SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: MARCH 31, 1998 Commission File Number 0-26582
WORLD AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1358276
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of the registrant's Common Stock outstanding on April 29,
1998 was 7,230,064.
<PAGE>
WORLD AIRWAYS, INC.
MARCH 31, 1998, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Condensed Balance Sheets, March 31, 1998 and December 31, 1997.................3
Condensed Statements of Operations, Three Months Ended March 31,
1998 and 1997..................................................................5
Condensed Statement of Changes in Common Stockholders' Deficit,
Three months ended March 31,1998...............................................6
Condensed Statements of Cash Flows, Three months ended
March 31, 1998 and 1997........................................................7
Notes to Condensed Financial Statements........................................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................21
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents, including restricted
cash of $29 at March 31, 1998
and $498 at December 31, 1997 $ 10,691 $ 25,887
Restricted short-term investments 145 --
Trade accounts receivable, less allowance for
doubtful accounts of $558 at March 31, 1998
and $498 at December 31, 1997 4,630 7,747
Other receivables 8,263 9,485
Due from affiliate, less allowance for
doubtful accounts of $537 at March 31, 1998
and $475 at December 31, 1997 5,049 2,471
Prepaid expenses and other current assets 7,603 7,995
Assets held for sale 500 500
------- -------
Total current assets 36,881 54,085
------- -------
ASSETS HELD FOR SALE 2,590 2,734
EQUIPMENT AND PROPERTY
Flight and other equipment 87,156 86,774
Equipment under capital leases 12,266 12,266
------- -------
99,422 99,040
Less: accumulated depreciation and amortization 27,582 25,603
------- -------
Net equipment and property 71,840 73,437
------- -------
LONG-TERM OPERATING DEPOSITS 15,886 16,059
OTHER ASSETS AND DEFERRED CHARGES, NET 2,352 2,833
------- -------
TOTAL ASSETS $ 129,549 $ 149,148
======= =======
(Continued)
</TABLE>
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 2,706 $ 4,039
Current maturities of long-term obligations 10,941 9,856
Accounts payable 15,817 19,824
Unearned revenue 2,691 2,486
Accrued maintenance in excess of reserves paid 5,485 2,481
Accrued salaries and wages 12,103 10,976
Accrued taxes 1,325 1,386
Due to affiliate 1,158 3,304
Other accrued liabilities 511 1,553
------- -------
Total current liabilities 52,737 55,905
------- -------
LONG-TERM OBLIGATIONS, NET 70,701 75,071
OTHER LIABILITIES
Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $20,419 at March 31,
1998 and $20,156 at December 31, 1997 4,932 5,195
Accrued maintenance in excess of reserves paid, noncurrent 9,036 10,575
Accrued postretirement benefits 2,794 2,752
Other liabilities 4,684 4,421
------- -------
Total other liabilities 21,446 22,943
------- -------
TOTAL LIABILITIES 144,884 153,919
------- -------
COMMON STOCKHOLDERS' DEFICIT
Common stock, $.001 par value (40,000,000 shares authorized; 12,000,064
shares issued and 7,230,064 outstanding at March 31, 1998 and
12,000,064 shares issued and
8,003,064 outstanding at December 31, 1997) 12 12
Preferred stock, $.001 par value (5,000,000 shares authorized
and no shares issued or outstanding at March 31, 1998
and December 31, 1997) -- --
Additional paid-in capital 42,522 42,522
Contributed capital 3,000 3,000
Accumulated deficit (20,541) (17,554)
ESSOP guaranteed bank loan (144) (227)
Note receivable from WorldCorp (1,750) --
Treasury stock, at cost (4,770,000 shares at March 31,
1998 and 3,997,000 shares at December 31, 1997) (38,434) (32,524)
-------- ---------
Total common stockholders' deficit (15,335) (4,771)
-------- ---------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $ 129,549 $ 149,148
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Flight operations $ 68,899 $ 78,421
Flight operations subcontracted to other carriers 242 240
Other 81 87
-------- -------
Total operating revenues 69,222 78,748
------- -------
OPERATING EXPENSES
Flight 16,715 16,432
Maintenance 15,572 16,678
Aircraft costs 21,268 24,686
Fuel 5,440 3,040
Flight operations subcontracted to other carriers 426 357
Promotions, sales and commissions 2,650 2,281
Depreciation and amortization 2,335 2,135
General and administrative 6,408 6,803
------- -------
Total operating expenses 70,814 72,412
------- -------
OPERATING INCOME (LOSS) (1,592) 6,336
------- -------
OTHER INCOME (EXPENSE)
Interest expense (1,827) (1,163)
Interest income 382 148
Other, net 50 (51)
-------- --------
Total other expense (1,395) (1,066)
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES (2,987) 5,270
INCOME TAX EXPENSE -- (250)
-------- --------
NET EARNINGS (LOSS) $ (2,987) $ 5,020
======== ========
NET EARNINGS (LOSS) PER SHARE
Basic $ (0.40) $ 0.45
========= ========
Diluted $ * $ 0.45
========= ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Basic 7,419 11,233
===== ======
Diluted * 11,238
===== ======
*Amounts are anti-dilutive
</TABLE>
See accompanying Notes to Condensed Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Note Total
Additional ESSOP Receivable Treasury Common
Common Paid-in Contributed Accumulated Guaranteed from Stock, Stockholders'
Stock Capital Captital Deficit Bank Loan WorldCorp At Cost Deficit
----- ------- ------- ------- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 $ 12 $ 42,522 $ 3,000 $ (17,554) $ (227) $ -- $(32,524) $ (4,771)
Common stock repurchases -- -- -- -- -- -- (5,910) (5,910)
(773,000 shares)
Employee Savings and Stock
Ownership Plan
Guaranteed bank loan -- -- -- -- 83 -- -- 83
Note Receivable from
WorldCorp -- -- -- -- -- (1,750) -- (1,750)
Net Loss -- -- -- (2,987) -- -- -- (2,987)
------- -------- ------- -------- ----- ------- -------- --------
BALANCE AT MARCH 31, 1998 $ 12 $ 42,522 $ 3,000 $(20,541) $(144) $(1,750) $(38,434) $(15,335)
======= ======= ======= ======== ===== ======= ======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 25,887 $ 7,028
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) (2,987) 5,020
Adjustments to reconcile net income (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 2,335 2,135
Deferred gain recognition (264) (264)
Provision for losses on accounts receivable 122 --
Other 455 133
Changes in certain assets and liabilities net of effects of non-cash
transactions:
Decrease in accounts receivable 1,639 3,670
(Increase) decrease in restricted short-term investments (145) 10
Decrease in deposits, prepaid expenses
and other assets 365 610
Decrease in accounts payable, accrued
expenses and other liabilities (4,358) (3,141)
Increase (decrease) in unearned revenue 205 (451)
--------- ---------
Net cash provided (used) by operating activities (2,633) 7,722
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (382) (2,659)
Proceeds from disposals of equipment and property 99 182
-------- --------
Net cash used by investing activities (283) (2,477)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing arrangement, net -- (4,086)
Issuance of debt -- 163
Repayment of debt (4,552) (5,264)
Purchase of World Airways common stock, at cost (5,910) (476)
Debt issuance costs (68) --
Loan to WorldCorp (1,750) --
-------- --------
Net cash used by financing activities (12,280) (9,663)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (15,196) (4,418)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,691 $ 2,610
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed balance sheet of World Airways, Inc. ("World Airways" or the
"Company") as of March 31, 1998, the related condensed statements of
operations for the three month periods ended March 31, 1998 and 1997, the
condensed statement of changes in common stockholders' deficit for the
three months ended March 31, 1998, and the condensed statements of cash
flows for the three months ended March 31, 1998 and 1997 are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results are
not necessarily indicative of results for a full year.
The condensed financial statements and notes are presented as required by
Form 10-Q and do not contain certain information included in the Company's
annual financial statements and notes. These financial statements should
be read in conjunction with the financial statements and the notes
included in the Company's Form 10-K for the year ended December 31, 1997.
2. On August 26, 1997, the Company completed a private offering, issuing
$50.0 million of 8% convertible senior subordinated debentures (the
"Debentures") due in 2004 (the "Offering"). The Debentures were
subsequently registered with the Securities and Exchange Commission. In
connection with the above-mentioned Offering, the Company and WorldCorp,
Inc. ("WorldCorp") entered into an agreement (the "Agreement") on August
20, 1997 for the purchase by World Airways of up to 4.0 million shares of
common stock owned by WorldCorp at a purchase price of $7.65 per share. On
September 18, 1997, the Company purchased 3,227,000 shares of its common
stock from WorldCorp for approximately $24.7 million. Therefore, at
December 31, 1997, WorldCorp and MHS owned approximately 46.3% and 24.9%
of World Airways, respectively. The remaining shares were publicly traded.
In accordance with a shareholders agreement, dated as of February 3, 1994,
as amended, among WorldCorp, MHS and the Company, if WorldCorp were to
dispose of its holdings in the Company with the result that WorldCorp's
ownership interest in the Company falls below 51% of the outstanding
shares of common stock, then MHS may either sell its shares to a third
party or require WorldCorp to sell a pro rata number of shares held by MHS
to the party purchasing WorldCorp's shares. Therefore, as a result of the
purchase of 3,227,000 shares of common stock by World Airways from
WorldCorp, MHS had the right to sell, and accordingly sold, 773,000 shares
of its World Airways common stock to the Company for approximately $5.9
million, effective January 23, 1998. Therefore, effective January 23,
1998, WorldCorp and MHS own approximately 51.2% and 16.8%, respectively,
of World Airways.
3. In 1996, World Airways instituted a program to purchase up to one million
shares of its publicly-traded Common Stock pursuant to open market
transactions. As of March 31, 1998, World Airways had purchased 770,000
shares of Common Stock at an aggregate cost of approximately $7.9 million
pursuant to such program. The Company does not intend to purchase any
additional shares at this time.
4. On April 20, 1998, WorldCorp consummated a transaction pursuant to which
it acquired an 80% interest in Paper Acquisition Corp., a Delaware
corporation ("Paper"). Pursuant to the transaction, (i) WorldCorp
exchanged seven-year warrants to acquire 35% (after the exercise of such
warrants and the WorldCorp Acquisition Corp. options described below) of
the issued and outstanding capital stock of WorldCorp Acquisition Corp. a
Delaware corporation ("WorldCorp Acquisition"), held by WorldCorp for
certain of the shares of Paper held by the Paper shareholders (the
warrants are exercisable after one-year, at an exercise price of 125% of
the estimated fair market value of the WorldCorp Acquisition stock at
April 20, 1998 and payable with a seven-year, full-recourse, interest only
note)(ii) WorldCorp contributed all of its shares of World Airways and the
Paper shares received above, to WorldCorp Acquisition Corp., in exchange
for 80% of the issued and outstanding capital stock of WorldCorp
Acquisition and (iii) the holders of Paper contributed their shares of
capital stock of Paper in exchange for (A) 20% of the issued and
outstanding capital stock of WorldCorp Acquisition, (B) the assumption of
approximately $15 million of debt, net of cash and investments, of Paper,
(C) $15 million of 8% interest only promissory notes of WorldCorp
Acquisition due in April 2003, (D) $1 million of 8% promissory notes of
WorldCorp Acquisition due in March 1999 and (E) an earn-out based on the
earnings before interest, taxes, depreciation and amortization of Paper
during the next five years. The earn-out is payable, including interest at
10%, in September 2002. WorldCorp has pledged all of its shares of common
stock of both WorldCorp Acquisition and InteliData, and WorldCorp
Acquisition has pledged all of its shares of common stock of both World
Airways and Paper to the current Paper shareholders to collateralize the
notes and the earn-out. One million shares of World Airways owned by
WorldCorp were previously pledged to secure a loan of approximately $2.0
million from World Airways to WorldCorp. After repayment of the loan and
release of the shares, the shares will become subject to the pledge to the
former Paper shareholders. The notes contain various restrictive
covenants, including dividend restrictions on WorldCorp and its
subsidiaries, limitations on transfers of cash to WorldCorp, as well as
cross-default provisions. Upon an event of default, the note holders may
assume control of the WorldCorp Acquisition board and the pledged
collateral.
5. On February 21, 1998, World Airways loaned WorldCorp $1.75 million, which
was used by WorldCorp to pay debt obligations. The loan is collateralized
by 1.0 million of World Airways shares owned by WorldCorp and bears
interest at prime plus 2.5% and is due on April 28, 1998. The loan is
included as a separate component of stockholders' deficit in the
accompanying condensed balance sheet. Subsequent to March 31, 1998, the
Company loaned WorldCorp an additional $0.25 million which bears the same
terms as the original loan. WorldCorp failed to make the required payment
on April 28, 1998. Under the direction of the Board of Directors, the
Company continues to examine all alternatives to complete this
transaction.
6. Effective March, 1998 the Company amended its Credit Agreement with BNY
Financial Corporation ("BNY") for three years. The amended line of credit
has a maximum borrowing capacity of $25.0 million, subject to borrowing
base amounts related to receivables and spare parts inventory, as defined.
The receivables portion of the facility has a rate equal to the Prime
Rate. The spare parts portion of the facility has a sub-limit of $11.0
million at the Prime Rate +1/2of 1%. Further, the receivables facility
allows for the issuing of Letters of Credit to a sub-limit amount of $4.0
million. At the end of the first quarter, there were no outstanding
amounts on this facility. The amended agreement contains certain dividend
and borrowing restrictions as well as certain covenants related to the
Company's financial condition and operating results, including Net Income,
Tangible Net Worth and a Debt Coverage Ratio of 1:1. Borrowings under this
amended Credit Agreement are collateralized by certain receivables,
inventory, and equipment.
At March 31, 1998, the Company was not in compliance with one covenant,
but obtained a waiver of the covenant from the financial institution.
7. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Legal and Administrative Proceedings".
8. Earnings (loss) per share for the three months ended March 31, 1998 and
1997 are computed as follows (amounts in thousands except share data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
Loss Shares Per-Share
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------------
<S> <C> <C> <C>
Basic EPS
Net loss $ (2,987) 7,419 $ (0.40)
=========
Effect of Dilutive Securities
Options -- --
8% convertible debentures 967 5,618
------- -------
Diluted EPS
Net loss $ (2,020) 13,037 $ *
======= ====== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------
Earnings Shares Per-Share
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -------------
<S> <C> <C> <C>
Basic EPS
Net earnings available to common stockholders $ 5,020 11,233 $ 0.45
=========
Effect of Dilutive Securities
Options -- 5
------ ------
Diluted EPS
Net earnings available to common stockholders $ 5,020 11,238 $ 0.45
====== ====== ========
* Anti-dilutive
</TABLE>
9. The Company adopted Statement of Financial Accounting Standards No. 130
(FAS No. 130), "Reporting Comprehensive Income", effective January 1, 1998.
FAS No. 130 established standards for the reporting and display of
comprehensive income and its components in the financial statements. The
adoption of FAS No. 130 does not impact the Company since the Company did
not record any components of comprehensive income during the three months
ended March 31, 1998 or March 31, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS No. 131), "Disclosure about
Segments of an Enterprise and Related Information". FAS No. 131 requires
the Company to present certain information about operating segments and
related information, including geographic and major customer data, in its
annual financial statements and in condensed financial statements for
interim periods. The Company is required to adopt the provisions of this
Statement during fiscal year 1998 The Company has not completed its
analysis of the impact on the financial statements that will be caused by
the adoption of this Statement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Therefore, this
report contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, the reliance on key strategic
alliances, fluctuations in operating results and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
These risks could cause the Company's actual results for 1998 and beyond to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.
World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987. In
February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In October
1995, the Company completed an initial public offering in which 2,000,000 shares
were issued and sold by the Company and 900,000 shares were sold by WorldCorp.
On September 18, 1997, the Company repurchased 3,227,000 shares of its common
stock from WorldCorp. At December 31, 1997, WorldCorp and MHS owned 46.3% and
24.9%, respectively, of the outstanding common stock of World Airways. The
balance was publicly traded. On January 23, 1998, the Company purchased 773,000
shares of its common stock from MHS in accordance with the shareholders
agreement. At March 31, 1998, WorldCorp and MHS own 51.2% and 16.8%
respectively, of the outstanding common stock of World Airways, with the balance
publicly traded.
On August 26, 1997, the Company completed a private offering, issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures") due
in 2004 (the "Offering"). The Debentures were subsequently registered with the
Securities and Exchange Commission. The Debentures are unsecured obligations,
convertible into shares of the Company's common stock at $8.90 per share,
subject to adjustment in certain events, and subordinated to all present and
future senior indebtedness of the Company. In the event of a change in control
of the Company, as defined, the holders of the Debentures could require the
Company to repurchase the outstanding Debentures. The Debentures are not
redeemable by the Company prior to August 26, 2000. The Company used the net
proceeds of the Offering to repurchase approximately 4.0 million shares of its
common stock, repay certain indebtedness, increase working capital and for
general corporate purposes.
In connection with the above-mentioned Offering, the Company and WorldCorp, Inc.
("WorldCorp") entered into an agreement (the "Agreement") on August 20, 1997 for
the purchase by World Airways of up to 4.0 million shares of common stock owned
by WorldCorp at a purchase price of $7.65 per share. On September 18, 1997, the
Company purchased 3,227,000 shares of its common stock from WorldCorp for
approximately $24.7 million. In accordance with a shareholders agreement dated
as of February 3, 1994, as amended, among WorldCorp, MHS and the Company, if
WorldCorp were to dispose of its holdings in the Company with the result that
WorldCorp's ownership interest in the Company falls below 51% of the outstanding
shares of common stock, then MHS may either sell its shares to a third party or
require WorldCorp to sell a prorata number of shares held by MHS the party
purchasing WorldCorp's shares. Therefore, as a result of the purchase of
3,227,000 shares of common stock by World Airways from WorldCorp, MHS had the
right to sell, and accordingly sold, 773,000 shares of common stock to World
Airways for approximately $5.9 million, effective January 23, 1998.
In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded Common Stock pursuant to open market transactions. As of
March 31, 1998, World Airways had purchased 770,000 shares of Common Stock at an
aggregate cost of approximately $7.9 million pursuant to such program. The
Company does not intend to purchase any additional shares at this time.
On April 20, 1998, WorldCorp consummated a transaction pursuant to which it
acquired an 80% interest in Paper Acquisition Corp., a Delaware corporation
("Paper"). Pursuant to the transaction, (I) WorldCorp exchanged seven-year
warrants to acquire 35% (after the exercise of such warrants and the WorldCorp
Acquisition Corp. options described below) of the issued and outstanding capital
stock of WorldCorp Acquisition Corp. a Delaware corporation ("WorldCorp
Acquisition"), held by WorldCorp for certain of the shares of Paper held by the
Paper shareholders (the warrants are exercisable after one-year, at an exercise
price of 125% of the estimated fair market value of the WorldCorp Acquisition
stock at April 20, 1998 and payable with a seven-year, full-recourse, interest
only note)(ii) WorldCorp contributed all of its shares of World Airways and the
Paper shares received above, to WorldCorp Acquisition Corp., in exchange for 80%
of the issued and outstanding capital stock of WorldCorp Acquisition and (iii)
the holders of Paper contributed their shares of capital stock of Paper in
exchange for (A) 20% of the issued and outstanding capital stock of WorldCorp
Acquisition, (B) the assumption of approximately $15 million of debt, net of
cash and investments, of Paper, (C) $15 million of 8% interest only promissory
notes of WorldCorp Acquisition due in April 2003, (D) $1 million of 8%
promissory notes of WorldCorp Acquisition due in March 1999 and (E) an earn-out
based on the earnings before interest, taxes, depreciation and amortization of
Paper during the next five years. The earn-out is payable, including interest at
10%, in September 2002. WorldCorp has pledged all of its shares of common stock
of both WorldCorp Acquisition and InteliData, and WorldCorp Acquisition has
pledged all of its shares of common stock of both World Airways and Paper to the
current Paper shareholders to collateralize the notes and the earn-out. One
million shares of World Airways owned by WorldCorp were previously pledged to
secure a loan of approximately $2.0 million from World Airways to WorldCorp.
After repayment of the loan and release of the shares, the shares will become
subject to the pledge to the former Paper shareholders. The notes contain
various restrictive covenants, including dividend restrictions on WorldCorp and
its subsidiaries, limitations on transfers of cash to WorldCorp, as well as
cross-default provisions.
OVERVIEW
GENERAL
World Airways is a global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. The Company's passenger and freight operations
employ 12 wide-body aircraft which are operated under contracts, a substantial
portion of which are with Pacific Rim airlines. These contracts generally
require the Company to supply aircraft, crew, maintenance and insurance ("ACMI"
or "wet lease"), while the Company's customers are responsible for the other
operating expenses, including fuel. World Airways' airline customers have
determined that outsourcing a portion of their wide-body passenger and cargo
requirements can be less expensive, and offers greater operational and financial
flexibility, than purchasing new aircraft and additional spare parts required
for such aircraft. World Airways also leads a contractor teaming arrangement
that is one of the largest single suppliers of commercial airlift services to
the United States Air Force's Air Mobility Command ("U.S. Air Force" or "USAF").
The Company generally charges customers on a block hour basis rather than a per
seat or per pound basis. "Block hours" are defined as the elapsed time computed
from the moment the aircraft first moves under its own power at the point of
origin to the time it comes to rest at its final destination. The Company
provides most services under two types of contracts: wet lease contracts and
full service contracts. Under wet lease contracts, the Company provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services and bears all other operating expenses, including fuel
and fuel servicing, marketing costs associated with obtaining passengers and/or
cargo, airport passenger and cargo handling fees, landing fees, cabin crews,
catering, ground handling and aircraft push-back and de-icing services. Under
full service contracts in addition to those services provided under an ACMI
contract, the Company provides fuel, catering, ground handling, cabin crew and
all related support services as well. Accordingly, the Company generally charges
a lower rate per block hour for wet lease contracts than full service contracts,
although it does not necessarily earn a lower profit. Because of shifts in the
mix between full service contracts and wet lease contracts, fluctuations in
revenues are not necessarily indicative of volume trends or profitability. It is
important, therefore, to measure the Company's business volume by block hours
flown and to measure profitability by operating income per block hour.
The Company's operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes operating expenses, including fuel. World
Airways has elected to emphasize its ACMI business because the Company perceives
a number of opportunities created by a growing global economy, particularly
growth in second and third world economies where the demand for airlift exceeds
capacity. World Airways attempts to maximize profitability by combining its
multi-year ACMI contracts with short term, higher-yielding ACMI agreements which
meet the peak seasonal requirements of its customers. The Company responds
opportunistically to rapidly changing market conditions by maintaining a
flexible fleet of aircraft that can be deployed in a variety of configurations.
As noted above, the Company has focused its business on ACMI contract services.
As is common in the air transportation industry, the Company has relatively high
fixed aircraft costs. World Airways operates a fleet of eight MD-11 and four
DC10-30 wide-body aircraft, and while the Company believes that the lease rates
on its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10- 30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are important factors to the Company's financial results. In
addition to fixed aircraft costs, a portion of the Company's labor costs are
fixed due to monthly minimum guarantees to cockpit crewmembers and flight
attendants. Factors that affect the Company's ability to achieve high
utilization in its ACMI business include the compatibility of the Company's
aircraft with customer needs and the Company's ability to react on short notice
to customer requirements (which can be unpredictable due to changes in traffic
rights, aircraft delivery schedules and aircraft maintenance requirements).
Other factors that affect the ACMI business include particular domestic and
foreign regulatory requirements, as well as a trend toward aviation deregulation
which is increasing the number of alliances and code share arrangements.
SIGNIFICANT CUSTOMER RELATIONSHIPS
During the first three months of 1998, the Company's business relied heavily on
its contracts with Malaysian Airline System Berhad ("Malaysian Airlines"),
Philippine Airlines, Inc. ("Philippine Airlines"), P.T. Garuda Indonesia
("Garuda") and the U.S. Air Force. In 1998, these customers provided
approximately 20%, 10%, 22% and 37%, respectively, of the Company's revenues and
20%, 12%, 25% and 24%, respectively, of total block hours. In 1997, these
customers provided approximately 33%, 36%, 13%, and 17%, respectively, of the
Company's revenues and 37%, 37%, 14%, and 10%, respectively, of total block
hours flown.
MALAYSIAN AIRLINES. World Airways has provided wet lease services to Malaysian
Airlines since 1981, for scheduled passenger and cargo operations as well as
transporting passengers for the annual Hadj pilgrimage. MHS, which owns 16.8% of
the Company as of March 31, 1998, also owns 28% of Malaysian Airlines. The
Company also entered into a 32-month agreement for year-round operations
(including the Hadj) with Malaysian Airlines whereby the Company is providing
two passenger aircraft with cockpit crews, maintenance and insurance to
Malaysian Airlines' newly-formed charter division through May 1999. However, the
Company agreed to a five month reduction in the utilization of one aircraft
during 1997, although the aircraft was redeployed in other activity. Malaysian
Airlines has not informed the Company of any reductions for 1998. The Company
provided three aircraft for 1997 Hadj operations. MAS received notice from the
Malaysian Hadj Board that MAS would not participate in the 1998 Hadj pilgrimage.
As a result, the Company is providing two DC-10 aircraft to fly in the 1998
Indian Hadj on behalf of a contract entered into by MAS.
The Company has a long-term contract to operate three MD-11 cargo aircraft for
Malaysian Airlines. However, beginning in July 1996, and as mutually agreed by
the parties, World Airways redeployed two cargo aircraft, which had been
operating under these contracts, into other contracts. The two aircraft were
then redeployed to the Garuda Hadj in March 1998. The Company and Malaysian
Airlines are currently discussing the redeployment of these aircraft back into
Malaysian Airlines' operations during 1998 in order to meet the contracts'
original obligations. The Company can provide no assurances, however, that the
Company will, in fact, be able to do so.
Malaysian Airlines is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific Region, but it has
remained current with its payments for committed block hour minimums provided in
the contracts. Failure by Malaysian Airlines to meet its aircraft lease
obligations, if not offset by other business, would have a material adverse
effect on the financial condition, cash flows and results of operations of the
Company.
GARUDA. The Company has flown for Garuda periodically since 1973 and yearly
since 1988. Since 1988, the Company has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1997, approximately 40,000 of the 200,000 Indonesians who
traveled to Jeddah for the Hadj pilgrimage flew on the Company's aircraft. The
Company is operating six aircraft during the 1998 pilgrimage.
PHILIPPINE AIRLINES. The Company had agreements with Philippine Airlines to
operate four passenger aircraft until November 1997. As a result of the economic
distress experienced in the Philippines, the Company negotiated to terminate the
agreements on two of the aircraft effective in August 1997, and received monthly
termination payments totaling $3.0 million through the original end of the
agreements in November 1997. In addition, the contracts on the remaining two
aircraft were extended until February 1998 and the per block hour rates for
those two aircraft were reduced slightly. The two aircraft which were removed
from Philippine Airlines service were redeployed by the Company under agreements
with other customers. The contract with Philippine Airlines expired in February
1998.
U.S. AIR FORCE. The Company has provided international air transportation to the
U.S. Air Force since 1956. In exchange for requiring pledges of aircraft to the
Civil Reserve Air Fleet ("CRAF") for use in times of national emergency, the
U.S. Air Force grants awards to CRAF participants for peacetime transportation
of personnel and cargo. Although the Company's agreements with the USAF provide
for full service contracts with certain minimum performance requirements, the
Company has risks similar to an ACMI agreement because the USAF agreements are
cost-plus contracts at attractive rates. The overall downsizing of the U.S.
military places a premium on the mobility of the U.S. armed forces. This is
reflected in the stable size over the past several years of the USAF's
procurement of commercial airlift services. It is uncertain, however, what
impact, if any, the instability within the Middle East will have upon the
Company's future flight operations.
The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to CRAF. The Company utilizes such teaming arrangements to maximize
the value of potential awards. The Company leads a contractor teaming
arrangement that enjoys a large market share of the USAF's overall commercial
airlift requirement. During a period in which the U.S. military downsized
substantially, the Company's portion of the fixed USAF award increased from
$15.6 million for the government's 1992-93 fiscal year, to $73.4 million for the
government's 1997-98 fiscal year. The current annual contract commenced on
October 1, 1997 and expires on September 30, 1998. World Airways, however,
cannot determine how future cuts in military spending may affect future
operations with the U.S.
Air Force.
Although the Company's customers bear the financial risk of filling the
Company's aircraft with passengers or cargo, the Company can be affected
adversely if its customers are unable to operate the Company's aircraft
profitably, or if one or more of the Company's customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, the Company can be adversely affected by
receiving delayed or partial payments or by receiving customer demands for rate
and utilization reductions, flight cancellations, and/or early termination of
their agreements.
As a result of these and other contracts, the Company had an overall contract
backlog at March 31, 1998 of $252.1 million, compared to $414.0 million at March
31, 1997. Approximately $147.8 million of the backlog relates to operations
during 1998. The Company's backlog for each contract is determined by
multiplying the minimum number of block hours guaranteed under the applicable
contract by the specified hourly rate under such contract. Approximately 59% of
the backlog relates to its contracts with Malaysian Airlines, included in which
are the revenues associated with the three cargo aircraft for Malaysian Airlines
(see "Significant Customer Relationships-Malaysian Airlines" for further
discussion of these contracts). Consistent with prior years, the Company has
substantial uncontracted capacity in the third and fourth quarters of 1998 and
beyond and has historically been successful in obtaining new customers. Although
there can be no assurance that it will be able to secure additional business to
reduce this excess capacity, the Company is actively seeking customers for 1998
and beyond. The Company's financial results and financial condition would be
affected adversely if the Company is unable to secure additional business to
reduce this excess capacity.
SEASONALITY
Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields due to lower demand for passenger and
cargo services relative to other times of the year. World Airways experiences
higher levels of utilization and yields in the second quarter, principally due
to peak demand for commercial passenger services associated with the annual Hadj
pilgrimage. In 1998, World Airways' flight operations associated with the Hadj
pilgrimage occurred from February 28 to May 12. Because the Islamic calendar is
a lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years.
GEOGRAPHIC CONCENTRATION
The Company derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. Any further economic decline or
any military or political disturbance in this area may interfere with the
Company's ability to provide service in this area. In 1997, the affects of the
adverse economic conditions in Malaysia and Indonesia and other countries in the
Asia Pacific Region included a national liquidity crisis, significant
depreciation in the value of the ringgit and rupiah, higher domestic interest
rates, reduced opportunity for refinancing or refunding of maturing debts, and a
general reduction in spending throughout the region. These conditions and
similar conditions in other countries in the Asia Pacific Region could have a
material adverse effect on the operations of Malaysian Airlines and Garuda
Indonesia, and therefore on the operations of the Company. However, management
also believes these conditions could provide new opportunities to wet lease
aircraft to airlines customers, particularly those who have deferred or canceled
new aircraft orders but are still in need of providing additional airlift.
UTILIZATION OF AIRCRAFT
Due to the large capital costs of leasing and maintaining World Airways'
aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. As mentioned above, a significant portion of World Airways' contract
backlog at March 31, 1998, relates to its multi-year contracts with Malaysian
Airlines which is subject to the financial difficulties associated with the
adverse economic conditions in Malaysia and the Asia Pacific region. In addition
the Company has substantial uncontracted capacity in the third and fourth
quarters of 1998 and beyond. There can be no assurance that World Airways will
be able to enter into additional contracts with new or existing customers or
that it will be able to obtain enough additional business to fully utilize each
aircraft. World Airways' financial position and results of operations could be
materially adversely affected even by relatively brief periods of low aircraft
utilization and yields. In order to maximize aircraft utilization, World Airways
does not intend to acquire new aircraft unless such aircraft would be necessary
to service existing needs or World Airways has obtained additional ACMI
contracts for the aircraft to service. World Airways is seeking to obtain
additional ACMI contracts with new and existing customers, to which such new
aircraft would be dedicated when placed in service, but World Airways can
provide no assurance that it will obtain new ACMI contracts or that existing
ACMI contracts will be renewed or extended.
MAINTENANCE
Engine maintenance accounts for most of the Company's annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. The Company outsources major airframe maintenance and power plant
work to several suppliers. The Company has a 10-year contract expiring in August
2003 with United Technologies Corporation's Pratt & Whitney Group for all
off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under
this contract, the manufacturer agreed to provide such maintenance services at a
cost not to exceed specified rates per hour during the term of the contract. The
specified rates per hour are subject to annual escalation, increasing
substantially in 1998. Accordingly, while the Company believes the terms of this
agreement have resulted in lower engine maintenance costs than it otherwise
would incur, engine maintenance costs will increase substantially during the
last five years of the agreement. The Company began to accrue these increased
expenses in 1997 and such expenses will continue to increase during the
remainder of the term of the contract as the Company's aircraft fleet ages.
OPERATING LOSSES
While the Company generated operating income each year from 1987 through 1992
and in 1995, it sustained operating losses in 1993 and 1994 of $7.3 million and
$5.2 million, respectively, and net losses of $9.0 million in each of these two
years. For the year ended December 31, 1996, the Company incurred a net loss of
$14.0 million, which resulted from operating losses incurred in the Company's
scheduled service operations, which were discontinued in 1996, and the related
estimated loss on disposal. Earnings from continuing operations were $18.4
million for 1996. While the Company generated operating income for the year
ended December 31, 1997 of $16.9 million, there can be no assurance that the
Company will be able to continue generating operating income for 1998 or future
years.
CONTROL BY WORLDCORP; POTENTIAL CONFLICTS OF INTEREST
As of March 31, 1998, WorldCorp owned approximately 51.2% of the outstanding
World Airways common stock. WorldCorp is a holding company that owns positions
in two companies: InteliData and World Airways. WorldCorp is highly leveraged
and therefore requires substantial funds to cover debt service each year. As a
holding company, all of WorldCorp's funds are generated through its
subsidiaries, neither of which is expected to pay dividends in the foreseeable
future. As a result of WorldCorp's cash requirements, it may be required to sell
additional shares of common stock, and such sales, or the threat of such sales,
could have a material adverse effect on the market price of the common stock.
Except as limited by contractual arrangements with MHS, WorldCorp also is in a
position to control the outcome of many issues submitted to World Airways'
stockholders, including the election of all of World Airways' Board of
Directors, adoption of amendments to World Airways' Certificate of
Incorporation, and approval of mergers.
In connection with the aforementioned acquisition of Paper, WorldCorp
Acquisition entered into promissory notes which contain various restrictive
covenants, including dividend restrictions on WorldCorp and its subsidiaries,
including World Airways.
The Company loaned WorldCorp $1.75 million on February 27, 1998 and an
additional $0.25 million subsequent to March 31, 1998, which was used by
WorldCorp to pay debt obligations. The loan is collateralized by one million
shares of the Company's stock owned by WorldCorp and bears interest at prime
plus 2.5%. WorldCorp failed to make the required payment on April 28, 1998.
Under the direction of the Board of Directors, the Company continues to examine
all alternatives available to complete this transaction.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total block hours decreased 2,905 hours, or 25%, to 8,909 hours in the first
quarter of 1998 from 11,814 hours in 1997, with an average of 12.0 available
aircraft per day in 1998 compared to 13.4 in 1997. This decrease is due to one
less aircraft in 1998 versus 1997 as well as low first quarter cargo wet lease
aircraft utilization in 1998 in comparison to four aircraft in high utilization
PAL flying in 1997. Average daily utilization (block hours flown per day per
aircraft) was 8.3 hours in 1998 and 9.8 hours in 1997. In 1998, wet lease
contracts accounted for 73% of total block hours, a decrease from 89% in 1997
due to continuous AMC flying in 1998 versus redeployment to Garuda Indonesia for
Hadj flying in 1997. Total operating revenues decreased $9.5 million, or 12%, to
$69.2 million in 1998 from $78.7 million in 1997.
OPERATING REVENUES. Revenues from flight operations decreased $9.5 million, or
13%, to $68.9 million in 1998 from $78.4 million in 1997. This decrease
corresponds primarily to a decrease in block hours flown in 1998 compared to
1997, partially offset by a shift in business during 1998 with an increase in
full service operations from wet lease operations.
OPERATING EXPENSES. Total operating expenses decreased $1.6 million, or 2%, in
1998 to $70.8 million from $72.4 million in 1997.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $0.3 million, or 2%, in
1998 to $16.7 million from $16.4 million in 1997. This increase resulted
primarily from a shift to full service flying offset by a slight decrease
related to cockpit crew headcount and training due to a decrease in the number
of aircraft in the fleet and in block hours.
Maintenance expenses decreased $1.1 million, or 7%, in 1998 to $15.6 million
from $16.7 million in 1997. This decrease resulted primarily from the decrease
in the number of aircraft from 13 to 12 and a reduction in overall hours flown,
offset by an additional maintenance accrual of $1.4 million relating to an
engine overhaul in the first quarter of 1998. The Company expects its
maintenance expense to increase in 1998 due to escalations in the specified
rates per hour under the Company's maintenance agreement.
Aircraft costs decreased $3.4 million, or 14%, in 1998 to $21.3 million from
$24.7 million in 1997. This decrease resulted primarily from the return of two
Pratt & Whitney engines in the fourth quarter of 1997 and one MD-11 aircraft in
the third quarter of 1997, and a decrease in aircraft insurance as a result of a
reduction in insurance policy rates.
Fuel expenses increased $2.4 million, or 80%, in 1998, to $5.4 million from $3.0
million in 1997. This increase is due primarily to an increase in military
contract fuel prices and a higher volume of military fuel uplifts.
Promotions, sales and commissions increased $0.4 million in 1998, or 17%, to
$2.7 million from $2.3 million in 1997. This increase resulted primarily from
expenses incurred in connection with increased revenues relating to increased
Air Mobility Command flying.
Depreciation and amortization increased $0.2 million, or 10%, in 1997 to $2.3
million from $2.1 million in 1997. This increase resulted primarily from an
increase in the depreciation of DC-10 and MD-11 engines offset by a decrease in
the depreciation of DC-10 leasehold improvements.
General and administrative expenses decreased $0.4 million, or 6%, in 1998 to
$6.4 million from $6.8 million in 1997. This decrease was primarily due to a
reduction in legal expenses offset by an increase in general insurance.
Interest expense increased $0.6 million, or 50%, in 1998 to $1.8 million from
$1.2 million in 1997. This increase resulted primarily from the issuance of
$50.0 million of 8% senior subordinated debentures on August 26, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged. The Company incurred substantial debt and lease
commitments during the past four years in connection with its acquisition of
MD-11 aircraft and related spare parts. In addition, the Company issued $50.0
million of convertible debentures in August 1997, as discussed below. As of
March 31, 1998, the Company had outstanding long-term debt and capital leases of
$70.7 million and notes payable and current maturities of long term obligations
of $13.6 million. In addition, the Company has significant future long-term
obligations under aircraft lease obligations relating to its aircraft.
The Company has historically financed its working capital and capital
expenditure requirements out of cash flow from operating activities, public and
private sales of its common stock, secured borrowings, and other financings from
banks and other lenders. The degree to which the Company is leveraged could have
important consequences to holders of common stock, including the following: (I)
World Airways' ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness; (iii)
World Airways' degree of leverage and related debt service obligations, as well
as its obligations under operating leases for aircraft, may make it more
vulnerable than some of its competitors in a prolonged economic downturn; (iv)
World Airways' ability to meet its payment obligations under existing and future
indebtedness, capital leases and operating leases may be limited; and (v) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.
World Airways' cash and cash equivalents at March 31, 1998 and December 31, 1997
were $10.7 million and $25.9 million, respectively. As is common in the airline
industry, World Airways operates with a working capital deficit. Effective
January 23, 1998, the Company used approximately $5.9 million of its cash
balance to purchase the aforementioned 773,000 shares of common stock and on
February 27, 1998 loaned WorldCorp $1.75 million which was used by WorldCorp to
pay debt obligations. World Airways has substantial long-term aircraft lease
obligations with respect to its current aircraft fleet. At March 31, 1998, World
Airways' current assets were $36.9 million and current liabilities were $52.7
million.
In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded common stock pursuant to open market transactions. As of
March 31, 1998, World Airways had purchased 770,000 shares of common stock at an
aggregate cost of approximately $7.9 million pursuant to such program. The
Company does not intend to purchase any additional shares at this time.
In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.
Although there can be no assurances, World Airways believes that its existing
contracts and additional business which it expects to obtain in the near term,
along with its existing cash and financing arrangements will be sufficient to
allow World Airways to meet its cash requirements related to debt service and
the operating and capital requirements for its continuing operations for the
next 12 months.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities used $2.6 million in cash for the three months ended March
31, 1998 compared to providing $7.7 million in the comparable period in 1997.
This decrease resulted primarily from a net loss in 1998 compared to net
earnings in 1997.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used $0.3 million in cash for the three months ended March
31, 1998, compared to using $2.5 million in the comparable period in 1997. In
1998, cash was used primarily for the purchase of rotable spare parts and
computer hardware and software.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities used $12.3 million in cash for the three months ended March
31, 1998 compared to using $9.7 million in the comparable period in 1997. In
1998, cash was used primarily for the purchase of shares of the Company's common
stock for an aggregate cost of $5.9 million, to loan WorldCorp $1.75 million,
and to repay debt of approximately $4.6 million.
CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS
In October 1992 and January 1993, the Company signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, the Company had taken
delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one
freighter MD-11, and two passenger/cargo convertible MD-11s. The Company
returned one aircraft in August 1997. In March 1996, the Company signed an
agreement with the manufacturer to lease two MD-11ER aircraft. Under the
agreement, the Company leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven-year period with certain fixed
termination fees. In addition, the Company agreed to assume an existing lease of
two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the
event that the existing lessee terminates its lease with the manufacturer at
that time.
As of March 31, 1998, World Airways maintains leases for four DC10-30 aircraft.
Two of the leases expire in 1998, one expires in 1999, and one expires in 2003.
In March 1998, the Company renewed and amended a revolving line of credit
facility of up to $25.0 million for a period of 3 years, collateralized by
certain receivables, inventory and equipment. The proceeds from this facility
will be used to increase working capital and for general corporate purposes.
Under the terms of the amended Credit Agreement, the Company is not permitted
without prior written approval to (I) incur indebtedness in excess of $1.0
million (excluding capital leases), (ii) declare, pay, or make any dividend or
distribution in any six month period which aggregate in excess of 50% of net
income for the previous six months, (iii) apply any of its funds, property or
assets to the purchase, redemption or other retirement of any common or
preferred stock in excess of 5% of the total aggregate outstanding amount of
such stock. The Company must also maintain a certain quarterly tangible net
worth, net income (loss) and debt ratio requirements. The Company was not in
compliance with one of these covenants at March 31, 1998. While a wavier of this
covenant as of March 31, 1998 was obtained from the financial institution, no
assurances can be given that the Company will continue to meet these covenants
or, if necessary, obtain the required waivers.
As discussed above, the Company signed an agreement for the lease of two MD-11ER
aircraft beginning in the first quarter of 1996 to provide additional capacity
for growth opportunities. As part of the agreement for the MD-11 aircraft, the
Company received spare parts financing from the lessor of $9.0 million of which
$3.0 million was made available with the delivery of each aircraft, and the
remaining $3.0 million was made available in December 1996. As of March 31,
1998, approximately $7.8 million had been received.
As of March 31, 1998, annual minimum payments required under the Company's
aircraft and lease obligations totaled $60.0 million for the remainder of 1998.
The Company anticipates that its total capital expenditures in 1998, will
approximate $4.1 million which the Company expects to fund from its working
capital. As of March 31, 1998, the Company held approximately $3.1 million (at
book value) of aircraft spare parts currently available for sale.
OTHER MATTERS
LEGAL AND ADMINISTRATIVE PROCEEDINGS
World Airways has periodically received correspondence from the FAA with respect
to minor noncompliance matters. In November 1996, as the FAA has increased its
scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of
$810,000 in connection with certain security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. Under 49
U.S.C., Section 46301, any violation of pertinent provisions of 49 U.S.C.
Subsection 40101 or related rules is subject to a civil penalty for each
violation. Upon review of the evidence or facts and circumstances relating to
the violation, the statute allows for the compromise of proposed civil
penalties. The penalties were proposed by the FAA in connection with recent
inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with the
U.S. requirements. In September 1997, the Company entered into a consent order
and settlement agreement with the FAA in connection with the above-mentioned
alleged violations. Pursuant to this agreement, the Company is liable for the
sum of $610,000, of which $405,000 was paid in September. The remaining $205,000
was suspended and will be forgiven if the Company complies with the provisions
of the settlement agreement, including not incurring any security violations
during the one year period following the execution of the settlement agreement.
While World Airways believes it is currently in compliance in all material
respects with all appropriate standards and has all required licenses and
authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.
In connection with the discontinuance of World Airways' scheduled service
operations, World Airways is subject to claims by various third parties and may
be subject to further claims in the future. A claim has been filed in Germany
against the Company by a tour operator seeking approximately $3.5 million in
compensation related to the cancellation of a summer program in 1996. The
Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.
In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by World
Airways to be likely to have a material adverse effect on the financial
condition and results of operations of World Airways.
EMPLOYEES
The Company's cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that will become amendable in July 1998.
Approximately 37% of the Company's employees are covered under this collective
bargaining agreement. The Company expects to begin negotiations in the third
quarter of 1998 and cannot predict the outcome of the negotiations or their
possible impact on the Company's financial condition and results of operations.
The Company's flight attendants, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. The Company's flight attendants have argued that the "scope clause"
of the collective bargaining agreement had been violated by the Company and
challenged the use of foreign flight attendant crews on the Company's flights
for Malaysian Airlines and Garuda Indonesia which has historically been the
Company's operating procedure. The Company is contractually obligated to permit
its Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter denied in 1997 the Union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that the Company's contract with its flight attendants requires the
Company to first actively seek profitable business opportunities that require
using the Company's flight attendants, before the Company may accept wet lease
business opportunities that use the flight attendants of the Company's
customers. Subsequently, in 1997, the flight attendants challenged and filed
"scope clause" grievances with respect to four separate wet-lease contracts. The
Company and the Teamsters are presently in discussions regarding these
grievances. At this time, however, the Company can give no assurance that these
discussions will be successful and the grievances will not be submitted to
formal arbitration. The Company can provide no assurances as to how the
resolution of this matter will affect the Company's financial condition and
results of operations.
The Company's aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995,
the parties reached agreement with respect to a new four-year contract. This
contract was ratified in February 1996. Fewer than 12 Company employees are
covered by this collective bargaining agreement.
The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends or distributions on its
common stock since the payment of a distribution to WorldCorp in 1992. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future decision
concerning the payment of dividends on its common stock will depend upon the
results of operations, financial condition and capital expenditure plans of the
Company, provisions of certain financing instruments as well as such other
factors as the Board of Directors, in its sole discretion, may consider
relevant.
Under the terms of the shareholders agreement among the Company, WorldCorp, and
MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended in
March 1998, the "Credit Agreement") contains restrictions on the Company's
ability to pay dividends or make any distributions of common stock in excess of
5% of the total aggregate outstanding amount of stock, except that the Company
may make quarterly dividends so long as in any six month period, such dividends
do not exceed 50% of the Company's aggregate net income for the previous six
months.
In connection with the aforementioned acquisition of Paper, WorldCorp
Acquisition entered into promissory notes which contain various restrictive
covenants, including dividend restrictions on WorldCorp and its subsidiaries,
including World Airways.
INCOME AND OTHER TAXES
As of December 31, 1997, World Airways had net operating loss carryforwards
("NOLs") for federal income tax purposes of $92.2 million ($27.8 million of
which is subject to a $6.9 million annual limitation as a result of an ownership
change of World Airways for tax purposes in 1991). These NOLs, if not utilized
to offset taxable income in future periods, would expire between 1998 and 2011.
Use of World Airways' NOLs in future years could be further limited if an
ownership change were to occur in the future. While World Airways believes that
as of March 31, 1998, no Ownership Change has occurred since the 1991 Ownership
Change, the application of the Internal Revenue Code (the "Code") in this area
is subject to interpretation by the Internal Revenue Service. The NOLs are
subject to examination by the IRS and, thus, are subject to adjustment or
disallowance resulting from any such IRS examination. In addition, conversion of
the Debentures or future transactions in the Company's common stock or the
common stock of the Company's stockholders, including conversions of a portion
of the outstanding WorldCorp debentures into common stock, may cause an
ownership change, which could result in a substantial reduction in the annual
limitation in the use of the NOLs and the loss of a substantial portion of the
NOLs available to the Company.
YEAR 2000
The Company has begun a comprehensive review of its computer system to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's 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 a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. However, if
such modifications and conversion are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company. The Company
has not yet estimated the cost of modifying its computer systems.
EFFECTS OF NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No. 130 (FAS No.
130), "Reporting Comprehensive Income", effective January 1, 1998. FAS No. 130
established standards for the reporting and display of comprehensive income and
its components in the financial statements. The adoption of FAS No. 130 does not
impact the Company since the Company did not record any components of
comprehensive income during the quarter.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (FAS No. 131), "Disclosure about Segments
of an Enterprise and Related Information". FAS No. 131 requires the Company to
present certain information about operating segments and related information,
including geographic and major customer data, in its annual financial statements
and in condensed financial statements for interim periods. The Company is
required to adopt the provisions of this Statement during fiscal year 1998 The
Company has not completed its analysis of the impact on the financial statements
that will be caused by the adoption of this Statement.
INFLATION
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
<PAGE>
PART IV
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
NO. DESCRIPTION
- ------ -----------
10.34 Employment Agreement dated December 2, 1997
between World Airways, Inc. and T. Coleman
Andrews, III. Filed Herewith
10.35 Amended and Restated Employment Agreement
dated December 2, 1997 between World Airways,
Inc. and Russell L. Ray, Jr. Filed Herewith
10.36 Employment Agreement dated December 1, 1997
between World Airways, Inc. and James D. Douglas. Filed Herewith
10.37 Employment Agreement dated October 1, 1996
between World Airways, Inc. and Ahmad M. Khatib. Filed Herewith
10.38 Employment Agreement dated October 1, 1996
between World Airways, Inc. and Vance Fort. Filed Herewith
11 Computation of earnings (loss) per share. Filed Herewith
27 Financial data schedule for the quarter
ended March 31, 1998. Filed Herewith
(b) Reports on Form 8-K
None
* * * * * * * * * * * * * *
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLD AIRWAYS, INC.
By: /JAMES DOUGLAS
Principal Accounting and Financial Officer
Date: May 15, 1998
EXHIBIT 11.1
WORLD AIRWAYS, INC.
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------
Loss Shares Per-Share
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ------------- -----------
<S> <C> <C> <C>
Basic EPS
Net loss $ (2,986,868) 7,419,020 $ (0.40)
=========
Effect of Dilutive Securities
Options -- 112
8% convertible debentures 966,575 5,617,978
-------- ----------
Diluted EPS
Net loss $ (2,020,293) 13,037,109 $ *
=========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------
Earnings (Loss) Shares Per-Share
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- -----------
<S> <C> <C> <C>
Basic EPS
Net earnings available to common stockholders $ 5,020,000 11,232,653 $ 0.45
========
Effect of Dilutive Securities
Options -- 5,490
--------- ----------
Diluted EPS
Net earnings available to common stockholders $ 5,020,000 11,238,143 $ 0.45
========= ========== ========
* Anti-dilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000949240
<NAME> World Airways
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 10,691
<SECURITIES> 145
<RECEIVABLES> 17,942
<ALLOWANCES> 1,095
<INVENTORY> 0
<CURRENT-ASSETS> 36,881
<PP&E> 71,840
<DEPRECIATION> 27,582
<TOTAL-ASSETS> 129,549
<CURRENT-LIABILITIES> 52,737
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> (15,347)
<TOTAL-LIABILITY-AND-EQUITY> 129,549
<SALES> 0
<TOTAL-REVENUES> 69,222
<CGS> 0
<TOTAL-COSTS> 70,814
<OTHER-EXPENSES> 1,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,827
<INCOME-PRETAX> (2,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,987)
<EPS-PRIMARY> (0.4)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
World Airways FDS 3/31/97 - Restated
</LEGEND>
<CIK> 0000949240
<NAME> World Airways
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1.0
<CASH> 2,610
<SECURITIES> 0
<RECEIVABLES> 24,402
<ALLOWANCES> 413
<INVENTORY> 0
<CURRENT-ASSETS> 35,723
<PP&E> 66,517
<DEPRECIATION> 20,368
<TOTAL-ASSETS> 123,862
<CURRENT-LIABILITIES> 68,139
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 13,034
<TOTAL-LIABILITY-AND-EQUITY> 123,862
<SALES> 0
<TOTAL-REVENUES> 78,748
<CGS> 0
<TOTAL-COSTS> 72,412
<OTHER-EXPENSES> 1,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,163
<INCOME-PRETAX> 5,270
<INCOME-TAX> (250)
<INCOME-CONTINUING> 5,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,020
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
WORLD AIRWAYS/COLEMAN ANDREWS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 2nd day of
December, 1997, by and between WORLD AIRWAYS, INC., a Delaware corporation, its
successor and assigns ("World") and T. COLEMAN ANDREWS, III ("Andrews").
RECITALS
WHEREAS, Andrews has served as World's Chairman and/or Chief Executive
Officer since September 1986.
WHEREAS, World desires to continue to employ and retain Andrews as its
Chairman and Andrews desires to be employed by World on the terms and in
consideration of World's provision of the benefits to be provided under this
Agreement.
WHEREAS, World and Andrews desire to set forth the terms of Andrews'
employment and the compensation and benefits to be provided by World in this
Agreement.
TERMS
IN CONSIDERATION OF the mutual covenants contained herein, World and
Andrews agree as follows:
1. EMPLOYMENT. World agrees to employ Andrews and Andrews agrees to
continue in the employ of World on the terms and conditions hereinafter set
forth.
2. COMMENCEMENT DATE AND TERM. The commencement date of this Agreement
shall be as of June 27, 1997 (the "Commencement Date"). Subject to the
provisions of Section 5, the term of Andrews' employment hereunder shall be for
three (3) years from the Commencement Date until and including June 30, 2000
(the "Original Expiration Date"); PROVIDED, HOWEVER, that the term shall be
extended automatically for an additional period of one (1) year commencing on
the Original Expiration Date unless either World or Andrews gives written notice
to the other, at least twelve (12) months prior to the Original Expiration Date,
of its or his election not to extend the term of this Agreement; and PROVIDED
FURTHER, that the term as extended shall be further extended automatically for
an additional period of one (1) year commencing on the first anniversary of the
Original Expiration Date and on each subsequent anniversary thereafter, unless
either World or Andrews gives written notice to the other, at least six (6)
months prior to the date of any such anniversary, of its or his election not to
further extend the term of this Agreement. The last day of the term as so
extended from time to time is herein sometimes referred to as the "Expiration
Date."
3. POSITIONS AND DUTIES. Andrews shall continue to serve World as
World's Chairman with the duties described in World's Bylaws, as in effect on
the Commencement Date, and in the attached Exhibit A to this Agreement, and such
other duties as World's Board of Directors (the "Board") shall reasonably assign
from time to time. During his employment hereunder, Andrews shall devote such
time and effort as shall be reasonably required to discharge his duties
hereunder. At all times during his employment hereunder, Andrews shall continue
to serve as a member of the Board, and Andrews may also serve as a member of the
board of directors or similar body of, or in other offices or positions with
respect to, any other company or companies that are not direct commercial
competitors of World, but only with the prior approval of World's Board of
Directors, which shall not be unreasonably withheld. Andrews agrees to resign
from the Board of Directors of World upon and in connection with the termination
of his employment, provided that all of the terms of this Agreement have been
satisfied and all of World's obligations hereunder have been fulfilled.
4. COMPENSATION AND BENEFITS. The compensation and benefits payable to
Andrews for all services rendered by Andrews under this Agreement shall be as
follows:
(a) SALARY. World shall pay Andrews a minimum salary at the
rate of $150,000 per year. Such salary shall be (i) payable quarterly in advance
on the first day of each fiscal quarter of World (and prorated for any partial
fiscal quarter), and (ii) subject to review and increase (but not decrease) at
any time in the discretion of the Board. If, by virtue of competing business or
employment obligations, Andrews becomes unable to discharge his duties under
Section D of Schedule A, his salary will be reduced to $50,000 per year.
(b) ANNUAL BONUS. Andrews shall be entitled to receive an
annual bonus of up to 75% of his annual salary to be determined in good faith by
the Compensation Committee of World's Board of Directors based upon Andrews'
contributions to World's performance. Such bonus, if any, shall be paid when
bonuses for any other officer are paid, but in no case later than March 31 of
the calendar year following the calendar year to which it applies. Andrews shall
be entitled to participate in all bonus and incentive compensation plans or
arrangements provided by World to its officers and directors after the
Commencement Date.
(c) DAILY FEE AND BUSINESS EXPENSES. In addition to any salary
and bonus, World shall pay Andrews a daily fee of $2,000 (payable immediately
upon receipt of invoice) for each day that Andrews, as requested or agreed to by
the CEO or the Board, participates in activities, conducts business or performs
services on World's behalf or for World's benefit, excluding (i) routine
preparation for and participation in regularly-scheduled meetings of the Board,
Executive Committee, or other committees of the Board, (ii) weekly staff
meetings, or (iii) routine consultation. Andrews total compensation from salary
and daily fees will not exceed $200,000 in any given year without the written
consent of the Executive Committee or the Compensation Committee of the board.
World shall reimburse Andrews for all reasonable travel and other
business expenses incurred by him in the performance of his duties and
responsibilities, subject to and consistent with World's policies with respect
to substantiation and documentation as may be established by World for all
officers and directors from time to time.
(d) STOCK OPTIONS. Andrews shall be granted options (the "Term
Options") to purchase 50,000 shares of World's Common Stock, par value $.001 per
share ("World Airways Common Stock") pursuant to the 1995 World Airways Stock
Option Plan (the "Plan"), at an Exercise Price of $7.44 per share, as set forth
in that certain Stock Option Agreement between World and Andrews of even date
herewith (the "Option Agreement"), a copy of which is attached as Exhibit B
hereto. Andrews shall also be granted options to purchase 100,000 shares of
World's Common Stock, (the "Performance Options") subject to the following
vesting:
(i) the Option as to the first 33,333 of the
100,000 Performance Options at an exercise price of $7.44 shall vest on the
first day following any twenty (20) trading-day period during which the
Company's stock traded at or above 125% of the Exercise Price;
(ii) the Option as to the second 33,333 of the
100,000 Performance Options at
an exercise price of $7.44 shall vest on the first day following any twenty (20)
trading-day period during which the Company's stock traded at or above 150% of
the Exercise Price; and
(iii) the Option as to the third 33,334 of the
100,000 Performance Options at an exercise price of $7.44 shall vest on the
first day following any twenty (20) trading-day period during which the
Company's stock traded at or above 175% of the Exercise Price.
(e) FRINGE BENEFITS. Andrews shall be entitled to participate
in all benefit plans or arrangements available to officers or directors of
World, all as more specifically summarized on Exhibit C attached to this
Agreement, including without limitation World's Employee Savings and Stock
Ownership Plan, any medical insurance, life insurance, long-term disability,
retirement and security plans, savings and qualified or nonqualified retirement
plans, and other benefit plans from time to time established for officers or
directors of World. During the term of this Agreement, World shall continue to
maintain and pay the annual premiums on a life insurance policy insuring
Andrews' life and providing for a death benefit of at least $2,000,000, World
shall pay such premiums pursuant to a split-dollar or similar agreement if
requested by Andrews, and Andrews shall be owner of and shall enjoy all
incidents of ownership of such policy, including without limitation the right to
designate one or more beneficiaries of, and to assign the ownership of, such
policy from time to time. If any benefits to which Andrews shall otherwise be
entitled hereunder are not permitted to be provided to him under any applicable
plan document or applicable law governing the payment or provision of such
benefits, World shall pay or provide for payment of equivalent benefits, taking
into account service credits for such benefits, to Andrews or his estate or
beneficiaries.
(f) INDEMNIFICATION; DIRECTORS AND OFFICERS LIABILITY
INSURANCE. World shall provide or cause to be provided to Andrews
indemnification against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with any threatened, pending
or completed action, claim, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of
World) by reason of Andrews serving or having served as an officer, director or
employee of World or any affiliate of World. World shall advance expenses
(including attorneys' fees) incurred by Andrews in the defense of any such
action, claim, suit or proceeding, and World shall maintain directors and
officers liability insurance coverage (including without limitation coverage for
claims pursuant to any state or federal securities law or regulation) upon
substantially the same terms and conditions as set forth in the Indemnification
Agreement dated as of February 28, 1994 between Andrews and WorldCorp, Inc., a
copy of which is attached as Exhibit D to this Agreement. The provisions of this
Section 4(f) are intended to supplement and to be in addition to, and not to be
in lieu of, any rights of Andrews granted to World's officers and directors
under World's charter, articles of incorporation, any other corporate document,
or applicable law.
5. TERMINATION AND TERMINATION BENEFITS. Notwithstanding the provisions
of Section 2 of this Agreement, Andrews' employment hereunder shall terminate
under the following circumstances and shall be subject to the following
provisions:
(a) DEATH. In the event of Andrews' death during Andrews'
employment hereunder, Andrews' employment shall terminate on the date of his
death. Notwithstanding such termination, Andrews' estate or designated
beneficiaries shall be entitled to receive (i) the salary specified under
Section 4(a) above for a period of one (1) month following the date of death,
(ii) any accrued portion of any bonus which is ultimately determined to have
been payable to Andrews and allocable to the period prior to death, and (iii)
any benefits which shall have been provided to Andrews under Section 4 to the
extent permitted under any applicable plan documents, at World's expense.
(b) DISABILITY. If, due to any physical or mental illness,
condition, dependency or incapacity (hereafter, "disability"), Andrews shall be
unable to adequately perform substantially all of his duties and
responsibilities hereunder, and provided such disability continues for an
uninterrupted period of at least twelve (12) months, (a) Andrews' employment
hereunder shall be deemed terminated as of the end of the relevant period of
disability or, if later, the final determination of such disability, and (b)
World, acting through its Board and at any time prior to the expiration of any
relevant period of disability and the final determination of such disability,
may designate another executive to act in Andrews' place during the period of
such disability. In the event of any dispute as to whether Andrews has suffered
a disability justifying termination, such dispute shall be resolved at World's
cost by a panel of three physicians, one designated by Andrews, one designated
by World, and a third designated by the first two panel members. Notwithstanding
any termination of Andrews' employment under this Section 5(b), World shall
continue to pay to Andrews his full salary and benefits under Section 4 of this
Agreement until Andrews becomes eligible for disability income payments under
World's disability income plan. While Andrews is receiving disability income
payments under such plan, World shall continue to pay to Andrews the difference
between such disability income payments and his Salary under Section 4 for a
period of three years after the date of disability (but not any bonus, except as
accrued through the date of determination of disability); PROVIDED, HOWEVER,
that to the extent that the disability income payments to Andrews are not
subject to income tax, such payment by World shall be modified so as to yield,
when combined with such disability income payments, the same-after tax benefit
to Andrews as payment of his salary in full would have yielded. Notwithstanding
the termination of Andrews' employment hereunder, Andrews shall be entitled to
continue participation in all medical and other benefit plans provided for under
Section 4 at World's expense for a period of three years following such
termination. If any benefits to which Andrews shall otherwise be entitled
hereunder are not permitted to be provided to him under any applicable plan
document or applicable law governing the payment or provision of such benefits,
World shall pay or provide for payment of equivalent benefits, taking into
account service credits for such benefits, to Andrews or his estate or
beneficiaries.
(c) TERMINATION BY WORLD FOR CAUSE. Subject to the provisions
of this Section 5(c), Andrews' employment hereunder may be terminated by World
for Cause. If the Board determines that Andrews should be terminated for Cause,
the Board shall send written notice to Andrews setting forth in reasonable
detail the nature of the Cause. No termination shall become effective under this
Section 5(c) until (i) such notice is sent to and received by Andrews, (ii)
following Andrews' receipt of such notice, Andrews has been provided a
reasonable opportunity to meet with the entire Board and discuss the Board's
notice to him, and (iii) following such meeting, the Board determines by
majority vote, by the affirmative vote of two-thirds of its entire membership
exclusive of Andrews or any other interested director, to terminate Andrews for
Cause. Only the following shall constitute "Cause" for such termination: (i)
gross negligence, willful misconduct or dishonesty in office or breach of a
material fiduciary duty owed to World; (ii) conviction of a felony, a crime of
moral turpitude or commission of an act of embezzlement or fraud against World
or any affiliate of World; (iii) willful failure to perform a substantial
portion of his duties and responsibilities hereunder (unless such failure
results from Andrews' illness or disability).
(d) TERMINATION BY WORLD WITHOUT CAUSE. Andrews' employment
with World may be terminated by World without Cause provided that (i) such
termination is approved by the affirmative vote of two-thirds of its entire
membership exclusive of Andrews or any other interested director, (ii) Andrews
is given at least ninety (90) days' prior written notice of such termination,
and (iii) Andrews shall be entitled to receive the benefits described herein and
in Section 5(f) below. Notwithstanding the termination of Andrews' employment
hereunder, Andrews shall be entitled to continue participation in all fringe
benefit plans provided for under Section 4 for a period of three years following
such termination, at World's expense. If any benefits to which Andrews shall
otherwise be entitled hereunder are not permitted to be provided to him under
any applicable plan document or applicable law governing the payment or
provision of such benefits, World shall pay or provide for payment of equivalent
benefits, taking into account service credits for such benefits, to Andrews or
his estate or beneficiaries.
(e) TERMINATION BY ANDREWS. Andrews may terminate his
employment hereunder with or without Good Reason (as defined below) by giving
the Board at least thirty (30) days' prior written notice of termination of his
employment, and he shall not be required to render any further services to World
after the expiration of such thirty (30)-day period. In the event of termination
for Good Reason, Andrews shall specify in the notice the event or circumstances
constituting Good Reason. In the event of termination by Andrews for Good
Reason, Andrews shall be entitled to the compensation and benefits specified
herein and in Section 5(f) below. In the event of termination by Andrews without
Good Reason, Andrews shall be entitled to no further compensation or benefits
under this Agreement other than any salary accrued prior to the effective date
of such termination, the right to retain ownership of the life insurance policy
described in Section 4(e) above. Notwithstanding the termination of Andrews'
employment hereunder, Andrews shall be entitled to continue participation in all
medical and other benefit plans provided for under Section 4, at World's
expense, for a period of three years following such termination. If any benefits
to which Andrews shall otherwise be entitled hereunder are not permitted to be
provided to him under any applicable plan document or applicable law governing
the payment or provision of such benefits, World shall pay or provide for
payment of equivalent benefits, taking into account service credits for such
benefits, to Andrews or his estate or beneficiaries. Only the following shall
constitute "Good Reason" for termination by Andrews: (i) the relocation of
World's principal offices or headquarters or Andrews' place of employment to a
location outside of the Washington, D.C. Standard Metropolitan Statistical Area;
(ii) the failure of Andrews at any time to be elected to or to continue to be
entitled to serve on the Board; (iii) the failure of World to comply with the
provisions of Section 4 of this Agreement or material breach by World of any
other provision of this Agreement, including without limitation World's failure
to make any payment under Section 4 within seven (7) days after notice by
Andrews to World of such failure; (iv) the material diminution or material
change in the duties, responsibilities or position of Andrews, if such
diminution or change is not remedied within thirty (30) days after notice by
Andrews to World; (v) the discontinuation of, diminution in the benefits payable
under, or material adverse amendment or alteration of (whether it impacts all
participants or only Andrews individually) any compensation, bonus or benefit
plan or arrangement in which Andrews was entitled to participate as of the
Commencement Date and which constitutes a material part of Andrews' total
compensation and benefits, unless an economically equivalent substitute
arrangement or benefit reasonably acceptable to Andrews, in each case unless
such event is corrected within seven (7) days after notice by Andrews to World
of such event; or (vi) the occurrence of a Change in Control (as defined in
Section 5(g) below) with respect to World.
(f) ACCELERATION OF SALARY, BONUS AND BENEFITS IF WITHOUT CAUSE
OR FOR GOOD REASON. In the event of termination by World without Cause and other
than for death or disability, or by Andrews with Good Reason, (i) World shall
within fifteen (15) days after the date of termination pay Andrews, in one
lump-sum payment, the total amount of his entire salary and bonus which would
otherwise become due and payable under Sections 4(a) and 4(b) through the third
anniversary of the date of termination (or, in the case of any bonus not yet
determined, such bonus shall be paid within five (5) days after the amount of
such bonus is regularly determined), discounted to present value at the time of
payment at an annual discount rate of 8%; (ii) any stock options to which
Andrews was or may have become entitled, whether or not granted or vested as of
the date of termination, shall be immediately granted and become immediately
vested and exercisable; and (iii) the fringe benefits described in Section 4(e)
shall continue to be provided to Andrews at World's expense as provided under
Sections 5(d) and 5(e). In the event World fails to make any payment or provide
any benefit that it is required to pay hereunder, the unpaid amount or value of
the benefit will accrue interest at an annual rate equal to the prime rate
charged by World's primary depository bank plus 5%, and Andrews shall be
entitled to reimbursement of all costs, including reasonable attorneys' fees and
costs, incurred by him as a result of any such nonpayment or any actions to
collect the same.
(g) CHANGE IN CONTROL. As used herein, a "Change in Control"
shall mean the occurrence of any of the following events or circumstances
subsequent to the date of this Agreement, it being agreed that no circumstance
or event occurring on or before the date of this Agreement shall constitute a
Change in Control:
(i) The acquisition by an individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") other than a trustee or
other fiduciary holding securities under an employee benefit plan of World (a
"Person"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more of either the then outstanding shares of
common stock of World (the "Outstanding World Common Stock") or the combined
voting power of the then outstanding voting securities of World entitled to vote
generally in the election of directors (the "Outstanding World Voting
Securities");
(ii) There occurs any acquisition, merger or
consolidation of World, by, with or into any other corporation (other than a
wholly-owned subsidiary of World) and individuals who are directors of World
immediately prior to the time the agreement of acquisition, merger or
consolidation is executed shall fail to constitute a majority of the board of
directors of the survivor or successor company at any time after consummation of
the transaction; or
(iii) The shareholders of World approve a sale or
disposition by World of all or substantially all of its assets or a plan of
dissolution and liquidation of World.
(h) GROSS-UP FOR EXCISE TAXES. In the event any payment under
this Section 5 or otherwise to or for the benefit of Andrews (determined without
regard to any additional payments required under this Section 5(h))(a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, or any interest or penalties are incurred by
Andrews with respect to such excise tax (collectively, the "Excise Tax"), then
Andrews shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Andrews of all taxes
(including income taxes and interest and penalties imposed with respect to such
taxes) and the Excise Tax imposed on the Gross-Up Payment, Andrews retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments.
All determinations required to be made under this Section 5(h) shall be made by
World's regular independent auditors as of the date of termination of Andrews'
employment hereunder, and all fees and expenses of such auditors shall be borne
by World.
6. COMPANY PROPERTY. Upon the termination of Andrews' employment under
this Agreement, Andrews shall be entitled to retain, as his own property, mobile
telephones, notebook computers and related peripherals, other electronic
equipment, furnishings, and other property issued to Andrews in the course of
his employment; provided, however, that Andrews shall be responsible for any
service contracts, license fees, or similar costs relating to the period
subsequent to termination.
7. CONFIDENTIALITY. Andrews shall not, during the term of this Agreement
or thereafter, disclose to anyone (except to the extent reasonably necessary for
Andrews to perform his duties hereunder or as may be required by law) any
confidential information concerning the business or affairs of World or of any
affiliate or subsidiary of World, including but not limited to lists of and
records relating to customers, business plans, business negotiations, market
information, financial and cost information, and scientific and technical
information (whether of World or entrusted to World by a third party under a
confidentiality agreement or understanding) which Andrews shall have acquired in
the course of, or incident to, the performance of his duties pursuant to the
terms of this Agreement or pursuant to any prior dealings with World or any
affiliate or subsidiary of World. Andrews shall hold in strictest confidence, as
a fiduciary, any and all such confidential information, and shall comply with
all instructions of World for preservation of the confidentiality of such
information.
8. NONCOMPETE. For a period of one (1) year following the date of
termination of Andrews' employment hereunder other than by World without Cause
or by Andrews for Good Reason, Andrews will not, directly or indirectly, whether
as an owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, or through any other person or entity, engage in the business of
selling and/or providing ACMI leases or any other business which is competitive
with World's business within World's existing or expanded business markets.
9. NON-DISPARAGEMENT. Following termination of Andrews' employment for
any reason, each of World and Andrews shall not, except as otherwise required by
applicable securities laws, stock exchange listing requirements, and other
applicable laws, make any disparaging or derogatory statements regarding the
other in any communication likely to become public.
10. BENEFICIARY. Any payments to which Andrews is entitled under this
Agreement shall, in the event of his death, be made to his wife or such other
persons as Andrews shall designate in writing to World from time to time. If no
such beneficiaries survive Andrews, such payments shall be made to Andrews'
estate.
11. ARBITRATION OF DISPUTES. Any controversy or claim arising out of or
relating to the employment relationship between Andrews and World, this
Agreement or any breach thereof shall be settled by arbitration in accordance
with the laws of the Commonwealth of Virginia by three arbitrators, one of whom
shall be appointed by World, one by Andrews and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration Association in Washington, D.C. Such arbitration shall be conducted
in Washington, D.C. in accordance with the rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The party against whom the arbitrators
shall render an award shall pay the other party's reasonable attorneys' fees and
other reasonable costs and expenses in connection with the enforcement of its
rights under this Agreement (including the enforcement of any arbitration award
in court), unless and to the extent the arbitrators shall determine that under
the circumstances recovery by the prevailing party of all or a part of any such
fees and costs and expenses would be unjust.
12. ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC. Neither World nor Andrews
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other party;
provided, however, that World may assign its rights under this Agreement without
the consent of Andrews in the event that World shall hereafter effect a
reorganization, consolidate with or merge into any other Person, or transfer all
or substantially all of its properties or assets to any other Person. This
Agreement shall inure to the benefit of and be binding upon World and Andrews,
their respective successors, executors, administrators, heirs and permitted
assigns.
13. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15. NOTICES. Any notices, request, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid (in which
case notice shall be deemed to have been given on the third day after mailing),
or by overnight delivery by a reliable overnight courier service (in which case
notice shall be deemed to have been given on the day after delivery to such
courier service) to Andrews at the last address Andrews has filed in writing
with World or, in the case of World, at its main offices, attention of the
Board.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement may be amended or
modified only by a written instrument approved by each of the Board of World and
the Compensation Committee thereof, signed by Andrews and by a duly authorized
representative of World. This Agreement, constitutes the entire agreement
between the parties with respect to the subject matter hereof and no agreements
or representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
17. GOVERNING LAW. This is a Virginia contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Virginia, without giving effect to the choice of law principles of any state.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by World, by its duly authorized officer, and by Andrews, as of the
date first above written.
WORLD AIRWAYS, INC.
By____________________
Name:
Title:
December __, 1997
T. COLEMAN ANDREWS, III
-----------------------
December __, 1997
<PAGE>
EXHIBIT A
DUTIES AND RESPONSIBILITIES
A. Lead and coordinate the activities of the World Airways Board of
Directors related to general corporate governance.
B. Preside over the Executive Committee of the Board when it is acting in
lieu of the full Board between Board meetings.
C. Review the strategic and financial progress of the business and, if
appropriate, suggest to the Board strategic or financial issues that
warrant consideration by the Board.
D. Provide leadership, as reasonably requested by the CEO of World or by
the Board, for major transactions with vendors, financial providers or
customers in situations that warrant such involvement.
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of December 2,
1997 ("Agreement"), is by and between World Airways, Inc., a Delaware
corporation, its successors and assigns (hereinafter "World") and Russell L.
Ray, Jr. ("Ray").
WHEREAS, Ray has served as World's President and Chief Executive
Officer since June, 19, 1997;
WHEREAS, World desires to continue to employ Ray, and Ray desires to
continue to serve World, after the date hereof, as President and Chief Executive
Officer;
NOW, THEREFORE, World and Ray, in consideration of the mutual covenants
and promises contained herein, do hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set forth
below, World agrees to employ Ray, and Ray accepts such employment, as World's
President and Chief Executive Officer.
2. TERM. The period of employment shall be from the date first written above
through September 30, 1999 (the "Initial Term"). Ray's employment hereunder will
extend automatically for an additional twelve (12) months on the same terms and
conditions set forth herein (individually, a "Renewal Term", and collectively,
the "Renewal Terms"), if World does not provide Ray with at least twelve (12)
month's prior written notice of World's intention not to renew this Agreement.
3. POSITION AND DUTIES. Ray shall continue to serve as President and Chief
Executive Officer of World with the duties described in World's By-Laws, as in
effect on the date hereof. Ray shall continue to serve as a Director of World.
Ray may serve on the board of directors of other companies with the prior
approval of World's Chairman of the Board, or with the prior approval of the
full Board of Directors. Ray's current service on the Boards of COMTRAD is
deemed approved. Ray shall devote substantially all of his working time and
attention to the business and affairs of World.
4. COMPENSATION AND RELATED MATTERS.
(A) BASE SALARY. Ray shall receive a minimum salary of $350,000 per
annum payable in monthly installments through September 30, 1999, in accordance
with the payroll procedures for World's salaried employees in effect during the
term of this Agreement.
(B) ELIGIBILITY FOR BONUSES. Ray shall be eligible to receive an annual
bonus, as determined annually in good faith by the Compensation Committee in the
range of 0 - 75% of his base salary. Ray shall be entitled to participate in all
bonus and incentive compensation plans or arrangements hereinafter made
available by World to its officers and directors.
(C) STOCK OPTIONS. Ray shall be granted options (the "Term Options") to
purchase 100,000 shares of World's Common Stock, par value $.001 per share
("World Airways Common Stock"), pursuant to the 1995 World Airways Stock Option
Plan (the "Plan"), at an exercise price equal to the market price on the date of
grant (the "Exercise Price"), as set forth in that certain Stock Option
Agreement between World and Ray of even date herewith (the "Option Agreement"),
a copy of which is attached as Exhibit A hereto.
Ray shall also be granted options to purchase 150,000 shares of World's
Common Stock, (the "Performance Options") subject to the following vesting: the
Option as to the first 50,000 of the 150,000 Performance Options at the exercise
price shall vest on the first day following any twenty (20) trading-day period
during which the Company's stock traded at or above 125 percent of the Exercise
Price;
(i) the Option as to the second 50,000 of the 150,000 Performance
Options shall vest on the first day following any twenty (20) trading-day period
during which the Company's stock traded at or above 150 percent of the Exercise
Price;
(ii) the Option as to the third 50,000 of the 150,000 Performance
Options shall vest on the first day following any twenty (20) trading-day period
during which the Company's stock traded at or above 175 percent of the Exercise
Price;
<PAGE>
(D) BUSINESS EXPENSES. Ray shall be entitled to reimbursement of
reasonable business-related expenses consistent with World's policies from time
to time.
(E) FRINGE BENEFITS. Ray shall be entitled to all employee benefits
made available now or in the future to other officers of World. In the event
this Agreement is terminated by either party for any reason other than death or
for cause, Ray may participate in World's health and other benefit programs for
a period of one year from the date of Ray's termination, or until Ray obtains
comparable coverage, whichever is earlier. (F) VACATIONS. Ray shall be entitled
to one (1) month of paid vacation in each calendar year. Ray shall be entitled
to all paid holidays observed by World. (G) INDEMNIFICATION; D&O INSURANCE.
World shall provide (or cause to be provided) to Ray indemnification against all
expenses (including attorneys' fees), judgements, fines and amounts paid in
settlements in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of World) by reason of his being or
having been an officer, director or employee of World or any affiliated entity,
advance expenses (including attorneys' fees) incurred by Ray in defending any
such civil, criminal, administrative or investigative action, suit or proceeding
and maintain directors' and officers' liability insurance coverage (including
coverage for securities-related claims) upon substantially the same terms and
conditions as set forth in the Indemnification Agreement dated as of January 1,
1994 between Ray and World Airways, Inc. (the "Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(A) DEATH. Ray's employment hereunder shall terminate upon his death,
in which event World shall have no further obligation to Ray or his estate with
respect to compensation, other thanthe disposition of life insurance and related
benefits and accrued and unpaid base salary and incentive compensation for
periods prior to the date of death.
(B) BY WORLD FOR DISABILITY. If Ray incurs a disability and such
disability continues for a period of six (6) consecutive months, then World may
terminate this Agreement upon written notice to Ray, in which event World shall
have no obligation to Ray with respect to compensation under Section 4(a) of
this Agreement. The term "disability" means a physical or mental illness that
will prevent Ray form doing substantial gainful work for at least six (6) months
or is likely to result in death. If Ray becomes entitled to Social Security
benefits payable on account of disability, he will be deemed conclusively to be
disabled for purposes of this Agreement.
(C) BY WORLD FOR CAUSE. The Board of Directors of World may terminate
this Agreement for Cause. If this Agreement is terminated for cause, this
Agreement will terminate and World will have no further obligations under this
Agreement to Ray. "Cause" shall be defined as: (i) willful failure to perform at
the direction of the resolutions of the Board of Directors (other than any such
failure resulting from Ray's incapacity due to physical or mental illness or any
such actual or anticipated failure after Ray gives notice of termination of
employment for Good Reason (as hereinafter defined)); (ii) willful dishonesty
with the intent to mislead in connection with Ray's employment hereunder; or
(iii) gross negligence in the performance of the services contemplated by this
Agreement. Ray may only be terminated for Cause pursuant to a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board in which a quorum of the Board is present
throughout, finding that, in the good faith opinion of the Board, Ray was guilty
of conduct set forth in clause (i), (ii), or (iii) above, and specifying the
particulars thereof in detail; provided, however, that Ray may not be terminated
for Cause unless: (1) Ray receives prior written notice of World's intention to
terminate this Agreement for Cause and the specific reasons therefor; and (2)
Ray has an opportunity to be heard (in person or in writing, at the sole
discretion of the Board) by World's Board of Directors and be given, if the acts
are correctable, fifteen (15) days to correct the act or acts (or non-action)
giving rise to such written notice. If the Board by resolution duly adopted by
the affirmative vote of a majority of the entire membership of the Board finds
that Ray fails to make such correction within fifteen (15) days to do so, this
Agreement may be terminated for Cause.
(D) BY WORLD FOR OTHER THAN CAUSE. In the event the Board of Directors
terminates this Agreement for reasons other than causes as defined in
sub-paragraph (c) above, World will pay to Ray within ten (10) days of notice of
termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
<PAGE>
generally) the remainder of his base salary, including deferred salary and/or
bonus compensation, payable under this Agreement, discounted to present value at
the time of payment at an annual discount rate of 8%. In addition, all granted
but unvested stock options under the Option Agreement shall become immediately
exercisable, and all granted but unvested Performance Options shall also become
exercisable if and to the extent Ray's date of termination occurs during one or
more of the twenty (20) day trading periods described in Section 5(c)(i)-(iii).
In the event that any payment to Ray under this paragraph is subject to any
federal or state excise tax, World shall pay to Ray an additional amount equal
to the excise tax imposed including additional federal and state income and
excise taxes as a result of the payments under this paragraph, and such payment
will be made when the excise tax and income taxes are due. Whether an excise tax
is payable, and the amount of the excise tax and additional income taxes
payable, shall be determined by World's accountants and World shall hold Ray
harmless for any and all taxes, penalties, and interest that may become due as a
result of the failure to properly determine that an excise tax is payable or the
correct amount of the excise tax and additional income taxes, together with all
legal and accounting fees reasonably incurred by Ray in connection with any
dispute with any taxing authority with respect to such determinations and/or
payments. Ray agrees to use his best efforts to minimize any taxes for which
World may become liable hereunder.
(E) BY RAY. Ray may terminate his employment hereunder (for purposes of
this Agreement "Good Reason") after giving at least 30 days notice in the event
that:
(i) World relocates its general and administrative offices or Ray's
place of employment to an area other than the Washington, D.C. Standard
Metropolitan Statistical Area,
(ii) he is assigned any duties substantially inconsistent with
his responsibilities as described by Section 3 hereof or a substantial adverse
alteration is made to the nature or status of such responsibilities and such
assignment or alteration is not remedied within 30 days after notice to World,
(iii) World reduces his annual base salary as in effect on the date
hereof or as the same may be increased from time to time;
(iv) World fails,without Ray's consent, to pay Ray any portion of
his current compensation, or to pay him any portion of an installment of
deferred compensation under any deferred compensation program of World, within
seven (7) days after notice to World of such failure;
(v) World fails to continue in effect any compensation plan in
which Ray participates which is material to Ray's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by World to continue
Ray's participation therein (or in such substitute or alternative Plan) on a
basis not materially less favorable, both in terms of the amount of benefits
provided and the level of Ray's participation relative to other participants;
(vi) World fails to continue to provide Ray with benefits
substantially similar to those enjoyed by Ray under any of World's pension, life
insurance, medical, health and accident, or disability plans in which Ray was
participating, World takes any action which would directly or indirectly
materially reduce any of such benefits or deprive Ray of any material fringe
benefit enjoyed by Ray, or World fails to provide Ray with the number of paid
vacation days to which Ray is entitled hereunder;
(vii) World terminates, or purports to terminate Ray's employment
hereunder contrary to the requirements of Section 5(c) hereof (for purposes of
this Agreement, no such termination or purported termination shall be
effective);
(viii) the Board approves the sale, liquidation or dissolution of
World prior to the end of this agreement; or
(ix) a "Change of Control" shall be deemed to have occurred as
defined in Section 5(f) hereof.
(F) CHANGES OF CONTROL. for purposes of this Agreement, a "Change of
Control" includes the occurrence of any one or more of the following events:
<PAGE>
(i) any Person is or becomes the Beneficial Owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), directly or indirectly, of securities of World representing
more than 50% of the combined voting power of World's then outstanding
securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of World and any new
director (other than a director designated by a Person who has entered into an
agreement with World to effect a transaction described in clause (i), (iii) or
(iv) or this Section 5(f)) whose election by the Board of World or nomination
for election by the stockholders of World was approved by a vote of at least
two-thirds (2/3) of the directors then still in office whoeither were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
(iii) the shareholders of World approve a merger or
consolidation of World or with any other corporation, other that (A) a merger or
consolidation which would result in the voting securities of World outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the surviving entity),
in combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of World or any of its affiliates, at
least 50% of the combined voting power of the voting securities of World or such
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of World
(or similar transaction) in which no Person acquires more than 50% if the
combined voting power of World then outstanding securities; or
(iv) the shareholders of World approve a plan of complete
liquidation of World or an agreement for the sale or disposition by World of all
or substantially all of World's assets.
(G) "PERSON" DEFINED. For purposes of this Section, "Person" shall have
the meaning given in Section (3)(a)(9) of the Exchange Act, as modified and used
in Section 13(d) and 14(d) thereof; however, a Person shall not include (i)
World or any of its subsidiaries or affiliates; (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of World or any of
their subsidiaries; (iii) an underwriter temporarily holding securities pursuant
to an offering of such securities; or (iv) a corporation owned, directly or
indirectly, by the stockholders of World in substantially the same proportions
as their ownership of stock of World.
(H) EFFECT OF TERMINATION BY RAY. In the event that Ray decides to
terminate this Agreement and his employment with World or any successor in
interest in accordance with the provisions of Section 5(e), World shall have the
same obligations as set forth in Section 5(d) hereof, except that the
undiscounted remainder of Ray's base salary shall not be less than 12 months
salary. Any other payments due or actions required under this paragraph shall be
made as lump sums or taken within 10 days of termination of the Agreement.
(I) EXCISE TAX INDEMNITY. In the event that any payment to Ray under
Section 5(e) is subject to any federal or state excise tax, World shall pay to
Ray an additional amount equal to the excise tax imposed including additional
federal and state income and excise taxes as a result of the payments under this
paragraph, and such payment will be made when the excise tax and income taxes
are due. Whether an excise tax is payable, and the amount of the excise tax and
additional income taxes payable, shall be determined by World's accountants and
World Shall hold Ray harmless for any and all taxes, penalties, and interest
that may become due as a result of the failure to properly determine that an
excise tax is payable or the correct amount of the excise tax and additional
income taxes, together with all legal and accounting fees reasonably incurred by
Ray in connection with any dispute with any taxing authority with respect to
such determinations and/or payments. In the event of a disagreement between
World and Ray as to whether the termination was for Good Reason, that issue
shall be submitted within twenty (20) days of the notice of termination to
binding arbitration.
(J) NOTICE OF TERMINATION. Termination of this Agreement by World
or termination of this Agreement by Ray shall be communicated by written notice
to the other party hereto, specifically indicating the termination provision
relied upon.
<PAGE>
6. CONFIDENTIALITY. Ray shall not, during the term of this Agreement or
thereafter, disclose to anyone (except to the extent reasonably necessary for
Ray to perform his duties hereunder or as may be required by law) any
confidential information concerning the business or affairs of World (or of any
affiliate or subsidiary of World), including but not limited to lists of and
records relating to customers, business plans, business negotiations, market
information, financial and cost information, and scientific and technical
information (whether of World or entrusted to World by a third party under a
confidentiality agreement or understanding) which Ray shall have acquired in the
course of, or incident to, the performance of his duties pursuant to the terms
of this Agreement or pursuant to any prior dealings with World or any affiliate
or subsidiary of Word. Ray shall hold in strictest confidence, as a fiduciary,
any and all such confidential information, and shall comply with all
instructions of World for preservation of the confidentiality of such
information.
7. NONCOMPETE. For a period of one (1) year following the date of termination of
Ray's employment hereunder other than by World without Cause or by Ray for Good
Reason, Ray will not, directly or indirectly, whether as an owner, partner,
shareholder, consultant, agent, employee, co-venturer or otherwise, or through
any other person or entity, engage in the business of selling and/or providing
ACMI leases or any other business which is competitive with World's business
within World's existing or expanded business markets.
8. BENEFICIARY. The Beneficiary of any payment to be made in the event of Ray's
death shall be his wife, or such other person or persons as Ray shall designate
in writing to World. If no beneficiary shall survive Ray, any such payments
shall be made to his estate.
9. ARBITRATION. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration conducted in
Washington, D.C., under the commercial arbitration rules of the American
Arbitration Association then in effect.
10. NO WAIVER. The failure of either party at any time to enforce any provisions
of this Agreement or to exercise any remedy, option, right, power or privilege
provided for herein, or to require the performance by the other party of any of
the provisions hereof, shall in no way be deemed a waiver of such provision at
the same or at any prior to subsequent time.
11. GOVERNING LAW. This Agreement is governed by and shall be construed in
accordance with the laws of the State of Virginia without regard to the choice
of law provisions thereof. Ray agrees to submit to personal jurisdiction in the
State of Virginia.
12. VALIDITY. The invalidity or unenforceability of any provision or provisions
of this Agreement shall not be deemed to affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
13. SUCCESSORS. This Agreement shall be binding upon World, its successors and
assigns, including any corporation or other business entity which may acquire
all or substantially all of World's assets or business, or within which World
may be consolidated or merged, or any surviving corporation in a merger
involving World.
14. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement shall be valid unless in writing and duly executed by both parties.
15. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which together will constitute one and the same instrument.
16. COMPLETE AGREEMENT. This Agreement sets forth the complete and entire
understanding between World and Ray regarding Ray's employment and replaces and
supersedes all prior agreements or understandings, whether oral or in writing,
between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
WORLD AIRWAYS, INC.
By: _______________________________
T. Coleman Andrews, III
Chairman of the Board
_______________________________
Russell L. Ray, Jr.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of December 1, 1997 ("Agreement"),
is by and between World Airways, Inc., a Delaware corporation, its successors
and assigns (hereinafter "World") and James D. Douglas ("Douglas").
WHEREAS, Douglas has agreed to serve as World's Executive Vice
President and Chief Financial Officer, as of the date hereof;
NOW, THEREFORE, World and Douglas, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set
forth below, World agrees to employ Douglas and Douglas accepts such employment.
2. TERM. The period of employment shall be from the date first written
above through November 30, 1999, unless further extended or sooner terminated as
hereinafter set forth. If World does not wish to renew this Agreement at its
expiration, or wishes to renew on different terms, World shall give written
notice to Douglas at least one year prior to the Agreement's expiration. If
Douglas does not wish to renew this Agreement at its expiration, or wishes to
renew on different terms, Douglas shall give written notice to World at least
six months prior to the Agreement's expiration. In the absence of notice, this
Agreement shall be renewed on the same terms and conditions for successive terms
of one year from the date of expiration.
3. POSITION AND DUTIES. Douglas shall continue to serve as Executive
Vice President and Chief Financial Officer with the duties performed as of the
date hereof, as those duties may be changed from time to time by mutual
agreement, except that Douglas's responsibilities may not be modified in a way
that would be inconsistent with the status of a senior executive. Following a
Change of Control (as hereinafter defined), Douglas's responsibilities may not
be changed without mutual agreement. Douglas agrees to render his services to
the best of his abilities and will comply with all policies, rules and
regulations of the company and will advance and promote to the best of his
ability the business and welfare of the company. Douglas shall devote all of his
working time, attention, knowledge and skills solely to the business and
interest of World. Douglas may not accept any other engagement with or without
compensation which would affect his ability to devote all of his working time
and attention to the business and affairs of World without the prior written
approval of the President. Douglas agrees to accept assignments on behalf of
World or affiliated companies commensurate with his responsibilities hereunder,
except that the terms and conditions of assignments exceeding 60 consecutive
days outside the Washington, D.C. metropolitan area will require mutual
agreement.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Douglas shall receive a minimum salary of
$200,000 per annum payable in accordance with the payroll procedures for World's
salaried employees in effect during the term of this Agreement.
(b) ELIGIBILITY FOR BONUSES. Douglas shall be eligible to
receive an annual bonus pursuant to World's 1997 management incentive
compensation plan and successor plans, if any, as the Board of Directors may
adopt from time to time. A copy of the 1997 Plan is attached as EXHIBIT A
hereto.
(c) PERFORMANCE STOCK OPTIONS. Douglas has been granted
options to purchase World's Common Stock, par value $.001 per share ("World
Airways Common Stock") pursuant to the 1995 World Airways Stock Option Plan (the
"Plan") as set forth in the Stock Option Agreement between World and Douglas
dated December 1, 1997 (the "Option Agreement"), a copy of which is attached as
EXHIBIT B hereto.
(d) STOCK OWNERSHIP REQUIREMENTS. Douglas agrees to hold at
least the following number of shares in any combination of WorldCorp Common
Stock and/or World Airways Common Stock for the balance of the term of this
Agreement (and for any renewals thereof), from the EARLIER to occur of : (1)
Douglas's exercise of World Airways options in the amounts set forth below after
December 1, 1997; or (2) the dates indicated below. For purposes of this
Agreement, any shares of WorldCorp Common Stock and/or World Airways Common
Stock (i) allocated to Mr. Douglas's ESSOP account, (ii) owned by members of
Douglas's immediate family (i.e., spouse, sons or daughters) or (iii) a
revocable grantor trust of which he is the grantor shall be counted toward
Douglas's stock ownership and holding requirements.
<PAGE>
OPTIONS EXERCISED DATE REQUIRED COMMON STOCK HOLDINGS
- ----------------- ---- ------------------------------
...56,250 December 1, 1999 3,750
..75,000 December 1, 2000 5,625
..93,750 December 1, 2001 7,500
112,500 9,375
131,250 11,250
150,000 13,125
(e) BUSINESS EXPENSES. Douglas shall be entitled to
reimbursement of reasonable business related expenses from time to time
consistent with World's policies, including, without limitation, submitting in a
timely manner appropriate documentation of such expenses.
(f) FRINGE BENEFITS. Douglas shall be entitled to participate
in all employee benefit plans made available from time to time to all senior
executives of World in accordance with the terms of such plans. Douglas shall
receive a signing bonus of $25,000 and moving expenses, as set forth in the
attached letter dated November 21, 1997.
(g) PERSONNEL POLICIES, CONDITIONS AND BENEFITS. Except as
otherwise provided herein, Douglas's employment shall be subject to the
personnel policies and benefits plans which apply generally to World's employees
as the same may be interpreted, adopted, revised or deleted from time to time,
during the term of this Agreement, by World in its sole discretion. While this
Agreement is in effect, Douglas shall be entitled to one (1) month of paid
vacation in each calendar year, and all paid holidays observed by World.
(h) INDEMNIFICATION; D&O INSURANCE. Subject to Section 6(f) of
this Agreement, World shall provide (or cause to be provided) to Douglas
indemnification against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlements in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of World) by reason of
his being or having been an officer, director or employee of World or any
affiliated entity, advance expenses (including attorneys' fees) incurred by
Douglas in defending any such civil, criminal, administrative or investigative
action, suit or proceeding and maintain directors' and officers' liability
insurance coverage (including coverage for securities-related claims) upon
substantially the same terms and conditions as set forth in the Indemnification
Agreement of even date herewith between Douglas and World Airways, Inc. (the
"Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(a) DEATH. Douglas's employment hereunder shall terminate upon
his death, in which event World shall have no further obligation to Douglas or
his estate with respect to compensation, other than the disposition of life
insurance and related benefits and accrued and unpaid base salary and incentive
compensation for periods prior to the date of termination, if any, pursuant to
the terms of the respective employee benefits and incentive compensation plans
then in effect.
(b) BY WORLD FOR DISABILITY. If Douglas incurs a disability
and such disability continues for a period of twelve (12) consecutive months,
then World may terminate this Agreement upon written notice to Douglas, in which
event World shall have no obligation to Douglas with respect to compensation
under Section 4(a) of this Agreement. The term "disability" means a physical or
mental illness that will prevent Douglas from performing the essential functions
of his job for at least twelve (12) months or is likely to result in death. If
Douglas becomes entitled to Social Security benefits payable on account of
disability, he will be deemed conclusively to be disabled for purposes of this
Agreement.
(c) BY WORLD FOR CAUSE.
(i) Except under the circumstances set forth in
5(c)(ii) below, the President and Chief Executive Officer of World may terminate
this Agreement, subject to Section 6(f) and those provisions that survive this
Agreement, for Cause. "Cause" shall be defined as (A) sustained performance
deficiencies which are communicated to Douglas in written performance appraisals
and/or other written communications (including, but not limited to memos and/or
letters) by the President and Chief Executive Officer of World, (B) gross
misconduct, including significant acts or omissions constituting dishonesty,
intentional wrongdoing or malfeasance, whether or not relating to the business
of World, (C) commission of a felony or any crime involving fraud or dishonesty,
or (D) a material breach of this Agreement.
<PAGE>
(ii) In the event of a Change of Control, as defined
below, Douglas may only be terminated for Cause pursuant to a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board finding that, in the good faith opinion of the
Board, Douglas was guilty of conduct set forth in 5(c)(i)(A), (B), (C) or (D)
provided, however, that Douglas may not be terminated for Cause hereunder
unless: (1) Douglas receives prior written notice of World's intention to
terminate this Agreement for Cause and the specific reasons therefor; and (2)
Douglas has an opportunity to be heard by World's Board of Directors and be
given, if the acts are correctable, a reasonable opportunity to correct the act
or acts (or non-action) giving rise to such written notice. If the Board by
resolution duly adopted by the affirmative vote of a majority of the entire
membership of the Board finds that Douglas fails to make such correction after
reasonable opportunity to do so, this Agreement may be terminated for Cause.
(d) BY WORLD FOR OTHER THAN CAUSE. In the event the Board of
Directors terminates this Agreement for reasons other than Cause or Disability
as defined in sub-paragraph (c) above, World will pay to Douglas within ten (10)
days of notice of termination (or, in the case of incentive bonus compensation,
within ten (10) days of determination of amounts payable under the applicable
bonus plan) the greater of one year's base salary, or the undiscounted remainder
of his base salary, in each case including deferred salary and/or bonus
compensation, payable under this Agreement. In addition, all granted but
unvested stock options under the Option Agreement shall become immediately
exercisable. In the event that any payment to Douglas under this paragraph is
subject to any federal or state excise tax, World shall pay to Douglas an
additional amount equal to the excise tax imposed including additional federal
and state income and excise taxes as a result of the payments under this
paragraph, and such payment will be made when the excise tax and income taxes
are due; PROVIDED, HOWEVER, that Douglas agrees to assist World Airways by using
his best efforts to structure matters so that any payment to Douglas under this
paragraph is not subject to any federal or state excise tax. Whether an excise
tax is payable, and the amount of the excise tax and additional income taxes
payable, shall be determined by World's accountants and World shall hold Douglas
harmless for any and all taxes, penalties, and interest that may become due as a
result of the failure to properly determine that an excise tax is payable or the
correct amount of the excise tax and additional income taxes, together with all
legal and accounting fees reasonably incurred by Douglas in connection with any
dispute with any taxing authority with respect to such determinations and/or
payments. In the event of a disagreement between World and Douglas as to whether
the termination was for Cause, that issue shall be submitted by Douglas within
twenty (20) days of the notice of termination to binding arbitration, or any
objection to World's determination that termination is for Cause shall be
waived.
(e) BY DOUGLAS. Douglas may terminate his employment hereunder
for purposes of this Agreement "Good Reason") after giving at least 30 days
notice in the event that, without Douglas' consent: (i) World relocates its
general and administrative offices or Douglas's place of employment to an area
other than the Washington, D.C. Standard Metropolitan Statistical Area, (ii) he
is assigned any duties substantially inconsistent with his responsibilities as
described by Section 3 hereof or a substantial adverse alteration is made to the
nature or status of such responsibilities, (iii) World reduces his annual base
salary as in effect on the date hereof or as the same may be increased from time
to time; (iv) World fails, without Douglas's consent, to pay Douglas any portion
of his current compensation, or to pay him any portion of an installment of
deferred compensation under any deferred compensation program of World, within
seven (7) days of the date such compensation is due; (v) World fails to continue
in effect any compensation plan in which Douglas participates which is material
to Douglas's total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
or to continue Douglas's participation therein (or in such substitute or
alternative Plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of Douglas's participation relative to
other participants; (vi) World fails to continue to provide Douglas with
benefits substantially similar to those enjoyed by Douglas under any of World's
pension, life insurance, medical, health and accident, or disability plans in
which Douglas was participating, World takes any action which would directly or
indirectly materially reduce any of such benefits or deprive Douglas of any
material fringe benefit enjoyed by Douglas, or World fails to provide Douglas
with the number of paid vacation days to which Douglas is entitled hereunder;
(vii) World terminates, or proposes to terminate, Douglas's employment hereunder
contrary to the requirements of Section 5(c) hereof (for purposes of this
Agreement, no such termination or purported termination shall be effective) and
Douglas has submitted the matter to arbitration, as set forth in Section 5(d);
or (viii) the Board approves the liquidation or dissolution of World prior to
the end of this Agreement. In the event that Douglas decides to terminate this
Agreement and his employment with World or any successor in interest in
accordance with the provisions of this Section 5(e), World shall have the same
obligations as set forth in Section 5(d) hereof. Any other payments due or
actions required under this paragraph shall be made as lump sums or taken within
10 days of termination of the Agreement.
<PAGE>
(f) CHANGES OF CONTROL. For purposes of this Agreement, a
"Change of Control" includes the occurrence of any one or more of the following
events:
(i) any Person is or becomes the Beneficial Owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), directly or indirectly, of securities of World
representing more than 50% of the combined voting power of World's then
outstanding securities; or
(ii) during any period of two (2) consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board of World and any new
director (other than a director designated by a Person who has entered into an
agreement with World to effect a transaction described in clause (i), (iii) or
(iv) or this Section 5 (f)) whose election by the Board of World or nomination
for election by the stockholders of World was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
(iii) the shareholders of World approve a merger or
consolidation of World with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of World outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the surviving entity),
in combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of World or any of its affiliates, at
least 50% of the combined voting power of the voting securities of World or such
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of World
(or similar transaction) in which no Person acquires more than 50% of the
combined voting power of World's then outstanding securities; or
(iv) the shareholders of World approve a plan of
complete liquidation of World or an agreement for the sale or disposition by
World of all or substantially all of World's assets.
(g) "PERSON" DEFINED. For purposes of this Section, "Person"
shall have the meaning given in Section (3)(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall
not include (i) World or WorldCorp, Inc. or any of their subsidiaries or
affiliates; (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of World or WorldCorp, Inc. or any of their subsidiaries;
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities; or (iv) a corporation owned, directly or indirectly, by the
stockholders of World or WorldCorp, Inc. in substantially the same proportions
as their ownership of stock of World or WorldCorp, Inc.
(h) NOTICE OF TERMINATION. Termination of this Agreement by
World or termination of this Agreement by Douglas shall be communicated by
written notice to the other party hereto, specifically indicating the
termination provision relied upon.
(i) COMPANY PROPERTY. At the termination of Douglas'
employment, whether voluntary or involuntary, Douglas shall return all company
property, including without limitation all electronic and paper files and
documents and all copies thereof.
6. CONFIDENTIALITY/RESTRICTIVE COVENANT.
(a) Douglas recognizes and acknowledges that he acquired and
will continue to acquire during his employment with World information that is
confidential to World and that represents valuable, special and unique assets of
World ("Confidential Information"). Such Confidential Information (whether or
not reduced to tangible form) includes, but is not limited to: trade secrets;
financing documents and information; financial data; new product information;
copyrights; information relating to schedules and locations; cost and pricing
information; performance features; business techniques; business methods;
business and marketing plans or strategies; business dealings and arrangements;
business objectives; customer information; sales information; acquisition,
merger or business development plans or strategies; research and development
projects; legal documents and information; personnel information; and any and
all other information concerning World's business and business practices that is
not generally known or made available to the public or to World's competitors
which, if misused or disclosed, could adversely affect the business of World.
Douglas agrees that he will not, during employment with World and for a period
of two (2) years following termination of employment for any reason, whether
voluntary or involuntary, with or without Cause, directly or indirectly:
<PAGE>
(i) disclose any Confidential Information to any person,
company or other entity (other than authorized persons employed by or affiliated
with World who, in the interest of World, have a business need to know such
information), or
(ii) use any Confidential Information in any way, except
as required by his duties to World or by law, unless he obtains World's prior
written approval of such disclosure or use. World's rights under this Section
shall be cumulative to, and shall not limit, World's rights under the Virginia
Uniform Trade Secrets Act or any other state or federal trade secret or unfair
competition statute or law. The parties hereto stipulate that as between them,
the foregoing matters are important, material, and confidential and gravely
affect the successful conduct of the business of World, and World's good will,
and that any breach of the terms of this paragraph shall be a material breach of
this Agreement.
(b) While employed by World and for a period of two (2) years
following termination of employment for any reason, whether voluntary or
involuntary, with or without Cause, Douglas agrees that he will not, directly or
indirectly, either as principal, agent, employee, employer, owner, stockholder
(owning more than 5% of a corporation's shares), partner, contractor, consultant
or in any other individual or representative capacity:
(i) Request, induce or attempt to induce any customer of
World: (A) to terminate or curtail any business relationship with World or (B)
to establish or attempt to establish a similar business relationship with a
person or entity other than World;
(ii) Solicit, or cause, encourage or in any way assist
any person or entity to solicit, any aviation business from any person or entity
who at such time is, or within the preceding twelve (12) months, had been a,
customer of World, unless such customer of World was also already a customer of
such other person or entity on the date of Douglas' termination;
(iii) Induce or attempt to induce any of World's
officers, directors, or employees to terminate their employment or relationship
with World, or induce or attempt to induce any such persons to provide
aviation-related services or services similar to those they provide for World
for any other person, firm or organization.
(c) Douglas agrees that the restrictions set forth in this
Agreement are reasonable, proper, and necessitated by legitimate business
interests of World and do not constitute an unlawful or unreasonable restraint
upon Douglas's ability to earn a livelihood. The parties agree that in the event
any of the restrictions in this Agreement are found to be overbroad or
unreasonable by a tribunal or court of competent jurisdiction, the parties agree
that this Agreement should be enforced to the maximum extent allowed by
applicable law, and the parties authorize and request such court or tribunal to
determine the maximum time, geographic area, activity and other applicable
limitations allowable by law and to reform the applicable provisions to such
maximum limitations.
(d) Douglas acknowledges that it may be impossible to assess the
monetary damages incurred by his violation of this Agreement, or any of its
terms, and that any threatened or actual violation or breach of this Agreement,
or any of its terms, will constitute immediate and irreparable injury to World.
Therefore, Douglas expressly agrees that, in addition to any and all monetary
damages and other remedies and relief available to World as a result of
Douglas's violation or breach of this Agreement, World shall be entitled to an
injunction restraining Douglas from violating or breaching this Agreement, or
any of its terms (and no bond or other security will be required in connection
therewith); World will be entitled to specific performance of this Agreement;
and World will be entitled to recover its reasonable attorneys' fees and costs
incurred to enforce, or prosecute or defend any action relating to, this
Agreement. In the event World enforces this Agreement through court order or
other decree, Douglas agrees that the restrictions contained in this Agreement
shall remain in effect for a period of twenty four (24) consecutive months from
the effective date of such order or decree enforcing the Agreement.
(e) Section 9 of this Agreement, relating to arbitration,
shall not apply to this Section 6. The parties agree that any dispute between
them relating to or involving this Section 6, including without limitation, any
question concerning the construction, validity, application, interpretation or
alleged breach or threatened breach of this Section 6, shall be litigated in a
court in the Commonwealth of Virginia.
<PAGE>
(f) Section 4(h) of this Agreement and any other indemnity
agreements between Douglas and World shall not apply to actions, suits or
proceedings to enforce World's rights under, or that otherwise relate to, this
Agreement, including without limitation, this Section 6.
(g) References in this Section 6 to "World" include World
Airways, Inc. and any and all of its current or future parents, subsidiaries,
affiliated companies, and divisions.
7. BENEFICIARY. The Beneficiary of any payment due and payable at the
time of Douglas's death, or otherwise due upon his death, shall be his wife, or
such other person or persons as Douglas shall designate in writing to World. If
no such beneficiary shall survive Douglas, any such payments shall be made to
his estate.
8. INTELLECTUAL PROPERTY.
(a) Any improvements, new techniques, processes, inventions,
works, discoveries, products or copyrightable or patentable materials made or
conceived by Douglas, either solely or jointly with other person(s), (1) during
Douglas's period of employment by World, during working hours; (2) during the
period after termination of his employment during which he is retained by World
as a consultant; or (3) with use of World's intellectual property or
Confidential Information, shall be the sole and exclusive property of World
without royalty or other consideration to Douglas.
(b) Douglas agrees to inform World promptly and in full of
such intellectual property by a full written report setting forth in detail the
procedures used and the results achieved.
(c) Douglas shall at World's request and expense execute any
and all applications, assignments, or other instruments which World shall deem
necessary to apply for, register, and/or obtain copyrights or Letters Patent of
the United States or of any foreign country, or to otherwise protect World's
interests in such intellectual property.
(d) Douglas shall assign and does hereby assign to World all
interests and rights, including but not limited to copyrights, in any such
intellectual property.
9. ARBITRATION. Except as described in Section 6, above, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, under the commercial arbitration rules of
the American Arbitration Association. The prevailing party in any such
arbitration, or any court action to enforce or vacate an arbitration award,
shall be entitled to its costs and reasonable attorneys fees from the other
party.
10. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
11. GOVERNING LAW. All questions concerning the construction, validity,
application and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia without giving
effect to any choice of law or conflict of law provision or rule (whether of
Virginia or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than Virginia. Douglas agrees to submit to personal
jurisdiction in the State of Virginia.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
13. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon World, its successors and assigns, including any corporation or
other business entity which may acquire all or substantially all of World's
assets or business, or within which World may be consolidated or merged, or any
surviving corporation in a merger involving World.
14. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of
this Agreement shall be valid unless in writing and duly executed by both
parties.
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
WORLD AIRWAYS, INC.
By: __________________________________
Russell L. Ray, Jr.
President and CEO
__________________________________
James D. Douglas
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of October 1, 1996 ("Agreement"), is
by and between World Airways, Inc., a Delaware corporation, its successors and
assigns (hereinafter "World") and Ahmad M.Khatib ("Khatib").
WHEREAS, Khatib has served World in various positions;
WHEREAS, World desires to continue to employ Khatib and Khatib desires
to continue to serve World as Executive Vice President;
NOW, THEREFORE, World and Khatib, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set
forth below, World agrees to employ Khatib and Khatib accepts such employment.
2. TERM. The period of employment shall be from the date first written
above through December 31, 1999, unless further extended or sooner terminated as
hereinafter set forth. If either World or Khatib wishes to renew this Agreement
on different terms, or either World or Khatib does not wish to renew this
Agreement when it expires on December 31, 1999, it or he shall give written
notice to the other party no later than December 31, 1998. In the absence of
notice, this Agreement shall be renewed on the same terms and conditions for a
term of one year from the date of expiration.
3. POSITION AND DUTIES. Khatib shall serve as Executive Vice President
with the responsibilities outlined in Attachment A, as they may be modified from
time to time by World's CEO, except that Khatib's responsibilities may not be
modified in a way that would be inconsistent with the status of a senior
executive. Following a Change of Control (as hereinafter defined), Khatib's
responsibilities may not be changed without mutual agreement. Khatib agrees to
render his services to the best of his abilities and will comply with all
policies, rules and regulations of the company and will advance and promote to
the best of his ability the business and welfare of the company. Khatib shall
devote all of his working time, attention, knowledge and skills solely to the
business and interest of World. Khatib may not accept any other engagement with
or without compensation which would affect his ability to devote all of his
working time and attention to the business and affairs of World without the
prior written approval of the CEO. Khatib agrees to accept assignments on behalf
of World or affiliated companies commensurate with his responsibilities
hereunder, except that the terms and conditions of assignments exceeding 60
consecutive days outside the Washington, D.C.
metropolitan area will require mutual agreement.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Khatib shall receive a minimum salary of
$200,000 per annum payable in monthly installments in accordance with the
payroll procedures for World's salaried employees in effect during the term of
this Agreement.
(b) ELIGIBILITY FOR BONUSES. Khatib shall be eligible to
receive an annual bonus pursuant to World's 1996 management incentive
compensation plan and successor plans, if any, as the Board of Directors may
adopt from time to time. A copy of the 1996 Plan is attached as EXHIBIT B
hereto.
(c) PERFORMANCE STOCK OPTIONS. Khatib has been granted options
to purchase World's Common Stock, par value $.001 per share ("World Airways
Common Stock") pursuant to the 1995 World Airways Stock Option Plan (the "Plan")
as set forth in the Stock Option Agreement between World and Khatib dated May
31, 1995 (the "Option Agreement"), a copy of which is attached as EXHIBIT C
hereto.
(d) STOCK OWNERSHIP REQUIREMENTS. Khatib agrees to hold at
least the following amounts in any combination of World Airways Common Stock
and/or WorldCorp Common Stock for the balance of the term of this Agreement (and
for any renewals thereof), from the EARLIER to occur of : (1) Khatib's exercise
of World Airways options or WorldCorp options in the amounts set forth below
after July 31, 1995; or (2) the dates indicated below. For purposes of this
Agreement, any shares of World Airways Common Stock or WorldCorp Common Stock
owned by members of Khatib's immediate family (i.e., spouse, sons or daughters)
or a revocable grantor trust of which he is the grantor shall be counted toward
Khatib's stock ownership and holding requirements.
<PAGE>
OPTIONS EXERCISED DATE REQUIRED COMMON STOCK HOLDINGS
- ----------------- ---- ------------------------------
56,250 12/31/96 3,746
75,000 12/31/97 5,625
93,750 12/31/98 7,500
112,500 9,371
131,250 11,248
150,000 13,125
(e) BUSINESS EXPENSES. Khatib shall be entitled to reimbursement of
reasonable business related expenses from time to time consistent with World's
policies, including, without limitation, submitting in a timely manner
appropriate documentation of such expenses.
(f) FRINGE BENEFITS. Khatib shall be entitled to participate in all
employee benefit plans made available from time to time to all senior executives
of World in accordance with the terms of such plans. In the event this Agreement
is terminated by either party for any reason other than death or for Cause,
Khatib may participate in World's health programs for one year for each year of
service with World (prorated in the case of a partial year) on the same terms
available to the most senior executives of World or its affiliates, or until
Khatib obtains comparable coverage, whichever is earlier. World will maintain
life insurance on Khatib in the amount of $1,000,000 during the term of this
Agreement naming his estate (or any person designated by Khatib) as sole
beneficiary of such insurance.
(g) PERSONNEL POLICIES, CONDITIONS AND BENEFITS. Except as
otherwise provided herein, Khatib's employment shall be subject to the personnel
policies and benefits plans which apply generally to World's employees as the
same may be interpreted, adopted, revised or deleted from time to time, during
the term of this Agreement, by World in its sole discretion. While this
Agreement is in effect, Khatib shall be entitled to one (1) month of paid
vacation in each calendar year, and all paid holidays observed by World, in
accordance with World's vacation and holiday policy then in effect.
(h) INDEMNIFICATION; D&O INSURANCE. World shall provide (or cause
to be provided) to Khatib indemnification against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlements in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of World) by reason of his being or having been an officer, director
or employee of World or any affiliated entity, advance expenses (including
attorneys' fees) incurred by Khatib in defending any such civil, criminal,
administrative or investigative action, suit or proceeding and maintain
directors' and officers' liability insurance coverage (including coverage for
securities-related claims) upon substantially the same terms and conditions as
set forth in the Indemnification Agreement dated as of February 15, 1996 between
Khatib and World Airways, Inc. (the "Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(a) DEATH. Khatib's employment hereunder shall terminate upon
his death, in which event World shall have no further obligation to Khatib or
his estate with respect to compensation, other than the disposition of life
insurance and related benefits and accrued and unpaid base salary and incentive
compensation for periods prior to the date of termination, if any, pursuant to
the terms of the respective employee benefits and incentive compensation plans
then in effect.
(b) BY WORLD FOR DISABILITY. If Khatib incurs a disability and
such disability continues for a period of twelve (12) consecutive months, then
World may terminate this Agreement upon written notice to Khatib, in which event
World shall have no obligation to Khatib with respect to compensation under
Section 4(a) of this Agreement. The term "disability" means a physical or mental
illness that will prevent Khatib from performing the essential functions of his
job for at least twelve (12) months or is likely to result in death. If Khatib
becomes entitled to Social Security benefits payable on account of disability,
he will be deemed conclusively to be disabled for purposes of this Agreement.
(c) BY WORLD FOR CAUSE.
(i) Except under the circumstances set forth in 5(c)(ii)
below, the President and Chief Executive Officer of World may terminate this
Agreement for Cause. "Cause" shall be defined as (A) performance deficiencies
which are communicated to Khatib in written performance appraisals and/or other
written communications (including, but not limited to memos and/or letters) by
the President and Chief Executive Officer of World, after a reasonable
opportunity to correct such deficiencies, (B) gross misconduct, including
significant acts or omissions constituting dishonesty, intentional wrongdoing or
malfeasance, relating to the business of World, or (C) commission of a felony
involving fraud or dishonesty, or (D) a material breach of this Agreement.
<PAGE>
ii) In the event of a Change of Control, as defined below,
Khatib may only be terminated for Cause pursuant to a resolution duly adopted by
the affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board finding that, in the good faith opinion of the Board,
Khatib was guilty of conduct set forth in 5(c)(i)(A), (B), (C) or (D); provided,
however, that Khatib may not be terminated for Cause in the event of a Change of
Control unless: (1) Khatib receives prior written notice of World's intention to
terminate this Agreement for Cause and the specific reasons therefor; and (2)
Khatib has an opportunity to be heard by World's Board of Directors and be
given, if the acts are correctable, a reasonable opportunity to correct the act
or acts (or non-action) giving rise to such written notice. If the Board by
resolution duly adopted by the affirmative vote of a majority of the entire
membership of the Board finds that Khatib fails to make such correction after
reasonable opportunity to do so, this Agreement may be terminated for Cause.
(d) BY WORLD FOR OTHER THAN CAUSE. In the event the Board of
Directors terminates this Agreement for reasons other than Cause as defined in
sub-paragraph (c) above, World will pay to Khatib within ten (10) days of notice
of termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
generally) the undiscounted remainder of his base salary, including deferred
salary and/or bonus compensation payable, under this Agreement. In addition, all
granted but unvested stock options under the Option Agreement shall become
immediately exercisable. In the event that any payment to Khatib under this
paragraph is subject to any federal or state excise tax, World shall pay to
Khatib an additional amount equal to the excise tax imposed including additional
federal and state income and excise taxes as a result of the payments under this
paragraph, and such payment will be made when the excise tax and income taxes
are due; PROVIDED, HOWEVER, that Khatib agrees to assist World Airways by using
his best efforts to structure matters so that any payment to Khatib under this
paragraph is not subject to any federal or state excise tax. Whether an excise
tax is payable, and the amount of the excise tax and additional income taxes
payable, shall be determined by World's accountants and World shall hold Khatib
harmless for any and all taxes, penalties, and interest that may become due as a
result of the failure to properly determine that an excise tax is payable or the
correct amount of the excise tax and additional income taxes, together with all
legal and accounting fees reasonably incurred by Khatib in connection with any
dispute with any taxing authority with respect to such determinations and/or
payments. In the event of a disagreement between World and Khatib as to whether
the termination was for Cause, that issue shall be submitted within twenty (20)
days of the notice of termination to binding arbitration.
(e) BY KHATIB. Khatib may terminate his employment hereunder
(for purposes of this Agreement "Good Reason") after giving at least 30 days
notice in the event that: (i) he is assigned any duties substantially
inconsistent with his responsibilities as described by Section 3 hereof or a
substantial adverse alteration is made to the nature or status of such
responsibilities, (ii) World reduces his annual base salary as in effect on the
date hereof or as the same may be increased from time to time; (iii) World
fails, without Khatib's consent, to pay
Khatib any portion of his current compensation, or to pay him any portion of an
installment of deferred compensation under any deferred compensation program of
World, within seven (7) days of the date such compensation is due; (iv) World
fails to continue in effect any compensation plan in which Khatib participates
which is material to Khatib's total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by World to continue Khatib's
participation therein (or in such substitute or alternative Plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of Khatib's participation relative to other participants; (v) World
fails to continue to provide Khatib with benefits substantially similar to those
enjoyed by Khatib under any of World's pension, life insurance, medical, health
and accident, or disability plans in which Khatib was participating, World takes
any action which would directly or indirectly materially reduce any of such
benefits or deprive Khatib of any material fringe benefit enjoyed by Khatib, or
World fails to provide Khatib with the number of paid vacation days to which
Khatib is entitled hereunder; (vi) World terminates, or proposes to terminate,
Khatib's employment hereunder contrary to the requirements of Section 5(c)
hereof (for purposes of this Agreement, no such termination or purported
termination shall be effective), (vii) the Board approves the liquidation or
dissolution of World prior to the end of this Agreement, or (viii) a material
breach of this Agreement.
(f) CHANGES OF CONTROL. For purposes of this Agreement, a
"Change of Control" includes the occurrence of any one or more of the following
events:
<PAGE>
(i) any Person is or becomes the Beneficial Owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), directly or indirectly, of securities of World representing
more than 50% of the combined voting power of World's then outstanding
securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of World and any new
director (other than a director designated by a Person who has entered into an
agreement with World to effect a transaction described in clause (i), (iii) or
(iv) or this Section 5 (f)) whose election by the Board of World or nomination
for election by the stockholders of World was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
(iii) the shareholders of World approve a merger or
consolidation of World with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of World outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the surviving entity),
in combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of World or any of its affiliates, at
least 50% of the combined voting power of the voting securities of World or such
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of World
(or similar transaction) in which no Person acquires more than 50% of the
combined voting power of World's then outstanding securities; or
(iv) the shareholders of World approve a plan of complete
liquidation of World or an agreement for the sale or disposition by World of all
or substantially all of World's assets.
(g) "PERSON" DEFINED. For purposes of this Section, "Person"
shall have the meaning given in Section (3)(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall
not include (i) World or WorldCorp, Inc. or any of its subsidiaries or
affiliates; (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of World or WorldCorp, Inc. or any of their subsidiaries;
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities; or (iv) a corporation owned, directly or indirectly, by the
stockholders of World or WorldCorp, Inc. in substantially the same proportions
as their ownership of stock of World or WorldCorp, Inc.
(h) EFFECT OF TERMINATION BY KHATIB. In the event that Khatib
decides to terminate this Agreement and his employment with World or any
successor in interest in accordance with the provisions of Section 5(e), World
shall have the same obligations as set forth in ss.5(d) hereof, except that the
undiscounted remainder of Khatib' base salary shall not be less than six months
salary. Any other payments due or actions required under this paragraph shall be
made as lump sums or taken within 10 days of termination of the Agreement.
(i) EXCISE TAX INDEMNITY. In the event that any payment to
Khatib under Section 5(e) is subject to any federal or state excise tax, World
shall pay to Khatib an additional amount equal to the excise tax imposed
including additional federal and state income and excise taxes as a result of
the payments under this paragraph, and such payment will be made when the excise
tax and income taxes are due; PROVIDED, HOWEVER, that Khatib agrees to assist
World Airways by using his best efforts to structure matters so that any payment
to Khatib under this paragraph is not subject to any federal or state excise
tax. Whether an excise tax is payable, and the amount of the excise tax and
additional income taxes payable, shall be determined by World's accountants and
World shall hold Khatib harmless for any and all taxes, penalties, and interest
that may become due as a result of the failure to properly determine that an
excise tax is payable or the correct amount of the excise tax and additional
income taxes, together with all legal and accounting fees reasonably incurred by
Khatib in connection with any dispute with any taxing authority with respect to
such determinations and/or payments.
(j) NOTICE OF TERMINATION. Termination of this Agreement by
World or termination of this Agreement by Khatib shall be communicated by
written notice to the other party hereto, specifically indicating the
termination provision relied upon.
(k) COMPANY PROPERTY. At the end of the term described in
Section 2 or in the event of termination under ss.5(d) or (e), Khatib shall
return all company property, including electronic and paper files, with the
exception of the car phone.
<PAGE>
6. CONFIDENTIALITY/RESTRICTIVE COVENANT.
(a) Khatib recognizes and acknowledges that financing
documents, trade secrets, new products, copyrights, schedules, costs,
performance features, techniques, plans, methods, business and marketing plans,
dealings, arrangements, objectives, locations, customer information and other
information concerning World's business and business practices not generally
known in the aviation industry, constitute confidential information and
represent valuable, special and unique assets of World. Khatib agrees that he
will not, during employment with World or for a period of two (2) years
following termination of employment for any reason, whether voluntary or
involuntary, with or without cause, disclose any of such confidential and
proprietary information to any person or person not connected with World without
World's prior written approval. The parties hereto stipulate that as between
them, the foregoing matters are important, material, and confidential and
gravely affect the successful conduct of the business of World, and World's good
will, and that any breach of the terms of this paragraph shall be a material
breach of this Agreement.
(b) While employed by World and for a period of two (2) years
following termination of employment for any reason, whether voluntary or
involuntary, with or without cause, Khatib agrees that he shall not,
(i) Request, induce or attempt to induce any customer of
World to terminate any business relationship with World or to seek to establish
a similar business relationship with a person or entity other than World;
(ii)Cause, encourage or in any way assist any person or
entity actively to solicit any aviation business from any customer of World;
(iii) Induce or attempt to induce any of World's employees to
terminate their employment with World, or to provide aviation related services
for any other person, firm or organization;
(iv) Use any employer Confidential Information as set forth in
paragraph A of this Section or information which is not otherwise available to
the public at large for the purposes of providing aviation related services for
or through any person or entity other than World.
(c) Khatib agrees that the restrictions set forth in this
Agreement above are reasonable, proper, and necessitated by legitimate business
interests of World and do not constitute an unlawful or unreasonable restraint
upon Khatib's ability to earn a livelihood. The parties agree that in the event
any of the restrictions in this Agreement, interpreted in accordance with the
Agreement as a whole, are found to be unreasonable by a court of competent
jurisdiction, such court shall determine the limits allowable by law and shall
enforce the same. If the court declines such enforcement, the parties agree that
this agreement shall be interpreted to provide World with the maximum protection
allowed by law.
(d) Khatib acknowledges that it may be impossible to assess
the monetary damages incurred by his violation of this Agreement, or any of its
terms, and that any threatened or actual violation or breach of this Agreement,
or any of its terms, will constitute immediate and irreparable injury to World.
Therefore, Khatib expressly agrees that in addition to any and all other damages
and remedies available to World as a result of Khatib's breach of this
Agreement, World shall be entitled to an injunction restraining Khatib from
violating or breaching this Agreement, or any of its terms. In the event World
enforces this Agreement through Court Order, Khatib agrees that the restrictions
contained in this Agreement shall remain in effect for a period of twelve (12)
consecutive months from the effective date of such Order enforcing the
Agreement.
7. BENEFICIARY. The Beneficiary of any payment due and payable at the
time of Khatib's death, or otherwise due upon his death, shall be his wife, or
such other person or persons as Khatib shall designate in writing to World. If
no such beneficiary shall survive Khatib, any such payments shall be made to his
estate.
8. INTELLECTUAL PROPERTY. Any improvements, new techniques, processes,
products or copyrightable materials made or conceived by Khatib, either solely
or jointly with other person(s), (1) during Khatib's period of employment by
World, during working hours; (2) during the period after termination of his
employment during which he is retained by World as a consultant; or (3) with use
of World's intellectual property or confidential information, shall be the sole
and exclusive property of World without royalty or other consideration to
Khatib.
<PAGE>
(a) Khatib agrees to inform World promptly and in full of such
intellectual property by a full written report setting forth in detail the
procedures used and the results achieved.
(b) Khatib shall at World's request and expense execute any
and all applications, assignments, or other instruments which World shall deem
necessary to apply for, register, and/or obtain copyrights or Letters Patent of
the United States or of any foreign country, or to otherwise protect World's
Interests in such intellectual property.
(c) Employee shall assign and does hereby assign to World all
interests and rights, including but not limited to copyrights, in any such
intellectual property.
9. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
under the commercial arbitration rules of the American Arbitration Association.
10. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
11. GOVERNING LAW. This Agreement is governed by and shall be construed
in accordance with the laws of the State of Virginia. Khatib agrees to submit to
personal jurisdiction in the State of Virginia.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
13. SUCCESSORS. This Agreement shall be binding upon World, its
successors and assigns, including any corporation or other business entity which
may acquire all or substantially all of World's assets or business, or within
which World may be consolidated or merged, or any surviving corporation in a
merger involving World.
14. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of
this Agreement shall be valid unless in writing and duly executed by both
parties.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
WORLD AIRWAYS, INC.
By: ____________________________
Charles W. Pollard
President and CEO
-----------------------------
Ahmad M. Khatib
<PAGE>
ATTACHMENT A
POSITION: Executive Vice President
REPORTING RELATIONSHIP: Reporting to President and CEO
RESPONSIBILITIES: Developing major customer relationships and
converting to profitable sales. Initial
responsibilities include MAS, Garuda and PAL. Other
customers as designated by CEO.
PERFORMANCE OBJECTIVE: Revenue and earnings targets as established in annual
Operating Plan.
ORGANIZATIONAL
PRINCIPLES: This position is designed to take maximum advantage of
Khatib's strengths in developing high value customer
relationships and negotiating and closing revenue
contracts.
Communications with other members of the World
organization will be conducted as the CEO shall direct.
CONTRACTING
PROCEDURES: All commercial commitments must be reflected in written
agreements in accordance with standard World policies
applicable to all commercial understandings.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated as of October 1, 1996 ("Agreement"), is
by and between World Airways, Inc., a Delaware corporation, its successors and
assigns (hereinafter "World") and Vance Fort ("Fort").
WHEREAS, Fort has served as World's Executive Vice President since
April 18, 1996;
WHEREAS, World desires to continue to employ Fort and Fort desires to
continue to serve World as Executive Vice President;
NOW, THEREFORE, World and Fort, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set
forth below, World agrees to employ Fort and Fort accepts such employment.
2. TERM. The period of employment shall be from the date first written
above through December 31, 1998, unless further extended or sooner terminated as
hereinafter set forth. If either World or Fort wishes to renew this Agreement on
different terms, or either World or Fort does not wish to renew this Agreement
when it expires on December 31, 1998, it or he shall give written notice to the
other party at least one hundred eighty (180) days prior to the expiration date.
In the absence of notice, this Agreement shall be renewed on the same terms and
conditions for a term of one year from the date of expiration.
3. POSITION AND DUTIES. Fort shall continue to serve as Executive Vice
President with the duties performed as of the date hereof, as those duties may
be changed from time to time by mutual agreement, except that Fort's
responsibilities may not be modified in a way that would be inconsistent with
the status of a senior executive. Following a Change of Control (as hereinafter
defined), Fort's responsibilities may not be changed without mutual agreement.
Fort agrees to render his services to the best of his abilities and will comply
with all policies, rules and regulations of the company and will advance and
promote to the best of his ability the business and welfare of the company. Fort
shall devote all of his working time, attention, knowledge and skills solely to
the business and interest of World. Fort may not accept any other engagement
with or without compensation which would affect his ability to devote all of his
working time and attention to the business and affairs of World without the
prior written approval of the President. Fort agrees to accept assignments on
behalf of World or affiliated companies commensurate with his responsibilities
hereunder, except that the terms and conditions of assignments exceeding 60
consecutive days outside the Washington, D.C.
metropolitan area will require mutual agreement.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Fort shall receive a minimum salary of
$170,000 per annum payable in monthly installments in accordance with the
payroll procedures for World's salaried employees in effect during the term of
this Agreement.
(b) ELIGIBILITY FOR BONUSES. Fort shall be eligible to receive
an annual bonus pursuant to World's 1995 management incentive compensation plan
and successor plans, if any, as the Board of Directors may adopt from time to
time. A copy of the 1996 Plan is attached as EXHIBIT A hereto.
(c) PERFORMANCE STOCK OPTIONS. Fort has been granted options
to purchase World's Common Stock, par value $.001 per share ("World Airways
Common Stock") pursuant to the 1995 World Airways Stock Option Plan (the "Plan")
as set forth in the Stock Option Agreement between World and Fort dated May 31,
1995 (the "Option Agreement"), a copy of which is attached as EXHIBIT B hereto.
(d) STOCK OWNERSHIP REQUIREMENTS. Fort agrees to hold at least
the following number of shares in any combination of WorldCorp Common Stock
and/or World Airways Common Stock for the balance of the term of this Agreement
(and for any renewals thereof), from the EARLIER to occur of : (1) Fort's
exercise of World Airways options in the amounts set forth below after July 31,
1995; or (2) the dates indicated below. For purposes of this Agreement, any
shares of WorldCorp Common Stock and/or World Airways Common Stock (i) allocated
to Mr. Fort's ESSOP account, (ii) owned by members of Fort's immediate family
(i.e., spouse, sons or daughters) or (iii) a revocable grantor trust of which he
is the grantor shall be counted toward Fort's stock ownership and holding
requirements.
<PAGE>
OPTIONS EXERCISED DATE REQUIRED COMMON STOCK HOLDINGS
- ----------------- ---- ------------------------------
46,875 12/31/96 3,122
62,500 12/31/97 4,688
78,125 12/31/98 6,250
93,750 7,809
109,375 9,373
125,000 10,938
(e) BUSINESS EXPENSES. Fort shall be entitled to reimbursement
of reasonable business related expenses from time to time consistent with
World's policies, including, without limitation, submitting in a timely manner
appropriate documentation of such expenses.
(f) FRINGE BENEFITS. Fort shall be entitled to participate in
all employee benefit plans made available from time to time to all senior
executives of World in accordance with the terms of such plans. In the event
this Agreement is terminated by either party for any reason other than death or
for Cause, Fort may participate in World's health programs for one year for each
year of service with World (prorated in the case of a partial year) on the same
terms available to the most senior executives of World or its affiliates, or
until Fort obtains comparable coverage, whichever is earlier.
(g) PERSONNEL POLICIES, CONDITIONS AND BENEFITS. Except as
otherwise provided herein, Fort's employment shall be subject to the personnel
policies and benefits plans which apply generally to World's employees as the
same may be interpreted, adopted, revised or deleted from time to time, during
the term of this Agreement, by World in its sole discretion. While this
Agreement is in effect, Fort shall be entitled to one (1) month of paid vacation
in each calendar year, and all paid holidays observed by World.
(h) INDEMNIFICATION; D&O INSURANCE. World shall provide (or
cause to be provided) to Fort indemnification against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlements in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of World) by reason of his being or having been an officer, director
or employee of World or any affiliated entity, advance expenses (including
attorneys' fees) incurred by Fort in defending any such civil, criminal,
administrative or investigative action, suit or proceeding and maintain
directors' and officers' liability insurance coverage (including coverage for
securities-related claims) upon substantially the same terms and conditions as
set forth in the Indemnification Agreement of even date herewith between Fort
and World Airways, Inc. (the "Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(a) DEATH. Fort's employment hereunder shall terminate upon
his death, in which event World shall have no further obligation to Fort or his
estate with respect to compensation, other than the disposition of life
insurance and related benefits and accrued and unpaid base salary and incentive
compensation for periods prior to the date of termination, if any, pursuant to
the terms of the respective employee benefits and incentive compensation plans
then in effect.
(b) BY WORLD FOR DISABILITY. If Fort incurs a disability and
such disability continues for a period of twelve (12) consecutive months, then
World may terminate this Agreement upon written notice to Fort, in which event
World shall have no obligation to Fort with respect to compensation under
Section 4(a) of this Agreement. The term "disability" means a physical or mental
illness that will prevent Fort from performing the essential functions of his
job for at least twelve (12) months or is likely to result in death. If Fort
becomes entitled to Social Security benefits payable on account of disability,
he will be deemed conclusively to be disabled for purposes of this Agreement.
(c) BY WORLD FOR CAUSE.
(i) Except under the circumstances set forth in 5(c)(ii)
below, the President and Chief Executive Officer of World may terminate this
Agreement for Cause. "Cause" shall be defined as (A) sustained performance
deficiencies which are communicated to Fort in written performance appraisals
and/or other written communications (including, but not limited to memos and/or
letters) by the President and Chief Executive Officer of World, (B) gross
misconduct, including significant acts or omissions constituting dishonesty,
intentional wrongdoing or malfeasance, relating to the business of World, or (C)
commission of a felony involving fraud or dishonesty, or (D) a material breach
of this Agreement.
<PAGE>
(ii) In the event of a Change of Control, as defined
below, Fort may only be terminated for Cause pursuant to a resolution duly
adopted by the affirmative vote of a majority of the entire membership of the
Board at a meeting of the Board finding that, in the good faith opinion of the
Board, Fort was guilty of conduct set forth in 5(c)(i)(A), (B), (C) or (D)
provided, however, that Fort may not be terminated for Cause unless: (1) Fort
receives prior written notice of World's intention to terminate this Agreement
for Cause and the specific reasons therefor; and (2) Fort has an opportunity to
be heard by World's Board of Directors and be given, if the acts are
correctable, a reasonable opportunity to correct the act or acts (or non-action)
giving rise to such written notice. If the Board by resolution duly adopted by
the affirmative vote of a majority of the entire membership of the Board finds
that Fort fails to make such correction after reasonable opportunity to do so,
this Agreement may be terminated for Cause.
(d) BY WORLD FOR OTHER THAN CAUSE. In the event the Board of
Directors terminates this Agreement for reasons other than Cause as defined in
sub-paragraph (c) above, World will pay to Fort within ten (10) days of notice
of termination (or, in the case of incentive bonus compensation, within ten (10)
days of determination of amounts payable under the applicable bonus plan
generally) the undiscounted remainder of his base salary, including deferred
salary and/or bonus compensation, payable under this Agreement. In addition, all
granted but unvested stock options under the Option Agreement shall become
immediately exercisable. In the event that any payment to Fort under this
paragraph is subject to any federal or state excise tax, World shall pay to Fort
an additional amount equal to the excise tax imposed including additional
federal and state income and excise taxes as a result of the payments under this
paragraph, and such payment will be made when the excise tax and income taxes
are due; PROVIDED, HOWEVER, that Fort agrees to assist World Airways by using
his best efforts to structure matters so that any payment to Fort under this
paragraph is not subject to any federal or state excise tax. Whether an excise
tax is payable, and the amount of the excise tax and additional income taxes
payable, shall be determined by World's accountants and World shall hold Fort
harmless for any and all taxes, penalties, and interest that may become due as a
result of the failure to properly determine that an excise tax is payable or the
correct amount of the excise tax and additional income taxes, together with all
legal and accounting fees reasonably incurred by Fort in connection with any
dispute with any taxing authority with respect to such determinations and/or
payments. In the event of a disagreement between World and Fort as to whether
the termination was for Cause, that issue shall be submitted within twenty (20)
days of the notice of termination to binding arbitration.
(e) BY FORT. Fort may terminate his employment hereunder (for
purposes of this Agreement "Good Reason") after giving at least 30 days notice
in the event that: (i) World relocates its general and administrative offices or
Fort's place of employment to an area other than the Washington, D.C. Standard
Metropolitan Statistical Area, (ii) he is assigned any duties substantially
inconsistent with his responsibilities as described by Section 3 hereof or a
substantial adverse alteration is made to the nature or status of such
responsibilities, (iii) World reduces his annual base salary as in effect on the
date hereof or as the same may be increased from time to time; (iv) World fails,
without Fort's consent, to pay Fort any portion of his current compensation, or
to pay him any portion of an installment of deferred compensation under any
deferred compensation program of World, within seven (7) days of the date such
compensation is due; (v) World fails to continue in effect any compensation plan
in which Fort participates which is material to Fort's total compensation,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
World to continue Fort's participation therein (or in such substitute or
alternative Plan) on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of Fort's participation relative to
other participants; (vi) World fails to continue to provide Fort with benefits
substantially similar to those enjoyed by Fort under any of World's pension,
life insurance, medical, health and accident, or disability plans in which Fort
was participating, World takes any action which would directly or indirectly
materially reduce any of such benefits or deprive Fort of any material fringe
benefit enjoyed by Fort, or World fails to provide Fort with the number of paid
vacation days to which Fort is entitled hereunder; (vii) World terminates, or
proposes to terminate, Fort's employment hereunder contrary to the requirements
of Section 5(c) hereof (for purposes of this Agreement, no such termination or
purported termination shall be effective); (viii) the Board approves the
liquidation or dissolution of World prior to the end of this Agreement.
<PAGE>
(f) CHANGES OF CONTROL. For purposes of this Agreement, a
"Change of Control" includes the occurrence of any one or more of the following
events:
(i) any Person is or becomes the Beneficial Owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), directly or indirectly, of securities of World
representing more than 50% of the combined voting power of World's then
outstanding securities; or
(ii) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of World and any new
director (other than a director designated by a Person who has entered into an
agreement with World to effect a transaction described in clause (i), (iii) or
(iv) or this Section 5 (f)) whose election by the Board of World or nomination
for election by the stockholders of World was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or
(iii) the shareholders of World approve a merger or
consolidation of World with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of World outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the surviving entity),
in combination with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of World or any of its affiliates, at
least 50% of the combined voting power of the voting securities of World or such
surviving entity outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a recapitalization of World
(or similar transaction) in which no Person acquires more than 50% of the
combined voting power of World's then outstanding securities; or
(iv) the shareholders of World approve a plan of
complete liquidation of World or an agreement for the sale or disposition by
World of all or substantially all of World's assets.
(g) PERSON" DEFINED. For purposes of this Section, "Person"
shall have the meaning given in Section (3)(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall
not include (i) World or WorldCorp, Inc. or any of its subsidiaries or
affiliates; (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of World or WorldCorp, Inc. or any of their subsidiaries;
(iii) an underwriter temporarily holding securities pursuant to an offering of
such securities; or (iv) a corporation owned, directly or indirectly, by the
stockholders of World or WorldCorp, Inc. in substantially the same proportions
as their ownership of stock of World or WorldCorp, Inc.
(h) EFFECT OF TERMINATION BY FORT. In the event that Fort
decides to terminate this Agreement and his employment with World or any
successor in interest in accordance with the provisions of Section 5(e), World
shall have the same obligations as set forth in Section 5(d) hereof, except that
the undiscounted remainder of Fort' base salary shall not be less than six
months salary. Any other payments due or actions required under this paragraph
shall be made as lump sums or taken within 10 days of termination of the
Agreement.
(i) EXCISE TAX INDEMNITY. In the event that any payment to
Fort under Section 5(e) is subject to any federal or state excise tax, World
shall pay to Fort an additional amount equal to the excise tax imposed including
additional federal and state income and excise taxes as a result of the payments
under this paragraph, and such payment will be made when the excise tax and
income taxes are due; PROVIDED, HOWEVER, that Fort agrees to assist World
Airways by using his best efforts to structure matters so that any payment to
Fort under this paragraph is not subject to any federal or state excise tax.
Whether an excise tax is payable, and the amount of the excise tax and
additional income taxes payable, shall be determined by World's accountants and
World shall hold Fort harmless for any and all taxes, penalties, and interest
that may become due as a result of the failure to properly determine that an
excise tax is payable or the correct amount of the excise tax and additional
income taxes, together with all legal and accounting fees reasonably incurred by
Fort in connection with any dispute with any taxing authority with respect to
such determinations and/or payments.
<PAGE>
(j) NOTICE OF TERMINATION. Termination of this Agreement by
World or termination of this Agreement by Fort shall be communicated by written
notice to the other party hereto, specifically indicating the termination
provision relied upon.
(k) COMPANY PROPERTY. At the end of the term described in
Section 2 or in the event of termination under Section 5(d) or (e), Fort shall
return all company property, including electronic and paper files, with the
exception of the car phone(s).
6. CONFIDENTIALITY/RESTRICTIVE COVENANT.
(a) Fort recognizes and acknowledges that financing documents,
trade secrets, new products, copyrights, schedules, costs, performance features,
techniques, plans, methods, business and marketing plans, dealings,
arrangements, objectives, locations, customer information and other information
concerning World's business and business practices not generally known in the
aviation industry, constitute confidential information and represent valuable,
special and unique assets of World ("Confidential Information"). Fort agrees
that he will not, during employment with World or for a period of two (2) years
following termination of employment for any reason, whether voluntary or
involuntary, with or without Cause, disclose any of such Confidential
Information to any person or person not connected with World without World's
prior written approval. The parties hereto stipulate that as between them, the
foregoing matters are important, material, and confidential and gravely affect
the successful conduct of the business of World, and World's good will, and that
any breach of the terms of this paragraph shall be a material breach of this
Agreement.
(b) While employed by World and for a period of two (2) years
following termination of employment for any reason, whether voluntary or
involuntary, with or without Cause, Fort agrees that he shall not,
(i) Request, induce or attempt to induce any customer of
World to terminate any business relationship with World or to seek to establish
a similar business relationship with a person or entity other than World;
(ii) Cause, encourage or in any way assist any person or
entity actively to solicit any aviation business from any customer of World;
(iii) Induce or attempt to induce any of World's employees
to terminate their employment with World, or induce or attempt to induce any of
World's employees to provide aviation related services for any other person,
firm or organization;
(iv) Use any employer Confidential Information as set
forth in paragraph A of this Section or information which is not otherwise
available to the public at large for the purposes of providing aviation related
services for or through any person or entity other than World.
(c) Fort agrees that the restrictions set forth in this
Agreement above are reasonable, proper, and necessitated by legitimate business
interests of World and do not constitute an unlawful or unreasonable restraint
upon Fort's ability to earn a livelihood. The parties agree that in the event
any of the restrictions in this Agreement, interpreted in accordance with the
Agreement as a whole, are found to be unreasonable by a court of competent
jurisdiction, such court shall determine the limits allowable by law and shall
enforce the same. If the court declines such enforcement, the parties agree that
this agreement shall be interpreted to provide World with the maximum protection
allowed by law.
(d) Fort acknowledges that it may be impossible to assess the
monetary damages incurred by his violation of this Agreement, or any of its
terms, and that any threatened or actual violation or breach of this Agreement,
or any of its terms, will constitute immediate and irreparable injury to World.
Therefore, Fort expressly agrees that in addition to any and all other damages
and remedies available to World as a result of Fort's breach of this Agreement,
World shall be entitled to an injunction restraining Fort from violating or
breaching this Agreement, or any of its terms. In the event World enforces this
Agreement through Court Order, Fort agrees that the restrictions contained in
this Agreement shall remain in effect for a period of twelve (12) consecutive
months from the effective date of such Order enforcing the Agreement.
<PAGE>
7. BENEFICIARY. The Beneficiary of any payment due and payable at the
time of Fort's death, or otherwise due upon his death, shall be his wife, or
such other person or persons as Fort shall designate in writing to World. If no
such beneficiary shall survive Fort, any such payments shall be made to his
estate.
8. INTELLECTUAL PROPERTY.
(a) Any improvements, new techniques, processes, products or
copyrightable materials made or conceived by Fort, either solely or jointly with
other person(s), (1) during Fort's period of employment by World, during working
hours; (2) during the period after termination of his employment during which he
is retained by World as a consultant; or (3) with use of World's intellectual
property or confidential information, shall be the sole and exclusive property
of World without royalty or other consideration to Fort.
(b) Fort agrees to inform World promptly and in full of such
intellectual property by a full written report setting forth in detail the
procedures used and the results achieved.
(c) Fort shall at World's request and expense execute any and
all applications, assignments, or other instruments which World shall deem
necessary to apply for, register, and/or obtain copyrights or Letters Patent of
the United States or of any foreign country, or to otherwise protect World's
interests in such intellectual property.
(d) Fort shall assign and does hereby assign to World all
interests and rights, including but not limited to copyrights, in any such
intellectual property.
9. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
under the commercial arbitration rules of the American Arbitration Association.
10. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
11. GOVERNING LAW. This Agreement is governed by and shall be construed
in accordance with the laws of the State of Virginia. Fort agrees to submit to
personal jurisdiction in the State of Virginia.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
13. SUCCESSORS. This Agreement shall be binding upon World, its
successors and assigns, including any corporation or other business entity which
may acquire all or substantially all of World's assets or business, or within
which World may be consolidated or merged, or any surviving corporation in a
merger involving World.
14. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of
this Agreement shall be valid unless in writing and duly executed by both
parties.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
WORLD AIRWAYS, INC.
By: ____________________________
Russell L. Ray, Jr.
President and CEO
____________________________
Vance Fort
