<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-27197
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROFLIGHT MEDICAL RESPONSE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
COLORADO 4522 84-1200480
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
7211 S. PEORIA STREET,
ENGLEWOOD, COLORADO 80112
(800) 949-5387
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
7211 S. PEORIA STREET,
ENGLEWOOD, COLORADO 80112
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
------------------------
KEVIN L. BURKHARDT
7211 S. PEORIA STREET, ENGLEWOOD, COLORADO 80112
(800) 949-5387
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPY OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
GERALD A. ADLER, ESQ. LAWRENCE G. NUSBAUM, ESQ.
MARY P. O'HARA, ESQ. GUSRAE, KAPLAN & BRUNO
BONDY & SCHLOSS LLP 120 WALL STREET
6 EAST 43RD ST., 25TH FLOOR NEW YORK, NY 10005
NEW YORK, NY 10017 PH: (212) 269-1400
PH: (212) 661-3535 FAX: (212) 809-5449
FAX: (212) 972-1677
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
PROSPECTUS
PROFLIGHT MEDICAL RESPONSE, INC.
1,019,200 SHARES OF COMMON STOCK AND
1,019,200 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Proflight Medical Response, Inc., a Colorado corporation (the 'Company'),
hereby offers (the 'Offering') 1,019,200 shares of common stock, $.001 par value
(the 'Common Stock') of the Company and 1,019,200 Redeemable Common Stock
Purchase Warrants (the 'Warrants'). The initial public offering prices of the
Common Stock and Warrants are $6.50 and $.10, respectively. The Offering is
being offered through First Liberty Investment Group, Inc. (the
'Representative'), as representative of the several underwriters (collectively,
the 'Underwriters'). See 'Underwriting.' The Common Stock and the Warrants
offered hereby (sometimes hereinafter collectively referred to as the
'Securities') will be separately tradeable immediately upon issuance and may be
purchased separately. Investors will not be required to purchase shares of
Common Stock and Warrants together or in any particular ratio. Each Warrant
entitles the holder to purchase one share of Common Stock at an exercise price
of $8.00 (the 'Exercise Price'), subject to adjustment, for five years
commencing twenty-four months from the date of this Prospectus (provided
that with the prior written consent of the Underwriter, the Warrants may be
exercised commencing twelve months from the date hereof).
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.10 per Warrant, commencing twenty-four (24) months after the date hereof
(provided that with the prior written consent of the Representative, the
Warrants may be redeemed commencing twelve (12) months from the date hereof) and
prior to the expiration, provided that (i) prior written notice of not less than
thirty (30) days is given to the Warrantholders, and (ii) the closing bid price
of the Company's Common Stock for the twenty (20) consecutive trading days
immediately prior to the date on which the notice of redemption is given, shall
have exceeded $12.75 per share. Notwithstanding the foregoing, Warrantholders
shall have exercise rights until the close of business the day preceding the
date fixed for redemption.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. There can be no assurance that a public market will
develop or be sustained for such securities after the completion of the
Offering. The offering prices of the Common Stock and the Warrants, exercise
price and other terms of the Warrants were established by negotiations between
the Company and the Representative and do not necessarily bear any direct
relationship to the Company's assets, earnings, book value, results of
operations or any other generally accepted criteria of value. The Company has
received a conditional approval for listing of the Common Stock and the Warrants
on the Nasdaq SmallCap Market'sm' under the trading symbols 'PFLT' and 'PFLTW.'
See 'Risk Factors' and 'Underwriting.'
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE
LOSS OF HIS OR HER ENTIRE INVESTMENT. SEE 'RISK FACTORS' BEGINNING ON PAGE 9 OF
THIS PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
===============================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(1) COMPANY(2)(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................................................................... $6.50 $0.65 $5.85
Per Warrant.................................................................... $.10 $.01 $.09
Total(3)....................................................................... $6,726,720 $672,672 $6,054,048
===============================================================================================================================
</TABLE>
(1) Does not include (i) an option issued to the Representative (the
'Representative's Option') to purchase 101,920 shares of Common Stock at
$10.75 per share and 101,920 Warrants at a price of $.12 per Warrant
exercisable at $13.25 per share, (ii) a non-accountable expense allowance
payable to the Representative equal to 3% of the gross proceeds of the
Offering, (iii) a consulting agreement providing for fees totalling
$120,000 payable in full to the Representative on the Closing Date and
(iv) a 5% commission on Warrants exercised through the Representative. The
Representative's Option is exercisable for a period of four years commencing
one year after the date of this Prospectus. The Company has agreed to
indemnify the Representative against, or contribute to losses arising out
of, certain liabilities, including liabilities under the Securities Act of
1933, as amended. See 'Underwriting.'
(footnotes continued on following page)
FIRST LIBERTY INVESTMENT GROUP, INC.
------------------------
, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) After deducting underwriting discounts and commissions, but before deducting
estimated Offering expenses of $476,802 in the aggregate, which includes the
Representative's non-accountable expense allowance all of which are payable
by the Company. See 'Underwriting.'
(3) The Securities are being sold on a 'firm commitment' basis. The Company has
granted the Representative an option, exercisable during the 45-calendar-day
period after the date hereof, to purchase, at the initial public offering
price less underwriting discounts, up to an additional 152,880 shares of
Common Stock and 152,880 Warrants, on the same terms as offered hereby,
solely to cover over-allotments, if any (the 'Over-Allotment Option'). If
the Over-Allotment Option is exercised in full, the Total Price to the
Public will be $7,735,728, Underwriting Discount and Commissions will be
$1,005,644, and the Proceeds to the Company will be $6,730,084, before
deducting estimated offering expenses payable by the Company. See Note (2)
above and 'Underwriting.'
------------------------
The Securities are being offered by the Underwriters, as agents for the
Company, subject to prior sale, when, as and if accepted by them and subject to
certain legal matters to be approved by counsel and to certain other conditions.
The Company and the Representative reserve the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements of the Company, after the end of each
fiscal year, and make available such other periodic reports as the Company may
deem appropriate or as may be required by law.
A SIGNIFICANT AMOUNT OF THE COMMON STOCK AND WARRANTS MAY BE SOLD TO
CUSTOMERS OF THE UNDERWRITERS. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE
SALE OR PURCHASE OF THE COMMON STOCK OR WARRANTS THROUGH OR WITH ONE OR MORE OF
THE UNDERWRITERS. ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITERS MAY
BECOME MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN SECURITIES OF THE
COMPANY, AND, IF THEY PARTICIPATE IN SUCH MARKET ACTIVITIES, MAY BE A DOMINATING
INFLUENCE IN THE TRADING OF THE COMMON STOCK AND WARRANTS. THE PRICES AND THE
LIQUIDITY OF THE COMMON STOCK AND WARRANTS MAY BE SIGNIFICANTLY AFFECTED BY THE
DEGREE, IF ANY, OF THE PARTICIPATION OF THE UNDERWRITERS IN SUCH MARKET, SHOULD
A MARKET ARISE.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including the financial
statements and notes thereto, appearing elsewhere in this Prospectus. All share
and per share amounts reflect a .667-for-one reverse stock split effective April
1998 and a fifty-for-one and a 3.85356-for-one forward stock split effective
July 1996 and January 1996, respectively, of the Company's issued and
outstanding Common Stock. In December 1996, the Company contracted to acquire
all of the outstanding shares of capital stock of (i) Air Response, Inc., a New
York corporation ('Air Response') in a stock-for-stock exchange and (ii) Air
Response South, Inc., a Florida corporation ('Air Response South'), for cash.
Each of these corporations provides fixed wing air ambulance services. These
agreements were amended in April and May 1997 and in March 1998. Pursuant to the
terms of these agreements, such acquisitions will close simultaneously with the
closing of this Offering. Unless the context otherwise requires, the term 'the
Company' includes Air Response and Air Response South. Except where otherwise
indicated, all information in this Prospectus assumes no exercise of the
Representative's Over-Allotment Option or Representative's Option. Each
prospective investor is urged to read this Prospectus in its entirety.
THE COMPANY
The Company is a national and international provider of fixed wing air
ambulance transport services for persons who are ill, injured or otherwise
incapacitated who need to be relocated and who may require emergency medical
care during flight. The Company currently operates from its main facility
located in Colorado, and has bases in New York and Kentucky. The Company
provides its services throughout the United States, Canada, Europe, Mexico,
Central America, South America, Bermuda and the Mediterranean. In addition, the
Company, when operating at full capacity, has subcontracted its services by
brokering its air ambulance trips to other air transport providers. For the year
ended December 31, 1997 and the three months ended March 31, 1998, the Company,
including Air Response and Air Response South, had pro forma net sales of
approximately $12.7 million and $2.9 million, respectively.
As of the date hereof, the Company has an air ambulance fleet of 11 fixed
winged aircraft. The Company provides transport services in connection with the
relocation of patients requiring specialized medical procedures such as organ
transplants, cancer treatment, specialized cardiac surgery, burn care, stroke
care and advanced head and spinal cord surgery and rehabilitation to hospitals
recognized as national centers of excellence in these fields, for the
repatriation of patients who are injured or become ill away from home and in
connection with the transportation of non-ambulatory long-term care patients who
need to be relocated. The flights operated are on a non-emergency basis and are
generally long distance in nature. Emergency flights are usually contracted to
helicopters and such flights are generally short distances. The Company's
customers include individual patients, managed care companies, hospitals,
government agencies, national health insurance companies, health maintenance
organizations ('HMOs') and air ambulance brokers.
The Company believes that the need for non-emergency ambulance transport
services will increase as pressure on the health insurance industry to reduce
costs increases. The Company believes that it can capitalize on this market. The
Company believes that the fixed wing segment of the medical air transport
industry will grow as hospital consolidation produces regional health networks
responsible for patients spread over a greater geographic area. The Company also
believes, although no assurance can be given, that relocating patients with
specialized needs to hospitals recognized as national centers of excellence and
which have pricing agreements with insurers and HMOs will increase as a way to
provide high quality, cost effective health care. The fixed wing air ambulance
market is currently served by a number of small, regional companies lacking a
national presence and the ability to serve an insurance company or HMO on a
national basis. The Company believes that through the acquisitions of Air
Response and Air Response South (the 'Acquisitions') and by implementing its
business strategy, it will begin to establish a national presence while
continuing to ensure that patients receive the highest quality care. The
Company's beliefs in this paragraph are based upon management's experience and
an independent research report by Wintergreen Research, Inc., copyright 1995,
entitled 'Fixed Wing Air Medical Transport Market, 1991 - 2000.' No assurance
can be given that such beliefs will be realized or are predictive of future
developments. No assurance can be given that the facts, predictions or the
independent research report upon which such beliefs are premised are accurate.
3
<PAGE>
<PAGE>
The Company's business strategy over the next 24 months is to attempt to
become a leading national provider of fixed wing air ambulance services by:
Improving the efficiency of its existing operations by integrating the
operations of Air Response and Air Response South into the Company and by
providing additional management expertise, recognizing economies of scale,
introducing sophisticated operating systems and controls, instituting a
centralized dispatching function and providing a stronger, more stable
capital base.
Implementing strategic acquisitions of other air ambulance service
providers. The Company believes that opportunities exist to acquire
additional air ambulance service providers in the future that would
benefit from the efficiency, as well as the capital and management
resources of the Company. The Company regularly evaluates acquisition
possibilities and considers a number of factors in evaluating such
acquisition candidates, including the quality of management and medical
personnel, historical operating results, the demographic characteristics
of service areas, the regulatory environment in which such company
operates and the fee structure and reimbursement levels. In addition, by
combining existing companies, the Company hopes it will be able to deliver
fixed wing air ambulance services to insurance companies and other health
care providers at cost effective rates. Except as otherwise described in
this Prospectus, there are no present negotiations, arrangements or
understandings with respect to any potential material acquisitions.
Increasing its market share and expanding its operations by contracting
with insurers and HMOs seeking an air ambulance provider with national and
international capabilities and by appealing to individual consumers
through a prepaid service package. No assurances can be given that the
Company will be able to successfully negotiate additional contracts with
such parties on favorable terms, if at all, or otherwise expand its
operations.
The Company's senior management has extensive experience in the air
ambulance transport services business. Kevin L. Burkhardt, the Company's Chief
Executive Officer and President, has over 10 years experience in the air
ambulance industry and over 20 years experience in the aviation industry,
including experience as captain, flight instructor and corporate pilot. Jane S.
Burkhardt, the Company's Secretary and medical and legal coordinator, received
her B.S. degree in nursing in 1981 from the University of Wisconsin and her JD
degree in 1990 from St. Louis University Law School. Mrs. Burkhardt has over 14
years experience in the nursing industry and was a registered nurse and risk
manager for Presbyterian/St. Lukes Medical Center. Donald Jones will, upon
closing of the Offering, serve as the Company's Vice President of Sales and a
Director of the Company. Mr. Jones has over 13 years experience in the air
ambulance industry, including experience as flight coordinator, and director of
marketing and sales. David Cohen, the Company's Chief Financial Officer and
Treasurer, has over 30 years of management and financial experience. Mr. Cohen
was the chief financial officer of Air Resources Corp., a public company which
manufactures adhesives and held various senior management positions for two
aircraft sales corporations.
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
further amended in May 1997 and January, March and May 1998, pursuant to which
the Company agreed to acquire at the closing of the Offering, subject to the
terms and conditions contained therein, all of the outstanding capital stock of
Air Response in exchange for 496,154 shares of Common Stock of the Company to be
issued two years from the date hereof. If the Company completes a second public
offering, Mr. Capece has a put option to sell to the Company such number of
shares of Common Stock at the then current market value, which value shall be
equal to 20% of the net proceeds of such offering not to exceed $1,000,000.
Under the terms of the put option, the Company is obligated to purchase such
shares once the put option is exercised. The Company simultaneously entered into
an Amended Stock Purchase and Sale Agreement with Air Response South and Louis
R. Capece, Jr., which was further amended in each of January, March and May
1998, pursuant to which the Company agreed to acquire at the closing of the
Offering, subject to the terms and conditions contained therein, all of the
outstanding capital stock of Air Response South for $800,000 which is payable
upon closing of the Offering. The Company has also agreed to issue to Donald
Jones, a principal of Air Response and Air Response South, 76,924 shares on the
closing date of the Offering as a bonus under his employment agreement. See
'Employment Agreements.'
4
<PAGE>
<PAGE>
The Company was incorporated in May 1992. The Company's executive offices
are located at 7211 S. Peoria St., Englewood, CO 80112 and its telephone number
is (800) 949-5387.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered......................... 1,019,200 shares(1)
Redeemable Common Stock Purchase Warrants
Offered.................................... 1,019,200 Warrants(1)
Common Stock Outstanding Before the
Offering................................... 1,784,350 shares(1)(2)
Common Stock Outstanding After the
Offering................................... 2,803,550 shares(1)(2)
Warrants Outstanding Before Offering......... -0-
Warrants Outstanding After Offering.......... 1,019,200 Warrants(1)(3)
Exercise Terms.......................... Each Warrant entitles the holder to purchase one share of Common
Stock for $8.00, during the three (3) year period commencing
twenty-four (24) months from the date hereof (provided that with
the express prior written consent of the Underwriter, the Warrants
may be exercised twelve (12) months from the date hereof), subject
to adjustment in certain circumstances. See 'Description of
Securities -- Warrants.'
Expiration Date......................... , 2003 (five years after the date hereof).
Redemption.............................. The Warrants are redeemable by the Company, in whole or in part,
at a price of $.10 per Warrant, commencing twenty four (24) months
after the date hereof (provided that with the prior written
consent of the Representative, the Warrants may be redeemed
commencing twelve (12) months from the date hereof) upon not less
than thirty (30) days prior written notice to the holders of such
Warrants, provided that the closing bid price (as defined in the
Warrant Agreement) of the Company's Common Stock for the twenty
(20) consecutive trading days immediately prior to the date on
which the notice of redemption is given, shall have exceeded
$12.75 per share.
Use of Proceeds.............................. The net proceeds from the Offering will be used to pay the first
payment in connection with the acquisition of Air Response South,
to repay indebtedness incurred in connection with the Company's
bridge financing and certain short term notes, to fund costs
relating to its expansion strategy and for general corporate
purposes, including working capital. See 'Use of Proceeds.'
Risk Factors................................. An investment in the Securities offered hereby involves a high
degree of risk and immediate and substantial dilution to the
public investors. See 'Risk Factors' and 'Dilution.'
Proposed Trading Symbols(4):
Nasdaq SmallCap Market'sm'
Common Stock............................ PFLT
Warrants................................ PFLTW
</TABLE>
(footnotes on next page)
5
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Does not include 152,880 shares of Common Stock or 152,880 Common Stock
Purchase Warrants that may be sold by the Company pursuant to the
Underwriter's Over-Allotment Option.
(2) Does not include: (i) 350,000 shares of Common Stock reserved for issuance
under the Company's stock option plan; (ii) 496,154 shares of Common Stock
which will be issued to Louis R. Capece, Jr., in connection with the
acquisition of Air Response, two years from the closing of the Offering,
(iii) 76,924 shares of common stock which will be issued to Don Jones at the
closing of the Offering, (iv) 1,019,200 shares reserved for issuance upon
exercise of the Warrants offered hereby; (v) 700,350 shares reserved for
issuance upon exercise of other outstanding options; and (vi) 101,920 shares
of Common Stock and 101,920 Common Stock Purchase Warrants issuable upon
exercise of the Representative's Option, including 101,920 shares of Common
Stock issuable upon exercise of the Common Stock Purchase Warrants which are
included in and issuable upon exercise of the Representative's Option; (vii)
152,880 shares of Common Stock and 152,880 Common Stock Purchase Warrants
issuable upon exercise of the Representative's Over-Allotment Option; (viii)
6,670 shares of Common Stock to be issued to an Officer at the closing of
the Offering; and (ix) 250,000 shares returned by a shareholder before the
Offering. See 'Management -- Stock Option Plan,' 'Certain Transactions,'
'Description of Securities' and 'Underwriting.'
(3) Does not include Representative's Options or the 101,920 Warrants issuable
upon exercise thereof.
(4) The Company has received tentative approval to have the Common Stock and
Warrants approved for quotation on the Nasdaq SmallCap Market'sm', subject
to compliance with requests for documentation and payment of the listing
fee, and believes it will meet the initial listing requirements upon
consummation of the Offering. There is no assurance that, if listed, it will
be able to satisfy the criteria for continued quotation on the Nasdaq
SmallCap Market'sm' following the Offering. See 'Risk Factors -- Listing and
Continued Quotation on the Nasdaq SmallCap Market.'sm'
6
<PAGE>
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical financial data of (i)
Proflight for the years ended December 31, 1997 and 1996 and for the three
months ended March 31, 1998 and 1997 and (ii) Air Response and Air Response
South for the years ended December 31, 1997 and 1996 and for the three months
ended March 31, 1998 and 1997. The historical financial data for the years ended
December 31, 1997 and 1996 are derived from the audited financial statements of
Proflight, Air Response and Air Response South. The financial statements of
Proflight have been audited by Grant Thornton LLP, independent certified public
accountants, whose report thereon has been modified to include an explanatory
paragraph which refers to various matters which raise substantial doubt about
Proflight's ability to continue as a going concern and are included elsewhere in
this Prospectus. The combined financial statements of Air Response and Air
Response South for the years ended December 31, 1997 and 1996 have been audited
by Staff Ciampino & Company, P.C., independent certified public accountants,
which statements are included elsewhere in this Prospectus. The summary
historical financial data should be read in conjunction with the financial
statements and notes thereto of Proflight, Air Response and Air Response South
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus. The financial data for
Proflight, Air Response and Air Response South for the three months ended March
31, 1998 and 1997 are unaudited, but, in the opinion of management of the
respective companies, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair representation of results for all
interim periods. The operating results for interim periods are not necessarily
indicative of results for the full fiscal year. The following table also sets
forth pro forma financial data of the Company as if the Acquisitions (which will
close simultaneously with the closing of this Offering) had occurred as of March
31, 1998 for balance sheet results and as of January 1, 1998 for operating data.
The pro forma financial data was derived from the unaudited pro forma financial
statements appearing elsewhere in this Prospectus. The summary pro forma
financial data should be read in conjunction with the Company's pro forma
financial statements and the notes thereto. The pro forma balance sheet data as
of March 31, 1998 and the pro forma statement of operations for the year ended
December 31, 1997 and three months ended March 31, 1998 are unaudited, but, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of pro forma results of operations. The pro forma operating results
are not necessarily indicative of the Company's future results of operations.
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THE COMPANY AIR RESPONSE AND AIR RESPONSE SOUTH
------------------------------------------------- -------------------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
----------------------- ----------------------- ----------------------- -----------------------
1998 1997 1997 1996 1998 1997 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Historical:
Net sales............. $1,340,022 $2,045,534 $5,644,799 $3,906,211 $2,577,377 $1,936,190 $8,783,037 $7,658,243
Flying operations and
maintenance......... 868,936 993,165 3,964,831 3,222,539 1,630,749 1,217,167 5,840,403 4,875,505
Promotion and sales... 47,880 33,488 69,985 34,584 130,183 125,272 492,331 447,061
General,
administrative
expense............. 313,513 238,010 1,406,483 650,036 416,701 339,814 1,885,940 1,538,761
Depreciation and
amortization........ 63,387 111,375 488,867 377,930 141,103 80,600 311,554 396,139
Profit (loss) from
operations.......... 46,306 669,496 (285,367) (378,878) 258,641 173,337 252,809 400,777
Interest expense...... 100,271 103,352 415,343 287,188 114,744 31,910 189,242 136,148
Other income
(expense)........... -- -- 25,000 34 -- (5,359) (43,063) (349,590)
Income tax benefit
(provision)......... -- -- -- -- (18,942) (36,317) 85,222 38,747
Extraordinary
income.............. -- -- -- -- 152,475 -- -- --
Net income (loss)..... (53,965) 566,144 (675,710) (666,032) 277,430 99,751 105,726 (46,214)
</TABLE>
7
<PAGE>
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Pro Forma Operating Data:
Net sales.................................................... $2,921,839 $12,712,990
Flying operations and maintenance............................ 1,760,075 8,090,388
Promotion and sales.......................................... 178,063 562,316
General and administrative expense........................... 730,214 3,292,423
Depreciation and amortization................................ 271,449 1,068,256
Total operating expense...................................... 2,939,801 13,013,383
Operating income (loss)...................................... (17,962) (300,393)
Other expense................................................ 215,015 622,648
Income tax (benefit)......................................... (33,489) (85,222)
Net income (loss)............................................ (199,488) (837,819)
Per share data:
Net loss..................................................... $ (0.09)(1)(2) $ (0.35)(1)(2)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
ACTUAL(3) PRO FORMA(4) AS ADJUSTED(5)
----------- ------------ --------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit).................................. $(1,339,062) $(3,025,877 ) $ 2,551,369
Total assets............................................... 1,667,972 11,013,530 15,613,981
Long term obligations...................................... 666,321 4,732,567 4,732,567
Accumulated (deficit)...................................... (840,680) (840,680 ) (1,384,041)
Stockholders' equity (deficit)(2).......................... (807,303) 2,417,697 7,910,148
</TABLE>
- ------------
(1) Based on 2,280,504 outstanding shares of Common Stock for the 3 months ended
March 31, 1998 and 2,382,747 shares for the year ended December 31, 1997
which do not include (i) 1,019,200 shares of Common Stock offered hereby,
(ii) the 1,019,200 shares of Common Stock underlying the Warrants; (iii)
6,670 shares of Common Stock being offered to an officer as a bonus at the
closing of the Offering, or (iv) 76,924 shares of Common Stock to be issued
to Don Jones pursuant to his employment agreement at the completion of the
Offering.
(2) All per share and equity data have been adjusted to reflect the .667-for-1
reverse split of the Company's Common Stock effective as of April 16, 1998.
(3) Represents Proflight, before giving effect to the Acquisitions or the
Offering.
(4) After giving effect to the Acquisitions.
(5) The as adjusted pro forma data gives effect to the Acquisitions, the sale of
1,019,200 shares of Common Stock and 1,019,200 Warrants offered hereby and
the application of the net proceeds.
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RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. Prior to making any investment decision, prospective investors should
carefully consider the following risk factors together with the other
information presented in this Prospectus including the financial statements (and
notes thereto).
HISTORY OF LOSSES; ACCUMULATED DEFICIT; NO HISTORY OF COMBINED OPERATIONS.
Proflight reported net losses for the year ended December 31, 1997 of $675,710
and for the year ended December 31, 1996 of $666,032. Air Response and Air
Response South, on a combined basis, reported a net profit of $105,726 and a net
loss of $46,214 for the years ended December 31, 1997 and 1996, respectively. On
a pro forma basis, after giving effect to the Acquisitions, the Company would
have had a net loss for the year ended December 31, 1997 of $837,819, and for
the three months ended March 31, 1998, a net loss of $199,488. As of December
31, 1997, Proflight had an accumulated deficit in stockholders' equity of
$753,338 and a working capital deficiency of $3,226,040. On a pro forma basis,
after giving effect to the Acquisitions, at March 31, 1998 the Company would
have had total stockholders equity of $2,471,662. In addition, as of March 31,
1998, Proflight had an accumulated deficit in stockholders' equity of $2,417,697
and a working capital deficiency of $3,025,877. For the year ending December 31,
1998, the Company may incur additional losses which may be substantial as a
result of, among other things, its expansion strategy. There can be no assurance
that the Company's operations will be profitable in the future or if achieved,
that such profitability will be sustained. The Company will consummate the
Acquisitions on closing of the Offering, and to date, each of the companies has
been operating as a separate, independent entity. The Company's profitability
will depend upon, among other factors, the ability of its management to
integrate these entities into a single cohesive business entity with a single
business philosophy. There can be no assurance that the Company's management
will be successful in managing the combined operations or in implementing the
Company's business strategy. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
MODIFICATION OF AUDITOR'S OPINION; GOING CONCERN. Proflight's independent
accountants have included an explanatory paragraph in their report on
Proflight's audited financial statements at December 31, 1997 and 1996, which
states that Proflight has accumulated a deficit in stockholders' equity of
$753,338 through December 31, 1997 and total current liabilities exceed total
current assets by approximately $3,226,040 as of December 31, 1997, all of which
raise substantial doubt about Proflight's ability to continue as a going
concern. In addition, the unaudited condensed financial statements at March 31,
1998 state that Proflight had a deficit in stockholders' equity of $807,303 and
that total current liabilities exceed current assets by approximately
$1,339,062. See 'Financial Statements and Report of Independent Certified Public
Accountants' included elsewhere in this Prospectus.
EXPANSION STRATEGY; DEPENDENCE ON REVENUES FROM ACQUISITION TARGETS; NO
ASSURANCE OF COMPLETION OF PROPOSED ACQUISITIONS. The Company's success will
depend, in large measure, upon management's ability to successfully implement
its business strategy to expand the Company's operations and enhance its
national and international presence by improving the efficiency of its existing
operations including integrating the operations of Air Response and Air Response
South, implementing strategic acquisitions of other air ambulance service
providers and increasing its market share by contracting with insurers and HMOs.
In addition, the Company's success will depend upon revenues generated by Air
Response and Air Response South as well as any future acquisition targets. The
Company currently has no agreements or understandings, nor is it engaged in any
negotiations with respect to any acquisitions other than those contemplated
herein with Air Response and Air Response South. The Company has a contract with
Aetna Health Management, Inc. ('Aetna') to provide air transport services. The
Company's contract with Aetna does not guarantee any specific amount of
revenues. For the year ended December 31, 1997, Aetna represented 7.5% of the
Company's revenues. However, the Company does not have any other agreements with
insurers or HMOs. There can be no assurance that the proposed acquisitions with
Air Response and Air Response South will be completed or, if completed, will be
successful. There can be no assurance that suitable growth opportunities or
acquisitions or strategic alliances can be identified, consummated or
successfully implemented or that the Company's expansion strategy will result in
profitability. See 'Dependence on Major Customers.'
RISKS ASSOCIATED WITH ACQUISITIONS. The Company is not currently
considering, nor are there any agreements, negotiations or understandings
involving the Company with respect to, the acquisition of
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any business (other than those of Air Response and Air Response South discussed
elsewhere in this Prospectus) or entering into a joint venture with any other
business, individual or other entity. From time to time in the future, the
Company may enter into negotiations with respect to potential acquisitions or
joint ventures, some of which may result in preliminary agreements. In the
course of such negotiations and/or due diligence, these negotiations and/or
preliminary agreements may be abandoned or terminated, and the Company may incur
significant transaction expenses (such as legal and accounting fees) despite the
abandonment or termination of such negotiation or agreement.
NEED FOR ADDITIONAL FINANCING. The Company anticipates that the proceeds
from the Offering, together with projected cash flow from operations, will be
sufficient to fund its operations, including its proposed expansion, for at
least the next 12 months. However, there can be no assurance that events
affecting the Company's operations will not result in the Company depleting its
funds before that time. The Company may need to raise additional funds to
continue to implement its expansion strategy. There can be no assurance that
additional financing will be available, or, if available, that such financing
will be on terms favorable to the Company. Failure to obtain such additional
financing could have a material adverse effect on the Company. The Company
anticipates issuing additional securities to fund its expansion, either to raise
capital to fund internal growth or as principal consideration for acquisitions.
There can be no assurance that the Company will be able to successfully finance
its expansion or that the Company's securities will be acceptable consideration
to acquisition candidates. The failure of the Company to successfully implement
its expansion strategy may negatively impact the Company's competitive position
and its future results of operations. See 'Use of Proceeds,' 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and the Company's financial
statements and notes thereto.
PROCEEDS FOR ACQUISITION PAYMENT AND DEBT REPAYMENT; BROAD DISCRETION IN
APPLICATION OF PROCEEDS. Approximately 30% of the net proceeds of this Offering
will be used to pay the first payment in connection with the acquisition of Air
Response South and to repay certain short term notes and to repay the bridge
lenders. Approximately $835,246 (14.9%) of the net proceeds of this Offering
will be used for general corporate purposes, including working capital.
Accordingly, management will have broad discretion over the use of such
proceeds. In addition, approximately, $970,000 (17.4%) of the proceeds will be
used to make payments to affiliates of the Company. See 'Use of Proceeds' and
'Certain Transactions.'
GOVERNMENTAL REGULATION. The Company is subject to governmental regulation
at the federal and state levels. At the federal level, the Company is subject to
regulation by the Federal Aviation Administration ('FAA') and the Occupational
Safety and Health Administration ('OSHA'). The FAA regulations are primarily
related to flight safety issues, and to govern flight operating procedures,
aircraft and equipment standards, maintenance and inspections, flight crew
standards, training and limitations, weather requirements and record keeping
requirements. The OSHA regulations are primarily designed to protect the
employees of the Company. Certain of the states in which the Company operates
regulate various aspects of its business. The Company's business is subject to
state requirements including, business licenses, training and certification of
medical personnel, the scope of services that may be provided by medical
personnel, staffing requirements, medical control and procedures. Applicable
federal and state laws and regulations are subject to change. Any changes could
adversely affect the Company's operations as well as the air ambulance business
in general. The Company believes, based upon management's experience, that it is
in substantial compliance with all regulatory requirements applicable to its
business. The failure to be in compliance with any applicable governmental
regulations could adversely affect the business, financial condition or results
of operations of the Company. See 'Business -- Governmental Regulation.'
POSSIBLE ADVERSE CHANGES IN REIMBURSEMENT RATES OR COVERAGE; MEDICARE,
MEDICAID AND HEALTH CARE REFORM. A substantial portion (approximately 18% for
the year ended December 31, 1997) of the Company's revenue is attributable to
payments received from third-party payors, including Medicare, Medicaid, HMOs,
state-run insurance pools and private insurers. The revenue, cash flow and
profitability of the Company, like those of other companies in the health care
industry, will be affected by the continuing efforts of third-party payors to
control expenditures for health care. In addition, reimbursement can be
influenced by the financial instability of private third-party payors and by
budget
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<PAGE>
pressures and cost shifting by governmental payors. With regard to Medicare and
Medicaid reimbursement, Congress has consistently attempted to curb federal
spending on these programs. The Company cannot predict whether any health care
or Medicare or Medicaid reform measures will be enacted, and if they are
enacted, what effect they may have on the Company's business. No assurances can
be given that future funding and reimbursement levels will be favorable to the
Company. A reduction in coverage or reimbursement rates by third-party payors,
whether in the private or government sector, could have a material adverse
effect on the Company's business, financial condition or results of operations.
LIABILITY INSURANCE. The Company's air ambulance operations involve the
risks of potential liability incurred by the Company in the event of, among
other things, accidents involving the Company's airplanes and medical
malpractice. The Company maintains aircraft insurance with a maximum liability
per occurrence of up to $20,000,000 along with hull coverage (similar to auto
collision insurance) for the value of the aircraft. The annual premiums cost
approximately $15,000 per jet aircraft and $7,000 per piston aircraft. In
addition, the Company carries medical liability insurance in the amount of
$1,000,000 per claim and $3,000,000 in the aggregate per incident with an annual
premium of approximately $19,000. Although the Company currently maintains
insurance coverage which it believes is adequate to cover the risks of potential
liability against the Company, there can be no assurance that the coverage
limits of its insurance are adequate or that the Company will be able to
continue to obtain such insurance policies in the future or that the Company
will be able to continue to obtain insurance rates which will not negatively
impact the Company's earnings. The inability of the Company to maintain adequate
liability insurance could have a material adverse effect on its business,
financial condition or results of operations.
COMPETITION. The air ambulance service industry is a highly competitive and
highly fragmented industry. The Company competes with other fixed wing air
ambulance companies which operate their own fleets of airplanes. The Company
believes, based upon management's experience and the Wintergreen Research
Report, that each of these companies are small with a market share of less than
5%. The Company also competes with brokers who do not own their own fleets but
act as middlemen who market air ambulance services by generally auctioning such
services to the lowest bidder. The Company believes that brokers control a large
percentage of the air medical transport business and keep prices in the industry
very low. The Company's major competitors include Global Air Ambulance,
(Clearwater, Florida), Advanced Air Ambulance, (Miami, Florida), Critical Air
Care, (Atlanta, Georgia) and Aeronational Air Ambulance, (Pittsburgh,
Pennsylvania). The Company believes, based upon management's experience, that
air ambulance service providers compete primarily on the basis of quality of
service, performance and prices. The Company anticipates that its one-way
pricing structure will allow the Company to be competitive in the industry. In
addition to present competition, other companies with significantly greater
economic resources than the Company including potential customers of the Company
such as insurance companies, HMOs and health care facilities that do not
currently provide air ambulance services may enter the air ambulance service
business. Entry into such business by such entities could adversely affect the
business, financial condition or results of operations of the Company. See
'Business -- Competition.'
DEPENDENCE ON MAJOR CUSTOMERS. During fiscal 1997, four of the Company's
customers together accounted for approximately 50% of its sales. Air Response,
its largest customer and a proposed acquiree, accounted for 27% of sales. In the
first quarter of 1998, the Company relied on 4 customers for approximately 59%
of its sales. There can be no assurance that any of these companies will remain
customers of the Company or that there will be adequate demand for the Company's
services. Cessation of business with one or more of these customers would have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the experience,
abilities and continued service of Kevin L. Burkhardt, the Company's Chief
Executive Officer and President. The Company has entered into an employment
agreement with Mr. Burkhardt and the loss of his services or any other key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company intends to obtain
$1,000,000 of key man life insurance on the life of Mr. Burkhardt. The Company
will also depend on the experience, abilities and continued service of Donald
Jones in the management and integration of the operations of Air
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Response and Air Response South. The Company does not intend to obtain key man
life insurance on Mr. Jones's life. In addition, the Company's future success
depends in large part upon its ability to attract and retain highly qualified
personnel. The Company faces competition for such personnel from other companies
and organizations, many of which have significantly greater resources than the
Company. There can be no assurance that the Company will be able to attract and
retain the necessary personnel on acceptable terms or at all. See 'Management.'
POTENTIAL LIABILITY FOR ACTS OF OFFICERS AND DIRECTORS. The Company's
Articles of Incorporation and Bylaws provide that the Company shall indemnify
its directors and officers to the fullest extent permitted by the Colorado Law.
The Company will enter into an indemnification agreement ('Indemnification
Agreement') with each of its directors and officers. Each Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any civil or criminal action or administrative proceeding
arising out of his or her performance of his or her duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful. Each
Indemnification Agreement also will require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. The term of the Indemnification Agreement will be the later of
(i) ten (10) years after the date that the indemnitee ceases to serve as a
director or officer of the Company, or (ii) the final termination of all
proceedings, as defined in the Indemnification Agreement, in which the
indemnitee is granted rights of indemnification.
Each Indemnification Agreement will permit the indemnitee to bring suit to
seek recovery of amounts due under such Indemnification Agreement and will
require that the Company indemnify the director or other party thereto in all
cases to the fullest extent permitted by applicable law. Although the Company
intends to seek to obtain directors' and officers' liability insurance, such
insurance is generally very expensive. If the Company is not able to obtain
directors' and officers' liability insurance to cover amounts, any payments made
by the Company under an Indemnification Agreement will have an adverse impact on
the Company.
Pursuant to the Indemnification Agreement, the Company may be obligated to
fund the defense of its officers or directors in certain cases which could
materially adversely affect the financial condition of the Company and the
ability of shareholders to recover monetary damages from directors and officers
of the Company for breaches of their fiduciary duties.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY.
Prior to the Offering, there has been no public trading market for the Common
Stock or Warrants and there can be no assurance that an active trading market
for either the Common Stock or the Warrants will develop following the Offering
or, if developed, will be sustained. The initial public offering prices of the
Common Stock and Warrants were determined by negotiations between the Company
and the Representative and may not necessarily bear any relationship to the
Company's assets, earnings, book value, results of operations or any other
generally accepted criteria of value. There can be no assurance that the Common
Stock and Warrants will trade in the public market at or above the initial
public offering price following the closing of the Offering. The trading price
of the Common Stock and Warrants could be subject to significant fluctuations in
response to variations in quarterly operating results and other factors and such
fluctuations could cause the market price of the Common Stock and Warrants to
fluctuate substantially. In addition, the stock markets of the United States
have from time to time, experienced significant price and volume fluctuations
that are unrelated or disproportionate to the operating performance of
individual companies. Such fluctuations may adversely affect the price of the
Common Stock and Warrants. See 'Underwriting.'
LACK OF UNDERWRITING HISTORY. The Representative was incorporated on August
11, 1958 and first registered as a broker-dealer on October 3, 1958. Although
prior to this Offering the Representative has participated as a selling group
member in two underwritings, it has not participated as a sole or co-manager or
representative in a public offering. Prospective purchasers of the Common Stock
and Warrants offered
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hereby should consider the Representative's lack of experience in being a
manager of an underwritten public offering. There can be no assurance that such
lack of experience will not have a material adverse effect upon the Offering.
See 'Underwriting.'
LISTING AND CONTINUED QUOTATION ON THE NASDAQ SMALLCAP MARKET'sm'. The
Company has received conditional approval to have the Common Stock and Warrants
approved for quotation on the Nasdaq SmallCap Market'sm'. There can be no
assurance that, if listed, the Company will be able to satisfy the criteria for
continued quotation on the Nasdaq SmallCap Market'sm' following the Offering.
Failure to meet the maintenance criteria in the future may result in the Common
Stock and Warrants not being eligible for quotation on the Nasdaq SmallCap
Market'sm' or otherwise. In such event, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the market value of the
Common Stock or Warrants. See 'Description of Securities.'
NASDAQ SMALLCAP MAINTENANCE REQUIREMENTS; PENNY STOCK REGULATION. The
trading of the Company's Securities on the NASDAQ SmallCap Market'sm' is
conditioned upon the Company meeting certain asset, capital surplus and stock
price tests. To maintain eligibility on the NASDAQ SmallCap Market, the Company
is required to maintain total net tangible assets in excess of $2,000,000,
capital and surplus in excess of $1,000,000 and a bid price of $1.00 per share.
If the Company fails any of these tests, the Securities may be delisted from
trading on the NASDAQ SmallCap Market. In the absence of the Common Stock being
quoted on the NASDAQ SmallCap Market, or the Company's having $2,000,000 in
stockholders' equity, trading in the Common Stock would be covered by Rule 15g-9
promulgated under the Securities Exchange Act of 1934 (the 'Exchange Act'), for
non-NASDAQ and non-exchange listed securities. Under such rule, broker-dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The Commission has adopted regulations that generally define a 'penny
stock' to be any equity security that has a market price of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include an equity security listed on NASDAQ, and an
equity security issued by an issuer that has (i) net tangible assets of at least
$4,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average revenue of at
least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a risk disclosure schedule explaining the penny
stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of purchasers in this Offering to sell their securities in the
secondary market. There is no assurance that trading in the Company's securities
will not be subject to these or other regulations that would adversely affect
the market for such securities.
POSSIBLE ADVERSE EFFECTS OF ISSUANCE OF PREFERRED STOCK. The Company's
Amended and Restated Articles of Incorporation, as of March 28, 1997, authorizes
the issuance of 500,000 shares of 'blank check' preferred stock, par value
$1.00, with designations, rights and preferences as determined from time to time
by the Board of Directors ('Preferred Stock'). As a result of the foregoing, the
Board of Directors can issue, without further stockholder approval, Preferred
Stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Common
Stock. The issuance of Preferred Stock could, under certain circumstances,
discourage, delay or prevent a change in control of the Company. In addition,
the issuance of Preferred Stock could dilute the rights of holders of the Common
Stock and the market price of the Common Stock. Although the Company has no
plans to issue any shares of Preferred Stock, there can be no assurance that it
will not issue Preferred Stock at some future date.
CONCENTRATION OF CONTROL; ELECTION OF DIRECTORS. After giving effect to the
sale of the shares of Common Stock offered hereby, the current principal
shareholders of the Company will beneficially own, immediately following
consummation of the offering and assuming the exercise of options held by such
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principal shareholders, an aggregate of approximately 62.1% of the issued and
outstanding shares of the Company's Common Stock. As a result, the principal
shareholders will be in a position to control the Company's activities and
policies, including the election of the entire Board of Directors, will retain
the voting power to approve all matters requiring shareholder approval and will
continue generally to direct the Company's affairs.
IMMEDIATE AND SUBSTANTIAL DILUTION; NO DIVIDENDS ANTICIPATED. Purchasers of
the shares of Common Stock offered hereby will incur immediate and substantial
dilution of the net tangible book value of the Common Stock of $5.05 per share
(78%) from the initial public offering price of $6.50 per share. In addition, an
immediate increase in the Company's net tangible book value of $1.69 per share
to the existing shareholders will result upon the consummation of the Offering.
Thus, the net tangible book value per share will be significantly lower than the
price per share paid by the public investors. The public investors, therefore,
will bear most of the risk of loss, while effective control of the Company will
remain in the hands of the present shareholders. The Company has never paid any
dividends on its Common Stock and does not anticipate the payment of dividends
in the foreseeable future. See 'Dividend Policy' and 'Dilution.'
SHARES ELIGIBLE FOR FUTURE SALE; EXERCISE OF REGISTRATION RIGHTS. Upon
the consummation of the Offering and giving effect to 496,154 shares of
Common Stock to be issued to Louis R. Capece two years from the closing of
the Offering, 6,670 shares of Common Stock to be issued to an officer of the
Company at the closing of the Offering and 76,924 shares to be issued to
Donald Jones at the closing of the Offering, there will be 3,383,298 shares of
Common Stock outstanding, of which 2,364,098 shares of Common Stock are
'restricted securities' under Rule 144 under the Securities Act of 1933, as
amended (the 'Securities Act'). In the future, these restricted shares may be
sold only pursuant to a registration statement under the Securities Act or an
applicable exemption, including pursuant to Rule 144. The Securities and
Exchange Commission ('Commission') has amended Rule 144, effective April 29,
1997, reducing the holding period before shares subject to Rule 144 become
eligible for sale in the public market. Under the revised Rule 144, a person who
has owned Common Stock for one year may, under certain circumstances, sell
within any three-month period, a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks prior to such sale.
In addition, a person who is not deemed to have been an affiliate of the Company
at any time during the three months preceding a sale, and who has beneficially
owned the restricted securities for the last two years is entitled to sell all
such shares without regard to the volume limitations, current public information
requirements, manner of sale provisions and notice requirements. Sales or the
expectation of sales of a substantial number of shares of Common Stock in the
public market following this Offering could adversely affect the prevailing
market price of the Common Stock. All of the officers, directors and 5%-or-more
shareholders of the Company have agreed with the Representative not to directly
or indirectly register, issue, offer, sell, offer to sell, contract to sell,
hypothecate, pledge or otherwise dispose of any shares of Common Stock (or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock) for a period of two years from the date of this Prospectus except that
after the first year, such securities may be sold only with the prior written
consent of the Underwriter. In addition, the Company has agreed not to offer or
sell any securities or file a registration statement for a period of three (3)
years from the hereof without the express prior written consent of the
Representative. In addition, the 496,154 shares of Common Stock to be issued to
Mr. Capece will not be issued until two years from the closing of the Offering
and the Rule 144 holding period will not commence until such shares have been
issued. See 'Shares Eligible for Future Sale.'
Of the 2,364,098 shares of Common Stock eligible for future sale, 682,009
shares will be eligible for sale under Rule 144 after 90 days from the date of
this Prospectus. The sale of these shares could have a material adverse effect
on the market prices for the Common Stock and Warrants, and the holders thereof
may be unable to sell or otherwise dispose of such securities, or may be forced
to sell such securities at a lower price than would otherwise be available or
desired. The sale of such shares may also have a material adverse effect on the
ability of the Underwriter and other selected dealers to sell either the Common
Stock or Warrants, and in turn may
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affect the ability of purchasers in the Offering to sell the Common Stock or
Warrants in the secondary market.
The holders of the Representative's Option have been granted certain
'piggy-back' and demand registration rights, for a period of five years from the
date hereof, with respect to the 101,920 shares of Common Stock and 101,920
Warrants (including shares issuable upon exercise thereof) issuable upon
exercise of the Underwriter's Option. The Company has granted Louis R. Capece,
Jr. certain 'piggy-back' registration rights with respect to the 496,154 shares
of Common Stock to be issued to him two years from the closing of the Offering.
The sale, or availability for sale, of the outstanding Common Stock underlying
the Underwriter's Warrants and Representative's Option and the shares issued to
Srotnac Group LLC or Mr. Capece, in the public market subsequent to the Offering
could adversely affect the prevailing market price of the Common Stock and could
impair the Company's ability to raise additional capital. See 'Description of
Capital Stock -- Registration Rights' and 'Shares Eligible for Future Sale.'
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of $.10 per Warrant,
commencing twenty-four (24) months after the Closing Date (except with the prior
written consent of the Representative permitting redemption commencing twelve
(12) months from the Closing Date), and prior to their expiration; provided that
(i) prior notice of not less than 30 days is given to the Warrantholders; and
(ii) the closing bid price of the Company's Common Stock for the twenty (20)
consecutive trading days immediately prior to the date on which the notice of
redemption is given, shall have exceeded $12.75 per share. Warrantholders shall
have exercise rights until the close of the business day preceding the date
fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the Exercise Price at a time when it
may be disadvantageous for them to do so, or to sell the Warrants at the current
market price when they might otherwise wish to hold them, or to accept the
redemption price, which may be substantially less than the market value of the
Warrants at the time of redemption. The Company has agreed to use its best
efforts to keep the registration statement current in connection with any
proposed exercise of the Warrants. Further, the Warrants may not be exercised
unless the registration statement pursuant to the Securities Act covering the
underlying shares of Common Stock is current and such shares have been qualified
for sale, or there is an exemption from applicable qualification requirements,
under the securities laws of the state of residence of the holder of the
Warrants. Although the Company does not presently intend to do so, the Company
reserves the right to call the Warrants for redemption whether or not such
underlying shares are not, or cannot be, registered in the applicable states.
Such restrictions could have the effect of preventing certain Warrantholders
from liquidating their Warrants. Further, in the event the Company does not have
a current registration statement in effect, the Company would be unable to call
the Warrants for redemption. See 'Description of Securities -- Warrants.'
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares are qualified for sale
under the securities laws of the applicable state or states or exempt therefrom.
The Company has undertaken and intends to file and keep current a prospectus
which will permit the purchase and sale of the Common Stock underlying the
Warrants, but there can be no assurance that the Company will be able to do so.
Although the Company intends to seek to qualify for sale the shares of Common
Stock underlying the Warrants in those states in which the securities are to be
offered, no assurance can be given that such qualification will occur. In
addition, purchasers may buy Warrants in the aftermarket or may move to
jurisdictions in which the shares of Common Stock issuable upon exercise of the
Warrants are registered or qualified during the period that the Warrants are
exercisable. In such event, the Company would be unable to issue shares to those
persons desiring to exercise their Warrants unless and until the shares could be
registered or qualified for sale in the jurisdiction in which such purchasers
reside, or an exemption to such qualification exists or is granted in such
jurisdiction. The Warrants may lose or be of no value if a prospectus covering
the shares issuable upon the exercise thereof is not kept current or if such
underlying shares are not, or cannot be, registered in the applicable states.
See 'Description of Securities -- Warrants.'
15
<PAGE>
<PAGE>
RELATIONSHIP OF UNDERWRITERS TO TRADING. The Underwriters may act as brokers
and/or dealers with respect to the purchase or sale of the Securities in the
Nasdaq SmallCap Market'sm' where each is expected to trade. The Representative
also may act as the Company's agent in connection with any future solicitation
of warrantholders to exercise their Warrants. Unless granted an exemption by the
Commission from Regulation M under the Exchange Act, the Underwriters will be
prohibited from engaging in any market-making activities or solicited brokerage
activities with regard to the Company's securities during a period beginning
nine business days prior to the commencement of any such solicitation and ending
on the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right the Representative may have to receive a
fee for the exercise of the Warrants following such solicitation. As a result,
the Representative and soliciting broker/dealers may be unable to continue to
make a market in the Company's securities during certain periods while the
exercise of Warrants is being solicited. Such a limitation, while in effect,
could impair the liquidity and market price of the Securities.
REPRESENTATIVE'S OPTION AND REGISTRATION RIGHTS. In connection with this
Offering, the Company has agreed to sell to the Representative, for $10, the
Representative's Option which entitles the Representative to purchase up to
101,920 shares of Common Stock at a price of $10.75 per share and 101,920
Warrants at a price of $.12 per Warrant, as well as 101,920 shares of Common
Stock for $13.25 per share, which shares are issuable on exercise of such
Warrants. The securities issuable upon exercise of the Representative's Option
are identical to those offered pursuant to this prospectus except for their
purchase and exercise prices. The Representative's Option is exercisable for a
period of four years commencing one year from the Effective Date. The exercise
of the Representative's Option may dilute the value of the shares of Common
Stock to be acquired by holders of the Option, may adversely affect the
Company's ability to obtain equity capital, and, if the Common Stock issuable
upon the exercise of the Representatives' Warrants are sold in the public
market, may adversely affect the market price of the Common Stock. The
Representative has been granted certain 'piggyback' and demand registration
rights for a period of five years from the Effective Date with respect to the
registration under the Securities Act of the securities directly or indirectly
issuable upon exercise of the Representative's Option. The exercise of such
rights could result in substantial expense to the Company. See 'Underwriting.'
16
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby at an initial public offering price of $6.50 per share, after deduction
of underwriting discounts and commissions, and other Offering expenses including
the Underwriter's non-accountable expense allowance, will be approximately
$5,577,246 (and $6,455,083 if the Underwriter's over-allotment option is fully
exercised). The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
----------- ----------
<S> <C> <C>
Payment to Louis R. Capece, Jr. pursuant to the Amended Stock Purchase and
Sale Agreement for Air Response South...................................... $ 800,000 14.3%
To repay short term notes, including approximately $375,000 to pay off a line
of credit of Air Response, secured by accounts receivable with Central
National Bank, Canajoharie, New York, approximately $20,000 to pay Andrew
Hiestand for the balance owed for the purchase of his stock in January
1996, approximately $22,000 to pay Charles W. Bartholomew, a director of
the Company, on a loan made to the Company in November, 1993 with an
original balance of $75,000, and $50,000 to pay off a short-term note to
Steven Cantor that was used as operating capital........................... $ 467,000 8.4%
To repay bridge lenders pursuant to 10% and 15% promissory notes issued in
March 1997 and March 1998, in bridge financings, due upon closing of an
initial public offering, which funds were used for legal, accounting and,
printing expenses in connection with this Offering and an earlier aborted
initial public offering and expenses in connection with moving to new
facilities................................................................. $ 425,000 7.6%
To fund costs related to the Company's expansion strategy, including
approximately $500,000 for down payment on a maintenance facility,
approximately $500,000 for the purchase of additional aircraft parts
inventory, approximately $200,000 for expenses associated with the
Company's new facilities, the upgrade of the Company's computer network and
the purchase of new dispatch software, approximately $500,000 for
marketing, and approximately $1,000,000 for leasing and equipping
additional aircraft, approximately $350,000 for reducing accounts payable
and........................................................................ $ 3,050,000 54.7%
General corporate purposes, including working capital........................ $ 835,246 14.9%
</TABLE>
The foregoing allocations of proceeds are estimates only and there may be
significant variations in the uses of proceeds due to, among other things,
changes in the Company's business or financial condition or economic
circumstances. Accordingly, the Company reserves the right to reallocate among
the foregoing uses upon any such change.
The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to fund its operations,
including its proposed expansion, for approximately 12 months. If the
Representative exercises the over-allotment option, the Company intends to add
the net proceeds of such exercise to working capital. However, there can be no
assurance that events affecting the Company's operations will not result in the
Company depleting its funds before that time. The Company may need to raise
substantial additional funding through public or private financings, corporate
collaborations or other sources. However, there can be no assurance that
additional financings will be available through any of these sources or, if
available, that such financing will be on acceptable terms. See 'Risk
Factors -- Need for Additional Financing' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
Pending application of the net proceeds of the Offering, the Company will
make temporary investments in certificates of deposit, money market accounts
established by major commercial banks or financial institutions, United States
government obligations or high-grade commercial paper.
17
<PAGE>
<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company currently
intends to retain future earnings, if any, to finance its expansion strategy.
The payment of future cash dividends by the Company on its Common Stock will be
at the discretion of the Board of Directors and will depend on the Company's
earnings (if any), financial condition, cash flows, capital requirements, and
contractual prohibitions with respect to the payment of dividends and other
considerations as the Board of Directors may consider relevant.
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the 'actual'
capitalization of Proflight; (ii) the 'pro forma' capitalization of the Company
giving effect to (a) its historical capitalization and (b) the Acquisitions, and
(iii) the 'pro forma as adjusted' capitalization of the Company giving effect to
the 'pro forma' capitalization and the issuance of the Securities offered hereby
(at an initial public offering price of $6.50 per share and $.10 per Warrant),
after deduction of underwriting discounts and commissions and estimated Offering
expenses payable by the Company and the application of a portion of the net
proceeds therefrom to repay indebtedness. The number of shares issued and
outstanding has been adjusted to reflect a .667-for-1 reverse split of the
Company's Common Stock effective as of April 16, 1998.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Total current liabilities................................... $1,808,954 $ 3,863,266 $ 2,971,266
Long-term debt.............................................. 666,321 4,732,567 4,732,567
Stockholders' equity
Common Stock -- $.001 par value
Authorized -- 20,000,000 shares, 2,034,350 shares
issued and outstanding
Pro forma -- 2,530,504 shares
As adjusted -- 3,383,298 shares............................. 2,034 2,530 3,383(1)(2)
Additional paid-in capital.................................. 31,343 3,255,847 9,290,806(1)(2)
Accumulated deficit......................................... (840,680) (840,680) (1,384,041)
---------- ----------- -----------
Total Stockholders' equity (deficit)........................ (807,303) 2,417,697 7,910,148
---------- ----------- -----------
Total capitalization................................... $1,667,972 $11,013,530 $15,613,981
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------
(1) Reflects the issuance of 1,019,200 shares of Common Stock and 1,019,200
Warrants offered hereby; 496,154 shares to be issued for the purchase of Air
Response; 6,670 shares of Common Stock to be issued as a bonus to an officer
of the Company at the closing of the Offering; 76,924 shares of Common Stock
to be issued at the closing of the Offering; as part of an employment
agreement; and 250,000 shares of Common Shares retired in April of 1998.
(2) Reflects the receipt of $5,577,246 in net proceeds from the issuance of
1,019,200 shares of Common Stock at $6.50 per share of 1,019,200 Warrants at
$.10 per Warrant, after deduction of underwriting discounts and commissions
and Offering expenses estimated at $1,149,474.
18
<PAGE>
<PAGE>
DILUTION
At March 31, 1998, the pro forma net tangible book value of the Company was
a deficit of approximately $(599,237), or $(0.24) per share of Common Stock
after giving effect to the Acquisitions as if they occurred on such date. Net
tangible book value (deficit) per share is determined by dividing tangible book
value (total tangible assets less total liabilities) by the number of shares of
Common Stock issued and outstanding at that date. After giving effect to (i) the
sale of the 1,019,200 shares of Common Stock offered hereby (at an initial
public offering price of $6.50 per share) and the application of the net
proceeds therefrom, after deducting underwriting discounts and commissions and
Offering expenses; (ii) 6,670 shares of Common Stock to be issued as a bonus to
an officer of the Company at the closing of the Offering; (iii) 76,924 shares of
common stock issued as part of an employment agreement; (iv) the retirement of
250,000 shares of Common Stock, the adjusted pro forma net tangible book value
of the Company at March 31, 1998 after giving effect to the Acquisitions as if
they occurred on such date would have been $4,893,214 or $1.45 per share. This
represents an immediate increase in net tangible book value of $1.69 per share
to existing shareholders and an immediate dilution of $5.05 per share to
investors purchasing shares of Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................................................... $6.50
Net pro forma tangible book value (deficit) per share at March 31, 1998......... $(0.24)
Increase in net tangible book value per share attributable to new investors..... $ 1.69
Pro forma net tangible book value per share after the Offering....................... $1.45
Dilution per share to new investors.................................................. $5.05
</TABLE>
------------------------
If the underwriter exercises the over-allotment option in full, the pro
forma net tangible book value will be $5,771,051 or $1.63 per share, resulting
in an immediate dilution of $4.87 per share or 75% to New Investors.
The following table summarizes, on a pro forma basis, as of March 31, 1998
the difference between existing shareholders and new investors with respect to
the number and percentage of shares of Common Stock purchased from the Company,
and the total consideration per share paid (at the assumed initial public
offering price of $6.50 per share):
<TABLE>
<CAPTION>
SHARES
PURCHASED(1)(2)(3) TOTAL CONSIDERATION AVERAGE
-------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. 2,364,098 70% $3,258,377 33% $1.38
New investors......................... 1,019,200 30 6,726,720 67 6.50
------- -------
100.0% 100.0%
------- -------
------- -------
</TABLE>
- ------------
(1) Does not include: (i) 350,000 shares of Common Stock reserved for issuance
under the Option Plan; (ii) 1,019,200 shares reserved for issuance upon
exercise of the Warrants offered hereby; (iii) 700,350 shares reserved for
issuance upon exercise of other outstanding options and warrants; and (iv)
101,920 shares of Common Stock and 101,920 Warrants issuable upon exercise
of the Representative's Option, and 101,920 shares of Common Stock
underlying such warrants. See 'Management -- Stock Option Plan.'
'Description of Capital Stock' and 'Underwriting.'
(2) Includes (i) the issuance of 496,154 shares of Common Stock to Louis R.
Capece, Jr. in connection with the acquisition of Air Response two years
from the closing of the Offering; (ii) 6,670 shares of Common Stock to be
issued to an Officer; and (iii) the issuance of 76,924 to Donald Jones in
conjunction with his employment agreement and (iv) the retirement of 250,000
shares of Common Stock. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources' and 'Certain Transactions.'
(3) The number of shares purchased both by existing shareholders and new
investors has been adjusted to reflect the .667 for 1 reverse split of the
Company's Common Stock effective April 16, 1998.
19
<PAGE>
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical financial data of (i)
Proflight for the years ended December 31, 1997 and 1996 and for three months
ended March 31, 1998 and 1997 and (ii) Air Response and Air Response South for
the years ended December 31, 1997 and 1996 and for the three months ended March
31, 1998 and 1997. The historical financial data for the years ended December
31, 1997 and 1996 are derived from the audited financial statements of
Proflight, Air Response and Air Response South. The financial statements of
Proflight have been audited by Grant Thornton LLP, independent certified public
accountants, whose report thereon has been modified to include an explanatory
paragraph which refers to various matters which raise substantial doubt about
Proflight's ability to continue as a going concern and are included elsewhere in
this Prospectus. The combined financial statements of Air Response and Air
Response South for the years ended December 31, 1997 and 1996 have been audited
by Staff Ciampino & Company, P.C., independent certified public accountants,
which statements are included elsewhere in this Prospectus. The summary
historical financial data should be read in conjunction with the financial
statements and notes thereto of Proflight, Air Response and Air Response South
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Prospectus. The financial data for
Proflight, Air Response and Air Response South for the three months ended March
31, 1998 and 1997 are unaudited, but, in the opinion of management of the
respective companies, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair representation of results for all
interim periods. The operating results for interim periods are not necessarily
indicative of results for the full fiscal year. The following table also sets
forth pro forma financial data of the Company as if the Acquisitions (which will
close simultaneously with the closing of this Offering) had occurred as of March
31, 1998 for balance sheet results and as of January 1, 1998 for operating data.
The pro forma financial data was derived from the unaudited pro forma financial
statements appearing elsewhere in this Prospectus. The summary pro forma
financial data should be read in conjunction with the Company's pro forma
financial statements and the notes thereto. The pro forma balance sheet data as
of March 31, 1998 and the pro forma statement of operations for the year ended
December 31, 1997 and three months ended March 31, 1998 are unaudited, but, in
the opinion of management, reflect all adjustments necessary for a fair
presentation of pro forma results of operations. The pro forma operating results
are not necessarily indicative of the Company's future results of operations.
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THE COMPANY AIR RESPONSE AND AIR RESPONSE SOUTH
------------------------------------------------- -------------------------------------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
----------------------- ----------------------- ----------------------- -----------------------
1998 1997 1997 1996 1998 1997 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Historical:
Net sales............. $1,340,022 $2,045,534 $5,644,799 $3,906,211 $2,577,377 $1,936,190 $8,783,037 $7,658,243
Flying operations and
maintenance......... 868,936 993,165 3,964,831 3,222,539 1,630,749 1,217,167 5,840,403 4,875,505
Promotion and sales... 47,880 33,488 69,985 34,584 130,183 125,272 492,331 447,061
General,
administrative
expense............. 313,513 238,010 1,406,483 650,036 416,701 339,814 1,885,940 1,538,761
Depreciation and
amortization........ 63,387 111,375 488,867 377,930 141,103 80,600 311,554 396,139
Profit (loss) from
operations.......... 46,306 669,496 (285,367) (378,878) 258,641 173,337 252,809 400,777
Interest expense...... 100,271 103,352 415,343 287,188 114,744 31,910 189,242 136,148
Other income
(expense)........... -- -- 25,000 34 -- (5,359) (43,063) (349,590)
Income tax benefit
(provision)......... -- -- -- -- (18,742) (36,317) 85,222 38,747
Extraordinary
income.............. -- -- -- -- 152,475 -- -- --
Net income (loss)..... (53,965) 566,144 (675,710) (666,032) 277,430 99,751 105,726 (46,214)
</TABLE>
20
<PAGE>
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Pro Forma Operating Data:
Net sales.................................................... $2,921,839 $12,712,990
Flying operations and maintenance............................ 1,760,075 8,090,388
Promotion and sales.......................................... 178,063 562,316
General and administrative expense........................... 730,214 3,292,423
Depreciation and amortization................................ 271,449 1,068,256
Total operating expense...................................... 2,939,801 13,013,383
Operating income (loss)...................................... (17,962) (300,393)
Other expense................................................ 215,015 622,648
Income tax (benefit)......................................... (33,489) (85,222)
Net income (loss)............................................ (199,488) (837,819)
Per share data:
Net loss..................................................... $ (0.09)(1)(2) $ (0.35)(1)(2)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
ACTUAL(3) PRO FORMA(4) ADJUSTED(5)
----------- ------------ --------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit).................................. $(1,339,062) $ (3,025,877) $ 2,551,369
Total assets............................................... 1,667,972 11,013,530 15,613,981
Long term obligations...................................... 666,321 4,732,567 4,732,567
Accumulated (deficit)...................................... (840,680) (840,680) (1,384,041)
Stockholders' equity (deficit)(2).......................... (807,303) 2,417,697 7,910,148
</TABLE>
- ------------
(1) Based on 2,280,504 shares for the 3 months ended March 31, 1998 and
2,382,747 shares for the year ended December 31, 1997 which do not include
(i) 1,019,200 shares of Common Stock offered hereby, (ii) 6,670 shares of
Common Stock being offered to an officer as a bonus at the closing of the
Offering, or (iii) 76,924 shares of Common Stock to be issued to Don Jones
as part of his employment agreement at the completion of the offering.
(2) All per share and equity data have been adjusted to reflect the .667-for-1
reverse split of the Company's Common Stock effective as of April 16, 1998.
(3) Represents Proflight before giving effect to the Acquisitions or the
Offering.
(4) After giving effect to the Acquisitions.
(5) The adjusted pro forma data includes adjustments that reflect the effects of
the Acquisitions, including the sale of 1,019,200 shares of Common Stock and
1,019,200 Warrants offered hereby and the application of the net proceeds.
21
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW AND PLAN OF OPERATION
The Company was formed in May 1992 under the name Proflight, Inc. and is a
national and international provider of fixed wing air ambulance transport
services for persons who are ill, injured or otherwise incapacitated who need to
be relocated and who may require emergency medical care during flight. In March
of 1997 the Company changed its name to Proflight Medical Response, Inc.
('Proflight'). The Company has contracted to acquire Air Response, Inc., a New
York corporation ('Air Response') and Air Response South, Inc., a Florida
corporation ('Air Response South') which acquisitions (the 'Acquisitions') will
close simultaneously with the closing of the Offering. See 'Certain
Transactions -- Acquisition of Air Response and Air Response South.'
The revenues of the Company are primarily derived from service fees for air
medical transport services. The number of transports and rates as well as the
source affect revenues in different ways. Greater revenues are derived from
third party and direct patient paid trips as compared to transports arranged by
brokers.
The Company's business strategy over the next 24 months is to become a
leading national provider of fixed wing air ambulance services by:
Improving the efficiency of its existing operations by integrating the
operations of Air Response and Air Response South and by providing
additional management expertise, recognizing economies of scale,
introducing sophisticated operating systems and controls, instituting a
centralized dispatching function and providing a stronger, more stable
capital base.
Implementing strategic acquisitions of other air ambulance service
providers. The Company believes that opportunities exist to acquire
additional air ambulance service providers in the future that would
benefit from the efficiency, as well as the capital and management
resources of the Company. The Company regularly evaluates acquisition
possibilities and considers a number of factors in evaluating such
acquisition candidates, including the quality of management and medical
personnel, historical operating results, the demographic characteristics
of service areas, the regulatory environment in which such company
operates and the fee structure and reimbursement levels. In addition, by
combining existing companies, the Company hopes it will be able to deliver
fixed wing air ambulance services to insurance companies and other health
care providers at cost effective rates. Except as otherwise described in
this Prospectus, there are no present negotiations, arrangements or
understandings with respect to any potential material acquisitions.
Increasing its market share and expanding its operations by contracting
with insurers and HMOs seeking an air ambulance provider with national and
international capabilities and by appealing to individual consumers
through a prepaid service package. No assurances can be given that the
Company will be able to successfully negotiate additional contracts with
such parties on favorable terms, if at all, or otherwise expand its
operations.
The Company is continuing to expand services through the purchase of
additional aircraft resulting in increased revenues, more efficient use of
current aircraft, proportionately lower operating costs and the acquisition of
Air Response and Air Response South. Overall, the Company believes, based upon
management's experience, this should provide higher gross margins. It is hoped
that this combination will allow all three companies to operate more efficiently
through elimination of certain duplicative general and administrative costs,
purchasing discounts on fuel, and more efficient use of each aircraft. The
Company believes, based upon management's experience, that these actions will
provide growth and improve the Company's operating and financial condition,
providing the opportunity to continue as a going concern. See ' -- Effects of
Combination.'
22
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
PROFLIGHT MEDICAL RESPONSE, INC.
The following sets forth, in tabular form, a comparison of the results of
operations for Proflight for the years ended December 31, 1997 and 1996 and
the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------- ----------------
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating revenue......................................... 100.0% 100.0% 100.0% 100.0%
Flying operations and maintenance......................... 64.8 48.6 70.2 82.5
Promotion and sales....................................... 3.6 1.6 1.2 0.9
General and administrative expenses....................... 23.4 11.6 24.9 16.6
Depreciation and amortization............................. 4.7 5.4 8.7 9.7
Interest expense.......................................... 7.5 5.1 7.4 7.4
Net income (loss)......................................... (4.0) 27.7 (12.0) (17.0)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Operating Revenue: Operating revenue decreased $705,512 to $1,340,022 for
the period ended March 31, 1998 as compared to $2,045,534 for the same period in
1997. The Company sold two of its Learjet 35A's, one to Air Response in January
1998 and one to an unrelated party in February 1997. These sales produced
operating revenue of $255,950 and $638,179, respectively. Exclusive of the
aircraft sales, operating revenue decreased $323,284 as a result of a smaller
fleet of aircraft.
Flying Operations and Maintenance: Flying Operations and Maintenance
decreased $124,229 to $868,936 for the period ended March 31, 1998 as compared
to $993,165 for the same period in 1997. This decrease was mostly due to the
aircraft that was sold in January of 1998.
Promotion and Sales: Promotion and Sales increased $14,392 to $47,880 for
the period ended March 31, 1998 as compared to $33,488 for the same period in
1997. The increase was mostly due to advertising in international medical
publications.
General and Administrative: General and Administrative increased $75,503 to
$313,513 for the period ended March 31, 1998 as compared to $238,010 for the
same period in 1997. This was mostly due to rent associated with the Company's
new facilities. In addition, payroll increased due to hiring in anticipation of
the forthcoming IPO. Some of the payroll expense was offset, however, through
revenue received from pilot and nurse services provided to Air Response.
Depreciation: Depreciation decreased by $47,988 to $63,387 for the period
ended March 31, 1998 as compared to $111,375 for the same period in 1997. This
decrease was mostly due to the sale of a Lear 35A aircraft in January of 1998.
Interest: Interest decreased $3,081 to $100,271 for the quarter ended March
31, 1998 as compared to $103,352 for the same period in 1997. This decrease was
mostly due to the sale of an aircraft and pay off of related note payable.
Net Income: Net Income decreased $620,109 to $(53,965) for the period ended
March 31, 1998 as compared to $566,144 for the same period in 1997. This was due
to the reasons described above.
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales: Net sales increased by $1,738,588 to $5,644,799 for the year
ended December 31, 1997 as compared to $3,906,211 for the year ended December
31, 1996. Over $1 million in increased sales is attributed to receiving more
trips (business referrals) from Air Response in contemplation of the impending
merger. In addition, the Company handled more brokered flights, which added to
sales volume without having to acquire additional aircraft. The Company also
sold one of its Learjet 35A's which produced net income of $638,179.
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Flying operations and maintenance: Flying operations and maintenance
increased by $742,292 to $3,964,831 for the year ended December 31, 1997, as
compared to $3,222,539 for the year ended December 31, 1996. This increase was
mostly due to proportionally higher sales.
Promotion and Sales Expense: Promotion and sales expense increased $35,401
for the year ended December 31, 1997 to $69,985 as compared to $34,584 for the
year ended December 31, 1996. This increase of $35,402 was mostly for
commissions paid to a dispatcher.
General and Administrative Expense: General and Administrative expenses
increased $756,447 to $1,406,483 for the year ended December 31, 1997 as
compared to $650,036 for the year ended December 31, 1996. This increase was
mostly due to $259,275 of expenses associated with abortive IPO costs, legal
fees and settlement of a lawsuit including legal fees amounting to approximately
$130,000, and additional IPO accounting fees of approximately $63,000. $60,000
was also expensed as a bad debt in anticipation of an uncollectible receivable.
In addition, moving costs, higher rent, and proportional increased costs
associated with higher sales helped account for added general and administrative
expense for 1997.
Depreciation and Amortization: Depreciation and amortization increased
$110,937 to $488,867 for the year ended December 31, 1997. as compared to
$377,930 for the same period in 1996. This was mostly to due to expensing as
amortization $60,000 of deferred bridge loan costs and increased depreciation
association with more hours of flight time on the aircraft's engines.
Interest Expense: Interest expense increased $128,155 to $415,343 for the
year ended December 31, 1997 as compared to $287,188 for the year ended December
31, 1996. This increase was due mostly to interest paid on more expensive
aircraft and the cost for factoring accounts receivable, which factoring was
implemented in February of 1997.
Net Loss: Net loss increased by $9,678 to $675,710 for the year ended
December 31, 1997 as compared to $666,032 for the year ended December 31, 1996.
This increase was due to the factors discussed above.
AIR RESPONSE AND AIR RESPONSE SOUTH
RESULTS OF OPERATIONS
The following sets forth, in tabular form, a comparison of the results of
operations for Air Response and Air Response South and the years ended December
31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------- ----------------
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue................................................... 100.0% 100.0% 100.0% 100.0%
Flying operations and maintenance......................... 63.3 62.9 66.5 63.7
Advertising............................................... 5.0 6.5 5.6 5.8
General and administrative expenses....................... 16.2 17.6 21.5 20.1
Depreciation and amortization............................. 5.5 4.2 3.5 5.2
Interest expense.......................................... 4.4 1.7 2.2 1.8
Other income (expense).................................... (0.7) (2.2) 0.5 (4.0)
----- ----- ----- -----
Extraordinary income...................................... 5.9
Net income (loss)......................................... 10.8 5.1 1.2 (0.6)
</TABLE>
THE THREE MONTHS ENDED MARCH 31, 1998
Revenue: Revenue increased $641,187 to $2,577,377 for the three months
period ended March 31, 1998 as compared to $1,936,190 for the same period in
1997. This increase was mostly due to two Learjet aircraft that were added to
the fleet in January of 1998. In additional, more efficient maintenance
practices were put into effect allowing more flyable days during the most recent
period.
Flying Operations and Maintenance: Flying Operations and Maintenance
increased $413,582 to $1,630,749 for the period ended March 31, 1998 as compared
to $1,217,167 for the same period in 1997. This increase was mostly due to
flying more hours due to the addition of two aircraft.
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Advertising: Advertising increased $4,911 to $130,183 for the period ended
March 31, 1998 as compared to $125,272 for the same period in 1997. The increase
was mostly due to more direct mailings to help promote the Company's new
aircraft.
General and Administrative: increased $76,887 to $416,701 for the period
ended March 31, 1998 as compared to $339,814 for the same period in 1997. This
increase was mostly due to higher costs associated with a new office and
maintenance facility in Colorado and the hiring of more dispatch personnel to
handle two additional aircraft.
Depreciation: Depreciation increased $60,503 to $141,103 for the period
ended March 31, 1998 as compared to $80,600 for the same period in 1997. This
increase was mostly due to the purchase of two new Learjet aircraft during the
period.
Interest: Interest increased $82,834 to $114,744 for the period ended March
31, 1998 as compared to $31,910 for the same period in 1997. This increase was
mostly due to the financing of two new Learjet aircraft.
Other income (expense): Other expense decreased $22,734, to $18,942 for the
period ending March 31, 1998 as compared to expense of $41,676 for the same
period in 1997. This decrease was mostly due to a federal excise tax refund.
Extraordinary income: Extraordinary income increased $152,475 to $152,475
for the period ended March 31, 1998 as compared to 0 for the same period in
1997. This was due to a debt forgiven by Proflight, less provisions for income
taxes.
Net Income: Net income increased $177,679 to $277,430 for the period ended
March 31, 1998 as compared to $99,751 for the same period in 1997. The increase
was mostly due to more hours flown generated by the addition of two new aircraft
and forgiveness of a debt.
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales: Net sales increased $1,124,794 to $8,783,037 for the year ending
December 31, 1997 as compared to $7,658,243 for the year ending December 31,
1996. The Company believes that this was mostly due to more demand for the
Company's air ambulance service because of the effects of advertising and direct
sales. In addition, direct access to Proflight's aircraft fleet in anticipation
of an acquisition yielded better overall positioning which allowed more
attractive pricing to customers and, the Company believes, a correspondingly
greater usage of services.
Flying Operations and Maintenance: Flying Operations and Maintenance
increased $964,898 to $5,840,403 for the year ending December 31, 1997 as
compared to $4,875,505 for the year ending December 31, 1996. This was mostly
due to expenses relating to increased revenues. In addition, slightly higher
fuel prices occurred during the first 8 months of the period. Also, maintenance
labor was obtained through an outside source rather by hired mechanics as was
the case in 1996 which resulted in higher costs. Other increases were due to the
performance of more aircraft inspections as a result of a greater number of
hours flown.
Advertising: Advertising expenses increased $45,270 to $492,331 for the
year ending December 31, 1997 as compared to $447,061 for the year ending
December 31, 1996. This was mostly due to increased cost of yellow page
advertising and more direct mailings. In addition, the Company attended more
sales conventions to promote its air ambulance service. The Company believes
that these additional expenditures helped increase sales by an undetermined
amount.
General and administrative: General and administrative expenses increased
$347,179 to $1,885,940 for the year ending December 31, 1997 as compared to
$1,538,761 for the year ending December 31, 1996. This was mostly due to
increased sales resulting in higher overhead. In addition, the company incurred
substantial moving expenses relocating to Denver.
Depreciation: Depreciation decreased $84,585 to $311,554 for the year
ending December 31, 1996. as compared to $396,139 for the year ending December
31, 1997. This was mostly due to one aircraft being fully depreciated in October
of 1997.
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Interest expense: Interest expense increased $53,094 to $189,242 for the
year ending December 31, 1996 as compared to $136,148 for the year ending
December 31, 1997. This was mostly due to some aircraft refinancing in late
1996.
Other expense: Other expenses decreased $306,527 to $43,063 for the year
ending December 31, 1996 as compared to $349,590 for the year ending December
31, 1996. This change was mostly due to a non-recurring $381,216 charge in 1996
for an asset abandonment.
Net earnings: Net earnings increased $151,940 to $105,726 for the year
ending December 31, 1996 as compared to a $46,214 loss for the year ending
December 31, 1996. This increase was due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, Proflight had no material
increase in cash. During this period net cash used in operating activities was
$888,941. Cash provided from investing activities was $2,222,000, which was all
due to the sale of an aircraft. Net cash used in financing activities was
$1,333,059 primarily for the repayment of a note payable.
As of March 31, 1998, Proflight had a working capital deficiency of
$1,339,062 which decreased from December 31, 1997 by $1,886,978 primarily
because a short term debt on an aircraft was repaid in full when the aircraft
was sold.
Air Response and Air Response South had an increase in cash flows of
$191,758 for the three months ended March 31, 1998. During this period, net cash
of $273,573 was provided by operating activities, and $3,504,357 was used in
investing activities, primarily for the purchase of aircraft. A total of
$3,422,542 was provided by financing activities primarily for the financing of
two aircraft. Cash and cash equivalents had a balance of $229,184 at March 31,
1998.
At March 31, 1998 Air Response and Air Response South had a working capital
deficiency of $886,815. This deficiency increased $80,963 from December 31, 1997
mostly due to the purchase of two aircraft and the effect on the current portion
of notes due.
During the twelve months ended December 31, 1997, Proflight had no material
increase in cash. During this period net cash used in operating activities was
$522,127. Cash provided from investing activities was $1,714,421 primarily due
to the sale of an aircraft. Net cash used in financing activities was $1,162,294
due to the repayment of notes payable.
As of December 31, 1997, Proflight had a working capital deficiency of
$3,226,040. This deficiency increased from December 31, 1996 by $2,145,729 as a
result of a long term debt being reclassified to a current liability because of
the slow payment of such debt which may have resulted in a default by the
debtor. The debt was subsequently paid in full in February of 1998.
Air Response and Air Response South had a decrease in cash of $254,871 for
the twelve months ended December 31, 1997. During this period net cash of
$574,289 was provided by operating activities, and $559,525 in cash was used in
investing activities to purchase property and equipment, net advances to
officer, and advances to affiliates. A total of $269,635 in cash was used in
financing activities primarily for repayment of notes. Cash and cash equivalents
had a balance of $37,426 at December 31, 1997.
At December 31, 1997, Air Response and Air Response South had a working
capital deficiency of $805,852. This deficiency increased by $361,048 from the
December 31, 1996 deficiency of $444,804 due to increases in account payable and
the current portion of notes payable.
During fiscal 1996, Proflight had two customers whose sales each accounted
for 10% or more of net sales. In fiscal 1997, Air Response accounted for more
than 27% of net sales. In 1996 Air Response accounted for 8.25% of Proflight's
business. At year end 1997, $224,094 was due from Air Response in accounts
receivable and $151,767 was due to Air Response in accounts payable.
Historically, Proflight has financed its working capital requirements to
date from private bridge financing, borrowing, issuance of its Common Stock, and
internally generated cash flow. For the year ended December 31, 1997, the
Company financed its working capital requirements as follows: approximately 30%
from the sale of a Lear 35, approximately 20% from borrowing, and approximately
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50% from internally generated cash flow. Air Response and Air Response South
have financed their working capital through profits, internally generated cash
flow, and factoring accounts receivable.
As of December 31, 1997, the Company had a total current liabilities of
$3,787,754, of which $1,657,807 was due because of a potential default due to
slow payment. This note for a Learjet 35A was paid in full in February of 1998
when this aircraft was sold. $794,022 of current liabilities are notes to be
paid with the proceeds from the offering. The remaining balance of $1,335,970
will be paid out of operations. The Company defaulted on a note to a former
shareholder in 1996. The holder has agreed to renew the note and the Company
plans to pay the remaining balance of approximately $20,000 from the proceeds of
the offering.
In order for the Company to obtain sufficient financing to purchase a 1973
Lear Jet 25B-XR in March, 1995, it was necessary for the Company to have an
accomodator guarantee repayment of a loan. In exchange, the accomodator is paid
a fee of $100 per month for each month the loan is outstanding.
In October 1996, the Company loaned $200,000 to Air Response. The note bore
interest at the rate of 10% per annum and was payable in two installments of
$100,000 plus accrued interest on May 14, 1998 and May 14, 2000. In March of
1998, the Company agreed to forgive the entire principal amount of and all
accrued interest on the note. This was granted in consideration of extending the
acquisition agreement. See 'Certain Transactions -- Loan to Air Response.'
In October 1996, Proflight, in a private placement, sold to subscribers an
aggregate of $350,000 principal amount notes bearing interest at the rate of 10%
per annum and issued 466,900 shares of Common Stock. In May 1997, the
subscribers in the private placement released and discharged the Company from
any and all obligations arising out of the promissory notes and agreed to cancel
such notes.
In January 1997, Proflight, in a private placement, sold to subscribers an
aggregate of $150,000 principal amount notes bearing interest at the rate of 10%
per annum and issued 200,100 shares of Common Stock. In May 1997, the
subscribers in the private placement released and discharged the Company from
any and all obligations arising out of the promissory notes and agreed to cancel
such notes.
In March 1997, Proflight, in a private placement, sold to subscribers an
aggregate of $125,000 principal amount notes bearing interest at the rate of 10%
per annum and issued 16,675 shares of Common Stock.
In March of 1997 the Company sold one of its Lear 35A's for approximately
$1,750,000.
In January of 1998 the Company sold its Lear 35A to Air Response for
$2,222,000.
On March 10, 1998, the Company received $300,000 in uncollateralized
short-term bridge financing. These bridge notes carry an interest rate of 15%
per annum and were payable in full, principal and interest on the earlier of May
31, 1998, or upon closing of an initial public offering. Accordingly, these
notes are past due.
Presently, the Company does approximately 50% of its billing through
insurance companies. In some cases this billing is indirect through brokers
which are customers of the Company. Generally, payment is received within 60-90
days. This delay in collection weakens the Company's cash flow. The Company
finances its receivables to help alleviate this cash flow problem. The Company
plans to initiate electronic billing to help speed up the collection process and
hopes to eliminate the need for factoring in the future.
The Company anticipates that the net proceeds from the Offering, together
with cash flow from operations should be sufficient to fund the Company's
operations, including its proposed expansion, for approximately 12 months.
However, there can be no assurance that events affecting the Company's
operations will not result in the Company depleting its funds before that time.
The Company may be required to raise substantial additional funds to continue to
fund operating expenses or its expansion strategy. There can be no assurance
that the Company will be able to obtain such additional financing or that such
financing, if available, will be on acceptable terms. See 'Risk Factors -- Need
for Additional Financing' and 'Use of Proceeds.'
27
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EFFECTS OF COMBINATION
The Company believes that operating efficiencies will be achieved through
integration of the operations. The Company anticipates cost savings after the
combination in the areas of fuel, parts, marketing and advertising and
personnel. The Company has obtained preliminary quotes from aviation fuel and
part suppliers which will provide the Company with fuel and part cost
reductions. Fuel reductions are available because of the anticipated increase in
the volume of aviation fuel to be purchased as well as an increase in the number
of fueling sites needed and part reductions are available because the Company
plans to purchase larger quantities at one time. The Company believes that it
will realize cost savings in marketing and advertising expenses by eliminating
duplicated efforts. The Company also believes cost savings will also be realized
by the elimination of overstaffing and duplicative positions which will arise
through combination and the closing of the Company's facilities in New York and
Florida. For example, the Company believes cost savings will be realized in
areas such as accounts receivable and bookkeeping, which will be centralized.
The Company believes that effective aircraft and crew deployment will be a
significant factor in reducing operational costs. The Company intends to enhance
its computer system which will detail the ready status and location positions of
its aircraft and crews. The computer system will be able to analyze data on
demographics, usage frequency and similar factors to help determine optimal
fleet deployment.
The Company will begin to incur increased expenses not reflected in the
Company's historical financial statements, including increased salaries for
senior management and key employees as well as other costs related to the
establishment of its corporate and administrative infrastructure, such as lease
costs, accounting and legal costs.
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BUSINESS
THE COMPANY
The Company is a national and international provider of fixed wing air
ambulance transport services for persons who are ill, injured or otherwise
incapacitated who need to be relocated and who may require emergency medical
care during flight. The Company currently operates from facilities located in
Colorado, New York, Kentucky and Florida and upon consummation of the Offering
plans to consolidate its operations into its Colorado facilities. The Company
provides its services throughout the United States, Canada, Europe, Mexico,
Central America, South America, Bermuda and the Mediterranean. In addition, the
Company, when operating at full capacity, has subcontracted its services by
brokering its air ambulance trips to other air transport providers. For the year
ended December 31, 1997 and the three months ended March 31, 1998, the Company,
including Air Response and Air Response South, had pro forma net sales of
approximately $12.7 million and $2.9 million, respectively.
As of the date hereof the Company has an air ambulance fleet of 11 fixed
winged aircraft. The Company provides transport services in connection with the
relocation of patients requiring specialized medical procedures such as organ
transplants, cancer treatment, specialized cardiac surgery, burn care, stroke
care and advanced head and spinal cord surgery and rehabilitation to hospitals
recognized as national centers of excellence in these fields, for the
repatriation of patients who are injured or become ill away from home and in
connection with the transportation of non-ambulatory long-term care patients who
need to be relocated. The flights operated are on a non-emergency basis and are
generally long distance in nature. Emergency flights are usually contracted to
helicopters and such flights are generally short distances. The Company's
customers include individual patients, managed care companies, hospitals,
government agencies, national health insurance companies, HMOs and air ambulance
brokers.
The Company believes that the need for non-emergency ambulance transport
services, will increase as pressure on the health insurance industry to reduce
costs increases. The Company believes that it can capitalize on this market. The
Company believes that the fixed wing segment of the medical air transport
industry will grow as hospital consolidation produces regional health networks
responsible for patients spread over a greater geographic area. The Company also
believes, although no assurance can be given, that relocating patients with
specialized needs to hospitals recognized as national centers of excellence and
which have pricing agreements with insurers and HMOs will increase as a way to
provide high quality, cost effective health care. The fixed wing air ambulance
market is currently served by a number of small, regional companies lacking a
national presence and the ability to serve an insurance company or HMO on a
national basis. The Company believes that through the acquisitions of Air
Response and Air Response South and by implementing its business strategy, it
will begin to establish a national presence while continuing to ensure that
patients receive the highest quality care. The Company's beliefs in this
paragraph are based upon management's experience and an independent research
report, presumed to be accurate and truthful as of its publication, by
Wintergreen Research, Inc. copyright 1995, entitled 'Fixed Wing Air Medical
Transport Market 1991 - 2000.' No assurance can be given that such beliefs will
be realized or are predictive of future developments. No assurance can be given
that the facts, predictions or the independent research report upon which such
beliefs are premised are accurate.
The Company's senior management has extensive experience in the air
ambulance transport services business. Kevin L. Burkhardt, the Company's Chief
Executive Officer and President, has over 10 years experience in the air
ambulance industry and over 20 years experience in the aviation industry,
including as captain, flight instructor and corporate pilot. Jane S. Burkhardt,
the Company's Secretary and medical and legal coordinator, received her B.S.
degree in nursing in 1981 from the University of Wisconsin and her JD degree in
1990 from St. Louis University Law School. Mrs. Burkhardt has over 14 years
experience in the nursing industry and was a registered nurse and risk manager
for Presbyterian/St. Lukes Medical Center. Donald Jones will, upon consummation
of the Offering, serve as the Company's Vice President of Sales and a Director
of the Company. Mr. Jones has over 13 years experience in the air ambulance
industry, including flight coordinator, and director of marketing and sales.
David Cohen, the Company's Chief Financial Officer and Treasurer, has over 30
years of management and financial experience. Mr. Cohen was the chief financial
officer of Air Resources Corp.,
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a public company which manufacturers adhesives and held various senior
management positions for two aircraft sales corporations.
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
amended in May 1997 and January 1998, pursuant to which the Company agreed to
acquire at the closing of the Offering, subject to the terms and conditions
contained therein, all of the outstanding capital stock of Air Response in
exchange for 496,154 shares of Common Stock of the Company to be issued two
years from the closing of the Offering. If the Company completes a second public
offering, Mr. Capece has the option to put such number of shares of Common Stock
at the then current market value, equal to 20% of the net proceeds of such
offering to the Company, not to exceed $1,000,000. The Company simultaneously
entered into an Amended Stock Purchase and Sale Agreement with Air Response
South and Louis R. Capece, Jr. pursuant to which the Company agreed to acquire
at the closing of the Offering, subject to the terms and conditions contained
therein, all of the outstanding capital stock of Air Response South for $800,000
which is payable upon closing of the Offering.
BUSINESS STRATEGY
The Companies' business strategy over the next 24 months is to attempt to
become a leading national provider of fixed wing air ambulance services by:
Improving the efficiency of its existing operations by integrating the
operations of Air Response and Air Response South and by providing
additional management expertise, recognizing economies of scale,
introducing sophisticated operating systems and controls, instituting a
centralized dispatching function and providing a stronger, more stable
capital base.
Implementing strategic acquisitions of other air ambulance service
providers. The Company believes that opportunities exist to acquire
additional air ambulance service providers in the future that would
benefit from the efficiency, as well as the capital and management
resources of the Company. The Company regularly evaluates acquisition
possibilities and considers a number of factors in evaluating such
acquisition candidates, including the quality of management and medical
personnel, historical operating results, the demographic characteristics
of service areas, the regulatory environment in which such company
operates and the fee structure and reimbursement levels. In addition, by
combining existing companies, the Company hopes it will be able to deliver
fixed wing air ambulance services to insurance companies and other health
care providers at cost effective rates. Except as otherwise described in
this Prospectus, there are no present negotiations, arrangements or
understandings with respect to any potential material acquisitions.
Increasing its market share and expanding its operations by contracting
with insurers and HMOs seeking an air ambulance provider with national and
international capabilities and by appealing to individual consumers
through a prepaid service package. No assurances can be given that the
Company will be able to successfully negotiate additional contracts with
such parties on favorable terms, if at all, or otherwise expand its
operations.
MEDICAL TRANSPORT SERVICES
The Company provides fixed wing air ambulance transport services for
individual patients, HMOs, insurance companies and individual hospitals and
other providers of medical care. If necessary the Company provides 'bed to bed'
service, arranging for ground ambulance transportation, specialized medical care
during transport, overnight accommodations, and any other incidentals necessary
to a successful transport. The Company is able to provide air transport services
at any of the three recognized levels of medical care, Basic Life Support
(patients who may need CPR), Advanced Life Support (patients who need medication
and respiratory monitoring) and Critical Care (patients who are severely ill or
injured).
The level of treatment provided to a patient during transportation is
dependent upon the patient's condition. Basic Life Support is mostly
preventative in nature. It is appropriate for patients needing minimal external
life support, but in need of monitoring or potential care during flight.
Aircraft
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involved in the transport of patients requiring Basic Life Support must have
both the equipment and personnel on board capable of handling and treating a
medical emergency.
The Company provides air transport for patients needing Advanced Life
Support services. Aircraft suited to transporting these patients must have all
personnel and equipment necessary to provide Basic Life Support functions as
well as the capability to perform cardiac defibrillation, control dysrhythmias,
administer drugs and establish and maintain respiratory airways. In addition,
medical personnel on board the aircraft must be capable of providing care for
the condition causing the need for the transport. Patients requiring Advanced
Life Support care may typically be suffering from trauma, burns, or cardiac
failure, as well as a variety of other conditions.
Finally, the Company provides air transport services to patients who are
severely ill or injured in need of Critical Care, the highest level of care. To
properly provide Critical Care services, highly and specifically trained
physicians and flight nurses must be part of the on board aircraft crew. It is
important that these medical personnel have specialized training to enable them
to perform services in an aeromedical environment. The Company has the required
personnel and equipment to provide these high level medical services.
The Company employs full-time registered nurses that accompany patients on
all medical flights. The nurses are given air ambulance training when they are
hired and on-going training every six months. In addition, the Company can
supply other medical professionals including medical doctors, respiratory
therapists and other medical personnel, if required by the patient.
The Company charges for its services on a retail and wholesale basis.
Flights are charged by the hour with additional costs for medical and
international fees. Cost per flight hour range from approximately $500 for
piston aircraft to $1500 for jet aircraft. Generally, high volume users like air
ambulance brokers and insurance companies receive up to a 20% discount.
Catering, ground medical, and other services are added to the basic charges.
MEDICAL PERSONNEL AND QUALITY ASSURANCE
The Company believes, based upon management's experience, that hiring and
maintaining highly qualified personnel, including physicians and nurses is
essential to its future success. Although the Company has not had a problem
attracting such persons to date, the loss of these persons or the inability to
attract and retain sufficient numbers of qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The medical care provided during transports is provided pursuant to
established medical treatment protocols which were established based upon the
professional advice and direction of the Company's medical directors. Proflight,
Air Response and Air Response South each has its own medical director.
Initially, the Company will retain the medical directors of each Company.
However, these positions may be consolidated where legally and operationally
practical. Any medical treatment beyond that contained in the treatment
protocols requires an order from the patient's attending physician. Physician
orders are submitted to the Company with all case documentation, prior to
delivery of the patient to the Company for transport. Physician orders are then
reviewed by the Company's medical director to insure proper handling of the
patient. In some circumstances, the medical director may change the physician's
orders if 'in flight' conditions warrant alterations.
DISPATCHING
The Company intends to implement a centralized dispatching system for the
air ambulance operations. The Company plans to purchase a dispatch program
called 'Omnis 7' which is designed to schedule transports as well as keep track
of those in progress. The program features a visual mapped display of the
location of the aircraft which can help dispatchers select the aircraft in the
best proximity for a future flight. In addition, the program has an extensive
database with airport, hotel, and fueling information. An additional module can
be added that allows the aircraft's maintenance and pilot data to be stored and
analyzed. The cost of the entire Omnis 7 program is approximately $25,000.
Computer hardware for the dispatch system will cost about $15,000. When
implemented, this system will allow the Company to dispatch aircraft from the
most advantageous of its locations and enhance the Company's
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ability to avoid one way trips with empty return flights. By ensuring that the
Company's aircraft are efficiently used, the dispatching system is expected to
reduce the Company's cost per transport.
The Company plans to have a dispatch center staffed at least six full-time
dispatch personnel that work in shifts to provide 24 hour a day coverage. They
will be supported by sales personnel that price the trips to the customers.
MARKETING
Presently, the Company relies on advertising in national telephone
directories and direct mail to attract customers. The Company has enhanced its
current marketing strategy through the hiring, under a six year employment
contract, of Donald Jones, an air ambulance marketing specialist. Mr. Jones has
an extensive customer list of hospitals, insurance companies, and other users of
air medical transport. Mr. Jones will implement a sales strategy using the
Company's existing sales and marketing staff.
The Company believes, based upon management's experience, that the air
ambulance transport market may be broken down into two distinct market segments,
the 'directed' market and the 'independent' market. The directed market segment
consists of accounts that send all or most of their ambulance service needs to a
single designated service provider, whether by contract or practice. These
accounts include insurance companies, HMOs, other managed care providers and
hospitals. The Company intends to market this segment both through the use of
personal contacts and media advertising, which will include direct mail,
advertising in national telephone directories, advertising in trade publication,
advertising on the internet and participation in trade shows.
The independent market consists of transport requests originating from
individual patients and referral sources such as individual physicians. The
Company's marketing campaign addresses this segment of the market by local
advertising in telephone directories, advertising on the internet, and direct
mail campaigns.
DEPENDENCE ON MAJOR CUSTOMERS
During fiscal 1997, four of the Company's customers together accounted for
approximately 50% of its sales. Air Response, its largest customer and a
proposed acquiree, accounted for 27% of sales. There can be no assurance that
any of these companies will remain customers of the Company or that there will
be adequate demand for the Company's services. Cessation of business with one or
more of these customers would have a material adverse effect on the Company.
BILLING AND COLLECTION
Since the Company's air ambulance services are on a non-emergency basis,
the Company is not required to transport patients without regard to a patient's
insurance coverage or ability to pay. The Company ensures that a prospective
patient is able to pay the Company's fees, either through appropriate insurance
coverage or other resources and frequently is paid in advance for its services.
Consequently, the Company's provisions for uncompensated care is generally lower
than it would be if the Company provided emergency air ambulance transportation.
On a consolidated basis for the year ended December 31, 1997, the Company
derived approximately 9% of its net revenue directly from private insurers,
including prepaid health plans and other non-government sources, 3% from
governmental payors and 88% directly from patients and private sources.
INSURANCE
The Company's air ambulance operations involve the risks of potential
liability against the Company in the event of, among other things, accidents
involving the Company's airplanes and medical malpractice. The Company maintains
aircraft insurance with a maximum liability per occurrence of up to $20,000,000
along with hull coverage (similar to auto collision insurance) for the value of
the aircraft. The annual premiums cost approximately $15,000 per aircraft and
$7,000 per piston aircraft annually. In addition, the Company carries medical
liability insurance in the amount of $1,000,000 for each claim and
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$3,000,000 in the aggregate for each incident with an annual premium of
approximately $19,000. Although the Company currently maintains insurance
coverage which it believes is adequate, there can be no assurance that the
coverage limits of its insurance are adequate or that the Company will be able
to continue to obtain such insurance in the future or that the Company will be
able to continue to obtain such insurance rates which will not negatively impact
the Company's earnings. The inability of the Company to maintain adequate
liability insurance could have a material adverse effect on its business,
financial condition or results of operations.
COMPETITION
The air ambulance service industry is a highly competitive and highly
fragmented industry. The Company competes with other fixed wing air ambulance
companies which operate their own fleets of airplanes. The Company believes,
based upon management's experience and the Wintergreen Research report, that
each of these companies are small with a market share of less than 5%. The
Company also competes with brokers who do not own their own fleets but act as
middlemen who market air ambulance services by generally auctioning the service
to the lowest bidder. The Company believes that brokers control a large
percentage of the air medical transport business and keep prices in the industry
very low. The Company's major competitors include Global Air Ambulance,
(Clearwater, Florida), Advanced Air Ambulance, (Miami, Florida), Critical Air
Care, (Atlanta, Georgia) and Aeronational Air Ambulance, (Pittsburgh,
Pennsylvania). The Company believes, based upon management's experience, that
air ambulance service providers compete primarily on the basis of quality of
service, performance and prices. The Company provides one way pricing on most of
its domestic flights. Patients are charged from point of pick up to final
destination, allowing the Company in most cases to charge less than other
operators that charge on a round trip basis. The Company's aircraft and crews
very rarely stay in one location more than one night due to the Company's high
volume of transport requests from all over the world. Having aircraft at several
locations at any given time, gives the Company a competitive bidding edge.
In addition to present competition, other companies with significantly
greater economic resources than the Company including potential customers of the
Company such as insurance companies, HMOs and health care facilities not
currently providing air ambulance services, may enter the air ambulance service
business. Entry into such business by such entities could adversely affect the
business, financial condition or results of operations of the Company.
GOVERNMENT REGULATION
The Company is subject to governmental regulation at the federal and state
levels. At the federal level, the Company is subject to regulation by the
Federal Aviation Administration ('FAA') and the Occupational Safety and Health
Administration ('OSHA'). The FAA regulations are primarily related to flight
safety issues, and govern flight operating procedures, aircraft and equipment
standards, maintenance and inspections, flight crew standards, training and
limitations, weather requirements and record keeping requirements. The OSHA
regulations are primarily designed to protect the employees of the Company.
Certain of the states in which the Company operates regulate various
aspects of its business. The Company's business is subject to state requirements
including, business licenses, training and certification of medical personnel,
the scope of services that may be provided by medical personnel, staffing
requirements, medical control and procedures.
Since the Company was established, it has met all FAA regulations necessary
to provide the services offered. The Company has also met all OSHA standards and
state and federal licensing requirements for the medical and business services
offered.
Applicable federal and state laws and regulations are subject to change.
Any changes could adversely affect the Company's operations as well as the air
ambulance business in general. The Company believes, based upon management's
experience, that it is in substantial compliance with all regulatory
requirements applicable to its business. The failure to be in compliance with
any applicable
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governmental regulations could adversely affect the business, financial
condition or results of operations of the Company.
EMPLOYEES
As of the date hereof, the Company employed 34 full-time employees and five
part-time employees, of whom fourteen are employed as flight crew, eight are
employed as medical personnel, six are employed as mechanics, three are employed
as dispatchers, three are employed in sales and five are employed in general or
administrative positions. The Company believes that the success of its business
will depend, in part, on its ability to attract and retain highly qualified
personnel. The Company's employees are not a party to any collective bargaining
agreements. The Company believes that it has good relations with its employees.
LEGAL PROCEEDINGS
In September of 1997, Mr. James Fuller filed a complaint against the
Company claiming that he is entitled to an unspecified amount of compensation
for the value of shares of the Company's Common Stock which he alleges he owns.
No amount was stated in the suit. The Company maintains that Mr. Fuller never
paid the agreed upon price for the shares and therefore never owned them.
Moreover, Mr. Fuller signed the shares back to the Company in December 1994.
The Company, through its counsel, intends to vigorously defend against the
suit by Mr. Fuller. No assurance can be made that the Company will reach a
satisfactory resolution of the suit. Failure to reach such a resolution could
have a material adverse effect on the Company's financial condition or cash
reserves.
PROPERTIES
The Company's executive offices are located in approximately 9,364 square
feet of office space at Arapahoe County Airport at 7211 South Peoria Street,
Suite 200, Englewood, Colorado 80112. The lease is a seven year lease expiring
in June 2004. The lease is at a rental of approximately $11,700 per month.
Pursuant to an oral agreement the Company will continue to occupy a portion of
hanger space at 7211 S. Peoria Street, Englewood CO 80112 for aircraft
maintenance at a monthly rental rate of approximately $3,000 per month.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------- --- ------------------------------------
<S> <C> <C>
Kevin L. Burkhardt...................................... 39 Chief Executive Officer, President,
Director
Jane S. Burkhardt....................................... 40 Secretary
David H. Cohen.......................................... 55 Chief Financial Officer, Treasurer
Donald Jones............................................ 38 Vice President of Sales, Director
Charles W. Bartholomew.................................. 62 Director
Steven B. Myers......................................... 38 Director
Arthur G. Rosenberg..................................... 59 Director
Louis R. Capece, Jr..................................... 50 Director
Stanley Abrams.......................................... 58 Director
</TABLE>
The business experience of each of the directors and executive officers of
the Company for at least the last five years is as follows:
Kevin L. Burkhardt has served as Chief Executive Officer, President and a
Director of Proflight since its inception in May 1992. From April 1991 to March
1992, Mr. Burkhardt was a learjet captain for HPH Aviation, a learjet charter
corporation. From July 1990 to April 1991, Mr. Burkhardt was a learjet captain
and corporate pilot for Great Plains Resources, a company engaged in the oil
industry. From February 1989 to April 1990, Mr. Burkhardt was a learjet captain
for PC Air, a learjet charter corporation. From January 1987 to February 1989,
Mr. Burkhardt was a learjet captain for American Jet, an air ambulance
corporation. Kevin L. Burkhardt and Jane S. Burkhardt are husband and wife.
Jane S. Burkhardt has served as Secretary of Proflight since its inception
in May 1992 and is responsible for establishing all medical policies and
procedures, establishing required medical equipment, establishing risk
management of medical operations and liaison between medical director and
medical staff. From August 1991 to July 1994, Mrs. Burkhardt was a risk manager
for Presbyterian/St. Lukes Medical Center. From December 1989 to July 1991, Mrs.
Burkhardt was a part-time RN for Presbyterian/St. Luke's Medical Center. From
June 1989 to July 1991, Mrs. Burkhardt was an associate attorney at Wood, Ris &
Hames. Kevin L. Burkhardt and Jane S. Burkhardt are husband and wife.
David Cohen has served as Chief Financial Officer and Treasurer of
Proflight since August 1993. From January 1990 to June 1993, Mr. Cohen was the
chief financial officer of Air Resources Corp., a manufacturer of adhesives.
From January 1982 to January 1990, Mr. Cohen was the chief executive officer of
Aim Aircraft, Inc., an aircraft sales corporation and from 1979 to 1982, Mr.
Cohen was the sales manager for Aim Aircraft. From 1975 to 1978, Mr. Cohen was
the president of Basin Aviation, an aircraft sales, charter and flight training
corporation. Mr. Cohen is the author of a book entitled FBO (fixed based
operations) Management as well as the author of an aircraft brokering manual.
Donald Jones will, upon consummation of the Offering, serve as the
Company's Vice President of Sales and a Director. From August 1992 to the
present, Mr. Jones has been the director of sales and marketing and the flight
coordinator for Air Response and Air Response South. From August 1984 to August
1992, Mr. Jones held various positions at Air Ambulance Network, an air
ambulance brokerage company, including director of sales and flight coordination
and director of marketing.
Charles W. Bartholomew has served as a Director of Proflight since November
1993. From September 1988 to September 1994, Mr. Bartholomew was the program
manager for CTA Incorporated, a company which was an aerospace and information
systems contractor to the United States government. Mr. Bartholomew was
responsible for several information system engineering contracts with the United
States Air Force and directed approximately 30 engineering professionals in such
capacity.
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Steven B. Myers has served as a Director of the Company since February
1996. From 1993 to March 1998, Mr. Myers has been the Company's director of
marketing and contracting. From 1980 to 1993, Mr. Myers was engaged in real
estate investing and property management.
Arthur G. Rosenberg has served as a Director of Proflight since January
1997. Since 1986, Mr. Rosenberg has served as vice president of acquisitions for
The Associated Companies, a real estate development company. Mr. Rosenberg is a
practicing attorney admitted to the New York State Bar in 1962. For five years,
Mr. Rosenberg was general counsel to ITT Levitt & Sons, Inc., an international
home builder. Mr. Rosenberg is also a director of Mike's Original, Inc., Wall
Street Records, Inc. and Phar-Mor, Inc. which are publicly traded companies.
Louis R. Capece, Jr. will, upon consummation of the Offering, become a
Director of the Company and a consultant. Since 1986 and 1993, Mr. Capece has
served as president of Air Response and Air Response South, respectively.
Stanley Abrams has served as a Director of the Company since January 1998.
Since June 1987, Mr. Abrams has served as President and Director of Waste
Conversion Systems, Inc. Since November 1995, he has served as CEO, President
and Director and of Ripe Touch Greenhouses, Inc. Mr. Abrams is currently on the
board of directors of Waste Conversion Systems, Inc.
Messrs. Jones and Capece will become directors of the Company only upon
consummation of the Offering and the Closing of the Acquisitions, which are
expected to occur simultaneously. All directors hold office until the next
annual meeting of shareholders or until their successors are elected and
qualified. Officers are appointed by the Board of Directors and serve at the
discretion of the Board. All of the executive officers of the Company have
employment agreements with the Company. See ' -- Employment Agreements.'
The Company has an Audit Committee of its Board of Directors consisting of
Messrs. Rosenberg and Abrams, both of whom are independent directors, and Mr.
Burkhardt.
EXECUTIVE COMPENSATION
The Company did not pay any compensation exceeding $100,000 to its
executive officers for the year ended December 31, 1997. Kevin L. Burkhardt, the
Company's President and Chief Executive Officer received approximately $87,000
during this period. See ' -- Employment Agreements.'
EMPLOYMENT AGREEMENTS
In March 1997, the Company entered into an employment agreement, as amended
in May 1997, with Donald Jones to serve as the Company's Vice President of
Sales. The employment agreement is for a six-year term commencing upon
consummation of the Offering and is subject to successive automatic renewal
periods of one year unless earlier terminated. Mr. Jones is to receive a 5%
increase in his base salary in years four, five and six. Pursuant to the terms
of this employment agreement, Mr. Jones is required to devote his full business
time and attention to fulfill his duties and responsibilities to the Company.
Mr. Jones will receive a base salary of $150,000 per annum. In addition, Mr.
Jones will receive a stock bonus in the total amount of 76,924 shares of Common
Stock issuable on the Closing Date.The Company has agreed to pay Mr. Jones a
relocation bonus of $100,000 and reasonable relocation expenses. Mr. Jones will
also have the right to participate in all benefit plans afforded to other
comparable officers during the term of the agreement, including, executive
incentive plan, stock option plan, monetary bonus plan, participation or extra
compensation plan, pension plan, profit sharing plan, disability insurance,
health and major medical insurance. Mr. Jones's employment agreement contains
certain confidentiality and non-competition provisions. Either the Company or
Mr. Jones may cancel the agreement for any reason after six years upon 60 days
prior notice.
On March 31, 1997, the Company entered into an employment agreement with
Kevin L. Burkhardt, the Company's President and Chief Executive Officer for a
term of five years with successive automatic renewal periods of one year with a
base salary of $90,000 for the first year and 10% increases in each of the
following years. Mr. Burkhardt will receive a $25,000 one time bonus if he
consummates another acquisition. Pursuant to the terms of this employment
agreement, Mr. Burkhardt is required to devote his full business time and
attention to fulfill his duties and responsibilities to the Company. Mr.
Burkhardt will also have the right to participate in all benefit plans afforded
to all executive officers
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during the term of the agreement, including, executive incentive plan, stock
option plan, monetary bonus plan, participation or extra compensation plan,
pension plan, profit sharing plan, disability insurance, health and major
medical insurance.
On March 31, 1997, the Company entered into an employment agreement with
David Cohen, the Company's Chief Financial Officer and Treasurer, for a term of
three years with successive automatic renewal periods of one year with a base
salary of $70,000. Pursuant to the terms of this employment agreement, Mr. Cohen
is required to devote his full business time and attention to fulfill his duties
and responsibilities to the Company. Mr. Cohen will also have the right to
participate in all benefit plans afforded to all executive officers during the
term of the agreement, including, executive incentive plan, stock option plan,
monetary bonus plan, participation or extra compensation plan, pension plan,
profit sharing plan, disability insurance, health and major medical insurance.
On March 31, 1997, the Company entered into an employment agreement with
Jane S. Burkhardt, the Company's Secretary, for a term of three years with
successive automatic renewal periods of one year with a base salary of $36,000.
Pursuant to the terms of this employment agreement, Mrs. Burkhardt is required
to devote 20 hours per week to fulfill her duties and responsibilities to the
Company. Mrs. Burkhardt will also have the right to participate in all benefit
plans afforded to all executive officers during the term of the agreement,
including, executive incentive plan, stock option plan, monetary bonus plan,
participation or extra compensation plan, pension plan, profit sharing plan,
disability insurance, health and major medical insurance.
CONSULTING AGREEMENTS
In March, 1998, the Company entered into a two year consulting agreement
with Louis R. Capece, Jr. Under the terms of the agreement, Mr. Capece has
agreed to devote a minimum of 100 hours per month to the Company. Mr. Capece
will be paid an aggregate of $100,000 per year. The Company or Mr. Capece may
cancel the consulting agreement for any reason after two years upon 60 days
prior notice. Continuation of this Consulting Agreement is contingent upon
consummation of the Offering and the Acquisitions.
STOCK OPTION PLAN
The Board of Directors plans to submit to the shareholders a stock option
plan (the 'Option Plan'). The Option Plan provides for the grant of incentive
stock options ('ISOs'), intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended, and nonstatutory
stock options ('NSOs') that do not qualify for such treatment. Only employees
(including officers and directors who are also employees) of the Company or any
of its subsidiaries are eligible to receive grants of ISOs. Employees, officers,
directors, consultants, contractors and advisers of the Company or any
subsidiary are eligible to receive grants of NSOs. The purpose of the Option
Plan is to enable the Company to attract and retain exemplary directors,
employees, agents and consultants. No options can be granted under the Option
Plan at less than 100% of the fair market value of the Company's securities on
the date of grant.
The Option Plan provides that a maximum of 350,000 shares of Common Stock
may be issued upon the exercise of options granted under the Option Plan. If an
option granted under the Option Plan expires or terminates for any reason
without having been exercised in full, then the unpurchased shares subject to
that option will be available for additional option grants. No shares of Common
Stock underlying any stock options issued under the Plan may be registered on
Form S-8 or any successor form for two years after the date hereof.
The Option Plan will be administered by the Board of Directors of the
Company which will determine, in its discretion, among other things, the
recipients of grants, whether a grant will consist of ISOs or NSOs, or a
combination thereof, and the number of shares of Common Stock to be subject to
such options. The Board of Directors of the Company may, in its discretion,
delegate its powers, duties and responsibilities under the Option Plan to a
committee consisting of two or more directors who are 'disinterested persons'
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended.
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LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS
The Colorado Corporation Code, as revised, in general, allows corporations
to indemnify their directors and officers against reasonable expenses incurred
in connection with a proceeding if the director and/or officer acted in good
faith and in a manner the person believed to be in or not opposed to the best
interests of the corporation. In the case of a criminal action, the director or
officer must have had no reasonable cause to believe that the person's conduct
was unlawful. Under current law, a corporation may not indemnify a director or
officer in connection with a proceeding by or in the right of the corporation in
which the director or officer was adjudged liable to the corporation or if the
director or officer derived an improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the Colorado Law.
The Company will enter into an indemnification agreement ('Indemnification
Agreement') with each of its directors and officers. Each Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any civil or criminal action or administrative proceeding
arising out of his or her performance of his or her duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful. Each
Indemnification Agreement also will require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
applicable law. The term of the Indemnification Agreement will be the later of
(i) ten (10) years after the date that the indemnitee ceases to serve as a
director or officer of the Company, or (ii) the final termination of all
proceedings, as defined in the Indemnification Agreement, in which the
indemnitee is granted rights of indemnification.
Each Indemnification Agreement will permit the indemnitee to bring suit to
seek recovery of amounts due under such Indemnification Agreement and will
require that the Company indemnify the director or other party thereto in all
cases to the fullest extent permitted by applicable law. Although the Company
intends to seek to obtain directors' and officers' liability insurance, such
insurance is generally very expensive. If the Company is not able to obtain
directors' and officers' liability insurance to cover amounts, any payments made
by the Company under an Indemnification Agreement will have an adverse impact on
the Company.
It is the position of the Commission that insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, that such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock, as of the date of this Prospectus, and as
adjusted to reflect the sale by the Company of the Securities offered hereby, by
(i) each person who is known by the Company to beneficially own more than five
percent of the outstanding Common Stock, (ii) each director of the Company,
(iii) each of the Company's named executive officers, and (iv) all directors and
executive officers of the Company as a group. The information presented assumes
no exercise of the Warrants offered hereby.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS (1)
BENEFICIALLY OWNED ---------------------------------
BENEFICIAL OWNER PRIOR TO OFFERING BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Kevin L. Burkhardt and Jane S. Burkhardt(2).................. 404,360 19.5% 13.1%
David Cohen(3)............................................... -- -- *
Charles W. Bartholomew(4).................................... 241,409 12.3% 8.1%
Steven B. Myers(5)........................................... 277,621 14.0% 9.2%
Arthur G. Rosenberg(6)....................................... 16,675 * *
Louis R. Capece, Jr.(8)...................................... -- -- --
Donald Jones(9).............................................. -- -- 2.7%
Stanley Abrams(10)........................................... -- -- --
Cindy Bermingham(7).......................................... 366,825 20.6% 12.7%
Srotnac Group, LLC(7)........................................ 367,000 20.6% 12.7%
All executive officers and directors as a group (9
persons)................................................... 940,065 38.1% 28.5%
</TABLE>
- ------------
* Less than 1%.
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property
laws, where applicable. The number of shares of Common Stock outstanding
prior to the Offering is 1,784,350. For purposes of this table, a person or
group of persons is deemed to have 'beneficial ownership' of any shares
which such person has the right to acquire within 60 days. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons, any security which such person or group of persons has the
right to acquire within 60 days after such date is deemed to be outstanding
for the purpose of computing the percentage ownership for such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage of ownership of any other person.
(2) Includes 112,275 shares of Common Stock and options to purchase 292,085
shares of Common Stock at an exercise price of $6.50 per share. Mr. and
Mrs. Burkhardt's business address is 7211 S. Peoria St., Englewood,
Colorado 80112. Mr. and Mrs. Burkhardt are husband and wife and own their
shares as joint tenants.
(3) Excludes 6,670 shares of Common Stock Mr. Cohen will be issued as a bonus
at the completion of the Offering. Mr. Cohen's business address is 7211 S.
Peoria St., Englewood, Colorado 80112.
(4) Includes 67,030 shares of Common Stock and options to purchase 174,379
shares of Common Stock at an exercise price of $6.50 per share. Mr.
Bartholomew's home address is 2150 Oak Hills Drive, Colorado Springs, CO
80919.
(5) Includes 77,085 shares of Common Stock and options to purchase 200,536
shares of Common Stock at an exercise price of $6.50 per share. Mr. Myers's
home address is 5769 S. Andes Street, Aurora, CO 80033.
(6) Includes options to purchase 16,675 shares of Common Stock exercisable at
$1.66 per share. Mr. Rosenberg's business address is 7979 Old Georgetown
Road, Suite 800, Bethesda, Maryland 20814.
(7) Srotnac Group, LLC's and Cindy Bermingham's mailing address is P.O. Box
473, Babylon, NY 11702.
(8) Excludes 496,154 shares of Common Stock which will be issued to Mr. Capece
in connection with the acquisition of Air Response two years from the
closing of the Offering. Mr. Capece's address is 10845 Bayshore Drive,
Windermere, Florida 34786. See 'Certain Transactions -- Acquisition of Air
Response and Air Response South.'
(9) Includes 76,924 shares of Common Stock to be issued to Mr. Jones at the
closing of the Offfering as part of his employment agreement. Mr. Jones's
address is 5776 S. Fulton Way, Englewood, CO 80111.
(10) Mr. Abrams address is 4871 N Mesa Dr. Castle Rock, CO 80104.
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CERTAIN TRANSACTIONS
ACQUISITION OF AIR RESPONSE AND AIR RESPONSE SOUTH
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
amended in May 1997 and in January 1998, pursuant to which the Company agreed to
acquire at the closing of the Offering, subject to the terms and conditions
contained therein, all of the outstanding capital stock of Air Response in
exchange for 496,154 shares of Common Stock of the Company, valued at $6.50 per
share, to be issued two years from the closing of the Offering. If the Company
completes a second public offering, Mr. Capece has a put option to sell to the
Company such number of shares of Common Stock at the then current market value,
in an amount equal to 20% of the net proceeds of such second offering, such
amounts not to exceed $1,000,000. Under the terms of such put option, the
Company is obligated to purchase the shares offered. Simultaneously, the Company
entered into an Amended Stock Purchase and Sale agreement with Air Response
South and Louis R. Capece, Jr. pursuant to which the Company agreed to acquire
at the closing of the Offering, subject to the terms and conditions contained
therein, all of the outstanding capital stock of Air Response South for $800,000
which is payable upon closing of the Offering.
The Acquisitions will close simultaneously with the closing of the
Offering. The Company entered into a consulting agreement with Louis R. Capece,
Jr. which agreement is effective as of the closing of the Offering. In
connection with the Acquisitions, Mr. Capece covenanted that he will not, for a
period of five years from closing, compete with the Company. Mr. Capece has the
right to nominate two members to the Company's Board of Directors. Mr. Capece
has nominated himself and Donald Jones as nominees to the Board of Directors.
See 'Management.'
On January 23, 1998, the Company sold its 1978 Learjet 35A, N18FN for $2.2
million to Air Response, Inc. The Company used the proceeds to pay off the notes
payable related to the aircraft and other current obligations including the
maintenance service plan on this aircraft's engines and settlement of the Susan
Fuller lawsuit.
LOAN TO AIR RESPONSE
In October 1996, the Company loaned $200,000 to Air Response. The note bore
interest at the rate of 10% per annum and was payable in two installments of
$100,000 plus accrued interest thereon on May 14, 1998 and May 14, 2000. As per
an agreement made in March of 1998, all principal and interest on the loan have
been waived.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
In October 1993, Charles W. Bartholomew, a Director of the Company, entered
into a stock purchase agreement pursuant to which he purchased 18% of the then
outstanding shares of Common Stock of the Company for $75,000 and loaned an
additional $75,000 to the Company. Interest for the first 24 months of the loan
was in the form of an additional 2% ownership interest in the Company
(constituting a rate of approximately 8%). Thereafter, interest on the loan was
at the rate of 10% per annum due December 1997.
As of December 31, 1997, Air Response and Air Response South have a
receivable due from its sole shareholder, Louis R. Capece, Jr., in the amount of
approximately $475,000. This amount will be offset from the shares to be issued
to Mr. Capece. Mr. Capece, upon consummation of the Offering, will be a director
of the Company.
In January 1996, Steven B. Myers, a Director of the Company, purchased
231,214 (before the .667 for 1 reverse stock split in 1998) shares of Common
Stock from the Company for $100,000 or $.43 per share.
In March 1997, Donald Jones entered into a six year employment agreement
with the Company to serve as the Company's Vice President of Sales upon
consummation of the Offering. The Employment Agreement also includes the
issuance of 76,924 shares of Common Stock at the completion of the Offering. See
'Management -- Employment Agreements.'
40
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<PAGE>
In April 1997, Kevin L. Burkhardt, the Company's Chief Executive Officer,
President and a Director entered into a five-year employment agreement with the
Company. See 'Management -- Employment Agreement.'
In April 1997, Jane S. Burkhardt, the Company's Secretary, entered into a
three-year employment agreement with the Company. See 'Management -- Employment
Agreement.'
In April 1997, David Cohen, the Company's Chief Financial Officer and
Treasurer, entered into a three-year employment agreement with the Company. See
'Management -- Employment Agreement.'
In May 1997, Kevin L. Burkhardt and Jane S. Burkhardt agreed to return
146,042 shares of Common Stock to the Company solely in exchange for options to
purchase 292,085 shares of Common Stock at an exercise price of $6.50 per share.
The options are five-year options exercisable upon closing of the Offering. The
prior underwriter believed there were too many shares outstanding and as a
condition of underwriting this Offering required these shares to be returned
to treasury and the Company in consideration for returning these shares issued
the individuals options. The current Underwriters have required that these
shares remain retired.
In May 1997, Charles W. Bartholomew agreed to return 87,170 shares of
Common Stock to the Company solely in exchange for options to purchase 174,379
shares of Common Stock at an exercise price of $6.50 per share. The options are
five-year options exercisable upon closing of the offering. The prior
underwriter believed there were too many shares outstanding and as a condition
of underwriting this Offering required these shares to be retired and the
Company, in consideration for returning these shares, issued the individuals
options. The current Underwriters have required that these shares remain
retired.
In May of 1997, Steven B. Myers agreed to return 100,268 shares of Common
Stock to the Company solely in exchange for options to purchase 200,536 shares
of Common Stock at an exercise price of $6.50 per share. The options are
five-year options exercisable upon closing of the Offering. The prior
underwriter believed there were too many shares outstanding and as a condition
of underwriting this Offering required these shares to be returned to treasury
and the Company, in consideration for returning these shares, issued the
individuals options. The current Underwriters have required that these shares
remain retired.
In October of 1997, David H. Cohen, the Company's CFO, was offered 6,670
shares of Common Stock as a bonus to be issued upon completion of the public
offering. The Company has agreed to pay for any additional tax liability the
stock bonus adds to his income.
TRANSACTIONS WITH PRINCIPAL SHAREHOLDERS
In January 1996, the Company issued Steven A. Cantor, 983,825 shares of
Common Stock for business and financial services valued at $50,000. This
represented 67% of the then issued and outstanding shares of Common Stock. The
value of these shares were appraised by Zweifler Financial Research at $.03 per
share. Mr. Cantor has provided investment banking services to the Company. Mr.
Cantor transferred all of his shares to Srotnac Group, LLC, a limited liability
company which is 98% owned by Mr. Cantor. In May 1998, Srotnac Group LLC
transferred 366,825 shares to Cindy Bermingham, Mr. Cantor's sister.
In October 1996, the Company completed a bridge financing pursuant to which
it sold 70 units ('Units') each Unit consisting of a $5,000 principal amount
promissory note bearing interest at a rate of 10% and 6,670 shares of the
Company's Common Stock or an aggregate of $350,000 promissory notes and 466,900
shares of Common Stock. In January 1997, the Company sold an additional 30
units, or an aggregate of 200,100 additional shares of Common Stock and
$150,000, promissory notes.
In April 1998, as a condition of the Underwriter underwriting this
Offering, Srotnac Group LLC agreed to return 250,000 shares to the Company for
cancellation.
As a condition of the prior underwriter underwriting this Offering, the
prior underwriter required that the bridge lenders forgive the entire $500,000
principal amount of the promissory notes (and all interest due thereunder) sold
in October 1996 or January 1997 in order to reduce the Company's indebtedness
and that the funds loaned to the Company be allocated to the purchase price of
the shares of Common Stock. In May 1997, the bridge lenders in the October 1996
and January 1997 private placements released and discharged the Company from any
and all obligations arising out of promissory notes aggregating $500,000 and
agreed to cancel such notes.
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<PAGE>
Air Response purchases both fuel and oil from Response Aviation, Inc.
('Aviation'), a company wholly-owned by the Companies' shareholder. The total
amount of purchases for the years ended December 31, 1997 and 1996 approximated
$88,000 and $172,000, respectively. Due to the common ownership between Air
Response and Response Aviation, the prices for fuel and oil charged by Response
Aviation to Air Response may not be indicative of the prices that Response may
be able to obtain if common ownership did not exist. In June of 1997 Response
Aviation was sold.
DESCRIPTION OF SECURITIES
GENERAL
The Company amended its articles of incorporation in February 1997, which
increased the authorized capital stock of the Company to 20,500,000 shares, of
which 20,000,000 shares are Common Stock, par value $.001 per share, and 500,000
shares are Preferred Stock, par value $1.00 per share.
COMMON STOCK
As of the date of this Prospectus, there are 1,784,350 shares of Common
Stock outstanding and 32 record stockholders. Upon consummation of the Offering,
2,887,144 shares of Common Stock will be issued and outstanding, excluding (i)
350,000 shares of Common Stock reserved for issuance under the Company's stock
option plan (ii) 496,154 shares of Common Stock which will be issued to Louis R.
Capece, Jr., in connection with the acquisition of Air Responses, two years from
the closing of the Offering; (iii) 1,019,200 shares reserved for issuance upon
exercise of the Warrants offered hereby; (iv) 700,350 shares reserved for
issuance upon exercise of other outstanding options and warrants; (v) 203,840
shares of Common Stock issuable upon exercise of the Underwriter's Option,
including shares issuable upon the exercise of the Underwriter's Warrants
underlying the Underwriter's Option.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of Common
Stock do not have any cumulative voting rights for the election of directors.
Subject to preferences that may be applicable to any outstanding shares of
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors from time
to time out of funds legally available for that purpose. Upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
holders of Common Stock are entitled to receive pro rata all assets of the
Company available for distribution to its shareholders after payment or
provision for payment of debts and other liabilities of the Company and the
liquidation preferences of any then outstanding shares of Preferred Stock. The
shares of Common Stock are neither redeemable nor convertible, except for the
put which will be issued to Mr. Capece and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company. See
'Certain Transactions -- Acquisition of Air Response and Air Response South.'
PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock are
outstanding. The Board of Directors has the authority to issue Preferred Stock
in one or more series and to determine the powers, preferences and rights and
the qualifications, limitations or restrictions granted to or imposed upon any
series of Preferred Stock and to fix the number of shares constituting any
series and the designation of such series without any further vote or action by
the shareholders of the Company. Any Preferred Stock designated by the Board may
have voting, conversion, liquidation preference, redemption, dividend and other
rights which are superior to the Common Stock. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the shareholders, may discourage bids for
the Company's Common Stock and may adversely affect the market price of and the
voting and other rights of the Common Stock.
OPTIONS AND WARRANTS
As of the date hereof, other than as described in the Registration
Statement, there are no outstanding options or warrants to purchase, or
securities convertible into, Common Stock of the Company.
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<PAGE>
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the 'Warrant
Agreement') among the Company, the Underwriter and American Securities Transfer
& Trust, Inc., the warrant agent, and will be evidenced by warrant certificates
in registered form.
Each Warrant entitles the holder to purchase one share of Common Stock at
an exercise price of $8.00 per share, subject to adjustment, for three years
commencing twenty-four (24) months from the date of this Prospectus, provided
that with the express prior written consent of the Underwriter, the Warrants may
be exercised twelve (12) months from the date hereof.
The exercise price of the Warrants and the number and the shares of Common
Stock or other securities and property issuable upon exercise of the Warrants
are subject to adjustment in certain circumstances, including stock splits,
stock dividends, subdivisions, combinations, reclassification or issuances of
stock at a price lower than the current market price. Additionally, an
adjustment will be made upon the sale of all or substantially all of the assets
of the Company in order to enable the holders of the Warrants to purchase the
kind and number of shares of stock or other securities or property (including
cash) receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon exercise of the Warrants.
The Warrants do not confer upon the holder any voting or any other rights
of a shareholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise or extend the expiration date of
the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants to the Warrant Agent, with the form of
'Election to Purchase' on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price (in
United States funds, by cash or certified bank check payable to the order of the
Warrant Agent) for the number of Warrants being exercised.
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder of a Warrant exercised all Warrants then owned of record by him, the
Company will pay to that holder in lieu of the issuance of any fractional share
which would otherwise be issuable, an amount in cash based on the market value
of the Common Stock on the last trading day prior to the exercised date.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Securities and Exchange Commission a current prospectus
covering the issuance of shares of Common Stock issuable upon exercise of the
Warrants and the issuance of shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities laws
of the state of residence of the holder of the Warrant. The Company has
undertaken to use its best efforts to maintain a current prospectus relating to
the issuance of shares of Common Stock upon the exercise of the Warrants until
the expiration of the Warrants, subject to the terms of the Warrant Agreement.
While it is the Company's intention to maintain a current prospectus, there is
no assurance that it will be able to do so.
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.10 per Warrant, commencing twenty-four (24) months the closing date (except
the Warrants may be redeemed commencing twelve (12) months following the closing
date with the Underwriter's express written consent), and prior to their
expiration, provided that (i) prior written notice of not less than 30 days is
given to the Warrantholders and (ii) the closing bid price (as defined) of the
Company's Common Stock for the twenty (20) consecutive trading days immediately
prior to the date on which the notice of redemption is given, shall have
exceeded $12.75 per share. The Warrantholders shall have exercise rights until
the close of business, the day preceding the date fixed for redemption.
REGISTRATION RIGHTS
In connection with the acquisition of Air Response, the Company has granted
Louis R. Capece, Jr., upon the issuance of 496,154 shares of Common Stock two
years from the closing of the Offering, certain 'piggyback' registration rights
(other than a Registration Statement on Form S-4 or Form S-8
43
<PAGE>
<PAGE>
or successor form thereto). These registration rights are not limited to a term
and are subject to approval of any underwriter for the Company. See 'Certain
Transactions.'
Upon the consummation of the Offering, the Company will sell to the
Representative for $10.00 an Option to purchase 101,920 shares of Common Stock,
at $10.75 per share, and 101,920 Warrants, at $.12 per warrant, which Warrants
may be exercised for an additional 101,920 shares of Common Stock at a price of
$13.25 per share. The Underwriter's Option will be exercisable for a period of
four years commencing one year from the date of this Prospectus. In addition,
holders of the Underwriter's Option will have certain demand or piggy-back
registration rights during the period the Underwriter's Option is exercisable
with respect to the Underwriter's Option and the underlying shares of Common
Stock. See 'Underwriting.'
TRANSFER AGENT
American Securities Transfer & Trust, Inc., 1825 Lawrence Street, Denver,
CO 80202-1817, will serve as the Company's transfer agent for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding an
aggregate of 2,887,144 shares of Common Stock of which 1,867,944 are 'restricted
securities' under Rule 144 under the Securities Act of 1933, as amended (the
'Securities Act') (exclusive of (i) the 350,000 shares of Common Stock reserved
for issuance under the Option Plan; (ii) 496,154 shares of Common Stock which
will be issued to Louis R. Capece, Jr. in connection with the acquisition of Air
Response, two years from the closing of the Offering; (iii) 1,019,200 shares
reserved for issuance upon exercise of the Warrants offered hereby; (iv) 700,350
shares reserved for issuance upon exercise of other outstanding options and
warrants; and (v) 203,840 shares of Common Stock issuable upon exercise of the
Underwriter's Option including shares underlying the Warrants underlying the
Representative's Option). All of the 1,019,200 shares of Common Stock sold in
the Offering will be freely tradeable without restriction under the Securities
Act except for any shares purchased by 'affiliates' of the Company (as that term
is defined in the rules and regulations under the Securities Act).
In the future, these restricted shares may be sold only pursuant to a
registration statement under the Securities Act or an applicable exemption,
including the exemption provided by Rule 144. The Securities and Exchange
Commission ('Commission') has amended Rule 144, effective April 29, 1997,
reducing the holding period before shares subject to Rule 144 become eligible
for sale in the public market. Under the revised Rule 144, a person who has
owned Common Stock for one year may, under certain circumstances, sell within
any three-month period, a number of shares of Common Stock that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. In
addition, a person who is not deemed to have been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned the restricted securities for the last two years is entitled to sell all
such shares without regard to the volume limitations, current public information
requirements, manner of sale provisions and notice requirements. Sales or the
expectation of sales of a substantial number of shares of Common Stock in the
public market following this Offering could adversely affect the prevailing
market price of the Common Stock. In addition, the sale of substantial amounts
of Common Stock acquired through the exercise of the (i) options granted, or
(ii) Representative's Option could adversely affect prevailing market prices for
the Common Stock. The Company and officers, directors and 5%-or-more
shareholders of the Company have agreed with the Underwriter not to, directly or
indirectly, register, issue, offer, sell, offer to sell, contract to sell,
hypothecate, pledge or otherwise dispose of any shares of Common Stock, (or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock), for a period of two years from the date of this Prospectus, except that
such shares may be sold with the prior written consent of the Underwriter after
one year. The Underwriter's consent may be based on several factors, including,
but not limited to the financial performance of the Company and market
conditions, including price and trading volume of the Company's Common Stock.
Of the shares eligible for future sale, 682,009 shares of Common Stock will be
eligible within 90 days of the effective date of the Offering. See 'Risk
Factors -- Shares Eligible for Future Sale.'
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<PAGE>
UNDERWRITING
First Liberty Investment Group, Inc. (the 'Representative') as
representative of the several Underwriters named below has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Company has agreed to sell on a firm commitment basis the shares
of Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
</TABLE>
The Underwriters are committed to purchase all Securities offered hereby,
if any, subject to certain conditions, which may be waived by the Underwriter in
its sole discretion, specified in the Underwriting Agreement.
The Representative has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus and that it may allow to certain dealers who are members
of the National Association of Securities Dealers, Inc. ('NASD') concessions not
in excess of $ per share of Common Stock and $ per Warrant.
The Company has agreed to pay to the Underwriter a non-accountable,
non-refundable expense allowance of 3% of the gross proceeds of this Offering.
The Company has also agreed to pay all expenses in connection with qualifying
the Common Stock and Warrants offered hereby for sale under the laws of such
states as the Representative may designate, including expenses of counsel
retained for such purpose by the Representative.
The Company has agreed to sell to the Representative for $10, upon
consummation of this Offering, the Representative's Option exercisable to
purchase up to 101,920 shares of Common Stock for $10.75 per share and up to
101,920 Warrants for $.12 per Warrant to purchase, in the aggregate, up to
101,920 shares of Common Stock for $13.25 per share. The Underwriter's Option
may not be sold, transferred, assigned or hypothecated for one year from the
date of this Prospectus, except to the officers or partners of the
Representative and members of the selling group, and is exercisable during the
four-year period commencing one year from the Effective Date (the 'Option
Exercise Term'). During the Option Exercise Term, the holders of the
Representative's Option are given, at nominal cost, the opportunity to
profit from a rise in the market price of the Common Stock. To the extent
that the Representative's Option is exercised, in whole or
part, dilution to the interests of the Company's shareholders will occur.
Further, the terms upon which the Company will be able to obtain additional
equity capital may be adversely affected since the holders of the
Representative's Option can be expected to exercise at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representative's
Option. Subject to certain limitations and exclusions, the Company has agreed,
at the request of the holders of a majority of the securities underlying the
Representative's Option to register the Underwriter's Option and the underlying
securities under the Securities Act on two occasions (one at the Company's
expense and one at the holder's expense) during the Option Exercise Term and
to include such Representative's Option and the underlying securities in any
appropriate registration statement which is filed by the Company during the
five years following the date of this Prospectus.
The Company has granted to the Representative the Over-Allotment Option,
exercisable during the 45 calendar day period after the Closing Date, to
purchase from the Company at the initial public offering price less underwriting
discounts, up to an additional 152,880 shares of Common Stock and 152,880
Warrants, exercisable for up to an additional 152,880 shares of Common Stock, on
the same terms as the Securities offered hereby, solely to cover
over-allotments, if any. In addition, the Underwriter may short sell Securities
in its syndicate account in excess of the Securities offered hereby and included
in its over-allotment option and cover such short sales by purchases of
Securities in the open market or otherwise.
The Representative has informed the Company that it does not expect sales
to be made to discretionary accounts in excess of one percent (1%) of the
Securities offered hereby.
In the event the Representative exercises its registration rights to effect
the distribution of the securities underlying the Representative's Option, the
Representative and any holder of such securities who is a market maker in the
Company's securities, prior to such distribution, will be unable to make a
market in the Company's securities for up to a period of nine days prior to the
commencement of such distribution and until such distribution is completed. If
the Underwriter ceases making a market, the market and market prices for the
Securities may be adversely affected, and the holders thereof may be unable to
sell such securities.
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<PAGE>
The Company has agreed to engage and pay for, on the Representative's
behalf, a consultant selected by the Representative and approved by the
Company who is an expert in the industry in which the Company does business
to analyze the Company's prospects and respond to the Representative's
questions and concerns regarding the offering of Securities hereby. The
aggregate expenses of such consultant shall not exceed $10,000.
Additionally, the Representative has been engaged by the Company as its
warrant solicitation agent and pursuant thereto may participate in the
solicitation of the exercise of the Warrants. Upon the exercise of the Warrants,
the Company will pay the Representative a commission of 5% of the aggregate
exercise price of the Warrants exercised. In accordance with the NASD Notice to
Members 92-98, no fee shall be paid: (i) upon the exercise of warrants where the
market price of the underlying Common Stock is lower than the exercise price;
(ii) upon the exercise of any Warrants not solicited by the Underwriter, (iii)
for the exercise of Warrants held in any discretionary account; or (iv) upon the
exercise of Warrants where disclosure of compensation arrangements has not been
made and documents have not been provided to customers both as part of the
original offering and at the time of exercise. Further, the exercise of any
Warrant shall be presumed unsolicited unless the holder of such Warrant states
in writing that the transaction was solicited by the Representative.
Notwithstanding the foregoing, no fees will be paid to the Underwriter or any
other NASD members upon exercise of the Warrants within the first twelve months
from the Effective Date.
In connection with the solicitation of Warrant exercises, unless granted an
exemption by the Commission from Regulation M under the Exchange Act, the
Representative and any other soliciting broker-dealer will be prohibited from
engaging in any market-making activities with respect to the Securities for the
period commencing either two or nine business days (depending on the market
price of the Company's shares of Common Stock) prior to any solicitation
activity with respect to the exercise of Warrants until the later of (i) the
termination of such solicitation activity or (ii) the termination (by waiver or
otherwise) of any rights which the Representative or any other soliciting
broker-dealer may have to receive a fee for the exercise of Warrants following
such solicitation. As a result, the Representative or other soliciting
broker-dealer may be unable to provide a market for the Company's securities,
should it desire to do so, during certain periods in which the Warrants are
exercisable.
In addition, the Company has agreed to enter into a financial consulting
agreement with the Representative, who will act as a financial consultant for
the Company for a period of two years, commencing upon the consummation of this
Offering, for an aggregate fee of $120,000, all of which is payable in full at
the Closing.
Except as otherwise described herein, the Company has agreed not to issue
any equity and/or other securities for a period of two (2) years from the date
hereof without the express prior written consent of the Representative.
All of the Company's officers, directors and 5%-or-more shareholders have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or rights to acquire shares of Common Stock without the prior
consent of the Representative for a period of two (2) years from the date
hereof, except that after one year, such shares may be resold only with the
Representative's express prior written consent.
Although the Underwriting Agreement will provide that the Representative
may designate for election one person to the Company's Board of Directors, the
Representative has advised the Company that it has not selected such individual
and has no immediate plans to do so. If the Representative elects not to assert
such right, then it may designate one person to attend all Board of Directors
meetings as an observer. In the event that such an individual is designated,
such individual shall receive reimbursement of expenses for attending the
meetings of the Board of Directors.
The Company has agreed to indemnify the Representative against certain
liabilities, including liabilities under the Securities Act. To the extent this
section may purport to provide exculpation from possible liabilities arising
under the Federal securities laws, it is the opinion of the Commission that such
indemnification is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Representative's Warrant and the Financial Advisory and
Investment Banking Agreement. Reference is made to the copies of the
Underwriting Agreement, the Underwriter's Warrants and the Financial Advisory
and Investment Banking Agreement which will be filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
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<PAGE>
<PAGE>
The Representative was incorporated on August 11, 1958, and first
registered as a broker-dealer on October 3, 1958. Prior to this Offering,
although the Representative has participated as a selling group member in
two underwritings, it has not participated as a sole or co-manager in any
public offerings. Prospective purchasers of the Common Stock and Warrants
offered hereby should consider the Representative's lack of experience in
being a manager of an underwritten public offering.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the Offering and exercise price of such
Securities being offered hereby was determined, in large part, by negotiations
between the Company and the Underwriters on an arbitrary basis and bear no
direct relationship to the assets, earnings, book value, results of operations
or other recognized criterion of value. Factors considered in determining such
prices, in addition to prevailing market conditions, include the history of and
the business prospects of the Company, as well as such other factors as were
deemed relevant, including an evaluation of management and the general economic
climate. The prices should in no event, however, be regarded as an indication of
any future market price of the Common Stock or the Warrants.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bondy & Schloss LLP, New York, NY. Gerald A. Adler, a
partner of Bondy & Schloss LLP indirectly owns an aggregate of 2,500 shares of
Common Stock of the Company. Certain legal matters in connection with the
Offering will be passed upon for the Underwriter by Gusrae, Kaplan & Bruno,
New York, NY.
EXPERTS
The audited balance sheets of Proflight Medical Response, Inc. as of
December 31, 1997 and 1996, the audited statements of operations, cash flows and
stockholders' equity (deficit) for the years ended December 31, 1997 and 1996
have been included herein and in the Registration Statement in reliance upon the
report appearing elsewhere herein of Grant Thornton LLP, independent certified
public accountants, whose report thereon has been modified to include an
explanatory paragraph which refers to various matters which raise substantial
doubt about Proflight's ability to continue as a going concern, and upon the
authority of said firm as experts in accounting and auditing. The audited
combined balance sheet of Air Response and Air Response South as of December 31,
1997, the audited combined statements of operations and retained earnings and
cash flows, for the years ended December 31, 1997 and 1996 have been included
herein and in the Registration Statement in reliance upon the report appearing
elsewhere herein of Staff Ciampino & Company, P.C., independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 (together with
all amendments, schedules and exhibits thereto, the 'Registration Statement')
under the Securities Act with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference hereby is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement. The Registration
Statement filed by the Company may be inspected, without charge, at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, NW, Washington, DC 20549 and at the Commission's regional
offices at 1801 California Street, Suite 4800, Denver, Colorado 80202-2648 and 7
World Trade Center, Suite 1300, New York, NY 10048. Copies of such material also
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, NW, Washington, DC 20549, upon payment of certain fees prescribed by the
Commission. Electronic registration statements made through the Electronic Data
Gathering, Analysis and Retrieval system are publicly available through the
Commission's Web site (http://www.sec.gov).
47
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PROFLIGHT MEDICAL RESPONSE, INC.
Report of Independent Certified Public Accountants................................................ F-2
Balance Sheet as at December 31, 1997 and 1996.................................................... F-3
Statements of Operations For the Years Ended December 31, 1997 and 1996........................... F-4
Statements of Stockholders' Deficit For the Years Ended December 31, 1997 and 1996................ F-5
Statements of Cash Flows For the Years Ended December 31, 1997 and 1996........................... F-6
Notes to Financial Statements..................................................................... F-7
PROFLIGHT MEDICAL RESPONSE, INC. (UNAUDITED)
Condensed Balance Sheets as at March 31, 1998 (Unaudited)......................................... F-17
Condensed Statements of Operations For the Three Month Period Ended March 31, 1998 and 1997
(Unaudited)...................................................................................... F-18
Condensed Statements of Cash Flows For the Three Month Period Ended March 31, 1998 and 1997
(Unaudited)...................................................................................... F-19
Notes to Financial Statements (Unaudited)......................................................... F-20
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
Independent Auditors' Report -- Staff Ciampino & Company, P.C..................................... F-26
Combined Balance Sheet as at December 31, 1997.................................................... F-27
Combined Statements of Operations and Retained Earnings For the Years Ended December, 1997 and
1996............................................................................................. F-28
Combined Statements of Cash Flows For the Years Ended September 30, 1997 and 1996................. F-29
Notes to Financial Statements..................................................................... F-30
AIR RESPONSE AND AIR RESPONSE SOUTH, INC. (UNAUDITED)
Condensed Balance Sheets as at March 31, 1998 and December 31, 1997 (Unaudited)................... F-36
Condensed Statements of Operations For the Three Month Period Ended March 31, 1998 and 1997
(Unaudited)...................................................................................... F-37
Condensed Statements of Cash Flows For the Three Month Period Ended March 31, 1998 and 1997
(Unaudited)...................................................................................... F-38
Notes to Financial Statements (Unaudited)......................................................... F-39
PROFLIGHT MEDICAL RESPONSE, INC. PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Statement of Operations For the Year Ended December 31, 1997 (Unaudited)................ F-44
Pro Forma Condensed Balance Sheet as of March 31, 1998 (Unaudited)................................ F-45
Pro Forma Statement of Operations For the Three Months Ended March 31, 1998 (Unaudited)........... F-47
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
and Stockholders
PROFLIGHT MEDICAL RESPONSE, INC.
We have audited the accompanying balance sheets of Proflight Medical
Response, Inc. (a Colorado corporation) as of December 31, 1997 and 1996, and
the related statements of operations, stockholders' deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Proflight Medical Response,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in note B to the
financial statements, the Company's total liabilities exceed total assets as of
December 31, 1997. This factor and others discussed in note B raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note B. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
GRANT THORNTON LLP
Denver, Colorado
February 20, 1998
(except for Note A, Item (6) as to which the
date is April 16, 1998, Note C, Note J,
Item 4 and 5 as to which the date is March 10, 1998,
and Note J, Item 6 as to which the date is April 20, 1998
F-2
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Accounts receivable, trade
Air Response, Inc........................................................... $ 224,094 $ 131,887
Other....................................................................... 416,420 374,206
---------- ----------
640,514 506,093
Less allowance for doubtful accounts........................................ 100,000 40,000
---------- ----------
540,514 466,093
Other current assets............................................................. 21,200 8,705
---------- ----------
Total current assets................................................... 561,714 474,798
Property and Equipment -- At Cost
Aircraft......................................................................... 3,118,526 4,281,883
Furniture and fixtures........................................................... 54,050 22,997
Medical equipment................................................................ 164,787 160,262
---------- ----------
3,337,363 4,465,142
Less accumulated depreciation and amortization.............................. (714,343) (337,013)
---------- ----------
2,623,020 4,128,129
Other Assets
Note receivable, including interest -- Air Response, Inc......................... 222,500 200,000
Deferred loan costs, less accumulated amortization of $16,250 in 1996............ -- 93,750
Deferred offering costs.......................................................... 64,350 10,000
Cost of intangible business asset, less accumulated amortization of $4,000 in
1996............................................................................ -- 26,000
Prepaid engine maintenance reserve............................................... 250,586 42,489
---------- ----------
537,436 372,239
---------- ----------
Total assets........................................................... $3,722,170 $4,975,166
---------- ----------
---------- ----------
LIABILITIES
Current Liabilities
Current portion of notes payable
Shareholders/directors...................................................... $ 719,669 $ 513,694
Other....................................................................... 1,836,165 428,253
Bank overdraft................................................................... 187 19,910
Accounts payable -- trade
Air Response, Inc........................................................... 151,767 19,535
Other....................................................................... 1,008,092 476,256
Accrued liabilities.............................................................. 71,874 97,461
---------- ----------
Total current liabilities.............................................. 3,787,754 1,555,109
Notes payable, less current portion
Shareholders/directors........................................................... -- 154,000
Other............................................................................ 687,754 3,809,935
---------- ----------
687,754 3,963,935
---------- ----------
Total liabilities...................................................... 4,475,508 5,519,044
Commitments and Contingencies......................................................... -- --
Stockholders' Deficit
Common stock -- authorized 20,000,000 shares of $.001 par value; issued and
outstanding, 2,034,350 and 2,151,075 for 1997 and 1996, respectively............ 2,034 2,151
Paid-in capital (deficit)........................................................ 31,343 (435,024)
Preferred stock -- authorized 500,000 shares of $1 par value; no shares issued or
outstanding..................................................................... -- --
---------- ----------
33,377 (432,873)
Accumulated deficit.............................................................. (786,715) (111,005)
---------- ----------
Total stockholders' deficit................................................. (753,338) (543,878)
---------- ----------
Total liabilities and stockholders' deficit............................ $3,722,170 $4,975,166
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating revenue
Air ambulance.................................................................... $4,218,182 $3,090,527
Medical.......................................................................... 583,226 607,490
Passenger........................................................................ 125,409 175,068
Maintenance...................................................................... 79,803 33,126
Gain on sale of aircraft......................................................... 638,179 --
---------- ----------
Total operating revenue..................................................... 5,644,799 3,906,211
Operating expenses
Flying operations................................................................ 3,312,564 2,631,332
Maintenance...................................................................... 652,267 591,207
Promotion and sales.............................................................. 69,985 34,584
General and administrative....................................................... 1,406,483 650,036
Depreciation and amortization.................................................... 488,867 377,930
---------- ----------
Total operating expenses.................................................... 5,930,166 4,285,089
---------- ----------
Operating (loss)............................................................ (285,367) (378,878)
Nonoperating expenses (income)
Interest expense................................................................. 415,343 287,188
Other, net....................................................................... (25,000) (34)
---------- ----------
Total nonoperating expenses (income)........................................ 390,343 287,154
---------- ----------
Net (Loss).................................................................. $ (675,710) $ (666,032)
---------- ----------
---------- ----------
Basic loss per common share........................................................... $(0.36) $(0.45)
---------- ----------
---------- ----------
Weighted average number of common shares outstanding.................................. 1,886,593 1,487,300
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN
------------------- CAPITAL (ACCUMULATED
SHARES AMOUNT (DEFICIT) (DEFICIT) TOTAL
--------- ------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995...................... 771,097 $ 771 $144,047 $ (197,099) $ (52,281)
Net loss.......................................... -- -- -- (666,032) (666,032)
Transfer of S Corporation accumulated deficit to
paid-in capital................................. -- -- (752,126) 752,126 --
Cost of 387,282 shares of common stock retired.... (258,317) (258 ) (12,807) -- (13,065)
Common stock issued for cash...................... 154,220 154 99,846 -- 100,000
Common stock issued for promotion services........ 983,825 984 49,016 -- 50,000
Common stock issued for bridge loans.............. 466,900 467 34,533 -- 35,000
Common stock issued for services.................. 20,010 20 1,480 -- 1,500
Common stock issued in conjunction with loan...... 13,340 13 987 -- 1,000
--------- ------ -------- ------------ ---------
Balance at December 31, 1996...................... 2,151,075 2,151 (435,024) (111,005) (543,878)
Net loss.......................................... -- -- -- (675,710) (675,710)
Common stock issued for bridge loans.............. 216,775 217 16,033 -- 16,250
Retired common stock in exchange for options...... (333,500) (334 ) 334 -- --
Forgiveness of bridge loans....................... -- -- 450,000 -- 450,000
--------- ------ -------- ------------ ---------
Balance at December 31, 1997...................... 2,034,350 $2,034 $ 31,343 $ (786,715) $(753,338)
--------- ------ -------- ------------ ---------
--------- ------ -------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net (loss)............................................................................ $ (675,710) $ (666,032)
Adjustment to reconcile net earnings (loss) to net cash provided by operating
activities
Depreciation and amortization.................................................... 488,867 377,930
(Gain) on sale of aircraft....................................................... (638,179) --
Provision for losses on accounts receivable...................................... 60,000 11,353
Stock issued for services............................................................. -- 2,500
Changes in assets and liabilities
(Increase) in accounts receivable................................................ (134,421) (141,413)
(Increase) in other assets....................................................... (217,092) (76,787)
Net increase in deferred costs................................................... (54,350) (35,000)
Increase (decrease) in bank overdraft............................................ (19,723) 19,910
Increase in accounts payable..................................................... 664,068 214,760
Increase (decrease) in accrued liabilities....................................... (25,587) 78,689
---------- ----------
Net cash (used in) operating activities................................ (552,127) (214,090)
Cash flows from investing activities
Acquisition of property and equipment............................................ (35,579) (3,858,564)
Proceeds from sale of aircraft................................................... 1,750,000 --
Issuance of note receivable...................................................... -- (200,000)
---------- ----------
Net cash flows provided by (used in) investing activities.............. 1,714,421 (4,058,564)
Cash flows from financing activities
Proceeds from sale of stock...................................................... -- 100,000
Retirement of common stock....................................................... -- (13,065)
Principal payments on notes payable.............................................. (1,518,658) (175,745)
Proceeds from notes payable...................................................... 356,364 4,359,780
---------- ----------
Net cash provided by (used in) financing activities.................... (1,162,294) 4,270,970
---------- ----------
Net (Decrease) in Cash and Cash Equivalents........................................... -- (1,684)
Cash and cash equivalents, beginning of year.......................................... -- 1,684
---------- ----------
Cash and cash equivalents, end of year................................................ $ -- $ --
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information
Cash paid during the year for interest........................................... $ 387,009 $ 262,808
Supplemental schedule of noncash investing and financing activities
Common stock issued for services and bridge loans..................................... 16,250 85,000
Refinancing of long-term debt......................................................... -- 435,687
Notes forgiven from bridge lenders net of deferred loan cost.......................... 500,000 --
333,500 shares of common stock returned to Company by its officers in exchange for
five-year options to purchase 667,000 shares of common stock over a period of three
to four years at an exercise price of $6.50 per share............................... 334 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
the understanding of Proflight Medical Response Inc.'s (the Company) financial
statements. The financial statements and notes are representations of the
Company's management, which is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles.
1. HISTORY AND BUSINESS ACTIVITY
The Company provides airborne transport for patients who are critically
ill, injured or otherwise incapacitated such that they may require emergency
medical care during flight. Services are provided by the Company for hospital
patients who need to be transported to other hospitals; hospital patients who
need to be transported to residences or nursing homes and other convalescent
facilities; organ transplant harvest teams and harvested organs and significant
numbers of vacationers who become ill or injured during trips. The flights
operated are generally long distance in nature and they include international as
well as domestic transport.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid cash investments with an original maturity of three months or less
to be cash equivalents.
3. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Major additions, betterments,
and renewals are capitalized. Maintenance and repairs are charged to operating
expenses as they are incurred. Depreciation and amortization to estimated
residual values are computed on the straight-line basis for the aircraft; the
units-of-production method for aircraft engines/overhauls; the double-declining
method is used for all other property and equipment, over the estimated useful
lives of the related assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Aircraft................................................. 20 years
Aircraft engines/overhauls............................... Estimated flight hours
Furniture and fixtures................................... 5 - 7 years
Medical equipment........................................ 7 years
</TABLE>
4. DEFERRED OFFERING COSTS
The Company has deferred the costs in connection with the proposed public
offering (note B). The costs will be charged against paid in capital if the
offering is successful, or will be charged to expense if the offering is
unsuccessful. Deferred offering costs of $259,275 related to an unsuccessful
offering were expensed in the year ended December 31, 1997.
5. STOCK OPTIONS
The Company has chosen to account for stock based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of grant over the exercise price.
F-7
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
6. LOSS PER COMMON SHARE
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128
requires the presentation of basic earnings per share (EPS) and, for companies
with potentially dilutive securities such as convertible debt, options and
warrants, diluted EPS.
Basic EPS is computed in accordance with SFAS 128 by dividing net income by
the weighted average number of shares outstanding during the period. All
outstanding securities at the end of 1997 which could be converted into common
shares are anti-dilutive. Therefore, the basic and diluted EPS are the same.
There is no impact on EPS for prior years as a result of the adoption of SFAS
128.
During the year ended December 31, 1996, the Company effected a 50 to 1 and
3.85356 to one stock split. On April 16, 1998, the Company effected a 0.667 to
one reverse stock split. All shares and per share amounts have been
retroactively restated to reflect the splits. Additionally, all shares that are
nominal issuances or returns have been given retroactive treatment in the
weighted average shares calculation.
7. INCOME TAXES
Prior to October 31, 1996, income taxes on net earnings were payable
personally by the stockholders pursuant to an election under Subchapter S of the
Internal Revenue Code not to have the Company taxed as a corporation.
Accordingly, no provision had been made for federal income taxes.
In October 1996, the Company lost its S corporation status as a result of
issuing stock to a corporation. Therefore, the Company was taxed as a C
Corporation for a portion of 1996. Accordingly, the accumulated deficit has been
recorded to paid-in capital as of November 1, 1996. Deferred income taxes are
provided for items which are reported for tax purposes in different periods than
in the financial statements (see note G).
8. IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121). SFAS 121 requires
that long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected future cash flows (undiscounted and without interest) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss would be based on the fair value of the asset. SFAS 121
also generally requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of the carrying amount or
the fair value, less cost to sell. SFAS 121 is effective for the Company's 1997
fiscal year end. Any impairment provisions recognized in accordance with SFAS
121 are permanent and may not be restored in the future. No impairment expense
was recognized in the years ended December 31, 1997 and 1996.
9. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. RECLASSIFICATIONS
Certain financial information for the year ended December 31, 1996, has
been reclassified to conform with the presentation for the current year.
NOTE B -- REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, as shown in the accompanying financial
statements, the Company has accumulated a deficit in stockholders' equity of
$753,338 through December 31, 1997. In addition, total current liabilities
exceed total current assets by approximately $3,226,040 as of December 31, 1997.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
The Company is pursuing additional financing from outside sources,
including an initial public offering (IPO) (see note E2). With the proceeds of
the IPO, management intends to acquire a company which will more than double
current sales. Management believes this combination will allow both companies to
operate more efficiently through elimination of certain duplicate general and
administrative costs, purchasing discounts on aircraft fuel, and more efficient
use of each aircraft.
Management also plans to expand services through the purchase of additional
aircraft, resulting in increased revenues, more efficient use of current
aircraft, and proportionately lower operating costs. Management believes this
should provide a higher gross margin. Management believes that these actions
will provide growth and improve the Company's operating and financial condition,
providing the opportunity to continue as a going concern.
NOTE C -- NOTE RECEIVABLE -- AIR RESPONSE, INC.
In 1996, the Company loaned $200,000 to Air Response, Inc., a company it
intends to purchase (see note E3), which is also a major customer. The note is
unsecured and bears interest at 10%. The note is payable in two installments of
$100,000 plus accrued interest on May 14, 1998 and May 14, 2000 (see note J4).
In March of 1998 the note and interest was forgiven as consideration for
extending the acquisition agreement.
NOTE D -- NOTES PAYABLE
Notes payable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Shareholders/Directors
10.0% note to a shareholder, payable in full, principal and interest on
the earlier of May 31, 1998 or closing of an initial public offering... $ 21,669 $ 19,694
11.0% note to a shareholder with monthly interest-only payments due
September 30, 1998; secured by a secondary lien on a 1973 Learjet
25B-XR and other key components, as well as all accounts receivable,
and certain medical equipment and other assets as specified in the
agreement.............................................................. 198,000 198,000
</TABLE>
F-9
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
12.0% note to a shareholder with monthly interest only payments, due
September 30, 1998; secured by a third lien on a 1973 Learjet 25B-XR
and a second interest in all accounts receivable and certain medical
equipment.............................................................. $ 100,000 $ 100,000
36.0% notes to a shareholder, with monthly interest-only payments due on
the earlier of June 30, 1998 or upon closing of an initial public
offering; secured by a fourth and fifth lien on a 1973 Learjet 25B-XR
and other key components, as well as all accounts receivable and
certain medical equipment.............................................. 225,000 --
10.0% notes with nineteen shareholders, payable in full, principal and
interest, on the earlier of one year from date of each note or upon
closing of an initial public offering; note forgiven in April 1997..... -- 350,000
10.0% notes with four shareholders payable in full, principal and interest
on the earlier of March 27, 1998, or upon closing of an initial public
offering............................................................... 125,000 --
8.0% note to a shareholder, payable on demand............................. 50,000 --
---------- ----------
719,669 667,694
Less current maturities.............................................. 719,669 513,694
---------- ----------
$ -- $ 154,000
---------- ----------
---------- ----------
Other
9.75% note due in monthly installments of $19,419 including interest, due
November 10, 2006; collateralized by a 1978 Learjet 35A and other
equipment.............................................................. $ -- $1,477,646
9.75% note due in 60 monthly installments of $14,720 including interest,
beginning December 15, 1996, with a balloon payment of $322,284 due on
December 15, 2001; collateralized by a 1973 Learjet 25B and other
equipment. Guaranteed by certain stockholders.......................... 791,759 886,139
10.5% note due in 59 monthly installments of $17,717 including interest,
beginning June 30, 1996, with a balloon payment of $841,995 due on May
31, 2001, collateralized by a 1978 Learjet 35A. Guaranteed by certain
stockholders. At December 31, 1997, the note is in default and the
entire balance due is reflected as current............................. 1,202,583 1,268,241
10.5% note due in 55 monthly installments of $6,513 including interest,
beginning November 15, 1996, with a balloon payment of $324,627 due on
June 15, 2001; collateralized by a 1978 Learjet 35A. Guaranteed by
certain stockholders. The note is in default and the entire balance due
is reflected as current................................................ 455,224 478,053
10.0% note issued January 16, 1996, due in monthly installments of $1,500
with the balance due on July 16, 1996. Defaulted in 1996 and interest
rate increased to 20.0%; entire balance reflected as current........... 26,865 85,009
10.25% line of credit with bank, due February 27, 1998.................... 47,488 43,100
---------- ----------
2,523,919 4,238,188
Less current maturities.............................................. 1,836,165 428,253
---------- ----------
$ 687,754 $3,809,935
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
The aggregate maturities of the notes payable are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1998................................................... $2,555,834
1999................................................... 114,611
2000................................................... 126,299
2001................................................... 446,844
----------
$3,243,588
----------
----------
</TABLE>
NOTE E -- COMMITMENTS AND CONTINGENCIES
1. LEASES
The Company leases aircraft, office space and office equipment under
operating lease arrangements. In February 1997, the Company entered into a
seven-year office building lease with monthly rental of $11,705. Total lease
expense was $252,468 and $86,738 for the years ended December 31, 1997 and 1996,
respectively. In addition, as part of the aircraft lease, the Company is
required to make monthly payments of $150 per engine hour flown. A total of
$117,405 and $12,720 was recognized in 1997 and 1996, respectively, as
maintenance expense.
The minimum rental commitments under the noncancelable lease agreements are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1998................................................... $ 320,979
1999................................................... 305,460
2000................................................... 140,460
2001................................................... 140,460
2002................................................... 140,460
Thereafter............................................. 204,838
----------
$1,252,657
----------
----------
</TABLE>
2. INITIAL PUBLIC OFFERING
In October 1997 the Company signed a letter of intent with First Liberty
Investment Group to act as managing underwriter on a firm commitment basis for a
$6,726,720 initial public offering (IPO). The underwriting calls for the sale of
1,019,200 shares of common stock at $6.50 per share and 1,019,200 warrants at
$0.10 each.
In addition, the Company has agreed to enter into a financial consulting
agreement with the Underwriter, who will act as a financial consultant for the
Company for a period of two years, commencing upon the consummation of this
Offering, for an aggregate fee of $120,000, all of which is payable in full at
the Closing.
3. ACQUISITION OF AIR RESPONSE AND AIR RESPONSE SOUTH
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
amended in May 1997 and in January 1998, pursuant to which the Company agreed to
acquire at the closing of the IPO, subject to the terms and conditions contained
therein, all of the outstanding capital stock of Air Response in exchange for
496,154 shares of common stock of the Company, valued at $6.50 per share, to be
issued two years from the closing of the IPO. If the Company completes a second
public offering, Mr. Capece has a put option to sell to the Company such number
of shares of common stock at the then current market value, equal
F-11
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
to 20% of the net proceeds of such second offering, not to exceed $1,000,000.
Under the terms of such put option, the Company is obligated to purchase the
shares offered. Simultaneously, the Company entered into an Amended Stock
Purchase and Sale agreement with Air Response South and Louis R. Capece, Jr.,
pursuant to which the Company agreed to acquire at the closing of the IPO,
subject to the terms and conditions contained therein, all of the outstanding
capital stock of Air Response South for $800,000 which is payable upon closing
of the IPO.
The Acquisition will close simultaneously with the closing of the IPO. The
Company entered into a consulting agreement with Louis R. Capece, Jr., which
agreement is effective as of the closing of the IPO. In connection with the
acquisitions, Mr. Capece covenanted that he will not, for a period of five years
from closing, compete with the Company. Mr. Capece has the right to nominate two
members to the Company's Board of Directors. Mr. Capece has nominated himself
and Donald Jones as nominees to the Board of Directors. This acquisition
agreement has been subsequently modified (see note J4).
4. CONSULTING AGREEMENT
The Company entered into a two year consulting agreement, effective at IPO,
with Louis R. Capece, Jr. Under the terms of the agreement, Mr. Capece has
agreed to devote a minimum of 100 hours per month to the Company. Mr. Capece
will be paid an aggregate of $100,000 per year. The Company or Mr. Capece may
cancel the consulting agreement for any reason after one year and upon 60 days
prior notice.
5. LITIGATION
In March 1997, the Company and the Company's president were named in a
lawsuit Susan Fuller v. Proflight, Inc., Kevin Burkhardt, Andrew Hiestand and
James Fuller, Arapahoe County District Court, Colorado, which alleges the
plaintiff's former husband merged a business into the Company to conceal and
otherwise preclude plaintiff from receiving plaintiff's share of her former
husband's interest in the Company. The lawsuit was settled for $100,000 in
January 1998, and the related liability has been reflected on the Company's
financial statement as of December 31, 1997 (see note J1).
In September 1997, Mr. James Fuller filed a separate complaint against the
Company claiming that he is entitled to compensation for the value of shares of
the Company's common stock which he alleges he owns. No amount was stated in the
suit. The Company maintains that Mr. Fuller never paid the agreed upon price for
the shares and therefore never owned them. Moreover, Mr. Fuller signed the
shares back to the Company in December 1994. The Company, through its counsel,
intends to vigorously defend against this action. No assurances can be made that
the Company will reach a satisfactory resolution of the above stated
proceedings. Failure to reach such a resolution could have a material adverse
effect on the Company's financial condition or cash reserves.
6. EMPLOYMENT AGREEMENTS
In March 1997, the Company entered into an amended employment agreement
with Donald Jones to serve as the Company's Vice President of Sales. The
employment agreement is for a six-year term commencing upon consummation of the
IPO and is subject to successive automatic renewal periods of one year unless
earlier terminated. Mr. Jones is to receive a 5% increase in his base salary in
years four, five and six. Pursuant to the terms of this employment agreement,
Mr. Jones is required to devote his full business time and attention to fulfill
his duties and responsibilities to the Company. Mr. Jones will receive a base
salary of $150,000 per annum. The Company has agreed to pay Mr. Jones a
relocation bonus of $100,000 and reasonable relocation expenses. In addition Mr.
Jones will receive 76,924 shares of common stock upon the closing of the
offering.
F-12
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
On March 31, 1997, the Company entered into an employment agreement with
Kevin L. Burkhardt, the Company's President and Chief Executive Officer, for a
term of five years with successive automatic renewal periods of one year with a
base salary of $90,000 for the first year and 10% increases in each of the
following years. Mr. Burkhardt will receive a $25,000 one-time bonus if he
consummates another acquisition.
On March 31, 1997, the Company entered into an employment agreement with
Steven Myers to serve as Assistant Vice President of Marketing, for a term of
five years with successive automatic renewal periods of one year with a base
salary of $70,000. Mr. Myers has subsequently resigned from the Company (see
note J3).
On March 31, 1997, the Company entered into an employment agreement with
David Cohen, the Company's Chief Financial Officer and Treasurer, for a term of
three years with successive automatic renewal periods of one year with a base
salary of $70,000.
On March 31, 1997, the Company entered into an employment agreement with
Jane S. Burkhardt, the Company's Secretary, for a term of three years with
successive automatic renewal periods of one year with a base salary of $36,000.
Pursuant to the terms of this employment agreement, Mrs. Burkardt is required to
devote 20 hours per week to fulfill her duties and responsibilities to the
Company.
7. STOCK OPTION PLAN
The Board of Directors plans to submit to the shareholders a stock option
plan (the 'Option Plan'). The Option Plan provides for the grant of incentive
stock options ('ISOs') intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended, and nonstatutory
stock options ('NSOs') that do not qualify for such treatment. Only employees
(including officers and directors who are also employees) of the Company or any
of its subsidiaries are eligible to receive grants of ISOs. Employees, officers,
directors, consultants, contractors and advisers of the Company or any
subsidiary are eligible to receive grants of NSOs. The purpose of the Option
Plan is to enable to the Company to attract and retain exemplary directors,
employees, agents and consultants.
No options can be granted under the Option Plan at less than 100% of the
fair market value of the Company's securities on the date of the grant.
The Option Plan provides that a maximum of 350,000 shares of common stock
may be issued upon the exercise of options granted under the Option Plan. If an
option granted under the Option Plan expires or terminates for any reason
without having been exercised in full, then the unpurchased shares subject to
that option will be available for additional option grants. No shares of common
stock underlying any stock options issued under the Plan may be registered on
Form S-9 or any successor form for two years after the date thereof.
NOTE F -- MAJOR CUSTOMERS
The Company had approximate sales to major customers as follows:
<TABLE>
<CAPTION>
CUSTOMER 1997 1996
- ----------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Air Response, Inc.............................................................................. 27% 8%
Advanced Air Ambulance......................................................................... 9 13
Aetna.......................................................................................... 8 6
Air Ambulance America.......................................................................... 6 10
</TABLE>
In addition, the Company is due approximately $224,094 and $132,000 in
accounts receivable, and $222,500 and $200,000 in a note receivable as of
December 31, 1997 and 1996, respectively, (see note C) from Air Response, Inc.
The Company owes approximately $151,767 and $19,535 in accounts payable as
F-13
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
of December 31, 1997 and 1996, respectively, to Air Response, Inc. This customer
is the company Proflight intends to purchase as discussed in note
E -- Acquisition of Air Response and Air Response South.
NOTE G -- INCOME TAXES
There is no income tax expense or benefit for 1997 or 1996. The provision
for income taxes differs from the amount determined by applying the statutory
rate to net income before taxes, due to the following reasons for the year ended
December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income tax benefit at statutory rate.......................................... $(262,000) $(246,000)
Subchapter S loss............................................................. -- 205,000
Change in valuation allowance................................................. 331,000 52,000
Other......................................................................... (69,000) (11,000)
--------- ---------
Income tax benefit............................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Components of deferred tax assets are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards.............................................. $ 296,000 $ 34,000
Allowance for bad debts....................................................... 39,000 15,000
Accrued litigation............................................................ 39,000 --
Accrued vacation.............................................................. 9,000 3,000
--------- ---------
383,000 52,000
Valuation allowance........................................................... (383,000) (52,000)
--------- ---------
Net assets.................................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has net operating loss carryforwards for tax purposes of
approximately $683,000 and $87,000 which expire in the years 2012 and 2011,
respectively. A portion of the net operating loss carryforwards may be subject
to limitations as a result of provisions of the Internal Revenue Code relating
to changes in ownership.
NOTE H -- RELATED PARTY TRANSACTIONS
In order for the Company to obtain sufficient financing to purchase a 1973
Learjet 25B-XR, it was necessary for the Company to have a shareholder guarantee
repayment of a loan. In exchange, the shareholder is paid a fee of $100 per
month for each month that the loan is outstanding.
In January 1997, the Company issued an option to purchase 16,675 shares of
common stock at $1.67 per share to a director of the Company. In March 1997, the
Company issued an option to purchase 16,675 shares of common stock at $6.50 per
share to a shareholder in consideration for extending the due date on certain
notes.
In April 1997, bridge loans from shareholders totaling $500,000 were
forgiven. In May 1997, shares totaling 333,500 were retired that were owned by
the President and Directors in return for options to purchase 667,000 shares of
common stock at $6.50 per share.
In October 1997, David H. Cohen, the Company's CFO, was offered 6,670
shares of common stock as a bonus to be issued upon completion of the IPO. The
Company has agreed to pay for any additional tax liability the stock bonus adds
to his income.
During 1997, the Company combined its operations with the operations of Air
Response in anticipation of a public offering and the concurrent merger of the
companies. Certain costs of
F-14
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
operations were provided to Air Response by Proflight, including costs of
pilots, mechanics and certain administrative costs. These costs were not charged
to Air Response and accordingly, have not been reflected in these financial
statements. Management has estimated the costs of the services provided to be
$37,000.
NOTE I -- DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value.
NOTES RECEIVABLE
It is not considered practicable to estimate the fair value of the note
receivable due to the related-party nature of the transaction.
NOTES PAYABLE
Carrying amount approximates fair value as the interest rates approximate
market rates at December 31, 1997 and 1996.
NOTE J -- SUBSEQUENT EVENTS
1. LITIGATION SETTLEMENT
On January 12, 1998, the Company settled the Susan Fuller lawsuit for
$100,000. The liability related to this lawsuit has been reflected in the
Company's financial statements as of December 31, 1997.
2. SALE OF AIRCRAFT
On January 23, 1998, the Company sold its 1978 Learjet 35A, N18FN for $2.2
million to Air Response, Inc. The Company used the proceeds to pay off the notes
payable related to the aircraft and other current obligations including the
maintenance service plan on this aircraft's engines and settlement of the Susan
Fuller lawsuit.
3. KEY MANAGEMENT RESIGNATION
On March 1, 1998, Steven Meyers, Assistant Vice President of Marketing,
resigned from the Company, which voided his employment contract. However, his
common stock options will still remain in effect. Mr. Myers will continue his
services as a director of the Company's Board.
4. REVISION OF ACQUISITION AGREEMENT
On March 10, 1998, the Company, Air Response (AR), Air Response South
(ARS), and Srotnac Group, LLC (Srotnac), a 55.3% shareholder in the Company,
agreed to the following:
a. The Company, AR and ARS will do what is required to complete the
IPO by May 31, 1998 and not negotiate with other parties until after that
date.
b. The Company will receive bridge financing of at least $200,000 by
March 12, 1998 and an additional $100,000 by April 12, 1998.
c. The $200,000 note owed to the Company by AR has been forgiven,
including accrued interest. (This was granted in consideration of extending
the acquisition agreement.)
F-15
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
d. All audit costs AR incurs from producing its year-end financials
for the IPO shall be paid first from bridge loan funds.
e. The Company and AR will agree as to the use of proceeds of the
$300,000 in bridge loan proceeds.
f. If the IPO does not occur by May 31, 1998, then the Company and
Srotnac will release AR, its President (Louis Capece, Jr.), and its
employees for all past, present, and future obligations regarding the IPO.
This includes the right to negotiate with any other company for the purpose
of a merger or acquisition without any interference or litigation from the
Company or Srotnac.
g. As previously agreed, Mr. Capece, will receive a $100,000 annual
employment agreement for two years from the date of the IPO.
5. SHORT-TERM BRIDGE FINANCING
On March 10, 1998, the Company received $300,000 in uncollateralized
short-term bridge financing. These bridge notes carry an interest rate of 15%
per annum and are payable in full, principal and interest on the earlier of May
31, 1998, or upon closing of an initial public offering.
6. RETIREMENT OF SHARES
In April of 1998, Srotnac, LLC agreed to retire 250,000 shares of Common
Stock at the request of the Underwriter.
F-16
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Accounts receivable, trade
Air Response, Inc.......................................................... $ 83,705 $ 224,094
Other...................................................................... 436,870 416,420
----------- ------------
520,575 640,514
Less allowance for doubtful accounts....................................... 100,000 100,000
----------- ------------
420,575 540,514
Other current assets............................................................ 49,317 21,200
----------- ------------
Total current assets.................................................. 469,892 561,714
Property and Equipment -- At Cost
Aircraft........................................................................ 1,106,615 3,118,526
Furniture and fixtures.......................................................... 54,050 54,050
Medical equipment............................................................... 164,787 164,787
----------- ------------
1,325,452 3,337,363
Less accumulated depreciation and amortization............................. (470,230) (714,343)
----------- ------------
855,222 2,623,020
Other Assets
Deferred acquisition costs...................................................... 258,063 222,500
Deferred offering costs......................................................... 84,795 64,350
Prepaid engine maintenance...................................................... -- 250,586
----------- ------------
342,858 537,436
----------- ------------
Total assets.......................................................... $ 1,667,972 $3,722,170
----------- ------------
----------- ------------
LIABILITIES
Current Liabilities
Current portion of notes payable
Shareholders/directors..................................................... $ 729,070 $ 719,669
Other...................................................................... 473,596 1,836,165
Bank overdraft.................................................................. 12,500 187
Accounts payable -- trade
Air Response, Inc.......................................................... 6,543 151,767
Other...................................................................... 510,761 1,008,092
Accrued Liabilities............................................................. 76,464 71,874
----------- ------------
Total current liabilities............................................. 1,808,954 3,787,754
Notes payable, less current portion
Stockholders'................................................................... -- --
Other........................................................................... 666,321 687,754
----------- ------------
666,321 687,754
----------- ------------
Total liabilities..................................................... 2,475,275 4,475,508
Stockholders' Equity (Deficit)
Common stock -- authorized 20,000,000 shares of $.001 par value: 2,034,350
issued and outstanding at March 31, 1998 and at December 31, 1997.............. 2,034 2,034
Paid-in capital................................................................. 31,343 31,343
Preferred stock -- authorized 500,000 at $1.00 par value: none issued and
outstanding.................................................................... -- --
----------- ------------
33,377 33,377
Accumulated deficit............................................................. (840,680) (786,715)
----------- ------------
Total stockholders' deficit................................................ (807,303) (753,338)
----------- ------------
Total liabilities and stockholders deficit............................ $ 1,667,972 $3,722,170
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1998 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Operating revenue.............................................................. $1,340,022 $2,045,534
Operating expense
Flying operations......................................................... 691,645 740,544
Maintenance............................................................... 177,291 252,621
Promotion and sales....................................................... 47,880 33,488
General and administration................................................ 313,513 238,010
Depreciation and amortization............................................. 63,387 111,375
-------------- --------------
Total operating expense.............................................. 1,293,713 1,376,038
Operating profit..................................................... 46,306 669,496
Non operating expenses
-------------- --------------
Interest.................................................................. 100,271 103,352
-------------- --------------
Net profit (loss).................................................... $ (53,965) $ 566,144
-------------- --------------
-------------- --------------
Basic income (loss) per common share........................................... $(0.03) $0.28
-------------- --------------
-------------- --------------
Weighted average number of shares outstanding.................................. 1,784,350 2,032,252
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings (loss)................................................................. $ (53,965) $ 566,144
Adjustment to reconcile net earnings (loss) to to net cash provided by operating
activities
Depreciation and amortization.................................................. 63,387 111,375
(Gain) on sale of aircraft..................................................... (255,949) (638,179)
Changes in assets and liabilities
Decrease (Increase) in accounts receivable..................................... 119,939 (108,613)
(Increase) in other assets..................................................... (56,008) (15,282)
Net (increase) in deferred costs............................................... (39,171) (35,000)
Increase (decrease) in bank overdraft.......................................... 12,313 (19,910)
(Decrease) in accounts payable................................................. (642,555) (143,432)
(Decrease) increase in accrued liabilities..................................... (36,932) 25,916
----------- -----------
Net cash (used in) operating activities.............................. (888,941) (256,982)
Cash flows from investing activities
Purchase of property and equipment............................................. -- (7,850)
Proceeds from sale of aircraft................................................. 2,222,000 1,750,000
----------- -----------
Net cash provided by financing activities............................ 2,222,000 1,742,150
Cash flows from financing activities
Proceeds from bridge loans..................................................... 300,000 275,000
Principal payments on notes payable............................................ (1,633,059) (1,428,040)
----------- -----------
Net cash (used in) financing activities.............................. (1,333,059) (1,153,040)
----------- -----------
Net (increase) in cash and cash equivalents......................................... -- 332,128
Cash and cash equivalents, beginning of period...................................... -- --
----------- -----------
Cash and cash equivalents, end of period............................................ $ -- $ 332,128
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information
Cash paid during the quarter for interest...................................... $ 100,271 $ 95,899
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements of Proflight
Medical Response, Inc. (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for annual financial statements. The
accompanying unaudited condensed financial statements and disclosures reflect
all adjustments which, in the opinion of the management, are necessary for fair
presentation of the results of operations, financial position, and cash flows of
the Company. The results of operations for the periods indicated are not
necessarily indicative of the results for the full year.
NOTE 2 -- REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, as shown in the accompanying financial
statements, the Company has accumulated a deficit in stockholders' equity of
$807,303 through March 31, 1998. In addition, total current liabilities exceed
total current assets by approximately $1,339,062 as of March 31, 1998.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
The Company is pursuing additional financing from outside sources,
including an initial public offering (IPO) (see note 4, Initial Public
Offering). With the proceeds of the IPO, management intends to acquire a company
which will more than double current sales. Management believes this combination
will allow both companies to operate more efficiently through elimination of
certain duplicate general and administrative costs, purchasing discounts on
aircraft fuel, and more efficient use of each aircraft. Management also plans to
expand services through the purchase of additional aircraft, resulting in
increased revenues, more efficient use of aircraft, and proportionately lower
operating costs. Management believes this should provide a higher gross margin.
Management believes that these actions will provide growth and improve the
Company's operating and financial condition, providing the opportunity to
continue as a going concern.
NOTE 3 -- NOTES PAYABLE
Notes payable at March 31, 1998 consisted of the following:
<TABLE>
<S> <C>
Shareholders/Directors
10.0% note to a shareholder, payable in full, principal and interest on the earlier
of May 31, 1998 or closing of an initial public offering. At May 31, 1998 the note
was in default, the entire balance is reflected as current.......................... $ 21,710
11.0% note to a shareholder with monthly interest-only payments due September 30,
1998; secured by a secondary lien on a 1973 Learjet 25B-XR and other key components,
as well as all accounts receivable, and certain medical equipment and other assets
as specified in the agreement....................................................... $ 198,000
</TABLE>
(table continued on next page)
F-20
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
(table continued from previous page)
<TABLE>
<S> <C>
12.0% note to a shareholder with monthly interest only payments, due September 30,
1998; secured by a third lien on a 1973 Learjet 25B-XR and a second interest in all
accounts receivable and certain medical equipment................................... $ 100,000
36.0% notes to a shareholder, with monthly interest-only payments due on the earlier
of June 30, 1998 or upon closing of an initial public offering; secured by a fourth
and fifth lien on a 1973 Learjet 25B-XR and other key components, as well as all
accounts receivable and certain medical equipment................................... $ 225,000
10.0% notes with four shareholders payable in full, principal and interest on the
earlier of June 30, 1998, or upon closing of an initial public offering............. $ 134,360
8.0% note to a shareholder, payable on demand:....................................... $ 50,000
----------
$ 729,070
Less current maturities.............................................................. $ 729,070
----------
0
----------
----------
Other:
9.75% note due in 60 monthly installments of $14,720 including interest, beginning
December 15, 1996, with a balloon payment of $322,284 due on December 15, 2001;
collateralized by a 1973 Lear 25B-XR and other equipment. Guarenteed by certain
stockholders........................................................................ $ 776,013
10.0% note issued on January 16, 1996, due monthly installments of $1500 with balance
due on July 16, 1996. Defaulted in 1996 and interest rate increased to 20.0%; entire
balance reflected as current:....................................................... $ 16,417
10.25% line of credit with bank, due February 27, 1998, extended on a month by month
basis. Scheduled to be paid in full at IPO:......................................... $ 47,488
15.0% bridge loan issued March 10, 1998, due principal and interest on the earlier of
May 31, 1998 or upon the closing of an initial public offering. At May 31, 1998 the
note was in default, the entire balance is reflected as current..................... $ 300,000
----------
$1,139,917
Less current maturities:............................................................. $ 473,596
----------
$ 666,321
----------
----------
</TABLE>
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases aircraft, office space and office equipment under
operating lease arrangements. In February 1997, the Company entered into a
seven-year office building lease with monthly rental of $11,705. In addition, as
part of the aircraft lease, the Company is required to make monthly payments of
$150 per engine hour flown. A total of $18,622, for the three months ended March
31, 1998 was recognized, as maintenance expense.
F-21
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
The minimum rental commitments under the noncancellable lease agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998......................................................... $ 320,979
1999......................................................... 305,460
2000......................................................... 140,460
2001......................................................... 140,460
2002......................................................... 140,460
Thereafter................................................... 204,838
----------
$1,252,657
</TABLE>
INITIAL PUBLIC OFFERING
In October 1997 the Company signed a letter of intent with First Liberty
Investment Group to act as managing underwriter on a firm commitment basis for a
$6,726,720 initial public offering (IPO). The underwriting calls for the sale of
1,019,200 shares of common stock at $6.50 per share and 1,019,200 warrants at
$.10 each.
ACQUISITION OF AIR RESPONSE AND AIR RESPONSE SOUTH
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
amended in May 1997 and in January 1998, pursuant to which the Company agreed to
acquire at the closing of the IPO, subject to the terms and conditions contained
therein, all of the outstanding capital stock of Air Response in exchange for
496,154 shares of common stock of the Company, valued at $6.50 per share, to be
issued two years from the closing of the IPO. If the Company completes a second
public offering, Mr. Capece has a put option to sell to the Company such number
of shares of common stock at the then current market value, equal to 20% of the
net proceeds of such second offering, not to exceed $1,000,000. Under the terms
of such put option, the Company is obligated to purchase the shares offered.
Simultaneously, the Company entered into an Amended Stock Purchase and Sale
agreement with Air Response South and Louis R. Capece, Jr., pursuant to which
the Company agreed to acquire at the closing of the IPO, subject to the terms
and conditions contained therein, all of the outstanding capital stock of Air
Response South for $800,000 which is payable upon closing of the IPO.The
Acquisition will close simultaneously with the closing of the IPO. The
Acquisition will close simultaneously with the closing of the IPO. On March 10,
1998, the Company, Air Response (AR), Air Response South (ARS), and Srotnac
Group, LLC (Srotnac), a 55.3% shareholder in the Company, at the time of this
agreement agreed to the following:
1. The Company, AR, and ARS will do what is required to complete the
IPO by May 31, 1998 and not negotiate with other parties until after that
date.
2. The Company will receive bridge financing of at least $200,000 by
March 12, 1998 and an additional $100,000 by April 12, 1998.
3. The $200,000 note owed to the Company by AR has been forgiven,
including accrued interest, if the IPO does not take place by May 31, 1998.
4. All audit costs AR incurs from producing its year-end financials
for the IPO shall be paid first from bridge loan funds.
5. The Company and AR will agree as to the use of proceeds of the
$300,000 in bridge loan proceeds.
6. If the IPO does not occur by May 31, 1998, then the Company and
Srotnac will release AR, its President (Louis Capece, Jr.), and its
employees for all past, present, and future obligations regarding the IPO.
This includes the right to negotiate with any other company for the purpose
of a
F-22
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
merger or acquisition without any interference or litigation from the
Company or Srotnac. An additional extension was given by AR until June 30,
1998 in exchange for certain assets from Proflight if the IPO does not
occur.
7. As per previously agreed, Mr. Capece, will receive a $100,000
annual employment agreement for two years from the date of the IPO.
CONSULTING AGREEMENT
In April 1997 the Company entered into a consulting agreement with Louis R.
Capece, Jr., which is effective as of the closing of the IPO. In connection with
the acquisitions, Mr. Capece covenanted that he will not, for a period of five
years from closing, compete with the Company. Mr. Capece has the right to
nominate two members to the Company's Board of Directors. Mr. Capece has
nominated himself and Donald Jones as nominees to the Board of Directors. Mr.
Capece has agreed to devote a minimum of 100 hours per month to the Company. Mr.
Capece will be paid an aggregate of $100,000 per year. The Company or Mr. Capece
may cancel the consulting agreement for any reason after two years and upon 60
days prior notice.
LITIGATION
In September 1997, Mr. James Fuller filed a separate complaint against the
Company claiming that he is entitled to compensation for the value of shares of
the Company's common stock which he alleges he owns. No amount was stated in the
suit. The Company maintains that Mr. Fuller never paid the agreed upon price for
the shares and therefore never owned them. Moreover, Mr. Fuller signed the
shares back to the Company in December 1994. The Company, through its counsel,
intends to vigorously defend against this action. No assurances can be made that
the Company will reach a satisfactory resolution of the above stated
proceedings. Failure to reach such a resolution could have a material adverse
effect on the Company's financial condition or cash reserves.
EMPLOYMENT AGREEMENTS
In March 1997, the Company entered into an amended employment agreement
with Donald Jones to serve as the Company's Vice President of Sales. The
employment agreement is for a six-year term commencing upon consummation of the
IPO and is subject to successive automatic renewal periods of one year unless
earlier terminated. Mr. Jones is to receive a 5% increase in his base salary in
years four, five and six. Pursuant to the terms of this employment agreement,
Mr. Jones is required to devote his full business time and attention to fulfill
his duties and responsibilities to the Company. Mr. Jones will receive a base
salary of $150,000 per annum. In addition, Mr. Jones will receive a stock in the
total amount of 76,924 Common Shares if he stays employed with the Company for
at least two years and does not take a job with any competitor.
On March 31, 1997, the Company entered into an employment agreement with
Kevin L. Burkhardt, the Company's President and Chief Executive Officer, for a
term of five years with successive automatic renewal periods of one year with a
base salary of $90,000 for the first year and 10% increases in each of the
following years. Mr. Burkhardt will receive a $25,000 one-time bonus if he
consummates another acquisition.
On March 31, 1997, the Company entered into an employment agreement with
David Cohen, the Company's Chief Financial Officer and Treasurer, for a term of
three years with successive automatic renewal periods of one year with a base
salary of $70,000.
On March 31, 1997, the Company entered into an employment agreement with
Jane S. Burkhardt, the Company's Secretary, for a term of three years with
successive automatic renewal periods of one
F-23
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
year with a base salary of $36,000. Pursuant to the terms of this employment
agreement, Mrs. Burkardt is required to devote 20 hours per week to fulfill her
duties and responsibilities to the Company.
KEY MANAGEMENT RESIGNATION
On March 1, 1998, Steven Meyers, Assistant Vice President of Marketing,
resigned from the Company, which voided his employment contract. However, his
common stock options will still remain in effect. Mr. Myers will continue his
services as a director of the Company's Board.
NOTE 5 -- MAJOR CUSTOMERS
The Company had approximate sales to major customers as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
1998 1997
---- ----
<S> <C> <C>
Customer:
Air Response, Inc....................................................... 45.8% 14.6%
Advanced Air Ambulance.................................................. 5.9 3.9
AEA International....................................................... 4.8 --
Transnorth.............................................................. 3.9 --
</TABLE>
In addition, the Company is due approximately $83,705 in accounts
receivable, as of March 31, 1998 from Air Response, Inc. The Company owes
approximately $6,543 in accounts payable as of March 31, 1998 to Air Response,
Inc. This customer is the company Proflight intends to purchase as discussed in
note 4 -- Acquisition of Air Response and Air Response South.
NOTE 6 -- INCOME TAXES
There is no income tax expense or benefit for the three months ended March
31, 1998 or 1997.
NOTE 7 -- RELATED PARTY TRANSACTIONS
In order for the Company to obtain sufficient financing to purchase a 1973
Learjet 25B-XR, it was necessary for the Company to have a shareholder guarantee
repayment of a loan. In exchange, the shareholder is paid a fee of $100 per
month for each month that the loan is outstanding.
In January 1997, the Company issued an option to purchase 16,675 shares of
common stock at $1.67 per share to a director of the Company. In March 1997, the
Company issued an option to purchase 16,675 shares of common stock at $6.50 per
share to a shareholder in consideration for extending the due date on certain
notes.
In April 1997, bridge loans from shareholders totaling $500,000 were
forgiven. In May 1997, shares totaling 333,500 were retired that were owned by
the President and Directors in return for options to purchase 667,000 shares of
common stock at $6.50 per share.
In October 1997, David H. Cohen, the Company's CFO, was offered 6,670
shares of common stock as a bonus to be issued upon completion of the IPO. The
Company has agreed to pay for any additional tax liability the stock bonus adds
to his income.
In January of 1998 the Company sold its Lear 35A to Air Response for
$2,222,000. The sale gave the Company approximately $378,000 in working capital.
In anticipation of the acquisition, the aircraft was sold to AR for
approximately $255,000 under market value.
F-24
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
In the first quarter of 1998 the Company provided Air Response with
approximately $6,000 in free accounting and dispatch services.
NOTE 8 -- SUBSEQUENT EVENTS
On April 16, 1998 the shareholders of the Company voted to a two thirds for
one share stock split.
In April of 1998, Srotnac, LLC agreed to return 250,000 shares of common
stock at the request of the Underwriter.
On June 2, 1998 Lear Three L.L.C. agreed to extend its $225,000 loan to
June 30, 1998 unless any of the following events occur prior to that date.
1. The Federal Securities and Exchange Commission fails to approve the
issuance of the Initial Public Offering of Proflight.
2. The Underwriter fails to finalize the Underwriting Agreement to
issue the Initial Public Offering of Proflight within five (5) days of
receipt of notice of approval of the offering by the SEC.
3. The Underwriter fails to assign an effective date for issuance of
the Initial Public Offering within five (5) days of receipt of notice of
approval of the offering by the SEC.
On May 28, 1998 Air Response and Air Response South granted an extension to
Proflight for the right to purchase their stock in exchange for the certain
medical and maintenance equipment if the IPO does not occur.
F-25
<PAGE>
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
We have audited the accompanying combined balance sheet of Air Response,
Inc. (a New York corporation) and Air Response South, Inc. (a Florida
corporation) (combined 'the Companies') as of December 31, 1997 and the related
statements of operations and retained earnings and cash flows for the years
ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Air Response, Inc.
and Air Response South, Inc. as of December 31, 1997, and the combined results
of their operations and their cash flows for the years ended December 31, 1997
and 1996 in conformity with generally accepted accounting principles.
STAFF CIAMPINO & COMPANY, P.C.
Albany, New York
March 24, 1998
F-26
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents...................................................................... $ 9,583
Cash and cash equivalents -- restricted........................................................ 27,843
Accounts receivable, net of allowance for doubtful accounts of $48,339......................... 922,463
Other receivables.............................................................................. 6,992
Prepaid expenses............................................................................... 125,031
Refundable income taxes........................................................................ 54,556
----------
Total current assets...................................................................... 1,146,468
----------
Property and Equipment at Cost
Aircraft fleet................................................................................. 2,831,172
Machinery and equipment........................................................................ 225,557
Office equipment............................................................................... 30,820
----------
3,087,549
Less -- accumulated depreciation............................................................... 1,631,562
----------
Total property and equipment.............................................................. 1,455,987
----------
Other Assets
Due from officers.............................................................................. 488,148
Other assets................................................................................... 12,983
----------
Total other assets........................................................................ 501,131
----------
Total assets.............................................................................. $3,103,586
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Line of credit................................................................................. $ 278,425
Accounts payable............................................................................... 1,337,491
Current maturities of long-term debt........................................................... 286,099
Accrued expenses............................................................................... 50,305
----------
Total current liabilities................................................................. 1,952,320
Long-term debt, less current maturities............................................................. 1,061,385
----------
Total liabilities......................................................................... 3,013,705
----------
Commitments and Contingencies
Stockholder's Equity
Common stock................................................................................... 2,000
Retained earnings.............................................................................. 87,881
----------
Total stockholder's equity................................................................ 89,881
----------
Total liabilities and stockholder's equity........................................... $3,103,586
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Air ambulance revenue................................................................. $8,783,037 $7,658,243
---------- ----------
Operating Expenses
Flying operations................................................................ 5,186,687 4,495,123
Advertising...................................................................... 492,331 447,061
Repairs and maintenance.......................................................... 653,716 380,382
Depreciation..................................................................... 311,554 396,139
General and administrative....................................................... 1,885,940 1,538,761
---------- ----------
Total operating expenses.................................................... 8,530,228 7,257,466
---------- ----------
Income from operations................................................................ 252,809 400,777
---------- ----------
Other Income (Expense)
Loss on disposal of property and equipment....................................... 0 (381,216)
Bad debt expense -- affiliate.................................................... (48,343) (18,328)
Interest income.................................................................. 4,723 6,510
Interest expense................................................................. (189,242) (136,148)
Miscellaneous.................................................................... 557 43,444
---------- ----------
Total other income (expense)................................................ (232,305) (485,738)
---------- ----------
Income (loss) before income taxes..................................................... 20,504 (84,961)
Income tax benefit.................................................................... 85,222 38,747
---------- ----------
Net income (loss)..................................................................... 105,726 (46,214)
Retained earnings -- beginning of year................................................ (17,845) 28,369
---------- ----------
Retained earnings -- end of year...................................................... $ 87,881 $ (17,845)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss)..................................................................... $ 105,726 $ (46,214)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation....................................................................... 311,554 396,139
Loss on disposal of property and equipment......................................... 0 381,216
Provision for doubtful accounts.................................................... 0 39,674
Bad debt expense -- affiliate...................................................... 48,343 18,328
(Increase) decrease in assets:
Accounts receivable.............................................................. (446,842) 79,821
Other receivables................................................................ 17,742 (24,734)
Prepaid expenses................................................................. 172,338 (140,130)
Refundable income taxes.......................................................... (1,451) 64,835
Deposits and other assets........................................................ (183) (12,250)
Increase (decrease) in liabilities:
Accounts payable................................................................. 339,959 (10,803)
Accrued expenses................................................................. 41,461 (142,296)
Income taxes payable............................................................. (14,358) 14,358
--------- ---------
Net cash provided by operating activities................................ 574,289 617,944
--------- ---------
Cash flows from investing activities
Purchases of property and equipment................................................... (327,198) (595,817)
Net advances to officer............................................................... (165,726) (308,893)
Net advances to affiliates............................................................ (66,601) (76,377)
--------- ---------
Net cash used by investing activities.................................... (559,525) (981,087)
--------- ---------
Cash flows from financing activities
Net borrowings (repayments) under line of credit...................................... (96,559) 451
Proceeds from long-term debt.......................................................... 0 798,074
Repayments of long-term debt.......................................................... (173,076) (218,277)
--------- ---------
Net cash (used) provided by financing activities......................... (269,635) 580,248
--------- ---------
Net increase (decrease) in cash and cash equivalents.................................... (254,871) 217,105
Cash and cash equivalents -- beginning of year.......................................... 292,297 75,192
--------- ---------
Cash and cash equivalents -- end of year................................................ $ 37,426 $ 292,297
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid....................................................................... $ 2,072 $ 0
--------- ---------
--------- ---------
Interest paid........................................................................... $ 157,941 $ 136,148
--------- ---------
--------- ---------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1996, the Companies refinanced certain debt associated with the
Companies aircraft fleet. This refinancing amounted to $557,775 and has been
excluded from the statement of cash flows.
See accompanying notes to financial statements.
F-29
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Air Response, Inc. and
Air Response South, Inc. (combined 'the Companies') is presented to assist in
understanding the Companies' financial statements. The financial statements and
notes are representations of the Companies' management who is responsible for
their integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
PRINCIPLES OF COMBINATION
The accompanying financial statements present the combined financial
position and results of Air Response, Inc. ('Response') and Air Response South,
Inc. ('Response South'), which are wholly-owned by a common shareholder. All
significant intercompany accounts have been eliminated in combination.
ORGANIZATION AND BUSINESS ACTIVITY
The Companies provide air ambulance services throughout the United States
and coordinate air ambulance services internationally through other carriers.
USE OF ESTIMATES
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, income and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
REVENUE RECOGNITION
Revenue is recognized when services have been performed and is reported net
of contractual allowances provided to third party payors.
CASH AND CASH EQUIVALENTS
The Companies consider all short-term investments having a maturity of
three months or less when purchased to be cash equivalents. There were no cash
equivalents at December 31, 1997 or 1996.
ACCOUNTS RECEIVABLE -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Companies provide for doubtful accounts receivable using the allowance
method based on actual outstanding account balances at year-end and management's
estimation of collectibility of these accounts.
MEDICAL SUPPLIES
It is the Companies' policy to expense all purchases of medical supplies as
incurred as large quantities of these items are generally not held in an
inventory for long periods.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on the
double-declining balance and straight-line methods over the estimated useful
lives of the assets, which range from 5 to 7 years.
Expenditures for maintenance and repairs which do not extend the useful
lives of the assets are charged to income as incurred.
F-30
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes are established for all temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes and
for tax purposes. Deferred tax balances are adjusted to reflect tax rates, based
on currently enacted tax laws, that will be in effect in the years in which the
temporary differences are expected to reverse.
GOVERNMENTAL REGULATION
Response is subject to the rules and regulations of the Federal Aviation
Administration (FAA) and the New York State Department of Health. Response South
is regulated by the State of Florida Department of Health and Rehabilitative
Services.
(2) LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1997 :
Note payable to Cessna Finance Corporation -- payable in monthly installments of $2,728
including interest at prime plus 1.5% (10.0% at December 31, 1997), maturing December
2000; secured by an airplane and aviation equipment installed therein................... $ 88,562
Note payable to Textron Financial Corporation -- payable in monthly installments of $6,526
including interest at prime plus 1.5% (10.0% at December 31, 1997), maturing October
2006. This note is secured by an airplane and aviation equipment installed therein and
is personally guaranteed by the president/shareholder of the Companies.................. 462,798
Note payable to Cessna Finance Corporation -- payable in monthly installments of $2,069
including interest at prime plus 2% (10.5% at December 31, 1997), maturing August 1999;
secured by an airplane and aviation equipment installed therein......................... 44,790
Note payable to Cessna Finance Corporation -- payable in monthly installments of $4,149
including interest at prime plus 1.25% (9.75% at December 31, 1997), maturing September
2003; secured by an airplane and aviation equipment installed therein. This note is
personally guaranteed by the president/shareholder of the Companies..................... 219,248
Note payable to Textron Financial Corporation -- payable in monthly installments of $5,429
including interest at prime plus 1.5% (10.0% at December 31, 1997), maturing December
2001. This note is secured by an airplane and aviation equipment installed therein and
is personally guaranteed by the president/shareholder of the Companies.................. 215,066
Note payable to Proflight Medical Response -- payable in two installments of $100,000 plus
accrued interest at 10% on May 14, 1998 and 2000. This note was forgiven in 1998. See
Note (11)............................................................................... 200,000
Note payable to Textron Financial Corporation -- payable in monthly installments of $3,057
including interest at prime plus 1.5% (10.0% at December 31, 1997), maturing December
2001. This note is secured by an airplane and aviation equipment installed therein and
is personally guaranteed by the president/shareholder of the Companies.................. 117,020
----------
Total long-term debt............................................................ $1,347,484
Less current maturities......................................................... 286,099
----------
Total long-term debt, less current maturities................................... $1,061,385
----------
----------
</TABLE>
F-31
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
Based on borrowing rates currently available to the Companies for loans
with similar terms and maturities, the fair value of long-term debt approximates
the recorded amounts.
Maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
REQUIRED
YEAR ENDING DECEMBER 31, PRINCIPAL REPAYMENT
- ----------------------------------------------------------------------------------- -------------------
<S> <C>
1998.......................................................................... $ 286,099
1999.......................................................................... 202,236
2000.......................................................................... 301,073
2001.......................................................................... 177,674
2002.......................................................................... 95,307
Thereafter.................................................................... 285,095
-------------------
Total.................................................................... $ 1,347,484
-------------------
-------------------
</TABLE>
(3) LINE OF CREDIT/CASH AND CASH EQUIVALENTS-RESTRICTED
Response has a $375,000 line of credit with Central National Bank, with a
balance outstanding of $278,425 as of December 31, 1997. The line is secured by
specific accounts receivable, as designated at the time of advance, a cash
reserve of 10% of the receivables, and the personal guarantee of the
stockholder. A finance charge of 2.85% of the receivables is charged by the bank
and is deducted from the loan proceeds. Repayments are made upon collection of
the receivables. In addition, the bank is entitled to a finance charge of 1.5%
of the unremitted receivables outstanding over thirty days. Total charges
incurred by Response for the years ended December 31, 1997 and 1996 pursuant to
this facility were approximately $80,000 and $129,000, respectively, and are
included in 'general and administrative expenses'.
(4) STOCKHOLDER'S EQUITY
Common stock of the entities consists of the following:
<TABLE>
<CAPTION>
SHARES
-----------------------------------
AUTHORIZED ISSUED OUTSTANDING
---------- ------ -----------
<S> <C> <C> <C>
Response:
Voting common stock; no par value.............................. 200 100 100
Response South:
Non-voting, Series A common stock;
$.01 par value............................................ 100,000 0 0
Voting, Series B common stock;
$.01 par value............................................ 100,000 51,000 51,000
</TABLE>
F-32
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(5) INCOME TAXES
The Companies provide for income taxes using the applicable statutory
rates. The components of income taxes for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current:
Current tax expense............................................................. $ 15,696 $ 14,358
Fuel tax credit................................................................. (96,469) (53,105)
Benefit from net operating loss carryforward.................................... (4,449) 0
Deferred:
Deferred tax expense (benefit), net............................................. 47,877 (28,246)
Change in valuation allowance................................................... (47,877) 28,246
-------- --------
Income tax benefit......................................................... $(85,222) $(38,747)
-------- --------
-------- --------
</TABLE>
The following are the differences between the income tax provision
(benefit) and the amount computed by applying the federal statutory income tax
rate to income (loss) before taxes for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Tax (benefit) at U.S. statutory rates................................................ $ 6,971 $(28,887)
State income taxes (benefit), net of federal tax benefit............................. 1,099 (4,554)
Fuel tax credit...................................................................... (96,469) (53,105)
Permanent differences................................................................ 50,349 31,692
Change in valuation allowance........................................................ (50,969) 28,246
Other................................................................................ 3,797 (12,139)
-------- --------
Income tax benefit.............................................................. $(85,222) $(38,747)
-------- --------
-------- --------
</TABLE>
Deferred income taxes were recognized in the balance sheet at December 31,
1997 due principally to the tax effect of temporary differences, alternative
minimum tax credits and loss carryforwards as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Non-deductible reserves............................................................... $ 20,302
Alternative minimum tax credit carryforwards -- Federal............................... 91,205
Net operating loss carryforwards -- Federal........................................... 0
Net operating loss carryforwards -- State............................................. 17,542
---------
129,049
Valuation allowance................................................................... (13,751)
---------
Total deferred tax assets........................................................ 115,298
Deferred tax liabilities:
Accelerated depreciation.............................................................. (115,298)
---------
Net deferred taxes............................................................... $ 0
---------
---------
</TABLE>
At December 31, 1997, Response had approximately $91,000 in alternative
minimum tax credit carryforwards which may be used to offset future federal
income tax.
At December 31, 1997, Response had net operating loss carryforwards for
Federal and State purposes of approximately $0 and $219,000, respectively. These
carryforwards begin to expire in 2009.
F-33
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) ADVERTISING COSTS
The Companies incur costs for yellow page advertising in local phone
directories. The advertisements remain listed for the life of the directory,
generally twelve months. The Companies pay the cost of this advertising prior to
publication of the directory and amortize those costs over a twelve month period
beginning with the month that the phone directory is distributed to the public.
At December 31, 1997, $95,336 of advertising costs were reported as assets
and are included as a prepaid expense. Advertising expense relating to the
directory advertising was $452,788 and $396,587 for the years ended December 31,
1997 and 1996, respectively.
(7) COMMITMENTS AND CONTINGENCIES
Response is a defendant in a lawsuit with alleged claims approximating
$100,000 plus unspecified damages, which arose from a transaction in 1991,
related to the purchase of an aircraft. Management believes the suit is
completely without merit and will continue to vigorously defend its position.
(8) RELATED PARTY TRANSACTIONS
Response purchased both fuel and oil from Response Aviation, Inc.
('Aviation'), a company which had been wholly-owned by the Companies' sole
shareholder. Response Aviation, Inc. was sold to a third party in June, 1997.
The total amount purchased while Aviation was wholly owned approximated $88,000
and $172,000 for the years ended December 31, 1997 and 1996 respectively. Due to
the common ownership between Response and Aviation, the prices for fuel and oil
charged by Aviation to Response may not be indicative of the prices that
Response may be able to obtain if common ownership did not exist.
Response advanced funds to Aviation in the form of notes receivable and
working capital advances. These balances were deemed uncollectible and
written-off to expense as bad debts in 1997 and 1996, amounting to $48,343 and
$18,328, respectively.
The Companies have a receivable due from the Companies' president, the sole
shareholder of the Companies, amounting to $463,148 at December 31, 1997. This
amount is due on demand and is non-interest bearing. It is not the Companies'
intent to collect this balance within the next fiscal year. As a requirement of
Proflight Medical Response, Inc.'s purchase of the Companies' capital stock (see
Note 10), this balance will be paid back to the Companies from the shareholder's
stock sales proceeds.
Response has a receivable due from another officer amounting to $25,000.
This amount is due on demand and is non-interest bearing. It is not the
Companies' intent to collect this balance within the next fiscal year.
During 1997, the Companies combined their operations with the operations of
Proflight Medical Response, Inc. ('Proflight') in anticipation of a public
offering of Proflight's securities and the concurrent merger of the three
companies. Certain costs of operations were provided to the Companies by
Proflight, including costs of pilots, mechanics and certain administrative
costs. These costs were not charged to the Companies and accordingly, have not
been reflected in these financial statements. Management has estimated the costs
of the services provided to be $37,000.
(9) EMPLOYEE BENEFIT PLANS
Response and Response South both have voluntary defined contribution
savings plans covering all of their employees who have met certain age and
length of service requirements. The plan qualifies under Section 401(k) of the
Internal Revenue Code. The Companies may provide discretionary matching
contributions each year. Matching contributions totaled $552 and $6,357 for the
years ended December 31, 1997 and 1996, respectively.
F-34
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(10) PENDING SALE OF COMPANY
In May 1997, the Companies and the Companies' shareholder entered into an
Amended Agreement and Plan of Reorganization with Proflight Medical Response,
Inc. (Proflight) whereby Proflight agreed to acquire all of the outstanding
capital stock of the Companies. This acquisition is contingent upon the success
of the initial public offering of Proflight's securities.
(11) SUBSEQUENT EVENT
The Companies entered into an agreement with Proflight Medical Response,
Inc., dated March 10, 1998, whereby the note, including all accrued interest,
due to Proflight was forgiven. (See Note 2)
F-35
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................................................... $ 191,763 $ 9,583
Cash and cash equivalents -- restricted......................................... 37,421 27,843
Accounts receivable, net of allowance for doubtful accounts of $45,025 and
$48,339 in March of 1998 and December 1997, respectively....................... 813,331 922,463
Other receivables............................................................... 4,392 6,992
Prepaid expenses................................................................ 108,672 125,031
Refundable income taxes......................................................... 89,080 54,556
---------- ------------
Total current assets....................................................... 1,244,659 1,146,468
---------- ------------
Property and equipment
Aircraft fleet.................................................................. 6,290,422 2,831,172
Machinery and equipment......................................................... 236,205 225,557
Office equipment................................................................ 37,460 30,820
---------- ------------
6,564,087 3,087,549
Less -- accumulated depreciation................................................ 1,772,665 1,631,562
---------- ------------
Total property and equipment............................................... 4,791,422 1,455,987
---------- ------------
Other Assets
Due from officers............................................................... 515,967 488,148
Other assets.................................................................... 12,983 12,983
---------- ------------
Total other assets......................................................... 528,950 501,131
---------- ------------
Total assets.......................................................... $6,565,031 $3,103,586
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Line of credit.................................................................. $ 374,206 $ 278,425
Accounts payable................................................................ 1,202,173 1,337,491
Current maturities of long-term debt............................................ 407,999 286,099
Accrued expenses................................................................ 147,096 50,305
---------- ------------
Total current liabilities.................................................. 2,131,474 1,952,320
Long-term debt, less current maturities.............................................. 4,066,246 1,061,385
---------- ------------
Total liabilities.......................................................... 6,197,720 3,013,705
---------- ------------
Commitments and Contingencies
Stockholder's Equity
Common stock.................................................................... 2,000 2,000
Retained earnings............................................................... 365,311 87,881
---------- ------------
Total stockholder's equity...................................................... 367,311 89,881
---------- ------------
Total liabilities and stockholder's equity............................ $6,565,031 $3,103,586
---------- ------------
---------- ------------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
---------- ----------
<S> <C> <C>
Air ambulance revenue................................................................. $2,577,377 $1,936,190
---------- ----------
Operating expenses
Flying operations................................................................ $1,431,762 $1,086,993
Advertising...................................................................... 130,183 125,272
Repairs and maintenance.......................................................... 198,987 130,174
Depreciation..................................................................... 141,103 80,600
General and administrative....................................................... 416,701 339,814
---------- ----------
Total operating expenses.................................................... 2,318,736 $1,762,853
---------- ----------
Income from operations................................................................ 258,641 $ 173,337
---------- ----------
Other expense
Interest expense................................................................. 114,744 $ 31,910
Miscellaneous.................................................................... 0 5,359
---------- ----------
Total other expense......................................................... $ 114,744 $ 37,269
---------- ----------
Income before income taxes............................................................ 143,897 $ 136,068
Provision for income taxes............................................................ 18,942 36,317
---------- ----------
Net income before extraordinary items................................................. 124,955 99,751
Extraordinary items -- gain on forgiveness of debt, less applicable income taxes of
$70,025............................................................................. 152,475 0
---------- ----------
Net income............................................................................ 277,430 99,751
Retained earnings -- beginning of period.............................................. 87,881 (17,845)
---------- ----------
Retained earnings -- end of period.................................................... $ 365,311 $ 81,906
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................................................ $ 277,430 $ 99,751
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation................................................................ 141,103 80,600
Gain on forgiveness of debt................................................. (222,500) 0
(Increase) decrease in assets:
Accounts receivable.................................................... 111,732 (122,098)
Prepaid expenses....................................................... 16,359 0
Refundable income taxes................................................ (34,524) 0
Deposits and other assets.............................................. 0 43,329
Increase (decrease) in liabilities:
Accounts payable....................................................... (135,318) (132,889)
Accrued expenses....................................................... 119,291 42,080
----------- ---------
Net cash provided by operating activities......................... $ 273,573 $ 10,773
----------- ---------
Cash flows from investing activities
Purchases of property and equipment.............................................. $(3,476,538) $ (57,499)
Net advances to officer.......................................................... (27,819) (62,044)
Net advances to affiliates....................................................... 0 (57,420)
----------- ---------
Net cash (used) by investing activities........................... $(3,504,357) $(176,963)
----------- ---------
Cash flows from financing activities
New borrowings for aircraft purchases............................................ $ 3,459,250 $ 0
Net borrowings (repayments) under line of credit................................. 95,781 (820)
Repayments of long-term debt..................................................... (132,489) (46,938)
----------- ---------
Net cash provided (used) by financing activities............................ $ 3,422,542 $ (47,758)
----------- ---------
Net increase (decrease) in cash and cash equivalents.................................. $ 191,758 $(213,948)
Cash and cash equivalents -- beginning of period...................................... 37,426 292,297
----------- ---------
Cash and cash equivalents -- end of period............................................ $ 229,184 $ 78,349
----------- ---------
----------- ---------
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Interest paid......................................................................... $ 174,661 $ 42,430
----------- ---------
----------- ---------
</TABLE>
NON-CASH INVESTING AND FINANCIAL ACTIVITIES
During the quarter ended March 31, 1998, Proflight Medical Response, Inc.,
a creditor of the Company, forgave a note outstanding ($200,000) and all accrued
interest thereon ($22,500). These amounts have not been reflected in the
Statement of Cash Flows.
See accompanying notes to financial statements.
F-38
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed combined financial statements of Air
Response, and Air Response South, Inc. (the Companies) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for annual financial
statements.
The accompanying unaudited condensed combined financial statements and
disclosures reflect all adjustments which, in the opinion of the management, are
necessary for fair presentation of the results of operations, financial
position, and cash flow of the Company. The results of operations for the
periods indicated are not necessarily indicative of the of the results for the
full year.
PRINCIPLES OF COMBINATION
The accompanying financial statements present the combined financial
results of Air Response, Inc. ('Response') and Air Response South, Inc.
('Response South'), which are wholly-owned by a common shareholder. All
significant intercompany accounts have been eliminated in combination. As of
September of 1997 all operating activity was ceased in Air Response South
accounts to simplify accounting and prepare for the acquisition.
ORGANIZATION AND BUSINESS ACTIVITY
The Companies provide air ambulance services throughout the United States
and coordinate air ambulance services internationally through other carriers.
USE OF ESTIMATES
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, income and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
REVENUE RECOGNITION
Revenue is recognized when services have been performed and is reported net
of contractual allowances provided to 3rd party payors.
CASH AND CASH EQUIVALENTS
The Companies consider all short-term investments having a maturity of
three months or less when purchased to be cash equivalents. There were no cash
equivalents at March 31, 1998 or December 31, 1997.
ACCOUNTS RECEIVABLE -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Companies provide for doubtful accounts receivable using the allowance
method based on actual outstanding accounts at year-end and management's
estimation of collectibility of these accounts.
MEDICAL SUPPLIES
It is the Companies' policy to expense all purchases of medical supplies as
incurred as large quantities of these items are generally not held in an
inventory for long periods.
F-39
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on the
double-declining balance and straight-line methods over the estimated useful
lives of the assets, which range from 5 to 7 years.
Expenditures for maintenance and repairs which do not extend the useful
lives of the assets are charged to income as incurred.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes are established for all temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes and
for tax purposes. Deferred tax balances are adjusted to reflect tax rates, based
on currently enacted tax that will be in effect in the years in which the
temporary differences are expected to reverse.
GOVERNMENTAL REGULATION
Response is subject to the rules and regulations of the Federal Aviation
Administration (FAA) and the New York State Department of Health. Response South
is regulated by the State of Florida Department of Health and Rehabilitative
Services.
(2) LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Note payable to Cessna Finance Corporation -- payable in monthly
installments of $2,728 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing December 2000; secured by an airplane and
aviation equipment installed therein..................................... $ 82,297 $ 88,562
Note payable to Textron Financial Corporation -- payable in monthly
installments of $6,526 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing October 2006. This note is secured by an
airplane and aviation equipment installed therein and is personally
guaranteed by the president/shareholder of the Companies'................ 429,440 462,798
Note payable to Cessna Finance Corporation -- payable in monthly
installments of $2,069 including interest at prime plus 2% (10.5% at
March 31, 1998), maturing August 1999; secured by an airplane and
aviation equipment installed therein..................................... 39,283 44,790
Note payable to Cessna Finance Corporation -- payable in monthly
installments of $4,149 including interest at prime plus 1.25% (9.75% at
March 31, 1998), maturing September 2003; secured by an airplane and
aviation equipment installed therein. This note is personally guaranteed
by the president/shareholder of the Companies'........................... 212,371 219,248
</TABLE>
(table continued on next page)
F-40
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
(table continued from previous page)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Note payable to Textron Financial Corporation -- payable in monthly
installments of $5,429 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing December 2001. This note is secured by an
airplane and aviation equipment installed therein and is personally
guaranteed by the president/shareholder of the Companies'................ $ 201,696 $ 215,066
Note payable to Proflight Medical Response -- payable in two installments
of $100,000 plus accrued interest at 10% on May 14, 1998 and 2000. This
note was forgiven in 1998................................................ 0 200,000
Note payable to Textron Financial Corporation -- payable in monthly
installments of $3,072 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing December 2001. This note is secured by an
airplane and aviation equipment installed therein and is personally
guaranteed by the president/shareholder of the Companies'................ 113,708 117,020
Note payable to Textron Financial Corporation -- payable in monthly
installments of $29,306 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing January 15, 2003. This note is secured by an
airplane and aviation equipment installed therein and is personally
guaranteed by the president/shareholder of the Companies'................ 2,195,916 0
Note payable to Textron Financial Corporation -- payable in monthly
installments of $16,350 including interest at prime plus 1.5% (10.0% at
March 31, 1998), maturing December 15, 2002. This note is secured by an
airplane and aviation equipment installed therein and is personally
guaranteed by the president/shareholder of the Companies'................ 1,199,534 0
---------- ------------
Total long-term debt.................................................. 4,474,245 1,347,484
Less current maturities............................................... 407,999 286,099
---------- ------------
Total long-term debt, less current maturities......................... $4,066,246 $1,061,385
---------- ------------
---------- ------------
</TABLE>
Based on borrowing rates currently available to the Companies for loans
with similar terms and maturities, the fair value of long-term debt approximates
the recorded amounts.
(3) LINE OF CREDIT/CASH AND CASH EQUIVALENTS -- RESTRICTED
Response has a $375,000 line of credit with Central National Bank, with
balances outstanding of $374,206 and $278,425 as of March 31, 1998 and December
31, 1997, respectively. The line is secured by specific accounts receivable, as
designated at the time of advance, a cash reserve of 10% of the receivables and
the personal guarantee of the stockholder. A finance charge of 2.85% of the
receivables is charged by the bank and is deducted from the loan proceeds.
Repayments are made upon collection of the receivables. In addition, the bank is
entitled to a finance charge of 1.5% of the unremitted receivables outstanding
over thirty days. Finance charges for the period ended March 31, 1998 and 1997
were $30,424 and $25,153, respectively.
F-41
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
(4) STOCKHOLDER'S EQUITY
Common stock of the entities consists of the following:
<TABLE>
<CAPTION>
SHARES
-----------------------------------
AUTHORIZED ISSUED OUTSTANDING
---------- ------ -----------
<S> <C> <C> <C>
Response:
Voting common stock; no par value.............................. 200 100 100
Response South:
Non-voting, Series A common stock; $.01 par value.............. 100,000 0 0
Voting, Series B common stock; $.01 par value.................. 100,000 51,000 51,000
</TABLE>
(5) ADVERTISING COSTS
The Companies incur costs for yellow page advertising in local phone
directories. The advertisements remain listed for the life of the directory,
generally twelve months. The Companies pay the cost of this advertising prior to
publication of the directory and amortize those costs over a twelve month period
beginning with the month that the phone directory is distributed to the public.
At March 31, 1998 and December 31, 1997 $69,178 and $95,336 of advertising
costs were reported as assets and are included as a prepaid expense. Advertising
expense relating to the directory advertising was $89,113 and $106,436 for the
three months ended March 31, 1998 and 1997, respectively.
(6) COMMITMENTS AND CONTINGENCIES
Response is a defendant in a lawsuit with alleged claims approximating
$100,000 plus unspecified damages, which arose from a transaction in 1991,
related to the purchase of an aircraft. Management believes the suit is
completely without merit and will continue to vigorously defend its position.
(7) RELATED PARTY TRANSACTIONS
Response purchased both fuel and oil from Response Aviation, Inc.
('Aviation'), a company which had been wholly-owned by the Companies' sole
shareholder. Response Aviation, Inc. was sold to a third party in June, 1997.
The total amount purchased while aviation was wholly owned for the period ended
March 31, 1997 amounted to $47,093. Due to the common ownership between Response
and Aviation, the prices for fuel and oil charged by Aviation to Response may
not be indicative of the prices that Response may be able to obtain if common
ownership did not exist.
Response advanced funds to Aviation in the form of notes receivable and
working capital advances. These balances were deemed uncollectible and
written-off to expense as bad debts in the 3 months ended March 31, 1997,
amounted to $9,603.
During 1997, the Companies combined their operations with the operations of
Proflight Medical Response, Inc. ('Proflight') in anticipation of a public
offering of Proflight's securities and the concurrent merger of the three
companies. Certain costs of operations were provided by Proflight, including
costs of pilots, mechanics and certain administrative costs, which were not
charged to the Companies and accordingly, such costs have not been reflected in
these financial statements. Management has estimated the costs of the services
provided to be $6,000 for the period ended March 31, 1998.
Response owes Response Medical Transport, Inc. ('Medical') a company which
had been owned by the company's sole shareholder $50,288 at March 31, 1997. This
amount represents net advances to Response for working capital purposes. No
interest was charged on these outstanding balances. This balance was satisfied
in 1997. Medical was sold to a third party in 1997.
F-42
<PAGE>
<PAGE>
AIR RESPONSE, INC. AND AIR RESPONSE SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 AND DECEMBER 31, 1997
The Companies have a receivable due from an officer, the sole shareholder
of the Companies, amounting to $485,967 and $463,148 at March 31, 1998 and
December 31, 1997 respectively. These amounts are due of demand and is
non-interest bearing. Under the terms of the acquisition $475,000 of the
receivable will be eliminated by lowering the number of shares to be paid to the
shareholder for his company.
Response has a receivable due from another office amounting to $30,000 and
$25,000 at March 31, 1998 and December 31, 1997, respectively. These amounts are
due on demand and are not interest bearing.
(8) EMPLOYEE BENEFIT PLANS
Response and Response South both have voluntary defined contribution
savings plans covering all of their employees who have met certain age and
length of service requirements. The plan qualifies under Section 401(k) of the
Internal Revenue Code. The Companies may provide discretionary matching
contributions each year. Matching contributions totaled $3,510 for the three
month period ended March 31, 1997. This plan was terminated in the first quarter
of 1998.
(9) PENDING SALE OF COMPANY
In May 1997, the Companies and the Companies' shareholder entered into an
Amended Agreement and Plan of Reorganization with Proflight Medical Response,
Inc. (Proflight) whereby Proflight agreed to acquire all of the outstanding
capital stock of the Companies. This acquisition is contingent upon the success
of the initial public offering of Proflight's securities..
F-43
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
AIR RESPONSE
AND PRO FORMA
PROFLIGHT AIR RESPONSE SOUTH ADJUSTMENTS(C) PRO FORMA
---------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
Income..................................... $5,644,799 $8,783,037 $ (1,714,846)(1) $12,712,990
Operating expense
Flying operations..................... 3,312,564 5,186,687 $ (1,714,846)(1) 6,784,405
Maintenance........................... 652,267 653,716 1,305,983
Promotion and sales................... 69,985 492,331 562,316
General and administrative............ 1,406,483 1,885,940 3,292,423
Depreciation and amortization......... 488,867 311,554 267,835(2) 1,068,256
---------- ------------------ -------------- -----------
Total operating expense.......... 5,930,166 8,530,228 (1,447,011) 13,013,383
Operating income (loss).......... (285,367) 252,809 (267,835) (300,393)
Nonoperating expenses (income)
Bad debt -- affiliate................. 48,343
Interest income....................... (25,000) (4,723) (29,723)
Interest expense...................... 415,343 189,242 604,585
Other expense and (income)............ (557) (557)
---------- ------------------ -------------- -----------
390,343 232,305 -- 622,648
Income tax (benefit)....................... (85,222) (85,222)
---------- ------------------ -------------- -----------
Net income (loss).......................... $ (675,710) $ 105,726 $ (267,835) $ (837,819)
---------- ------------------ -------------- -----------
---------- ------------------ -------------- -----------
Per share data
Basic net income (loss)............... $(0.35)
-----------
-----------
Average shares........................ 2,382,747
</TABLE>
- ------------
(C) The adjustments to the historical statements of operations reflect the
following:
(1) Elimination of 1997 intercompany sales.
(2) Recognition of $167,835 of goodwill amortization and an additional
$100,000 in depreciation expense, due to revaluation of aircraft assets.
F-44
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (UNAUDITED)
----------------------
AIR
RESPONSE
AND AIR
RESPONSE PRO FORMA PRO ADJUSTED
PROFLIGHT SOUTH ADJUSTMENT(A) PRO FORMA FORMA(B) PRO FORMA
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash
equivalents............. $ -- $ 191,763 $(800,000)(1) $ (608,237) $5,577,246(1) $ 4,114,430
Restricted cash........... 37,421 37,421 (892,000)(2)
Accounts receivable....... 420,575 817,723 (77,162)(3) 1,161,136 1,161,136
Other current assets...... 49,317 197,752 247,069 247,069
---------- ---------- ---------- ----------- ---------- -----------
Total current
assets.............. 469,892 1,244,659 (877,162) 837,389 4,685,246 5,522,635
---------- ---------- ---------- ----------- ---------- -----------
Fixed Assets
Aircraft, property and
equipment at cost....... 1,325,452 6,564,087 (398,847)(2) 7,490,692 7,490,692
Less accumulated
depreciation and
amortization............ (470,230) (1,772,665) 1,772,665 (2) (470,230) (470,230)
Other Assets.................. 342,858 528,950 (258,063)(5) 138,745 (84,795)(1) 53,950
(475,000)(4)
Goodwill...................... 3,016,934 (1) 3,016,934 3,016,934
---------- ---------- ---------- ----------- ---------- -----------
Total Assets.......... $1,667,972 $6,565,031 $2,780,527 $11,013,530 $4,600,451 $15,613,981
---------- ---------- ---------- ----------- ---------- -----------
---------- ---------- ---------- ----------- ---------- -----------
Current Liabilities
Accounts payable.......... $ 517,304 $1,202,173 $ (77,162)(3) $ 1,642,315 $ 1,642,315
Current portion of notes
and short term
borrowings.............. 1,235,947 782,205 2,018,152 $(892,000)(2) 1,126,152
Accrued liabilities....... 55,703 147,096 202,799 202,799
---------- ---------- ---------- ----------- ---------- -----------
Total current
liabilities......... 1,808,954 2,131,474 (77,162) 3,863,266 (892,000) 2,971,266
Long Term Debt................ 666,321 4,066,246 4,732,567 -- 4,732,567
---------- ---------- ---------- ----------- ---------- -----------
Total Liabilities..... 2,475,275 6,197,720 (77,162) 8,595,833 (892,000) 7,703,833
---------- ---------- ---------- ----------- ---------- -----------
Stockholders' Equity
Common Stock, par value
.001 for Proflight and
no par value for Air
Response.
Air Response South $0.01
par value Proflight has
2,034,350 shares issued
and outstanding. Air
Response has 100 shares
and AR South has 51,000
issued and
outstanding............. 2,034 2,000 (1,504)(1) 2,530 853 (1) 3,383
Additional paid-in capital
(deficit)............... 31,343 -- 3,224,504 (1)(4) 3,255,847 7,184,433 (1) 9,290,806
(1,149,474)(1)
Accumulated Earnings
(deficit)................... (840,680) 365,311 (365,311)(1) (840,680) (543,361)(1) (1,384,041)
---------- ---------- ---------- ----------- ---------- -----------
Total Stockholders'
Equity.............. (807,303) 367,311 2,857,689 2,417,697 5,492,451 7,910,148
---------- ---------- ---------- ----------- ---------- -----------
$1,667,972 $6,565,031 $2,780,527 $11,013,530 $4,600,451 $15,613,981
---------- ---------- ---------- ----------- ---------- -----------
---------- ---------- ---------- ----------- ---------- -----------
</TABLE>
- ------------
(A) The pro forma adjustments to the historical balance sheets using purchase
acquisition accounting reflect the acquisition of Air Response and Air Response
South (Air Response) by Proflight. The adjustments reflect the following:
(1) Estimated purchase price of $4,500,000, which includes $800,000 payable
in cash (net of $475,000 which the Seller owes the Company) on the
closing of an initial public offering, and shares of stock equal to
$3,225,000, based upon the initial public offering price issued within
two years from closing of the offering. However, it excludes $258,063
of expenses paid on behalf of and debt forgiveness to Air Response and
Air Response South. The adjustments reflect the allocation of that
purchase price to the net assets acquired. Goodwill is being amortized
over 20 years using the straight-line method.
F-45
<PAGE>
<PAGE>
RECONCILIATION OF ACQUISITION
<TABLE>
<S> <C>
Consideration paid.............................................................. $4,758,063
----------
----------
Net assets acquired............................................................. $ 367,311
Adjustment of aircraft basis to FMV (net of taxes).............................. 1,373,818
Goodwill (net of taxes)......................................................... 3,016,934
----------
$4,758,063
----------
----------
</TABLE>
(2) Eliminated AR accumulated depreciation and adjusted aircraft and
medical equipment to fair market value. These adjustments increased
aircraft and medical equipment by $1,373,818.
(3) Elimination of intercompany receivables/payables of $77,162.
(4) To adjust number of shares paid for acquisition to reflect the
elimination of loan to officer.
(5) To eliminate deferred acquisition costs.
(B) The adjustments to pro forma represent:
(1) The offering of 1,019,200 shares of common stock and 1,019,200
redeemable common stock purchase warrants, 6,670 shares of common stock
given to an officer as a bonus 76,294 shares of common stock given as
part of an employment agreement, and the retirement of 250,000 shares
of common stock. The initial public offering prices of common stock and
warrants are $6.50 and $.10, respectively. The proceeds are recognized
net of underwriter discounts and costs of $874,473 and attorney fees,
printing costs, consulting fees, and miscellaneous closing costs
totalling $275,000.
(2) Payment of debt with proceeds from offering.
F-46
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (UNAUDITED)
--------------------------------
AIR RESPONSE
AND PRO FORMA
PROFLIGHT AIR RESPONSE SOUTH ADJUSTMENTS(C) PRO FORMA
---------- ------------------ -------------- ----------
<S> <C> <C> <C> <C>
Income...................................... $1,340,022 $2,577,377 $ (739,610)(1) $2,921,839
(255,950)(4)
Operating expense
Flying operations...................... 691,645 1,431,762 $ (739,610)(1) 1,383,797
Maintenance............................ 177,291 198,987 376,278
Promotion and sales.................... 47,880 130,183 178,063
General and administrative............. 313,513 416,701 730,214
Depreciation and amortization.......... 63,387 141,103 66,959(2) 271,449
---------- ------------------ -------------- ----------
Total operating expense........... 1,293,716 2,318,736 (672,651) 2,939,801
Operating income (loss)........... 46,306 258,641 (322,909) (17,962)
Nonoperating expenses (income)
Interest expense....................... 100,271 114,744 215,015
Income tax provision........................ -- 18,942 (52,431)(5) (33,489)
---------- ------------------ -------------- ----------
Net income (loss) before extraordinary
income.................................... (53,965) 124,955 (270,478) (199,488)
Extraordinary income less applicable income
taxes..................................... $ -- $ 152,475 (152,475)(3) $ --
---------- ------------------ -------------- ----------
Net income (loss)........................... (53,965) 277,430 (422,953) (199,488)
---------- ------------------ -------------- ----------
---------- ------------------ -------------- ----------
Per share data
Net income............................. ($0.09)
----------
----------
Average shares......................... 2,280,504
</TABLE>
- ------------
(C) The adjustments to the historical statements of operations reflect the
following:
(1) Elimination of intercompany sales for the 3 months ended March 31, 1998.
(2) Recognition of $41,959 of goodwill amortization and an additional
$25,000 in depreciation expense, due to revaluation of aircraft assets.
(3) Elimination of note forgiveness and provision for income taxes.
(4) Elimination of income from sale of aircraft to Air Response.
(5) To adjust tax provision on a consolidated basis.
F-47
<PAGE>
<PAGE>
_____________________________ _____________________________
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 9
Use of Proceeds............................................................................................................. 17
Dividend Policy............................................................................................................. 18
Capitalization.............................................................................................................. 18
Dilution.................................................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 22
Business.................................................................................................................... 29
Management.................................................................................................................. 35
Principal Shareholders...................................................................................................... 39
Certain Transactions........................................................................................................ 40
Description of Securities................................................................................................... 42
Shares Eligible For Future Sale............................................................................................. 44
Underwriting................................................................................................................ 45
Legal Matters............................................................................................................... 47
Experts..................................................................................................................... 47
Additional Information...................................................................................................... 47
Index to Financial Statements............................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PROFLIGHT MEDICAL
RESPONSE, INC.
1,019,200 SHARES OF
COMMON STOCK
AND 1,019,200 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
--------------------------
PROSPECTUS
--------------------------
FIRST LIBERTY INVESTMENT
GROUP, INC.
, 1998
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Corporation Code, as revised, in general, allows corporations
to indemnify their directors and officers against reasonable expenses incurred
in connection with a proceeding, if the person acted in good faith and in a
manner the person believed to be in or not opposed to the best interests of the
corporation. In the case of a criminal action, the director or officer must have
had no reasonable cause to believe that the person's conduct was unlawful. Under
current law, a corporation may not indemnify a director or officer in connection
with a proceeding by or in the right of the corporation in which the director or
officer was adjudged liable to the corporation or if the director or officer
derived an improper personal benefit.
The Company's Articles of Incorporation and By-Laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Colorado Law.
The Company will enter into an indemnification agreement ('Indemnification
Agreement') with each of its directors and officers. Each Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any civil or criminal action or administrative proceeding
arising out of his performance of his duties as a director or officer, other
than an action instituted by the director or officer. Such indemnification is
available if the indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action, had no reasonable cause to believe his conduct
was unlawful. Each Indemnification Agreement also will require that the Company
Indemnify the director or other party thereto in all cases to the fullest extent
permitted by applicable law. The term of the Indemnification Agreement will be
the later of (i) ten (10) years after the date that the indemnitee ceases to
serve as a director or officer of the Company, or (ii) the final termination of
all proceedings, as defined in the Indemnification Agreement, in which the
indemnitee is granted rights of indemnification.
Each Indemnification Agreement will permit the indemnitee to bring suit to
seek recovery of amounts due under such Indemnification Agreement and will
require that the Company indemnify the director or other party thereto in all
cases to the fullest extent permitted by applicable law. Although the Company
intends to seek to obtain directors' and officers' liability insurance, such
insurance is generally very expensive. If the Company is not able to obtain
directors' and officers' liability insurance to cover amounts, any payments made
by the Company under an Indemnification Agreement will have an adverse impact on
the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Company (also referred to herein as the Registrant) in connection with the
issuance and distribution of the shares of Common Stock pursuant to the Offering
(other than underwriting discounts and commissions).
<TABLE>
<S> <C>
SEC registration fee..................................................................... $ 1,186.36
NASD filing fee.......................................................................... $ 1,360.00
Nasdaq SmallCap Market'sm'............................................................... $ 8,822.75
Legal fees and expenses.................................................................. $150,000.00
Accounting fees.......................................................................... $200,000.00
Blue Sky fees and expenses............................................................... $ 23,235.00
Printing and engraving expenses.......................................................... $200,000.00
Underwriter's non-accountable expense allowance.......................................... $181,621.44
Underwriter's consulting fee............................................................. $120,000.00
Miscellaneous............................................................................ $ 50,000.00
-----------
Total fees and expenses.................................................................. $936,225.55
-----------
-----------
</TABLE>
- ------------
* To be completed by amendment
II-1
<PAGE>
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past three years without registration
under the Securities Act of 1933, as amended (the 'Securities Act'). The
information includes the names of the purchasers, the date of issuance, the
title and number of securities sold and the consideration received by the
Company for the issuance of these shares.
In January 1996, Steven B. Myers, a Director of the Company, purchased
154,220 shares of Common Stock from the Company for $100,000. These shares of
Common Stock were issued by the Company without registration under the
Securities Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, as transactions by an issuer not involving a
public offering.
In January 1996, the Company issued Steven A. Cantor, 983,825 shares of
Common Stock valued at $50,000. Mr. Cantor has provided investment banking
services to the Company. These shares of Common Stock were issued by the Company
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering. Mr. Cantor transferred 367,000
these shares to Srotnac Group LLC of which he is the 98% owner. In May 1998, the
other 366,825 shares were transferred to Cindy Bermingham who is Mr. Cantor's
sister.
In April 1998, Srotnac agreed to return 250,000 of these shares to the
Company for cancellation.
In November 1996, the Company issued 3,335 shares of Common Stock to
Loselle Greenwalt valued at $250. These shares of Common Stock were issued by
the Company without registration under the Securities Act by reason of the
exemption from registration afforded by the provisions of Section 4(2) thereof,
as transactions by an issuer not involving a public offering.
In November 1996, the Company issued 13,340 shares of Common Stock to Tom
Cox valued at $1,000. These shares of Common Stock were issued by the Company
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering.
In November 1996, the Company issued 16,675 shares of Common Stock to Brett
Abrams valued at $1,250. These shares of Common Stock were issued by the Company
without registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering.
In January 1997, the Company issued Arthur G. Rosenberg, a director of the
Company an option to purchase 16,675 shares of Common Stock of the Company at an
exercise price of $1.66 per share as an incentive to become a director of the
Corporation. These shares of Common Stock were issued by the Company without
registration under the Securities Act by reason of the exemption from
registration afforded by the provisions of Section 4(2) thereof, as transactions
by an issuer not involving a public offering.
In March 1997, the Company issued Tom Cox an option to purchase 16,675
shares of Common Stock of the Company at an exercise price of $6.50 per share in
consideration for Mr. Cox extending the due date of certain notes. These shares
of Common Stock were issued by the Company without registration under the
Securities Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, as transactions by an issuer not involving a
public offering.
In April 1997, the Company entered into an Amended Agreement and Plan of
Reorganization with Air Response and Louis R. Capece, Jr., which agreement was
amended in May 1997 and each of January, March and May 1998, pursuant to which
the Company agreed to acquire at the closing of the Offering, subject to the
terms and conditions contained therein, all of the outstanding capital stock of
Air Response in exchange for 496,154 shares of Common Stock of the Company to be
issued two years from the closing of the Offering. If the Company completes a
second public offering, Mr. Capece has the option to put such number of shares
of Common Stock at the then current market value, equal to 20% of the net
proceeds of such offering, to the Company, not to exceed $1,000,000. The Company
simultaneously entered into an Amended Stock Purchase and Sale Agreement with
Air Response South and Louis R. Capece Jr. which agreement was amended in
May 1997 and each of January, March and May 1998, pursuant to which the
Company agreed to acquire at the closing of the Offering, subject to the terms
II-2
<PAGE>
<PAGE>
and conditions contained therein, all of the outstanding capital stock of Air
Response South for $800,000 which is payable upon closing of the Offering.
In May 1997, Kevin L. Burkhardt and Jane S. Burkhardt agreed to return
146,042 shares of Common Stock to the Company in exchange for options to
purchase 292,085 shares of Common Stock at an exercise price of $6.50 per share.
The options are five year options exercisable upon closing of the offering. The
Underwriter believed there were too many shares outstanding and as a condition
of underwriting this Offering required these shares be retired and the Company
in consideration for returning these shares issued the individual warrants.
These shares were exchanged by reason of an exemption from registration afforded
by the provisions of Section 4(1) and 4(2).
In May 1997, Charles W. Bartholomew agreed to return 87,190 shares of
Common Stock to the Company in exchange for options to purchase 174,379 shares
of Common Stock at an exercise price of $6.50 per share. The options are five
year options exercisable upon closing of the offering. The Underwriter believed
there were too many shares outstanding and as a condition of underwriting this
Offering required these shares be returned to treasury and the Company in
consideration for returning these shares issued the individual warrants. These
shares were exchanged by reason of an exemption from registration afforded by
the provisions of Sections 4(1) and 4(2).
In May 1997, Steven B. Myers agreed to return 100,268 shares of Common
Stock to the Company in exchange for options to purchase 200,536 shares of
Common Stock at an exercise price of $6.50 per share. The options are five year
options exercisable upon closing of the offering. The Underwriter believed there
were too many shares outstanding and as a condition of underwriting this
Offering and required these shares be retired. In consideration for returning
these shares issued the individual warrants.
The investors in each of the above transactions were sophisticated and had
access to information about the Company.
The Company has agreed to sell to the Underwriter for $10, upon
consummation of this Offering, the Underwriter's Option exercisable to purchase
up to 101,920 shares of Common Stock and 101,920 Warrants at an exercise price
of $8.00 per share.
The following shares of Common Stock were issued by the Company without
registration under the Securities Act in accordance with Rule 506 of Regulation
D of the Securities Act.
II-3
<PAGE>
<PAGE>
In October 1996, the Company completed a private placement issuing 70 Units
of the Company's securities ('Units'), each Unit consisting of a $5,000
principal amount 10% promissory note and 6,670 shares of the Company's Common
Stock. The following shares of Common Stock were issued by the Company without
registration under the Securities Act in accordance with Rule 506 of Regulation
D of the Securities Act. The offering was to 'Accredited Investors' only as that
term is defined in Rule 501 promulgated under the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES DATE
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Alphanet Communications Corp.................................................... 13,340 10/31/96
Barbara Banach and Sally Miglio................................................. 6,670 10/31/96
Cindy Bermingham custodian for Maverick Bermingham.............................. 3,335 10/31/96
Brite Lite Industries, Inc...................................................... 20,010 10/31/96
Annette Cantor.................................................................. 216,775 10/31/96
Charlene Cantor................................................................. 3,335 10/31/96
Rosemary D'Amato................................................................ 3,335 10/31/96
Tiffany D'Amato................................................................. 3,335 10/31/96
Merchant Investors Management Limited........................................... 20,010 10/31/96
Dolores Miller.................................................................. 20,010 10/31/96
Corey Morrison.................................................................. 13,340 10/31/96
Sherry Cantor Morrison.......................................................... 3,335 10/31/96
Josephine Pace.................................................................. 13,340 10/31/96
Gregory Pollack................................................................. 3,335 10/31/96
Sean Reid....................................................................... 3,335 10/31/96
River Rock Equities, Inc. ...................................................... 100,050 10/31/96
RII Partners, Inc............................................................... 20,010 10/31/96
</TABLE>
In January 1997, the Company issued 300,000 additional shares of Common
Stock and $150,000, 10% promissory note. The following shares of Common Stock
were issued by the Company without registration under the Securities Act in
accordance with Rule 506 of Regulation D of the Securities Act. The offering was
to 'Accredited Investors' only as that term is defined in Rule 501 promulgated
under the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES DATE
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Morbury Corporation............................................................. 106,720 01/13/97
Valinvest Corp.................................................................. 93,380 01/10/97
</TABLE>
In March 1997, the Company issued 25,000 additional shares of Common Stock
and an aggregate of $125,000, principal amount 10% promissory notes. The
following shares of Common Stock were issued by the Company without registration
under the Securities Act in accordance with Rule 506 of Regulation D of the
Securities Act. The offering was to 'Accredited Investors' only as that term is
defined in Rule 501 promulgated under the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF PROMISSORY
NAME SHARES NOTE DATE
- ------------------------------------------------------------------- --------- ---------- ---------
<S> <C> <C> <C>
Barry and Elizabeth Mevorach JTWROS................................ 1,668 $ 12,500 03/31/97
Raymond G. Hancock................................................. 1,668 $ 12,500 03/31/97
Barbara Banach..................................................... 11,673 $ 87,500 03/31/97
North Shore Financial Money Purchase Plan DLJSC-FBO
Richard Banach................................................... 1,668 $ 12,500 03/31/97
</TABLE>
II-4
<PAGE>
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 -- Underwriting Agreement.
1.2 -- Selected Dealers Agreement.
*1.3 -- Lock-up Agreement by (Stanley) Brett Abrams in favor of First Liberty Investment Group, Inc.
*1.4 -- Lock-up Agreement by Donald Jones in favor of First Liberty Investment Group, Inc.
*1.5 -- Lock-up Agreement by Steven B. Myers in favor of First Liberty Investment Group, Inc.
*1.6 -- Lock-up Agreement by David Cohen in favor of First Liberty Investment Group, Inc.
*1.7 -- Lock-up Agreement by Kevin L. and Jane S. Burkhardt in favor of First Liberty Investment Group, Inc.
*1.8 -- Lock-up Agreement by Charles W. and Carole M. Bartholomew in favor of First Liberty Investment Group,
Inc.
*1.9 -- Lock-up Agreement by Marilyn A. Janson in favor of First Liberty Investment Group, Inc.
*1.10 -- Lock-up Agreement by Cindy Bermingham in favor of First Liberty Investment Group, Inc.
*1.11 -- Lock-up Agreement by Srotnac Group LLC in favor of First Liberty Investment Group, Inc.
*1.12 -- Lock-up Agreement by Arthur G. Rosenberg in favor of First Liberty Investment Group, Inc.
*1.13 -- Agreement among Underwriters
2.1 -- Amended Agreement and Plan of Reorganization, dated April 8, 1997, by and among, Proflight, Louis R.
Capece, Jr. And Air Response, Inc.
2.2 -- Amended Stock Purchase Agreement, dated April 8, 1997, by and among, Proflight, Louis R. Capece, Jr. And
Air Response South, Inc.
*2.3 -- Amendment to Amended Agreement and Plan of Reorganization, dated January 20, 1998.
*2.4 -- Amendment to Amended Stock Purchase and Sale Agreement, dated January 20, 1998.
*2.5 -- Agreement, dated March 9, 1998.
*2.6 -- Letter Agreement, dated May 28, 1998.
3.1 -- Amended and Restated Articles of Incorporation.
3.2 -- Bylaws.
*4.1 -- Form of Certificate for Shares of Common Stock.
4.2 -- Form of Underwriter's Warrant.
4.3 -- Form of Underwriter's Warrant Agreement.
*4.4 -- Common Stock Purchase Warrant.
5.1 -- Opinion and Consent of Bondy & Schloss LLP.
10.1 -- Lease Agreement dated February 27, 1997, between the Company and Airplaza Co., Inc.
10.2 -- Air Ambulance Transport Services Agreement dated February 9, 1996, by and between the Company and Aetna
Health Management, Inc.
10.3 -- Promissory Note and Accommodation Agreement dated March 17, 1995, between the Company and Lear Three,
L.L.C.
10.4 -- First Promissory Note Extension, dated March 26, 1997, between the Company and Lear Three, L.L.C.
10.5 -- Promissory Note dated May 20, 1996, between the Company and Lear Three, L.L.C.
10.6 -- Second Promissory Note Extension, dated March 26, 1997, between the Company and Lear Three, L.L.C.
10.7 -- Promissory Note date May 31, 1996, between the Company and Textron Financial Corporation.
10.8 -- Security Agreement dated May 31, 1996, between the Company and Textron Financial Corporation.
10.9 -- Promissory Note dated October 8, 1996, between the Company and Textron Financial Corporation.
10.10 -- Aircraft Lease Agreement dated November 15, 1996, between the Company and Superior Transport Service,
Inc.
10.11 -- Promissory Note dated November 13, 1996, between the Company and Norwest Equipment Finance, Inc.
10.12 -- Agreement Under Standards dated October 13, 1994, between the Company and the Arapahoe County Public
Airport Authority.
10.13 -- Amended Employment Agreement dated May 1997, by and between the Company and Donald Jones.
10.14 -- Employment Agreement dated March 1997, by and between the Company and Kevin L. Burkhardt.
10.15 -- Employment Agreement dated March 1997, by and between the Company and David Cohen.
10.16 -- Employment Agreement dated March 1997, by and between the Company and Jane S. Burkhardt.
10.17 -- Consulting Agreement dated April 1997, by and between the Company and Louis R. Capece, Jr.
10.18 -- Agreement dated April 30, 1995, between Air Response, Inc. and Central National Bank Canajoharie.
</TABLE>
(table continued on next page)
II-5
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<C> <S>
10.19 -- Note and Security Agreement dated February 24, 1993, between Air Response, Inc. and Cessna Finance
Corporation.
10.20 -- Aircraft Lease Agreement dated June 27, 1996, between Air Response, Inc. and U.S. Bancorp Leasing &
Financial.
10.21 -- Promissory Note dated September 20, 1996, between Air Response, Inc. and Cessna Finance Corporation.
10.22 -- Promissory Note dated October 23, 1996, between Air Response, Inc. and Textron Financial Corporation.
10.23 -- Promissory Note dated October 23, 1996, between Air Response, Inc. and Textron Financial Corporation.
10.24 -- Insurance Policy between the Company and Nationair Insurance Agency.
10.25 -- Stock Option Plan
10.26 -- Escrow Agreement
10.27 -- Employment Agreement dated September 15, 1997 by and between the Company and Steven B. Myers. (Rescinded)
10.28 -- Form of Consulting Agreement dated , 1998 by and between the Company and the Underwriter.
10.29 -- Letter of Amendment to Employment Agreement of Donald Jones, dated September 15, 1997. (Rescinded)
10.30 -- Letter of Amendment to Employment Agreement of Kevin L. Berkhardt, dated September 15, 1997. (Rescinded)
*10.31 -- Contingent Extension Agreement, dated June 2, 1998, by and between Proflight and Lear Three LLC.
*23.1 -- Consent of Grant Thornton LLP
23.2 -- Consent of Bondy & Schloss (included Exhibit 5.1).
*23.3 -- Consent of Staff Maikels and Ciampino, P.C.
23.4 -- Consents of Kaufman Rossin & Co., P.C.
24.1 -- Power of Attorney.
</TABLE>
- ------------
* Filed herewith
ITEM 28. UNDERTAKINGS
(a) The Registrant will,
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) The Registrant will provide to the Underwriter at the closing
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
II-6
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized this
Amendment No. 3 to the registration statement to be signed on its behalf by the
undersigned, in the City of Denver, State of Colorado on the 8th day of June,
1998.
PROFLIGHT MEDICAL RESPONSE, INC.
By: /S/ KEVIN L. BURKHARDT
...................................
KEVIN L. BURKHARDT, PRESIDENT
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 3 to the registration statement was signed by the
following persons in the capacities indicated on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ KEVIN L. BURKHARDT Chief Executive Officer, President, Director June 8, 1998
.........................................
(KEVIN L. BURKHARDT)
/s/ JANE S. BURKHARDT Secretary June 8, 1998
.........................................
(JANE S. BURKHARDT)
/s/ DAVID COHEN Chief Financial Officer, Treasurer, Chief June 8, 1998
......................................... Accounting Officer
(DAVID COHEN)
* Director June 8, 1998
.........................................
(ARTHUR G. ROSENBERG)
* Director June 8, 1998
.........................................
(CHARLES W. BARTHOLOMEW)
* Director June 8, 1998
.........................................
(STEVEN B. MYERS)
Director June 8, 1998
.........................................
(STANLEY ABRAMS)
*By: /S/ KEVIN L. BURKHARDT
.........................................
KEVIN L. BURKHARDT
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below constitutes and appoints Kevin L. Burkhardt and David
Cohen, or either of them, as such person's true and lawful attorneys-in-fact and
agents, will full powers of substitution and re-substitution, for such person in
name, place and stead, to sign in any and all amendments (including
post-effective amendments) to this Registration Statement on Form SB-2, in any
and all capacities, and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
such attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ KEVIN L. BURKHARDT Chief Executive Officer, President, Director May 15, 1997
.........................................
(KEVIN L. BURKHARDT)
/s/ JANE S. BURKHARDT Secretary, Director May 15, 1997
.........................................
(JANE S. BURKHARDT)
/s/ DAVID COHEN Chief Financial Officer, Treasurer, Chief May 15, 1997
......................................... Accounting Officer
(DAVID COHEN)
/s/ ARTHUR G. ROSENBERG Director May 15, 1997
.........................................
(ARTHUR G. ROSENBERG)
/s/ CHARLES W. BARTHOLOMEW Director May 15, 1997
.........................................
(CHARLES W. BARTHOLOMEW)
/s/ STEVEN B. MYERS Director May 15, 1997
.........................................
(STEVEN B. MYERS)
</TABLE>
II-8
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
*1.1 -- Underwriting Agreement...........................................................................
1.2 -- Selected Dealers Agreement.......................................................................
*1.3 -- Lock-up Agreement by (Stanley) Brett Abrams in favor of First Liberty Investment Group, Inc......
*1.4 -- Lock-up Agreement by Donald Jones in favor of First Liberty Investment Group, Inc................
*1.5 -- Lock-up Agreement by Steven B. Myers in favor of First Liberty Investment Group, Inc.............
*1.6 -- Lock-up Agreement by David Cohen in favor of First Liberty Investment Group, Inc.................
*1.7 -- Lock-up Agreement by Kevin L. and Jane S. Burkhardt in favor of First Liberty Investment Group,
Inc..............................................................................................
*1.8 -- Lock-up Agreement by Charles W. and Carole M. Bartholomew in favor of First Liberty Investment
Group, Inc.......................................................................................
*1.9 -- Lock-up Agreement by Marilyn A. Janson in favor of First Liberty Investment Group, Inc...........
*1.10 -- Lock-up Agreement by Cindy Bermingham in favor of First Liberty Investment Group, Inc............
*1.11 -- Lock-up Agreement by Srotnac Group LLC in favor of First Liberty Investment Group, Inc...........
*1.12 -- Lock-up Agreement by Arthur G. Rosenberg in favor of First Liberty Investment Group Inc..........
*1.13 -- Agreement among Underwriters.....................................................................
2.1 -- Amended Agreement and Plan of Reorganization, dated April 8, 1997, by and among, Proflight, Louis
R. Capece, Jr. And Air Response, Inc.............................................................
2.2 -- Amended Stock Purchase Agreement, dated April 8, 1997, by and among, Proflight, Louis R. Capece,
Jr. And Air Response South, Inc..................................................................
*2.3 -- Amendment to Amended Agreement and Plan of Reorganization, dated January 20, 1998................
*2.4 -- Amendment to Amended Stock Purchase and Sale Agreement, dated January 20, 1998...................
*2.5 -- Agreement, dated March 9, 1998...................................................................
*2.6 -- Letter Agreement, dated May 28, 1998.............................................................
3.1 -- Amended and Restated Articles of Incorporation...................................................
3.2 -- Bylaws...........................................................................................
*4.1 -- Form of Certificate for Shares of Common Stock...................................................
4.2 -- Form of Underwriter's Warrant....................................................................
4.3 -- Form of Underwriter's Warrant Agreement..........................................................
*4.4 -- Common Stock Purchase Warrant....................................................................
5.1 -- Opinion and Consent of Bondy & Schloss LLP.......................................................
10.1 -- Lease Agreement dated February 27, 1997, between the Company and Airplaza Co., Inc...............
10.2 -- Air Ambulance Transport Services Agreement dated February 9, 1996, by and between the Company and
Aetna Health Management, Inc.....................................................................
10.3 -- Promissory Note and Accommodation Agreement dated March 17, 1995, between the Company and Lear
Three, L.L.C.....................................................................................
10.4 -- First Promissory Note Extension, dated March 26, 1997, between the Company and Lear Three,
L.L.C............................................................................................
10.5 -- Promissory Note dated May 20, 1996, between the Company and Lear Three, L.L.C....................
10.6 -- Second Promissory Note Extension, dated March 26, 1997, between the Company and Lear Three,
L.L.C............................................................................................
10.7 -- Promissory Note date May 31, 1996, between the Company and Textron Financial Corporation.........
10.8 -- Security Agreement dated May 31, 1996, between the Company and Textron Financial Corporation.....
10.9 -- Promissory Note dated October 8, 1996, between the Company and Textron Financial Corporation.....
10.10 -- Aircraft Lease Agreement dated November 15, 1996, between the Company and Superior Transport
Service, Inc.....................................................................................
10.11 -- Promissory Note dated November 13, 1996, between the Company and Norwest Equipment Finance,
Inc..............................................................................................
10.12 -- Agreement Under Standards dated October 13, 1994, between the Company and the Arapahoe County
Public Airport Authority.........................................................................
10.13 -- Amended Employment Agreement dated May 1997, by and between the Company and Donald Jones.........
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------------------------------------- ----
<C> <S> <C>
10.14 -- Employment Agreement dated March 1997, by and between the Company and Kevin L. Burkhardt.........
10.15 -- Employment Agreement dated March 1997, by and between the Company and David Cohen................
10.16 -- Employment Agreement dated March 1997, by and between the Company and Jane S. Burkhardt..........
10.17 -- Consulting Agreement dated April 1997, by and between the Company and Louis R. Capece, Jr........
10.18 -- Agreement dated April 30, 1995, between Air Response, Inc. and Central National Bank
Canajoharie......................................................................................
10.19 -- Note and Security Agreement dated February 24, 1993, between Air Response, Inc. and Cessna
Finance Corporation..............................................................................
10.20 -- Aircraft Lease Agreement dated June 27, 1996, between Air Response, Inc. and U.S. Bancorp Leasing
& Financial......................................................................................
10.21 -- Promissory Note dated September 20, 1996, between Air Response, Inc. and Cessna Finance
Corporation......................................................................................
10.22 -- Promissory Note dated October 23, 1996, between Air Response, Inc. and Textron Financial
Corporation......................................................................................
10.23 -- Promissory Note dated October 23, 1996, between Air Response, Inc. and Textron Financial
Corporation......................................................................................
10.24 -- Insurance Policy between the Company and Nationair Insurance Agency..............................
10.25 -- Stock Option Plan................................................................................
10.26 -- Escrow Agreement.................................................................................
10.27 -- Employment Agreement dated September 15, 1997 by and between the Company and Steven B. Myers.
(Rescinded)......................................................................................
10.28 -- Form of Consulting Agreement dated , 1998 by and between the Company and the
Underwriter......................................................................................
10.29 -- Letter of Amendment to Employment Agreement of Donald Jones, dated September 15, 1997.
(Rescinded)......................................................................................
10.30 -- Letter of Amendment to Employment Agreement of Kevin L. Berkhardt, dated September 15, 1997.
(Rescinded)......................................................................................
*10.31 -- Contingent Extension Agreement, dated June 2, 1998, by and between Proflight and Lear Three
LLC..............................................................................................
*23.1 -- Consent of Grant Thornton LLP....................................................................
23.2 -- Consent of Bondy & Schloss (included Exhibit 5.1)................................................
*23.3 -- Consent of Staff Maikels and Ciampino, P.C.......................................................
23.4 -- Consents of Kaufman Rossin & Co., P.C............................................................
24.1 -- Power of Attorney................................................................................
</TABLE>
- ------------
* Filed herewith
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as......................... 'sm'
The section symbol shall be expressed as.............................. 'SS'
<PAGE>
<PAGE>
PROFLIGHT MEDICAL RESPONSE, INC.
1,019,200 Shares of Common Stock
and
1,019,200 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
June ___, 1998
First Liberty Investment Group, Inc.
80 Broad Street, 6th Floor
New York, New York 10005
Dear Sirs:
Proflight Medical Response, Inc., a Colorado corporation (the
"Company"), hereby confirms its agreement with you (the "Representative"),
acting as Representative for the various Underwriters listed on Schedule A
hereto as follows:
1. Description of the Securities
The Company proposes to issue and sell to the Underwriters an aggregate
of 1,019,200 shares of common stock, $.001 par value per share (the "Common
Stock"), and 1,019,200 redeemable common stock purchase warrants of the Company
(the "Warrants," and collectively with the Common Stock, the "Securities"). Each
Warrant shall entitle the holder to purchase one share of Common Stock for
$8.00, subject to adjustment. The Company proposes to grant to the
Representative an option (the "Representative's Warrant") to purchase up to
101,920 additional shares of Common Stock and up to an additional 101,920
Warrants which may be exercised for an additional 101,920 shares of Common
Stock. The Company also proposes to grant to the Representative an option (the
"Overallotment Option"), exercisable during the 45-day period after the Closing
Date hereof, to purchase, at the initial public offering price less underwriting
discounts, up to an additional 152,880 shares of Common Stock and 152,880
Warrants (collectively, with the Common Stock underlying such Warrants, the
"Overallotment Securities"), on the same terms as the Common Stock and Warrants
are offered to the public, solely to cover overallotments. The Representative's
Securities and Overallotment Securities shall collectively be referred to as the
"Additional Securities". The offering of Securities and Additional Securities
contemplated hereby may sometimes be referred to as the "Offering."
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<PAGE>
Pursuant to the Amended Agreement and Plan of Reorganization, dated
April 8, 1997, as amended in January, March, and May of 1998, between the
Company, Air Response, Inc. ("Air Response") and Louis R. Capece, Jr. (the "Air
Response Agreement"), the Company agreed to purchase, and Louis R. Capece, Jr.,
sole shareholder of Air Response, agreed to sell, all of the outstanding capital
stock of Air Response in exchange for 496,154 shares of Common Stock of the
Company which will be issued two years from the date hereof. Pursuant to the
Amended Stock Purchase and Sale Agreement, dated April 8, 1997, as amended in
January, March and May of 1998 between the Company, Air Response South, Inc.
("ARS") and Louis R. Capece, Jr., the sole shareholder of ARS (the "ARS
Agreement"), the Company agreed to purchase, and Mr. Capece agreed to sell to
the Company, all of the outstanding capital stock of ARS for $800,000. The
purchase of the Common Stock of the Company by the Underwriters pursuant to this
Agreement is expressly contingent upon the prior execution and delivery of each
of the Air Response Agreement and ARS Agreement and the consummation of the
transactions contemplated thereunder.
(a) The Warrants
The Warrants are exercisable during the three-year period
commencing two (2) years after the effective date of the Registration Statement,
as defined in Paragraph 2(a) (the "Effective Date"), except that the Warrants
may be exercisable after one (1) year after the Effective Date with the express
prior written consent of the Representative, and expire five (5) years after the
Effective Date, subject to prior redemption, as described below. The shares of
Common Stock issuable upon the exercise of the Warrants are hereinafter referred
to as the "Warrant Shares."
The Warrants will be redeemable at a price of $.10 per
Warrant, commencing two (2) years after the Effective Date (or one (1) year
after the Effective Date with the prior written consent of the Representative)
and prior to expiration, upon at least 30 days prior written notice provided
that the closing bid prices of the Common Stock (or closing sales price if
listed on an exchange or on a reporting system that provides last sales prices)
for 20 consecutive trading days ending immediately prior to the date on which
notice of redemption is given shall exceed $12.75 per share (subject to
adjustment), subject to the right of the holder to exercise his or its purchase
rights thereunder until redemption.
(b) Representative's Warrant
The Company will sell to the Representative, for $10, the
Representative's Warrant to purchase one share of Common Stock and one Warrant
for each ten shares of Common Stock and ten Warrants sold, respectively, in this
Offering excluding the Additional Securities
2
<PAGE>
<PAGE>
(a maximum of 101,920 shares of Common Stock and 101,920 Warrants) at a price of
$10.75 per share of Common Stock and $.12 per Warrant (the "Representative's
Warrants," and collectively with the Securities underlying the Representative's
Warrants, the "Representative's Securities"). The Warrants underlying the
Representative's Warrants shall be exercisable at a price of $13.25 per Warrant.
The Representative's Securities shall be non-exercisable and non-transferable
(other than to (i) officers of the Representative, and (ii) members of the
selling group and their officers or partners) for a period of 12 months
following the Effective Date. The Representative's Securities shall be
registered for sale to the public and shall be included in the Registration
Statement filed in connection with the Offering.
(c) The Overallotment Option
The Company also proposes to grant to the Representative an
option (the "Overallotment Option"), exercisable during the 45-day period after
the Closing Date hereof, to purchase, at the initial public offering price less
underwriting discounts, up to an additional 152,880 shares of Common Stock and
152,880 Warrants (collectively, with the Common Stock underlying such Warrants,
the "Overallotment Securities"), on the same terms as the Common Stock and
Warrants are offered to the public, solely to cover overallotments. The
Overallotment Securities shall be registered for sale to the public and included
in the Registration Statement filed in connection with the Offering.
2. Representations and Warranties of the Company, Air
Response and ARS
Each of the Company, Air Response and ARS makes the following
representations and warranties to the Representative, as the case may be, that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File No.
333-27197), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933 (the "Act"). The Company will file further amendments to said registration
statement in the form to be delivered to you and will not, before the
registration statement becomes effective, file any other amendment thereto to
which you shall have objected in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
exhibits and all other documents filed as a part thereof or incorporated
therein), is hereinafter called the "Registration Statement", and
3
<PAGE>
<PAGE>
the prospectus, in the form filed with the Commission pursuant to Rule 424(b) of
the General Rules and Regulations of the Commission under the Act (the
"Regulations") or, if no such filing is made, the definitive prospectus used in
the Offering, is hereinafter called the "Prospectus". The Company has delivered
to you copies of each Preliminary Prospectus as filed with the Commission and
has consented to the use of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and has not included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, not misleading, subject to the provisions set forth below
and except as such untrue statement or omission has been cured in the a
subsequent preliminary prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and for
such longer periods as in the opinion of counsel for the Underwriter, a
Prospectus is required to be delivered in connection with the sale of the
Securities by the Underwriters, the Registration Statement and Prospectus, and
any amendment thereof or supplement thereto, will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations, and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
not misleading; provided, however, that this representation and warranty does
not apply to statements or omissions made in reliance upon and in conformity
with express written information furnished to the Company by you, for use in
connection with the preparation of the Registration Statement or Prospectus, or
in any amendment thereof or supplement thereto. It is understood that the
statements set forth under the heading "Underwriting" in the Prospectus with
respect to (i) the amounts of the selling concession and reallowance; (ii) the
identity of counsel to the Representative under the heading "Legal Matters;"
(iii) the information concerning the NASD affiliation of the Representative;
and (iv) the Risk Factor entitled "Lack of Underwriting History" constitute
for purposes of this Paragraph the only information furnished in writing by
or on behalf of the Representative for inclusion in the Registration
Statement and Prospectus, as the case may be.
4
<PAGE>
<PAGE>
(d) The Company and each of Air Response and ARS are, and at
each of the Closing Date and the Option Closing Date will be, corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation. The Company and each of Air Response and
ARS are duly qualified or licensed and in good standing as foreign corporations
in each jurisdiction in which their ownership or leasing of any properties or
the character of their operations requires such qualification or licensing,
except those jurisdictions in which the failure to so qualify would not have a
material adverse effect. The Company and each of Air Response and ARS have all
requisite corporate powers and authority, and, except as set forth in the
Registration Statement, the Company and each of Air Response and ARS and their
respective employees have all material and necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies to own or lease their properties and conduct
their businesses as described in the Prospectus, and the Company and each of Air
Response and ARS are doing business and have been doing business during the
period described in the Registration Statement in compliance with all such
material authorizations, approvals, orders, licenses, certificates and permits
and all material federal, state and local laws, rules and regulations concerning
the businesses in which the Company or Air Response and ARS are engaged. The
disclosures in the Registration Statement concerning the effects of federal,
state and local regulation on the businesses of the Company, Air Response and
ARS as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact. Each of the Company, Air
Response and ARS has all corporate power and authority to enter into this
Agreement and carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and
executed by each of the Company, Air Response and ARS. The Securities (including
the Common Stock and the Warrants), the Warrant Shares, the Representative's
Warrants to be issued and sold by the Company pursuant to this Agreement, the
Underwriter's Securities issuable upon exercise of the Representative's Warrants
and payment therefor, the Representative's Securities, the Overallotment Option
and the Overallotment Securities, have been duly authorized (and, in the case of
the Common Stock and the Warrant Shares, have been duly reserved for issuance)
and, when issued and paid for in accordance with this Agreement (and, in the
case of the Warrant Shares, upon exercise of the Warrants and payment to the
Company of the exercise price therefor), the Common Stock and Warrant Shares
will be validly issued, fully paid and non-assessable; the Common Stock,
Warrants, Warrant Shares, Representative's Warrants,
5
<PAGE>
<PAGE>
Representative's Securities, the Overallotment Option and the Overallotment
Securities are not and will not be subject to the preemptive rights of any
stockholder of the Company, and all the capital stock of each of Air Response
and ARS is not and will not be subject to the preemptive rights of any
stockholder of Air Response or ARS, respectively, as the case may be, and all of
such securities conform and at all times up to and including their issuance will
conform in all material respects to all statements with regard thereto contained
in the Registration Statement and Prospectus; and all corporate action required
to be taken for the authorization, issuance and sale of the Common Stock,
Warrants, Warrant Shares, Representative's Warrants, Representative's
Securities, the Overallotment Option and the Overallotment Securities has been
taken, and this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of
securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement, the Air Response Agreement and the ARS Agreement and the fulfillment
of the terms hereof and thereof, will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, the Articles of
Incorporation, as amended, or Bylaws of the Company or any of Air Response or
ARS or of any evidence of material indebtedness, lease, contract or other
agreement or instrument to which the Company or any of Air Response or ARS is a
party or by which the Company or any of Air Response or ARS or any of their
material properties is bound, or under any applicable law, rule, regulation,
judgment, order or decree of any government, professional advisory body,
administrative agency or court, domestic or foreign, having jurisdiction over
the Company or any of Air Response or ARS, or their respective properties which
are material to the Company or its business, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of the Company or any of Air Response or ARS; and no consent, approval,
authorization or order of any court or governmental or other regulatory agency
or body is required for the consummation by the Company or any of Air Response
or ARS of the transactions on their part herein contemplated, except such as may
be required under the Act or under state securities or blue sky laws, except
where a breach, violation or failure to obtain such consent would not have a
material adverse effect upon the business or operation of the Company or Air
Response or ARS.
(g) Subsequent to the date hereof, and prior to the Closing
Date and the Option Closing Date, the Company will not issue or acquire any
equity securities other than securities of Air Response and ARS, pursuant to the
terms of the Air Response
6
<PAGE>
<PAGE>
Agreement and the ARS Agreement, and as described in the Registration Statement,
and that neither Air Response nor ARS has issued or acquired any equity or debt
securities, and except that the Company may make short-term investments as
contemplated in the "Use of Proceeds" section of the Prospectus. Except as
described in the Registration Statement, the Company does not have, and at the
Closing Date will not have, outstanding any options to purchase or rights or
warrants to subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell shares of its Preferred Stock,
Common Stock or any such options, warrants, convertible securities or
obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of each of the Company, Air Response and ARS at
the respective dates and for the respective periods to which they apply; and
such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved.
(i) Except as set forth in the Registration Statement, the
Company and each of Air Response and ARS are not, and at the Closing Date and at
the Option Closing Date will not be, in violation or breach of, or default in,
the due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company or any of Air Response and
ARS are a party or by which the Company or any of Air Response and ARS may be
bound or to which any of the property or assets of the Company or any of Air
Response and ARS are subject, which violations, breaches, default or defaults,
singularly or in the aggregate, would have a material adverse effect on the
Company or any of Air Response and ARS. The Company and each of Air Response and
ARS have not and will not have taken any action in material violation of the
provisions of the Articles of Incorporation, as amended, or the Bylaws of the
Company or Air Response and ARS or any statute or any order, rule or regulation
of any court or regulatory authority or governmental body having jurisdiction
over or application to the Company or Air Response and ARS, their businesses or
properties.
(j) (i) The financial statements and schedules of the Company
included as part of the Registration Statement or the Prospectus present fairly
and financial condition of the Company as of the dates thereof, and the results
of operations of the Company for the periods covered thereby, all in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the entire periods involved; (ii) the financial
7
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<PAGE>
statements and schedules of each of Air Response and ARS included as part of the
Registration Statement or the Prospectus present fairly the financial condition
of Air Response and ARS, respectively, as of the dates thereof, and the results
of operations of Air Response and ARS, respectively, for the periods covered
thereby, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire periods involved; (iii) Grant
Thornton, LLP (the "Company's Accountants"), who have reported on such financial
statements and schedules of the Company, are independent accountants with
respect to the Company, Air Response and ARS as required by the Act and the
Rules and Regulations; (iv) Staff Ciampino & Company, P.C., who have reported on
such financial statements and schedules for each of Air Response and ARS, are
independent accountants with respect to Air Response and ARS, as required by the
Act and the Rules and Regulations, and (v) no other financial statements or
schedules of the Company, Air Response or ARS are required to be included in the
Registration Statement or the Prospectus.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Date or the Option Closing Date, except as set forth in or contemplated
by the Registration Statement and the Prospectus, (i) each of the Company, Air
Response or ARS has and will have conducted its business in substantially the
same manner as on December 31, 1997; (ii) neither the Company nor Air Response
or ARS has incurred or will have incurred any material liability or obligation,
direct or contingent, or has entered into or will have entered into any material
transaction; (iii) neither the Company nor Air Response or ARS has or will have
paid or declared any dividend or other distribution on its capital stock, and
(iv) there has not been and will not have been any change in (A) the
capitalization of the Company, Air Response or ARS, (B) the business,
properties, prospects, financial condition or results of operations of the
Company, Air Response or ARS, or (C) the value of the assets of the Company, Air
Response or ARS, arising for any reason whatsoever.
(l) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor Air Response or ARS has,
or at the Closing Date or the Option Closing Date will have, any material
contingent obligation.
(m) The Company and each of Air Response and ARS have, and at
the Closing Date and at the Option Closing Date will have, good and marketable
title to all properties and assets described in the Prospectus as owned by them,
free and clear of all liens, charges, encumbrances, claims, security interests,
restrictions and defects of any material nature whatsoever, except such as are
described or referred to in the Prospectus and liens for taxes not
8
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<PAGE>
yet due and payable. All of the material leases and subleases under which the
Company or any of Air Response and ARS are the lessor or sublessor of properties
or assets or under which the Company or any of Air Response and ARS hold
properties or assets as lessee as described in the Prospectus are, and will on
the Closing Date and the Option Closing Date be, in full force and effect, and
except as described in the Prospectus, the Company and Air Response and ARS are
not and will not be in default in respect to any of the terms or provisions of
any of such leases or subleases, and no claim has been asserted by anyone
adverse to rights of the Company or any of Air Response and ARS as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or any of Air
Response and ARS to continue possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus, and the Company and each of Air Response and ARS owns or leases
all such properties as are necessary to its operations as now conducted and,
except as otherwise stated in the Prospectus, as proposed to be conducted set
forth in the Prospectus.
(n) The authorized, issued and outstanding capital stock of
the Company as of March 31, 1998 and as of the date of the Prospectus is as set
forth in the Prospectus under "Capitalization"; the shares of issued and
outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company, Air
Response or ARS have been granted or entered into by the Company, Air Response
or ARS, as the case may be, with respect to any of their securities; and the
Common Stock, the Warrants, the Representative's Warrant, the Representative's
Securities, the Overallotment Option and the Overallotment Securities, and all
such options and warrants conform in all material respects, to all statements
relating thereto contained in the Registration Statement and Prospectus.
(o) Except as described in the Prospectus, neither the
Company, nor Air Response or ARS owns or controls any capital stock or
securities of, or have any proprietary interest in, or otherwise participate in
any other corporation, partnership, joint venture, firm, association or business
organization, except that, at the Closing Date and Option Closing Date, the
Company, pursuant to the execution, delivery and consummation of each of the Air
Response Agreement and ARS Agreement prior to the Offering, will own all the
issued and outstanding capital stock of Air Response and ARS; provided, however,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the
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Securities sold by the Company in certificates of deposits, savings deposits,
short-term obligations of the United States Government, money market instruments
or other short-term investments.
(p) To the knowledge of the Company, Air Response and ARS,
respectively, Grant Thornton LLP and Staff Ciampino & Company, P.C., who have
given their reports on certain financial statements filed and to be filed with
the Commission as a part of the Registration Statement, which are incorporated
in the Prospectus, are with respect to the Company, in the former case, and with
respect to Air Response and ARS in the latter case, independent public
accountants as required by the Act and the Rules and Regulations.
(q) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company,
Air Response nor ARS have (i) issued any securities or incurred any material
liability or obligation, direct or contingent, for borrowed money; or (ii)
entered into any material transaction other than in the ordinary course of
business; or (iii) declared or paid any dividend or made any other distribution
on or in respect to its capital stock.
(r) There is no litigation or governmental proceeding pending,
or to the knowledge of the Company, Air Response or ARS, respectively, as the
case may be, threatened against, or involving the properties or business of the
Company, Air Response or ARS which might materially adversely affect the value,
assets or the operation of the properties or the business of the Company, Air
Response or ARS, except as referred to in the Prospectus. Further, except as
referred to in the Prospectus, there are no pending actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race, nor is the Company, Air Response or ARS
charged with or, to its knowledge, under investigation with respect to any
violation of any statutes or regulations of any regulatory authority having
jurisdiction over its business or operations, and no labor disturbances by the
employees of the Company, Air Response or ARS exist or, to the knowledge of the
Company, Air Response or ARS, have been threatened.
(s) Each of the Company, Air Response and ARS has, and at the
Closing Date and at the Option Closing Date will have, filed all necessary
federal, state and foreign income and franchise tax returns or has requested
extensions thereof (except in any case where the failure to so file would not
have a material adverse effect on the Company, Air Response or ARS, as the case
may be), and has paid all taxes which it believes in good faith were
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required to be paid by it except for any such tax that currently is being
contested in good faith or as described in the Prospectus.
(t) The Company, Air Response and ARS are each in compliance
with the requirements of Section 13(b)(2) of the Securities Exchange Act of
1934, as amended, and all rules and regulations promulgated thereunder (the
"Exchange Act") and, except as disclosed in the Prospectus, to the Company's
knowledge, neither the Company, Air Response nor ARS, nor any of their
respective employees, officers, directors or agents, has made, directly or
indirectly, any payment of funds of such entity or received or retained funds in
violation of any law, rule or regulation, which payment, receipt on retention is
of a character which is required to be disclosed in the Prospectus.
(u) Each of the Company, Air Response and ARS has not at any
time (i) made any contribution to any candidate for political office, or failed
to disclose fully any such contribution, in violation of law, or (ii) made any
payment to any state, federal, foreign governmental or professional regulatory
agency, officer or official or other person charged with similar public,
quasi-public or professional regulatory duties, other than payments or
contributions required or allowed by applicable law.
(v) Except as set forth in the Registration Statement, to the
knowledge of the Company, Air Response and ARS, neither any of the Company, Air
Response and ARS, nor any of officer, director, employee or agent of the
Company, Air Response and ARS, has made any payment or transfer of any funds or
assets of any such entity or conferred any personal benefit by use of such
entity's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(w) On the Closing Date, all transfer or other taxes, if any
(other than income tax) which are required to be paid, and are due and payable,
in connection with the sale and transfer of the capital stock of each of Air
Response and ARS by Louis R. Capece, Jr. to the Company, and of the Securities
by the Company to the Underwriter will have been fully paid or provided for by
the Company as the case may be, and all laws imposing such taxes will have been
fully complied with in all material respects.
(x) There are no contracts or other documents of the Company,
Air Response or ARS which are of a character required to be described in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement which have not been so described or filed.
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(y) The Company will apply the net proceeds from the sale of
the Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(z) The Company, Air Response and ARS each maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specified authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (3) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (4) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) Except as set forth in the Prospectus, no holder of any
securities of the Company, Air Response or ARS has the right to require
registration of any securities because of the filing or effectiveness of the
Registration Statement.
(bb) Neither the Company nor Air Response or ARS have taken
and at the Closing Date will not have taken, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Common Stock or the Warrants to facilitate the sale or resale of
such securities.
(cc) To the best of the Company's, or Air Response's or ARS'
knowledge, there are no claims for services in the nature of a finder's
origination fee with respect to the sale of the Securities hereunder or the sale
of the capital stock of Air Response or ARS.
(dd) No right of first refusal exists with respect to any sale
of securities by the Company, Air Response or ARS, except that right of first
refusal granted by the Company to the Representative to underwrite or place any
public private offering of any debt or equity securities of the Company
(excluding sales to employees of the Company) or any of its subsidiaries
(including Air Response and ARS) or affiliates for three years following the
Closing Date, and as to which the Representative shall have twenty (20) days
after its receipt of written notice thereof to accept or decline such offering.
If the Representative declines to participate in such offering and if thereafter
the terms of such offering are modified, the Representative shall have up to
ten (10) days thereafter to accept or decline the modified terms. In addition,
for the two years
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following the Effective Date, the Representative has the right, to purchase or
sell for its account any securities sold by officers, directors or holders of at
least five percent (5%) of any outstanding securities of any class of securities
of the Company (collectively, "Insiders"), any securities sold by Insiders
pursuant to Rule 144 or any successor provision thereto.
(ee) No statement, representation, warranty or covenant made
by the Company, Air Response or ARS in this Agreement or made in any certificate
or document required by this Agreement to be delivered to the Representative
was, when made, or as of the Closing Date or as of the Option Closing Date, will
be materially inaccurate, untrue or incorrect.
(ff) The Company and each of Air Response and ARS have
generally enjoyed satisfactory employer/employee relationships with their
respective employees and are in compliance with all federal, state and local
laws and regulations respecting the employment of their respective employees and
employment practices, terms and conditions of employment and wages and hours
relating thereto. To the knowledge of the Company, there are no pending or
threatened investigations involving the Company or any of Air Response and ARS
by the U.S. Department of Labor or any other federal, state or local agency
responsible for the enforcement of such laws and regulations. To the knowledge
of each of the Company, Air Response and ARS, there are no unfair labor practice
charges or complaints against the Company or any Subsidiary pending before the
National Labor Relations Board or any strikes, picketing, boycotts, disputes,
slowdowns or stoppage pending or threatened against or involving the Company or
any Subsidiary, or any predecessor entity, and none has occurred. No collective
bargaining agreements or modifications thereof are currently in effect or being
negotiated by the Company or any Subsidiary and their respective employees. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company and any Subsidiary.
(gg) Neither the Company, Air Response nor ARS have maintained
or contributed to any deferred compensation, profit sharing, savings,
retirement, pension or other benefit plan or arrangements with or for the
benefit of any person resulting from a relationship with the Company, except as
may be disclosed in the Prospectus.
(hh) Each of the Company, Air Response and ARS is in
compliance with all federal and state laws, rules and regulations relating to
consumer protection, occupational safety and health and to the storage, handling
or transportation of hazardous or toxic materials and each of the Company, Air
Response and ARS has received all permits, licenses or other approvals required
of the
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Company, Air Response and ARS under applicable federal and state occupational
safety and health and environmental laws and regulations to conduct its business
and each of the Company, Air Response and ARS is in compliance with all terms
and conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits, licenses or
other approvals which would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or otherwise), business, net
worth or results of operations of the Company, Air Response and ARS, except as
the case may be, as may be described in or contemplated by the Prospectus.
(ii) All promissory notes, in an aggregate principal amount of
$500,000, issued by the Company pursuant to bridge private placements in either
October 1996 or January 1997, have been cancelled and the holders thereof have
released and discharged the Company from its obligations thereunder and
liabilities therewith.
(jj) The Company has received, and promptly presented to the
Representative and counsel for the Representative, copies of all duly executed
and delivered "lock-up" letters from each of the officers, directors and
shareholders of the Company (after giving effect to the Acquisitions) regarding
any Common Stock of the Company or securities convertible into or exchangeable
for such Common Stock, that each of the foregoing is thereby restricted from
selling, hypothecating, pledging or otherwise disposing of any shares of Common
Stock or securities convertible into or exchangeable for Common Stock, for two
years from the Effective Date (or one year with the prior written consent of the
Underwriter).
(kk) The Company has received, and promptly presented to the
Representative and counsel for the Representative, "10b-5" letters from each of
the officers, directors and holders of at least five percent of the outstanding
shares of any class of equity stock of the Company (both before and after giving
effect to the Acquisitions), whereby such individuals stated that the
information contained in the Registration Statement and the Prospectus was
accurate, and affirmed that he or she has not, in the five years preceding the
Effective Date (or as disclosed in the Registration Statement and Prospectus),
been the subject of any court order, judgment or decree restricting in any way
such person's involvement in the securities or commodities industries, convicted
in or named in a criminal proceeding, the subject of any bankruptcy petition, or
found by a court of competent jurisdiction of violating any securities or
federal commodities law.
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3. Covenants of the Company, Air Response and ARS
The Company, Air Response and ARS each covenant and agree, as the case
may be, that:
(a) The Company will cause its Common Stock and Warrants to be
registered pursuant to Section 12 of the Exchange Act, not later than the
Effective Date.
(b) The Company will file with NASDAQ, as long as the
Securities are quoted on the NASDAQ National Market System or SmallCap Market,
all documents required thereby to maintain listing or quotation thereupon, and
will take any and all actions required to comply with and maintain all
continuing requirements for listing thereupon.
(c) It will notify the Representative immediately of any actual
or threatened or impending investigations (formal or informal) or any delisting
of other proceedings brought by NASDAQ, the NASD, SEC or any other governmental
or regulatory agency or body.
(d) It will deliver to the Representative, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(e) The Company has delivered to the Representative, and each of
the Selected Dealers, if any, (as hereinafter defined) without charge, as many
copies as have been requested of each Preliminary Prospectus heretofore filed
with the Commission in accordance with and pursuant to the Commission's Rule 430
under the Act and will deliver to the Representative and to others whose names
and addresses are furnished by the Representative or a Selected Dealer, without
charge, on the Effective Date of the Registration Statement, and thereafter from
time to time during such reasonable period as you may request if, in the opinion
of counsel for the Representative, the Prospectus is required by law to be
delivered in connection with sales by the Representative or a dealer, as many
copies of the Prospectus (and, in the event of any amendment of or supplement
to the Prospectus, of such amended or supplemented Prospectus) as the
Representative may reasonably request for the purposes contemplated by the Act.
The Company will take all necessary actions to furnish to whomever directed by
the Representative, when and as requested by the Representative, all necessary
documents, exhibits, information, applications, instruments and papers as may
be reasonably required or, in the written opinion of counsel to the
Representative desirable, in order to permit or facilitate the sale of the
Securities.
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(f) The Company has authorized the Representative to use, and
make available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Representative and all dealers (the "Selected Dealers") selected
by the Representative in connection with the distribution of the Securities to
be purchased by the Representative and all dealers to whom any of such
Securities may be sold by the Representative or by any Selected Dealer, to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Securities in accordance with the applicable provisions of the
Act, the applicable Regulations and applicable state law, until completion of
the distribution of the Securities and for such longer period as you may request
if the Prospectus is required under the Act, the applicable Regulations or
applicable state law to be delivered in connection with sales of the Securities
by the Representative or the Selected Dealers.
(g) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Representative
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of the
issuance by the Commission of any stop order or of the initiation, or to the
best of the Company's knowledge, the threatening, of any proceedings for that
purpose; (iii) of the suspension of the qualification of the Securities and the
Representative's Warrants, or underlying securities, for offering or sale in any
jurisdiction or of the initiating, or to the best of the Company's knowledge the
threatening, of any proceeding for that purpose; and (iv) of the receipt of any
comments from the Commission. If the Commission shall enter a stop order at any
time, the Company will make every reasonable effort to obtain the lifting of
such order at the earliest possible moment.
(h) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements imposed
upon it by the Act and the Exchange Act, as now and hereafter amended and by the
Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Representative, the Prospectus as then amended or supplemented
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
not misleading, or if it is necessary at any time to amend the Prospectus to
comply with the Act, the Company will notify you promptly and prepare and file
with the Commission an appropriate
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amendment or supplement in accordance with Section 10 of the Act and will
furnish to you copies thereof.
(i) The Company will endeavor in good faith, in cooperation
with you, at or prior to the time the Registration Statement becomes effective,
to qualify the Securities for offering and sale under the securities laws or
blue sky laws of such jurisdictions as you may reasonably designate. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction.
(j) The Company will make generally available to its
securityholders, as soon as practicable, but in no event later than the first
day of the fifteenth full calendar month following the Effective Date of the
Registration Statement, an earnings statement of the Company, which will be in
reasonable detail but which need not be audited, covering a period of at least
twelve months beginning after the Effective Date of the Registration Statement,
which earnings statements shall satisfy the requirements of Section 11(a) of the
Act and the Regulations as then in effect. The Company may discharge this
obligation in accordance with Rule 158 of the Regulations.
(k) During the period of five years commencing on the
Effective Date of the Registration Statement, the Company will make available to
its stockholders an annual report (including financial statements audited by its
independent public accountants), in reasonable detail, and, at its expense,
furnish the Representative (i) within 90 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and a separate
balance sheet of each subsidiary of the Company the accounts of which are not
included in such consolidated balance sheet as of the end of such fiscal year,
and consolidated statements of operations, stockholders' equity and cash flows
of the Company and separate statements of operations, stockholders' equity and
cash flows of any subsidiaries of the Company the accounts of which are not
included in such consolidated statements, for the fiscal year then ended all in
reasonable detail and all certified by independent accountants (within the
meaning of the Act and the Regulations), (ii) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, similar balance
sheets as of the end of such fiscal quarter and similar statements of
operations, stockholders' equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting
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principles applied on a consistent basis, (iii) as soon as available, each
report furnished to or filed with the Commission or any securities exchange and
each report and financial statement furnished to the Company's shareholders
generally and (iv) as soon as available, such other material as the Underwriter
may from time to time reasonably request regarding the financial condition and
operations of the Company.
(l) For a period of eighteen months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial statements
for each of the first three quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders.
(m) Prior to the filing of the Registration Statement, the
Company shall have provided to the Representative the results of any title,
lien, uniform commercial code or other search as the Representative or its
counsel may request.
(n) The Company will have executed and delivered all
agreements pertaining to and caused to be consummated, its acquisition of all
the outstanding capital stock of each of Air Response, Inc. and Air Response
South, Inc. (collectively, the "Acquisitions"), and will further cause all
conditions to the Acquisitions to remain fulfilled and otherwise of full force
and effect at all times during the term of this Agreement. The Company further
understands that the continuing effectiveness of the Acquisitions and its
performance of all obligations under all agreements effectuating the
Acquisitions are conditions precedent to any obligations of the Underwriter
hereunder, and that any failure by the Company to perform, maintain or fulfill
any obligations thereunder or hereunder, shall immediately release the
Underwriter from all its obligations and duties hereunder.
(o) Prior to the Closing Date or the Option Closing Date,
neither the Company nor any of Air Response or ARS will issue, directly or
indirectly, without your prior written consent and that of counsel for the
Representative, any press release or other public announcement or hold any press
conference with respect to the Company or its activities with respect to this
Offering.
(p) The Company will deliver to you prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date of the Registration Statement and will not
file any such amendment or supplement to which you shall reasonably object after
being furnished such copy.
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(q) During the period of 120 days commencing on the date
hereof, the Company will not at any time take, directly or indirectly, any
action designed to, or which will constitute or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Securities to facilitate the sale or resale of any of the Securities.
(r) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(s) Counsel for the Company, the Company's accountants, and
the officers and directors of the Company will, respectively, furnish the
opinions, the letters and the certificates referred to in subsections of
Paragraph 9 hereof, and, in the event that the Company shall file any amendment
to the Registration Statement relating to the offering of the Securities or any
amendment or supplement to the Prospectus relating to the offering of the
Securities subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors, respectively, will, at
the time of such filing or at such subsequent time as you shall specify, so long
as securities being registered by such amendment or supplement are being
underwritten by the Underwriters, furnish to you such opinions, letters and
certificates, each dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in said Paragraph 9, as
you may reasonably request, or, if any such opinion or letter or certificate
cannot be furnished by reason of the fact that such counsel or such accountants
or any such officer or director believes that the same would be inaccurate, such
counsel or such accountants or such officer or director will furnish an accurate
opinion or letter or certificate with respect to the same subject matter.
(t) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
(u) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon exercise of the Warrants
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and issuable upon exercise of the Representative's Warrants (including the
underlying securities) outstanding from time to time.
(v) During a period of three years commencing on the Effective
Date, the Company will furnish to you and any Selected Dealers, who may so
request copies of such financial statements and other periodic and special
reports as the Company may from time to time distribute generally to the holders
of any class of its capital stock, and will furnish to the Representative and
such Selected Dealers who may request a copy of each annual or other report
which the Company is required to file with the Commission.
(w) Following the Effective Date and from time to time
thereafter, so long as the Warrants are outstanding, the Company will timely
prepare and file at its sole cost and expense one or more post-effective
amendments to the Registration Statement or a new registration statement as
required by law as will permit Warrant holders to be furnished with a current
prospectus in the event Warrants are exercised, and to use its best efforts and
due diligence to have same be declared effective. The Company will deliver a
draft of each such post-effective amendment or new registration statement to the
Representative at least ten days prior to the filing of such post-effective
amendment or registration statement.
(x) Following the Effective Date and from time to time
thereafter so long as any of the Warrants remain outstanding, the Company will
timely deliver and supply to its Warrant Agent sufficient copies of the
Company's current Prospectus, as will enable such Warrant Agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(y) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent certified
public accountants reasonably acceptable to the Representative in connection
with the preparation of the financial statements to be included in any
registration statement to be filed by the Company hereunder, or any amendment
or supplement thereto (it being understood that Grant Thornton LLP is acceptable
to the Representative). During the same period, the Company shall employ the
services of a law firm(s) suitably experienced in corporate and securities
laws in connection with all legal work of the Company, including the preparation
of a registration statement to be filed by the Company hereunder, or any
amendment or supplement thereto.
(z) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a Warrant Agent for the Warrants, who shall be
reasonably acceptable to the Representative.
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(aa) The Company agrees that it will, upon the Closing Date,
for a period of no less than three (3) years, engage a designee of the
Representative as an advisor (the "Advisor") to its Board of Directors where
such Advisor shall attend meetings of the Board, receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors and shall be entitled to receive compensation therefor equal to the
entitlement of all non-employee directors. Such Advisor shall also be entitled
to receive reimbursement for all reasonable costs incurred in attending such
meetings including, but not limited to, food, lodging, and transportation. The
Company further agrees that during said three (3) year period, it shall schedule
no less than four (4) formal and "in person" meetings of its Board of Directors
in each such year and fifteen (15) days advance notice of such meetings shall be
given to the Advisor. Further, during such three (3) year period, the Company
shall give notice to the Underwriter with respect to any proposed acquisitions,
mergers, reorganizations or other similar transactions. The Representative shall
have the right during such three-year periods in its sole discretion, to
designate one person for election as a Director of the Company and the Company
will utilize its best efforts to obtain the election of such person who shall be
entitled to receive the same compensation, expense reimbursements and other
benefits set forth above.
The Company agrees to indemnify and hold the Representative and
such Advisor or Director harmless against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its of officers and directors, it agrees, if possible, to include
the Underwriter's designee as an insured under such policy.
(bb) Upon the Closing Date, the Company shall have entered
into a two year agreement with the Representative in form reasonably
satisfactory to the Underwriter (the "Consulting Agreement"), pursuant to which
the Representative will be retained as a management and financial consultant and
will be paid an aggregate fee of $120,000, exclusive of any non-accountable
out-of-pocket expenses, all of which shall be paid upon the Closing Date.
(cc) The Company will apply for listing in Standard and Poor's
Corporation Reports or Moody's OTC Guide and shall use its best efforts to have
the Company included in such publications, as soon as is practicable following
the Closing Date and for at least five years from the Closing Date.
(dd) For a period of twenty-four (24) months from the
Effective Date, no officer, director or holder of any securities of
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the Company prior to the Offering will, directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any shares of Common Stock into public
markets, including shares of Common Stock issuable upon exercise of options,
warrants or any convertible securities of the Company, without the prior written
consent of the Representative, other than as set forth in the Registration
Statement. In order to enforce this covenant, the Company shall impose
stop-transfer instructions with respect to the securities owned by every
stockholder prior to the Offering until the end of such period (subject to any
exceptions to such limitation on transferability set forth in the Registration
Statement). Notwithstanding the foregoing, the Company's current stockholders
shall be permitted to make transfers for estate planning purposes or in private
sales, so long as the transferee agrees in writing to be bound by the foregoing
provisions. If necessary to comply with any applicable Blue-sky Law, the shares
held by such stockholders will be escrowed with counsel for the Company or
otherwise as required. In addition, prior to the end of such twenty-four (24)
month period, the Company will not permit its counsel to issue any opinions to
remove any legends or any of its securities.
(ee) Except for the issuance of shares of capital stock by the
Company in connection with the exercise of warrants or options outstanding as of
the Closing Date and Option Closing Date and as disclosed in the Registration
Statement, the Company shall not, for a period of twenty-four (24) months
following the Closing Date, directly or indirectly, offer, sell, issue, agree to
issue or transfer any of its debt, equity or other securities of any kind,
including any security exchangeable or exercisable for, or convertible into,
shares of its capital stock or register any of such securities (under any form
of registration statement, including Form S-8), without the prior written
consent of the Underwriter. Options granted pursuant to plans as described in or
permitted under the Registration Statement must be exercisable at the fair
market value on the date of grant.
(ff) For so long as any of the Warrants remain outstanding,
the Company shall maintain "key person" life insurance payable to the Company on
the life of Kevin L. Burkhardt, its Chief Executive Officer, in the amount of
$1,000,000, unless his employment with the Company is earlier terminated. In
such event, the Company will obtain a comparable policy on the life of his
successor for the balance of such period.
(gg) Each of the Company, Air Response and ARS will use their
best efforts to obtain, as soon after the Closing Date as is reasonably
possible, liability insurance covering their officers and directors.
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(hh) Each of the Company, Air Response and ARS agree that any
conflict of interest arising between a member of any such company's Board of
Directors and such company in connection with such Director's dealing with, or
obligations to, such company, shall be resolved by a vote of the majority of the
independent members of the Board of Directors of such company.
(ii) The Company agrees that it will employ the services of a
financial public relations firm reasonably acceptable to the Representative for
a period of at least twelve months following the Effective Date.
(jj) For a period of two (2) years from the Effective Date, at
the request of the Representative, the Company shall provide promptly, at its
expense, copies of the Company's monthly transfer sheets furnished to it by its
transfer agent and copies of the securities positions provided to it by the
Depository Trust Company.
(kk) The Company shall take all actions necessary or required
to effectuate and preserve the registration rights granted to the Underwriter
pursuant to the Underwriter's Warrant.
4. Sale, Purchase and Delivery of Securities: Closing Date
(a) The Company agrees to sell to the Representative, and the
Underwriters, and each of the Representative and the Underwriters on the
basis of the warranties, representations and agreements of the Company
herein, and subject to the terms and conditions herein, agrees to
purchase the Securities as the amounts specified on Schedule A attached hereto
from the Company at a price of $6.50 per share of Common Stock and $.10 per
Warrant, less an underwriting discount of ten percent (10%) of the offering
price for each security. The Representative may allow a concession not
exceeding $.__ per share of Common Stock and $.___ per Warrant to Selected
Dealers who are members of the National Association of Securities Dealers, Inc
("NASD"), and to certain foreign dealers.
(b) Delivery of the Securities and payment therefor shall be
made at 10:00 A.M., New York time on the Closing Date, as hereinafter defined,
at the offices of the Underwriter or such other location as may be agreed upon
by you and the Company. Delivery of certificates for the Common Stock and
Warrants (in definitive form and registered in such names and in such
denominations as you shall request by written notice to the Company delivered at
least two business days' prior to the Closing Date), shall be made to you
against payment of the purchase price therefor by certified or bank check or
wire transfer payable in New York Clearing House funds to the order of the
Company. The Company will make such certificates available for inspection at
least two
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business days prior to the Closing Date at such place as you shall
designate.
(c) Unless otherwise agreed, the "Closing Date" shall be
_____________, 1998, or such other date not later than the sixth business day
following the effective date of the Registration Statement as you shall
determine and advise the Company.
(d) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Securities by the Company to
the Underwriters shall be borne by the Company. The Company will pay and hold
the Underwriters, and any subsequent holder of the Securities, harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or determined
to be payable in connection with the original issuance or sale to the
Underwriters of the Securities or any portions thereof.
5. Sale, Purchase and Delivery of the Overallotment Securities:
Option Closing Date
(a) The Company agrees to sell to the Representative, and upon
the basis of the representations, warranties and agreements of the Company
herein contained, subject to the satisfaction of all the terms and conditions of
this Agreement, the Representative shall have the option (the "Overallotment
Option") to purchase the Overallotment Securities from the Company, at the same
price per Security as set forth in Paragraph 4(a) above. Overallotment
Securities may be purchased solely for the purpose of covering overallotments
made in connection with the distribution and sale of the Securities.
(b) The Overallotment Option to purchase all or part of the
Overallotment Securities covered thereby is exercisable by you at any time and
from time to time before the expiration of a period of 45 calendar days from the
date of the Effective Date of the Registration Statement (the "Option Period")
by written notice to the Company setting forth the number of Overallotment
Securities for which the Option is being exercised, the name or names in which
the certificates for such Overallotment Securities are to be registered and the
denominations of such certificates. Upon each exercise of the Overallotment
Option, the Company shall sell to the Representative the aggregate number of
Overallotment Securities specified in the notice exercising such Overallotment
Option.
(c) Delivery of the Overallotment Securities with respect to
which the Overallotment Option shall have been exercised and payment therefor
shall be made at 10:00 A.M., New York time on the Option Closing Date, as
hereinafter defined, at the offices of
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the Representative or at such other locations as may be agreed upon by you and
the Company. Delivery of certificates for Overallotment Securities shall be made
to you against payment of the purchase price therefor by certified or bank check
or wire transfer in New York Clearing House Funds to the order of the Company.
The Company will make certificates for Overallotment Securities to be purchased
at the Option Closing Date available for inspection at least two business days
prior to such Option Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than
five business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Representative to purchase and pay
for Overallotment Securities at such Option Closing Date shall be subject to
compliance as of such date with all the conditions specified in Paragraph 2
herein and the delivery to you of opinions, certificates and letters, each dated
such Option Closing Date, substantially similar in scope to those specified in
Paragraph 9 herein.
(f) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Overallotment Securities by the
Company to the Representative shall be borne by the Company. The Company will
pay and hold the Representative, and any subsequent holder of Overallotment
Securities, harmless from any and all liabilities with respect to or resulting
from any failure or delay in paying federal and state stamp taxes, if any, which
may be payable or determined to be payable in connection with the original
issuance or sale to the Representative of the Overallotment Securities or any
portion thereof.
6. Warrant Solicitation Fee
The Company agrees to pay the Representative a fee of five percent (5%)
of the aggregate exercise price of the Warrants if: (i) the market price of the
Common Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrants are solicited by a member of the
NASD and the customer states in writing that the transaction was solicited and
designates in writing the broker-dealer to receive compensation for the
exercise; (iii) the Warrants are not held in a discretionary account; (iv) the
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of the exercise of the Warrant; and (v) the
solicitation of the Warrant is not in violation of Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of
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any Warrants other than through the Representative and will not authorize any
other dealer to engage in such solicitation without the prior written consent of
the Representative which will not be unreasonably withheld. The Warrant
solicitation fee will not be paid in a non-solicited transaction. No Warrant
solicitation by the Representative will occur prior to one year from the
Effective Date.
7. Representations and Warranties of the Representative
The Representative represents and warrants to the Company that:
(a) The Representative is a member in good standing of the
National Association of Securities Dealers, Inc., and has complied with all NASD
requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Representative's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale of
the Securities hereunder to which the Company, Air Response or ARS is, or may
become, obligated to pay.
(c) Neither the Representative nor its registered representatives
have provided purchasers of the Securities with any information concerning the
Company, Air Response or ARS other than the Preliminary Prospectus and the
Prospectus.
8. Payment of Expenses
(a) The Company will pay and bear all costs, fees, taxes and
expenses incident to and in connection with: (i) the issuance, offer, sale and
delivery of the Securities, including all expenses and fees incident to the
preparation, printing, filing and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement (including all exhibits
thereto), each Preliminary Prospectus, the Prospectus, and amendments and
post-effective amendments thereof and supplements thereto, and this Agreement
and related documents, Preliminary and Final Blue Sky Memoranda, including the
cost of preparing and copying all copies thereof in quantities deemed necessary
by the Underwriters; (ii) the costs of preparing transaction closing binders and
lucite cube mementos in such quantity as the Underwriter specifies, and the
preparing and printing all "Tombstone" and other appropriate advertisements in
The Wall Street Journal, The New York Times and other publications selected by
the Representative; (iii) the printing, engraving, issuance and delivery of the
Common Stock, Warrants, Warrant Shares, Additional Securities, Underwriter's
Warrants and the securities underlying the Representative's Warrants, including
any transfer or other taxes payable thereon in connection with the original
issuance thereof; (iv) the qualification of the Common Stock and Warrants
under the state or foreign securities or "Blue
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Sky" laws selected by the Representative and the Company, and all legal fees of
counsel for the Representative in connection therewith (in the amount of
$40,000) plus all disbursements and filing fees incurred by such counsel for
such states; (v) a fee of $20,000 to be paid to counsel to the Representative
for the preparation of a secondary trading memorandum; (vi) fees and
disbursements of counsel and accountants for the Company, including those
incurred in connection with the actions specified in the foregoing clause (i);
(vii) other expenses and disbursements reasonably incurred on behalf of the
Company; (viii) the filing fees payable to the Commission and the National
Association of Securities Dealers, Inc. ("NASD"); and (ix) any application
for listing of the Common Stock and Warrants on a securities exchange or
on NASDAQ.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 8(a) above, the Company shall reimburse you at
closing for expenses incurred by you in connection with the Offering (for which
you need not make any accounting), in the amount of 3% of the price to the
public of the Securities and Additional Securities sold in the Offering. This 3%
non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters.
(c) In the event that the Company does not or cannot, for any
reason whatsoever other than a default by the Representative, proceed with the
Offering, or if any of the representations, warranties or covenants contained in
this Agreement are not materially correct or cannot be complied with by the
Company, or business prospects or obligations of the Company are adversely
affected and the Company does not commence or continue with the Offering at any
time or terminates the proposed transaction prior to the Closing Date, the
Company shall reimburse the Representative on an accountable basis for all
out-of-pocket expenses actually incurred in connection with the Underwriting,
this Agreement and all of the transactions hereby contemplated (including,
without limitation, your legal fees and expenses).
9. Conditions of Representative's Obligations
The obligations of the Representative to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
and to the performance by the Company of its covenants and agreements
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hereunder and under any and all covenants and agreements contemplated herein and
under each certificate, opinion and document contemplated hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Securities under the securities laws of any jurisdiction shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission or any such authorities of any jurisdiction and
any request on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriter and after the date
hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement of
a fact which is material, or omit to state a fact which is material and is
required to be stated therein or is necessary to make the statements therein,
not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted against
the Company, Air Response or ARS or any of their officers or directors and
between such dates there shall be no proceeding instituted or, to the Company's
knowledge, threatened against the Company, Air Response or ARS or any of their
officers or directors before or by any federal, state or county commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would have a material adverse effect on the Company or its business,
business prospects or properties, or have a material adverse effect on the
financial condition or results of operation of the Company.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall have
been no litigation instituted against the Company, Air Response or ARS or any
officer or director of the Company, Air Response or ARS, and since such dates
there shall have been no proceeding instituted or threatened against the
Company, Air Response or ARS or any officer or director of the Company, Air
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Response or ARS, before or by any federal, state or local court, commission,
regulatory body, administrative agency or other governmental agency or body,
domestic or foreign, in which litigation or proceeding an unfavorable ruling,
decision or finding could materially affect the business, properties, prospects,
financial condition or results of operations of the Company, Air Response or
ARS, and (ii) no executive officer of the Company listed as such in the
Prospectus shall have died, become physically or mentally disabled, resigned or
been removed or discharged.
(e) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct at the Closing Date
as if made at the Closing Date, and all covenants and agreements contained
herein and in each such certificate and document to be performed on the part of
the Company, and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company at or prior to the
Closing Date shall be fulfilled or complied with.
(f) At the Closing Date, you shall have received the opinion
of Bondy & Schloss LLP, counsel to the Company, dated as of such Closing Date,
addressed to the Representative and in form and substance satisfactory to
counsel to the Representative, to the effect that:
(i) The Company and each of Air Response and ARS are
corporations duly organized, validly existing and in good standing under the
laws of the jurisdiction of their incorporation with full corporate power and
authority, and all licenses, permits, certifications, registrations, approvals,
consents and franchises to own or lease and operate their properties and to
conduct their businesses as described in the Registration Statement. The Company
and each of Air Response and ARS are duly qualified to do business as foreign
corporations and are in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of the Company and each of Air Response and ARS;
(ii) The Company has full corporate power and authority to
execute, deliver and perform the Underwriting Agreement, the Consulting
Agreement, the Air Response Agreement, the ARS Agreement, the Warrant Agreement
and the Representative's Warrants and to consummate the transactions
contemplated thereby. The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Air Response Agreement,
the ARS Agreement, the Warrant Agreement and the Representative's Warrants by
the Company, the consummation by the Company of the
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transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Air Response
Agreement, the ARS Agreement, the Warrant Agreement and the Representative's
Warrants have been duly authorized by all necessary corporate action, and each
of the Underwriting Agreement, the Consulting Agreement, the Air Response
Agreement, the ARS Agreement, the Warrant Agreement and the Representative's
Warrants have been duly executed and delivered by the Company. Each of the
Underwriting Agreement, the Consulting Agreement, the Air Response Agreement,
the ARS Agreement, the Warrant Agreement and the Representative's Warrants is a
valid and binding obligation of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions and
the contribution provisions set forth in the Underwriting Agreement may be
limited by the federal securities laws or public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Air Response Agreement,
the ARS Agreement, the Warrant Agreement and the Representative's Warrants by
the Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Consulting Agreement, the Air Response Agreement,
the ARS Agreement, the Warrant Agreement and the Representative's Warrants do
not, and will not, with or without the giving of notice or the lapse of time, or
both, (A) result in a violation of the Articles of Incorporation, as the same
may be amended, or Bylaws of the Company or any of Air Response and ARS, (B) to
the best of our knowledge, result in a breach of, or conflict with, any terms or
provisions of or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of Air Response and ARS pursuant to, any indenture, mortgage,
note, contract, commitment or other material agreement or instrument to which
the Company or any of Air Response and ARS are a party or by which the Company
or any of Air Response and ARS or any of their properties or assets are or may
be bound or affected, except where any of the foregoing would not result in a
material adverse effect upon the Company's or Air Response's and ARS' business
or operations; (C) to the best of our knowledge, violate any existing applicable
law, rule or regulation or judgment, order or decree known to us of any
governmental agency or court, domestic or foreign, having jurisdiction over the
Company or any of Air Response and ARS or any of their respective properties or
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businesses; or (D) to the best of our knowledge, have any effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any of Air Response and ARS to own or lease and operate their
properties and to conduct their business or the ability of the Company or any of
Air Response and ARS to make use thereof;
(iv) Each of Air Response and ARS has full corporate power
and authority to execute, deliver and perform the Air Response Agreement and the
ARS Agreement and to consummate the transactions contemplated thereby. The
execution, delivery and performance of the Air Response Agreement and the ARS
Agreement by Air Response and ARS, and the consummation of the transactions
contemplated therein and the compliance by Air Response and ARS with the terms
of the Air Response Agreement and ARS Agreement, respectively, have been duly
authorized by all necessary corporate action. The Air Response Agreement and ARS
Agreement are valid and binding obligations of Air Response and ARS,
respectively, enforceable in accordance with their respective terms, subject, as
to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization
moratorium, and other laws affecting the rights of creditors generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions and the contribution provisions
set forth in the Underwriting Agreement may be limited by the federal securities
laws or public policy underlying such laws. Each of the Air Response Agreement
and ARS Agreement have been duly executed, delivered and performed by each of
the parties thereto, and the transactions contemplated thereby have been
consummated. The Company is now the sole owner of all the capital stock of each
of Air Response and ARS, and there is no outstanding capital stock of either Air
Response or ARS owned by any party other than the Company.
(v) To the best of our knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares, or the
Representative's Warrants, and the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement or the Representative's Warrants;
(vi) The Registration Statement was declared effective
under the Act on ___________, 1998; to the best our knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for that
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purpose have been instituted or are pending, threatened or contemplated under
the Act or applicable state securities laws;
(vii) The Registration Statement and the Prospectus, as of
the Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations and the conditions for use of a registration statement on Form SB-2
have been satisfied by the Company;
(viii) The description in the Registration Statement and
the Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be disclosed, and to the
best of our knowledge, there are no material statutes or regulations, or, to the
best of our knowledge, material contracts or documents, of a character required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement, which are not so described or filed
as required.
To the best of our knowledge, none of the material
provisions of the contracts or instruments described above violates any existing
applicable law, rule or regulation or judgment, order or decree known to us of
any United States governmental agency or court having jurisdiction over the
Company or any of its assets or businesses;
(ix) The outstanding Common Stock and Warrants of the
Company, and all the issued and outstanding shares of the capital stock of each
of Air Response and ARS, have been duly authorized and validly issued. The
outstanding Common Stock of the Company is fully paid and nonassessable. None of
the outstanding Common Stock of any of the Company, Air Response and ARS has
been issued in violation of the preemptive rights of any stockholder of the
Company, Air Response or ARS, as the case may be. All of the issued and
outstanding shares of the capital stock of each of Air Response and ARS, after
giving effect to the consummation of the transactions contemplated by the Air
Response Agreement and the ARS Agreement, will be owned by the Company free and
clear of any mortgage, pledge, lien, charge or encumbrance, except as set forth
in the Registration Statement and the Prospectus. None of the holders of the
outstanding Common Stock of the Company is subject to personal liability solely
by reason of being such a holder. The authorized Common Stock conforms to the
description thereof contained in the Registration Statement and Prospectus. To
the best of our knowledge, except as set forth in the Prospectus, no holders of
any of the Company's securities or of the securities of Air
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Response and ARS has any rights, "demand," "piggyback" or otherwise, to have
such securities registered under the Act;
(x) The issuance and sale of the Securities, the
Additional Securities, the Common Stock, the Warrants, the Warrant Shares and
the Representative's Warrants have been duly authorized and when issued and paid
for in accordance with the Underwriting Agreement or the respective Warrants
will be validly issued, fully paid and nonassessable, and the holders thereof
will not be subject to personal liability solely by reason of being such
holders. Neither the Securities, the Additional Securities, nor the Common Stock
are subject to preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(xi) The issuance and sale of the Warrant Shares and the
Representative's Warrants have been duly authorized and, when paid for, issued
and delivered pursuant to the terms of the Warrant Agreement or the
Representative's Warrants, as the case may be, the Warrants and the
Representative's Warrants will constitute the valid and binding obligations of
the Company, enforceable in accordance with their terms, to issue and sell the
Warrants, the Warrant Shares and/or Representative's Warrants. All corporate
action required to be taken for the authorization, issuance and sale of the
securities has been duly, validly and sufficiently taken. The Common Stock
and the Warrants have been duly authorized by the Company to be offered in
the form of the Securities. The Warrants, the Warrant Shares and the
Representative's Warrants conform to the descriptions thereof contained
in the Registration Statement and Prospectus;
(xii) The Representative has acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims, provided that the Representative is a bona fide purchaser
as defined in 'SS'8-302 of the Uniform Commercial Code;
(xiii) Assuming that the Representative exercises the
overallotment option to purchase the Additional Securities and make payments
therefor in accordance with the terms of the Underwriting Agreement, upon
delivery of the Additional Securities to the Representative thereunder, the
Representative will acquire good title to the Additional Securities, free and
clear of any liens, encumbrances, equities, security interests and claims,
provided that the Representative is a bona fide purchaser as defined in
'SS'8-302 of the Uniform Commercial Code;
(xiv) To the best of our knowledge, after due inquiry,
there are no claims, actions, suits, proceedings, arbitrations, investigations
or inquiries before any governmental
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agency, court or tribunal, foreign or domestic, or before any private
arbitration tribunal, pending or threatened against the Company or any of Air
Response and ARS or involving their properties or businesses, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of business conducted by the Company or any of
Air Response and ARS which, individually and in the aggregate, is not material,
and, except as otherwise disclosed in the Prospectus and the Registration
Statement, the Company and Air Response and ARS have complied with all federal
and state laws, statutes and regulations concerning its business;
(xv) All sales of the Company's securities, and the
Company's purchase of all the capital stock of each of Air Response and ARS,
have been made in compliance with or under an exemption from the registration
requirements of the Act, and no purchaser of such securities in any such sale
has a right of action against the Company for failure to comply with the
registration or filing requirements of any state;
(xvi) The Company has no subsidiaries other than Air
Response and ARS;
(xvii) We have participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, no facts came to our attention which lead us to believe
that (A) the Registration Statement (except as to the financial statements and
other financial data contained therein, as to which we express no opinion), on
the Effective Date, contained any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which we express no opinion) contains any untrue
statement or a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(xviii) The Company has, or will have before the Effective
Date, gained approval for listing of the Common Stock and Warrants on the NASDAQ
SmallCap Market and will maintain and fulfill all requirements for continued
listing thereupon;
(xix) The Company shall have obtained, and provided copies
to the Representative and counsel to the Representative of, cancelled promissory
notes in the aggregate principal amount of
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$500,000 from all investors in the Company's bridge private placements in
October 1996 and January 1997, and shall have otherwise be released and
discharged by all such investors from all duties and obligations thereunder and
liabilities therefor; and
(xx) The Company shall have obtained, and provided copies
to the Representative and counsel to the Representative of, duly executed and
delivered "lock-up" letters from each of the Company's officers, directors and
shareholders whereby each such person agrees not to sell, issue, pledge,
hypothecate or otherwise transfer, any of such person's shares of Common Stock
for a period of twenty-four months from the Closing Date.
(g) On or prior to the Closing Date, counsel for the
Underwriter shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review the
matters referred to in subparagraph (e) of this Paragraph 9, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change in
the condition or prospects or the business activities, financial or otherwise,
of the Company, Air Response or ARS, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company, Air Response or ARS,
from the latest date as of which the financial condition of the Company, Air
Response or ARS, is set forth in the Registration Statement and Prospectus which
is material to the Company, Air Response or ARS, except for the transactions
contemplated by the Air Response Agreement and ARS Agreement, which is either
(x) required to be disclosed in the Prospectus or Registration Statement and is
not so disclosed, or (y) likely to have a material adverse effect on the
business or financial condition of any of the Company, Air Response and ARS;
(iii) None of the Company, Air Response and ARS shall be
in default under any material provision of any instrument relating to any
outstanding indebtedness, except as described in the Prospectus;
(iv) No material amount of the assets of any of the
Company, Air Response or ARS shall have been pledged, mortgaged or otherwise
encumbered, except as set forth in the Registration Statement and Prospectus;
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(v) No action, investigation suit or proceeding, at law or
in equity, shall have been pending or to the best of their knowledge threatened
against the Company, Air Response or ARS or affecting any of their respective
properties or businesses before or by any court or federal or state commission,
board or other administrative agency wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, operations,
prospects or financial condition or income of the Company, Air Response and ARS
taken as a whole, except as set forth in the Registration Statement and
Prospectus;
(vi) No stop order shall have been issued under the Act
and no proceedings therefor shall have been initiated or, to the best of the
knowledge of the Company, Air Response and ARS, threatened by the Commission;
and
(vii) Each of the representations and warranties of any of
the Company, Air Response or ARS contained in this Agreement and in each
certificate and document contemplated under this Agreement to be delivered to
you was, when originally made and is at the time such certificate is dated, true
and correct.
(i) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, you shall have received a certificate of each
of the Company, Air Response and ARS signed by the Chief Executive Officer of
each of the Company, Air Response and ARS and the principal financial officer of
each of the Company, Air Response and ARS, dated as of the Closing Date, to the
effect that the conditions set forth in subparagraph (h) above have been
satisfied and that, as of the Closing Date, the representations and warranties
of the Company, Air Response and ARS set forth in Paragraph 2 herein and the
statements in the Registration Statement and Prospectus were and are true and
correct in all material respects. Any certificate signed by any officer of any
of the Company, Air Response and ARS and delivered to you or for counsel for the
Underwriter shall be deemed a representation and warranty by the Company to the
Underwriter as to the statements made therein.
(j) At the time this Agreement is executed, and at the Closing
Date, you shall have received a "cold comfort" letter, addressed to the
Underwriter and in form and substance satisfactory in all respects to you and
counsel for the Representative, from each of Grant Thornton LLP, auditors for
the Company, and Staff Ciampino & Company, P.C., auditors for Air Response and
ARS, dated as of the date of this Agreement and as of the Closing Date.
(k) All proceedings taken in connection with the
authorization, issuance or sale of the Common Stock, Warrants, Warrant Shares,
the Representative's Warrants, the Representative's
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<PAGE>
Securities, the Overallotment Option and the Overallotment Securities as herein
contemplated shall be satisfactory in form and substance to you and to counsel
to the Representative, and the Representative shall have received from such
counsel an opinion, dated as the Closing Date with respect to such of these
proceedings as you may reasonably require.
(l) Each of the Company, Air Response and ARS shall have
furnished to you such certificates, additional to those specifically mentioned
herein, as you may have reasonably requested in a timely manner as to the
accuracy and completeness, at the Closing Date, of any statement in the
Registration Statement or the Prospectus, as to the accuracy, at the Closing
Date, of the representations and warranties of the Company, Air Response or ARS,
as the case may be, herein and in each certificate and document contemplated
under this Agreement to be delivered to you, as to the performance by the
Company of its obligations hereunder and under each such certificate and
document or as to the fulfillment of the conditions concurrent and precedent to
your obligations hereunder.
(m) On or before the Closing Date, the Company shall cause to
be provided, and the Underwriter shall have received, from each officer,
director and shareholder of the Company, "lock-up" agreements from each such
person restricting any sales, transfers, pledges or other hypothecations of such
person's shares of any class of equity security of the Company for a period of
twenty-four months from the Closing Date.
(n) The obligation of the Representative to purchase any
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
and to the satisfaction on and as of the Option Closing Date of the conditions
set forth herein.
(o) On the Closing Date there shall have been duly tendered to
you for your account the appropriate number of shares of Common Stock and
Warrants constituting the Securities.
(p) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge of the
Underwriter, the Company, Air Response or ARS, shall be contemplated by the
Commission or the NASD. Each of the Company, Air Response or ARS and the
Underwriter represent that at the date hereof each has no knowledge that any
such action is in fact contemplated against any of them by the Commission or the
NASD.
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(q) Prior to the Effective Date, the Company will make all
filings required, including registration under the Exchange Act, to obtain, and
shall have obtained and shall use its best efforts to maintain, the listing of
the Common Stock and Warrants on the Nasdaq SmallCap Market.
(r) If any of the conditions herein provided for in this
Paragraph shall not have been fulfilled, or the Acquisitions shall not have
occurred or either the Air Response Agreement or ARS Agreement shall not have
been duly executed, delivered and performed by all parties thereto, or all
promissory notes from the investors in either the October 1996 or January 1997
bridge private placements have not been cancelled and all obligations of the
Company thereunder been discharged, or all "lock-up" letters restricting sales,
pledges, transfers or hypothecations of any kind by officers, directors or
shareholders of the Company for twenty-four months after the Closing Date have
not been received, as of the date indicated, this Agreement and all obligations
of the Representative under this Agreement may be canceled at, or at any time
prior to, each Closing Date by the Representative notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the Representative to
the Company, Air Response or ARS.
10. Indemnification and Contribution
(a) Subject to the conditions set forth below, each of the
Company, Air Response and ARS, jointly and severally, agrees to indemnify and
hold harmless the Representative and each of the Underwriters and each person,
if any, who controls such Representative or Underwriter ("controlling person")
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act, and any of its agents including its attorneys, against any and all losses,
liabilities, claims, damages, actions and expenses or liability, joint or
several, whatsoever (including but not limited to any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, including those
regarding legal fees), joint or several, to which it or such controlling persons
may become subject under the Act, the Exchange Act or under any other statute or
at common law or otherwise or under the laws of foreign countries, arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any Preliminary Prospectus or
the Prospectus (as from time to time amended and supplemented); in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included the Warrant Shares of the Company issued or
issuable upon exercise of the Warrants, or Representative's Warrants Shares
upon exercise of the Representative's Warrants; or in any
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<PAGE>
application or other document or written communication (in this Paragraph 10
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order to
qualify the Common Stock, Warrants, Warrant Shares, Additional Securities,
Representative's Warrants and Representative's Warrant Shares (including the
Shares issuable upon exercise of the Warrants underlying the Representative's
Warrants) under the securities laws thereof or filed with the Commission or any
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon or in conformity with written information furnished to the Company
with respect to the Representative by or on behalf of the Representative
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or supplement thereof, or in application, as the
case may be. Notwithstanding the foregoing, the Company shall have no liability
under this Paragraph 10(a) if any such untrue statement or omission made in a
Preliminary Prospectus, is cured in the Prospectus and the Underwriter failed to
deliver to the person or persons alleging the liability upon which
indemnification is being sought, at or prior to the written confirmation of such
sale, a copy of the Prospectus. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Representative agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or any
omission or alleged omission to state a material fact required to be stated in
the Registration Statement or Prospectus or any amendment or supplement thereof
or necessary to make the statements therein not misleading or in any application
made solely in reliance upon, and in conformity with, written information
furnished to the Company by you specifically expressly for use in the
preparation of the Registration Statement or Prospectus directly relating to the
transactions effected by Representative and the Underwriters in connection with
this Offering. This indemnity agreement will be in addition to any liability
which the Underwriter may otherwise have. Notwithstanding the foregoing, the
Representative shall have no liability under this Paragraph 10(b) if any such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus, and the Prospectus is
39
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<PAGE>
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) If any action is brought against any indemnified party
(the "Indemnitee") in respect of which indemnity may be sought against another
party pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume
the defense of the action, including the employment and fees of counsel
(reasonably satisfactory to the Indemnitee) and payment of expenses. Any
Indemnitee shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless the employment of such counsel shall have been authorized in
writing by the Indemnitor in connection with the defense of such action. If the
Indemnitor shall have employed counsel to have charge of the defense or shall
previously have assumed the defense of any such action or claim, the Indemnitor
shall not thereafter be liable to any Indemnitee in investigating, preparing or
defending any such action or claim. Each Indemnitee shall promptly notify the
Indemnitor of the commencement of any litigation or proceedings against the
Indemnitee in connection with the issue and sale of the Common Stock, Warrants,
Warrant Shares, Additional Securities, Representative's Securities or in
connection with the Registration Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Representative makes a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Representative in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Representative shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein by the total purchase price of
all Securities sold in the public offering and the Company is responsible for
the remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11 (f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE>
The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Representative. As used in this Paragraph
10, the term "Representative" includes any officer, director, or other person
who controls the Representative within the meaning of Section 15 of the Act, and
the word "Company" includes any officer, director or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Representative shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability it may have
to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against
any party, and such party notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid fifteen (15)
days, the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Paragraph 10 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
11. Representations, Warranties, Agreements to Survive Delivery
The respective indemnity and contribution agreements by the Representative
and each of the Company, Air Response and ARS contained in Paragraph 10 hereof,
and the covenants, representations and warranties of each of the Company, Air
Response and ARS and the Representative set forth in this Agreement, shall
remain operative and in full force and effect regardless of (i) any
investigation made by the Representative or on its behalf or by or on behalf
of any person who controls the Representative, or by the Company, Air Response
or ARS or any controlling person of the Company, Air
41
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<PAGE>
Response or ARS or any director or any officer of the Company, Air Response or
ARS, (ii) acceptance of any of the Securities and payment therefor, or (iii) any
termination of this Agreement, and shall survive the delivery of the Securities
and any successor of the Representative or the Company, Air Response or ARS, or
of any person who controls you or the Company, Air Response or ARS or any other
indemnified party, as the case may be, shall be entitled to the benefit of such
respective indemnity and contribution agreements. The respective indemnity and
contribution agreements by the Representative and the Company, Air Response or
ARS contained in this Paragraph 11 shall be in addition to any liability which
the Underwriter and the Company, Air Response or ARS may otherwise have.
12. Effective Date of This Agreement and Termination Thereof
(a) This Agreement shall become effective at 10:00 A.M., New
York time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Representative by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has in your sole opinion, materially
disrupted, or in your sole opinion will in the immediate future materially
disrupt, securities markets; or if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or NASDAQ or by order of the Commission or
any other governmental authority having jurisdiction; or if a moratorium in
foreign exchange trading by major international banks or persons has been
declared; or if the Company shall have sustained a loss material or substantial
to the Company taken as a whole by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in your sole opinion, make it inadvisable to
proceed with the delivery of the Securities; or if there shall have been a
material adverse change in the conditions of the securities market in general,
as in your reasonable judgment would make it inadvisable to proceed with the
offering, sale and delivery of the Securities; or if there shall have been a
material adverse change in the financial or securities markets, particularly in
the over-the-counter market, in the United States having occurred since the date
of this Agreement; or your clearing agent has refused to grant you credit in
connection with the purchase of the Common Stock and Warrants; or the NASDAQ
Stock Market, Inc. has refused to release the Common Stock and Warrants for
trading on the Nasdaq SmallCap market.
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(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12, the
Company shall be notified promptly by you by telephone or facsimile, confirmed
by letter.
(d) If this Agreement shall not become effective or if this
Agreement shall not be carried out within the time specified herein by reason of
any failure on the part of any of the Company, Air Response or ARS to perform
any undertaking, or to materially satisfy any condition of this Agreement by it
to be performed or satisfied, the sole liability of the Company to the
Representative, in addition to the obligations assumed by the Company pursuant
to Paragraph 8 herein, will be to reimburse the Representative for the
following: (i) Blue Sky counsel fees and expenses to the extent set forth in
Paragraph 8; (ii) Blue Sky filing fees; and (iii) such reasonable out-of-pocket
expenses of the Representative (including the fees and disbursements of their
counsel), to the extent set forth in Paragraph 8(c), in connection with this
Agreement and the proposed offering of the Securities.
Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Paragraph 8 and 10 hereof shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
13. Notices
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Representative, shall be
mailed by registered or certified mail, postage prepaid, return receipt
registered, or delivered personally with receipt acknowledged or by a
nationally-recognized next-day courier service with delivery confirmed to the
Representative at First Liberty Investment Group, Inc., 80 Broad Street,
6th Floor, New York, New York 10004, Attention: Sheldon L. Traube, Vice
President, with a copy thereof to Lawrence G. Nusbaum, Esq., Gusrae Kaplan
& Bruno, 120 Wall Street, 11th Floor, New York, New York 10005, if sent to
the Company, shall be mailed or delivered as set forth above to the Company
at 7211 S. Peoria Street, Englewood, Colorado 80112, Attention: Kevin L.
Burkhardt, President, with a copy thereof to Bondy & Schloss LLP, 6 East
43rd Street, New York, New York 10017, Attention: Gerald A. Adler, Esq.,
and if sent to Air Response or ARS, mailed or delivered to such party
at Orlando Executive Airport, 469-B Herndon Avenue, Hangar 72, Orlando,
Florida 32803, with a copy to: Richard F. Taylor, Jr., Esq., Walton Crossing I,
Suite 225, 231 Walton Street, Syracuse, New York 13202.
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14. Parties
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Representative and the Underwriters as to which it shall
act hereunder as Representative, the Company, Air Response or ARS and the
controlling persons, directors and officers referred to in Paragraph 10 hereof,
and their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
15. Construction
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company, Air Response or ARS and you relating to the sale of any of the
Securities.
16. Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York with respect to contracts made and to be fully performed
therein, without regard to the conflicts of laws principles thereof. The parties
hereto hereby agree that any suit or proceeding arising under this Agreement, or
in connection with the consummation of the transactions contemplated hereby,
shall be brought solely in a federal or state court located in the City, County
and State of New York, or in any court of competent jurisdiction selected by the
Holder. By its execution hereof, each of the Company, Air Response and ARS
hereby consent and irrevocably submit to the in personam jurisdiction of the
federal and state courts located in the City, County and State of New York (or
any such other court of competent jurisdiction selected by the Underwriter) and
agrees that any process in any suit or proceeding commenced in such courts under
this Agreement may be served upon it personally or by certified or registered
mail, return receipt requested, or by Federal Express or other courier service,
with the same force and effect as if personally served upon it in New York City
(or in the city or county in which such other court is located). The parties
hereto each waive any claim that any such jurisdiction is not a convenient forum
for any such suit or proceeding and any defense of lack of in personam
jurisdiction with respect thereto.
17. Counterparts
This Agreement may be executed in counterparts.
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If the foregoing correctly sets forth the understanding between the
Representative and each of the Company, Air Response and ARS, please so indicate
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
PROFLIGHT MEDICAL RESPONSE, INC.
By: _______________________________
Kevin L. Burkhardt, President
AIR RESPONSE, INC.
By: _______________________________
Louis R. Capece, Jr., President
AIR RESPONSE SOUTH, INC.
By: _______________________________
Louis R. Capece, Jr., President
Accepted as of the date first above written:
FIRST LIBERTY INVESTMENT GROUP, INC., as Representative
By:__________________________________
Sheldon L. Traube, Vice President
45
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Schedule A
LIST OF UNDERWRITERS
Name and Address Amount of Securities to be Purchased
<PAGE>
<PAGE>
Name: Brett Abrams
Address: 4871 N. Mesa Dr.
Castle Rock, CO 80104
Date: 5/14/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the Registration Statement, offer, pledge, sell (which term includes
a short sale against the box),
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contract to sell, grant an option for the sale of, or otherwise
transfer or dispose of, directly or indirectly, any securities of the
Company, or any securities convertible or exchangeable into
securities of the Company (e.g., warrants, options, convertible notes
or convertible preferred stock) ("Derivative Securities"), owned by
the undersigned as of the Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Brett Abrams
------------------------------
Signature
Brett Abrams
------------------------------
Printed Name of Securityholder
------------------------------
Title (if applicable)
4871 N. Mesa Dr.
------------------------------
Castle Rock, CO 80104
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 25.000 Shares
Number and type of Derivative Securities owned: _____________________;
Warrants/Options/Other:____________________
<PAGE>
<PAGE>
Name: Don Jones
Address: ________________________
________________________
Date: 5/13/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
4. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
5. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
6. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
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Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Don Jones
------------------------------
Signature
Don Jones
------------------------------
Printed Name of Securityholder
Vice President
------------------------------
Title (if applicable)
------------------------------
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 76.924 Shares
Number and type of Derivative Securities owned: 0 ;
Warrants/Options/Other: 0.
<PAGE>
<PAGE>
Name: Steven B. Myers
Address: 5769 S. Andes St.
Aurora. CO 80015
Date: 5/13/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Steven B. Myers
------------------------------
Signature
Steven B. Myers
------------------------------
Printed Name of Securityholder
Director
------------------------------
Title (if applicable)
Steven B. Myers
------------------------------
5769 S. Andes St.
------------------------------
Aurora, CO 80015
------------------------------
Address
Number of shares of Common Stock owned: 77,085 Shares
Number and type of Derivative Securities owned: ___________;
Warrants/Options/Other: 200,536.
<PAGE>
<PAGE>
Name: David Cohen
Address: 7136 S. Hudson Ct.
Littleton. CO 80122
Date: 5/13/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ David Cohen
------------------------------
Signature
David Cohen
------------------------------
Printed Name of Securityholder
Director
------------------------------
Title (if applicable)
------------------------------
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 6670 Shares
Number and type of Derivative Securities owned: ____________;
Warrants/Options/Other: _____________.
<PAGE>
<PAGE>
Name: Kevin L. & Jane Burkhardt
Address: 20417 Sagewood Lane
Parker, CO 80138
Date: 5/13/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities ofthe Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Kevin L. Burkhardt
/s/ Jane S. Burkhardt
------------------------------
Signature
Kevin L. Burkhardt
Jane S. Burkhardt
------------------------------
Printed Name of Securityholder
President
Secy.
------------------------------
Title (if applicable)
20417 Sagewood Ln.
------------------------------
Parker, CO 80138
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 112,275 Shares
Number and type of Derivative Securities owned: 0;
Warrants/Options/Other: 292,085.
<PAGE>
<PAGE>
Name: _______________________
Address: _______________________
_______________________
Date: April 28. 1998
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Charles W. Bartholomew
/s/ Carole M. Bartholomew
------------------------------
Signature
Charles W. Bartholomew
Carole M. Bartholomew
------------------------------
Printed Name of Securityholder
------------------------------
Title (if applicable)
2150 Oak Hills Drive
------------------------------
Colorado Springs, CO
------------------------------
80919
------------------------------
Address
Number of shares of Common Stock owned: 67,030 Shares
Number and type of Derivative Securities owned: 146,379;
Warrants/Options/Other: options.
<PAGE>
<PAGE>
Name: Marilyn A. Jansen
Address: 7655 S. Rosemary Cir.
Englewood, CO 80112
Date: 4/28/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, over, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Marilyn A. Jansen
------------------------------
Signature
Marilyn A. Jansen
------------------------------
Printed Name of Securityholder
------------------------------
Title (if applicable)
7655 S. Rosemary Cir.
------------------------------
Englewood, CO 80112
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 115,607 Shares
Number and type of Derivative Securities owned: _____________;
Warrants/Options/Other: _____________.
<PAGE>
<PAGE>
Name: Cindy Bermingham
Address: 11520 NW 3rd Place
Coral Springs, Fl. 33071
Date: 6/6/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the"Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Cindy Bermingham
------------------------------
Signature
Cindy Bermingham
------------------------------
Printed Name of Securityholder
North Shore Financial MP Plan FBO Richard Banach
------------------------------
Title (if applicable)
102 Glen Cove Dr.
------------------------------
Glen Head, NY 11545
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 370,160 Shares (Post Split)
Number and type of Derivative Securities owned: 0;
Warrants/Options/Other: 0.
<PAGE>
<PAGE>
Name: Srotnac Group, LLC
Address: P.O. Box 473
Babylon, N.Y. 11702
Date: 6/6/98
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the"Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the
<PAGE>
<PAGE>
Registration Statement, offer, pledge, sell (which term includes a
short sale against the box), contract to sell, grant an option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, any securities of the Company, or any securities
convertible or exchangeable into securities of the Company (e.g.,
warrants, options, convertible notes or convertible preferred stock)
("Derivative Securities"), owned by the undersigned as of the
Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Srotnac Group LLC
by Steven Cantor, Member
------------------------------
Signature
Srotnac Group LLC
by Steven Cantor, Member
------------------------------
Printed Name of Securityholder
North Shore Financial MP Plan FBO Richard Banach
------------------------------
Title (if applicable)
102 Glen Cove Dr.
------------------------------
Glen Head, NY 11545
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 367,000 Shares (Post Split)
Number and type of Derivative Securities owned: 0;
Warrants/Options/Other: 0.
<PAGE>
<PAGE>
Name: Arthur G. Rosenberg
Address: 1202 Treasure Oak Ct.
Rockville, MD 20852
Date: June 9, 1998
First Liberty Investment Group, Inc.
615 Chestnut Street
Philadelphia, Pennsylvania 19106
Re: Proflight Medical Response, Inc.
Lockup Agreement
Dear Sir or Madam:
The undersigned is an officer, director, and/or securityholder of
Proflight Medical Response, Inc. (the "Company").
1. The undersigned represents and warrants to you that the undersigned
does not own or have the right or option to acquire any securities of
the Company, whether from the Company or any other person, except as
set forth below.
2. The undersigned understands that the Company has filed a registration
statement (the "Registration Statement") on Form SB-2 with the
Securities and Exchange Commission (Registration No. 333-27197) with
respect to the sale by the Company of 1,019,200 shares of Common
Stock and 1,019,200 Warrants (the "Securities"). Such Securities and
any other securities of the Company sold pursuant to the Registration
Statement, either in addition to or in lieu of such Securities, are
referred to herein as the "Offered Securities." The undersigned
further understands that the Company and First Liberty Investment
Group, Inc. (the "Underwriter") intend to enter into an underwriting
agreement (the "Underwriting Agreement") in connection with the
initial public offering of the Securities (the "Public Offering").
3. In order to induce the Company and the Underwriter to enter into the
Underwriting Agreement and to proceed with the Public Offering, the
undersigned agrees, for the benefit of the Company and the
Underwriter, that the undersigned will not, without the prior consent
of the Underwriter, during the twenty-four (24) month period
immediately following the effective date (the "Effective Date") of
the Registration Statement, offer, pledge, sell (which term includes
a short sale against the box),
<PAGE>
<PAGE>
contract to sell, grant an option for the sale of, or otherwise
transfer or dispose of, directly or indirectly, any securities of the
Company, or any securities convertible or exchangeable into
securities of the Company (e.g., warrants, options, convertible notes
or convertible preferred stock) ("Derivative Securities"), owned by
the undersigned as of the Effective Date.
The number of shares of Common Stock and Derivative Securities to which
this Agreement relates is set forth below.
Very truly yours,
/s/ Arthur G. Rosenberg
------------------------------
Signature
Arthur G. Rosenberg
------------------------------
Printed Name of Securityholder
Director
------------------------------
Title (if applicable)
------------------------------
------------------------------
------------------------------
Address
Number of shares of Common Stock owned: 0 Shares
Number and type of Derivative Securities owned: _____________________;
Warrants/Options/Other:____________________
<PAGE>
<PAGE>
1,019,200 COMMON STOCK
AND
1,019,200 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
PROFLIGHT MEDICAL RESPONSE, INC.
AGREEMENT AMONG UNDERWRITERS
New York, New York
June , 1998
First Liberty Investment Group, Inc.
As Representative of the Several Underwriters
80 Broad Street
6th Floor
New York, New York 10004
Dear Sirs:
1. Underwriting Agreement. We understand that PROFLIGHT MEDICAL
RESPONSE, a Colorado corporation (the "Company"), proposes to enter into an
underwriting agreement in the form attached hereto as Exhibit A (the
"Underwriting Agreement") with the underwriters named in Schedule A to the
Underwriting Agreement (the "Underwriters") acting severally and not jointly
with respect to the purchase of 1,019,200 shares of Common Stock, par value
$.001 per share (the "Common Stock") and 1,019,200 Redeemable Common Stock
Purchase Warrants (the "Warrants") of the Company (the Warrants, collectively
with the Common Stock, are referred to herein as the "Securities"). In addition,
the Underwriters (or, at its option, First Liberty Investment Group, Inc., the
"Representative", individually) have been granted an option to purchase up to
157,880 additional shares of Common Stock and up to 157,880 additional Warrants
to cover over-allotments, if any, referred to in Section 2(b) of the
Underwriting Agreement (the "Additional Securities").
This is to confirm that we agree to purchase, in accordance with the
terms hereof and of the Underwriting Agreement, the number of Securities set
forth opposite our name in Schedule A to the Underwriting Agreement, plus such
number of Securities, if any, which we may become obligated to purchase pursuant
to Section 4 hereof ("our Securities"). The ratio which the number of our
Securities bears to the total number of Securities purchased pursuant to the
Underwriting Agreement is herein called "our underwriting proportion".
1
<PAGE>
<PAGE>
2. Registration Statement and Prospectus. We have heretofore received
and examined a copy of the registration statement, as amended to the date
hereof, and the related prospectus in respect of the Securities, as filed with
the Securities and Exchange Commission. The registration statement, as amended
at the time it becomes effective, including financial statements and exhibits,
is hereinafter referred to as the "Registration Statement," and the prospectus
in the form first filed with the Securities and Exchange Commission pursuant to
Rule 424(b) after the Registration Statement becomes effective is referred to as
the "Prospectus."
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933, as amended, as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you, as Representative,
we have furnished a copy of any amended preliminary prospectus to each person to
whom we have furnished a copy of any previous preliminary prospectus, and we
confirm that we have delivered, and we agree that we will deliver, all
preliminary and final prospectuses required for compliance with the provisions
of Rule 15c2-8 under the Securities Exchange Act of 1934, as amended.
3. Authority of the Representative. We authorize you, acting as
Representative, to execute and deliver on our behalf the Underwriting Agreement,
and to agree to any variation of its terms (except as to the purchase price and
the number of our Securities) which, in your judgment, is not a variation which
materially and adversely affects our rights and obligations. We also authorize
you, in your discretion and on our behalf, with approval of counsel for the
Underwriters, to approve the Prospectus and to approve of, or object to, any
further amendments to the Registration Statement, or amendments or supplements
to the Prospectus. We further authorize you to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Under-writing Agreement and to take all such action as you, in your discretion,
may believe desirable to carry out the provisions of the Underwriting Agreement
and of this Agreement, including the extension of any date specified in the
Underwriting Agreement, the exercise of any right of cancellation or
termination, and to determine all matters relating to the public advertisement
of the Securities; provided, however, that, except with the consent of
Underwriters who shall have agreed to purchase in the aggregate 50% or more of
the Securities, no extension of the time by which the Registration Statement is
to become effective, as provided in
2
<PAGE>
<PAGE>
Section 9(a) of the Underwriting Agreement, shall be for a period in excess of
two business days. We authorize you to take such action as in your discretion
may be necessary or desirable to effect the sale and distribution of the
Securities, including, without limiting the generality of the foregoing, the
right to determine the terms of any proposed offering, the concession to
Selected Dealers (as hereinafter defined) and the reallowance, if any, to other
dealers and the right to make the judgments provided for in Section 11 of the
Underwriting Agreement.
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities,
agreed to be purchased by them thereunder, or (b) under this Agreement to take
up and pay for any Securities purchased, or (c) to deliver any Securities sold
or over-allotted by you for the respective accounts of the Underwriters pursuant
to Section 10 hereof, or to bear their respective share of expenses or
liabilities pursuant to Sections 12, 15 and 16 hereof, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to assume
our proportionate share of the obligations of each defaulting Underwriter or
Underwriters (subject in the case of clause (a) above to the limitations
contained in Section 11 of the Underwriting Agreement) without relieving any
such defaulting Underwriter or Underwriters of its liability therefor.
5. Offering of Securities. We understand that you will notify us when
the initial public offering of the Securities is to be made and of the initial
public offering price. We hereby authorize you, in your sole discretion, after
the initial public offering, to change the public offering price, the concession
and the reallowance. The offering price at any time in effect is hereinafter
referred to as the "public offering price". We agree that we will not offer any
of the Securities for sale at a price other than the public offering price or
allow any discount therefrom except as herein otherwise specifically provided.
3
<PAGE>
<PAGE>
We agree that public advertisement of the offering shall be made by you
on behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and
other retail purchasers and to dealers (the "Selected Dealers") to be selected
by you (such dealers may include any Underwriter) such of our Securities as you,
in your sole discretion, shall determine. Any such offering to Selected Dealers
may be made pursuant to a Selected Dealers Agreement, in the form attached
hereto as Exhibit B, or otherwise, as you may determine. The form of Selected
Dealers Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or
to any Selected Dealers or Underwriters at the public offering price, less all
or any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price, less all or any part of the
concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you, from time to time, upon
request, of the amount of our Securities retained by us remaining unsold. If all
of the Securities reserved for offering to Selected Dealers and retail
purchasers are not promptly sold by you, any Underwriter may, from time to time,
with your consent, obtain a release of all or any Securities of such Underwriter
then remaining unsold, and Securities so released shall thereafter be deemed not
to have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such prospectus, advertisement or other offering document containing
information relating to the Securities or the Company, as may be required under
the laws of the
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jurisdiction in which such offer or sale is made and (b) we will furnish to each
person to whom any such offer is made a copy of the then current preliminary
prospectus, and to each person to whom any such sale is made, a copy of the
Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any prospectus, advertisement or other offering document (other than
any such preliminary prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be prepared and so furnished at our sole risk and expense, and (iii) shall
not contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
preliminary prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and, to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercise
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Repurchases in the Open Market. Any Securities sold by us (otherwise
than through you) which, prior to the termination of this Agreement or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand at a price equal to the cost of such purchase
(including commissions and taxes paid in connection with such purchase) plus
commissions and taxes on redelivery. Any Securities delivered on such repurchase
need not be the identical Securities originally sold by us. In lieu of delivery
of such Securities to us, you may (a) sell such Securities in any manner for our
account and charge us with the amount of any loss or expense, or credit us with
the amount of any profit less any expense, resulting from such sale or, at your
option, (b) charge our account with an amount not in excess of the concession to
dealers on such Securities, plus commissions and taxes paid in connection with
such purchase.
7. Compensation to Representative. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management of the offering, an amount equal to twenty percent of the
underwriting discount and commissions with respect to each of the Securities.
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8. Payment and Delivery. At or before 9:00 a.m., New York City time, on
the Closing Date as defined in the Underwriting Agreement, we agree to deliver
to you at your office a certified or official bank check payable in New York
Clearing House funds to your order, in an amount equal to the initial public
offering price, less the concession (if any) to the Selected Dealers in respect
of that portion of our Securities which has been retained by or released to us
for direct sales.
In the event that our funds are not received by you when required, you
are authorized, in your discretion, but shall not be obligated, to make payment
for our account pursuant to the Under-writing Agreement by advancing your own
funds. Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our
Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers, but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
9 Authority to Borrow. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
10. Over-allotment; Stabilization. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Under-writers pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
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however, that at no time shall our net commitment, either for long or short
account, under this Section 10 exceed 13% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section 10 upon such
terms as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
If pursuant to the provision of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
mark-up, if any. In lieu of such action you may, in your discretion, sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section 9 or otherwise and will notify us of the
date of termination of stabilization. We agree to file with you any reports
required of us including "Not as Manager" reports pursuant to Rule 17a-2 under
the Securities Exchange Act of 1934, as amended, not later than five business
days following the day upon which such stabilization transaction was terminated,
and we authorize you to file on our behalf with the Securities and Exchange
Commission any reports required by such Rule.
11. Limitation on Transactions by Underwriters. Except as permitted by
you, we will not, during the term of this Agreement, bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price, less all or any part of the reallowance to dealers, or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
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We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Regulation M of the Securities and Exchange Commission
applicable to this offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less all or any
part of the concession to dealers.
12. Allocation and Payment of Expenses. We understand that all expenses
of a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of the underwriting
obligations. We authorize you to charge our account with our share, based on our
underwriting obligation, of the aforesaid expenses, including all transfer taxes
paid on our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or for
the accounts of the Underwriters, including any expenses and liabilities
referred to in Sections 15 and 16(b) hereof, which shall be determined as
provided in this Section 12.
13. Representative's Warrants. Each Underwriter shall be entitled to
purchase such portion of the Representative's Warrants, referred to in Section
12 of the Underwriting Agreement, as the Representative, in its discretion,
determines.
14. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you, and except for provisions herein that contemplate
obligations surviving the termination hereof as noted in the next paragraph,
this Agreement will terminate at the close of business on the 30th day after the
date hereof, but in your discretion, may be extended by you for a further period
not exceeding 30 days with the consent of the Underwriters who have agreed to
purchase in the aggregate 50% or more of the Securities. No termination or
suspension pursuant to this Section shall affect your authority under Section 9
to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 12, (ii) our obligation to pay any transfer taxes which
may be assessed and paid on account of any sales hereunder for our account,
(iii) our obligation with respect to purchases which may be made by you from
time
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to time thereafter to cover any short position incurred under this Agreement,
(iv) the provisions of Sections 15 and 16, and (v) the obligations of any
defaulting Underwriter, all of which shall continue until fully discharged.
15. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter, nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value of the Securities or the validity of
the form thereof, the Registration Statement, the Prospectus, or agreements or
other instruments executed by the Company or others; or for or in respect of the
delivery of the Securities; or for the performance by the Company or others of
any agreement on its or their part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim, demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Sub-chapter K,
Chapter 1, Subtitle A of the Internal Revenue Code, as amended. Each Underwriter
elects to be so excluded and agrees not to take any position inconsistent with
such election. Each Underwriter authorizes you, in your discretion, to execute
and file on behalf of the Underwriters such evidence of election as may be
required by the Internal Revenue Service.
16. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, as
amended, and to reimburse their expenses, to the extent and upon the terms that
we agree to indemnify and hold harmless the Company and to reimburse expenses as
set forth in the Underwriting Agreement. Our indemnity agreement set forth in
this Section 16 shall remain in full force and effect
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regardless of any investigation made by or on behalf of such other Underwriter
or controlling person and shall survive the delivery of and payment for the
Securities and the termination of this Agreement.
(b) In the event that any time any claim or claims shall be
asserted against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any preliminary prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and our underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
17. Title to Securities. The Securities purchased by, or on behalf of,
the respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
18. Blue Sky Matters. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other person to
offer or to sell Securities in any jurisdiction, notwithstanding any information
which you may furnish as to the jurisdictions under the securities laws of which
it is believed the Securities may be sold.
19. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws provisions thereof or the actual domiciles of the parties
hereto.
20. Capital Requirements. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
Securities Exchange Act of 1934 or of any applicable rules relating to capital
requirements of any securities exchange to which we are subject. We confirm that
we currently have, and will commit the necessary net capital required of us in
order to meet our underwriting commitments in connection with the public
offering of the Securities.
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21. Miscellaneous. Any notice from you to us shall be deemed to have
been duly given if mailed, telephoned or telegraphed to us at the address set
forth in the Underwriters Questionnaire furnished by us to you. Any notice from
us to you shall be deemed to have been duly given if mailed, telephoned or
telegraphed to you at 80 Broad Street, 6th Floor, New York, New York 10004.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"). We hereby confirm that we
are actually engaged in the investment banking or securities business and are
either (i) a member in good standing of the NASD or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possessions, and not registered as a broker or dealer under the
Securities Exchange Act of 1934, as amended, who agrees not to make any sales
within the United States, its territories or its possessions, or to persons who
are nationals thereof or residents therein (except that we may participate in
sales to Selected Dealers and others under Section 5 of this Agreement). We
hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and if we are a foreign dealer and not a member of the NASD, we also
hereby agree to comply with the NASD's interpretation with respect to
free-riding and withholding and to comply, as though we were a member of the
NASD, with the provisions of Rule 2730 and 2750 of the NASD Conduct Rules. In
connection with sales and offers to sell the Securities made by us outside the
United States, its territories and possessions (i) we will either furnish to
each person to whom any such sale or offer is made a copy of the then current
Preliminary Prospectus or the Prospectus, as the case may be, or inform such
person that such Preliminary Prospectus or Prospectus will be available upon
request, and (ii) we will furnish to each person to whom any such sale or offer
is made such prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the law of the jurisdiction in which such sale or offer is made. Any prospectus,
advertisement or other offering document furnished by us to any person in
accordance with the preceding sentence and any such additional offering material
as we may furnish to any person (x) shall comply in all respects with the law of
the jurisdiction in which it is so furnished, (y) shall be prepared and so
furnished at our sole risk and expense and (z) shall not contain information
relating to the Securities or the Company which is inconsistent in any respect
with the information contained in the then current Preliminary Prospectus or in
the Prospectus, as the case may be.
We understand that, in consideration of your services in connection
with the public offering of the Securities, the Company has agreed with you
individually and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrant referred to in Section 12 of the Underwriting
Agreement for the sum of $10, (b) to pay to you a non-accountable expense
allowance
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referred to in Section 8(b) of the Underwriting Agreement, (c) to enter into the
Consulting Agreement described in Section 3(bb) of the Underwriting Agreement
and (d) to enter into the M/A Agreement described in Section 3(cc) of the
Underwriting Agreement. In addition, you may, at your sole discretion, elect to
exercise the over-allotment option described in Section 2(b), individually. We
confirm to you that we shall make no claim to the Representative's Warrant, any
rights related thereto, the Company's securities underlying the Representative's
Warrants, the non-accountable expense allowance, or, to the over-allotment
option, to the extent you elect to exercise such option individually. You
confirm to us that we shall have no obligations or liabilities with respect to
the purchase of the Representative's Warrant, the exercise thereof, the
Company's securities underlying the Representative's Warrant, or the
non-accountable expense allowance, or, to the over-allotment option, to the
extent you elect to exercise such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
------------------------------
By:
----------------------------
Print Name of Signator:
Print Title of Signator:
Confirmed as of the date
first above written:
FIRST LIBERTY INVESTMENT GROUP, INC.,
as Representative
By:
--------------------------
Name:
Title:
12
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AMENDMENT TO
AMENDED AGREEMENT AND PLAN OF REORGANIZATION
Reference is made to that certain Amended Agreement and Plan of Reorganization
dated April 8, 1997 (the 'Reorganization Agreement'), by and among Proflight
Medical Response, Inc., a Colorado corporation (the 'Purchaser'), Air Response,
Inc., a New York corporation (the 'Company'), and Mr. Louis R. Capece, Jr.,
having an address at 10845 Bayshore Drive, Windermere, Florida 34780 (the
'Shareholders').
In connection with the Purchaser's initial public offering, which is
pending as of the date hereof, the parties hereby agree to amend the
Reorganization Agreement as follows:
Article II, Section 2.1 is hereby amended by changing the amount of
$1,500,000, representing the dollar value of shares of common stock of the
Purchaser which the Shareholder is entitled to receive, to $2,225,000.
Article IX, Section 9.1 is hereby amended by changing the date of September
1, 1997 to February 16, 1998.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
amendment as of January 20, 1998.
AIR RESPONSE, INC.
By: LOUIS R. CAPECE
----------------------------------
Louis R. Capece, Jr.
President
LOUIS R. CAPECE, JR.
----------------------------------
Louis R. Capece, Jr.
PROFLIGHT MEDICAL RESPONSE, INC.
By: KEVIN L. BURKHARDT
----------------------------------
Name: KEVIN L. BURKHARDT
----------------------------------
Title: President & CEO
<PAGE>
<PAGE>
AMENDMENT TO
AMENDED STOCK PURCHASE AND SALE AGREEMENT
Reference is made to that certain Amended Stock Purchase and Sale
Agreement dated April 8, 1997 (the "Stock Purchase Agreement"), by and among
Proflight Medical Response, Inc., a Colorado corporation (the "Purchaser"), Air
Response South, Inc., a Florida corporation (the "Company"), and Mr. Louis R.
Capece, Jr., having an address at 10045 Bayshore Drive, Windermere, Florida
34786 (the "Shareholder").
In connection with the Purchaser's initial public offering which is
pending as of the date hereof, the parties hereby agree to amend the Stock
Purchase Agreement as follows:
Article II. Section 2.1 is hereby amended by changing the amount
of $2,000,000, representing the amount of cash payable to the
Shareholder by the Purchaser as payment for the shares of the Company,
to $800,000.
Article II, Section 2.2.1 is hereby amended to read as follows:
"The entire $800,000 shall be due and payable on the date of closing of
the IPO."
Article II, Section 2.2.2 is hereby deleted in its entirety.
Article IX, Section 9.1 is hereby amended by changing the date
of September 1, 1997 to February 16, 1998.
Exhibit 2.3 to the Stock Purchase Agreement is a Consulting and
Non Competition Agreement between the Purchaser and Louis R. Capece, Jr.
(the "Consulting Agreement"). The Consulting Agreement is hereby amended
as follows:
Under Section 2, Term, delete the word "first" and replace it
with the word "second".
Under Section 4, Compensation, delete the words "Fifty Two
Thousand Dollars ($52,000)"
[The remainder of this page is intentionally blank.]
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<PAGE>
and replace them with the words "One Hundred Thousand Dollars
($100,000).
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
amendment as of January 20, 1998.
AIR RESPONSE SOUTH, INC.
By: /s/ Louis R. Capece, Jr.
------------------------------
Louis R. Capece, Jr.
President
/s/ Louis R. Capece, Jr.
-----------------------------------
Louis R. Capece, Jr.
PROFLIGHT MEDICAL RESPONSE, INC.
By: /s/ Kevin L. Burkhardt
------------------------------
Name: Kevin L. Burkhardt
Title: President & CEO
<PAGE>
<PAGE>
Agreement made on March 9, 1998 by and between Air Response, Inc. ('AR'), Air
Response South, Inc. ('ARS'), Proflight Medical Response, Inc. ('Proflight') and
Srotnac Group, LLC ('Srotnac') whereby the parties agree as follows:
1) AR, ARS, and Proflight will do what is required to complete the IPO by May
31, 1998 and not negotiate with other parties until after this date.
2) The Company will receive bridge financing of at least $200,000 by March 12,
1998 and an additional $100,000 by April 12, 1998.
3) The $200,000 note owed to Proflight by AR or ARS shall be waived.
4) All the audit costs Air Response incurs from producing its year end
financials for the IPO shall be paid first from bridge loan funds.
5) AR and Proflight will agree as to the use of proceeds of the $300,000 in
bridge money.
6) If the IPO does not occur by May 31, 1998, then Proflight and Sromac will
release Air Response, its President (Louis Capece Jr.), and employees for
all past, present, and future obligations regarding the IPO. This includes
the right to negotiate with any other company for the purpose of a merger or
acquisition without any interference or litigation from Proflight or Sromac.
7) If the IPO does not occur by May 31, 1998, then Air Response shall have the
option to stay on Proflight's 13S certificate and to lease its current
office space (including the phone system) and hanger space for a minimum of
30 and maximum of 90 days at the current rate.
8) As per previously agreed, Louis (Rusty) will receive a $100,000 annual
employment agreement for two years from the date of the IPO.
By signing below all parties agree to the terms and conditions as stated above.
/s/ STEVEN CANTOR Date: March 21, 1998
- -----------------------------------------
Steven Cantor, Managing Member
Sromac Group, LLC
/s/ LOUIS CAPECE JR. Date: March 10, 1998
- -----------------------------------------
Louis Capece Jr., President
Air Response, Inc. and Air Response South, Inc.
/s/ KEVIN BURKHARDT Date: March 10, 1998
- ----------------------------------------
Kevin Burkhardt, President
Proflight Medical Response
<PAGE>
<PAGE>
[LOGO] Air Ambulance Specialists
------------------
1-800-631-6565
518-993-4153
407-898-0098
May 28, 1998
This letter serves as written notice to the necessary parties that Air Response
and Air Response South does not agree to the filing of the new book with the
SEC since it will no doubt delay the IPO past our May 31st deadline unless
there is an extension.
We realize that things are in motion and Air Response and Air Response South
will agree to an extension up to June 30, 1998 with certain conditions. First,
if the SEC, NASDAQ and the Underwriters have not signed off by the June 30th
deadline, AIR RESPONSE and AIR RESPONSE SOUTH WILL NO LONGER BE A PART OF THE
IPO AND THERE WILL BE NO MORE EXTENSIONS. AIR RESPONSE AND AIR RESPONSE SOUTH
WILL BE FREE OF ANY OBLIGATIONS IN ORDER TO PURSUE OTHER OPPORTUNITIES.
In consideration for this extension, Proflight will pledge all of its medical
and maintenance equipment, except for the medical equipment that has a lien on
it by Tom Cox on aircraft 25HA (see attached addendum for detail), to Air
Response and Air Response South, especially since the equipment of both
companies have been commingled. If the deadline is not met, the equipment will
be released to Air Response on July 1, 1998.
/s/ Louis Capece /s/ Kevin Burkhardt /s/ Steve Cantor
- ---------------- ------------------- ----------------
Louis Capece Kevin Burkhardt Steve Cantor
P.O. BOX 109 FORT PLAIN, NEW YORK 13339
P.O. BOX 149086 ORLANDO, FLORIDA 32914-9066
<PAGE>
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CONTINGENT EXTENSION AGREEMENT
THIS CONTINGENT EXTENSION AGREEMENT is made and entered into effective the
2nd day of June, 1998 by and between PROFLIGHT MEDICAL RESPONSE, INC., a
Colorado corporation formerly known as PROFLIGHT, INC., ('Proflight') whose
address is 7211 Peoria, Suite 200, Englewood Colorado 80112 and Lear Three,
L.L.C. (which is hereinafter referred to, together with each subsequent holder
of this note, as 'Holder') whose address is 7427 South Richfield Street,
Foxfield, Colorado 80016.
RECITALS:
1. On February 6, 1997, Proflight executed its Promissory Note in favor of
Holder in the amount of $150,000.00 calling for monthly payments due on the
fifth (5th) day of each month of interest only at the rate of three percent (3%)
per month payable at a rate equal to one dollar for each one thousand dollars
loaned to Proflight by Holder (the 'February 1997 Promissory Note'). The due
date for payment of all outstanding principal and accrued interest was first
extended to January 31, 1998 and later extended to May 31, 1998 or upon
Proflight's receipt of proceeds generated by the Initial Public Offering of
common stock in Proflight, whichever was earlier.
2. On November 17, 1997, Proflight executed its Promissory Note in favor of
Holder in the amount of $75,000.00 calling for monthly payments due on the fifth
(5th) day of each month of interest only at the rate of three percent (3%) per
month payable at a rate equal to one dollar for each one thousand dollars loaned
to Proflight by Holder (the 'November 1997 Promissory Note'). Payment of all
principal and accrued interest was originally due January 31, 1998 and later
extended to May 31, 1998 or upon Proflight's receipt of proceeds generated by
the Initial Public Offering of common stock in Proflight, whichever was earlier.
3. Subject to the terms and conditions stated below, the Parties have
determined it to be in their mutual best interests to extend the due dates for
repayment of the February 1997 Promissory Note and the November 1997 Promissory
Note from May 31, 1998 to June 30, 1998 or upon Proflight's receipt of proceeds
generated by the Initial Public Offering of common stock in Proflight, whichever
is earlier, subject to the contingencies hereinafter set forth.
NOW THEREFORE, in consideration of their mutual promises and covenants, the
sufficiency of which is hereby acknowledged, the Parties hereto agree as
follows:
The due dates for payment of the entire outstanding indebtedness evidenced
by the February 1997 Promissory Note and the November 1997 Promissory Note
including principal, accrued interest, filing and related fees shall be due and
are hereby extended to be payable on June 30, 1998 or upon the receipt of
proceeds
<PAGE>
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generated by the Initial Public Offering of common stock in Proflight,
whichever is earlier. In the event of default of the payment obligations under
this Contingent Extension Agreement, interest shall accrue at the default
interest rate of five percent (5%) per month effective June 1, 1998.
Notwithstanding anything herein to the contrary, the February 1997
Promissory Note and the November 1997 Promissory Note shall be due and payable
upon demand upon the happening of any of the following events:
1. The Federal Securities and Exchange Commission fails to approve the
issuance of the Initial Public Offering of Proflight; or
2. The underwriter fails to finalize the Underwriting Agreement to issue the
Initial Public Offering of Proflight within five (5) days of receipt of
notice of approval of the offering by the Securities and Exchange
Commission; or
3. The underwriter fails to assign an effective date for issuance of the
Initial Public Offering within five (5) days of receipt of notice of
approval of the offering by the Securities and Exchange Commission.
Dated this____day of June, 1998.
Proflight Medical Response, Inc. Lear Three, LLC
by: by:
-------------------------------- -------------------------
its: CFO its: Manager
------------------------------- -------------------------
<PAGE>
<PAGE>
[LETTERHEAD OF GRANT THORNTON]
We have issued our reports dated February 20, 1998 (except for note A. Item 6,
as to which the date is April 16, 1998; Note C; Note J, Items 4 and 5, as to
which the date is March 10, 1998; and Note J, Item 6, as to which the date is
April 20, 1998) accompanying the financial statements of Proflight Medical
Response, Inc. contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned reports in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts"; "Summary Historical and Pro Forma Financial Data" and "Selected
Financial Data."
GRANT THORNTON LLP
Denver, Colorado
June 11, 1998
<PAGE>
<PAGE>
[LETTERHEAD OF STAFF MAIKELS & CIAMPINO, P.C.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2,
Amendment No. 4, of our report dated March 24,1998 on our audit of the combined
financial statements of Air Response, Inc. and Air Response South, Inc. We also
consent to the reference to our firm under the caption "Experts."
June 12, 1998 /s/ Staff Maikels & Ciampino, P.C.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Pro Forma Balance Sheet and Statement of Operations for the three months
ended March 31, 1998, as adjusted to give effect to the proceeds of the
initial public offering and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,114,430
<SECURITIES> 0
<RECEIVABLES> 1,161,136
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,522,635
<PP&E> 7,490,692
<DEPRECIATION> (470,230)
<TOTAL-ASSETS> 15,613,981
<CURRENT-LIABILITIES> 2,971,266
<BONDS> 5,858,719
<COMMON> 3,383
0
0
<OTHER-SE> 9,290,806
<TOTAL-LIABILITY-AND-EQUITY> 15,613,981
<SALES> 0
<TOTAL-REVENUES> 2,921,839
<CGS> 0
<TOTAL-COSTS> 2,939,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,015
<INCOME-PRETAX> (199,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> (199,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,448)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<PAGE>
