.
4.1 This Amendment shall not become effective until this Amendment shall
be signed by the Company, the Agent and the Required Lenders.
4.2 References in the Credit Agreement or in any note or other Loan
Document to the Credit Agreement shall be deemed to be references to the Credit
Agreement as amended hereby and as further amended from time to time.
4.3 Except as expressly amended hereby, the Company agrees that the
Credit Agreement, the Notes and all other documents and agreements executed by
the Company in connection with the Credit Agreement in favor of the Agent or any
Lender are ratified and confirmed and shall remain in full force and effect and
that it has no set off, counterclaim or defense with respect to any of the
foregoing. Terms used but not defined herein shall have the respective meanings
ascribed thereto in the Credit Agreement.
4.4 This Amendment may be signed upon any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have
caused this Amendment to be executed and delivered as of the day and year first
above written.
AIRNET SYSTEMS, INC.
By: _________________________________
Its: ____________________________
NBD BANK, as Agent and as a Lender
By: _________________________________
Its: ____________________________
BANK ONE, N.A.
By: _________________________________
Its: ____________________________
KEYBANK NATIONAL ASSOCIATION
By: _________________________________
Its: ________________________________
2
<PAGE>
EXHIBIT 4.3
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, dated as of December
31, 1999 (this "Amendment"), is among AIRNET SYSTEMS, INC., an Ohio corporation
(the "Company"), the lenders set forth on the signature pages hereof
(collectively, the "Lenders") and BANK ONE, MICHIGAN, a Michigan banking
corporation formerly known as NBD Bank, as agent for the Lenders (in such
capacity, the "Agent").
RECITAL
The Company, the Agent and the Lenders are parties to a Credit
Agreement, dated as of August 1, 1998, as amended by the First Amendment to
Credit Agreement dated as of September 30, 1998 (as same may be amended or
modified from time to time, the "Credit Agreement"). The Company desires to
amend the Credit Agreement, and the Agent and the Lenders are willing to do so
strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements
herein contained, the parties agree as follows:
ARTICLE 1.
AMENDMENTS
Upon fulfillment of the conditions set forth in Article 2 hereof,
the Credit Agreement shall be amended as follows:
Section 5.2(f) is amended and restated in its entirety as follows:
(f) Disposition of Assets; Etc. Sell, lease, license,
transfer, assign or otherwise dispose of any of its business,
assets, rights, revenues or property, real, Personal or mixed,
tangible or intangible, whether in one or a series of
transactions, other than inventory sold in the ordinary course of
business upon customary credit terms and sales of scrap or
obsolete material or equipment, provided, however that this
Section 5.2(f) shall not prohibit (i) any such sale, lease,
license, transfer, assignment or other disposition if the
aggregate book value (disregarding any write-downs of such book
value other than ordinary depreciation and amortization) of all
of the business, assets, rights, revenues and property disposed
of after the date of this Agreement shall be less than $3,500,000
in the aggregate for any calendar year or (ii) the transfer of
the Company's intellectual property to AirNet Management, Inc.,
an Ohio corporation, provided that AirNet Management, Inc. shall
be a Guarantor hereunder and if, immediately after such
transactions, no Default or Event of Default shall exist or shall
have occurred and be continuing.
Clause (vi) of Section 5.2(i) is renumbered as Clause (vii) and a new Clause
(vi) is added to Section 5.2(i) as follows:
(vi) Indebtedness of the Company in aggregate amount not
to exceed $100,000,000 to AirNet Management, Inc., provided that
such Indebtedness is subordinated to all Advances and all other
obligations pursuant to any Loan Documents and no payments,
whether of principal, interest or otherwise are made on such
Indebtedness until after all Advances and all other obligations
pursuant to any Loan Documents are paid in full and all
Commitments are terminated.
1.3 Schedule 4.4 attached to the Credit Agreement is deleted in its
entirety and Schedule 4.4 attached to this Amendment shall be deemed substituted
in place thereof.
1
<PAGE>
ARTICLE 2.
CONDITIONS PRECEDENT
This Amendment shall not become effective until each of the
following has been satisfied:
2.1 The Subsidiary Guaranty dated of even date herewith shall be signed
by AirNet Management, Inc. (the "Subsidiary Guarantor").
2.2 The Subordination Agreement dated of even date herewith shall be
signed by the Subsidiary Guarantor, the Company and the Agent.
2.3 Copies of resolutions adopted by the Board of Directors of the
Subsidiary Guarantor, certified by an officer of the Subsidiary Guarantor as
being true and correct and in full force and effect without amendment as of the
date hereof, authorizing the Subsidiary Guarantor to enter into the Subsidiary
Guaranty and the Subordination Agreement and any other documents or agreements
executed pursuant thereto, if any, shall have been delivered to the Agent.
2.4 The Agent determines that the Subordinated Revolving Credit
Agreement between the Company and the Subsidiary Guarantor and the Subordinated
Revolving Loan Promissory Note are satisfactory and the Agent approves of each
of the foregoing.
2.5 This Amendment shall be signed by the Company and the Required
Lenders.
2.6 Such other documents and agreements requested by the Agent.
ARTICLE 3.
REPRESENTATIONS
The Company represents and warrants to the Agent and the Lenders
that:
3.1 The execution, delivery and performance of this Amendment are within
its powers, has been duly authorized and is not in contravention with any law,
of the terms of its Articles of Incorporation or By-laws, or any undertaking to
which it is a party or by which it is bound.
3.2 This Amendment is the legal, valid and binding obligation of the
Company enforceable against it in accordance with the terms hereof.
3.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
3.4 No Event of Default or Default exists or has occurred and is
continuing on the date hereof.
3.5 Other than AirNet Management, Inc., there are no other Significant
Subsidiaries in existence as of the date of this Amendment.
ARTICLE 4.
MISCELLANEOUS.
4.1 This Amendment shall not become effective until the Agent determines
that the conditions precedent contained in Article 2 of this Amendment are
satisfied and this Amendment shall be signed by the Company, the Agent and the
Required Lenders.
4.2 References in the Credit Agreement or in any Note or other Loan
Document to the Credit Agreement shall be deemed to be references to the Credit
Agreement as amended hereby and as further amended from time to time.
4.3 Except as expressly amended hereby, the Company agrees that the
Credit Agreement, the Notes and all other documents and agreements executed by
the Company in connection with the Credit Agreement in favor of the Agent or any
Lender are ratified and confirmed and shall remain in full force and effect and
that it has no set off, counterclaim or defense with respect to any of the
foregoing. Terms used but not defined herein shall have the respective meanings
ascribed thereto in the Credit Agreement.
2
<PAGE>
4.4 This Amendment may be signed upon any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have
caused this Amendment to be executed and delivered as of the day and year first
above written.
AIRNET SYSTEMS, INC.
By: ____________________________________
Its: _______________________________
BANK ONE, MICHIGAN, as Agent and as a Lender
By: ____________________________________
Its: _______________________________
BANK ONE, NA
By: ____________________________________
Its: _______________________________
KEYBANK NATIONAL ASSOCIATION
By: ____________________________________
Its: _______________________________
DETROIT 7-1836 488754
3
<PAGE>
SCHEDULE 4.4
SUBSIDIARIES
Float Control, Inc.
AirNet Management, Inc.
4
<PAGE>
EXHIBIT 4.4
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT dated as of December 31, 1999 (this
"Agreement") is among BANK ONE, MICHIGAN, a Michigan banking corporation,
formerly known as NBD Bank, as agent (in such capacity, the "Agent") for the
Senior Lenders (as defined below), AIRNET MANAGEMENT, INC., an Ohio corporation
(the "Subordinated Lender"), and AIRNET SYSTEMS, INC., an Ohio corporation (the
"Company").
BACKGROUND
As an inducement for the Senior Lenders to continue to provide a credit
facility in favor of the Company, the Subordinated Lender has agreed to enter
into this subordination agreement to provide for the subordination of the
"Subordinated Indebtedness" to the "Senior Indebtedness", all on the terms and
conditions herein set forth.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
1.1 General Terms. For purposes of this Agreement, the
following terms shall have the following respective meanings:
"Agreements" means, collectively, the Senior Lending
Agreements and the Subordinated Lending Agreements.
"Credit Agreement" means the Credit Agreement, dated as of
August 1, 1998, among the Company, the Senior Lenders and the Agent, as amended
by the First Amendment to Credit Agreement dated as of September 30, 1998 and as
further amended by the Second Amendment to Credit Agreement dated of even date
herewith, as further amended, supplemented, extended, modified, renewed,
restated, restructured, refinanced or replaced from time to time, and including
without limitation any agreement entered into in substitution therefor or
increasing the amount of available borrowings thereunder.
"Creditors" means, collectively, Senior Lenders and
Subordinated Lenders and their respective successors and assigns.
"Distribution" means any payment, whether in cash, in kind,
in securities or in any other property, or security therefor.
"Guarantor" means any Person at any time guaranteeing or
otherwise contingently liable for or otherwise supporting (including without
limitation any Person granting a Lien on any of its assets) the Senior
Indebtedness or the Subordinated Indebtedness.
"Holders of Subordinated Indebtedness" or "Subordinated
Lenders" means, collectively, the Subordinated Lender and any other Persons at
any time or in any manner acquiring any right to or interest in any of the
Subordinated Indebtedness.
"Insolvency Event" shall have the meaning set forth in
Section 2.2(c) hereof.
"Lien" means any pledge, assignment, hypothecation,
mortgage, deed of trust, security interest, deposit arrangement, option,
conditional sale or title retaining contract, sale and lease back transaction,
financing statement filing, intellectual property transfer or assignment filing,
lessor's or lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, assignment, encumbrance, preferential
arrangement or other claim or right.
"Obligations" means all present and future obligations for
principal, premium, interest, make whole payments, penalties, fees,
indemnifications, reimbursements, damages and other liabilities and obligations
under any of the Agreements and other documentation governing or relating to the
Senior Indebtedness or the Subordinated Indebtedness or otherwise owing pursuant
to the Senior Indebtedness or the Subordinated Indebtedness at any time.
1
<PAGE>
"Obligors" means, collectively, the Company and the
Guarantors.
"Payment Default" is defined in Section 2.2(d).
"Person" means an individual, a partnership, a corporation
(including a business trust), a joint stock company, a trust, an unincorporated
association, a joint venture, a limited liability company, a limited liability
partnership or other entity, or a government or any agency, instrumentality or
political subdivision thereof.
"Senior Indebtedness" means all present and future
indebtedness, obligations and liabilities of any kind owing by the Company, any
Guarantor or any other Person to Senior Lenders or any of them from time to time
under or pursuant to any of the Senior Lending Agreements, including, without
limitation, all principal, interest accruing thereon, reimbursement and other
Obligations owing pursuant to any letters of credit or similar documents,
indemnities, charges, expenses, fees and other Obligations chargeable to the
Company, any Guarantor or any such other Person by Senior Lenders or any of them
or otherwise due and payable at any time to the Senior Lenders or any of them,
(including without limitation all interest and fees and other amounts accruing
after commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Company or any other Obligor,
whether or not an allowed claim). Senior Indebtedness shall continue to
constitute Senior Indebtedness, notwithstanding the fact that such Senior
Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided
or disallowed under the federal Bankruptcy Code or other applicable law. Without
limiting the foregoing, Senior Indebtedness shall also include any indebtedness,
obligations and liabilities of the Company, any Guarantor or any such other
Person incurred in connection with a refinancing of the Senior Indebtedness.
"Senior Lenders" means the Agent and all lenders now or
hereafter parties to the Credit Agreement and any other Persons at any time or
in any manner acquiring any right to or interest in any of the Senior
Indebtedness.
"Senior Lending Agreements" means, collectively, the Credit
Agreement (as defined in this Agreement), and all promissory notes, guarantees,
pledge agreements, security agreements, mortgages, financing statements and
other agreements, instruments and documents from time to time entered into by
the Company, any Guarantor or any other Person to evidence, secure, guarantee or
otherwise relating in any way to, or executed in connection with, the Senior
Indebtedness, and all agreements, devices or arrangements providing for payments
which are relating to fluctuations of interest rates, exchange rates or forward
rates (including without limitation any interest rate, swap agreements, dollar
denominated or cross currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants) entered into
by the Company with any Senior Lender or Affiliate of any Senior Lender at any
time, as all of the foregoing may be amended, modified, supplemented, extended,
renewed, restated or replaced from time to time.
"Subordinated Indebtedness" means all present and future
indebtedness, obligations and liabilities of any kind owing by the Company, any
Guarantor or any other Person to Subordinated Lenders or any of them from time
to time under or pursuant to any of the Subordinated Lending Agreements,
including, without limitation, all principal, interest accruing thereon,
reimbursement and other Obligations owing pursuant to any letters of credit or
similar documents, indemnities, charges, expenses, fees and other Obligations
chargeable to the Company, any Guarantor or any such other Person by
Subordinated Lenders or any of them or otherwise due and payable at any time to
the Subordinated Lenders or any of them, (including without limitation all
interest and fees and other amounts accruing after commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company or any other Obligor, whether or not an allowed
claim). Without limiting the foregoing, Subordinated Indebtedness shall also
include any indebtedness, obligations and liabilities of the Company, any
Guarantor or any such other Person incurred in connection with a refinancing of
the Subordinated Indebtedness.
"Subordinated Lending Agreements" means, collectively, the
Subordinated Note and all guarantees, and other agreements, instruments and
documents from time to time entered into by the Company, any Guarantor or any
other Person to evidence, secure, guarantee or otherwise relating in any way to,
or executed in connection with, the Subordinated Note, and all agreements,
devices or arrangements providing for payments which are relating to
fluctuations of interest rates, exchange rates or forward rates (including
without limitation any interest rate, swap agreements, dollar denominated or
cross currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants) entered into by the
Company with any Subordinated Lender at any time, as all of the foregoing may be
amended, modified, supplemented, extended, renewed, restated or replaced from
time to time.
"Subordinated Note" means the Subordinated Revolving Loan
Promissory Note due in October, 2009 in the principal amount of $100,000,000
dated as of October 1, 1999 of the Company payable to the Subordinated Lender,
as amended, modified, supplemented, extended, renewed, restated, restructured,
refinanced or replaced from time to time, and including any agreement entered
into in substitution thereof.
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1.2 Other Terms. Capitalized terms not otherwise defined
herein shall have the meanings given to them in the Credit Agreement.
1.3 Certain Matters of Construction. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and vice versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references to any instruments or agreements, including, without limitation,
references to any of the Senior Lending Agreements or Subordinated Lending
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. Covenants. The Company and each Holder of Subordinated
Indebtedness hereby covenant that until the Senior Indebtedness shall have been
irrevocably paid in full and satisfied in cash and the Credit Agreement and any
letters of credit issued pursuant thereto shall have been irrevocably
terminated, all in accordance with the terms of the Credit Agreement and the
other Senior Lending Agreements, each agrees and will comply with such of the
following provisions as are applicable to it:
2.1 Transfers; Etc. Each Holder of Subordinated
Indebtedness covenants it will not assign or otherwise transfer any of the
Subordinated Indebtedness or any of the Subordinated Lending Agreements without
the prior written consent of the Agent. Each Holder of Subordinated Indebtedness
covenants that any transferee from it of any Subordinated Indebtedness or any
Liens (if any) securing any Subordinated Indebtedness shall, prior to acquiring
such interest, execute and deliver a counterpart of this Subordination Agreement
to each other party hereto. The Company covenants that any holder of any
Subordinated Indebtedness at any time and any Guarantor shall promptly execute
and deliver a counterpart of this Subordination Agreement to each other party
hereto.
2.2 Subordinated Indebtedness Subordination Provisions. To
induce Senior Lenders to enter into the Credit Agreement and to make and
continue to make from time to time loans and advances thereunder,
notwithstanding any other provision of the Subordinated Indebtedness or the
Subordinated Lending Agreements to the contrary, any Distribution with respect
to the Subordinated Indebtedness is and shall be expressly junior and
subordinated in right of payment to all amounts due and owing upon all Senior
Indebtedness from time to time. Specifically, but not by way of limitation:
(a) Payments. Neither the Company nor any other
Obligor shall make any Distribution on the Subordinated Indebtedness until such
time as the Senior Indebtedness shall have been irrevocably paid in full in cash
and the Credit Agreement and any letters of credit issued pursuant thereto shall
have been irrevocably terminated.
(b) Limitation on Acceleration. No Holder of
Subordinated Indebtedness shall be entitled to accelerate the maturity of the
Subordinated Indebtedness, exercise any remedies with respect to the
Subordinated Indebtedness, commence or join with any other creditors in
commencing any bankruptcy, reorganization, receivership or insolvency proceeding
against the Company or any Obligor or commence any other action or proceeding to
recover any amounts due or to become due with respect to Subordinated
Indebtedness until such time as the Senior Indebtedness shall have been
irrevocably paid in full in cash and the Credit Agreement and any letters of
credit issued pursuant thereto shall have been irrevocably terminated.
(c) Prior Payment of Senior Indebtedness in
Bankruptcy, Etc. In the event of any insolvency or bankruptcy proceedings
relative to the Company or any other Obligor or any of their respective
property, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, or, in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company or any
other Obligor or distribution or marshaling of its assets or any composition
with creditors of the Company or any other Obligor, whether or not involving
insolvency or bankruptcy, or if the Company or any other Obligor shall cease its
operations, call a meeting of its creditors or no longer do business as a going
concern (each individually or collectively, an "Insolvency Event") then all
Senior Indebtedness shall be paid in full in cash and the Credit Agreement
irrevocably terminated before any Distribution shall be made on account of any
Subordinated Indebtedness, provided, however, that Holders of Subordinated
Indebtedness may receive (and shall be entitled to retain) securities which are
subordinate to (at least to the extent that the Subordinated Indebtedness is
subordinate to the Senior Indebtedness pursuant to the terms hereof) the payment
of all Senior Indebtedness. Any such Distribution which would, but for the
provisions hereof, be payable or deliverable in respect of the Subordinated
Indebtedness, shall be paid or delivered directly to the Senior Lenders or their
representatives, in the proportions in which they hold the same, until all
amounts owing upon the Senior Indebtedness shall have been irrevocably paid in
full in cash and the Credit Agreement and any letters of credit issued pursuant
thereto have been irrevocably terminated.
(d) Power of Attorney. To enable the Senior Lenders
to assert and enforce its rights hereunder in any proceeding referred to in
Section 2.2(c) or upon the happening of any Insolvency Event, the Agent or any
other Person whom the Senior Lenders may designate is hereby irrevocably
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appointed attorney in fact for such Holder of Subordinated Indebtedness with
full power to act in the place and stead of such Holder of Subordinated
Indebtedness including the right to make, present, file and vote such proofs of
claim against the Company or any other Obligor on account of all or any part of
the Subordinated Indebtedness as Agent may deem advisable and to receive and
collect any and all dividends or other payments made thereon and to apply the
same on account of the Senior Indebtedness but excluding the right to exercise
voting or approvals rights. The Subordinated Lenders will execute and deliver to
the Senior Lenders such instruments as may be required by the Senior Lenders to
enforce any and all Subordinated Indebtedness, to effectuate the aforesaid power
of attorney and to effect collection of any and all dividends or other payments
which may be made at any time on account thereof.
(e) Payments Held In Trust. Should any Distribution
or the proceeds thereof, in respect of the Subordinated Indebtedness, be
collected or received by any Holder of Subordinated Indebtedness or any
Affiliate of any such holder at a time when the Holders of Subordinated
Indebtedness are not permitted, pursuant to the terms hereof, to receive any
such Distribution or proceeds thereof, then each Holder of Subordinated
Indebtedness will forthwith deliver, or cause to be delivered, the same to the
Senior Lenders in precisely the form held by such Holder of Subordinated
Indebtedness (plus any necessary endorsements) and, until so delivered, the same
shall be held in trust by each Holder of Subordinated Indebtedness, or any such
Affiliate, as the property of the Senior Lenders and shall not be commingled
with other property of such Holder of Subordinated Indebtedness or any such
Affiliate.
(f) Subrogation. Subject to the prior payment in
full in cash of the Senior Indebtedness and the irrevocable termination of the
Credit Agreement and all Letters of Credit issued pursuant thereto, to the
extent that Senior Lenders have received any Distribution on the Senior
Indebtedness which, but for this Agreement, would have been applied to the
Subordinated Indebtedness, the Subordinated Lenders shall be subrogated to the
then or thereafter rights of the Senior Lenders including, without limitation,
the right to receive any Distribution made on the Senior Indebtedness until the
principal of, interest on and other charges due under the Subordinated
Indebtedness shall be paid in full; and, for the purposes of such subrogation,
no Distribution to the Senior Lenders to which the Subordinated Lenders would be
entitled except for the provisions of this Agreement, and no delivery to the
Senior Lenders by the Subordinated Lenders pursuant to Section 2.2(g) hereof,
shall, as between the Company, its creditors (other than the Senior Lenders) and
the Subordinated Lender, be deemed to be a Distribution by the Company to or on
account of Senior Indebtedness, it being understood that the provisions hereof
are and are intended solely for the purpose of defining the relative rights of
the Subordinated Lenders on the one hand, and the Senior Lenders on the other
hand.
2.3 Liens. The Company, the other Obligors and the
Subordinated Lenders acknowledge, agree and represent and warrant to the Senior
Lenders that there are not and will not be any Liens on or with respect to any
assets of the Company, any Guarantor or any other Obligor at any time to secure
all or any part of the Subordinated Indebtedness and any such Lien shall be null
and void.
3. Miscellaneous.
3.1 Scope of Subordination; Reliance. The provisions
of this Agreement are solely to define the relative rights of the Holders of
Subordinated Indebtedness and the Senior Lenders. Nothing in this Agreement
shall impair, as between the Company and the Holders of Subordinated
Indebtedness, the unconditional and absolute obligation of the Company to
punctually pay the principal, interest and any other amounts and obligations
owing under the Subordinated Lending Agreements in accordance with the terms
thereof, subject to the rights of the Senior Lenders under this Agreement. The
Subordinated Lenders acknowledge and agree that this Agreement is, and is
intended to be, an inducement and a consideration to the Senior Lenders for
entering into the Senior Lending Agreements and lending and continuing to hold
any Senior Indebtedness, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Subordinated Indebtedness, to
acquire and continue to hold such Senior Indebtedness, and the Senior Lending
Agreements were initially entered into in reliance on the Subordinated Lender's
agreement to execute this Agreement. The Senior Lenders shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold the Senior Indebtedness.
3.2 Provisions of Subordinated Lending Agreements.
From and after the date hereof, the Company, each other Obligor and the
Subordinated Lenders shall cause each Subordinated Lending Agreement to contain
a provision to the following effect:
"This [describe agreement/instrument] is subject to the
Subordination Agreement, dated as of December 31, 1999, among the
Company, the Holders of Subordinated Indebtedness (as defined
therein) and Bank One, Michigan, as agent for the Senior Lenders,
under which this [describe agreement/instrument] and the
[Obligor's] obligations hereunder and other rights of the Holder
are subordinated in the manner set forth therein to the prior
payment of obligations to the holders of Senior Indebtedness as
defined therein and all collateral security therefor."
Proof of compliance with the foregoing shall be promptly given to Senior
Lenders.
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3.3 Survival of Rights. The right of Senior Lenders to
enforce the provisions of this Agreement shall not be prejudiced or impaired by
any act or omitted act of any Senior Lender, the Company, any Guarantor or any
other Person, including forbearance, waiver, consent, compromise, amendment,
extension, renewal, or taking or release of security in respect of any Senior
Indebtedness or noncompliance by the Company, any Guarantor or any other Person
with such provisions, regardless of the actual or imputed knowledge of Senior
Lenders. In the event that the Senior Indebtedness is refinanced in full, each
Holder of Subordinated Indebtedness agrees at the request of such refinancing
party to enter into a subordination agreement on terms substantially the same as
this Subordination Agreement.
3.4 Amendments to Senior Lending Agreements. Nothing
contained in this Agreement, or in any other agreement or instrument binding
upon any of the parties hereto, shall in any manner limit or restrict the
ability of the Senior Lenders from increasing or changing the terms of the
Obligations under the Senior Lending Agreements, or to otherwise waive, amend or
modify the terms and conditions of the Senior Lending Agreements, in such manner
as the Senior Lenders and the Company shall mutually determine. Each Holder of
Subordinated Indebtedness hereby consents to any and all such waivers,
amendments, modifications and compromises, and any other renewals, extensions,
indulgences, releases of collateral or other accommodations granted by the
Senior Lenders to the Company or any other Obligor from time to time, and agrees
that none of such actions shall in any manner affect or impair the subordination
established by this Subordination Agreement in respect of the Subordinated
Indebtedness. Without limiting the foregoing, and without notice to or the
consent of the Subordinated Lender, the Senior Lenders may, at any time and from
time to time and without impairing or releasing the subordination herein made,
do any one or more of the following: (a) change the manner, place or terms of
payment, or change or extend the time of payment of the Senior Indebtedness, or
amend or supplement in any manner the documentation evidencing, securing or
relating to the Senior Indebtedness, or increase without limit the amount of the
Senior Indebtedness; (b) release any person liable in any manner for the payment
or collection of the Senior Indebtedness; (c) exercise or refrain from
exercising any rights with respect to the Senior Indebtedness against the
Company or any of its Subsidiaries, any Guarantor or any other person; (d) apply
any monies or other property paid by any person or otherwise available to the
Senior Indebtedness; (e) accept or release, or fail to perfect an interest in,
any collateral or security for the Senior Indebtedness; or (f) take or omit to
take any other action with respect to the Senior Indebtedness which may impair
or adversely affect the subordination herein made.
3.5 Notices. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, (c) upon actual receipt thereof
when sent by a recognized overnight delivery service or (d) upon actual receipt
thereof when sent by telecopier to the number set forth below with electronic
confirmation of receipt, in each case addressed to each party at its address set
forth below or at such other address as has been furnished in writing by a party
to the other by like notice:
If to Senior Lenders: c/o Bank One
100 East Broad Street
7th Floor
Columbus, OH 43215
Attn: Thomas E. Redmond
Phone: 614-248-5540
Fax: 614-248-5518
If to the Subordinated Lenders: AirNet Management, Inc.
4700 E. Fifth Avenue
Columbus, Ohio 43219
Attention: Julie Hughes, Controller
Telephone: 614-236-3840
Telecopier: 614-2381969
If to Company: AirNet Systems, Inc.
3939 International Gateway
Columbus, Ohio 43219
Attention: William R. Sumser
Telephone: 614-236-3850
Telecopier: 614-237-7876
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3.6 Representations. The Subordinated Lender and the
Company each hereby represent and warrant that: (a) attached hereto as Exhibit A
is a true, correct and complete copy of the Subordinated Note, the sole original
of the Subordinated Note has been conspicuously imprinted with the legend
required by Section 3.2 hereof, and there are no other documents, agreements or
instruments evidencing, securing or relating in any way to the Subordinated
Indebtedness; (b) all Subordinated Lending Agreements are attached hereto as
Exhibit B, and there are no other documents, agreements or instruments
evidencing, securing or relating in any way to the Subordinated Indebtedness
other than those attached hereto as Exhibits A and B; (c) the Subordinated
Lender has not relied and will not rely on any representation or information of
any nature made by or received from the Senior Lenders in deciding to execute
this Agreement; (d) the Subordinated Lender has not heretofore assigned or
transferred any of the Subordinated Indebtedness, any interest therein or any
other rights pertaining thereto; (e) the Subordinated Lender has not heretofore
given any subordination in respect of the Subordinated Indebtedness; (f) the
execution, delivery and performance of this Agreement are within its corporate
powers, have been duly authorized and are not in contravention of law or, if
applicable, of the terms of its articles of incorporation or bylaws, or of any
law, order, judgment, decree, contract or undertaking to which it is a party or
by which it or any of its properties is bound or affected; and (g) this
Agreement constitutes the legal, valid and binding obligation of each of them,
enforceable against each in accordance with its terms.
3.7 Additional Covenants. Until all of the Senior
Indebtedness has been irrevocably paid in full in cash and the Credit Agreement
and any letters of credit issued pursuant thereto have expired or been
terminated, unless otherwise consented to by the Agent in writing: (a) the
Company and the Subordinated Lenders shall not assign, transfer, hypothecate or
modify, terminate, amend or supplement, or consent to any cancellation,
modification, termination, amendment or supplement of, any Subordinated Lending
Agreement or any of the other terms of the Subordinated Indebtedness; (b) the
Subordinated Lenders shall not hereafter give any subordination in respect to
the Subordinated Indebtedness; (c) the Company and the Subordinated Lenders will
not hereafter issue any instrument, agreement or other writing evidencing or
securing any part of the Subordinated Indebtedness or allow any liens or
securing interests on or with respect to any of its assets to secure any part of
the Subordinated Indebtedness, and the Subordinated Lenders will not receive any
such instrument, security or other writing of any such liens or securing
interests, and any such instrument, security or other writing and any such liens
or security interests shall be null and void; and (d) the Company and the
Subordinated Lenders shall give the Senior Lender prompt notice of any default
under the Subordinated Indebtedness.
3.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without giving
effect to the choice of law principles of such State.
3.9 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one in the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
3.10 Amendments; Successors and Assigns. No provision of
this Agreement may be modified or waived except by an instrument or instruments
in writing signed by the Senior Lenders (or the requisite number of Senior
Lenders as may be required pursuant to the Senior Lending Agreements), the
Subordinated Lenders (or the requisite number of Subordinated Lenders as may be
required under the Subordinated Lending Agreements) and the Company. This
Agreement shall bind the parties hereto and their respective successors and
assigns, and shall inure to the benefit of their respective successors and
assigns.
3.11 This Agreement Controls. The subordination and
related provisions contained in this Agreement are in addition to and supplement
all debt subordination and other provisions contained in the Subordinated
Lending Agreements and any other instruments or agreements evidencing or
relating to the Subordinated Indebtedness in favor of or for the benefit of the
Senior Lenders; provided that, in the event of any conflict between this
Agreement and the Subordinated Lending Agreements or such other instruments and
agreements, the terms of this Agreement shall control.
[The rest of this page intentionally left blank.]
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WITNESS the due execution of this Agreement as of the day and year first
above written.
BANK ONE, MICHIGAN,
as Agent for the Senior Lenders
By: ____________________________________
Title:_______________________________
AIRNET SYSTEMS, INC.
By: ____________________________________
Title:_______________________________
AIRNET MANAGEMENT, INC.
By: ____________________________________
Title:_______________________________
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EXHIBIT A
Copy of Subordinated Note
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EXHIBIT B
Copy of all Subordinated Lending Agreements
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EXHIBIT 4.5
SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "Guaranty") is made as of the 31st day of
December, 1999, by AirNet Management, Inc., an Ohio corporation (the "Subsidiary
Guarantor") in favor of the Agent, for the benefit of the Lenders, under the
Credit Agreement referred to below;
WITNESSETH:
WHEREAS, AirNet Systems, Inc., an Ohio corporation (the "Principal"),
certain Lenders from time to time party thereto and Bank One, Michigan, formerly
known as NBD Bank, as agent for the Lenders (in such capacity, together with any
successor agent, the "Agent") have entered into a certain Credit Agreement dated
as of August 1, 1998, as amended by that certain First Amendment to Credit
Agreement dated as of September 30, 1998, and as further amended by that certain
Second Amendment to Credit Agreement dated of even date herewith (as same may be
amended or modified from time to time, the "Credit Agreement"), providing,
subject to the terms and conditions thereof, for extensions of credit to be made
by the Lenders to the Principal;
WHEREAS, it is pursuant to Section 5.1(f) of the Credit Agreement that
the Subsidiary Guarantor executes and delivers this Guaranty whereby the
Subsidiary Guarantor shall guarantee the payment when due, subject to Section 9
hereof, of all Guaranteed Obligations, as defined below; and
WHEREAS, in consideration of the financial and other support that the
Principal has provided, and such financial and other support as the Principal
may in the future provide to the Subsidiary Guarantor, and in order to induce
the Lenders and the Agent to enter into the Credit Agreement, and the Lenders
and their Affiliates to enter into one or more Rate Management Transactions with
the Principal, and because the Subsidiary Guarantor has determined that
executing this Guaranty is in its interest and to its financial benefit, the
Subsidiary Guarantor is willing to guarantee the obligations of the Principal
under the Credit Agreement, any Note, any Rate Management Transaction, and the
other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION l.1. Selected Terms Used Herein.
"Guaranteed Obligations" is defined in Section 3 below.
"Rate Management Transaction" means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into between
the Principal and any Lender or Affiliate thereof which is a rate swap, basis
swap, forward rate transaction, commodity swap, commodity option, equity or
equity index swap, equity or equity index option, bond option, interest rate
option, foreign exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies,
commodity prices, equity prices or other financial measures.
"Rate Management Obligations" means any and all obligations of the
Principal, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Management Transactions, and (ii) any and all cancellations, buy backs,
reversals, terminations or assignments of any Rate Management Transactions.
SECTION 1.2. Terms in Credit Agreement. Other capitalized terms used
herein but not defined herein shall have the meaning set forth in the Credit
Agreement.
SECTION 2.1. Representations and Warranties. The Subsidiary Guarantor
represents and warrants (which representations and warranties shall be deemed to
have been renewed upon each date an Advance is made under the Credit Agreement)
that:
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(a) It is a corporation, partnership or limited liability company
duly and properly incorporated or organized, as the case may be, validly
existing and (to the extent such concept applies to such entity) in good
standing under the laws of its jurisdiction of incorporation or organization and
has all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
(b) It has the power and authority and legal right to execute and
deliver this Guaranty and to perform its obligations hereunder. The execution
and delivery by it of this Guaranty and the performance of its obligations
hereunder have been duly authorized by proper corporate proceedings, and this
Guaranty constitutes a legal, valid and binding obligation of such Subsidiary
Guarantor enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally.
(c) Neither the execution and delivery by it of this Guaranty,
nor the consummation of the transactions herein contemplated, nor compliance
with the provisions hereof will violate (i) any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on it or any of its
subsidiaries or (ii) its articles or certificate of incorporation, partnership
agreement, certificate of partnership, articles or certificate of organization,
by-laws, or operating or other management agreement, as the case may be, or
(iii) the provisions of any indenture, instrument or agreement to which it or
any of its subsidiaries is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default thereunder, or
result in, or require, the creation or imposition of any Lien in, of or on the
property of such Subsidiary Guarantor or a subsidiary thereof pursuant to the
terms of any such indenture, instrument or agreement. No order, consent,
adjudication, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, or other action in respect of
any governmental or public body or authority, or any subdivision thereof, which
has not been obtained by it or any of its subsidiaries, is required to be
obtained by it or any of its subsidiaries in connection with the execution and
delivery of this Guaranty or the performance by it of its obligations hereunder
or the legality, validity, binding effect or enforceability of this Guaranty.
SECTION 2.2. Covenants. The Subsidiary Guarantor covenants that, so long
as any Lender has any Commitment outstanding under the Credit Agreement, any
Rate Management Transaction remains in effect or any of the Guaranteed
Obligations shall remain unpaid, that it will, and, if necessary, will enable
the Principal to, fully comply with those covenants and agreements set forth in
the Credit Agreement.
SECTION 3. The Guaranty. Subject to Section 9 hereof, the Subsidiary
Guarantor hereby absolutely and unconditionally guarantees, as primary obligor
and not as surety, the full and punctual payment (whether at stated maturity,
upon acceleration or early termination or otherwise, and at all times
thereafter) and performance of the Obligations and the Rate Management
Obligations, including without limitation any such Obligations or Rate
Management Obligations incurred or accrued during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, whether or not
allowed or allowable in such proceeding (collectively, subject to the provisions
of Section 9 hereof, being referred to as the "Guaranteed Obligations"). Upon
failure by the Principal to pay punctually any such amount, the Subsidiary
Guarantor agrees that it shall forthwith on demand pay to the Agent for the
benefit of the Lenders and, if applicable, their Affiliates, the amount not so
paid at the place and in the manner specified in the Credit Agreement, any Note,
any Rate Management Transaction or the relevant Loan Document, as the case may
be. This Guaranty is a guaranty of payment and not of collection. The Subsidiary
Guarantor waives any right to require the Lender to sue the Principal, any other
guarantor, or any other person obligated for all or any part of the Guaranteed
Obligations, or otherwise to enforce its payment against any collateral securing
all or any part of the Guaranteed Obligations.
SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the
obligations of the Subsidiary Guarantor hereunder shall be unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release in
respect of any of the Guaranteed Obligations, by operation of law or
otherwise, or any obligation of any other guarantor of any of the
Guaranteed Obligations, or any default, failure or delay, willful or
otherwise, in the payment or performance of the Guaranteed Obligations;
(ii) any modification or amendment of or supplement to the Credit
Agreement, any Note, any Rate Management Transaction or any other Loan
Document;
(iii) any release, nonperfection or invalidity of any direct or indirect
security for any obligation of the Principal under the Credit Agreement,
any Note, any Rate Management Transaction, any other Loan Document, or
any obligations of any other guarantor of any of the Guaranteed
Obligations, or any action or failure to act by the Agent, any Lender or
any Affiliate of any Lender with respect to any collateral securing all
or any part of the Guaranteed Obligations;
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(iv) any change in the corporate existence, structure or ownership of
the Principal or any other guarantor of any of the Guaranteed
Obligations, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Principal, or any other guarantor of
the Guaranteed Obligations, or its assets or any resulting release or
discharge of any obligation of the Principal, or any other guarantor of
any of the Guaranteed Obligations;
(v) the existence of any claim, setoff or other rights which the
Subsidiary Guarantor may have at any time against the Principal, any
other guarantor of any of the Guaranteed Obligations, the Agent, any
Lender or any other Person, whether in connection herewith or any
unrelated transactions;
(vi) any invalidity or unenforceability relating to or against the
Principal, or any other guarantor of any of the Guaranteed Obligations,
for any reason related to the Credit Agreement, any Rate Management
Transaction, any other Loan Document, or any provision of applicable law
or regulation purporting to prohibit the payment by the Principal, or
any other guarantor of the Guaranteed Obligations, of the principal of
or interest on any Note or any other amount payable by the Principal
under the Credit Agreement, any Note, any Rate Management Transaction or
any other Loan Document; or
(vii) any other act or omission to act or delay of any kind by the
Principal, any other guarantor of the Guaranteed Obligations, the Agent,
any Lender or any other Person or any other circumstance whatsoever
which might, but for the provisions of this paragraph, constitute a
legal or equitable discharge of the Subsidiary Guarantor's obligations
hereunder.
SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain
Circumstances. The Subsidiary Guarantor's obligations hereunder shall remain in
full force and effect until all Guaranteed Obligations shall have been
indefeasibly paid in full, the Commitments under the Credit Agreement shall have
terminated or expired and all Rate Management Transactions have terminated or
expired. If at any time any payment of the principal of or interest on any Note
or any other amount payable by the Principal or any other party under the Credit
Agreement, any Rate Management Transaction or any other Loan Document is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Principal or otherwise, each of the
Subsidiary Guarantor's obligations hereunder with respect to such payment shall
be reinstated as though such payment had been due but not made at such time.
SECTION 6. Waivers. The Subsidiary Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and, to the fullest extent
permitted by law, any notice not provided for herein, as well as any requirement
that at any time any action be taken by any Person against the Principal, any
other guarantor of any of the Guaranteed Obligations, or any other Person.
SECTION 7. Subrogation. The Subsidiary Guarantor hereby agrees not to
assert any right, claim or cause of action, including, without limitation, a
claim for subrogation, reimbursement, indemnification or otherwise, against the
Principal arising out of or by reason of this Guaranty or the obligations
hereunder, including, without limitation, the payment or securing or purchasing
of any of the Guaranteed Obligations by the Subsidiary Guarantor unless and
until the Guaranteed Obligations are indefeasibly paid in full, any commitment
to lend under the Credit Agreement and any other Loan Documents is terminated
and all Rate Management Transactions have terminated or expired.
SECTION 8. Stay of Acceleration. If acceleration of the time for payment
of any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy
or reorganization of the Principal, all such amounts otherwise subject to
acceleration under the terms of the Credit Agreement, any Note, any Rate
Management Transaction or any other Loan Document shall nonetheless be payable
by the Subsidiary Guarantor hereunder forthwith on demand by the Agent made at
the request of the Required Lenders.
SECTION 9. Limitation on Obligations. (a) The provisions of this
Guaranty are severable, and in any action or proceeding involving any state
corporate law, or any state, federal or foreign bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the
obligations of the Subsidiary Guarantor under this Guaranty would otherwise be
held or determined to be avoidable, invalid or unenforceable on account of the
amount of such Subsidiary Guarantor's liability under this Guaranty, then,
notwithstanding any other provision of this Guaranty to the contrary, the amount
of such liability shall, without any further action by the Subsidiary Guarantor,
the Agent or any Lender, be automatically limited and reduced to the highest
amount that is valid and enforceable as determined in such action or proceeding
(such highest amount determined hereunder being the Subsidiary Guarantor's
"Maximum Liability"). This Section 9(a) with respect to the Maximum Liability of
the Subsidiary Guarantor is intended solely to preserve the rights of the Agent
hereunder to the maximum extent not subject to avoidance under applicable law,
and neither the Subsidiary Guarantor nor any other person or entity shall have
any right or claim under this Section 9(a) with respect to the Maximum
Liability, except to the extent necessary so that the obligations of the
Subsidiary Guarantor hereunder shall not be rendered voidable under applicable
law.
(b) The Subsidiary Guarantor agrees that the Guaranteed Obligations may
at any time and from time to time exceed the Maximum Liability of such
Subsidiary Guarantor, and may exceed the aggregate Maximum Liability of all
other Subsidiary Guarantors, without impairing this Guaranty or affecting the
rights and remedies of the Agent hereunder. Nothing in this Section 9(b) shall
be construed to increase the Subsidiary Guarantor's obligations hereunder beyond
its Maximum Liability.
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(c) In the event any Subsidiary Guarantor (a "Paying Subsidiary
Guarantor") shall make any payment or payments under this Guaranty or shall
suffer any loss as a result of any realization upon any collateral granted by it
to secure its obligations under this Guaranty, each other Subsidiary Guarantor
(each a "Non-Paying Subsidiary Guarantor") shall contribute to such Paying
Subsidiary Guarantor an amount equal to such Non-Paying Subsidiary Guarantor's
"Pro Rata Share" of such payment or payments made, or losses suffered, by such
Paying Subsidiary Guarantor. For the purposes hereof, each Non-Paying Subsidiary
Guarantor's "Pro Rata Share" with respect to any such payment or loss by a
Paying Subsidiary Guarantor shall be determined as of the date on which such
payment or loss was made by reference to the ratio of (i) such Non-Paying
Subsidiary Guarantor's Maximum Liability as of such date (without giving effect
to any right to receive, or obligation to make, any contribution hereunder) or,
if such Non-Paying Subsidiary Guarantor's Maximum Liability has not been
determined, the aggregate amount of all monies received by such Non-Paying
Subsidiary Guarantor from the Principal after the date hereof (whether by loan,
capital infusion or by other means) to (ii) the aggregate Maximum Liability of
all Subsidiary Guarantors hereunder (including such Paying Subsidiary Guarantor)
as of such date (without giving effect to any right to receive, or obligation to
make, any contribution hereunder), or to the extent that a Maximum Liability has
not been determined for any Subsidiary Guarantors, the aggregate amount of all
monies received by such Subsidiary Guarantors from the Principal after the date
hereof (whether by loan, capital infusion or by other means). Nothing in this
Section 9(c) shall affect any Subsidiary Guarantor's several liability for the
entire amount of the Guaranteed Obligations (up to such Subsidiary Guarantor's
Maximum Liability). Each of the Subsidiary Guarantors covenants and agrees that
its right to receive any contribution under this Guaranty from a Non-Paying
Subsidiary Guarantor shall be subordinate and junior in right of payment to all
the Guaranteed Obligations. The provisions of this Section 9(c) are for the
benefit of both the Agent and the Subsidiary Guarantors and may be enforced by
any one, or more, or all of them in accordance with the terms hereof.
SECTION 10. Application of Payments. All payments received by the Agent
hereunder shall be applied by the Agent to payment of the Guaranteed Obligations
in the following order unless a court of competent jurisdiction shall otherwise
direct:
(a) FIRST, to payment of all costs and expenses of the Agent
incurred in connection with the collection and enforcement of the
Guaranteed Obligations or of any security interest granted to the Agent
in connection with any collateral securing the Guaranteed Obligations;
(b) SECOND, to payment of that portion of the Guaranteed
Obligations constituting accrued and unpaid interest and fees, pro rata
among the Lenders and their Affiliates in accordance with the amount of
such accrued and unpaid interest and fees owing to each of them;
(c) THIRD, to payment of the principal of the Guaranteed
Obligations and the net early termination payments and any other Rate
Management Obligations then due and unpaid from the Borrower to any of
the Lenders or their Affiliates, pro rata among the Lenders and their
Affiliates in accordance with the amount of such principal and such net
early termination payments and other Rate Management Obligations then
due and unpaid owing to each of them; and
(d) FOURTH, to payment of any Guaranteed Obligations (other than
those listed above) pro rata among those parties to whom such Guaranteed
Obligations are due in accordance with the amounts owing to each of
them.
SECTION 11. Notices. All notices, requests and other communications to
any party hereunder shall be given or made by telecopier or other writing and
telecopied, or mailed or delivered to the intended recipient at its address or
telecopier number set forth on the signature pages hereof or such other address
or telecopy number as such party may hereafter specify for such purpose by
notice to the Agent in accordance with the provisions of Article XIII of the
Credit Agreement. Except as otherwise provided in this Guaranty, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, or personally delivered or, in the case of a mailed notice sent by
certified mail return-receipt requested, on the date set forth on the receipt
(provided, that any refusal to accept any such notice shall be deemed to be
notice thereof as of the time of any such refusal), in each case given or
addressed as aforesaid.
SECTION 12. No Waivers. No failure or delay by the Agent or any Lenders
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 provided in this Guaranty, the Credit Agreement, any
Note, any Rate Management Transaction and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 13. No Duty to Advise. The Subsidiary Guarantor assumes all
responsibility for being and keeping itself informed of the Principal's
financial condition and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Guaranteed Obligations and the nature, scope and
extent of the risks that the Subsidiary Guarantor assumes and incurs under this
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Guaranty, and agrees that neither the Agent nor any Lender has any duty to
advise the Subsidiary Guarantor of information known to it regarding those
circumstances or risks.
SECTION 14. Successors and Assigns. This Guaranty is for the benefit of
the Agent and the Lenders and their respective successors and permitted assigns
and in the event of an assignment of any amounts payable under the Credit
Agreement, any Note, any Rate Management Transaction, or the other Loan
Documents, the rights hereunder, to the extent applicable to the indebtedness so
assigned, shall be transferred with such indebtedness. This Guaranty shall be
binding upon the Subsidiary Guarantor and its respective successors and
permitted assigns.
SECTION 15. Changes in Writing. Neither this Guaranty nor any provision
hereof may be changed, waived, discharged or terminated orally, but only in
writing signed by the Subsidiary Guarantor and the Agent with the consent of the
Required Lenders.
SECTION 16. Costs of Enforcement. The Subsidiary Guarantor agrees to pay
all costs and expenses including, without limitation, all court costs and
attorneys' fees and expenses paid or incurred by the Agent or any Lender or any
Affiliate of any Lender in endeavoring to collect all or any part of the
Guaranteed Obligations from, or in prosecuting any action against, the
Principal, the Subsidiary Guarantor or any other guarantor of all or any part of
the Guaranteed Obligations.
SECTION 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF MICHIGAN. THE SUBSIDIARY GUARANTOR HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF MICHIGAN AND OF ANY MICHIGAN STATE COURT SITTING IN DETROIT,
MICHIGAN AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS)
OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE SUBSIDIARY GUARANTOR IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. THE SUBSIDIARY GUARANTOR, AND THE AGENT
AND THE LENDERS ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY WAIVE ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 18. Taxes. etc. All payments required to be made by the
Subsidiary Guarantor hereunder shall be made without setoff or counterclaim and
free and clear of and without deduction or withholding for or on account of, any
present or future taxes, levies, imposts, duties or other charges of whatsoever
nature imposed by any government or any political or taxing authority thereof
(but excluding excluded taxes), provided, however, that if the Subsidiary
Guarantor is required by law to make such deduction or withholding, such
Subsidiary Guarantor shall forthwith (i) pay to the Agent or any Lender, as
applicable, such additional amount as results in the net amount received by the
Agent or any Lender, as applicable, equaling the full amount which would have
been received by the Agent or any Lender, as applicable, had no such deduction
or withholding been made, (ii) pay the full amount deducted to the relevant
authority in accordance with applicable law, and (iii) furnish to the Agent or
any Lender, as applicable, certified copies of official receipts evidencing
payment of such withholding taxes within 30 days after such payment is made.
IN WITNESS WHEREOF, the Subsidiary Guarantor has caused this Guaranty to
be duly executed, under seal, by its authorized officer as of the day and year
first above written.
AIRNET MANAGEMENT, INC.
By: __________________________
Title: _______________________
Address for Subsidiary Guarantor:
AirNet Management, Inc.
4700 E. Fifth Avenue
Columbus, Ohio 43219
Telecopy No.: (614) 238-1969
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EXHIBIT 10.1
AIRNET SYSTEMS, INC.
AMENDED AND RESTATED
1996 INCENTIVE STOCK PLAN
(Reflects amendments through August 18, 1999)
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 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 an
Eligible Director pursuant to Section 6(e) of the Plan. [Amended effective
August 18, 1999.]
"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.
<PAGE>
"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.
"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.
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"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.
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 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
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<PAGE>
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 paragraph (iii)
of Section 6(e). [Last sentence of Section 4(b) amended effective August 18,
1999.]
(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 be eligible to receive Director Options in accordance with
Section 6(e) hereof. [Last sentence of Section 5 amended effective August 18,
1999.]
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 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.
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(i) 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.
(ii) On August 19, 1998, each individual then serving as an
Eligible Director was granted a Director Option to purchase 20,000
Shares at an exercise price per share equal to the Fair Market Value on
the date of grant. Each Director Option granted on August 19, 1998 shall
vest and become exercisable as follows: (A) with respect to 20% of the
Shares covered thereby on the grant date; and (B) with respect to an
additional 20% of the Shares covered thereby on each of the first,
second, third and fourth anniversaries of the grant date.
(iii) Any individual who is a newly-elected or appointed Eligible
Director after August 19, 1998 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 in accordance with
this paragraph (iii) of Section 6(e) shall be granted at an exercise
price per Share equal to the Fair Market Value on the date of grant. In
addition, each such Director Option shall vest and become exercisable as
follows: (A) with respect to 20% of the Shares covered thereby on the
grant date; and (B) with respect to an additional 20% of the Shares
covered thereby on each of the first, second, third and fourth
anniversaries of the grant date.
(iv) The Board shall have the sole and complete authority to
grant Director Options to the Eligible Directors in addition to those
nondiscretionary Director Options granted in accordance with paragraphs
(i) through (iii) of this Section 6(e). The Board shall have the
authority to determine the date of grant of each such Director Option,
the number of Shares covered by each such Director Option, and the date
or dates when each such Director Option becomes exercisable. Any
Director Option granted by the Board shall be granted at an exercise
price per Share equal to the Fair Market Value on the date of grant.
(v) Each Director Option granted to an Eligible Director on or
after August 18, 1999 shall become immediately exercisable in full (A)
by the Eligible Director if he retires from service as a director of the
Company, (B) by the Eligible Director if he becomes disabled within the
meaning of Section 22(e)(3) of the Code or (C) upon the death of an
Eligible Director, by the Eligible Director's estate or by the person
who acquires the right to exercise the Director Options of the Eligible
Director upon his death by bequest or inheritance.
(vi) Once vested and exercisable, each Director Option shall
remain exercisable until the earlier to occur of the following two
dates: (A) the tenth anniversary of the date of grant of such Director
Option; or (B) 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, each of his Director Options shall be
canceled on the date he ceases to be a member of the Board.
(vii) 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 in full.
(viii) An Eligible Director may pay the exercise price of a
Director Option in the manner described in Section 6(d).
[Section 6(e) amended effective August 18, 1999.]
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.
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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.
(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 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.
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(a) Eligibility. Each Employee who has at least one Year of Service on
an Offering Effective Date shall be eligible to participate in the Offering
which is applicable to such Offering Effective Date. Nothing contained herein
and no rules and regulations prescribed by the Committee shall permit or deny
participation in any Offering contrary to the requirements of the Code
(including, without limitation, Sections 423(b)(3), 423(b)(4) and 423(b)(8)
thereof). Nothing contained herein and no rules and regulations prescribed by
the Committee shall permit any Participant to be granted a Right to Purchase:
(i) if, immediately after such Right to Purchase is granted, such
Participant would own, and/or hold outstanding options or rights to purchase,
shares of the Company or of any Subsidiary, possessing five percent (5%) or more
of the total combined voting power or value of all classes of shares of the
Company or such Subsidiary; or
(ii) which permits a Participant's rights to purchase Shares
under all employee stock purchase plans of the Company and of its Subsidiaries
to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of
Fair Market Value of Shares (determined as of the date such Right to Purchase is
granted) for each calendar year in which such Right to Purchase is outstanding
at any time.
For purposes of clause (a)(i) above, the provisions of Section 424(d) of the
Code shall apply in determining the stock ownership of each Participant. For
purposes of clause (a)(ii) above, the provisions of Section 423(b)(8) of the
Code shall apply in determining whether a Participant's Rights to Purchase and
other rights are permitted to accrue at a rate in excess of the permitted rate.
(b) Purchase Price. The purchase price for a Share under each Offering
shall be determined by the Committee prior to the Offering Effective Date and
shall be stated as a percentage of the Fair Market Value of a Share on either
the Right to Purchase Date or the Offering Effective Date, whichever is the
lesser, but the purchase price shall not be less than the lesser of eighty-five
percent (85%) of the per share Fair Market Value of the Shares as of the
Offering Effective Date or eighty-five percent (85%) of the per share Fair
Market Value of the Shares as of the Right to Purchase Date for the Offering.
(c) Participation in Offerings. Except as may be otherwise provided for
herein, each Employee who is eligible for and elects to participate in an
Offering shall be granted Rights to Purchase for as many Shares as he may elect
to purchase during that Offering, to be paid by payroll deductions during such
period. The Committee shall establish administrative rules and regulations
regarding the payroll deduction process for this Section 10, including, without
limitation, minimum and maximum permissible deductions; the timing for initial
elections, changes in elections and suspensions of elections during an Offering
Period; and the complete withdrawal by a Participant from an Offering. Amounts
withheld through payroll deductions under this paragraph shall be credited to
each Participant's Cash Account. Such amounts will be delivered to a custodian
for the Plan and held pending the purchase of Shares as described in paragraph
(e) of this Section 10. All amounts held in a Participant's Cash Account shall
bear interest at a rate as may be agreed upon by the Committee and the custodian
of the Plan. If a Participant withdraws entirely from an Offering (pursuant to
rules established by the Committee), his Cash Account balance will not be used
to purchase Shares on the Right to Purchase Date. Instead, the portion of the
Cash Account equal to the Participant's payroll deductions under the Plan during
the Offering Period will be refunded to the Participant without interest
(notwithstanding any provision contained herein). Such a Participant will not be
eligible to re-enroll in that Offering, but may resume participation on the
Offering Effective Date for the next Offering. In addition, the Committee may
impose such other restrictions on the right to withdraw from Offerings as it may
deem appropriate.
(d) Grant of Rights to Purchase. Rights to Purchase with respect to
Shares shall be granted to Participants who elect to participate in an Offering.
Such Rights to Purchase may be exercised on the Right to Purchase Date
applicable to the Offering. The number of Shares subject to Rights to Purchase
on each Right to Purchase Date shall not exceed the number of Shares authorized
for issuance during the applicable Offering.
(e) Exercise of Rights to Purchase. Each Right to Purchase shall be
exercised on the applicable Right to Purchase Date. Each Participant
automatically and without any act on his part will be deemed to have exercised a
Right to Purchase on each Right to Purchase Date to purchase the number of whole
and fractional Shares which the amount in his Cash Account at that time is
sufficient to purchase at the applicable purchase price. Any remaining amount
credited to a Participant's Cash Account after such application shall remain in
such Participant's Cash Account for use in the next Offering unless withdrawn by
the Participant. The Company shall deliver to the custodian of the Plan as soon
as practicable after each Right to Purchase Date a certificate for the total
number of Shares purchased by all Participants on such Right to Purchase Date.
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
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purchase. Any balances remaining in Participants' Cash Accounts due to over
subscription will remain in the Participants' Cash Accounts for use in the next
Offering unless withdrawn by the Participant.
(f) Withdrawals From Share Accounts and Dividend Reinvestment. A
Participant may withdraw the Shares credited to his Share Account on a
first-in-first-out basis. The Committee shall establish rules and regulations
governing such withdrawals. All cash dividends paid, if any, with respect to the
Shares credited to a Participant's Share Account shall be added to the
Participant's Cash Account and thereby shall be applied to exercise Rights to
Purchase for Shares on the Right to Purchase Date next succeeding the date such
cash dividends are paid by the Company. An election to leave Shares with the
custodian shall constitute an election to apply the cash dividends with respect
to such Shares to the exercise of Rights to Purchase hereunder. Shares so
purchased shall be applied to the Shares credited to each Participant's Share
Account.
(g) Termination of Employment. If the employment of a Participant
terminates for any reason, including death, disability, retirement or other
cause, his participation in this Section 10 of the Plan shall automatically and
without any act on his part terminate as of the date of termination of his
employment. As soon as practicable following the Participant's termination of
employment, the Company shall refund to such Participant (or beneficiary, in the
case of the Participant's death) any amount in his Cash Account which
constitutes payroll deductions, without interest, and the custodian shall
deliver to such Participant a share certificate issued in his name for the
number of whole Shares credited to his Share Account through prior Offerings.
(h) Effect of Merger or Liquidation Involving the Company. In the event
the Company merges with another 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 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
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applicable law, by the Participant's or the Eligible Director's
guardian or legal representative or a transferee receiving such
Award, Director Option or Right to Purchase pursuant to a
qualified domestic relations order ("QDRO"), as determined by the
Committee.
(ii) No Award, Director Option or Right to Purchase that
constitutes a "derivative security," for purposes of Section 16
of the Exchange Act, may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a
Participant or Eligible Director otherwise than by will or by the
laws of descent and distribution or pursuant to a QDRO, and any
such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against
the Company or any Subsidiary; provided that the designation of a
beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(b) No Rights to Awards. No Employee, Participant or other Person
shall have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(c) Share Certificates. All certificates for Shares or other
securities of the Company or any Subsidiary delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan or the rules, regulations and other requirements
of the SEC, any stock exchange or national securities association upon which
such Shares or other securities are then listed and any applicable federal or
state laws; and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(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.
(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.
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(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 l6b-3 Compliance. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable terms and conditions of Rule 16b-3 and any successor
provisions. To the extent that any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee.
(n) Headings. Headings are given to the sections and subsections
of the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(o) No Impact on Benefits. Plan Awards or Shares otherwise issued
under this Plan shall not be treated as compensation for purposes of calculating
an Employee's rights under any employee benefit plan.
(p) Indemnification. Each person who is or shall have been a
member of the Committee or of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of any
judgment in any such action, suit or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's 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.
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EXHIBIT 10.6
Confidential Agreement
By and Between AirNet Systems, Inc.
And Joel E. Biggerstaff
This agreement is entered into by and between AirNet Systems, Inc.
("AirNet"), an Ohio corporation, and Joel E. Biggerstaff ("Biggerstaff").
WHEREAS, AirNet desires to employ Biggerstaff in the positions of
President and Chief Operating Officer of AirNet;
WHEREAS, Biggerstaff desires to accept the positions of President and
Chief Operating Officer of AirNet, effect August 16, 1999 ("Effective Employment
Date");
WHEREAS, AirNet and Biggerstaff desire to enter into an agreement to
establish the rights and obligations of Biggerstaff and AirNet in such
employment relationship;
NOW, THEREFORE, in consideration of the mutual promises and other good and
valuable consideration contained herein, the parties agree as follows:
1. Biggerstaff will satisfactorily discharge such duties as may be
reasonably assigned to him in the capacity of President and Chief
Operating Officer by AirNet's Chief Executive Officer.
2. Biggerstaff will be paid a Base Salary of $220,000 per year, payable
bi-weekly. Biggerstaff's Base Salary subsequent to the first year
following the Effective Employment Date may be adjusted annually by
the Compensation Committee of the Board of Directors of AirNet
Systems, Inc. ("AirNet Compensation Committee").
3. Biggerstaff will participate in the management incentive compensation
system, which for on-plan performance (defined as 100% of agreed upon
goals and objectives achieved) would pay Biggerstaff 70% of his Base
Salary in the first year of employment, with a $30,000 guaranteed
bonus for 1999 employment.
4. Incentive compensation targets subsequent to the first year may be
adjusted annually by the AirNet Compensation Committee.
5. In the event of a change in control of AirNet resulting from either a
substantial change in ownership or in senior management (as defined in
a resolution by the AirNet Board of Directors), which results in
Biggerstaff's involuntary termination of employment by AirNet or
results in a material reduction in Biggerstaff's responsibilities
without cause for a period of up to two years subsequent to
Biggerstaff's Effective Employment Date, Biggerstaff will receive
payment equal to one year of his then current Base Salary.
6. If Biggerstaff is involuntarily terminated by AirNet or its
successor(s) for any reason other than fraud, bad faith, etc. for the
period up to three years subsequent to the Effective Employment Date,
AirNet will pay Biggerstaff an amount equal to one year of his then
current Base Salary. Thereafter, if Biggerstaff is involuntarily
terminated by AirNet or its successor(s) for any reason other than
fraud, bad faith, etc., AirNet will pay Biggerstaff an amount equal to
eighteen months of his then current Base Salary.
7. AirNet will award 80,000 AirNet stock options under the 1996 AirNet
Incentive Stock Plan (1996 Plan), as amended, to Biggerstaff at the
Effective Date of Employment. The options will be priced based on fair
market value (as defined in the 1996 Plan) on the Effective Date of
Employment and will vest 25% immediately and 25% annually over the
following three years. If AirNet experiences a change in control (as
defined in a resolution by the AirNet Board of Directors), unvested
options will vest at the time of the change of control.
8. Biggerstaff will receive three weeks of paid vacation and other
benefits customarily made available to AirNet officers and team
members.
9. AirNet will pay all reasonable costs associated with relocating
Biggerstaff's family to Central Ohio.
10. Biggerstaff will be entitled to personal use of the AirNet aircraft at
cost, when available.
<PAGE>
IN WITNESS WHEREOF, the undersigned voluntarily and knowingly signed this
Agreement this 16th day of July, 1999.
WITNESSED:
/s/ Ann Mancuso /s/ Joel E. Biggerstaff
------------------------ ----------------------------
Ann Mancuso Joel E. Biggerstaff
IN WITNESS WHEREOF, the undersigned is a duly authorized officer of AirNet
Systems, Inc. and voluntarily and knowingly signed this Agreement this 16th day
of July, 1999.
WITNESSED: AIRNET SYSTEMS, INC.
/s/ Ann Mancuso /s/ Gerald G. Mercer
------------------------ ----------------------------
Ann Mancuso Gerald G. Mercer
Its CEO
<PAGE>
EXHIBIT 10.7
AIRNET SYSTEMS, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
Section 1. PURPOSE - The Company desires and intends to recognize the value to
the Company and its Affiliates of the past and present services of the Directors
of the Company and its Affiliates, to encourage their continued service to the
Company and its Affiliates and to be able to attract and retain superior
Directors by adopting and implementing this Plan to provide such Directors an
opportunity to defer compensation otherwise payable to them from the Company
and/or Affiliate.
Section 2. CERTAIN DEFINITIONS - The following terms will have the meanings
provided below.
"Additions" means the credits applied to Deferred Compensation Accounts
as provided in Section 4 hereof.
"Adjustment Date" means the last business day of each calendar quarter.
"Affiliate" means any organization or entity which, together with the
Company, is a member of a controlled group of corporations or of a commonly
controlled group of trades or businesses [as defined in Sections 414(b) and (c)
of the Code], or of an affiliated service group [as defined in Code Section
414(m)] or other organization described in Code Section 414(o).
"Annual Retainer" means, with respect to any calendar year or other
period, the fixed retainer which, absent an election to defer hereunder, would
be payable to a Participant during those pay periods beginning in the given
calendar year or other period.
"Beneficiary" means the person or persons designated in writing as such
and filed with the Plan Administrator at any time by a Participant. Any such
designation may be withdrawn or changed in writing (without the consent of the
Beneficiary), but only the last designation on file with the Plan Administrator
shall be effective.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as may be amended from
time to time.
"Common Shares" means the common shares of the Company.
"Company" means AirNet Systems, Inc. and any successor entity.
"Deferred Compensation Account" means the separate Deferred Compensation
Account established for each Participant pursuant to Section 4 of the Plan.
"Director" means any director of the Company and any director of an
Affiliate of the Company.
"Effective Date" means May 27, 1998.
"Eligible Compensation" means, to the extent applicable to any given
Participant, the Annual Retainer and all Meeting Fees. The extent to which a
given Participant may defer a given component of Eligible Compensation shall be
based upon such Participant's eligibility to receive the given component of
Eligible Compensation (as determined under applicable agreements and pay
practices of the Company or applicable Affiliate) and the provisions and
limitations applicable to the given component as provided under this Plan.
"Fair Market Value" of the Common Shares means the most recent closing
price of the Common Shares on any securities exchange on which the Common Shares
are then listed.
"Meeting Fees" means, with respect to any calendar year or other period,
the fees for attendance at meetings of the Board of Directors of the Company or
applicable Affiliate or any committees thereof (exclusive of expenses) which,
absent an election to defer hereunder, would be payable to a Participant during
those pay periods beginning in the given calendar year or other period.
"Participant" has the meaning specified in Section 3 of the Plan.
1
<PAGE>
"Plan" means the AirNet Systems, Inc. Director Deferred Compensation
Plan, as reflected in this document, as the same may be amended from time to
time after the Effective Date.
"Plan Administrator" means the Company.
"Plan Year" means the calendar year.
Section 3. PARTICIPANTS
Each Director as of the Effective Date shall be eligible for participation in
the Plan as of such date. Each Director who first becomes a Director after the
Effective Date shall be eligible for participation in the Plan as of the date on
which he becomes a Director. A Director who is eligible for participation in the
Plan and who elects to make deferral contributions pursuant to Section 4 shall
be designated a "Participant" in the Plan. A Participant shall continue to
participate in the Plan until his status as a Participant is terminated by
either a complete distribution of his Deferred Compensation Account pursuant to
the terms of the Plan or by written directive of the Company.
2
<PAGE>
Section 4. DEFERRED COMPENSATION ACCOUNTS
A. Establishment of Deferred Compensation Accounts. The Plan
Administrator will establish a Deferred Compensation Account for each
Participant. A Participant's Deferred Compensation Account shall have two
subaccounts--a Cash Account to record amounts allocated under Section 4.D.(ii)
and a Stock Account to record amounts allocated under Section 4.D.(iii). Such
Deferred Compensation Account shall be a bookkeeping account only, maintained as
part of the books and records of the Company or applicable Affiliate.
B. Election of Participant. With respect to each Plan Year, a
Participant may elect to have a percentage or a flat dollar amount of his
Eligible Compensation which is to be paid to him by the Company or applicable
Affiliate for the Plan Year in question allocated to his Deferred Compensation
Account and paid on a deferred basis pursuant to the terms of the Plan. To
exercise such an election for any Plan Year, within thirty (30) days prior to
the commencement of the Plan Year, the Participant must advise the Plan
Administrator of his election, in writing, on a form prescribed by the Plan
Administrator (each, a "Deferral Notice"). Notwithstanding the preceding
sentence, in the first year of the Plan, or in the case of a Director who first
becomes eligible to participate in the Plan after the Effective Date, a
Participant may complete a Deferral Notice at any time within thirty (30) days
following the date on which he is first eligible to participate in the Plan.
Such Deferral Notice shall apply only to Eligible Compensation payable to, or
earned by, the Participant after the date on which the Deferral Notice is
received by the Plan Administrator. To the extent that a Participant completes a
Deferral Notice in accordance with the provisions of this paragraph, such
Deferral Notice shall remain in effect for future Plan Years until changed or
revoked by the Participant.
C. Company Contributions. Each time a Deferral Notice is submitted to
the Plan Administrator in accordance with Section 4.B. above, during the next
Plan Year (or, if applicable, the remaining Plan Year), the Company or
applicable Affiliate will allocate to the Participant's Deferred Compensation
Account the percentage or dollar amount of Eligible Compensation specified in
the Deferral Notice. Notwithstanding the preceding sentence, to the extent that
a Participant elects, under Section 4.D.(i), to have a portion of his Eligible
Compensation deferred under Section 4.B. allocated to his Stock Account, the
Company or applicable Affiliate shall increase such amount by 25% and allocate
such additional amount to the Participant's Stock Account. Any amounts allocated
by the Company or Affiliate under this Section 4.C. are called "Company
Contributions."
D. Adjustment of Account Balances.
(i) Participant Election. At the time that a Participant submits
a Deferral Notice, he shall elect the percentage of his deferred amounts to be
allocated to his Cash Account (to be adjusted pursuant to Paragraph (ii) of this
Section 4.D.) and his Stock Account (to be adjusted pursuant to Paragraph (iii)
of this Section 4.D.). Any election made pursuant to this Paragraph (i) shall be
irrevocable with respect to the affected amounts.
(ii) As of each Adjustment Date, the Plan Administrator shall
credit the balance in the Participant's Cash Account with Additions which shall
mirror a specific interest rate. For this purpose, the interest rate to be used
shall be equal to the rate of return on [designate investment (e.g. 3-year
Treasury Bill)] as of the applicable Adjustment Date. The crediting of Additions
shall be determined by multiplying the Participant's Cash Account balance as of
the previous Adjustment Date by the applicable rate of interest determined under
the preceding sentence. The crediting of Additions shall occur so long as there
is a balance in the Participant's Cash Account regardless of whether the
Participant has terminated service as a Director or has died. The Plan
Administrator may prescribe any reasonable method or procedure for the
accounting of Additions.
(iii) As of each Adjustment Date, the amount credited to the
Stock Account of each Participant shall be divided by the then Fair Market Value
of the Common Shares. Upon completion of this calculation, each Stock Account
shall be credited with the resulting number of whole Common Shares; and any
remaining amounts shall continue to be credited to the Stock Account until
converted to whole Common Shares at a future Adjustment Date. The Stock Account
of each Participant shall be credited with cash dividends on the Common Shares
on and after the date credited to the Stock Account. At the following Adjustment
Date, the amount of cash dividends credited to each Stock Account (and any other
amounts then credited to such account) shall be divided by the then Fair Market
Value of the Common Shares; and the Stock Account of each Participant shall be
credited with the resulting number of whole Common Shares and any remaining
amounts shall continue to be credited to the Stock Account until converted to
whole Common Shares at a future Adjustment Date. The Plan Administrator may
prescribe any reasonable method or procedure for the accounting of Additions.
E. Stock Adjustments. The number of Common Shares in the Stock Account
of each Participant shall be adjusted from time to time to reflect stock splits,
stock dividends or other changes in the Common Shares resulting from a change in
the Company's capital structure.
F. Participant's Rights in Accounts. A Participant's only right with
respect to his Deferred Compensation Account (and amounts allocated thereto)
will be to receive payments in accordance with the provisions of Section 5 of
the Plan.
3
<PAGE>
Section 5. PAYMENT OF DEFERRED BENEFITS
A. Time of Payment. Distribution of a Participant's Deferred
Compensation Account shall commence within thirty (30) days of the earlier of
(i) the date specified by the Participant in the Deferral Notice delivered to
the Plan Administrator at the time the deferral election is made; or (ii) the
date of the Participant's termination of service as a Director due to
resignation, retirement, death or otherwise.
B. Method of Distribution. A Participant's Deferred Compensation Account
shall be distributed to the Participant either in a single lump sum payment or
in equal annual installments over a period of not more than ten (10) years. To
the extent that a Deferred Compensation Account is distributed in installment
payments, the undisbursed portions of such account shall continue to be credited
with Additions in accordance with the applicable provisions of Section 4.D. In
addition, if, as of any Adjustment Date, the amount allocated to a Participant's
Deferred Compensation Account is less than $1,000, the Plan Administrator may
elect to pay such amount to the Participant and reduce the balance of his
Deferred Compensation Account to zero. The method of distribution shall be
elected by the Participant in the Deferral Notice delivered to the Plan
Administrator at the time the deferral election is made. Cash Accounts shall be
distributed in cash. Stock Accounts shall be distributed either in Common Shares
or in cash at the election of the Plan Administrator. In the event that a
distribution of a Participant's Stock Account is made in cash, the Plan
Administrator shall determine the amount of such distribution by using the Fair
Market Value of the Common Shares as of either the date of distribution
specified by the Participant in his Deferral Notice or the date on which the
Participant's service as a Director terminated, whichever may be applicable.
C. Hardship Distributions. Prior to the time a Participant's Deferred
Compensation Account becomes payable, the Plan Administrator, in its sole
discretion, may elect to distribute all or a portion of such account in the
event such Participant requests a distribution due to severe financial hardship.
For purposes of this Plan, severe financial hardship shall be deemed to exist in
the event the Plan Administrator determines that a Participant needs a
distribution to meet immediate and heavy financial needs resulting from a sudden
or unexpected illness or accident of the Participant or a member of the
Participant's family, loss of the Participant's property due to casualty or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. A distribution based on
financial hardship shall not exceed the amount required to meet the immediate
financial need created by the hardship and shall be made in cash. With respect
to a Participant's Stock Account, any hardship distribution shall be made in
cash, based upon the Fair Market Value of the Common Shares as of the date of
distribution.
D. Designation of Beneficiary. Upon the death of a Participant, his
Deferred Compensation Account shall be paid to the Beneficiary designated by the
Participant. If there is no designated Beneficiary or no designated Beneficiary
surviving at a Participant's death, payment of the Participant's Deferred
Compensation Account shall be made to the Participant's estate.
E. Taxes. In the event any taxes are required by law to be withheld or
paid from any payments made pursuant to the Plan, the Plan Administrator shall
deduct such amounts from such payments and shall transmit the withheld amounts
to the appropriate taxing authority.
Section 6. ASSIGNMENT OR ALIENATION - The right of a Participant, Beneficiary or
any other person to the payment of a benefit under this Plan may not be
assigned, transferred, pledged or encumbered except by Will or by the laws of
descent and distribution.
4
<PAGE>
Section 7. PLAN ADMINISTRATION - The Plan Administrator will have the right to
interpret and construe the Plan and to determine all questions of eligibility
and of status, rights and benefits of Participants and all other persons
claiming benefits under the Plan. In all such interpretations and constructions,
the Plan Administrator's determination will be based upon uniform rules and
practices applied in a nondiscriminatory manner and will be binding upon all
persons affected thereby. Subject to the provisions of Section 8 below, any
decision by the Plan Administrator with respect to any such matters will be
final and binding on all parties. The Plan Administrator will have absolute
discretion in carrying out its responsibilities under this Section 7.
Section 8. CLAIMS PROCEDURE
A. Filing Claims. Any Participant or Beneficiary entitled to benefits
under the Plan will file a claim request with the Plan Administrator.
B. Notification to Claimant. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the claimant, which notice will contain the following information:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon which
the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the Plan's claims review procedure
describing the steps to be taken by a claimant who wishes
to submit his claims for review.
C. Review Procedure. A claimant or his authorized representative may,
with respect to any denied claim:
(i) request a review upon a written application filed within
sixty (60) days after receipt by the claimant of written
notice of the denial of his claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
5
<PAGE>
Any request or submission will be in writing and will be directed to the Plan
Administrator (or its designee). The Plan Administrator (or its designee) will
have the sole responsibility for the review of any denied claim and will take
all steps appropriate in the light of its findings.
D. Decision on Review. The Plan Administrator (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing on any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is based. If the decision
on review is not furnished to the claimant within the time limits prescribed
above, the claim will be deemed denied on review.
Section 9. UNSECURED AND UNFUNDED OBLIGATION - Notwithstanding any provision
herein to the contrary, the benefits offered under the Plan shall constitute an
unfunded, unsecured promise by the Company and its Affiliates to pay benefits
determined hereunder which are accrued by Participants while such Participants
are Directors. No provision shall at any time be made with respect to
segregating any assets of the Company or any Affiliate for payment of any
benefits hereunder. No Participant, Beneficiary or any other person shall have
any interest in any particular assets of the Company or any Affiliate by reason
of the right to receive a benefit under the Plan and any such Participant,
Beneficiary or other person shall have only the rights of a general unsecured
creditor of the Company and its Affiliates with respect to any rights under the
Plan. Nothing contained in the Plan shall constitute a guaranty by the Company,
any Affiliate or any other entity or person that the assets of the Company or
its Affiliates will be sufficient to pay any benefit hereunder. All expenses and
fees incurred in the administration of the Plan shall be paid by the Company or
an Affiliate.
Section 10. AMENDMENT AND TERMINATION OF THE PLAN - The Company reserves the
right, by a resolution of the Board, to amend the Plan at any time, and from
time to time, in any manner which it deems desirable, provided that no amendment
will adversely affect the accrued benefits of any Participant under the Plan.
The Company also reserves the right, by a resolution of the Board, to terminate
this Plan at any time without providing any advance notice to any Participant;
and in the event of any Plan termination, the Company reserves the right to then
distribute all amounts allocated to Participants' Deferred Compensation
Accounts.
Section 11. BINDING UPON SUCCESSORS - The Plan shall be binding upon and inure
to the benefit of the Company, its Affiliates, any of their successors and
assigns and the Participants and their heirs, executors, administrators and
legal representatives. In the event of the merger or consolidation of the
Company or any of its Affiliates with or into any other corporation, or in the
event substantially all of the assets of the Company or any of its Affiliates
shall be transferred to another corporation, the successor corporation resulting
from the merger or consolidation, or the transferee of such assets, as the case
may be, shall, as a condition to the consummation of the merger, consolidation
or transfer, assume the obligations of the Company or Affiliate hereunder and
shall be substituted for the Company or Affiliate hereunder.
Section 12. NO GUARANTEE OF PLAN PERMANENCY - This Plan does not contain any
guarantee of provisions for continued service as a Director to any Participant
nor is it guaranteed by the Company or any of its Affiliates to be a permanent
plan.
Section 13. GENDER - Any reference in the Plan made in the masculine pronoun
shall apply to both men and women.
Section 14. INCAPACITY OF RECIPIENT - In the event that a Participant or
Beneficiary is declared incompetent and a guardian, conservator or other person
legally charged with the care of his person or of his estate is appointed, any
benefits under the Plan to which such Participant or Beneficiary is entitled
shall be paid to such guardian, conservator or other person legally charged with
the care of his person or his estate. Except as provided hereinabove, when the
Plan Administrator, in its sole discretion, determines that a Participant or
Beneficiary is unable to manage his financial affairs, the Plan Administrator
may, but shall not be required to, direct the Company to make distribution(s) to
any one or more of the spouse, lineal ascendants or descendants or other closest
living relatives of such Participant or Beneficiary who demonstrates to the
satisfaction of the Plan Administrator the propriety of making such
distribution(s). Any payment made under this Section 14 shall be in complete
discharge of any liability under the Plan for such payment. The Plan
Administrator shall not be required to see to the application of any such
distribution made to any person.
6
<PAGE>
Section 15. GOVERNING LAW - This Plan shall be construed in accordance with and
governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a
duly authorized officer as of the Effective Date.
AIRNET SYSTEMS, INC.
By:__________________________________
Its:_________________________________
7
<PAGE>
AIRNET SYSTEMS, INC.
DIRECTOR DEFERRED COMPENSATION PLAN
DEFERRAL NOTICE
1. ELECTION TO DEFER.
In accordance with the provisions of the AirNet Systems, Inc. Director
Deferred Compensation Plan (the "Plan"), I hereby elect to defer
__________ percent or $___________ of the Eligible Compensation (as
defined in the Plan) payable to me for services as a Director of AirNet
Systems, Inc., or any of its Affiliates. This election supersedes any
prior deferral election made by me and shall remain in effect until
terminated or otherwise amended.
2. DISTRIBUTION ELECTION.
I hereby elect to commence distribution of my Deferred Compensation
Account in the Plan within 30 days of my termination as a Director or,
if earlier, within 30 days of _______________.
3. INVESTMENT ELECTION.
I hereby elect to have amounts deferred pursuant to this election
allocated to the applicable subaccounts in the following percentages
(total must equal 100%):
______ Cash Account
______ Stock Account
4. METHOD OF PAYMENT.
I hereby elect to receive the distribution of my Deferred Compensation
Account in the Plan in the following form of payment:
______ A single lump sum payment; or
______ Substantially equal annual installments over a
period of _______ (not to exceed 10) years.
5. DESIGNATION OF BENEFICIARY.
I hereby designate _____________________ as my primary Beneficiary and
______________________ as my contingent Beneficiary(ies) to receive any
amounts payable under the Plan in the event of my death.
6. ACKNOWLEDGMENT.
I hereby acknowledge that my election to defer Eligible Compensation
under the Plan is irrevocable with respect to amounts which are deferred
under the Plan and shall remain in effect until terminated or modified.
- ----------------------------- ---------------------------------
Date Signature
---------------------------------
Name (please print)
8
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF AIRNET SYSTEMS, INC.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Float Control, Inc. Michigan
AirNet Management, Inc. Ohio
1
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Annual Report (Form 10-K) of AirNet Systems,
Inc. of our report dated February 18, 2000 with respect to the consolidated
financial statements of AirNet Systems, Inc. included herein.
Our audits also included the financial statement schedule of AirNet Systems,
Inc. listed in Item 14(a)(2) and 14(d). This schedule is the responsibility of
the company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-08189 and No. 333-62659) pertaining to the AirNet Systems,
Inc. Amended and Restated 1996 Incentive Stock Plan and the Registration
Statement (Form S-8 No. 333-43605) pertaining to the AirNet Systems, Inc.
Retirement Savings Plan of our report dated February 18, 2000, with respect to
the consolidated financial statements of AirNet Systems, Inc. included herein,
and our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of AirNet Systems,
Inc.
/s/ Ernst & Young LLP
Columbus, Ohio
March 27, 2000
1
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
1
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints William R. Sumser as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign both the Annual Report on
Form 10-K and any and all amendments and documents related thereto, and to file
the same, with any and all exhibits, financial statements and schedules related
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and the New York Stock Exchange, and grants unto each of
said attorney-in-fact and agent, and substitute or substitutes, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and thereby ratifies and confirms all things that
each of the said attorney-in-fact and agent, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ Gerald G. Mercer
--------------------------------------
Gerald G. Mercer
2
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ Joel E. Biggerstaff
----------------------------------
Joel E. Biggerstaff
3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign both the Annual Report on
Form 10-K and any and all amendments and documents related thereto, and to file
the same, with any and all exhibits, financial statements and schedules related
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and the New York Stock Exchange, and grants unto each of
said attorney-in-fact and agent, and substitute or substitutes, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and thereby ratifies and confirms all things that
each of the said attorney-in-fact and agent, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ William R. Sumser
--------------------------------------
William R. Sumser
4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ Roger D. Blackwell
--------------------------------------
Roger D. Blackwell
5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ Tony C. Canonie, Jr.
--------------------------------------
Tony C. Canonie, Jr.
6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ Russell M. Gertmenian
--------------------------------------
Russell M. Gertmenian
7
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ J. F. Keeler, Jr.
--------------------------------------
J. F. Keeler, Jr.
8
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ David P. Lauer
--------------------------------------
David P. Lauer
9
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of
AirNet Systems, Inc., an Ohio Corporation (the "company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, the Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, hereby constitutes and
appoints Gerald G. Mercer and William R. Sumser as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign both the Annual Report on Form 10-K and any and all
amendments and documents related thereto, and to file the same, with any and all
exhibits, financial statements and schedules related thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and the New York Stock Exchange, and grants unto each of said attorneys-in-fact
and agents, and substitute or substitutes, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person and thereby ratifies and confirms all things that each of the said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 21st
day of March, 2000.
/s/ James E. Riddle
--------------------------------------
James E. Riddle
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AIRNET
SYSTEMS INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,667
<SECURITIES> 0
<RECEIVABLES> 18,053
<ALLOWANCES> 598
<INVENTORY> 10,426
<CURRENT-ASSETS> 32,215
<PP&E> 151,235
<DEPRECIATION> 66,502
<TOTAL-ASSETS> 127,477
<CURRENT-LIABILITIES> 9,426
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 73,623
<TOTAL-LIABILITY-AND-EQUITY> 127,477
<SALES> 1,033
<TOTAL-REVENUES> 128,698
<CGS> 1,089
<TOTAL-COSTS> 97,315
<OTHER-EXPENSES> 17,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,477
<INCOME-PRETAX> 10,580
<INCOME-TAX> 4,308
<INCOME-CONTINUING> 6,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,488
<NET-INCOME> 3,784
<EPS-BASIC> .33
<EPS-DILUTED> .33
</TABLE>
