Based on a closing sales price of $4.15 per share on March 2, 2001, the aggregate market value of the voting stock held by non-affiliates of AirNet Systems, Inc., was approximately $31,539,000. As of that date, 10,921,708 common shares of AirNet Systems, Inc., were issued and outstanding.
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 8, 2001, are incorporated by reference into Part III of this Annual Report on Form 10-K.
ITEM 1 - BUSINESS
OVERVIEW OF AIRNET'S BUSINESS
AirNet Express-SM-, the integrated national air transportation network of AirNet Systems, Inc., operates between 100 cities and 43 states and delivers over 20,000 time-critical shipments each working day. AirNet's check delivery service, which generates approximately 74% of AirNet's revenues, is the leading transporter of cancelled checks and related information for the U.S. banking industry, meeting more than 2,200 daily deadlines. AirNet's express service, which generates approximately 26% of AirNet's revenues, provides specialized, high priority delivery service for customers requiring late pick-ups and early deliveries combined with prompt, on-line delivery information. AirNet's fixed base operations, which account for less than 1% of AirNet's revenues, offer retail aviation fuel sales and related ground services for customers in Columbus, Ohio. In 2001, AirNet has begun offering a broader array of on-demand charter flights through a newly-created Aviation Services Division. Financial information pertaining to AirNet's segments can be found in Note 1 to AirNet's Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
AirNet currently operates a fleet of 119 aircraft (32 Learjets and 87 light twin engine aircraft), that fly approximately 110,000 miles per operating night, primarily Monday through Thursday. On-demand charter services are offered 24 hours per day, seven days per week. AirNet also provides ground pick-up and delivery services throughout the nation seven days per week, using a combination of company personnel and a network of over 300 vendors and independent contractors. AirNet's integrated air and ground network provides support for its base customers, primarily concentrated in the banking, medical and critical parts industries. AirNet also uses commercial airlines to provide SameDay delivery service for some of its check delivery and express delivery customers. Later pick-ups and earlier deliveries than those offered by other national carriers are the differentiating characteristics of AirNet's time-critical delivery network. In order to maintain this performance, AirNet uses a number of proprietary customer service and management information systems to track, sort, dispatch and control the flow of checks and small packages throughout AirNet's delivery system. Delivery times and selected shipment information are available on-line and through the Internet.
AirNet intends to capitalize on time-critical segments, such as medical, radioactive pharmaceutical and just-in-time inventories, in which its airline offers customers competitive advantages in their industries. AirNet's airline affords unique delivery capabilities to a limited number of shippers and we intend to broaden those capabilities and markets. We believe our flexible and reliable air network and demonstrated expertise in providing time-critical deliveries to the banking industry for over 26 years position us to provide these services.
AirNet Systems, Inc. was incorporated under the laws of the State of Ohio on February 15, 1996. AirNet's principal executive offices are located at 3939 International Gateway, Columbus, Ohio 43219, and our telephone number is (614) 237-9777. AirNet's web site address is www.airnet.com.
BUSINESS STRATEGY
In addition to operating its divisions as business units, the principal components of AirNet's operating and growth strategy are as follows:
INCREASE YIELDS ON AIRCRAFT THROUGH CAPACITY MANAGEMENT
AirNet intends to leverage the use of its aircraft by attracting high-volume express customers who benefit from the airline's multiple late night departures and early morning arrivals. During 2000, AirNet implemented a regional operational and sales structure. This structure is designed to focus sales efforts on intra-regional sales, where a substantial portion of the airline's current capacity resides. In addition, sales and marketing efforts are focused on selling to logistics concerns such as wholesalers, forwarders, integrators and third-party-logistic providers (3PL's), who can benefit from AirNet's unique air services as they continually seek new, high-speed solutions for their customers.
FOCUS ON SERVICE TO THE MEDICAL INDUSTRY
AirNet currently holds an exemption certificate from the Department of Transportation (DOT 7060 Exemption) that allows our aircraft to transport higher volumes of defined radioactive materials than most other carriers. As one of only three air carriers in the United States holding such an exemption, we intend to aggressively market our services to producers of radioactive pharmaceuticals. These products have short half-lives, whereby the product's effectiveness and dosage potential are reduced exponentially over time. AirNet believes this 7060 Exemption, coupled with our multiple reflex hub system, gives our radioactive pharmaceutical customers a significant time and cost savings advantage over using other carriers.
PERFORMANCE MEASUREMENTS
AirNet's corporate strategy sets the direction for its operational and financial achievements. Management recognizes that this begins with each team understanding the stated goals and empowering team members to make meaningful contributions to our corporate results. In order to enhance AirNet's performance culture, the company has begun to measure every element of performance - not just operational performance. Every team member is part of the pay-for-performance incentive compensation plan. Individuals are measured against other individual, department and corporate goals. Team Members are evaluated and rewarded for making tangible improvements.
FLIGHT OPERATIONS
AirNet's flight operations are headquartered in Columbus, Ohio. AirNet utilizes an extensive screening process to evaluate potential pilots prior to hiring. These pilots meet stringent company qualifications, as well as all required Federal Aviation Administration requirements. All new pilots must satisfactorily complete a five-week training program conducted by AirNet's flight training staff prior to assignment of pilot duties. This training program includes one week of flight simulator training prior to any actual flight time in an aircraft, as well as intensive ground instruction. Additionally, many new pilots apprentice as co-pilots in order to gain a familiarity with AirNet's route system and the unique demands of night flying.
AirNet's central dispatch system ties together all components of the air operation. Departure and arrival times are continuously updated, and weather conditions throughout the nation are constantly monitored. AirNet dispatchers remain in constant contact with pilots, outbased hub managers, fuelers, maintenance and ground delivery personnel to ensure that no gaps exist in the delivery process. AirNet also uses commercial airlines, primarily to transport shipments during the daytime and weekend hours when our aircraft typically do not operate. Operations personnel utilize FLIGHTTRAX, a computerized flight tracking system that allows them to track the status of every AirNet and commercial flight in the country and schedule ground pick-up and delivery personnel appropriately.
AIRCRAFT FLEET
AirNet owns and operates a fleet of 119 aircraft. AirNet's fleet was comprised of the following aircraft at December 31, 2000:
MAXIMUM MAXIMUM MAXIMUM
PAYLOAD (1) RANGE (2) SPEED (3)
AIRCRAFT TYPE NUMBER (LBS.) (N. MILES) (KNOTS)
------------- ------ ------ ---------- --------
Learjets, Model 35/35A 28 4,200 2,000 440
Learjets, Model 25 4 3,500 1,000 440
Piper Navajo Chieftain 17 1,500 800 175
Piper Aerostar 13 1,000 900 190
Beech Baron 41 1,000 700 180
Cessna 310 16 900 600 170
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(1) Maximum payload in pounds for a one-hour flight plus required fuel
reserves.
(2) Maximum range in nautical miles, assuming zero wind, full fuel and full payload.
(3) Maximum speed in knots, assuming full payload.
The Learjet is among the fastest, most reliable and most fuel efficient small jet aircraft available in the world. Although not currently required by regulations, the Learjet 35 meets all Stage Three noise requirements currently being implemented across the country. The Learjet 25 is a smaller aircraft with slightly smaller payload and range capabilities. We intend to either modify our Learjet 25 aircraft with approved hush kits, allowing them to operate more quietly with respect to the noise sensitive communities surrounding most airports, or to phase them out of scheduled operations and replace them with the more efficient Learjet 35 or other Stage Three compliant aircraft.
AirNet's fleet is positioned around a highly efficient and flexible national route structure designed to facilitate late pick-up and early delivery times, minimize delays and simplify flight scheduling. AirNet's hub-and-spoke system, with a primary hub in Columbus, Ohio and several mini-hubs across the nation (Atlanta, Chicago, Charlotte, Dallas, Denver, Des Moines and New York), allow AirNet to match the varying load capacities of its aircraft with the shipment weight and volume of each destination city and to consolidate shipments at its hubs. The hubs are located primarily in less congested regional airports. These locations, in conjunction with AirNet's off-peak departure and arrival times, provide easy take-off and landings, convenient loading and unloading, and fast refueling and maintenance.
AirNet acquires and operates pre-owned aircraft, typically between 20 and 25 years old. These aircraft are reasonably priced and are relatively modern, as they have undergone no significant design changes in the last 25 years. Further, when appropriately maintained these aircraft show little or no evidence of erosion in performance.
GROUND SUPPORT OPERATIONS
Shipments are typically picked up by AirNet couriers and delivered to the originating airport where shipments are loaded into aircraft by AirNet ground crews. Upon arrival at the main hub in Columbus, Ohio, packages are off-loaded, fine sorted by destination and reloaded onto the aircraft. During the thirty to forty minute sort period, the aircraft is refueled by AirNet ground support personnel. Fueling operations include trained fuelers and ground support equipment, including six fuel trucks and approximately 86,500 gallons of fuel storage capacity. Outbased fueling of aircraft is typically performed by contracted fixed base operators at the local airports.
DELIVERY SERVICES
AirNet manages its ground services through a combined use of employed team member couriers and over 300 outside independent contractor and vendor couriers. Team members are typically utilized on the scheduled routes that occur each operational day. Independent contractors and vendors are typically used for ad hoc pick-up and delivery services, allowing AirNet to better match its ground costs with its volume streams.
A typical shipment is picked up from the sending bank or an express customer by a courier. Cancelled check shipments are pre-sorted by bank personnel and bundled as to final destination using AirNet-supplied, color-coded bags. Express shipments are packaged in either AirNet-provided packaging or the customers' packaging with an AirNet airbill. The shipment is then transported to the local airport where it enters AirNet's air transportation system and is scanned via bar code technology, which reads information pertaining to the shipper, receiver, airbill number and applicable deadline. This data is then downloaded into AirNet's ComCheck or AirNet Connect computer system, where it is available to AirNet's customer service representatives ("CSRs").
Upon arrival at AirNet's Columbus hub or one of its mini-hubs, the shipment is off-loaded, sorted by destination and reloaded onto company aircraft. At the destination city, the shipment is off-loaded for the final time and delivered by courier to the receiver. When delivered, the shipment is once again scanned and downloaded into AirNet's computer system. Delivery information for all shipments is then available on-line to the customers and all CSRs. AirNet's customer service department is available to handle any inquiries, discrepancies or supply requests, as well as provide proof of delivery documentation, all of which are value-added features of AirNet's service.
AirNet's air and scheduled ground system is designed around three sets of banking deadlines and customized express deadlines. Basic deadlines, which have a 9:30 p.m. - 10:00 p.m. hub time in Columbus, provide delivery service between 12:01 a.m. and 2:00 a.m. to approximately the northeastern third of the nation. Premium deadlines, which have an 11:00 p.m. - 11:30 p.m. hub time in Columbus and Charlotte, provide delivery service at approximately 3:00 a.m. to the eastern half of the nation. Finally, City deadlines, which have a 4:00 a.m. -5:30 a.m. hub time in Columbus, provide delivery service at approximately 8:00 a.m. to all cities served by the network.
AirNet has historically, priced its check delivery services based on the tier of service and by the pound, on a customer by customer basis. In 2001, AirNet intends to modify its pricing strategy for such services by incorporating distance based pricing.
AirNet operates a fleet of approximately 200 ground transportation vehicles. Historically, AirNet has owned all of its ground vehicles. However, in 2001, we entered into a leasing agreement with a third party provider and intend to replace our current vehicles with leased vehicles, as necessary. Vehicles range in size from passenger cars to full sized vans. AirNet also rents lightweight trucks for certain weekend ground routes. Dispatching functions related to ground delivery services occur at both the Columbus, Ohio hub and on a local basis in some of the major cities served.
AirNet's SameDay service provides cancelled check delivery services to banking customers meeting daytime banking deadlines and to other express customers requiring next-flight-out timing. These shipments are typically picked up by AirNet couriers and transported via commercial airlines to destination cities, where couriers accept the packages and deliver them to the destinations.
CUSTOMERS
The highly specialized needs of AirNet's customer base combined with AirNet's performance level over the years have resulted in a high level of customer retention in the check delivery area. This customer retention level, in turn, creates a level of stability in AirNet's revenue base that allows for product development and continued dedication of resources to providing the highest possible level of service to customers. The U.S. banking industry, including commercial banks, savings banks and Federal Reserve banks, represents AirNet's largest category of customers and in 2000, accounted for approximately 74% of its revenues. This customer list represents over 100 of the nation's largest bank holding companies. AirNet's time-critical cancelled check delivery service allows its banking customers to offer competitive products and pricing.
Express delivery customers, which accounted for 26% of AirNet's 2000 revenues, include industrial and service corporations, entertainment companies, medical companies, national integrated carriers and consolidating freight forwarders. Although AirNet maintains a base of express delivery customers who ship nightly and have a high level of retention, we are also expanding services to retail customers who tend to ship less frequently. No single customer accounted for more than 10% of AirNet's 2000 revenues.
HUMAN RESOURCES
AirNet aggressively compensates for performance, with excellent performance recognized and rewarded through a company-wide incentive-based compensation program. Programs are designed to improve individual, departmental and corporate performance.
All AirNet personnel are part of the company-wide drug-testing program. Management believes this program, which goes beyond the requirements of AirNet's regulators, helps to ensure the highest possible performance levels. The management training and professional development seminars are periodically held for, and attended by, all levels of company personnel.
The chart below summarizes AirNet's workforce at December 31, 2000, 1999 and 1998. AirNet's associates are not represented by any union or covered by any collective bargaining agreement. AirNet has experienced no work stoppages and believes that its relationship with associates is good.
As of December 31,
Department 2000 1999 1998
---------- ---- ---- ----
Management/Administration 328 335 249
Flight 177 160 164
Maintenance 68 77 73
Driver/Courier/Ramp/Sort 538 713 724
---------- ----- ----- -----
Total 1,111 1,285 1,210
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COMPETITION
The air and ground courier industry is highly competitive. AirNet's primary competitor in the transportation of cancelled checks is the Federal Reserve's Check Relay Network. The actions of the Federal Reserve are regulated by the Monetary Control Act, which requires the Federal Reserve to price its services at actual cost plus a private sector adjustment factor. AirNet believes that the purpose of the Monetary Control Act is to curtail the possibility of predatory pricing by the Federal Reserve when it competes with the private sector. No assurance beyond the remedies of law can be given that the Federal Reserve will comply with the Monetary Control Act.
In the private sector, there are a large number of smaller, regional carriers that transport cancelled checks, none with a significant interstate market share. The two largest private sector air couriers, Federal Express Corporation ("FedEx") and United Parcel Service ("UPS"), both carry cancelled checks where the deadlines being pursued fit into their existing system, but this has not represented a significant market share of this industry market to date. AirNet provides customized service for its customer base, often with later pick-ups and earlier deliveries than the large, national couriers. Both FedEx and UPS utilize AirNet's transportation network for certain situations where they require customized service.
AirNet competes with commercial airlines and numerous other carriers in its express delivery business. AirNet estimates its market share in this industry at less than 1%. AirNet believes that this market represents a significant expansion opportunity for ultra time-critical shipments requiring later pick-ups or earlier deliveries than are typically provided by major integrators and freight forwarders. AirNet believes that it is in an excellent position to leverage the use of its unique air network system, its proprietary information technology and its historically high on-time performance level to compete in this market.
REGULATION
AirNet is regulated under Part 135 of the Federal Aviation Regulations by the Federal Aviation Administration. Additionally, AirNet obtained a 7060 exemption from the U.S. Department of Transportation, which allows transportation of increased volumes of certain radioactive materials on AirNet's airline. AirNet holds nationwide general commodities authority from the Interstate Commerce Commission to operate as a common carrier on an interstate basis within the contiguous 48 states. AirNet's delivery operations are subject to various state and local regulations, and in many instances, require permits and licenses from state authorities.
ENVIRONMENTAL MATTERS
AirNet believes that compliance with applicable laws and regulations governing environmental matters has not had, and is not expected to have, a material effect on AirNet's capital expenditures, operations or competitive position. Although AirNet believes that it is in compliance with all applicable noise level regulations and is working proactively with various local governments to minimize noise issues, future noise pollution regulations could require the replacement of several of AirNet's aircraft.
ITEM 2 - PROPERTIES
AirNet owns its corporate and operational headquarters at 3939 International Gateway in Columbus, Ohio. The building sits on land owned by the Port Authority of Columbus. AirNet has a 25-year land lease with the Port Authority, which expires on December 31, 2009 and contains a 20-year renewal option. The complex has 80,000 square feet, of which AirNet utilizes approximately 70,000 square feet. The remainder is subleased to unrelated third parties. AirNet's headquarters is currently used for operations, aircraft maintenance, vehicle maintenance, general and administrative functions, and training.
AirNet leases additional space at 4700 East Fifth Avenue, also located on Port Authority land. The space is used for administrative support personnel. AirNet operates at approximately 40 additional locations throughout the country. These locations, which are leased from unrelated third parties, generally include office space and/or a section of the lessor's hangar or ramp.
For additional information concerning AirNet's leases, see Note 7 to AirNet's Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data.
ITEM 3 - LEGAL PROCEEDINGS
On April 6, 2000, AirNet filed an action in the United States District Court for the District of Maryland seeking to recover on a $0.5 million debt owed to it by Continental Courier Systems, Inc. for overnight courier services performed. On April 27, 2000, Continental answered AirNet's complaint, denying any indebtedness to AirNet and asserting several counterclaims, including violations of federal antitrust laws and state law claims of fraud and tortious competition. Continental is seeking up to $0.8 million on each claim and is seeking treble damages on the antitrust claims. AirNet filed a motion to dismiss all of the counterclaims. The Court ruled on AirNet's motion to dismiss and dismissed several of the asserted counterclaims but not the antitrust claims. AirNet believes that those counterclaims not yet dismissed are without merit and intends to vigorously defend against them. At this time, AirNet does not believe it is feasible to predict the outcome of either AirNet's claims or Continental's counterclaims. The timing of the final resolution is also uncertain and settlement negotiations are being conducted.
There are no other pending legal proceedings involving AirNet other than routine litigation incidental to its business. In the opinion of AirNet's management, these proceedings should not, individually or in the aggregate, have a material adverse effect on AirNet's results of operations or financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table identifies the executive officers of AirNet as of March 2, 2001. The executive officers serve at the pleasure of the Board of Directors.
NAME AGE POSITIONS
---- --- ---------
Gerald G. Mercer 53 Chairman of the Board
Joel E. Biggerstaff 44 Chief Executive Officer, Chief Operating Officer
and President
William R. Sumser 45 Chief Financial Officer, Treasurer, Secretary and
Vice President, Finance
Jeffery B. Harris 41 Senior Vice President, Sales
Guy S. King 48 Vice President, Sales
Craig A. Leach 44 Vice President, Information Systems
Stephen K. Lister 41 Vice President, Airline Operations
Wynn D. Peterson 37 Vice President, Corporate Development
Kendall W. Wright 53 Vice President, Sales
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Gerald G. Mercer has served as Chairman of the Board of AirNet since founding the company in 1974. He served as Chief Executive Officer from AirNet's inception until April 2000 and was President from 1974 to 1999. He won Ohio's "Entrepreneur of the Year" Award in 1996 and has been a member of the Young Presidents' Organization since 1986.
Joel E. Biggerstaff has served as AirNet's Chief Executive Officer since April 2000 and as President and Chief Operating Officer since August 1999. Prior to joining AirNet, Mr. Biggerstaff served as President of the Southern Region of Corporate Express Delivery Systems, a national expedited distribution service, from February 1998 through July 1999. From September 1996 through February 1998, Mr. Biggerstaff provided transportation consulting services and prior to September 1996, he held various positions within Ryder System, Inc., including Regional Vice President and General Manager.
William R. Sumser has served AirNet as the Chief Financial Officer since January 1, 2000, as Treasurer since March 1999, and as the Vice President, Finance and Secretary since March 1996. He also served as Controller from 1988 through 1999.
Jeffery B. Harris has served AirNet as Senior Vice President, Sales since May 2000 and as Vice President, Sales in the banking division since October 1997. Prior to joining AirNet in June 1996 as the Relationship Manager for Banking Sales, Mr. Harris served as Vice President and Senior Transit Product Manager for Mellon Bank, N.A. from 1994 to 1996.
Guy S. King has served as Vice President, Sales for AirNet since 1989. Prior to 1989, Mr. King served AirNet in numerous functions dating back to 1976, including dispatcher and pilot, before eventually founding AirNet's express delivery division in 1984. Mr. King has served on the Board of Directors of the Air Courier Conference of America since 1993.
Craig A. Leach has served as Vice President, Information Systems since January 2000. Mr. Leach established AirNet's Information Systems Department in 1985 and was named Director of Information Systems in 1996.
Stephen K. Lister was appointed Vice President, Airline Operations in February 2001. Mr. Lister has served AirNet in a variety of capacities since 1982.
Wynn D. Peterson, CFA, has served as Vice President, Corporate Development since February 2000. He joined AirNet in 1997 as Manager of Corporate Development. Prior to joining AirNet, Mr. Peterson served as a Portfolio Manager for Deseret Mutual from 1993 to 1997.
Kendall W. Wright has served as Vice President, Sales for AirNet since 1988.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common shares of AirNet Systems, Inc. trade on the New York Stock Exchange under the symbol "ANS". The table below sets forth the high and low sales prices of the common shares reported for the periods indicated.
2000 1999
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
March 31 $6.94 $4.63 $14.38 $6.63
June 30 5.50 3.38 14.00 7.50
September 30 5.38 4.38 13.88 9.00
December 31 4.56 3.06 9.56 4.63
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AirNet has not paid any dividends on its common shares and does not intend to pay any dividends in the foreseeable future. AirNet anticipates using future earnings to finance operations and future growth and development. Restrictive covenants in AirNet's revolving credit facility impose limitations on the payment of dividends. These covenants prohibit AirNet from paying cash dividends on its common shares in excess of 50% of net income.
On March 2, 2001, there were approximately 2,000 holders of AirNet common shares, based upon the number of holders of record and the number of individual participants in certain security position listings.
ITEM 6 - SELECTED FINANCIAL DATA
Three Months
STATEMENT OF OPERATIONS DATA Years Ended Year Ended Ended
(in thousands, except per share data) December 31, September 30, December 31,
---------------------------------------------- ------------- ------------
2000 1999 1998 1997 1996 1996
NET REVENUES
Check delivery $ 100,070 $ 98,951 $ 93,206 $ 80,707 $ 65,025 $ 16,811
Express delivery 34,483 28,714 19,109 15,660 13,864 3,614
Fixed base and other operations 650 1,033 1,366 1,395 1,063 366
--------- --------- --------- --------- --------- ---------
TOTAL NET REVENUES 135,203 128,698 113,681 97,762 79,952 20,791
--------- --------- --------- --------- --------- ---------
Costs and Expenses
Air transportation 103,489 97,315 82,793 66,031 53,797 14,383
Fixed base operations 1,103 1,089 853 1,101 1,033 309
Selling, general, and administrative 16,112 17,237 13,782 8,551 11,875 1,916
--------- --------- --------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 120,704 115,641 97,428 75,683 66,705 16,608
--------- --------- --------- --------- --------- ---------
Income from operations 14,499 13,057 16,253 22,079 13,247 4,183
Acquisition termination charge (Note 1) -- -- 5,570 -- -- --
Interest expense 2,283 2,477 1,336 109 1,072 10
Offering-related, non-recurring expenses
(Note 2) -- -- -- -- 13,704 --
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes 12,216 10,580 9,347 21,970 (1,529) 4,173
--------- --------- --------- --------- --------- ---------
Income tax expense, net (Note 3) 4,961 4,308 3,711 8,767 4,200 1,688
--------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
accounting change 7,255 6,272 5,636 13,203 (5,729) 2,485
--------- --------- --------- --------- --------- ---------
Cumulative effect of accounting change, net
of tax (Note 4) -- (2,488) -- -- -- --
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 7,255 $ 3,784 $ 5,636 $ 13,203 ($ 5,729) $ 2,485
--------- --------- --------- --------- --------- ---------
Income per common share
Income before cumulative effect of
accounting change $ 0.66 $ 0.55 $ 0.46 $ 1.05
Cumulative effect of accounting change,
net of tax -- (0.22) -- --
Net income $ 0.66 $ 0.33 $ 0.46 $ 1.05
Income per common share - assuming dilution
Income before cumulative effect of
accounting change $ 0.66 $ 0.55 $ 0.46 $ 1.04
Cumulative effect of accounting change,
net of tax -- (0.22) -- --
Net income $ 0.66 $ 0.33 $ 0.46 $ 1.04
Pro forma information - unaudited (Note 5)
Net loss before taxes ($1,529)
Pro forma adjustments, other than income taxes 4,429
Pro forma income taxes 5,618
Pro forma net loss ($2,718)
Pro forma net loss per share
- basic and assuming dilution ($0.34)
Adjusted pro forma information - unaudited
Pro forma net loss ($2,718)
Effects of eliminating offering-related,
non-recurring expense, net of tax (Note 2) 12,681
Adjusted pro forma net income $9,963
Adjusted pro forma net income per share (Note 6) $0.80
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BALANCE SHEET DATA (in thousands) Total assets $ 122,533 $ 127,281 $ 127,129 $ 103,986 $ 75,866 $ 79,495 Total debt 22,719 33,948 35,506 9,730 197 111 Shareholders' equity 78,845 73,751 69,674 80,260 66,287 70,719 |
NOTE 1 Represents costs incurred as a result of the termination of a planned acquisition of Q International Courier, Inc. ("Quick"). The agreement was terminated in June 1998, resulting in a $2.4 million charge related to costs incurred during merger negotiations and a $3.2 million charge related to the settlement of a lawsuit filed by Quick.
NOTE 2 Represents non-cash, non-recurring expenses incurred as a result of AirNet's initial public offering (the "Offering"), effective May 31, 1996.
NOTE 3 Prior to the Offering, AirNet operated as an S corporation under the Internal Revenue Code for tax purposes and, consequently, was not subject to federal and certain state income taxes, except for the portion of income (loss) related to the operations of Express Convenience Center, Inc.
NOTE 4 See Note 2 to AirNet's Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data for pro forma disclosure relating to prior periods presented.
NOTE 5 Includes pro forma adjustments related to the Offering. Such adjustments reflect restructured executive compensation plans, the elimination of a deferred compensation plan, the reduction of interest expense and the termination of a covenant not to compete and corresponding payments as if the events occurred at the beginning of the period. All such changes were effective with the consummation of the Offering on May 31, 1996.
NOTE 6 Assumes shares issued in the Offering were outstanding for the entire period.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS AIRNET SYSTEMS, INC.
GENERAL
AirNet's consolidated financial statements have been and will be affected by the following factors:
ACQUISITION
On August 11, 1998, AirNet acquired all of the outstanding common stock of Mercury Business Services, Inc., an express delivery management service located in Boston, Massachusetts, for 117,647 AirNet common shares and approximately $2.0 million cash. The results of operations of Mercury have been included in the financial data since its date of acquisition.
ACQUISITION TERMINATION CHARGE
On June 17, 1998, AirNet announced that it had terminated an agreement to acquire Q International Courier, Inc. ("Quick"). AirNet incurred $2.4 million of costs in conjunction with the planned acquisition, all of which were expensed upon the termination of the agreement. Subsequent to the termination of the agreement, AirNet agreed to settle a lawsuit filed by Quick in connection with the termination of the acquisition. Settlement and litigation costs related to the suit totaled approximately $3.2 million and were fully expensed as of December 31, 1998.
START-UP COSTS
In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to July 1, 1998, AirNet capitalized start-up costs associated with its premium products line of business. Effective July 1, 1998, AirNet ceased capitalizing these costs and began amortizing the previously capitalized costs over five years. AirNet adopted the provisions of the SOP in its financial statements as of January 1, 1999.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000
COMPARED TO YEAR ENDED DECEMBER 31, 1999
Total net revenues were $135.2 million for the twelve months ended December 31, 2000, an increase of $6.5 million, or 5.1%, over the twelve months ended December 31, 1999. Net revenues from check delivery increased $1.1 million, or 1.1%. This increase was primarily the result of price increases, effective in January 2000, offset by a 2.6% reduction in shipment volumes.
Net revenues from express delivery increased $5.8 million, or 20.1%, from 1999 to 2000. Price increases to non-contractual customers accounted for approximately $0.9 million of the increase, while an additional $3.5 million can be attributed to the full year addition of a new contract with a new parts fulfillment customer. Charter and hazmat product line revenues doubled to $6.1 million in 2000 from $3.1 million in 1999 primarily due to increased shipments of radioactive pharmaceuticals and related medical products. Of the express delivery increase, $1.6 million can be attributed to increased revenues from the Mercury division, approximately $300,000 of which can be attributed to rate increases with the remainder the result of a 16.2% increase in shipment volume. These increases were offset by volume decreases in the ANX, SDX, wholesale and Standard product lines.
Total costs and expenses were $120.7 million in 2000, an increase of $5.1 million, or 4.4%, over 1999. This resulted in income from operations of $14.5 million in 2000, an increase of 11.0% over 1999 levels. Air transportation expenses increased $6.2 million, or 6.3%, while selling, general and administrative expenses decreased $1.1 million, or 6.5%, over 1999 levels.
The increase in air transportation expenses is partly attributed to increased depreciation expense, which was up $2.3 million over 1999 levels as a result of major engine overhaul additions and aircraft improvements. Maintenance expense was also up $1.2 million due to increased labor and parts costs. AirNet utilizes outside air providers on certain routes. Costs for these charter services increased $1.2 million over 1999 levels. Net fuel expense decreased slightly as the fuel surcharge programs for both check delivery and express delivery customers offset dramatic price increases experienced during the year.
Wage and benefit expense increased $1.2 million, or 7.5%, primarily due to the addition of a company-wide incentive compensation program implemented in 2000. Increased wage rates for flight personnel under an enhanced pilot retention plan were offset by a 29.2% decrease in courier personnel. The decrease in courier personnel is the result of AirNet's strategy to align its ground costs with shipment volumes through the use of vendors and independent contractors. Overall, ground costs were up $1.3 million, or 5.9%, primarily due to the addition of the just-in-time parts customer. Flight training costs increased $0.3 million with the addition of outsourced flight simulator training and the increase in new trainees related to high pilot turnover. These costs were offset by decreased workers' compensation costs compared to 1999 levels.
Selling, general and administrative expenses were down $1.1 million over 1999 levels, which contained approximately $0.9 million in charges for non-recurring outside consulting projects and a $0.4 million bad debt related charge. These reductions were offset slightly by costs associated with the incentive compensation plan for administrative personnel.
Interest costs were $2.3 million in 2000, compared to $2.5 million in 1999. Increased interest rates slightly offset the effects of the $11.2 million in debt reduction.
AirNet recorded tax expense of $5.0 million for 2000 compared to $4.3 million for fiscal 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total net revenues were $128.7 million for the twelve months ended December 31, 1999, an increase of $15.1 million, or 13.2%, over the twelve months ended December 31, 1998. Net revenues from check delivery increased $5.7 million, or 6.2%. This increase was comprised of $1.9 million related to price increases in 1999 and $1.6 million related to operating a full year of the Federal Reserve weekend program, which was introduced in the fourth quarter of 1998. In addition, net revenues increased due to one additional flying day in 1999 compared to 1998, and increased business activity from both new and existing customers.
Net revenues from express delivery increased $9.6 million, or 50.3%, from 1998 to 1999. Of this increase, $4.2 million was due to a whole year of Mercury operations versus a partial year in 1998, as Mercury was acquired in August 1998. $5.3 million of the increase in express delivery revenue was due to growth in premium product shipments requiring specialized AirNet line-haul service, SameDay commercial airline service or hazardous material handling. These increases were offset by lower revenue from wholesale customers (freight forwarders) and customers requiring less time-critical standard service as AirNet continued its sales emphasis on premium services.
Total costs and expenses were $115.6 million in 1999, an increase of $18.2 million, or 18.7%, over 1998. This resulted in income from operations of $13.1 million in 1999, compared to $16.3 million in 1998. Air transportation expenses rose $14.5 million, or 17.5%.
In addition to the effects of capitalizing $0.8 million of start-up costs related to the express delivery business in the first half of 1998 and expensing such costs as incurred in 1999, air transportation costs increased to support growth in the express delivery area and the addition of Federal Reserve shipments to the weekend program. Wages and benefits were up $2.5 million and ground courier costs were up $3.0 million due to additional personnel to support the increased weekend operations and express delivery business growth. Aircraft fuel costs were up 11.3%, or $1.1 million, compared to 1998 as jet and piston fuel prices rose significantly during 1999. Outside services were up $0.3 million due to outsourced routes related to pilot shortages. Depreciation expense was up $1.3 million, or 12.8%, primarily due to airplane overhauls, engine additions and inspections in late 1998 and 1999. Other expense increased $5.2 million primarily due to a $1.5 million increase in workers' compensation costs, $2.9 million increase in commercial freight expense related to a full year of Mercury operations and significant increases in bank and Express shipments shipped via the commercial airlines.
Selling, general and administrative expenses increased by $3.5 million, or 25.1%, compared to 1998. $0.9 million of this increase was a result of expensing start-up costs as incurred in 1999 compared to capitalizing start-up costs in the first half of 1998. Increased expenses of $2.5 million in the administrative payroll areas were a result of the addition of personnel to support growth in AirNet's express service, a full year of Mercury operations, and the hiring of a new president. Commission expense increased in conjunction with Express revenue growth. Additionally, bad debt expense increased $0.4 million due to a dispute with one customer. $0.9 million of the selling, general and administrative increase was related to the use of outside consultants. These increases were offset by decreases in officer severance packages and the one-time cost of a consulting study related to the call center in 1998.
In 1998, AirNet incurred a $5.6 million charge in connection with the write-off of costs associated with the efforts to acquire Quick and the settlement of a related lawsuit. The impact of the one-time $5.6 million charge decreased fully diluted net income per share by $0.27 in 1998. Settlement of the litigation and write-off of the acquisition costs were recorded as of December 31, 1998 resulting in no impact to the 1999 financial results.
Interest costs were $2.5 million in fiscal 1999, compared to $1.3 million in 1998. AirNet increased the average outstanding balance on its revolving credit facility in 1999 primarily as the result of the $20 million stock buyback program executed in the second half of 1998.
AirNet recorded tax expense of $4.3 million for fiscal 1999 compared to $3.7 million for fiscal 1998.
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities totaled $28.6 million for the year ended December 31, 2000, compared to $19.5 million for the year ended December 31, 1999. The significant increase is attributed to improved operations and the 2000 sale of an aircraft held in inventory at the end of 1999.
CURRENT CREDIT ARRANGEMENTS
AirNet maintains a credit agreement with a bank that provides a $50.0 million unsecured revolving credit facility which is scheduled to expire on August 1, 2003. The credit agreement limits the availability of funds to designated percentages of accounts receivable, inventory and the wholesale value of aircraft and equipment. In addition, the credit agreement requires the maintenance of minimum net worth and cash flow levels, imposes limits on payments of dividends to 50% of net income and restricts the amount of additional debt which may be incurred. AirNet's outstanding balance at December 31, 2000 was $22.7 million, which is an $11.2 million decrease from the balance at December 31, 1999.
In September 1999, AirNet entered into two interest rate swap agreements with a bank as a hedge against the interest rate risk associated with AirNet's borrowings. The swap agreements each have a notional amount of $5.0 million and effectively lock in a portion of AirNet's variable rate revolving credit liability at fixed rates of 6.3% and 6.5% plus a margin based on AirNet's funded debt ratio. These swap agreements are in effect for a period of three years ending in September 2002. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense in the statements of operations. AirNet does not use derivative financial instruments for speculative purposes. At December 31, 2000, the aggregate fair value of these interest rate swaps was approximately ($105,000).
INVESTING ACTIVITIES
Capital expenditures totaled $15.8 million for the year ended December 31, 2000 compared to $17.6 million in 1999. Substantially all of the 2000 expenditures were incurred for aircraft inspections, major engine overhauls and related flight equipment. AirNet anticipates it will have approximately $16.0 million in total capital expenditures in 2001 and will continue to acquire aircraft and flight equipment as necessary to maintain growth and continue offering quality service to its customers.
AirNet announced a new stock repurchase program in February 2000 allowing AirNet to purchase up to $3.0 million of its common shares. In 2000, AirNet repurchased 547,400 common shares for approximately $2.4 million. The estimated impact of these purchases in 2000 was an increase to net income per share of $0.03. Management and the Board of Directors believe that AirNet's common shares represent an excellent value and an appropriate investment. Future purchases of these common shares will be made over time in the open market or through privately negotiated transactions.
AirNet anticipates that operating cash and capital expenditure requirements will continue to be funded by cash flow from operations, cash on hand and bank borrowings.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
AirNet's operations historically have been somewhat seasonal and somewhat dependent on the number of banking holidays falling during the week. Because financial institutions are currently AirNet's principal customers, AirNet's air system is scheduled primarily around the needs of financial institution customers. When financial institutions are closed, there is no need for AirNet to operate a full system. AirNet's fiscal quarter ending December 31 is often the most impacted by bank holidays (including Thanksgiving and Christmas) recognized by its primary customers. When these holidays fall on Monday through Thursday, AirNet's revenue and net income are adversely affected. AirNet's annual results fluctuate as well.
Operating results are also affected by the weather. AirNet generally experiences higher maintenance costs during its fiscal quarter ending March 31. Winter weather often requires additional costs for de-icing, hangar rental and other aircraft services.
The following is a summary of the unaudited quarterly results of operations for the quarterly periods ended (in thousands, except per share data):
Quarters Ended,
-----------------------------------------------
March June September December
31 30 30 31
-------- -------- ---------- -----------
2000
Net revenues $ 33,674 $ 34,825 $ 33,775 $ 32,930
Income from operations 2,915 3,865 3,847 3,872
Net income 1,374 1,966 1,971 1,944
Net income per share - basic and
assuming dilution $ .12 $ .18 $ .18 $ .18
1999
Net revenues $ 30,522 $ 31,766 $ 33,538 $ 32,872
Income from operations 3,510 4,298 2,265 2,984
Income before cumulative effect of
accounting change 1,714 2,184 993 1,381
Cumulative effect of accounting
change, net of tax (2,488) -- -- --
-------- -------- ---------- -----------
Net income (loss) ($ 774) $ 2,184 $ 993 $ 1,381
Income per share
Income before cumulative effect of
accounting change $ .15 $ .19 $ .09 $ .12
Cumulative effect of accounting
change, net of tax (.22) -- -- --
-------- -------- ---------- ----------
Net income (loss) (.07) .19 .09 .12
Income per share - assuming dilution
Income before cumulative effect of
accounting change .15 .19 .09 .12
Cumulative effect of accounting
change, net of tax (.22) -- -- --
-------- -------- ---------- ----------
Net income (loss) ($ .07) $ .19 $ .09 $ .12
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INFLATION
Historically, inflation has not been a significant factor to AirNet. Although the value of AirNet's service to its primary customers is enhanced by higher interest rates, the volume of business has not changed historically with fluctuating interest rates. AirNet has attempted to minimize the effects of inflation on its operating results through rate increases and cost controls.
FUEL SURCHARGE/REBATE PROGRAM
AirNet maintains a fuel surcharge/rebate program for its check delivery customers. Under this program, as the OPIS-CMH (Ohio Price Information Service -Columbus, Ohio Station) price of jet fuel exceeds $0.75 per gallon, customers are surcharged. In turn, if the OPIS-CMH price falls below $0.60 per gallon, the same customers receive a rebate. Due to the recent increases in fuel prices, AirNet also implemented temporary fuel surcharges to its express delivery customers. The initial surcharge rate was set at 2% on most air and ground charges on February 6, 2000. In September 2000, the rate was increased to 4%. AirNet intends to rescind the surcharge when fuel prices return to lower, more stabilized levels.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-K, including, but not limited to, information regarding future economic performance and plans and objectives of AirNet's management, are forward-looking statements which involve risks and uncertainties. When used in this document, the words "anticipate," "estimate," "expect," "may," "plan," "project" and similar expressions are intended to be among statements that identify forward-looking statements. These statements involve risks and uncertainties such as the following, in addition to other factors not listed, which could cause actual results to differ materially from any forward-looking statement: potential changes by the FAA, which could increase the regulation of AirNet's business; potential changes by the Federal Reserve, which could change the competitive environment of transporting cancelled checks; adverse weather conditions; the ability to attract and retain qualified pilots; technological advances and increases in the use of electronic funds transfers; as well as other economic, competitive and governmental factors affecting AirNet's markets, prices and other facets of its operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. AirNet undertakes no responsibility to update for changes related to these or any other factors that may hereafter occur. The following factors, in addition to those factors listed above and other possible factors not listed, could affect AirNet's actual results and cause such results to differ materially from those expressed in forward-looking statements:
COMPETITION
The market for express air and ground delivery service is highly competitive. AirNet's bank services division competes primarily against the Federal Reserve Bank's Check Relay Network, which has significantly greater financial and other resources than AirNet. The Federal Reserve is regulated by the Monetary Control Act of 1980, which in general requires that the Federal Reserve price its services on a cost basis plus a set percentage private sector market adjustment factor. Failure by the Federal Reserve to comply with the Monetary Control Act could have an adverse competitive impact on AirNet. In addition, there can be no assurance that the Monetary Control Act will not be amended, modified or repealed, or that new legislation affecting AirNet's business will not be enacted. Although major participants in the next-day and second-day air delivery market (such as UPS and FedEx) have also entered the business of SameDay and early morning delivery, they have not had a material adverse effect on AirNet's business to date. However, there can be no assurance that these competitors will not have a material adverse effect in the future.
TECHNOLOGY
Some analysts have predicted that the increased use of electronic funds transfers will lead to a "checkless society," which could adversely affect the demand for AirNet's check delivery services to the financial services industry. In addition, some financial services industry analysts have predicted the development of various forms of imaging technology that could reduce or eliminate the need for prompt delivery of cancelled checks. Similarly, technological advances in the nature of "electronic mail" and "telefax" have affected the demand for on-call delivery services by express delivery customers. While none of these technological advances have had a significant adverse impact on AirNet's business to date, there can be no assurances that these or similar technologies, or other regulatory or technological changes in the check clearance and national payment systems, will not have an adverse affect on AirNet's business in the future.
PERMITS AND LICENSING; REGULATION
AirNet's delivery operations are subject to various federal, state and local regulations that in many instances require permits and licenses. Failure by AirNet to maintain required permits or licenses, or to comply with the applicable regulations, could result in substantial fines or possible revocation of the company's authority to conduct certain of its operations.
AirNet's flight operations are regulated by the FAA under Part 135 of the Federal Aviation Regulations. Among other things, these regulations govern permissible flight and duty time for aviation flight crews. The FAA is currently contemplating certain changes in flight and duty time guidelines, which, if adopted, could increase AirNet's operating costs. These changes, if adopted, could also require AirNet and other operators regulated by the FAA to hire additional flight crew personnel. In addition, Congress, from time to time, has considered various means, including excise taxes, to raise revenues directly from the airline industry to pay for air traffic control facilities and personnel. There can be no assurances that Congress will not change the current federal excise tax rate or enact new excise taxes, which could adversely affect AirNet's business.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
AirNet is exposed to certain market risks from transactions that are entered into during the normal course of business. AirNet's primary market risk exposure relates to interest rate risk. At December 31, 2000, AirNet had a $22.7 million outstanding balance on its revolving credit facility. This facility bears interest at AirNet's option of a fixed rate determined by the Eurodollar rate, a negotiated rate or a floating rate. Assuming borrowing levels at December 31, 2000, a one hundred basis point change in interest rates would impact net interest expense by approximately $227,000 per year. In 1999, AirNet entered into two interest rate swap agreements with a bank as a hedge against the interest rate risk associated with borrowings. The swap agreements each have a notional amount of $5.0 million and effectively locked in a portion of AirNet's variable rate revolving credit liability at fixed rates of 6.3% and 6.5% plus a margin based on AirNet's funded debt ratio. Each swap agreement contains a three-year term. At December 31, 2000, the aggregate fair value of these interest rate swaps was approximately ($105,000).
Report of Independent Auditors
Shareholders and Board of Directors
AirNet Systems, Inc.
We have audited the accompanying consolidated balance sheets of AirNet Systems, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also include the financial statement schedule listed in the Index at Item 14 (a) 2. These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AirNet Systems, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP |
Columbus, Ohio
February 8, 2001
December 31,
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 1,118 $ 1,667
Accounts receivable:
Trade, less allowances of $601 and $598 at
December 31, 2000 and 1999, respectively 16,279 14,919
Shareholders and associates 99 154
Inventory and spare parts 6,618 10,426
Taxes refundable 283 2,382
Deferred taxes 314 738
Deposits and prepaids 1,473 1,733
--------- ---------
Total current assets 26,184 32,019
Net property and equipment 86,600 84,733
Other assets:
Goodwill, net of accumulated amortization of $1,041 and $715
at December 31, 2000 and 1999, respectively 7,705 7,920
Other intangibles, net of accumulated amortization of $489
and $2,264 at December 31, 2000 and 1999, respectively 233 375
Investment in partnership and other 1,811 2,234
--------- ---------
TOTAL ASSETS $ 122,533 $ 127,281
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,456 $ 5,203
Salaries and related liabilities 3,271 2,792
Accrued expenses 1,873 1,206
Current portion of notes payable 33 29
--------- ---------
Total current liabilities 9,633 9,230
Notes payable, less current portion 22,686 33,919
Deferred tax liability 11,369 10,381
Shareholders' equity:
Preferred shares, $.01 par value; 10,000 shares
authorized; and no shares issued and outstanding -- --
Common shares, $.01 par value; 40,000 shares authorized;
and 12,753 shares issued at December 31, 2000 and 1999 128 128
Additional paid-in-capital 77,702 78,182
Retained earnings 22,462 15,207
Treasury shares, 1,840 and 1,343 shares held at cost
at December 31, 2000 and 1999, respectively (21,447) (19,766)
--------- ---------
Total shareholders' equity 78,845 73,751
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 122,533 $ 127,281
========= =========
|
See notes to consolidated financial statements
Year Ended December 31,
2000 1999 1998
--------- --------- ---------
NET REVENUES
Air transportation, net of excise tax of $4,216, $3,592, and $3,106 for the
years ended December 31, 2000, 1999, and 1998, respectively:
Check delivery $ 100,070 $ 98,951 $ 93,206
Express delivery 34,483 28,714 19,109
Fixed base and other operations 650 1,033 1,366
--------- --------- ---------
TOTAL NET REVENUES 135,203 128,698 113,681
COSTS AND EXPENSES
Air transportation
Wages and benefits 17,621 16,389 13,871
Aircraft fuel 11,226 11,307 10,160
Aircraft maintenance 8,831 7,625 7,407
Ground couriers and outside services 27,961 25,438 21,301
Depreciation 13,680 11,391 10,101
Other 24,170 25,165 19,953
Fixed base operations 1,103 1,089 853
Selling, general and administrative 16,112 17,237 13,782
--------- --------- ---------
TOTAL COSTS AND EXPENSES 120,704 115,641 97,428
--------- --------- ---------
Income from operations 14,499 13,057 16,253
Acquisition termination charge -- -- 5,570
Interest expense 2,283 2,477 1,336
--------- --------- ---------
Income before income taxes 12,216 10,580 9,347
Provision for income taxes 4,961 4,308 3,711
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 7,255 6,272 5,636
Cumulative effect of accounting change, net of $1,735 tax benefit -- (2,488) --
--------- --------- ---------
NET INCOME $ 7,255 $ 3,784 $ 5,636
Income per common share - basic and assuming dilution
Income before cumulative effect of accounting change $ 0.66 $ 0.55 $ 0.46
Cumulative effect of accounting change, net of tax -- (0.22) --
--------- --------- ---------
Net income $ 0.66 $ 0.33 $ 0.46
========= ========= =========
|
See notes to consolidated financial statements
Year Ended December 31,
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 7,255 $ 3,784 $ 5,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change -- 2,488 --
Depreciation 13,810 11,525 10,209
Amortization of intangibles 692 789 1,067
Deferred taxes 1,413 766 4,218
Provision for losses on accounts receivable 171 504 150
Loss on disposition of assets 68 102 55
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (1,476) (2,338) (1,574)
Inventory and spare parts 3,808 (1,040) (3,333)
Prepaid expenses 260 1,015 112
Start-up costs -- -- (2,165)
Accounts payable (747) (727) 1,448
Salaries and related liabilities 479 1,508 (324)
Accrued expenses 668 (2,684) 2,168
Taxes payable 2,099 3,553 (6,423)
Other, net 101 257 742
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,601 19,502 11,986
INVESTING ACTIVITIES
Acquisition of Mercury Business Services, Inc., net of cash acquired -- -- (1,827)
Acquisition of Data Air Courier, Inc., net of cash acquired -- -- (34)
Purchases of property and equipment (15,825) (17,639) (18,706)
Payments for covenants not to compete (15) (170) (540)
Proceeds from sales of property and equipment 79 96 415
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,761) (17,713) (20,692)
FINANCING ACTIVITIES
Proceeds from 1996 Incentive Stock Plan Programs 195 293 1,947
Net borrowings (repayments) under the revolving credit facility (11,200) (1,500) 25,800
Repayment of long-term debt (29) (57) (24)
Purchase of treasury stock (2,355) -- (20,000)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,389) (1,264) 7,723
-------- -------- --------
Net increase (decrease) in cash (549) 525 (983)
Cash and cash equivalents at beginning of year 1,667 1,142 2,125
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,118 $ 1,667 $ 1,142
======== ======== ========
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See notes to consolidated financial statements
AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
In thousands
Common Shares Additional
------------- ----------
Number of Paid-in Retained Treasury
Shares Amount Capital Earnings Shares Total
------ ------ -------- -------- -------- --------
Balance December 31, 1997 12,753 $ 128 $ 79,778 $ 5,787 ($ 5,433) $ 80,260
Net income -- -- -- 5,636 -- 5,636
Issuance of treasury shares - exercise of stock options -- -- (685) -- 2,184 1,499
Issuance of treasury shares - Associate Stock Purchase Program -- -- (34) -- 315 281
Issuance of treasury shares - acquisition of Mercury -- -- (604) -- 2,427 1,823
Issuance of treasury shares - associate stock bonus -- -- -- -- 175 175
Purchase treasury shares -- -- -- -- (20,000) (20,000)
------ ------ -------- -------- -------- --------
Balance December 31, 1998 12,753 128 78,455 11,423 (20,332) 69,674
Net income -- -- -- 3,784 -- 3,784
Issuance of treasury shares - Associate Stock Purchase Program -- -- (273) -- 566 293
------ ------ -------- -------- -------- --------
Balance December 31, 1999 12,753 128 $ 78,182 $ 15,207 ($19,766) $ 73,751
Net Income -- -- -- 7,255 -- 7,255
Purchase of treasury shares -- -- -- -- (2,418) (2,418)
Issuance treasury shares - Associate Stock Purchase Program -- -- (348) -- 542 194
Issuance treasury shares - Director Compensation Plan -- -- (132) -- 195 63
------ ------ -------- -------- -------- --------
Balance December 31, 2000 12,753 $ 128 $ 77,702 $ 22,462 ($21,447) $ 78,845
====== ====== ======== ======== ======== ========
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AirNet Systems, Inc. and its subsidiaries (the "company") operate a fully integrated national air transportation network that provides delivery service for time-critical shipments for customers in the U.S. banking industry and other industries requiring the express delivery of packages. The company also offers retail aviation fuel sales and related ground services for customers at its Columbus, Ohio facility.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Certain 1998 and 1999 balances have been reclassified to conform with the 2000 presentation.
REVENUE RECOGNITION
Revenue on air transportation services is recognized when the packages are delivered to their destination. Revenue on fixed based operations is recognized when the maintenance services are complete or fuel is delivered.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments which are unrestricted as to withdrawal or use, and which have an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market value.
ACCOUNTS RECEIVABLE
For 2000, approximately 74% and 55% of the company's revenues and related receivables, respectively, were generated from customers within the banking industry. The company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. The company establishes an allowance for doubtful accounts based upon factors surrounding the credit risks of specific customers, historical trends and other information.
INVENTORY AND SPARE PARTS
Inventory and spare parts are valued at the lower of cost (weighted average method) or market. At December 31, 2000 and 1999, the balances included aircraft held for resale valued at $255,000 and $3,891,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Engines, overhauls and major inspections, which have been capitalized and included in flight equipment, are depreciated and amortized on the basis of hours flown. Airframes, other flight equipment and other property and equipment (primarily furniture and equipment, leasehold improvements and vehicles) are depreciated using the straight-line method over the estimated useful lives of the assets, as summarized below:
Airframes 15 years Buildings 30 years Other flight equipment 2 - 5 years Other property and equipment 3 - 10 years |
The company prepays certain engine repair and overhaul services under manufacturer service plans. These prepaid balances are classified as fixed assets and amortization begins when major repairs or overhauls occur. Prepaid balances, included as other property and equipment, were $3,448,000 and $2,398,000 at December 31, 2000 and 1999, respectively.
INVESTMENT IN SUBSIDIARY
AirNet wholly owns Float Control, Inc., which holds a 19% interest in the Check Exchange System Co. ("CHEXS"). Float Control accounts for its investment in CHEXS under the equity method of accounting. At December 31, 2000 and 1999, Float Control's recorded investment in CHEXS was $1,684,000 and $2,065,000, respectively.
The company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred tax liabilities and assets are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.
GOODWILL
Goodwill is amortized on a straight-line basis over 25 years. The company's policy is to periodically review its goodwill and other long-lived assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business operates or if the expected future cash flows (undiscounted and without interest) would become less than the carrying amount of the asset. An impairment loss would be recorded in the period such determination is made based on the fair value of the related businesses.
FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximated their carrying values at December 31, 2000 and 1999.
The company uses interest rate swaps for the purpose of hedging its exposure to fluctuations in interest rates. The swaps meet the requirements designation and correlation for use of the accrual method of accounting. Differentials in the swapped amounts are recorded as adjustments of the underlying periodic cash flows that are being hedged.
INTANGIBLES
Intangibles include non-competition agreements, which are being amortized on the straight-line method over periods ranging from one to five years.
SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which established annual and interim reporting and disclosure standards for an enterprise's operating segments. SFAS No. 131 became effective for fiscal years beginning after December 15, 1997. The company has historically not segregated costs between its Bank Delivery and Express Delivery operations. Prior to 2000, AirNet did not report segment information due to accounting system limitations. The company modified its accounting systems and began reporting segment information on a going forward basis beginning with the quarter ended March 31, 2000, as restatement of prior periods is impracticable.
AirNet divides its business into two operating segments: Bank Delivery and Express Delivery. The Bank Delivery segment transports cancelled checks and related information for the U.S. banking industry. The Express Delivery segment provides specialized, high priority delivery service for customers requiring late pick-ups and early deliveries combined with prompt, on-line delivery information.
AirNet's assets are not allocated between segments due to significant overlap in usage of the aircraft fleet, vehicles and facilities. Management evaluates the performance of each segment based on operating income.
Summarized financial information concerning AirNet's reportable segments is shown in the following table for the year ended December 31, 2000 (in thousands). The "Other" category includes AirNet's fixed base operations and income and expense not allocated to the reportable segments.
Net Revenues
Bank Delivery $100,070
Express Delivery 34,483
Other 650
--------
Total 135,203
Income (loss) from operations
Bank Delivery 16,090
Express Delivery (1,106)
Other (485)
--------
Total $14,499
|
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended, which is required to be adopted by AirNet effective January 1, 2001. The Statement will require the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
Based on AirNet's derivative positions at December 31, 2000 (see Note 5), the company estimates that it will report a reduction in other comprehensive income of approximately $105,000 from the cumulative effect of the adoption.
SUPPLEMENTAL CASH FLOW DATA
Cash paid for interest was $2,269,000, $2,411,000, and $1,236,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Cash paid for taxes was $1,728,000, $559,000, and $6,078,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
2. WRITE OFF OF START-UP COSTS
In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, Reporting on the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to July 1, 1998, the company capitalized start-up costs associated with its premium products line of business. Effective July 1, 1998, the company ceased capitalizing such costs and began amortizing the previously capitalized costs over five years. The company adopted the provisions of the SOP in its financial statements as of January 1, 1999 which resulted in the write-off of unamortized start-up costs at that time. Had the company accounted for start-up costs under SOP 98-5 in 1998 and 1999, its net income and net income per share would have been the following:
1999 1998
---------- ----------
Proforma net income $6,272,000 $4,632,000
-per share (assuming dilution) $0.55 $0.37
|
3. ACQUISITIONS
Effective August 11, 1998, the company acquired all of the outstanding common stock of Mercury Business Services, Inc. ("Mercury"), an express delivery management service located in Boston. The company accounted for the acquisition under the purchase method of accounting. The purchase price of the acquisition included $1,827,000 in cash (net of cash acquired) and approximately 118,000 AirNet common shares and resulted in goodwill of $3,544,000, which is being amortized over 25 years, and covenants not to compete totaling $300,000. The covenants not to compete are amortized over the terms of the agreements, which range from two to three years. The acquired assets and assumed liabilities have been recorded at their estimated fair values as of August 11, 1998. The company's consolidated financial statements include the results of operations of Mercury since the purchase date. The pro forma results of operations for this acquisition would not have been significantly different than those presented for AirNet.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
2000 1999
------------ ------------
Flight equipment $143,679,000 $130,432,000
Other property and equipment 21,770,000 20,803,000
------------ ------------
165,449,000 151,235,000
Less accumulated depreciation 78,849,000 66,502,000
------------ ------------
Net property and equipment $ 86,600,000 $ 84,733,000
============ ============
|
5. NOTES PAYABLE
The company had borrowings as follows at December 31:
2000 1999
----------- -----------
Term note $ 119,000 $ 148,000
Revolving credit facility 22,600,000 33,800,000
----------- -----------
22,719,000 33,948,000
Current portion of notes payable 33,000 29,000
----------- -----------
Long-term portion of notes payable $22,686,000 $33,919,000
=========== ===========
|
The company's credit agreement provides the company with a $50,000,000 unsecured revolving credit facility. The agreement has a five-year term and is scheduled to expire on August 1, 2003. The agreement may be extended in one-year increments at any point through August 1, 2003. The agreement bears interest at the company's option of a fixed rate determined by the Eurodollar rate, a negotiated rate or a floating rate, plus a margin based on the company's funded debt ratio. The floating rate is based on the sum of (a) a margin plus (b) the greater of (i) the prime rate and (ii) the sum of .5% plus the federal funds rate in effect from time to time. The credit agreement limits the availability of funds to certain specified percentages of accounts receivable, inventory and the wholesale value of aircraft and equipment. In addition, the credit agreement requires the maintenance of certain minimum net worth and cash flow levels, imposes certain limitations on payments of dividends and restricts the amount of additional debt.
The Company also maintains standby letters of credit totaling $1,025,000 with a bank related to its insurance policy agreements.
In 1999, the company entered into two interest rate swap agreements with a bank as a hedge against the interest rate risk associated with borrowings. The swap agreements each have a notional amount of $5,000,000 and effectively lock in a portion of the company's variable rate revolving credit liability at fixed rates of 6.3% and 6.5% plus a margin based on the company's funded debt ratio. These swap agreements are in effect for a period of three years. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to the interest expense in the statements of operations. The company does not use derivative financial instruments for speculative purposes.
In conjunction with the purchase of the company's operations facility in 1997, the company issued a $263,000 term note. The terms of the note require monthly principal and interest payments of $4,000 through 2005 and the note is collateralized by the facility.
6. 1996 INCENTIVE STOCK PLAN
In 1996, the company adopted the AirNet Systems, Inc. 1996 Incentive Stock Plan (the "Plan"). The Plan was last amended in August 1999. The Plan provides for the issuance of incentive and non-qualified stock options, restricted stock and performance shares and a stock purchase plan (collectively, "Awards"). The Plan also provides for the grant of stock options to outside directors. The maximum number of common shares available for issuance under the Plan is 1,650,000 through 2006. The Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms and conditions applicable to the Awards. The exercise price of each option equals the market price of a common share on the date of grant. An option's maximum term is ten years (five years for ISOs granted to 10% shareholders). Option vesting periods range from vesting upon grant to vesting over four years.
A summary of the company's stock option activity and related information follows (in thousands, except price per share data) for the years ended December 31:
2000 1999 1998
-------------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Common Exercise Common Exercise Common Exercise
Shares Price Shares Price Shares Price
-------------------- ------------------ ------------------
Outstanding at beginning of
period 1,158 $13.54 789 $16.14 651 $14.28
Granted 175 5.67 422 9.62 288 19.32
Exercised -- -- -- -- (106) 14.11
Cancelled (191) 12.33 (53) 12.04 (44) 14.12
------ ----- ----
Outstanding at end of period 1,142 12.45 1,158 13.95 789 16.14
====== ===== ====
Options exercisable at end of
period 712 14.09 662 14.82 532 14.99
|
The company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended December 31:
2000 1999 1998
----- ----- -----
Risk free interest rate 6.5% 6.5% 6.5%
Volatility factor of expected market price
of the company's common shares 60.0% 50.0% 54.5%
Weighted average expected life
of options (years) 5.88 6.88 7.55
|
The weighted average fair value of options granted was $3.49, $7.33 and $12.59 in the years ended December 31, 2000, 1999 and 1998, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The company's pro forma information follows for the years ended December 31:
2000 1999 1998
---------- ---------- ----------
Net income, adjusted for FAS 123 $6,228,000 $2,647,000 $4,668,000
Net income per share, adjusted
for FAS 123:
Basic and assuming dilution $.56 $.23 $.38
|
The following summarizes information about stock options outstanding as of December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------------------------------------ -------------------------------
Weighted-Average
Remaining
Range of Exercise Number of Contractual Weighted-Average Number of Weighted-Average
Prices Options Life (Years) Exercise Price Options Exercise Price
----------------- ---------------- ------------- ---------------- --------- ----------------
Less than $10.00 516,510 8.5 $ 8.30 170,040 $ 9.14
$10.01-$15.00 372,000 5.3 14.12 370,000 14.13
$15.01-$20.00 201,900 6.8 17.33 119,700 17.22
$20.01-$25.00 52,000 7.4 22.72 52,000 22.72
---------------- ---------
1,142,410 7.1 $ 12.45 711,740 $ 14.09
================ =========
|
7. LEASE OBLIGATIONS
The company leases facility space at various locations throughout the United States. The company incurred lease expense of $1,597,000, $1,560,000 and $1,092,000 for the years ended December 31, 2000, 1999 and 1998, respectively. As of December 31, 2000, future minimum lease payments by year and in the aggregate under non-cancelable operating leases with initial or remaining terms exceeding one year are as follows: 2001 - $229,000; 2002 - $49,000; 2003 - $13,000.
8. RELATED PARTY TRANSACTIONS
During 2000, AirNet provided a $200,000 bridge loan to its Chief Executive Officer, Chief Operating Officer and President. The loan was repaid in full during the year.
The company has a 401(k) retirement savings plan. All associates who have completed a minimum of six months of service may contribute up to 15% of their eligible annual earnings to the plan. The company may elect, at its discretion, to make matching and profit-sharing contributions. The company's contribution expense related to the plan totaled $514,000, $529,000 and $457,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
10. INCOME TAXES
Income taxes are summarized as follows for the years ended December 31:
2000 1999 1998
---------- ---------- ----------
Current:
Federal $2,041,000 $1,594,000 $1,299,000
State and local 801,000 63,000 230,000
---------- ---------- ----------
2,842,000 1,657,000 1,529,000
Deferred:
Federal 2,037,000 2,195,000 1,855,000
State and local 82,000 456,000 327,000
---------- ---------- ----------
2,119,000 2,651,000 2,182,000
---------- ---------- ----------
$4,961,000 $4,308,000 $3,711,000
========== ========== ==========
|
Significant components of the company's deferred tax liabilities and assets are as follows at December 31:
2000 1999
------------ ------------
Long-term deferred tax asset:
Alternative minimum tax credits $ 3,094,000 $ 3,406,000
Other 301,000 -
Long-term deferred tax liabilities:
Property and equipment (13,085,000) (11,840,000)
Intangible assets and other (1,679,000) (1,947,000)
------------ ------------
Net long-term deferred tax liabilities ($11,369,000) ($10,381,000)
============ ============
Current deferred tax assets:
Workers' compensation reserves $ 184,000 $ 265,000
Health insurance reserves - 168,000
Allowance for bad debt reserves 237,000 236,000
Other 113,000 265,000
------------ ------------
Total current assets 534,000 934,000
Current deferred tax liabilities:
Prepaid expenses (220,000) (172,000)
Other - (24,000)
------------ ------------
Total current liabilities (220,000) (196,000)
------------ ------------
Net current deferred tax assets $ 314,000 $ 738,000
============ ============
|
Differences arising between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows for the years ended December 31:
2000 1999 1998
------------------ -------------------- -------------------
Tax expense at federal statutory
rate on pretax income $4,153,000 34.0% $3,597,000 34.0% $3,178,000 34.0%
Add (deduct):
State taxes, net of Federal benefit 610,000 5.0 566,000 5.3 410,000 4.4
Non-deductible permanent differences 198,000 1.6 145,000 1.4 122,000 1.3
Other - - - - 1,000 -
------------------ -------------------- -------------------
Total taxes $4,961,000 40.6% $4,308,000 40.7% $3,711,000 39.7%
================== ==================== ===================
|
11. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share for the years ended December 31:
2000 1999 1998
------------ ------------ ------------
Numerator:
Income before the cumulative effect of
accounting change $ 7,255,000 $ 6,272,000 $ 5,636,000
Cumulative effect of accounting
change, net of tax - (2,488,000) -
------------ ------------ ------------
Net Income $ 7,255,000 $ 3,784,000 $ 5,636,000
Denominator:
Basic - weighted average shares
outstanding 11,067,000 11,397,000 12,228,000
Diluted
Stock options - associates, officers
and directors - - 152,000
------------ ------------ ------------
Adjusted weighted average shares
outstanding 11,067,000 11,397,000 12,380,000
Net income per share - basic and diluted:
Income before the cumulative effect of
accounting change $.66 $.55 $.46
Cumulative effect of accounting
change, net of tax - (.22) -
------------ ------------ ------------
Net income $.66 $.33 $.46
|
For the years ended December 31, 2000, 1999 and 1998, 1,142,000, 1,212,000 and 102,000 stock options, respectively, were excluded from the diluted weighted average shares outstanding calculation, as their exercise prices exceeded the average fair market value of the underlying common shares for the year.
12. ACQUISITION TERMINATION CHARGE
On June 17, 1998, the company announced that it had terminated an agreement to acquire Q International Courier, Inc. ("Quick"). The company had incurred $2,370,000 of costs in conjunction with the planned acquisition, all of which were expensed upon the termination of the agreement. In 1999, the company agreed to settle a lawsuit filed by Quick in connection with the termination of the planned acquisition. Settlement and litigation costs related to the suit totaled approximately $3,200,000 and were fully expensed as of December 31, 1998.
13. LITIGATION AND CONTINGENCIES
The company is subject to claims and lawsuits in the ordinary course of its business. In the opinion of management, the outcome of these actions, which are not clearly determinable at the present time, are either adequately covered by insurance, or if not insured, will not, in the aggregate, have a material adverse impact upon the company's financial position or the results of future operations.
None.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for in this Item 10 is incorporated herein by reference to AirNet's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 8, 2001, under the caption "ELECTION OF DIRECTORS." In addition, information concerning AirNet's executive officers is included in the portion of Part I of this Annual Report on Form 10-K entitled "Executive officers of the registrant."
ITEM 11 - EXECUTIVE COMPENSATION
The information called for in this Item 11 is incorporated herein by reference to AirNet's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 8, 2001, under the captions "ELECTION OF DIRECTORS - Compensation of Directors" and "EXECUTIVE COMPENSATION."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for in this Item 12 is incorporated herein by reference to AirNet's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 8, 2001, under the caption "BENEFICIAL OWNERSHIP OF COMMON SHARES."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for in this Item 13 is incorporated herein by reference to AirNet's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 8, 2001, under the caption "TRANSACTIONS WITH Management."
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. The following consolidated financial statements are included in Item 8:
Report of independent auditors Consolidated balance sheets as of December 31, 2000 and 1999 Consolidated statements of income for the years ended December 31, 2000, 1999 and 1998 Consolidated statements of changes in shareholders' equity for the years ended December 31, 2000, 1999 and 1998 Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to consolidated financial statements
2. Schedule II - Valuation and Qualifying Accounts is included below:
------------------------------------------------------------------------------------------------------------
COL A COL B COL C COL D COL E
Additions
-----------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Start of Costs and Other Deductions End of
Description Period Expenses Accounts (1) Period
------------------------------------------------------------------------------------------------------------
Year end December 31, 2000:
Deducted from asset accounts;
Allowance for doubtful accounts $598,076 $170,602 $ 0 $167,564 $601,114
------------------------------------------------------------------------------------------------------------
Year end December 31, 1999:
Deducted from asset accounts;
Allowance for doubtful accounts 289,784 504,379 0 196,087 598,076
------------------------------------------------------------------------------------------------------------
Year end December 31, 1998:
Deducted from asset accounts;
Allowance for doubtful accounts 122,869 150,215 25,000 8,300 289,784
------------------------------------------------------------------------------------------------------------
|
(1) Uncollectible accounts written off, net of recoveries
Schedules not listed above have been omitted because they are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
3. Exhibits
The following exhibits are included or incorporated by reference in this Annual Report on Form 10-K:
Exhibit No. Description Location
----------- ----------- --------
3.1 Amended Articles of AirNet Systems, Inc. Incorporated herein by reference to
Exhibit 2.1 to AirNet Systems, Inc.'s
Registration Statement on Form 8-A (File
No. 0-28428) filed on May 3, 1996 (the
"Form 8-A")
3.2 Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of AirNet Systems, Inc. as filed with Exhibit 4(b) to AirNet Systems, Inc.'s
the Ohio Secretary of State on May 28, 1996 Registration Statement on Form S-8
(Registration No. 333-08189) filed on July
16, 1996 (the "1996 Form S-8")
3.3 Amended Articles of AirNet Systems, Inc. (as Incorporated herein by reference to
amended through May 28, 1996) (for SEC Exhibit 4.3 to AirNet Systems, Inc.'s 1996
reporting compliance purposes only - not filed Form S-8
with the Ohio Secretary of State)
3.4 Code of Regulations of AirNet Systems, Inc. Incorporated herein by reference to
Exhibit 2.2 to AirNet Systems, Inc.'s Form
8-A
3.5 Certificate regarding adoption of amendment to Incorporated herein by reference to
Section 1.10 of the Code of Regulations of Exhibit 3.1 to AirNet Systems, Inc.'s Form
AirNet Systems, Inc. by the shareholders on May 10-Q for the period ended June 30, 2000
12, 2000
3.6 Code of Regulations of AirNet Systems, Inc. Incorporated herein by reference to
(reflecting amendments through May 12, 2000) Exhibit 3.2 to AirNet Systems, Inc.'s Form
[for SEC reporting compliance purposes only] 10-Q for the period ended June 30, 2000
4.1 Loan Agreement among AirNet Systems, Inc., the Incorporated herein by reference to
Lenders party thereto and NBD Bank, as agent, Exhibit 4.1 to AirNet Systems, Inc.'s
dated August 1, 1998 (the "Credit Agreement") Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-13025)
4.2 First Amendment to Credit Agreement, dated as Incorporated herein by reference to
of September 30, 1998, among AirNet Systems, Exhibit 4.2 to AirNet Systems, Inc.'s
Inc., the Lenders party thereto and NBD Bank as Annual Report on Form 10-K for the year
agent ended December 31, 1999
4.3 Second Amendment to Credit Agreement, dated as Incorporated herein by reference to
of December 31, 1999, among AirNet Systems, Exhibit 4.3 to AirNet Systems, Inc.'s
Inc., the Lenders party thereto and Bank One, Annual Report on Form 10-K for the year
Michigan, as agent ended December 31, 1999
4.4 Subordination Agreement, dated as of December Incorporated herein by reference to
31, 1999, among Bank One, Michigan, as agent, Exhibit 4.4 to AirNet Systems, Inc.'s
the Senior Lenders party thereto, AirNet Annual Report on Form 10-K for the year
Management, Inc., and AirNet Systems, Inc. ended December 31, 1999
4.5 Subsidiary Guaranty, dated December 31, 1999, Incorporated herein by reference to
by AirNet Management, Inc. in favor of the Exhibit 4.5 to AirNet Systems, Inc.'s
Lenders party thereto the Credit Agreement Annual Report on Form 10-K for the year
ended December 31, 1999
|
Exhibit No. Description Location
----------- ----------- --------
10.1* AirNet Systems, Inc. Amended and Restated 1996 Incorporated herein by reference to
Incentive Stock Plan (reflects amendments Exhibit 10.1 to AirNet Systems, Inc.'s
through August 18, 1999) Annual Report on Form 10-K for the year
ended December 31, 1999
10.2 Indemnification Agreement, dated as of May 15, Incorporated herein by reference to
1996, among AirNet Systems, Inc. and Messrs. Exhibit 10.14 to AirNet's Amendment No. 2
Miller, Renusch, Roy, King, Rutter, Sumser and to Form S-1 Registration Statement
Wright (Registration No. 333-3092) filed on May
24, 1996 ("Amendment No. 2")
10.3 Indemnification Agreement, dated as of May 15, Incorporated herein by reference to
1996, between Mr. Mercer and AirNet Systems, Exhibit 10.11 to AirNet Systems, Inc.'s
Inc. Amendment No. 2
10.4* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and Joel E.
Biggerstaff
10.5* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and William R.
Sumser
10.6* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and Jeffrey B.
Harris
10.7 AirNet Systems, Inc. Director Deferred Incorporated herein by reference to
Compensation Plan effective May 27, 1998 Exhibit 10.7 to AirNet Systems, Inc.'s
Annual Report on Form 10-K for the year
ended December 31, 1999
10.8* AirNet Systems, Inc. Salary for Options Filed herewith
Conversion Plan, effective February 6, 2000
21 Subsidiaries of AirNet Systems, Inc. Incorporated herein by reference to
Exhibit 21 to AirNet Systems, Inc.'s
Annual Report on Form 10-K for the year
ended December 31, 1999
23 Consent of Ernst & Young LLP Filed herewith
24 Powers of Attorney Filed herewith
|
* Denotes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K.
(b) No reports on Form 8-K were filed during the quarter ended December 31, 2000.
(c) Exhibits are listed in Item 14(a)(3) above.
(d) Financial statement schedules are included in Item 14(a)(1) above.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 20, 2001 By: /s/ Joel E. Biggerstaff
-----------------------------------------------
Joel E. Biggerstaff, Chief Executive Officer,
Chief Operating Officer and President
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
*GERALD G. MERCER Chairman of the Board March 20, 2001
----------------------------------------
Gerald G. Mercer
/s/ JOEL E. BIGGERSTAFF Chief Executive Officer, Chief Operating Officer March 20, 2001
---------------------------------------- and President (Principal Executive Officer)
Joel E. Biggerstaff
*WILLIAM R. SUMSER Chief Financial Officer, Treasurer, Vice March 20, 2001
---------------------------------------- President, Finance and Secretary
William R. Sumser
*ROGER D. BLACKWELL Director March 20, 2001
----------------------------------------
Roger D. Blackwell
*RUSSELL M. GERTMENIAN Director March 20, 2001
----------------------------------------
Russell M. Gertmenian
*DAVID P. LAUER Director March 20, 2001
----------------------------------------
David P. Lauer
*JAMES E. RIDDLE Director March 20, 2001
----------------------------------------
James E. Riddle
*By /s/ JOEL E. BIGGERSTAFF
----------------------------------------
Joel E. Biggerstaff, Attorney-in-Fact
|
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
3.1 Amended Articles of AirNet Systems, Inc. Incorporated herein by reference to
Exhibit 2.1 to AirNet Systems, Inc.'s
Registration Statement on Form 8-A (File
No. 0-28428) filed on May 3, 1996 (the
"Form 8-A")
3.2 Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of AirNet Systems, Inc. as filed with Exhibit 4(b) to AirNet Systems, Inc.'s
the Ohio Secretary of State on May 28, 1996 Registration Statement on Form S-8
(Registration No. 333-08189) filed on July
16, 1996 (the "1996 Form S-8")
3.3 Amended Articles of AirNet Systems, Inc. (as Incorporated herein by reference to
amended through May 28, 1996) (for SEC Exhibit 4.3 to AirNet Systems, Inc.'s 1996
reporting compliance purposes only - not filed Form S-8
with the Ohio Secretary of State)
3.4 Code of Regulations of AirNet Systems, Inc. Incorporated herein by reference to
Exhibit 2.2 to AirNet Systems, Inc.'s Form
8-A
3.5 Certificate regarding adoption of amendment to Incorporated herein by reference to
Section 1.10 of the Code of Regulations of Exhibit 3.1 to AirNet Systems, Inc.'s Form
AirNet Systems, Inc. by the shareholders on May 10-Q for the period ended June 30, 2000
12, 2000
3.6 Code of Regulations of AirNet Systems, Inc. Incorporated herein by reference to
(reflecting amendments through May 12, 2000) Exhibit 3.2 to AirNet Systems, Inc.'s Form
[for SEC reporting compliance purposes only] 10-Q for the period ended June 30, 2000
4.1 Loan Agreement among AirNet Systems, Inc., the Incorporated herein by reference to
Lenders party thereto and NBD Bank, as agent, Exhibit 4.1 to AirNet Systems, Inc.'s
dated August 1, 1998 (the "Credit Agreement") Annual Report on Form 10-K for the year
ended December 31, 1998 (File No. 1-13025)
4.2 First Amendment to Credit Agreement, dated as Incorporated herein by reference to
of September 30, 1998, among AirNet Systems, Exhibit 4.2 to AirNet Systems, Inc.'s
Inc., the Lenders party thereto and NBD Bank as Annual Report on Form 10-K for the year
agent ended December 31, 1999
4.3 Second Amendment to Credit Agreement, dated as Incorporated herein by reference to
of December 31, 1999, among AirNet Systems, Exhibit 4.3 to AirNet Systems, Inc.'s
Inc., the Lenders party thereto and Bank One, Annual Report on Form 10-K for the year
Michigan, as agent ended December 31, 1999
4.4 Subordination Agreement, dated as of December Incorporated herein by reference to
31, 1999, among Bank One, Michigan, as agent, Exhibit 4.4 to AirNet Systems, Inc.'s
the Senior Lenders party thereto, AirNet Annual Report on Form 10-K for the year
Management, Inc., and AirNet Systems, Inc. ended December 31, 1999
4.5 Subsidiary Guaranty, dated December 31, 1999, Incorporated herein by reference to
by AirNet Management, Inc. in favor of the Exhibit 4.5 to AirNet Systems, Inc.'s
Lenders party thereto the Credit Agreement Annual Report on Form 10-K for the year
ended December 31, 1999
|
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
10.1* AirNet Systems, Inc. Amended and Restated 1996 Incorporated herein by reference to
Incentive Stock Plan (reflects amendments Exhibit 10.1 to AirNet Systems, Inc.'s
through August 18, 1999) Annual Report on Form 10-K for the year
ended December 31, 1999
10.2 Indemnification Agreement, dated as of May 15, Incorporated herein by reference to
1996, among AirNet Systems, Inc. and Messrs. Exhibit 10.14 to AirNet's Amendment No. 2
Miller, Renusch, Roy, King, Rutter, Sumser and to Form S-1 Registration Statement
Wright (Registration No. 333-3092) filed on May
24, 1996 ("Amendment No. 2")
10.3 Indemnification Agreement, dated as of May 15, Incorporated herein by reference to
1996, between Mr. Mercer and AirNet Systems, Exhibit 10.11 to AirNet Systems, Inc.'s
Inc. Amendment No. 2
10.4* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and Joel E.
Biggerstaff
10.5* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and William R.
Sumser
10.6* Employment Agreement, effective March 1, 2001, Filed herewith
between AirNet Systems, Inc. and Jeffrey B.
Harris
10.7 AirNet Systems, Inc. Director Deferred Incorporated herein by reference to
Compensation Plan effective May 27, 1998 Exhibit 10.7 to AirNet Systems, Inc.'s
Annual Report on Form 10-K for the year
ended December 31, 1999
10.8* AirNet Systems, Inc. Salary for Options Filed herewith
Conversion Plan, effective February 6, 2000
21 Subsidiaries of AirNet Systems, Inc Incorporated herein by reference to
Exhibit 21 to AirNet Systems, Inc.'s
Annual Report on Form 10-K for the year
ended December 31, 1999
23 Consent of Ernst & Young LLP Filed herewith
24 Powers of Attorney Filed herewith
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* Denotes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K.
This Agreement is made as of January 1, 2001, between AIRNET SYSTEMS, INC., (the "Company") and JOEL BIGGERSTAFF (the "Employee"), who hereby agree as follows:
1. EMPLOYMENT OF EMPLOYEE. The Company hereby employs Employee and Employee hereby accepts employment by the Company, under the terms and subject to the conditions contained in this Agreement. The Company hereby employs Employee as its President and Chief Executive Officer.
2. TERM OF EMPLOYMENT. Employee has been employed by the Company since August 1999, without written agreement. The term of Employee's employment by the Company under this Agreement shall be for the period (the "Initial Employment Period") beginning on the date of this Agreement and ending on December 31, 2001; provided, that the Initial Employment Period shall extend for successive one year periods (each a "Renewal Employment Period" and, together with the Initial Employment Period, the "Employment Period") unless either the Company or Employee provides the other party notice of termination of this Agreement at least ninety (90) days prior to the end of the Employment Period.
3. SERVICES. Employee shall use his best efforts in performing the duties of employment assigned to Employee pursuant to this Agreement in an efficient, faithful and business-like manner. Employee shall report directly to the Chairman of the Board of Directors of the Company. Employee shall perform such duties as requested by, and have such authority to act on behalf of the Company as may be conferred by, the Board of Directors. Employee shall devote his full business time, attention, energy and skill to the business of the Company. During the Employment Period, the Employee shall not engage in or perform any outside consulting or other services for any person other than the Company or any of its subsidiaries. Notwithstanding the previous sentence, the Employee may serve as a director or trustee of any civil, fraternal, religious, public interest or similar organization. During the term of this Agreement, the primary place of employment for the Employee shall be the Greater Columbus Ohio Metropolitan area, provided, however, that Employee shall be required to travel as necessary or prudent to effectively and efficiently satisfy the terms of his employment as set forth in this Agreement.
4. COMPENSATION. For the services described in this Agreement, the Employee shall receive an initial annual base salary of Three Hundred Thousand ($300,000.00). On an annual basis, the Compensation Committee of the Board of Directors will conduct a review of the Employee's performance and determine whether the Employee's base salary should be adjusted. Pursuant to such performance review, the Employee's base salary may be increased or decreased. In the event that the Company adjusts the Employee's initial base salary, the amount of the initial base salary, together with any adjustment(s), shall be his base salary. Said base salary shall be payable in equal installments in accordance with the regular payroll practices of the Company. Employee shall further be entitled to receive a bonus according to the plans from time to time established by, and subject to approval by, the Compensation Committee of the Board of Directors.
5. OTHER EMPLOYEE FRINGE BENEFITS.
(a) IN GENERAL. The Company shall further provide the Employee with all health and life insurance coverages, sick leave and disability programs, tax-qualified retirement plan contributions, stock option plans, paid holidays and vacations, perquisites, and such other fringe benefits of employment as the Company may provide from time to time to actively employed senior executives of the Company.
(b) SUPPLEMENTAL BENEFITS. The Company shall also provide the Employee with the following supplemental benefits:
(i) VACATION. The Employee will be entitled to total vacation leave during the term of this Agreement of up to four (4) weeks per year at such time as agreed between the Employee and the Company.
(ii) STOCK OPTION PLAN. The Employee will be entitled to participate in the AirNet Systems, Inc. Incentive Stock Plan, as may be amended from time to time (the "Stock Plan"), a copy of which is attached hereto as Exhibit A. The Employee's participation in the Stock Plan shall be determined in accordance with the terms and conditions of the Stock Plan and by the Board of Directors of the Company or the committee thereof administering the Stock Plan.
(iii) OTHER. The Employee will also be entitled to participate in such other employee benefit plans, and shall receive such additional fringe benefits, as the Board of Directors or the Compensation Committee thereof may from time to time determine.
(c) EXPENSES. The Company shall reimburse the Employee for all reasonable expenses paid or incurred by Employee in the performance of his duties under this Agreement. Such reimbursements shall be made in accordance with the standard expense reporting, approval and reimbursement policies maintained by the Company from time to time.
6. NON-COMPETITION.
(a) Except with the prior written consent of the Company, during the Employment Period, and for a period of two (2) years immediately following termination of his employment with the Company, whether voluntarily or involuntarily or with or without Cause, the Employee shall not, directly or indirectly for the benefit of Employee or others, either as principal, agent, manager, consultant, partner, owner, employee, distributor, dealer, representative, joint venturer, creditor or otherwise, engage in any work involving any of the following: (i) any activity involving the delivery of time sensitive packages or which competes with any service or product of the Company now in existence or in existence as of the Date of Termination; (ii) the promotion, solicitation, attempt to solicit, license or sell, in any geographic area where the Company or its successor in interest conducts business of any product or service in competition with the products or services of the Company; (iii) the solicitation, attempt to solicit, management, maintenance, sale or license of any product or service in competition with the products or services of the Company to any business which was a customer of the Company during the one year period immediately preceding the cessation of Employee's employment with the Company; and (iv) the disclosure to any person of the names of any of the customers of the Company or any other information pertaining to them unless such information can be obtained from public sources.
(b) The Employee acknowledges that the business of the Company is national in scope and the national scope is the reason for the geographic scope and/or duration of the restrictions on competition and solicitation provided in this Section 6. Satisfaction of the two (2) year period described in this Section 6 shall be suspended during the time of any activity of the Employee prohibited by this Section 6. In the event a court grants injunctive relief to the Company for a failure of Employee to comply with the provision contained in this Section 6, the noncompetition period shall commence anew with the date such relief is granted.
(c) The restrictions provided in this Section 6 may be enforced by the Company, by an action at law, or in equity, including but not limited to, an action for injunction and/or an action for damages. The provisions of this Section 6 constitute an essential element of this Agreement, without which the Agreement would not have been affected by the Company. The provisions of this Section 6 shall survive the termination of any other obligations of Employee under this Agreement for a period necessary to enforce its provisions. If the scope of any restriction contained in this Section 6 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law and the Employee hereby consents and agrees that such scope may be judicially modified in any proceeding brought to enforce such restriction.
7. CONFIDENTIAL INFORMATION. Employee hereby acknowledges that in the course of his employment, Employee may receive, have access to or contribute to confidential, proprietary information or trade secrets of the Company. In consideration of Employee's initial and continued employment with the Company and of Employee being given access to Confidential Information (as defined in subparagraph (a) below), Employee agrees to the following:
(a) "Confidential Information" means all of the Company's confidential and proprietary information and trade secrets in existence on the date hereof or at any time during the Employee's employment, including, but not limited to:
(i) All or any portion or phase of any and all information constituting or relating to any and all products, manufacturing techniques, equipment, manufacturing and test data or materials used or owned by or licensed to the Company, whether fully or partially developed, which information is used or usable by the Company in its business or by its customers;
(ii) The whole or any portion or phase of any business plans, financial information, purchasing data, supplier data, accounting data or other financial information;
(iii) The whole or any portion or phase of any research and development information, inventions, discoveries, patent applications, ideas, designs, design procedures, engineering drawings, sketches, renderings, other drawings, computer programs, progress reports, algorithms or processes or other technical information;
(iv) The whole or any portion or phase of any marketing or sales information, sales records, customer lists, prices, sales projections, costs, specifications, procurement and sales activities and procedures, promotion and pricing techniques, credit and financial data concerning customers or other sales information; and
(v) Trade secrets, as defined by the laws of the State of Ohio.
Notwithstanding the foregoing, Confidential Information shall not include information which has been published, disseminated without obligation of confidence or which has otherwise become a part of the public domain as of the date hereof or at any time subsequent to the date hereof, (A) by or through the affirmative action of the Company or (B) by or through any other person who has received the prior written approval of the Company in connection with such publication or dissemination.
(b) Employee acknowledges that all information, whether falling within the above definition or otherwise, shall be presumed to be Confidential Information if the Company takes measures designed to prevent it, in the ordinary course of business, from being available to persons other than those selected by the Company to have access thereto for limited purposes.
(c) All information disclosed to Employee or to which Employee obtains access during the period of Employee's employment, which Employee has a reasonable basis to believe to be Confidential Information, shall be presumed to be Confidential Information.
(d) Except as required as a part of Employee's duties at the Company, Employee shall never, either during Employee's employment by the Company or thereafter, disclose or use on Employee's own behalf or on behalf of any person any Confidential Information, as defined in subparagraph (a) hereof. Upon termination of Employee's employment with the Company, regardless of whether such termination is voluntary, involuntary or with or without Cause, all records of Confidential Information, including but not limited to, all notes, memos, plans, records, letters, reports, magnetic tapes, magnetic diskettes and other tangible materials, including copies thereof in Employee's possession, whether prepared by Employee or by others, shall be returned to the Company. Upon request at any time during the term of employment or thereafter, Employee shall disclose to the Company the names and addresses of any persons to whom any disclosure of Confidential Information has been made and shall state to the Company what disclosures have been made to such persons.
(e) Employee agrees to communicate to the Company promptly and fully, and to assign to the Company, all inventions and technical or business innovations, including, but not limited to, any and all products and processes developed or conceived solely by Employee, or jointly with others, during the term of Employee's employment, which are within the scope of the Company's business as conducted on the date of this Agreement or at any time during the term of Employee's employment with the Company, or which were developed on the Company's time, or which utilized the Company's equipment, materials or information. Employee further agrees to execute all necessary papers, and otherwise to assist the Company, at the Company's sole expense, to obtain patents or other legal protection as the Company deems fit, both during and after Employee's term of employment with the Company. As to any such inventions and technical or business innovations, any products or processes, said inventions, innovations, products and processes, are to be the property of the Company, and Employee shall have no proprietary interest therein.
(f) Employee agrees and understands that there are significant business reasons for entering into this Section 7 and that its restrictions are reasonable and necessary to protect legitimate business interests of the Company.
8. CERTAIN OTHER PROHIBITIONS. During the Employment Period and for a period of two (2) years immediately following the termination of his employment with the Company, the Employee shall not, either directly or indirectly, do any of the following: (i) solicit to hire or hire any employee of the Company or (ii) participate as a shareholder, partner, joint venturer, officer, director, employee, agent, solicitor, distributor, dealer or representative, or have any direct or indirect financial interest (including without limitation the interest of a creditor) with any person who solicits to hire or hires any employee of the Company.
9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT BY THE COMPANY. The Employee's employment hereunder may be terminated by the Company without any breach of this Agreement only under the following circumstances:
(i) The Employee's employment hereunder shall terminate upon his death and may be terminated by the Company in the event of his Disability. For purposes of this Agreement, the term "Disability" shall mean the inability of the Employee due to illness (mental or physical), accident, or otherwise, to perform his duties for any period of one hundred twenty (120) consecutive days, as determined by an independent physician selected by the Company and reasonably acceptable to the Employee (or his legal representative), provided that the Employee does not return to work on substantially a full-time basis for at least five (5) consecutive business days within thirty (30) days after Notice of Termination is given by the Company pursuant to the provisions of Sections 9(c) and 9(d)(ii).
(ii) The Company may terminate the Employee's employment hereunder for Cause. "Cause" shall be defined to include (i) any willful breach of the material terms of this Agreement; (ii) any willful breach of any material duty of employment assigned to the Employee pursuant to this Agreement; (iii) material refusal to perform the duties of employment assigned to Employee pursuant to this Agreement; (iv) theft or embezzlement of a material amount of the Company's property; (v) fraud or (vi) indictment for criminal activity not including minor misdemeanor traffic offenses.
(b) TERMINATION OF EMPLOYMENT BY EMPLOYEE. The Employee may terminate his employment at any time. However, he shall be deemed to have terminated his employment for "Good Reason" only if he terminated his employment by giving Notice of Termination pursuant to Sections 9(c) and 9(d)(iii) within ninety (90) days after the occurrence of any of the following events (provided the Company does not cure such event within thirty (30) days following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written consent, the Company assigns the Employee to duties materially inconsistent in any respect with his position, authority, duties or responsibilities as set forth in Section 1, or takes any other action that results in a material diminution in such position, authority, duties or responsibilities, including, but not limited to, failing to reappoint or reelect the Employee to any such position;
(ii) The Employee's base salary is reduced for any reason other than in connection with the termination of his employment, except if such base salary is reduced in connection with proportionate reductions in the salaries of all other executive officers of the Company;
(iii) The assignment of the Employee, without his prior written consent, to a Company office located outside of the Greater Columbus, Ohio Metropolitan area;
(iv) The Company's failure to obtain an agreement from any successor or assign of the Company to assume and to agree to perform this Agreement;
(v) The Company provides notice of termination of this Agreement pursuant to Section 2; or
(c) NOTICE OF TERMINATION. Any termination of the Employee's employment by the Company hereunder, or by the Employee other than termination upon the Employee's death, shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a notice that shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated.
(d) DATE OF TERMINATION. For purposes of this Agreement, an applicable "Date of Termination" means:
(i) If the Employee's employment is terminated by his death, the date of his death.
(ii) If the Employee's employment is terminated by the Company as a result of Disability pursuant to Section 9(a)(i), the date that is thirty (30) days after Notice of Termination is given.
(iii) If the Employee terminates his employment for Good Reason pursuant to Section 9(b), the date that is thirty (30) days after Notice of Termination is given (provided that the Company does not cure such event during that thirty-day period).
(iv) If the Employee terminates his employment other than for Good Reason, the date the Notice of Termination is given.
(v) If the Employee's employment is terminated by the Company for Cause pursuant to Section 9(a)(ii), the date the Notice of Termination is given.
(vi) If the Employee's employment is terminated by the Company other than for Cause or Disability, the date that is thirty (30) days after Notice of Termination is given.
10. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY.
(a) DEATH. If the Employee's employment is terminated by his death, the Employee's beneficiary (as designated by the Employee in writing with the Company prior to his death) shall be entitled to the following payments and benefits: (i) any portion of the Employee's base salary that is accrued but unpaid, any vacation that is accrued but unused (during the then current fiscal year only), and any business expenses that are unreimbursed -- all, determined as of the Date of Termination and payable within thirty (30) days of such date and (ii) any benefits resulting from the fringe benefits described in Section 5 upon the Employee's death in accordance with the provisions of the plan or program that provides each applicable fringe benefit. In the absence of a beneficiary designation by the Employee, or, if the Employee's designated beneficiary does not survive the Employee, benefits described in this Section 10(a) shall be paid to the Employee's estate.
(b) DISABILITY.
(i) During any period that the Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Employee shall continue to receive his base salary and bonus at the rate then in effect for such period until his employment is terminated pursuant to Section 9(a)(i); provided, however, that payments of base salary and bonus so made to the Employee shall be reduced by the sum of the amounts, if any, that were payable to the Employee at or before the time of any such salary or bonus payment under any disability benefit plan or plans of the Company and that were not previously applied to reduce any payment of base salary or bonus.
(ii). Upon his termination of employment because of Disability, the Employee shall be entitled to the following payments and benefits:
(A) Those described in Section 10(a); and
(B) for a period of twenty-four (24) months following his Date of Termination, continuation of all fringe benefits described in Section 5, except for the Stock Plan.
(c) TERMINATION BY COMPANY WITHOUT CAUSE, OR TERMINATION BY EMPLOYEE FOR GOOD REASON. In the event that the Company terminates the Employee's employment without Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to the following payments and benefits:
(i) Those described in Section 10(b)(ii);
(ii) A continuation of payment of the Employee's base salary as in effect on the Date of Termination for a period of twenty-four (24) months from the Date of Termination; PROVIDED that, if such Date of Termination occurs on or after a Change in Control the period shall be thirty-six (36) months rather than twenty-four (24) months;
(iii) As of his Date of Termination, the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including, without limitation, all stock options and awards under the Stock Plan, in which he was a participant at the time of the termination of his employment;
(iv) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the Employee's non-vested interest under any tax qualified retirement or savings plan maintained by the Company which is forfeited by the Employee under such plan's terms upon his termination of employment;
(v) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the pro rata portion of any non-discretionary bonus that the Employee would have been entitled to if he had remained an employee throughout the fiscal year, such pro rata portion to be based on the number of days from the beginning of such fiscal year through the Date of Termination divided by 365; and
(vi) Employee's reasonable, out-of-pocket fees and expenses in connection with outplacement services, in an amount not to exceed $15,000.
(d) TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON OR TERMINATION BY COMPANY FOR CAUSE. In the event that the Employee terminates his employment other than for Good Reason or the Company terminates his employment for Cause, the Employee shall not be entitled to any compensation except as set forth below:
(i) Any base salary that is accrued but unpaid, any vacation that is accrued but unused (for the then current fiscal year only), and any business expenses that are unreimbursed -- as of the Date of Termination; and
(ii) Any other rights and benefits (if any) provided under plans and programs of the Company, determined in accordance with the applicable terms and provisions of such plans and programs.
11. CHANGE IN CONTROL. Immediately upon the occurrence of a "Change in Control," the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including without limitation, all stock options or other awards under the Stock Plan, in which he was a participant at the time of the Change in Control. For purposes of this Agreement, the term "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement (i) the acquisition by any 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") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by the Employee (or a group including the Employee); (ii) the consummation of any reorganization, merger or consolidation other than a reorganization, merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such reorganization, merger or consolidation; or (iii) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets.
12. EMPLOYEE'S CAPACITY. Employee represents to the Company that he has the capacity and right to enter into this Agreement and to perform all his services and other obligations under this Agreement without any restriction whatsoever by any other agreement, document, restrictive covenant or other restriction.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
14. SEVERABILITY. The intention of the parties to this Agreement is to comply fully with all laws and public policies, and this Agreement shall be construed consistently with all laws and public policies to the extent possible. In the event a court of competent jurisdiction determines any restriction set forth in this Agreement to be unenforceable or contrary to law in whole or in part, then the Company's rights under this Agreement shall be the maximum rights allowed by law and the scope of such restriction shall be judicially modified to reflect the Company's maximum rights thereunder. If and to the extent that any court of competent jurisdiction determines that it is impossible to construe any provision of this Agreement consistently with any law or public policy and consequently holds that provision to be invalid, this holding shall in no way affect the validity of the other provisions of this Agreement, which shall remain in full force and effect.
16. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed to be properly given if delivered personally, if sent by certified or registered first class mail, postage prepaid, or if sent by telegram, telex, telecopy, telecommunication or other similar form of communication (with receipt confirmed), as follows:
Fax: (614)
with a copy to:
Ronald A. Robins, Jr.
Vorys, Sater, Seymour and Pease LLP 52 East Gay Street
Fax: (614) 719-4926
[address1]
Granville, OH [zip]
Fax: (614)
or to such other person, address or facsimile number as any party may designate by written notice. Any notice given by certified mail shall be deemed to have been given and shall be effective upon notice of receipt, refusal or unclaimed status after such notice has been mailed to the notice address of the party to whom notice is to be given.
17. SUCCESSORS. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, legal representatives, successors and assigns of each party to this Agreement.
18. AMENDMENT AND WAIVER. This Agreement may not be amended, released, discharged, abandoned, changed or modified in any manner, except by an instrument in writing signed on behalf of each of the parties hereto. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereof to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach.
19. CAPTIONS. The captions of the various sections of this Agreement are not part of the context hereof but are labels to assist in locating those sections and shall be ignored in construing this Agreement.
20. DEFINITION OF "COMPANY". Unless the context otherwise requires, the term the "Company" shall include AirNet Systems, Inc. and any parent, subsidiary or affiliate corporation of AirNet Systems, Inc.
EMPLOYEE: AIRNET SYSTEMS, INC.
/s/ Joe E. Biggerstaff By: /s/ William R. Sumser
------------------------ ---------------------
Joel Biggerstaff Name:
Title: Chief Financial Officer
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This Agreement is made as of January 1, 2001, between AIRNET SYSTEMS, INC., (the "Company") and WILLIAM R. SUMSER (the "Employee"), who hereby agree as follows:
1. EMPLOYMENT OF EMPLOYEE. The Company hereby employs Employee and Employee hereby accepts employment by the Company, under the terms and subject to the conditions contained in this Agreement. The Company hereby employs Employee as its Vice President, Finance, Chief Financial Officer and Secretary.
2. TERM OF EMPLOYMENT. Employee has been employed by the Company since September 23, 1988, without written agreement. The term of Employee's employment by the Company under this Agreement shall be for the period (the "Initial Employment Period") beginning on the date of this Agreement and ending on December 31, 2001; provided, that the Initial Employment Period shall extend for successive one year periods (each a "Renewal Employment Period" and, together with the Initial Employment Period, the "Employment Period") unless either the Company or Employee provides the other party notice of termination of this Agreement at least ninety (90) days prior to the end of the Employment Period.
3. SERVICES. Employee shall use his best efforts in performing the duties of employment assigned to Employee pursuant to this Agreement in an efficient, faithful and business-like manner. Employee shall report directly to the Chief Executive Officer of the Company or such other officer designated by the Chief Executive Officer. Employee shall perform such duties as requested by, and have such authority to act on behalf of the Company as may be conferred by, the Board of Directors. Employee shall devote his full business time, attention, energy and skill to the business of the Company. During the Employment Period, the Employee shall not engage in or perform any outside consulting or other services for any person other than the Company or any of its subsidiaries. Notwithstanding the previous sentence, the Employee may serve as a director or trustee of any civil, fraternal, religious, public interest or similar organization. During the term of this Agreement, the primary place of employment for the Employee shall be the Greater Columbus Ohio Metropolitan area, provided, however, that Employee shall be required to travel as necessary or prudent to effectively and efficiently satisfy the terms of his employment as set forth in this Agreement.
4. COMPENSATION. For the services described in this Agreement, the Employee shall receive an initial annual base salary of Two Hundred Thirty Thousand ($230,000.00). On an annual basis, the Compensation Committee of the Board of Directors will conduct a review of the Employee's performance and determine whether the Employee's base salary should be adjusted. Pursuant to such performance review, the Employee's base salary may be increased or decreased. In the event that the Company adjusts the Employee's initial base salary, the amount of the initial base salary, together with any adjustment(s), shall be his base salary. Said base salary shall be payable in equal installments in accordance with the regular payroll practices of the Company. Employee shall further be entitled to receive a bonus according to the plans from time to time established by, and subject to approval by, the Compensation Committee of the Board of Directors.
5. OTHER EMPLOYEE FRINGE BENEFITS.
(a) IN GENERAL. The Company shall further provide the Employee with all health and life insurance coverages, sick leave and disability programs, tax-qualified retirement plan contributions, stock option plans, paid holidays and vacations, perquisites, and such other fringe benefits of employment as the Company may provide from time to time to actively employed senior executives of the Company.
(b) SUPPLEMENTAL BENEFITS. The Company shall also provide the Employee with the following supplemental benefits:
(i) VACATION. The Employee will be entitled to total vacation leave during the term of this Agreement of up to four (4) weeks per year at such time as agreed between the Employee and the Company.
(ii) STOCK OPTION PLAN. The Employee will be entitled to participate in the AirNet Systems, Inc. Incentive Stock Plan, as may be amended from time to time (the "Stock Plan"), a copy of which is attached hereto as Exhibit A. The Employee's participation in the Stock Plan shall be determined in accordance with the terms and conditions of the Stock Plan and by the Board of Directors of the Company or the committee thereof administering the Stock Plan.
(iii) OTHER. The Employee will also be entitled to participate in such other employee benefit plans, and shall receive such additional fringe benefits, as the Board of Directors or the Compensation Committee thereof may from time to time determine.
(c) EXPENSES. The Company shall reimburse the Employee for all reasonable expenses paid or incurred by Employee in the performance of his duties under this Agreement. Such reimbursements shall be made in accordance with the standard expense reporting, approval and reimbursement policies maintained by the Company from time to time.
6. NON-COMPETITION.
(a) Except with the prior written consent of the Company, during the Employment Period, and for a period of one (1) year immediately following termination of his employment with the Company, whether voluntarily or involuntarily or with or without Cause, the Employee shall not, directly or indirectly for the benefit of Employee or others, either as principal, agent, manager, consultant, partner, owner, employee, distributor, dealer, representative, joint venturer, creditor or otherwise, engage in any work involving any of the following: (i) any activity involving the delivery of time sensitive packages or which competes with any service or product of the Company now in existence or in existence as of the Date of Termination; (ii) the promotion, solicitation, attempt to solicit, license or sell, in any geographic area where the Company or its successor in interest conducts business of any product or service in competition with the products or services of the Company; (iii) the solicitation, attempt to solicit, management, maintenance, sale or license of any product or service in competition with the products or services of the Company to any business which was a customer of the Company during the one year period immediately preceding the cessation of Employee's employment with the Company; and (iv) the disclosure to any person of the names of any of the customers of the Company or any other information pertaining to them unless such information can be obtained from public sources.
(b) The Employee acknowledges that the business of the Company is national in scope and the national scope is the reason for the geographic scope and/or duration of the restrictions on competition and solicitation provided in this Section 6. Satisfaction of the one (1) year period described in this Section 6 shall be suspended during the time of any activity of the Employee prohibited by this Section 6. In the event a court grants injunctive relief to the Company for a failure of Employee to comply with the provision contained in this Section 6, the noncompetition period shall commence anew with the date such relief is granted.
(c) The restrictions provided in this Section 6 may be enforced by the Company, by an action at law, or in equity, including but not limited to, an action for injunction and/or an action for damages. The provisions of this Section 6 constitute an essential element of this Agreement, without which the Agreement would not have been affected by the Company. The provisions of this Section 6 shall survive the termination of any other obligations of Employee under this Agreement for a period necessary to enforce its provisions. If the scope of any restriction contained in this Section 6 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law and the Employee hereby consents and agrees that such scope may be judicially modified in any proceeding brought to enforce such restriction.
7. CONFIDENTIAL INFORMATION. Employee hereby acknowledges that in the course of his employment, Employee may receive, have access to or contribute to confidential, proprietary information or trade secrets of the Company. In consideration of Employee's initial and continued employment with the Company and of Employee being given access to Confidential Information (as defined in subparagraph (a) below), Employee agrees to the following:
(a) "Confidential Information" means all of the Company's confidential and proprietary information and trade secrets in existence on the date hereof or at any time during the Employee's employment, including, but not limited to:
(i) All or any portion or phase of any and all information constituting or relating to any and all products, manufacturing techniques, equipment, manufacturing and test data or materials used or owned by or licensed to the Company, whether fully or partially developed, which information is used or usable by the Company in its business or by its customers;
(ii) The whole or any portion or phase of any business plans, financial information, purchasing data, supplier data, accounting data or other financial information;
(iii) The whole or any portion or phase of any research and development information, inventions, discoveries, patent applications, ideas, designs, design procedures, engineering drawings, sketches, renderings, other drawings, computer programs, progress reports, algorithms or processes or other technical information;
(iv) The whole or any portion or phase of any marketing or sales information, sales records, customer lists, prices, sales projections, costs, specifications, procurement and sales activities and procedures, promotion and pricing techniques, credit and financial data concerning customers or other sales information; and
(v) Trade secrets, as defined by the laws of the State of Ohio.
Notwithstanding the foregoing, Confidential Information shall not include information which has been published, disseminated without obligation of confidence or which has otherwise become a part of the public domain as of the date hereof or at any time subsequent to the date hereof, (A) by or through the affirmative action of the Company or (B) by or through any other person who has received the prior written approval of the Company in connection with such publication or dissemination.
(b) Employee acknowledges that all information, whether falling within the above definition or otherwise, shall be presumed to be Confidential Information if the Company takes measures designed to prevent it, in the ordinary course of business, from being available to persons other than those selected by the Company to have access thereto for limited purposes.
(c) All information disclosed to Employee or to which Employee obtains access during the period of Employee's employment, which Employee has a reasonable basis to believe to be Confidential Information, shall be presumed to be Confidential Information.
(d) Except as required as a part of Employee's duties at the Company, Employee shall never, either during Employee's employment by the Company or thereafter, disclose or use on Employee's own behalf or on behalf of any person any Confidential Information, as defined in subparagraph (a) hereof. Upon termination of Employee's employment with the Company, regardless of whether such termination is voluntary, involuntary or with or without Cause, all records of Confidential Information, including but not limited to, all notes, memos, plans, records, letters, reports, magnetic tapes, magnetic diskettes and other tangible materials, including copies thereof in Employee's possession, whether prepared by Employee or by others, shall be returned to the Company. Upon request at any time during the term of employment or thereafter, Employee shall disclose to the Company the names and addresses of any persons to whom any disclosure of Confidential Information has been made and shall state to the Company what disclosures have been made to such persons.
(e) Employee agrees to communicate to the Company promptly and fully, and to assign to the Company, all inventions and technical or business innovations, including, but not limited to, any and all products and processes developed or conceived solely by Employee, or jointly with others, during the term of Employee's employment, which are within the scope of the Company's business as conducted on the date of this Agreement or at any time during the term of Employee's employment with the Company, or which were developed on the Company's time, or which utilized the Company's equipment, materials or information. Employee further agrees to execute all necessary papers, and otherwise to assist the Company, at the Company's sole expense, to obtain patents or other legal protection as the Company deems fit, both during and after Employee's term of employment with the Company. As to any such inventions and technical or business innovations, any products or processes, said inventions, innovations, products and processes, are to be the property of the Company, and Employee shall have no proprietary interest therein.
(f) Employee agrees and understands that there are significant business reasons for entering into this Section 7 and that its restrictions are reasonable and necessary to protect legitimate business interests of the Company.
8. CERTAIN OTHER PROHIBITIONS. During the Employment Period and for a period of one (1) year immediately following the termination of his employment with the Company, the Employee shall not, either directly or indirectly, do any of the following: (i) solicit to hire or hire any employee of the Company or (ii) participate as a shareholder, partner, joint venturer, officer, director, employee, agent, solicitor, distributor, dealer or representative, or have any direct or indirect financial interest (including without limitation the interest of a creditor) with any person who solicits to hire or hires any employee of the Company.
9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT BY THE COMPANY. The Employee's employment hereunder may be terminated by the Company without any breach of this Agreement only under the following circumstances:
(ii) The Company may terminate the Employee's employment hereunder for Cause. "Cause" shall be defined to include (i) any willful breach of the material terms of this Agreement; (ii) any willful breach of any material duty of employment assigned to the Employee pursuant to this Agreement; (iii) material refusal to perform the duties of employment assigned to Employee pursuant to this Agreement; (iv) theft or embezzlement of a material amount of the Company's property; (v) fraud or (vi) indictment for criminal activity not including minor misdemeanor traffic offenses.
(b) TERMINATION OF EMPLOYMENT BY EMPLOYEE. The Employee may terminate his employment at any time. However, he shall be deemed to have terminated his employment for "Good Reason" only if he terminated his employment by giving Notice of Termination pursuant to Sections 9(c) and 9(d)(iii) within ninety (90) days after the occurrence of any of the following events (provided the Company does not cure such event within thirty (30) days following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written consent, the Company assigns the Employee to duties materially inconsistent in any respect with his position, authority, duties or responsibilities as set forth in Section 1, or takes any other action that results in a material diminution in such position, authority, duties or responsibilities, including, but not limited to, failing to reappoint or reelect the Employee to any such position;
(ii) The Employee's base salary is reduced for any reason other than in connection with the termination of his employment, except if such base salary is reduced in connection with proportionate reductions in the salaries of all other executive officers of the Company;
(iii) The assignment of the Employee, without his prior written consent, to a Company office located outside of the Greater Columbus, Ohio Metropolitan area;
(iv) The Company's failure to obtain an agreement from any successor or assign of the Company to assume and to agree to perform this Agreement;
(vi) The Company otherwise materially breaches its obligations to make payments to the Employee under this Agreement.
(c) NOTICE OF TERMINATION. Any termination of the Employee's employment by the Company hereunder, or by the Employee other than termination upon the Employee's death, shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a notice that shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated.
(d) DATE OF TERMINATION. For purposes of this Agreement, an applicable "Date of Termination" means:
(i) If the Employee's employment is terminated by his death, the date of his death.
(ii) If the Employee's employment is terminated by the Company as a result of Disability pursuant to Section 9(a)(i), the date that is thirty (30) days after Notice of Termination is given.
(iii) If the Employee terminates his employment for Good Reason pursuant to Section 9(b), the date that is thirty (30) days after Notice of Termination is given (provided that the Company does not cure such event during that thirty-day period).
(iv) If the Employee terminates his employment other than for Good Reason, the date the Notice of Termination is given.
(v) If the Employee's employment is terminated by the Company for Cause pursuant to Section 9(a)(ii), the date the Notice of Termination is given.
(vi) If the Employee's employment is terminated by the Company other than for Cause or Disability, the date that is thirty (30) days after Notice of Termination is given.
10. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY.
(a) DEATH. If the Employee's employment is terminated by his death, the Employee's beneficiary (as designated by the Employee in writing with the Company prior to his death) shall be entitled to the following payments and benefits: (i) any portion of the Employee's base salary that is accrued but unpaid, any vacation that is accrued but unused (during the then current fiscal year only), and any business expenses that are unreimbursed --all, determined as of the Date of Termination and payable within thirty (30) days of such date and (ii) any benefits resulting from the fringe benefits described in Section 5 upon the Employee's death in accordance with the provisions of the plan or program that provides each applicable fringe benefit. In the absence of a beneficiary designation by the Employee, or, if the Employee's designated beneficiary does not survive the Employee, benefits described in this Section 10(a) shall be paid to the Employee's estate.
(b) DISABILITY.
(i) During any period that the Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Employee shall continue to receive his base salary and bonus at the rate then in effect for such period until his employment is terminated pursuant to Section 9(a)(i); provided, however, that payments of base salary and bonus so made to the Employee shall be reduced by the sum of the amounts, if any, that were payable to the Employee at or before the time of any such salary or bonus payment under any disability benefit plan or plans of the Company and that were not previously applied to reduce any payment of base salary or bonus.
(ii). Upon his termination of employment because of Disability, the Employee shall be entitled to the following payments and benefits:
(A) Those described in Section 10(a);
(B) for a period of twelve (12) months following his Date of Termination, continuation of all fringe benefits described in Section 5, except for group medical insurance in effect at the Date of Termination and except for the Stock Plan; and
(C) For a period of eighteen (18) months following his Date of Termination, continuation of the Company's group medical insurance for the Employee and his dependents, as in effect at the Date of Termination.
(c) TERMINATION BY COMPANY WITHOUT CAUSE, OR TERMINATION BY EMPLOYEE FOR GOOD REASON. In the event that the Company terminates the Employee's employment without Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to the following payments and benefits:
(i) Those described in Section 10(b)(ii);
(iii) As of his Date of Termination, the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including, without limitation, all stock options and awards under the Stock Plan, in which he was a participant at the time of the termination of his employment;
(iv) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the Employee's non-vested interest under any tax qualified retirement or savings plan maintained by the Company which is forfeited by the Employee under such plan's terms upon his termination of employment;
(v) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the pro rata portion of any non-discretionary bonus that the Employee would have been entitled to if he had remained an employee throughout the fiscal year, such pro rata portion to be based on the number of days from the beginning of such fiscal year through the Date of Termination divided by 365; and
(vi) Employee's reasonable, out-of-pocket fees and expenses in connection with outplacement services, in an amount not to exceed $15,000.
(d) TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON OR TERMINATION BY COMPANY FOR CAUSE. In the event that the Employee terminates his employment other than for Good Reason or the Company terminates his employment for Cause, the Employee shall not be entitled to any compensation except as set forth below:
(i) Any base salary that is accrued but unpaid, any vacation that is accrued but unused (for the then current fiscal year only), and any business expenses that are unreimbursed -- as of the Date of Termination; and
11. CHANGE IN CONTROL. Immediately upon the occurrence of a "Change in Control," the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including without limitation, all stock options or other awards under the Stock Plan, in which he was a participant at the time of the Change in Control. For purposes of this Agreement, the term "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement (i) the acquisition by any 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") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by the Employee (or a group including the Employee); (ii) the consummation of any reorganization, merger or consolidation other than a reorganization, merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such reorganization, merger or consolidation; or (iii) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets.
12. EMPLOYEE'S CAPACITY. Employee represents to the Company that he has the capacity and right to enter into this Agreement and to perform all his services and other obligations under this Agreement without any restriction whatsoever by any other agreement, document, restrictive covenant or other restriction.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
14. SEVERABILITY. The intention of the parties to this Agreement is to comply fully with all laws and public policies, and this Agreement shall be construed consistently with all laws and public policies to the extent possible. In the event a court of competent jurisdiction determines any restriction set forth in this Agreement to be unenforceable or contrary to law in whole or in part, then the Company's rights under this Agreement shall be the maximum rights allowed by law and the scope of such restriction shall be judicially modified to reflect the Company's maximum rights thereunder. If and to the extent that any court of competent jurisdiction determines that it is impossible to construe any provision of this Agreement consistently with any law or public policy and consequently holds that provision to be invalid, this holding shall in no way affect the validity of the other provisions of this Agreement, which shall remain in full force and effect.
15. COMPLETE AGREEMENT. This document contains the entire agreement between the parties and supersedes any prior discussions, negotiations, representations, or agreements between them relating to employment of Employee. No additions or other changes to this Agreement shall be made or binding on any party unless made in writing and signed by all parties to this Agreement.
16. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed to be properly given if delivered personally, if sent by certified or registered first class mail, postage prepaid, or if sent by telegram, telex, telecopy, telecommunication or other similar form of communication (with receipt confirmed), as follows:
Fax: (614)
with a copy to:
Ronald A. Robins, Jr.
Vorys, Sater, Seymour and Pease LLP 52 East Gay Street
Fax: (614) 719-4926
[address1]
[City], OH [zip]
Fax: (614)
or to such other person, address or facsimile number as any party may designate by written notice. Any notice given by certified mail shall be deemed to have been given and shall be effective upon notice of receipt, refusal or unclaimed status after such notice has been mailed to the notice address of the party to whom notice is to be given.
17. SUCCESSORS. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, legal representatives, successors and assigns of each party to this Agreement.
18. AMENDMENT AND WAIVER. This Agreement may not be amended, released, discharged, abandoned, changed or modified in any manner, except by an instrument in writing signed on behalf of each of the parties hereto. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereof to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach.
19. CAPTIONS. The captions of the various sections of this Agreement are not part of the context hereof but are labels to assist in locating those sections and shall be ignored in construing this Agreement.
20. DEFINITION OF "COMPANY". Unless the context otherwise requires, the term the "Company" shall include AirNet Systems, Inc. and any parent, subsidiary or affiliate corporation of AirNet Systems, Inc.
EMPLOYEE: AIRNET SYSTEMS, INC.
/s/ William R. Sumser By: /s/ Joel E. Biggerstaff
--------------------- -----------------------
William R. Sumser Name:
Title: Chief Executive Officer
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This Agreement is made as of January 1, 2001, between AIRNET SYSTEMS, INC., (the "Company") and JEFFREY B. HARRIS (the "Employee"), who hereby agree as follows:
1. EMPLOYMENT OF EMPLOYEE. The Company hereby employs Employee and Employee hereby accepts employment by the Company, under the terms and subject to the conditions contained in this Agreement. The Company hereby employs Employee as its Vice President, Bank Sales.
2. TERM OF EMPLOYMENT. Employee has been employed by the Company since June 1996, without written agreement. The term of Employee's employment by the Company under this Agreement shall be for the period (the "Initial Employment Period") beginning on the date of this Agreement and ending on December 31, 2001; provided, that the Initial Employment Period shall extend for successive one year periods (each a "Renewal Employment Period" and, together with the Initial Employment Period, the "Employment Period") unless either the Company or Employee provides the other party notice of termination of this Agreement at least ninety (90) days prior to the end of the Employment Period.
3. SERVICES. Employee shall use his best efforts in performing the duties of employment assigned to Employee pursuant to this Agreement in an efficient, faithful and business-like manner. Employee shall report directly to the Chief Executive Officer of the Company or such other officer designated by the Chief Executive Officer. Employee shall perform such duties as requested by, and have such authority to act on behalf of the Company as may be conferred by, the Board of Directors. Employee shall devote his full business time, attention, energy and skill to the business of the Company. During the Employment Period, the Employee shall not engage in or perform any outside consulting or other services for any person other than the Company or any of its subsidiaries. Notwithstanding the previous sentence, the Employee may serve as a director or trustee of any civil, fraternal, religious, public interest or similar organization. During the term of this Agreement, the primary place of employment for the Employee shall be the Greater Columbus Ohio Metropolitan area, provided, however, that Employee shall be required to travel as necessary or prudent to effectively and efficiently satisfy the terms of his employment as set forth in this Agreement.
4. COMPENSATION. For the services described in this Agreement, the Employee shall receive an initial annual base salary of Two Hundred Thirty Thousand ($230,000.00). On an annual basis, the Compensation Committee of the Board of Directors will conduct a review of the Employee's performance and determine whether the Employee's base salary should be adjusted. Pursuant to such performance review, the Employee's base salary may be increased or decreased. In the event that the Company adjusts the Employee's initial base salary, the amount of the initial base salary, together with any adjustment(s), shall be his base salary. Said base salary shall be payable in equal installments in accordance with the regular payroll practices of the Company. Employee shall further be entitled to receive a bonus according to the plans from time to time established by, and subject to approval by, the Compensation Committee of the Board of Directors.
5. OTHER EMPLOYEE FRINGE BENEFITS.
(a) IN GENERAL. The Company shall further provide the Employee with all health and life insurance coverages, sick leave and disability programs, tax-qualified retirement plan contributions, stock option plans, paid holidays and vacations, perquisites, and such other fringe benefits of employment as the Company may provide from time to time to actively employed senior executives of the Company.
(b) SUPPLEMENTAL BENEFITS. The Company shall also provide the Employee with the following supplemental benefits:
(i) VACATION. The Employee will be entitled to total vacation leave during the term of this Agreement of up to four (4) weeks per year at such time as agreed between the Employee and the Company.
(ii) STOCK OPTION PLAN. The Employee will be entitled to participate in the AirNet Systems, Inc. Incentive Stock Plan, as may be amended from time to time (the "Stock Plan"), a copy of which is attached hereto as Exhibit A. The Employee's participation in the Stock Plan shall be determined in accordance with the terms and conditions of the Stock Plan and by the Board of Directors of the Company or the committee thereof administering the Stock Plan.
(iii) OTHER. The Employee will also be entitled to participate in such other employee benefit plans, and shall receive such additional fringe benefits, as the Board of Directors or the Compensation Committee thereof may from time to time determine.
(c) EXPENSES. The Company shall reimburse the Employee for all reasonable expenses paid or incurred by Employee in the performance of his duties under this Agreement. Such reimbursements shall be made in accordance with the standard expense reporting, approval and reimbursement policies maintained by the Company from time to time.
6. NON-COMPETITION.
(a) Except with the prior written consent of the Company, during the Employment Period, and for a period of one (1) year immediately following termination of his employment with the Company, whether voluntarily or involuntarily or with or without Cause, the Employee shall not, directly or indirectly for the benefit of Employee or others, either as principal, agent, manager, consultant, partner, owner, employee, distributor, dealer, representative, joint venturer, creditor or otherwise, engage in any work involving any of the following: (i) any activity involving the delivery of time sensitive packages or which competes with any service or product of the Company now in existence or in existence as of the Date of Termination; (ii) the promotion, solicitation, attempt to solicit, license or sell, in any geographic area where the Company or its successor in interest conducts business of any product or service in competition with the products or services of the Company; (iii) the solicitation, attempt to solicit, management, maintenance, sale or license of any product or service in competition with the products or services of the Company to any business which was a customer of the Company during the one year period immediately preceding the cessation of Employee's employment with the Company; and (iv) the disclosure to any person of the names of any of the customers of the Company or any other information pertaining to them unless such information can be obtained from public sources.
(b) The Employee acknowledges that the business of the Company is national in scope and the national scope is the reason for the geographic scope and/or duration of the restrictions on competition and solicitation provided in this Section 6. Satisfaction of the one (1) year period described in this Section 6 shall be suspended during the time of any activity of the Employee prohibited by this Section 6. In the event a court grants injunctive relief to the Company for a failure of Employee to comply with the provision contained in this Section 6, the noncompetition period shall commence anew with the date such relief is granted.
(c) The restrictions provided in this Section 6 may be enforced by the Company, by an action at law, or in equity, including but not limited to, an action for injunction and/or an action for damages. The provisions of this Section 6 constitute an essential element of this Agreement, without which the Agreement would not have been affected by the Company. The provisions of this Section 6 shall survive the termination of any other obligations of Employee under this Agreement for a period necessary to enforce its provisions. If the scope of any restriction contained in this Section 6 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law and the Employee hereby consents and agrees that such scope may be judicially modified in any proceeding brought to enforce such restriction.
7. CONFIDENTIAL INFORMATION. Employee hereby acknowledges that in the course of his employment, Employee may receive, have access to or contribute to confidential, proprietary information or trade secrets of the Company. In consideration of Employee's initial and continued employment with the Company and of Employee being given access to Confidential Information (as defined in subparagraph (a) below), Employee agrees to the following:
(a) "Confidential Information" means all of the Company's confidential and proprietary information and trade secrets in existence on the date hereof or at any time during the Employee's employment, including, but not limited to:
(i) All or any portion or phase of any and all information constituting or relating to any and all products, manufacturing techniques, equipment, manufacturing and test data or materials used or owned by or licensed to the Company, whether fully or partially developed, which information is used or usable by the Company in its business or by its customers;
(ii) The whole or any portion or phase of any business plans, financial information, purchasing data, supplier data, accounting data or other financial information;
(iii) The whole or any portion or phase of any research and development information, inventions, discoveries, patent applications, ideas, designs, design procedures, engineering drawings, sketches, renderings, other drawings, computer programs, progress reports, algorithms or processes or other technical information;
(iv) The whole or any portion or phase of any marketing or sales information, sales records, customer lists, prices, sales projections, costs, specifications, procurement and sales activities and procedures, promotion and pricing techniques, credit and financial data concerning customers or other sales information; and
(v) Trade secrets, as defined by the laws of the State of Ohio.
Notwithstanding the foregoing, Confidential Information shall not include information which has been published, disseminated without obligation of confidence or which has otherwise become a part of the public domain as of the date hereof or at any time subsequent to the date hereof, (A) by or through the affirmative action of the Company or (B) by or through any other person who has received the prior written approval of the Company in connection with such publication or dissemination.
(b) Employee acknowledges that all information, whether falling within the above definition or otherwise, shall be presumed to be Confidential Information if the Company takes measures designed to prevent it, in the ordinary course of business, from being available to persons other than those selected by the Company to have access thereto for limited purposes.
(c) All information disclosed to Employee or to which Employee obtains access during the period of Employee's employment, which Employee has a reasonable basis to believe to be Confidential Information, shall be presumed to be Confidential Information.
(d) Except as required as a part of Employee's duties at the Company, Employee shall never, either during Employee's employment by the Company or thereafter, disclose or use on Employee's own behalf or on behalf of any person any Confidential Information, as defined in subparagraph (a) hereof. Upon termination of Employee's employment with the Company, regardless of whether such termination is voluntary, involuntary or with or without Cause, all records of Confidential Information, including but not limited to, all notes, memos, plans, records, letters, reports, magnetic tapes, magnetic diskettes and other tangible materials, including copies thereof in Employee's possession, whether prepared by Employee or by others, shall be returned to the Company. Upon request at any time during the term of employment or thereafter, Employee shall disclose to the Company the names and addresses of any persons to whom any disclosure of Confidential Information has been made and shall state to the Company what disclosures have been made to such persons.
(e) Employee agrees to communicate to the Company promptly and fully, and to assign to the Company, all inventions and technical or business innovations, including, but not limited to, any and all products and processes developed or conceived solely by Employee, or jointly with others, during the term of Employee's employment, which are within the scope of the Company's business as conducted on the date of this Agreement or at any time during the term of Employee's employment with the Company, or which were developed on the Company's time, or which utilized the Company's equipment, materials or information. Employee further agrees to execute all necessary papers, and otherwise to assist the Company, at the Company's sole expense, to obtain patents or other legal protection as the Company deems fit, both during and after Employee's term of employment with the Company. As to any such inventions and technical or business innovations, any products or processes, said inventions, innovations, products and processes, are to be the property of the Company, and Employee shall have no proprietary interest therein.
(f) Employee agrees and understands that there are significant business reasons for entering into this Section 7 and that its restrictions are reasonable and necessary to protect legitimate business interests of the Company.
8. CERTAIN OTHER PROHIBITIONS. During the Employment Period and for a period of one (1) year immediately following the termination of his employment with the Company, the Employee shall not, either directly or indirectly, do any of the following: (i) solicit to hire or hire any employee of the Company or (ii) participate as a shareholder, partner, joint venturer, officer, director, employee, agent, solicitor, distributor, dealer or representative, or have any direct or indirect financial interest (including without limitation the interest of a creditor) with any person who solicits to hire or hires any employee of the Company.
9. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF EMPLOYMENT BY THE COMPANY. The Employee's employment hereunder may be terminated by the Company without any breach of this Agreement only under the following circumstances:
(ii) The Company may terminate the Employee's employment hereunder for Cause. "Cause" shall be defined to include (i) any willful breach of the material terms of this Agreement; (ii) any willful breach of any material duty of employment assigned to the Employee pursuant to this Agreement; (iii) material refusal to perform the duties of employment assigned to Employee pursuant to this Agreement; (iv) theft or embezzlement of a material amount of the Company's property; (v) fraud or (vi) indictment for criminal activity not including minor misdemeanor traffic offenses.
(b) TERMINATION OF EMPLOYMENT BY EMPLOYEE. The Employee may terminate his employment at any time. However, he shall be deemed to have terminated his employment for "Good Reason" only if he terminated his employment by giving Notice of Termination pursuant to Sections 9(c) and 9(d)(iii) within ninety (90) days after the occurrence of any of the following events (provided the Company does not cure such event within thirty (30) days following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written consent, the Company assigns the Employee to duties materially inconsistent in any respect with his position, authority, duties or responsibilities as set forth in Section 1, or takes any other action that results in a material diminution in such position, authority, duties or responsibilities, including, but not limited to, failing to reappoint or reelect the Employee to any such position;
(ii) The Employee's base salary is reduced for any reason other than in connection with the termination of his employment, except if such base salary is reduced in connection with proportionate reductions in the salaries of all other executive officers of the Company;
(iii) The assignment of the Employee, without his prior written consent, to a Company office located outside of the Greater Columbus, Ohio Metropolitan area;
(iv) The Company's failure to obtain an agreement from any successor or assign of the Company to assume and to agree to perform this Agreement;
(vi) The Company otherwise materially breaches its obligations to make payments to the Employee under this Agreement.
(c) NOTICE OF TERMINATION. Any termination of the Employee's employment by the Company hereunder, or by the Employee other than termination upon the Employee's death, shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" means a notice that shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated.
(d) DATE OF TERMINATION. For purposes of this Agreement, an applicable "Date of Termination" means:
(i) If the Employee's employment is terminated by his death, the date of his death.
(ii) If the Employee's employment is terminated by the Company as a result of Disability pursuant to Section 9(a)(i), the date that is thirty (30) days after Notice of Termination is given.
(iii) If the Employee terminates his employment for Good Reason pursuant to Section 9(b), the date that is thirty (30) days after Notice of Termination is given (provided that the Company does not cure such event during that thirty-day period).
(iv) If the Employee terminates his employment other than for Good Reason, the date the Notice of Termination is given.
(v) If the Employee's employment is terminated by the Company for Cause pursuant to Section 9(a)(ii), the date the Notice of Termination is given.
(vi) If the Employee's employment is terminated by the Company other than for Cause or Disability, the date that is thirty (30) days after Notice of Termination is given.
10. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY.
(a) DEATH. If the Employee's employment is terminated by his death, the Employee's beneficiary (as designated by the Employee in writing with the Company prior to his death) shall be entitled to the following payments and benefits: (i) any portion of the Employee's base salary that is accrued but unpaid, any vacation that is accrued but unused (during the then current fiscal year only), and any business expenses that are unreimbursed -- all, determined as of the Date of Termination and payable within thirty (30) days of such date and (ii) any benefits resulting from the fringe benefits described in Section 5 upon the Employee's death in accordance with the provisions of the plan or program that provides each applicable fringe benefit. In the absence of a beneficiary designation by the Employee, or, if the Employee's designated beneficiary does not survive the Employee, benefits described in this Section 10(a) shall be paid to the Employee's estate.
(b) DISABILITY.
(i) During any period that the Employee fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Employee shall continue to receive his base salary and bonus at the rate then in effect for such period until his employment is terminated pursuant to Section 9(a)(i); provided, however, that payments of base salary and bonus so made to the Employee shall be reduced by the sum of the amounts, if any, that were payable to the Employee at or before the time of any such salary or bonus payment under any disability benefit plan or plans of the Company and that were not previously applied to reduce any payment of base salary or bonus.
(ii). Upon his termination of employment because of Disability, the Employee shall be entitled to the following payments and benefits:
(A) Those described in Section 10(a);
(B) for a period of twelve (12) months following his Date of Termination, continuation of all fringe benefits described in Section 5, except for group medical insurance in effect at the Date of Termination and except for the Stock Plan; and
(C) For a period of eighteen (18) months following his Date of Termination, continuation of the Company's group medical insurance for the Employee and his dependents, as in effect at the Date of Termination.
(c) TERMINATION BY COMPANY WITHOUT CAUSE, OR TERMINATION BY EMPLOYEE FOR GOOD REASON. In the event that the Company terminates the Employee's employment without Cause or the Employee terminates his employment for Good Reason, the Employee shall be entitled to the following payments and benefits:
(i) Those described in Section 10(b)(ii);
(iii) As of his Date of Termination, the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including, without limitation, all stock options and awards under the Stock Plan, in which he was a participant at the time of the termination of his employment;
(iv) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the Employee's non-vested interest under any tax qualified retirement or savings plan maintained by the Company which is forfeited by the Employee under such plan's terms upon his termination of employment;
(v) A single lump sum payment, payable within thirty (30) days of the Date of Termination, equal to the pro rata portion of any non-discretionary bonus that the Employee would have been entitled to if he had remained an employee throughout the fiscal year, such pro rata portion to be based on the number of days from the beginning of such fiscal year through the Date of Termination divided by 365; and
(vi) Employee's reasonable, out-of-pocket fees and expenses in connection with outplacement services, in an amount not to exceed $15,000.
(d) TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON OR TERMINATION BY COMPANY FOR CAUSE. In the event that the Employee terminates his employment other than for Good Reason or the Company terminates his employment for Cause, the Employee shall not be entitled to any compensation except as set forth below:
(i) Any base salary that is accrued but unpaid, any vacation that is accrued but unused (for the then current fiscal year only), and any business expenses that are unreimbursed -- as of the Date of Termination; and
(ii) Any other rights and benefits (if any) provided under plans and programs of the Company, determined in accordance with the applicable terms and provisions of such plans and programs.
11. CHANGE IN CONTROL. Immediately upon the occurrence of a "Change in Control," the Employee shall become fully vested in all employee benefit programs (other than any tax qualified retirement or savings plan, the Employee's interest in which shall vest in accordance with such plan's terms), including without limitation, all stock options or other awards under the Stock Plan, in which he was a participant at the time of the Change in Control. For purposes of this Agreement, the term "Change in Control" shall mean the occurrence of any of the following events after the date of this Agreement (i) the acquisition by any 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") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition by the Company, (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (C) any acquisition by the Employee (or a group including the Employee); (ii) the consummation of any reorganization, merger or consolidation other than a reorganization, merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the Voting Securities of the Company or such surviving entity outstanding immediately after such reorganization, merger or consolidation; or (iii) the consummation of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets.
12. EMPLOYEE'S CAPACITY. Employee represents to the Company that he has the capacity and right to enter into this Agreement and to perform all his services and other obligations under this Agreement without any restriction whatsoever by any other agreement, document, restrictive covenant or other restriction.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
14. SEVERABILITY. The intention of the parties to this Agreement is to comply fully with all laws and public policies, and this Agreement shall be construed consistently with all laws and public policies to the extent possible. In the event a court of competent jurisdiction determines any restriction set forth in this Agreement to be unenforceable or contrary to law in whole or in part, then the Company's rights under this Agreement shall be the maximum rights allowed by law and the scope of such restriction shall be judicially modified to reflect the Company's maximum rights thereunder. If and to the extent that any court of competent jurisdiction determines that it is impossible to construe any provision of this Agreement consistently with any law or public policy and consequently holds that provision to be invalid, this holding shall in no way affect the validity of the other provisions of this Agreement, which shall remain in full force and effect.
15. COMPLETE AGREEMENT. This document contains the entire agreement between the parties and supersedes any prior discussions, negotiations, representations, or agreements between them relating to employment of Employee. No additions or other changes to this Agreement shall be made or binding on any party unless made in writing and signed by all parties to this Agreement.
16. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed to be properly given if delivered personally, if sent by certified or registered first class mail, postage prepaid, or if sent by telegram, telex, telecopy, telecommunication or other similar form of communication (with receipt confirmed), as follows:
Fax: (614)
with a copy to:
Ronald A. Robins, Jr.
Vorys, Sater, Seymour and Pease LLP 52 East Gay Street
Fax: (614) 719-4926
[address1]
[City], OH [zip]
Fax: (614)
or to such other person, address or facsimile number as any party may designate by written notice. Any notice given by certified mail shall be deemed to have been given and shall be effective upon notice of receipt, refusal or unclaimed status after such notice has been mailed to the notice address of the party to whom notice is to be given.
17. SUCCESSORS. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, legal representatives, successors and assigns of each party to this Agreement.
18. AMENDMENT AND WAIVER. This Agreement may not be amended, released, discharged, abandoned, changed or modified in any manner, except by an instrument in writing signed on behalf of each of the parties hereto. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereof to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach.
19. CAPTIONS. The captions of the various sections of this Agreement are not part of the context hereof but are labels to assist in locating those sections and shall be ignored in construing this Agreement.
20. DEFINITION OF "COMPANY". Unless the context otherwise requires, the term the "Company" shall include AirNet Systems, Inc. and any parent, subsidiary or affiliate corporation of AirNet Systems, Inc.
EMPLOYEE: AIRNET SYSTEMS, INC.
/s/ Jeffrey B. Harris By: /s/ Joel E. Biggerstaff
--------------------- -----------------------
Jeffrey B. Harris Name:
Title: Chief Executive Officer
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The Salary for Options Conversion Plan allows Executive Officers and Senior Managers (Tier I Managers) to exchange, on an annual basis, up to 25% of their base salary for Stock Option Grants. The Executive Officers (as of December 31, 1999) are required to participate at a 5% level and may, at their discretion, exchange up to an additional 20% of their base salary. The plan, as approved by the Compensation Committee of the Board of Directors, is a one-time plan.
The value of the options received is determined by the percent of salary being exchanged. Salary will be exchanged according to the following table:
EXCHANGE RATES
OPTION VALUE AS A
PERCENT OF SALARY EXCHANGE RATE PERCENT OF SALARY
----------------- ------------- -----------------
5.0% 1.50 7.5%
10.0% 1.75 17.5%
15.0% 2.00 30.0%
20.0% 2.50 50.0%
25.0% 3.00 75.0%
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The Stock Option Grants will be priced at the closing price of AirNet Systems, Inc. common shares on the New York Stock Exchange on the day prior to the start of the plan.
All plan participants will be required to complete and sign a Salary for Option Exchange Enrolment Form two weeks prior to the start of the plan year. The completed and signed form must be submitted to the Chief Financial Officer or the Controller.
Once the plan year has begun NO changes will be permitted.
All options issued under the plan will vest one year after being issued. Should the participant's employment with AirNet be terminated for other than just cause or willful resignation prior to the anniversary of the options being granted, the number of options available to the participant will be prorated through the date of termination and all others will be forfeited. Non-forfeited options of terminated participants will continue to have the same vesting period (one year) and the participant will have 90 days after they become fully vested to exercise such options. Should the participant willfully resign or be terminated for just cause, all of the unvested options granted under this plan will be cancelled.
The Compensation Committee reserves the right to amend, modify, terminate or extend the plan on an annual basis, however no such amendment, modification or termination will occur during a plan year.
We consent to the inclusion in this Annual Report (Form 10-K) of AirNet Systems, Inc. of our report dated February 8, 2001 with respect to the consolidated financial statements and financial statement schedule of AirNet Systems, Inc. included herein.
We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-08189 and No. 333-62659) pertaining to the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan and the Registration Statement (Form S-8 No. 333-43605) pertaining to the AirNet Systems, Inc. Retirement Savings Plan of our report dated February 8, 2001, with respect to the consolidated financial statements and financial statement schedule of AirNet Systems, Inc. included in this Annual Report (Form 10-K) of AirNet Systems, Inc.
/s/ Ernst & Young LLP |
Columbus, Ohio
March 26, 2001
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff and William R. Sumser as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ Gerald G. Mercer ---------------------- Gerald G. Mercer |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints William R. Sumser as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto said attorney-in-fact and agent, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that the said attorney-in-fact and agent, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/S/ Joel E. Biggerstaff ------------------------ Joel E. Biggerstaff |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto said attorney-in-fact and agent, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that the said attorney-in-fact and agent, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ William R. Sumser ----------------------- William R. Sumser |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff and William R. Sumser as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ Roger D. Blackwell ---------------------- Roger D. Blackwell |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff and William R. Sumser as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ Russell M. Gertmenian ------------------------- Russell M. Gertmenian |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff and William R. Sumser as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ David P. Lauer -------------------- David P. Lauer |
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, hereby constitutes and appoints Joel E. Biggerstaff and William R. Sumser as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 20th day of March, 2001.
/s/ James E. Riddle --------------------- James Ernest Riddle |