AirNet Systems, Inc. Form 10-K

/s/ Joel E. Biggerstaff

Joel E. Biggerstaff, Chief Executive Officer

AirNet anticipates that cash flows from operations and AirNet’s bank credit facility will provide adequate sources of liquidity and capital resources to meet AirNet’s expected needs for the operation of its business, including anticipated capital expenditures; however, AirNet may not have additional capital to pursue other strategic alternatives.

There were no significant capital commitments at December 31, 2005.

Following is a summary of AirNet’s capital expenditures (in millions) for 2003 through 2005 and expected amounts for 2006:


	2006		2005		2004		2003
Aircraft	$	0	$	0.0	$	21.1	$	6.7
Aircraft improvements, engines and inspections		12.5-15.0		13.4		21.8		16.5
Rickenbacker Facility, technology and other		.5-1.0		4.3		8.3		2.0

Total	$	13.0-$16.0	$	17.7	$	51.2	$	25.2

Costs of major overhauls and engine work which are expected to extend the useful life of the related asset are capitalized as incurred and depreciated based on hours flown. The original cost of airframes less a salvage value is depreciated based on the straight-line method over the estimated remaining useful life of the aircraft. Aircraft maintenance costs not meeting AirNet’s capitalization requirements are expensed as incurred. In 2005, the engines of approximately 85% of AirNet’s Learjet 35 aircraft and all of AirNet’s Learjet 60 aircraft engines were covered under manufacturer engine maintenance plans, under which AirNet prepays certain repair and overhaul costs. These prepayments, which totaled approximately $20.0 million at December 31, 2005 (approximately $19.3 million at December 31, 2004), are classified in fixed assets on the Consolidated Balance Sheets. Amortization on these prepaid balances does not begin until major engine overhaul services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.

In September 2002, AirNet entered into a $35.0 million unsecured revolving credit facility and a five-year $20.0 million unsecured term loan (collectively, the “Credit Agreement”). The term loan required quarterly installments of $1.0 million beginning in December 2002 and continuing through September 30, 2007. The revolving credit facility under the Credit Agreement was originally scheduled to expire on September 30, 2005 and the secured term loan was to mature on September 30, 2007.

On May 28, 2004, AirNet and its lenders amended the terms and conditions of the Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement was further amended by the First, Second, Third and Fourth Change in Terms Agreements as described below. The Amended Credit Agreement is secured by a first lien on all of the property of AirNet and its subsidiaries, other than any interest in real estate and certain excluded fixed assets. AirNet also pledged the stock and interests of its subsidiaries to secure the loans under the Amended Credit Agreement, and each of AirNet’s subsidiaries guaranteed AirNet’s obligations under the Amended Credit Agreement. The Amended Credit Agreement permits AirNet and its subsidiaries to incur other indebtedness for the purpose of purchasing or refinancing aircraft and related tangible fixed assets, subject to certain annual limitations. The Amended Credit Agreement contains limitations on operating leases, indebtedness, significant corporate changes including mergers and sales of assets, investments in subsidiaries and acquisitions, liens, capital expenditures, transactions with affiliates, sales of accounts receivable, sale and leaseback transactions and other off-balance sheet liabilities, contingent obligations and hedging transactions. The Amended Credit Agreement also contains certain financial covenants that require AirNet to maintain a minimum consolidated tangible net worth and to not exceed certain fixed charge coverage and leverage ratios specified in the Amended Credit Agreement.

The Amended Credit Agreement provided for a secured revolving credit facility of up to $35.0 million and a secured term loan in the aggregate amount of $14.0 million. The amount of revolving loans available under the Amended Credit Agreement is limited to a borrowing base equal to the aggregate of 80% of eligible accounts receivable, plus 50% of eligible aircraft parts, plus 70% of the market value of certain fixed assets, reduced by the aggregate amount of AirNet’s outstanding letters of credit. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio or (ii) the sum of 0.5% plus the federal funds rate in effect from time to time plus a margin determined by AirNet’s leverage ratio. At December 31, 2005, as a result of the various timing and duration of short-term debt maturities, AirNet’s interest rates ranged from 4.5% to 6.5%.

As of December 31, 2005, $16.5 million was outstanding under the secured revolving credit facility which is included in “Notes payable, less current portion” in the Consolidated Balance Sheet. In addition, AirNet had $1.4 million in letters of credit outstanding as of such date related to insurance programs, which reduced the amount available under the revolving credit facility. After giving effect to the Fourth Change in Terms Agreement discussed below, AirNet had approximately $7.1 million available to borrow under its secured revolving credit facility under the Amended Credit Agreement as of December 31, 2005.

As a result of the impairment charges recorded in September 2004 as described in Note 2 of the Notes to Consolidated Financial Statements, AirNet was not in compliance with certain terms of the Amended Credit Agreement, including the fixed charge coverage ratio and the leverage ratio calculated as of September 30, 2004, and AirNet would not have been in compliance with the minimum consolidated tangible net worth requirement as of December 31, 2004. On November 12, 2004, AirNet and its lenders under the Amended Credit Agreement agreed to modify the terms and conditions of the Amended Credit Agreement (the “First Change in Terms Agreement”). The First Change in Terms Agreement modified the fixed charge coverage ratio, the leverage ratio, and the minimum consolidated tangible net worth financial covenants in such a manner that, on a going-forward basis, the September 2004 impairment charges, in and of themselves, would not cause a default of these financial covenants in the future. At the same time as the First Change of Terms Agreement was entered into, AirNet and its lenders executed a waiver of any defaults or potential defaults under the Amended Credit Agreement which occurred, or may have occurred, as a result of AirNet’s failure to comply with the foregoing financial covenants due to the September 2004 impairment charges.

On March 24, 2005, AirNet and its lenders entered into a “Second Change in Terms Agreement” that further modified the terms and conditions of the Amended Credit Agreement. In accordance with the Second Change in Terms Agreement, AirNet prepaid in full the remaining $11.0 million balance outstanding on its secured term loan. Upon the prepayment of the term loan, the term loan portion of the Amended Credit Agreement was terminated. In addition, the revolving credit facility under the Amended Credit Agreement was reduced from $35.0 million to $30.0 million. In the event AirNet secured permanent financing on all or a portion of its Rickenbacker Facility, the revolving credit facility was to be reduced from $30.0 million to $25.0 million. Under the Second Change in Terms Agreement, the term of the revolving credit facility was extended from September 30, 2005 to October 15, 2006. The December 31, 2004 Consolidated Balance Sheet gives effect to the Second Change in Terms Agreement entered into on March 24, 2005. The Second Change in Terms Agreement also provided for the release of certain fixed assets that were securing the loans under the Amended Credit Agreement and modified certain other financial covenants.

On March 24, 2005, AirNet entered into a three-year term loan totaling $11.0 million with a fixed interest rate of 8.12%. This term loan is secured by seven Cessna Caravans and nine Learjet 35’s from AirNet’s cargo aircraft fleet. The aircraft securing this loan were released from the collateral securing the loans under Amended Credit Agreement in accordance with the Second Change in Terms Agreement. The proceeds from this term loan were used to prepay in full AirNet’s term loan under the Amended Credit Agreement as described above. The December 31, 2004 Consolidated Balance Sheet reflects the reclassification of approximately $22.4 million from current to long-term notes payable as a result of the extension of the Amended Credit Agreement under the Second Change in Terms Agreement and the financing of the cargo aircraft described above. As of December 31, 2005, $9.7 million was outstanding under these term loans.

As a result of the impairment charge recorded in September 2005 as described in Note 2 of the Notes to Consolidated Financial Statements, AirNet was not in compliance with certain terms of the Amended Credit Agreement, including the fixed charge coverage ratio and the leverage ratio calculated as of September 30, 2005, and AirNet would not have been in compliance with the minimum consolidated tangible net worth requirement as of December 31, 2005. On November 21, 2005, AirNet and its lenders under the Amended Credit Agreement agreed to modify the terms and conditions of the Amended Credit Agreement (the “Third Change in Terms Agreement”). The Third Change in Terms Agreement modified the fixed charge coverage ratio and the leverage ratio financial covenants in such a manner that, on a going-forward basis, the September 2005 impairment charge, in and of itself, would not cause a default of these financial covenants in the future. At the same time as the Third Change of Terms Agreement was entered into, AirNet and its lenders executed a waiver of any defaults or potential defaults under the Amended Credit Agreement which occurred, or may have occurred, as a result of AirNet’s failure to comply with the foregoing financial covenants due to the September 2005 impairment charge.

On March 28, 2006, AirNet and its lenders entered into a “Fourth Change in Terms Agreement” extending the term of the secured revolving credit facility under the Amended Credit Agreement from October 15, 2006 to October 15, 2007. The Fourth Change in Terms Agreement also reduced the amount of the secured revolving credit facility from $30 million to $25 million, reduced the amount of annual capital expenditures permitted under the terms of the Amended Credit Agreement from $30 million to $20 million, and modified the calculation of the borrowing base under the revolving credit facility. As a result of the Fourth Change in Terms Agreement, amounts outstanding under the revolving credit facility at December 31, 2005 are classified as long-term debt in the Consolidated Balance Sheet.

During the second quarter of 2004, Jetride entered into four seven-year term loans totaling $22.5 million with fixed interest rates of approximately 6.7%. In July 2004, Jetride financed two additional passenger charter Learjet 60’s for the Passenger Charter fleet at $5.0 million each with seven year terms and fixed rates of approximately 6.5%, for a total of $32.5 million in financing related to AirNet’s Passenger Charter Services. As of December 31, 2005, there was $29.8 million outstanding under all six loans. These term loans are secured by aircraft used in the Passenger Charter fleet. Each of the term loans is guaranteed by AirNet. Jetride incurred approximately $2.0 million in interest expense in 2005 related to the financing of the nine Passenger Charter aircraft under all six loans.

In December 2003, AirNet financed the $5.3 million cost of a Learjet 60 for its Passenger Charter Services business using its bank credit facility.

In January 2002, AirNet entered into operating leases for six Cessna Caravan 208 aircraft, which after certain extensions entered into in September 2002, terminate in 2006 and 2007. In January of 2003 and January of 2006, AirNet entered into two additional operating leases on Cessna Caravan 208 aircraft that expire, respectively, in 2008 and 2007. In February 2006, AirNet entered into a one-year operating lease on an additional Cessna Caravan 208 aircraft.

In accordance with accounting principles generally accepted in the United States of America, AirNet does not record operating leases in its Consolidated Balance Sheet; however, the minimum lease payments related to these leases are disclosed in “Note 6 – Lease Obligations” of the Notes to Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Under the terms of Gerald G. Mercer’s retirement agreement, AirNet purchased 818,330 common shares from Mr. Mercer at a total cost of $5.0 million in July 2001. This privately negotiated transaction was funded through a revolving bank credit facility and AirNet intends to hold these common shares in treasury. Under the terms of the retirement agreement, Mr. Mercer also had the option to sell up to $250,000 of AirNet common shares each quarter at the closing market prices on the last business day of March, June, September and December of 2002 to AirNet. Mr. Mercer exercised his option and sold 52,410 AirNet common shares to AirNet at a total cost of $249,996 in January 2003.

Also under the terms of his retirement agreement, Mr. Mercer retained his rights to sell his remaining AirNet common shares to private investors at any time in accordance with applicable laws. On or about December 26, 2002, Mr. Mercer sold an aggregate of 733,200 common shares to seven separate investors in privately negotiated transactions. On December 24, 2002, he made a gift of 256,800 common shares to Spring Hill Camps, which sold those common shares to three separate investors, one of which also purchased common shares from Mr. Mercer, in privately negotiated transactions. In connection with and as a condition to the investors’ consummating those transactions, AirNet granted registration rights with respect to the 990,000 common shares collectively purchased by these investors from Mr. Mercer or Spring Hill Camps. AirNet has filed a registration statement with respect to those common shares under the Securities Act of 1933, as amended, for resale by the investors as selling shareholders.

In February 2000, AirNet announced a stock repurchase plan allowing AirNet to purchase up to $3.0 million of its common shares. During 2000, AirNet purchased $2.4 million in common shares funded by cash flows from operations. There have been no repurchase activity under this program since 2000. As such, purchases of approximately $0.6 million of AirNet’s common shares may still be made in the open market or through privately negotiated transactions.

Off-Balance Sheet Arrangements

AirNet had no “off-balance sheet” arrangements as of December 31, 2005, as that term is defined by the SEC.

Seasonality and Variability in Quarterly Results

AirNet’s operations historically have been somewhat seasonal relative to holidays observed by financial institutions. When financial institutions are closed on holidays falling on Monday through Thursday, AirNet’s revenue and net income are adversely affected. AirNet’s fiscal quarter ending December 31 is often the most impacted by bank holidays.

Operating results are also affected by the weather. Winter weather often requires additional costs for de-icing, hangar rental and other aircraft services. AirNet generally experiences higher maintenance costs during its fiscal quarter ending March 31.

Selected Quarterly Data (unaudited)

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 31*		*June 30*			*September 30*			*December 31*
2005
Net revenues	$	49,893	$	49,889		$	48,091		$	48,540
Income (loss) from continuing operations
before income taxes		2,952		2,828			(12,742	)		616
Net income (loss)		1,517		2,054			(7,933	)		116
Per common share — basic and diluted:
Net income (loss) per common share	$	0.15	$	0.20		$	(0.78	)	$	0.01

2004
Net revenues	$	40,471	$	42,140		$	43,937		$	48,402
Income (loss) from continuing operations
before income taxes		555		(199	)		(45,783	)		2,347
Net income (loss)		316		(113	)		(30,184	)		(4,164	)
Per common share — basic and diluted:
Net income (loss) per common share	$	0.03	$	(0.01	)	$	(2.99	)	$	(0.41	)

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. AirNet maintains a thorough process to review the application of its accounting policies and to evaluate the appropriateness of the estimates; however, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

The policies and estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of alternative accounting policies, and are material to AirNet’s consolidated financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of its Board of Directors and with its independent registered public accounting firm.

Allowance for Uncollectible Accounts Receivable

Historically, AirNet’s credit losses from bad debts have not fluctuated materially because its credit management processes have been effective. AirNet also recognizes billing adjustments to revenue and accounts receivable for certain discounts, money back service guarantees and billing corrections.

Estimates for credit losses and billing adjustments are regularly updated based on historical experience of bad debts, adjustments processed, current collection and aging trends, and the individual assessment of customers’ credit quality. Once AirNet considers all these factors, a determination is made as to the appropriate amount of the allowance for uncollectible accounts receivable. Allowances for these future adjustments aggregated $0.7 million at December 31, 2005 and $0.9 million at December 31, 2004. AirNet considers the sensitivity and subjectivity of these estimates to be moderate, as changes in economic conditions and pricing arrangements can significantly affect the estimates used to determine the allowances.

Major Aircraft Maintenance

which AirNet prepays certain repair and overhaul costs. These prepayments, which totaled $20.0 million and $19.3 million at December 31, 2005 and 2004, respectively, are classified in fixed assets on the Consolidated Balance Sheets. Amortization on these prepaid balances does not begin until major engine overhaul services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.

Property and Equipment

AirNet’s Delivery Service and Passenger Charter Service businesses are capital intensive. Over 85% of AirNet’s total assets are invested in flight equipment to serve these markets. AirNet capitalizes those costs that meet the definition of capital assets under applicable accounting standards.

The depreciation or amortization of AirNet’s capital assets over their estimated useful lives, and the determination of any salvage values, requires management to make judgments about future events. Because AirNet utilizes many of its capital assets over relatively long periods, management periodically evaluates whether adjustments to estimated lives or salvage values are necessary. The accuracy of these estimates affects the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset.

Stock-Based Compensation

At December 31, 2005, AirNet had two stock-based employee compensation plans, the Amended and Restated 1996 Incentive Stock Plan and the 2004 Stock Incentive Plan. AirNet has accounted for the plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all stock options granted under the plans have an exercise price equal to the fair market value of the underlying common shares on the date of grant. Pro forma information regarding net income and net income per share is required by Statement of Financial Accounting Standards SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS No. 148), and has been determined as if AirNet had accounted for its employee stock options under the fair value method of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123).

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as expense in the income statement based on their fair values. Pro forma disclosure will no longer be an alternative.

SFAS No. 123(R) must be adopted no later than the first annual period beginning after June 15, 2005. AirNet adopted SFAS No. 123(R) on January 1, 2006. SFAS No. 123(R) permits companies to adopt its requirements using one of two methods:

	1.		A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

	2.		A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate financial statements based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) for all prior periods presented or (b) for prior interim periods of the year of adoption.

AirNet adopted SFAS No. 123(R) using the modified prospective method. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had AirNet adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income (loss) and net income (loss) per common share in “Note 1 – Significant Accounting Policies” of the Notes to Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. AirNet does not anticipate that adoption of SFAS No. 123(R) will have a material impact on its results of operations or its financial position. However, SFAS No. 123(R) also requires that the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. While AirNet cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were not material. Stock options are further detailed in “Note 1 – Significant Accounting Policies” and “Note 5 – Incentive Stock Plans” of the Notes to Consolidated Financial Statements included in “Item 8 – Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Self-Insurance Accruals

AirNet is self-insured up to certain limits for costs associated with workers’ compensation claims and benefits paid under employee health care programs. At December 31, 2005 and 2004, AirNet had total self-insurance accruals reflected in its Consolidated Balance Sheets of approximately $0.9 million and $1.1 million, respectively.

The measurement of these costs requires the consideration of historical loss experience and judgments about the present and expected levels of costs. AirNet accounts for these costs primarily through measurement of claims outstanding and projected payments based on recent claims experience. AirNet believes its recorded obligations for these expenses are consistently measured on an appropriate basis; however, changes in health costs, loss development factors, accident frequency and severity, and other factors can materially affect the estimates for these liabilities.

Incentive Compensation Plans

AirNet maintains an incentive compensation plan with payouts tied to the achievement of company-wide earnings goals and personal/departmental goals. Incentive compensation is calculated as a percent of base pay, depending on participation levels, which vary among management tiers. Costs related to the company-wide earnings portion of the plan are accrued based on actual quarterly results. For the year ended December 31, 2005, AirNet recorded approximately $1.6 million of incentive compensation expense, and for the year ended December 31, 2004, no incentive compensation expense was recorded because the earnings goals were not met.

Income Taxes

AirNet accounts for income taxes under the liability method pursuant to SFAS 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.

Accounting principles generally accepted in the United States of America require AirNet to record a valuation allowance against future deferred tax assets if it is “more likely than not” that AirNet will not be able to utilize such benefits in the future. At December 31, 2005 and 2004, AirNet maintained a valuation allowance of $6.3 million and $5.7 million, respectively, to offset the deferred tax assets associated with its net operating loss carryforwards (NOL) and alternative minimum tax credit carryforwards (AMT) because of the uncertainty surrounding its ability to realize such assets.

Impairment of Assets and Goodwill

AirNet recognizes impairment losses on long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). AirNet recognizes impairment losses on long-lived assets when events or changes in circumstances indicate, in management’s judgment, that AirNet’s assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets. The net carrying value of the assets not recoverable is reduced to fair market value if lower than carrying value. In determining the fair market value of the assets, AirNet considers market trends, published market data, recent transactions involving sales of similar assets and, as discussed below, the letter of intent for the sale of AirNet that was announced on October 26, 2005.

On October 26, 2005, AirNet announced that it had entered into a letter of intent for its sale in a going private transaction at $4.55 per share. Since the price per share in the letter of intent was less than AirNet’s net book value per share, AirNet performed the impairment tests required by SFAS No. 144 for the quarter ended September 30, 2005 and concluded that its long-lived assets used in its Delivery Services segment were further impaired. Accordingly, a non-cash charge of $16.1 million ($10.0 million net of tax) was recorded as of September 30, 2005. The impairment charge was based upon the fair values of the long-lived assets in the Delivery Services segment derived from published sources, information provided by a third-party valuation firm retained to assist AirNet in completing its analysis, and the discount inherent in the price per common share set forth in the letter of intent.

AirNet’s long-lived assets used in its cargo operations, consisting primarily of aircraft and spare parts, were also determined to be impaired as of September 30, 2004. This determination was made as a result of industry trends in the adoption of electronic payment alternatives and evolving electronic alternatives to the physical movement of cancelled checks at a more rapid pace than previously anticipated by the industry. AirNet’s cargo airline was originally designed, and continues to operate, primarily to meet the needs of Bank Services customers. AirNet determined that its airline capacity would exceed future demand, which created an impairment of the aircraft and related assets. The impairment also reflected the overall decline in the market values of the aircraft in its cargo fleet which had not recovered as in previous economic cycles. AirNet determined that the expected future undiscounted cash flows from its assets used in its cargo operations were less than the

carrying value of those assets and were impaired. Accordingly, a non-cash impairment charge of $43.0 million was recorded as of September 30, 2004, using estimated aircraft fair values. The aircraft fair values used for this purpose were based upon published market sources as of September 30, 2004, which were also used under AirNet’s Amended Credit Agreement.

Under SFAS No. 142, “Goodwill and Other Intangible Assets”, AirNet evaluates its goodwill for impairment annually, or more frequently if changes in circumstances indicate impairment may have occurred sooner. At September 30, 2004, AirNet determined that as a result of the impairment of its long-lived assets used in its Delivery Services operations, the remaining goodwill assigned to the cargo operations should be evaluated for potential impairment. AirNet evaluated the fair value of its goodwill related to its Delivery Services operations based upon a discounted future cash flow analysis. As a result of the impairment test, AirNet determined that its goodwill was impaired and, accordingly, a non-cash impairment charge of $4.0 million was recorded at September 30, 2004.

Forward-looking statements

The information included or incorporated by reference in this Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including those identified by the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” and similar expressions. These forward-looking statements reflect management’s expectations and are based upon currently available data; however, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in these statements. The following factors, in addition to those included in the disclosure under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K, could cause actual results to differ materially from those expressed in forward-looking statements:

	•		an acceleration in the migration of AirNet’s Bank customers to electronic alternatives to the physical movement of cancelled checks;

	•		potential regulatory changes by the FAA, DOT and TSA which could increase the regulation of AirNet’s business, or the Federal Reserve, which could change the competitive environment of transporting canceled checks;

	•		disruptions to operations due to adverse weather conditions, air traffic control-related constraints or aircraft accidents;

	•		potential further declines in the value of aircraft in AirNet’s fleet and any related asset impairment charges;

	•		the ability to successfully market the Passenger Charter business in light of global changes in the commercial airline industry;

	•		potential changes in locally and federally mandated security requirements;

	•		increases in aviation fuel costs not fully offset by AirNet’s fuel surcharge program;

	•		changes in check processing and shipment patterns of bank customers;

	•		acts of war and terrorist activities;

	•		the impact of prolonged weakness in the U. S. economy on time-critical shipment volumes;

	•		the acceptance of AirNet’s time-critical service offerings within targeted Express markets;

	•		technological advances and increases in the use of electronic funds transfers;

	•		the availability and cost of financing required for operations;

	•		the impact of unusual items resulting from ongoing evaluations of our business strategies;

	•		our substantial indebtedness;

	•		insufficient capital for future expansion; and

•

other economic, competitive and domestic and foreign governmental factors affecting AirNet’s markets, prices and other facets of its operations.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements. AirNet assumes no obligation or duty to update any of the forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K except to the extent required by law.

ITEM 7A — 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. At December 31, 2005, AirNet had a $16.5 million outstanding balance under its Amended Credit Agreement (described above in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation”) subject to market rate changes in interest. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement and (ii) the sum of 0.5% plus the federal funds rate in effect from time to time. Assuming borrowing levels at December 31, 2005, a one hundred basis point change in interest rates would impact net interest expense by approximately $165,000 per year.

Following the effectiveness of the Amended Credit Agreement dated May 28, 2004, AirNet paid off three secured term loans which had been secured by aircraft. One of those loans had an interest rate swap agreement associated with it. This interest rate swap agreement with a notional amount of $3.0 million and a fixed rate of 4.25% plus a margin based on AirNet’s funded debt ratio was terminated in August 2005.

Fuel Surcharge

AirNet generally assesses its Bank Services customers a fuel surcharge which is based on the Oil Price Index Summary – Columbus, Ohio (OPIS-CMH Index). Fuel surcharges are assessed to Delivery Services customers as a percentage of transportation charges. As index rates increase above established base rates, AirNet increases the fuel surcharge percentage applied to the transportation charges. AirNet assesses most of its Express Services customers a fuel surcharge which is based on the OPIS index, and is adjusted monthly. In addition, Jetride charges its customers a fuel surcharge stated as an hourly rate based upon current fuel prices which changes according to prevailing market rates.

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
AirNet Systems, Inc.

We have audited the accompanying consolidated balance sheets of AirNet Systems, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15 (a) 2. These financial statements and schedule are the responsibility of the management of AirNet Systems, Inc. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. 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.

Columbus, Ohio
March 3, 2006
except for Note 4, as to which the date is
March 28, 2006

AIRNET SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
In thousands, except per share data	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	1,590		$	1,086
Accounts receivable, less allowances of $725 and $874 at December 31, 2005 and 2004, respectively		23,475			24,591
Taxes receivable		1,787			1,137
Deferred income taxes		—			187
Deposits and prepaids		2,638			3,322

Total current assets		29,490			30,323

Net property and equipment		93,643			106,816

Deposits and other assets		160			331


Total assets	$	123,293		$	137,470


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	10,280		$	12,223
Salaries and related liabilities		5,180			4,496
Current portion of notes payable		3,852			3,076
Deferred income taxes		124			—
Other		—			102

Total current liabilities		19,436			19,897

Other liabilities		—			670
Notes payable, less current portion		52,167			59,169
Deferred income taxes		5,311			7,268

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; 12,753 shares issued at December 31, 2005 and 2004		128			128
Additional paid-in capital		76,318			76,835
Retained deficit		(6,454	)		(2,208	)
Accumulated other comprehensive loss		(13	)		(13	)
Treasury shares 2,614 and 2,644 shares held at cost at December 31, 2005 and 2004, respectively		(23,600	)		(24,276	)

Total shareholders’ equity		46,379			50,466

Total liabilities and shareholders’ equity	$	123,293		$	137,470

See notes to consolidated financial statements

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
In thousands, except per share data	2005			2004			2003
NET REVENUES
Air transportation, net of excise tax of $4,107, $3,997, and $3,579 for the years ended December 31, 2005, 2004, and 2003, respectively:
Delivery services:
Bank services	$	113,748		$	106,117		$	103,399
Express services		52,346			49,096			36,963

Total delivery services revenues		166,094			155,213			140,362

Passenger Charter services		29,454			18,494			7,599
Aviation services and other		865			1,243			1,261

Total net revenues		196,413			174,950			149,222

COSTS AND EXPENSES
Wages and benefits		24,469			24,823			23,297
Aircraft fuel		34,487			26,865			19,227
Aircraft maintenance		22,521			15,086			12,242
Contracted air costs		14,587			13,813			9,929
Ground courier		31,610			30,285			25,834
Depreciation		14,714			19,513			17,535
Insurance, rent and landing fees		9,625			10,115			9,895
Travel, training and other		10,929			9,359			8,003
Selling, general and administrative		19,837			18,661			17,032
Net (gain) loss on disposition of assets		(159	)		34			(3	)
Impairment of property and equipment		16,073			42,991			—
Impairment of goodwill		—			4,018			—

Total costs and expenses		198,693			215,563			142,991


Income (loss) from operations		(2,280	)		(40,613	)		6,231
Interest expense		4,066			2,468			1,340


Income (loss) from continuing operations before income taxes		(6,346	)		(43,081	)		4,891
Provision (benefit) for income taxes		(2,100	)		(8,935	)		2,103


Income (loss) from continuing operations		(4,246	)		(34,146	)		2,788

Loss from discontinued operations (including gain on sale of $58 in 2003), net of taxes		—			—			(8	)


Net income (loss)		($4,246	)		($34,146	)	$	2,780


Income (Ioss) per common share — basic and diluted
Continuing operations	$	(0.42	)	$	(3.39	)	$	0.28
Discontinued operations	$	—		$	—		$	—

Net income (loss) per common share — basic and diluted	$	(0.42	)	$	(3.39	)	$	0.28

See notes to consolidated financial statements

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
In thousands	2005			2004			2003
OPERATING ACTIVITIES
Net income (loss)		($4,246	)		($34,146	)	$	2,780
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		14,714			19,513			17,535
Impairment of property and equipment, and goodwill		16,073			47,009			—
Deferred taxes		(1,957	)		(14,826	)		3,533
Provision for losses on accounts receivable		88			523			495
(Gain) loss on disposition of assets		(159	)		34			(89	)
Cash provided by (used in) operating assets and liabilities:
Accounts receivable		1,028			(6,466	)		(1,659	)
Deposits and prepaids		684			210			843
Accounts payable and accrued expenses		(1,943	)		3,220			1,889
Taxes payable/receivable		(650	)		5,700			(528	)
Salaries and related liabilities		684			(458	)		480
Other, net		209			120			1,266
Net assets of discontinued operations		—			—			1,229

Net cash provided by operating activities		24,525			20,433			27,773

INVESTING ACTIVITIES
Purchases of property and equipment		(17,715	)		(51,214	)		(25,287	)
Proceeds from sales of property and equipment		260			6,961			195
Proceeds from sale of business		—			—			565

Net cash used in investing activities		(17,455	)		(44,253	)		(24,527	)

FINANCING ACTIVITIES
Proceeds from Incentive Stock Plan programs		134			153			158
Net (repayments) borrowings under revolving credit facilities		(3,000	)		700			1,100
Borrowings under term loans		11,000			32,500			1,500
Repayments of term loans		(14,897	)		(8,730	)		(6,696	)
Other — net		197			158			(237	)

Net cash (used in) provided by financing activities		(6,566	)		24,781			(4,175	)


Net increase (decrease) in cash		504			961			(929	)
Cash and cash equivalents at beginning of year		1,086			125			1,054


Cash and cash equivalents at end of year	$	1,590		$	1,086		$	125

See notes to consolidated financial statements

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


											Accumulated
	Common Shares				Additional						Other
	Number				Paid-in			Retained			Comprehensive			Treasury
In thousands	of Shares		Amount		Capital			Earnings			Loss			Shares			Total
Balance December 31, 2002		12,753	$	128	$	77,152		$	29,158			($59	)		(25,583	)	$	80,796

Net income		—		—		—			2,780			—			—			2,780
Gain on derivative instruments, net of $16 tax expense		—		—		—			—			24			—			24

Comprehensive income																		2,804
Issuance of treasury shares - Associate Stock Purchase Program		—		—		(688	)		—			—			859			171
Sale of Mercury Business Services		—		—		—			—			—			(536	)		(536	)
Repurchase of treasury shares		—		—		—			—			—			(250	)		(250	)

Tax benefit from Wright warrants		—		—		1,295			—			—			—			1,295


Balance December 31, 2003		12,753	$	128	$	77,759		$	31,938			($35	)	$	(25,510	)	$	84,280


Net loss		—		—		—			(34,146	)		—			—			(34,146	)
Gain on derivative instruments, net of $19 tax expense		—		—		—			—			22			—			22
Comprehensive loss																		(34,124	)

Issuance of treasury shares - Associate Stock Purchase Program		—		—		(411	)		—			—			566			155
Stock option exercises		—		—		(513	)		—			—			668			155

Balance December 31, 2004		12,753	$	128	$	76,835			($2,208	)		($13	)	$	(24,276	)	$	50,466

Net loss		—		—		—			(4,246	)					—			(4,246	)

Issuance of treasury shares - Associate Stock Purchase Program		—		—		(361	)		—			—			474			113
Stock option exercises		—		—		(156	)		—			—			202			46


Balance December 31, 2005		12,753	$	128	$	76,318			($6,454	)		($13	)	$	(23,600	)	$	46,379

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

AirNet Systems, Inc. and its subsidiaries (collectively, “AirNet”) operate a 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.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of AirNet Systems, Inc. and its 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 of America 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 2004 and 2003 balances have been reclassified to conform with the 2005 presentation.

Revenue Recognition

Revenue on Express Services and Bank Services is recognized when the packages are delivered to their destination. Revenue related to Passenger Charter Services is recognized from both owned and managed aircraft in the period in which the charter services are completed. Revenue on fixed based operations within Aviation services 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

AirNet performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. AirNet establishes an allowance for doubtful accounts based upon factors surrounding the credit risks of specific customers, historical trends and other information.

Inventory

Inventory is valued at the lower of cost (weighted average method) or market.

Property and Equipment

Acquisitions of property and equipment are stated at cost. Costs of major overhauls and engine work which are expected to extend the useful life of the related asset are capitalized as incurred and depreciated based on hours flown. The original costs of airframes, other flight equipment and other property and equipment (primarily furniture and equipment, leasehold improvements, computer related hardware and software and vehicles) are depreciated based on the straight-line method over the estimated useful lives of the assets as summarized below. Aircraft maintenance costs not meeting AirNet’s capitalization requirements are expensed as incurred.


Airframes		2-15 years
Leasehold improvements		20 years
Other flight equipment		2-5 years
Other property and equipment		3-10 years

AirNet evaluates the remaining salvage values and depreciable lives of its property and equipment as conditions dictate.

Approximately 85% of AirNet’s Learjet 35 aircraft engines and all of AirNet’s Learjet 60 aircraft engines are covered under manufacturer engine maintenance plans, under which AirNet prepays certain repair and overhaul costs. These prepayments, which totaled approximately $20.0 million and $19.3 million at December 31, 2005 and 2004, respectively, are classified in fixed assets on the Consolidated Balance Sheets. Amortization on these prepaid balances does not begin until major engine overhaul services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.

Property and equipment consisted of the following at December 31:


	2005		2004
Flight equipment	$	94,026,000	$	114,501,000
Other property and equipment		18,814,000		19,377,000

		112,840,000		133,878,000
Less accumulated depreciation		19,197,000		27,062,000

Net property and equipment	$	93,643,000	$	106,816,000

AirNet recognizes impairment losses on long-lived assets used in operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). AirNet recognizes impairment losses on long-lived assets used in operations when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets. The net carrying value of the assets not recoverable is reduced to fair market value if lower than carrying value. In determining the fair market value of the assets, AirNet considers market trends, published market data, and recent transactions involving sales of similar assets.

Self-Insurance Accruals

AirNet is self-insured up to certain limits for costs associated with workers’ compensation claims and benefits paid under employee health care programs. The measurement of these costs requires the consideration of historical loss experience and judgments about the present and expected levels of costs. AirNet accounts for these costs primarily through measurement of claims outstanding and projected payments based on recent claims experience.

Incentive Compensation Plans

AirNet maintains an incentive compensation plan with payouts tied to the achievement of company-wide earnings goals and personal/departmental goals. Incentive compensation is calculated as a percent of base pay, depending on participation levels, which vary among management tiers. AirNet accrues for costs related to the personal/departmental goals portion of the plan based on estimated achievement rates of set goals applied to individuals’ base pay rates.

Income Taxes

AirNet accounts for income taxes under the liability method pursuant to SFAS 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

SFAS No. 142, “Goodwill and Other Intangible Assets” requires that goodwill and indefinite-lived intangible assets no longer be amortized, but instead be evaluated for impairment on a “reporting unit” basis annually, or more frequently if changes in circumstances indicate impairment may have occurred sooner. A reporting unit is the operating segment unless, for businesses within that operating segment, discrete financial information is prepared and regularly reviewed by management, in which case such a component business is the reporting unit.

The impairment test is conducted by comparing the fair value of the reporting unit, primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit, with its carrying value and if the carrying value exceeds the fair value, goodwill may potentially be impaired. If there is potential impairment, the fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if the implied fair value is less, an impairment loss is recognized.

Financial Instruments

The fair value of AirNet’s financial instruments approximated their carrying value at December 31, 2005 and 2004.

Derivatives

AirNet has been party to various interest rate swap agreements with banks as a hedge against the interest rate risk associated with borrowing at variable rates. These swap agreements are accounted for as cash flow hedges. The objective of the hedge is to eliminate the variability of cash flows in the interest rate payments on the variable rate debt.

In February 2002, AirNet entered into a five-year interest rate swap agreement with a bank relative to a $3.0 million term loan. Following the effectiveness of the Amended Credit Agreement dated May 28, 2004, and as discussed in Note 4, AirNet paid off three secured term loans which had been secured by aircraft. This interest rate swap agreement with a notional amount of $3.0 million and a fixed rate of 4.25% plus a margin based on AirNet’s funded debt ratio was terminated in August 2005.

AirNet accounts for its swap agreements under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its amendments, SFAS Nos. 137 and 138. These statements require AirNet to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges are 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 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 is immediately recognized in earnings. In 2004, AirNet recognized comprehensive income of approximately $22,000, net of tax, related to the swaps. At December 31, 2004, the aggregate fair value of the interest rate swaps was approximately ($15,000) and was recorded in other liabilities on the Consolidated Balance Sheets. The ineffective portion of the change in fair value is immaterial for all years presented. There were no interest rate swap agreements in place at December 31, 2005.

Stock-Based Compensation

At December 31, 2005, AirNet had two stock-based employee compensation plans, the Amended and Restated 1996 Incentive Stock Plan and the 2004 Stock Incentive Plan. AirNet has accounted for the plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all stock options granted under the plans have an exercise price equal to the fair market value of the underlying common shares on the date of grant. Pro forma information regarding net income and net income per share is required by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS No. 148), and has been determined as if AirNet had accounted for its employee stock options under the fair value method of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123).

	1.		A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

	2.		A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate financial statements based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) for all prior periods presented or (b) for prior interim periods of the year of adoption.

AirNet adopted SFAS No. 123(R) using the modified prospective method. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had AirNet adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income (loss) and net income (loss) per share below. AirNet does not anticipate that adoption of SFAS No. 123(R) will have a material impact on its results of operations or its financial position. However, SFAS No. 123(R) also requires that the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. While AirNet cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were not material.

AirNet adopted the fair-value-based method of accounting for share-based payments effective January 1, 2003 using the “modified prospective method” described in SFAS No. 148. Currently, AirNet uses the Black-Scholes option pricing model to estimate the value of stock options granted to employees for purposes of computing the pro forma disclosures required by SFAS No. 123.

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:


	2005			2004			2003
Risk free interest rate		4.04	%		4.83	%		4.00	%
Volatility factor of expected market price of AirNet’s common shares		53.6	%		48.8	%		65.4	%
Weighted average expected life of options (years)		4.92			4.59			4.81

The weighted average fair value of options granted was $2.14, $2.15 and $2.37 in the years ended December 31, 2005, 2004 and 2003, respectively.

The following table illustrates the effect on net income (loss) and net income (loss) per common share if AirNet had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.


	Year Ended December 31
	2005			2004			2003
Net income (loss), as reported		($4,246,000	)		($34,146,000	)	$	2,780,000

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(118,000	)		(185,000	)		(132,000	)


Pro forma net income (loss)		($4,364,000	)	$	(34,331,000	)	$	2,648,000


Net income (loss) per common share – basic and diluted:
As reported		($0.42	)		($3.39	)	$	0.28
Pro forma		($0.43	)		($3.41	)	$	0.26

Supplemental Cash Flow Data

Cash paid for interest was $3,965,000, $2,414,000, and $1,584,000 for the years ended December 31, 2005, 2004, and 2003, respectively. During the years ended December 31, 2005 and 2004, AirNet capitalized approximately $0.3 million and $0.1 million in interest, respectively, related to the construction of its new Rickenbacker office and hangar facility. AirNet paid $265,000, $208,000, and $459,000 and received $39,000, $62,000, and $1,332,000 for the years ended December 31, 2005, 2004, and 2003, respectively, related to income taxes.

2. Impairment of Property and Equipment and Goodwill

AirNet recognizes impairment losses on long-lived assets in accordance with SFAS No. 144. AirNet recognizes impairment losses on long-lived assets when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those assets. The net carrying value of the assets not recoverable is reduced to fair market value if lower than carrying value. In determining the fair market value of the assets, AirNet considers market trends, published market data, recent transactions involving sales of similar assets and, as discussed below, the letter of intent for the sale of AirNet that was announced on October 26, 2005.

Under SFAS No. 142, AirNet evaluates its goodwill for impairment annually, or more frequently if changes in circumstances indicate impairment may have occurred sooner. At September 30, 2004, AirNet determined that as a result of the impairment of its long-lived assets used in its Delivery Services operations, the remaining goodwill assigned to the cargo operations should be evaluated for potential impairment. AirNet evaluated the fair value of its goodwill related to its Delivery Services operations based upon a discounted future cash flow analysis. As a result of the impairment test, AirNet determined that its goodwill was impaired and, accordingly, a non-cash impairment charge of $4.0 million was recorded at September 30, 2004.

Following is a progression of goodwill for the years ended December 31:


	2005		2004
Balance at January 1,	$	0	$	4,018,000
Goodwill acquired		—		—
Impairment loss		—		(4,018,000	)

Balance at December 31,	$	0	$	0

3. Segment Reporting

AirNet operates a national air transportation network and has determined its reportable segments are based on AirNet’s methods of internal reporting and management structure. AirNet’s reportable segments are Delivery Services, which provides delivery service of time-critical shipments for Bank customers and Express customers, and Passenger Charter Services (provided by Jetride, Inc., a wholly-owned subsidiary of AirNet Systems, Inc.). AirNet evaluates segment performance based on several factors, of which the primary financial measure is contribution margin. Contribution margin represents the net revenues of the reportable segment less costs and expenses directly associated with the reportable segment, including depreciation expense, but does not include interest and income taxes and certain selling, general and administrative costs. The accounting policies used for segment reporting are the same as those described in Note 1 in the summary of Significant Accounting Policies used for consolidated reporting. There were no material amounts of revenues or transfers between reportable segments.

Financial information for the fiscal years ended December 31, 2005, 2004 and 2003 by business segment follows:


	2005			2004			2003
Net Revenues
Delivery Services	$	166,094,000		$	155,213,000		$	140,362,000
Passenger Charter Services		29,454,000			18,494,000			7,599,000

Total net revenues	$	195,548,000		$	173,707,000		$	147,961,000


Contribution Margin (Shortfall)
Delivery Services	$	2,975,000	⁽¹⁾		($32,838,000	) ⁽¹⁾	$	14,814,000
Passenger Charter Services		2,728,000			2,858,000			1,260,000

Total contribution margin (shortfall)	$	5,703,000			($29,980,000	)	$	16,074,000


Depreciation expense
Delivery Services	$	10,829,000		$	16,565,000		$	15,752,000
Passenger Charter Services		2,588,000			1,887,000			548,000

Total depreciation expense	$	13,417,000		$	18,452,000		$	16,300,000


Total Assets
Delivery Services	$	61,820,000		$	78,690,000		$	118,588,000
Passenger Charter Services		42,739,000			44,120,000			20,332,000

Total assets	$	104,559,000		$	122,810,000		$	138,920,000


Capital Expenditures
Delivery Services	$	11,203,000		$	18,736,000		$	17,079,000
Passenger Charter Services		2,246,000			25,754,000			7,029,000

Total capital expenditures	$	13,449,000		$	44,490,000		$	24,108,000

(1) Included in Delivery Services for 2005 is a $16.1 million asset impairment charge recorded in the third quarter of 2005. Included in Delivery Services for 2004 are a $43.0 million asset impairment charge and a $4.0 million goodwill impairment charge recorded in the third quarter 2004.

A reconciliation of reportable segment net revenues to consolidated total net revenues follows:


	2005		2004		2003
Reportable segment net revenues	$	195,548,000	$	173,707,000	$	147,961,000
Aviation services and other		865,000		1,243,000		1,261,000

Consolidated total net revenues	$	196,413,000	$	174,950,000	$	149,222,000

A reconciliation of reportable segment contribution margin (shortfall) to consolidated income (loss) from operations follows:


	2005			2004			2003
Reportable segment contribution margin (shortfall)	$	5,703,000			($29,980,000	)	$	16,074,000
Net selling and administrative expenses excluded from reportable segment contribution margin (shortfall)		(7,983,000	)		(10,633,000	)		(9,843,000	)

Income (loss) from operations		($2,280,000	)		($40,613,000	)	$	6,231,000

A reconciliation of reportable segment depreciation expense to consolidated depreciation expense follows:


	2005		2004		2003
Reportable segment depreciation	$	13,417,000	$	18,452,000	$	16,300,000
Corporate depreciation		1,297,000		1,061,000		1,235,000

Consolidated total depreciation expense	$	14,714,000	$	19,513,000	$	17,535,000

A reconciliation of reportable segment assets to consolidated total assets follows:


	2005		2004		2003
Reportable segment assets	$	104,559,000	$	122,810,000	$	138,920,000
Corporate assets		18,734,000		14,660,000		14,353,000

Consolidated total assets	$	123,293,000	$	137,470,000	$	153,273,000

4. Notes Payable

AirNet had borrowings as follows at December 31:


	2005		2004
Term notes	$	39,519,000	$	42,745,000
Revolving credit facility		16,500,000		19,500,000

		56,019,000		62,245,000
Current portion of notes payable		3,852,000		3,076,000
Long-term portion of notes payable	$	52,167,000	$	59,169,000

Term Notes and Revolving Credit Facility

On May 28, 2004, AirNet and its lenders amended the terms and conditions of the Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement has been further amended by the First, Second, Third and Fourth Change in Terms Agreements as described below. The Amended Credit Agreement is secured by a first lien on all of the property of AirNet and its subsidiaries, other than any interest in real estate and certain excluded fixed assets. AirNet also pledged the stock and interests of its subsidiaries to secure the loans under the Amended Credit Agreement, and each of AirNet’s subsidiaries guaranteed AirNet’s obligations under the Amended Credit Agreement. The Amended Credit Agreement permits AirNet and its subsidiaries to incur other indebtedness for the purpose of purchasing or refinancing aircraft and related tangible fixed assets, subject to certain annual limitations. The Amended Credit Agreement contains limitations on operating leases, indebtedness, significant corporate changes including mergers and sales of assets, investments in subsidiaries and acquisitions, liens, capital expenditures, transactions with affiliates, sales of accounts receivable, sale and leaseback transactions and other off-balance sheet liabilities, contingent obligations and hedging transactions. The Amended Credit Agreement also contains certain financial covenants that require AirNet to maintain a minimum consolidated tangible net worth and to not exceed certain fixed charge coverage and leverage ratios specified in the Amended Credit Agreement.

The Amended Credit Agreement provided for a secured revolving credit facility of up to $35.0 million and a secured term loan in the aggregate amount of $14.0 million. The amount of revolving loans available under the Amended Credit Agreement is limited to a borrowing base equal to the aggregate of 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 70% of the market value of certain fixed assets, reduced by the aggregate amount of AirNet’s outstanding letters of credit. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio or (ii) the sum of 0.5% plus the federal funds rate in effect from time to time plus a margin determined by AirNet’s leverage ratio. At December 31, 2005, as a result of the various timing and duration of short-term debt maturities, AirNet’s interest rates ranged from 4.5% to 6.5%.

As a result of the impairment charges recorded in September 2004 as described in Note 2 above, AirNet was not in compliance with certain terms of the Amended Credit Agreement, including the fixed charge coverage ratio and the leverage ratio calculated as of September 30, 2004, and AirNet would not have been in compliance with the minimum consolidated tangible net worth requirement as of December 31, 2004. On November 12, 2004, AirNet and its lenders under the Amended Credit Agreement agreed to modify the terms and conditions of the Amended Credit Agreement (the “First Change in Terms Agreement”). The First Change in Terms Agreement modified the fixed charge coverage ratio, the leverage ratio, and the minimum consolidated tangible net worth financial covenants in such a manner that, on a going-forward basis, the September 2004 impairment charges, in and of themselves, would not cause a default of these financial covenants in the future. At the same time as the First Change of Terms Agreement was entered into, AirNet and its lenders executed a waiver of any defaults or potential defaults under the Amended Credit Agreement which occurred, or may have occurred, as a result of AirNet’s failure to comply with the foregoing financial covenants due to the September 2004 impairment charges.

the revolving credit facility will be reduced from $30.0 million to $25.0 million. Under the Second Change in Terms Agreement, the term of the revolving credit facility was extended from September 30, 2005 to October 15, 2006. The December 31, 2004 Consolidated Balance Sheet gives effect to the Second Change in Terms Agreement entered into on March 24, 2005. The Second Change in Terms Agreement also provided for the release of certain fixed assets that were securing the loans under the Amended Credit Agreement and modified certain other financial covenants.

As a result of the impairment charge recorded in September 2005 as described in Note 2 above, AirNet was not in compliance with certain terms of the Amended Credit Agreement, including the fixed charge coverage ratio and the leverage ratio calculated as of September 30, 2005. On November 21, 2005, AirNet and its lenders under the Amended Credit Agreement agreed to modify the terms and conditions of the Amended Credit Agreement (the “Third Change in Terms Agreement”). The Third Change in Terms Agreement modified the fixed charge coverage ratio and the leverage ratio financial covenants in such a manner that, on a going-forward basis, the impairment charge recorded as of September 30, 2005, in and of itself, would not cause a default of these financial covenants in the future. At the same time as the Third Change of Terms Agreement was entered into, AirNet and its lenders executed a waiver of any defaults or potential defaults under the Amended Credit Agreement which occurred, or may have occurred, as a result of AirNet’s failure to comply with the foregoing financial covenants due to the September 2005 impairment charge.

Other Term Notes

On March 24, 2005, AirNet entered into a three-year term loan totaling $11.0 million with a fixed interest rate of 8.12%. This term loan is secured by seven Cessna Caravans and nine Learjet 35’s from AirNet’s cargo aircraft fleet. The aircraft securing this loan were released from the collateral securing the loans under the Amended Credit Agreement in accordance with the Second Change in Terms Agreement. The proceeds from this term loan were used to prepay in full AirNet’s term loan under the Amended Credit Agreement as described above. The December 31, 2004 Consolidated Balance Sheet reflects the reclassification of approximately $22.4 million from current to long-term notes payable as a result of the extension of the Amended Credit Agreement under the Second Change in Terms Agreement and the financing of the cargo aircraft described above. As of December 31, 2005, $9.7 million was outstanding under these term loans.

During the second quarter of 2004, Jetride entered into four seven-year term loans totaling $22.5 million with fixed interest rates of approximately 6.7%. In July 2004, Jetride financed two additional passenger charter Learjet 60’s for the Passenger Charter fleet at $5.0 million each with seven-year terms and fixed rates of approximately 6.5%, for a total of $32.5 million in financing related to AirNet’s Passenger Charter Services. As of December 31, 2005, there was $29.8 million outstanding under all six loans. These term loans are secured by aircraft used in the Passenger Charter fleet. Each of the term loans is guaranteed by AirNet. AirNet incurred approximately $2.0 million in interest expense in 2005 related to the financing of the nine Passenger Charter aircraft under all six loans.

Aggregate future maturities of long-term debt as of December 31, 2005 are as follows:


2006	$	3,852,000
2007		20,644,000
2008		8,392,000
2009		2,521,000
2010		2,692,000
Thereafter		17,918,000

	$	56,019,000

AirNet also maintains standby letters of credit totaling $1,400,000 with a bank related to its insurance policy agreements.

5. Incentive Stock Plans

On June 4, 2004, the shareholders of AirNet Systems, Inc. approved the AirNet Systems, Inc. 2004 Stock Incentive Plan (the “2004 Plan”), for employees of AirNet and its subsidiaries and non-employee directors of AirNet. The 2004 Plan authorizes the granting of incentive and non-qualified stock options, restricted stock, stock appreciation rights, and performance shares

to be paid in common shares and performance units to be paid in cash (collectively, “2004 Plan Awards”). In addition, the 2004 Plan provides for the granting of options to purchase common shares of AirNet Systems, Inc. at up to a 15% discount through payroll deductions by employees of AirNet and its subsidiaries (the “2004 Stock Purchase Program”). The maximum number of common shares available for issuance under the 2004 Plan is 1,000,000. The 2004 Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms and conditions applicable to the 2004 Plan Awards, other than non-qualified stock options automatically granted to non-employee directors in accordance with the terms of the 2004 Plan. The Compensation Committee also has the authority to establish administrative rules and regulations regarding the term of each offering under the 2004 Stock Purchase Plan. In July 2005, non-qualified stock options covering 20,000 common shares were automatically granted under the terms of the 2004 Plan to each of Messrs. Hellerman and Chadwick as new Directors of AirNet. In 2005, 23,414 common shares were issued under the 2004 Stock Purchase Program to employees of AirNet and its subsidiaries.

In 1996, AirNet Systems, Inc. adopted the AirNet Systems, Inc. 1996 Incentive Stock Plan (as amended and restated, the “1996 Plan”). The 1996 Plan authorized the granting of incentive and non-qualified stock options, restricted stock and performance awards (collectively, “1996 Plan Awards”). In addition, the 1996 Plan provided for the granting of options to purchase common shares of AirNet Systems, Inc. at up to a 15% discount through payroll deductions by employees of AirNet and its subsidiaries (the “1996 Stock Purchase Program”). The 1996 Plan also provided for the grant of non-qualified stock options to non-employee directors. The maximum number of common shares available for issuance under the 1996 Plan is 1,650,000. The 1996 Plan is administered by the Compensation Committee of the Board of Directors, which determined the terms and conditions applicable to the 1996 Plan Awards, other than non-qualified stock options automatically granted to non-employee directors in accordance with the terms of the 1996 Plan. The exercise price of each option has been equal to the fair 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. Since the adoption of the 2004 Plan, no additional 1996 Plan Awards have been or will be made under the 1996 Plan.

A summary of AirNet’s option activity and related information follows (in thousands, except price per share data) for the years ended December 31:


	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
	Common			Exercise		Common			Exercise		Common			Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of period		1,008		$	7.99		1,014		$	8.52		1,045		$	9.55
Granted		40			4.26		206			4.11		132			4.32
Exercised		(12	)		3.96		(41	)		3.79		—			—
Cancelled		(150	)		8.95		(171	)		7.56		(163	)		11.90
Outstanding at end of period		886			7.71		1,008			7.99		1,014			8.52

Options exercisable at end of period		716		$	8.48		747		$	9.20		787		$	9.50

The following summarizes information about options outstanding (in thousands, except remaining contractual life and price per share data) as of December 31, 2005:


			Options Outstanding				Options Exercisable
			Weighted-Average		Weighted
Range of Exercise	Number of		Remaining Contractual		Average		Number of		Weighted-Average
Prices	Options		Life (Years)		Exercise Price		Options		Exercise Price
Less than $5.00		405		6.9	$	4.14		244	$	4.10
$5.01-$10.00		315		4.1		8.51		306		8.51
$10.01-$15.00		129		0.7		14.11		129		14.11
$15.01-$20.00		36		2.6		17.50		36		17.50
$20.01-$25.00		1		2.4		22.00		1		22.00

		886		4.8	$	7.71		716	$	8.48

AirNet’s stock purchase program, which had been part of the 1996 Plan and is part of the 2004 Plan, allows eligible employees the opportunity to acquire common shares of AirNet at up to a 15% discount through payroll deductions. AirNet issued 23,414, 35,914, and 39,597 common shares respectively during 2005, 2004, and 2003 from treasury shares under the stock purchase program.

6. Lease Obligations

AirNet leases facility space and courier vehicles at various locations throughout the United States. In January 2002, AirNet entered into operating leases for six Cessna Caravan 208 aircraft, which after certain extensions entered into in September 2002, terminate in 2006 and 2007. In January of 2003 and January of 2006, AirNet entered into two additional operating leases on Cessna Caravan 208 aircraft that expire, respectively, in 2008 and 2007. In February 2006, AirNet entered into a one-year operating lease on an additional Cessna Caravan 208 aircraft.

AirNet incurred lease expense of $2,587,000, $3,439,000, and $4,131,000 for the years ended December 31, 2005, 2004 and 2003, respectively. As of December 31, 2005, future minimum lease payments by year under non-cancelable operating leases with initial or remaining terms exceeding one year are as follows: 2006 — $629,000; 2007 — $214,000; 2008 — $100,000; 2009 — $78,000; 2010 - $78,000.

Concurrently with the sale of AirNet’s Port Columbus Facility in December 2004, AirNet entered into the New Port Columbus Lease. Pursuant to the New Port Columbus Lease, AirNet leased the real property associated with the Port Columbus Facility and the buildings and all other improvements thereon pending completion of the construction of AirNet’s new office and hangar facility at Rickenbacker. The term of the New Port Columbus Lease commenced on December 15, 2004 and terminated on August 31, 2005. The New Port Columbus Lease was rent free until May 15, 2005 and commencing May 16, 2005, the rent was scheduled to increase to $30,000 per month. The Authority waived the scheduled rent increase for the period from May 16, 2005 until the relocation of AirNet to its new Rickenbacker Facility. The New Port Columbus Lease was a net lease under which AirNet was responsible for all costs of operating the Port Columbus Facility. This transaction was a minor sale-leaseback, as the present value of the rental payments was less than 10% of the property’s fair value; therefore, AirNet recorded a gain on the sale of $0.3 million in 2004. AirNet relocated its operations at the Port Columbus Facility as well as its administrative functions to the Rickenbacker Facility in June 2005.

7. Related Party Transactions

During 2001, the Board of Directors approved a retirement agreement with Gerald G. Mercer, Founder and former Chairman, of AirNet. As contemplated by the retirement agreement, Mr. Mercer retired as Chairman and a Director effective August 3, 2001. Under the terms of the retirement agreement, Mr. Mercer had the option to sell up to $250,000 of AirNet common shares each quarter of 2002 to AirNet based on then current market prices. Mr. Mercer exercised his option and, effective January 2, 2003, sold 52,410 AirNet common shares to AirNet at a total cost of $249,996.

Also under the terms of his retirement agreement, Mr. Mercer retained his rights to sell his remaining AirNet common shares to private investors at any time in accordance with the applicable laws. On or about December 26, 2002, Mr. Mercer sold an aggregate of 733,200 common shares to seven separate investors in privately negotiated transactions. On December 24, 2002, he made a gift of 256,800 common shares to Spring Hill Camps, which sold those common shares to three separate investors, one of which also purchased common shares from Mr. Mercer, in privately negotiated transactions. In connection with and as a condition to the investors’ consummating those transactions, AirNet granted registration rights with respect to the 990,000 common shares collectively purchased by these investors from Mr. Mercer or Spring Hill Camps and registered the common shares in 2003.

8. Retirement Plan

AirNet has a 401(k) retirement savings plan. All associates who have completed a minimum of one month of service may contribute up to 60% of their eligible annual earnings to the 401(k) retirement savings plan, subject to the maximum limitation imposed under the Internal Revenue Code. AirNet may elect, at its discretion, to make matching and profit-sharing contributions. AirNet’s contribution expense related to the 401(k) retirement savings plan totaled $487,000, $626,000, and $519,000 for the years ended December 31, 2005, 2004, and 2003, respectively.

9. Income Taxes

Income taxes are summarized as follows for the years ended December 31:


	2005			2004			2003
Current:
Federal	$	—		$	—			($1,227,000	)
State and local		175,000			195,000			295,000

		175,000			195,000			(932,000	)

Deferred:
Federal		(2,042,000	)		(8,518,000	)		2,978,000
State and local		(233,000	)		(612,000	)		57,000

		(2,275,000	)		(9,130,000	)		3,035,000

		($2,100,000	)		($8,935,000	)	$	2,103,000

Significant components of AirNet’s deferred tax liabilities and assets are as follows at December 31:


	2005			2004
Long-term deferred tax asset:
Alternative minimum tax credit carryforwards	$	2,500,000		$	3,100,000
Net operating loss carryforward		3,800,000			2,600,000
Other		136,000			175,000
Valuation allowance		(6,300,000	)		(5,700,000	)
Long-term deferred tax liabilities:
Property and equipment		(4,712,000	)		(6,767,000	)
Other		(735,000	)		(676,000	)

Net long-term deferred tax liabilities		($5,311,000	)		($7,268,000	)


Current deferred tax assets:
Workers’ compensation reserves	$	331,000		$	405,000
Allowance for bad debt reserves		283,000			345,000
Other		48,000			257,000

Total current deferred tax assets		662,000			1,007,000

Current deferred tax liabilities:
Prepaid expenses		(762,000	)		(795,000	)
Other		(24,000	)		(25,000	)

Total current deferred tax liabilities		(786,000	)		(820,000	)

Net current deferred tax assets (liabilities)	$	(124,000	)	$	187,000

Differences arising between the provision (benefit) 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:


	2005					2004					2003
Tax expense (benefit) at federal statutory rate on pre-tax (loss) income		($2,158,000	)	34.0	%		($14,648,000	)	34.0	%	$	1,663,000	34.0	%
State taxes, net of federal benefit		(355,000	)	5.6			(1,733,000	)	4.0			311,000	6.4
Non-deductible permanent differences		186,000		(2.9	)		1,746,000		(4.0	)		129,000	2.6
Change in valuation allowance		600,000		(9.5	)		5,700,000		(13.0	)		—	0.0
Other		(373,000	)	5.8			—		0.0			—	0.0

Total taxes (benefit)		($2,100,000	)	33.0	%		($8,935,000	)	21.0	%	$	2,103,000	43.0	%

State taxes, net of federal benefit includes a benefit of $158,000 in 2005 as a result of changes in tax laws in the State of Ohio.

In connection with the 1996 repurchase and cancellation of the Donald Wright Warrant, AirNet recognized a related tax benefit estimated to be $7.0 million based upon management’s judgment and estimation of the portion of the Donald Wright Warrant which would be deductible for income tax purposes. This tax benefit was recognized as additional paid-in capital on AirNet’s Consolidated Balance Sheet and has had no effect on AirNet’s Consolidated Statement of Operations. During the third quarter 2003, this matter was partially resolved and AirNet has realized tax deductions related to this transaction in excess of management’s original estimates resulting in additional tax benefits. The additional tax benefits associated with the deductible portion of the Donald Wright Warrant have exceeded the original estimate by $1.3 million. The additional tax benefits, as was the initial estimated tax benefit associated with the Donald Wright Warrant, have been recorded as an increase to additional paid-in capital.

10. Discontinued Operations

On August 11, 2003, AirNet Systems, Inc. completed the sale of substantially all of the assets of its Mercury Business Services unit to Mercury Business Services, Inc., a Delaware corporation owned by a group that included the original owners of the Mercury business.

AirNet sold the assets, primarily the accounts receivable, personal property and intellectual property, with a carrying amount at the time of sale of approximately $1.0 million, for approximately $1.1 million.

AirNet received approximately $455,000 of the purchase price in a ninety day promissory note secured by the assets being sold and guaranteed by each of the shareholders of Mercury Business Services, Inc. Under terms of the Asset Purchase Agreement, approximately $536,000 of the purchase price was paid with AirNet Systems, Inc. common shares owned by the shareholders of Mercury Business Services, Inc., including 56,000 common shares tendered to AirNet Systems, Inc., prior to the closing at $4.30 per common share (the closing price of the AirNet Systems, Inc., common shares on NYSE on July 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc., on the closing date at $4.31 per common share (the average closing price of the AirNet Systems, Inc., common shares on NYSE on August 4-6, 2003). The balance of the purchase price was paid in cash.

AirNet has reported these operations as discontinued operations.

The Mercury Business Services unit had revenues for the year ended December 31, 2003, which consisted of the seven months prior to the sale, of $5.9 million.

Pre-tax loss for AirNet’s Mercury Business Services unit for the year ended December 31, 2003, which consisted of the seven months prior to the sale, was $13,000.

11. Net Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share for the years ended December 31:


	2005			2004			2003
Numerator:
Income (loss) from continuing operations		($4,246,000	)		($34,146,000	)	$	2,788,000
Loss from discontinued operations, net of tax		—			—			(8,000	)

Net income (loss)		($4,246,000	)		($34,146,000	)	$	2,780,000

Denominator:
Basic — weighted average common shares outstanding		10,133,000			10,080,000			10,088,000

Diluted
Stock options — associates, officers and directors		20,000			19,000			1,000

Adjusted weighted average common shares outstanding		10,153,000			10,099,000			10,089,000

Net income (loss) per common share – basic and diluted		($0.42	)		($3.39	)	$	0.28

For the years ended December 31, 2005, 2004, and 2003, options covering 553,000, 686,000, and 981,000 common shares, respectively, were excluded from the diluted weighted average common shares outstanding calculation, as their exercise prices exceeded the average fair market value of the underlying common shares for the year, and therefore were antidilutive.

12. Litigation and Contingencies

AirNet is subject to claims and lawsuits in the ordinary course of its business. In the opinion of management, the outcomes 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 AirNet’s financial position or the results of future operations.

Selected Quarterly Financial Information

The quarterly financial data required to be disclosed in this Item 8 is incorporated herein by reference from the table captioned “Selected Quarterly Data (Unaudited)” in “Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operation” of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

With the participation of the Chairman of the Board, Chief Executive Officer and President (the principal executive officer) and the Chief Financial Officer, Treasurer and Secretary (the principal financial officer) of AirNet Systems, Inc. (“AirNet”), AirNet’s management has evaluated the effectiveness of AirNet’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that evaluation, AirNet’s Chairman of the Board, Chief Executive Officer and President and AirNet’s Chief Financial Officer, Treasurer and Secretary have concluded that:

	•		information required to be disclosed by AirNet in this Annual Report on Form 10-K and the other reports that AirNet files or submits under the Exchange Act would be accumulated and communicated to AirNet’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

	•		information required to be disclosed by AirNet in this Annual Report on Form 10-K and the other reports that AirNet files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

	•		AirNet’s disclosure controls and procedures are effective as of the end of the fiscal year covered by this Annual Report on Form 10-K to ensure that material information relating to AirNet and its consolidated

subsidiaries is made known to them, particularly during the period for which the periodic reports of AirNet, including this Annual Report on Form 10-K, are being prepared.

Changes in Internal Control over Financial Reporting

There were no changes in AirNet’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during AirNet’s fiscal quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect, AirNet’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Continuation of Brown Gibbons Lang & Company Engagement and Establishment of Strategy Committee

On January 5, 2005, upon the approval of the Board of Directors (the “Board”) of AirNet, AirNet engaged Brown Gibbons Lang & Company (“BGL”) to serve as AirNet’s exclusive financial advisor and investment banker to review, develop and evaluate various strategic alternatives to enhance shareholder value, including the possible sale of AirNet. AirNet’s Board also established a Special Committee, consisting solely of independent directors, to oversee the marketing process. While the Special Committee evaluated several proposed transactions, none of the proposed transactions met the Special Committee’s criteria and none of the proposed transactions resulted in the execution of a definitive sales agreement.

In December of 2005, the Board dissolved the Special Committee and appointed a Strategy Committee to work with management on the ongoing business strategy and alternatives for AirNet to enhance shareholder value. The Strategy Committee, together with the full Board, determined that AirNet's business strategy would include operating its businesses with emphasis on cash flows from operations while seeking other de-leveraging opportunities. The Board has elected to continue its engagement of BGL as its financial advisor on a month-to-month basis in connection with the development and evaluation of various strategies and opportunities to enhance shareholder value and de-leverage the business.

The fees for Strategy Committee members for each of the 2005 fiscal year and the 2006 fiscal year have been and remain $1,000 per meeting attended in person and $500 for each telephonic meeting attended.

Changes In Compensation of Executive Officer

On March 24, 2006, the Compensation Committee determined to increase the annual base salary of Craig A. Leach, Vice President, Information Systems, of AirNet, from $150,000 to $160,000. This increase was effective March 27, 2006.

2005 Incentive Compensation Plan

On February 2, 2005, AirNet’s Board, upon the recommendation of the Compensation Committee, adopted the 2005 Incentive Compensation Plan (the “2005 Incentive Plan”). The Compensation Committee and the Board subsequently approved clarifications and modifications to the 2005 Incentive Plan on March 8, 2005 and March 29, 2005. As discussed further below, on August 9, 2005, the Board, upon the recommendation of the Compensation Committee, adopted amendments and clarifications to the 2005 Incentive Plan to address the possibility that a transaction for the sale of AirNet would be consummated prior to the end of the fiscal year ended December 31, 2005 (the “2005 fiscal year”). On November 20, 2005, the Board, upon the recommendation of the Compensation Committee, ratified a change to the 2005 Incentive Plan to address the impact of the non-cash impairment charge recorded by AirNet in the third quarter of the 2005 fiscal year in determining pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the 2005 fiscal year.

The purpose of the 2005 Incentive Plan was to promote the following goals of AirNet for the 2005 fiscal year by providing incentive compensation to certain employees of AirNet and its subsidiaries:

	•		Exceeding budgeted pre-tax income (as determined under the terms of the 2005 Incentive Plan);

	•		Reducing fixed costs;

	•		Creating and executing contingency plans for changes in AirNet’s Bank business;

	•		Refining AirNet’s business plan for its Express and Jetride businesses to more quickly and profitably diversify AirNet;

	•		Developing AirNet’s leadership team; and

	•		Meeting high priority deadlines related to compliance with the Sarbanes-Oxley Act of 2002 and other key projects.

Participants in the 2005 Incentive Plan included AirNet’s executive officers, Joel E. Biggerstaff, Gary W. Qualmann, Larry M. Glasscock, Jr., Jeffery B. Harris, Wynn D. Peterson, Ray L. Druseikis and Craig A. Leach, and certain department managers and department directors. At the start of the 2005 fiscal year, there were 45 participants in the 2005 Incentive Plan. As of the end of the 2005 fiscal year, there were 43 participants in the 2005 Incentive Plan.

Payments under the 2005 Incentive Plan were based on a combination of AirNet’s pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the 2005 fiscal year, operating performance of AirNet’s various business components and the achievement of personal goals assigned to each participant. The Compensation Committee approved personal goals for executive officers and reviewed the personal goals for other participants. The personal goals approved by the Compensation Committee for each of the executive officers related to specific business objectives related to general business operations (e.g., regulatory compliance, expense reductions, etc.) and each business component (e.g., execution of specific contracts with customers and vendors, cost reductions, service improvements, etc.). No incentive compensation was to be paid to the executive officers under the 2005 Incentive Plan for the achievement of personal goals unless AirNet attained the designated threshold level of pre-tax income (other than certain amounts payable to Wynn D. Peterson, as discussed below).

No incentive compensation was to be paid under the 2005 Incentive Plan unless AirNet achieved a designated threshold level of pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the 2005 fiscal year. If the designated threshold level were achieved, incentive compensation payments would increase at predetermined pre-tax income levels until the maximum compensation payout of $1.9 million was reached at approximately 200% of pre-tax income for the 2004 fiscal year, determined without regard to the 2004 fiscal year impairment charges related to property and equipment and goodwill.

Once the overall amount of incentive compensation was determined based upon AirNet’s pre-tax income (as determined under the terms of the 2005 Incentive Plan), incentive compensation was allocated to Bank, Express, Jetride and corporate based upon pre-established targets. Incentive compensation was then allocated to the participants most closely involved in managing each of those business areas based upon each participant’s base salary. Finally, participants must have achieved their pre-established personal goals to achieve their maximum incentive compensation payment.

The maximum percentage of annual base salary that the following executive officers could have received as incentive compensation under the 2005 Incentive Plan was: (i) for Joel E. Biggerstaff, 100%; (ii) for Gary W. Qualmann, Larry M. Glasscock, Jr. and Jeffery B. Harris, 75%; and (iii) for Ray L. Druseikis and Craig A. Leach, 50%. In connection with his promotion in June 2005 to Senior Vice President, Jetride Services, the incentive compensation which Mr. Peterson could have received under the 2005 Incentive Plan was modified to include two components. He was eligible to receive incentive compensation up to a maximum amount of $75,000 (50% of his $150,000 annual base salary prior to the increase) based on the level of achievement through June 30, 2005 of his personal goals in the position as Vice President, Strategic Planning and Analysis, and achievement by AirNet of a designated level of pre-tax income (as determined under the terms of the 2005 Incentive Plan), for the six months ended June 30, 2005. The amount of $60,000 in incentive compensation was paid to Mr. Peterson in respect of the six-month period ended June 30, 2005, which payment was made in March of 2006. Mr. Peterson was also eligible to receive incentive compensation from zero to a maximum amount of $161,250 (75% of his $215,000 annual base salary after the increase) based on the level of achievement of personal goals related to the performance of Jetride for the period from July 1 through December 31, 2005, and achievement by Jetride, and AirNet, of designated levels of pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the six months ending December 31, 2005. In March of 2006, the amount of $46,438 in incentive compensation was paid to Mr. Peterson in respect of the six-month period ended December 31, 2005.

Except for payments to the executive officers, payments under the 2005 Incentive Plan were paid in quarterly payments commencing with the second quarter of the 2005 fiscal year based upon AirNet’s year-to-date financial performance. Except as described above in respect of Mr. Peterson, payments of incentive compensation to AirNet’s executive officers serving at the time of such payments, were made in March of 2006 based upon AirNet’s performance for the 2005 fiscal year. New employees who qualified for the 2005 Incentive Plan were eligible to participate on the first day of the calendar quarter following their date of hire.

On August 9, 2005, the Board, upon the recommendation of the Compensation Committee, had adopted the following amendments and clarifications to the 2005 Incentive Plan to address the possibility that a transaction for the sale of AirNet would be consummated prior to the end of the 2005 fiscal year. In such event, (i) participants in the 2005 Incentive Plan would have been entitled to receive incentive compensation measured as a percentage of their full year base salary rather than a pro-rated portion; (ii) to the extent that bonuses were based in part on pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the 2005 fiscal year, such pre-tax income would have been measured through the month ending immediately prior to the consummation date of the sale transaction; (iii) to the extent bonuses for any individual were determined in part based upon the performance of a business unit against a pre-determined target, the performance of such business unit would have been based upon the performance through the month ending immediately prior to the consummation date of the sale transaction versus the targeted performance through such month end; and (iv) individuals who were employed by AirNet at the time of the consummation of a sale transaction would have been entitled to a bonus under the 2005 Incentive Plan whether or not they were employed at the time the bonus was to be paid.

the 2005 fiscal year would be disregarded and the pre-tax income for the 2005 fiscal year would be computed as if no impairment charge had been incurred.

During the 2005 fiscal year and the fiscal quarter ending March 31, 2006, AirNet made payments under the terms of the 2005 Incentive Plan in the aggregate amount of approximately $1.6 million. In March of 2006, the executive officers of AirNet were paid the following amounts under the 2005 Incentive Plan: Joel E. Biggerstaff — $250,000; Jeffery B. Harris — $190,250; Gary W. Qualmann - $148,000; Larry M. Glasscock, Jr. — $141,125; Wynn D. Peterson — $106,438 ($60,000 in respect of the six-month period ended June 30, 2005; $46,438 in respect of the six-month period ended December 31, 2005); Craig A. Leach — $72,000; and Ray L. Druseikis — $29,000 (became a participant effective July 1, 2005 following his election as an executive officer of AirNet and employment with AirNet effective June 30, 2005.)

After reviewing AirNet’s pre-tax income (as determined under the terms of the 2005 Incentive Plan), the operating performance of AirNet’s various business components, the level of achievement of the personal goals assigned to each executive officer and, in the case of Mr. Peterson, Jetride’s pre-tax income (as determined under the terms of the 2005 Incentive Plan), at the meeting of the Compensation Committee held on March 8, 2006, the Compensation Committee determined the amount of incentive compensation to be paid to each executive officer (other than Mr. Peterson) in respect of the 2005 fiscal year and the incentive compensation to be paid to Mr. Peterson in respect of the six-month period ended December 31, 2005.

Adoption of 2006 Incentive Compensation Plan

On March 24, 2006, the Board of Directors of AirNet, upon the recommendation of the Compensation Committee, adopted the 2006 Incentive Compensation Plan (the “2006 Incentive Plan”).

The purpose of the 2006 Incentive Plan is to promote the following goals of AirNet for the fiscal year ending on December 31, 2006 (“Fiscal 2006”) by providing incentive compensation to certain employees of AirNet and its subsidiaries:

	•		Attaining designated levels of pre-tax income;

	•		Improving cash flow and reducing debt;

	•		Defining and executing plans to offset expected declines in Bank Services revenues;

	•		Reducing the fixed cost structure of AirNet; and

	•		Meeting high priority deadlines of AirNet.

Participants in the 2006 Incentive Plan include AirNet’s executive officers — Joel E. Biggerstaff (Chairman of the Board, Chief Executive Officer and President), Gary W. Qualmann (Chief Financial Officer, Treasurer and Secretary), Larry M. Glasscock, Jr. (Senior Vice President, Express Services), Jeffery B. Harris (Senior Vice President, Bank Services), Wynn D. Peterson (Senior Vice President, Jetride Services), Ray L. Druseikis (Controller and Principal Accounting Officer), Craig A. Leach (Vice President, Information Systems) — and certain department managers and department directors. As of the date of this Annual Report on Form 10-K, there were 47 participants in the 2006 Incentive Plan.

Payments under the 2006 Incentive Plan will be based upon a combination of AirNet’s pre-tax income for Fiscal 2006, the operating performance of AirNet’s Delivery Services and Passenger Charter Services business segments, and the achievement of personal goals assigned to each participant. The Compensation Committee approves personal goals for executive officers and reviews the personal goals for other participants. The personal goals approved by the Compensation Committee for each of the executive officers relate to specific business objectives related to general business operations (e.g., regulatory compliance, expense reductions, etc.) and each business segment (e.g., execution of specific contracts with customers and vendors, cost reductions, service improvements, etc.).

No incentive compensation will be paid under the 2006 Incentive Plan unless AirNet achieves a designated threshold level of pre-tax income for Fiscal 2006. Once the designated threshold level is achieved, the available incentive compensation payments will increase based upon predetermined pre-tax income levels until a maximum aggregate amount of $1.9 million in incentive compensation payments is reached. After the overall amount of incentive compensation is determined based upon AirNet’s pre-tax income for Fiscal 2006, incentive compensation will be allocated to individual participants based upon the following four factors: (i) level of pre-tax income attained by AirNet; (ii) level of contribution margin attained by Delivery Services as compared to certain predetermined levels; (iii) levels of contribution margin attained by Passenger Charter Services as compared to certain predetermined levels; and (iv) attainment of personal goals.

A participant’s maximum incentive compensation payment ranges from 20% to 100% of the participant’s base salary, depending upon such participant’s level of responsibility for achieving AirNet’s goals for Fiscal 2006. Twenty percent of each participant’s incentive compensation payments will be based upon the participant’s achievement of pre-established personal goals. The remaining 80% of each participant’s incentive compensation payment will be based upon a combination of the other three factors discussed above, which will be allocated to each participant based upon such participant’s overall responsibility for attaining the designated levels of AirNet’s pre-tax income and contribution margins for the Delivery Services and Passenger Charter Services business segments.

In the event the incentive compensation payments otherwise available for payment under the 2006 Incentive Plan based upon AirNet’s level of pre-tax income is not paid to certain participants as a result of those participants’ failure to attain their personal goals or AirNet’s failure to attain the predetermined levels of budgeted contribution margins in Delivery Services or Passenger Charter Services, such unpaid amounts may be awarded at the discretion of the Compensation Committee to participants in the 2006 Incentive Plan or to other employees of AirNet not participating in the 2006 Incentive Plan.

The maximum percentage of annual base salary that each of AirNet’s executive officers may receive as incentive compensation under the Incentive Plan is as follows: Joel E. Biggerstaff, 100%; Gary W. Qualmann, Larry M. Glasscock, Jr., Jeffrey B. Harris and Wynn D. Peterson, 75%; Ray L. Druseikis and Craig A. Leach, 50%.

Except for payments to the executive officers, payments under the 2006 Incentive Plan will be paid in quarterly payments commencing with the second quarter of Fiscal 2006 based upon AirNet’s year to date financial performance. Payments of incentive compensation to executive officers will be made in the first quarter of the fiscal year ending December 31, 2007 based upon AirNet’s performance and each executive officer’s performance for Fiscal 2006. In order to receive payment, a participant must be actively employed by AirNet at the time the payment is made. New employees who qualify for the 2006 Incentive Plan will be eligible to participate on the first day of the calendar quarter following their date of hire.

The Compensation Committee may amend, modify or terminate the 2006 Incentive Plan at any time.

Modifications of Amended Credit Agreement

As previously reported in “Item 5 – Other Information”, of AirNet’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005, on November 21, 2005, AirNet and its lenders under the Amended and Restated Credit Agreement dated as of May 28, 2004 (as amended, the “Amended Credit Agreement”) agreed to modify the terms and conditions of the Amended Credit Agreement (the “Third Change in Terms Agreement”). The Third Change in Terms Agreement modified the fixed charge coverage ratio and the leverage ratio financial covenants in such a manner that, on a going-forward basis, the impairment charge recorded as of September 30, 2005, in and of itself, would not cause a default of these financial covenants in the future. At the same time as the Third Change of Terms Agreement was entered into, AirNet and its lenders executed a waiver of any defaults or potential defaults under the Amended Credit Agreement which occurred, or may have occurred, as a result of AirNet’s failure to comply with the foregoing financial covenants due to the impairment charge.

The Third Change in Terms Agreement is filed with this Annual Report on Form 10-K as Exhibit 4.21 and the description herein is qualified in its entirety by reference to the full terms and conditions thereof, which terms and conditions are incorporated herein by reference in their entirety.

The Fourth Change in Terms Agreement is filed with this Annual Report on Form 10-K as Exhibit 4.22 and the description herein is qualified in its entirety by reference to the full terms and conditions thereof, which terms and conditions are incorporated herein by reference in their entirety.

2006 Annual Meeting of Shareholders

To date, AirNet has not set a date for its 2006 Annual Meeting of Shareholders. Accordingly, the information required by Part III (Items 10, 11, 12, 13 and 14) of Form 10-K has been provided as part of this Annual Report on Form 10-K.

PART III

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of AirNet

The name, age, principal occupation for the past five years and selected biographical information for each of the directors of AirNet are set forth below. All information is provided as of March 21, 2006 and was furnished to AirNet by each director. Each director was elected by AirNet’s shareholders at the Annual Meeting of Shareholders held on December 16, 2005 to serve for a term expiring at the 2006 Annual Meeting of Shareholders and until his successor is duly elected and qualified, or until his earlier death, resignation or removal from office.


*Joel E. Biggerstaff*		*Director since 2000*

Mr. Biggerstaff, age 49, has served as AirNet’s Chairman of the Board since August 2001, Chief Executive Officer since April 2000 and President since August 1999. He also served as AirNet’s Chief Operating Officer from August 1999 to February 2004. 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, including Regional Vice President and General Manager, with Ryder System, Inc., a company providing transportation and supply-chain management solutions.


*James M. Chadwick*		*Director since 2005*

Mr. Chadwick, age 32, served as the managing member of Pacific Coast Investment Partners, LLC, a hedge fund specializing in shareholder activism, from January 2003 until June 2005. Pacific Coast Investment Partners, LLC is the General Partner of Pacific Coast Investment Fund, L.P., a private investment fund. From April 1999 to October 2002, Mr. Chadwick was employed by Relational Investors, LLC, a registered investment advisor that invests in companies that it believes can be improved. He served as an analyst for Relational Investors, LLC from 1999 to 2001 and became a Senior Analyst in 2002.


*Russell M. Gertmenian*		*Director since 1996*

Mr. Gertmenian, age 58, has been a partner with Vorys, Sater, Seymour and Pease LLP since 1979 and currently serves as Chair of that firm’s Executive Committee and as Vice-Chair of that firm’s Management Committee. Vorys, Sater, Seymour and Pease LLP rendered legal services to AirNet during the 2005 fiscal year and continues to do so. Mr. Gertmenian also serves as a director of Abercrombie & Fitch Co.


*Gerald Hellerman*		*Director since 2005*

Mr. Hellerman, age 68, owns and has served as Managing Director of Hellerman Associates, a financial and corporate consulting firm, since the firm’s inception in 1993. Mr. Hellerman currently serves as a director and chief compliance officer for The Mexico Equity and Income Fund, Inc.; a director of MVC Capital, Inc.; a director and President of Innovative Clinical Solutions, Ltd., a company formerly engaged in clinical trials and physician network management which is currently in liquidation; and a director of FNC Realty Corporation, a successor to Frank’s Nursery & Crafts, Inc., a company which operated the nation’s largest chain of lawn and garden retail stores, which has emerged from bankruptcy protection under Chapter 11 and is currently operating the properties it owns. Mr. Hellerman also served as a director of Brantley Capital Corporation until March 2, 2006.


*David P. Lauer*		*Director since 1999*

Mr. Lauer, age 63, served as the President and Chief Operating Officer of Bank One, Columbus, NA from June 1997 until his retirement in January 2001. His primary responsibility with Bank One was to lead the commercial lending practice in central Ohio. Prior to that, Mr. Lauer, a Certified Public Accountant since 1968, was the Managing Partner of the Columbus, Ohio office of Deloitte & Touche LLP from January 1989 until he retired in June 1997. Mr. Lauer is also a director of Wendy’s International, Inc., Huntington Bancshares Incorporated, R. G. Barry Corporation and Diamond Hill Investment Group, Inc.


*Bruce D. Parker*		*Director since 2002*

Mr. Parker, age 58, is the Founder and President of IT Management Group, LLC, a specialty consulting group that advises and manages information technology organizations for corporations in Europe and the United States. Mr. Parker served as Executive Vice President of Sapient Corporation, a business and technology consulting firm, from December 1999 until his retirement in July 2002. From December 1997 to December 1999, Mr. Parker served as Senior Vice President and Chief Information Officer at United Airlines, Inc. From September 1994 to December 1997, Mr. Parker was Senior Vice President — Management Information Systems and Chief Information Officer at Ryder System, Inc. Mr. Parker is also a director of Sapient Corporation.


*James E. Riddle*		*Director since 2000*

Mr. Riddle, age 64, has been in the growth management and consulting business since July 1999, most recently as CEO of GrowthCircle, LLC a management consulting firm, since August 2001, and as Vice Chairman of Enterasys Systems, Inc., an enterprise network provider, from August 2000 to April 2001. Previously, Mr. Riddle served from 1997 to 1999 as President and Chief Operating Officer of Norrell Services, Inc., an outsourcing information technology and staffing services company. Prior to joining Norrell, for four years, Mr. Riddle served Ryder System, Inc. in several capacities, primarily in marketing and sales, including as President of Ryder International. Mr. Riddle served Xerox Corporation for 26 years in a variety of senior management positions, including Vice President of Marketing and Vice President of Field Operations for the United States

operations and Vice President of Marketing and Sales for the European operations. Mr. Riddle is also a director of Danka Business Systems PLC.

There are no family relationships among any of the directors and current executive officers of AirNet.

James M. Chadwick and Gerald Hellerman were appointed to the AirNet Board of Directors (the “Board”) effective July 20, 2005, and were recommended by the Nominating and Corporate Governance Committee of the Board. Messrs. Chadwick and Hellerman were recommended to the Nominating and Corporate Governance Committee by Pacific Coast Investment Partners, LLC and Phillip Goldstein, respectively, in connection with the efforts of a group of AirNet’s shareholders, including Pacific Coast Investment Fund, L.P., Mr. Goldstein, Andrew Dakos, Pacific Coast Investment Partners, LLC, Nadel and Gussman Combined Funds LLC, Opportunity Partners, L.P. and Full Value Partners, L.P. (the “Shareholders Group”), to call a special meeting of AirNet’s shareholders to replace the Board. In a Schedule 13D amendment filed with the Securities and Exchange Commission on July 7, 2005, the Shareholders Group reported that it had discontinued its plan to call a special meeting of AirNet’s shareholders.

Director Independence

The common shares of AirNet traded on the New York Stock Exchange (“NYSE”) throughout the fiscal year ended December 31, 2005 (the “2005 fiscal year”) and until January 24, 2006. On January 25, 2006, the common shares of AirNet began trading on the American Stock Exchange (“AMEX”).

Applicable sections of the AMEX Company Guide (the “AMEX Rules”) require, and applicable sections of the NYSE Listed Company Manual (the “NYSE Rules”) required, that a majority of the members of AirNet’s Board be independent directors. The definition of independence for purposes of each of the AMEX Rules and the NYSE Rules includes a series of objective tests, such as the director is not an employee of AirNet or any of AirNet’s subsidiaries and has not directly or indirectly engaged in various types of business dealings with AirNet or any of AirNet’s subsidiaries and the director does not have an immediate family member who is employed by AirNet or any of AirNet’s subsidiaries as an executive officer. In addition, as further required by each of the AMEX Rules and the NYSE Rules, AirNet’s Board has affirmatively determined that each independent director has no material relationship with AirNet or any of AirNet’s subsidiaries (either directly or indirectly).

As discussed below, AirNet’s Board has affirmatively determined that five of the seven directors (i) qualified as independent directors under the NYSE Rules during the period the NYSE Rules were applicable to AirNet (i.e., throughout the 2005 fiscal year and until January 24, 2006) and (ii) qualify as independent directors under the AMEX Rules. In making its determination of director independence under the NYSE Rules, AirNet’s Board established categorical standards (reflecting the objective tests of the NYSE Rules) to assist it in making its determination of director independence. For purposes of making the determination of independence under the NYSE Rules, AirNet’s Board defined an “independent director” as a director who:

	•		is not and within the last three years has not been an employee of, and has no immediate family member who is or has within the last three years been an executive officer of, AirNet or any of its subsidiaries;

	•		has not received, and has no immediate family member who has received (other than for service as a non-executive officer employee), during any 12-month period within the last three years, more than $100,000 in direct compensation from AirNet or any of its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

	•		is not and has no immediate family member who is a current partner of a firm that is AirNet’s internal or external auditor;

	•		is not a current employee of a firm that is AirNet’s internal or external auditor;

	•		has no immediate family member who is a current employee of a firm that is AirNet’s internal or external auditor and participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice;

	•		has not been, and has no immediate family member who has been, within the last three years (but is no longer) a partner or employee of a firm that is AirNet’s internal or external auditor and personally worked on AirNet’s audit within that time;

	•		is not and has not been within the last three years, and has no immediate family member who is or has been within the last three years, employed as an executive officer of another company where any of AirNet’s present executive officers at the same time serves or served on the other company’s compensation committee;

	•		is not a current employee, and has no immediate family member who is a current executive officer, of a company that has made payments to, or received payments from, AirNet or any of its subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues; and

•

has no other material relationship with AirNet or any of its subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with AirNet or any of its subsidiaries).

AirNet’s Board determined that each of James M. Chadwick, Gerald Hellerman, David P. Lauer, Bruce D. Parker and James E. Riddle was independent under these categorical standards. Joel E. Biggerstaff and Russell M. Gertmenian did not qualify as independent directors under the foregoing categorical standards.

In making its determination as to the independence of AirNet’s directors under the AMEX Rules, AirNet’s Board reviewed, considered and discussed the specific objective tests included in the AMEX Rules (which are generally more stringent than the specific objective tests included in the NYSE Rules), in light of:

	•		the relationships (including commercial, industrial, banking, consulting, legal, accounting, charitable and family relationships) of each director (and the immediate family members of each director) with AirNet and/or any of AirNet’s subsidiaries (either directly or as a partner, shareholder, officer or member of any organization that has any such relationship), in each case during the current fiscal year or any of the past three fiscal years; and

	•		the compensation and other payments each director (and the immediate family members of each director):

	o		has received from or made to AirNet and/or any of AirNet’s subsidiaries (either directly or as a partner, shareholder, officer or member of an organization which has received compensation or payments from or made payments to AirNet and/or any of AirNet’s subsidiaries), in each case during the current fiscal year or any of the past three fiscal years; and

	o		presently expects to receive from or make to AirNet and/or any of the subsidiaries of AirNet (either directly or as a partner, shareholder, officer or member of an organization which has received compensation or payments from or made payments to AirNet and/or any of the subsidiaries of AirNet).

AirNet’s Board has determined that each of James M. Chadwick, Gerald Hellerman, David P. Lauer, Bruce D. Parker and James E. Riddle also qualifies as independent under the AMEX Rules because he has no relationship, either directly or indirectly, with AirNet or any of AirNet’s subsidiaries, other than serving as a director of AirNet and owning common shares of AirNet. Joel E. Biggerstaff and Russell M. Gertmenian do not qualify as independent directors under objective tests included in the AMEX Rules.

Executive Officers of AirNet

The following table identifies the executive officers of AirNet as of March 21, 2006. The executive officers serve at the pleasure of the Board and in the case of Joel E. Biggerstaff, Gary W. Qualmann, Larry M. Glasscock, Jr, and Jeffery B. Harris pursuant to employment agreements.


Name	Age		Positions
Joel E. Biggerstaff		49	Chairman of the Board, Chief Executive Officer and President
Gary W. Qualmann		54	Chief Financial Officer, Treasurer and Secretary
Larry M. Glasscock, Jr.		49	Senior Vice President, Express Services
Jeffery B. Harris		46	Senior Vice President, Bank Services
Wynn D. Peterson		42	Senior Vice President, Jetride Services
Ray L. Druseikis		54	Vice President of Finance, Controller and Principal Accounting Officer
Craig A. Leach		49	Vice President, Information Systems

Joel E. Biggerstaff has served as AirNet’s Chairman of the Board since August 2001, Chief Executive Officer since April 2000, and President since August 1999. He also served as AirNet’s Chief Operating Officer from August 1999 to February 2004. He has also served as a director of AirNet since May 2000. 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, including Regional Vice President and General Manager, with Ryder System, Inc., a company providing transportation and supply-chain management solutions.

Gary W. Qualmann has served as AirNet’s Chief Financial Officer, Treasurer and Secretary since September 2003. From February 2002 through August 2003, Mr. Qualmann served as Chief Financial Officer and Treasurer of Metatec, Inc., a manufacturer and distributor of electronic media which filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code on October 17, 2003. Mr. Qualmann provided financial consulting services to Metatec from October 2001 through February 2002. From March 1996 until June 2001, Mr. Qualmann was Chief Financial Officer, Treasurer and Secretary of MindLeaders.com, Inc., an e-learning company based in Columbus, Ohio. From May 1988 until July 1995, Mr. Qualmann served as Executive Vice President and Chief Financial Officer of Red Roof Inns, Inc., a lodging company based in Hilliard, Ohio.

Larry M. Glasscock, Jr. has served as AirNet’s Senior Vice President, Express Services since February 2003. From February 2002 through February 2003, Mr. Glasscock served as Senior Vice President of Evercom Systems, Inc., a national provider of telecom services. From April 2001 through February 2002, Mr. Glasscock served as Executive Vice President of NextJet Technologies, a software and technology solutions organization. Mr. Glasscock served as Chief Executive Officer of Expedited Delivery Systems, Inc., a time-definite trucking concern, from August 1999 to September 2000 and as its President and Chief Operating Officer from January 1998 through August 1999.

Jeffery B. Harris has served as AirNet’s Senior Vice President, Bank Services since May 2000. Mr. Harris joined AirNet in June 1996 as the relationship manager for Banking Sales and was appointed Vice President, Sales in the banking division in October 1997.

Wynn D. Peterson has served as AirNet’s Senior Vice President, Jetride Services since June 2005. From January 2005 until June 2005, Mr. Peterson served as AirNet’s Vice President, Strategic Planning and Analysis and prior thereto, he had served since February 2000 as Vice President of Corporate Development. Mr. Peterson joined AirNet in 1997 as Manager of Corporate Development. Prior to joining AirNet, Mr. Peterson managed equity and fixed income portfolios from 1993 until 1997 at Desert Mutual, a pension and benefits company in Salt Lake City, Utah. From 1988 until 1993, Mr. Peterson held various management positions in Finance, Corporate Development and Strategic Planning at AMR Corporation, the parent company of American Airlines, Inc., in Dallas, Texas.

Ray L. Druseikis has served as AirNet’s Vice President of Finance, Controller and Principal Accounting Officer since June 30, 2005. Mr. Druseikis had served as an independent consultant to AirNet from June 30, 2004 until his election as an officer of AirNet, providing assistance in the process of documenting and testing AirNet’s internal control over financial reporting for purposes of satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Prior to joining AirNet, Mr. Druseikis had provided contract accounting and financial consulting services to publicly-traded and privately-owned companies since October 2002. In addition, from September 2003 to April 2004, Mr. Druseikis served as the Chief Financial Officer of SEA, Ltd., a privately-owned forensic engineering services company. From February 2000 to March 2002, Mr. Druseikis served as Corporate Controller for The Dispatch Printing Company, a privately-owned enterprise with varied business interests in media, real estate and venture capital. From January 1997 to February 2000, Mr. Druseikis served as Controller and Chief Accounting Officer for Crown NorthCorp Inc., a publicly-traded real estate financial services company.

Craig A. Leach has served as AirNet’s 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.

There are no family relationships among any of the directors and current executive officers of AirNet.

Composition of Committees of Board of Directors

The AirNet Board has three standing committees — the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. In addition, on April 29, 2005, AirNet’s Board established a Special Committee to oversee the process of reviewing, developing and evaluating various strategic alternatives to enhance shareholder value. The Special Committee was dissolved on December 16, 2005. On December 16, 2005, AirNet’s Board established a Strategy Committee to work with management on the ongoing business strategy and alternatives for AirNet to enhance shareholder value.

Audit Committee

The Audit Committee currently consists of David P. Lauer (Chair), James M. Chadwick, Bruce D. Parker and James E. Riddle. Each of Messrs. Lauer, Parker and Riddle also served on the Audit Committee throughout the 2005 fiscal year. Mr. Chadwick was appointed to the Audit Committee effective July 20, 2005. AirNet’s Board has determined that each member of the Audit Committee qualified as an independent director under the applicable NYSE Rules, and qualifies as an independent director under the applicable AMEX Rules and under Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). AirNet’s Board has also determined that David P. Lauer qualifies as an “audit committee financial expert” for purposes of Item 401(h) of SEC Regulation S-K, by virtue of his experience described above under “Directors of AirNet.” In addition to the qualification of Mr. Lauer as an “audit committee financial expert,” AirNet’s Board strongly believes that each member of the Audit Committee is highly qualified to discharge his duties on behalf of AirNet and its subsidiaries, and satisfied the financial literacy requirements of the applicable NYSE Rules and satisfies the financial literacy requirements of the applicable AMEX Rules.

Compensation Committee

The Compensation Committee is currently comprised of James E. Riddle (Chair), Gerald Hellerman, David P. Lauer and Bruce D. Parker. Each of Messrs. Riddle, Lauer and Parker also served on the Compensation Committee throughout the 2005 fiscal year. Mr. Hellerman was appointed to the Compensation Committee effective July 20, 2005. AirNet’s Board has determined that each member of the Compensation Committee qualified as an independent director under the applicable NYSE Rules, and qualifies as an independent director under the applicable AMEX Rules, an outside director for purposes of

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and a non-employee director for purposes of Rule 16b-3 under the Exchange Act.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is currently comprised of Bruce D. Parker (Chair), David P. Lauer and James E. Riddle, each of whom also served on such Committee throughout the 2005 fiscal year. AirNet’s Board has determined that each member of the Nominating and Corporate Governance Committee qualified as an independent director under the applicable NYSE Rules and qualifies as an independent director under the applicable AMEX Rules.

Special Committee

On January 5, 2005, AirNet’s Board engaged Brown Gibbons Lang & Company to serve as AirNet’s exclusive financial advisor and investment banker to review, develop and evaluate various strategic alternatives to enhance shareholder value. The Board established a Special Committee consisting solely of independent directors to oversee the process of reviewing, developing and evaluating such strategic alternatives. The Special Committee was comprised of Gerald Hellerman, David P. Lauer, Bruce D. Parker and James E. Riddle. Each of Messrs. Lauer, Parker and Riddle served on the Special Committee from its establishment on April 29, 2005. Mr. Hellerman was appointed to the Special Committee on August 9, 2005. The Special Committee was dissolved on December 16, 2005.

Strategy Committee

Procedures for Recommending Director Candidates

The procedures for recommending director candidates for consideration by the Nominating and Corporate Governance Committee of AirNet’s Board are described under the caption entitled “ELECTION OF DIRECTORS – Nominating Procedures” in AirNet’s definitive Proxy Statement for the Annual Meeting of Shareholders held on December 16, 2005. As of the date of this Annual Report on Form 10-K, those procedures have not changed.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Exchange Act, ownership of and transactions in AirNet’s common shares by executive officers, directors and persons who beneficially own more than 10% of the common shares for purposes of Section 16 of the Exchange Act, are required to be reported to the SEC. Based solely on a review of copies of the reports furnished to AirNet and written representations that no other reports were required, AirNet believes that during the 2005 fiscal year, all filing requirements were complied with, except that each of James M. Chadwick and Gerald Hellerman, who are directors of AirNet, filed late one report, covering one transaction – the automatic grant of an option.

Corporate Governance Documents

AirNet’s Board has adopted charters for each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee as well as Corporate Governance Guidelines.

In addition, the AirNet Board has adopted a Code of Business Conduct and Ethics covering the directors, officers and employees (team members) of AirNet and its subsidiaries, including AirNet’s Chairman of the Board, Chief Executive Officer and President (the principal executive officer), AirNet’s Chief Financial Officer, Treasurer and Secretary (the principal financial officer) and AirNet’s Vice President of Finance, Controller and Principal Accounting Officer (the principal accounting officer). AirNet intends to disclose the following under the “Corporate Governance” link on the “Investor Relations” page of its website located at www.airnet.com within the required four business days following their occurrence: (A) the date and nature of any amendment to a provision of its Code of Business Conduct and Ethics that (i) applies to AirNet’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the “code of ethics” definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver (including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Business Conduct and Ethics granted to AirNet’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, that relates to one or more of the items set forth in Item 406(b) of SEC Regulation S-K. In addition, AirNet will disclose any waivers of the Code of Business Conduct and Ethics granted to a director or an executive officer of AirNet in a current report on Form 8-K within four business days following their occurrence.

The text of each of the Audit Committee Charter, the Compensation Committee Charter, the Nominating and Corporate Governance Committee Charter, the Corporate Governance Guidelines and the Code of Business Conduct and Ethics is posted under the “Corporate Governance” link on the “Investor Relations” page of AirNet’s website located at www.airnet.com. Interested persons may also obtain copies of the Audit Committee Charter, the Compensation Committee Charter, the Nominating and Corporate Governance Committee Charter, the Corporate Governance Guidelines and the Code of Business Conduct and Ethics, without charge, by writing to the Chief Financial Officer, Treasurer and Secretary of AirNet at AirNet Systems, Inc., 7250 Star Check Drive, Columbus, Ohio 43217, Attention: Gary W. Qualmann. In addition, AirNet’s Code of Business Conduct and Ethics was filed as Exhibit 14 to AirNet’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

Communications with the Board

In accordance with AirNet’s Corporate Governance Guidelines, the non-management directors of AirNet meet (without management present) at regularly scheduled executive sessions at least twice per year and at such other times as the directors deem necessary or appropriate. James E. Riddle has been chosen as the lead director and presides at all executive sessions of the non-management directors of AirNet. In addition, at least once a year, the independent directors of AirNet meet in executive session. Mr. Riddle also presides at those meetings.

AirNet’s Board believes it is important for shareholders to have a process to send communications to the Board and its individual members. Accordingly, shareholders who wish to communicate with AirNet’s Board or a particular director may do so by sending a letter to such individual or individuals, in care of AirNet, to AirNet’s executive offices at 7250 Star Check Drive, Columbus, Ohio 43217. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder – Board Communication” or “Shareholder – Director Communication,” as appropriate. All such letters must identify the author as a shareholder and clearly state whether the intended recipients are all members of AirNet’s Board or certain specified individual directors. Copies of all such letters will be circulated to the appropriate director or directors. In addition, shareholders may contact the directors through the Mysafeworkplace.com Hotline. The Mysafeworkplace.com Hotline can be reached at 800-461-9330 or via e-mail at www.mysafeworkplace.com. All shareholder communications through the Mysafeworkplace.com Hotline are categorized by incident type and are then referred to David P. Lauer, Chair of the Audit Committee; Gary W. Qualmann, Chief Financial Officer, Secretary and Treasurer of AirNet; and/or Beth Filipkowski, Director of Human Resources of AirNet, depending on the subject matter. All communications involving accounting, securities, ethical or regulatory issues are referred to Mr. Lauer.

ITEM 11 — EXECUTIVE COMPENSATION

Executive Compensation Tables

The following information is provided with respect to AirNet’s Chief Executive Officer and each of AirNet’s four other most highly compensated executive officers.

Summary Compensation Table

The following table shows, for the last three fiscal years, the cash compensation and other benefits paid or provided by AirNet to its Chief Executive Officer and the other named executive officers.

SUMMARY COMPENSATION TABLE


							Long-Term
							Compensation
							Awards
			Annual				Common Shares
Name and Principal Position			Compensation				Underlying		All Other
during 2005	Fiscal Year		Salary ($)		Bonus ($)		Options (#)		Compensation ($)
Joel E. Biggerstaff		2005	$	325,000	$	250,000		0	$	6,534	(1)
Chairman of the Board, Chief Executive		2004	$	325,000	$	0		40,000	$	6,358
Officer and President		2003	$	325,000	$	45,500		8,500	$	8,462

Jeffery B. Harris		2005	$	230,000	$	190,250		0	$	3,888	(1)
Senior Vice President,		2004	$	230,000	$	0		20,000	$	4,197
Bank Services		2003	$	230,000	$	25,000		5,000	$	5,162

Gary W. Qualmann		2005	$	215,000	$	148,000		0	$	9,740	(1)
Chief Financial Officer,		2004	$	190,000	$	0		20,000	$	6,154
Secretary and Treasurer(2)		2003	$	58,462	$	5,000		20,000	$	0

Larry M. Glasscock, Jr.		2005	$	215,000	$	141,125		0	$	5,365	(1)
Senior Vice President,		2004	$	215,000	$	0		20,000	$	6,500
Express Services (3)		2003	$	190,192	$	30,000		20,000	$	0

Wynn D. Peterson.		2005	$	184,549	$	106,438		0	$	2,190	(1)
Senior Vice President,		2004	$	150,000	$	0		10,000	$	0
Jetride Services (4)		2003	$	150,000	$	10,000		3,000	$	0


(1)		“All Other Compensation” for the 2005 fiscal year includes: (a) employer matching contributions in the amounts of $4,250, $2,300, $5,458, $5,365, and $2,190 allocated to their accounts under the AirNet Systems, Inc. Retirement Savings Plan on behalf of Messrs. Biggerstaff, Harris, Qualmann, Glasscock, and Peterson, respectively; and (b) reimbursements in the amounts of $2,284, $1,588, $4,282, $0, and $0 related to life insurance premium payments made by Messrs. Biggerstaff, Harris, Qualmann, Glasscock, and Peterson, respectively. The AirNet Systems, Inc. Retirement Savings Plan is a qualified, broad-based defined contribution plan under which amounts are paid out to the named individuals only upon retirement, termination of employment, disability or death.

(2)		Mr. Qualmann became an executive officer of AirNet on September 2, 2003.

(3)		Mr. Glasscock became an executive officer of AirNet on February 17, 2004.

(4)		Mr. Peterson was appointed Senior Vice President, Jetride Services of AirNet on June 27, 2005. From January 2005 until his promotion, Mr. Peterson served as AirNet’s Vice President, Strategic Planning and Analysis and prior thereto, he had served since February 2000 as Vice President of Corporate Development.

Grants of Options

There were no options granted to Messrs. Biggerstaff, Harris, Qualmann, Glasscock or Peterson during the 2005 fiscal year. AirNet has never granted stock appreciation rights.

Option Exercises and Holdings

The following table summarizes information concerning unexercised options held as of December 31, 2005 by each of the named individuals. None of these individuals exercised any options during the 2005 fiscal year.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values


	Number of
	Common				Number of Common Shares
	Shares				Underlying Unexercised				Value of Unexercised
	Underlying				Options				In-the-Money Options
	Options		Value		at Fiscal Year-End (1)				at Fiscal Year-End ($) (2)
Name	Exercised (#)		Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable
Joel E. Biggerstaff		—		N/A		183,270		31,400		—		—
Jeffery B. Harris		—		N/A		62,530		15,600		—		—
Gary W. Qualmann		—		N/A		20,000		20,000		—		—
Larry M. Glasscock, Jr.		—		N/A		20,000		20,000		—		—
Wynn Peterson		—		N/A		26,430		8,100		—		—


(1)		Each option was granted under the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan, (the “1996 Plan”). Each option vested and became exercisable as to 20% of the common shares covered thereby on the grant date and vests (or vested) and becomes (or became) exercisable as to 20% of the common shares on each of the first, second, third and fourth anniversaries of the grant date. At the discretion of the Compensation Committee, the options may have stock-for-stock exercise and tax withholding features. If AirNet merges with another entity and AirNet is not the survivor in the merger, or if all or substantially all of AirNet’s assets or stock is acquired by another entity, each option which has not expired, been cancelled or been exercised prior to the effective date of such event, will immediately vest and become exercisable in full. If the employment of the option holder is terminated by reason of death or total disability, the vested portion of the option may be exercised for a period of 12 months, subject to its stated term. If the employment of the option holder is terminated for any other reason, the vested portion of the option may be exercised for a period of three months, subject to its stated term.

(2)		“Value of Unexercised In-the-Money Options at Fiscal Year-End” is calculated on the basis of the number of common shares subject to each option, multiplied by the excess of the fair market value of AirNet’s common shares on December 31, 2005 ($3.41), over the exercise price of the option. None of the options held by the named individuals were in-the-money on December 31, 2005.

Executive Officer Perquisites and Certain Other Executive Compensation

The executive officers of AirNet are entitled to participate in the AirNet Systems, Inc. Retirement Savings Plan on the same terms as all other employees. In addition, they are eligible to participate in the employee benefit programs maintained by AirNet, including medical, dental and disability insurance plans, on the same terms as all other employees.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Employment Agreements with Mr. Biggerstaff and Mr. Harris

Each of Joel E. Biggerstaff, Chairman of the Board, Chief Executive Officer and President, and Jeffery B. Harris, Senior Vice President, Bank Services, is party to an employment agreement with AirNet, effective as of March 1, 2001. Each employment agreement provided for an initial employment period ending December 31, 2001, which has been and will be automatically renewed for successive one-year periods unless either party gives notice to the other of non-renewal at least 90 days prior to the end of the relevant employment period. Messrs. Biggerstaff and Harris were entitled to receive initial annual base salaries of $300,000 and $230,000, respectively, which may be adjusted upward or downward on an annual basis by the Compensation Committee based on its review of each individual’s performance. Mr. Biggerstaff’s annual base salary for the 2005 fiscal year was $325,000 and will remain at that amount for the 2006 fiscal year. Mr. Harris’ base salary was $230,000 for the 2005 fiscal year and will remain at that amount for the 2006 fiscal year. Each individual is entitled

to participate in any bonus plan which AirNet may establish and in the incentive stock plans of AirNet (i.e., the 1996 Plan and the AirNet Systems, Inc. 2004 Stock Incentive Plan ( the “2004 Plan”)), in each case at levels determined by the Compensation Committee. Each individual is also entitled to receive all health and life insurance coverages, sick leave and disability programs, tax-qualified retirement plan contributions, paid holidays and vacations, perquisites and other fringe benefits provided by AirNet to its actively employed senior executives.

If the named individual’s employment is terminated by AirNet without “cause” (as defined in his employment agreement) or by the individual for “good reason” (as defined in his employment agreement), he will be entitled to have his base salary and fringe benefits (other than under the 1996 Plan and the 2004 Plan) continued at the level then in effect for a period of 24 months (in the case of Mr. Biggerstaff) or 12 months (in the case of Mr. Harris, with group medical insurance continuing for 18 months). These periods are extended to 36 months and 18 months, respectively, if the termination occurs on or after a “change in control” (as defined in each employment agreement). Each individual would also be entitled to receive a single lump sum payment equal to the pro-rata portion (based on days employed during the fiscal year in which employment terminated) of any non-discretionary bonus payable based on employment throughout the fiscal year; become fully vested in all employee benefit programs (other than the Retirement Savings Plan, in which his interest would vest according to the Retirement Savings Plan’s terms); receive a lump sum payment equal to his non-vested interest in the Retirement Savings Plan to the extent forfeited upon termination of employment; and be paid his reasonable, out-of-pocket fees and expenses in connection with outplacement services, in an amount not to exceed $15,000. “Cause” is defined in each employment agreement to include: (i) any willful breach of the material terms of the employment agreement; (ii) any willful breach of a material duty of employment assigned to the named individual pursuant to the terms of his employment agreement; (iii) material refusal to perform the duties assigned to the named individual pursuant to his employment agreement; (iv) theft or embezzlement of a material amount of AirNet’s property; (v) fraud; or (vi) indictment for criminal activity other than minor misdemeanor traffic offenses. The following events qualify as “good reason” for each individual to terminate his employment: (a) without the named individual’s prior written consent, AirNet assigns such individual to duties which are materially inconsistent with or result in a material diminution of his position, authority, duties or responsibilities as set forth in the employment agreement, including failing to reappoint or reelect him to any such position; (b) the named individual’s base salary is reduced for any reason other than in connection with the termination of his employment, unless such reduction is in connection with proportionate reductions in the salaries of all other executive officers of AirNet; (c) without the named individual’s prior written consent, he is assigned to an office of AirNet located outside the Greater Columbus, Ohio Metropolitan area; (d) AirNet fails to obtain an agreement from any successor or assign of AirNet to assume and agree to perform the named individual’s employment agreement; (e) AirNet provides notice that it will not extend the term of the named individual’s employment period; or (f) AirNet otherwise materially breaches its obligations to make payments to the named individual under his employment agreement.

Each employment agreement also provides for the continuation of salary and bonus (reduced by amounts payable under the terms of any disability benefit plan of AirNet), at the rate then in effect, following a disability until the named individual’s employment is terminated as a result of the disability; and for the continuation of fringe benefits (other than under the 1996 Plan and the 2004 Plan) for a period of 24 months (in the case of Mr. Biggerstaff) or 12 months (in the case of Mr. Harris, with group medical insurance continuing for 18 months) following termination of his employment due to the disability.

If a named individual’s employment were terminated by his death, his beneficiary would be entitled to receive any base salary that is accrued but unpaid and any fringe benefits then provided by AirNet in accordance with the provisions of the applicable plan or program.

Immediately upon the occurrence of a “change in control” of AirNet (as defined in each employment agreement), the named individual would become fully vested in all employee benefit programs in which he was then a participant, including all options and other awards under the 1996 Plan or the 2004 Plan, but excluding any tax-qualified retirement or savings plan as to which the named individual’s interest would vest in accordance with the applicable plan’s terms.

Each employment agreement contains confidentiality and noncompetition provisions which prevent the named individual from disclosing confidential information about AirNet and from competing with AirNet during his employment therewith and for an additional two years (in the case of Mr. Biggerstaff) or one year (in the case of Mr. Harris) thereafter. In addition, during the named individual’s employment with AirNet and for an additional two years (in the case of Mr. Biggerstaff) or one year (in the case of Mr. Harris) thereafter, the named individual may not solicit or hire, directly or indirectly, any employee of AirNet.

Employment Agreements with Mr. Qualmann and Mr. Glasscock

On May 3, 2005, AirNet entered into employment agreements with each of Gary W. Qualmann and Larry M. Glasscock, Jr. These employment agreements had been recommended to AirNet’s Board by an independent third-party compensation consultant and the Board’s Compensation Committee. Under their respective employment agreements, Mr. Qualmann is to be employed as Chief Financial Officer of AirNet and Mr. Glasscock is to be employed as Senior Vice President, Express Services. Each employment agreement provides for an initial employment period ending December 31, 2006, which will be automatically renewed for successive one-year periods unless either party gives notice to the other of non-renewal at least 90 days prior to the end of the relevant employment period.

Each of Messrs. Qualmann and Glasscock is entitled to receive an initial annual base salary of $215,000, which may be adjusted upward or downward on an annual basis by the Compensation Committee based on its review of each individual’s performance. Each individual is entitled to participate in any bonus plan which AirNet may establish, at the level determined by the Compensation Committee. Each individual is also entitled to receive all health and life insurance coverages, sick leave and disability programs, tax-qualified retirement plan contributions, paid holidays and vacations, perquisites and other fringe benefits of employment provided by AirNet to its actively employed senior executive officers. Each individual is also entitled to participate in the 1996 Plan and the 2004 Plan, in each case at levels determined by the Compensation Committee.

If a named individual’s employment were terminated by AirNet without “cause” or by the individual for “good reason,” he would be entitled to receive any base salary accrued but unpaid and any fringe benefits then provided by AirNet in accordance with the provisions of the applicable plan or program. Additionally, the named individual’s medical and health care benefits would be continued for a period of 12 months and his base salary continued at the level then in effect for a period of 12 months provided that the level of base salary continued would in any event be at least $215,000. In addition, the named individual would become fully vested in all employee benefit programs (other than with respect to any restricted stock issued under the 2004 Plan and any tax-qualified retirement or savings plan as to which his interest would vest in accordance with the terms of the applicable plan). He would also be entitled to receive a single lump sum payment equal to the pro-rata portion (based on days employed during the fiscal year in which employment terminated) of any non-discretionary bonus payable based on employment throughout the fiscal year; receive a lump sum payment equal to his non-vested interest under any tax-qualified retirement or savings plan maintained by AirNet to the extent forfeited upon termination of employment; and be paid his reasonable, out-of-pocket fees and expenses in connection with outplacement services, in an amount not to exceed $15,000. “Cause” is defined in each employment agreement to include: (i) any willful breach of the material terms of the named individual’s employment agreement; (ii) any willful breach of a material duty of employment assigned pursuant to the terms of the named individual’s employment agreement other than a breach related to an assignment that would be a basis for termination of his employment by such individual for “good reason”; (iii) material refusal to perform the duties assigned to him pursuant to the terms of the named individual’s employment agreement other than a refusal related to an assignment that would be a basis for termination of his employment by such individual for “good reason”; (iv) theft or embezzlement of a material amount of AirNet’s property; (v) fraud; or (vi) indictment for criminal activity other than minor misdemeanor traffic offenses. The following events qualify as “good reason” for a named individual to terminate his employment: (a) in the case of Mr. Qualmann, without his prior written consent, AirNet assigns him to duties which are materially inconsistent with or result in a material diminution of his position, authority, duties or responsibilities as Chief Financial Officer, including failing to reappoint or reelect him to that position; (b) in the case of Mr. Glasscock, without his prior written consent, AirNet assigns him to duties which are materially inconsistent with his professional training and experience or to a position that is not substantially comparable to his position as Senior Vice President, Express Services; (c) the named individual’s base salary is reduced for any reason other than in connection with termination of his employment; (d) in the case of Mr. Qualmann, without his prior written consent, he is assigned to an office of AirNet located outside the Greater Columbus, Ohio Metropolitan area; (e) in the case of Mr. Glasscock, without his prior written consent, he is assigned to an office of AirNet located outside the Dallas-Fort Worth Metropolitan area; (f) AirNet fails to obtain an agreement from any successor or assign of AirNet to assume and agree to perform the named individual’s employment agreement; or (g) AirNet otherwise materially breaches its obligations to made payments to the named individual under his employment agreement. A decision of AirNet not to renew the named individual’s employment agreement would not be considered “good reason” under the employment agreement entitling such individual to terminate his employment and receive the severance benefits discussed above.

If a named individual’s employment were terminated by AirNet for cause or by such individual without good reason, AirNet would pay him any accrued but unpaid base salary and provide any other rights or benefits, if any, to be provided under the applicable terms of AirNet’s compensation plans and programs.

Each employment agreement provides for the continuation of the named individual’s base salary and bonus (reduced by amounts payable under the terms of any disability benefit plan of AirNet), at the rate then in effect, following a disability until such individual’s employment is terminated as a result of the disability. Upon termination of his employment because of disability, the named individual would be entitled to receive any base salary accrued but unpaid and any fringe benefits then provided by AirNet in accordance with the provisions of the applicable plan or program; and his medical and health care benefits would be continued for a period of 12 months. In addition, any disability plan in effect as of his date of termination would be continued.

If a named individual’s employment were terminated by his death, his beneficiary would be entitled to receive any base salary accrued but unpaid and any fringe benefits then provided by AirNet in accordance with the provisions of the applicable plan or program.

Amounts payable upon termination of a named individual’s employment would be deferred to the extent, if any, necessary to avoid the imposition of excise taxes and other penalties pursuant to Section 409A of the Internal Revenue Code but not by more than six months plus one day from the termination date.

Immediately upon the occurrence of a “change in control” of AirNet (as defined in each employment agreement), the named individual would become fully vested in all employee benefit programs in which he was then a participant, including all options and other awards under the 1996 Plan or the 2004 Plan but excluding any tax-qualified retirement or savings plan as to which his interest would vest in accordance with the applicable plan’s terms.

Each employment agreement contains confidentiality and non-competition provisions which prevent the named individual from disclosing confidential information about AirNet and from competing with AirNet during his employment therewith and for an additional period of one year following termination of employment. In addition, during his employment with AirNet and for an additional period of one year thereafter, each individual may not solicit or hire, directly or indirectly, any employee of AirNet.

2005 Incentive Compensation Plan

The purpose of the 2005 Incentive Plan was to promote the following goals of AirNet for the 2005 fiscal year by providing incentive compensation to certain employees of AirNet and its subsidiaries:

	•		Exceeding budgeted pre-tax income (as determined under the terms of the 2005 Incentive Plan);

	•		Reducing fixed costs;

	•		Creating and executing contingency plans for changes in AirNet’s Bank business;

	•		Refining AirNet’s business plan for its Express and Jetride businesses to more quickly and profitably diversify AirNet;

	•		Developing AirNet’s leadership team; and

	•		Meeting high priority deadlines related to compliance with the Sarbanes-Oxley Act of 2002 and other key projects.

On November 20, 2005, the Board, upon the recommendation of the Compensation Committee, ratified a change to the 2005 Incentive Plan to provide that, for purposes of computing the pre-tax income of AirNet for the 2005 fiscal year for purposes of the 2005 Incentive Plan, the $16.1 million non-cash impairment charge recorded by AirNet in the third quarter of the 2005 fiscal year would be disregarded and the pre-tax income for the 2005 fiscal year would be computed as if no impairment charge had been incurred.

Adoption of 2006 Incentive Compensation Plan

On March 24, 2006, the Board of Directors of AirNet, upon the recommendation of the Compensation Committee, adopted the 2006 Incentive Compensation Plan (the “2006 Incentive Plan”).

	•		Attaining designated levels of pre-tax income;

	•		Improving cash flow and reducing debt;

	•		Defining and executing plans to offset expected declines in Bank Services revenues;

	•		Reducing the fixed cost structure of AirNet; and

	•		Meeting high priority deadlines of AirNet.

The Compensation Committee may amend, modify or terminate the 2006 Incentive Plan at any time.

Stock Purchase Program

All employees of AirNet and its subsidiaries, including the executive officers of AirNet, are given the opportunity to purchase common shares of AirNet through a stock purchase program. The stock purchase program was offered under the 1996 Plan through the offering period which ended June 30, 2004 and has been offered under the 2004 Plan since July 1, 2004. Pursuant to this payroll deduction program, which is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 under the Internal Revenue Code, employees are able to purchase common shares of AirNet during offering periods of such duration (not exceeding 12 months) as the Compensation Committee determines. The price at which common shares may be purchased will be the price determined by the Compensation Committee prior to the start of an offering period and may not be less than the lesser of 85% of the fair market value of the common shares on the first business day of each offering period and 85% of the fair market value of the common shares on the last business day of each offering period. Under the stock purchase program as offered through the date of this Annual Report on Form 10-K, there have been four offering periods of three months each per calendar year and the purchase price has been equal to the lesser of 85% of the fair market value of the common shares on the first business day of each offering period and 85% of the fair market value of the common shares on the last business day of each offering period. While it is contemplated that there will continue to be four offering periods of three months each calendar year under the stock purchase program and that the purchase price will be determined in the same manner as it has been, the Compensation Committee has the discretion to determine otherwise. As of the date of this Annual Report on Form 10-K, 113,807 common shares remained reserved for issuance under the stock purchase program portion of the 2004 plan.

Compensation of Directors

Cash Compensation

Directors of AirNet who are not officers or employees of AirNet (“Non-Employee Directors”) are paid fees for their services as members of the Board and as members of Board committees. The quarterly fee paid during the fiscal year ended December 31, 2005 (the “2005 fiscal year”) and to be paid during the fiscal year ending December 31, 2006 (the “2006 fiscal year”) for serving as a Non-Employee Director has been and remains $6,000. The fee for attending each meeting of the full Board in person was $2,000 during the 2005 fiscal year and continues to be the same amount during the 2006 fiscal year. The fee for attending telephonic meetings of the full Board was $1,000 for each meeting attended during the 2005 fiscal year and remains that amount during the 2006 fiscal year.

The fee for Audit Committee members has been and remains $2,000 per meeting attended in person during each of the 2005 fiscal year and the 2006 fiscal year, with the Chair of the Audit Committee receiving an additional $1,000 per meeting attended in person. The fee for Compensation Committee members and Nominating and Corporate Governance Committee members has been and remains $1,000 per meeting attended in person during each of the 2005 fiscal year and the 2006 fiscal year, with the Chair of each of those Committees receiving an additional $2,000 for each meeting of the Committee attended in person. The fees for attending telephonic meetings of each Committee held during each of the 2005 fiscal year and the 2006 fiscal year have been and remain one-half (50%) of the amount of the fees for attending a meeting of the particular Committee in person.

On April 29, 2005, AirNet’s Board established a Special Committee, consisting solely of independent directors, to oversee the process of reviewing, developing and evaluating strategic alternatives to enhance shareholder value. During the 2005 fiscal year, Gerald Hellerman, David P. Lauer, Bruce D. Parker and James E. Riddle served on the Special Committee. Each of Messrs. Lauer, Parker and Riddle was appointed to the Special Committee upon its establishment. Mr. Hellerman was appointed to the Special Committee on August 9, 2005. The Special Committee was dissolved on December 16, 2005. The fees for Special Committee members during the 2005 fiscal year were $1,000 per meeting attended in person and $500 for each telephonic meeting attended.

On December 16, 2005, AirNet’s Board established a Strategy Committee to work with management on the ongoing business strategy and alternatives for AirNet to enhance shareholder value. The Strategy Committee is comprised of Bruce D. Parker and James M. Chadwick. The fees for Strategy Committee members for each of the 2005 fiscal year and the 2006 fiscal year have been and remain $1,000 per meeting attended in person and $500 for each telephonic meeting attended.

As the lead director of AirNet, James E. Riddle received an additional quarterly fee of $6,000 for service in that capacity during each of the 2005 fiscal year and the 2006 fiscal year and continues to receive that amount.

The Non-Employee Directors meet without management present in connection with each of the regularly scheduled meetings of the full Board and receive no meeting fees for attending such meetings. To the extent the Non-Employee Directors determine to meet by telephone or in person other than in connection with a regularly scheduled Board meeting, they receive $2,000 per meeting attended in person and $1,000 per telephonic meeting.

As an officer and employee of AirNet, Joel E. Biggerstaff receives no fees for serving as a director of AirNet.

The directors are reimbursed for out-of-pocket expenses incurred in connection with their service as directors, including travel expenses.

Director Deferred Compensation

Effective May 27, 1998, AirNet established the AirNet Systems, Inc. Director Deferred Compensation Plan (the “Director Deferred Plan”). The Director Deferred Plan as in effect on March 31, 2006 has previously been filed as Exhibit 10.7 to AirNet’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. Voluntary participation in the Director Deferred Plan enables a Non-Employee Director of AirNet to defer all or a part of his director’s fees, including federal income tax thereon. Such deferred fees may be credited to (i) a cash account where the funds will earn interest at the rate prescribed in the Director Deferred Plan, or (ii) a stock account where the funds will be converted into a common share equivalent (determined by dividing the amount to be allocated to the Non-Employee Director’s stock account by the fair market value of AirNet’s common shares when the credit to the stock account is made). In his deferral election, a Non-Employee Director will elect whether distribution of the amount in his account(s) under the Director Deferred Plan is to be made in a single lump sum payment or in equal annual installments, payable over a period of not more than ten years. Distributions will commence within 30 days of the earlier of (a) the date specified by a Non-Employee Director at the time a deferral election is made or (b) the date the Non-Employee Director ceases to so serve. Cash accounts will be distributed in the form of cash and stock accounts will be distributed in the form of common shares or cash, as selected by AirNet. As of March 31, 2006, none of the Non-Employee Directors was participating in the Director Deferred Plan.

Options Granted under Amended and Restated 1996 Incentive Stock Plan

Non-Employee Directors were automatically granted options to purchase AirNet common shares in accordance with the terms of the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan (the “1996 Plan”). The 1996 Plan as in effect on March 31, 2006 has previously been filed as Exhibit 10.1 to AirNet’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. On March 7, 1997, each individual then serving as a Non-Employee Director was automatically granted an immediately exercisable option to purchase 2,000 AirNet common shares with an exercise price equal to the fair market value of the common shares on the grant date. On August 19, 1998, each individual then serving as a Non-Employee Director was automatically granted an option to purchase 20,000 AirNet common shares with an exercise price equal to the fair market value of the common shares on the grant date. Each option granted on August 19, 1998 vested and became exercisable with respect to 20% of the common shares covered thereby on each of the grant date and the first, second, third and fourth anniversaries of the grant date.

Pursuant to the 1996 Plan, each individual newly-elected or appointed as a Non-Employee Director from August 19, 1998 until June 4, 2004 was automatically granted an option to purchase 20,000 AirNet common shares effective on the date of his election or appointment to the Board. In addition, on the first business day of each of the 2002, 2003 and 2004 fiscal years of AirNet, each individual who was then serving as a Non-Employee Director and had served for at least one full one-year term as a Non-Employee Director, was automatically granted an option to purchase 4,000 AirNet common shares. All of these options were granted with an exercise price per share equal to the fair market value of the common shares on the grant date. In addition, all of these options have vested and are to vest and become exercisable with respect to 20% of the common shares on each of the grant date and the first, second, third and fourth anniversaries of the grant date.

Each option granted to a Non-Employee Director under the 1996 Plan since August 18, 1999, which has not expired, been cancelled or been exercised prior to the effective date of the event, will become immediately exercisable in full (i) if the Non-Employee Director retires from service as an AirNet director, becomes totally disabled or dies, (ii) if AirNet merges with another entity and AirNet is not the survivor in the merger, or (iii) if all or substantially all of AirNet’s assets or stock is acquired by another entity.

Each option granted to a Non-Employee Director under the 1996 Plan has a ten-year term. If a Non-Employee Director ceases to be a member of the Board, his vested options may be exercised for a period of three months (12 months in the case of a Non-Employee Director who becomes disabled or dies) after the date his service ends, subject in each case to the stated term of each option. However, a Non-Employee Director who ceases to be a director after having been convicted of, or pled guilty or nolo contendere to, a felony immediately forfeits all of his options.

Following the approval of the AirNet Systems, Inc. 2004 Stock Incentive Plan (the “2004 Plan”) by the shareholders of AirNet at the 2004 Annual Meeting of Shareholders, no further options have been or will be granted to the Non-Employee Directors under the 1996 Plan.

Options Granted under 2004 Stock Incentive Plan

The 2004 Plan as in effect on March 31, 2006 has been filed as Exhibit 10.1 to AirNet’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004. Under the 2004 Plan, each individual newly-elected or appointed as a Non-Employee Director after June 4, 2004 has been and is to be granted an option to purchase 20,000 AirNet common shares effective on the date of his election or appointment to the Board. In accordance with the terms of the 2004 Plan, on July 20, 2005, each of James M. Chadwick and Gerald Hellerman was automatically granted an option to purchase 20,000 common shares with an exercise price of $4.26, the fair market value of the underlying common shares on the grant date.

In addition, on the first business day of each fiscal year of AirNet, each individual who is then serving as a Non-Employee Director and has served for at least one full one-year term as a Non-Employee Director, is to be automatically granted an option to purchase 4,000 AirNet common shares. However, each of the individuals serving as a Non-Employee Director on January 3, 2005 (the first business day of the 2005 fiscal year) and each of the individuals serving as a Non-Employee Director on January 2, 2006 (the first business day of the 2006 fiscal year) who had served for at least one full one-year term on that date, thereby being eligible for the grant — Russell M. Gertmenian, David P. Lauer, Bruce D. Parker and James E. Riddle — determined not to accept the option to purchase 4,000 AirNet common shares which would have been automatically granted to him on each such date.

Each option automatically granted under the 2004 Plan is to vest and become exercisable as to 20% of the common shares covered thereby on each of the grant date and the first, second, third and fourth anniversaries of the grant date. Each option automatically granted under the 2004 Plan is to have an exercise price per share equal to the fair market value of the underlying common shares on the grant date. Each such option, which has not expired, been cancelled or been exercised prior to the effective date of the event, will become fully exercisable (i) if the Non-Employee Director retires from service as an AirNet director after having served at least one full one-year term, becomes totally disabled or dies or (ii) if AirNet undergoes a merger or consolidation or reclassification of the common shares or the exchange of the common shares for the securities of another entity (other than a subsidiary of AirNet) that has acquired AirNet’s assets or which is in control of an entity that has acquired AirNet’s assets.

Once vested and exercisable, each option automatically granted to a Non-Employee Director under the 2004 Plan will remain exercisable until the earlier to occur of (i) ten years after the grant date or (ii) three months after the Non-Employee Director ceases to be a member of the Board (24 months in the case of a Non-Employee Director who becomes disabled, dies or retires after having served at least one full one-year term), subject in to the stated term of each option. However, if a Non-Employee Director’s service as a director is terminated for cause, he will immediately forfeit his options.

At any time, the Board of Directors may, in its discretion and without the consent of the affected director, cancel an outstanding option granted to a Non-Employee Director under the 2004 Plan, whether or not then exercisable, by giving written notice to the director of AirNet’s intent to buy out the option. In the event of such a buyout, AirNet will pay the excess, if any, of the fair market value of the common shares underlying the exercisable portion of the option to be cancelled over the exercise price associated therewith. No payment will be made for the portion of an option with is not exercisable when cancelled. At the option of the Board, payment of the buyout amount may be made in cash, common shares or a combination thereof.

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Equity Compensation Plan Information

AirNet has three equity compensation plans under which common shares may be issued to eligible officers, directors or employees of AirNet and its subsidiaries in exchange for consideration in the form of goods or services: the 1996 Plan, the 2004 Plan and the Director Deferred Plan. The 1996 Plan and the 2004 Plan have been approved by the shareholders of AirNet, while the Director Deferred Plan has not.

The following table shows, as of December 31, 2005: (a) the number of common shares issuable upon exercise of outstanding options granted under the 1996 Plan and the 2004 Plan, and outstanding rights to purchase granted pursuant to the stock purchase program portion of the 2004 Plan; (b) the weighted average exercise price of outstanding options granted under 2004 Plan; and (c) the number of common shares remaining available for future issuance under the 2004 Plan, excluding common shares issuable upon exercise of outstanding options and rights to purchase. The following table also shows comparable information, as of December 31, 2005, for the Director Deferred Plan.

Number of common shares

Number of common

remaining available for

shares to be issued

Weighted-average

future issuance under

upon exercise of

exercise price of

equity compensation plans

outstanding options,

(excluding common shares

warrants and rights

reflected in column(a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by shareholders

890,555

(1)

7.71

919,432

(3)

Equity compensation plans not approved by shareholders

—

(4)

n/a

(5)

—

(6)

Total

890,555

7.71

919,432


(1)		Includes 846,180 common shares issuable upon the exercise of options granted under the 1996 Plan, 40,000 common shares issuable upon the exercise of options granted under the 2004 Plan, and 4,375 common shares subject to outstanding rights to purchase granted pursuant to the stock purchase program portion of the 2004 Plan.

(2)		Represents the weighted-average exercise price of outstanding options granted under the 1996 Plan and 2004 Plan. Rights to purchase common shares under the stock purchase program portion of the 2004 Plan are priced based on the lesser of 85% of the fair market value of AirNet’s common shares on the first business day of the offering period or 85% of the fair market value of AirNet’s common shares on the last business day of the offering period. All of the 4,375 rights to purchase common shares outstanding as of December 31, 2005 under the stock purchase program portion of the 2004 Plan were exercised on January 19, 2006 at a price of $2.90 per share.

(3)		No further grants may be made under the 1996 Plan. Of the 919,432 common shares remaining available for issuance under the 2004 Plan as of December 31, 2005, 109,432 common shares are reserved for issuance under the stock purchase program portion of the 2004 Plan.

(4)		Reflects the common share equivalents attributable to Non-Employee Directors’ stock accounts under the Director Deferred Plan. As of December 31, 2005, none of the Non-Employee Directors were participating in the Director Deferred Plan.

(5)		Please see the description of the Director Deferred Plan included in “Item 11-Executive Compensation” of this Annual Report on Form 10-K under the caption “Compensation of Directors”, which description is incorporated herein by this reference.

(6)		The number of common share equivalents attributable to participants’ accounts under the Director Deferred Plan will depend upon the number of Non-Employee Directors electing to defer their fees, the amount deferred by each Non-Employee Director and whether the deferred fees are allocated to a stock account or a cash account under the Director Deferred Plan. The Director Deferred Plan does not specify a limit as to the number of common shares which may be issued thereunder.

Security Ownership of Certain Beneficial Owners and Management

The following table furnishes information regarding the number and percentage of outstanding common shares of AirNet beneficially owned by (i) each current director of AirNet; (ii) each individual named in the Summary Compensation Table included in Item 11-Executive Compensation of this Annual Report on Form 10-K; (iii) all current directors and executive officers of AirNet as a group; and (iv) each person known by AirNet to own beneficially more than five percent of the outstanding common shares of AirNet, in each case as of March 21, 2006 (except as otherwise noted). Unless otherwise noted in the following table, the address of each of the current executive officers and directors of AirNet is c/o AirNet Systems, Inc., 7250 Star Check Drive, Columbus, Ohio 43217.


	Amount and Nature of Beneficial Ownership (1)
				Common Shares
				Which Can Be
				Acquired Upon
				Exercise of Options Which
				Are Currently Exercisable
				or
	Common Shares			Which Will First Become					Percent of
Name of Beneficial Owner	Presently Held			Exercisable Within 60 Days		Total			Class (2)
Joel E. Biggerstaff (3)		20,000	(4)		196,970		216,970			2.1	%

James M. Chadwick (5) 7383 Sean Taylor Lane San Diego, CA 92130		522,600	(5)		4,000		526,600	(5)		5.2	%
Russell M. Gertmenian		5,000	(6)		43,600		48,600			(7	)
Gerald Hellerman		0			4,000		4,000			(7	)
David P. Lauer		2,000			37,600		39,600			(7	)
Bruce D. Parker		0			18,400		18,400			(7	)
James E. Riddle		5,000			33,600		38,600			(7	)
Larry M. Glasscock, Jr. (3)		14,996			28,000		42,996			(7	)
Jeffery B. Harris (3)		2,948			69,130		72,078			(7	)
Wynn D. Peterson (3)		6,577			29,930		36,507			(7	)
Gary W. Qualmann (3)		7,000			24,000		31,000			(7	)

All current directors and executive officers as a group (13 individuals) (8)		589,233			524,330		1,113,563			10.6	%

Heartland Advisors, Inc. (9) William J. Nasgovitz 789 North Water Street Milwaukee, WI 53202		1,400,400	(9)		0		1,400,400	(9)		13.8	%

Phillip Goldstein (10) 60 Heritage Drive Pleasantville, NY 10570		1,327,300	(10)		0		1,327,300	(10)		13.1	%

Dimensional Fund Advisors Inc. (11) 1299 Ocean Avenue, 11^th Floor Santa Monica, CA 90401		897,500	(11)		0		897,500	(11)		8.8	%

QVT Financial LP (12) QVT Financial GP LLC QVT Fund LP QVT Associates GP LLC 527 Madison Avenue, 8th Floor New York, NY 10022		691,200	(12)		0		691,200	(12)		6.8	%

FMR Corp. (13) Edward C. Johnson 3d 82 Devonshire Street Boston, MA 02109		593,400	(13)		0		593,400	(13)		5.8	%

Hummingbird Management, LLC (14) Paul D. Sonkin Hummingbird Capital, LLC Hummingbird Value Fund, L.P. Hummingbird Microcap Value Fund, L.P. 460 Park Avenue, 12^th Floor New York, NY 10022		517,900	(14)		0		517,900	(14)		5.1	%


(1)		Unless otherwise indicated, the beneficial owner has sole voting and dispositive power as to all of the common shares reflected in the table.

(2)		Except as otherwise noted, the percent of class is based upon the sum of (i) 10,153,599 common shares outstanding on March 21, 2006, and (ii) the number of common shares as to which the named person has the right to acquire beneficial ownership upon the exercise of options which are currently exercisable or which will first become exercisable within 60 days of March 21, 2006.

(3)		Individual named in the Summary Compensation Table included in “Item 11-Executive Compensation” of this Annual Report on Form 10-K.

(4)		Of these 20,000 common shares, 5,000 common shares are held by Mr. Biggerstaff’s minor children in accounts established under the Uniform Gifts to Minors Act.

(5)		Of these 522,600 common shares, 487,800 common shares (or 4.8% of the outstanding common shares) are owned of record by Opportunity Partners, L.P. and 34,800 common shares (or 0.3% of the outstanding common shares) are owned of record by Nadel and Gussman Combined Funds LLC. Mr. Chadwick has sole voting and dispositive power as to the 487,800 common shares owned by Opportunity Partners, L.P. and sole voting and dispositive power as to the 34,800 common shares owned by Nadel and Gussman Combined Funds LLC.

(6)		Of these 5,000 common shares, 2,100 common shares are held of record by Mr. Gertmenian’s wife who has sole voting and dispositive power as to the 2,100 common shares.

(7)		Represents ownership of less than 1% of the outstanding common shares.

(8)		Includes the seven directors identified in the table; Messrs. Glasscock, Harris, Peterson and Qualmann; Ray L. Druseikis, Vice President of Finance, Controller and Principal Accounting Officer; and Craig A. Leach, Vice President, Information Systems.

(9)		Based on information contained in a Schedule 13G amendment filed with the Securities and Exchange Commission (the “SEC”) on February 3, 2006, Heartland Advisors, Inc., a registered investment adviser (“HAI”), and William J. Nasgovitz, President and principal shareholder of HAI, may be deemed to have beneficially owned 1,400,400 common shares (13.8% of the outstanding common shares) as of December 31, 2005, with shared voting power as to 1,310,400 common shares and shared dispositive power as to 1,400,400 common shares. The Heartland Value Fund, a series of the Heartland Group, Inc., a registered investment company, owned 1,000,000 of the common shares reported (or 9.8% of the outstanding common shares). The remaining common shares reported were owned by various other accounts managed by HAI on a discretionary basis. HAI may be deemed to have beneficially owned the common shares by virtue of its investment discretion and voting authority granted by certain clients, which may be revoked at any time. Mr. Nasgovitz may be deemed to have beneficially owned the common shares as a result of his ownership interest in HAI. HAI and Mr. Nasgovitz specifically disclaimed beneficial ownership of the common shares reported and did not admit that they constitute a group.

(10)		Based on information contained in a Schedule 13D (the latest amendment to which was filed with the SEC on July 7, 2005), Phillip Goldstein may be deemed to have beneficially owned 1,327,300 common shares (or 13.1% of the outstanding common shares) as of July 7, 2005, with sole voting power as to 336,900 common shares, shared voting power as to 25,000 common shares and sole dispositive power as to 839,500 common shares. Of the 1,327,300 common shares reported by Mr. Goldstein, 487,800 common shares are owned of record by Opportunity Partners, L. P. and, as disclosed in note (5) above, James M. Chadwick has sole voting and dispositive power as to those 487,800 common shares. Mr. Goldstein, a self-employed investment advisor, filed a joint Schedule 13D amendment with Andrew Dakos, Nadel and Gussman Combined Funds LLC, and James M. Chadwick as members of a group. Andrew Dakos, whose business address is 43 Waterford Drive, Montville, NJ 07045, may be deemed to have beneficially owned 191,900 common shares (or 1.9% of the outstanding common shares) as of July 7, 2005, with sole voting and dispositive power as to those 191,900 common shares. Nadel and Gussman Combined Funds LLC, whose business address is 15 East 5^th Street, 32^nd Floor, Tulsa, OK 74103, owned of record 34,800 common shares (or 0.3% of the outstanding common shares) as of July 7, 2005, and, as discussed in note (5) to this table, James M. Chadwick has sole voting and dispositive power as to those 34,800 common shares. Please see note (5) to this table for further information concerning the beneficial ownership of common shares by James M. Chadwick.

(11)		Based on information contained in a Schedule 13G amendment filed with the SEC on February 6, 2006, Dimensional Fund Advisors Inc., a registered investment adviser (“Dimensional”), may be deemed to have beneficially owned 897,500 common shares as of December 31, 2005, all of which were held in portfolios of four registered investment companies to which Dimensional furnishes investment advice and of other commingled group trusts and separate accounts for which Dimensional serves as investment manager. The common shares reported were owned by these investment companies, trusts and accounts. In its role as investment adviser or investment manager, Dimensional was reported to possess both sole voting power and sole dispositive power as to the common shares held in the portfolios of these investment companies, trusts and accounts. Dimensional disclaimed beneficial ownership of the reported common shares.


(12)		Based on information contained in a Schedule 13G amendment filed with the SEC on February 17, 2006, each of QVT Financial LP and QVT Financial GP LLC, both of whose business address is 527 Madison Avenue, 8th Floor, New York, NY 10022, may be deemed to have beneficially owned 691,200 common shares (or 6.8% of the outstanding common shares) as of February 16, 2006 and each of QVT Fund LP, whose business address is Walkers SPV, Walkers House, P.O. Box 908GT, Mary Street, George Town, Grand Cayman, Cayman Islands, and QVT Associates GP LLC, whose business address is 527 Madison Avenue, 8th Floor, New York, NY 10022, may be deemed to have beneficially owned 564,590 common shares (or 5.6% of the outstanding common shares) as of that date. QVT Financial LP is the investment manager for QVT Fund LP (the “Fund”). QVT Financial LP is also the investment manager for a separate discretionary account managed for Deutsche Bank AG (the “Separate Account”), which held 126,610 common shares. QVT Financial LP was reported to have the power to direct the vote and disposition of the common shares held by each of the Fund and the Separate Account and, accordingly, may be deemed to be the beneficial owner of an aggregate amount of 691,200 common shares. QVT Financial GP LLC, as General Partner of QVT Financial LP, may be deemed to beneficially own the same number of common shares as QVT Financial LP. QVT Associates GP LLC, as General Partner of the Fund, may be deemed to beneficially own the 564,590 common shares reported by the Fund. Each of QVT Financial LP and QVT Financial GP LLC disclaims beneficial ownership of the 564,590 common shares owned by the Fund and the 126,610 common shares held in the Separate Account.

(13)		In a Schedule 13G amendment filed with the SEC on February 14, 2006 (the “2006 FMR Schedule 13G Amendment”), each of FMR Corp. and Edward C. Johnson 3d was reported to have beneficially owned 593,400 common shares (or 5.8% of the outstanding common shares) as of December 31, 2005, with sole dispositive power as to those common shares. Fidelity Management & Research Company, 82 Devonshire Street, Boston, MA 02109 (“Fidelity”), a wholly-owned subsidiary of FMR Corp. and a registered investment adviser, was reported to be the beneficial owner of 593,400 common shares (or 5.8% of the outstanding common shares) as a result of acting as investment adviser to various registered investment companies. The ownership of one investment company, Fidelity Low Priced Stock Fund (the “Fund”), 82 Devonshire Street, Boston, MA 02109, was reported to have amounted to 593,400 common shares (or 5.8% of the outstanding common shares). Each of Edward C. Johnson 3d, Chairman of FMR Corp., FMR Corp., through its control of Fidelity, and the Fund was reported to have sole power to dispose of the 593,400 common shares owned by the Fund. The 2006 FMR Schedule 13G Amendment reported that Fidelity carries out the voting of the common shares under written guidelines established by the Fund’s Board of Trustees, and neither FMR Corp. nor Edward C. Johnson 3d has the sole power to vote or direct the voting of the common shares owned by the Fund. The 2006 FMR Schedule 13G Amendment reported that members of the Edward C. Johnson 3d family were the predominant owners, directly or through trusts, of Series B shares of common stock of FMR Corp., representing approximately 49% of the voting power of FMR Corp. The 2006 FMR Schedule 13G Amendment reported that the Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B shares will be voted in accordance with the majority vote of Series B shares and that, accordingly, through their ownership of voting common stock and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR Corp.

(14)		Based on information contained in a Schedule 13D filed with the SEC on May 31, 2005, each of Hummingbird Management, LLC (“Hummingbird”), Paul D. Sonkin and Hummingbird Capital, LLC (“HC”) may be deemed to have beneficially owned 517,900 common shares (or 5.1% of the outstanding common shares) as of May 31, 2005; Hummingbird Value Fund, L.P. (“HVF”) may be deemed to have beneficially owned 261,300 common shares (or 2.6% of the outstanding common shares) as of that date; and Hummingbird Microcap Value Fund, L.P. (the “Microcap Fund”) may be deemed to have beneficially owned 256,600 common shares (or 2.5% of the outstanding common shares) as of that date. Hummingbird acts as investment manager to HVF and the Microcap Fund and was reported to have the sole investment discretion and voting authority with respect to the common shares owned of record by each of HVF and the Microcap Fund. The managing member and control person of Hummingbird is Paul D. Sonkin. Mr. Sonkin is also the managing member of HC, the general partner of each of HVF and the Microcap Fund. Each of Hummingbird, Paul D. Sonkin, HVF, the Microcap Fund and HC has a business address of 460 Park Avenue, 12^th Floor, New York, NY 10022. Each of Hummingbird, Mr. Sonkin and HC disclaimed beneficial ownership of the common shares reported in the Schedule 13D.

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Russell M. Gertmenian, a director of AirNet, is a partner with Vorys, Sater, Seymour and Pease LLP and currently serves as Chair of that firm’s Executive Committee and as Vice-Chair of that firm’s Management Committee. Vorys, Sater, Seymour and Pease LLP rendered legal services to AirNet during the 2005 fiscal year and continues to do so.

Ray L. Druseikis, Vice President of Finance, Controller and Principal Accounting Officer of AirNet, served as an independent consultant to AirNet from July 30, 2004 until his election as an officer of AirNet effective June 30, 2005, providing assistance in the process of documenting and testing AirNet’s internal control over financial reporting for purposes of satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In his capacity as an independent consultant, Mr. Druseikis was paid an aggregate amount of $39,848 for services rendered during the 2004 fiscal year and an aggregate amount of $64,896 (including $794 of expense reimbursements) for services rendered during the period from January 1, 2005 through June 29, 2005.

ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES

Pre-Approval of Services Performed by Independent Registered Public Accounting Firm

Under applicable SEC rules, the Audit Committee is to pre-approve the audit and non-audit services performed by the independent registered public accounting firm employed by AirNet in order to ensure that they do not impair that firm’s independence from AirNet. The SEC’s rules specify the types of non-audit services that an independent registered public accounting firm may not provide to its client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm.

Consistent with the SEC’s rules, the charter of the Audit Committee requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent registered public accounting firm employed by AirNet or any of its subsidiaries. The Audit Committee may delegate pre-approval authority to one or more members of the Audit Committee and if it does, the decision of that member or members must be presented to the full Audit Committee at its next scheduled meeting.

All requests or applications for services to be provided by the independent registered public accounting firm must be submitted to the Audit Committee by both the independent registered public accounting firm and the Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules governing the independence of the independent registered public accounting firm.

Fees of Independent Registered Public Accounting Firm

The independent registered public accounting firm of Ernst & Young LLP (“E&Y”) was employed by AirNet during each of the 2005 and 2004 fiscal years. The aggregate fees billed to AirNet and its subsidiaries by E&Y for professional services rendered in each of the 2005 fiscal year and the 2004 fiscal year were as follows:


	2005		2004
	Fiscal Year		Fiscal Year
Audit Fees	$	280,301	$	236,985
Audit-Related Fees	$	17,000	$	17,400
Tax Fees	$	12,146	$	12,925
All Other Fees	$	0	$	0

Total	$	309,447	$	267,310

In the above table, in accordance with the applicable SEC rules, “audit fees” include fees for professional services rendered by E&Y in connection with the audit of AirNet’s annual consolidated financial statements and reviews of the consolidated financial statements included in AirNet’s Quarterly Reports on Form 10-Q. In addition, the “audit fees” for the 2004 fiscal year include fees for services rendered by E&Y in connection with filings made by AirNet with the SEC. “Audit-related fees” include fees for services rendered in connection with the audit of AirNet’s Retirement Savings Plan and internal control reviews. “Tax fees” include fees for tax planning, research and compliance services.

All of the services rendered by E&Y to AirNet and its subsidiaries during each of the 2005 fiscal year and the 2004 fiscal year had been pre-approved by the Audit Committee.

PART IV

ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as a part of this Annual Report on Form 10-K:

The following consolidated financial statements are included in “Item 8 — Financial Statements and Supplementary Data” of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2005 and 2004
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2005, 2004 and 2003
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, 2005:
Deducted from asset accounts;
Allowance for doubtful accounts	$	874,444	$	88,361	$	100,000	$	338,076	$	724,729


Year end December 31, 2004:
Deducted from asset accounts;
Allowance for doubtful accounts	$	515,046	$	522,570	$	0	$	163,172	$	874,444


Year end December 31, 2003:
Deducted from asset accounts;
Allowance for doubtful accounts	$	864,888	$	328,459	$	0	$	678,301	$	515,046


(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
2.1	Asset Purchase Agreement, dated July 11, 2003, by and among AirNet Systems, Inc., AirNet Management, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter G. Salisbury and Christopher F. Valente. [Pursuant to Item 601(b)(2) of SEC Regulation S-K, certain schedules and exhibits to this Asset Purchase Agreement have not been filed with this exhibit. The schedules contain various items relating to the assets being sold and the representations and warranties of the parties to the Asset Purchase Agreement. AirNet Systems, Inc. has agreed to furnish supplementally any omitted schedule or exhibit to the SEC upon request.]	Incorporated herein by reference from Exhibit 2.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated and filed on July 15, 2003 (File No. 1-13025)

3.1	Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on April 29, 1996	Incorporated herein by reference from Exhibit 2.1 to AirNet Systems, Inc.’s Registration Statement on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the “1996 Form 8-A”)

3.2	Certificate of Amendment to the Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on May 28, 1996	Incorporated herein by reference from Exhibit 4(b) to AirNet Systems, Inc.’s 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. (reflecting all amendments) [for SEC reporting compliance purposes only — not filed with the Ohio Secretary of State]	Incorporated herein by reference from Exhibit 4(c) to AirNet Systems, Inc.’s 1996 Form S-8

3.4	Code of Regulations of AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 2.2 to AirNet Systems, Inc.’s 1996 Form 8-A

3.5	Certificate regarding adoption of amendment to Section 1.10 of the Code of Regulations of AirNet Systems, Inc. by the shareholders on May 12, 2000	Incorporated herein by reference from Exhibit 3.1 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025) (the “June 30, 2000 Form 10-Q”)

3.6	Code of Regulations of AirNet Systems, Inc. (reflecting all amendments) [for SEC reporting compliance purposes only]	Incorporated herein by reference from Exhibit 3.2 to AirNet Systems, Inc.’s June 30, 2000 Form 10-Q

4.1	Amended and Restated Credit Agreement, dated as of May 28, 2004, among AirNet Systems, Inc., the lenders from time to time party thereto and The Huntington National Bank, as LC Issuer, as Swingline Lender and as Administrative Agent	Incorporated herein by reference from Exhibit 4.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated June 21, 2004 and filed on June 22, 2004 (File No. 1-13025) (the “June 2004 Form 8-K”)


Exhibit
No.	Description	Location
4.2	Continuing Security Agreement, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.2 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.3	Continuing Security Agreement, dated as of May 28, 2004, between Float Control, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.3 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.4	Continuing Security Agreement, dated as of May 28, 2004, between AirNet Management, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.4 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.5	Continuing Security Agreement, dated as of May 28, 2004, between Jetride, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.5 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.6	Continuing Security Agreement, dated as of May 28, 2004, between timexpress.com, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.6 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.7	Continuing Security Agreement, dated as of May 28, 2004, between Fast Forward Solutions, LLC and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.7 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.8	Stock Pledge Agreement, dated as of May 28, 2004, by AirNet Systems, Inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.8 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.9	Security Agreement Pledge and Assignment of Membership Interest, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.9 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.10	Mortgage, Security Agreement and Assignment, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.10 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.11	Replacement Subsidiary Guaranty, dated as of May 28, 2004, by AirNet Management, Inc., Float Control, Inc. and Jetride, Inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.11 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.12	Subsidiary Guaranty, dated as of May 28, 2004, by timexpress.com, inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.12 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.13	Subsidiary Guaranty, dated as of May 28, 2004, by Fast Forward Solutions, LLC in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.13 to AirNet Systems, Inc.’s June 2004 Form 8-K


Exhibit
No.	Description	Location
4.14	Waiver Letter, dated as of November 12, 2004, by and among AirNet Systems, Inc., JetRide, Inc., Float Control, Inc., AirNet Management, Inc. Fast Forward Solutions, LLC, timexpress.com, inc., The Huntington National Bank, as agent for and on behalf of the lenders from time to time party thereto, Bank One, N.A., Fifth Third Bank and The Huntington National Bank as a lender and the LC Issuer	Incorporated herein by reference from Exhibit 4.24 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 (File No. 1-13025) (the “September 30, 2004 Form 10-Q”)

4.15	Change in Terms Agreement, dated as of November 12, 2004, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the Lenders from time to time party to the Amended and Restated Credit Agreement dated May 28, 2004	Incorporated herein by reference from Exhibit 4.25 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.16	Second Change in Terms Agreement, effective as of March 24, 2005, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004	Incorporated herein by reference from Exhibit 4.39 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 1-13025) (the “2004 Form 10-K”)

4.17	Assignment Agreement, dated as of March 24, 2005, between Fifth Third Bank, as Assignor, and The Huntington National Bank, as Assignee, in respect of rights and obligations under the Amended and Restated Credit Agreement dated May 28, 2004, as amended	Incorporated herein by reference from Exhibit 4.40 to AirNet Systems, Inc.’s 2004 Form 10-K

4.18	Assignment Agreement, dated as of March 24, 2005, between Fifth Third Bank, as Assignor, and JPMorgan Chase Bank, N.A., as Assignee, successor by merger to Bank One, N.A., in respect of rights and obligations under the Amended and Restated Credit Agreement dated May 28, 2004, as amended	Incorporated herein by reference from Exhibit 4.41 to AirNet Systems, Inc.’s 2004 Form 10-K

4.19	Replacement Revolving Loan Note, issued on March 24, 2005, by AirNet Systems, Inc. in favor of The Huntington National Bank in the amount of $18,750,000	Incorporated herein by reference from Exhibit 4.42 to AirNet Systems, Inc.’s 2004 Form 10-K

4.20	Replacement Revolving Loan Note, issued on March 24, 2005, by AirNet Systems, Inc. in favor of Bank One, N.A. in the amount of $11,250,000	Incorporated herein by reference from Exhibit 4.43 to AirNet Systems, Inc.’s 2004 Form 10-K

4.21	Third Change in Terms Agreement, effective as of November 21, 2005, by and between Airnet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004	Filed herewith


Exhibit
No.	Description	Location
4.22	Fourth Change in Terms Agreement, effective as of March 28, 2006, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004, as amended	Filed herewith

4.23	Loan and Security Agreement (aircraft) [Loan Number: 1000119495], dated as of June 15, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.1 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.24	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119495], issued on June 15, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $7,500,000	Incorporated herein by reference from Exhibit 4.2 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.25	Corporate Guaranty [Loan Number: 1000119495], dated as of June 15, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.3 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.26	Loan and Security Agreement (aircraft) [Loan Number: 1000119641], dated as of June 30, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.4 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.27	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119641], issued on June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.5 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.28	Corporate Guaranty [Loan Number: 1000119641], dated as of June 30, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.6 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.29	Acknowledgment of Borrower [Loan Number: 1000119641], dated as of June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.7 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.30	Loan and Security Agreement (aircraft) [Loan Number: 1000119649], dated as of June 29, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.8 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.31	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119649], issued on June 29, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.9 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.32	Corporate Guaranty [Loan Number: 1000119649], dated as of June 29, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.10 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q


Exhibit
No.	Description	Location
4.33	Acknowledgment of Borrower [Loan Number: 1000119649], dated as of June 29, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to PNC Leasing, LLC of “Loan Documents”	Incorporated herein by reference from Exhibit 4.11 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.34	Loan and Security Agreement (aircraft) [Loan Number: 1000119650], dated as of June 30, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.12 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.35	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119650], issued on June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.13 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.36	Corporate Guaranty [Loan Number: 1000119650], dated as of June 30, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.14 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.37	Acknowledgment of Borrower [Loan Number: 1000119650], dated as of June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.15 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.38	Loan and Security Agreement (aircraft) [Loan Number: 1000119771], dated as of July 12, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.16 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.39	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119771], issued on July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.17 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.40	Corporate Guaranty [Loan Number: 1000119771], dated as of July 12, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.18 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.41	Acknowledgment of Borrower [Loan Number: 1000119771], dated as of July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.19 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.42	Loan and Security Agreement (aircraft) [Loan Number: 1000119774], dated as of July 12, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.20 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q


Exhibit
No.	Description	Location
4.43	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119774], issued on July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.21 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.44	Corporate Guaranty [Loan Number: 1000119774], dated as of July 12, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.22 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.45	Acknowledgment of Borrower [Loan Number: 1000119774], dated as of July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to PNC Leasing, LLC of “Loan Documents”	Incorporated herein by reference from Exhibit 4.23 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.46	Loan and Security Agreement (aircraft) [Loan Number: 1000122039], dated as of March 24, 2005, between Chase Equipment Leasing Inc. and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 4.44 to AirNet Systems, Inc.’s 2004 Form 10-K

4.47	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000122039], issued on March 24, 2005, by AirNet Systems, Inc. in favor of Chase Equipment Leasing Inc. in the amount of $11,000,000	Incorporated herein by reference from Exhibit 4.45 to AirNet Systems, Inc.’s 2004 Form 10-K

4.48	Agreement to furnish instruments defining rights of holders of long-term debt	Filed herewith

10.1*	AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 1-13025) (the “2003 Form 10-K”)

10.2	Indemnification Agreement, dated as of May 15, 1996, by and among AirNet Systems, Inc. and Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S. King, Lincoln L. Rutter, Kendall W. Wright and William R. Sumser	Incorporated herein by reference from Exhibit 10.11 to Amendment No. 2 to AirNet Systems Inc.’s Form S-1 Registration Statement (Registration No. 333-03092) filed on May 24, 1996 (“Amendment No. 2 to Form S-1”)

10.3	Indemnification Agreement, dated as of May 15, 1996, between Gerald G. Mercer and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.12 to AirNet Systems, Inc.’s Amendment No. 2 to Form S-1

10.4*	Employment Agreement, made as of January 1, 2001, between AirNet Systems, Inc. and Joel E. Biggerstaff	Incorporated herein by reference from Exhibit 10.4 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025) (the “2000 Form 10-K”)

10.5*	Employment Agreement, made as of January 1, 2001, between AirNet Systems, Inc. and Jeffrey B. Harris	Incorporated herein by reference from Exhibit 10.6 to AirNet Systems, Inc.’s 2000 Form 10-K

10.6*	AirNet Systems, Inc. Director Deferred Compensation Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.7 to AirNet Systems, Inc.’s 2003 Form 10-K


Exhibit
No.	Description	Location
10.7*	AirNet Systems, Inc. Salary for Options Conversion Plan, effective February 6, 2000	Incorporated herein by reference from Exhibit 10.8 to AirNet Systems, Inc.’s 2000 Form 10-K

10.8*	Agreement, made as of July 17, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference from Exhibit 10.9 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025) (the “June 30, 2001 Form 10-Q”)

10.9*	Jerry Mercer Transition Agreement, effective May 26, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference from Exhibit 10.10 to AirNet Systems, Inc.’s June 30, 2001 Form 10-Q

10.10	Land Lease at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated February 20, 2004 and filed on February 24, 2004 (File No. 1-13025) (the “February 2004 8-K”)

10.11	Leasehold Improvements Purchase Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.12	Rickenbacker International Airport Operating Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.3 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.13	Non-Exclusive License Agreement to Conduct an Aeronautical Business at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.4 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.14	Rickenbacker International Airport Non-Public Self-Fueling Permit for AirNet Systems, Inc., executed by Columbus Regional Airport Authority on January 20, 2004 and by AirNet Systems, Inc. on January 15, 2004	Incorporated herein by reference from Exhibit 10.5 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.15	Rickenbacker International Airport Commingling Fuel Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.6 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.16	Non-Exclusive Access Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference from Exhibit 10.7 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.17	No-Build Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference from Exhibit 10.8 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.18	Lease Termination Agreement, entered into to be effective as of December 15, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on December 21, 2004 (File No. 1-13025) (the “December 21, 2004 Form 8-K”)


Exhibit
No.	Description	Location
10.19	Lease, entered into as of December 15, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s December 21, 2004 Form 8-K

10.20	Amendment No.1 to Land Lease, made and entered into to be effective as of April 5, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.3 to AirNet Systems, Inc.’s December 21, 2004 Form 8-K

10.21	Amendment No. 2 to Land Lease, made and entered into to be effective as of October 29, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Filed herewith

10.22*	AirNet Systems, Inc. 2004 Stock Incentive Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 (File No. 1-13025)

10.23*	Form of Stock Option Agreement, dated July 20, 2005 (Director Option-2004 Stock Incentive Plan)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 (File No. 1-13025)

10.24*	Summary of Compensation for Directors of AirNet Systems, Inc.	Filed herewith

10.25*	Summary of AirNet Systems, Inc. 2005 Incentive Compensation Plan	Filed herewith

10.26*	Employment Separation Agreement and Release of Claims, entered into on January 14, 2005, between AirNet Systems, Inc. and Kendall W. Wright	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on January 20, 2005 (File No. 1-13025)

10.27*	Employment Agreement, made as of May 3, 2005, between AirNet Systems, Inc. and Gary W. Qualmann	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on May 6, 2005 (File No. 1-13025) (the “May 6, 2005 Form 8-K”)

10.28*	Employment Agreement, made as of May 3, 2005, between AirNet Systems, Inc. and Larry M. Glasscock, Jr.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s May 6, 2005 Form 8-K

10.29*	Summary of AirNet Systems, Inc. 2006 Incentive Compensation Plan	Filed herewith

14	Code of Business Conduct and Ethics	Incorporated herein by reference from Exhibit 14 to AirNet Systems, Inc.’s 2003 Form 10-K

21	Subsidiaries of AirNet Systems, Inc.	Filed herewith

23	Consent of Ernst & Young LLP	Filed herewith


Exhibit
No.	Description	Location
24	Powers of Attorney	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith

32	Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)	Filed herewith


*		Denotes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15 of Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	AIRNET SYSTEMS, INC.

Dated: March 31, 2006		By:	/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, Chairman of the Board, Chief Executive 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

/s/ Joel E. Biggerstaff Joel E. Biggerstaff	Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)	March 31, 2006

/s/ Gary W. Qualmann Gary W. Qualmann	Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)	March 31, 2006

/s/ Ray L. Druseikis Ray L. Druseikis	Vice President of Finance, Controller and Principal Accounting Officer	March 31, 2006

*James M. Chadwick James M. Chadwick	Director	March 31, 2006

*Russell M. Gertmenian Russell M. Gertmenian	Director	March 31, 2006

*Gerald Hellerman Gerald Hellerman	Director	March 31, 2006

*David P. Lauer David P. Lauer	Director	March 31, 2006

*Bruce D. Parker Bruce D. Parker	Director	March 31, 2006

*James E. Riddle James E. Riddle	Director	March 31, 2006


*By		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, Attorney-in-Fact

INDEX TO EXHIBITS


Exhibit
No.	Description	Location
2.1	Asset Purchase Agreement, dated July 11, 2003, by and among AirNet Systems, Inc., AirNet Management, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter G. Salisbury and Christopher F. Valente. [Pursuant to Item 601(b)(2) of SEC Regulation S-K, certain schedules and exhibits to this Asset Purchase Agreement have not been filed with this exhibit. The schedules contain various items relating to the assets being sold and the representations and warranties of the parties to the Asset Purchase Agreement. AirNet Systems, Inc. has agreed to furnish supplementally any omitted schedule or exhibit to the SEC upon request.]	Incorporated herein by reference from Exhibit 2.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated and filed on July 15, 2003 (File No. 1-13025)

3.1	Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on April 29, 1996	Incorporated herein by reference from Exhibit 2.1 to AirNet Systems, Inc.’s Registration Statement on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the “1996 Form 8-A”)

3.2	Certificate of Amendment to the Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on May 28, 1996	Incorporated herein by reference from Exhibit 4(b) to AirNet Systems, Inc.’s 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. (reflecting all amendments) [for SEC reporting compliance purposes only — not filed with the Ohio Secretary of State]	Incorporated herein by reference from Exhibit 4(c) to AirNet Systems, Inc.’s 1996 Form S-8

3.4	Code of Regulations of AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 2.2 to AirNet Systems, Inc.’s 1996 Form 8-A

3.5	Certificate regarding adoption of amendment to Section 1.10 of the Code of Regulations of AirNet Systems, Inc. by the shareholders on May 12, 2000	Incorporated herein by reference from Exhibit 3.1 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025) (the “June 30, 2000 Form 10-Q”)

3.6	Code of Regulations of AirNet Systems, Inc. (reflecting all amendments) [for SEC reporting compliance purposes only]	Incorporated herein by reference from Exhibit 3.2 to AirNet Systems, Inc.’s June 30, 2000 Form 10-Q

4.1	Amended and Restated Credit Agreement, dated as of May 28, 2004, among AirNet Systems, Inc., the lenders from time to time party thereto and The Huntington National Bank, as LC Issuer, as Swingline Lender and as Administrative Agent	Incorporated herein by reference from Exhibit 4.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated June 21, 2004 and filed on June 22, 2004 (File No. 1-13025) (the “June 2004 Form 8-K”)


Exhibit
No.	Description	Location
4.2	Continuing Security Agreement, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.2 to AirNet Systems, Inc.’s June 2004 Form 8-K

4.3	Continuing Security Agreement, dated as of May 28, 2004, between Float Control, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.3 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.4	Continuing Security Agreement, dated as of May 28, 2004, between AirNet Management, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.4 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.5	Continuing Security Agreement, dated as of May 28, 2004, between Jetride, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.5 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.6	Continuing Security Agreement, dated as of May 28, 2004, between timexpress.com, Inc. and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.6 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.7	Continuing Security Agreement, dated as of May 28, 2004, between Fast Forward Solutions, LLC and The Huntington National Bank, as lender and as agent	Incorporated herein by reference from Exhibit 4.7 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.8	Stock Pledge Agreement, dated as of May 28, 2004, by AirNet Systems, Inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.8 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.9	Security Agreement Pledge and Assignment of Membership Interest, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.9 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.10	Mortgage, Security Agreement and Assignment, dated as of May 28, 2004, between AirNet Systems, Inc. and The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.10 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.11	Replacement Subsidiary Guaranty, dated as of May 28, 2004, by AirNet Management, Inc., Float Control, Inc. and Jetride, Inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.11 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.12	Subsidiary Guaranty, dated as of May 28, 2004, by timexpress.com, inc. in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.12 to AirNet Systems, Inc.'s June 2004 Form 8-K

4.13	Subsidiary Guaranty, dated as of May 28, 2004, by Fast Forward Solutions, LLC in favor of The Huntington National Bank, as agent	Incorporated herein by reference from Exhibit 4.13 to AirNet Systems, Inc.'s June 2004 Form 8-K


Exhibit
No.	Description	Location
4.14	Waiver Letter, dated as of November 12, 2004, by and among AirNet Systems, Inc., JetRide, Inc., Float Control, Inc., AirNet Management, Inc. Fast Forward Solutions, LLC, timexpress.com, inc., The Huntington National Bank, as agent for and on behalf of the lenders from time to time party thereto, Bank One, N.A., Fifth Third Bank and The Huntington National Bank as a lender and the LC Issuer	Incorporated herein by reference from Exhibit 4.24 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 (File No. 1-13025) (the “September 30, 2004 Form 10-Q”)

4.15	Change in Terms Agreement, dated as of November 12, 2004, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the Lenders from time to time party to the Amended and Restated Credit Agreement dated May 28, 2004	Incorporated herein by reference from Exhibit 4.25 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.16	Second Change in Terms Agreement, effective as of March 24, 2005, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004	Incorporated herein by reference from Exhibit 4.39 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 1-13025) (the “2004 Form 10-K”)

4.17	Assignment Agreement, dated as of March 24, 2005, between Fifth Third Bank, as Assignor, and The Huntington National Bank, as Assignee, in respect of rights and obligations under the Amended and Restated Credit Agreement dated May 28, 2004, as amended	Incorporated herein by reference from Exhibit 4.40 to AirNet Systems, Inc.’s 2004 Form 10-K

4.18	Assignment Agreement, dated as of March 24, 2005, between Fifth Third Bank, as Assignor, and JPMorgan Chase Bank, N.A., as Assignee, successor by merger to Bank One, N.A., in respect of rights and obligations under the Amended and Restated Credit Agreement dated May 28, 2004, as amended	Incorporated herein by reference from Exhibit 4.41 to AirNet Systems, Inc.’s 2004 Form 10-K

4.19	Replacement Revolving Loan Note, issued on March 24, 2005, by AirNet Systems, Inc. in favor of The Huntington National Bank in the amount of $18,750,000	Incorporated herein by reference from Exhibit 4.42 to AirNet Systems, Inc.’s 2004 Form 10-K

4.20	Replacement Revolving Loan Note, issued on March 24, 2005, by AirNet Systems, Inc. in favor of Bank One, N.A. in the amount of $11,250,000	Incorporated herein by reference from Exhibit 4.43 to AirNet Systems, Inc.’s 2004 Form 10-K

4.21	Third Change in Terms Agreement, effective as of November 21, 2005, by and between Airnet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004	Filed herewith


Exhibit
No.	Description	Location
4.22	Fourth Change in Terms Agreement, effective as of March 28, 2006, by and between AirNet Systems, Inc. and The Huntington National Bank, in its capacity as administrative agent for and on behalf of the lenders from time to time party to the Amended and Restated Credit Agreement dated as of May 28, 2004, as amended	Filed herewith

4.23	Loan and Security Agreement (aircraft) [Loan Number: 1000119495], dated as of June 15, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.1 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.24	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119495], issued on June 15, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $7,500,000	Incorporated herein by reference from Exhibit 4.2 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.25	Corporate Guaranty [Loan Number: 1000119495], dated as of June 15, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.3 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.26	Loan and Security Agreement (aircraft) [Loan Number: 1000119641], dated as of June 30, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.4 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.27	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119641], issued on June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.5 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.28	Corporate Guaranty [Loan Number: 1000119641], dated as of June 30, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.6 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.29	Acknowledgment of Borrower [Loan Number: 1000119641], dated as of June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.7 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.30	Loan and Security Agreement (aircraft) [Loan Number: 1000119649], dated as of June 29, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.8 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.31	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119649], issued on June 29, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.9 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q


Exhibit
No.	Description	Location
4.32	Corporate Guaranty [Loan Number: 1000119649], dated as of June 29, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.10 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.33	Acknowledgment of Borrower [Loan Number: 1000119649], dated as of June 29, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to PNC Leasing, LLC of “Loan Documents”	Incorporated herein by reference from Exhibit 4.11 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.34	Loan and Security Agreement (aircraft) [Loan Number: 1000119650], dated as of June 30, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.12 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.35	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119650], issued on June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.13 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.36	Corporate Guaranty [Loan Number: 1000119650], dated as of June 30, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.14 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.37	Acknowledgment of Borrower [Loan Number: 1000119650], dated as of June 30, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.15 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.38	Loan and Security Agreement (aircraft) [Loan Number: 1000119771], dated as of July 12, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.16 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.39	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119771], issued on July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.17 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.40	Corporate Guaranty [Loan Number: 1000119771], dated as of July 12, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.18 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.41	Acknowledgment of Borrower [Loan Number: 1000119771], dated as of July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to First Union Commercial Corporation of “Loan Documents”	Incorporated herein by reference from Exhibit 4.19 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q


Exhibit
No.	Description	Location
4.42	Loan and Security Agreement (aircraft) [Loan Number: 1000119774], dated as of July 12, 2004, between Banc One Leasing Corporation and Jetride, Inc.	Incorporated herein by reference from Exhibit 4.20 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.43	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000119774], issued on July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation in the amount of $5,000,000	Incorporated herein by reference from Exhibit 4.21 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.44	Corporate Guaranty [Loan Number: 1000119774], dated as of July 12, 2004, from AirNet Systems, Inc. in favor of Banc One Leasing Corporation	Incorporated herein by reference from Exhibit 4.22 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.45	Acknowledgment of Borrower [Loan Number: 1000119774], dated as of July 12, 2004, by Jetride, Inc. in favor of Banc One Leasing Corporation acknowledging sale and assignment by Banc One Leasing Corporation to PNC Leasing, LLC of “Loan Documents”	Incorporated herein by reference from Exhibit 4.23 to AirNet Systems, Inc.’s September 30, 2004 Form 10-Q

4.46	Loan and Security Agreement (aircraft) [Loan Number: 1000122039], dated as of March 24, 2005, between Chase Equipment Leasing Inc. and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 4.44 to AirNet Systems, Inc.’s 2004 Form 10-K

4.47	Business Purpose Promissory Note (fixed rate//principal and interest) [Loan Number: 1000122039], issued on March 24, 2005, by AirNet Systems, Inc. in favor of Chase Equipment Leasing Inc. in the amount of $11,000,000	Incorporated herein by reference from Exhibit 4.45 to AirNet Systems, Inc.’s 2004 Form 10-K

4.48	Agreement to furnish instruments defining rights of holders of long-term debt	Filed herewith

10.1*	AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 1-13025) (the “2003 Form 10-K”)

10.2	Indemnification Agreement, dated as of May 15, 1996, by and among AirNet Systems, Inc. and Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S. King, Lincoln L. Rutter, Kendall W. Wright and William R. Sumser	Incorporated herein by reference from Exhibit 10.11 to Amendment No. 2 to AirNet Systems Inc.’s Form S-1 Registration Statement (Registration No. 333-03092) filed on May 24, 1996 (“Amendment No. 2 to Form S-1”)

10.3	Indemnification Agreement, dated as of May 15, 1996, between Gerald G. Mercer and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.12 to AirNet Systems, Inc.’s Amendment No. 2 to Form S-1

10.4*	Employment Agreement, made as of January 1, 2001, between AirNet Systems, Inc. and Joel E. Biggerstaff	Incorporated herein by reference from Exhibit 10.4 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025) (the “2000 Form 10-K”)


Exhibit
No.	Description	Location
10.5*	Employment Agreement, made as of January 1, 2001, between AirNet Systems, Inc. and Jeffrey B. Harris	Incorporated herein by reference from Exhibit 10.6 to AirNet Systems, Inc.’s 2000 Form 10-K

10.6*	AirNet Systems, Inc. Director Deferred Compensation Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.7 to AirNet Systems, Inc.’s 2003 Form 10-K

10.7*	AirNet Systems, Inc. Salary for Options Conversion Plan, effective February 6, 2000	Incorporated herein by reference from Exhibit 10.8 to AirNet Systems, Inc.’s 2000 Form 10-K

10.8*	Agreement, made as of July 17, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference from Exhibit 10.9 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025) (the “June 30, 2001 Form 10-Q”)

10.9*	Jerry Mercer Transition Agreement, effective May 26, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference from Exhibit 10.10 to AirNet Systems, Inc.’s June 30, 2001 Form 10-Q

10.10	Land Lease at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated February 20, 2004 and filed on February 24, 2004 (File No. 1-13025) (the “February 2004 8-K”)

10.11	Leasehold Improvements Purchase Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.12	Rickenbacker International Airport Operating Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.3 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.13	Non-Exclusive License Agreement to Conduct an Aeronautical Business at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.4 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.14	Rickenbacker International Airport Non-Public Self-Fueling Permit for AirNet Systems, Inc., executed by Columbus Regional Airport Authority on January 20, 2004 and by AirNet Systems, Inc. on January 15, 2004	Incorporated herein by reference from Exhibit 10.5 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.15	Rickenbacker International Airport Commingling Fuel Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.6 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.16	Non-Exclusive Access Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference from Exhibit 10.7 to AirNet Systems, Inc.’s February 2004 Form 8-K


Exhibit
No.	Description	Location
10.17	No-Build Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference from Exhibit 10.8 to AirNet Systems, Inc.’s February 2004 Form 8-K

10.18	Lease Termination Agreement, entered into to be effective as of December 15, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on December 21, 2004 (File No. 1-13025) (the “December 21, 2004 Form 8-K”)

10.19	Lease, entered into as of December 15, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s December 21, 2004 Form 8-K

10.20	Amendment No.1 to Land Lease, made and entered into to be effective as of April 5, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference from Exhibit 10.3 to AirNet Systems, Inc.’s December 21, 2004 Form 8-K

10.21	Amendment No. 2 to Land Lease, made and entered into to be effective as of October 29, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Filed herewith

10.22*	AirNet Systems, Inc. 2004 Stock Incentive Plan (reflects all amendments)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 (File No. 1-13025)

10.23*	Form of Stock Option Agreement, dated July 20, 2005 (Director Option-2004 Stock Incentive Plan)	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 (File No. 1-13025)

10.24*	Summary of Compensation for Directors of AirNet Systems, Inc.	Filed herewith

10.25*	Summary of AirNet Systems, Inc. 2005 Incentive Compensation Plan	Filed herewith

10.26*	Employment Separation Agreement and Release of Claims, entered into on January 14, 2005, between AirNet Systems, Inc. and Kendall W. Wright	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on January 20, 2005 (File No. 1-13025)

10.27*	Employment Agreement, made as of May 3, 2005, between AirNet Systems, Inc. and Gary W. Qualmann	Incorporated herein by reference from Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K dated and filed on May 6, 2005 (File No. 1-13025) (the “May 6, 2005 Form 8-K”)

10.28*	Employment Agreement, made as of May 3, 2005, between AirNet Systems, Inc. and Larry M. Glasscock, Jr.	Incorporated herein by reference from Exhibit 10.2 to AirNet Systems, Inc.’s May 6, 2005 Form 8-K

10.29*	Summary of AirNet Systems, Inc. 2006 Incentive Compensation Plan	Filed herewith

14	Code of Business Conduct and Ethics	Incorporated herein by reference from Exhibit 14 to AirNet Systems, Inc.’s 2003 Form 10-K


Exhibit
No.	Description	Location
21	Subsidiaries of AirNet Systems, Inc.	Filed herewith

23	Consent of Ernst & Young LLP	Filed herewith

24	Powers of Attorney	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith

32	Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)	Filed herewith

EX-4.21 2 l18759aexv4w21.htm EX-4.21 EX-4.21

EXHIBIT 4.21

THIRD CHANGE IN TERMS AGREEMENT

THIS THIRD CHANGE IN TERMS AGREEMENT (this “Change in Terms”), is made and entered into effective as of November 10, 2005, by and between AirNet Systems, Inc., an Ohio corporation (“Borrower”) and The Huntington National Bank, a national banking association, with a banking office at 41 South High Street, Columbus, Ohio 43215, in its capacity as administrative agent (“Agent”) for and on behalf of the Lenders from time to time party to the Credit Agreement described below. Each capitalized term used but not otherwise defined herein shall have the meaning ascribed to it in the Credit Agreement.

BACKGROUND INFORMATION

A. Pursuant to the Amended and Restated Credit Agreement dated as of May 28, 2004 (as amended by the First Change in Terms and the Second Change in Terms, and as the same may be further amended, modified, supplemented, extended, restated or replaced from time to time, the “Credit Agreement”) among Borrower, the Lenders, and the Agent, the Lenders agreed to provide certain credit facilities to the Borrower (collectively, the “Loans”).

B. Borrower and Agent entered into a certain Change in Terms Agreement dated November 12, 2004, pursuant to which certain terms and provisions of the Credit Agreement were modified (the “First Change in Terms”).

C. Borrower and Agent entered into a certain Second Change in Terms Agreement dated March 24, 2005, pursuant to which certain terms and provisions of the Credit Agreement were further modified (the “Second Change in Terms”).

D. Borrower, having failed to comply with the financial covenants required pursuant to Section 6.24 of the Credit Agreement, has requested that Agent waive the Default existing under the Credit Agreement as a result of Borrower’s failure to maintain such financial covenants, and acting upon the authority of the Required Lenders, Agent has agreed to do so on certain conditions, including without limitation, that Borrower enter into this Change in Terms.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, Agent and Borrower hereby agree as follows:

1. Change in Terms. The Credit Agreement, and, to the extent applicable, the other Loan Documents, are hereby modified to provide as follows:

(i) The definition of “Consolidated EBIT,” as set forth in Section 1.1 of the Credit Agreement, is hereby revised and replaced in its entirety by the following:

“Consolidated EBIT” means, with respect to any period, Consolidated Net Income plus, (a) to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense, (ii) income tax expense, calculated for the Borrower and its Subsidiaries on a consolidated basis, and (iii) extraordinary losses (determined in accordance with Agreement Accounting Principles) incurred other than in the ordinary course of business, calculated for the Borrower and its Subsidiaries on a consolidated basis, plus (b) for the fiscal quarter ending September 30, 2005 only, an amount equal to $16,073,000.00 (which reflects the non-cash impairment charge recognized by Borrower in the fiscal quarter ending September 30, 2005), minus, to the extent included in Consolidated Net Income, extraordinary gains (determined in accordance with Agreement Accounting Principles) realized other than in the ordinary course of business, calculated for the Borrower and its Subsidiaries on a consolidated basis.

(ii) The definition of “Consolidated EBITDA,” as set forth in Section 1.1 of the Credit Agreement, is hereby revised and replaced in its entirety by the following:

“Consolidated EBITDA” means with respect to any period, Consolidated Net Income plus, (a) to the extent deducted from revenues in determining Consolidated Net Income, (i) Consolidated Interest Expense, (ii) income tax expense, calculated for the Borrower and its Subsidiaries on a consolidated basis, (iii) depreciation, calculated for the Borrower and its Subsidiaries on a consolidated basis, (iv) amortization, calculated for the Borrower and its Subsidiaries on a consolidated basis; and (v) extraordinary losses (determined in accordance with Agreement Accounting Principles) incurred other than in the ordinary course of business, calculated for the Borrower and its Subsidiaries on a consolidated basis, plus (b) for the fiscal quarter ending September 30, 2005 only, an amount equal to $16,073,000.00 (which reflects the non-cash impairment charge recognized by Borrower in the fiscal quarter ending September 30, 2005), minus, to the extent included in Consolidated Net Income, extraordinary gains (determined in accordance with Agreement Accounting Principles) realized other than in the ordinary course of business, calculated for the Borrower and its Subsidiaries on a consolidated basis.

2. Truth of Representations and Warranties; No Defaults. Borrower hereby represents and warrants that the following are true and correct as of the date of this Change in Terms:

(a) After giving effect to that certain letter agreement dated of even date herewith by and among Borrower (herein, the “Waiver”), the Guarantors and Agent and the waiver provided therein, the representations and warranties of Borrower and the Guarantors contained in the Loan Documents to which each is a party are true and correct on and as of the date of this Change in Terms as if made on and as of such date, unless stated to relate to a specific earlier date;

(b) No event or condition exists which constitutes a breach, Default or Unmatured Default under the Loan Documents;

(c) All financial information heretofore provided to Agent and/or the Lenders in connection with the indebtedness made pursuant to the Loan Documents is true, accurate and complete in all material respects;

(d) Neither this Change in Terms nor any other document, certificate or written statement furnished to Agent and/or the Lenders in connection with the indebtedness evidenced and secured by the Loan Documents contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading;

(e) Borrower and the Guarantors have full power and authority (i) to execute, deliver and perform, or to acknowledge and agree to the terms and provisions of, this Change in Terms, as applicable, and (ii) to incur the obligations provided for herein, all of which have been duly authorized by all necessary and proper corporate or limited liability company action, as applicable;

(f) No consent, waiver or authorization of, or filing with, any person or any governmental authority is required to be made or obtained by Borrower or the Guarantors in connection with the borrowings under the Loan Documents, or the execution, delivery, performance, validity or enforceability of this Change in Terms;

(g) This Change in Terms and the Loan Documents constitute the legal, valid and binding obligation of Borrower and the Guarantors enforceable against them in accordance with the terms hereof and thereof, as applicable; and

(h) The execution and delivery by Borrower and the Guarantors of this Change in Terms and the performance by Borrower and the Guarantors of the Loan Documents to which each is a party, as modified by this Change in Terms and by the Waiver: (i) do not and will not violate any law or regulation; (ii) do not and will not violate any order, decree or judgment by which Borrower or the Guarantors, as applicable, are bound; (iii) do not and will not violate or conflict with, result in a breach of or constitute (with notice, lapse of time, or otherwise) a default under any material agreement, mortgage, indenture or other contractual obligation to which Borrower or any of the Guarantors is a party, or by which Borrower’s or any of

the Guarantors’ properties are bound; and (iv) do not and will not result in the creation or imposition of any lien upon any property or assets of Borrower or any of the Guarantors.

3. Ratification of Loan Documents. This Change in Terms constitutes only a modification of the Credit Agreement and the other Loan Documents and Borrower hereby acknowledges, ratifies and confirms all of the provisions thereof, except as herein expressly modified, including provision for the acceleration of the maturity of the Loans, and for the enforcement by Agent and/or the Lenders of all remedies any of them may have according to law. In addition, Borrower acknowledges, ratifies and confirms any and all security interests previously granted in connection with the Loans as continuing in full force and effect.

4. No Course of Dealing; Waiver. Borrower expressly acknowledges and agrees that the execution of this Change in Terms shall not constitute a waiver of, and shall not preclude the exercise of, any right, power or remedy granted to Agent and/or the Lenders in the Loan Documents, or as provided by law, except to the extent expressly provided herein. No previous modification, extension or compromise entered into with respect to any indebtedness of Borrower to Agent and/or the Lenders shall constitute a course of dealing or be inferred or construed as constituting an express or implied understanding to enter into any future modification, extension or compromise, whether or not the same was in writing. No past, present or future delay on the part of Agent and/or any Lender in exercising any right, power or remedy shall operate as a waiver thereof, or otherwise prejudice Agent’s or any Lender’s rights, powers or remedies.

5. Promise to Pay. Borrower hereby covenants and promises to pay to the order of Agent, the unpaid principal balance of the Loans, together with interest as provided in the Credit Agreement and the other Loan Documents, and hereby promises to perform all of the covenants, conditions, stipulations and agreements as contained in the Loan Documents and in any other document or instrument executed in connection therewith or referencing the same (as modified by this Change in Terms).

6. Setoffs, Claims and Defenses. Borrower hereby certifies that, as of the date hereof, it has no setoffs, counter-claims or other defenses of any nature whatsoever to the payment of any part of the obligations owed to Agent and/or any Lender as of the date of execution of this Change in Terms.

7. Governing Law. This Change in Terms shall be interpreted and construed in accordance with and governed by the laws of the State of Ohio (without respect to conflict of law principles). Further, the parties hereto intend that this Change in Terms shall be in compliance with all applicable laws and shall be enforceable in accordance with its terms. If any provision of this Change in Terms shall be illegal or unenforceable with respect to the Loan Documents, such provision shall be deemed cancelled to the extent necessary, but the remaining provisions shall not be affected hereby.

8. Further Assurances. Borrower and the Guarantors further agree to execute and deliver any and all further documents and to take any and all other steps or actions reasonably deemed necessary by Agent to effectuate this Change in Terms.

9. Affirmation of Other Obligors. Upon the request of Agent, Borrower shall obtain the acknowledgment and acceptance by each other party obligated in any way with respect to the Loans or otherwise in connection with the credit extended pursuant to the Credit Agreement, including, without limitation, the Guarantors and any other guarantor, co-borrower, pledgor or other accommodation party or party granting collateral security for the Loans and other obligations under the Loan Documents and otherwise, that the obligations and agreements of each such party to the Lenders and/or the Agent under the Loan Documents, as applicable, or otherwise, shall continue in full force and effect with respect to the indebtedness evidenced and secured by the Loan Documents, irrespective of any modification made in this Change in Terms, which acknowledgement and acceptance shall be in a writing executed by each such party and satisfactory to Agent.

10. Acknowledgment by Lenders. This Change in Terms shall only be effective upon the acknowledgment, consent and acceptance by the Required Lenders, which acknowledgement, consent and acceptance shall be evidenced by execution of this Change in Terms by Lenders constituting the Required Lenders.

11. Successors and Assigns. This Change in Terms shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the benefit of Agent and its successors and assigns.

12. Costs and Expenses. Borrower also agrees to reimburse Agent for all costs and expenses incurred in the preparation, execution and delivery of this Change in Terms, including reasonable attorneys’ fees.

13. Titles and Headings. The titles and headings herein are intended to promote convenience and are not a part of this Change in Terms for purposes of interpreting and applying the provisions hereof.

14. Counterparts. This Change in Terms may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Change in Terms by signing any such counterpart. This Change in Terms shall be effective when it has been executed by Borrower, Agent, the Required Lenders and the Guarantors.

15. WAIVER OF JURY TRIAL. BORROWER AND AGENT HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS CHANGE IN TERMS OR ANY OF THE LOAN DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

16. Confession of Judgment. Borrower hereby irrevocably authorizes any attorney-at-law, including any attorney-at-law employed or retained by Agent to appear for it in any action on this Change in Terms or any of the Loan Documents at any time after the same becomes due as herein or therein provided in any court of record situated in the county where this warrant was signed (being Franklin County, Ohio), or in the county where Borrower then resides or can be found, to waive the issuing and service of process, and confess a judgment in favor of the holder of this Change in Terms and any such Loan Documents against Borrower, for the amount that may then be due, with interest at the rate(s) provided for herein, together with the costs of suit, and to waive and release all errors in said proceedings and the right to appeal from the judgment rendered. Borrower consents to the jurisdiction and venue of such court. Borrower waives any conflict of interest that any attorney-at-law employed or retained by Agent may have in confessing judgment hereunder and consents to the payment of a legal fee to any attorney-at-law confessing judgment hereunder.

IN WITNESS WHEREOF, Borrower and Agent have caused this Change in Terms to be executed effective as of the day and year first above written.

BORROWER:
AirNet Systems, Inc., an
Ohio corporation

WARNING – BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.

AGENT:
The Huntington National Bank,
a national banking association, as Agent


By:		/s/ John M. Luehmann

		John M. Luehmann, Vice President

ACKNOWLEDGMENT OF LENDERS

The undersigned Lenders hereby acknowledge, consent to, and accept all of the provisions of the foregoing Change in Terms.


		The Huntington National Bank, an national banking association

		By:		/s/ John M. Luehmann

				John M. Luehmann, Vice President

		JPMorgan Chase Bank, N.A., a national banking association and successor by merger to Bank One, N.A. (Main Office Columbus)

		By:		/s/ Warren Bebinger

				Warren Bebinger, Senior Vice President

[signatures continue on following pages]

ACKNOWLEDGMENT OF GUARANTORS

The undersigned Guarantors hereby acknowledge, accept and agree to each of the provisions of the foregoing Change in Terms and ratify and confirm that all of the provisions of the Loan Documents to which each such Guarantor is a party, including, without limitation, the Subsidiary Guaranty, the Fast Forward Guaranty, the Timexpress Guaranty, as applicable, and the Security Agreements, and all obligations and liabilities of each such Guarantor in favor of Agent and/or the Lenders thereunder and otherwise, and all liens, security and other interests granted thereby, shall continue and remain in full force and effect, irrespective of any provision of the above Change in Terms, the Waiver, or any other or future modification of the Loan Documents or the terms of the credit extended, evidenced and secured thereby.

GUARANTORS:

Jetride, Inc., an
Ohio corporation


By:		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, President

Float Control, Inc., a
Michigan corporation


By:		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, President

[signatures continue on following pages]

AirNet Management, Inc., an
Ohio corporation


By:		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, President

Fast Forward Solutions, LLC, an
Ohio limited liability company


By:		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, President

timexpress.com, inc. an
Ohio corporation


By:		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff, President

EX-4.22 3 l18759aexv4w22.htm EX-4.22 EX-4.22

EXHIBIT 4.22

FOURTH CHANGE IN TERMS AGREEMENT

THIS FOURTH CHANGE IN TERMS AGREEMENT (this “Change in Terms”), is made and entered into effective as of March 28, 2006, by and between AirNet Systems, Inc., an Ohio corporation (“Borrower”) and The Huntington National Bank, a national banking association, with a banking office at 41 South High Street, Columbus, Ohio 43215, in its capacity as administrative agent (“Agent”) for and on behalf of the Lenders from time to time party to the Credit Agreement described below. Each capitalized term used but not otherwise defined herein shall have the meaning ascribed to it in the Credit Agreement.

BACKGROUND INFORMATION

A. Pursuant to the Amended and Restated Credit Agreement dated as of May 28, 2004 (as amended by the First Change in Terms, the Second Change in Terms, the Third Change in Terms, and as the same may be further amended, modified, supplemented, extended, restated or replaced from time to time, the “Credit Agreement”) among Borrower, the Lenders, and the Agent, the Lenders agreed to provide certain credit facilities to the Borrower (collectively, the “Loans”).

D. Borrower and Agent entered into a certain Third Change in Terms Agreement dated November 21, 2005, pursuant to which Agent waived a Default existing under the Credit Agreement as a result of Borrower’s failure to maintain certain financial covenants (the “Third Change in Terms”).

E. Borrower has requested that Agent further modify the Credit Agreement, and, acting upon the authority of the Required Lenders, Agent has agreed to do so on certain conditions, including without limitation, that Borrower enter into this Change in Terms.

AGREEMENT

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, Agent and Borrower hereby agree as follows:

1. Change in Terms. The Credit Agreement, and, to the extent applicable, the other Loan Documents, are hereby modified to provide as follows:

(a) Revolving Commitment Amount. The Aggregate Revolving Commitment is hereby reduced to $25,000,000, and, as a result of the foregoing reduction, (i) the Revolving Commitment of HNB shall hereafter be $15,625,000, (ii) the Revolving Commitment of JPMorgan Chase Bank, N.A., successor by merger to Bank One, N.A. (Main Office Columbus) shall hereafter be $9,375,000, and (iii) the amounts set forth on the signature pages to the Credit Agreement shall be replaced with the foregoing amounts.

(b) Revolving Commitment Termination. The Revolving Commitment is hereby extended for a period of one (1) year, and the term “Facility Termination Date,” as set forth in Section 1.1 of the Credit Agreement, is hereby revised and replaced in its entirety by the following:

“Facility Termination Date” means October 15, 2007, or any earlier date on which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof.”

(c) Capital Expenditures. The aggregate sum of Capital Expenditures permitted under the Credit Agreement is hereby reduced to $20,000,000, and Section 6.16 of the Credit Agreement is hereby revised and replaced in its entirety by the following:

“Section 6.16. Capital Expenditures. The Borrower will not, and will not permit any of its Subsidiaries to, make, or be committed to make, Capital Expenditures, on a non-cumulative basis in the aggregate exceeding $30,000,000.00 in fiscal year 2005, or $20,000,000.00 in each fiscal year thereafter.

Notwithstanding the foregoing provisions of this Section 6.16, the difference (up to $5,000,000.00) between (i) the maximum aggregate Capital Expenditures permitted in any fiscal year, and (ii) the actual aggregate Capital Expenditures made for such fiscal year, shall be permitted as a carry-over in any subsequent fiscal year and shall increase the maximum Capital Expenditures permitted for any such subsequent fiscal year (including any Capital Expenditures permitted in such subsequent fiscal year attributable to the purchase of aircraft).”

(d) Borrowing Base. The Borrowing Base advance rate for fixed assets is hereby reduced to 50% and the definition of “Borrowing Base,” as set forth in Section 1.1 of the Credit Agreement, is hereby revised and replaced in its entirety by the following:

“Borrowing Base” means, at any date, that amount which is equal to the lesser of (a) the Aggregate Revolving Commitment; or (b) the aggregate of (i) 80% of the Eligible Accounts Receivable of the Borrower and its Subsidiaries on a consolidated basis, (ii) 50% of the Eligible Inventory of the Borrower and its Subsidiaries on a consolidated basis, and (iii) 50% of the Market Value of Eligible Fixed Assets of the Borrower and its Subsidiaries on a consolidated basis.”

e. Pricing Schedule. The Pricing Schedule contains a typographical error, and the parties agree to hereby correct the same by revising and replacing in its entirety the definition of “Level V Status,” as set forth on the Pricing Schedule, by the following:

“Level V Status” exists at any date if, as of the last day of the fiscal quarter of the Borrower referred to in the most recent Financials, the Leverage Ratio is less than 2.25 to 1.00.”

2. Truth of Representations and Warranties; No Defaults. Borrower hereby represents and warrants that the following are true and correct as of the date of this Change in Terms:

(a) The representations and warranties of Borrower and the Guarantors contained in the Loan Documents to which each is a party are true and correct on and as of the date of this Change in Terms as if made on and as of such date, unless stated to relate to a specific earlier date;

(b) No event or condition exists which constitutes a breach, Default or Unmatured Default under the Loan Documents;

(h) The execution and delivery by Borrower and the Guarantors of this Change in Terms and the performance by Borrower and the Guarantors of the Loan Documents to which each is a party, as modified by this Change in Terms: (i) do not and will not violate any law or regulation; (ii) do not and will not violate any order, decree or judgment by which Borrower or the Guarantors, as applicable, are bound; (iii) do not and will not violate or conflict with, result in a breach of or constitute (with notice, lapse of time, or otherwise) a default under any material agreement, mortgage, indenture or other contractual obligation to which Borrower or any of the Guarantors is a party, or by which Borrower’s or any of the Guarantors’ properties are bound; and (iv) do not and will not result in the creation or imposition of any lien upon any property or assets of Borrower or any of the Guarantors.

the Loan Documents, such provision shall be deemed cancelled to the extent necessary, but the remaining provisions shall not be affected hereby.

12. Fees, Costs and Expenses. Borrower also agrees to reimburse Agent for all costs and expenses incurred in the preparation, execution and delivery of this Change in Terms, including reasonable attorneys’ fees. On this date, Borrower shall pay to Agent, for the ratable benefit of the Lenders, a loan modification fee in the amount of $31,250, and any failure to so pay such sum shall render this Change in Terms void and of no force or effect.

13. Titles and Headings. The titles and headings herein are intended to promote convenience and are not a part of this Change in Terms for purposes of interpreting and applying the provisions hereof.

IN WITNESS WHEREOF, Borrower and Agent have caused this Change in Terms to be executed effective as of the day and year first above written.

BORROWER:
AirNet Systems, Inc., an
Ohio corporation


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, Chief Executive Officer

AGENT:
The Huntington National Bank,
a national banking association, as Agent


By:		/s/ John M. Luehmann
		John M. Luehmann, Vice President

[acknowledgement of Lenders contained on next page]

ACKNOWLEDGMENT OF LENDERS

The undersigned Lenders hereby acknowledge, consent to, and accept all of the provisions of the foregoing Change in Terms.


		The Huntington National Bank,
		an national banking association

		By:		/s/ John M. Luehmann

				John M. Luehmann, Vice President

		JPMorgan Chase Bank, N.A., a national banking
		association and successor by merger to Bank One, N.A.
		(Main Office Columbus)

		By:		/s/ Warren Bebinger

				Warren Bebinger, Senior Vice President

[signatures continue on following pages]

ACKNOWLEDGMENT OF GUARANTORS

The undersigned Guarantors hereby acknowledge, accept and agree to each of the provisions of the foregoing Change in Terms and ratify and confirm that all of the provisions of the Loan Documents to which each such Guarantor is a party, including, without limitation, the Subsidiary Guaranty, the Fast Forward Guaranty, the Timexpress Guaranty, as applicable, and the Security Agreements, and all obligations and liabilities of each such Guarantor in favor of Agent and/or the Lenders thereunder and otherwise, and all liens, security and other interests granted thereby, shall continue and remain in full force and effect, irrespective of any provision of the above Change in Terms, or any other or future modification of the Loan Documents or the terms of the credit extended, evidenced and secured thereby.

GUARANTORS:
Jetride, Inc., an
Ohio corporation


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, President

Float Control, Inc., a
Michigan corporation


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, President

[signatures continue on following pages]

AirNet Management, Inc., an
Ohio corporation


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, President

Fast Forward Solutions, LLC, an
Ohio limited liability company


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, President

timexpress.com, inc. an
Ohio corporation


By:		/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff, President

EX-4.48 4 l18759aexv4w48.htm EX-4.48 EX-4.48

EXHIBIT 4.48

[AirNet Systems, Inc. Letterhead]

March 31, 2006

Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

Re: AirNet Systems, Inc. — Annual Report on Form 10-K for the fiscal year ended December 31, 2005

Ladies and Gentlemen:

AirNet Systems, Inc., an Ohio corporation (“AirNet”), is today filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the “Form 10-K”).

Pursuant to the provisions of Item 601(b)(4)(iii) of Regulation S-K, AirNet hereby agrees to furnish to the Commission, upon request, copies of those instruments and agreements defining the rights of holders of long-term debt of AirNet and of holders of long-term debt of AirNet’s consolidated subsidiaries, which are not being filed as exhibits to the Form 10-K. Such long-term debt does not exceed 10% of the total assets of AirNet and its subsidiaries on a consolidated basis.

Very truly yours,

AIRNET SYSTEMS, INC.

/s/ Gary W. Qualmann

Gary W. Qualmann

Chief Financial Officer, Treasurer and Secretary

EX-10.21 5 l18759aexv10w21.htm EX-10.21 EX-10.21

EXHIBIT 10.21

AMENDMENT NO. 2 TO LAND LEASE

This Amendment No. 2 to Land Lease is made and entered into to be effective as of the 29 day of OCT. , 2004 by and between COLUMBUS REGIONAL AIRPORT AUTHORITY (the “Authority”) and AIRNET SYSTEMS, INC. (“AirNet” or “Tenant”).

Preliminary Statements

	A.		The Authority and AirNet have previously entered into that certain Land Lease at Rickenbacker International Airport dated as of January 20, 2004 (the “Lease”).

	B.		Authority and AirNet executed Amendment #1 to the Lease dated April 5, 2004, to (i) extend the time to complete construction of the Leasehold Improvements and (ii) to permit AirNet to construct a small portion of the Ramp.

	B.		Consistent with the language found in Section I, Paragraph C. “Premises - Size”, of the Lease the Authority and AirNet now desire to amend the Lease to attach a survey identifying the entire Premise occupied by AirNet.

Now, therefore, in consideration of the foregoing and other good and valuable consideration, the Authority and AirNet hereby covenant and agree as follows:

	1.		The Lease is hereby amended by deleting Exhibit B and inserting the attached survey as Exhibit B.

	2.		All references, calculations, obligations, and responsibilities in the Lease that are based on the size of the Premises will now reflect the actual size identified in the survey of 8.648 acres. This includes, but is not limited to: Rent calculations, Taxes and Assessments, Insurance coverage, and liability and indemnity references.

	3.		The parties hereby ratify and confirm the Lease, as the same is modified and amended hereby, and agree to perform and observe all of their obligations and duties under the Lease, as the same is modified and amended hereby.

IN WITNESS WHEREOF, the parties have caused this second Amendment to Lease to be executed by their duly authorized officers to be effective as of the date first above written, regardless of the actual date of execution by either party.

COLUMBUS REGIONAL AIRPORT AUTHORITY


		By:		/s/ Elaine Roberts [CRAA Legal Seal]
				Elaine Roberts, President and CEO

		AIRNET SYSTEMS, INC.

		By:		/s/ Ken Wright
				Kendall Wright, V.P.

STATE OF OHIO
COUNTY OF FRANKLIN SS:

The foregoing instrument was acknowledged before me this 2^nd day of Nov. , 2004 by Elaine Roberts, President and CEO of the Columbus Regional Airport Authority, on behalf of the Authority.


		/s/ Laura J. Morgan

		Notary Public
		[Notary Seal]		LAURA J. MORGAN
				Notary Public, State of Ohio
				My commission expires 9-15-2009

STATE OF OHIO
COUNTY OF FRANKLIN SS:

The foregoing instrument was acknowledged before me this 29^th day of Oct. , 2004 by Kendall Wright, V.P. of AirNet Systems, Inc., an Ohio corporation, on behalf of the corporation.


		/s/ Ann Mancuso

		Notary Public
		[Notary Seal]		ANN MANCUSO
				Notary Public, State of Ohio
				My Commission Expires
				8/30/06

Exhibit B — Survey

DESCRIPTION OF 8.648 ACRES
(LEASE AREA AT RICKENBACKER)

Situate in the State of Ohio, County of Franklin, Township of Hamilton, Section 1, Township 3, Range 22, of the Congress Lands, and being part of 2995.065 acre (Tract 1) as conveyed to Columbus Municipal Airport Authority by deed of record in Instrument Number 200301020000768, and part of a 255.289 acre (Tract 11) as conveyed to Columbus Regional Airport Authority n by deed of record in Instrument Number 20041210015232, all records of the Recorder’s Office, Franklin County, Ohio and being more particularly described as follows:

Begin for reference at an iron pin found in a common line between said 2995.065 acre and 255.289 acre tracts at the intersection with the southerly right-of-way line of Port Road (fka Curtis Lemay Avenue) as designated and delineated on “Dedication of Curtis Lemay Avenue and Alum Creek Drive” of record in Plat Book 76, Page 46;

Thence South 86°09’45” West, a distance of 337.61 feet, along the southerly right-of-way line of said Port Road to a point;

Thence South 03°50’15” West, a distance of 907.18 feet, on, over and across said 2995.065 acre and 255.289 acre tracts to the Point of True Beginning for the herein described tract:

Thence the following nine (9) courses and distances on, over and across the said 2995.065 acre and 255.289 acre tracts:

	1.		South 44°25’19” East, a distance of 122.36 feet, to an iron pin set;

	2.		South 84°10’59” East, a distance of 34.00 feet, to an iron pin set;

	3.		North 45°34’41” East, a distance of 101.68 feet, to an iron pin set;

	4.		South 44°25’19” East, a distance of 478.28 feet, to an iron pin set;

	5.		South 03°42’17” West, a distance of 434.99 feet, to an iron pin set;

	6.		South 45°34’41” West, a distance of 140.07 feet, to an iron pin set;

	7.		North 44°25’19” West, a distance of 976.73 feet, to an iron pin set;

	8.		North 45°34’41” East, a distance of 205.00 feet, to an iron pin set;

	9.		North 69°18’50” East, a distance of 148.08 feet, to the Point of True Beginning, containing 8.648 acres, more or less, (6.310 acres out of the 2995.065 acre Tract 1)

Exhibit B — Survey

and (2.338 acres out of the 255.289 acre Tract 11), being subject to easements, restrictions
and rights-of-way of record.

The bearings in the above description are based on the grid bearing of South 86° 13’ 48” East, between Franklin County Geodetic Survey Monument Number 9958 and Franklin County Geodetic Survey Monument Number 9962.

All iron pin set are ³/4 inch iron pipes, 30 inches in length with a yellow cap bearing the name “R. D. Zande”.


		R.D. ZANDE & ASSOCIATES, INC.
STATE OF OHIO (SEAL) MARK ALAN SMITH S-8232 REGISTERED PROFESSIONAL SURVEYOR
		/s/ Mark Alan Smith

		Mark Alan Smith Date
		Professional Surveyor No. S-8232 10/19/04

Exhibit B — Survey

[Graphic of Survey Identifying Premise occupied by AirNet Systems, Inc.]

EX-10.24 6 l18759aexv10w24.htm EX-10.24 EX-10.24

EXHIBIT 10.24

SUMMARY OF COMPENSATION
FOR DIRECTORS OF
AIRNET SYSTEMS, INC.

Cash Compensation

Directors of AirNet Systems, Inc. (“AirNet”) who are not officers or employees of AirNet (“Non-Employee Directors”) are paid fees for their services as members of the Board of Directors (the “Board”) and as members of Board committees. The Non-Employee Directors of AirNet are James M. Chadwick, Russell M. Gertmenian, Gerald Hellerman, David P. Lauer, Bruce D. Parker and James E. Riddle. The quarterly fee paid during the fiscal year ended December 31, 2005 (the “2005 fiscal year”) and to be paid during the fiscal year ending December 31, 2006 (the “2006 fiscal year”) for serving as a Non-Employee Director has been and remains $6,000. The fee for attending each meeting of the full Board in person was $2,000 during the 2005 fiscal year and continues to be the same amount during the 2006 fiscal year. The fee for attending telephonic meetings of the full Board was $1,000 for each meeting attended during the 2005 fiscal year and remains that amount during the 2006 fiscal year.

The Audit Committee of AirNet’s Board currently consists of David P. Lauer (Chair), James M. Chadwick, Bruce D. Parker and James E. Riddle. Each of Messrs. Lauer, Parker and Riddle also served on the Audit Committee throughout the 2005 fiscal year. Mr. Chadwick was appointed to the Audit Committee effective July 20, 2005.

The Compensation Committee of AirNet’s Board currently consists of James E. Riddle (Chair), Gerald Hellerman, David P. Lauer and Bruce D. Parker. Each of Messrs. Riddle, Lauer and Parker also served on the Compensation Committee throughout the 2005 fiscal year. Mr. Hellerman was appointed to the Compensation Committee effective July 20, 2005.

The Nominating and Corporate Governance Committee of AirNet’s Board currently consists of Bruce D. Parker (Chair), David P. Lauer and James E. Riddle, each of whom also served on such Committee throughout the 2005 fiscal year.

As an officer and employee of AirNet, Joel E. Biggerstaff receives no fees for serving as a director of AirNet.

The directors are reimbursed for out-of-pocket expenses incurred in connection with their service as directors, including travel expenses.

Director Deferred Compensation Plan

Options Granted under Amended and Restated 1996 Incentive Stock Plan

Options Granted under 2004 Stock Incentive Plan

date of his election or appointment to the Board. In accordance with the terms of the 2004 Plan, on July 20, 2005, each of James M. Chadwick and Gerald Hellerman was automatically granted an option to purchase 20,000 common shares with an exercise price of $4.26, the fair market value of the underlying common shares on the grant date.

EX-10.25 7 l18759aexv10w25.htm EX-10.25 EX-10.25

EXHIBIT 10.25

SUMMARY OF AIRNET SYSTEMS, INC. 2005 INCENTIVE COMPENSATION PLAN

On February 2, 2005, the Board of Directors (the “Board”) of AirNet Systems, Inc. (“AirNet”), upon the recommendation of the Compensation Committee, adopted the 2005 Incentive Compensation Plan (the “2005 Incentive Plan”). The Compensation Committee and the Board subsequently approved clarifications and modifications to the 2005 Incentive Plan on March 8, 2005 and March 29, 2005. As discussed further below, on August 9, 2005, the Board, upon the recommendation of the Compensation Committee, adopted amendments and clarifications to the 2005 Incentive Plan to address the possibility that a transaction for the sale of AirNet would be consummated prior to the end of the fiscal year ended December 31, 2005 (the “2005 fiscal year”). On November 20, 2005, the Board, upon the recommendation of the Compensation Committee, ratified a change to the 2005 Incentive Plan to address the impact of the non-cash impairment charge recorded by AirNet in the third quarter of the 2005 fiscal year in determining pre-tax income (as determined under the terms of the 2005 Incentive Plan) for the 2005 fiscal year.

The purpose of the 2005 Incentive Plan was to promote the following goals of AirNet for the 2005 fiscal year by providing incentive compensation to certain employees of AirNet and its subsidiaries:

	•		Exceeding budgeted pre-tax income (as determined under the terms of the 2005 Incentive Plan);

	•		Reducing fixed costs;

	•		Creating and executing contingency plans for changes in AirNet’s Bank business;

	•		Refining AirNet’s business plan for its Express and Jetride businesses to more quickly and profitably diversify AirNet;

	•		Developing AirNet’s leadership team; and

	•		Meeting high priority deadlines related to compliance with the Sarbanes-Oxley Act of 2002 and other key projects.

During the 2005 fiscal year and the fiscal quarter ending March 31, 2006, AirNet made payments under the terms of the 2005 Incentive Plan in the aggregate amount of approximately $1.6 million. In March of 2006, the executive officers of AirNet were paid the following amounts under the 2005 Incentive Plan: Joel E. Biggerstaff - $250,000; Jeffery B. Harris — $190,250; Gary W. Qualmann — $148,000; Larry M. Glasscock, Jr. - $141,125; Wynn D. Peterson — $106,438 ($60,000 in respect of the six-month period ended June 30, 2005; $46,438 in respect of the six-month period ended December 31, 2005); Craig A. Leach - $72,000; and Ray L. Druseikis - $29,000 (became a participant effective July 1, 2005 following his election as an executive officer of AirNet and employment with AirNet effective June 30, 2005.)

EX-10.29 8 l18759aexv10w29.htm EX-10.29 EX-10.29

Exhibit 10.29

Adoption of 2006 Incentive Compensation Plan

On March 24, 2006, the Board of Directors of AirNet, upon the recommendation of the Compensation Committee, adopted the 2006 Incentive Compensation Plan (the “2006 Incentive Plan”).

	•		Attaining designated levels of pre-tax income;

	•		Improving cash flow and reducing debt;

	•		Defining and executing plans to offset expected declines in Bank Services revenues;

	•		Reducing the fixed cost structure of AirNet; and

	•		Meeting high priority deadlines of AirNet.

The Compensation Committee may amend, modify or terminate the 2006 Incentive Plan at any time.

EX-21 9 l18759aexv21.htm EX-21 EX-21

EXHIBIT 21

SUBSIDIARIES OF AIRNET SYSTEMS, INC.


Name of Subsidiary		State or Jurisdiction of Incorporation or Formation
Float Control, Inc.		Michigan
AirNet Management, Inc.		Ohio
Jetride, Inc.		Ohio
Fast Forward Solutions, LLC		Ohio
time express.com, inc.		Ohio
AirNet Systems Inc.		Ontario, Canada

EX-23 10 l18759aexv23.htm EX-23 EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Forms 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 and the Registration Statement (Form S-8 No. 333-116827) pertaining to the AirNet Systems, Inc. 2004 Stock Incentive Plan of our report dated March 3, 2006, except for Note 4 as to which the date is March 28, 2006, with respect to the consolidated financial statements and financial statement schedule of AirNet Systems, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Columbus, Ohio
March 29, 2006

EX-24 11 l18759aexv24.htm EX-24 EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and 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, 2005, hereby constitutes and appoints Gary W. Qualmann 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 financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American 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 his 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 31^th day of March, 2006.


		/s/ Joel E. Biggerstaff

		Joel E. Biggerstaff

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer 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, 2005, 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 financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American 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 his 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 31^th day of March, 2006.


		/s/ Gary W. Qualmann

		Gary W. Qualmann

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer 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, 2005, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann 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 financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the American 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 substitute or substitutes, may lawfully do or cause to be done by virtue hereof.