Ohio 31-1458309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Shares, $.01 Par Value, Outstanding as of August 6, 2001 - 10,103,378
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 2001 and 2000 . . . . . 4
Condensed Consolidated Statements of Cash Flows for the six months
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See notes to condensed consolidated financial statements
In thousands, except per share data
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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See notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
SIX MONTHS ENDED
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See notes to condensed consolidated financial statements
1. BASIS OF PRESENTATION
AirNet Systems, Inc. and its subsidiaries ("AirNet" or the "Company") operate a fully integrated national air transportation network which provides delivery service for time-critical shipments for customers in the U.S. banking industry and other industries requiring the express delivery of packages. AirNet also offers retail aviation fuel sales and related ground services for customers at its Columbus, Ohio facility.
The accompanying unaudited condensed consolidated financial statements include the accounts of AirNet Systems, Inc. and its subsidiaries. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the year ended December 31, 2000 consolidated financial statements of AirNet Systems, Inc. included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025) which contain additional disclosures including a summary of AirNet's accounting policies.
The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results of interim periods. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001.
The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in those financial statements and accompanying notes thereto. Actual results could differ from those estimates.
Certain 2000 balances have been reclassified to conform with the 2001 presentation.
2. SEGMENT REPORTING
AirNet divides its business into three operating segments: Bank services, Express services, and Aviation services. The Bank services segment transports canceled checks and related information for the U.S. banking industry. The Express services segment provides specialized, high priority delivery service for customers requiring late pick-ups and early deliveries combined with prompt, on-line delivery information. The Aviation services segment includes fixed base operations, certain charter services and aircraft brokerage services.
AirNet has no inter-segment sales. AirNet's assets are not allocated among 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 three and six months ended June 30, 2001. The Aviation services and other category includes AirNet's Aviation services division and income and expense not allocated to the reportable segments.
Three Months Ended Six Months Ended
(in thousands) June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------- ------------
Net Revenues
Bank services $ 26,972 $25,825 $ 52,755 $50,905
Express services 8,032 8,876 16,205 17,301
Aviation services and other 354 215 720 384
------------ ------------ ------------- ------------
Total 35,358 34,916 69,680 68,590
Income (loss) from operations
Bank services 5,191 3,964 9,243 7,247
Express services (1,225) 48 (2,336) (162)
Aviation services and other (1,229) (147) (1,464) (305)
------------ ------------ ------------- ------------
Total $2,737 $ 3,865 $ 5,443 $6,780
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3. DERIVATIVE AND HEDGING ACTIVITIES
In September 1999, AirNet entered into two interest rate swap agreements with a bank as a hedge against the interest rate risk associated with borrowing at a variable rate. The objective of the hedge is to eliminate the variability of cash flows in the interest rate payments for $10.0 million of the variable rate debt. 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. These swap agreements are in effect for a period of three years ending in September 2002 and are accounted for as cash flow hedges. AirNet does not use derivative financial instruments for speculative purposes.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and its amendments, Statements 137 and 138, in June 1999 and June 2000, respectively. The Statement requires 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 a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of 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. The Company's adoption of Statement No. 133 on January 1, 2001 resulted in a cumulative effect of an accounting change charge of $62,155, net of tax, to accumulated other comprehensive income. At June 30, 2001, the aggregate fair value of the interest rate swaps was approximately ($264,000) and is recorded in other liabilities on the condensed, consolidated balance sheet.
The following table sets forth the computation of basic and diluted net income
(loss) per common share (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ------------- ------------ ------------
Numerator:
Net income (loss) $(354) $1,966 $966 $3,340
Denominator:
Basic - weighted average shares outstanding 10,929 11,068 10,925 11,239
Diluted
Stock options - associates, officers, and directors 43 - 29 -
------------ ------------- ------------ ------------
Adjusted weighted average shares outstanding 10,972 11,068 10,954 11,239
Net income (loss) per common share -
basic and assuming dilution: $(0.03) $0.18 $0.09 $0.30
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For the three months and six months ended June 30, 2001, 872,000 and 875,000 common shares subject to outstanding stock options 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 period.
5. IMPAIRMENT ON INVESTMENT IN SUBSIDIARY
AirNet Systems, Inc. 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. CHEXS received notice during the first quarter of 2001 that one of its significant customers, who also accounted for a significant portion of CHEXS's revenue, would not renew its contract with CHEXS beyond August 2001. CHEXS continued to negotiate the contract during the second quarter. However, such negotiations were terminated. As a result, Float Control recognized a $1,744,000 impairment on its investment in CHEXS, which includes approximately $300,000 of goodwill. As of June 30, 2001, Float Control's remaining recorded investment in CHEXS totaled $150,000 and is included in Other Assets - Other on the balance sheet, which represents expected final distributions from the partnership.
6. SUBSEQUENT EVENT
Subsequent to June 30, 2001, AirNet announced that it purchased 818,330 common shares from its then Chairman at a total cost of $5.0 million. The privately negotiated transaction closed on July 27, 2001. AirNet intends to hold the common shares in treasury.
In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, effective for business combinations initiated after June 30, 2001, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $350,000 ($0.03 per share) per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Except for the historical information contained in this Form 10-Q, the matters discussed, including 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. Such statements involve risks and uncertainties including the following which could cause actual results to differ materially from any forward-looking statement: potential regulatory changes by the Federal Aviation Administration ("FAA"), which could increase the regulation of AirNet's business, or the Federal Reserve, which could change the competitive environment of transporting canceled checks; adverse weather conditions; the impact of a potentially weakening U.S. economy on time-critical shipment volumes; the acceptance of the Company's time-critical transportation service offerings by targeted markets in the express segment; the ability to attract and retain qualified pilots and support personnel; technological advances and increases in the use of electronic funds transfers; as well as other economic, competitive and domestic and foreign governmental factors affecting AirNet's markets, price 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. Please refer to Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, for additional detail relating to risk factors that could affect AirNet's results and cause those results to differ materially from those expressed in forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Net revenues were $35.4 million for the three months ended June 30, 2001, an increase of $0.4 million, or 1.3%, over the same period of 2000.
Revenues from Bank services increased $1.1 million, or 4.4%, to $27.0 million. The increase in Bank services revenue is primarily the result of rate increases (approximately $0.6 million) effective January 1, 2001 and new volume added in the first half of 2001.
Express services revenue decreased $0.8 million, or 9.5%, to $8.0 million. A significant customer reduced its volume of Express shipments with AirNet, accounting for substantially all of the decrease in revenue. Although the medical product line within Express services achieved strong growth during the second quarter 2001 in response to additional customers and increased shipments, this growth was offset by the continued elimination of certain unprofitable accounts.
Aviation services revenues increased $0.1 million, or 64.7%, to $0.4 million for the second quarter, primarily as a result of new initiatives in the on-demand charter product line.
Total costs and expenses were $32.6 million for the three months ended June 30, 2001, an increase of $1.6 million, or 5.1%, over the same period in 2000. Ground courier costs decreased $0.8 million and contracted air costs decreased $0.2 million as a result of reduced Express services volume and AirNet's initiatives to reduce such costs and align them under a more variable cost structure. Aircraft maintenance costs increased $1.1 million, or 55.1%, over second quarter 2000 levels due to several reasons, including timing issues related to routine maintenance, increased utilization of jet aircraft and ongoing activities to maintain superior safety standards for the aircraft fleet. During the second quarter 2001, AirNet established a $1.0 million accrual for the retirement package of its Founder and then Chairman.
The operating margin for Bank services improved to 19.2% for the quarter ended June 30, 2001 from 15.4% for the second quarter ended June 30, 2000. The $1.2 million increase is party attributable to rate increases, which were effective January 1, 2001, and reduced ground courier costs, offset partly by increased air costs, as discussed above.
The operating margin for Express services decreased from 0.5% for the second quarter of 2000 to negative 15.3% for the same period in 2001. The $1.2 million decrease is primarily attributable to the $0.8 million decrease in Express service revenues and increased costs (approximately $0.6 million) associated with the addition of regional and sales personnel added to target sales efforts in the Express market.
Interest expense decreased $0.2 million, or 33.6%, to $0.4 million for the second quarter 2001 compared to the same period of 2000. The decrease is the result of reduced borrowings on the revolving credit facility. Balances outstanding on the revolving credit facility decreased from $26.1 million at June 30, 2000 to $19.9 million at June 30, 2001.
AirNet recognized a $1.7 million impairment charge on its investment in The Check Exchange System Company ("CHEXS"). AirNet Systems, Inc. wholly owns Float Control, Inc., which holds a 19% interest in CHEXS. CHEXS received notice during the first quarter of 2001 that one of its significant customers, who also accounted for a significant portion of CHEXS's revenues, would not renew its contract with CHEXS beyond August 2001. CHEXS continued to negotiate the contract during the second quarter. However, the negotiations were later terminated. As a result, Float Control recognized the impairment on its investment in CHEXS, which includes approximately $300,000 of goodwill. No tax benefit is expected to be recognized.
The tax provision totaled $1.0 million for the second quarter ended June 30, 2001, or 40.7% of pre-tax income prior to inclusion of the $1.7 million impairment on investment, which is expected to have no tax benefit. The provision for the three months ended June 30, 2000 totaled $1.3 million, or 40.0% of pre-tax income.
Net loss for the second quarter ended June 30, 2001 totaled $0.4 million. After excluding the effects of the two non-recurring charges of $1.0 million related to the retirement package and $1.7 million related to the impairment on investment, net income totaled $2.0 million. This compared to net income of $2.0 million for the quarter ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenues were $69.7 million for the six months ended June 30, 2001, an increase of $1.1 million, or 1.6%, over the same period of 2000.
Revenues from Bank services increased $1.9 million, or 3.6% to $52.8 million. The increase in Bank services revenues is primarily the result of rate increases (approximately $1.2 million) effective January 1, 2001 and new volume added in the first half of 2001. These increases were offset by one less flying day in the 2001 period.
Express services revenues decreased $1.1 million, or 6.3%, to $16.2 million. A significant customer reduced its volume of Express shipments with AirNet, accounting for substantially all of the decrease in revenues. Although the medical product line within Express services achieved strong growth during the first half of 2001 in response to additional customers and increased shipments, this growth was offset by the continued elimination of certain unprofitable accounts. Revenues from Mercury Business Services have increased approximately $0.2 million, or 5.8%, for the first six months in 2001 compared to 2000 due to an increase in shipment volume.
Aviation services revenues increased $0.3 million, or 87.5%, to $0.7 million for the first six months ended June 30, 2001, primarily as a result of new initiatives in the on-demand charter product line and a brokerage commission received in the first quarter of 2001 related to an aircraft sale.
Total costs and expenses were $64.2 million for the six months ended June 30, 2001, an increase of $2.4 million, or 3.9%, over the same period in 2000. Ground courier costs decreased $1.4 million and contracted air costs decreased $0.1 million as a result of reduced Express services volume and AirNet's initiatives to reduce such costs and align them under a more variable cost structure. Aircraft maintenance costs increased $1.3 million, or 29.6%, over 2000 levels due to several reasons, including timing issues related to routine maintenance, increased utilization of jet aircraft and ongoing activities to maintain superior safety standards for the aircraft fleet. Selling, general and administrative expenses have increased $1.8 million. During the second quarter 2001, AirNet established a $1.0 million accrual for the retirement package of its Founder and then Chairman. In addition, the first quarter of 2000 included a $0.3 million refund on an insurance settlement. During 2001, AirNet has increased its regional support and sales staff to support new Express and Aviation services sales initiatives.
The operating margin for Bank services improved to 17.5% for the six months ended June 30, 2001 from 14.2% for the same period in 2000. The $2.0 million increase is party attributable to rate increases, which were effective January 1, 2001, and reduced ground courier costs, offset partly by increased air costs, as discussed above.
The operating margin for Express services decreased from negative .9% for the six months ended June 30, 2000 to negative 14.4% for the same period ended in 2001. The $2.2 million decrease is primarily attributable to the $1.1 million decrease in Express service revenues and increased costs (approximately $1.1 million) associated with the addition of regional and sales personnel added to target sales efforts in the Express market.
Interest expense decreased $0.4 million, or 28.8%, to $0.9 million for the first half of 2001 compared to the same period of 2000. The decrease is the result of reduced borrowings on the revolving credit facility.
As described in Note 5 to the second quarter financial statements, AirNet recognized a $1.7 million impairment charge on its investment in The Check Exchange System Company ("CHESX") during the second quarter of 2001.
The tax provision totaled $1.9 million for the six months ended June 30, 2001, or 40.7% of pre-tax income prior to inclusion of the $1.7 million impairment on investment, which is expected to have no tax benefit. The provision for the six months ended June 30, 2000 totaled $2.2 million, or 40.0% of pre-tax income.
Net income for the six months ended June 30, 2001 totaled $1.0 million. After excluding the effects of the two non-recurring charges of $1.0 million related to the retirement package and $1.7 million related to the impairment on investment, net income totaled $3.3 million. This compared to net income of $3.3 million for the six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES. Net cash provided by operating activities was $12.4 million for the six months ended June 30, 2001, compared to $16.1 million for the same period in 2000. The decrease is primarily the result of the sale of an aircraft from inventory in 2000.
CURRENT CREDIT ARRANGEMENTS. AirNet maintains a credit agreement with a bank that provides a $50.0 million unsecured revolving credit facility. 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 and restricts the amount of additional debt which may be incurred. AirNet's outstanding balance at June 30, 2001 was $19.9 million, which is a $2.7 million decrease from the balance at December 31, 2000.
INVESTING ACTIVITIES. Capital expenditures totaled $9.2 million for six months ended June 30, 2001 compared to $6.0 million for the same period in 2000. Of the 2001 expenditures, $2.0 million was for the purchase of an aircraft. Substantially all of the remaining 2001 expenditures were incurred for aircraft inspections, major engine overhauls and related flight equipment. AirNet anticipates it will have between $16.0 and $17.0 million in total capital expenditures in 2001. AirNet anticipates it will continue to acquire aircraft and flight equipment as necessary to maintain growth and continue offering quality service to its customers.
During the second quarter of 2001, AirNet announced it had entered into an agreement to purchase five Cessna Caravan Super Cargomaster aircraft through the year 2003. These aircraft will replace twin engine piston aircraft currently being utilized in the fleet. The acquisition of the aircraft is expected to be financed through cash flows and the revolving credit facility described above.
AirNet announced a stock repurchase program in February 2000 allowing AirNet to purchase up to $3.0 million of its common shares. AirNet purchased $2.4 million in common shares under the program through December 31, 2000. There was no repurchase activity in the first half of the year ending June 30, 2001. As such, purchases of approximately $0.6 million of the Company's common shares may be still be made over time in the open market or through privately negotiated transactions.
Subsequent to June 30, 2001, AirNet announced that it purchased 818,330 commons shares from its then Chairman at a total cost of $5.0 million. The privately negotiated transaction closed on July 27, 2001. AirNet intends to hold the common shares in treasury.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INFLATION AND INTEREST RATES
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. AirNet's revolving credit facility bears interest at AirNet's option, at a fixed rate determined by the Eurodollar rate, a negotiated rate or a floating rate. Based on borrowings of $19.9 million at June 30, 2001, a one hundred basis point change in interest rates would impact net interest expense by approximately $199,000 per year.
Refer to Item 3 in the Notes to Condensed Consolidated Financial Statements for detail concerning AirNet's two interest rate swap agreements. At June 30, 2001, the aggregate fair value of these interest rate swaps was approximately $(264,000).
DERIVATIVE AND HEDGING ACTIVITIES
Refer to Item 3 in the Notes to Condensed Consolidated Financial Statements for detail concerning the Company's adoption of the Financial Accounting Standards Board Statement No. 133 and the aggregate fair value of the related derivative.
Item 1. Legal Proceedings.
On April 6, 2000, AirNet filed an action in the United States District Court of 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. On May 3, 2001, the parties reached an agreement to settle the matter. The actions have been dismisses with prejudice and Continental will pay AirNet $250,000 in accordance with the settlement agreement.
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' results of operations or financial condition.
Item 2. Changes in Securities and Use of Proceeds. Not Applicable
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders (the "Annual Meeting") of AirNet Systems, Inc. was held on May 8, 2001. The number of common shares of AirNet Systems, Inc. outstanding and entitled to vote at the Annual Meeting was 10,921,708. The number of common shares represented in person or by proxy at the Annual Meeting was 10,148,748.
(b) Directors elected at the Annual Meeting:
Gerald G. Mercer For: 9,832,167 Withheld: 316,581 Broker non-vote: -0- Joel E. Biggerstaff For: 10,105,413 Withheld: 43,335 Broker non-vote: -0- Roger D. Blackwell For: 10,112,418 Withheld: 36,330 Broker non-vote: -0- Russell M. Gertmenian For: 10,010,477 Withheld: 138,271 Broker non-vote: -0- David P. Lauer For: 10,110,202 Withheld: 38,546 Broker non-vote: -0- James E. Riddle For: 10,111,318 Withheld: 37,430 Broker non-vote: -0- |
(c) See Item 4(b) for voting results for directors.
(d) Not applicable.
Item 5. Other Information.
On July 27, AirNet announced that its Chairman and Founder, Gerald G. Mercer, was retiring as Chairman of the Board of Directors and as a member of the Board of Directors for AirNet Systems, Inc. effective August 3, 2001. Joel E. Biggerstaff was named as Chairman of the Board, effective August 3, 2001.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description
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10.9 Agreement between AirNet Systems, Inc.
and Gerald G. Mercer, dated July 17, 2001
10.10 Jerry Mercer Transition Agreement dated
May 26, 2001
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(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended June 30, 2001.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 10, 2001 By: /s/ William R. Sumser
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William R. Sumser,
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
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Exhibit Description
No.
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10.9 Agreement between AirNet Systems, Inc. and
Gerald G. Mercer, dated July 17, 2001. Filed herewith.
10.10 Jerry Mercer Transition Agreement, dated
May 26, 2001. Filed herewith.
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THIS AGREEMENT, made and entered into as of the 17th day of July, 2001, by and between AirNet Systems, Inc., an Ohio corporation having its principal place of business at 3939 International Gateway, Columbus, Ohio 43219 ("AirNet"), and Gerald G. Mercer, an individual residing at 1804 Avanti Court, Daytona, FL 32124 ("Mercer").
WHEREAS, Mercer was AirNet's founder and, most recently, Chairman and has also served as a Director of AirNet; and
WHEREAS, on or before August 15, 2001, Mercer will resign as Chairman and remain as a Director in accordance with that certain agreement dated May 26, 2001, a copy of which is attached ("Agreement").
WHEREAS, AirNet wishes to accept Mercer's resignation and to enter into an agreement with respect to competition as contemplated by the Agreement in accordance with the following terms and conditions.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. For good and valuable consideration described in the Agreement, Mercer agrees for a period of three (3) years, commencing on July 17, 2001 and ending on July 17, 2004, that he will not act as a consultant, manager, officer, director, shareholder, agent, owner, partner, employee or be affiliated in any other way with any business that competes with AirNet within the United States. This prohibition shall not preclude Mercer from owning stock in any competitive company whose stock is publicly traded, provided Mercer does not own more than 1% of the total outstanding stock of such company.
2. Mercer covenants and agrees that he shall hold in confidence all of the confidential and proprietary information which he possesses concerning the business of AirNet and he shall never, directly or indirectly, disclose, disseminate or supply any of such information to any person, firm or corporation, other than officers, directors and other employees of AirNet, unless directed by AirNet to do so in writing. Such information shall involve all financial information, customer lists, pricing information, projections, business plans, sales and marketing information and plans, and all non-public information concerning AirNet's business.
3. Each of the parties hereto further states and represents that he or it has carefully read the foregoing Agreement and knows the contents thereof, and that he or it has executed the same as his or its own free act and deed.
4. This Agreement may be executed in one or more counterparts, and any executed copy of this Agreement shall be valid and have the same force and effect as the originally-executed Agreement.
5. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Ohio. If any provision or provisions hereof shall at any time be found or declared invalid or unenforceable, such finding or declaration shall not impair the remaining provisions hereof, but the same shall remain valid and enforceable.
6. Mercer's obligations and agreements under this Agreement shall be binding on Mercer's executors, legal representatives and assigns and shall inure to the benefit of any successors and assigns of AirNet. AirNet may, at any time, assign this Agreement or any of its rights or obligations arising hereunder to any party.
7. This Agreement constitutes the entire agreement between the parties hereto in respect of the subject matter hereof and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter hereof, except as otherwise provided herein. No change, termination or attempted waiver of any of the provisions of this Agreement shall be binding on any party hereto unless in writing and signed by the party affected.
8. 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 provisions, 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.
IN WITNESS WHEREOF, AirNet and Mercer have executed this Agreement as of the date first above written.
By: /s/ Joel E. Biggerstaff
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/s/ Gerald G. Mercer
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Gerald G. Mercer
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o AirNet will buy a minimum of $4,000,000 and up to $5,000,000 of Jerry Mercer's AirNet stock, in a single transaction at Jerry Mercer's request, on before July 31, 2001. The price per share will be the average of the closing price over the period of 5 days prior to the date of the sale. Mercer shall have the right to require AirNet to purchase these shares prior to July 31, 2001 by making a written request to AirNet at least 5 business days prior to the date of the sale. If, However, no such request is made, Mercer shall sell and AirNet shall buy $5,000,000 in shares on July 31, 2001. On the date of the sale, Mercer shall deliver the shares to AirNet and shall execute whatever is reasonably necessary in order to vest in AirNet good title to those shares.
o AirNet will provide salary continuance, at the current rate of $420,000 per year (under current pay cycle and tax withholding rates), and current or similar medical/dental benefits coverage, through 6/30/03. Appropriate non-complete provisions will apply (agreement to be prepared upon signing). If there is a change in control in AirNet (other than caused by Mercer's sale of AirNet shares hereunder) prior to 6/30/03, AirNet shall pay Mercer immediately upon request all such salary remaining unpaid as of the date of the request.
o AirNet will purchase $250,000 of Jerry' Mercer's stock per quarter, at Mercer's option, at closing market prices on the last business day of March, June, September and December of calendar 2002. The offer is not cumulative and must not place AirNet in violation of existing bank covenants. Mercer must notify AirNet at least 10 days prior to the end of each quarter that he will be selling the shares that quarter.
o Mercer retains the right to sell his remaining shares to private investors at any time in accordance with the applicable law. AirNet has the right of first refusal on purchase of these shares on the same terms and conditions contained in the bona fide offer, provided that (1) the proposed transaction involves at least 20,000 shares or (2) the number of shares sold to private investors by Mercer during the prior 12 month period exceeds 50,000. AirNet shall have 5 business days to exercise its right of first refusal after Mercer delivers to it evidence of the bona fide offer. If AirNet either advises Mercer in writing that it is not exercising such right or it does not respond to Mercer in writing within such 5 business day period, Mercer shall have the right to sell said shares pursuant to the bona fide offer.
o Mercer retains the right to sell shares in the open market in accordance with applicable law. AirNet will provide Mercer with a written memorandum describing the restrictions set forth in applicable law on or before July 31, 2001.
o Mercer shall surrender to AirNet, for cancellation without consideration, all of his outstanding AirNet stock options, whether vested or otherwise, upon the execution of this Agreement.
o Mercer will resign as Chairman of the Board of Directors not later than August 15, 2001. The Board will elect his successor with assignment on the effective date of Mercer's resignation.
o Mercer, at his option, shall remain on the AirNet Board of Directors for the current elected term.
o Prior to the public disclosure of the repurchase contemplated by the first paragraph of this Agreement, AirNet and Mercer agree to the terms of this Agreement and the transactions contemplated hereby confidential and shall not disclose the terms of this Agreement or the transactions contemplated hereby without the consent of the other party (which shall be the Board of Directors in the case of AirNet) unless otherwise required by applicable law or the rules and regulations of the U.S. Securities and Exchange Commission or the New York Stock Exchange, including, but not limited, to, Regulation FD.
o This offer is valid until May 29, 2001.
As agreed: AirNet Board of Directors As agreed: Jerry Mercer
By: /s/ James E. Riddle By: /s/ JGM
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James Ernest Riddle, on behalf of the Jerry Mercer
Board of Directors
Date: 5-26-01 Date: 5-26-01
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