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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For Fiscal Year Ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________________ to __________________
Commission file number 0-17846
------------------------
CCAIR, INC.
DELAWARE NO. 56-1428192
State or other jurisdiction of I.R.S. Employer ID
incorporation or organization
P. O. BOX 19929, CHARLOTTE, NC 28219-0929
(Address of principal executive offi (Zip Code)
Registrant's telephone number, including area code: 704/359-8990
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates (based upon
the closing price for the Common Stock on the small-cap stock market of the
National Association of Securities Dealers Automated Quotation System) on March
16, 1999 was approximately $29,138,509.
As of March 16, 1999, there were 8,965,695 shares of $0.01 par value Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Definitive Proxy Statement, to be filed with the
Commission not later than 120 days after the end of the Registrant's fiscal year
ended December 31, 1998, are incorporated by reference in Part III hereof, as
specified.
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<PAGE>
CCAIR, INC.
1998 FORM 10-K REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
PAGE NO.
-------
<S> <C> <C>
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 7
Item 3. Legal Proceedings....................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders..................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................................... 8
Item 6. Selected Financial Data................................................. 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................11
Item 7A.Cuantitative and Qualitative Disclosure About Market Risk...............26
Item 8. Financial Statements and Supplementary Data.............................26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.....................................26
PART III
Item 10. Directors and Executive Officers of the Registrant.....................26
Item 11. Executive Compensation.................................................28
Item 12. Security Ownership of Certain Beneficial
Owners and Management..................................................30
Item 13. Certain Relationships and Related Transactions.........................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................................33
Index to Financial Statements and Schedules............................F-1
Index to Exhibits......................................................E-1
</TABLE>
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements made in this Report and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as oral statements made by CCAIR, Inc. (the "Company") or
its officers directors or employees, may constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The words "expect", "anticipate", "intend",
"plan", "believe", "seek", "estimate" and similar expressions are intended to
identify such forward-looking statements; however, this Report also contains
other forward-looking statements in addition to historical information. Such
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation, economic
conditions, weather conditions, events affecting the operations of US Airways,
labor costs, demand for air transportation in the markets in which the Company
operates and other risks and uncertainties listed from time to time in the
Company's reports to the United States Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
GENERAL
CCAIR, Inc. (the "Company") is a Charlotte, North Carolina based
regional air carrier providing regularly scheduled passenger service to 25
cities in Florida, Georgia, Kentucky, Ohio, North Carolina, South Carolina,
Virginia, and West Virginia, primarily from a hub at the Charlotte/Douglas
International Airport. The Company currently operates a fleet of 26 turboprop
passenger aircraft with 1,288 weekly departures scheduled over a route system
covering approximately 255,000 miles. The Company was incorporated under
Delaware law in July 1984 under the name Sunbird Airlines 1984, Inc. for the
purpose of purchasing substantially all of the assets of Sunbird Airlines, Inc.
The Company changed its name to CCAIR, Inc. in January 1986.
The Company's business has principally involved providing service for
business travelers from small- and medium-sized communities in its market area
to connecting flights of major carriers, principally US Airways, Inc. ("US
Airways"), at its largest hub of operations at the Charlotte/Douglas
International Airport. In addition, the Company operates a small number of
flights into Raleigh, North Carolina. In order to market the Company's services,
the Company has an agreement with US Airways that permits the Company to operate
under the name "US Airways Express" and to charge their joint passengers on a
combined basis with US Airways. (See discussion under "Business Agreement with
US Airways" below). The Company believes that its use of US Airways "US" flight
designator code continues to be the most significant factor contributing to its
ability to compete for passengers and to its historical growth.
In February, 1998 the Company and its Board of Directors adopted a
resolution to change the Company's fiscal year end from June 30 to December 31.
The new fiscal year end more closely coincides with the Company's annual
business cycle. Unless otherwise indicated, references in this Annual Report to
years mean the Company's January 1 to December 31 fiscal years, "fiscal 1998"
means the fiscal year that began on January 1, 1998 and ended on December 31,
1998 and references to the "1997 transition period" mean the six-month period
that began on July 1, 1997 and ended December 31, 1997.
Mesa Air Group, Inc. ("Mesa"), a regional air carrier whose subsidiaries
have code-sharing agreements with US Airways and America West and the Company
announced in August, 1998 that they had signed a Letter of Intent whereby Mesa
would acquire the Company. On January 28, 1999, Mesa and the Company entered
into a Merger Agreement whereby the Company will become a wholly-owned
subsidiary of Mesa. The transaction would be valued at approximately $50 million
(including $15 million of debt assumed) and is intended to be accounted for as a
pooling of interests. The acquisition is an all stock transaction whereby Mesa
would acquire all outstanding shares of the Company's common stock by issuing
Mesa shares equivalent in value to $4.35 for each share of the Company's common
stock, subject to a maximum of .6214 shares (at a Mesa share price of $7.00) and
a minimum of .435 shares (at a Mesa share price of $10.00). Consummation of the
transaction is subject to certain conditions, including receipt of regulatory
approval, shareholder approval from both the Company's shareholders (as to the
merger) and Mesa shareholders (as to the issuance of Mesa shares in the merger),
and satisfaction of closing conditions specified in the Merger Agreement.
<PAGE>
FLEET COMPOSITION
The Company initiated a fleet restructuring plan during the 1997
transition period (see "Properties - Fleet" and Note 7 of the Company's
Financial Statements). The following table sets forth certain information with
respect to the Company's passenger aircraft:
<TABLE>
<CAPTION>
PASSENGER NUMBER OF AIRCRAFT 1998 1998 FLEET
AIRCRAFT CAPACITY IN SERVICE 12/31/97 DELIVERIES RETIREMENTS 12/31/98
- -------- --------------------- ----------------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Jetstream 31 19 14 0 14 0
Jetstream Super 31 19 2 18 4 16
Dash 8-100 37 4 6 0 10
-- -- -- --
20 24 18 26
</TABLE>
BUSINESS AGREEMENT WITH US AIRWAYS
Approximately 80% of the Company's passenger revenue is generated by
passengers who are connecting with US Airways flights and is determined under an
agreement for the sharing of joint passenger fares and division of revenue with
US Airways (the "Agreement"). On March 5, 1999, the Company and US Airways
announced the extension of the Agreement through December 31, 2003.
The Agreement provides that it may be terminated upon 180 days prior
written notice for any reason by either US Airways or the Company or upon sixty
(60) days prior written notice by US Airways under certain conditions,
including: (i) the Company's failure to maintain at least a minimum required
operating schedule; (ii) if during any one month the Company's flight completion
percentage is less than 95% due to cancellations attributable to maintenance or
operational deficiencies within the Company's control; (iii) the Company's
failure to comply with the trademark licensing provisions of the Agreement; (iv)
the initiation of a bankruptcy or similar proceeding for the Company or its
assets; or (v) the Company's failure to perform, keep or observe terms,
conditions or covenants after notice by US Airways; or (vi) a change of control
or ownership of 51% or more of the Company's common stock or a change in the
Company's President or Chief Executive Officer without the consent of US
Airways.
The Agreement provides for coordinating schedules and reservations,
joint fares and advertising. In addition, the Agreement provides that US Airways
or its affiliates will provide to the Company check-in, ticketing, baggage
handling and security services at fourteen (14) airports including
Charlotte/Douglas International Airport in Charlotte, North Carolina. As of
February 1, 1994, the Company assumed total responsibility for ground operations
at Concourse D of the Charlotte/Douglas International Airport from US Airways
pursuant to an agreement that requires US Airways to reimburse the Company
monthly for expenses incurred.
The Agreement also authorizes the Company to operate as "US Airways
Express", to use the US Airways "US" flight designator code to identify its
flights and fares for purposes of computer reservations, printed schedules, and
tickets, and to display the US Airways colors and "US Airways Express" logo on
its fleet of aircraft. The Company does not have the exclusive rights to the "US
Airways Express" name or other attributes described above. US Airways has two
subsidiaries serving the Charlotte/Douglas International Airport, Piedmont
Airlines ("Piedmont") and PSA Airlines, Inc.; additionally, US Airways
affiliate, Mesa Airlines, Inc. serves the Charlotte/Douglas International
Airport. These regional airlines operate to destinations not served by the
Company but also utilize the "US Airways Express" name and other US Airways
attributes. The Company pays US Airways handling fees based on the number of
passengers boarded in cities where US Airways provides the Company flight
service and for reservations services.
The Agreement is a significant factor in the Company's operation and
termination of the Agreement would have a material adverse effect on the
Company's business. Additionally, the Company's business could also be adversely
affected by events that adversely affect US Airways, such as changes in US
Airways financial condition or negative publicity in the event of an accident
involving US Airways.
2
<PAGE>
OPERATING STRATEGY AND SEASONAL NATURE OF BUSINESS
The Company's operating strategy is designed to attract interline
passengers from small- and medium-sized communities in its market area who wish
to connect with flights on major carriers, principally US Airways, at
Charlotte/Douglas International Airport. In addition, the Company seeks to
attract passengers for its local flights between destinations serviced by the
Company. The Company particularly emphasizes providing reliable and conveniently
scheduled service for business travelers.
The Company typically experiences lower passenger load factors, meaning
percentage of seats occupied, in January and February of each year. This can be
attributed to reduced business travel following the holiday periods, reduced
leisure travel during the winter months and adverse weather conditions in the
Company's operating area, which results in increased flight delays and
cancellations. These seasonal factors have generally resulted in reduced
revenues, profitability and cash flow for the Company during this period.
ROUTES
The Company operates a "hub and spoke" route system with Charlotte as
its hub. The Company's operations are a component of the "hub and spoke" route
system strategy employed by US Airways at Charlotte. The Company's route system
currently includes service between Charlotte/Douglas International Airport and
eighteen (18) other airports as well as service between Raleigh/Durham, North
Carolina and five (5) other airports.
The following table sets forth selected information about the Company's
route system and scheduling as of March 3, 1999:
DATE SERVICE FLIGHTS OPERATED
COMMENCED PER WEEKDAY
------------- ----------------
Florida:
Gainesville August 1998 4
Tallahassee1 October 1998 8
Miami2 October 1998 4
Georgia:
Athens May 1985 3
Augusta May 1985 8
Columbus November 1994 4
North Carolina:
Asheville3 May 1985 2
Charlotte May 1985 81
Greenville May 1985 9
Hickory May 1985 8
Jacksonville May 1995 5
Kinston July 1985 5
Raleigh/Durham May 1985 12
Rocky Mount/Wilson July 1986 5
Southern Pines/Pinehurst October 1991 4
Winston-Salem May 1985 3
South Carolina:
Charleston3 April 1995 4
Greenville/Spartanburg4 May 1985 6
Myrtle Beach3 May 1998 1
Kentucky:
Lexington May 1993 4
Ohio:
Cincinnati July 1993 4
Virginia:
Lynchburg May 1995 7
Norfolk3 February 1995 4
West Virginia:
Huntington April 1987 4
Greenbrier/Lewisburg February 1995 1
200
3
<PAGE>
1 Serviced through Charlotte, North Carolina and Miami, Florida.
2 Serviced through Tallahassee, Florida.
3 Serviced through Raleigh-Durham, North Carolina.
4 Serviced through Charlotte and Raleigh-Durham, North Carolina.
The Company continually reviews and analyzes its route structure for the
purpose of proposing adjustments in flight schedules. These adjustments must be
approved by US Airways prior to implementation.
YIELD MANAGEMENT
The Company closely monitors its inventory and pricing of seats
utilizing a computerized yield management system. In July, 1997 the Company
entered into an agreement to obtain enhanced yield management capabilities. The
Company agreed to pay a software licensing fee plus a nominal amount per
scheduled departure to a firm specializing in yield management. In return, the
yield management firm, through examination of the Company's past traffic,
pricing and booking trends, estimates the optimal allocation of seats by fare
class (the number of seats made available for sale at various fares). The firm's
analysts then monitor each flight, employing sophisticated yield management
software, to adjust seat allocations and overbooking levels, with the objective
of maximizing the total revenue for each flight.
FARES
The Company derives its passenger revenues from joint fares involving
travel on the route system of both the Company and US Airways and from local
fares. Approximately 80% of the Company's passenger revenues are derived from
joint fares, that is, fares which are shared with US Airways. Local fares, which
are fares for flights provided by the Company within its route system, account
for the balance of the Company's passenger revenues.
The Company's revenues from joint fares are dependent on pricing
decisions made by US Airways and the Company has little ability to influence
such pricing decisions. The Company prices its local fares to be comparable with
fares charged by major carriers in similar markets. The Company seeks to
maximize its passenger yields by restricting the number of discount fares on
flights with high passenger demand.
The Company's average fare per passenger decreased in fiscal 1998 as
compared to the twelve-month period ended December 31, 1997, declining from
$84.36 to $81.38. This decrease was principally due to the addition of several
low-yielding flights in the spring and summer of 1998: Raleigh, North Carolina
to Savannah, Georgia and Raleigh to Myrtle Beach, South Carolina. The Company
subsequently ceased service to Savannah in the fourth quarter of 1998. Revenue
per available seat mile increased over the same periods from 22.5(cent) to
24.1(cent) as the Company's increase in load factor more than offset the decline
in average ticket price. During fiscal 1997 the Company realized improved
average passenger fares of $84.41, comparing favorably with fares of $82.25 in
fiscal 1996. The annual average fare increased as a result of a proportional
increase in high-yield business traffic. The Company projects fares to remain at
levels achieved in 1998 throughout 1999. However, many factors, including, but
not limited to, competition, actions by US Airways, fuel costs, regulation and
general economic conditions can impact fares charged by the Company and joint
fares shared with US Airways.
WORKING CAPITAL
The Company's air traffic receivables are settled through the Airlines
Clearing House and collected monthly, one month in arrears. To reduce the cash
flow issues caused by the collection of receivables one month in arrears, the
Company has obtained a line of credit in the amount of $4.0 million from British
Aerospace Asset Management ("BAAM"), an affiliate of British Aerospace, Inc.
("BAI"), with seasonal, temporary increases to $4.5 million.
Under the line of credit, the air traffic receivables, after set-off of
amounts due US Airways and other airlines, are transferred from the Airlines
Clearing House to a pledge account with a bank. From that account, in accordance
with irrevocable instructions, funds are transferred to BAAM to pay for any sums
due under the line of credit and then to Jet Acceptance Corporation ("JACO"), an
affiliate of BAI, for payments due under lease and debt obligations. The balance
in the pledge account is then paid to the Company.
4
<PAGE>
MARKETING
The Company's services are promoted primarily through displays in most
airlines' computer reservation systems and the Official Airline Guide and
through direct contact with travel agencies and corporate travel departments.
The Company and US Airways have agreed to coordinate advertising and public
relations for the US Airways Express program. In addition, the Company's
passengers benefit from through-fare ticketing with US Airways.
The Company's services are also advertised on a cooperative basis with
US Airways. The Company, from time to time, has offered promotional fares to
introduce new service and to stimulate traffic on special occasions and
holidays. The Company also has ticket arrangements with major United States and
foreign air carriers that allow these carriers to write interline tickets on the
Company's flights.
COMPETITION
The airline industry is highly competitive and volatile. Airlines
compete in the areas of pricing, scheduling (frequency and timing of flights),
on-time performance, type of equipment, cabin configuration, amenities provided
to passengers, frequent flyer plans, travel agents' commissions and the
automation of travel agents' reservations systems. Further, because of the
Deregulation Act, airlines are currently free to set prices and establish new
routes without the necessity of seeking governmental approval.
The Company believes that the Deregulation Act facilitated its entry
into scheduled air service markets and will allow it to compete on the basis of
service and fares. The Deregulation Act, however, makes possible the entry of
other competitors, which potentially have substantial financial resources and
experience, creating the potential for intense competition among regional air
carriers in the Company's markets.
The Company believes its code-sharing agreement provides a significant
competitive advantage in Charlotte, North Carolina where its major partner has a
predominant share of the market. The ability to control connecting passenger
traffic by offering a superior service makes it very difficult for other
regional airlines to compete at such hubs. In addition to the enhanced
competitive edge offered by the code-sharing agreements, the Company competes
with other airlines by offering frequent flights, flexible schedules and
numerous fare levels.
The Company's reliance on its code-share agreement with US Airways for
the majority of its revenue means that it must rely on the ability of US Airways
to adequately promote its service and to maintain its market share. Competitive
pressures by low-fare carriers and price discounting among major airlines could
have an adverse effect on US Airways and therefore adversely affect the Company.
There are several airlines that operate as US Airways Express, and to
the extent that CCAIR cannot provide safe, reliable and competitive service as
US Airways Express, US Airways could reassign its routes to other US Airways
Express carriers.
The Company competes primarily with regional and major air carriers and
ground transportation. The Company's competition from other air carriers varies
from location to location and, in certain areas, comes from regional and major
carriers who serve the same destinations as the Company but through different
hub and spoke systems. The principal customers for these services are business
travelers and competition is based upon scheduling and flight connections,
reliability and, to a lesser extent, pricing. The Company continually reviews
its scheduling and the frequency of its flights to reduce the layover time
experienced in connecting with a US Airways flight in order to minimize the
length of the combined trip and to compete effectively with similar service
offered by other airlines. In addition, the Company's competitive position
benefits from the large number of participants in US Airways "Dividend Miles"
frequent flyer program who fly regularly to or from the markets served by the
Company. The Company also competes with various forms of ground transportation,
primarily automobiles, which are used to travel to a hub or other airport
offering direct air service.
EMPLOYEES
On December 31, 1998 the Company had 663 full-time and 78 part-time
employees, classified as follows:
5
<PAGE>
CLASSIFICATION FULL-TIME PART-TIME
-------------- ---------------------
Pilots 212 --
Flight Attendants 44 --
Maintenance Personnel 73 --
Station Personnel 246 78
Administrative 88 --
---- ----
663 78
The Company has three organized employee groups; pilots are represented
by the Air Line Pilots Association (ALPA), its flight attendants by the
Association of Flight Attendants (AFA) and its mechanics by the International
Brotherhood of Teamsters (Teamsters).
The ALPA collective bargaining agreement was renewed on November 6, 1998
and becomes amendable on October 31, 2002. The Company's contract with the AFA
was renewed on May 16, 1996 and will become amendable on May 16, 2001. The
Company's contract with the Teamsters was ratified on July 15, 1998 and becomes
amendable on December 31, 2001. The Company believes that the wage rates and
benefits for its employee groups are comparable to similar groups at other
regional airlines and is unaware of other significant organizing activities by
labor unions among its employees at this time. The Company believes that
relations with its employees are favorable.
FUEL
Fuel costs constitute 8% to 11% of the Company's total normal operating
expenses. The Company obtains substantially all of its fuel under a consortium
agreement with other airlines. This arrangement, however, does not assure the
Company access to any specified quantity of fuel and prices thereunder reflect
market prices for fuel. To date, this arrangement has provided adequate supplies
of fuel for the Company.
INSURANCE
The Company carries types and amounts of insurance customary in the
airline industry, including coverage for public liability, passenger liability,
property damage, product liability, aircraft loss or damage, baggage and cargo
liability and workers compensation. The Company carries a $150 million combined
single limit aircraft liability and comprehensive general liability policy and a
$25 million per occurrence aggregate personal injury policy, except with respect
to passengers, which is a $150 million per occurrence aggregate policy. In
addition, the Company's aircraft are insured to the full value stipulated in
their respective leases.
GOVERNMENTAL REGULATION
The Company is subject to the Federal Aviation Act of 1958, as amended
(the "Federal Aviation Act"), under which the Department of Transportation (the
"DOT") and the Federal Aviation Administration (the "FAA") exercise regulatory
authority over air carriers. The FAA regulates air safety and flight operations
as well as aircraft noise emissions. The DOT regulates the economic and
consumer-related aspects of the airline industry. The FAA reviews operations of
all carriers, including the Company, on an ongoing basis to determine compliance
with FAA regulations and operating authorizations.
The Company applied for a Certificate of Public Convenience and
Necessity under Section 401(d)(1) of the Federal Aviation Act (the "401
Certificate") in order to facilitate aircraft financing. The 401 Certificate was
granted on September 10, 1992. The DOT grants 401 Certificates upon a
determination that the airline is financially fit and its management possesses
the requisite qualifications to operate an airline. The Company is subject to
the DOT's continuing managerial and financial fitness requirements.
Although the Company cannot offer assurances in this regard, it believes
it is in compliance with all requirements necessary to maintain, in good
standing, its operating authorities granted by the DOT and the FAA, and that its
aircraft comply with all applicable Federal and local laws and regulations
pertaining to aircraft noise.
6
<PAGE>
The Company is subject to various Federal and local laws and regulations
pertaining to other issues of environmental protection. The Company believes it
is in compliance with all governmentally imposed environmental protection
standards.
The Federal Communications Commission ("FCC") has jurisdiction over the
use of radio facilities by air carriers. Airlines, and in some cases their
personnel, operating transmitters and receivers must obtain licenses from the
FCC, which may be revoked for cause. The Company believes that it and its
personnel hold all required FCC licenses.
THE ESSENTIAL AIR SERVICE PROGRAM
Pursuant to the Airline Deregulation Act of 1978, certain communities in
the United States are guaranteed specified levels of essential air service (the
"EAS Program"). The EAS Program provides for the payment of compensation to
carriers which volunteer to provide subsidized essential air service and are
selected by the DOT to provide such service. The Company has received subsidy
payments under the EAS Program for Danville and Shenandoah Valley, Virginia. The
Company received no DOT subsidy payments in the 1998 transition period or in
fiscal 1997. In fiscal 1996, subsidy payments comprised 0.5% of the Company's
operating revenues. Under provisions in the EAS Program, the Company ceased
service to Danville in October, 1995 and ceased to receive subsidized
compensation for service to Shenandoah Valley effective July, 1996. The Company
does not anticipate initiating service to cities under the EAS program in 1999.
ITEM 2. PROPERTIES
GROUND FACILITIES
The Company presently occupies approximately 11,018 square feet of
office space in the Charlotte/Douglas International Airport's old terminal
building, in Charlotte, North Carolina and 30,000 square feet of hangar space
and 10,000 square feet of space for operations, also at the Charlotte/Douglas
International Airport. The office space is used for the Company's principal
executive and administrative offices and the hangar facility contains the
Company's maintenance operations for its aircraft, as well as maintenance
support and inventory. The office space and hangar facility are leased under
commercial use permits with the City of Charlotte, North Carolina. The permits
are a month-to-month tenancy with an annual rental of $163,500 and are
cancelable upon thirty (30) days notice by either party.
The Company's counter, baggage, gate and ramp spaces at the airports
served by the Company are provided by US Airways and its affiliates except at
nine (9) airports where the space is leased from the airport authorities. With
respect to the ground operations at Concourse D of the Charlotte/Douglas
International Airport, the Company provides those services under contract with
US Airways. US Airways reimburses the Company for its costs in providing such
services.
FLEET
The Company has simplified its fleet by eliminating unprofitable
aircraft types while retaining the operating flexibility necessary to respond to
changes in market conditions. The first step was an agreement with an aircraft
lessor whereby the nine Shorts aircraft leased by the Company were returned to
the lessor in exchange for certain financial considerations (see Management
Discussion and Analysis - Liquidity and Capital Resources for further
discussion). The Shorts aircraft were retired from service with the last Shorts
aircraft having ceased operating scheduled service for the Company on January 5,
1998.
Under the accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. The
Company returned four of the six Jetstream Super 31 aircraft at the end of the
lease term and agreed to lease two until December 31, 1999. The Jetstream Super
31 aircraft are newer and faster than the predecessor Jetstreams, and can
operate with fewer weight restrictions.
The Company leases four Dash 8-100 aircraft from one lessor that have
leases which extend to 2007. The Company acquired, via operating leases, six
additional Dash 8-100 aircraft in 1998. These leases expire in 15 to 82 months.
MAINTENANCE OF AIRCRAFT
7
<PAGE>
The engines on all of the Company's aircraft are maintained under a
continuous airworthiness maintenance program. The engines on the Company's
Jetstream aircraft undergo disassembly inspection and repair after every 3,500
hours of operation. This interval is based on the manufacturer's approved
sampling program which allows for escalation at 500-hour intervals after the
completion of a satisfactory engine overhaul. The engines on the Dash 8 aircraft
are on an "on condition" program with a 12,000-hour evaluation for repair or
overhaul. This interval is also based on the manufacturer's recommendation.
The Jetstream Super 31 aircraft are covered by a "power by the hour"
program offered by a subsidiary of the aircraft manufacturer. Under this
program, the Company pays a fixed cost per flight hour which covers the eventual
repair and/or overhaul of the major components of the aircraft, including
engines, propellers and landing gears.
Substantially all of the maintenance, service and inspection of
aircraft, except major engine and component overhaul, is performed by Company
personnel. Major engine repair is performed by the engine manufacturer or its
authorized overhaul agencies. Component overhaul is performed by the applicable
manufacturer or an appropriate contractor.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
none of which is likely to have a material effect on the Company's financial
position. The FAA occasionally advises the Company that it may be subject to
payment of civil penalties for certain violations of Federal Aviation
Regulations. Such notices are commonplace in the industry and are unlikely to
result in actions of material consequence.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock was first sold to the public in July of 1989,
when the Company completed an initial public offering of 1,904,518 shares of
common stock, of which 1,283,872 shares were sold by the Company and the balance
was sold by existing Company stockholders. The Company's common stock is traded
in the over-the-counter market, called the SmallCap Stock Market of NASDAQ. The
common stock is quoted under the symbol "CCAR". The following table sets forth
the high and low bid quotations for the Company's common stock in the
over-the-counter market as reported by NASDAQ for the quarters of the last three
(3) fiscal years and for the 1997 transition period. These over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
8
<PAGE>
FISCAL YEAR ENDED
DECEMBER 31, 1998 HIGH LOW
----------------- ---- ---
First Quarter 3.750 2.625
Second Quarter 4.500 3.000
Third Quarter 5.375 3.250
Fourth Quarter 3.875 2.688
1997 TRANSITION PERIOD ENDED
DECEMBER 31, 1997 HIGH LOW
------------------ ---- ---
First Quarter 3.469 1.875
Second Quarter 4.063 2.313
FISCAL YEAR ENDED
JUNE 30, 1997 HIGH LOW
---------------- ---- ---
First Quarter 2.313 1.438
Second Quarter 2.063 1.438
Third Quarter 2.031 1.688
Fourth Quarter 2.000 1.813
FISCAL YEAR ENDED
JUNE 30, 1996 HIGH LOW
First Quarter 3.938 2.250
Second Quarter 2.625 1.875
Third Quarter 2.375 1.500
Fourth Quarter 2.375 1.625
At March 16, 1999 there were approximately 343 stockholders of record.
The transfer agent for the Company's common stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.
During its 1997 transition period and its 1998 fiscal year, the Company
did not pay cash dividends on its common stock. Based upon its forecast, the
Company does not plan to pay cash dividends in 1999.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT INCOME PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
--------------- ----------------- -------------------------------
1998 1997(2) 1997 1996(2) 1997 1996 1995
----- ---- ---- ----- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Operating revenues:
Passenger $70,410 $65,752 $32,212 $33,480 $67,020 $64,482 $60,804
Public service --- --- --- --- --- 353 695
Other 915 1,578 624 513 1,467 1,399 1,540
--------- ----- --------- ------- --------- ------- -------
Total operating
revenues 7l,325 67,330 32,836 33,993 68,487 66,234 63,039
------ -------- ------- ------- -------- ------- -------
Operating expenses:
Flight operation 21,569 22,389 10,523 11,673 23,539 23,490 22,416
Fuel and oil 5,016 6,125 2,813 3,805 7,117 6,262 5,406
Maintenance materials,
repairs and overhead 14,386 14,192 7,617 5,806 12,381 12,566 11,619
Ground operations 10,548 8,640 4,463 4,196 8,373 7,839 7,391
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
--------------- ----------------- ------------------------------
1998 1997(2) 1997 1996(2) 1997 1996 1995
----- ----- ---- ----- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Advertising, promotion
and commissions 9,939 9,875 4,847 4,839 9,868 9,104 9,007
General and administrative 4,577 4,804 2,656 1,967 4,115 4,273 4,802
Fleet restructuring
and other nonrecurring
charges --- 9,881 9,881 --- --- --- ---
Depreciation and
amortization 934 1,518 740 921 1,699 1,814 1,845
------- -------- --------- -------- -------- ------- -------
Total operating
expenses 66,969 77,424 43,540 33,207 67,092 65,347 62,486
------- ------- ------- ------- ------- ------- -------
Operating income
(loss) 4,356 (10,094) (10,704) 786 1,395 886 553
Interest expense (1,073) (977) (641) (407) (742) (761) (920)
Other income (expense), net 97 38 27 (3) 8 (11) 5
------- ------- ----------- ---------- ---------- --------- -----
Income (loss) before
income taxes 3,380 (11,033) (11,318) 376 661 114 (362)
Provision for income taxes --- (141) --- --- (141) (18) ---
--------- -------- -------------------------------- --------- -------
Net income (loss) before
cumulative effect of
a change in accounting
principle 3,380 (11,174) (11,318) 376 520 96 (362)
Cumulative effect on prior
years (to June 30, 1997)
of changing to the
accrual method for major
component overhauls --- (12,982) (12,982) --- --- --- ---
------- ------- ------------------------------------------------
Net income (loss) $ 3,380 $(24,156) $(24,300) $ 376 $ 520 $ 96 $(362)
======= ======== ========= ======== ======== ========= ========
Basic income (loss) per share $ .40 $ (3.10) $ (3.10) $ .05 $ .07 $ .01 $(.05)
======== ========= =================== =================== =========
Weighted average common
shares outstanding 8,541 7,792 7,842 7,741 7,741 7,565 7,382
======= ======= ====== ====== ====== ====== ======
Diluted income (loss) per share $ .36 $ (3.10) $ (3.10) $ .05 $ .07 $ .01 $ (.05)
========= ============================= =================== =========
Weighted average common
and common equivalent
shares outstanding 9,261 7,792 7,842 7,954 7,999 7,969 7,382
======= ====== ====== ====== ====== ====== ======
Cash dividends declared
per common share - - - - - - - - - - - - - -
========== ============================================================
Balance sheet data:
Current assets $10,199 $ 8,751 $ 8,751 $ 8,714 $13,458 $14,165 $ 9,713
Current liabilities 15,324 25,651 25,651 10,738 16,998 15,525 10,272
Net property and
equipment 4,220 3,354 3,354 12,676 13,683 12,332 12,406
Total assets 15,166 12,140 12,140 22,022 27,971 27,130 22,153
Long-term debt, less
current portion (1) 10,625 2,642 2,642 5,071 3,346 4,010 4,876
Shareholders'
equity (deficit) (11,082) (16,154) (16,154) 6,213 6,357 5,837 5,032
</TABLE>
(1) See Note 9 to financial statements regarding certain capital lease
obligations which are included in long-term debt in this schedule.
(2) The Company changed its fiscal year end to December 31 effective July 1,
1997. This resulted in a six-month transition period commencing July 1,
1997 and ending December 31, 1997 . The unaudited results of the
twelve-month period ended December 31, 1997 are presented for the
purpose of comparison to the fiscal year ended December 31, 1998, and
the unaudited results of the six-month period ended December 31, 1996
are presented for the purpose of comparison to the transition period
ended December 31, 1997.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected operating data relating to the
Company's passenger service for the fiscal year 1998 and the comparative twelve
months in 1997, transition period ended December 31, 1997 and the comparative
six months in 1996, and fiscal years 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH PERIOD ENDED
DECEMBER 31, DECEMBER 31, YEAR ENDED JUNE 30,
----------------- --------------- ----------------------
1998 1997 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue (000) $71,325 $67,330 $32,836 $33,993 $68,487 $66,234
Operating expense, net of
restructuring and other
nonrecurring charges (000) 66,969 67,543 33,659 33,208 67,092 65,347
Revenue passengers carried 865,173 779,450 396,799 411,362 794,013 783,997
Revenue passenger miles (000) (1) 167,445 142,916 72,417 76,068 146,567 144,695
Available seat miles (000) (2) 292,458 279,527 134,831 160,390 305,086 311,967
Passenger load factor (3) 57.3% 51.1% 53.7% 47.4% 48.0% 46.4%
Passenger breakeven load factor (4) 54.6% 52.0% 56.1% 46.9% 47.6% 46.3%
Yield per revenue passenger mile (5) 42.0(cent) 46.0(cent 44.5(cent) 44.0(cent) 45.7(cent) 44.5(cent)
Passenger revenue per available
seat mile 24.1(cent) 22.5(cent) 23.9(cent) 20.9(cent) 22.0(cent) 20.7(cent)
Operating cost per available
seat mile (6) 22.9(cent) 24.2(cent) 25.0(cent) 20.7(cent) 22.0(cent) 20.9(cent)
Average passenger trip (miles) 193.5 183.4 182.5 184.9 184.6 183.9
Average passenger fare $81.38 $84.36 $81.18 $81.39 $84.41 $82.25
Completion factor 96.9% 96.3% 96.4% 96.3% 95.9% 95.1%
</TABLE>
(1) One revenue passenger transported one mile.
(2) The product of the number of aircraft miles and the number of
available seats on each stage, representing the total passenger
capacity offered.
(3) The ratio of revenue passenger miles to available seat miles,
representing the percentage of seats occupied by revenue
passengers.
(4) The percentage of available seat miles which must be flown by
revenue passengers for the airline to breakeven after operating
expenses, excluding restructuring and other nonrecurring charges,
changes in accounting principle and taxes.
(5) The passenger revenue per revenue passenger mile.
(6) Total operating expenses, excluding restructuring and other
nonrecurring charges, interest expense, changes in accounting
principle and taxes, divided by available seat miles.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth selected operating data relating to the
Company's passenger service for each quarter of fiscal year 1998 (see Note 16 of
the financial statements):
<TABLE>
<CAPTION>
1998 QUARTERLY DATA
----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue (000) $14,563 $18,083 $18,068 $20,601
Operating income (loss) (000) 733 2,422 1,313 ( 112)
Net income (loss) (000) 549 2,103 1,098 ( 370)
Earnings (loss) per share .06 .23 .12 ( .04)
Passengers carried 162,795 218,415 239,404 244,559
Revenue passenger miles (000) 29,416 39,488 45,646 52,895
Available seat miles (000) 54,368 64,973 79,744 93,373
Passenger load factor 54.1% 60.8% 57.2% 56.6%
Passenger breakeven load factor 52.0% 53.6% 53.7% 57.6%
Yield per revenue passenger mile 48.7(cent) 45.2(cent) 39.1(cent) 38.5(cent)
Average passenger trip (miles) 180.7 180.8 190.7 216.3
Average passenger fare $ 88.05 $ 81.71 $ 74.57 $ 83.31
Operating cost per available
seat mile 25.4(cent) 24.1(cent) 21.0(cent) 22.2(cent)
</TABLE>
FISCAL 1998
The Company recognized $3,380,000 in net income in 1998 versus a loss of
$24,300,000 in the same period in 1997. The loss in 1997 exclusive of
nonrecurring charges and changes in accounting method was $1,437,000. Operating
revenues increased 5.9%, from $67,330,000 to $71,325,000, and operating expenses
exclusive of nonrecurring charges decreased from $67,543,000 in 1997 to
$66,969,000 in 1998, a 0.8% reduction. Diluted income per share was $.36 in 1998
versus a loss of $3.10 in 1997.
OPERATING REVENUES
Operating revenues increased $3,995,000 (5.9%) for the year ended
December 31, 1998 compared to the year ended December 31, 1997. This increase
was primarily attributable to the additional capacity flown by the Company in
1998, as Available Seat Miles (ASMs) increased 4.6% in 1998 over the prior year.
The capacity increase was the result of the Company's expansion into the state
of Florida: four round trip flights from Charlotte, North Carolina to
Gainesville were added in August, 1998, four round trip flights from Charlotte
to Tallahassee were added in October, 1998 and four round trip flights from
Tallahassee to Miami were also instituted in October, 1998. Passenger traffic,
measured by Revenue Passenger Miles (RPMs), increased by 17.1% in fiscal 1998,
as the load factor (percentage of seats occupied) increased from 51.1% to 57.3%,
a 12.1% increase. Yield (passenger revenue per RPM) decreased to 42.0(cent) in
1998 from 46.0(cent) in the same period in 1997. The airline industry has a
history of fare and traffic volatility. Even though the yield decreased by 8.7%,
the revenue per ASM increased from 22.5(cent) for the twelve months ended
December 31, 1997 to 24.1(cent) for 1998 as the reduction in yield was more than
offset by the increase in load factor. The average passenger trip increased from
183.4 miles in 1997 to 193.5 miles in 1998 due to the addition of the longer
stage length Florida service in 1998.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING EXPENSES
<TABLE>
<CAPTION>
==============================================================================================================
1998 1997
EXPENSE COST % OF EXPENSE COST % OF
(000) PER ASM REVENUES (000) PER ASM REVENUES
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Flight operations $21,569 7.47(cent) 30.2% $22,389 8.0(cent) 34.1%
- --------------------------------------------------------------------------------------------------------------
Fuel $ 5,016 1.7(cent) 7.0% $ 6,125 2.2(cent) 9.3%
- --------------------------------------------------------------------------------------------------------------
Maintenance $14,386 4.9(cent) 20.2% $14,192 5.1(cent) 21.6%
- --------------------------------------------------------------------------------------------------------------
Ground operations $10,548 3.6(cent) 14.8% $ 8,640 3.1(cent) 13.1%
- --------------------------------------------------------------------------------------------------------------
Advertising and commissions $ 9,939 3.4(cent) 13.9% $ 9,875 3.5(cent) 15.0%
- --------------------------------------------------------------------------------------------------------------
General and administrative $ 4,577 1.6(cent) 6.4% $ 4,804 1.7(cent) 7.3%
- --------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 934 0.3(cent) 1.3% $ 1,518 0.6(cent) 2.3%
- --------------------------------------------------------------------------------------------------------------
TOTAL $66,969 22.9(cent) 93.8% $67,543 24.2(cent) 102.7%
==============================================================================================================
</TABLE>
Operating costs excluding fleet restructuring and other nonrecurring
charges decreased $574,000 in 1998 over the twelve months ended December 31,
1997. The cost per ASM excluding fleet restructuring and other nonrecurring
charges decreased 5.4% over the same period, as the Company realized cost
reductions in flight operations expenses, fuel, and depreciation. These
decreases were partially offset by increased ground operation expense.
Flight operations expenses decreased by $820,000, or 3.6% in 1998
compared to the same period in 1997. The cost per ASM of flight operations
decreased 7.5%. The Company benefited from reductions in hull insurance rates,
and as a result hull insurance expense decreased $221,000 in 1998 compared to
1997. The reduced lease rates associated with the Jetstream Super 31 aircraft
compared with the predecessor Jetstream 31 aircraft resulted in a $1,648,000
reduction in aircraft rent expense. Flight attendant expenses decreased by
$167,000, as the Company operated a maximum of 10 aircraft necessitating cabin
service in 1998 versus 13 in 1997. These expense reductions were offset by
increased pilot expenses of $798,000, which resulted from increased flying and
new pay rates which took effect in October, 1998 pursuant to the pilot contract
ratified in November, 1998. This contract is amendable in 2002.
Fuel expenditures declined $1,109,000, or 18.1% compared to 1997 as the
cost of fuel per gallon decreased from $.820 in 1997 to $.628 in 1998, a 23.4%
decline. Fuel consumption increased from 7.5 million gallons to 8.0 million
gallons, or 6.7%. More fuel was consumed as a result of the increased flying in
1998. In 1998, fuel expense was 7.5% of operating costs; as such, the Company
does not believe it is cost effective to attempt to manage fuel price risk.
Thus, no derivatives or other off-balance sheet instruments are utilized for
hedging purposes.
Maintenance material, repairs and overhead increased $194,000 in 1998,
although the cost per ASM decreased 3.9% in 1998 when compared to 1997. The
power by the hour program on the Jetstream Super 31 aircraft resulted in reduced
maintenance expense related to these aircraft in 1998 compared with 1997. This
savings was offset by the increased costs associated with the six new Dash 8
aircraft added under operating leases in 1998. The Company incurred increased
maintenance expense in the fourth quarter of 1998 as extra maintenance
expenditures necessary to standardize this equipment to the same specifications
of the four Dash 8 aircraft already operated by the Company.
Ground operations expenses increased $1,908,000, from $8,640,000 in 1997
to $10,548,000 in 1998. Continuing with US Airways' commitment in 1997 to
increase its performance in the areas of on-time performance and completed
flights, the Company increased its staffing levels at the Charlotte station
(Concourse D) to enhance customer satisfaction and improve operations. As such,
the Charlotte station had payroll increases of $520,000 in 1998 compared to
1997. Contract handling charges increased by $332,000 in 1998, principally due
to higher numbers of passengers being handled by others on behalf of the Company
in 1998. These charges represent handling fees charged by other airlines,
principally US Airways, at stations where the Company does not have employees
and thus contracts the handling of its passengers.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ground operations at the new Florida stations cost the Company $449,000
in 1998. More inclement weather, higher passenger counts and increased training
due to the conversion to a new reservations system in 1998 by US Airways, and
consequently the Company, accounted for the rest of the increase in ground
operations expenses in 1998 as compared to 1997.
Advertising, promotion and commissions expense remained flat, increasing
0.6% in 1998 as compared to 1997. Reservations expense remained flat in 1998 as
compared to 1997, as increased expenses related to higher passenger counts were
offset by reductions in fees charged by US Airways based upon the Company's
large percentage of traffic connecting to US Airways flights. Travel agency
commissions were also relatively flat, as commission increases based upon higher
revenues were offset by lower commission percentages paid in 1998 compared to
1997.
General and administrative expenses decreased by $227,000, from
$4,804,000 in 1997 to $4,577,000 in 1998. Passenger liability insurance
decreased by $467,000 as reduced insurance rates more than offset traffic
increases. These insurance reductions more than offset the increases in legal
fees incurred by the Company in 1998. Negotiation of pilot and mechanic labor
contracts in 1998 necessitated the utilization of significantly more legal
services in 1998 than had been incurred in 1997.
Depreciation and amortization expense decreased $584,000, or 38.5% in
1998 versus the same period in 1997 as a result of the write-off and
reclassification of all assets related to the terminated leases for the Shorts
and Jetstream 31 aircraft.
The estimates of future results included above are based upon present
information regarding operations and future trends. While the Company believes
that the estimates constitute its best judgment on future results, the actual
results may differ materially from the estimates.
1997 TRANSITION PERIOD
The Company's operating results reflect the implementation of its fleet
restructuring plan in the 1997 transition period. In October, 1997 the Company
began returning its nine Shorts aircraft to the lessor to simplify its fleet
structure and reduce its operating expenses. All Shorts aircraft were out of
scheduled service by January 5, 1998. In addition, the Company contracted, in
November, 1997, to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In conjunction with these transactions, the Company
recognized restructuring and other nonrecurring charges for the Shorts lease
terminations, write-off and write-down of assets related to the terminated
leases and estimated costs of compliance with return conditions in the
terminated leases. Further discussion of the Company's restructuring is set
forth below under "Liquidity and Capital Resources". Principally, as a result of
recognizing restructuring and other nonrecurring charges of $9,881,000 and
effecting a change in accounting method related to transitioning to the accrual
method for major component overhauls which resulted in a charge of $12,982,000
to income, the Company recognized a $24,300,000 net loss in the 1997 transition
period. In the 1997 transition period, operating revenues decreased $1,157,000
versus the same period in 1996, and operating expenses increased $452,000 in the
1997 transition period, exclusive of the restructuring and nonrecurring charges.
Revenues for the six-month periods ended December 31, 1997 and 1996 were
$32,836,000 and $33,993,000, respectively, which represents a 3.4% decline in
the 1997 transition period. Passenger revenues decreased 3.8%, as revenue
passenger miles (RPMs) decreased 4.8% and yield per passenger mile increased
1.1%. The phase-out of the Shorts aircraft resulted in a 15.9% reduction in
available seat miles (ASMs) in the 1997 transition period as compared to the
same period in the previous year. As a result of the fleet contraction, the
Company ceased service between Charlotte and Shenandoah Valley, Virginia in
July, 1997, suspended service between Charlotte and Montgomery, Alabama in
September, 1997 and reduced the frequency of service to several other markets.
The Company's revised schedule was effective in reducing low load factor
flights. The 15.9% reduction in capacity only resulted in a 4.8% decrease in
RPMs and a 3.5% reduction in passengers. The Company's load factor increased
from 47.4% to 53.7%. The average passenger trip decreased from 184.9 miles to
182.5 miles as a result of the cessation of service from Charlotte to
Montgomery, a long-haul market. The average fare remained relatively unchanged
at $81 per passenger for the six months ended December 31, 1997 and 1996. The
Company's revenue per ASM increased from 20.9(cent) in the six-month period
ended December 31, 1996 to 23.9(cent) for the 1997 transition period, a positive
reflection on the Company's efforts at revenue maximization.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's yield increased 1.1%, from 44.0(cent) per RPM in the
six-month period ended December 31, 1996 to 44.5(cent) for the comparable period
in 1997. However, the yield increase achieved in the 1997 transition period was
partially offset by the decrease in the average passenger trip. Low fare
competitors remained absent from the markets served by the Company.
Additionally, the Company constantly monitors fares in the local markets it
serves, and adjusts them as competition, demand and market factors dictate.
Comparative yield calculations are complicated by the expiration and
reimplementation of the excise tax on airline tickets. The tax expired on
December 31, 1995 and was reinstated in late August, 1996. The Company believes
its passenger revenues were stimulated during the periods the tax was not in
effect, as the absence of the tax effectively reduced the cost of air travel.
The Company is not able to determine the extent to which operating results were
impacted by the absence of the tax, although it does believe that the six-month
period ended December 31, 1996 was favorably impacted by the absence of the tax
for a portion of the period, whereby the tax was collected for the entirety of
the six-month period ended December 31, 1997, with a resultant negative impact
on revenue.
Operating costs increased substantially in the 1997 transition period
over the same period in 1996. The increase is primarily attributable to the
aircraft fleet restructuring plan, which accounts for $9,881,000, or 22.7%, of
the reported operating expenses. Operating costs per ASM, net of restructuring
related expenses, were 25.0(cent) in the 1997 transition period as compared to
20.7(cent) in the same period of 1996. Contributing factors include increases in
aircraft maintenance and repair expenses, spare parts rental, customer service
wages, professional fees and property tax expense. These increases were
partially offset by the rent reductions negotiated for the Shorts aircraft,
continued savings realized in the premiums for the Company's aircraft hull
insurance; the decline in aviation fuel prices and the elimination of certain
operational expenses directly related to scheduled passenger service levels and
ASMs.
Flight operations expense decreased by more than $1.1 million, or 9.8%,
in the 1997 transition period, to $10,523,000 from $11,673,000 in the same
period of 1996. The Company continued to benefit from reductions in the insured
value of the aircraft fleet, as well as declining hull insurance rates,
culminating in a $279,000 decrease over premium expense recognized in the same
period in 1996. Pursuant to the aircraft return agreement reached with Shorts
for the nine Shorts aircraft, the Company received aircraft rent abatements,
beginning with payments due in August, 1997, in the amount of $14,000 per
aircraft per month until the aircraft were returned. The lease abatement and
early return of the aircraft resulted in a $835,000 decrease in Shorts aircraft
rental expense in the 1997 transition period versus the comparable period in
1996. Pilot and flight operations payroll-related expenses decreased by 1.5% as
a result of attrition. The Company did not replace terminated pilots in the 1997
transition period due to the reduction in capacity during the period. The
reduction in these expenses was partially offset by annual seniority wage
increases and the enhancement of the training and crew scheduling departments.
Aviation fuel expenditures declined $989,000, or 26%, as compared to
1996 as a result of per gallon decreases of $0.11 and the 15.9% decrease in ASMs
flown in the 1997 transition period. The Company consumed 3.6 million gallons of
fuel at a cost of $2.8 million in the 1997 transition period, as opposed to 4.3
million gallons at $3.8 million in the same period of 1996. ASMs and gallons of
fuel used both decreased approximately 16%, while the price per gallon decreased
13%. The average price per gallon of fuel purchased in the 1997 transition
period was 77.5(cent), as compared to 88.6(cent) in 1996. Fuel prices peaked
from October 1996 through February 1997, with the most favorable prices
occurring in September and December 1997.
Maintenance material, repairs and overhead increased $1.8 million, or
31.1% in the 1997 transition period over the six-month period ended December 31,
1996. The increase in expenses reflects the higher costs incurred with operating
the aging Shorts and Jetstream 31 aircraft, increased payroll-related expenses
and higher spare parts rentals. Outside repair and materials expense was up over
$900,000 in the 1997 transition period versus the comparable prior-year period,
as costs of maintaining the fleet escalated. Maintenance salaries expenses
increased $347,000, primarily as a result of overtime hours and temporary labor
necessary to maintain the fleet, and accomplish the aircraft returns. Rental
expenses for spare aircraft parts, primarily engines, increased $386,000 in the
1997 transition period. In the six-month period ended December, 1996 the Company
received $303,000 in rental concessions from a major vendor to compensate for
engine performance issues raised by the Company.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Ground operations expenses increased 6.3%, from $4,196,000 to $4,463,000
in the 1997 transition period as compared to the same period in 1996, primarily
as a result of increases in US Airways' passenger handling fees. In markets
where US Airways personnel provide customer service and handling, a fee is
charged to the Company. This fee was $8.10 per passenger during the 1997
transition period as opposed to $7.75 in 1996. Fees per passenger have increased
periodically as follows: July 1995, $6.50; January 1996, $7.75; February 1997,
$8.10. Although passengers carried decreased 3%, passenger handling fees
escalated 3.6%, or $66,000 in the 1997 transition period. In addition to
increased passenger handling fees, the Company experienced increases in customer
service salary- and payroll-related expenses. In 1997, US Airways increased its
commitment to performance in the areas of on-time arrivals and departures,
completed flights and enhanced passenger service. The Company took steps to
mirror US Airways initiatives in these vital performance measures. While the
Company and US Airways were successful, additional staffing levels were
necessary to ensure meeting US Airways commitment to service enhancements. The
Charlotte (Concourse D) station increased full-time equivalent employees from
169 at December 31, 1996 to 198 at December 31, 1997. To retain employees, the
Company also implemented an average increase of 5% in the hourly wage scale,
concentrated in the first five years' seniority. Because of Charlotte's
relatively higher employee turnover rate, the effects of this adjustment were
felt most acutely at that station. Customer service payroll expenses were
partially mitigated (approximately $60,000) by the closure of Company-operated
field stations in Shenandoah Valley, Virginia and Montgomery, Alabama in July,
1997, and September, 1997, respectively.
Advertising, promotion and commissions expense remained stable at
$4,847,000 in the 1997 transition period versus $4,839,000 in the prior
comparative period. While passenger revenue decreased 3.8%, commissions and
reservations expense remained flat due to increased program fees charged by US
Airways.
Total general and administrative expenses were $2,656,000 in the 1997
transition period as compared to $1,968,000 in 1996. Salaries and
payroll-related expenses increased $104,000 as a result of additions to the
executive management group. In December, 1996, the Company received refunds of
property tax payments made in prior years totaling $118,000, reducing the
expense recognized in the six months ended December 31, 1996. Audit, legal,
corporate and other professional fees increased $180,000 and were accrued for in
relation to the Company's decision to change its reporting year-end to December
31 of each year.
Depreciation expense decreased 19.7%, or $181,000 in the 1997 transition
period as compared to the same period in 1996, consequent to the write-off and
reclassification of all assets related to the terminated aircraft leases for the
Shorts and Jetstream 31 aircraft, including leasehold improvements and spare
rotable parts. The effect of the write-off and reclassification of depreciation
expense was minimized by depreciation being taken on all assets through
November, 1997, the time at which the Company determined that all restructuring
plans became irrevocable.
The Company incurs interest expense principally as a result of its lines
of credit; interest expense is also recorded as it relates to capital leases,
long-term borrowings, and other short-term borrowings. The Company incurred
interest expense of $641,000 in the 1997 transition period, as compared to
$410,000 in the six months ended December 31, 1996. The increase was primarily
due to the higher average borrowings outstanding on the Company's Line of
credit, precipitated by the increase in the Line to $4 million from $3 million
in July, 1997.
As a result of the aircraft return plans, the Company reduced all
related assets and leasehold improvements to net realizable value, or estimated
resale value, as appropriate. Certain spare parts are interchangeable between
the Jetstream 31 and Jetstream Super 31 aircraft; these parts were excluded from
the net realizable value calculations. Losses due to impairment of assets
aggregate to $3,007,000; $1,491,000 attributable to the Shorts aircraft,
$472,000 to the Jetstream 31 aircraft, $344,000 in unusable interchangeable
parts and supplies and a valuation reserve of $700,000 established in
consideration of the unpredictability of the resale market.
The Company recorded additional restructuring charges of $6,874,000
encompassing all other aspects of the aircraft retirements. These charges
included: lease termination settlement ($6,115,000); return condition
requirements ($1,805,000 to return the Shorts, $750,000 to return the Jetstream
31s and $691,000 to return leased spare engines); early termination of Jetstream
31 engine maintenance contract ($2,483,000); accrual for expenses related to
pilot requalifications and transition rents ($478,000); reclassification of
other costs related to retired aircraft until returned to lessor ($675,000),
consulting fees for the execution of the lease termination transaction
($241,000), write-off of remaining deferred credits on terminated leases
($1,032,000 offset to charges) and the elimination of accrued expenses for
future performance of component overhauls that are no longer required
($5,332,000 offset to charges).
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the deferral
method to the accrual method. Under the method previously utilized, the Company
capitalized these expenditures and amortized them over the estimated service
life of the overhaul. The change in accounting principle results in accrual for
future expenditures for overhauls based on flight hours incurred each month, at
a rate commensurate with the future expected cost of overhaul. Implementation of
the change in principle necessitated the write-off of previously capitalized
items, along with the related accumulated amortization, as of July 1, 1997. The
aggregate time since last overhaul, as of July 1, 1997 was utilized to determine
the beginning accrued overhaul expense as of the same date. This calculation was
performed for each aircraft type. The aggregate effect of the change in
accounting principle was $12,982,000. The Company believes the newly implemented
accounting principle more closely emulates its lease agreements and contracts
for repair and maintenance of these components.
In the 1997 transition period, the Company reported operating losses for
financial and tax purposes. The losses generated for tax purposes may be carried
forward for use in future years. In the current period, the Company's effective
federal tax rate is 0%, as there were no alternative minimum tax payments. At
December 31, 1997, the Company had approximately $10,034,000 of United States
Federal regular tax operating loss carryforwards available to offset future
taxable income. These carryforwards begin expiring on December 31, 2004.
Additionally, the Company had $109,000 in United States Federal alternative
minimum tax credits available to offset future regular tax payments due; these
credits do not expire.
The estimates of future results included above are based upon present
information regarding operations and future trends. While the Company believes
that the estimates constitute its best judgment on future results, the actual
results may differ materially from the estimates.
FISCAL 1997
The Company achieved improved operating results in fiscal 1997,
continuing the trend from fiscal 1996. Operating income and net income in fiscal
1997 were $1,395,000 and $520,000, respectively, compared to fiscal 1996
operating income of $886,000 and net income of $96,000. Passenger revenues
increased by 3.9%, while operating expenses were held to a 2.7% increase. Yield
per passenger mile continued to improve in 1997, resulting in 45.7(cent) per
revenue passenger mile ("RPM") as compared to 44.5(cent) per RPM in fiscal 1996.
Annual revenues increased in fiscal 1997 to $68,488,000 over fiscal 1996
revenues of $66,234,000. The 3.3% increase over prior year is attributable
primarily to increased average fares related to continued industrywide fare
growth. Low fare competitors remain absent from the markets served by the
Company. Additionally, the Company maintained local market fares introduced in
February 1996 to stimulate travel, resulting in enhanced revenues throughout
fiscal 1997. Annual and quarterly yield comparisons are complicated by the
expiration and reimplementation of the federal excise tax on airline tickets in
fiscal 1996 and 1997. The tax lapsed on December 31, 1995 and was reinstated in
late August, 1996. The tax again expired on December 31, 1996 and was resumed in
early March, 1997. The Company believes that its passenger revenues were
stimulated during the periods the tax was not in effect - the absence of the tax
effectively reduced the cost of air travel. The Company is not able to determine
the extent to which operating results in fiscal 1996 and 1997 benefited from the
absence of the tax, although it does believe that it had a positive impact on
its operating results.
Available seat miles ("ASMs") decreased 2.2% from fiscal 1996. The
Company discontinued service between Shenandoah Valley, Virginia and Baltimore,
Maryland in December, 1996. Pursuant to an economic analysis of Shorts aircraft
utilization and profitability, the Company reduced the number of flights using
these aircraft in December, 1996. As such, only seven of the nine Shorts
aircraft were scheduled for the last seven months of fiscal 1997. While ASMs
thus decreased 6.1% for the last seven months of fiscal 1997 when compared to
1996, the load factor increased from 47.8% for the seven months in fiscal 1996
to 49.0% for the comparable period in fiscal 1997.
The Company, while able to implement changes in its flight schedule
after receiving the consent of US Airways, has limited control over the cities
it serves as a US Airways Express carrier. The Company did receive approval to
discontinue service to Shenandoah Valley, Virginia and Montgomery, Alabama
effective July 8, 1997 and September 4, 1997, respectively, based upon
profitability and aircraft utilization studies.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RPMs increased commensurately with revenue passengers, reflecting growth
of 1.3% over fiscal 1996. Elevated RPMs, passengers carried and average fares
are indicative of the overall health of the air transportation industry. The
Company continued to maintain its upward trend in average fares for fiscal 1997.
The fiscal 1997 average fare was $84.41, compared to $82.25 in fiscal 1996.
Operating costs per ASM escalated from 20.9(cent) to 22.0(cent) from
fiscal 1996 to fiscal 1997. Contributing factors include increases in
maintenance outside repair expenses, fuel cost, flight operations and customer
service wages and US Airways' fees for ticketing and passenger handling. These
increases were partially mitigated by cost reductions realized in the Company's
aircraft hull insurance, engine overhaul amortization expenses and savings
realized under the first full year of reduced Jetstream 31 lease payments.
Flight operations expense stabilized in fiscal 1997 at $23,539,000, as
compared to $23,490,000 in fiscal 1996. Although the Company experienced
significant increases in pilot and flight management salaries, the additional
expenses were offset by reductions in hull insurance rates and aircraft lease
payments. The Company continued to benefit from reductions in the insured value
of the aircraft fleet and more favorable hull insurance rates resulting in
annual savings of $393,000 in 1997. Additionally, renegotiated lease payments
for the Jetstream 31 fleet finalized in 1996 resulted in further reductions to
lease expenses as compared to fiscal 1996. Pilot salaries escalated 4.9%, or
$336,000 over fiscal 1996 to $7,135,000 in fiscal 1997. Under the plan
negotiated with the Air Line Pilots Association ("ALPA"), pilot salaries were
initially reduced by 16% in October 1994, with 4% of the original concession
being reinstated after each subsequent four-month period. The final increase
scheduled under this plan occurred in February, 1996. Accordingly, fiscal 1997
was the first complete year under the fully reinstated salary levels.
Furthermore, annual seniority wage increases contributed to the increases in
pilot salary expense. Flight operations management and support salary expenses
also grew by $100,000 as compared to 1996; enhancement of the training and crew
scheduling departments are the primary factors.
Crew travel expenses, comprised of meal allowances and accommodations
declined significantly, from $1,280,000 in fiscal 1996 to $1,078,000 in fiscal
1997. In April, 1996, 14 crews were placed in four newly established crew bases
in Lynchburg, Virginia; Cincinnati, Ohio; Lexington, Kentucky and Kinston, North
Carolina. Establishment and maintenance of these new crew bases resulted in
savings of $202,000 in fiscal 1997.
The Company is obligated pursuant to its contract with its pilots to
match pilot contributions to the Company's 401(k) plan based upon an agreed-upon
earnings formula. The Company recorded $138,000 of compensation expense related
to its contractual obligation as flight operations expense in fiscal 1997.
Market fluctuations and ASMs flown cause annual fuel and oil expenses to
be volatile. Despite a 2.2% decline in ASMs flown, the Company experienced a 14%
increase in fuel and oil expense, with expenditures of $7,117,000 in fiscal 1997
versus $6,262,000 in fiscal 1996. Fuel consumption was 8.2 million gallons at an
average price per gallon of 87.4(cent) in fiscal 1997, as compared to 8.3
million gallons at 75.8(cent) per gallon in fiscal 1996. Fuel prices peaked from
October, 1996 through February, 1997, averaging 93.8(cent) per gallon during
this period.
Maintenance materials, repairs and overhead decreased 1.5% from fiscal
1996, as expense was $12,381,000 in fiscal 1997 versus $12,566,000 in fiscal
1996. Maintenance expenses typically fluctuate based upon flight hours and
takeoffs and landings. Maintenance expense per ASM remained relatively constant;
4.1(cent) in 1997 and 4.0(cent) in 1996.
Ground operations expenses increased 6.8% over prior year, resulting in
fiscal 1997 expenditures of $8,373,000 versus $7,839,000 in fiscal 1996. US
Airways passenger handling fees increased from the prior year. In markets where
US Airways personnel provide customer service and handling, a fee is charged to
the Company; this fee increased 35(cent) per passenger in February, 1997. While
passengers carried increased by only 10,000, or 1.3%, passenger handling fees
escalated 18%, or $555,000 in fiscal 1997.
Ground operations expense is offset in Charlotte, North Carolina through
the Company's reimbursement rate for operating Concourse D at the
Charlotte/Douglas International Airport. The Company's reimbursement increased
from $354,000 to $359,000 in August, 1996 and $372,000 in January, 1997.
Customer Service salaries at Company- operated stations increased $149,000 due
to the combination of general wage increases, service schedule alterations, and
additional overtime.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Advertising, promotion and commissions expense increased from 14.1% of
passenger revenue in fiscal 1996 to 14.7% in fiscal 1997. On January 1, 1996, US
Airways implemented a new reservations fee structure which resulted in an
additional $.90 per passenger charge. Fiscal 1997 thus received an entire year,
or an additional $370,000 of this expense as compared to 1996. Computer
reservations system fees also increased on a per-passenger basis in fiscal 1997.
Total general and administrative expenses in fiscal 1997 were $4,116,000
as compared to $4,273,000 in fiscal 1996, for a decrease of 3.7%. While salaries
increased by $166,000, property taxes declined $303,000. The property tax
decrease was due to refunds of $118,000 resulting from personal property
reclassifications for tax purposes for the years allowed under local statute
(1991-1995). Other general and administrative decreases resulted from $75,000 in
refunded sales and use taxes related to off-road fuel taxes originally remitted
in 1994 through 1996.
Depreciation and amortization expense declined slightly from $1,814,000
in fiscal 1996 to $1,699,000 in fiscal 1997, as asset additions for rotable
flight equipment, ground equipment and leasehold improvements were minimal in
the current year, and thus little depreciation was generated on current-year
property additions.
In fiscal 1997, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate; however, the Company's effective
federal income tax rate was 21.3% which reflects the impact of the alternative
minimum tax on operations. Income tax expense was $141,000 in fiscal 1997, as
compared to $18,100 for fiscal 1996. At June 30, 1997 the Company had
approximately $5,860,000 of United States Federal regular tax operating loss
carryforwards available to offset future taxable income. These carryforwards
begin expiring on June 30, 2005.
FISCAL 1996
The operating results for fiscal 1996 continued the positive trend from
fiscal 1995. Passenger revenues increased 6.0%, attributable to the improved
yield per revenue passenger mile of 44.5(cent) in fiscal 1996 from 42.7(cent) in
fiscal 1995. The result of these overall improvements was operating income of
$886,000 and a net income of $96,000 versus operating income of $553,000 and a
net loss of $362,000 in fiscal 1995. Operating expense increases of 4.6%
partially offset the revenue improvement.
Annual revenues for the 1996 and 1995 fiscal years were $66,234,000 and
$63,039,000, respectively. The 5.1% increase over the prior year was due to the
absence of low-fare competitors in the Company's markets and to continued
industrywide fare growth. Additionally, in February, 1996 the Company
implemented local market fares for travel between Company-controlled
destinations, thus stimulating travel and increasing revenues. Revenues were
significantly hampered, however, by inclement weather in the Company's operating
area during the third quarter of 1996. Severe winter storms caused the
cancellation of approximately 1,200 flights during this quarter. As a result,
the Company estimates that operating revenues were adversely impacted by
approximately $1,100,000. Harsh weather in the northeast section of the United
States caused further revenue losses as connecting passengers with reservations
on the Company's flights were unable to initiate their trips.
Available seat miles increased 2.2% over fiscal 1995. The growth was
primarily due to increased daily service to longer-haul markets, including
Columbus, Georgia, Lexington, Kentucky and Lynchburg, Virginia, increasing total
weekday departures to 216 from 213 in fiscal 1995.
While the number of revenue passengers carried decreased by 7.2%,
revenue passenger miles increased 1.6% as compared to fiscal 1995 as a result of
changes to the Company's service schedule. Passengers carried continued to
decline due to the absence of low-fare, traffic-stimulating competition which
existed in the Company's market until March, 1995. Additionally, the Company
continued to recognize the effects of discontinued service to several markets in
fiscal 1995. Because the low-fare competition in 1995 was not present in 1996 to
depress fares, the Company was able to maintain higher average ticket prices of
$82.25 in fiscal 1996 versus $72.01 in fiscal 1995, thus increasing yield per
revenue passenger mile to 44.5(cent), an increase of 4.2% over 1995.
Operating costs per available seat mile increased from 20.5(cent) to
20.9(cent) for fiscal 1995 to 1996. Contributing factors include increases in
fuel costs, pilot training expenses, US Airways fees and engine overhaul
expenses. A portion of these increases were offset by cost reductions recognized
in the Company's aircraft hull insurance, professional fees and property tax
expenses.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Flight operations expense increased 4.8% to $23,490,000 in 1996,
compared to $22,416,000 in fiscal 1995. In fiscal 1995 reductions in aircraft
lease rates were achieved through negotiations with lessors, which the Company
continued receiving the benefit of in fiscal 1996. Additionally, more favorable
hull insurance rates and reductions in the insured value of the Company's
aircraft yielded a decrease in hull insurance expense of 12.9% or $228,000 as
compared to 1995. Several factors impacted the pilot salaries, resulting in
escalations from $7,428,000 in fiscal 1995 to $8,512,000 in 1996, a 14.6%
increase. Pilot turnover in the fourth quarter was exceptionally high due to
recruiting and hiring by the major airlines. Because the internal pilot reserve
was depleted, the Company incurred significant training costs in order to
maintain necessary crew levels. Additionally, during the period of crew
shortages, flight lines were being covered by existing pilot crews at the higher
pay rates due to overtime. The effect of these factors in the fourth quarter of
1996 as compared to the same period of 1995 is an increase in salaries and
training costs of $480,000, or 30.2%. Furthermore, the final two increases under
the pilot salary reduction plan were phased in during October, 1995 and
February, 1996. Under the plan negotiated with the Air Line Pilots Association
("ALPA"), pilot salaries were initially reduced by 16% in October, 1994, with 4%
of the original concession being reinstated after each subsequent four-month
period. Flight attendant salaries increased 6.3% or $62,000 over the previous
fiscal year due to scheduled service increases.
Crew travel expenses, encompassing meal allowances and accommodations,
remained relatively unchanged at $1,280,000 and $1,366,000 from fiscal year end
1995 to 1996, respectively. In April, 1996 four new crew bases were established
in Lynchburg, Virginia, Cincinnati, Ohio, Lexington, Kentucky and Kinston, North
Carolina, placing a total of 14 crews at these locations. While crew bases are
designed to reduce crew travel expenses, the savings were not evident for the
fiscal year ended June 30, 1996 because of expenses associated with moving the
crews.
The escalation of market prices of fuel significantly affected fiscal
1996's fuel expense. Fuel expenditures totaled $5,406,000 in fiscal 1995, and
increased 15.8% to $6,262,000 in 1996, when the average price per gallon of fuel
increased from 67.1(cent) to 75.8(cent). Total fuel consumption was 8.3 million
gallons versus 8.1 million gallons in fiscal years 1996 and 1995, respectively.
The increase between years was directly related to the increased service
schedule. Fuel expense for 1996 includes the 4.3(cent) per gallon federal excise
tax on transportation fuels which the Company became obligated to pay on October
1, 1995.
Maintenance materials, repairs and overhead experienced an 8.2% increase
over the previous year, from $11,619,000 to $12,566,000 in fiscal 1996. The
escalation was due exclusively to the increase in annual amortization of engine
and gear overhauls from $3,496,000 in 1995 to $4,393,000 in 1996. From March,
1995 through the end of fiscal 1996, expenditures related to overhauls of Dash 8
airframe and engine components were $1,509,000, with amortization lives ranging
from 11 to 48 months. Amortization of these overhaul additions was the principal
factor in the increase in overhaul expense for the fiscal year ended 1996.
Ground operations expense increased 6.1% over 1995, as expenses went
from $7,386,000 to $7,839,000. The principal factor in the higher expenses is
the increase in US Airways handling fees that the Company pays as a result of US
Airways handling the Company's passengers in certain markets. Inclement weather
in the winter months caused an additional $200,000 in aircraft servicing charges
in fiscal 1996 as compared to 1995, as deicing fluid purchases drastically
increased.
Advertising, promotion and commissions expense decreased from 14.8% of
passenger revenue in fiscal 1995 to 14.1% of passenger revenue in 1996. The
reason for this decrease was the revised rate structure for commissions paid to
travel agencies, which went into effect during March, 1995. Commissions paid on
travel agency-generated tickets decreased from an average of 10.0% in 1995 to
8.9% in 1996. As approximately 80% of tickets collected by the Company are
written by travel agencies, the 1996 savings from this structure change was
approximately $575,000. Partially offsetting this reduction was an increase in
reservations fees charged by US Airways. On January 1, 1996, the reservations
fee charged changed to a new fee structure resulting in an additional $360,000
in expense ($.90 per passenger) during the last two quarters of the 1996 fiscal
year over fees which would have been paid under the old structure.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total general and administrative expenses decreased 11.0% or $529,000
from 1995 to 1996. Contributing to this decrease were reductions in professional
fees incurred and property tax assessment adjustments. Professional fees were
lower due to the absence of extensive lease and union negotiations that were
present during prior years. Property tax assessments have been reduced as of the
tax year beginning January 1, 1996, as a result of the revaluation of the
aircraft fleet to market value as of the date of filing (January 1, 1996) in the
Company's most significant ad valorem taxing district, North Carolina. This
revaluation and other property tax adjustments resulted in savings in calendar
1996 of $200,000.
Depreciation and amortization decreased slightly from $1,845,000 in
fiscal 1995 to $1,814,000 in 1996, as asset additions for rotable flight
equipment, ground equipment and leasehold improvements were minimal in fiscal
1996, and thus little depreciation was generated on 1996 property additions.
In fiscal 1996, recognition of net operating loss carryforwards offset
income tax expense at the statutory rate, but the Company's effective federal
income tax rate was 15.9%, which reflects the impact of the alternative minimum
tax on operations. Income tax expense was thus $18,100 versus $0 in 1995. At
June 30, 1996 the Company had approximately $7,777,000 of United States Federal
regular tax operating loss carryforwards available to offset future taxable
income. These carryforwards begin expiring on June 30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs result from continuing operations including
capital expenditures necessary to the operation of its aircraft, and the
continuing payment of creditors in accordance with its Plan of Reorganization.
The Plan of Reorganization was consummated in September, 1991 pursuant to
bankruptcy proceedings initiated by the Company. During 1998 the Company
satisfied its cash requirements through internally generated funds and
borrowings under a revolving line of credit agreement with an affiliate of an
aircraft manufacturer, secured by all of the Company's accounts receivable. The
Company also utilized short-term loans from certain Directors and related
parties and a line of credit with Centura Bank, both secured by owned flight and
ground equipment.
During 1998, management continued the implementation of its strategy to
restructure the aircraft fleet, address short-term and long-term liquidity needs
and improve the overall financial condition of the Company. The following
changes were made during 1998:
1. Completed previously announced fleet restructuring plan: 20
Jetstream Super 31 aircraft placed into service in 1998, 14
leased through the end of 2004 and six through the end of 1998.
At the end of 1998, four Jetstreams were returned to the lessor
and two leased through the end of 1999. All 14 Jetstream 31
aircraft previously operated by the Company were removed from the
fleet in 1998.
2. The addition of six Dash 8 aircraft to the fleet through
short-term operating leases. Four of these leases expire in 2000,
one in 2002 and one in 2005.
3. Instituted new service to Florida destinations.
4. Signed a letter of intent with Mesa Air Group, Inc. to be
acquired as a wholly-owned subsidiary. A definitive purchase
agreement was signed on January 28, 1999.
5. Enhanced labor stability by negotiating new pilots' and mechanics'
contracts not amendable until 2002.
6. Refinanced $7,920,000 note payable classified as current on the
balance sheet at December 31, 1997; this note is now long term.
7. Issued 500,000 shares of common stock in September, 1998, the
proceeds of which were used to satisfy a short-term note of
$1,675,000 to Lynrise Air Lease, Inc., the lessor of the
Company's previously operated Shorts aircraft.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
8. Obtained a $1,100,000 note to finance the Company's expansion in
September, 1998; $850,000 of this note was obtained through the
Company's local bank, the remaining $250,000 was received from a
member of the Company's Board of Directors.
RESTRUCTURING
On September 11, 1997 the Company entered into a transaction with
Lynrise Air Lease, Inc. ("Lynrise") to return the Company's nine leased Shorts
aircraft to Lynrise as lessor. The aircraft leases were scheduled to continue
through September, 2004, at a monthly rate of $34,000 per aircraft. These
aircraft did not meet US Airways criteria for cabin class service, as they are
unpressurized and flew at slow speeds. In addition, the lease expense per block
hour was high, and the operating expenses continued to escalate. The aircraft
were returned between November, 1997 and January, 1998. In return for this early
termination of the aircraft leases, the Company issued a promissory note in the
amount of $9,720,000. The promissory note was issued in contemplation of the
Company's obligations to the lessor: lease termination and aircraft remarketing
provisions - $6.1 million, previously recorded liabilities in the form of
accrued rent and notes payable - $1.8 million and return condition obligations -
$1.8 million.
In September, 1998, the Company exercised its option issued in
conjunction with the note, whereby it paid Lynrise $1,675,000 in cash and
$130,000 in aircraft parts. Proceeds from the sale of 500,000 shares of Company
stock were used to pay the cash portion of the note. Upon the option's exercise,
the remainder of the note, $8,335,000, including unpaid interest from January 1
to September 30, 1998 was converted to a subordinated note, which is convertible
to common stock at $7.50 per share. This subordinated note is due in 2004, with
interest and principal payments to begin in 1999. Principal payments may be paid
in cash or stock, at the Company's option.
Under an accord reached with an aircraft lessor in November, 1997 the
Company agreed to replace its fourteen Jetstream 31 aircraft with twenty
Jetstream Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven years, and
the additional six Jetstream Super 31 aircraft until December 31, 1998. In
December, 1998, the Company leased two of these Jetstreams for an additional
year and returned the remaining four to the lessor. The Jetstream Super 31
aircraft are newer and faster than the predecessor Jetstreams, and can operate
with fewer weight restrictions. The Jetstream 31 aircraft were returned to the
lessor in 1998. The Company estimated the cost of returning these aircraft at
$750,000, which was provided for as restructuring cost during the 1997
transition period. The actual cost of returning the aircraft was $1,034,000. The
difference of $284,000 is recorded as additional general and administrative
expense in 1998.
As a result of the retirement of two aircraft types, the Company wrote
down its spare parts inventory to net realizable value at December 31, 1997. The
writedowns consisted of $1.2 million in Shorts parts; $100,000 in Jetstream
parts; $100,000 in ancillary parts required to maintain both fleets; and a
valuation reserve increase of $700,000 in contemplation of uncertainties in the
resale market. The net book value of parts held for resale was $1,200,000 on
December 31, 1997 and $945,000 on December 31, 1998. Additionally, the Company
wrote off $680,000 in unamortized leasehold improvements related to these two
aircraft types in the 1997 transition period.
As a result of the restructuring plans undertaken to accomplish fleet
simplification and cost reductions, the Company estimates total annual expense
reductions in excess of $4 million per year, commencing in 1998. These savings
will result principally from the reduction in aircraft rentals, maintenance
expense, flight crew and other labor costs, and spare parts inventory levels. In
addition, the fleet simplification has improved the Company's ability to achieve
higher levels of reliability, resulting in fewer flight cancellations and delays
and increased revenues. The Company does not anticipate any additional
restructuring charges at this time.
The Company's balance sheet reflects a deficit in working capital,
defined as current assets less current liabilities, of approximately $5,125,000
on December 31, 1998 as compared to $16,705,000 on December 31, 1997. Working
capital is affected by the short-term note issued to Lynrise leasing, as well as
seasonality of operations and the timing of receipts from the ACH. March through
October of each year are peak travel and thus are higher revenue months. The
Company's accounts receivable for passenger service provided in December, 1998
are thus less than amounts recorded in the peak months. The ACH mechanism of
collecting passenger revenue receivables has provided a predictable cash inflow
stream; 99% of the Company's revenues are collected through the Clearing House.
As such, the Company has traditionally been able to match payments to creditors
to its cash receipts from the ACH, which are received at the end of each month,
and to thus defer payments when necessary, or arrange for alternate financing.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
After recognition of the restructuring charges and the change in
accounting principle, the Company has a shareholders' deficit of $11,016,000 at
December 31, 1998. As previously mentioned, the results of the restructuring are
expected to provide over $4 million in net cost savings going forward. In
addition, many of the obligations arising from the restructuring can be
satisfied by the issuance of stock, which will conserve cash and improve the
Company's deficit position. The acquisition of the Company by Mesa is expected
to positively impact the Company's liquidity when finalized. The Company's
management and Board of Directors has had preliminary discussions related to a
secondary public offering of common stock, although no definitive actions have
been taken as yet pending the Mesa acquisition. The Company also has a solid
infrastructure and has been able to exceed US Airways operating performance
goals consistently during 1998.
FLEET
In 1998, the Company assumed five Dash 8 aircraft leases from a former
operator of the aircraft. These leases begin expiring in April, 2000 with the
final lease ending in September, 2002, and are considered operating leases. The
Company also consummated a lease agreement for an additional Dash 8 aircraft in
1998 that is covered by economic development insurance provided by Her Majesty
the Queen in Right of Canada as Represented by the Ministry of Industry, Science
and Technology (the "Ministry"). As a result of entering into this lease
agreement, the Company has settled all claims by the Ministry, including a
purported claim of $16,996,995, as long as the Company fulfills its obligations
under the lease for the new aircraft. The lease expires in October, 2005.
FINANCING
During fiscal 1998 the Company had available a line of credit (the
"Line") in an amount not to exceed $4,000,000 from British Aerospace Asset
Management ("BAAM"). BAAM is an affiliate of JACO and British Aerospace
Holdings, Inc., the company that had previously collateralized the Company's
bank line through a loan purchase agreement. The Line permits the Company to
borrow up to 70% of a borrowing base, which consists of the Company's
transportation and nontransportation charges to Airlines Clearing House, Inc.
("ACH") or such greater amount as BAAM shall determine, but in no event more
than $4,000,000. The Line is secured by all of the Company's accounts
receivable, bears interest at prime rate plus 2% and is scheduled to terminate
on July 31, 1999, but must be extended by BAAM for successive one-year periods
until December 31, 2001.
In September, 1998, the Company obtained subordinated loans from its
primary banking facility, Centura bank and a Board member for $1,100,000.
Interest at 13.75% is due monthly. The loans mature in September, 2003, with
principal payments beginning in October, 1999 at two levels. Principal payments
in the amount of $30,000 a month are due in the months of May through October
and principal payments of $15,000 a month in the months of November through
April. In conjunction with this transaction, the Company issued 112,467 warrants
to Centura that may be exercised at any time at $3.00 per share within ten
years. For any year the Company does not repay the loan in accordance with the
loan agreement, the Company must issue 12,497 additional warrants to the lenders
at the same exercise price. In the event a key member of management leaves the
Company and the lenders do not agree with his replacement, an additional 17,768
warrants must be issued to the lenders at an exercise price of $.01 per share.
The warrant agreements contain a put feature that provides that the lenders may
require the Company to purchase the warrants in cash at fair market value, less
the exercise price, at any time.
In November, 1996 the Company secured a supplemental line of credit (the
"Centura Line") with Centura Bank. This is a revolving line of credit not to
exceed $400,000. The outstanding balance on the Centura Line accrues interest at
an annual rate of prime plus 2%, and terminates July 2, 1999. There was no
outstanding balance at December 31, 1998.
During 1998, the Company obtained several short-term loans from certain
related parties. Individual amounts borrowed under these loans ranged from
$150,000 to $350,000, and earned interest at the rate of ten percent. The
aggregate maximum and average amounts outstanding under these loans were
$500,000 and $209,000, respectively. In connection with these loans, the Company
issued to the lending parties noncompensatory warrants to purchase 12,500 shares
of the Company's common stock at the fair market value on the date of grant.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL EXPENDITURES
Capital expenditures generally consist of fixed asset replacement.
Capital expenditures in 1998 were $1,712,000. These expenditures were
principally for rotable parts and aircraft leasehold improvements. The Company
projects 1999 capital expenditures to be approximately $1,000,000 for rotable
parts, leasehold improvements and other capital items. Effective July 1, 1997,
the Company began accounting for major component overhauls using the accrual
method, as opposed to the deferral method practiced in prior years. Accordingly,
expenditures for overhauls in the upcoming year are not included in the capital
budget.
OPERATING CASH FLOW
The Company receives payments for airline tickets under interline
agreements through the ACH one month in arrears. Historically, this payment in
arrears has caused significant cash flow problems in the last half of each
month. The Company has a line of credit with BAAM to provide a steady cash flow
between ACH settlements. The Company believes that the restructuring discussed
above and improved revenue environment will provide sufficient cash flows to
provide for continuing operations, capital expenditures and scheduled debt and
bankruptcy payments absent adverse changes in current market conditions. If
operating cash flows and the Line are insufficient to meet obligations, the
Company may issue stock, secure short-term loans from Officers and Directors, or
extend terms with trade creditors.
Accounts receivable increased from $5,048,000 as of December 31, 1997 to
$6,346,000 as of December 31, 1998. The increase is principally due to higher
passenger counts of 70,330 as compared to 60,759 in December, 1998 versus
December, 1997. The year end receivable balance is comprised primarily of
December traffic receivables.
Inventories increased from $510,000 on December 31, 1997 to $968,000 on
December 31, 1998, primarily as a result of the initial parts provisioning
necessary to support the introduction of the Jetstream Super 31 aircraft into
service in 1998.
Accounts payable decreased from $8,129,000 to $5,540,000, primarily due
to increased payments to vendors in 1998 of balances that existed on December
31, 1997. Accrued expenses increased from $5,983,000 at December 31, 1997 to
$8,014,000 at the same date in 1998. The Company moved its payroll from the 29th
of each month to the 1st of the subsequent month in December, 1998, thus accrued
payroll increased $1,337,000 over the comparable periods. Accrued repair
expenses increased $766,000 due to timing of component repairs in the relevant
periods.
The Company accepted delivery of six additional Dash 8 aircraft from
June, 1998 through October, 1998. Certain costs were incurred to integrate the
aircraft into the Company's operations. These expenditures are comprised
primarily of rental payments on the aircraft prior to their entrance into
scheduled flying, the retention and training of flight crews and initial
airworthiness inspection. As permitted under Statement of Position (SOP) 88-1,
"Accounting for Developmental and Preoperating Costs, Purchases and Exchanges of
Take-off and Landing Slots, and Airframe Modifications", the Company capitalized
$822,000 as preoperating costs in the December 31, 1998 balance sheet. As
required by SOP 98-5, "Reporting on the Costs of Start-Up Activities", the
capitalized amount less related amortization, $103,000 will be written off as of
January 1, 1999.
The Company is required to make payments of $166,000 to unsecured
creditors in annual installments in the third quarter of each calendar year
through 1999. The Company intends to make these payments when due.
OTHER
The Financial Accounting Standards Board (FASB) has issued several
statements that became effective for fiscal years beginning after December 15,
1997. These statements are SFAS No. 130, "Comprehensive Income"; SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"; and SFAS
No. 132, "Employers Disclosures about Pensions and Other Post Retirement
Benefits". The Company will not be impacted by requirements or changes in
reporting requirements prescribed by SFAS No. 130 or 131. The Company does
anticipate broadened disclosures under SFAS No. 132 regarding the 401(k) plan it
sponsors. The Company does not provide for any other post-retirement benefits.
FASB also issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15, 1999. The
Company has not quantified the impact of SFAS No. 133 on its financial
information.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE
Many currently installed computer systems, imbedded microchips and
software products are coded to accept two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
years beginning with "20" from years beginning with "19". Any programs that have
time sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in the computer shutting down or
performing incorrect computations. As a result, computer systems and software
used by many companies will need to be upgraded to comply with such "Year 2000"
requirements. Certain of the Company's systems, including information and
computer systems and automated equipment, will be affected by the Year 2000
issue.
The Company completed its comprehensive inventory of its core business
applications to determine the adequacy of these systems to meet future business
requirements. The Company has also been performing system upgrades, which are
approximately 80% complete. After these upgrades and system evaluations are
complete, the Company will begin testing the results of its compliance work. To
date, the Company's Year 2000 remediation efforts have focused on its core
business computer applications (i.e., those systems that the Company is
dependent upon for the conduct of day-to-day business operations). Out of this
effort, a number of systems have already been identified for upgrade. In no case
has a system been replaced or contemplated to be replaced solely because of Year
2000 issues with the exception of the Company's voice mail system, which can be
replaced for approximately $20,000. Additionally, while the Company may have
incurred an opportunity cost for addressing the Year 2000 issue, it does not
believe that any specific information technology projects have been deferred as
a result of its Year 2000 efforts.
The Company's reservation system is tied to its code-sharing partner, US
Airways. The Company's representatives have met with US Airways to assess the
Year 2000 progress of the reservations system providers. The Company has
installed an upgraded version of its current accounting, revenue accounting,
maintenance parts and payroll systems. Approximately 75% of these systems have
been tested. The Company has had extensive discussions with the manufacturers of
its various aircraft to discuss Year 2000 issues and identify the required
avionics and flight systems upgrades which will be implemented during 1999. The
aircraft manufacturers are also required to report the Year 2000 status of their
aircraft to the FAA.
The Company is currently assessing other potential Year 2000 issues,
including noninformation technology systems. A broad-based Year 2000 Task Force
has been formed and has begun meeting to identify areas of concern and develop
action plans. The Company has also been meeting with similar task forces at US
Airways and Mesa. The Company's relationships with vendors contractors,
financial institutions and other third parties will be examined to determine the
status of the Year 2000 issue efforts on the part of the other parties to
material relationships. The Year 2000 Task Force will include both internal and
Company-external representation.
The Company expects to incur Year 2000-specific costs in the future but
does not at present anticipate that these costs will be material. In the worst
case scenario, the Company believes that relationships it has with third parties
would cease as a result of either the Company or the third party not
successfully completing their Year 2000 remediation efforts. If this were to
occur, the Company would encounter disruptions to its business that could have a
material adverse effect on its business, financial position and results of
operations. The Company could be materially impacted by widespread economic or
financial market disruption or by Year 2000 computer system failures.
The Company has not at this time established a formal Year 2000
contingency plan but will consider and, if necessary, address doing so as part
of its Year 2000 Task Force activities. The Company maintains and deploys
contingency plans designed to address various other potential business
interruptions. These plans may be applicable to address the interruption of
support provided by third parties resulting from their failure to be Year 2000
ready.
The Company has relationships with certain governmental entities such as
the FAA upon which it is dependent to operate its aircraft. The FAA has
represented on its web page that its systems are Year 2000 compliant. If,
however, systems at the FAA fail, the Company's aircraft will not be able to
operate, or will operate at a substantially reduced level. If this were to
occur, the Company approximates that it would lose substantially all the revenue
associated with these nonoperated flights.
For each day that the Company is unable to operate flights as a result
of Year 2000 failures, it anticipates a $225,000 loss of revenue and net loss of
approximately $110,000.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INFLATION
Inflation has not had a material impact on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The Company has no information to report under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted beginning on Page F-1
of this Form 10-K.
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 following information is furnished with respect to the members of
the Board of Directors of the Company:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION FOR PAST FIVE YEARS DIRECTOR SINCE
<S> <C> <C> <C>
K. Ray Allen 52 Chief Executive Officer and President, Computer 11/15/94
Intelligence, Incorporated, a computer
software engineering firm (1981 to present);
Chief Executive Officer and President, Burl
Software Laboratories, Incorporated, a
computer software development and marketing
firm (1992 to June 1994).
Kenneth W. Gann 60 Chief Executive Officer and President of the 11/01/90
Company (November 1990 to present).
Gordon Linkon 69 Retired (September 1993); Chief Executive 11/15/94
Officer and President, USAir Shuttle,
commercial airline, New York, NY (April 1992
to September 1993); Vice President USAir
Express Division, USAir Group, Inc.,
commercial airline, Arlington, VA (1988 to
April 1992).
26
<PAGE>
Richard P. Magurno 55 Aviation Consultant (February 1998 to Present); 11/02/98
Senior Vice President and General Counsel,
Trans World Airlines (1994 to January 1998).
Eric W. Montgomery 39 Vice President of Finance, Secretary and 11/13/97
Treasurer of the Company (February 1995 to
present); Controller, Hunter Farms, Inc. a
division of a regional grocery chain, (March
1993 to February 1995); Assistant Controller,
Denny's, Inc., a restaurant chain (April 1990
to February 1993).
George Murnane, III(1) 41 Executive Vice President and Chief Financial 01/24/97
Officer, International Airline Support Group,
Inc. (June 1996 to present); aviation
consultant (March-June 1996); Executive Vice
President and Chief Operating Officer, Atlas
Air, Inc. (October 1995 to February 1996);
investment banker, Merrill Lynch & Co.,
investment banking firm (1986-1995).
Dean E. Painter, Jr.(2) 55 Member Board of Directors, CLG, Inc., 08/01/84
computer leasing and sales company, Raleigh,
NC (1980 to present).
</TABLE>
1 Mr. Murnane serves as a director of International Airline Support Group,
Inc., a publicly held company listed on the American Stock Exchange.
2 Mr. Painter serves as a director of Centura Banks, Inc., a publicly held
company listed on the New York Stock Exchange.
Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND BACKGROUND
<S> <C> <C>
Kenneth W. Gann 60 Chief Executive Officer, President and Director
of the Company (November 1990 to present).
Eric W. Montgomery 39 Vice President of Finance, Director of
the Company, Secretary and Acting
Treasurer of the Company (February, 1995
to present); Controller, Hunter Farms,
Inc., a division of a regional grocery
chain, High Point, NC (March 1993 to
February 1995); Assistant Controller,
Denny's, Inc., a restaurant chain,
Spartanburg, SC (April 1990 to February
1993).
Peter J. Sistare 35 Vice President of Flight Operations of
the Company (March 1994 to present);
Vice President of Maintenance (December
1993 to March 1994); Director of
Maintenance of the Company (December
1990 to December 1993). Mr. Sistare
joined the Company in April 1986 as a
mechanic and has served as Manager of
Avionics, Aircraft Instructor, Manager
of Maintenance and Acting Director of
Maintenance before assuming his position
of Director of Maintenance of the
Company.
</TABLE>
27
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers and Directors and persons who own more than ten percent of
the Company's Common Stock to file reports of ownership or change in ownership
in the Company's Common Stock with the Securities and Exchange Commission. Based
solely on a review of those reports and on information supplied to the Company,
without independent inquiry, all Section 16(a) filing requirements applicable to
its executive Officers, Directors and greater than ten-percent shareholders were
satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
the compensation paid or accrued by the Company on behalf of the Company's Chief
Executive Officer and the Company's other executive officers who had annual
income in excess of $100,000, the threshold level for reporting under the SEC
rules.
<TABLE>
<CAPTION>
====================
SUMMARY COMPENSATION TABLE LONG-TERM
COMPENSATION
=================================================================================================
Annual
Compensation Awards
===================================================================================================================
- -------------------------------------------------------------------------------
Other Annual All Other
Name and Year Salary Bonus Compensation2 Options2 Compensation
Principal Position Ended(1) ($) ($) ($) (#) ($)
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
12/1998 160,000 --- ----- 20,000 12,076(4,5)
Kenneth W. Gann
Chief Executive
Officer and President
---------------------------------------------------------------------------------------------
12/1997 149,038 --- ----- 28,4003 11,513(4,5)
---------------------------------------------------------------------------------------------
6/1997 139,181 --- ----- 32,7253 11,777(4,5)
---------------------------------------------------------------------------------------------
6/1996 131,040 --- ----- 33,6253 8,655(4,5)
- -------------------------------------------------------------------------------------------------------------------
Eric W. Montgomery 12/1998 101,923 --- ----- 20,000 1,284(5)
Vice President-Finance
---------------------------------------------------------------------------------------------
12/1997 89,109 --- ----- 30,000 1,284(5)
---------------------------------------------------------------------------------------------
6/1997 73,526 --- ----- 10,000 1,284(5)
---------------------------------------------------------------------------------------------
6/1996 63,292 --- ----- 15,000 1,284(5)
- -------------------------------------------------------------------------------------------------------------------
Peter J. Sistare 12/1998 101,538 --- ----- ---- 2,596(5)
Vice President-Flight
Operations
---------------------------------------------------------------------------------------------
12/1997 91,404 8,000 2,596(5)
---------------------------------------------------------------------------------------------
6/1997 80,756 10,000 2,596(5)
---------------------------------------------------------------------------------------------
6/1996 64,562 15,000 2,596(5)
===================================================================================================================
</TABLE>
1 Since the Company changed its fiscal year end from June 30 to December
31, the information in the table relates to the calendar year ended
December 31, 1998 and 1997 and the prior two fiscal years ended June 30,
1997 and June 30, 1996, respectively.
2 The Company has not issued Stock Appreciation Rights (SARs). This column
reflects the stock options issued under its Amended and Restated Stock
Option Plan and Directors' Compensation Stock Option Plan.
3 Mr. Gann received options to purchase 8,400, 12,725 and 19,625 shares of
Common Stock in the calendar year ended December 31, 1997, and in the
fiscal years ended June 30, 1997 and 1996, respectively, as additional
consideration for loans to the Company. Options to purchase 4,850 shares
of stock issued in calendar year ended December 31, 1997 were included
in the options for fiscal year ended June 30, 1997.
4 The Company purchased a key man life insurance policy on Mr. Gann in the
face amount of $1 million; 60% of proceeds to Company and 40% to Mr.
Gann's spouse. The amounts included in All Other Compensation represent
that portion of the premium paid by the Company that funds the death
benefit for Mr. Gann's spouse.
28
<PAGE>
5 Amounts included under All Other Compensation are for premiums for
supplemental life insurance and medical insurance paid by Company.
OPTION GRANTS IN LAST CALENDAR YEAR
The following table sets forth the individual grants of stock options
made to the Named Executive Officers during the calendar year ended December 31,
1998.
OPTION GRANTS IN LAST CALENDAR YEAR
<TABLE>
<CAPTION>
==============================================================================================================
Potential Realized Value
at Assumed Annual
Individual Rates of Stock Price
Grants Appreciation for
Option Term(2)
- ----------------------------------------------------------------------------------
% of Total Exercise
Options Options Granted or Base Expir-
Granted(1) to Employees in Price ation 5% 10%
Name (#) Fiscal Year ($/sh) Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Gann 20,000 50.0% $3.50 06/25/08 $ 44,023 $111,562
- --------------------------------------------------------------------------------------------------------------
Eric W. Montgomery 20,000 50.0% $3.50 06/25/08 $ 44,023 $111,562
- --------------------------------------------------------------------------------------------------------------
Peter J. Sistare ---- ---- ---- ---- ---- ----
==============================================================================================================
</TABLE>
1 All options granted are Non-qualified Stock Options granted under the
Company's 1998 Stock Incentive Plan.
2 These amounts are based on the assumed rates of appreciation as
suggested by the rules of the Securities and Exchange Commission over
the remaining term of the options and do not represent a prediction by
the Company of future stock prices. Actual gains, if any, on stock
option exercises are dependent upon the future performance of the
Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the aggregate value of unexercised
options to acquire shares of common stock held by the Named Executive Officers
on December 31, 1998 and the value realized upon the exercise of options during
the fiscal year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST CALENDAR YEAR
AND CALENDAR YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
==============================================================================================================
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1998 AT DECEMBER 31, 1998(2)
ON VALUE ______________________ ______________________
EXERCISE(1) REALIZED(1)
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth W. Gann -0- -0- 420,243 -0- $678,550 $-0-
- --------------------------------------------------------------------------------------------------------------
Eric W. Montgomery -0- -0- 85,000 -0- $ 50,313 $-0-
- --------------------------------------------------------------------------------------------------------------
Peter J. Sistare -0- -0- 65,000 -0- $ 91,438 $-0-
==============================================================================================================
</TABLE>
1 No officer exercised any stock options held by him during the calendar
year ended December 31, 1998.
29
<PAGE>
2 The value is calculated as the excess of market value of the common
stock as of December 31, 1998 over the exercise price, the last
trading day for the 1998 calendar year. On December 31, 1998, the last
sales price for the Company's Common Stock on the NASDAQ SmallCap
Market was $3.0625.
COMPENSATION AGREEMENTS
Certain Officers of the Company have employment agreements with the
Company. Mr. Gann has an employment agreement that runs through February, 2000.
Mr. Gann receives a base salary of $160,000. If the Board of Directors of the
Company elect a new Chairman of the Board of Directors, Mr. Gann has the option
of accepting the office of President and Chief Operating Officer or termination
of his employment. If he elects to terminate his employment, Mr. Gann would be
entitled to compensation at his then current salary for twelve months after the
date of termination. Messrs. Montgomery and Sistare have individual employment
agreements with a one-year term ending June 30, 1999. They each receive a salary
of $100,000 and each are entitled to severance compensation at their current
salary if their employment is terminated without cause. Cause for purposes of
each agreement is defined as misconduct in the performance of duties, commission
of an act of dishonesty which is harmful to the Company and breach of the
agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dean E. Painter, Jr. and Mr. K. Ray Allen were serving as members of
the Compensation Committee of the Board of Directors of the Company in the
calendar year ended on December 31, 1998, but were not and have not been
officers or employees of the Company or any subsidiaries. Mr. Painter was a
participant in a loan facility made by Centura Bank in September, 1998 in the
principal amount of $1,100,000. Mr. Painter provided $250,000 to the total
amount of the loan. See the discussion under Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financing.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 10, 1998 the following entities were known by the Company as
the beneficial owner of more than five percent of the Common Stock of the
Company:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF CLASS(1)
---------------- ---------------- -----------------
<S> <C> <C>
Barlow Partners, L.P. 688,6172 6.3%
c/o International Airline Support Group
1954 Airport Road, Suite 200
Atlanta, Georgia 30341
PAR Investment Partners, L.P. 836,1003 7.6%
c/o Par Capital Management, Inc.
One Financial Center
Suite 1600
Boston, Massachusetts 02111
</TABLE>
1 The percentage of shares of Common Stock is based upon the
outstanding shares (8,965,695) and the shares subject to rights
to acquire shares presently exercisable or exercisable within
sixty days of the date of this Proxy Statement (1,559,540).
2 Barlow Partners, L.P. is a Texas limited partnership that has
sole beneficial ownership of 538,617 shares and a presently
exercisable warrant to acquire 150,000 shares of Common Stock.
George Murnane, III, a director and nominee for election as a
director, is the sole general partner of Barlow Partners, L.P.
and Barlow Partners, L.P. reports that Mr. Murnane has beneficial
ownership of all of the shares. See "Security Ownership of
Directors and Executive Officers" for additional information on
the beneficial ownership of Mr. Murnane.
30
<PAGE>
Barlow Partners, L.P., in an amendment filed on April 14, 1998 to
its Schedule 13-D, reports that each of the limited partners of
Barlow Partners, L.P. shares beneficial ownership of a portion of
the shares of Common Stock held by Barlow Partners, L.P. The
limited partners are Jonathan G. Ornstein, Alexius A. Dyer III
and James E. Swigart.
Barlow Partners, L.P. states that Jonathan G. Ornstein has shared
power to vote or to direct the vote and to dispose or to direct
the disposition of 370,200 shares as a result of his limited
partnership interest. It is reported that Mr. Ornstein has shared
beneficial ownership of 44,500 shares of Common Stock held by his
wife and minor children. Finally, Mr. Ornstein has sole
beneficial ownership of 62,500 shares of Common Stock, including
17,500 shares which he has a right to acquire within 60 days. Mr.
Ornstein reports total beneficial ownership of 477,200 shares,
without giving effect to the warrant to acquire 150,000 shares,
or 4.8% of the outstanding shares and presently exercisable
rights to acquire Common Stock.
Barlow Partners, L.P. states that Alexius A. Dyer III has shared
power to vote or to direct the vote and to dispose or to direct
the disposition of 20,000 shares as a result of his limited
partnership interest. Mr. Dyer reports total beneficial of 20,000
shares, without giving effect to the warrant to acquire 150,000
shares or less than 1% of the outstanding shares and presently
exercisable rights to acquire Common Stock.
Barlow Partners, L.P. states that James E. Swigart has shared
power to vote or to direct the vote and to dispose or to direct
the disposition of 128,417 shares as a result of his limited
partnership interest. It is reported that Mr. Swigart has sole
beneficial ownership of 51,000 shares, including 7,500 shares
which he has a right to acquire within 60 days. Mr. Swigart
reports total beneficial ownership of 179,417 shares, without
giving effect to the warrant to acquire 150,000 shares, or 1.9%
of the outstanding shares and presently exercisable rights to
acquire Common Stock.
3 PAR Investment Partners, L.P. is a Delaware limited partnership
("PIP") and its general partner is PAR Group, L.P., a Delaware
limited partnership ("PAR Group"). PAR Capital Management, Inc.,
a Delaware corporation ("PAR Capital") is the sole general
partner of PAR Group. PIP, PAR Group and PAR Capital jointly
report that they have sole beneficial ownership of the shares.
The following table sets forth as of March 1, 1999, certain information
with respect to the beneficial ownership for each of the Directors of the
Company and of all Directors and Executive Officers as a group, of the
outstanding shares of the Company's Common Stock, which is the only class of
voting securities of the Company. Each of the individuals listed below possesses
sole voting and investment power with respect to the shares listed opposite his
name, unless noted otherwise.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNERSHIP PERCENT OF CLASS9
---- ----------------------- ----------------
<S> <C> <C>
Kenneth W. Gann 420,793(1) 3.9%
Dean E. Painter, Jr. 279,000(2) 2.0%
K. Ray Allen 98,750(3) *
Gordon Linkon 105,000(4) *
George Murnane, III 731,117(5) 6.9%
Eric W. Montgomery 85,000(6) *
Richard P. Magurno 11,664(7) *
Peter J. Sistare 65,000(8) *
All Directors and Executive
Officers as a Group (8 persons) 1,794,324(9) 17.4%
</TABLE>
* Represents less than 1% of the outstanding shares of CCAIR common
stock.
1 Mr. Gann has the right to acquire 420,243 shares pursuant to
presently exercisable options.
2 Mr. Painter has the right to acquire 227,000 shares pursuant to
presently exercisable options and warrants.
31
<PAGE>
3 Mr. Allen has the right to acquire 98,750 shares pursuant to
presently exercisable options and warrants.
4 Mr. Linkon has the right to acquire 75,000 shares pursuant to
presently exercisable options and warrants.
5 Mr. Murnane has the right to acquire 62,500 shares pursuant to
presently exercisable options and warrants. Mr. Murnane has sole
voting and dispositive power with respect to the 538,617 shares
of the Company's common stock and rights to acquire 150,000
shares of common stock owned by Barlow Partners, L.P.. See
discussion in footnote (2) in first table under Item 12.
6 Mr. Montgomery has the right to acquire 85,000 shares pursuant to
presently exercisable options.
7 Mr. Magurno has the right to acquire 11,664 shares pursuant to
presently exercisable options.
8 Mr. Sistare has the right to acquire 65,000 shares pursuant to
presently exercisable options.
9 Includes 1,195,157 shares which Executive Officers and Directors
have the right to acquire pursuant to presently exercisable
options and warrants.
10 The percentage of shares of the Company's common stock is based
upon the outstanding shares (8,965,695) and assumes all presently
exercisable stock options and warrants (1,983,497) have been
exercised.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July of 1997, the Company engaged Barlow Partners, L.P. to serve as
its representative to negotiate a return agreement with the lessor of its Shorts
360 aircraft (the "Shorts Return Agreement"). If successful, Barlow Partners,
L.P. would receive a warrant to purchase 150,000 shares of Common Stock at an
exercise price of $2.00 per share. On April 21, 1998, a Shorts Return Agreement
was consummated and the warrant was issued to Barlow Partners, L.P.. In August
of 1997, the Company engaged Barlow Partners, L.P. to serve as its exclusive
financial advisor with respect to possible business combinations with other
regional airlines. This agreement provides for the payment to Barlow Partners,
L.P. of a fee equal to two percent (2%) of the aggregate consideration paid in a
business combination initiated during the agreement term. During the agreement
term, Mesa Air Group, Inc. proposed an acquisition of the Company through a
merger with a wholly-owned subsidiary of Mesa Air Group, Inc. While the exact
amount of the fee earned by Barlow Partners, L.P. will be calculated based upon
the market values of the Company and Mesa Air Group, Inc. at the time of the
merger, if consummated, it is estimated that the fee will be approximately
$1,080,000. The fee can be paid in cash or in shares of common stock of Mesa Air
Group, Inc. Mr. George Murnane, a director of the Company, is the sole general
partner of Barlow Partners, L.P. See Note 2 beginning on page 30 for additional
information on Barlow Partners, L.P.
The Company believes that the foregoing transactions were contracted on
terms at least as favorable to the Company as could be obtained from unrelated
third parties.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1.&2. The financial statements and schedule required by this
Item can be found as indexed on Page F-1.
3. Exhibits shown by index beginning on page E-1.
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on October 29, 1998
reporting as Item 5. Other Information that the Company had
reached a settlement with the Ministry of Industry, Science and
Technology of the Government of Canada regarding certain claims
made by the Ministry.
33
<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.
CCAIR, INC.
DATE: March 29, 1999 BY: /s/ Kenneth W. Gann
---------------------------------
Kenneth W. Gann, President and
Chief Executive Officer
Pursuant to the requirement 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Kenneth W. Gann Chairman of the Board of Directors, March 29 1999
- ----------------------------
Kenneth W. Gann Chief Executive Officer, President
(Principal Executive Officer)
/s/ Eric W. Montgomery Vice President of Finance; March 29, 1999
- ----------------------------
Eric W. Montgomery (Principal Financial Officer,
Principal Accounting Officer)
/s/ K. Ray Allen Director March 29, 1999
- --------------------------------
K. Ray Allen
/s/ Gordon Linkon Director March 29, 1999
- ----------------------------
Gordon Linkon
/s/ Richard P. Magurno Director March 29, 1999
- ----------------------------
Richard P. Magurno
/s/ George Murnane, III Director March 29, 1999
- -----------------------------
George Murnane, III
/s/ Dean E. Painter, Jr. Director March 29, 1999
- ------------------------------
Dean E. Painter, Jr.
</TABLE>
34
<PAGE>
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
2. Plan of Reorganization of CCAIR, Inc., effective September 3, 1991. (5)
3.2 Amended and Restated Bylaws of CCAIR, Inc. (18)
4. Specimen Common Stock Certificate. (1)
10.1 (a) The Company's Stock Option Plan dated May 18, 1989 with forms of Incentive Stock Option
Agreement and Nonqualified Stock Option Agreement attached. (1)
(b) Amendment to the Amended and Restated Stock Option Plan, dated February 6, 1992. (6)
(c) Second Amended and Restate Stock Option Plan, dated February 6, 1993. (13)
(d) Third Amended and Restated Stock Option Plan of the Company, dated February 23, 1994. (10)
(e) Fourth Amended and Restated Stock Option Plan of the Company, dated November 15, 1994. (14)
(f) 1998 Stock Incentive Plan. (19)
10.2 (a) Agreement dated October 16, 1991 between CCAIR, Inc. and The Air Line Pilots in the service of
CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
(b) Letter of Agreement amendment dated December 14, 1991 between CCAIR, Inc. and The Air Line
Pilots in the service of CCAIR, Inc. as represented by the Air Line Pilots Association International. (6)
(c) Letter of Agreement amendment dated February 28, 1992 between
CCAIR, Inc. and The Air Line Pilots in the service of CCAIR, Inc.
as represented by the Air Line Pilots Association International. (6)
(d) Letter of Agreement amendment dated February 28, 1992 between
CCAIR, Inc. and The Air Line Pilots in the service of CCAIR, Inc.
as represented by The Air Line Pilots Association International. (6)
10.3 (f) Ground Handling Agreement, dated February 1, 1994, between CCAIR. Inc., and USAir, Inc. (10)
(g) Service Agreement between US Airways, Inc. and CCAIR, Inc., dated February 25, 1999. (19)
10.4 (a) Loan Agreement dated as of September 4, 1991, between CCAIR, Inc., and NCNB National Bank of
North Carolina. (4)
(b) Revolving Credit Promissory Note by CCAIR, Inc. in favor of NCNB National Bank of North Carolina,
dated September 4, 1991. (4)
(c) Security Agreement dated as of September 4, 1991, between CCAIR,
Inc., and NCNB National Bank of North Carolina. (4)
(d) Loan Purchase Agreement dated as of September 4, 1991, by and
among NCNB National Bank of North Carolina, British Aerospace,
Inc., and CCAIR, Inc. (4)
(e) Security Agreement dated as of September 4, 1991, between CCAIR,
Inc. and British Aerospace, Inc. An identical agreement was
executed with Jet Acceptance Corporation as of September 4, 1991,
and is not filed herewith. (4)
(f) Pledge of Cash Collateral Account dated as of September 4, 1991,
by and among CCAIR, Inc., NCNB National Bank of North Carolina,
British Aerospace, Inc., and Jet Acceptance Corporation. (4)
(g) Loan Agreement dated as of August 14, 1992 between CCAIR, Inc.
and NationsBank of North Carolina, N.A. (6)
(h) Agreement dated as of January 17, 1994 among CCAIR, Inc.,
NationsBank of North Carolina, N.A., British Aerospace, Inc. and
Jet Acceptance Corporation. (10)
(h)(i) Assignment and Bill of Sale dated as of January 10, 1995 by and among CCAIR, Inc., NationsBank of
North Carolina, N.A., British Aerospace, Inc. and Jet Acceptance Corporation. (16)
10.5 Common Stock Purchase Agreement dated as of December 4, 1997 by and among CCAIR, Inc., and
Robert Priddy, Bonderman Family Limited Partnership, Hakatak Enterprises, Inc., Nominee, Par
Investment Partners, L.P. and Jonathan G. Ornstein.1
10.6 Form of Operating Lease between Jet Acceptance Corporation and CCAIR, Inc., dated as of November
24, 1997, for 20 aircraft with Serial Numbers N941AE, N962AE, N928AE, N943AE, N964AE,
N942AE, N957AE, N963AE, N920AE, N961AE, N966AE, N959AE, N965AE, N952AE, N919AE,
N958AE, N913AE, N927AE, N914AE, N930AE.
10.7 (a) Settlement Agreement by and bewteen CCAIR, Inc., and Lynrise Air Lease, Inc. dated as of March 31,
1998. (18)
(b) Registration Rights Agreement by and among CCAIR, Inc., and Lynrise Air Lease, Inc.
(c) Form of 7% Convertible Subordinated Note Due 2004.
10.10 (a)(i) Lease Agreement effective as of April 19, 1991 between the Asheville Regional Airport Authority and
CCAIR, Inc. (4)
(a)(ii)Letter dated August 28, 1991 by Asheville Regional Airport
Authority amending Lease. (4)
(b) Lease Agreement dated July 5, 1989
between Clarke County Airport Authority and CCAIR, Inc. (4)
(c) Agreement dated October 10, 1987 between the Central West Virginia
Regional Airport Authority and
CCAIR, Inc. (1)
(d) Commuter Airline Agreement and Lease dated May 20, 1988 between the City of Charlotte and
CCAIR, Inc. (1)
Note: For footnote references see page E-4
E-1
<PAGE>
(e) Agreement dated July 16, 1991 between the Chattanooga
Metropolitan Airport Authority and CCAIR, Inc. (4)
(f) Airport Use and Lease Agreement entered into as of January 1,
1989 between the Richland-Lexington Airport District and CCAIR,
Inc. (4)
(g) Agreement dated July 1, 1988 between the City of Danville, Virginia
and CCAIR, Inc. (1)
(h) Airport Use and Lease Agreement dated November
1, 1982 between Greenville-Spartanburg Airport
District and Sunbird, Inc. (1)
(i)(i) Letter Agreement dated July 13, 1988 from CCAIR, Inc. to Tri-State Airport Authority. (1)
(i)(ii)Letter dated February 25, 1991 by Tri-State Airport Authority amending Lease. (4)
(j)(i) Airport Use Agreement dated March 1, 1988 between the Board of Commissioners of Onslow County
and CCAIR, Inc. (1)
(j)(ii)Amendment to Lease dated July 15, 1988 between the same parties. (1)
(k) Operating Agreement dated April 15, 1987 between Metropolitan Knoxville Airport Authority and
CCAIR, Inc. (1)
(l) Lease Agreement dated March 1, 1988 between the City of Macon and
CCAIR, Inc. (1)
(m) Letter Agreement dated September 5, 1990 between New
Hanover County and CCAIR, Inc. (4)
(n) Lease Agreement dated May 1, 1989
between Tri-City Airport Commission and CCAIR, Inc. (4)
(o) Use Agreement dated May 1, 1991 between Airport Commission of Forsyth County
and CCAIR, Inc. (4)
(p) Letter from Pitt County - City of Greenville Airport Authority dated May 31, 1990 announcing fee
structure. (4)
(q) Airport Use Agreement dated May 1, 1991 between Raleigh County Airport Authority and CCAIR, Inc.
(4)
(r) Letter Agreement dated July 7, 1990 between Mercer County Airport
Authority and CCAIR, Inc. (4)
(s) Contract for Conduct of Commercial
Flight Operations dated September 1, 1991 between Maryland
Aviation Administration and CCAIR, Inc. (6)
10.29 (a) Commercial Use Permit between CCAIR, Inc., and City of
Charlotte, North Carolina dated April 1, 1991, relating to Old
Terminal Building at Charlotte/Douglas International Airport. (4)
(b) Commercial Use Permit dated April 15, 1992 between the City of
Charlotte and CCAIR, Inc. (6)
10.30 (a) Flight Attendant Agreement between CCAIR, Inc., and the Flight Attendants in the service of CCAIR,
Inc., as represented by the Association of Flight Attendants, effective May 22, 1991. (4)
(b) Letter of Agreement amendment dated May 6, 1992 between CCAIR, Inc. and the Flight Attendants
in service of CCAIR, Ins. as represented by the Association of Flight Attendants. (6)
10.31 Letter Agreement dated February 27, 1991 between Pennsylvania Airlines and CCAIR, Inc. (4)
10.32 (a) Purchase Agreement No. 8-0237, dated as of February 23, 1992 between CCAIR, Inc. and de
Havilland Inc. (successor to Boeing of Canada, Ltd., a Delaware corporation, through its de Havilland
Division) as amended by letter agreements attached thereto for two de Havilland DHC-8-102 Aircraft
(N880CC) and (N881CC). (6)
(b) Purchase Agreement Assignment between CCAIR, Inc. and Mellon
Financial Services Corporation #3 dated as of May 15, 1992
(N880CC). This Purchase Agreement Assignment is substantially
identical to Purchase Agreement Assignment (N881CC), dated as of
May 15, 1992, not filed herewith. (6)
(c) Lease Agreement between CCAIR, Inc. and Mellon Financial Services
Corporation #3 dated as of May 15, 1992 (N880CC). This Lease
Agreement is substantially identical to Lease Agreements
(N881CC), (N882CC) and N883CC) dated as of May 15, 1992, not
filed herewith. (6)
(d) Lease Supplement #1 between CCAIR, Inc. and Mellon Financial
Services Corporation #3 dated as of May 22, 1992 (N880CC). This
Lease Supplement #1 is substantially identical to Lease
Supplements (N881CC), (N882CC) and (N883CC) dated as of May 22,
June 1 and June 12, 1992, respectively, not filed herewith. (6)
(e) Tax Indemnity Agreement between CCAIR, Inc. and Mellon Financial
Services Corporation #3 dated as of May 15, 1992 (N880CC). This
Tax Indemnity Agreement is substantially identical to Tax
Indemnity Agreements (N881CC), (N882CC) and (N883CC) dated as of
May 15, 1992, not filed herewith. (6)
(f) Assignment and Assumption Agreement dated as of November __, 1995
between C.I.T. Leasing Corporation and Mellon Financial Services
Corporation #3. (16)
(g) Aircraft Lease Termination dated as of November ___, 1995 between
Mellon Financial Services Corporation #3 and CCAIR, Inc. (16)
10.33 (a) Lease Agreement (Spares) between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
as of August 14, 1992. (6)
(b) Lease Supplement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated as of
August 28, 1992. (6)
Note: For footnote references see page E-4
E-2
<PAGE>
(c) Tax Indemnity Agreement between CCAIR, Inc. and Mellon Financial Services Corporation #3 dated
as of August 14, 1992. (6)
10.34 Agreement dated January 1, 1994 between CCAIR, Inc. and the Mechanics and related employees in
the service of CCAIR as represented by the International Brotherhood of Teamsters. (13)
10.35 Employment Agreement between Kenneth W. Gann and CCAIR, Inc. dated November 14, 1996. (19)
10.36 (a) Agreement dated November 14, 1994, by and among CCAIR, Inc., British Aerospace Holdings, Inc.,
formerly British Aerospace, Inc., and Jet Acceptance Corporation. (16)
(b) Acceptance Supplement No. 2(N158PC) dated as of November 14, 1994 between Jet Acceptance
Corporation and CCAIR, Inc. This Acceptance Supplement No. 2 is substantially identical to
Acceptance Supplements No. 2 between Jet Acceptance Corporation and CCAIR, Inc. (N164PC,
N162PC, N159PC, N157PC, N156PC, N190PC, N170PC, N169PC, N168PC, N163PC and N161PC),
notified herewith. (16)
10.37 (a) Lease Agreement dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc.
for DHC-8-102 Aircraft (Reg. No. 880CC). This Lease Agreement is substantially identical to Lease
Agreements dated as of November 15, 1994 between C.I.T. Leasing Corporation and CCAIR, Inc. for
DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No. 883CC), not filed herewith. (16)
(b) Lease Agreement (Spares) dated as of November 15, 1994 between C.I.T. Leasing Corporation and
CCAIR, Inc. (16)
(c) Lease Supplement No. 1 is substantially identical to Lease Supplements No. 1 between C.I.T. Leasing
Corporation and CCAIR, Inc. for DHC-8-102 Aircraft (Reg. No. 881CC, Reg. No. 882CC and Reg. No.
883CC) and Lease Supplement No. 1 (Spares), not filed herewith. (16)
10.38 (a) Amended and Restated Loan Agreement dated as of February 10,
1995, between JSX Capital Corporation and CCAIR, Inc. (16)
(b) Revolving Note dated February 10, 1995 in the principal amount of $2,500,000 by CCAIR, Inc. to the
order of British Aerospace Holdings, Inc. (16)
(c) Amended and Restated Security Agreement dated as of February 10,
1995 between JSX Capital Corporation and CCAIR, Inc. (16)
(d) Amended and Restated Special Account and Disbursement
Authorization Agreement dated as of February 10, 1995 among
Wachovia Bank of North Carolina, N.A., CCAIR, Inc., British
Aerospace Holdings, Inc., Jet Acceptance Corporation and JSX
Capital Corporation. (16)
10.39 Letter Agreement dated September 28, 1995 between JSX Capital Corporation and CCAIR, Inc. (17)
10.40 September 1995 Master Agreement among CCAIR, Inc., British Aerospace Holdings, Inc., Jet
Acceptance Corporation and JSX Capital Corporation. (17)
10.41 Second Amendment to Amended and Restated Loan Agreement, Related Loan Documents and Master
Agreement as of July 9, 1997 between CCAIR, Inc., British Aerospace Holdings, Inc., Jet Acceptance
Corporation and British Aerospace Asset Management, Inc. (18)
10.42 CCAIR, Inc. Directors' Compensation Stock Option Plan as of November 14, 1996. (18)
10.43 Line of Credit Commitment as of October 8, 1996 between Centura Bank and CCAIR, Inc. (18)
10.44 Employment Agreement between CCAIR, Inc. and Eric W. Montgomery, dated as of July 1, 1998.
Employment Agreement for Peter Sistare is substantially identical, not filed herewith. (19)
11 Computation of earnings per share. (17)
16 Letter regarding change in Company's certifying accountant. (9)
18 Letter regarding change in accounting principles. (18)
23.1 Consent of Arthur Andersen, LLP. (19)
Note: For footnote references see page E-4
E-3
<PAGE>
Footnotes:
(1) Incorporated by reference to Registration Statement on Form S-1, File No. 33-28967.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1989, File No. 0-
17846.
(3) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 0-
17846.
(4) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 0-
17846.
(5) Incorporated by reference to Current Report on Form 8-K, filed August 1,
1991.
(6) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1992, File No. 0-
17846.
(7) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 0-
17846.
(8) Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
33-65878.
(9) Incorporated by reference to Current Report on Form 8-K/A, dated November 30, 1993, File No. 0-17846
(10) Incorporated by reference to Registration Statement on Form S-2, File No. 33-77574.
(11) Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-2, File No. 33-77574.
(12) Incorporated by reference to Amendment No. 2 to Registration Statement on Form S-2, File No. 33-77574.
(13) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 0-
17846.
(14) Incorporated by reference to Registration Statement on Form S-8 and Form
S-3, File No. 33-89832.
(15) Incorporated by reference to Quarterly Report on
Form 10-Q for the three-month period ended March 31, 1995,
File No. 0-17846.
(16) Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form S-2, File No.
33-77574.
(17) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended June 30, 1996, File No. 0-
17846.
(18) Incorporated by reference to Transition Report on Form 10-K for the
six-month period ended December 31, 1997, File No. 0-17846.
(19) Filed herewith.
</TABLE>
E-4
<PAGE>
CCAIR, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Public Accountants F-2
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 F-3
Statements of Operations for Year Ended December 31, 1998, the
Six-Month Periods Ended December 31, 1997 and 1996 (unaudited); and the
Years Ended June 30, 1997
and 1996 F-4
Statements of Changes in Shareholders' Equity (Deficit)
for Year Ended December 31, 1998, the Six-Month Period Ended
December 31, 1997 and the Years Ended June 30, 1997 and 1996 F-5
Statements of Cash Flows for Year Ended December 31, 1998,
the Six-Month Periods Ended December 31, 1997 and 1996
(unaudited); and the Years Ended June 30, 1997 and 1996 F-6
Notes to Financial Statements F-7
Financial Statement Schedule:
II Valuation and Qualifying Accounts for Year Ended
December 31, 1998, the Six Month-Period Ended
December 31, 1997; and the Years Ended
June 30, 1997 and 1996 S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not applicable, not required or the information
presented has been furnished elsewhere.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCAIR, Inc.:
We have audited the accompanying balance sheets of CCAIR, Inc. (a
Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations and changes in shareholders' equity (deficit) and cash
flows for the year ended December 31, 1998, the six-month period ended December
31, 1997 and for each of the two years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CCAIR, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998, the six-month period ended December 31,
1997 and for each of the two years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
As explained in Note 11 to the financial statements, effective July 1,
1997, the Company changed its method of accounting for engine, propeller and
landing gear overhauls.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Charlotte, North Carolina, ARTHUR ANDERSEN LLP
March 19, 1999.
F-2
<PAGE>
CCAIR, INC.
BALANCE SHEETS
December 31, 1998 and 1997
-------------------------
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,584 $ 11,647
Receivables, principally traffic, less allowance
for doubtful receivables of $84,000 at December
31, 1998 and $113,700 at December 31, 1997 6,345,751 5,047,701
Inventories, less allowance for obsolescence of $466,000
at December 31, 1998 and 1997 968,352 509,586
Parts held for resale, net of valuation reserves of
$726,000 at December 31, 1998 and $700,000 at
December 31, 1997 944,964 1,205,277
Prepaid expenses and other 1,894,238 1,976,896
------------ -----------
Total current assets 10,198,889 8,751,107
------------ -----------
Property and equipment, at cost:
Flight equipment and leasehold improvements 6,669,267 5,525,291
Ground and other property and equipment 4,564,950 4,380,712
------------ -----------
11,234,217 9,906,003
Less accumulated depreciation and amortization ( 7,013,897) (6,552,430)
------------ -----------
4,220,320 3,353,573
------------ -----------
Deferred preoperating costs, net of amortization
of $102,778 in 1998 719,443 ---
Other noncurrent assets 27,022 35,522
------------ -----------
Total assets $ 15,165,674 $12,140,202
============ ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current maturities
of long-term debt $ 1,581,071 $ 2,490,334
Note payable expected to be refinanced --- 7,920,000
Short-term borrowings --- 900,000
Current obligations under capital leases 188,473 229,194
Accounts payable 5,540,975 8,129,043
Accrued expenses 8,013,802 5,982,891
------------ -----------
Total current liabilities 15,324,321 25,651,462
Long-term debt, less current maturities 8,643,029 373,147
Capital lease obligations, less current obligations 1,982,422 2,269,230
Warrants liability 232,000 ---
------------ -----------
Total liabilities 26,181,772 28,293,839
============ ===========
Commitments and contingencies (Notes 4, 9, 10, 15 and 19)
Shareholders' deficit:
Common stock, $.01 par value, 30,000,000 and
10,000,000 shares authorized at December 31, 1998
and 1997, respectively, 8,931,195 issued and
outstanding at December 31, 1998 and 8,335,695 at
December 31, 1997 89,312 83,357
Additional paid-in capital 21,260,187 19,508,276
Accumulated deficit ( 32,365,597) (35,745,270)
Total shareholders' deficit ( 11,016,098) (16,153,637)
------------ -----------
Total liabilities and
shareholders' deficit $ 15,165,674 $12,140,202
============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
CCAIR, INC.
STATEMENTS OF OPERATIONS
For Year Ended December 31, 1998, the Six-Month Periods
Ended December 31, 1997 and 1996 (Unaudited); and the
Years Ended June 30, 1997 and 1996
------------------------
<TABLE>
<CAPTION>
Six-Month Period Ended The Years Ended
Year Ended ------------------------------- -----------------------------
December December December June June
1998 1997 1996 1997 1996
----------- ------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Passenger $70,409,954 $ 32,211,552 $33,479,757 $67,020,162 $64,482,156
Public service --- --- --- --- 352,888
Other, principally
freight and charter 915,028 624,003 513,418 1,467,460 1,398,657
----------- ------------ ----------- ----------- -----------
71,324,982 32,835,555 33,993,175 68,487,622 66,233,701
----------- ------------ ----------- ----------- -----------
Operating expenses:
Flight operations 21,569,017 10,522,782 11,672,573 23,539,207 23,490,322
Fuel and oil 5,016,311 2,813,162 3,805,346 7,117,089 6,261,716
Maintenance materials
and repairs 14,386,579 7,616,664 5,805,596 12,380,857 12,565,634
Ground operations 10,548,077 4,463,474 4,195,739 8,372,738 7,838,926
Advertising, promotion
and commissions 9,938,753 4,846,996 4,839,498 9,867,686 9,104,225
Fleet restructuring and other
nonrecurring charges (Note 8) --- 9,880,520 --- --- ---
General and administrative 4,576,730 2,656,042 1,967,529 4,115,530 4,273,030
Depreciation and
amortization 933,674 739,831 921,269 1,699,181 1,813,533
----------- ------------ ----------- ----------- -----------
66,969,141 43,539,471 33,207,550 67,092,288 65,347,386
----------- ------------ ----------- ----------- -----------
Operating income (loss) 4,355,841 (10,703,916) 785,625 1,395,334 886,315
Interest expense ( 1,073,565) ( 641,394) ( 406,576) ( 742,437) ( 761,433)
Other income (expense), net 97,397 27,291 ( 3,237) 8,291 ( 11,027)
Income (loss) before income taxes
and cumulative effect of a change
in accounting principle 3,379,673 (11,318,019) 375,812 661,188 113,855
Provision for income taxes --- --- --- ( 140,928) ( 18,100)
----------- ------------ ----------- ----------- -----------
Income (loss) before cumulative
effect of a change in accounting
principle 3,379,673 (11,318,019) 375,812 520,260 95,755
Cumulative effect on prior years
(to June 30, 1997) of changing
to the accrual method of
accounting for major component
overhauls (Note 11) --- (12,981,816) --- --- ---
----------- ------------ ----------- ----------- -----------
Net income (loss) $ 3,379,673 $(24,299,835) $ 375,812 $ 520,260 $ 95,755
=========== ============ =========== =========== ===========
Basic income (loss) per
common share (Note 5) $ .40 $( 3.10) $ .05 $ .07 $ .01
=========== ============ =========== =========== ===========
Weighted average common
shares outstanding 8,541,446 7,842,380 7,740,613 7,740,654 7,565,421
=========== ============ =========== =========== ===========
Diluted income (loss)
per share $ .36 $( 3.10) $ .05 $ .07 $ .01
=========== ============ =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 9,260,860 7,842,380 7,953,685 7,999,174 7,969,314
=========== ============ =========== =========== ===========
Proforma amounts assuming the
new method of accounting is
applied retroactively
Net Income $ 188,885 $ 350,240 $ 1,132,441
=========== =========== ===========
Basic income per
common share $ .02 $ .05 $ .15
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-4
<PAGE>
CCAIR, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
For Year Ended December 31, 1998, the Six-Month
Period Ended December 31, 1997 and the Years Ended
June 30, 1997 and 1996
-------------------------
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1995 7,400,695 $74,007 $17,020,148 $(12,061,450) $ 5,032,705
Net income ---- --- ---- 95,755 95,755
Issuance of stock to lessor 325,000 3,250 687,375 ---- 690,625
Exercise of options 15,000 150 17,661 ---- 17,811
--------- ------- ----------- ------------ ------------
Balances, June 30, 1996 7,740,695 $77,407 $17,725,184 $(11,965,695) $ 5,836,896
Net income ---- --- ---- 520,260 520,260
--------- ------- ----------- ------------ ------------
Balances, June 30, 1997 7,740,695 $77,407 $17,725,184 $(11,445,435) $ 6,357,156
Net loss ---- --- ---- (24,299,835) (24,299,835)
Exercise of options 50,000 500 58,875 --- 59,375
Grant of compensatory
warrants (Note 12) ---- --- 240,417 --- 240,417
Issuance of stock in
private transaction 545,000 5,450 1,483,800 --- 1,489,250
--------- ------- ----------- ------------ ------------
Balances, December 31, 1997 8,335,695 $83,357 $19,508,276 $(35,745,270) $(16,153,637)
Net income ---- --- ---- 3,379,673 3,379,673
Exercise of options 95,500 955 120,904 --- 121,859
Issuance of stock 500,000 5,000 1,631,007 --- 1,636,007
--------- ------- ----------- ------------ ------------
Balances, December 31, 1998 8,931,195 $89,312 $21,260,187 $(32,365,597) $(11,016,098)
========= ======= =========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-5
<PAGE>
CCAIR, INC.
STATEMENTS OF CASH FLOWS
For Year Ended December 31, 1998, the Six-Month Periods
Ended December 31, 1997 and 1996 (Unaudited); and the
Years Ended June 30, 1997 and 1996
------------------------
<TABLE>
<CAPTION>
Six-Month Period Ended The Years Ended
Year Ended ------------------------------ --------------------------
December 31, December 31, December 31, June 30, June 30,
1998 1997 1996 1997 1996
------------ ------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 3,379,673 $(24,299,835) $ 375,812 $ 520,260 $ 95,755
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Note discount amortization 57,289 31,197 53,129 76,561 201,503
Depreciation and amortization (1) 933,674 739,831 2,766,472 5,595,917 6,206,823
Lease expense in excess of
(less than) payments ---- ( 237,957) ( 232,095) ( 487,801) 20,496
Loss (gain) on disposal of
assets ( 20,397) ( 19,332) 3,237 4,864 31,855
Lease termination charge ---- 9,144,281 ---- ---- ----
Write-off leasehold improvements ---- 680,012 ---- ---- ----
Write-off deferred credits ---- (1,031,677) ---- ---- ----
Adjust property, plant and
equipment to be disposed of
to net realizable value ---- 1,882,913 ---- ---- ----
Change in accounting principle ---- 7,407,549 ---- ---- ----
Compensatory warrants ---- 240,417 ---- ---- ----
Changes in certain assets
and liabilities:
Receivables, net ( 1,298,050) 581,258 879,287 308,263 579,850
Inventories and parts
held for resale ( 198,453) 367,513 ( 190,798) ( 323,923) 26,432
Deferred preoperating costs ( 822,221) ---- ---- ---- ----
Accounts payable ( 2,588,068) 2,608,485 ( 476,282) ( 25,593) 1,488,049
Accrued expenses 2,030,911 ( 363,851) (1,052,007) 875,039 1,152,881
Warrant liability 232,000 ---- ---- ---- ----
Other changes, net 91,158 ( 333,522) ( 308,361) 370,573 ( 889,841)
------------ ------------ ----------- ----------- -----------
Net cash provided by (used
in) operating activities 1,797,516 (2,602,718) 1,818,394 6,914,160 8,913,803
------------ ------------ ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ( 1,712,231) ( 382,135) (3,105,913) (6,954,961) (6,169,304)
Proceeds from sale of assets 34,985 20,351 2,400 3,400 4,250
------------ ------------ ----------- ----------- -----------
Net cash used in
investing activities ( 1,677,246) ( 361,784) (3,103,513) (6,951,561) (6,165,054)
------------ ------------ ----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 1,757,866 1,548,625 ---- ---- 17,811
Issuance of notes and
long-term debt 2,232,918 361,645 110,000 573,434 530,281
Short-term borrowings, net ( 900,000) (3,051,000) (3,023,000) 641,000 3,210,000
Reductions of notes and long-term
debt, including payments under
capital lease obligations ( 3,177,117) ( 787,899) ( 851,556) (1,331,920) (1,504,171)
------------ ------------ ----------- ----------- -----------
Net cash provided by (used
in) financing activities ( 86,333) (1,928,629) (3,764,556) ( 117,486) 2,253,921
------------ ------------ ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 33,937 (4,893,131) (5,049,675) ( 154,887) 5,002,670
Cash and cash equivalents,
beginning of period 11,647 4,904,778 5,059,665 5,059,665 56,995
------------ ------------ ----------- ----------- -----------
Cash and cash equivalents,
end of period $ 45,584 $ 11,647 $ 9,990 $ 4,904,778 $ 5,059,665
============ ============ =========== =========== ===========
</TABLE>
(1) Amortization of capitalized overhauls is included in Maintenance, Materials
and Repairs expense in the accompanying statements of operations for fiscal
years 1997 and 1996, and the six-months ended December 31, 1996.
The accompanying notes to financial statements are an integral part
of these statements.
F-6
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of these financial statements follows:
Nature of Operations and Basis of Presentation - CCAIR, Inc. (the
"Company") is an independent regional airline providing scheduled
passenger service as US Airways Express in the southeast United States.
CCAIR, Inc. operates within one industry (air transportation) and,
accordingly, no segment information is provided.
Revenue Recognition - Passenger revenue is recognized when service is
rendered. Public service revenue represents Federal subsidies received
for providing Essential Air Service to certain communities which
produce insufficient air traffic to profitably support such service.
Rates for such transportation services are determined under the Federal
Aviation Act by the Department of Transportation. Revenue is recognized
when service is rendered.
Frequent Traveler Awards - The Company does not sponsor its own
frequent traveler program. It does honor the US Airways program but
limits the available program seats. The Company's share of future
travel awards to be incurred, if any, is not determinable but expenses
related to usage of such awards are believed by management to be
immaterial.
Cash and Cash Equivalents - Cash equivalents include all investments
with an original maturity of three months or less. Cash and cash
equivalents are principally held by one bank.
Receivables - The Company's air traffic receivables are settled through
the Airlines Clearing House and collected monthly, one month in
arrears.
Inventories - Inventories consist principally of expendable spare parts
and are valued at the lower of cost or market, determined on an average
cost basis. Expendable parts are recorded as inventory when purchased
and charged to operations as used.
Parts Held for Resale - Parts held for resale consist of expendable
parts and equipment held for resale, and are valued at the lower of
cost or fair market value.
Prepaid Expenses - Prepaid expenses include prepaid insurance and
prepaid maintenance (see "Maintenance" section of Note 1 for additional
discussion).
Depreciation and Amortization - Property and equipment are depreciated
to estimated residual values on the straight-line method over their
economic useful service lives, ranging as follows:
Flight equipment 7 - 10 years
Ground and other property and equipment 3 - 10 years
Leasehold improvements and flight equipment held under capital leases
are amortized using the straight-line method over the estimated useful
service lives of the related assets, not exceeding the lease term. Cost
and accumulated depreciation of property retired or otherwise disposed
of are removed from the accounts, and the related gain or loss is
included in other income.
Maintenance - With the exception of overhauls of engines, landing gears
and propellers, the Company expenses maintenance events when incurred.
The Company adopted the accrual method of accounting for major
overhauls effective July 1, 1997 (see Note 11). Under this method, the
Company accrues for current and future maintenance events on an ongoing
basis in amounts estimated as sufficient to cover the cost of the
overhaul when incurred. These accruals are estimated on a cost per
flight hour basis for all aircraft.
Income Taxes - Deferred tax liabilities and assets are determined based
on the difference between the financial
F-7
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse (see Note 13).
Fair Value of Financial Instruments - The carrying amount of the
Company's financial instruments approximates fair value at December 31,
1998 and 1997.
Income (loss) per Common Share - Income (loss) per common share is
calculated according to the requirements of SFAS No. 128 and is based
on the weighted average number of common shares outstanding. Prior
years' earnings per share have been restated to conform with current
year presentation (see Note 5).
Deferred Preoperating Costs - The Company accepted delivery of six
additional Dash 8 aircraft from June, 1998 through October, 1998.
Certain costs were incurred to integrate the aircraft into the
Company's operations. These expenditures were comprised primarily of
rental payments on the aircraft prior to their entrance into scheduled
flying, the retention and training of flight crews and initial
airworthiness inspections. As permitted under Statement of Position
(SOP) 88-1, "Accounting for Developmental and Preoperating Costs,
Purchases and Exchanges of Take-Off and Landing Slots, and Airframe
Modifications", these costs were capitalized as preoperating costs on
the accompanying balance sheet and are being amortized over 24 months.
During 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities" which becomes effective for fiscal years beginning
after December 15, 1998. This Statement precludes the capitalization of
preoperating costs of this nature. Accordingly, the Company will be
required to write off the unamortized deferred assets balance as of
January 1, 1999, $719,000, which will be reflected as a cumulative
effect of a change in accounting principle.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncement
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities" to establish accounting and
reporting standards for derivative instruments and hedging activities.
The Company does not expect to be impacted by this standard.
Warrants Liability
In 1998 the Company issued detachable warrants that contain a put
feature in order to obtain financing (see Notes 9 and 14). The warrants
liability has been established at fair value using the Black-Scholes
Model. Any changes in fair value between periods is recognized as other
income or expense.
Reclassifications - Certain amounts included in prior periods'
financial statements have been reclassified to conform to 1998
presentation.
Unaudited Statements - The Statement of Operations and the Statement of
Cash Flows for the six-month period ended December 31, 1996 have been
included for comparative purposes. These statements are unaudited and
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of results under generally accepted
accounting principles.
2. PETITION FOR RELIEF UNDER CHAPTER 11
The Filing - As a result of cash flow difficulties and the need for
protection based upon its defaults under certain
F-8
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
leasing and financing arrangements, the Company filed for Chapter 11
bankruptcy on July 5, 1990.
The Plan of Reorganization (the "Plan")
Under Chapter 11, certain claims against the Debtor in existence prior
to the filing of the petition for relief under the Federal Bankruptcy
laws are stayed while the Debtor continues business operations as
Debtor-in-Possession. Additional claims arose subsequent to the filing
date through September 3, 1991, the Plan's effective date. Such claims
resulted from rejection of executory contracts, including leases, and
from the determination by the Bankruptcy Court (or agreed to by the
parties-in-interest) of allowed claims for contingencies and other
disputed amounts. Claims secured against the Debtor's assets ("Secured
Claims") also are stayed, although holders of such claims have the
right to seek relief from the stay. Secured claims are collateralized
primarily by liens on the Company's property and equipment.
The Company received approval from the Bankruptcy Court (the "Court")
to pay or otherwise honor certain of its prepetition obligations,
including employee wages, insurance, and payables to US Airways in the
normal course of business. The Company determined that there was
insufficient collateral to cover the interest portion of scheduled
payments on its prepetition debt obligations and discontinued accruing
interest on these obligations. Contractual interest on those
prepetition obligations was approximately $847,000, which was $739,000
in excess of reported interest expense in 1991. Chapter 11 provides for
reorganization of the Company's debt and equity structure and allows
the business to continue operations. Subsequent to filing Chapter 11,
the Company engaged in negotiations with its creditors and other
parties-in-interest toward achieving a plan of reorganization and a
settlement of outstanding claims against the Company. As a result of
these negotiations, the Company filed a Plan of Reorganization on April
10, 1991, a Revised Plan of Reorganization on May 3, 1991 and a Revised
and Amended Plan of Reorganization on June 12, 1991 (the "Plan") with
the Court. On July 19, 1991, the creditors and the Court confirmed the
Plan effective September 3, 1991.
In the process of developing the Plan intended to return the Company to
profitable operations, management evaluated its aircraft fleet, route
system, and relationship with US Airways Group, Inc. ("US Airways").
Under the Bankruptcy Code, the Company elected to assume or reject
certain aircraft leases, real and personal property leases, service
contracts and other executory prepetition contracts subject to the
Court's review. During 1991, the Company returned three (3) owned
aircraft and twelve (12) leased aircraft, although subsequently the
Company accepted and took back four (4) of the leased aircraft.
Distribution to Creditors Under the Plan - The provisions of the Plan
divide claims and interests into fourteen (14) classes and contain
various repayment provisions and compromises of allowed claims. The
principal Plan provisions vary depending on the class of claims and are
as follows:
1. Payment of ten (10) to twenty (20) percent of allowed claims
at the time of the Plan's effective date, with the remainder
of such claims paid in equal annual installments over up to
eight (8) years;
2. Return of aircraft, parts or equipment in satisfaction of
allowed claims or in accordance with settlement agreements;
3. Release of certain liens on aircraft parts and equipment;
4. Issuance of common shares in payment of allowed claims;
5. Compromise of claims for prepetition and postpetition accrued
aircraft lease payments; assumption of certain aircraft
leases, payment of accrued prepetition and postpetition lease
payments on rejected aircraft leases and settlement payments
at the effective date as well as in future equal annual
installments over up to eight (8) years (see Note 9).
All remaining Chapter 11 obligations are unsecured and are due in
annual installments of $166,001. These obligations are as follows:
F-9
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Notes payable, noninterest-bearing,
to unsecured vendors in annual
installments through 1999 $166,001 $296,393
Discount at 15% --- 35,608
-------- --------
Payments due 166,001 332,001
Less current portion 166,001 166,001
-------- --------
Long-term portion of payments due $ -0- $166,000
======== ========
</TABLE>
3. US AIRWAYS AGREEMENT
The Company and US Airways, an unaffiliated company, agreed to an
extension of the service agreement (the "Agreement"), whereby the
Company provides regional air service on air routes approved by US
Airways. The Agreement was extended through December, 2003. The
majority of passenger revenue is generated from the Agreement through
joint passenger fares and division of revenue with US Airways. The
Company receives use of various US Airways service marks including use
of the designator code and US Airways logo and color patterns. Under
the contract, the Company is obligated to pay US Airways for
reservation services and various ground support services (exclusive of
aircraft fueling).
The Company is required to maintain flight completion percentages and
to meet other conditions as specified in the Agreement. As of December
31, 1998, the Company is in compliance with all requirements. Should an
event of default occur, the Agreement provides that US Airways has the
right to terminate the Agreement upon ten (10) days' written notice.
The Agreement also provides that it may be terminated by either party
upon 180 days' notice.
The Company is responsible for all ground operations at Concourse D of
the Charlotte/Douglas International Airport. Pursuant to an agreement
with US Airways, the Company receives reimbursement for these services
on a monthly basis. The reimbursement is currently $406,000 per month.
This amount offsets expenses related to the operation of Concourse D
and is recorded as a reduction of ground operations expense for
financial reporting purposes. The Company recorded total reimbursements
of $4,819,206 in 1998 and $2,223,000 for the six months ended December
31, 1997.
A summary of other transactions and year-end account balances with US
Airways and subsidiaries is as follows:
<TABLE>
<CAPTION>
Six-Month
Year Ended Period Ended Year Ended June 30,
December 31, December 31, ----------------------------
1998 1997 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Service fees included in ground
operations and advertising,
promotions and commissions expense $7,502,216 $3,340,619 $6,516,445 $5,550,962
Passenger revenue receivable 5,638,642 4,076,448 4,897,651 4,992,157
Amounts payable 1,374,285 1,084,119 1,174,114 1,351,120
</TABLE>
4. MERGER WITH MESA AIR GROUP, INC.
On January 28, 1999, the Company entered into a definitive merger
agreement (the "Agreement") with Mesa Air Group ("Mesa"), whereby the
Company will become a wholly-owned subsidiary of Mesa. Mesa is a
Phoenix, Arizona based operator of regional airlines including both
turboprop and regional jet equipment.
F-10
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
Under terms of the Agreement, each outstanding share of the Company's
common stock will be converted into the right to receive a fraction of
a share of Mesa common stock, determined by dividing $4.35 by the
average Mesa share price for a specified ten-day trading period prior
to the closing. The conversion is subject to a maximum exchange ratio
of .6214 if the Mesa share price falls below $7.00 and a minimum
exchange ratio of .435 if the Mesa share price exceeds $10.00.
The consummation of the merger is subject to the approval of the
Company's and Mesa's shareholders, certain regulatory approvals and
other conditions as set forth in the Agreement.
5. EARNINGS PER SHARE
In February, 1997 the FASB issued SFAS No. 128, "Earnings Per Share".
This statement establishes standards for computing and presenting EPS.
It requires presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires reconciliation of the computation of basic EPS to diluted EPS.
Basic EPS is computed by dividing income available to shareholders by
the weighted average number of shares outstanding for the period.
Diluted EPS gives effect to all dilutive potential common shares that
were outstanding during the period. Prior period EPS has been restated
to conform to the new statement. This statement was adopted by the
Company beginning October 1, 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended Six-Month Period Ended
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income (loss) from
operations $ 3,379,673 8,541,446 $ .40 $(11,318,019) 7,842,380 $(1.44)
Cumulative effect of
accounting change --- --- --- (12,981,816) 7,842,380 (1.66)
------------ ------------- --------- ------------ ------------- ---------
Net income (loss) 3,379,673 8,541,446 .40 (24,299,835) 7,842,380 (3.10)
Effect of dilutive
securities (options
and warrants) (1) 719,414 ---
------------ ------------
Diluted earnings per share
Income (loss) from
operations 3,379,673 9,260,860 .36 (11,318,019) 7,842,380 (1.44)
Cumulative effect of
accounting change --- --- --- (12,981,816) 7,842,380 (1.66)
------------ ------------- --------- ------------ ------------- ---------
Net income (loss) $ 3,379,673 9,260,860 $ .36 $(24,299,835) 7,842,380 $(3.10)
============ ========= ====== ============ ========= ======
Fiscal Year Ended Fiscal Year Ended
June 30, 1997 June 30, 1996
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic earnings per share
Net income $ 520,260 7,740,654 $ 0.07 $ 95,755 7,565,421 $ 0.01
Effect of dilutive
securities (options
and warrants) (1) 258,520 403,893
------------ ------------
Diluted earnings per share
Net income $ 520,260 7,999,174 $ 0.07 $ 95,755 7,969,314 $ 0.01
============ ========= ====== ============ ========= ======
</TABLE>
(1) The effect of including stock options and warrants in the six months ended
December 31, 1997 would be antidilutive and therefore is excluded from the
diluted earnings per share calculation.
F-11
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
6. ACCRUED EXPENSES
Accrued expenses by major classification are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------- ----------
<S> <C> <C>
Salaries and wages, vacation pay
and related payroll taxes $ 3,352,851 $2,016,192
Accrued ground and passenger charges 1,643,126 1,428,812
Accrued property and excise taxes 444,758 683,627
Accrued leases 604,555 520,621
Accrued repair expense 1,649,910 883,639
Other accrued expenses 318,602 450,000
----------- ----------
$ 8,013,802 $5,982,891
=========== ==========
</TABLE>
7. SHORT-TERM BORROWINGS
In February, 1995, the Company obtained a line of credit (the "Line of
Credit") in an amount not to exceed $2,500,000 from British Aerospace
Asset Management ("BAAM"), formerly JSX Capital Corporation, with
increases to $3,000,000 in July, 1996 and to $4,000,000 in July, 1997.
BAAM is an affiliate of Jet Acceptance Corporation ("JACO"), the
leasing company for the Company's fleet of Jetstream aircraft, and
British Aerospace Holdings, Inc., the company that had previously
collateralized the Company's line of credit from NationsBank, N.A.
through a loan purchase agreement.
The Line of Credit permits the Company to borrow up to 70% of a
borrowing base, consisting of the Company's transportation and
nontransportation charges to Airlines Clearing House, Inc. or such
greater amount as BAAM shall determine, but in no event more than $4.0
million. The Line of Credit is secured by all of the Company's accounts
receivable, bears interest at prime + 2% and is scheduled to terminate
on July 31, 1999. BAAM has pledged to renew the Line for successive
one-year periods through December 31, 2001. Under the provisions of the
Line of Credit, the Company must comply with restrictive covenants
regarding indebtedness and security interests in the Company's
property. As of December 31, 1998, the Company is in compliance with
all covenants. Average amounts outstanding under the credit line were
approximately $3,023,000 and $3,259,000 during 1998 and the six months
ended December 31, 1997, respectively. There was not an outstanding
balance under the Line of Credit as of December 31, 1998 or 1997.
In November, 1996 the Company secured a line of credit with its primary
banking facility, Centura Bank. This was a $400,000 revolving line of
credit, with seasonal increases to $800,000 (not to exceed a total
advance of all credit facilities on Airlines Clearing House net
receivables). This line is secured by the titles to certain ground
equipment and vehicles, bears interest at prime plus 2%, and expires on
July 1, 1999. There was $-0- and $400,000 outstanding under this line
as of December 31, 1998 and 1997, respectively, with an average amount
outstanding of $285,000 and $305,473, respectively.
During 1998 and the 1997 transition period, the Company obtained
short-term loans bearing interest at 10% annually from certain
directors, officers and related parties. Individual amounts borrowed
under these loans ranged from $150,000 to $350,000 during 1998 and from
$45,000 to $350,000 during the 1997 transition period. The aggregate
maximum and average amounts outstanding under these loans were $500,000
and $209,000 during 1998 and $500,000 and $129,000 during the six
months ended December 31, 1997. Amounts outstanding under these loans
as of December 31, 1998 and 1997 were $-0- and $500,000, respectively.
In connection with these loans, the Company issued to the lending
parties options and warrants to purchase 12,500 and 23,550 shares of
the Company's common stock during the respective reporting periods (see
Note 14).
F-12
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
8. FLEET RESTRUCTURING AND OTHER NONRECURRING CHARGES
As part of the Company's restructuring plans, the Company entered into
a transaction with Lynrise Air Lease, Inc. ("Lynrise") to return the
Company's nine leased Shorts aircraft to Lynrise as lessor. Pursuant to
this agreement, the aircraft were returned between October, 1997 and
January, 1998. In return for the early termination of the aircraft
leases, the Company issued a promissory note in the amount of
$9,725,000. The promissory note was issued in contemplation of the
Company's obligations to lessor, which consisted of: lease termination
and aircraft remarketing provisions - $6.1 million, previously recorded
liabilities in the form of accrued rent and notes payable - $1.8
million and return condition obligations - $1.8 million. In September,
1998 the Company exercised its option issued in conjunction with the
note by issuing 500,000 shares of its common stock to Lynrise. As a
result, the Company's short-term obligation of $1,675,000 was satisfied
by Lynrise's subsequent sale of the stock. The remainder of the note
was converted to a long-term subordinated note, face amount $8,334,775,
which is convertible to common stock at $7.50 per share. This
subordinated note is due in 2004, with interest and principal payments
beginning in 1999. Principal payments may be paid in cash or stock, at
the Company's option.
Under an accord reached with BAAM in November, 1997 the Company agreed
to replace its 14 Jetstream 31 aircraft with 20 Jetstream Super 31
aircraft. In return for renegotiated lease rates, the Company agreed to
lease 14 of the Jetstream Super 31 aircraft for seven years, and the
additional six Jetstream Super 31 aircraft until December 31, 1998. In
January 1999, the Company returned four of the six additional aircraft
and leased the other two for an additional year. The final Jetstream
Super 31 aircraft was operational in the Company's system prior to
April 30, 1998. The Jetstream Super 31 aircraft are newer and faster
than the predecessor Jetstreams, and can operate with fewer weight
restrictions.
As a result of the retirement of the Shorts and Jetstream 31 aircraft,
for the six months ended December 31, 1997 the Company recorded charges
to reduce unusable spare parts inventory to resale value, write off
leasehold improvements and accrue for aircraft return conditions,
transition rents and pilot requalifications. In addition, the Company
reclassified retired aircraft carrying charges to fleet restructuring
expense. The following table summarizes the restructuring charges:
Revaluation and writedown of spare parts and other inventory to net
resale value $ 2,327,000
Leasehold improvements written off 680,000
Aircraft lease termination settlement 6,115,000
Return condition requirements 3,246,000
Maintenance contract termination 2,483,000
Pilot qualifications 198,000
Transition rents 280,000
Retired aircraft carrying charges 675,000
Consulting fees 241,000
Writeoff of deferred credits associated with aircraft leases (1,032,000)
Aircraft component overhaul accrual write-off (5,332,000)
----------
$ 9,881,000
===========
9. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Note payable to former aircraft lessor, interest
at 7% due in quarterly installments, principal
payments beginning December 31, 1999. The
note matures in December, 2004 $8,334,775 $9,725,012
F-13
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
December 31, December 31,
1998 1997
---------- ----------
Note payable to a local bank and board member, less $298,048 discount,
interest at 13.75% due in monthly installments, principal payments
beginning October 1, 1999. The notes mature
in September, 2003 801,952 ----
Note payable to aircraft manufacturer due
in monthly installments of $17,727 through December 31, 1999,
including interest at 10%, less $25,165 discount at 15% at December
31, 1998 and $46,844 at December 31, 1997 176,383 337,319
Notes payable, noninterest bearing, to unsecured
vendors in annual installments through 1999,
less $35,608 discount at 15% at December 31,
1997 (No discount at December 31, 1998) (Note 2) 166,001 296,393
Other notes payable 744,989 424,757
---------- ----------
10,224,100 10,783,481
Less current maturities 1,581,071 2,490,334
Less amounts expected to be refinanced ---- 7,920,000
---------- ----------
$8,643,029 $ 373,147
========== ==========
</TABLE>
The following table summarizes maturities of long-term debt and notes
payable as of December 31, 1998:
1999 $ 1,581,071
2000 1,040,492
2001 1,078,431
2002 1,069,235
2003 1,040,388
Thereafter 4,414,483
-----------
$10,224,100
===========
In September, 1997 management approved the restructuring plan related
to the disposition of the Shorts aircraft. In connection with this
restructuring, the Company entered into a lease termination agreement
with the lessor of its Shorts aircraft (see Note 8). To consummate the
agreement, the Company issued a promissory note in the amount of
$9,725,000, due August 31, 1998. In September, 1998 the Company
exercised its option issued in conjunction with the note by issuing
500,000 shares of its common stock to Lynrise. As a result, the
Company's short-term obligation of $1,675,000 was satisfied by
Lynrise's subsequent sale of the stock. The remainder of the note was
converted to a long-term subordinated note, face amount $8,334,775,
which is convertible to common stock at $7.50 per share. This
subordinated note is due in 2004, with interest and principal payments
beginning in 1999. Principal payments may be paid in cash or stock, at
the Company's option. Before the exercise of the option, the portion of
the promissory note expected to be converted to long-term in 1998 was
classified on the December 31, 1997 balance sheet as a current
liability - "Note payable expected to be refinanced".
In September, 1995, the Company reached an agreement with JACO to
restructure the payment of the entire remaining amount due to JACO
under the bankruptcy plan (approximately $1,232,000, net of $402,000
discount at 15% as of June 30, 1995). Under this agreement, the Company
issued a promissory note to JACO in the principal amount of $676,000,
payable in forty-eight equal monthly installments of $17,727,
consisting of principal and interest, beginning on January 30, 1996.
Interest at 10% per annum accrued beginning on September 1, 1995.
Additionally, the remaining balance due under the bankruptcy plan,
subsequent to the issuance of the above promissory note, was satisfied
with the issuance of 325,000 shares of the Company's common stock. At
December 31, 1998, $176,383 was outstanding on this note.
F-14
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
In September, 1998, the Company obtained a subordinated loan from a
local bank and a Board member for $1,100,000. Interest at 13.75% is due
monthly. Principal payments begin in October, 1999 for $30,000 each
month for the months May through October and $15,000 each month for the
months November through April. In conjunction with this transaction,
the Company issued 112,467 warrants to the bank that may be exercised
at any time at $3.00 per share within 10 years. For any year the
Company does not repay the loan in accordance with the loan agreement,
the Company must issue 12,497 additional warrants to the bank at the
same exercise price. In the event a key member of management leaves the
Company and the bank does not agree with his replacement, an additional
17,768 warrants must be issued to the bank at an exercise price of $.01
per share. The warrant agreements contain a put feature that provides
that the bank may require the Company to repay the bank for the
warrants in cash at fair market value based on a date specified in the
agreement at any time. The Company estimated the fair value of the
112,467 warrants issued in conjunction with the transaction and
recorded a discount on the related debt and a liability for the
warrants outstanding as reflected in the accompanying balance sheet. As
of December 31, 1998, the Company reevaluated the fair value of the
warrants and decreased the liability by $77,000, which is reflected in
other income in the accompanying statement of operations.
10. LEASE TRANSACTIONS
The Company operates using significant amounts of leased property,
including aircraft, equipment and facilities. Leases generally are on a
long-term, net rent basis whereby taxes, insurance and maintenance are
paid by the Company. Rental expenses incurred under all operating
leases totaled approximately $8,008,000, $4,846,000, $11,051,000, and
$11,200,000, for the year ended December 31, 1998, the six months ended
December 31, 1997, and the years ended June 30, 1997 and 1996,
respectively. Monthly aircraft rentals under one operating lease are
required to be paid in full each month at the time receivables are
collected from the Airlines Clearing House. Flight and ground equipment
with a capitalized cost of approximately $3,287,000 is included in
property and equipment at December 31, 1998 and 1997, less accumulated
amortization at December 31, 1998 and 1997 of approximately $2,095,000
and $1,782,000, respectively.
As part of the lease termination agreement with Shorts, lease payments
were reduced by $14,000 per aircraft per month on the Shorts aircraft
from August, 1997 until the return of the aircraft. The lease payments
were recorded as rent expense until the aircraft was removed from
scheduled service, and recorded as restructuring and other nonrecurring
charges after the aircraft was removed from service until the aircraft
met return conditions and was accepted by Shorts. Lease payments on the
Shorts aircraft had previously been renegotiated, effective October 1,
1994. This revised agreement provided for reductions in lease payments
aggregating approximately $94,000 per month for the remainder of the
lease term.
Under an accord reached with BAAM in November, 1997 the Company agreed
to replace its fourteen Jetstream 31 aircraft with twenty Jetstream
Super 31 aircraft. In return for renegotiated lease rates, the Company
agreed to lease fourteen of the Jetstream Super 31 aircraft for seven
years, and the additional six Jetstream Super 31 aircraft until
December 31, 1998. In December, 1998 the Company leased two of these
aircraft for an additional year and returned four of the aircraft to
BAAM in January, 1999. The terminated leases on the Jetstream 31
aircraft would have expired on December 31, 2001. This new agreement
with BAAM provides for reductions in lease payments of approximately
$140,000 per month on the fourteen long-term Jetstream Super 31 leases
as compared to the predecessor Jetstream 31 aircraft leases, as
previously revised.
Previously, the Company entered into a revised agreement with JACO, an
affiliate of BAAM, effective September 1, 1994, for the Company's
twelve Jetstream 31 aircraft. This revised agreement provided for
reductions in lease payments aggregating approximately $98,000 per
month through December 31, 1995. In September, 1995, JACO agreed to
extend the lease reductions for the remainder of the lease term, in
return for the Company's entering into leases on two additional
Jetstream 31 aircraft.
F-15
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The Company accounted for the modifications to the JACO lease
agreements as they occurred. As a result, the Company recorded a
deferred credit of approximately $906,000, representing the excess of
rent expense recorded on a straight line basis over actual payments
made from September, 1994 through September, 1995. This amount reduced
lease expense over the remaining term of the leases. Upon the
termination of the Jetstream leases in the 1997 transition period, the
remaining unamortized deferred credit amount of $351,000 was
eliminated.
In 1998, the Company assumed five Dash 8 aircraft leases from a former
operator of the equipment. These leases begin expiring in April, 2000
with the final lease ending in September, 2002, and are considered
operating leases.
During 1998, the Company reached a resolution with Her Majesty the
Queen in Right of Canada as Represented by the Ministry of Industry,
Science and Technology (the "Ministry") regarding a potential
reimbursement obligation to the Ministry arising from the change in
lessor for four de Havilland DHC 8-102 aircraft leased by the Company
by consummating a lease agreement for a Canadian-made Bombardier de
Havilland Dash 8 aircraft that is covered by economic development
insurance provided by the Ministry. As a result of entering into the
lease agreement, the Company has settled all claims by the Ministry,
including a purported claim of $16,996,995, as long as the Company
fulfills its obligations under the lease for the new aircraft.
The Company leases four Dash 8 aircraft from CIT Leasing Corporation
("CIT"). In November, 1994, CIT acquired these aircraft from Mellon
Financial Services Corporation ("Mellon") after the Company failed to
meet certain payment obligations totaling approximately $585,000 under
aircraft lease agreements with Mellon, resulting in cancellation of the
related agreements. The Company subsequently signed new lease
agreements with CIT, which expire in June, 2007, resulting in an annual
reduction of approximately $516,000 in aircraft rental payments.
Future minimum lease payments required under capital and noncancelable
operating leases with terms of greater than one year, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31: Leases Leases
--------- ----------
<S> <C> <C>
1999 $ 331,506 $ 9,784,000
2000 327,177 8,984,000
2001 335,875 6,984,000
2002 335,875 6,828,000
2003 335,875 6,348,000
Thereafter 1,184,892 14,401,636
--------- ------------
Total lease payments 2,851,200 $ 53,329,636
Less amounts representing interest 680,305 ============
---------
2,170,895
Less current obligations 188,473
---------
$1,982,422
==========
</TABLE>
11. CHANGE IN ACCOUNTING PRINCIPLE
Effective July 1, 1997 the Company elected to change its method of
accounting for engine, propeller and landing gear overhauls from the
deferral method to the accrual method. Under the method previously
utilized, the Company capitalized these expenditures and amortized them
over the estimated service life of the overhaul. The change in
accounting principle results in accrual for future expenditures for
overhauls based on flight hours incurred each month, at a rate
commensurate with the future expected cost of overhaul. Implementation
of the change in principle necessitated the write-off of previously
capitalized items, along with the related accumulated amortization, as
of July 1, 1997. The aggregate time since last overhaul was utilized to
determine the beginning accrued overhaul expense at July 1, 1997. This
calculation was performed for each aircraft type. The cumulative effect
of these transactions was a decrease in income of $12,982,000. The
Company believes the newly implemented accounting principle more
closely emulates its lease agreements and contracts for repair and
maintenance of these components.
F-16
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
12. RELATED-PARTY TRANSACTIONS
In June, 1995 the Company entered into a sale leaseback agreement with
a related party partnership (the "Partnership") for certain engines
owned by the Company. These leases were operating in nature, and did
not provide for a purchase option at the end of the lease term. To
induce the Partnership to enter into this transaction, the Partnership
received 250,000 warrants to purchase Company common stock, immediately
exercisable. Under provisions of the lease, the Company is required to
return the engines to the Partnership in freshly overhauled condition,
or with a cash payment in lieu of, based upon a stipulated calculation.
This lease expired on June 30, 1998, and the warrants expired by their
terms on December 31, 1998. On March 30, 1999 the Company settled its
obligation with the Partnership. The Company issued a note payable to
the Partnership in the amount of $950,000 and received title to the
engines. The Company had already established an accrual for this
settlement as of December 31, 1997 which is reflected in accrued
expenses in the accompanying balance sheet as of December 31, 1998 and
1997. The accrued amount, $515,000, is expected to approximate the net
settlement after sale of the engines.
The Company paid fees of $-0-, $6,000, $58,000 and $27,000 in fiscal
year 1998, the six months ended December 31, 1997 and the years ended
June 30, 1997 and 1996, respectively, to a consulting firm which is
fifty-percent owned by a former member of the Board of Directors.
Additionally, during the six months ended December 31, 1997, the
Company issued 150,000 warrants to purchase shares of the Company's
common stock in return for fleet restructuring consulting services to a
firm for which a member of the Board of Directors is the General
Partner. The Company recorded an adjustment to additional paid-in
capital of approximately $240,000 related to the compensatory value of
these warrants.
As discussed in Note 9, the Company entered into a loan agreement with
a Board member and a local bank.
As discussed in Notes 7 and 14, members of the Board of Directors and a
significant shareholder provide short-term loans as needed by the
Company to meet cash flow deficits and receive 2,500 warrants to
purchase Company common stock for every $100,000 loaned.
13. INCOME TAXES
The Company's effective tax rate on income before income taxes differs
from the U.S. statutory federal tax rate as follows:
<TABLE>
<CAPTION>
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, --------------------
1998 1997 1997 1996
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Income tax expense (benefit) at statutory rate 35.0 % (35.0)% 35.0 % 35.0 %
NOL carryforwards recognized/not
currently recognizable (35.0) 35.0 (35.0) (35.0)
Impact of alternative minimum tax -0- -0- 21.3 15.9
----- ------ ----- ------
Effective income tax rate -0- % -0- % 21.3 % 15.9 %
===== ====== ===== ======
</TABLE>
F-17
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
The provision (benefit) for income taxes for the year ended December
31, 1998, six-month period ended December 31, 1997 and the years ended
June 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, -----------------------------
1998 1997 1997 1996
-------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Provision for income taxes:
Current
Federal $ --- $ --- $ 140,928 $18,100
State --- --- --- ---
-------------- -------------- ---------- ----------
--- --- 140,928 18,100
-------------- -------------- ---------- ----------
Deferred
Federal $ --- $ --- $ --- $ ---
State --- --- --- ---
-------------- -------------- ---------- ----------
--- --- --- ---
-------------- -------------- ---------- ----------
Total provision for income taxes $ --- $ --- $ 140,928 $18,100
============== ============== ========== ==========
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December December
Deferred tax assets: 1998 1997
----------- -----------
<S> <C> <C>
Receivables $ 29,300 $ 39,800
Inventories 163,100 163,100
Accrued expenses 1,330,500 629,200
Rent obligations -0- ( 270,800)
Loss on impairment of assets 40,000 2,901,500
Restructuring fees 2,320,300 2,473,000
Net operating loss carryforwards 7,328,700 2,708,000
Alternative minimum tax carryforward 133,600 157,000
Investment tax credit carryforwards 25,500 25,500
Valuation allowance (8,830,200) ( 7,289,000)
----------- -----------
Total deferred tax asset 2,289,000 1,537,300
Deferred tax liabilities:
Training costs ( 251,800) -0-
Property and equipment (2,289,000) ( 1,537,300)
----------- -----------
Net deferred tax $ -0- $ -0-
============= ===========
</TABLE>
The net current and noncurrent components of deferred income taxes
reflected in the accompanying balance sheets as of December 31, 1998
and 1997 are as follows:
December December
1998 1997
------- --------
Net current deferred
tax asset $ 551,574 $ 1,246,478
Net noncurrent deferred
tax liability ( 551,574) ( 1,246,478)
----------- -----------
Net deferred
tax liability $ --- $ ---
========== ===========
F-18
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
At December 31, 1998, the Company had approximately $20.9 million of
U.S. Federal regular tax operating loss carryforwards available to
offset future U. S. Federal taxable income, which begin expiring on
June 30, 2005. A valuation allowance has been recognized to offset the
related deferred tax assets due to the uncertainty of realizing the
benefit of the loss carryforwards. The Company has $25,500 of
investment tax credit carryforwards that expire beginning December 31,
1999 and $133,600 of alternative minimum tax credit carryforwards which
are available to reduce future federal regular income taxes over an
indefinite period.
14. STOCK OPTIONS
At the annual shareholders meeting on June 25, 1998, the 1998 Stock
Incentive Plan was adopted which provides for incentive compensation of
officers and directors. The two predecessor plans, the Fifth Amended
and Restated Stock Option Plan and the Directors' Compensation Stock
Option Plan, were terminated by the Board of Directors prior to the
adoption of the 1998 Stock Incentive Plan. At that time only 24,925 and
65,000 shares were available for grant under the Fifth Amended and
Restated Stock Option Plan and the Directors' Compensation Stock Option
Plan, respectively. The 1998 Stock Incentive Plan authorized the
issuance of 1,800,000 stock options over ten years. No options were
issued in 1998. The exercise price for options issued under the 1998
Stock Incentive Plan is the fair market value on the date of grant.
Warrants to purchase shares of common stock have been issued to
directors from time to time as additional consideration in certain
lending transactions. As discussed in Note 7, members of the Board of
Directors and a significant shareholder provide short-term loans as
needed by the Company to meet cash flow deficits. As approved by the
Board of Directors, for every $100,000 loaned to the Company, the
lender receives 2,500 warrants to purchase Company common stock. One
Director has elected to receive options under the 1998 Stock Incentive
Plan instead of warrants for loans made to the Company. The exercise
price for all warrants has been the fair market value on the date of
issuance of the warrant with the exception of the 150,000 warrants
issued to Barlow Partners (see Note 11) and 112,467 warrants issued to
a local bank to obtain a loan (see Note 9). The outstanding warrants
have either a five-year or ten-year exercise period. Upon consummation
of the transaction concerning the Shorts aircraft discussed in Note 11,
the Company issued Barlow Partners, L.P. a warrant to purchase 150,000
shares of the Company's common stock.
As of December 31, 1998, 1,488,960 shares of common stock may be issued
upon the exercise of currently outstanding stock options and warrants.
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for its stock
option plans. Accordingly, no compensation expense has been recognized
for these plans. Had compensation expense for the Company's stock
option plans been determined based on the fair value at the grant dates
for awards under these plans consistent with SFAS No. 123, Accounting
for Stock-Based Compensation, the Company's net earnings would have
decreased by approximately $274,482 ($.03 per share), $62,533 ($0.01
per share), $199,878 ($0.03 per share) and $258,232 (less than $0.03
per share) in fiscal 1998, the six months ended December 31, 1997 and
fiscal years 1997 and 1996, respectively.
The fair value of each option was estimated on the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions: risk-free interest rate of 5.6% in fiscal
1998, 6.2% in the six months ended December 31, 1997 period and fiscal
1997 and 6.1% in fiscal 1996, no dividends paid, expected life of seven
years for 1998, 1997 and 1996, and volatility of 52% for 1998, 62% for
1997 and 70% for 1996. The weighted-average fair value of an option
granted during 1998, 1997 and 1996 is $2.07, $1.05 and $1.52,
respectively.
F-19
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998 and 1997, and June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
=========================================================================================
Option Weighted
Price Range Average
# of Shares per Share Exercise Price
=========================================================================================
<S> <C> <C> <C>
June 30, 1995 965,593 $ .50 - $3.25 N/A
- -----------------------------------------------------------------------------------------
Granted 179,625 1.81 - 2.38
- ------------------------------------------------------------------
Exercised (15,000) 1.19
- ------------------------------------------------------------------
Cancelled (5,000) 1.81
=========================================================================================
June 30, 1996 1,124,218 $ .50 - $3.25 $1.78
- -----------------------------------------------------------------------------------------
Granted 185,225 1.44 - 2.06 1.57
- -----------------------------------------------------------------------------------------
Cancelled (6,000) 1.44 - 2.00 1.19
=========================================================================================
June 30, 1997 1,303,443 $ .50 - $3.25 $1.75
=========================================================================================
Granted 186,050 2.67 - 3.50 2.99
=========================================================================================
Exercised (50,000) 1.19 1.19
=========================================================================================
December 31, 1997 1,439,493 $ .50 - $3.50 $1.92
=========================================================================================
Granted 144,164 $2.88 - 3.50 3.43
=========================================================================================
Exercised (95,500) $1.00 - 2.00 1.28
=========================================================================================
Cancelled (250,000) $3.16 3.16
=========================================================================================
December 31, 1998 1,238,157 $ .50 - 3.50 $1.91
=========================================================================================
</TABLE>
Stock options and warrants exercisable were 1,226,493, 1,274,000, 1,291,000 and
1,120,000 at December 31, 1998 and 1997, and June 30, 1997 and 1996,
respectively.
F-20
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
Summary information regarding options and warrants for the Company's stock as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
========================================================================================================================
Range of Number Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Price per Share
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding $ .50 41,668 1.91 $ .50
1.00 - 1.75 637,500 6.40 1.29
1.81 - 2.38 217,525 7.03 1.96
2.66 - 3.50 341,464 9.04 3.17
- ------------------------------------------------------------------------------------------------------------------------
Total options $ .50 - 3.50 1,238,157 7.09 1.91
outstanding
- ------------------------------------------------------------------------------------------------------------------------
Options exercisable $ .50 41,668 1.91 $ .50
1.00 - 1.75 637,500 6.40 1.29
1.81 - 2.38 217,525 7.03 1.96
2.66 - 3.50 329,800 9.01 3.17
- ------------------------------------------------------------------------------------------------------------------------
Total options $ .50 - 3.50 1,226,493 7.06 $1.89
exercisable
========================================================================================================================
</TABLE>
During 1998, the six months ended December 31, 1997 and fiscal years
1997 and 1996, in connection with the short-term loans from officers
and directors discussed in Note 6, the Company issued to certain
officers options to purchase -0-, 3,550, 12,725 and 17,125 shares,
respectively, of the Company's common stock, at an exercise price equal
to the market price on the date of grant. The Company also issued to
certain directors warrants to purchase 12,500, 20,000, 42,500 and
52,500 shares of the Company's common stock, at an exercise price equal
to market price on the date of grant during 1998, the six months ended
December 31, 1997 and fiscal 1997 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
The Company is subject to the regulatory authority of the Federal
Aviation Administration and the Department of Transportation. These
agencies require compliance with their standards and conduct safety and
compliance audits. Violations, if any, of these regulations subject the
Company to fines or sanctions. As of December 31, 1998 and 1997, the
FAA has proposed fines of $-0- and $94,500, respectively, related to
alleged violations of certain regulations. The Company is also subject
to other claims arising in the ordinary course of business. In the
opinion of management, the outcome of these matters will not have a
material adverse impact on the Company's financial condition, results
of operations or cash flows.
F-21
<PAGE>
CCAIR, INC.
NOTES TO FINANCIAL STATEMENTS
------------------
16. SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows include interest paid of approximately $1,146,000, $451,000,
$723,000 and $804,000 in fiscal 1998, the six months ended December 31,
1997, and years ended June 30, 1997 and 1996, respectively. Income
taxes paid, net of refunds, totaled $97,000 in the year ended June 30,
1997.
Noncash transactions include:
<TABLE>
<CAPTION>
Six-Month Period
Year Ended Ended Year Ended
December 31, December 31, June 30,
1998 1997 1997
------------ ---------------- -----------
<S> <C> <C> <C>
Issuance of 325,000 shares and 650,000
shares of Common Stock during
fiscal 1996 with proceeds
applied to annual bankruptcy payments ---- ---- $ 690,625
</TABLE>
17. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents selected quarterly unaudited financial
data for fiscal 1998, the six months ended December 31, 1997, and the
years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 1998
- -------------
Operating revenue $14,563 $18,093 $18,068 $20,601
Operating income (loss) 733 2,422 1,313 ( 112)
Net income (loss) 549 2,103 1,098 ( 370)
Income (loss) per share .06 .23 .12 ( .04)
Six Months Ended December 31, 1997
- ----------------------------------
Operating revenue $16,745 $16,091 N/A N/A
Operating income (loss) 638 (11,956) N/A N/A
Net income (loss) (12,589) (11,711) N/A N/A
Income (loss) per share ( 1.61) ( 1.49) N/A N/A
Fiscal 1997
- ------------
Operating revenue $17,370 $16,623 $16,484 $18,010
Operating income 511 275 363 246
Net income 321 55 126 18
Income per share .04 .01 .02 .00
Fiscal 1996
- -------------
Operating revenue $16,230 $16,045 $15,790 $18,169
Operating income (loss) 539 228 310 ( 191)
Net income (loss) 379 39 70 ( 392)
Income (loss) per share .05 .01 .01 ( .05)
</TABLE>
18. EMPLOYEE SAVINGS PLAN
The Company sponsors an employee savings plan (the "Plan") which permits
participants to make contributions by tax deferred salary deductions pursuant to
Section 401(k) of the Internal Revenue Code. In accordance with the Plan
document and union contracts, the Company is required to make a matching
contribution to certain employees for the Plan year ended December 31, 1998 and
1997. As such, the Company has accrued $351,000 related to its matching
contribution requirements at December 31, 1998, $247,000 in flight operations
expense and $104,000 in maintenance expense and reflected the related liability
in accrued expenses. At December 31, 1997, the Company had accrued $200,000 in
matching contributions, $139,000 in flight operations expense, $14,000 in
maintenance expense and $47,000 in general and administrative expense.
F-22
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR YEAR ENDED DECEMBER 31, 1998, THE SIX-MONTH PERIOD ENDED
DECEMBER 31, 1997 AND YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------- --------------- ---------------------------------- -------------- -----------
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO END
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
- ----
Reserve for doubtful
receivables and pricing
adjustments $ 113,700 $ 29,700 $ 84,000
Reserve for inventory obsolescence 466,000 466,000
Reserve for resale inventory
valuation 700,000 $ 26,000 726,000
Reserve for medical claims
incurred but not reported 210,000 27,000 183,000
1997 TRANSITION PERIOD
- ----------------------
Reserve for doubtful
receivables and pricing
adjustments $ 113,700 $ 113,700
Reserve for inventory obsolescence 466,000 466,000
Reserve for resale inventory
valuation ---- $ 700,000 700,000
Reserve for medical claims
incurred but not reported 165,000 45,000 210,000
1997
- ----
Reserve for doubtful
receivables and pricing
adjustments $ 50,000 $ 68,400 $ 4,700 $ 113,700
Reserve for inventory obsolescence 466,000 466,000
Reserve for medical claims
incurred but not reported 219,000 $ 54,000 165,000
1996
- ----
Reserve for doubtful
receivables and pricing
adjustments $ 86,800 $ 13,200 $ 50,000 $ 50,000
Reserve for inventory obsolescence 466,000 466,000
Reserve for medical claims
incurred but not reported 239,000 20,000 219,000
</TABLE>
S-1
<PAGE>
EXHIBIT 10.1(f)
CCAIR, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to promote the interests of the Company and
its stockholders by aiding the Company in attracting and retaining management
personnel capable of assuring the future success of the Company, to offer such
personnel incentives to put forth maximum efforts for the success of the
Company's business and to afford such personnel an opportunity to acquire a
proprietary interest in the Company.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company, and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan, which shall consist of
members appointed from time to time by the Board of Directors.
(f) "Company" shall mean CCAIR, Inc., a Delaware corporation, and any
successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under Section
6(e) of the Plan.
(h) "Effective Date" shall mean the date on which the stockholders of
the Company shall approve the Plan.
(i) "Eligible Person" shall mean any employee or officer of the Company
or any Affiliate who the Committee determines to be an Eligible Person. A
director of the Company who is not also an employee of the Company or an
Affiliate shall be an Eligible Person. In addition, "Eligible Person" shall
include any other individual defined as an employee under paragraph (1)(a)
1
<PAGE>
EXHIBIT 10.1(f)
of General Instruction A to Form S-8, promulgated under the Securities Act of
1933, as amended, by the Securities and Exchange Commission as amended from time
to time, or any successor provision.
(j) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. If at the time the determination
of fair market value is made, the Shares are traded on a national securities
exchange for which sales prices are regularly reported, the fair market value of
a share shall be the mean of the high and low bid prices or the closing sales
price reported for the Shares on that exchange on the day that the determination
of fair market value is made or, if such day is not a trading date, then on the
most recent preceding trading day (or the most recent trading day preceding the
day). For these purposes, the term "national securities exchange" shall include
the NASDAQ Stock Market.
(k) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(n) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(o) "Participant" shall mean an Eligible Person designated to be granted
an Award under the Plan.
(p) "Performance Award" shall mean any right granted under Section 6(d)
of the Plan.
(q) "Person" shall mean any individual, corporation, partnership,
association or trust.
(r) "Plan" shall mean this 1998 Stock Incentive Plan, as amended from
time to time.
(s) "Restricted Stock" shall mean any Share granted under Section 6(c)
of the Plan.
(t) "Restricted Stock Unit" shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(u) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation.
2
<PAGE>
EXHIBIT 10.1(f)
(v) "Shares" shall mean shares of Common Stock, par value $0.01 per
share, of the Company or such other securities or property as may become subject
to Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(w) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee. Subject to the express provisions of the Plan and to
applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (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) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock, Restricted Stock Units
or other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities, other
Awards or other property, or canceled, forfeited or suspended; (vii) 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 under the Plan shall be deferred either automatically or at the
election of the holder thereof or the Committee; (viii) interpret and administer
the Plan and any instrument or agreement relating to, or Award made under, the
Plan; (ix) 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 (x) make any other determination and take any other action that
the Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate. In exercising its authority pursuant to the Plan, the
Committee shall adhere to all provisions of the Code as are applicable to the
grant, issuance and exercise of any Award.
(b) Delegation. The Committee may delegate its powers and duties under
the Plan to one or more officers of the Company or any Affiliate or a committee
of such officers, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion; provided, however, that the
Committee shall not delegate its powers and duties under the Plan with regard to
officers or directors of the Company or any Affiliate who are subject to Section
16 of the Securities Exchange Act of 1934, as amended.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the number of Shares available for granting Awards under the Plan shall be
1,800,000. Shares to be issued under
3
<PAGE>
EXHIBIT 10.1(f)
the Plan may be either Shares reacquired and held in the treasury or authorized
but unissued Shares. If any Shares covered by an Award or to which an Award
relates are not purchased or are forfeited, or if an Award otherwise terminates
without delivery of any Shares, then the number of Shares counted against the
aggregate number of Shares available under the Plan with respect to such Award,
to the extent of any such forfeiture or termination, shall again be available
for granting awards under the Plan. The Company shall at all times keep
available the number of Shares to satisfy Awards granted under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate 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, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be a whole number.
SECTION 5. ELIGIBILITY.
(a) Designation of Participants. Any Eligible Person, including any
Eligible Person who is an officer or director of the Company or any Affiliate,
shall be eligible to be designated a Participant. In determining which Eligible
Persons shall receive an Award and the terms of any Award, the Committee may
take into account the nature of the services rendered by the respective Eligible
Persons, their present and potential contributions to the success of the Company
or such other factors as the Committee, in its discretion, shall deem relevant.
Notwithstanding the foregoing, an Incentive Stock Option may only be granted to
full or part-time employees (which term as used herein includes, without
limitation, officers and directors who are also employees) and an Incentive
Stock Option shall not be granted to an employee of an Affiliate unless such
Affiliate is also a "subsidiary corporation" of the Company within the meaning
of Section 424(f) of the Code or any successor provision.
(b) Award Limitations Under the Plan. No Eligible Person, who is an
employee of the Company at the time of grant, may be granted any Award or
Awards, the value of which Awards are based solely on an increase in the value
of the Shares after the date of grant of such Awards, for more than 200,000
Shares, in the aggregate, in any one calendar year, beginning with the period
commencing on the Effective Date and ending on December 31, 2008. The foregoing
annual
4
<PAGE>
EXHIBIT 10.1(f)
limitation specifically includes the grant of any Awards representing "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
SECTION 6. AWARDS.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that such
purchase price shall not be less than 100% of the Fair Market Value of a Share
on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and the
method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards or
other property, or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price) in which, payment of the
exercise price with respect thereto may be made or deemed to have been made.
(iv) Incentive and Non-qualified Stock Options. Each Option granted
pursuant to the Plan shall specify whether it is an Incentive Stock Option or a
Non-qualified Stock Option, provided that the Committee may, in the case of the
grant of an Incentive Stock Option, give the Participant the right to receive in
its place a Non-qualified Stock Option with identical provisions.
(b) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock Units
shall be
5
<PAGE>
EXHIBIT 10.1(f)
subject to such restrictions as the Committee may impose (including,
without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately
or in combination at such time or times, in such installments or
otherwise as the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by the issuance of a stock certificate or
certificates, which certificate or certificates shall be held by the
Company. Such certificate or certificates shall be registered in the
name of the Participant and shall bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Restricted
Stock. In the case of Restricted Stock Units, no Shares shall be issued
at the time such Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined by
the Committee, upon termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock Units at
such time subject to restriction shall be forfeited and reacquired by
the Company; provided, however, that the Committee may, when it finds
that a waiver would be in the best interest of the Company, waive, in
whole or in part, any or all remaining restrictions with respect to
Shares of Restricted Stock or Restricted Stock Units. Any Share
representing Restricted Stock that is no longer subject to restrictions
shall be delivered to the holder thereof promptly after the applicable
restrictions lapse or are waived. Upon the lapse or waiver of
restrictions and the restricted period relating to Restricted Stock
Units evidencing the right to receive Shares, such Shares shall be
issued and delivered to the holders of the Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the amount of any payment or transfer to be made
pursuant to any Performance Award and any other terms and conditions of any
Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant to
Participants Dividend Equivalents under which such Participants shall be
entitled to receive payments (in cash, Shares, other securities, other Awards or
other property as determined in the discretion of the Committee) equivalent to
the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan and any applicable Award Agreement, such Dividend Equivalents may
have such terms and
6
<PAGE>
EXHIBIT 10.1(f)
conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for, any other Award or any award
granted under any plan of the Company or any Affiliate other than the
Plan. Awards granted in addition to or in tandem with other Awards or in
addition to or in tandem with awards granted under any such other plan
of the Company or any Affiliate may be granted either at the same time
as or at a different time from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made
by the Company or an Affiliate upon the grant, exercise or payment of an
Award may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any combination thereof),
and may be made in a single payment or transfer, in installments or on a
deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents with respect to installment or
deferred payments.
(iv) Limits on Transfer Awards. No Award and no right under any such
Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; provided however that, if so
determined by the Committee,
7
<PAGE>
EXHIBIT 10.1(f)
a Participant may, in the manner established by the Committee, designate
a beneficiary or beneficiaries to exercise the rights of the Participant
and receive any property distributable with respect to any Award upon
the death of the Participant. Each Award or right under any Award shall
be exercisable during the Participant's lifetime only by the Participant
or, if permissible under applicable law, by the Participant's guardian
or legal representative. No Award or right under any such Award may be
pledged, alienated, attached or otherwise encumbered, and any purported
pledge, alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
(v) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares or other securities delivered under the Plan pursuant to any
Award or the exercise thereof 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
Securities and Exchange Commission and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. If the Shares or other securities are traded on a
securities exchange, the Company shall not be required to deliver any
Shares or other securities covered by an Award unless and until such
Shares or other securities have been admitted for trading on such
securities exchange.
(h) Formula Grant. Each director shall receive an Option to purchase
20,000 shares of the Company's Common Stock on the date of the Annual Meeting of
Shareholders. If a director is first elected to the Board of Directors on a date
other than the Annual Meeting of Shareholders, then the number of options
granted shall be adjusted to reflect the period of service until the next Annual
Meeting of Shareholders. Each Option granted under this Section 6(h) shall be a
Non-Qualified Stock Option, shall have a term of ten (10) years regardless of
whether the Outside Director continues to serve on the Board of Director and
shall be exercisable not less than six (6) months after the date of grant. The
grants of Options hereunder shall be automatic and nondiscretionary. The
provisions set forth in this Section 6(h) shall not be amended more than once
every six (6) months, other than to comport with changes to the Code.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
8
<PAGE>
EXHIBIT 10.1(f)
(i) would cause Rule 16b-3 to become unavailable with respect to the
Plan;
(ii) would violate the rules or regulations of the NASDAQ Stock Market,
any other securities exchange or the National Association of Securities
Dealers, Inc., that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING; TAX BONUSES.
(a) Withholding. In order to comply with all applicable foreign, federal
or state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such Award
with a Fair Market Value equal to the amount of such taxes or (ii) delivering to
the Company Shares, other than Shares issuable upon exercise or receipt of (or
the lapse of restrictions relating to) such Award, with a Fair Market Value
equal to the amount of such taxes. The election, if any, must be made on or
before the date that the amount of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of federal and state taxes due
as a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
9
<PAGE>
EXHIBIT 10.1(f)
SECTION 9. GENERAL PROVISIONS.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed by the participant and the Company.
(c) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. 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 Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate 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.
(e) Governing Law. The validity, construction and effect of the Plan or
any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of North Carolina.
(f) 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 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
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(g) 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 Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any
10
<PAGE>
EXHIBIT 10.1(f)
fractional Shares or whether such fractional Shares or any rights thereto shall
be canceled, terminated or otherwise eliminated.
(i) 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.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the Effective Date.
SECTION 11. TERM OF THE PLAN.
Unless the Plan shall have been discontinued or terminated as provided
in Section 7(a), the Plan shall terminate on the tenth anniversary of the
Effective Date. No Award shall be granted after the termination of the Plan.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond the termination
of the Plan, and the authority of the Committee provided for hereunder with
respect to the Plan and any Awards, and the authority of the Board of Directors
of the Company to amend the Plan, shall extend beyond the termination of the
Plan.
11
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SERVICE AGREEMENT
Between
US AIRWAYS, INC.
And
CCAIR, INC.
Dated as of
February 25, 1999
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
RECITALS 1
ARTICLE 1 COMPLIANCE WITH REGULATIONS 2
ARTICLE 2 AIR SERVICES TO BE PROVIDED BY CONTRACTOR 3
SECTION 2.01 SCHEDULES TO BE OPERATED 3
SECTION 2.03 AIRCRAFT TO BE USED 5
SECTION 2.04 FLIGHT CREWS TO BE USED 7
SECTION 2.05 MAINLINE OPERATIONS 7
ARTICLE 3 SUPPORT SERVICES AND FACILITIES 8
SECTION 3.01 GENERAL PROVISION 8
SECTION 3.02 COMMUNICATIONS 8
SECTION 3.03 RESERVATIONS 8
SECTION 3.04 RESERVED 9
SECTION 3.05 STATION FACILITIES AND GROUND SUPPORT SERVICE 9
SECTION 3.06 TERMS OF TRANSPORTATION, SALES AND PROMOTION 11
ARTICLE 4 PASSENGER FARES AND DIVISION OF REVENUES 15
SECTION 4.01 LOCAL FARES 15
SECTION 4.02 ALL OTHER FARES 15
SECTION 4.03 DIVISION OF REVENUES 15
ARTICLE 5 AIR FREIGHT RATES 16
SECTION 5.01 JOINT AIR FREIGHT RATES 16
SECTION 5.02 COMPENSATION TO CONTRACTOR FOR AIR FREIGHT 16
ARTICLE 6 US MAIL 17
ARTICLE 7 LIABILITY INDEMNIFICATION AND INSURANCE 19
SECTION 7.01 CONTRACTOR SHALL ACT AS AN INDEPENDENT CONTRACTOR 19
SECTION 7.02 LIABILITY AND INDEMNIFICATION 19
SECTION 7.03 INSURANCE COVERAGE 21
SECTION 7.04 ADDITIONAL REQUIREMENT 23
SECTION 7.05 CARGO LIABILITY INSURANCE 25
ARTICLE 8 CONSIDERATION, RECORDS AND REPORTS 26
SECTION 8.01 CONSIDERATION 26
SECTION 8.02 RECORDS AND REPORTS 28
ARTICLE 9 EFFECTIVE DATE, TERMINATION AND CANCELLATION 30
2
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SECTION 9.01 EFFECTIVE DATE AND TERM 30
SECTION 9.02 TERMINATION 31
SECTION 9.03 FORCE MAJEURE 33
ARTICLE 10 OPERATING RESTRICTIONS 34
SECTION 10.0 USE OF CONTRACTOR'S AIRCRAFT 34
ARTICLE 11 TRADEMARK LICENSE FOR OPERATIONS TO BE CONDUCTED BY CONTRACTOR
PURSUANT TO THIS AGREEMENT 35
SECTION 11.01 GRANT OF TRADEMARK LICENSE 35
SECTION 11.02 TERMS AND CONDITIONS GOVERNING TRADEMARK LICENSE 35
ARTICLE 12 ENTIRE AGREEMENT, AMENDMENT, NOTICES AND TITLES 37
SECTION 12.01 ENTIRE AGREEMENT AND AMENDMENTS 37
SECTION 12.02 PREVIOUS AGREEMENT 37
SECTION 12.03 NOTICES AND MISCELLANEOUS PROVISIONS 37
3
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SERVICE AGREEMENT
This Agreement made as of this 15th day of December 1998, by and between US
Airways, Inc., a Delaware corporation, having a principal place of business at
Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 ("US Airways")
and CCAir, Inc. a Delaware corporation having a principal place of business at
4700 Yorkmont Road, 2nd Floor, Charlotte, NC 28208 ("Contractor") as follows:
WITNESSETH:
WHEREAS, US Airways holds a certificate of public convenience and
necessity issued by the Department of Transportation (DOT) authorizing US
Airways to engage in the interstate and overseas air transportation of persons,
property and mail between all points in the United States, its territories and
possessions; and
WHEREAS, Contractor is a commuter air carrier engaged in air
transportation of persons and property pursuant to Part 298 of the DOT's
Economic Regulations; and
WHEREAS, US Airways owns various trademarks, service marks and logos,
including "US Airways," "US Airways Express," and distinctive exterior color
decor and patterns on its aircraft, hereinafter referred to individually and
collectively as the "US Airways Trademarks;" and
WHEREAS, Contractor wishes to acquire a nonexclusive license, and US
Airways does hereby grant unto the Contractor, the use of one or more of US
Airways' Trademarks in connection with the scheduled air transportation services
operated by Contractor pursuant to this Agreement, including the use of the "US"
designator code; and
WHEREAS, Contractor desires to operate, and US Airways is willing to
contract for, US Airways Express operations in the manner and to the extent
hereinafter described;
1
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants and obligations hereinafter set forth, the parties to this
Agreement hereby agree as follows:
ARTICLE 1 COMPLIANCE WITH REGULATIONS
Contractor hereby represents, warrants, and agrees that all air transportation
services performed by it pursuant to this Agreement or otherwise shall be
conducted in full compliance with any and all applicable statutes, orders,
rules, and regulations, whether now in effect or hereafter promulgated, of all
governmental agencies having jurisdiction over Contractor's operations,
including, but not limited to the Federal Aviation Administration (FAA) and the
DOT. Contractor's compliance with such governmental statutes, orders, rules, and
regulations shall be the sole and exclusive obligation of Contractor, and US
Airways will have no obligations or responsibilities, whether direct or
indirect, with respect to such matters.
ARTICLE 2 AIR SERVICES TO BE PROVIDED BY CONTRACTOR
SECTION 2.01 SCHEDULES TO BE OPERATED
(a) Throughout the life of this Agreement and any amendment or extension
thereof, Contractor shall schedule and operate US Airways Express service in the
following approved markets:
Minimum Maximum
Market Roundtrip Roundtrip
Charlotte----- Athens, GA [***]
Augusta, GA [***]
Columbus, GA [***]
Cincinnati, OH [***]
2
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
Gainesville, FL [***]
Greenville, NC [***]
Hickory, NC [***]
Huntington, WV [***]
Jacksonville, NC [***]
Kinston, NC [***]
Lexington, KY [***]
Lewisburg, WV [***](1)
Lynchburg, VA [***]
Rocky Mount/Wilson, NC [***]
Southern Pines, NC [***]
Tallahassee, FL [***]
Winston-Salem, NC [***]
(b) US Airways, at its sole discretion, shall allow Contractor to operate as "US
Airways Express" in additional markets provided the Contractor complies with
Sections 2.01(c) and (e), Section 8.01(c), and provided, further, that US
Airways reserves the right to [***] as determined by US Airways in the exercise
of its sole discretion and judgment.
(c) Any changes in the schedules operated by Contractor pursuant to Section
2.01(a) or 2.0l(b) [***], must be submitted to US Airways by the deadline date
established by US Airways but not less than [***] prior to the effective date of
such changes, and all such changes must be approved, in advance by US Airways.
Requests for [***] to Section 2.01(a) and 2.01(b) must be submitted to US
Airways [***] days prior to requested service start date. Requests for changes
in Contractor's schedules must be made in writing. Before such requests are
issued, US Airways and Contractor will, as far in advance as practicable, advise
each other of any desired modifications or amendments of their respective
schedules so as to ensure that the primary needs of both the local and
connecting traffic between the cities operated by Contractor as a US Airways
Express Carrier are being adequately met. Within the operating capability of the
- -------------------
(1) [***]
3
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
aircraft used by Contractor as described in Section 2.03, or some other
substitute aircraft used by Contractor with the prior written consent of US
Airways, all reasonable and practicable requests by US Airways to Contractor to
adjust the service schedules required by Section 2.01 will be complied with by
Contractor.
(d) If Contractor provides service as "US Airways Express" in a market operated
in conjunction with US Airways Group aircraft, Contractor's scheduled departures
[***], unless specifically approved in writing by US Airways. Contractor must
adjust flight schedules to achieve a [***].
(e) Except as set forth in the table of approved markets set forth in Section
2.01(a), no terms, provision or condition contained in this Article shall be
construed [***].
(f) Contractor shall be the sole and exclusive US Airways Express operator of
propeller driven aircraft in the markets set forth in Section 2.01(a), subject
to the following:
[***]
SECTION 2.02 OPERATION OF NON-AFFILIATED FLIGHTS
Notwithstanding anything to the contrary contained in Section 2.01, Contractor
shall be entitled to operate additional services under its own name in the
markets covered by this Agreement, provided that such services, shall not make
use of any of the services or facilities afforded to Contractor by US Airways
under this Agreement and that any aircraft used in providing such services shall
not bear any US Airways Express logo or markings.
SECTION 2.03 AIRCRAFT TO BE USED
(a) Contractor will provide the scheduled air services described in Section 2.01
with short-to-medium range, multi-engine, turbine-propeller aircraft, which
aircraft shall meet the
4
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
requirements for commuter air carrier operations set forth in Part 298 of the
DOT's Economic Regulations and the Federal Aviation Regulations. Such aircraft
shall have a minimum of 19 seats and appropriate capacity for passenger baggage,
freight and mail. Contractor and US Airways agree that except as expressly
stated otherwise herein, the Jetstream 31 aircraft are acceptable for purposes
of this Agreement provided that US Airways' ramp area, personnel, terminal and
other facilities are available and adequate to accommodate such aircraft at the
times scheduled taking into account other services performed by US Airways and
by other US Airways Express operators which use such ramp area, terminal and
other facilities.
(b) The aircraft scheduled and any replacement aircraft utilized by Contractor
pursuant to Section 2.03, shall bear US Airways' Trademarks, consisting of the
red, white, and blue aircraft exterior color decor and pattern provided by US
Airways and the name "US Airways Express." At any time during the life of this
Agreement, and at the sole discretion of US Airways, Contractor may be permitted
to use such new or different trademarks and exterior color decor and patterns on
its aircraft as US Airways may determine. Upon written notice from US Airways,
which shall include the specifications for any such changes in trademarks and/or
exterior aircraft decor and patterns, Contractor shall effect such changes as
promptly as is reasonably practicable.
In addition to use of the US Airways Trademarks on its aircraft, Contractor
shall use and display a suitable sign on the exterior of its aircraft
identifying Contractor as the operator of the services being provided pursuant
to this Agreement. The use and display of such sign shall be subject to the
prior written approval of US Airways as to its nature, size and location on
Contractor's aircraft.
(c) In addition to the aircraft described in Section 2.03(a) above, Contractor
will arrange for, and will have available for its use such [***]. Such [***]
aircraft shall meet the specifications contained in Section 2.03.
(d) Contractor will not operate any aircraft with a maximum certificated seating
capacity in
5
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
excess of sixty-nine (69) seats, any F28 aircraft, or any aircraft
without an external propeller without written approval by US Airways.
SECTION 2.04 FLIGHT CREWS TO BE USED
All services performed by Contractor pursuant to Sections 2.01 and 10.01 shall
be operated with at least the minimum number of qualified flight crew members
required by the Federal Aviation Agency. All such crew members shall at all
times meet all currently applicable governmental requirements, as such
requirements may be amended from time to time during the life of this Agreement,
and shall be fully licensed and qualified for the services to be performed
hereunder, and, in addition, all of Contractor's captains shall hold a current
Airline Transport Pilot Certificate. All of Contractor's first officers must
have satisfactorily completed the Airline Transport Pilot written examination by
no later than the second anniversary of consecutive employment by Contractor.
Such crew members shall also meet any and all requirements imposed by the
insurance policies which are to be maintained pursuant to Section 7.03.
SECTION 2.05 MAINLINE OPERATIONS
Nothing contained in Section 2.01 or any other provision of this Agreement shall
prevent [***].
ARTICLE 3 SUPPORT SERVICES AND FACILITIES
SECTION 3.01 GENERAL PROVISION
US Airways and Contractor will provide ground support services and facilities to
the extent and in the manner set forth in the subsequent sections of this
Article 3. Such ground support services and facilities will be furnished only
with respect to Contractor's scheduled air services described in Sections 2.01;
provided, however, that with respect to schedules operated by Contractor in
addition to the minimum schedules established by Section 2.01(a), US Airways'
obligation to provide ground support and facilities to Contractor under Section
3.05(a) shall be subject to the
6
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
ability and capacity of US Airways' facilities to handle such additional
schedules at costs deemed reasonable by US Airways in the exercise of its sole
discretion and judgment.
SECTION 3.02 COMMUNICATIONS
Reservation telephone lines will be maintained by US Airways at the points
listed in Section 2.01(a) connecting those cities with US Airways' reservations
center.
SECTION 3.03 RESERVATIONS
(a) All reservations will be requested and confirmed for passengers using the
services described in Sections 2.01 through US Airways' reservations system
(SABRE). Connecting reservations to US Airways or to other air carriers will be
requested and confirmed through US Airways' SABRE system in accordance with
currently established industry methods and procedures. For passengers
originating their travel at points other than those served by Contractor
pursuant to Section 2.01, either on US Airways' system or on the systems of
other airlines, connecting reservations to the services of Contractor will also
be made in accordance with currently established industry methods and
procedures. In all cases, US Airways will confirm the reservations of
Contractor's passengers through the entire itinerary of their scheduled trips.
When a contact number is supplied by the passengers making such reservations, US
Airways will assume the responsibility of notifying passengers of any changes in
Contractor's schedules or operations provided that Contractor furnishes US
Airways with sufficient advance notice of such changes.
(b) Contractor agrees to make available [***] of the scheduled daily departures,
in each market for [***] and an equal number of ("Z" Class) seats for [***].
(c) In the event of flight delays, cancellations or other schedule
irregularities affecting Contractor's scheduled services, and as soon as
information concerning such irregularities is available, Contractor shall notify
US Airways' reservations control center in a manner prescribed
7
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
by US Airways and furnish US Airways such information in as much detail as
practicable.
(d) Contractor shall be solely responsible for, and US Airways shall have no
obligations or duties with respect to the dispatch of Contractor's flights
operated pursuant to this Agreement or otherwise. For the purposes of this
Section 3.03(d), the term flight dispatch shall include, but shall not be
limited to, all planning of flight itineraries and routings, fueling and flight
release.
(e) From time to time, and solely upon request of Contractor or its flight
crews, US Airways may furnish Contractor's flight crews with such U.S. Weather
Bureau information or data as may be available to US Airways; provided, that in
furnishing any such weather information or data to Contractor, neither US
Airways nor its employees or agents will be responsible or liable for the
accuracy thereof.
SECTION 3.04 RESERVED
SECTION 3.05 STATION FACILITIES AND GROUND SUPPORT SERVICE
(a) US Airways will provide the following services at locations (except as
mutually agreed) outlined in Section 2.01 where US Airways personnel are
represented, subject to provisions outlined in Section 3.01 and 8.01(c).
(1) check-in and ticketing of Contractor's passengers at US Airways'
ticket counters or, as appropriate, at the gate check-in areas;
(2) use of US Airways' passenger facilities by Contractor's passengers;
(3) ramp handling of Contractor's aircraft, including loading, unloading
and the handling of Contractor's passengers, baggage, freight, and mail;
but not including aircraft marshalling, checking, servicing, catering
and provision for GPU's.
(4) interline transfer of baggage, mail, and freight in accordance with
currently established industry methods and procedures;
(5) such security facilities, personnel, and passenger screening
procedures as are required (a) by applicable orders, rules, and
regulations of the FAA, and (b) by US
8
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
Airways' FAA-approved aircraft security plan;
(6) arrangements, made at Contractor's request and its sole cost and
expense, for alternate transportation, meals, lodging, and other
accommodations for Contractor's passengers as the need therefor may
arise from time to time due to schedule irregularities in Contractor's
operations; and
(7) in the event US Airways is unable to accommodate Contractor's
scheduled air services at US Airways' own facilities, US Airways
reserves the right to provide the services and facilities herein at
another suitable location on the airport selected by mutual agreement by
the parties subject to provisions outlined in Section 8.01(c).
(b) Contractor will provide the following services and facilities at locations
not provided under Section 3.05(a):
(1) airport ticket counters, staffed by an adequate number of uniformed
ticket agents and passenger service personnel, having been fully trained
to US Airways standards;
(2) adequate check-in areas including passenger waiting room facilities;
(3) all ground support personnel, facilities, and equipment necessary to
accommodate Contractor's passengers, freight, and mail; and
(4) such security facilities, personnel and passenger screening
procedures as are required by applicable orders, rules, and regulations
of the FAA as may be required.
SECTION 3.06 TERMS OF TRANSPORTATION, SALES AND PROMOTION
(a) US Airways' Terms of Transportation, with certain exceptions as listed
therein, shall be applicable to services provided by Contractor pursuant to this
Agreement. Such Terms of Transportation shall at all times be available for
public inspection at Contractor's corporate offices and at each airport ticket
counter and sales office maintained and operated by or on behalf of Contractor.
(b) US Airways and Contractor agree that each carrier is authorized to sell air
transportation of passengers and property on the scheduled flights operated by
the other carrier; provided,
9
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
however, that neither US Airways nor Contractor shall issue passenger tickets or
exchange orders which provide for space on a particular flight except on the
basis of a confirmed reservation for such space. Such sales will only utilize US
Airways "037" ticket stock, forms and other US Airways documents. Unless
otherwise approved by US Airways in writing, Contractor may only issue its own
ticket stock for travel on Contractors "US" designated flights to employees for
the purpose of non-revenue travel.
(c) The party issuing a ticket or exchange order for passenger
transportation shall [***]:
(1) [***]. Contractor shall prepare and furnish to US Airways all
written reports, accounts, and documentation that US Airways may require
daily or at such lesser frequency as US Airways may prescribe, at its
sole discretion, from time to time during the life of this Agreement;
and
(2) [***]. Contractor agrees to an initial US Airways [***] in
accordance with the schedule set forth below:
Schedule
When the [***] US Airways by Contractor are between the number in
Column A and the number in Column B for a period of [***],
Contractor agrees to adjust the [***] to the number in Column C.
Column A Column B Column C
-------- -------- --------
[***] and [***] [***]
[***] and [***] [***]
[***] and [***] [***]
[***] and [***] [***]
(3) With respect to passenger transportation furnished by Contractor pursuant to
this Agreement and [***] in accordance with 3.06(c) (2) above, Contractor shall
be required to furnish to US Airways passenger billing information via EBCDIC
media (magnetic tape) or ASCII media (diskette) in accordance with the
procedures as set forth in [***].
10
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
[***]. In addition, Contractor shall prepare and furnish to US Airways all
written reports, accounts and documents that US Airways may require, on a daily
basis or at such lesser frequency as US Airways may prescribe, at its sole
discretion, from time to time during the life of this Agreement.
US Airways may prescribe in its sole discretion from time to time during the
life of this Agreement such new or different passenger and air freight sales and
accounting procedures as may be required by experience or changed circumstances.
In addition, US Airways and Contractor by mutual agreement, and with no less
than [***] notice having been given, may establish alternative or modified
passenger sales and accounting procedures in order to accommodate tickets or
exchange orders issued by air carriers which are not participants in the
Clearing House.
(g) [***]. Each party who accepts as payment a credit card charge in exchange
for issuing tickets, exchange orders or air freight bills for transportation of
persons or property on Contractor, US Airways or other carriers shall [***]. US
Airways may [***].
(h) Contractor shall assume full liability for and shall indemnify, defend,
protect, save, and hold harmless US Airways, its directors, officers, agents,
and employees from any and all liabilities1 damages, claims, suits, judgments,
and all related expenses or losses on account of the loss, misapplication, theft
or forgery of passenger tickets, exchange orders, airbills or other supplies
furnished by or on behalf of US Airways to Contractor, or the proceeds thereof,
whether or not such loss is occasioned by the insolvency of either the purchaser
of the aforesaid passenger tickets, exchange orders, airbills or other documents
or of a bank in which Contractor may have deposited such proceeds. Contractor's
responsibility hereunder for passenger tickets, exchange orders, airbills, and
other supplies shall commence immediately upon delivery of said passenger
tickets, exchange orders, airbills, and other supplies into the possession of
Contractor or any duly authorized officer, agent or employee of Contractor. US
Airways shall furnish Contractor prompt and timely notice of any claims made, or
suits instituted against US Airways which in any way may result in the
indemnification hereunder and Contractor shall have the right
11
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
to compromise or participate in the defense of same to the extent of its own
interest.
(i) US Airways will include the scheduled air services provided by Contractor
pursuant to Section 2.01 in its public timetables. All references in US Airways'
public timetables to Contractor's US Airways Express services shall also contain
notations indicating that such scheduled services are performed by Contractor as
an independent contractor under the appropriate US Airways Trademarks.
ARTICLE 4 PASSENGER FARES AND DIVISION OF REVENUES
SECTION 4.01 LOCAL FARES
[***].
SECTION 4.02 ALL OTHER FARES
US Airways will establish all fares using the "US" designator except those
specifically addressed in Section 4.01.
SECTION 4.03 DIVISION OF REVENUES
(1) All fares will be divided in accordance with [***], unless the division of
such fares is otherwise mutually agreed to by US Airways and Contractor. [***]
(2) Where either party has a connecting middle city within the routing revenue
[***].
ARTICLE 5 AIR FREIGHT RATES
SECTION 5.01 JOINT AIR FREIGHT RATES
Throughout the life of this Agreement, US Airways and Contractor shall establish
and maintain
12
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
joint air freight rates, including rates covering general commodity, small
package, and priority air freight shipments.
SECTION 5.02 COMPENSATION TO CONTRACTOR FOR AIR FREIGHT
For the transportation of air freight on the scheduled services to be operated
by Contractor pursuant to Section 2.01 above, US Airways will pay Contractor the
following:
(a) General Commodity Freight [***];
(b) Priority Freight [***];
(c) Small Package Freight [***].
The foregoing rates to be paid Contractor for the transportation of air freight
shall be subject to adjustment from time to time as required by experience and
as mutually agreed to by US Airways and Contractor. Operator has the right to
audit STARS Cargo reimbursement system on an annual basis.
ARTICLE 6 US MAIL
(a) Contractor shall accept for transportation, and shall transport on the
regularly scheduled air transportation services it shall operate pursuant to
Section 2.01 of this Agreement, such U.S. mail as shall be tendered to it by the
United States Postal Service (USPS) and by US Airways. In the performance of its
transportation of the U.S. mail as aforesaid, Contractor shall observe and
comply with any and all applicable postal regulations, instructions and
procedures and with any applicable orders or regulations of the DOT governing
the transportation of mail by scheduled air carriers.
(b) All mail transported by Contractor pursuant to this Article 6 shall be
transported under the currently effective service mail rates established by the
DOT or the USPS for the transportation of the U.S. mail by US Airways. US
Airways shall make all reports and keep all
13
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
records and accounts and perform such other administrative functions as may be
required by the USPS in connection with the transportation of the mails by
Contractor in the markets covered by this Agreement.
(c) All payments by the USPS under US Airways' effective service mail rates for
the transportation of the mails by Contractor in the markets covered by this
Agreement, shall be made to US Airways. US Airways shall pay to Contractor [***]
for all categories of mail boarded on Contractor's scheduled flights. The rate
of [***] of mail boarded established by this paragraph (c) shall be subject to
adjustment from time to time during the effectiveness of this Agreement as
mutually agreed upon by US Airways and Contractor.
(d) Contractor shall assume full liability for and shall indemnify, defend,
protect, save, and hold harmless US Airways, its directors, officers, agents,
and employees from and against any and all liabilities, damages, claims,
demands, suits, judgments, including, without limitation, any and all fines,
penalties or other sanctions imposed by the USPS (including all costs, fees, and
expenses in connection therewith or incident thereto), for the loss, delay,
damage or destruction of any of the mails tendered to Contractor by the USPS or
by US Airways for transportation pursuant to this article and for any and all
violations or failures on the part of Contractor, its directors, officers,
agents, employees or independent contractors to observe and comply with any
applicable rules, regulations or orders of the USPS, the DOT, or any other duly
authorized governmental agency relating to the transportation of the mails,
arising out of, or in any way connected with the performance by Contractor, its
directors, officers, agents, employees, and independent contractors of the
transportation of the mails pursuant to this Agreement. US Airways shall give
Contractor prompt and timely notice of any claims made, suits instituted or
fines, penalties or other sanctions imposed against US Airways, which in any way
result in the indemnification hereunder, and Contractor shall have the right to
participate in the compromise, or the defense of same, at its sole expense and
to the extent of its own interest. In the event US Airways shall be required to
pay any fine, penalty or other monetary sanction imposed against US Airways
which in any way results in the indemnification hereunder, it is mutually agreed
that the amount of such fines, penalties or other monetary sanctions shall be
deducted and set off
14
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
against payments US Airways is required to make to Contractor pursuant to
paragraph (c) above, such deduction and set out to continue until US Airways
recovers the full amount of any fine, penalty or other monetary sanction it
shall be required to pay by reason of any act or omission of Contractor, its
directors, officers, agents, employees, and independent contractors in the
performance under this article.
ARTICLE 7 LIABILITY INDEMNIFICATION AND INSURANCE
SECTION 7.01 CONTRACTOR SHALL ACT AS AN INDEPENDENT CONTRACTOR
(a) The employees, agents, and/or independent contractors of Contractor engaged
in performing any of the services Contractor is to perform pursuant to this
Agreement shall be employees, agents, and independent contractors of Contractor
for all purposes, and under no circumstances shall be deemed to be employees,
agents or independent contractors of US Airways. In its performance under this
Agreement, Contractor shall act, for all purposes, as an independent contractor
and not as an agent for US Airways. US Airways shall have no supervisory power
or control over any employees, agents or independent contractors engaged by
Contractor in connection with its performance hereunder, and all complaints or
requested changes in procedures shall, in all events, be transmitted by US
Airways to a designated officer of Contractor. Nothing contained in this
Agreement is intended to limit or condition Contractor's control over its
operations or the conduct of its business as a commuter air carrier, and
Contractor and its principals assume all risks of financial losses which may
result from the operation of the air services to be provided by Contractor
hereunder.
(b) The employees and agents of US Airways engaged in performing any of the
services US Airways is to perform pursuant to this Agreement shall be employees
and agents of US Airways for all purposes, and under no circumstances shall be
deemed to be employees and agents of Contractor. Contractor shall have no
supervision or control over any such US Airways employees and agents and any
complaint or requested change in procedure shall be transmitted by Contractor to
US Airways' designated representative.
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SECTION 7.02 LIABILITY AND INDEMNIFICATION
(a) Each party hereto assumes full responsibility for any and all liability to
its own directors, officers, employees, or agents on account of injury, or death
resulting from or sustained in the performance of their respective services
under this Agreement.
(b) Contractor shall indemnify, defend, protect, save, and hold harmless US
Airways, its directors, officers, employees, and agents from and against any and
all liabilities, claims, demands, suits, judgments, damages, and losses
(including the costs, fees, and expenses in connection therewith and incident
thereto), brought against US Airways, its directors, officers, employees or
agents by or on behalf of any director, officer, employee, agent or independent
contractor of Contractor or anyone else claiming through such persons, or by
reason of damage or destruction of property of any such person, or injury to or
death of such person, caused by or arising out of any act or omission occurring
while this Agreement is in effect. US Airways shall give Contractor prompt and
timely notice of any claim made or suit instituted against US Airways which in
any way results in indemnification hereunder, and Contractor shall have the
right to compromise or participate in the defense of same to the extent of its
own interest.
(c) Each party, with respect to its own employees, accepts full and exclusive
liability for the payment of worker's compensation and/or employer's liability
insurance premiums with respect to such employees, and for the payment of all
taxes, contributions or other payments for unemployment compensation or old age
benefits, pensions or annuities now or hereafter imposed upon employers by the
government of the United States or by any state or local governmental body with
respect to such employees measured by the wages, salaries, compensation or other
remuneration paid to such employees or otherwise, and each party further agrees
to make such payments and to make and file all reports and returns, and to do
everything necessary to comply with the laws imposing such taxes, contributions
or other payments.
(d) Contractor hereby assumes liability for and shall indemnify, defend,
protect, save, and
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
hold harmless US Airways, its directors, officers, agents, and employees from
and against any and all liabilities, claims, demands, suits, judgments, damages,
and losses (including all costs, fees, and expenses in connection therewith or
incident thereto), for death of or injury to any person whomsoever, including,
but not limited to Contractor's directors, officers, employees, or agents, and
for loss of, damage to, or destruction of any property whatsoever, including any
loss of use thereof, and including, but not limited to, property of Contractor,
its directors, officers, employees or agents, caused by, arising out of, or in
any way related to the performance, operations, and any acts or omissions of
either Contractor or US Airways, or their respective directors, officers,
employees, and agents, except for the gross negligence or willful misconduct of
US Airways, its directors, officers, employees or agents, which are in any way
related to the services contemplated by this Agreement, and in the case of
Contractor alone, any other services, or acts or omissions or the use,
operation, storage or possession of any aircraft, whether or not bearing US
Airways Express exterior decor, colors, and logo, and whether or not used in
performance of the services contemplated hereby or in connection with any other
services permitted by Article 10, or otherwise. US Airways shall give Contractor
prompt and timely notice of any claim made or suit instituted against US Airways
which in any way results in indemnification hereunder, and Contractor shall have
the right to compromise or participate in the defense of same to the extent of
its own interest.
SECTION 7.03 INSURANCE COVERAGE
(a) In consideration of the privileges granted herein, Contractor shall, at all
times during the effectiveness of this Agreement, commencing with the first day
thereof, have and maintain in full force and effect policies of insurance
satisfactory to US Airways, of the types of coverage, including coverage on all
aircraft described in Section 2.03, and in the minimum amounts stated below with
companies satisfactory to US Airways and under terms and conditions satisfactory
to US Airways as follows:
Minimum Amounts of Insurance Coverage (US Currency)
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
1. AIRCRAFT LIABILITY AND GROUND LIABILITY INSURANCE
(Including Comprehensive Public Liability)
a. Bodily Injury and Personal Injury -Passengers
b. Bodily Injury and Personal Injury -Third Parties
c. Property Damage
The minimum amounts of insurance coverage required under this paragraph
shall be [***], per occurrence, combined single limit for all coverage
required under this paragraph 1 utilizing aircraft with less than [***]
seats and [***] per occurrence combined single limit liability for all
coverage utilizing aircraft with [***] or greater seating capacity.
Per Accident
2. WORKMAN' S COMPENSATION INSURANCE:
(Company Employees) Statutory
3. EMPLOYER' S LIABILITY:
(Company Employees) [***]
4. ALL RISK HULL INSURANCE [***]
ON AIRCRAFT PERFORMING [***]
SERVICES HEREUNDER: [***]
5. BAGGAGE LIABILITY: [***] (Per Passenger)
6. CARGO LIABILITY: [***] Any One Aircraft
[***] Any One Disaster
With Terms, Limitations and
Conditions Acceptable to
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
US Airways
(b) The parties hereby agree that from time to time during the life of this
Agreement, US Airways may require Contractor to have and maintain greater
coverage than the amounts set forth in paragraph (a) above, should the
circumstances and conditions of Contractor's operations under this Agreement be
deemed in US Airways' sole judgment, to require reasonable increases in any or
all of the foregoing minimum insurance coverage.
SECTION 7.04 ADDITIONAL REQUIREMENT
(a) Contractor shall cause the policies of insurance described in Section 7.03
to be duly and properly endorsed by Contractor's insurance underwriters as
follows:
(1) as to the policies of insurance described in paragraphs 1, 2, 3, 4,
5, and 6 of said Section 7.03(a);
(A) to provide that any waiver of rights of subrogation against
other parties by Contractor will not affect the coverage provided
hereunder with respect to US Airways; and
(B) to provide that Contractor's underwriters shall waive any and
all subrogation rights against US Airways its directors,
officers, agents, and employees without regard to any breach of
warranty on the part of Contractor or to provide other evidence
of such waiver of recourse against US Airways, its directors,
officers, agents, or employees as shall be acceptable to US
Airways.
(2) as to policies of insurance described in paragraphs 1, 5, and 6 of
said Section 7.03(a)
(A) to provide that US Airways, its directors, officers, agents,
and employees shall be endorsed as Additional Insured parties
thereunder; and
(B) to provide that said insurance shall be primary insurance and
to acknowledge that any other insurance policy or policies of US
Airways shall be secondary or excess insurance;
(3) as to policies of insurance described in paragraphs 1 and 4
of said Section
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
7.03(a) to provide a breach of warranty clause to said policies
acceptable to US Airways;
(4) as to policies of insurance described in paragraph 1 only of
said Section 7.03(a):
(A) to provide, with respect to claims in favor of US
Airways, its directors, officers, agents and employees
against Contractor, its directors, officers, agents and
employees, that US Airways, its directors, officers,
agents, and employees shall not be deemed to be insured
under the said insurance policies, and to [***]; and
(B) to provide contractual liability insurance coverage
for liability assumed by Contractor under this Agreement.
(5) as to policies of insurance described in paragraph 4 above of
said Section 7.03(a), to provide that said Aircraft Hull
Insurance shall be [***] basis, and, except with the consent of
US Airways, shall not be subject to more than [***] deductibles
in the event of loss, settled on the basis of a total loss, all
losses shall be payable in full;
(6) as to any insurance obtained directly from foreign
underwriters, to provide that US Airways may maintain against
said Contractor's underwriters a direct action in the United
States upon said insurance policies and to this end provide a
standard service of suit clause designating a United States
attorney in Washington, D.C. or New York, N.Y.
(b) Contractor shall cause each of the insurance policies referred to in Section
7.03 to be duly and properly endorsed to provide that said policy or policies or
any part or parts thereof shall not be cancelled, terminated or materially
altered, changed or amended by Contractor's insurance underwriters, until after
[***] written notice to US Airways which [***] notice period shall commence to
run from the date such notice is actually received by US Airways.
(c) Upon the effective date of this Agreement, and from time to time thereafter
upon request by US Airways, Contractor shall furnish to US Airways evidence
satisfactory to US Airways of
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
the aforesaid insurance coverage and endorsements, including certificates
certifying that the aforesaid insurance policy or policies with the aforesaid
policy limits are duly and properly endorsed as aforesaid and are in full force
and effect. Initially, this evidence shall be certified copies of the policies
required hereunder.
(d) In the event Contractor fails to maintain in full force and effect any of
the insurance and endorsements described in Sections 7.03 and 7.04, US Airways
shall have the right (but not the obligation) to procure and maintain such
insurance or any part thereof. The cost of such insurance shall be payable by
Contractor to US Airways upon demand by US Airways. The procurement of such
insurance or any part thereof by US Airways does not discharge or excuse
Contractor's obligation to comply with the provisions of Sections 7.03 and 7.04.
Contractor agrees not to cancel, terminate or materially alter, change or amend
any of the policies referred to in Section 7.03 until after providing [***]
advance written notice to US Airways, of its intent to so cancel, terminate or
materially alter, change or amend said policies of insurance, which [***] notice
period shall commence to run from the date notice is actually received by US
Airways.
SECTION 7.05 CARGO LIABILITY INSURANCE
US Airways agrees to make available to Contractor cargo liability insurance
coverage under US Airways' cargo liability insurance policy solely with respect
to air freight transported by Contractor under a US Airways airfoil in scheduled
air services operated pursuant to Sections 2.01 and 2.03 and such coverage shall
be deemed to satisfy Contractor's obligation to have and maintain in full force
and effect cargo liability insurance coverage in accordance with the terms of
Section 7.03(a)(6), provided however, that US Airways may cancel, terminate,
alter, change or amend the cargo liability insurance coverage furnished to
Contractor pursuant to this Section 7.06, upon [***] written notice to
Contractor, and provided. further, if US Airways cancels or terminates such
coverage with respect to Contractor, Contractor shall furnish US Airways
evidence, on or before the effective date of such cancellation or termination,
that it has obtained cargo liability insurance coverage in accordance with
Section 7.03(a)(6).
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
ARTICLE 8 CONSIDERATION, RECORDS AND REPORTS
SECTION 8.01 CONSIDERATION
(a) For and in consideration of [***] to be provided to Contractor hereunder;
the [***] granted to Contractor authorizing the specified uses of US Airways'
Trademarks and other valuable consideration provided by this Agreement,
Contractor shall pay to US Airways Service Charges as follows:
[***]
(b) Contractor shall remit such Service Charges to US Airways [***], but in no
event later than [***]. In the event Contractor fails to pay US Airways in full
all Service Charges payable hereunder when due, Contractor agrees to pay to US
Airways, in addition to such Service Charges, interest on the unpaid balance of
such Service Charges computed at the rate per annum of [***] charges at its
principal office in New York on short-term loans to large businesses with the
highest credit standing, with a minimum rate per annum of [***] from the due
date thereof to the date of payment.
(c) It is hereby mutually agreed and understood by the parties hereto that the
aforesaid Service Charges [***] contemplate that in the performance of the
services described in Article 3 hereof, [***].
(d) The aforesaid Service Charges [***] shall be subject to adjustment by US
Airways from time to time during the term of this Agreement in order to more
accurately reflect US Airways' cost experienced in furnishing the services
contemplated hereby. Such adjustments shall be made upon [***] advance notice in
writing from US Airways to Contractor.
(e) All payments and/or reimbursements contemplated in this Article shall be
deemed to be in addition to and not in lieu of any other payments and/or
reimbursements required of either party hereto by other articles of this
Agreement, including but not limited to Article 3.
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SECTION 8.02 RECORDS AND REPORTS
(a) Contractor shall provide reports in a form acceptable to US Airways
detailing scheduled air services operated by Contractor pursuant to Sections
2.01.
(1) Reports due by the [***] of the following [***] shall contain the
following minimum:
[***]
(2) Reports due by the 5th working day of the month shall contain the
following minimum:
[***]
(3) Operator's Dispatch shall report immediately to US Airways' System
Control for inclusion into B.A.S.I.S any incident, accident (ground or
flight) that affects or could affect the safety of any operations
conducted under this Agreement.
(b) Contractor shall furnish US Airways once every [***] unaudited financial
statements including Contractor's current corporate balance sheets and profit
and loss statements, and within [***] after the close of its fiscal year,
Contractor shall furnish US Airways with audited financial statements including,
separately and on a consolidated basis, the balance sheet and profit and loss
statement of Contractor. If Contractor is a subdivision, subsidiary or other
entity, then this paragraph shall be a specific requirement of that entity, not
the consolidated unit.
(c) At US Airways' option, an authorized representative of US Airways may
inspect Contractor's corporate records and accounts once during each calendar
quarter during the life of this Agreement.
(d) Contractor shall promptly furnish US Airways a copy of every report that
Contractor files with the DOT, or some successor agency and such other traffic,
operating and financial information as US Airways may request, from time to
time, during the life of this Agreement.
(e) Contractor shall also promptly furnish US Airways with a copy of every
report that
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<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
Contractor prepares, whether or not such report is filed with the FAA, National
Transportation Safety Board (NTSB) or any other governmental agency, relating to
any accident or incident involving an aircraft used by Contractor in performing
services under this Agreement, whether or not such aircraft bears any US Airways
Trademarks, when such accident or incident is claimed to have resulted in the
death of or injury to any person or the loss of, damage to or destruction of any
property.
(f) Contractor shall promptly notify US Airways in writing of (i) any change in
or relinquishment of the ownership or control of Contractor or (ii) any
agreement contemplating such a change or relinquishment. Contractor agrees to
provide promptly a copy of such agreement, if in writing, to US Airways.
ARTICLE 9 EFFECTIVE DATE, TERMINATION AND CANCELLATION
SECTION 9.01 EFFECTIVE DATE AND TERM
(a) This Agreement will become effective on the date first written above and
will continue in effect thereafter until December 31, 2003, unless it is
terminated at an earlier date pursuant to one or more of the provisions of this
Article 9.
(b) The scheduled air transportation services to be operated by Contractor as
from time to time established pursuant to Section 2.01 shall be maintained,
without interruption, throughout the term of this Agreement, except and until
such scheduled transportation services are modified in accordance with Section
2.01.
(c) In the event there is any change in the statutes governing the economic
regulation of air transportation, or in the applicable rules, regulations or
orders of the DOT or some successor agency or department of the government
having jurisdiction over air transportation which change or changes materially
affect the rights and/or obligations presently in force with respect to the air
transportation services of US Airways or Contractor, or both, then the parties
hereto will consult,
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
within thirty (30) days after any of the occurrences described herein, in order
to determine what, if any, changes to this Agreement are necessary or
appropriate, including but not limited to the early termination and cancellation
of this Agreement. If the parties hereto are unable to agree whether any change
or changes to this Agreement are necessary and proper, or as to the terms of
such changes, or whether this Agreement should be cancelled in light of the
occurrences described above, and such failure to reach agreement shall continue
for a period of thirty (30) days following the commencement of the consultations
provided for by this Section 9.01(c), then this Agreement may be cancelled by
either US Airways or Contractor upon providing the other party a minimum of
ninety (90) days' written notice of such cancellation.
SECTION 9.02 TERMINATION
(a) In addition to the foregoing provisions of this Article, this Agreement may
be cancelled or terminated by either US Airways or Contractor if there is an
assignment of this Agreement or of any of the rights, duties or obligations
created hereunder with respect to any party to this Agreement without the
written consent of the other party. In the event that this Agreement is
assigned, whether by operation of law or otherwise, without such consent having
been given in writing, the party not making the assignment shall have the right
immediately to terminate the Agreement by telegraphic or written notice to the
other party. Notwithstanding the foregoing, US Airways may, without consent of
the other party hereto, assign, or transfer this Agreement to any company into
which or with which US Airways or its successors may be merged, combined or
consolidated, or which may otherwise succeed to substantially all of US Airways'
assets.
(b) In the event that US Airways shall file a voluntary petition in bankruptcy
or that proceedings in bankruptcy shall be instituted against it and US Airways
shall be adjudged bankrupt, or that a court shall take jurisdiction of US
Airways and its assets pursuant to proceedings brought under the provisions of
any federal reorganization act, or that a receiver of US Airways' assets shall
be appointed and such taking or appointment shall not be stayed or vacated
within a period of sixty (60) days, Contractor may thereupon terminate this
Agreement by fifteen (15) days' prior written notice to US Airways.
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
(c) If US Airways shall fail to perform, keep, and observe any of the terms,
covenants or conditions herein contained on the part of US Airways to be
performed, kept or observed, Contractor may give US Airways notice in writing to
correct such condition or cure such default and, if any such condition or
default shall continue for sixty (60) days after the receipt of such notice by
US Airways and, if within such period of time US Airways has not prosecuted with
diligence the correction of such condition or default, Contractor may then
terminate this Agreement upon fifteen (15) days' prior written notice, and this
Agreement shall thereupon cease and expire at the end of such fifteen (15) days
in the same manner and to the same effect as if it were the expiration of the
original term.
(d) US Airways, in addition to the other provisions of this section and Section
9.01 above, may terminate this Agreement upon not less than sixty (60) days'
written notice to the other party hereto should any one of the following
conditions occur during the time this Agreement is in effect:
(1) if Contractor fails to maintain the minimum operations in any of the
markets as specified from time to time in Section 2.01(a) during the
effectiveness of this Agreement, or fails to retain and/or utilize the
aircraft specified in Section 2.03 in the manner provided in Article 2,
except as otherwise provided herein;
(2) if, during any one (1) calendar month during the life of this
Agreement, Contractor's flight completion factor shall fall below
ninety-five percent (95%) due to cancellations attributable to
maintenance or operational deficiencies within Contractor's normal
management control;
(3) if Contractor fails to comply with the trademark license provisions
of Article 11 of this Agreement;
(4) in the event that Contractor shall file a voluntary petition in
bankruptcy or that proceedings in bankruptcy shall be instituted against
it and Contractor shall be adjudged bankrupt, or that a court shall take
jurisdiction of Contractor, and its assets pursuant to proceedings
brought under the provisions of any federal reorganization act, or that
a receiver of the assets of Contractor shall be appointed and such
taking or appointment
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
shall not be stayed or vacated within a period of sixty (60) days, or
that Contractor shall be divested of, or be prevented by any action of
any federal authority from conducting and operating its air
transportation operations, or any of Contractor's aircraft shall be
grounded by any governmental authority having jurisdiction;
(5) if Contractor shall fail to perform, keep, and observe any of the
terms, covenants or conditions herein contained on the part of such
party to be performed, kept or observed, US Airways may give Contractor
notice in writing to correct such condition or cure such default and, if
any such condition or default shall continue for ten (10) days after the
receipt of such notice and if within such period of time the correction
of such condition or default has not been accomplished; provided,
however, that Section 9.02(d)(2) above shall not be applicable to this
sub-section.
(6) if there is, without the written approval of US Airways first had
and obtained, any change in or relinquishment of the ownership or
control or President or chief Executive Officer of Contractor. For
purposes of this Agreement, ownership or control of Contractor shall
consist of voting control of twenty-five percent (25%) of the
outstanding voting capitol stock of Contractor.
(e) Either US Airways or Contractor may terminate this Agreement without cause
at any time upon one hundred eighty (180) days' written notice to the other
party. US Airways incurs substantial personnel, facilities and other costs in
contemplation of continued provision of Contractor's US Airways Express
services, which costs cannot be eliminated without adequate advance notice. In
the event Contractor terminates this Agreement on less than one hundred eight
(180) days' written notice, Contractor agrees to pay to US Airways [***]. Such
costs shall include, but are not limited to, [***].
(f) Any early termination or cancellation of one or more of the provisions of
this Article 9 shall not be construed so as to relieve any party hereto of any
debts or monetary obligations to the other party that shall have accrued
hereunder prior to the effective date of such termination or cancellation.
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
SECTION 9.03 FORCE MAJEURE
Neither US Airways nor Contractor shall be liable for any failure to perform
under this Agreement if such failure is due to causes beyond its control,
including, but not limited to, acts of God or the public enemy, fire, floods,
epidemics, quarantine or strikes; provided. however, that the foregoing shall
not apply to the obligations assumed by Contractor under Article 7 of this
Agreement.
ARTICLE 10 OPERATING RESTRICTIONS
SECTION 10.01 USE OF CONTRACTOR'S AIRCRAFT
In the event that aircraft owned and/or operated by Contractor bearing the US
Airways Trademarks are available and can be utilized without adversely affecting
in any manner the regular scheduled services operated pursuant to Sections 2.01,
such aircraft may be used:
(1) for nonscheduled planeload passenger charters; or
(2) for scheduled or nonscheduled services limited to the transportation
of freight and/or mail in markets other than the markets described in
Section 2.01; or
(3) on an emergency basis in operations not covered by this Agreement.
ARTICLE 11 TRADEMARK LICENSE FOR OPERATIONS TO BE CONDUCTED BY
CONTRACTOR PURSUANT TO THIS AGREEMENT
SECTION 11.01 GRANT OF TRADEMARK LICENSE
Contractor will conduct all operations described in Section 2.01 above, and any
additional operations undertaken by subsequent amendment hereto, under the
service mark "US Airways Express" and shall utilize the US Airways service marks
consisting of the exterior color decor and patterns on its aircraft as
prescribed by US Airways. US Airways hereby grants to Contractor a nonexclusive,
nontransferable license to use such US Airways service marks in connection
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
with the services to be rendered by Contractor under this Agreement; provided.
however, that at any time during the life of this Agreement, US Airways may
alter, amend or revoke the license hereby granted and require Contractor's use
of any new or different US Airways service marks in conjunction with the air
transportation services provided hereunder as US Airways may determine in the
exercise of its sole discretion and judgment.
SECTION 11.02 TERMS AND CONDITIONS GOVERNING TRADEMARK LICENSE
(a) Contractor hereby acknowledges US Airways' ownership of the US Airways
service marks, further acknowledges the validity of the US Airways service
marks, and agrees that it will not do anything in any way to infringe or abridge
US Airways' rights in its service marks and trademarks or directly or indirectly
to challenge the validity of the US Airways service marks.
(b) Contractor agrees that, in providing the services to be provided under this
Agreement in conjunction with one or more of the US Airways service marks, it
will conform to such standards of service (including types of aircraft,
qualification of personnel, customer service standards, and other reasonable
quality control measures) as may be prescribed by US Airways either specifically
in this Agreement or by subsequent communications to Contractor. US Airways
shall have the right, through such agents or representatives as it may
designate, to inspect the services and standards being performed by Contractor
under this Agreement and in the event that, in US Airways' opinion, there has
been some deviation from such services and/or standards, Contractor agrees upon
written notice from US Airways to rectify promptly any such deviation.
(c) Contractor shall not, without US Airways' express prior written consent,
advertise the services to be rendered hereunder, nor make use of the US Airways
Trademarks referred to in Section 11.01 above in any advertising. US Airways
shall have absolute discretion to withhold its consent concerning any and all
such advertising and use of the US Airways Trademarks in advertising by
Contractor. In the event US Airways approves the use of such US Airways
Trademarks in any advertising, such advertising shall identify US Airways as the
owner of such trademark(s), and to the extent that any mark is registered, shall
so specify.
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
(d) To the extent that Contractor is licensed to use the mark "US Airways,"
Contractor will use said mark only in the mark "US Airways Express" and then
only in conjunction with the services specifically embraced by this Agreement.
(e) Nothing in this Agreement shall be construed to give Contractor the
exclusive right to use the US Airways Trademarks, or to bridge US Airways' right
to use and/or to license its trademarks, and US Airways hereby reserves the
right to continue use of the US Airways Trademarks and to license such other
uses of said trademarks as US Airways may desire.
(f) No term or provision of this Agreement shall be construed to preclude the
use of the trademarks "US Airways Express" or the aircraft exterior color decor
and patterns by other individuals or corporations not covered by this Agreement.
(g) Should this Agreement be cancelled or otherwise terminated for any reason as
set forth in Article 9 hereof, the license permitting Contractor to use the US
Airways Trademarks shall terminate and such marks shall not thereafter be used
by Contractor in connection with any operations of Contractor.
ARTICLE 12 ENTIRE AGREEMENT, AMENDMENT, NOTICES AND TITLES
SECTION 12.01 ENTIRE AGREEMENT AND AMENDMENTS
(a) This Agreement represents the entire agreement between the parties hereto
unless subsequently amended as hereinafter provided, and said Agreement shall
not be modified or cancelled by mutual agreement or in any manner except by an
instrument in writing, executed by the parties or their respective successors in
interest.
(b) The parties hereto may by mutual agreement amend any provision of this
Agreement, or delete or add any provision to this Agreement by an instrument in
writing, executed by each of
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EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
the parties or their authorized representatives or successors in interest Any
amendment, deletion or additions executed as prescribed herein shall become a
part of, and shall be construed as part of this Agreement.
SECTION 12.02 PREVIOUS AGREEMENT
This Agreement cancels and supersedes all previous Service Agreements, including
the Service Agreement dated November 1, 1988.
SECTION 12.03 NOTICES AND MISCELLANEOUS PROVISIONS
(a) Any and all notices, approvals or demands required or permitted to be given
by the parties hereto shall be sufficient if sent by certified mail, postage
prepaid, overnight delivery service, or facsimile to US Airways addressed to:
Vice President-Express Division Telephone Number: 703-872-7062
US Airways Facsimile Number: 703-872-7312
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
and to
Contractor, addressed to:
President Telephone Number: 704-359-8990
CCAir, Inc. Facsimile Number: 704-359-0351
4700 Yorkmont Rd., Second Floor
Charlotte, NC 28208
or to such other addresses in the continental United States as the parties may
specify by notice as provided herein.
32
<PAGE>
EXHIBIT 10.3(G)
[***] INDICATES CONFIDENTIAL INFORMATION
(b) Description titles contained in this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
(c) This Agreement shall be governed by and construed and enforced in accordance
with the laws of the [***] as though the entire agreement were performed in
[***] and without regard to [***] conflict of laws statutes. The Parties further
agree that they consent to the jurisdiction of the [***] or the federal courts
located within the [***] and waive any claim of lack of jurisdiction or forum
non conveniens.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered
into and signed as of the day and year first written above.
CCAIR, Inc.
WITNESS: __________________________ By: ________________________________
Kenneth W. Gann
President and CEO
US Airways
WITNESS:____________________________ By:_________________________________
Gregory T. Taylor
Vice President
US Airways Express
33
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and executed as of the 14th day of November, 1996,
by and between CCAIR, INC., a Delaware Corporation (the "Company") and KENNETH
W. GANN, a resident of Lake Wylie, South Carolina ("Employee").
1. Employment. The Company hereby employs the Employee and the Employee
hereby accepts employment under the terms and conditions hereinafter set forth.
2. Duties. The Employee shall serve as President and Chief Executive
Officer and shall perform such duties and have such responsibilities as normally
attributed to a president and chief executive officer of a Delaware corporation.
Employee shall perform such duties at the principal business office of the
Company in Charlotte, North Carolina. Additions to Employee's duties under this
Agreement shall not result in additional compensation unless expressly agreed to
by the Company's Board of Directors.
3. Term. The term of employment hereunder shall begin on the date of this
Agreement and, subject to the termination provisions set forth in Section 8
hereof, shall continue for a period of three (3) years after the expiration of
the Employment Agreement between the Company and Employee dated February 8,
1994.
4. Compensation.
a. Company shall pay Employee an annual salary of ONE HUNDRED FORTY
FIVE THOUSAND DOLLARS ($145,000.00) payable in equal monthly
installments (the "Base Salary"). The Base Salary shall be reviewed
prior to each anniversary date of this Agreement by the Board of
Directors of the Company.
b. For each fiscal year during the term of this Agreement,
beginning with the fiscal year ending June 30, 1997, Employee shall
receive a bonus payable at the discretion of the Board of Directors, or
any committee thereof, based upon the after-tax profits of the Company.
5. Reimbursement of Expenses. The Company shall reimburse the Employee for
reasonable and necessary out-of-pocket expenses, including, without limitation,
entertainment, travel, and similar expenses incurred by him in performing the
duties set forth in Section 2 hereof, upon presentation by the Employee of an
itemized account of such expenses, supported by such documentation as is
required under the Internal Revenue Code of 1986, as amended, to support the
deductibility of such expenses for federal income tax purposes.
<PAGE>
EXHIBIT 10.35
6. Fringe Benefits and Vacation.
a. Employee shall be entitled to participate in all fringe
benefits and employee benefit plans made available, from time to time,
by the Company to its employees, provided that the Company may change
such benefits or plans in its sole discretion.
b. Employee shall be entitled to fifteen (15) days of vacation
during each year that this Agreement is in effect.
7. Options. Employee shall be entitled to a number of options equal to
or greater than the number granted to any other individual employee or member of
the Board of Directors of the Company, which options shall be granted on terms
at least as favorable as those upon which options granted to other employees or
directors of the Company are granted.
8. Termination.
a. This Agreement shall terminate upon the earlier of
(i) the date of termination as provided in Section 3 hereof;
(ii) the death of the Employee; of (iii) the inability of the Employee
to perform his services by reason of illness or incapacity for a period
of more than three (3) consecutive months. The Board of Directors of the
Company may terminate this Agreement for cause at any time and all
salary and fringe benefits shall cease to accrue as of the effective
date of each termination. "Cause" shall be defined as the conviction of
Employee of commission of a felony, willful misconduct in the
performance of his duties, or gross negligence in the performance of his
duties.
b. If Employee shall voluntarily resign from employment by the
Company prior to the expiration of this Agreement or shall be terminated
by the Company for cause as defined herein, any compensation payable to
Employee under Section 4 shall be prorated through date of termination
and no bonus will be payable.
c. (i) At its option, the Board of Directors of the Company may
elect a new Chairman and Chief Executive Officer. Employee shall then
become President and Chief Operating Officer of the Company, with the
responsibility for and authority to oversee all aspects of the day to
day operation of the Company. In such an event, Employee may, at his
option, either (A) assume the position of President and Chief Operating
Officer, or (B) terminate his employment hereunder. If Employee elects
to terminate under this Subsection 8(c)(i), Employee shall be entitled
to his then current salary for twelve months from the date of
termination.
<PAGE>
EXHIBIT 10.35
(ii) If the Board of Directors or the Chief Executive Officer of
the Company reduces Employee's job responsibilities to something less
than those normally attributed to that of a President and Chief
Operating Officer of a Delaware corporation, Employee may, upon thirty
days written notice, terminate this Agreement at his option. Employee's
determination that his job responsibilities have been so reduced shall
be final. In the event Employee opts to terminate his employment
pursuant to this Subsection 8(c)(ii), Employee shall be entitled to all
compensation set forth in Section 4 and all the fringe benefits set
forth in Section 6 for the entire term of this Agreement.
d. If the Company terminates this Agreement without cause during
the term of this Agreement, then Employee shall be entitled to all
compensation set forth in Section 4 and all the fringe benefits in
Section 6 for the entire term of this Agreement.
9. Exclusivity.
a. Employee shall devote his best efforts to the performance of his
duties under this Agreement. Employee agrees that all information which
he obtains in the course of his employment is the property of the
Company and agrees that he will not discuss any such information or use
any such information for the benefit of himself or any person or entity
other than the Company at any time during or after his employment.
b. During the time period in which Employee may receive payments
from the Company after termination of employment for cause as defined
herein, Employee agrees that he will not engage in employment or
business activities which are reasonably deemed to be competitive to the
Company and its business.
c. The parties hereto, recognizing that irreparable injury will
result to the Company, its business and property in the event of a
breach of this Agreement by Employee, and that employment is based
primarily upon this Agreement, it is agreed that in such event the
Company shall be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation thereof by
Employee, his partners, agents, servants, employers, and Employees, and
all persons acting for or with him. The Employee represents and admits
that in the event of the termination of his employment for any cause
whatsoever, his experiences and capabilities are such that he can obtain
employment in business engaged in other lines and/or of a different
nature, and that the enforcement of a remedy by way of injunction will
not prevent him from earning a livelihood.
<PAGE>
EXHIBIT 10.35
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail, return receipt requested, to his residence in the case of the
Employee, or to its principal office in the case of the Company. The notice
shall be deemed given at the time of its proper mailing.
11. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any subsequent breach.
12. Assignment. This Agreement shall be binding upon, shall inure to the
benefit of, and shall be enforceable by and against the Company and its
successors and assigns. The Employee shall have no right to assign this
Agreement or any of his rights or obligations hereunder, either by operation of
law or otherwise, except with the express written consent of the Company.
13. Entire Agreement; Amendments. This instrument contains the entire
agreement of the parties. No change or modifications of this Agreement shall be
valid unless in writing and signed by the party against whom enforcement of any
such change or modification is sought.
14. Section Titles. Section titles appearing in this Agreement are inserted
only for convenience, and are in no way to be construed as a part of this
Agreement or as a limitation on the scope of the particular Section to which
they refer.
15. Severability. The invalidity or unenforceability of a particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such unenforceable or
invalid provisions were omitted.
16. Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of North Carolina.
17. Prior Agreements. This Agreement supersedes any and all prior
employment arrangements between Employee and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement and affixed
hereto their respective seals as of the date first above written.
CCAIR, INC.
- -------------------(SEAL) By:
KENNETH W. GANN ----------------------------
JOHN A. ADAMS
DIRECTOR
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of this 1st day of July, 1998 (the "Effective Date"), by and between CCAIR,
Inc., a Delaware Corporation (the "Company" or "CCAIR") and Eric W. Montgomery
("Employee").
W I T N E S S E T H T H A T:
WHEREAS, Employee is currently employed by the Company and the Company
desires to continue to employ Employee; and Employee desires to continue to be
employed by the Company, upon the terms and conditions hereinafter set forth;
and
WHEREAS, the Company and Employee desire to expressly set forth in this
Agreement the terms of Employee's employment with the Company; and
WHEREAS, the Company has determined that the best interests of the
Company would be served by entering into this Agreement with Employee; and
WHEREAS, the Company and Employee are both legally able, and not
restricted by prior agreements with other parties, to enter into this Agreement;
and
NOW, THEREFORE, the parties, for and in consideration of the mutual and
reciprocal covenants and agreements hereinafter contained, and intending to be
legally bound hereby, do contract and agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts employment by the Company and agrees to perform his duties and
responsibilities hereunder upon all of the terms and conditions as are
hereinafter set forth.
2. Duties. Employee shall serve the Company in the capacities of Vice
President-Finance. Employee shall be responsible for supervising and directing
all finances of the Company. Employee shall otherwise be responsible for
carrying out such other duties and services for the Company commensurate with
Employee's position, as may be designated from time to time by the Chief
Executive Officer of the Company (the "CEO").
3. Term of Employment. Employee's term of employment under this
Agreement shall commence on the Effective Date and shall terminate on the last
day of the calendar month which is twelve (12) calendar months after the
Effective Date, unless further extended as hereinafter set forth. Commencing on
each successive anniversary of the Effective Date, the Agreement shall
automatically be extended for an additional twelve (12) months without further
action by either party unless one party provides the other fifteen (15) days
written notice that such party does not wish to extend the term of this
Agreement. The fifteenth (15th) day following the date of such notice shall be
deemed to be a "Termination Date" for purposes of this Agreement.
1
<PAGE>
EXHIBIT 10.44
4. Extent of Service. Employee shall devote such time and attention as
is required to perform his obligations under this Agreement and will at all
times faithfully and industriously, consistent with his ability, experience and
talent, perform his duties hereunder under the direction of the CEO.
5. Compensation. During the term of this Agreement, the Company agrees
to pay to Employee, and Employee agrees to accept from the Company, in full
payment for services rendered by Employee and work to be performed by him under
the terms of this Agreement, the following:
A. During the first year under this Agreement, an annual base
salary of One Hundred Thousand Dollars ($100,000). Thereafter, the amount of
Employee's base salary shall be adjusted as determined by the Compensation
Committee of the Board of Directors of the Company. Employee's base salary for
each year shall be payable to him in accordance with the reasonable payroll
practices of the Company, as from time to time, in effect for executive
personnel (but in no event less often than monthly).
B. Employee shall participate in the Company's Bonus Plan, or any
successor bonus plan or program for key executives.
C. Discretionary compensation, bonuses and benefits in addition
to those provided for herein in such amounts and at such times as the
Compensation Committee of the Board of Directors of the Company shall determine.
6. Benefits. The Company shall provide Employee four weeks annual
vacation time, excluding Company holidays. In addition, the Company shall pay
for or provide Employee such benefits, including but not limited to coverage
under the Company's major medical, accident, health, dental, disability and life
insurance plans, as are available to other employees of the Company (and, to the
extent provided by such policies, Employee's dependents).
7. Reimbursement of Benefits. The Company agrees to promptly reimburse
Employee, within fifteen (15) days after presentation of receipts and other
appropriate documentation, for all reasonable, ordinary and necessary travel
costs and other necessary expenses incurred by Employee in performing his duties
pursuant to this Agreement.
8. Deductions. Deductions shall be made from Employee's compensation for
social security, federal and state withholding taxes, and any other such taxes
as may, from time to time, be required by governmental authority.
9. Termination. Employee's employment with the Company shall be
terminated as hereinafter provided.
A. Disability.
2
<PAGE>
EXHIBIT 10.44
(i) In the event Employee shall become mentally or
physically disabled so as to be unable to perform his duties hereunder (such
determination to be made solely by the Company) for six (6) consecutive months,
the Company shall have the right to terminate Employee's employment with the
Company upon the expiration of such six (6) month period; provided, however,
that the Company shall be obligated to provide Employee with the such severance
compensation and benefits as hereinafter provided.
(ii) In the event Employee's employment is terminated by
the Company due to a disability as provided herein, the Company shall continue
to provide Employee with the basic major medical insurance benefits maintained
by the Company and shall pay Employee such severance compensation as hereinafter
provided for a period (the "Severance Period") which shall be twelve (12) months
from the date of Employee's termination. Employee's severance compensation
("Severance Compensation") shall be determined as follows: during the Severance
Period Employee shall receive an amount equal to one hundred percent (100%) of
his annual base salary in effect at the commencement of his disability. In
addition, the Company shall pay Employee a prorated portion of any annual bonus
amount accrued through the Termination Date, provided, however, that such bonus
amount will be paid at the time that such bonus amounts are normally paid by the
Company. The CCAIR flight pass privileges currently granted to Employee will
continue for the Severance Period. However, such flight pass privileges will be
limited to flights on CCAIR only.
(iii) Nothing contained herein shall be construed to
affect Employee's rights under any disability insurance or similar policy,
whether maintained by the Company, Employee or another party.
(iv) For purposes of this Agreement, Employee shall be
deemed to be disabled when he shall have been absent from his duties on a full
time basis for six (6) consecutive months.
(v) At the end of any disability (other than a disability
that results in the involuntary termination of Employee's employment with the
Company), Employee shall return to work and this Agreement shall continue as
though such disability had not occurred.
(vi) If Employee desires to return to work at the end of
any disability, but there is a dispute as to whether he is able to perform his
duties hereunder, the Company shall have sole discretion in determining whether
Employee is able to perform his duties hereunder on a full-time basis.
B. Death.
(i) Employee's employment with the Company shall terminate
immediately upon Employee's death; provided, however, that the Company shall be
obligated to provide Employee with such severance compensation and benefits as
hereinafter provided.
3
<PAGE>
EXHIBIT 10.44
(ii) In the event Employee's employment with the Company
is terminated due to his death, the Company shall continue to provide Employee's
dependents with the basic major medical insurance benefits maintained by the
Company (provided that such dependents were covered under the applicable Company
benefit plan at the time of Employee's death) and shall pay Employee's estate
Employee's "Severance Compensation" for the "Severance Period." For purposes of
this Paragraph 9B, the Severance Period shall be twelve (12) months from the
date of Employee's death. The amount of Employee's Severance Compensation shall
be determined as follows: during the Severance Period, an amount equal to one
hundred percent (100%) of Employee's annual base salary in effect at the time of
his death. In addition, the Company shall pay Employee a prorated portion of any
annual bonus amount accrued through the Termination Date, provided, however,
that such bonus amount will be paid at the time that such bonus amounts are
normally paid by the Company.
(iii) Nothing contained herein shall be construed to
affect Employee's rights under any life insurance or similar policy, whether
maintained by the Company, Employee or another party.
C. Termination by Employee. Employee may terminate his employment
with the Company as provided in paragraph 3. In such event, the Company shall
not be liable to Employee for any compensation, bonus or fringe benefits after
the date of termination of employment.
D. Termination by the Company.
(i) Without Cause. The Company may, without cause,
terminate this Agreement at any time by giving to Employee fifteen (15) days
written notice by Certified Mail, Return Receipt Requested, at the last known
residence of Employee, and such termination shall be effective on the fifteenth
(15th) day following the date of such notice (the "Termination Date"). At the
option of the Company, Employee's employment shall be immediately terminated
upon receipt of the notice, in which case Employee shall continue to receive his
full base salary and related benefits through the Termination Date. In addition,
the Company shall continue to provide Employee with the basic major medical
insurance benefits maintained by the Company and shall pay Employee "Severance
Compensation" for the "Severance Period." For purposes of this paragraph D1, the
Severance Period shall be twelve (12) months from the Termination Date. The
amount of Employee's Severance Compensation shall be determined as follows:
during the Severance Period, an amount equal to one hundred percent (100%) of
Employee's annual base salary in effect at the Termination Date. In addition,
the Company shall pay Employee a prorated portion of any annual bonus amount
accrued through the Termination Date, provided however, that such bonus amount
will be paid at the time that such bonus amounts are normally paid by the
Company. In the discretion of the Company, the Severance Compensation may be
paid, in a single lump sum payment or periodic payments in accordance with the
reasonable payroll practices of the Company as from time to time in effect for
executive personnel (but in no event less often that monthly). The CCAIR flight
pass privileges currently granted to Employee will continue for the Severance
Period. However, such flight pass privileges will be limited to flights on CCAIR
only.
4
<PAGE>
EXHIBIT 10.44
(ii) For "Cause". Company may terminate Employee's
employment under this Agreement immediately for "cause". In such event, the
Company shall not be liable to Employee for any compensation, bonus or benefits
after the date of termination of employment. Cause shall be defined as any of
the following: (i) unauthorized misconduct in the performance of Employee's
duties hereunder, (ii) commission of an act of dishonesty by Employee or
personal misconduct, which act is harmful to the Company, (iii) breach of any
provision of this Agreement. Any termination under this Paragraph D2 shall take
effect immediately upon Employee's receipt of written notice from the Company to
Employee.
E. Acceleration of Stock Options. In the event that Employee's
employment is terminated by the Company without "cause" (as defined in Paragraph
9D), as of the applicable Termination Date, any options to purchase shares of
common stock of the Company, regardless of when granted and notwithstanding the
terms of any applicable option agreement to the contrary, shall become
immediately exercisable by written notice by Employee to the President of the
Company and shall remain exercisable through the Severance Period. The procedure
for exercise shall be the procedure established in the applicable option
agreements.
10. Nonsolicitation and Confidentiality.
A. Nonsolicitation. For so long as Employee is an employee of the
Company and continuing for one (1) year thereafter, Employee shall not, without
the prior written consent of the Company, directly or indirectly, as a sole
proprietor, member of a partnership, stockholder or investor, officer or
director of a corporation, or as an employee, associate, consultant or agent of
any person, partnership, corporation or other business organization or entity
other than the Company: (i) solicit or endeavor to entice away from the Company
or any of its subsidiaries any person or entity who is, or, during the then most
recent 12-month period, was employed by, or had served as an agent of, the
Company or any of its subsidiaries; or (ii) solicit or endeavor to entice away
from the Company or any of its subsidiaries any person or entity who is, or was
within the then most recent 12-month period, a customer or client (or reasonably
anticipated (to the general knowledge of Employee or the public) to become a
customer or client) of the Company or any of its subsidiaries.
B. Confidentiality. Employee covenants and agrees with the
Company that he will not at any time, except in performance of his obligations
to the Company hereunder or with the prior written consent of the Company,
directly or indirectly, disclose any secret or confidential information that he
may learn or has learned by reason of his association with the Company or any of
its subsidiaries and affiliates. The term "confidential information" includes
information not previously disclosed to the public or to the trade by the
Company's management, or otherwise in the public domain, with respect to the
Company's or any of its affiliates' or subsidiaries', products, facilities,
applications and methods, trade secrets and other intellectual property,
systems, procedures, manuals, confidential reports, price lists, customer lists,
technical information, financial information (including the revenues, costs or
profits associated with the Company), business plans, prospects or
opportunities, but shall exclude any information which (i) is or becomes
available to the public or is generally known in the industry or industries in
5
<PAGE>
EXHIBIT 10.44
which the Company operates other than as a result of disclosure by Employee in
violation of his agreements under this paragraph 10B or (ii) Employee is
required to disclose under any applicable laws, regulations or directives of any
government agency, tribunal or authority having jurisdiction in the matter of
under subpoena or other process of law.
C. Exclusive Property. Employee confirms that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by Employee relating to the
business of the Company shall be and remain the property of the Company, except
for such papers customarily deemed to be the personal copies of Employee.
D. Injunctive Relief. Without intending to limit the remedies
available to the Company, Employee acknowledges that a breach of any of the
covenants contained in this Section 10 may result in material and irreparable
injury to the Company or its affiliates or subsidiaries for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Company shall be entitled to seek a temporary restraining order and/or a
preliminary or permanent injunction restraining Employee from engaging in
activities prohibited by this Section 10 or such other relief as may be required
specifically to enforce any of the covenants in this Section 10. If for any
reason, it is held that the restrictions under this Section 10 are not
reasonable or that consideration therefor is inadequate, such restrictions shall
be interpreted or modified to include as much of the duration and scope
identified in this Section 10 as will render such restrictions valid and
enforceable.
11. Assignment. This Agreement, as it relates to the employment of
Employee, is a personal contract and the rights and interests of Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated.
However, this Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns including, without limitation, any
corporation or other entity into which the Company is merged or which acquires
all or substantially all of the outstanding common stock or assets of the
Company.
12. Invalid Provisions. The invalidity of any one or more of the clauses
or words contained in this Agreement shall not affect the reasonable
enforceability of the remaining provisions of this Agreement, all of which are
inserted herein conditionally upon being valid in laws; and in the event one or
more of the words or clauses contained herein shall be invalid, this instrument
shall be construed as if such invalid words or clauses had not been inserted or,
alternatively, said words or clauses shall be reasonably limited to the extent
that the applicable court interpreting the provisions of this Agreement
considers to be reasonable.
13. Specific Performance. The parties hereby agree that any violation by
Employee of the covenants and agreements contained herein shall cause
irreparable damage to the Company, and the Company may, as a matter of course,
enjoin and restrain said violation by Employee by process issued out of a court
of competent jurisdiction, in addition to any other remedies that said court may
see fit to award.
6
<PAGE>
EXHIBIT 10.44
14. Binding Effect: All the terms of the Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
15. Waiver of Breach or Violation Not Deemed Continuing. The waiver by
the Company of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach hereof.
16. Entire Agreement; Law Governing. This Agreement supersedes any and
all other agreements, either oral or in writing, between the parties hereto with
respect to the subject matter hereof, by and between the Company and Employee,
and contains all the covenants and agreements among the parties with respect to
such subject matter. This Agreement shall be construed in accordance with the
laws of the state of North Carolina.
17. Paragraph Headings. The Paragraph headings contained in this
Agreement are for convenience only and shall in no manner be construed as a part
of this Agreement.
IN WITNESS WHEREOF, the Company has hereunto caused this Agreement to be
executed by a duly authorized officer and Employee has hereunto set his hand as
of the day and year first above written.
-----------------------------
EMPLOYEE
CCAIR, Inc.
(CORPORATE SEAL)
By:
----------------------------------------
Attest:
------------------------------
7
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (Statement File No. 33-
58860).
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
March 19, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from CCAIR, Inc.
financial statements for the fiscal year and quarter ended December 30, 1998,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1998
<PERIOD-END> Dec-31-1998 Dec-31-1998
<CASH> 45,584 45,584
<SECURITIES> 0 0
<RECEIVABLES> 6,345,751 6,345,751
<ALLOWANCES> 0 0
<INVENTORY> 1,913,316 1,913,316
<CURRENT-ASSETS> 10,198,889 10,198,889
<PP&E> 11,234,217 11,234,217
<DEPRECIATION> (7,013,897) (7,013,897)
<TOTAL-ASSETS> 15,165,674 15,165,674
<CURRENT-LIABILITIES> 15,324,321 15,324,321
<BONDS> 0 0
0 0
0 0
<COMMON> 89,312 89,312
<OTHER-SE> (11,105,410) (11,105,410)
<TOTAL-LIABILITY-AND-EQUITY> 15,165,674 15,165,674
<SALES> 0 0
<TOTAL-REVENUES> 20,600,107 71,324,982
<CGS> 0 0
<TOTAL-COSTS> 20,712,997 66,969,141
<OTHER-EXPENSES> (75,403) (97,397)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 332,553 1,073,565
<INCOME-PRETAX> (370,040) 3,379,673
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (370,040) 3,379,673
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (370,040) 3,379,673
<EPS-PRIMARY> (.04) 0.40
<EPS-DILUTED> (.04) 0.36
</TABLE>
