|
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
OR
Commission file number 1-13025
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 ý No o
Common Shares, $.01 Par Value, Outstanding as of November 9, 2001 – 10,124,723
AIRNET SYSTEMS, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001
AIRNET SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 passenger charter services and 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 nine months ended September 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, passenger and cargo 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 nine months ended September 30, 2001. The Aviation services and other category includes AirNet’s Aviation services division and income and expense not allocated to the other reportable segments. Effective January 1, 2001, AirNet changed its method for allocating costs among segments. Management believes the new method more accurately reflects the actual cost structure that would be employed if each segment operated independently. Segment data for the three and nine months ended September 30, 2000 have been restated to conform to the new cost allocation method.
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. Additional
charges related to the interest rate swaps since adoption have increased
the loss on comprehensive income to $217,000. At September 30,
2001, the aggregate fair value of the interest rate swaps was approximately
($366,000) 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 per common share (in thousands, except per share data):
For the three months and nine months ended September 30, 2001, 717,560 and 781,730 common shares subject to outstanding stock options were excluded from the diluted weighted average shares outstanding calculation, as the 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 in the second quarter, which includes approximately $300,000 of goodwill. As of September 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. SAB 74 Disclosure
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.
AIRNET SYSTEMS, INC.
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 such 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; potential changes in federally and locally mandated security requirements; potential limitations on the availability of adequate insurance coverage at reasonable rates in light of September 11, 2001 and subsequent events; 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 target markets in the Express services segment; adverse weather conditions; 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, 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. 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 expressed in forward-looking statements.
Results of Operations
Three months ended September 30, 2001 compared to three months ended September 30, 2000
Net revenues were $35.3 million for the three months ended September 30, 2001, an increase of $1.6 million, or 4.6%, over the same period of 2000.
Revenues from Bank services increased $1.8 million, or 7.4%, as a result of rate increases averaging 2.5% and incorporated in January 2001, and additional volume transported during the days immediately following the September 11 th tragedies.
Express services revenues decreased $0.7 million, or 7.5% primarily as a result of reduced volume from a key customer, which is expected to continue. To a lesser extent, the current economic environment and the inability to transport packages on the commercial airlines for several days following the September 11 th tragedies, also impacted Express services revenues. These decreases were offset by a 37.7% increase in revenues from the medical product line.
Aviation services revenues increased $0.4 million, or 216.6%, to $0.5 million for the third quarter, primarily as a result of new initiatives in the passenger and on-demand cargo charter product line. Total costs and expenses were $31.3 million for the three months ended September 30, 2001, an increase of $1.4 million, or 4.7%, over the same period in 2000, resulting in income from operations of $4.0 million for the third quarter of 2001, compared to $3.8 million over the same period last year, a 3.5% increase.
Air transportation expenses were up $0.5 million, or 1.8%, for the quarter ended September 30, 2001 compared to the same period in 2000. Courier costs were down almost $1.0 million due to less Express services volume from a significant customer and AirNet’s initiatives to reduce such costs and align them under a more variable cost structure. Fuel costs increased $0.4 million due to higher aviation fuel prices and additional flying hours during the quarter. Maintenance costs grew by $0.2 million due to increased labor and parts costs. Forty additional pilots compared to a year ago, plus increased incentive compensation expense increased expense in wages and benefits by $0.6 million. The increase in pilots eliminated a shortage that existed last year and enabled the Company to expand the number of dedicated crews available for on-demand charters. Contracted air costs decreased primarily due to a reduced volume from a key customer and the inability to utilize services for several days following the September 11 th tragedies.
The operating margin for Bank services improved to 20.0% for the quarter ended September 30, 2001 from 14.5% for the third quarter ended September 30, 2000. The $1.7 million increase is partly attributable to rate increases, which were effective January 1, 2001, and reduced ground courier costs, offset partly by increased fuel and maintenance costs and pilot costs, as discussed above.
The operating margin for Express services decreased from 4.2% for the third quarter of 2000 to negative 17.3% for the same period in 2001. The $1.8 million decrease is primarily attributable to the $0.7 million decrease in Express service revenues and increased costs associated with the addition of regional and sales personnel added to target sales efforts in the Express services market.
Selling, general and administrative expense increased $0.9 million, or 25.3%, over the same period in the prior year primarily due to additional personnel in the sales and regional management areas. Travel related to the implementation of a regional structure in the current year also contributed to the increase.
Interest expense was $0.4 million for the three months ended September 30, 2001, which is a $0.1 million decrease from the three months ended September 30, 2000. The notes payable balance has increased by $4.5 million since December 31, 2000 as a result of the repurchase of $5.0 million of the former Chairman’s common shares and the purchase of an aircraft in August 2001. Interest rates on variable debt decreased approximately 1.6% on average for the third quarter 2001 compared to the third quarter 2000, resulting in the overall decrease to interest expense.
The tax provision totaled $1.4 million for the third quarter ended September 30, 2001, or 40.7% of pre-tax income. The provision for the three months ended September 30, 2000 totaled $1.3 million, or 40.0% of pre-tax income.
Net income for the third quarter ended September 30, 2001 totaled $2.1 million. This compared to net income of $2.0 million for the quarter ended September 30, 2000.
Nine months ended September 30, 2001 compared to nine months ended September 30, 2000
Revenues increased $2.6 million, or 2.6%, to $105.0 million for the nine months ended September 30, 2001 compared to $102.4 million for the same period in 2000.
Express services revenues decreased $1.8 million, or 6.7%, due to substantially reduced volume from a key customer over a year ago. These decreases were partially offset by growth in our medical product line, particularly in the area of dedicated charters. Revenues from Mercury Business Services have increased approximately $40,000, or 0.6%, for the first nine months in 2001 compared to 2000 due to an increase in shipment volume.
Aviation services revenues increased $0.7 million compared to the prior year primarily due to the implementation of new passenger and on-demand cargo charter operations, and the commission earned on the sale of an aircraft in the first quarter.
Total costs and expenses were $95.6 million for the nine months ended September 30, 2001, an increase of $3.8 million, or 4.2%, over the same period in 2000 resulting in income from operations of $9.4 million for the nine months ended September 30, 2001 compared to $10.6 million for the same period of 2000.
Air transportation expenses were up $1.1 million, or 1.4%. The majority of the increase can be attributed to a $1.6 million increase in maintenance costs. This increase is primarily due to timing issues related to routine maintenance, increased utilization of jet aircraft and ongoing activities to maintain superior safety standards for the aircraft fleet. These increases in maintenance costs were offset by a $2.4 million decrease in ground courier expenses primarily due to better management of operations, decreased ground shipment volume from a key customer, and AirNet’s initiatives to reduce such costs and align them under a more variable cost structure. Contracted air costs were also down $0.3 million primarily due to reduced volume from a key customer and the inability to utilize services for several days following the September 11 th tragedies. Fuel costs increased by $0.7 million due to higher aviation fuel prices, but were partially offset by income from the fuel surcharge program. Wages and benefits expense increased $0.6 million due to the addition of 40 new pilots. The increase in pilots eliminated a shortage that existed last year and enabled the Company to expand the number of dedicated crews available for on-demand charters. Other operational costs increased primarily as a result of travel due to the new regional structure and addition of sales staff.
The operating margin for Bank services improved to 18.4% for the nine months ended September 30, 2001 from 14.3% for the same period in 2000. The $3.7 million increase is partly attributable to rate increases, which were effective January 1, 2001, and reduced ground courier costs, offset in part by increased fuel and maintenance costs and pilot costs, as discussed above.
The operating margin for Express services decreased from 0.8% for the nine months ended September 30, 2000 to negative 15.4% for the same period ended in 2001. The $4.0 million decrease is primarily attributable to the $1.8 million decrease in Express service revenues and increased costs associated with the addition of regional and sales personnel added to target sales efforts in the Express market.
Selling, general and administrative expenses increased $1.8 million, or 22.6%, for the nine month period. The addition of executives to the Express and Aviation services groups, as well as regional management, increased payroll and related expenses. Computer rental and expense increased $0.2 million due to the placement of computers, printers, and scales at the banks to improve data collection for shipment routing purposes. During the second quarter 2001, AirNet established a $1.0 million accrual for the retirement package of its Founder and then Chairman.
As described in Note 5 of the Notes to Condensed Cosolidated Financial Statements, AirNet recognized a $1.7 million impairment charge on its investment in The Check Exchange System Co. (“CHEXS”) during the second quarter of 2001.
Interest expense totaled $1.3 million for the nine months ended September 30, 2001, which is a $0.5 million, or 2.8% decrease from expense for the nine months ended September 30, 2000. The notes payable balance has increased by $4.5 million since December 31, 2000, due to the repurchase of $5 million of the former Chairman’s common shares as well as the purchase of a new aircraft in August 2001. Interest rates on variable debt decreased approximately 0.8% on average for the nine months ended 2001 compared to the nine months ended 2000, resulting in the overall decrease to interest expense.
The tax provision totaled $3.3 million for the nine months ended September 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 nine months ended September 30, 2000 totaled $3.5 million, or 40.0% of pre-tax income.
Net income for the nine months ended September 30, 2001 totaled $3.1 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 $5.8 million. This was an increase of $0.5 million, or 9.9%, from net income of $5.3 million for the nine months ended September 30, 2000.
Liquidity and Capital Resources
Cash flow from operating activities. Net cash provided by operating activities was $16.2 million for the nine months ended September 30, 2001, compared to $19.1 million for the same period 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, 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 September 30, 2001 was $27.2 million, which is a $4.5 million increase from the balance at December 31, 2000.
Investing activities. Capital expenditures totaled $13.8 million for the nine months ended September 30, 2001 compared to $9.3 million for the same period in 2000. Of the 2001 expenditures, $3.5 million was for the purchase of three 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 $22.0 and $24.0 million in total capital expenditures in 2001. The Company added one Learjet in October 2001 and anticipates adding two more Cessna Caravans by the end of the year. 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 debt.
AirNet announced a stock repurchase program in February 2000 allowing AirNet to purchase up to $3.0 million of its common shares. Management and the Board of Directors believe that AirNet’s common shares represent an excellent value and an appropriate investment. There was no additional repurchase activity in the third quarter ending September 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. In addition, in the third quarter of 2001, AirNet purchased 818,330 common shares from its former 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 $27.2 million at September 30, 2001, a one hundred basis point change in interest rates would impact net interest expense by approximately $172,000 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 September 30, 2001, the aggregate fair value of these interest rate swaps was approximately $(366,000).
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.
AIRNET SYSTEMS, INC.
PART II - OTHER INFORMATION
AIRNET SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Exhibit 10
AIRNET SYSTEMS, INC. AMENDED AND RESTATED 1996 INCENTIVE STOCK PLAN (Reflects amendments through September 7, 2001)
SECTION 1. Purposes . The purposes of the Amended and Restated AirNet Systems, Inc. 1996 Incentive Stock Plan are to promote the interests of AirNet Systems, Inc. and its shareholders by (a) attracting and retaining exceptional executive personnel and other key employees of, and advisors and consultants to, and directors of the Company and its Subsidiaries; (b) motivating such employees, advisors and consultants and Eligible Directors by means of performance-related incentives to achieve longer-range performance goals; and (c) providing all long-term employees of the Company and its Subsidiaries with the opportunity to participate in the long-term growth and financial success of the Company. SECTION 2. Definitions . As used in the Plan, the following terms shall have the meanings set forth below: "Award" shall mean any Option, Restricted Stock Award or Performance Award but shall not include any Director Option, any Right to Purchase or any Share issued pursuant to Section 10 of this Plan. "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Cash Account" shall mean an account established for each Participant to which amounts withheld through payroll deductions shall be credited to purchase Shares under the provisions of Section 10. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean a committee of the Board designated by the Board to administer the Plan which shall satisfy the requirements contained in Section 1.162-27(c)(4) of the Final Regulations. The Committee shall be composed of not less than the minimum number of persons from time to time required by Rule l6b-3, each of whom shall be (a) a person from time to time permitted by the rules promulgated under Section 16 of the Exchange Act in order for grants of Awards to be exempt transactions under said Section 16; and (b) receiving remuneration in no other capacity than as a director, except as permitted under Section 1.162-27(e)(3) of the Final Regulations. "Company" shall mean AirNet Systems, Inc., together with any successor thereto.
"Covered Employee" shall mean any individual who, on the last day of the Company's taxable year, is (a) the chief executive officer of the Company or is acting in such capacity; or (b) among the four highest compensated officers (other than the chief executive officer). For this purpose, whether an individual is the chief executive officer or one of the four highest compensated officers of the Company shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act. “Director Option” shall mean a Non-Qualified Stock Option granted to an Eligible Director pursuant to Section 6(e) of the Plan. [Amended effective August 18, 1999.] “Effective Date” shall mean the date on which the Plan is approved by the shareholders of the Company. "Eligible Director" shall mean, on any date, a person who is serving as a member of the Board but shall not include a person who is an Employee of the Company or a Subsidiary or a person who was a member of the Board on May 1, 1996. "Employee" shall mean (a) an employee of the Company or of any Subsidiary; and (b) except with respect to an Incentive Stock Option, a Right to Purchase and the issuance of Shares under Section 10, an advisor or consultant to the Company or to any Subsidiary. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" shall mean the fair market value of the property or other item being valued, as determined by the Committee in its sole discretion, provided that the fair market value of Shares shall be determined by reference to the most recent closing price quotation or, if none, the average of the bid and asked prices, as reported as of the most recent available date with respect to the sale of Shares on any quotation system approved by the National Association of Securities Dealers then reporting sales of Shares or on any national securities exchange on which the Shares are then listed. "Final Regulations" shall mean the final regulations promulgated by the Internal Revenue Service under Section 162(m) of the Code. "Incentive Stock Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. "Non-Qualified Stock Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is not intended to be an Incentive Stock Option. "Offering" shall mean an opportunity provided by the Com mittee to purchase Shares under the provisions of Section 10. Offerings may be consecutive or concurrent, as determined by the Committee. The Committee shall designate the maximum number of Shares that may be purchased under each Offering. Shares not sold under one Offering may be offered again in any subsequent Offering. "Offering Effective Date" shall mean the first business day of the month designated by the Committee as the start of the Offering Period applicable to an Offering. "Offering Period" shall mean the duration of an Offering, as designated by the Committee. The Offering Period for any Offering shall not exceed 12 months. "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option but shall not include a Director Option. "Participant"shall mean any Employee selected by the Committee to receive an Award under the Plan. In addition, for purposes of Section 10, the term "Participant" shall include any Employee who has satisfied the requirements of such section to acquire Shares under the Plan. "Performance Award" shall mean any right granted under Section 8 of the Plan. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan. "Restricted Stock" shall mean any Share granted under Section 7 of the Plan. "Right to Purchase" shall mean an option to purchase Shares granted to a Participant who elects to participate in an Offering under the provisions of Section 10. A Right to Purchase granted for an Offering shall terminate following the close of business on the Right to Purchase Date for that Offering to the extent that such Right to Purchase is not exercised on such Right to Purchase Date. "Right to Purchase Date" shall mean the last business day of an Offering Period to purchase Shares under the provisions of Section 10. "Rule l6b-3" shall mean Rule l6b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof. "Shares" shall mean the Common Shares, $0.01 par value, of the Company or such other securities of the Company as may be designated by the Committee from time to time. "Share Account" shall mean an account established for each Participant who exercises a Right to Purchase under Section 10. A Participant's Share Account will be credited with the number of Shares purchased on each Right to Purchase Date and debited for the number of Shares withdrawn by the Participant after such date. "Subsidiary" shall mean any corporation which, on the date of determination, qualified as a subsidiary corporation of the Corporation under Section 424(f) of the Code. "Substitute Awards" shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines. "Ten Percent Shareholder" shall mean any shareholder who, at the time an Incentive Stock Option is granted to such shareholder, owns (within the meaning of Section 424(d) of the Code) more than ten percent of the |